Monday, August 21, 2017

Statistical Hiccups Cause Georgia to Become Lower-Middle Income Country

[Note: This article originally appeared on Eurasianet. It was written by Dustin Gilbreath, a Policy Analyst at CRRC-Georgia. The views expressed within the article do not necessarily reflect the views of CRRC-Georgia or any related entity.]

Georgia’s economy appeared to take a step backward earlier this summer when the World Bank demoted the country to “lower-middle-income” status. The demotion, however, has more to do with statistical hiccups than it does with a substantial decline in economic activity.

In 2016, Georgian officials cheered when the World Bank promoted the country into the ranks of “upper-middle-income” states. It was big news in Tbilisi, the capital. But in July, officials didn’t have much to say when the country slipped back into the “lower-middle-income” ranks.

To understand the up-and-down tale of Georgia’s economic status, one needs to know how the World Bank classifies countries into income groups, a bit about Georgia’s 2002 and 2014 censuses, Georgia’s fluctuating exchange rate, and what country classifications are used for in practice.

To start, the World Bank measures economic status primarily by relying on gross national income (GNI) per capita, which is composed of GDP, as well as incomes flowing to the country from abroad, including interest and dividends. To make these calculations, the Bank uses something called the Atlas method, which accounts for fluctuations in the exchange rate using a three-year, inflation-adjusted average of rates.

Thresholds for each income group change slightly every year based on inflation. In the most recent year, countries with less than $1,005 in GNI per capita were designated low-income countries; those with GNIs from $1,006 to $3,955 fell into the lower- middle-income group; $3,956 to $12,235 were upper middle income; and those with $12,236 and above attained high-income status.

Georgia isn’t the only post-Soviet country to experience a downgrade in recent years due to exchange-rate woes and other factors. Russia, for example, moved down to upper-middle-income status in 2016 after three years in the high-income group.  Meanwhile, Azerbaijan, which is grappling with a severe downturn due to the global drop in energy prices, is at risk of demotion to lower-middle-income status next year. And Kyrgyzstan and Tajikistan appear poised to slip back into the lower-income category.

GNI per capita is a population-based measure. That means that as the number of people decreases, the figure increases. For this reason, the 2014 census made Georgia an upper-middle income country. This fact stems from Georgia’s population size between 2002 and 2014 being estimated using the 2002 census. In 2002, the Georgian government carried out its first census since the last Soviet census in 1989. The census’s final population count is believed to have heavily overestimated the population at about 4.4 million citizens. Between censuses, the population data is updated using birth and death registries. These too had problems, showing that Georgia’s population was growing steadily.

In contrast to the 2002 census, the 2014 census was more rigorous. It showed a 17% smaller population figure than the Georgian National Statistics Office had estimated for 2014. This meant that the per capita figures for GNI jumped, pushing Georgia into upper-middle income status. Notably, estimates of GNI per capita which use more realistic population figures for the years between 2002 and 2014 suggest that Georgia had likely crossed the upper-middle income threshold in 2013.

Even though the Atlas method takes into account fluctuations in exchange rate, GNI per capita is ultimately denominated in dollars for the World Bank’s calculations. In Georgia’s case, the Lari has dropped from around GEL 1.7 to the dollar in early 2014 to about GEL 2.4 to the dollar at the time of this writing. The value of the Lari was even lower for a time. In practice this has decreased Georgia’s GNI per capita figures to the point of knocking the country into a different income category.

Against the backdrop of population estimate revisions and fluctuating exchange rates, Georgia’s economy has been growing, albeit very slowly for a developing country in recent years. Georgia’s economy grew at an average rate of about 5.9 percent from 1995-2013; since 2014, it has grown at an average rate of 3.4 percent

The exchange rate fluctuation is hampering growth prospects. For one, rate volatility makes it harder for businesses to predict costs. In addition, many Georgians have dollar-denominated loans, while their incomes are in Georgian Lari. Although nominal salaries have slightly outpaced inflation, they have not kept pace with the decline in the Georgian currency’s value. Hence, debt payments consume a rising share of income for those trying to pay off dollar-denominated loans. The Georgian Government and National Bank are addressing this situation via a program that subsidizes the conversion of foreign-currency loans into Georgian Lari at a favorable rate.

While Georgia’s income group status has more to do with how the statistic is calculated than the actual state of Georgia’s economy, the changes have had clear implications. For instance, the Global Fund - an organization that has provided over USD 100 million to Georgia over the years to combat tuberculosis and AIDS - has different rules on aid for lower-middle-income and upper-middle-income countries. Meanwhile, a Brookings Institution study suggests that upper-middle income countries receive aid more often in the form of credits (i.e. loans) than grants when compared with lower middle income countries.

Some development organizations explicitly change lending terms when a country moves from lower middle to upper middle income status, although the World Bank itself does not. Hence, Georgia’s downgrading may have a silver lining, potentially leading to more aid opportunities.

But downgrading also has significant downsides. In political terms, it’s not good news for incumbents because it fosters an appearance among the population that the country is moving backwards. It also can impact the decisions of potential foreign investors. The demotion in status is unlikely to make Georgia a more attractive investment destination.


