The messenger logo

Political debates over Corona-economics

By Malkhaz Matsaberidze
Thursday, April 2
The overall threat posed by the Coronavirus epidemic seemed to unite the political spectrum, and the expression of this was support from the opposition to the state of emergency, but the political controversy did not disappear. On the contrary, it has acquired a new form and is concentrating on the economic problems created by the Coronavirus.

Opposition parties have made statements that the government is delaying its fight against the virus; for example, it does not use rapid testing capabilities, it does not properly care for its compatriots abroad. The 3rd president M. Saakashvili often appears on the screen. He has made various proposals, and some opposition representatives have demanded that Saakashvili be allowed to return to Georgia.

Government officials see the criticism of the opposition as ungrounded. Some also say that the opposition feared the growing popularity of the government both inside and outside the country, that the opposition lacked the moral right to teach the government and not speak out at the level of political speculation, that the government's actions undermined the opposition's myth about the ‘useless government.’ During the critical period, the government showed organisation, and hard work. However, the opposition is not entirely missing the point. If the government is working hard to prevent the spread of the Coronavirus and we should not lose merit in this regard, we must not forget about the economic problems created by the epidemic and the argument “the government must first take care of the people and then save the economy” does not work here. If the economy collapses, people will find themselves in an extremely difficult social situation.

The catastrophic downturn in the GEL indicates the catastrophic economic downturn. GEL was the most depreciated among the 160 currencies in the world in a week after March 18th. Its price against the US dollar fell 19.8%. During this period, the Armenian dram depreciated the most among the neighboring currencies (1.2%), which is 16 times less than the GEL depreciation rate.

The depreciation of the GEL is exacerbating the economy and destroying the already poor income of a large part of the Georgian population. The National Bank sells part of its reserves at the foreign exchange auction to stop the depreciation of the GEL. It has raised $ 80 million in total for this purpose, but the depreciation of the GEL cannot be stopped. There seems to be a need for other measures. Otherwise economic and social catastrophe is expected.

The sharp depreciation of the lari means a corresponding increase in imports, especially in the context of panic among the population, when consumables and food are massively purchased. The government announced subsidies to protect the poorest populations of nine types of mass consumption products (rice, beans, pasta, buckwheat, sugar, wheat, flour, oil and milk powder). Despite the inflation, the prices of these products should not be raised. The government subsidized these products for GEL 3.0. This means that the difference between the high cost of this benchmark is paid by the government and today the lari rate is about 3.5. That is, the government will have to incur significant costs. By some estimates, in 2019, the imports of these nine products totaled $ 280 million. Accordingly, the amount allocated to subsidize these products will be approximately GEL 2 million.

In addition, the budget incurs many other additional expenses. For example, keeping thousands of people in quarantine, as well as a significant portion of the population, is awaiting some financial support from the government in the form of vouchers. Thousands of people were left without wages and monthly income. Most of the population is panicking and if the situation doesn't change for the better, is afraid of starvation. The opposition calls on urgent changes to the government budget this year, demanding that the government starts working with a crisis budget. According to them, the budget allocation should be substituted. Opposition officials also point to articles that they believe may be restricted. For example, the government’s spending on travel, which is currently impossible under locked borders. They are talking about suspending the funds in the pension fund and distributing already existing funds as vouchers, which is estimated to be several hundred GEL per person. Their proposals, of course, also include populist statements, but the situation requires serious measures.

In general, the government plans to make changes in economic policy and budget, and even talks about it. Finance Minister Ivane Machavariani said the government is considering a full package of measures. They plan, for example, to provide vouchers to help the most affected public groups, such as electricity, lower income taxes, create a stimulus package, etc.

There is also an optimistic scenario- after about two months, domestic economic activity will generally recover. If this scenario turns out to be correct, the situation will be much better, but there are more pessimistic scenarios of the state of the economy. Building scenarios is good for decisions, but in times of crisis, decisions have to be timely. Otherwise, the situation will get worse.
(Translated by Mariam Mchedlidze)