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Government of Georgia

Basic Data and Directions for 2007-2010

Tbilisi

2006

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Table of Contents

Medium-Term Action Strategy of the Government of Georgia (2007-2010)...………4Outcome of the Reforms for 2007-2010………………………. ……………..…….4Guiding Principles for Reforms of the Government of Georgia …………….……….5

1. Macroeconomics………………………………………………………………….6

1.1 Macroeconomic Policy Objectives……………………………………………….61.2 Macroeconomic Overview and Forecast…………………………………………61.3 Fiscal Policy……………………………………………………………………..13

2. Budget Revenues………………………………………………………………..17

2.1 Revenue Analysis……………………………………………………………….172.2 Revenue Forecast………………………………………………………………..19.3. Budget Expenditures……………………………………………………………20

3.1 Brief Overview of 2005 Budget Execution……………………………………..203.2 Expenditures according to economic classification………………...…………...21

4. Deficit……………………………………………………………………………225. Public Debt Strategy……………………………………………………………..23

5.1 Domestic Debt Sustainability and Strategy……………………………………...245.2 Foreign Debt Sustainability and Strategy………………………………………..24

6. Main Sector Aims and Objectives……………………………………………….25

6.1 Public Policy …………………………………..256.2 State Administration and Regulation…………………………………………….266.3 Economy and Development…………………………………………………… 276.4 Public Sphere…………………………………………………………………….28

7. Priority directions defined by the ministries in order to achieve the Georgian Government aims and objectives in 2007-2010……………………….29

Annex 1 Medium-Term Expenditure Framework (MTEF)………….Annex 2 Main Macroeconomic Indicators (Tables)…………………Annex 3 Medium-Term Action Plan matrixes for the ministries……

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The Medium-Term Action Strategy is an elaboration of the programme of the Government of Georgia “For Unified and Strong Georgia”, which was approved in 2004, as well as a further specification of the priorities, taken into consideration the progress already achieved and the new challenges.

The following documents, which reflect the State Policy, are part of the Strategy: National Security Concept, NATO Individual Partnership Action Plan (IPAP), Anti-corruption Strategy of Georgia, Government of Georgia Anti-corruption Action Plan, etc.

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Medium-Term Strategy of Government of Georgia (2007-2010)

Georgia is historically capable to build a liberal, unified, democratic, prosperous and equitable state. The new state of Georgia – part of the modern developed mankind – will be the state for a person, the state based on the freedom in human development and activity.

The new state of Georgia is:

- Free Georgia, with adequate defence;- Unified Georgia, for all its citizens;- Democratic Georgia, with transparent public institutions, developed civil society

and freedom of speech;- Equitable Georgia, with independent and impartial judicial system;- Prosperous Georgia, with protected private ownership and economic freedom;

To achieve these goals, the priorities of the Government of Georgia for the years 2007-2010 are the following:

- Restoration of territorial integrity with peaceful means and achievement of civil unification;

- Sustainable economic growth and facilitation of growth;- Formation of flexible, accountable and capable governance;- Rehabilitation and development of infrastructure;- Achievement of consistence with NATO membership requirements.

The conditions to achieve the state goals are ensuring of public stability on the one hand, and maintenance of dynamism of reforms and modernization of the state, on the other.

Outcome of Reforms for the Years 2007-2010

Following the implementation of the Government’s priorities and relevant reforms, the population of Georgia will have:

- Increased competence in state governance – high efficiency of management and spending;

- High degree of economic freedom – economic impartiality and minimum interference;

- Effective justice – high degree of confidence based on the sense of equality;- Developed self-government – decentralized authority and responsibility;- Adequate defence – developed military infrastructure and real prospect of NATO

membership;

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- Capable law enforcement system – efficiency in actions and public control;- Consumer-oriented sustainable energy sector – uninterrupted power supply,

financial sustainability and encouraging investment climate;- Reduced regional disparity – rehabilitated basic infrastructure (inter-regional

roads and local water supply);- Conditions for sustainable environmental development – coordination of

private interests and sustainable nature consumption;- Reduced extreme poverty and more work places in private sector – visible

economic growth and directed social assistance;- Opportunities of quality and competitive education – affordable and quality

system based on liberal values;- Open and tolerant environment – cultural pluralism and civil and cultural

integration;- Increased degree of economic and cultural integration with EU – reduction of

barriers for movement of people, capital, goods and services;

Government’s Guiding Principles for Reforms

The core of all actions of the Government of Georgia shall be a person - increase of the degree of person’s main rights, virtue and freedom, professional and entrepreneurial development, facilitation of territorial integrity and civil integration;

All agencies shall ensure that all its small- or large-scale actions are consistent with the guiding principles of the reform;

- “Minor governance” – out of alternatives for ownership forms, giving priority to private ownership; confinement of the competence of government institutions with those activities which the private sector cannot do better and only minimum necessary administrative interference in the economy; inadmissibility of protectionism and privileges;

- “Good governance” – orientation to the results of the governance activities and measurability; transparency of activity, civil control, public accountability of institutions; decentralization of governance with the delegation of competences and responsibilities to possibly lower hierarchical steps;

- “Targeted assistance” – supply of public resources and services not to institutions but to user, following the principle – “assistance is related to beneficiary”; change of the state’s principle regarding ‘equal assistance’ (to all including well-to-do) with the ‘equitable assistance principle’ (i.e. targeted assistance to helpless and poor);

- “Targeted spending” – distribution of the resources to be disposed in accordance with the set priorities; focusing of financial resources on the set goals and inadmissibility of fragmenting; universality of the budget;

- “Good practice” – considering of the essence of international practice without mechanically copying it; international financial resources shall be used only in the case when internal resources are insufficient;

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1. Macroeconomic Issues

1.1 Macroeconomic Policy Objectives

In the medium-term the country’s macroeconomic policy will be aimed at macroeconomic stability:

Sustainable and high growth of the economy Low inflation Creation of favourable environment for local and foreign investments

1.2 Macroeconomic Overview and Forecast

In the period 2003-2005 the average annual growth of GDP was 8.8% and the average annual inflation 6.2%.

Table 1. Main Macroeconomic Indicators

2003Actual

2004Actual

2005Actual

2006Prog.

2007Prog.

2008Prog.

2009Prog.

2010Prog.

Real GDP (rate of growth) 11.1 5.9 9.3 7.5 7.0 6.0 5.5 5.5

Nominal GDP (million GEL) 8,564.7 9,824.3 11,591.9 13,080.0 14,614.5 16,176.6 17,821.1 19,636.7

Consumer price index in the medium-term

4.7 5.7 8.2 5.0 5.0 5.0 5.0 5.0

Current account (% to GDP) -9.9 -6.6 -10.7 -10.6 -10.5 -9.9 -9.6 -8.9

Average annual exchange rate (GEL/USD)

2.15 1.92 1.81 1.82 1.82 1.82 1.82 1.82

a. Economic Growth

Overview

In 2005, compare with last year, GDP increased with 9.3% in real terms. GDP in nominal terms amounted to 11.6 billion GEL.

