Economy Resumes Growth - FT Live Georgia.pdf · • Reviving real sector –car sales up, real...

Economy Resumes Growth:Economy Resumes Growth: Fundamentals and ContributorsFundamentals and Contributors

October 2010

www.georgia.gov.ge

August 2010www.georgia.gov.ge

Country OverviewArea: 69,700 sq km

Population (2010): 4.4 mln

Life expectancy: 74 years

Official language: Georgian

Literacy: 100%

Capital: Tbilisi

Currency (code): Lari (GEL)

GDP 2010 (estimate): US$11.0 bln

GDP real growth rate 2010 (e): 5.5%

GDP CAGR ‘03‐’09 5.8%

GDP per capita 2010 (PPP): US$5,057

Inflation rate (e‐o‐p) 2010: 8.0%

External Public debt to GDP 2010: 37.2%

2003 2009

Nominal GDP (mln GEL) 8,564 17,948GDP per capita (GEL) 1,972 4,093Total budget revenues (mln GEL) 1,368 5,265

Georgian Economy Overview 1

Standard & Poor's Ratings Services raised its long-term foreign and local currency sovereign credit ratings on Georgia to 'B+' from 'B‘ in April, 2010

Standard & Poor's Ratings Services raised its long-term foreign and local currency sovereign credit ratings on Georgia to 'B+' from 'B‘ in April, 2010

“The upgrade reflects the country’s improving economic structure and growth prospects, which are in turn expected to bolster fiscal flexibility” (S&P)


Economy grew 1H’10 by remarkable 6.6%, and annual growth is confidently within 5‐6% range

Sources of growth of economy and confidence• Export growth 9m ’10 – up by 41% yoy, including agriculture exports up app.50%• Record high electricity export to all neighbors• Visitors including tourists 9m’10 ‐

up by 33% yoy

• IFI project under implementation, in particular in enabling spinal infrastructure• Record high deposits, increasing loan books and decreasing NPLs• FDI returning making in 1H’10 –

283 mln. USD

• Reviving real sector – car sales up, real estate registrations up• Deficit declining faster than initially planned• Remarkable performance by Eurobond, yield below 6%• Fist time Moody’s rating made public on 06.10.10 –

Ba3/Outlook Stable


Economy Resumes Growth: Fundamentals and Contributors


Reform Driven Economic Success

3

GDP

Components of Nominal GDP (2009)

Source: National Statistics Office of Georgia‐GeoStat

Source: National Statistics Office of Georgia‐GeoStat, Ministry of Finance of Georgia

Nominal GDP Per Capita

Source: National Statistics Office of Georgia‐GeoStat , Central Bank of Georgia

GDP Per Capita (PPP)

Source: International Monetary Fund

Georgian Economy Overview

August 2010

Fiscal and Monetary Performance

4

Budget Revenue Performance

Conventional Deficit (Cash Basis)

Source: Ministry of Finance of Georgia

Source: Ministry of Finance of Georgia

Exchange Rate Evolution

Consumer Price Index (y‐o‐y)


Source: Central Bank of Georgia

Georgian Economy Overviewwww.georgia.gov.ge

Fiscal Stimulus

August 2010

Current Account Deficit

5

CAGR (‘04‐’09): 16% CAGR (‘04‐’09): 14%

**Export & import of goods and services Source: Central Bank of Georgia


Export and Imports**

Current Account Deficit


, Minister of Finance of Georgia

August 2010

Banking Sector Resilient


Total Bank Deposits and Loans Capital Adequacy Ratio (CAR)


www.georgia.gov.ge


Georgia’s banking sector represents only a moderate contingent liability of the sovereign

Entirely privately owned since 1995

No restrictions on foreign ownership of banks

Well capitalised with average BIS capital adequacy ratio of 18%

World’s Top Ten Saving Nations: 2003‐2009Comments

Source: Euromonitor International

August 2010

Favourable Public Debt Performance

7

Source: Ministry of Finance

of Georgia* Excluding CBG’s IMF debt and performing GoG guaranteed loans

Government External Debt Service*

Breakdown of Public Debt

Comments

Public debt enjoys low 2.1% average annual interest rate including Eurobond

Georgia’s public debt was 46.3% of GDP in 2010 down from 58% in 2003

Paris Club rescheduling in 2001 and 2004

Georgia repaid all debt to China in 2006 and pre-paid all debt to Austria

The external debt is all multilateral or bilateral and significant share is highly concessional

Eurobonds debut issuance of US$500 mln in April 2008

This explains why the government debt service burden is low

Source: Ministry of Finance

of Georgia


Georgia’s Eurobond



Reasons/Fundamentals

•IFI inflows•Reforms•Diversification



August 2010

• 2010 aid processing pipeline

for the rest of 2010

is robust and totals up to circa USD 1.2 billion, of which 1 billion USD disbursed by May 2010

(24% of the

total EC pledge, circa 9.4% of forecasted 2010 GDP)

• Therefore, by end of FY 2010, cumulative processed donor commitment to Georgia under the Brussels pledge will total circa USD 4.2 billion (i.e. more that

90% of the total pledged amount). By end of H1 2011, cumulative processed donor commitment to Georgia under the Brussels pledge will reach circa 100% of

the total pledged amount (US$4.5 billion), with possibility of further upward adjustment.

