Georgian former president Mikheil Saakashvili stated that during his presidency Georgian economy was boosted? but in Ivanishvili period there was no significant development.

Eurasia Diary reports to citing The Financial, the economy is measured in the national currency and it is inappropriate to directly convert it into a foreign currency in order to get measurements for analysis over time. The figures based on this approach do not reflect a real trend in the changes of the volume of an economy.

In addition, Mr. Saakashvili’s statement also lacks objectivity given the substantial difference in the time periods and the base effect. Although it is incorrect to measure the gross domestic product (GDP) converted into a foreign currency, the former President of Georgia employs a method which converts nominal GDP figures into USD where inflation is not excluded and the real picture is further distorted. The volume of the USD converted nominal GDP in 2004-2012 did increase almost fourfold; however, this figure is substantially incongruent with the real growth figures of the economy.

In fact, in 2004-2012, Georgia’s economy increased by the factor of 1.7; that is, by 70.8%, whilst in 2013-2017 the economy increased by the factor of 1.2; that is, by 20.2%.

Analysis

On air on Rustavi 2’s talk show, Archevani, the former President of Georgia spoke about his presidency as well as the current situation. Mr. Saakashvili stated that Georgia’s economy increased fourfold by 400% under the United National Movement whilst the USD denominated economy has practically not increased under the Georgian Dream.

The volume of a country’s economy, the GDP, is calculated in the national currency and reflects the total value of goods and services produced in one year for final consumption. In order to see the real volume of a country’s economy, calculations have to be made in constant prices which exclude the inflation effect and show the volume of goods and services produced for the years in question and designated for final consumption.

To measure the economy by converting it into a foreign currency implies that the exchange rate effect has a substantial influence. The figure based on this method of measurement does not reflect a real trend. Therefore, it is incorrect to assess the economy by using its volume expressed in USD as it gives the possibility for the manipulation of numbers. Consequently, Mikheil Saakashvili’s approach to measuring the volume of the economy is wrong. At the same time, a comparison of the aforementioned two periods lacks fairness because there is a substantial difference between these periods (nine years and five years). Of additional consideration is the base effect which clearly played a role in the post-revolutionary years. Further, a fourfold growth means a 300% growth instead of a 400% growth as claimed by Mr. Saakashvili.

Graph 1: Real GDP and Economic Growth Rate (GEL Million, %)

Source: National Statistics Office of Georgia

In 2012-2014 the real GDP average annual growth rate was 6.2%whilst the GDP volume increased by the factor of 1.7, a 70.8% growth, between 2003 and 2012. In regard to the economic growth rate since 2012, the average annual growth rate was 3.7% between 2013 and 2017. In total, the real GDP volume increased by 20.2% in 2017 as compared to 2012; that is, by the factor of 1.2.

Apart from the fact that measuring the economy in a foreign currency is simply wrong, the numbers in Mikheil Saakashvili’s statement are the figures based on converting the nominal GDP into USD. This diverges from the actual volume of the economy because using this methodology to measure the GDP does not exclude the inflation effect whilst the currency exchange rate remains a factor. To use the methodology employed by the former President of Georgia, the volume of the economy did indeed increase almost fourfold; that is, by 297%, and did not increase in the period of 2012-2017. However, a measurement based on these data remains considerably far from reality.