Agriculture, industry, construction and communications greatly contributed to this growth. Together, they increased GDP with 5.9%, which is 63.4% of the overall growth of GDP.

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Industry

In 2005, the value added in industry increased with 10.4%. During 2005 year variouse spheres of industry were diveloping differntly. Processing production in industry increased with 14.3%, electric energy, gas and water supply increased with 5.0% and mining decreased with 13.5%. The share of industry in GDP remained 12.1%.

Agriculture

In 2005, compared with 2004, agricultural growth was significant. The value added (in real terms) increased with 12.0%. In spite of this growth, the share of agriculture in GDP decreased from by 1.6 percentage point and equaled 14.8%. The indicator of real growth and the indicator of share in GDP differed because in 2005 5.1% deflation took place in agriculture and therefore, the nominal value added increased only with 6.6%. The increase in agriculture was mainly due to increases of fruit, grapes and citrus harvests. In 2005, fruit production increased with 43.8%, citrus production with 3.2 times and grapes production with 38.9%. In the livestock sector, the number of cattle continued to increase.

Infrastructure, communications and financial activities

In 2005, as a share in GDP, construction, hotels, restaurants, communications and financial sectors were developing with high rates. The value added in these sectors compared with 2004 increased adequately, with 22.3% in construction, 16.4% in restaurants and hotels, 29.5% in communication and 52.2% in financial intermediation.

In 2005, domestic and foreign demand stimulated growth of GDP. Consumer expenditures and total investments increased GDP with 4.8% and export increased GDP with 3.7%.

Forecast

GDP

In 2006, compared with previouse year, GDP (in real terms) is forecast to increase with 7.5% and GDP (in nominal terms) will exceed 13 billion GEL (see Diagram 1). In the medium-term 2007-2010 GDP (in real terms) is forecast to grow with 6-7% per year.

Investments and Consumer Expenditures

In 2006, compared with 2005, real total investments will increase with 24.5% and become 31.0% of GDP. During the next four years, the share of investments to GDP will further increase. During 2006-2010 real consumer expenditures will increase, but their share in GDP will decrease.

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Diagram 1. Actual and forecast nominal GDP, 2003-2010 (million GEL)

0

20004000

6000

8000

1000012000

14000

16000

18000

20000

2003 2004 2005 2006 2007 2008 2009 2010

b. Foreign Sector

Overview

Current Account Deficit

In 2005, compared with 2004, the current account deficit increased to USD -688.7 million and the current account deficit ratio reached 10.7% of GDP. The corresponding ratio for 2004 was 6.6%.

In 2005, the current account deficit was financed from foreign investments and capital inflow, which stabilized the exchange rate.

Trade Turnover

In 2005, the foreign trade turnover (excluding non-organized trade) was USD 3,357.6 million, which is 34.6% more than in 2004. Export was USD 866.7 million (increased with 34.0%) and import USD 2,490.9 million (increased with 34.8%). The negative trade balance increased with 35.2% to USD -1,624.2 million.

In 2005 Georgia had a negative trade balance with 101 partner states (104 in 2004), with a combined trade deficit of USD 1,687.5 million (USD 1,321.4 in 2004). A positive trade balance was recorded with 31 states (21 in 2004), with a total surplus of USD 63.3 million (in 2004 USD 120.5 million).

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In 2005 the share of foreign trade with CIS countries increased. The foreign trade turnover with CIS countries reached USD 1,406.1 million (42.8% higher than in 2004) and was 41.9% of total trade turnover. The foreign trade turnover with EU countries was USD 836.7 million, which is 14.8% higher than last year’s. The trade turnover with EU countries was 24.9% of the total trade turnover.

Russia is the most important trade partner of Georgia. In 2005, the trade turnover with Russia increased with 48.6% and reached USD 538.3 million, which is 16.0% of the total foreign trade turnover. The next important partners are Turkey (12.1% of foreign trade), Azerbaijan (9.4%) and Ukraine (7.7%).

No significant changes occurred last year in the export-import commodity structure.

In export, the most important commodities were black scrap metals (with a share in total export of 9.7%), natural wine (9.4%), ferroalloys (9.3%), nuts (8.1%) and aircrafts (8.0%). In import, the most important commodities were oil and oil products (13.5%), followed by automobiles (7.2%).

Forecast

Trade turnover and Current Account Deficit

In the forecasted period, foreign trade turnover is expected to increase.

In the period 2006-2010 the growth of exports is forecasted to be higher than the growth of imports, which in turn will decrease the current account deficit, both in absolute and relative terms. The share of the current account deficit to GDP in 2006 is expected to be -10.6% and in 2007 -10.5%. If there are no external shocks, this trend will be maintained and by 2010 the current account deficit ratio is forecasted to be -8.9%.

In the coming years it is expected that the inflow of private foreign capital (investments) will increase. On the one hand this will increase imports, and on the other hand it will positively effect economic and export growth of the country.

Accordingly, when the growth of exports exceeds the growth of imports and foreign investments, the current account deficit ratio will decrease. In other cases the deficit will possibly increase, which should not be considered negatively if it is the result of inflow of foreign capital.

c. Monetary Sector

Overview

As in the previous years, in 2005 the policy of the National Bank aimed at preventing inflation and fluctuations in the exchange rate as well as on maintaining its stability.

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Consumer PricesIn December 2005, compared with the December last year, the consumer prices increased by 6.2%, and the average annual consumer prices index increased with 8.2%. Last year prices were affected by internal and external factors. One of the most important factors was the higher price of oil at the world market.

GEL/USD Exchange Rate

In 2005 the GEL/USD exchange rate was stable and averaged 1.81. In December 2005, compared with December 2004, the GEL average monthly exchange rate increased with 0.7% and by the end of December 2005 the exchange rate was 1.786.

Money Aggregates

According to National Bank data, by the end of 2005, compared with end of 2004, reserve money increased by 19.7% and reached 1,001.4 million GEL. The average annual growth of reserve money was 32.9%.

By end of December 2005 the M3 broad money aggregate was 1,911.2 million GEL, which was 26.4% higher than last year. During the same period M2 reserve money increased with 26.5%. The ratio between M3 and M2 money aggregates growth rates is due to the fact that deposits in national currency had higher growth than deposits in the foreign currency. Deposits in foreign currency increased with 26.4% and deposits in national currency increased with 45.0%

The money multiplier changed accordingly. Compared with the previous year, the M3 multiplier increased with 0.1 point and reached 1.91; and the M2 money multiplier increased with 0.06 point and reached 1.07.

In 2005, compared with previous year, the dollarization coefficient decreased by 2.7 percentage points, to 71.6%.

The money circulation velocity speed reduced. The indicator, according to the M3 money aggregate, decreased with 0.5 point and reached 6.1. For M2 the indicator was 10.8, which is 1.0 points less than the 2004 indicator.

