Economic Reforms and the Rose Revolution

1. Economic Reforms and the Rose Revolution Robert Christiansen IMF Resident Representative in Georgia. June 1, 2006

2. Georgia: Before the Rose Revolution • Widespread corruption; • Accumulation of significant arrears, etc. Georgia was effectively a failed state before the Rose Revolution.

3. Rose Revolution Promises • Demonstrate progress in fighting corruption; • Deliver tangible and visible results quickly. Improving governance was the primary post-revolutionary expectation. Economic reform was a secondary objective

4. Source: Georgian Opinion Research Business International; April, 2005 Expectations of the Rose Revolution

5. Overview – Economic Growth * 2006 is the IMF staff estimate

6. Overview – Poverty

7. Overview – Inflation * 2006 is the IMF staff estimate.

8. Overview – Corruption Corruption perception index, (Transparency International) * 1 – Most corrupt; 10 – Least corrupt ** 0 – Least corrupt; 1 – Most corrupt

9. Overview – Business Environment The 2005 observation (blue line) falling inside the 2000 observation (orange line) implies improvement. (EBRD Transition Report, 2005)

10. Economic Agenda after the Rose Revolution The priority steps to undertake included: • Fight corruption in revenue collection; • Improve fiscal management; and • Use expenditures to meet public expectations.

11. Economic Agenda after the Rose Revolution • The aggressive anticorruption stance yielded fiscal success and resulted in a significantly improved revenue collection. • This allowed increased expenditures. • As a result the authorities achieved public approval.

12. Overview – Budget * 2006 is the IMF staff estimate

13. After the Rose Revolution * 2006 is the IMF staff estimate

14. After the Rose Revolution * 2006 is the IMF staff estimate

15. After the Rose Revolution * 2006 is the IMF staff estimate

16. After the Rose Revolution • Increase in pensions (from 14 to 33 lari); • Clearance of arrears (about 2 percent of GDP); • Energy sector rehabilitation (about 1 percent of GDP); • Launching reconstruction of roads (about 1 percent of GDP); • Introduction of a new tax code; • Introduction of a free emergency health care system; • Launching education reform.

17. After the Rose Revolution: A Side Effect

18. After the Rose Revolution • The post revolutionary success was also supported by a relative stability and favorable trends in macroeconomic and external environment during 2004-2005.

19. Looking forward • The most significant risks for 2006-2007 include: • Deterioration of economic relations with Russia; • Increase in energy prices; • Limited and a specific export structure; • Exhausting privatization revenue sources.

20. The challenges • Deterioration of economic relations with Russia; • Wine and mineral water ban; • Ban on agricultural products; • Speculations on ban on remittances and labor migration; • Future implications?

21. The challenges • Increase in energy prices: • Russian gas import prices increased from $ 64 to $ 110 in 2006. • The macroeconomic consequences.

22. The challenges Limited and a specific export structure

23. The challenges • Exhausting privatization revenue sources: • Authorities have already spent about 80-85 percent of privatization revenues.

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