Georgia’s foreign debts show signs of growth
By M. Alkhazashvili

The Messenger, Georgia
March 11 2005

In 2005 Georgia will again receive credits from the World Bank, from
the government of Germany and from the Japanese Development Bank. As
a result of this Georgia’s foreign debt will increase by USD 487
million and by the end of the year it will total USD 2.335 billion.
Georgia currently has debts to large financing institutions as well
as 15 states, and debt repayment remains a serious outlay for the
country.

According to Finance Ministry data, as reported in the newspaper 24
Saati, Georgia’s foreign debt by the end of 2004 was USD 1.857
billion. Of this, USD 1.68 billion is owed to international
organizations such as the World Bank, European alliances, the
International Agricultural Development Fund and the International
Monetary Fund. The biggest creditor is the World Bank with USD 677.61
million. The total debt to foreign governments totals USD 693.22
million, of which more than USD 157 million is owed to Turkmenistan.

Servicing debts is a major problem for the Georgian budget, while
repaying them is even more so. In recent years despite the chronic
budget deficit, fulfilling debt obligations remained a top priority.
In 2004 Georgia allotted approximately GEL 199 million to cover
foreign debts, GEL 150.441 million of which was allotted for
repayment and GEL 48.502 million to pay off interest.

This year GEL 217.38 million has been allotted for servicing foreign
debts (GEL 119.053 million – principal and GEL 43.85 million –
interest). The Finance Ministry hopes that if the revenues planned
from privatization are doubled, an additional GEL 39 million will be
allotted for foreign debts servicing.

The biggest debt that Georgia had was to Turkmenistan – approximately
USD 400 million. Turkmenistan did not permit the re-organization of
this debt, but did allow Georgia to repay in the form of goods and
services. This process began in 1998 and the debt now stands at USD
157 million. It was recently announced that Georgia is holding
negotiations with Russia, Armenia, and Kazakhstan regarding debt
repayment in a similar manner.

The newspaper 24 Saati speaks to economist Niko Orvelashvili who says
much of the money credited to Georgia was actually spent outside the
country. “Foreign assistance morally ruined society and especially
the ruling elite,” he said. “80 percent of this so-called ‘aid’ did
not even get to Georgia and was spent in the form of salaries,
honoraria, etc. Why it was called ‘aid’ I do not understand,”
Orvelashvili continued.

Given this, questions must be asked regarding the nearly USD 500
million in credits to be received this year. The representatives of
the post-Rose Revolution government state that this money will be
spent well and will be used to finance new investment projects that
occur in the country. If this happens, and the economy develops as a
result, the credits will be in Georgia’s interest; although even if
this is the case, future budget expenditure on debt servicing will
necessarily increase as a result of the loans.