Interest Rates

In 2005, compared with 2004, interest rate (in national currency - GEL) on loans decreased with 3.9 percentage points and reached 20.7%.

In foreign currency, interest rate on loans decreased with 3.1 percentage points and reached 16.5%.

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Interest rates on deposits in national currency increased by 0.8 percentage point and reached 8.0%. Interest rates in foreign currency decreased by 1.0 percentage point, to 7.1%.

Forecast

One of the main conditions for stable economic development is maintaining a low inflation rate.

In 2006-2010 the consumer price index change is forecasted to be around 5.0% and the average annual exchange rate will be about 1.82 GEL/USD.

The money circulation velocity is expected to decrease for M3 and M2. The money multiplier is expected to grow and the interest rates are expected to decrease.

d. Employment and Unemployment

Overview

According to the statistical data (of the first nine months of 2005) 1,737,700 persons were employed, of 34.0% were hired and 66.0% were self-employed.

In 2005, according to the strict assessment criterion of the International Labour Organization, unemployment increased with 6.9% and reached 277, 800 persons. According to less strict indicators 334,400 persons were unemployed, which is 3.7% more than last year. The unemployment rate was 13.8% (according to the strict assessment criterion) and 16.1% (according to liberal criterion).

It is also worth to note, that last year the number of public servants was reduced with 40,000 and the number of unemployed increased by 20,000.

Forecast

In the projection period 2006-2010 the unemployment level will reduce, as a result of economic growth. According to the forecasts, the unemployment level will decrease with 3.0 percentage points.

1.3 Fiscal policy

Overview

In 2005, compared with 2004, the share of tax revenues in GDP increased with 1.3 % and the state investments doubled.

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In 2005, compared with the previous year, the share of government debt in GDP decreased by 9.6 percentage points and became 40.4%

Forecast

In the long term, the strategy of the government is to improve fiscal conditions, which will provide:

Macroeconomic stability Increase of the expenditures on priority directions Strengthening of financial order

Diagram 2. Fiscal aggregates, 2003 -2010 (percentage to GDP)

Diagram 3 Government debt, 2003-2010 (percentage to GDP)

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-3.5-3-2.5-2-1.5-1-0.500.511.522.5

2003 2004 2005 2006 2007 2008 2009 2010

General Balance (cash) Base Balance (cash)

20.022.024.026.028.030.032.034.036.038.040.042.044.046.048.050.052.0

2003 2004 2005 2006 2007 2008 2009 2010

Fiscal Policy Objectives for 2007 -2010 are the following:

Increase of expenditures to priority directions, such as investments for infrastructure development, social sector, defence and public order.

Reduction of public debt to not more than 25% of GDP by 2010. Sustainability of the share of tax revenues in GDP, which is expected to be 21% by

2010.

Table 2: Main fiscal indicators in 2005-2010 (percentage to GDP)

2003Act.

2004Act.

2005Act.

2006Prog.

2007Prog

2008Prog.

2009Prog.

2010Prog.

Revenues and grants total 16.5 22.7 23.3 24 22.9 23.2 23.4 23.9

- Tax revenues 14.1 18.4 19.7 19.9 20.1 20.4 20.6 21.0

- Non-tax revenues 1.8 3.0 2.7 2.8 1.7 1.8 1.9 2.0

- Grants 0.6 1.3 0.9 1.3 1.1 1.0 0.9 0.9

Expenditures and net crediting 18.3 19.7 25.1 26.6 23.8 24.0 23.9 24.3

- Current expenditures 16.5 15.6 18.9 20.9 19.3 19.4 19.3 19.6

- Interest payment 1.6 1.4 1.0 1.0 1.1 0.7 0.6 0.6

- Other current expenditures 14.9 14.2 17.9 19.9 18.2 18.7 18.7 19

- Capital expenditures and net lending 1.8 4.1 6.2 5.7 4.5 4.6 4.6 4.7

General balance (liabilities) -1.8 3.0 -1.8 -2.6 -0.9 -0.8 -0.5 -0.4

Net change in the arrears according to the 1.1 -2.6 -0.8 -0.4 0.0 0.0 0.0 0.0

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expenditures (-reduction)

General balance (cash) -0.8 0.4 -2.6 -3.0 -0.9 -0.8 -0.5 -0.4

Basic balance (cash) 0.8 1.8 -1.6 -2.0 0.2 -0.1 0.1 0.2

Financing 0.8 -0.4 2.6 3.0 0.9 0.8 0.5 0.4

Privatization 0.3 0.7 3.6 2.7 0.7 0.1 0.1 0.1

Domestic (net) 0.6 -0.7 -0.9 0.8 -0.1 -0.2 -0.2 -0.2

In order to achieve these aims it is important: Reform of tax and customs administration Improvement of the public expenditures management

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2. Budget Revenues

2.1 Revenue Forecast

Consolidated Budget Revenues and Grants amounted to 2,706.3 million GEL in 2005, which was 24.2% higher than in 2004 (See Table 3). The total amount of revenues and grants was 23.3% of GDP.

Table 3. Consolidated Budget Revenues (in million GEL)

Name

Consolidated Budget 2005 %Plan Fact +/- % GDP 2005/2004 Share of

Tax in Tax Revenues

Revenues and Grants

2,574.7 2,706.3 131.6 105.1 23.3 124.2

Total Revenues (excluding capital revenues)

2,453.3 2,601.7 148.4 106.0 22.4 126.7

Tax Revenues (excluding social tax)

2,166.8 2,288.9 122.1 105.6 19.7 126.4 100.0

Income Tax

273.9 290.7 16.8 106.1 2.5 108.2 12.7

Profit Tax 208.9 210.3 1.4 100.7 1.8 130.1 9.2VAT 938.5 987.4 48.9 105.2 8.5 157.2 43.1Excise 280.5 286.4 5.9 102.1 2.5 140.0 12.5Customs Tax

123.0 123.4 0.4 100.3 1.1 123.2 5.4

Other Taxes

66.9 84.4 17.5 126.2 0.7 50.5 3.7

Social Tax 275.2 306.3 31.1 111.3 2.6 109.0 13.4Non-tax Revenue (excluding repayment of credits)

286.5 312.8 26.3 109.2 2.7 128.9

Grants 121.4 104.6 -16.8 86.2 0.9 83.7

Own revenues in 2005 amounted to 2,601.7 million GEL, which is 26.7% more in 2004. The percentage to GDP is 22.4 %, which is 1.6 percentage point more than last year.

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Tax revenues in 2005 were 2,288.9 million GEL, which is 5.6% more than last year. Compared with 2004, the tax revenues increased with 26.4% and its share to GDP increased with 1.5% and reached 19.7%.

