Infrastructure Financing for Sustainable Development in Georgia NATIONAL WORKSHOP June 6, Tbilisi David Lezhava
2 Part I Infrastructure Financing Needs
3 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
4 Why Infrastructure is so important for Georgia? Roads Energy Water ICT Transit Inclusive Growth Energy Security Sewerage systems 24-hour Water supply Inclusion Efficiency Innovation Tourism
5 Investment Needs for Georgia USD Transport (Roads, bridges, tunnels) 4,128 Transmission lines 786 Water 569 Regional development 160 Irrigation 137 Tourist infrastructure 392 12% 10% 8% 6% 4% 2% 0% 2014 2015 2016 2017 2018 2019 2020 Trend Government Plans
6 Free Trade Agreements
ARGENTINA CENTRAL AFRICAN REPUBLIC COLOMBIA BRAZIL CHINA ALGERIA TAJIKISTAN FRANCE ITALY INDIA BELGIUM SRI LANKA BELARUS CONGO, DEM REP MEXICO UKRAINE AUSTRIA SLOVAK REPUBLIC GREECE CZECH REPUBLIC MOROCCO SWEDEN SPAIN ESTONIA AFGHANISTAN AUSTRALIA RUSSIAN FEDERATION HUNGARY IRAN, ISLAMIC REP UNITED STATES EGYPT, ARAB REP PHILIPPINES SYRIAN ARAB REPUBLIC LITHUANIA DOMINICAN REPUBLIC TURKEY POLAND MOLDOVA NETHERLANDS MALAYSIA AZERBAIJAN SERBIA NORWAY VIETNAM ROMANIA UZBEKISTAN FINLAND KENYA PANAMA ALBANIA LATVIA PERU PARAGUAY TAIWAN, CHINA NIGERIA UGANDA PAKISTAN KOREA, REP LIBYA THAILAND MYANMAR SLOVENIA UNITED KINGDOM INDONESIA CHILE LEBANON MALDIVES SEYCHELLES ICELAND TONGA NEPAL KAZAKHSTAN SOUTH SUDAN KYRGYZ REPUBLIC SWITZERLAND SOUTH AFRICA ISRAEL IRAQ JORDAN BULGARIA LAO PDR IRELAND BOTSWANA DENMARK MONGOLIA CYPRUS HONG KONG SAR, CHINA BOSNIA AND HERZEGOVINA MONTENEGRO CAMBODIA CANADA CROATIA LUXEMBOURG SINGAPORE ARMENIA SAMOA GEORGIA UNITED ARAB EMIRATES SAUDI ARABIA MACEDONIA, FYR KUWAIT QATAR Total tax rate (% of profit) Tax Burden 7 Before- 2004 2005 2006 2007 2008 2009 2010 2016 2017 after 100 80 60 40 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 20 20 25 20 Social Tax (%) 33 20 20 20 - - Corporate Income Tax (%) Dividend and Interest Income Tax (%) 20 20 20 20 15 15 15 15 (distributed earning only) 10% 10 10 10 10 5 5 5 Source: MoF One of the lowest tax burden globally 20 0 Source: WB Doing Business
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 8 0 20 40 60 80 100 120 140 Improved Rankings Heritage Foundation - Economic Freedom Fraser Institute - Economic Freedom 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 10 20 0 10 20 30 40 50 60 70 80 90 100 123 13 47 5 112 16 90 59 85 44 WEF - Global competitiveness index 2009 2010 2011 2012 2013 2014 2015 2016 2017 30 TI - Corruption Perception Index 40 50 60 0 WB - Doing Business 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 20 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 70 20 40 40 60 60 80 80 100 100 120
Source: WB 9 Worldwide Governance Indicators 90 80 70 60 50 40 30 20 10 0 Control of Corruption Government Effectiveness Political Stability Regulatory Quality Rule of Law Voice and Accountability 1996 2006 2015
10 GDP 14 12 10 8 6 4 2 0-2 -4-6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 40.0 12.6 11.1 9.6 9.4 7.2 5.5 5.8 6.2 6.4 4.8 4.6 3.4 2.4 1.8-3.7 2.9 2.7 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Source: GEOSTAT GDP Current prices (RHS, Billion GEL) GDP growth
