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Georgia has advanced in Economic Freedom Index, ranking 12th in the world

By Natalia Kochiashvili
Thursday, March 19
According to the Heritage Foundation's Economic Freedom Index 2020 survey, Georgia's historical score stood at 77.1, advancing by 4 positions and ranking 12th in the world.

The Ministry of Economy and Sustainable Development of Georgia reports that Georgia's overall score is higher than the region's (69.8 points) and the world average (61.6 points).

Singapore ranks first in the world with 89.4 points; it is followed by Hong Kong (89.1) and New Zealand (84.1).

According to the rating, Georgia has advanced 2 places in the European region compared to last year. Therefore, Georgia ranks 6th out of 45 countries with "mostly free" status.

The survey estimates that the Georgian economy continues its impressive 7-year growth in various areas of freedom. The study emphasizes that steps towards economic freedom such as eliminating corruption, reducing regulations and simplifying taxation, are the result of recent reforms. It is also emphasized that in the last 5 years the Georgian economy has grown at a steady pace.

The 2020 ranking was based on 4 areas: the rule of law, the capacity of government, the effectiveness of regulations and the open market. These directions, in turn, comprise 12 components.

Out of the 12 components of the rating, Georgia has improved in 5 fields: property rights (68.6 points), government justice (64.8 points), the efficiency of the judiciary (57.9 points), monetary freedom (78.3 points) and fiscal freedom (94.4 points).

Georgia gained unprecedented recognition in the property rights indicator in 2020, and the country's rating was 68.6 points. It should be noted that in 2012 the country had only 40.0 points in this indicator.

Assessment in the Government integrity indicator was improved by 6.3 points composing a score of 64.8 points. The evaluation of this component is based on the World Economic Forum's Global Competitiveness Index, the World Justice Index (WJP), the Transparency International Corruption Perceptions Index and the Trace Matrix.

According to the survey, the secured interests in both real and personal property are recognized and recorded, but deficiencies in court operations can keep investors from realizing their rights in the property offered as collateral. Despite ongoing judicial reforms, substantial executive and legislative interference in the courts persists.

The study reads that the flat individual income tax rate is 20 percent, and the flat corporate tax rate is 15 percent. Other taxes include value-added and dividends taxes. The overall tax burden equals 25.7 percent of total domestic income. Government spending has amounted to 9.6 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 1.0 percent of GDP. Public debt is equivalent to 44.5 percent of GDP.

The regulatory efficiency component– the monetary freedom indicator estimates the average inflation rate over the last three years. Georgia is ahead of countries such as Iceland, the Netherlands, Lithuania, the US, Luxembourg, Finland, Sweden, the Czech Republic, Korea, Germany, Norway, Austria, Japan, and others.

The study states that Georgia has recently made several business-friendly changes, although requiring that a value-added tax must be levied on advance payments for goods and services has increased business costs. Business friendliness outstrips business friendliness in other post-Soviet countries. It’s emphasized that the privatisation of many water and power utility companies has reduced the cost of government subsidies.

As for the open markets, the total value of exports and imports of goods and services equals 121.7 percent of GDP. The average applied tariff rate is 0.7 percent, and 66 non tariff measures are in force. “Foreign and domestic investments receive equal treatment, but transparency is an issue. With the banking sector growing and modernized, access to financing has improved,” claims the study, adding that the stock exchange is small and underdeveloped.

Georgia is not very far from top-10 ranking and according to the heritage foundation, it requires even more intensive efforts to improve perceptions of government integrity and judicial effectiveness. We are advised that “a good first step to avoiding controversies over judicial appointments would be legislative action to protect the independence of the judiciary.”

The Economic Freedom Index is mainly based on sources of international ratings such as the World Bank Doing Business, Global Competitiveness Index (GCI), CPI and World Justice Index (WJP).