Table 4. Consolidated Budget Revenues, 2003-2005 (in million GEL) 2003 2004 2005

Revenues and grants 1,348.6 2,178.6 2,706.3

Total Revenue (excluding capital revenues) 1,300.8 2,053.9 2,601.7

Tax Revenues (excluding social contributions) 1,207.8 1,811.2 2,288.9

Income tax 152.9 268.6 290.7

Profit tax 101.5 161.6 210.3

VAT 415.2 628.2 987.4

Excise tax 106.3 204.6 286.4

Customs Fee 70.3 100.1 123.4

Other Taxes 128.9 167.1 84.4

State Special Funds 238.9 280.9 428.8

Non-tax revenues 93.0 242.7 312.8

Grants 47.8 124.7 104.6

Income tax of physical entities in 2005 increased with 8.2% to 290.7 million GEL. This is 101.6% of the planned income tax revenues. The share of income tax in GDP was 2.5% and its share in the total tax revenues was 12.7%

Profit tax revenues in 2005 increased with 30.1 % and reached 210.3 million GEL. This is 0.7% higher than planned. The share of the profit tax in GDP is 1.8% and its share in the total tax revenues 9.2%.

VAT share in the total tax revenues is 43.1%. VAT collection amounted to 987.4 million GEL, which is 105.2% of the forcasted indicator of VAT. Compared with last year, VAT revenues increased with 57.2% and its share in GDP was 8.5%.

Excise tax had in 2005 a share of 12.5% in total tax revenues and 286.4 million GEL was collected. This is 40.0% higher than last year factual and is 102.1% of forcasted indicator. The share of excise tax in GDP is 2.5%.

Customs tax had in 2005 a share of 5.4% in total tax revenues and 123.4 million GEL was collected. This is 0.3% higher, than forcasted indicator. Customs tax revenues increased by 23.2% as compared with last year, and its share in GDP is 1.1%.

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Non-tax revenue, which is 11.6% of the total revenues and grants reached 312.8 million GEL. It has increased by 28.9% compared with last year. The factual amount of non-tax revenues is 9.2% more than forcasted indicator and its share in GDP is 2.7%.

Note: in Tables 3 and 4 the non-tax revenues are based on the cash method, whereas in Annex 2 part of the non-tax-revenues are based on the accrual method. This concerns in particular the Turkmenistan loan non-cash operations, which in 2003 were GEL 62.3 million, in 2004 GEL 69.1 million, in 2005 GEL 19.9 million and in 2006 GEL 32.1 million.

2.2 Revenue Forecast

The medium-term budget revenue forecasts take into consideration the changes and the expected results in the fiscal sector.

Consolidated budget revenues and grants in 2006 are expected to increase around 15.4% and its share in GDP is expected to be 23.9%.

Own revenues are expected to grow with 13.4% and its ratio to GDP will reach 22.6%.

It is forecasted that these revenues will further increase in the years 2007-2010.

Consolidated budget tax revenues (excluding social contributions from the budget sector) are expected to increase around 13.6% and its share to GDP will be 19.9%. In particular:

Income tax is expected to increase around 8.3%, to 2.4% of GDP Profit tax is expected to increase around 26.6%, to 2.0% of GDP VAT is expected to increase around 16.0%, to 8.8% of GDP Excise tax is expected to increase around 18.1%, to 2.6% of GDP Customs fee is expected to increase around 11.4%, to 1.1% of GDP Local tax is expected to increase around 6.2%, to 0.6% of GDP Non-budget sector social tax (excluding one-time transfers is expected to increase

around 19.4%, to 2.3% of GDP

It is expected that the tax revenues will significant grow in the 2007-2010 years and in 2010 its share in GDP is expected to increase to 21.0%.

In 2006 joint budget non-tax revenues (excluding repayment of loans) will increase within 17.3% and its share to GDP will be 2.8%.

The ratio of capital revenues to GDP will be 2.7%.

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3. Budget Expenditures

3.1 Brief Overview of 2005 Budget Execution

The planned State Budget in 2005 was 1.5 times higher than in 2004 and 2 times higher than in 2003. The executive branch of government carried out all responsibilities imposed by Annual Budget Law.

In 2005, the State Budget expenditures were targeted to the strategic directions of the country. In particular the following activities have been carried out:

In order to assure stability in the energy sector and to provide energy security, 230.4 million GEL has been used to rehabilitation of electric transmission lines and hydro and thermal power stations, and to purchase power and to ensure proper registration.

For rehabilitation of road infrustructure the appropriations to Road Department increased to 125.9 million GEL. Amongst others, the first stage of Chaqvi-Makhinjauri tunnel was constructed, the Kobuleti-Makhinjauri part of Senaki-Poti-Sarpi Road was rehabilitated, parts of Tbilisi-Senaki-Leselidze Road were rebuilt, and three bridges were reconstructed.

366.8 million GEL was used for increasing the defence capacity of the State. The appropriations for this sector are in accordance with NATO standards and reached 3.2% of GDP.

The appropriations to the public order sector increased to 267.6 million GEL. 49.9 million GEL was allocated to the significant improvement of the material

technical state of the penitentiary system. 30.4 million GEL was used for important activities in the courts system. 46.8 million GEL was allocated to increase the minimum pension (from 14 GEL to

28 GEL) and to cover the pension arrears of last years. The State Budget of current year plans to increase the pensions to 38 GEL.

Coverage of last years’ arrears continued. For that purpose, 92.5 million GEL was allocated from the 2005 State Budget appropriations and saved budgets of ministries and agencies.

More than 40 million GEL was used to repair the damage of last year’s natural disasters and to assist the population.

Reforms took place in the executive branch, and staff of ministries and agencies was optimized. At the same time, salaries were reformed and the minimum salary of public servants is now 115 GEL.

Based on the requirements of the Budget System Law, the budget arrangement principles have improved, which became the basis for the Medium-Term Expenditure Framework.

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3.2 Expenditures According to the Economic Classification

Consolidated Budget

Budget expenditures 2007-2010 are based on forecasted macroeconomic parameters, in accordance with International Accounting Standards.

According to the macroeconomic forecasts, it is expected that in 2007 the share of consolidated budget expenditures in GDP will be 23.7%, in 2008 – 23.9%, in 2009 – 23,9% and in 2010 – 24.2%.

For 2007, it is forecast that consolidated budget expenditures for goods and services will be 10.2% of GDP. This includes remuneration and all expenses that are not included in other items of economic classification. For 2008, the indicator will increase to 10.4% of GDP and will be maintained at the level of 10.3% for 2009-2010.

In 2007, the expenditures for subsidies and transfers will be 8.0% of GDP, in 2008 – 8.1%, in 2009 – 8.3% and in 2010 – 8.6%. This includes financing of social and educational activities.

The share of capital expenditures in GDP for 2007 is forecast to be 4.1%. This ratio is expected to increase slightly and in the years 2008-2010 it will reach respectively 4.2%, 4.3% and 4.4%.

Expenditures for interest coverage for 2007 will be 1.1% of GDP, but for 2008 it is expected that they will decrease to the level of 0.7% of GDP. In the subsequent years the expenditures will become 0.6% of GDP. This includes servicing foreign and domestic liabilities.