Donor US$ million

USA 1,000

EBRD 927

EC 638

World Bank 530

IFC 350

European Investment Bank 330

Asian Development Bank 300

Japan 200

EU members 174

Other states 88

Total 4,535

IFIs’

Pledges of US$4.5 billionAid by donors Aid by sectors


Sector US$ million

Finance and banking 1,105

Transport infrastructure 682

Non‐

sectoral support 586

Energy infrastructure 381

Urban and municipal infrastructure 210

Other 1,571

Total 4,535

Source: World Bank, European Commission Source: World Bank, European Commission

www.georgia.gov.ge

Examples of Infrastructure Projects: • 500 kv. Power Transmission Line (EBRD, EIB, KfW) • South Georgia Road (MCG)• East‐West Highway Improvement Project (WB, JICA) • Secondary and Local Roads (WB)• Adjara Bypass Road (ADB) • Rehabilitation of Communal Infrastructure Facilities in Batumi (KfW)• Vaziani‐Gombori‐Telavi Road (WB) • Regional and Municipal Infrastructure Development Projects (ADB,

WB, EBRD)

August 2010





August 2010

Reforming Georgia: What We Believe In


Limited and efficient government

• smart regulation on all stage of business operations, from starting to closing

minimized and simplified licensing

privatization

Minimal state fiscal footprint

• few, low and flat taxes• minimal social security burden on businesses

Free trade, no customs tariffs or non‐tariff barriers

Flexible labor market, with minimal state interference in employer‐employee

relations

Lean and efficient civil service sector

• least corrupt country in the wider‐reigion• world‐class services

www.georgia.gov.ge


One Of The Best Low‐Tax Jurisdictions


‘04A ‘05A ‘06A ‘07A ’08A ‘09A ’10A ‘11F ‘12F ‘13F

Number of

Taxes

21 7 7 7 6 6 6 6 6 6

VAT 20% 20% 18% 18% 18% 18% 18% 18% 18% 18%

Income Tax12‐

20%

12%

flat

12%

flat

12%

flat

Social Tax +

Income Tax

32% 25%

Social Tax +

Income Tax

20%20% 20% 18% 15%

Social Tax 33% 20% 20% 20% ‐ ‐ ‐ ‐ ‐ ‐

Corporate

Profit Tax

20% 20% 20% 20% 15% 15% 15% 15% 15% 15%

Dividend

& Interest

Income Tax10% 10% 10% 10% 10% 5% 5% 5% 3% 0%

No payroll tax or social insurance tax

No capital gains tax

No wealth tax, inheritance tax or stamp duty

Foreign‐source income of individuals fully exempted

Tax rates reduction timetable has been further accelerated in 2008

August 2010www.georgia.gov.ge Georgian Economy Overview 13

One of the Best Performer by Forbes Tax Misery & Reform Index

Source: Forbes Business & Financial News

According to 2009 Tax Misery & Reform Index, release by Forbes Business & Financial News, Georgia is the fourth least tax burden country after Qatar, UAE and Hong Kong

Since 1 January 2009, income tax declined to 20% from 25%


Reforms – Creation of Favourable Market Environment


Ease of Doing Business, 2010 Economic Freedom Index, 2010

Source: World Bank, 2010 (Rank out of 183 countries) Source: The Heritage Foundation , 2010 (Rank out of 183 countries)

(up from 112 in 2005) (up from 99 in 2005)

Global Corruption Barometer, 2009 (EU+ & Georgia)

Source: Transparency International, 2009 (Rank out of 69 countries)

Bertelsmann Transformation Index, 2010

Source: Bertelsmann Stiftung, 2010 (Rank out of 125 countries)

August 2010Georgian Economy Overview 16

Major Diversified Investment InflowsNet Cumulative FDI Breakdown by Origin (‘04‐’09)


Source: Central Bank of Georgia, International Monetary Fund


Cumulative Net FDI

Net Inflows

Net FDI Breakdown by Sectors (2009)

www.georgia.gov.ge


Country US$ mln Share in total

UAE 696 10.9%UK 678 10.7%Netherlands 597 9.4%Turkey 581 9.1%USA 445 7.0%British Virgin Islands 414 6.5%Kazakhstan 310 4.9%Czech Republic 294 4.6%Cyprus 259 4.1%Bahamas 214 3.4%Subtotal 4,488 70.6%Other 1,872 29.4%Total 6,360 100.0%

August 2010Georgian Economy Overview 17

Diversified Trade StructureWTO member since 2000

Simplified customs regime since August 2006, new customs code became effective in 2007 and was upgraded in 2009

