GEORGIA

The Constitution of 1995 established the Republic of Georgia as a unitary republic. Since the constitution was last amended in 2017, Georgia has been transitioning from a semi-presidential system to a parliamentary system. Effective as of 2018, the constitutional amendments substituted Georgia’s unicameral Parliament with two chambers: the Council of Republic and the Senate. The Council of Republic is composed of members elected by a proportional system, and the Senate of elected members from the Autonomous Republic of Abkhazia, the Autonomous Republic of Adjara, other territorial units of Georgia, in addition to five members appointed by the President of Georgia. According to the 2017 constitutional amendment, the next Presidential elections will occur indirectly, in 2024, through special electoral boards composed of 150 members of the Parliament, members of the Supreme Council of the Autonomous Republics, and voters nominated by the parties according to the results of local elections. In the meantime, the last direct presidential election was held in 2018, electing the president for a 6-year term. The Prime Minister, appointed by the Parliament following a recommendation made by the President, is the head of the Government.

Georgia has only one level of subnational government, i.e. municipalities, which are subdivided into two categories: communities and cities. The country also encompasses the Autonomous Republics of Abkhazia and South Ossetia (not under Georgian state control; occupied by the Russian Federation) and the Autonomous Region of Adjara.

In 2013, a new chapter on local self-government was added to the constitution (Chapter 7-1), recognising local autonomy and local government’s powers, own assets and resources, along with a comprehensive territorial and administrative reform process. In 2014, a new Code of Local Self-Government was adopted, further amended in 2017, which reformed the regional state administration, introduced essential changes in the multilevel governance framework, and reinforced local participation (through Citizen Advisory Councils) and the elections mechanism. Direct election of mayors of all municipalities was introduced, which was accompanied by an expansion of exclusive competences given to municipalities. This is unlike previous legislation that limited direct mayoral elections to the capital city, Tbilisi. Local self-government is enshrined in Article 2 of the new Code. In March 2018, the Parliament and the Government of Georgia announced a new wave of local self-government reforms. A wide range of competences and resources are expected to be transferred to local authorities by 2025, with 7-8% of GDP to be allocated to the municipal budget. Different groups of stakeholders are also being consulted regarding new municipal fragmentation and changes in local voting methods.

In December 2019, Georgia adopted its comprehensive Decentralization Strategy 2020-2025, making decentralization a key policy priority. The strategy envisages three main priorities: (i) the transfer of more financial recourses to municipalities; (ii) the transfer of more powers to municipalities in local development; and (iii) the promotion of citizen participation in the decision-making processes at the local level. The Strategy also focuses on strengthening transparency, accountability and result-oriented actions of local self-governments. To ensure the implementation of the Decentralisation Strategy, an action plan was adopted for the period of 2020-2021, and the decentralisation reform will be pushed forward during 2022 when major activities of the new Decentralisation Strategy will be fully implemented.

Intergovernmental dialogue is organised through consultative national forums and regional meetings between the National Association of Local Authorities of Georgia (NALAG), the Ministry for Regional Development and Infrastructure (MRDI) and the Parliament of Georgia. The main function of these meetings is to discuss new legal initiatives and draft decisions taken by the government that have direct impact on municipalities. In parallel, there is direct dialogue between municipalities and ministries on various aspects of delegated tasks and responsibilities. NALAG maintains institutionalised cooperation with MRDI and the congress and serves as a channel for communication with municipalities.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2020)
Self-governing cities (Qalaqi) + Communities (Temi)		2 Autonomous Republics of Abkhazia and South Ossetia (avtomnoy respubliki) + 1 Autonomous Region of Adjara
Average municipal size: 58 031 inh.
64		3	67

OVERALL DESCRIPTION: The territorial organisation of Georgia has undergone several changes in recent years. In 1997, the Georgian Parliament adopted the law on Local Self-Government creating two levels of self-government (districts/raioni and municipalities). In 2006, the two-tier system of self-government was replaced with a single tier of municipalities (munits'ipaliteti), which are subdivided into two categories: cities (several based on former districts) and communities. In 2014, a territorial reform subdivided several municipalities into smaller units and provided city status to some communities (12 in all). In 2017, new amendments to the Code reduced the number of cities from 12 to 5 (Tbilisi, Kutaisi, Rustavi, Poti and Batumi) and several municipalities were merged.