Expenditures for net crediting for 2007 are estimated to be 0.4% of GDP and for 2008 0.4%. It will decrease in 2009-2010 and the indicator will be 0.3% of GDP. This item does not include repayment of the principal of foreign borrowing by Georgia.

Note: consolidated budget expenditures do not include social tax paid by budget organizations, in order to avoid double counting in the expenditure part of the consolidated budget.

State Budget

State Budget Payments for 2007 are 21.2% of GDP. The indicator for 2008 will increase and become 21.4% of GDP, for 2009 - 21.3% of GDP, for 2010 – 21.6% of GDP. Payments and expenditures for 2007-2010, according to economic classification, are divided as follows: Remuneration payments will increase gradually and in 2007-2010 its share in GDP

will be 2.8%.

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Expenditures for subsidies and transfers in 2007 will be 8.6% of GDP, in 2008 – 8.9% of GDP and 2009 – 9.0%, in 2010 – 9.3%.

The share of Capital Expenditures in GDP in 2007 is expected to be 3.5%. The expenditures will increase in 2008 and reach 3.6% of GDP. In 2009-2010 the expenditures are increase further and will reach respectively 3.7% and 3.8% of GDP.

Local Budget

In the years 2007-2010 Local Budget Payments will increase. In particular, in 2007 the share of local budget total expenditures in GDP will be 4.3%, and in 2008-2010 4.4%.

The remuneration payments in the local budget for 2007-2010 will be 0.6% of GDP. Expenditures for other goods and services in 2007 are expected to be 2.56% of GDP,

in 2008 – 2.65% of GDP and in 2009-2010 they will be maintained at the level of 2.7%.

Subsidies and transfers in 2007 are 0.19% of GDP, in 2008 – 0.18% of GDP, in 2009 – 0.17% and in 2010 – 0.17%. Note: 80% of this expenditures are subsidies.

Capital expenditures from local budgets in 2007 is 0.58% of GDP, the expenditures in 2008 will become 0.6% of GDP, and in 2009-2010 the expenditures will further increase and reach respectively 0.61 and 0.62% of GDP.

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4. Deficit

Budget classification in Georgia differs from the international standards. In particular, according to international standards revenues from privatization are sources of deficit financing. However, the budget revenue recording system in Georgia differs from international standards, and revenues from privatization are recorded as capital revenues, and not as source of deficit financing.

The methodology differs also from the point of view of foreign sources of deficit financing. In particular, according to international standards, the difference between received foreign credits and repayment of the principal of foreign debt is recorded in the deficit financing sources.

Considering this, there is an important difference between the deficit as envisaged in the budget and the deficit as calculated according to international standards.

Forecast

In 2007 the ratio of the consolidated budget deficit to GDP is forecast to be 0.9%. In the years 2008-2010 this ratio is expected to decrease, to respectively 0.8, 0.5 and 0.4%.

Sources to finance the deficit include domestic and foreign resources. Revenues from foreign sources are forecast to decrease and in the years 2007-2010 its share in GDP is expected to amount to respectively 0.3, 0,9, 0.6, 0.5%.

In 2007-2010 State Budget deficit financing sources will reduce, due to increase in the state budget revenues.

In 2007, total deficit is forecast to be 0.85% of GDP, in 2008 0.8% and in the years 2009-2010 0.4%.

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5. Public Debt Strategy

It is expected that Public Debt will reduce in the years 2007-2010.

Repayment of debt to National Bank has started. At the same time, Georgia will continue its policy not to take non-concessional credits in the medium-term (grant element 35%) and does not issue guarantees for such loans. Only concessional long-term loans will be taken.

The above-mentioned main directions of public debt management will influence the debt sustainability. For today, debt sustainability is achieved and the debt service policy in medium and long term will be geared towards maintaining debt sustainability.

5.1 Internal Debt Sustainability and Strategy

a) Action Plan

Based on the analysis of the inventory of “historical debts”, the mechanism and time table to cover them will be elaborated.

Internal Debt (National Bank) Expenditures in Relation to GDP 2006w.

(Approved)2006w.

(Expected)2007 2008 2009 2010

GDP 13,080.0 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Internal Debt Coverage 0.0 0.0 20.0 30.0 35.0 35.0

Percentage to GDP 0.0 0.0 0.1 0.2 0.2 0.2

Internal Debt Interest Coverage

70.0 70.0 50.0 50.0 50.0 49.0

Percentage to GDP 0.5 0.5 0.3 0.3 0.3 0.3

b. Expected Result

Covering the State Budget deficit with non-inflation means Development of the State Securities market Increase of National Bank sustainability.

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5.2 Foreign Debt Sustainability and Strategy

Servicing of the foreign debt in the years 2007-2010 is presented in the table below. It includes debt restructuring as a result of the Paris Club agreement as well as the accelerated repayment of EU debt in 2006-2007.

The debt to Turkmenistan will again be paid by goods and services. It is expected that the Turkmenistan debt will repaid by the end of 2006. Work is in progress to apply the same practice to the repayment of foreign debts against other countries.

Discussions are progressing with Austria to fully repay the Austrian debt on favourable terms for Georgia.

Georgia will continue the policy that it will not take non-concessional loans and will not issue guarantees for such loans.

The analysis of debt sustainability shows that in general the status of foreign debt is good.

Table 5. Foreign Debt Service Indicators, 2007-2010 (in million GEL and as percentage of GDP)

2006 (approved)

2006(expected)

2007 2008 2009. 2010

GDP 13,080 13,080 14,600.0 16,200 17,800 19,500

Foreign Debt Principal repayment 208.7 208.7 163.8 80.4 118.0 122.4

Foreign Debt Principal repayment as apercentage of GDP

1.6 1.6 1.1 0.5 0.7 0.6

Foreign Debt Interest payment 52.4 52.4 92.0 49.3 46.7 43.4

Foreign Debt Interest payment as a percentage of GDP

0.4 0.4 0.6 0.3 0.3 0.2

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6. Main Sector Aims and Objectives

Action Priorities of the Government of Georgia for the Years 2007-2010

Based on the planned outcome of the reforms and their governing principles, the action priorities of the Government of Georgia for the years 2007-2010 are the following:

6.1 Public Policy

6.1.1 National Security and Foreign Policy

Consistent implementation of National Security Concept; Based on the successful implementation of IPAP and involvement of

Membership Action Plan (MAP), consistent integration in NATO; Optimization of army management and improvement of resistance;

reformation of the army in consistence with the NATO standards; improvement of the civil control system over the army;

Successful implementation of ENP Action Plan and enhancement of economic and cultural cooperation with the EU;

Creation of preconditions for implementing Georgia’s strategic interests in the neighbourhood area, the Black Sea and South Caucasus region;

6.1.2 Institutional Arrangement of the State

Directed implementation of ‘Peace-making Action Plans’ for peaceful resolution of conflicts and restoration of territorial integrity;

Establishment of independent, reliable, impartial and optimized judicial system;

