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TRANSCRIPT
Infrastructure Financing for
Sustainable Development in
Georgia NATIONAL WORKSHOP
June 6, Tbilisi
David Lezhava
Part I – Infrastructure Financing Needs
2
Infrastructure investment needs globally
McKinsey & Company – 1.6 times increase ($57-67 trillion in 18years)
ADB - 2.0 times increase ($26 trillion in Asia in 15 years)
WB, OECD – 1.5 times increase
3
Why Infrastructure is so important for
Georgia?
ICT
• Inclusion
• Efficiency
• Innovation
• Tourism
Water
• Sewerage systems
• 24-hour Water supply
Energy
• Energy Security
Roads
• Transit
• Inclusive Growth
4
Investment Needs for Georgia
5
USD
Transport (Roads, bridges,
tunnels) 4,128
Transmission lines 786
Water 569
Regional development 160
Irrigation 137
Tourist infrastructure 392
0%
2%
4%
6%
8%
10%
12%
2014 2015 2016 2017 2018 2019 2020
Trend Government Plans
6 Free Trade Agreements
0
20
40
60
80
100
AR
GE
NT
INA
CE
NT
RA
L A
FR
ICA
N R
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, FY
R
KU
WA
IT
QA
TA
R
Tota
l ta
x r
ate
(%
of
pro
fit)
One of the lowest tax burden globally
Tax Burden Before-
2004 2005 2006 2007 2008 2009
20102016
2017
after
Number of Taxes 21 7 7 7 6 6 6 6
VAT (%) 20 20 18 18 18 18 18 18
Personal Income Tax (%) 12-20 12 12 12 25 20
20 20
Social Tax (%) 33 20 20 20 - -
Corporate Income Tax (%)
20 20 20 20 15 15 15
15 (distributed
earning only)
Dividend and Interest Income
Tax (%) 10% 10 10 10 10 5 5 5
7
Source: WB Doing Business
Source: MoF
0
10
20
30
40
50
60
70
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fraser Institute - Economic Freedom
Improved Rankings 8
0
20
40
60
80
100
120
140
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
Heritage Foundation - Economic Freedom
0
20
40
60
80
100
120
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
WB - Doing Business
0
10
20
30
40
50
60
70
80
90
100
2009 2010 2011 2012 2013 2014 2015 2016 2017
WEF - Global competitiveness index
0
20
40
60
80
100
120
140
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
TI - Corruption Perception Index
12313 475 11216
8544
9059
Worldwide Governance Indicators
9
0
10
20
30
40
50
60
70
80
90
Control of
Corruption
Government
Effectiveness
Political Stability Regulatory
Quality
Rule of Law Voice and
Accountability
1996 2006 2015
Source: WB
GDP 10
1.8
4.8 5.5
11.1
5.8
9.6 9.4
12.6
2.4
-3.7
6.2 7.2
6.4
3.4 4.6
2.9 2.7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
-6
-4
-2
0
2
4
6
8
10
12
14
GDP Current prices (RHS, Billion GEL) GDP growth
Source: GEOSTAT
4 point plan 11
Improve Business
Environment
Promoting Open
Governance
Education Reform
Infrastructure Development
4 point plan 12
Improve Business
Environment
Promoting Open
Governance
Education Reform
Infrastructure Development
Public Debt
50.4%
39.9%
32.0%
25.5%
31.2%
41.0% 42.4% 36.5%
34.8% 34.7% 35.6%
41.4% 44.9%
34.5% 26.8%
21.1% 16.8%
23.5%
31.7% 33.6% 28.8% 27.6% 27.2% 26.8%
32.5% 35.3%
0%
20%
40%
60%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016P
Total Public Debt to Nominal GDP (%) External Public Debt to Nominal GDP (%)
13
Source: MoF
Budget Deficit
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016P
Capital and Lending Social Expenditure Other Current Expenditure Fiscal Deficit
14
Source: MoF
Current Expenditure Dynamics
6.6% 7.5% 8.2% 7.8%
1.6% 2.0%
2.4% 2.9% 2.9% 3.1%
3.2% 3.4%
0.0%
5.0%
10.0%
15.0%
2012 2013 2014 2015
Social Healthcare Education
15
Source: MoF
How can the gap be closed?
16
Thank you!
17
Infrastructure Financing for
Sustainable Development in
Georgia NATIONAL WORKSHOP
June 6, Tbilisi
David Lezhava
Part II – infrastructure Financing
Strategies
19
Options for Closing Financing Gap
Public Sources
Borrowing
Budget
Quasi Fiscal
Private Sources
PPI
PPP
PPA
Require Less
Maintenance
PIM
20
Option 1. For Closing Financing Gap
Public Sources
Borrowing - Donors
Budget
Quasi Fiscal - SOEs
21
Public Sources – Donor Financing
External Public Debt
22
WB
[VALUE]
ADB
[VALUE]
Bilateral[
VALUE]
Eurobon
d[VALUE
]
EIB
[VALUE]
IMF
[VALUE]
EBRD[VA
LUE] 37
Donor Financed Projects by Sector
Transpor
t, 36.4%
Water,
21.2%
Municip
al
Infrastru
cture,
16.4%
Energy,
8.6%
Agricult
ure,
6.4%
Educatio
n, 4.5%
IDP,
3.6% Other,
2.9%
Source: MoF
Public Funds – Fiscal Room
Expenditure Measures
Wage Bill
Administrative Spending
Healthcare Expenditures
Revenue Measures
Tobacco
Alcohol
Fuel
23
0%
2%
4%
6%
8%
10%
12%
2014 2015 2016 2017 2018 2019 2020
Trend IMF GovernmentSource: MoF and IMF
Public Sources - SOEs
On-lending practices, no guarantees
Borrowing and Investing (Rail, GOGC)
Strengthening financial conditions (UWC)
Way forward for Partnership Fund
24
Option 2. For Closing Financing Gap
Private Sources
PPI – Private Participation in Infrastructure
PPP – Public Private Partnership
PPA – Power Purchase Agreement
25
Private Sources – Private Participation
in Infrastructure (PPI)
Business environment (Taxes, Deregulation, Corruption and Red Tape)
User fees (Tariff, Toll)
Capital Market and Banking Sector
Privatization
26
Privatization
Revenues and Efficiency
Privatization in Energy Sector – Success Story
Is anything left to privatize?
27
28
Private Sources – PPP/PPA
Mostly positive experience, but…
Option to circumvent fiscal costs?
PPP framework is must
PPA practice
Introduce and follow the rules
Make it transparent
Limit exposure
29
Option 3. For Closing Financing Gap
Require Less
Maintenance
PIM
30
Require Less – Use Maintenance
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
GEL,
mill
ion
31
Source: Roads Department
Require Less – Strengthen PIM
1. Fiscal Rules
2. National & Sectoral Planning
3. Central-Local Coordination
4. Management of PPPs
5. Company Regulation
6. Multiyear Budgeting
7. Budget Comprehensiveness
8. Budget Unity9. Project Appraisal
10. Project Selection
11. Protection of Investment
12. Availability of Funding
13.Transparency of Execution
14.Project Management
15. Monitoring of Assets
GEO EMs World
32 27
Source: IMF and author’s estimate
Conclusion
Impressive reforms didn’t bring full satisfaction
There is a need for increased investment
Finding fiscal room
Greater Involvement of the private sector is vital, but needs to be done
prudently
Strengthening PIM gives significant savings
33
Thank you!
34