REGIONAL LEVEL: Georgia has three autonomous territories, each with varied status, which are not accounted as subnational government bodies. The Autonomous Region of Adjara has special status defined by the 2004 constitutional law on the status of the Autonomous Republic of Adjara. It has its own legislative body, the Supreme Council, constituted of 21 members elected by universal suffrage by the consituents of their jurisdictions. The executive branch consists of a chairperson who is nominated by the President of Georgia with the approval of the Supreme Council, and four ministers in the areas of economy, healthcare and social security, agriculture and education, culture and sports. The government of the Autonomous Republic of Adjara is accountable to the President of Georgia, and its local-self government system consists of 5 municipalities and the city of Batumi, the administrative centre of Adjara and the third largest city in Georgia.

The Autonomous Republics of Abkhazia and of South Ossetia, are both disputed regions that are currently not under the control of the Georgian government but under Russian occupation (since the 2008 war, Russia recognizes them as independent states).

MUNICIPAL LEVEL: As of 2020, Georgia maintains a one-tier-system of decentralisation composed of 64 municipalities, composed of five self-governing cities and only 59 communities.

The deliberative organs of municipal governments are local councils or local assemblies (sakrebulo), which are composed of members elected via a mixed (proportional and majoritarian) electoral system for a four-year term, and are headed by a chairperson elected by the assembly members for the same period. Executive power is vested in the mayor (Meri in cities and Gamgebeli in communities), who is elected by direct suffrage, with an electoral threshold of 50%. The capital city of Tbilisi has the same status as the other self-governing cities but due to its size, Tbilisi has a municipal government that is nominated by the mayor and approved by the Tbilisi city council. Power and competences of Tbilisi are the same as in other municipalities, however, Tbilisi has more delegated tasks from the government of Georgia.

Cities and communities have the same status. The difference between them lies in the internal territorial organisation. Cities are unitary urban settlements while communities are usually an agglomeration structured around an urban settlement (town) and adjacent rural settlements (villages). Each of these entities is divided into sub-municipal administrative units. In 2020, the average size of municipalities was large, especially compared to the EU average (5 959 inhabitants) but the median size was smaller (31 000 inhabitants). Around 28% of municipalities have fewer than 20 000 inhabitants and only two have fewer than 5 000 inhabitants. The capital city of Tbilisi is by far the most populated (around 1.2 million), accounting for 32% of the national population. It is followed by Batumi (170 000 inhabitants) and Kutaisi (135 000 inhabitants).

The Constitution and the Code of Local Self-Government (Section III – Chapter VII) grant the capital city of Tbilisi special status. It is subdivided into 10 administrative districts, which reflect the delimitations of the city’s historical neighbourhoods. Each district has an executive department, headed by an executive director appointed by the mayor of Tbilisi.

HORIZONTAL COOPERATION: As the functional area of Tbilisi is larger than its administrative boundaries, Tbilisi started a metropolitan governance project in 2009 covering the capital city of Tbilisi, the city of Rustavi and the municipalities of Mtskheta and Gardabani, with co-operation on water supply, sewerage system and solid waste management.

Beyond Tbilisi, intermunicipal co-operation is gradually emerging in Georgia, despite the lack of a formal legal framework. More generally, the 2014 Local Self-Government Code (articles 20-21) empowered municipalities to establish joint enterprises, and local authorities have started to come forward with such initiatives in the provision of public goods and services.

STATE TERRITORIAL ADMINISTRATION: Georgia is subdivided into nine administrative regions (Mkharebi) based on Georgia’s historical and geographical regions. They are deconcentrated state administrations, headed by State governors who are appointed by the government. Regional governors used to supervise municipal governments, but their role was diminished by the 2014 code, and they were replaced by the office of prime minister and the ministry of justice.

