Public debt is one of the most important components of country’s financial management. The basic reason of borrowing is to finance budget expenditures, by which the society will be provided with public services. In terms of insufficient financial resources, borrowing provides an opportunity to avoid suspension of different investment projects, growth of taxes and/or reduction of current expenditures, which will have a negative impact on the implementation of various social projects. As a result, with the prudent public debt management, government might enhance the economic growth of a country. But, on the other hand, improper debt management instead of economic growth might lead the country to a severe debt crisis. Therefore, to ensure the sustainable growth of a country, prudent public debt management plays a crucial role.
As the Georgian economy grows, the challenges arise regarding the borrowing opportunities available for the developing country. To response with the mentioned challenges the Government requires to have a prudent debt management activities implemented in practice. Moreover, there is an increased interest from the Georgian society with the mentioned topic. Taking into account all the above mentioned issues, State Audit Office found it necessary to examine the existing practice of public debt management in Georgia during the period 2010-2014. The audit has revealed a number of deficiencies in the public debt management:
- Reported public debt of Georgia doesn’t include the debt of State-Owned Enterprises (SOE) that constitute implicit contingent liabilities. Therefore, in case of default/insolvency of the entity there is a risk of the reduction in assets and/or increase in liabilities of the state. These in turn, may negatively affect the country’s financial position.
- Ministry of Finance (MOF) does not have the public debt management strategy document.
- The creditor selection process is not documented and in the explanatory note - enclosed to the project Government Decree does not contain the information and analysis of the alternative funding opportunities.
- Risk evaluations and debt sustainability analysis were not conducted on a regular basis. This, in turn, creates the risk that potential threats would not be identified and prevented in a timely manner.
- Stable emissions of the Government Securities are not enough for the development of the domestic credit market. More than 90% of the Government Securities are acquired by the commercial banks indicating on the low level of investor base diversification.
- There is no formal guideline or methodology incorporated, describing the planning process for setting the Gross Borrowing Requirements.
Considering all the shortcomings prevailing in the public debt management the State Audit Office of Georgia elaborated corresponding recommenda
