Georgia's new government: old faces, old problems

Georgia's new government: old faces, old problems
Prime Minister Giorgi Kvirikashvili has cultivated better relations with President Giorgi Margvelashvili.
By Carmen Valache in Lund November 28, 2016

Georgia's new cabinet, approved by parliament on November 26, saw few changes compared to the outgoing government - only three out of the 18 ministers are new faces. But while Georgia looks set to continue on a path of economic growth and closer integration with the EU, the executive body will have to devise new ways to tackle old economic challenges, such as high unemployment, a growing public debt, a stubbornly high trade deficit and continued pressures on the currency.

At least these are the conclusions of an International Monetary Fund (IMF) delegation that visited Georgia between November 15 and 22. Upon concluding its visit, the delegation issued a report lowering the GDP growth forecast for the country from 3.4% to 2.7% for 2016, and calling for urgently needed structural reforms to boost medium-term growth and improve living standards.

Economic concerns related to balancing the state budget, financing tourism and infrastructure development projects, job creation, social services and poverty alleviation are likely to be the priorities for the new government.

Introducing the government's economic agenda on November 24, Economy Minister Giorgi Gakharia, one of the three new faces in the cabinet, noted that "The Georgian economy is developing in a very difficult...external environment. We have a small, open economy, and it is impossible for the current developments in our trade partner countries not to affect our economy. However, we also need to understand that we should not only blame the external factors, but also consider internal factors as a hindrance to economic development".

Based on a four-pronged reform strategy introduced earlier this year, the new government's economic agenda will focus on infrastructure development - building 1,000 km of roads, 550 km of highway, 300 bridges and 50 tunnels; tax reform to further lower corporate income tax from the already low level of 15% by exempting reinvested profits from taxation; governance reform to ensure transparency and cut red tape; and higher education reform.

The government has not explained how it can contain the country's growing external debt – which exceeds 100% of GDP, with public foreign debt some 40% of GDP – while at the same time devoting $3.5bn to investment and financing of proposed infrastructure projects in the next four years.

Moreover, the tax reform particularly will affect budget revenues in the medium term, as noted by the visiting IMF delegation and others. Tbilisi does not have a plan yet to make up for the short-term decline in tax revenues, which is estimated to cost some GEL1bn (€394mn) in 2017-2018, though it hopes that the tax reform will boost tax revenues in the long term

Social spending, which accounts for almost a third of the planned spending in 2017, would be one area for potential cuts. However, the government's healthcare reform is its most popular accomplishment - and was an important factor in GDDG's landslide victory in October - therefore it is unlikely that the government will curtail it, costly as it may be for the state budget.

Maturing democracy

A second challenge for Georgia's new cabinet is that it is completely dominated by members of the ruling Georgian Dream-Democratic Georgia (GDDG) party, which occupies 116 of the 150 seats in parliament after winning the October parliamentary election by a landslide. With a constitutional majority in parliament and a government comprising solely of GDDG members, some fear that the ruling party's domination of politics will erode democratic institutions in the country at a time when Georgian democracy is beginning to mature.

President Giorgi Margvelashvili, who was endorsed by Georgian Dream, himself acknowledged this to be a concern in his opening speech at the inaugural session of the new parliament on November 18, when he warned that "excessive concentration of power is dangerous even without any malicious intents" and that he would "not tolerate even intentions of violating the rights of state institutions".

A philosophy professor and former political commentator, Margvelashvili has had his share of confrontations with the GDDG establishment over the years, most notably when he  opposed amendments to a law on the constitutional court in May. But parliament passed the amendments despite his veto and a negative review from the Venice Commission, the Council of Europe's democracy watchdog.

While he has been getting along better with Prime Minister Giorgi Kvirikashvili, Margvelashvili suffered repeated humiliations at the hand of his predecessor, the young and tempestuous Irakli Garibashvili. The latter notoriously blocked the president from giving a speech at the UN General Assembly in 2014, and instead addressed the world's leaders himself, despite the fact that the address is normally performed by the head of state.  

Thirdly, foreign policy questions will test the new government, particularly with the election of Donald Trump as the next US president, and the possible continuing delay to its ambition to join Nato.

Ever since the Rose Revolution of 2003, Georgia's foreign policy has been consistently on a path of closer integration both with the EU – with which it signed an association agreement in 2014 – and with Nato, which pledged it would win eventual membership in 2008. 

Following Russia’s invasion of the country in 2008 and its election victory in 2012, Georgian Dream has sought to normalise relations with the country's overpowering northern neighbour and has succeeded in relaunching commercial relations.

Russia has leveraged the tensions between Tbilisi and the breakaway regions of Abkhazia and South Ossetia for over two decades, but the Kremlin upped the ante on November 21, when it ratified a law that effectively legalised the Russian military presence in, and support of, Abkhazia and guaranteed Russian support for the region in times of war.    

If, as many pundits fear, the Trump administration will adopt a more laissez faire attitude toward Russia, and the latter overextends its power in the region unhindered, this could spell trouble for Tbilisi in the coming years.

Georgia remains one of the most anti-Russian countries in the region - President Margvelashvili in particular has developed a reputation for blasting Russia at every occasion he gets - and open antagonism of the Kremlin could backfire under a new world order.