11 4 point plan Improve Business Environment Promoting Open Governance Infrastructure Development Education Reform
12 4 point plan Improve Business Environment Promoting Open Governance Infrastructure Development Education Reform
13 Public Debt Total Public Debt to Nominal GDP (%) External Public Debt to Nominal GDP (%) 60% 50.4% 40% 20% 39.9% 34.5% 26.8% 32.0% 21.1% 31.2% 25.5% 16.8% 23.5% 41.0% 42.4% 36.5% 34.8% 34.7% 35.6% 31.7% 33.6% 28.8% 27.6% 27.2% 26.8% 41.4% 44.9% 32.5% 35.3% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016P Source: MoF
14 Budget Deficit 50.0% 10.0% 40.0% 8.0% 30.0% 6.0% 20.0% 4.0% 10.0% 2.0% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016P 0.0% Capital and Lending Social Expenditure Other Current Expenditure Fiscal Deficit Source: MoF
15 Current Expenditure Dynamics 15.0% 10.0% 2.9% 1.6% 3.1% 2.0% 3.2% 3.4% 2.4% 2.9% 5.0% 6.6% 7.5% 8.2% 7.8% 0.0% 2012 2013 2014 2015 Social Healthcare Education Source: MoF
16 How can the gap be closed?
17 Thank you!
Infrastructure Financing for Sustainable Development in Georgia NATIONAL WORKSHOP June 6, Tbilisi David Lezhava
19 Part II infrastructure Financing Strategies
20 Options for Closing Financing Gap Public Sources Borrowing Private Sources PPI Require Less Maintenance Budget Quasi Fiscal PPP PPA PIM
21 Option 1. For Closing Financing Gap Public Sources Borrowing - Donors Budget Quasi Fiscal - SOEs
22 Public Sources Donor Financing External Public Debt Donor Financed Projects by Sector IMF [VALUE] EIB [VALUE] Eurobon d[value ] Bilateral[ VALUE] EBRD[VA LUE] 37 ADB [VALUE] WB [VALUE] Energy, 8.6% IDP, 3.6% Educatio Agricult n, 4.5% ure, 6.4% Municip al Infrastru cture, 16.4% Other, 2.9% Water, 21.2% Transpor t, 36.4% Source: MoF
23 Public Funds Fiscal Room Expenditure Measures Wage Bill Administrative Spending Healthcare Expenditures Revenue Measures Tobacco Alcohol Fuel 2014 2015 2016 2017 2018 2019 2020 12% 10% 8% 6% 4% 2% 0% Source: MoF and IMF Trend IMF Government
24 Public Sources - SOEs On-lending practices, no guarantees Borrowing and Investing (Rail, GOGC) Strengthening financial conditions (UWC) Way forward for Partnership Fund
25 Option 2. For Closing Financing Gap Private Sources PPI Private Participation in Infrastructure PPP Public Private Partnership PPA Power Purchase Agreement
26 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
27 Privatization Revenues and Efficiency Privatization in Energy Sector Success Story Is anything left to privatize?
28
29 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
30 Option 3. For Closing Financing Gap Require Less Maintenance PIM
GEL, million 31 Require Less Use Maintenance 450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Roads Department
32 27 Require Less Strengthen PIM 1. Fiscal Rules 15. Monitoring of Assets 2. National & Sectoral Planning 14.Project Management 3. Central-Local Coordination 13.Transparency of Execution 4. Management of PPPs 12. Availability of Funding 5. Company Regulation 11. Protection of Investment 6. Multiyear Budgeting 10. Project Selection 9. Project Appraisal 8. Budget Unity 7. Budget Comprehensiveness Source: IMF and author s estimate GEO EMs World
33 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
34 Thank you!