2016-11-29
Good Afternoon!
First Executive Government Meeting since the endorsement of the new composition of the Government of Georgia is held today. I welcome the Cabinet Members, who are united around the common goal, which is Rapid Development of Georgia and Ensured Prosperity of Our Population.
Let me elaborate further on the topic.
Our Government Program covers specific short, medium to long-term measures towards the Four Point Plan that we developed. Systemic and rational implementation of the Plan will offer completely new opportunities, resulting in rapid and irreversible development of the country. You may well be aware that from the second half of 2014 economic growth rate has been declining significantly in the region and some countries - also within the region - even experienced recession.
In the opinion of International Financial Institutions (IFIs), no major alteration of circumstances are expected in the coming years. Respectively, quite low growth rate will be retained in the region. Considering all the aforementioned, it will be impossible to have a high economic growth rate in our country without radical changes, which is so essential for the employment and increased income of individuals.
We have already made the most important decision to accelerate the economic growth rate and Corporate Income Tax (CIT) reform will thus be enforced from January 2017. It will enable the private sector to reinvest their profit in their business and create new jobs instead of paying taxes on profit to the State Budget.
Over 0.5 BLN GEL will remain in the economy through reinvestments solely through abolishing the profit tax. Throughout the next 4 years - if we judge by 2017 - at least additional 2 BLN GEL will be reinvested in businesses to create at least 40 thousand new jobs.
We plan to advance the economy to a higher level through the accelerated economic growth to efficiently carry out infrastructure projects.
We have planned to implement infrastructure projects worth of over 14 BLN GEL in 2017-2020 and this is from the State Budget only, out of which over 8 BLN GEL will be used for the rehabilitation of road infrastructure. It will enable us to improve our transit potential and turn the country into a significant component of the Silk Road. On its own merits it will be translated into additional and increased revenues to the economy of the country.
It is very important to construct the key highway network of the country in the shortest timeframe.
In line with the presented Reform Plan, construction of at least 800 km new roads has been envisaged in the next 4 years.
Additional 50 000 jobs will be created with a 1000 GEL/month remuneration only through the accelerated infrastructure projects.
According to our strategy, inflow of tourists should reach 8 million individuals by 2020, which will double the actual proceeds in the sector of tourism.
We will attract over 8 BLN GEL from donor agencies to implement these projects, though we need to mobilize certain funds in the State Budget ourselves. Apart from the reforms designed to generate additional income, we plan to reduce the budget expenditures.
We have intensively worked to reduce the payroll in the majority of organizations funded from the State Budget by 10% and administrative cost has also been shrunk by 10%.
Draft Budget presented to the Executive Government Meeting today includes many novelties.
All those projects that we have spoken about and that are envisaged in our Reform Plan have been incorporated in it.
Increased funding towards the line items deemed by us in the Government as priority areas are considered in the Draft State Budget of 2017.
About 200 MLN GEL have been earmarked in addition for the increased funding of healthcare and social security.
Education and science will get funding increased to 150 MLN GEL, which will be used for the development of vocational training and increased remuneration of teachers in line with the professional growth scheme, along with other measures envisaged in the reform.
Additional 300 MLN GEL have been earmarked for the Ministry of Regional Development and Infrastructure in the Draft State Budget of Georgia and total funding for the line ministry will amount 1.3 BLN GEL. This is a conservative planning for the infrastructure sector, though as we anticipate much more and even record-high resource mobilization.
Draft State Budget for 2017 envisages a number of adjustments to mobilize additional revenues, which may be painful for a certain segment of the society, though we need to understand that every change that we plan to carry out serves to the common goal, which is rapid economic growth and it will be directly translated into the employment and welfare of individual households. Every country, which has witnessed rapid and healthy development, has been through this process.
Let me focus on several topics here.
Excise on tobacco will be increased from January 1, 2017. You may well be aware that price per pack of cigarettes in Georgia is among the lowest in the world. We believe that national policy towards tobacco should be altered and increased excise will be first evidence of this intention. At the same time, we plan to intensively enforce the control over smoking at public places.