Reforming of the sphere of criminal, civil and administrative law; Establishment of capable self-government; distinction of powers and

property; fiscal decentralization; Formation of duly equipped public safety system through technical

modernization of police and state security system; development of patrol service; decentralization of the management of public safety system; improvement of extraordinary situation management system;

Establishment of modern and reliable border protection system; Increasing efficiency of special anti-corruption supervision system for

high-rank officials;

6.2 Public Administration and Regulation

6.2.1 Legal Regulation

25

Reform of execution system with the purpose of timely and effective execution of court decisions;

Formation of infrastructure and database for the Common Civil Register; increase of reliability and quality of service of the Public Register;

Rehabilitation and development of the infrastructure of penitentiary system with the purpose of improving the conditions of prisoners, through the introduction of new management model; development of effective mechanisms for protection of prisoners’ rights and their re-socialization;

Critical revision of the legislative framework; elimination of obsolete and inconsistent statutory acts;

Formation of affordable and qualified institute of treasury attorney;

6.2.2 Public Governance Sphere

Implementation of Anti-corruption Action Plan; Reformation of public administration and public service; improvement of

decision-making system; rationalization of managerial expenditures; introduction of a contest system for staff selection; creation of environment for due motivation of the hired personnel;

Introduction of mechanisms for regular public reporting, accountability and civil control for public administration bodies;

Development of mid-term, results-oriented expenditure policy and mechanisms for the state budget;

Development of the centralized treasury system; ensuring of sustainability of revenue mobilization and creation of the common information system of public finance management;

Enhancement of diplomatic and consulate network; improvement and liberalization of visa regime;

Creation and stage-by-stage implementation of the uniform system of food security; increase of the country’s epizootic reliability;

6.3 Economy and Development

6.3.1 Institutional De-regulation of Economy

Improvment of licensing and permissions regulation and introduction of principles of ‘one window’ and ‘silence presumption’;

Consummation of divestiture of state-owned economic units and property; privatization of agricultural land; increase of transparency and commercialization of state property management;

Minimization of state regulation of entrepreneurship; Introduction of flexible labor legislation oriented towards legalization of

employment; Optimization and liberalization of general and technical safety system; Creation of competitive system of utilizing natural (including forestry)

resources and facilitation of formation of secondary market;

26

diversification of the forms of ownership and utilization of natural resources;

Reformation of agricultural sector by reducing regulation and intervention and creation of conditions for increasing of competitiveness and afficiency.

6.3.2 Infrastructural Arrangement of Economy

Elimination of the reasons for energy deficit; restructuring and rehabilitation of energy sector; attraction of private capital by privatizing; 24-hour energy supply; encouraging of rationality of energy with market mechanisms;

Rehabilitation and construction of regional and inter-district roads, including: to ensure the economic integration of Southern Georgia (Samtskhe-Javakheti);

Optimization of management for all kinds of transport and pursue of ‘open policy’ to ensure integration of mobility and transit attractiveness;

Restructuring and rehabilitation of water supply for settlements; attraction of private capital;

Rehabilitation of agricultural infrastructure, including melioration system, via increasing the role of private sector.

6.4 Public Sphere

6.4.1 Social Protection

Formation of a residual system of social assistance; movement to monetized, targeted and household assistance system; formation of reliable mechanisms for identification of beneficiaries, including internally displaced people (IDP’s) and those suffering from natural disasters;

Formation of targeted protection from poverty in old age; introduction of pension system and stimulation of private pension savings initiatives rely upon age and social status;

Introduction of the fact-based management system for defining degree of disability and establishment of necessity (ICF);

Affordability of emergency medical assistance; Improvement of the conditions for development of basic healthcare;

international compatibility of the healthcare system and introduction of insurance principles;

6.4.2 Public Development

Institutional and programme reforming of the education system, with the purpose of creating the system consistent with international standards; Reforming of general, higher and professional education system and professional development. Implementing the educational programs in

27

respect of accordance of regional specifics (national language programmes too);

Reforming of science _ organizational and structural development Consolidation of scientific institutions with educational institutions; Creation of science financing based on grants and competitivness.;

Implementation of the program for rehabilitation of sports and cultural infrastructure;

Improving the institutional management of culture, cultural heritage and sports spheres, and increasing the role of private sector;

Implementation of monument restoration and preventive conservation program.

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Priority Directions defined by Line Ministries for Implementation of Basic Goals and Objectives Government of Georgia for 2007-2010

Ministry of Finance

Mission of the Ministry of Finance: Creation of the foundation for stable economic growth and poverty reduction.

Strategy to realize the Mission: Provision of the State Budget with adequate financial resources and guarantees

financial sustainability.

Expected results for the medium-term: Improvement of macroeconomic and fiscal management through the elaboration of

the expenditure policy, under conditions of pre-defined financing. Distribution of financial resources according to strategic priorities, under conditions

of limited resources.

Priorities in the medium-term: Improvement of the tax and customs policy and of the quality of tax administration. Improvement of the budgeting process and full integration of the MTEF in the

budgeting process. Implementation of GFS classification principles. Further improvement of foreign assistance (donor) coordination.

Budget Expenditures of the Ministry of Finance in relation to GDP 2004

Factual2005

Factual2006

Approved2007

Forcast2008

Forcast2009

Forcast2010

Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

MoF Apparatus (million GEL) 52.1 68.3 59.5 64.0 66.8 64.7 66.8

Percentage to GDP (%) 0.5 0.5 0.5 0.4 0.4 0.4 0.3

Investments (million GEL) 2.5 0.2 2.5 5.5 5.5 2.1 1.4


29

Ministry of Foreign Affairs

Mission of the Ministry of Foreign Affairs: Representation of the national interests of Georgia abroad, protection of the rights and

freedoms of the citizens of Georgia and achieving the honourable position in the international community.

Strategy to realize the Mission: Implementation of effective diplomacy, strengthening bi- and multi-lateral foreign

relations, and cooperation with international organizations actively.

Expected results for the medium-term: A successful and more effective foreign policy, which will be consistent, predictable

and sustainable.

Priorities of the Ministry in the medium-term: Creation of an independent, safe and secure country, as far as this is within the

Ministry’s competence. Support to the economic development and welfare growth of the country, as far as

this is within the Ministry’s competence. Strengthening of diplomatic activities, in order for Georgia to find its place in the

international community. Protection of the citizens of Georgia abroad. Diplomatic and organizational capacity.

Budget Expenditures of the Ministry of foreign Affairs in relation to GDP 2004

Factual2005

Factual2006

Approved2007

Forcast2008

Forcast2009

Forcast2010

Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Foreign Affairs (million GEL)

36.3 32.5 40.4 47.5 50.1 52.6 55.2


Ministry of Refugees and Accommodation

Mission of the Ministry of Refugees and Accommodation: Elaboration of a new vision for IDPs, registeration real estate in Abkhazia and

Tskhinvali regions and provision of guaranatees for the protection of these property rights.