As part of the “regionalisation process”, the 2014 code established Regional Advisory Councils as consultative bodies representing the authorities that operate at the municipal level and are chaired by the state governors. Amid stark and worsening regional disparities, their role is to report the challenges and specificities of each region and incorporate them into regional development plans. The Regional Consultative Council (RCC) is a special collegial body responsible for consultation on regional development strategy with mayors and heads of local councils from the municipalities located on the territory of administrative regions.

The law on local self-government and article 101-2 of the Constitution provides the framework that defines the competences of municipalities in Georgia. Georgian municipalities have both exclusive and delegated competences. Municipalities may proactively solve, within the limits set by the law, any issue within their respective jurisdictions (e.g. related to employment, tourism, agriculture, innovative development, etc.) if the relevant activity is not a specified part of the remit of any other public authority. Delegated tasks are determined by legal mandates or agreements between ministries and municipalities, and may encompass military registries, healthcare or social assistance. In the case of the autonomous region of Adjara, competences are defined in the Constitutional Law of Georgia on the Status of the Autonomous Republic of Adjara, which do not differ from those of local self-government units.

All local self-government units have equal powers. The capital city of Tbilisi has additional functions in transport and communication, healthcare, social protection and local development. There are also some overlaps in the allocation of competences, for instance in water supply management. The lack of clear boundaries is attributed to slow progress in the alignment of sectoral legislation with decentralisation policies. According to the local code, municipalities may also establish both non-profit and commercial enterprises for the provision of municipal and social services. The number of non-commercial enterprises established by municipalities has doubled in recent years.

Decentralisation and the transfer of more competences to municipalities is a key priority of the Decentralisation Strategy adopted in 2019. Sectorial decentralisation is scheduled for two stages: first, between 2020 and 2023, by delegating sectorial competences to municipalities while maintaining oversight function in the hands of line ministries. The first task delegated from the Minister of Education and Science (in charge of funding education expenditure) that was assigned to municipalities was capital maintenance of public schools, as of 2020. Then, between 2023 and 2025, these sectorial competences will be transferred to the discretion of local authorities.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Municipal level
1. General public services (administration)	Municipal administration; Management of municipal properties; building permits; Military recruitment (delegated)
2. Public order and safety	Fire safety and rescue assistance
3. Economic affairs / transports	Local motorways; Traffic regulation on local roads; Local public transport; Outdoor advertising and street trading; Exhibitions, markets and fairs; Management of local natural resources
4. Environment protection	Municipal waste management; Street cleaning; Public parks and public areas
5. Housing and community amenities	Spatial planning; Local water supply; Cemeteries
6. Health	Hygiene and sanitary inspections; Public healthcare (delegated); Prevention of epidemics; Ambulances (Tbilisi)
7. Culture & Recreation	Libraries; Cinemas; Museums; Theatres; Sport facilities; Preservation and development of local heritage; Local cultural monuments; Creative activities
8. Education	Pre-school education ; Support to schools in the implementation of their activites ; Maintenance of schools (primary and secondary)
9. Social Welfare	Registration and provision of shelter for the homeless; Infrastructure for disabled persons; Housing assistance for bus drivers (Tbilisi); Care of internally-displaced persons (delegated)

Scope of fiscal data: municipalities

IMF GFS

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: In addition to the Georgian Constitution, the local self-government fiscal framework in Georgia is specified in the Organic Law on local self-government, the Budget Code and the Tax Code of Georgia. Each local government has its own independent budget. The autonomous Republic of Adjara, under the jurisdiction of the Georgian government, also has financial autonomy within the scope established by Georgian legislation. It receives both tax and non-tax revenues and special funding from the national state budget for the exercise of its functions.

The financial needs of local governments to deliver their responsibilities are, overall, much higher than their own revenues. The resulting vertical imbalance means that subnational governments rely heavily on transfers from the central government. The Decentralization Strategy for 2020-2025 defines as main objectives that overall share of revenues of local self-government should be at least 7% of GDP, and that the share of municipalities’ revenues in relation to GDP shall increase incrementally along with the transfer of competence from central/autonomous republic government and in proportion with the funding of this competence from central/autonomous republic budget.

