Mozambique by dffhrtcv3

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									Economic Reforms – Raising Regional
         Competitiveness
          Case of Georgia


                  By Aleksi Aleksishvili
                Georgia in International Ratings
•   Georgia is among the top 10
    reformers in the world during
    three consecutive years

•   Georgia started with 110 rating in
    2004 and achieved 18th rank in
    2007

•   Georgia’s in TI’s Corruption
    Perception index raised from 1.8 in
    2003 to 3.4 in 2007.

•   No sovereign rating in 2004. in
    2007: BB-/Stable - assigned by
    Fitch, B+/Positive – S&P’s

•   Budget arrears reached 70% of the
    state budget in 2003 and External
    debt stood at 42% of GDP in 2003

•   No arrears in 2007 and external
    debt reduced at 16% of GDP
             High and Sustainable Growth Rates

•   Average Growth Rate (last 3
    years) – 11.1 percent*
                                              GDP and GDP per capita Growth Rates, 2004-2010*

•   GDP growth rate totaled 12                              GDP growth rate, %      GDP per capita, USD

    percent in the first half of 2007    16                                                                   4000
    and it is expected to reach 14.5
    percent by the end of the year       14                                                                   3500

                                         12                                                                   3000
•   Contribution from exports            10                                                                   2500
    nearly doubled over the last 5




                                                                                                                  USD
    years
                                     %




                                         8                                                                    2000

                                         6                                                                    1500
•   Increasing Labor Productivity,       4                                                                    1000
    as well as high inflows of FDI
    were the major driving forces of     2                                                                    500
    growth
                                         0                                                                    0
                                              2004   2005       2006      2007*   2008*     2009*     2010*
                  Foreign Direct Investments
•   FDI sharply increased from 2004 and reached
    $1,2 bln in 2006
                                                                FDI Inflows, 2000-2007*, mln.USD

•   Denmark, Netherlands and Czech Republic
                                                      2500
    became the top investors by investing $88
    mln, $75mln and $74mln, respectively, in the
    first six months of 2007                          2000


•   The largest investors in 2006 were: UK ($182
    million), USA ($181.9 million), Kazakhstan        1500

    ($152 million), Turkey ($127 million), Norway
    ($76.6 million)
                                                      1000

•   Proceeds from privatization in the first nine
    months of 2007 totaled $253 million                500


•   It is expected that FDI inflows will reach $2.5      0
    billion, or 20% of GDP in 2007                           2000 2001 2002 2003 2004 2005 2006 2007*
                           Financial Sector
•The banking sector is one of the
most dynamic sectors of the                         Total Assets and Loans to GDP, 1996-2006
economy (average growth in assets
                                                       Total Assets/GDP      Total Loans/GDP
was 34% during the last decade)
                                     35.0%

•The financial sector is dominated 30.0%
by banks (more than 95%). There are
                                    25.0%
19 commercial banks in Georgia
                                     20.0%
•More than 50% of total banking
                                     15.0%
sector capital is owned by foreign
and international organizations      10.0%

•11 banks with foreign capital       5.0%
participation control 76% of total
                                     0.0%
assets                                       1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
   Foreign Entrants into the Georgian
            Banking Market


                                                 VTB




1998   1999   2000   2001   2002   2003   2004   2005   2006   2007




                                                               AzDB
    How Did We Get There - Building Free,
           Competitive Economy
•   Property rights
•   Liberal Fiscal and Trade Regimes
•   Improved budget policy
•   Structural Reforms
•   Price liberalization
•   Privatization
•   Legal Framework
•   Fighting corruption
                                    Taxation
 In spite of easing the tax burden, the ratio of tax rrevenues
  to GDP increased from 13% in 2003 to 23% in 2006. This
  ratio reaches 25% in 2007.
                     Tax Policy

• Enacted in 2005 new Tax Code reduced the
  number of taxes from 22 to 7
  – Personal Income Tax – 20 12 % (25 % - from January
    2008)
  – Social Tax – 32 20 % (0 from January 2008)
  – Profit Tax – 20 percent (15 from January 2008)
  – VAT – 20 18 percent
  – Customs Duty – 0 – 30% 0, 5 and 12 percent
  – Excise Tax – varies depending on type of goods
  – Property Tax – defined by local governments
         Comparison of Major Taxes in the Region
                                                                                   Taxes for Ind.
                                  Tax on      Joint Profit tax for     Tax on
Country      Years   Profit Tax                                                           entrepreneur
                                  Dividends          companies         Wages
                                                                                   /Taxable Income
             2007      20%           10%             28%              26.67%                29.6%
Georgia
             2008      15%           10%             23.5%             25%                  25.0%

