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IMF Country Report No. 20/223

GEORGIA

TECHNICAL ASSISTANCE REPORT—THE PUBLIC SECTOR BALANCE SHEET AND STATE OWNED ENTERPRISES

July 2020

This Technical Assistance Report Paper on Georgia was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed in November 2019.

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FISCAL AFFAIRS DEPARTMENT

Georgia

The Public Sector Balance Sheet and State-Owned Enterprises

Jason Harris, Viera Karolova, Vincent Tang, John Zohrab, Philip Barry, and Irina Grigoryan

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Technical Report

January 2020

Contents

• ACRONYMS

• PREFACE

• EXECUTIVE SUMMARY

• I. PUBLIC SECTOR BALANCE SHEET

• A. The 2018 Public Sector Balance Sheet

• B. Evolution of the Balance Sheet

• C. The Intertemporal Balance Sheet

• II. SECTORIZATION

• A. Methodology

• B. Results

• C. Way Forward

• III. THE SIX LARGE SOES

• A. Introduction

• B. Recent Financial Performance

• C. Projected Financial Performance

• D. Fiscal Risks Statement

• E. Financial Risks

• IV. ACCOUNTING AND REPORTING REFORM

• A. Introduction and Background

• B. Current Status of the Reform

• C. Immediate Steps for the Reform Progress

• D. Way Forward

• E. Accounting Reform Risks

• BOXES

• 1.1. Assembling Georgia’s Balance Sheet

• 2.1. Criteria for Determining Whether an Entity is an SOE

• 2.2. Practical Application of the Market/Non-market Test

• 4.1. Illustrative Double Entries for Government Debt

• 4.2. International Organization for Supreme Audit Institutions (INTOSAI) Financial Audit and Accounting Subcommittee (FAAS) Explanation of Fair Presentation Framework

• FIGURES

• 1.1. 2018 Public Sector Assets and Liabilities

• 1.2. Net Worth International Comparisons

• 1.3. Net Financial Worth International Comparisons

• 1.4. Non-Financial Public Corporations Assets

• 1.5. Liquidity Exposure

• 1.6. Foreign Exchange Exposure

• 1.7. Public Sector Assets and Liabilities 2012–18

• 1.8. Decomposition of Changes in Net Worth

• 1.9. Gross Financing Needs of General Government

• 1.10. Decomposition of Changes in Public Corporation Equity

• 1.11. Non-Financial Public Corporation Returns

• 1.12. Old Age Dependency Ratio

• 1.13. Health and Pension Projection

• 1.14. Intertemporal Net Financial Worth Under Pension Variant 1

• 1.15. PPA Guarantees Baseline

• 1.16. INFW under Pension Variants, and Population Scenarios

• 1.17. Fiscal Tightening Required Every Decade to Maintain Net Financial Worth

• 3.1. Aggregate ROA and EBITDA/Assets 2012–22

• 3.2. Aggregate Leverage (D/(D+E)) 2012–22

• TABLES

• 0.1. Summary of Recommendations

• 1.1. Georgia’s 2018 Public Sector Balance Sheet

• 1.2. Outstanding On-lending to Public Corporations

• 1.3. Operating Balances of Selected Public Corporations

• 1.4. Pension Variants Modelled for Fiscal Projections

• 2.1. Impact of Sectorization on Georgia’s 2018 Fiscal Aggregates

• 3.1. Aggregate Financial Metrics, 2012–22

• 3.2. Net Financial Flows from the Government to the SOEs

• 3.3. Net Financial Exposures of the Large SOEs to the Exchange Rate

• 3.4. Gross Financing Requirements of the Large SOEs

• 4.1. Original Timetable for Introduction of IPSASs

• ANNEXES

• I. SOES Assessed as General Government Units

• II. Impact of Sectorization on Fiscal Aggregates

• III. SOE Financial Summaries

Acronyms