Lanka’s balance sheet, banking and investor-friendliness key : ex Georgian FM
Investors in any country, whether it is Georgia or Sri Lanka, look for a stable sovereign balance sheet, a resilient banking sector and pro-business regulation, according to former Georgian Finance Minister Dimitri Gvindadze.
Speaking on Friday as a part of a quarterly lecture series, held at the government’s MILODA financial studies academy in Colombo, Mr. Gvindadze further elaborated that, after a turbulent spell of its own, Georgia had to work hard, over a long time, to get back to pre-1990 levels, its most prosperous, with the country having lost three quarters of its economic output between 1990 and 1994.
He also added that Georgia was currently ranked 9th on the World Bank’s “Doing Business”, compared to 134th in 2004, and that it presently holds a BB- sovereign rating, where it had none in 2004. This improvement was attributed to a number of reforms, most important of which was tax reform.
He stated that the tax code was cut down to just 10 pages, with only six taxes. He also noted that another key reform was introducing legislation to set upper limits on public spending at 30 per cent, what he called a “self-imposed straightjacket” to ensure that this facet was always tightly controlled.
Also highlighted was, as a rule, 25 per cent of public spending was always on capital infrastructure such as roads, power generation, water and sanitation, etc. Further, instead of horizontal infrastructure based improvements, a single city was chosen each year for improvement, with its facades being beautified and its facilities otherwise developed. This, in turn, also led to businesses investing as a result of urban renewal.
Mr. Gvindadze also noted that the banking system of Georgia has been fully privatised since 1995. He added that there was no interference from the government, while there was a cutthroat market for players. Further, he added that banks operating in OECD countries faced minimal red tape in setting up shop in Georgia. Also, there was no restrictions whatsoever on investors repatriating their earnings out of Georgia.
Additionally, Mr. Gvindadze also indicated that, while Georgia is not considered a default investment destination, its’ increasingly investor friendly regulations were helping change these perceptions. Investors were prone to invest if Georgia demonstrated that it was different and more liberal than neighbouring economies. As such, Georgia was endeavouring for no policy drift in the future, which had been mandated at a constitutional level. One highlighted example referring to Georgia’s difference in terms of other countries is its lack of taxes, including related to capital gains, wealth, foreign income, road, etc. as well a lack of social taxes and even progressive taxation.
He also added that Georgia got rid of corruption by getting rid of corrupt people, increasing the wages of its public servants and introducing e-government services. Shedding corrupt public servants was only achieved because the present government was elected with a 95 per cent approval rating which allowed layoffs of corrupt public servants to occur over two years.
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