Excise will increase on the imported vehicles. Though, we need to mention here that it will be several times lower, compared to the tax rate in the countries of the region. Increased excise will also apply to oil products. You may agree that consumption of this commodity increases with the higher number of vehicles, which makes a negative impact on the environment and complicates traffic and mobility in large cities, deteriorates the health condition of people and especially children. Decisions made by us will improve the vehicle pool in the country to comply with modern standards and will mitigate the hazards. Significant steps have been taken in Georgia towards this end: excise on the import of hybrid cars has been halved and now it will be reduced by 60%, while import of electric cars is tax-free altogether.
At the same time, number of cars and respectively consumption and import of oil products are increasing year on year instead of being reduced. In 2015 oil and lubricants were imported to Georgia in the total value of almost 1.2 BLN USD. Anticipated changes will by all means affect the import volumes, which will ultimately have a positive impact on the stability of the national currency, which is one of the major concerns of our Government.
Fee on gambling business is going to increase also.
Implementation of the planned novelties will ensure the mobilization of additional resources to the State Budget, which will be used for the vital infrastructure projects, construction of new highways, strengthening of the transit potential of the country, extension of healthcare and social projects.
I need to note that the anticipated changes have been shared by the IFIs and after their implementation we shall be able to attract several billion dollars in addition from international funds. Said measures will play a significant role in strengthening the national currency.
Nevertheless, we plan other measures for the stability of GEL, which are believed to result in tangible outcomes.
Government has come up with a so called Larization Plan together with the National Bank of Georgia, which elaborated on medium to long-term steps in detail.
Access to long-term resources denominated in GEL is a corner stone of the reform. The plan includes a one-off social measure, according to which individual borrowers will be able to transform their foreign currency denominated loans that are secured with a real estate to the national currency with 20 percentage points lower interest rates. Exposure of individual borrowers per bank in the volume of below 100 000 GEL at the moment of the announcement of the Government Resolution will be subsidized and if the exchange rate is 2.50 GEL/1 USD, the amount will be converted to the national currency with a rate of 2.30 GEL/1 USD. Advance loan repayment fee will be waived on such loans. Banks will be required to notify all the affected clients within 10 days from the decision. It will substantially reduce the pressure on the exchange rate of the national currency. Individuals, who used to buy foreign currency for their debt service, will no longer have to buy 400 MLN USD as a result of this measure. The plan also implies a novelty towards small loans below 100 000 GEL to be issued by banks from January 1, 2017 and below 200 000 GEL from the following year. They will be denominated only in the national currency. Government will thus be supporting all the affected borrowers as a one-off measure. At the same time, commodity prices will need to be quoted in GEL. Draft Law on Advertising will be developed, according to which price quotes on any and all goods and services will become compulsory in GEL. It does not exclude the price quotes in other currencies. For instance, a developer will quote prices on units in residential blocks in GEL and - if so desires - may also indicate the equivalent in any other currency. Respectively, dependence of our citizens and economy of our country will be reduced on foreign currency - USD - and currency fluctuations will have a minor impact on the financial position of individuals and our population will be able to more effectively manage their current expenditures.
I wish to announce one more novelty. Set of legislative amendments on Consumer Rights Protection is being drafted together with the National Bank of Georgia (NBG), according to which, pay-day loans will be prohibited, which is a response to the plea of our population.
All these measures have been made - as noted already - to ensure the rapid economic development, which in some cases result in immediate, short and in certain cases medium to long-term impact.
H.E. Dimitry Kumsishvili, First Deputy Prime Minister and Minister of Finance of Georgia will hold a briefing to elaborate on the initiative in fine detail. I am confident that all these novelties will be well accepted by our society, as all of them serve to the rapid economic development of our country and respective measures have been taken by the Government to streamline its expenditures.
Thank you.