No quantitative restrictions on trade

Zero tariff on the majority of goods

One of the two beneficiaries of the EU GSP+ Scheme in the CIS since 2006, granting local companies the right to export 7,200 categories of goods duty‐free

Share of EU in exports up to 21% from 17% in 2003

Georgia Turkey FTA was signed in 2008

Promising deep & comprehensive FTA with the EU

Export Structure* by Country, 2009 Import Structure* by Country, 2009

Export Structure* by Product, 2009 Import Structure* by Product, 2009

Source: National Statistics Office of Georgia‐GeoStat Source: National Statistics Office of Georgia‐GeoStat

Source: National Statistics Office of Georgia‐GeoStat* Export & import of goods only


www.georgia.gov.ge

EU ‐

21%CIS ‐

37%EU ‐

30%CIS ‐

29%


• Georgia has bilateral treaties on investment promotion and protection with the

following 32 countries


Bilateral Treaties

• Negotiations launched to conclude bilateral treaties with the following 24 countries

• Georgia has concluded double taxation treaties with the following 33 countries

• Georgia launched to conclude double taxation treaties with the following 6 countries 1. UAE 3. Cyprus 5. Qatar

2. Bahrain 4. Hungary 6. Slovenia

1. Armenia 7. Czech Rep. 13. Greece 19. Kuwait 25. Sweden 31. Uzbekistan 2. Austria 8. Egypt 14. Iran 20. Latvia 26. Turkey 32. USA3. Azerbaijan 9. Estonia 15. Israel 21. Lithuania 27. Turkmenistan 4. Belgium 10. Finland 16. Italy 22. Moldova 28. Luxemburg 5. Bulgaria 11. France 17. Kazakhstan 23. Netherlands 29. UK6. China 12. Germany 18. Kyrgyzstan 24. Romania 30. Ukraine

1. Bangladesh 6. Denmark 11. Korea 16. Portugal 21. Switzerland2. Belarus 7. Iceland 12. Lebanon 17. Saudis Arabia 22. Syria3. Bosnia & Herz. 8. India 13. Malta 18. Slovakia 23. Tajikistan4. Croatia 9. Indonesia 14. Norway 19. Slovenia 24. Qatar5. Cyprus 10. Jordan 15. Philippines 20. Spain

1. Armenia 7. Czech 13. Greece 19. Lithuania 25. Ukraine 31. Israel 2. Austria 8. Denmark 14. Iran 20. Netherlands 26. UK 32. Spain3. Azerbaijan 9. Estonia 15. Italy 21. Poland 27. Uzbekistan 33. Egypt4. Belgium 10. Finland 16. Japan 22. Romania 28. Kuwait5. Bulgaria 11. France 17. Kazakhstan 23. Switzerland 29. Malta6. China 12. Germany 18. Latvia 24. Turkmenistan 30. Singapore


Secured Energy Supply• 10 year gas supply contract with

Azerbaijan• 20 year gas supply contract with

Shah Deniz• Transit role for oil & gas –

pipelines

and railway– On avg. 6‐8 mln and 55 mln tons

crude oil p.a. by railway and via

pipelines, respectively

• Circa 1.6% of world oil production– On avg. 8 bcm gas p.a. via pipelines


• The only country in the region (which doesn’t have

its own gas resource) that was not effected by gas

crises in January 2009

• NABUCCO/White Stream Project• NABUCCO financing secured already by 50% through

EU, EIB, EBRD, and IFC funding

• Georgia/Romania/Azerbaijan MoU for

transportation from Caspian via Black Sea to Europe

of LNG – AGRI Project

White Stream White Stream (proposed)(proposed)


Huge Opportunity in Hydro Energy


• Net electricity exporter• Construction of 500 kv. power

transmission line to Turkey• Construction of 100 kv. power

transmission line to Turkey• Construction of 78MW Paravani

HPP• Construction of 38 MW Mtkvari

HPP

• Huge untapped hydro resources• Only 18% of the country’s hydro potential has been utilised• Huge, rapidly growing consumption rate and high tariffs on the Turkish

electricity market


•• The Liberty ActThe Liberty Act

will contain a coherent package of bold measures to constitutionally enshrine

our basic policies, reassuring investors that no

policy reversal or policy drift is possible• Returning to citizens to the power to tax – no new taxes or tax rate

increases without a nationwide referendum• Fiscal responsibility

– Government expenditure capped at 30% of GDP– Budget deficit capped at 3% of GDP– Government debt capped at 60% of GDP– No budget earmarks

However, in the recession govt

is vested power to adopt more flexible parameters

with the obligation later to balance them in 5 years term below the relevant caps


The Liberty Act


Contacts


Nika

GilauriPrime Minister of Georgia

+995 32 922 [email protected]

Vakhtang

Lejava

Chief Advisor to the Prime Minister+995 32 921 [email protected]

Tamara KovziridzeChief Advisor to the Prime Minister+995 32 921 [email protected]

Economy Resumes Growth - FT Live Georgia.pdf · • Reviving real sector –car sales up, real...

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