Subnational government expenditure by economic classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	895	6.1%	16.7%	100%
Inc. current expenditure	487	3.3%	11.8%	54.4%
Compensation of employees	96	0.7%	14.1%	10.7%
Intermediate consumption	110	0.8%	16.1%	12.3%
Social expenditure	69	0.5%	4.2%	7.8%
Subsidies and current transfers	208	1.4%	24.6%	23.2%
Financial charges	3	0.0%	1.2%	0.3%
Others	0	0.0%	0.0%	0.0%
Incl. capital expenditure	408	2.8%	33.1%	45.6%
Capital transfers	69	0.5%	35.5%	7.8%
Direct investment (or GFCF)	339	2.3%	32.6%	37.9%

EXPENDITURE: In 2020, subnational government expenditure amounted to 6.1% of GDP and 16.7% of public expenditure (-2.1 percentage points in comparison with 2016), well below the average for EU27 countries (18.3% of GDP and 34.3% public expenditure) and the average for OECD unitary countries in 2020 (12.7% of GDP and 27.5% of public expenditure). Subnational governments in Georgia represent a small share of public employment and staff expenditure, but a large share of subsidies and direct transfers, which represent 1.4% of GDP and almost a quarter of total public transfers and of total subnational government expenditure. Per capita spending varies greatly across regions; subnational expenditure tends to be concentrated in the Autonomous Republic of Adjara and the city of Tbilisi.

DIRECT INVESTMENT: Subnational governments in Georgia play an important role in public investment, even if their participation has decreased between 2016 and 2020. They were responsible for almost a third of total public investment in 2020 (vs. 59.6% in 2016), below the EU27 average (54.4% in 2020). However, as a percentage of GDP, subnational government direct investment remains high, above the averages for EU27 (subnational government 1.8%).

Nevertheless, capital investment projects are mostly financed and managed by the central government through the municipal development fund and through private-public partnerships (four projects between 2017 and 2019, accounting for a total value of USD 197 million), although local authorities are sometimes involved in the planning process. As part of the decentralisation strategy, municipalities are encouraged to ask for recommendations from citizens’ advisory commissions and organise general meetings with citizens to discuss spending priorities and identify which investment projects should be implemented at the local level.

Subnational government expenditure by functional classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	-	-	-	-
1. General public services	103	0.7%	9.4%	11.5%
2. Defence	2	0.0%	0.7%	0.2%
3. Security and public order	0	0.0%	0.1%	0.0%
4. Economic affairs/transports	224	1.5%	22.9%	25.0%
5. Environmental protection	65	0.4%	62.1%	7.3%
6. Housing and community amenities	209	1.4%	85.9%	23.3%
7. Health	22	0.2%	4.0%	2.4%
8. Recreation, culture and religion	74	0.5%	42.7%	8.3%
9. Education	122	0.8%	18.4%	13.6%
10. Social protection	74	0.5%	5.3%	8.3%

Economics affairs and transports is the primary spending area of subnational governments, accounting for 25% of subnational government expenditure and 1.5% of GDP, in line with the OECD average for unitary countries (1.6% in 2019). Housing and community amenities is the second most important area of subnational government expenditure, accounting for 23.3% of subnational government spending and 85.9% of total public expenditure in this category, followed by education (including, since 2020, mostly capital expenditure such as the maintenance of school buildings), and general public services. Environmental protection stands for a small share of the local budget (7.3%), and yet environmental spending is mostly carried out by local governments (62.1% of public environmental expenditure).

Subnational government revenue by category
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	800	5.4%	19.9%	100%
Tax revenue	123	0.9%	4.0%	16.2%
Grants and subsidies	574	3.9%	-	71.7%
Tariffs and fees	62	0.4%	-	7.7%
Income from assets	35	0.2%	-	4.3%
Other revenues	0	0.0%	-	0.0%

OVERALL DESCRIPTION: Local government revenue comprises own revenues (local taxes, charges and fees), shared tax revenues, and other revenues in the form of grants, subsidies and loans. The organic law on local self-government (art. 24) enables local government to introduce or abolish local taxes and fees, in accordance with Georgian legislation; however, this prerogative is not used.