Monday, August 14, 2017

Who makes political decisions in Georgia: What people think

[Note: This post was written by Tsisana Khundadze, a Senior Researcher at CRRC-Georgia. The post was originally published here in partnership with On.ge. The views in the article do not necessarily reflect the views of CRRC-Georgia, the National Democratic Institute, or any related entity.]

Bidzina Ivanishvili resigned from the post of prime minister of Georgia on November 20th 2013, and in his own words, “left politics“. Speculation about his continued informal participation in the political decision-making process began even before he resigned and still continues. Some politicians think that Ivanishvili gives orders to the Georgian Dream party from behind-the-scenes, while others believe that he actually distanced himself from politics. Politicians, journalists and experts continue to discuss the situation. Meanwhile, a majority of Georgia’s population thinks that Bidzina Ivanishvili is still involved in the governing process and that his informal participation is unacceptable.

The results of CRRC-Georgia and NDI-Georgia surveys carried out during the last two years indicate that the majority of the population of Georgia thinks that former Prime Minister Bidzina Ivanishvili continues to be a decision-maker in the actions of the government. Notably, this is people’s perceptions and may not coincide with reality. In none of the main demographic groups (in terms of sex, age, level of education and settlement type) does the majority indicate otherwise. In total, 56% of the population would prefer that the former prime minister not be involved in the decision-making process at all. About one fourth of the population, on the other hand, thinks that Bidzina Ivanishvili should hold an official position and make political decisions. Only 7% would prefer Bidzina Ivanishvili’s informal involvement in Georgia’s governance.

People who say that the United National Movement is the party closest to them more frequently indicate that Bidzina Ivanishvili is still a decision-maker in politics, compared to Georgian Dream supporters. A majority (86%) of United National Movement supporters say that it is preferable if Bidzina Ivanishvili is not involved in decision making processes, while 43% of Georgian Dream supporters think that the former prime minister should be involved in these processes in an official capacity. It is noteworthy that the share of Georgian Dream supporters who prefer that Bidzina Ivanishvili participate in the political decision-making process in an official capacity decreased during the last two years.



Note: The question about party support was asked as follows: “Which party is closest to you?” People were grouped as supporters of the Georgian Dream or United National Movement based on their answers to this question.

These differences are not entirely unexpected considering the polarized political environment. Though, as we see, even among Georgian Dream supporters, only a small share prefers Bidzina Ivanishvili’s informal participation in political decision-making processes.

The data show that informal governance is unacceptable for the majority of the population of Georgia. No matter an individual’s sex, age, education, place of residence or political orientation, the majority of the population thinks that if a person resigns from politics, s/he should no longer influence the government’s decisions. These results indicate that basic principles of democratic governance, namely transparency of decision-making processes and accountability, are important for people. Politicians should take this into consideration.

Monday, August 07, 2017

Rare evidence: Judges on challenges in the court system of Georgia

Georgia has long faced problems with its court system. On CRRC’s 2015 Caucasus Barometer survey, only about one in four people in Georgia reported trusting the country’s court system. Since 2012, there have been three sets of judicial reforms, yet according to a number of NGOs, there are still important issues to be solved.
We often hear what NGO representatives think about the challenges facing the judiciary system in Georgia. It is, however, rare to have the chance to learn what judges think about the system. In partnership with the Coalition for an Independent and Transparent Judiciary, CRRC-Georgia interviewed 12 current and former judges in Tbilisi, Kutaisi and Zugdidi in October-December, 2016. Although 28 judges were sampled originally, others could not be contacted or refused to be interviewed. Importantly, the findings of these interviews cannot be generalized. Still, they provide rather unique insights into what judges think about the problems in the judicial system in Georgia. 
Respondents named several important issues that have a negative impact on the court system. First, judges have large caseloads that might affect the quality of decisions. Thus, more judges are needed to handle cases. Second, judges note a lack of courtrooms. Both problems result in trials being delayed. As one judge noted:
We have a shortage of staff, we need more judges. There are too many cases. We fail to handle them all. We lack judges, <…> so, this may affect the quality of [court] decisions. Trials take too long, because we simply don’t have [enough] courtrooms. (Current judge; male; Tbilisi City Court).
Importantly, both these issues have already been addressed in the draft version of the 2017-2021 Court System Strategy, which calls for an increase in the number of judges as well as courtrooms.
The interviewed judges also noted the lack of trust in the court system as another important issue. The respondents believe that it may be the judges themselves who are sometimes responsible for the lack of trust in the court system. In their opinion, if judges in Georgia consistently issued well-elaborated verdicts, the system would earn more trust, since such verdicts would help avoid any suspicion about the quality of the verdict, particularly from representatives of the party that has lost.  
Respondents also think that the media influences public opinion about the courts. Some of the respondents believe that the media prefers to cover problematic cases, especially when the court competence is to be questioned, rather than the cases when the court came up with a well-reasoned and convincing verdict. Generally, the interviewed judges are not against media coverage of the court proceedings and believe that such coverage increases the transparency of courts. However, some of them believe that journalists should be trained on how to use legal terminology properly.
In spite of the challenges associated with such interviews, it would be valuable to continue to collect these first-hand accounts of the court system from judges. The full report of this study is available here