Georgia’s foreign debt not yet critical

Georgia’s foreign debt has reached GEL 5 billion. Economic analysts say that if foreign debt equals 40% of a country’s GDP its economic development stops and it falls into deep economic crisis. So far Georgia’s foreign dept is equal to 28% of GDP but it is predicted to increase to 30% by the end of the year, so the tendency is not encouraging.

In 2008 Georgia saw a quick growth in foreign debt, unprecedented in the last 7-8 years. Of the USD 4.5 billion granted to Georgia after the August war USD 2.5 billion is in the form of loans. Therefore foreign debt is growing much more rapidly than GDP, and this can cause serious macroeconomic problems in the country.

Experts suggest that the main source of foreign debt is the state budget deficit. When budget revenues are less than liabilities a state is forced to take either external or internal credits to finance this deficit. Since regaining independence in early 90s Georgia has always covered its deficit by loans, mostly external ones, and this will be a heavy burden for our children, as economist Nodar Khaduri suggests.