In 2020, grants and subsidies constituted the bulk of total subnational government revenue (71.7%): subnational government dependence on the central government has increased in the period 2016-2020: grants and subsidies increased by 25.6% as a percentage of subnational government revenue, while tax revenue decreased by 23.7%. This can be partly explained by the impact of the COVID-19 crisis, which led to a decrease in subnational government revenue of -15% between 2019 and 2020 in real terms, driven by a decrease in tax revenue (-15%) and tariffs and fees (-48%). The objectives set by the Decentralization Strategy for 2020-2025 aim for local budgets to reach 7% of GDP (as compared with 5.4% in 2020).

TAX REVENUE: Local governments rely on two primary sources of tax revenue: a share of the personal income tax (PIT), and an own-source tax, the recurrent property tax.

Local governments receive a portion of the PIT collected within their jurisdiction, accounting for 18% of the PIT at the national level. The budget code mentions that the PIT is shared between the state and subnational governments, yet distribution criteria remain unclear. Since 2016, the PIT tax base, which previously comprised only taxes paid by individual entrepreneurs, has been enlarged to include the proceeds from the sale of material assets, rented, bestowed and inherited properties. A financial equalization reform is planned for 2023-24, based on social and economic indicators, which aims to assign a share from the personal income tax (PIT) to municipal budgets.

The property tax represented 16.3% of subnational government revenue in 2020, and 0.9% of GDP (close to the OECD average of 1.0% of GDP in 2020). The property tax is a local tax levied on buildings and land. It is paid by individual and legal persons. Municipalities can set the tax rates within limits set by the Georgian Tax Code, in consultation with the Ministry of Finance. The tax rate cannot exceed 1% of the value of the property for legal persons, whereas the limit for individual owners is based on income: between 0.05% and 0.2% for households earning less than USD 45 000 per year, and between 0.8% and 1% for other households. There are many challenges associated with property tax collection, due to the large number of exemptions granted to specific categories (e.g. farmers), and the fact that property assessments are not based on market price. Instead, the individual taxpayer assesses his own property.

In addition, in 2019, the Parliament of Georgia decided to transform the Value Added Tax (VAT) into a shared source of revenue between local and central governments, by assigning 19% of VAT collected at the national level to local budgets. According to NALAG, the introduction of the VAT as a shared tax increased local budgets by 15%.

GRANTS AND SUBSIDIES: Grants are the primary source of subnational revenue. While the share of grants had decreased significantly due to the increase in local tax collection and tax revenues (-18 percentage points during the 2013-2016 period), in 2020, their share increased significantly, partly because of direct transfers made by the central government during the pandemic. Overall, capital grants accounted for 29.8% of total grants (vs. 70.2% for current grants), a large proportion by international comparison.

Equalisation transfers make up the bulk of transfers. According to Georgia’s equalisation system, which is set forth in the Budget Code (art. 71-74), the central government transfers funds on an annual basis, according to a formula including the sum of expenditure and increase of nonfinancial assets of a particular municipality, the sum of own revenues in local budgets and a preferential factor for additional support to particular municipalities. In order to estimate total expenditure for each municipality, criteria such as the population size, the area, the number of children and of young people, the status of the capital and roads of local importance are used. The equalisation formula is subject to critics among experts: 61% of transfers are channelled to large self-governing cities that concentrate 42% of the country’s total population, while only 39% of the transfers reach municipalities that are home to 58% of the total population, and it does not incentivise small municipalities to increase their revenue bases, since that would imply a reduction in the size of their grant. Moreover, this equalisation system is not considered as a real financial equalisation system, but rather a method for covering local budget deficits, which also leaves room for arbitrary decisions by the central government, threatening subnational governments’ financial autonomy. The Ministry of Finance is currently working on reviewing the equalisation mechanism in order to lessen regional and inter-municipal disparities. The final amount allocated for the equalisation transfer is determined by the central government and approved by the parliament. The introduction of a new equalisation system is planned for the 2023-2024 period.