Regulation of the migration processes. Protection of the rights of refugees living in Georgia, under international law.

30

Provision of settlement and integration for refugees and for those affected by natural disasters.

Support to the national thinking in Georgian Diaspora. I have no idea what is meant to be said?

Strategy to realize the Mission: Improvement of the existing refugees’ data base and solving the recording issue.

Registration of real estate property claims in Abkhazia and Tskhinvali region. Protection of refugees’ rights and bringing them in accordance with international

standards. Elaboration and implementation of state and region programmes with the purpose of

regulating the migration processes, and conducting urban research necessary for settlement of migrants.

Establishment of contacts with Georgian Diasporas, support to dual citizenship, and building Georgian cultural centres.

Expected Results for the medium-term: Definition of the exact number of refugees, improvement of their social-economic

conditions, settlement and integration. Creation of guarantees for property rights on real estate in Abkhazia and Tskhinvali

region. Provision of protection of refugees’ rights, in accordance with international law. Creation of favourable social-economic conditions and infrastructure for settlement of

migrants. Strengthening national consciouness of the Georgian Diaspora, their participation in

building the Georgian State, attraction of foreign investments.

Priorities of the Ministry in the medium-term: Registration of property rights on real estate in Abkhazia and Tskhinvali region. Elaboration of the government policy for integration of refugees and improvement of

their social-economic conditions. Regulation of migration processes caused by natural disasters and provision of

settlement, employment and integration of those affected by natural disasters. Support to integration and settlement of repatriates. Establishment and improvement of relations with the Diaspora.

31

Budget Expenditures of the Ministry Ministry of Refugees and Accommodation in relation to GDP

2004

Factual2005

Factual2006

Approved2007

Forcast2008

Forcast2009

Forcast2010

Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of RaA (million GEL) 65.3 61.7 29.1 13.3 14.0 14.7 15.4




Ministry of Defence

Mission of the Ministry Implementation of the government policy in defence.

Strategy to realize the Mission: Improvement of the armed forces of Georgia and elaboration the military budget. Training of military staff and improvement of their fighting capacity.

Expected results for the medium-term: Created a favourable basis for future integration in the NATO.

Priorities of the Ministry in the medium-term: Improvement of social conditions. Increase of the capacities of the armed forces. Improvement of the material-technical base and logistics. Modernization of military infrastructure. Participation in International Programmes.

Budget Expenditures of Ministry of Defence in relation to GDP 2004

Factual2005

Factual2006

Approved2007

Forcast2008

Forcast2009

Forcast2010

Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Defence (million GEL) 172.0 366.8 392.6 392.6 392.6 300.0 315.0




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Ministry of Justice

Mission of the Ministry: Provision of correct and effective execution and enforcement of the law, in order to

create and maintain the legal state.

Strategy to realize the Mission: Create of jobs of new type through implementation of modern management methods. Development of the legislative framework, oriented on the Ministry of Justice

becoming the main legal adviser of the state and on protecting the rights of each citizen.

Expected results for the medium-term: All necessary conditions are provided to create the legal state, which is oriented on

supremacy of the law and protection of human rights.

Priorities of the Ministry in the medium-term: Free legal advise for the poorest part of the population. Government representation in the European Court of Human Rights and in

International Arbitraries. Improvement of court execution system. Development of the penitentiary and probation system in accordance with

international standards. Organization of expert activities in the state. Management of the State Archives and effective functioning of the Records

Management Department. Formation of Common Civil Register.

Budget Expenditures of the Ministry of Justice in relation to GDP 2004

Factual2005

Factual2006

Approved

2007Forcast

2008Forcast

2009Forcast

2010Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Georgia Ministry of Justice (million GEL)

21.3 34.5 48.1 64.0 53.9 40.8 42.8




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Ministry of Economic Development

Mission of the Ministry: Elaborate and implementation of an effective economic policy to assure stable growth

of the economy.

Strategy to realize the Mission: Development of the country’s infrastructure, in order to improve the investment

climate. Liberalization of trade and reduction of technical barriers. Institutional de-regulation of the economy. Attraction of investments through privatization of state property and provision of

transparency and efficiency in the management of state property.

Expected results for the medium-term: Creation of a favourable business climate and growth of investments. Creation of new jobs in the private sector. Stable growth of GDP and poverty reduction.

Priorities of the Ministry in the medium-term: Elaboration of economic policy and coordination of implementation. Liberalization of trade and reduction of technical barriers. Reform of standardization, metrology, accreditation and market supervision system. Participation in the reforms of the license and permissions systems (as far as within

the scope of ministry’s competence). Privatization of state entity units and property. Liberalization and optimization of the management system of the transport sector and

development of road infrastructure

Budget Expenditures of the Ministry of Economic Development in relation to GDP 2004

Factual2005

Factual2006

Approved

2007Forcast

2008Forcast

2009Forcast

2010Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Economic Development (million GEL)

102.2 162.3 179.4 191.9 204.5 214.6 225.4


Roads Department (million GEL) 67.4 125.9 168.6 182.0 191.0 200.6 210.7




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Ministry of Agriculture

Mission of the Ministry: Competitive production under effective agricultural conditions. Assurance of epizootic and fito-sanitary security in Georgia and recognition of the

country as a reliable trade partner. Provision of food safety.

Strategy to realize the Mission: Elimination of factors preventing agricultural development through developing a

uniform public policy and legislation. Provision of epizootic and fito-sanitary security and food safety in Georgia by

strengthening state supervision.

Expected results for the medium-term: Favourable environment for the development of agricultural business. Food safety. Epizootic and fito-sanitary security in Georgia. Competitiveness of Georgian product in the international market.

Priorities of the Ministry in the medium-term: Provision of food security and safety of food quality. Development of agricultural infrastructure and reform of management of irrigation

systems management. Development of viticulture and fight against falsification.

Budget Expenditures of the Ministry of Agriculture in relation to GDP 2004

Factual2005

Factual2006

Approved2007

Forcast2008

Forcast2009

Forcast2010

ForcastGDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Agriculture (million GEL) 46.6 23.5 23.5 21.5 22.6 23.7 24.9




35

Ministry of Energy

Mission of the Ministry: Preparation of the energy sector policy. Future development of energy sector.

Strategy to realize the Mission: Private investments and co-financing from the State Budget.

Expected results for the medium-term: Absorption of country’s energy resources. Balancing the consumption of electricity Growth of transit potential.

Priorities of the Ministry in the medium-term: Building and rehabilitation of hydro and thermal power stations. Building and rehabilitation of high voltage power transmitting lines. Building and rehabilitation activities in the natural gas sector. Building electric power stations using renewable energies.

Budget Expenditures of the Ministry of Energy in relation to GDP 2004

Factual2005

Factual2006

Approved2007

Forcast2008

Forcast2009

Forcast2010

Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Energy (million GEL) 135.7 208.7 179.1 61.5 47.4 56.1 29.2




Note: Ministry of Energy ceilings do not include co-financing: 2007 - 76.2 million GEL (of which 68.2 million GEL for capital investments), 2008 - 186.9 million GEL (178.6 million GEL for capital investments), 2009 - 207.5 million GEL (199.2 million GEL for capital investments), 2010 - 192.3 million GEL (184 million GEL for capital investments).

