Owing to economic and institutional reforms and sound macroeconomic policies, Georgia’s economy grew at an annual average of nearly 6% between 2004 and 2013. Reforms that strengthened public finances, improved business climate, fought corruption, liberalized trade, and upgraded infrastructure led to an impressive annual average growth of more than 9% between 2004 and 2008.
However, in 2008, the dual shocks of the global financial crisis and the Russian Federation conflict sharply reduced capital inflows and private investment. Growth thus contracted by 3.7% in 2009. In response, the government implemented a countercyclical program to mitigate the adverse impact of the crisis on poverty. While the program paid off, public finances came under significant pressure. The government thus requested for assistance from the Asian Development Bank (ADB) to embark on fiscal consolidation and continually achieve its development goals.
The Improving Domestic Resource Mobilization for Inclusive Growth Program was designed as a programmatic loan with 3 subprograms to help expand the fiscal space to improve social services and enable inclusive growth. Initial program cost estimate was $200 million-equivalent for a 3-year period, but its actual cost was $250 million. ADB also provided technical assistance (TA) for capital market development, pension reforms, public–private partnerships (PPPs), and public debt management.
The program’s anticipated impact was better living standards and employment opportunities, particularly for women. Its intended outcome was effective mobilization of domestic resources for increased public and private investment. It had 4 planned outputs: (i) improved management of debt, cash, and fiscal risks; (ii) strengthened revenue and public expenditure management; (iii) enhanced generation of domestic savings; and (iv) increased mobilization of private resources for investment.
The first 2 subprograms focused on improving fiscal risk management and strengthening revenue and public expenditure management, which were incremental in nature and complemented ongoing support by the International Monetary Fund (IMF) and the World Bank. Under subprograms 1 and 2, diagnostic work on pension and capital market reforms and wide stakeholder consultations were carried out. Execution of the main policy actions followed under subprogram 3.
Most policy actions identified at appraisal and during implementation were implemented, resulting in the attainment of the intended program outcome. Specifically, gross national savings as a percentage of gross domestic product (GDP), the IMF reported, grew from 18.1% in 2012 to 20.1% in 2015. Domestic savings’ share in GDP, according to Georgia’s national statistical office, rose from 9.3% in 2012 to 14% in 2015 and further to 16.8% in 2016.
Major accomplishments under the program were: (i) the introduction of fiscal risk reporting for state-owned enterprises; (ii) full transition to internal tax auditors at the Georgia Revenue Service, and a move to risk-based audits; (iii) shift from ad hoc universal pension increases to rules-based indexation; and (iv) introduction of private pension schemes that substantially boost income replacement and generate additional investments in Georgia’s capital markets.
ADB’s Central and West Asia Department rated the program highly successful. The Ministry of Finance was the executing agency, and along with the Ministry of Economy and Sustainable Development, also served as implementing agency.