According to the Law on local self-government (art. 94), municipalities are also entitled to targeted transfers earmarked for the exercise of local delegated powers, whose calculation is determined during consultations between the Ministry of Finance of Georgia and local financial administrations, based on 1) the cost of implementation of delegated tasks; 2) special transfers in the case of unforeseen events such as natural disasters ; and 3) capital transfers for the implementation of capital projects.

OTHER REVENUE: Tariffs and fees represent a significant source of revenue for local governments, and in particular self-governing cities (Tbilisi, Batumi), through the collection of fees on construction permits, garbage collection, urban development and gambling, and administrative fines. Fees levied on the use of natural resources (oil and gas, minerals and metals, mineral water, hunting, fishing) only benefit certain municipalities (70% of the budget of Bolnisi municipalities). According to NALAG, service fees altogether make up 52% of total own revenues of municipalities.

The share of property-related income in subnational government revenues is large by international standards: 4.3% vs 2.0% in the OECD and 1% in the EU27 in 2020. According to the National Agency of State Property, the central government transferred a significant number of its immovable properties into the ownership of municipalities in 2016 and 2017. Central authorities have however been slow in fully decentralising land, water, forest and natural assets to municipalities. Only large municipalities are able to receive significant revenue from property assets, be they physical or financial (interest earned on current accounts in commercial banks). During the period 2021-2022 the process of transfer of state property to municipalities is being resumed.

Subnational government fiscal rules and debt
2020	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	43	0,3%	2,3%	100%	-
Financial debt	43	0,3%	2,3%	100%	100%
Currency and deposits	0	0.0%	-	0.0%	0.0%
Bonds / debt securities	0	0.0%	-	0.0%	0.0%
Loans	43	0,3%	-	100%	100%
Insurance pensions	-	-	-	-	-
Other accounts payable	-	-	-	-	-

FISCAL RULES: The budget balance rule applied to Georgian local governments stipulates that the ratio of the consolidated budget deficit (central and local government) to GDP should not exceed 3%. Recent changes to the Local Government Law shall improve fiscal coordination across levels of government, as the parliament will be setting targets for sectors overall (such as requiring a 10% across-the-board reduction in administrative costs), as well as aggregate targets consistent with the general government fiscal rules.

DEBT: Municipal debt management is regulated by the fiscal rules laid down in the Organic Law of Georgia on Economic Freedom. Municipalities may borrow to finance capital investments with the permission of the Government of Georgia. The total amounts borrowed by a municipality shall not exceed 10% of the municipality’s average annual own revenues for the three previous budget years. Municipalities may borrow (from a public authority or a related legal entity) up to a maximum of 10% of their annual budgets. For the city of Tbilisi, annual loan servicing shall not exceed 5% of its annual budget.

Subnational government debt in georgia is low by international comparison, and the local capital market is still nascent. Indeed, municipal public debt represents only 0.3% of GDP and 2.3% of total public debt (compared with 13.9% and 15.4% on average in the EU27) and is made up exclusively of loans, all from national creditors.

TERRITORIAL MANAGEMENT OF THE CRISIS: An Interagency Coordination Council (ICC) chaired by the Prime Minister was created on January 28, 2020, before the first case was diagnosed in Georgia (February 26). Owing to the limited capacity of the hospital system, particularly the shortage of intensive care beds and specialists, and the health profile of the population, the government decided to enforce maximum social distancing and rigorous restrictions on mobility, and developed a nationwide hospital network, selecting facilities for their readiness and capacity for effective infection prevention and control, and reprofiling them for the COVID-19 response.