Ministry of Environment Protection and Natural Resources

36

Mission Development of sustainable principles for utilization of natural resources.

Strategy to realize the Mission: Optimization of the control-regulating functions of the ministry. Changing useless (non-achievable) environment protection norms with adequate

ones. Stimulation of private interests to consume natural resources rationally

Expected results for the medium-term: Increased activity of the private sector to consume natural resources rationally Effective functioning of the sector with minimal state resources. Maximally maintained quality of environment components.

Priorities of the Ministry in the medium-term: Resource consumption system: implementation of forest sector management using the

Public Private Partnership (PPP) model. Resource consumption system: water resource basin management. Environment protection system: development of system of protected territories and

eco-tourism. Reform of the environment protection system: elaboration of policy for management

of waste products.

Budget Expenditures of the Ministry of Environment Protection and Natural Resources in relation to GDP

2004 Factual

2005Factual

2006Approved

2007Forcast

2008Forcast

2009Forcast

2010Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Environment Protection and Natural Resources (million GEL)

20.9 14.8 17.4 18.6 18.0 17.1 15.9


37

Ministry of Labour, Health and Social Protection

Mission Sustainable development of human capital through the elaboration and

implementation of the government policy in health and social protection.

Strategy to realize the Mission: Improvement of the health condition of the population of Georgia through provision

of equal financial and geographic access to high quality medical services. Reduction of vulnerability and poverty of the population through the implementation

of effective mechanisms of social assistance and the creation of a favourable environment for social integration.

Creation of conditions for effective functioning of the labour market. Improvement of the effectiveness of public administration and institutional

development of the health and social sectors.

Expected results for the medium-term: Improvement of health conditions of the population of Georgia. Reduction of poverty and vulnerability. Improved functioning of the health, social protection and labour market institutions. Health system in accordance with the demands of sustainable development and

Millennium Goals.

Priorities of the Ministry in the medium-term

Improvement of health of the population of Georgia through provision of equal geographic and financial access of high-quality medical service.

Improvement of economic efficiency and quality of the medical services. Reduction of poverty and vulnerability of the population.

38

Budget Expenditures of the Ministry of Labour, Health and Social Protection to GDP

2004 Factual

2005Factual

2006Approved

2007Forcast

2008Forcast

2009Forcast

2010Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Labour Health and Social Protection (million GEL)

462.5 631.8 717.3 888.0 940.0 1,000.0 1,056.0

- Percentage to GDP 4.7 5.5 5.5 6.1 5.8 5.6 5.4

Pensions (million GEL) 303.7 407.2 453.4 496.8 515.4 535.0 562.8


Social Assistance (million GEL) 52.0 89.2 89.2 89.2 89.2

- Percentage to GDP 0.4 0.6 0.6 0.5 0.5

Treatment Programmes (million GEL) 80.3 87.0 125.9 151.0 182.2 220.1 255.6


Other Health and other Social Programmes (million GEL)

21.1 28.9 44.0 37.6 38.8 39.9 41.3




Ministry of Culture Sport and Monument Protection

Mission Realization of the constitutional right of citizens of Georgia to unlimited participation

in cultural activities, as well as of the constitutional responsibility of the state to develop culture.

Representation and promotion and development of Georgian culture in the diverse family of nations and cultures of the world.

Strategy to realize the Mission: Protection, popularization and application of the material and non-material cultural

heritage. Support to cultural centres and organizations of national importance. Development of culture and sport infrastructure. Provision of equal access to cultural life in the regions of Georgia. Continuous and sustainable art and sport education system. Maximization of the contribution of culture and sport to the economy of Georgia. Creation of a free, protected and competitive environment in the sphere of sport and

culture.

39

Priorities of the Ministry in the medium-term Institutional reform programme. Museum reform programme. Programme of cultural heritage, monument rehabilitation, systematization-

documentation, popularization and western integration. Programme of rehabilitation of sport and culture infrastructure. Reform of the arts and sport education system.

Budget Expenditures of Ministry of Culture, Monument Protection and Sport in relation to GDP

2004 Factual

2005Factual

2006Approved

2007Forcast

2008Forcast

2009Forcast

2010Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Culture, Monument Protection and Sport (million GEL)

28.9 34.4 42.0 45.8 48.1 50.5 53.0

Percentage to GDP 0.3 0.3 0.3 0.3 0.3 0.3 0.3


Percentage to GDP 0.001 0.002 0.003 0.004 0.003 0.003 0.003

Ministry of Education and Science

Mission Creation of an education and science system that gives each citizen the opportunity to

develop and realize his/her capabilities, irrespective of age, ethnic origin and social status.

Strategy to realize the Mission: Democratization of the management process and involvement of society. Decentralization of the management system and autonomy of educational institutions. Results-oriented management of the education sector through quality assurance

schemes and resource allocation mechanisms. Increase of financing of the education sector and development of its material-

technical base. Integration of education and scientific activities in the international community,

development of education and science centres in institutions of higher education.

Expected results for the medium-term:

Sustainability – creation of a homogenous education system. Its components, based on legal transparency and accountability mechanisms, will make Georgian education

40

and science systems consistent with European and international science and education systems.

Social Inclusion – creation of a system that will ensure maximal involvement of Georgian citizens in the education system.

Competitiveness – creation of education and science systems that on the one hand will be equally involved , and on the other hand will compete with European science and education systems.

Priorities of the Ministry in the medium-term Finalization of institutional set-up and assurance of quality of education. Integration with European and NATO space. Orientation on the sustainable development of the country and creation of the

knowledge-based environment.

41

Budget Expenditures of the Ministry of Education and Science in Relation to GDP 2004

Factual2005

Factual2006

Approved2007

Forcast2008

Forcast2009

Forcast2010

Forcast

GDP 9,824.1 11,591.9 13,080.0 14,600.0 16,200.0 17,800.0 19,500.0

Ministry of Education and Science (million GEL)

91.5 80.9 329.6 394.6 452.9 498.2 589.9




Ministry Apparatus (million GEL) 3.3 4.5 2.8 2.9 2.9 3.0 3.1

Secondary Schools Financing Programme (million GEL)

180.0 210.1 231.0 261.8 311.9

Education Resource Centres (million GEL)

1.5 2.0 2.5 2.7 2.9

Childcare Programme (million GEL) 8.6 7.8 7.9 8.1 9.0 10.0 11.0

High Education Institutions (million GEL)

29.4 21.7 30.4 38.5 46.6 54.7 62.8

President National Programme “Rehabilitation of Education Institutions” (million GEL)

3.5 71.0 79.6 91.0 101.7 119.1

Science Programme (million GEL) 26.1 20.1 19.1 21.0 29.0 39.2 45.2

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