Azerbaijan   2007
                       22%           10%             30%             28.3-45.8%           28.3-45.8%
Armenia      2007      20%            5%             24%               38.9%                 38.9%


                                                                      14.7-17.6-
Russia       2007      24%            9%              31%             20.9-23.7-      14.7-16-19.4-20.9%
                                                                     27.5-30.9%



Turkey       2007      20%           10%              28%             20-45%
Latvia       2007      15%           10%              23.5%            43.6%                  31.2%

Lithuania    2007      15%           15%              28%              36.7%                   36.7%
             2007       0%          28.21%            28%              41.4%                   41.4%
Estonia      2008       0%          26.58%             26.5%           40.6%                   40.6%
             2009       0%          25.00%             25%             39.8%                   39.8%
                                       Trade Policy
• No protection of internal market
by import duties
 One of the most liberal import       100%       4%        6%
duty systems in the world, with an                          8%
average weighted import duty of        90%
                                                  15%
1.5%
                                       80%
                                                            26%
 90% of all imports have 0% duty      70%        30%             USA
                                                                  Russia
 Equal VAT and excise tax on          60%
                                                                  EU
imported and local goods               50%                  32%
                                                                  Rest of CIS

                                                  23%             Turkey
 No export duties                     40%
                                                                  Others

                                       30%
                                                            13%
Trade is oriented to the markets of   20%
                                                  14%

developed countries and it has
become more diversified                10%        14%       16%



•Over the last decade exports grew      0%
                                              Import    Export
on average by 21%; Last 3 years -
by 27 %.
Simplified Licensing and Permitting Procedures
• New Law on Licenses and permits may be required only for:
   – Safety and health protection
   – Protection of state and public interests

• Total number of licenses and permits was reduced by 86%, in
  reforms that eliminated 756 licenses and permits and
  streamlined procedures

• 30 days are necessary for issuing licenses and 20 days for
  issuing permits

• "Silence is consent"
        World’s Leader in Labor Freedom
• The Labor Freedom factor
  covers: minimum wages,
  laws inhibiting layoffs,                                           Labor Freedom
  severance requirements,
  and measurable regulatory                100
  burdens on hiring, hours                  90
  etc.                                      80
                                            70




                              percent, %
                                            60
• Georgia simultaneously                    50
  offers:                                   40
                                            30

    Educated workforce                     20
                                            10
                                             0
    Very competitive                                      Armenia




                                                                                                   Moldova
                                                 Georgia



                                                                      Bulgaria

                                                                                 Russia

                                                                                          Latvia




                                                                                                                                   Estonia
                                                                                                             Lithuania

                                                                                                                         Ukraine
     prevailing wage rates
                  Budget Policy
• Introduction of the Medium Term Expenditure
  Framework (MTEF)
  – Better macroeconomic analysis
  – Allocation of resources according to priorities
• Basic Data and Directions (BDD)
  – Defines the balance between current and capital
    expenditures in the medium term in order to
    ensure sustainable growth
  – Defines the size of government and allocations to
    government (25% range)
                             Structural Reforms
Two pillars of Georgia’s economic policy:

•   Minimum state intervention
•   Promotion of private initiative                                    Proceeds from Privatization

Privatization                                             450                                              430
• large scale privatization in all fields                 400
                                                                                                     346
                                                          350
Energy sector
                                                          300

                                            USD Million
• Result – guaranteed access to energy                                                       228
   (electricity, natural gas etc)                         250
                                                                                                                 180
                                                          200
Deregulation &Liberalization (transport)                  150
• Open Sky principle                                      100                           38
• Easing licensing and permitting                         50     12    6     7   14
   requirements
                                                           0
• Regional integration                                          2000 2001 2002 2003 2004 2005 2006 2007* 2008*
                 Corruption-free Environment
                                                          Bribe Tax (bribes as a share of annual sales)



• As a result of a reform, public sector was
  reduced by 40 percent. Political will of the
  Georgian government is the driving force
  in achieving the dramatic decline of
  corruption

• Georgia now satisfies the Millennium
  Challenge Corporation's indicator
  regarding "Control of Corruption" and          Bribe Frequency (% of firms saying unofficial payments are
                                                                          frequent)
  scores above its peer group

• The percentage of firms that
  identified corruption as a significant
  obstacle fell from 60% to 25% from
  2002 to 2006
             Looking Ahead…
              (2007-2011 horizon)

• Real GDP growth of 7-10% (14.5% expected in
  2007
• GDP per capita from 2,325USD in 2007 to
  4,400USD in 2011
• Competitive economy
• Low inflation (less than 6%)
• Reduction of unemployment to 11%

								
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