With the imposition of the state of emergency on March 21, 2020 (extended until May 21), a National Operational Headquarter (NOH) on the Management of the State of Emergency was created in order to ensure effective enforcement of the measures applied by the state of emergency. Within the framework of the Operational Headquarters, the Office of the National Security Council was tasked with the development of a management scheme for the state of emergency at central and regional levels. According to the developed scheme, regional and local headquarters were established in all regions of Georgia. They were headed by state representatives in the region. Based on the regional headquarters’ assessment of the epidemiological situation on the ground, and their recommendations, also in coordination with the NOH, the central government made decisions on locking down and further reopening some villages and regional centres. The regional command centres were accountable to the NOH and ensured coordination of local-level enforcement of the restrictions/measures applicable under the state of emergency.

However, the geographic incidence of COVID-19 cases revealed a regional weakness in the government’s approach. The southern border region of Kvemo Kartli accounted for 35 % of the first 800 cases diagnosed, with the municipalities of Bolnisi, Tetritskaro and Marneuli particularly hard-hit (incidence/100 000 people being 328, 245 and 36.5 respectively).

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The government of Georgia developed an anti-crisis package, targeting the needs of people and businesses, implemented in two stages. The first stage, involving emergency assistance, started in March 2020, prior to the state of emergency, and the second stage started in April to involve broader activities. Both the first and second stages included direct aid to citizens and businesses. Overall, the 2020 budget for stages 1 and 2 of the COVID-19 anti-crisis plan includes: care for citizens and their financial support (approx. USD 340 million); caring for the economy and assistance for entrepreneurs (approx. USD 570 million); and empowerment of the healthcare system and the fight against the pandemic (approx. USD 110 million).

In April 2020, a ban on passenger car movement was put in place, which implied that local municipalities, in coordination with the regional headquarters, issued movement permits to entities implementing economic activities (including individual entrepreneurs and farmers). Also, on the decision of the regional operational headquarters, food products were distributed among rural populations via so-called “markets on wheels”.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The COVID-19 crisis produced a sharp contraction in subnational government income, but had no global effect on subnational government spending, which remained stable in real terms. The central government provided financial assistance to the municipalities to prevent any further decrease of municipal budgets, but in the end, it did not prevent a significant drop in municipal revenue in 2020. Total subnational government revenue fell by 15% between 2019 and 2020, driven by a fall of all revenue items: tax revenue (-15%), grants and subsidies (-10%), fees (-48%) and property revenue (-5%). VAT reform was enacted before the pandemic, but because of the crisis, municipalities could not benefit from the expected effects of the reform. In fact, the COVID-19 crisis negatively impacted VAT collection and, according to NALAG, in the first months of 2020, municipalities had to cut down expenditures by 10%.

Regarding spending, in 2020 there was a drop in current expenditure such as staff expenditure and intermediate consumption, which was offset by an increase in direct investment (+5%), and transfers and subsidies (+14%). The increase in spending on investment and subsidies occurred in housing and community amenities (+32%), in environmental protection (+14%) and in economic affairs (+1%). All other functions saw their spending level decline in 2020.

ECONOMIC AND SOCIAL STIMULUS PLANS: The central government, in its 2021-2024 government program, proposes to create a macroeconomic context favourable to growth and the reduction of unemployment after the COVID-19 crisis. To do this, it proposes improving fiscal discipline both at the central and local levels; reducing public debt levels; and creating an attractive tax system for investments.

Georgia received international aid that was added to the national anti-COVID crisis plan. In particular, the World Bank extended support to Georgia through its USD 80 million Emergency COVID-19 Response Project, which came into effect in May 2020. In September 2020, Georgia signed the “COVID-19 Resilience Contract for Georgia” with the EU: a EUR 75 million grant to support the country's Anti-Crisis Economic Plan. Measures included social assistance for vulnerable households and support to businesses who have retained jobs in difficult times and an increase in the number of beds in intensive care units. Finally, in May 2021, the World Bank transferred approximately USD 100 million within the framework of the Relief and Recovery for Micro, Small and Medium Enterprises (MSMEs) Project, designed to contribute to the government’s jobs agenda and support up to 6 000 MSMEs most affected by the pandemic, especially in sectors like agriculture and tourism.