How to fill Tbilisi's budget?

By Georgy Kalatozishvili, Tbilisi. Exclusively for Vestnik Kavkaza

Disputes between the ruling Georgian Dream coalition and the opposition United National Movement about Tbilisi Mayor David Narmania's idea to cover the city budget deficit with a loan worth 30 million laris ($17.44 million) continue.

Considering the total city budget of about 785 million lari, the sum is rather small. But what matters is the precedent: the Georgian central budget has never been filled with a commercial loan in the history of Georgia's independence.

There is nothing extraordinary about attracting private funds to the state budget, many democratic countries have been doing so for years. The initiative does not violate Georgian law in any way. But since the idea is unprecedented, the opposition, journalists and experts made a sensation and highlight the problem on different talk shows. The row provides grounds for a political call: supporters of Mikheil Saakashvili vehemently criticised Georgian Dream for undermining budget policy, inability to collect taxes and wasting a huge financial resource. "Resigning, we left them about $1.5 billion, and they got to a point where they take loans in banks," complained a UNM leader Mikhail Machavariani. In his words, "the authorities cannot fill the income part of the budget, they cannot collect taxes and they burned the candle at both ends to "fill the gaps" at the expense of future generations."

Members of the city council and the Georgian Dream accuse the old authorities of the mayor's office of mistakes in planning the budget and claim that the mistakes and "adventurism of the Tbilisi ex-mayor" were overt in the new government. Ex-Mayor Gigi Ugulava is in jail, awaiting sentencing for wasting about 50 million laris of the city budget.

Independent experts say that both sides are lying: the deficit of the Tbilisi budget was a result of confrontation between the central and the municipal authorities. When Tbilisi was headed by Gigi Ugulava and billionaire Bidzina Ivanishvili's Georgian Dream came to power, the government took property tax like VAT. It was an understandable decision: the first tax was municipal, the second one filled the central budget so that the old ruling team would not get hold of the income and use it for its struggle with the central government of Georgian Dream and get vengeance for the municipal elections of June 2014.

The attempt at revenge failed, but the new authorities of the mayor's office had to fill gaps in the budget. New Mayor David Narmania has only asked for a loan if one is needed and the parliamentary majority gave its approval, despite protests from the opposition. "We will get a loan, if the budget deficit becomes an overwhelming problem. Preference will be given to commercial banks offering the best interest rate at a special inter-bank contest."

Banks will be glad to grant a commercial loan to the mayor's office, knowing that it will be paid off in just a few months, right after approval of the budget for 2015. A bank would get nice guaranteed income.
Narmania assures that he plans to spend the loan on capital construction: reconstruction of city communications, sewers, construction of an Olympic Village for the 2015 Youth Olympics. The opposition still does not give up. According to its information, a loan is needed to cover social debts, including financing of nurseries and healthcare programs.

In the final analysis of political discussions and mutual accusations lies the precedent of a state loan granted by a commercial bank to cover the budget deficit. What can this precedent mean in Georgian conditions? Wise and rational short-term domestic investments to solve outstanding problems or to finance irresponsibility, increase the government debt, aggravation of inflation and an exacerbating economic crisis?