Ministry of Finance of Georgia. Georgia The Outlook. July Contact :

Transcription

1 Ministry of Finance of Georgia Georgia The Outlook July 2014 Contact : investorrelations@mof.ge

2 Government Priorities to Promote Inclusive Economic Growth Maintain stable macroeconomic environment, based on prudent fiscal, monetary and financial policies; Continue implementation of successful reforms and build on the existing success stories and accomplishments; Foster free and fair competition to establish truly level playing field for all businesses working in Georgia; Increase Economic Competitiveness through increasing: Private Sector Competitiveness; Human Capital Development; Access to Finance; Maintain strong relations with international development partners (both bilateral and multilateral), focusing in the first place on infrastructure development priorities; Continue approximation of Georgia s legislation with EU in the context of the Deep and Comprehensive Free Trade Agreement (DCFTA). 2

3 Economic Structure and Trends 3

4 US$ Economic Structure and Trends Reform-driven economic success: story in numbers GDP: strong rebound in 2010 after a relatively small contraction in 2009, robust growth potential Rapidly growing GDP per capita PPP and Nominal Nominal GDP (US$bln) Real GDP growth, y-o-y (%) GDP per capita (PPP) Nominal GDP per capita (US$) % 11.1% 9.6% % % % 7.2% 6.2% % 5.0% % % P2014F Source: Geostat, MOF 15% 12% 9% 6% 3% 0% -3% -6% 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,884 6,388 5,929 5,491 4,677 4,906 5,064 4,767 4,040 3,644 2,966 3,242 3,523 3,597 3,835 3,231 2,921 2,315 2,455 2,623 1,484 1, , P2014F Source: Geostat, MOF, IMF Broad-based and diversified nominal GDP structure 2013P Contributions to the real GDP growth 2013P Education 5.2% Other Sectors 17.6% Industry 17.2% Trade, incl cars and personal consumption items 24% Education 6% Financial Services 6% Construction 6.7% Healthcare & Social Assistance 5.8% Agriculture 9.3% Transport & Communications 10.7% Trade 17.3% Public Administration 10.1% Source: Geostat Agriculture 23% Manufacturing 31% Public Administration 7% Other sectors 3% Source: Geostat 4

5 Economic Structure and Trends Liberalized trade, diverse partners, significant and growing network of free trade agreements Very simple and service oriented tax and customs policy and administration No quantitative restrictions or tariff barriers Genuine commitment to trade liberalism and openness Free trade agreement signed with neighboring countries Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU was singed in June 2014 Canada 2.8% Italy 2.8% Kazakhstan 3.6% Export Structure by Country 2013 Import Structure by Country 2013 Other countries 26.3% USA 4.7% Bulgaria 5.2% Other Products 36.0% Bars 2.1% Gold 2.5% Turkey 6.3% Azerbaijan 24.4% Armenia 10.9% Ukraine 6.6% Russia 6.5% EU 21% Turkey 17.1% Other countries EU 29% 32.6% Source: Geostat Export Structure by Product 2013 Import Structure by Product 2013 Spirituous beverages Mineral 3.4% waters 3.7% Wine 4.4% Motor Cars 24.2% Ferro-alloys 7.9% Nuts 5.7% Copper ores 5.6% Fertilizers 4.5% Source: Geostat Italy 2.8% USA 3.2% Japan 4.1% Romania 4.1% Other products 62.4% Germany 5.7% Azerbaijan 8.1% Ukraine 7.6% Russia 7.5% China 7.2% Source: Geostat Petroleum 12.1% Motor cars 9.0% Gases 3.8% Motor vehicles for the transport of goods 1.0% Automatic data Cigarettes processing 1.2% machines 1.1% Medicaments 3.6% Wheat 2.3% Telephones 1.9% Copper ores 1.4% Source: Geostat 5

6 Fiscal Framework and Public Debt Performance 6

7 million GEL million GEL Fiscal Framework and Public Debt Performance Strong fiscal consolidation path driven by sustainably high revenues and prudent government spending Fiscal Consolidation 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000-7,560 7,910 7,434 Revenues F 6,545 6,087 Current Spending 7,237 2,210 1,753 1,575 Capital Spending and net Lending 2,000 1,500 1, (500) (1,000) (1,500) Overall Balance Primary Balance Operating Balance Operating Balance as % of GDP 5.6% 3.3% 2.3% F Source: MOF 6.0% 4.0% 2.0% 0.0% Fiscal Deficit as % of Nominal GDP Source: MOF Composition of the 2014 State Budget Outlays 0% -2% -4% -6% -8% P 2014F 2015F -2.6% -3.4% -3.6% -2.8% -2.6% -3.7% -3.0% -4.8% -6.2% -6.6% -9.2% Social Protection 25.6% Education 9.3% Other 16.8% General Public Services 9.7% Defence 7.7% -10% Source: MOF Health Care 8.1% Economic Affairs 12.1% Public Order and Security 10.8% Source: MOF 7

8 Fiscal Framework and Public Debt Performance Strategic Infrastructure Projects with Significant Positive Externalities and Strong Spillovers into the Rest of the Economy Energy Infrastructure Rehabilitation/construction of transmission line network Rehabilitation/ Construction of HPPs Roads Infrastructure Construction of the East-West Highway Rehabilitation of regional road networks, secondary and local roads Municipal and Regional Infrastructure Regional Municipal and Urban Infrastructure Development Projects Water supply, sanitation and storm water projects Solid waste management projects Agriculture Rehabilitation of irrigation and drainage systems 8

9 Fiscal Framework and Public Debt Performance External Public Debt Situation Debt Indicators: Below the Prudential Thresholds Public Debt Ratios: Sloping Downwards 80% 60% 40% 20% 0% Total Public Debt to Nominal GDP (%) External Public Debt to Nominal GDP (%) 63.2% 50.5% 40.0% 41.0% 42.4% 36.5% 32.0% 34.9% 34.7% 35.7% 44.9% 25.5% 31.2% 34.5% 31.7% 33.6% 28.8% 26.8% 27.6% 27.2% 26.8% 21.1% 23.5% 16.8% Public debt ratios have been on the steep declining path since Brief period of increase of the ratios against the backdrop of negative global economic context ended in In 2013, public debt decreased to 34.7% of GDP, external public debt went down to 27.2%. Based on the IMF Debt Sustainability Analysis the public debt ratio would remain on a downward path under most standard shocks. Even in extreme cases, the policy adjustment needed to restore debt sustainability are manageable. Source: MOF Gov t External Debt Service Easily Affordable Annual Repayment Volumes 15% 13% 11% 9% 7% 5% 3% 1% -1% as % of Budget Revenues 9.1% 8.7% 9.1% 7.1% 7.2% 7.6% 3.4% 4.4% 4.3% 2.0% 4.3% 3.0% F Source: MOF Growing budget revenues, very low average interest rate and flat repayment profile with easily affordable annual repayment volumes have been the key drivers behind low Government external debt service ratios The bulk of External Public Debt portfolio is owed to official multilateral and bilateral development partners, mainly on concessional terms 75% of the external public debt portfolio carries fixed interest rate. This keeps Georgia s external public debt service parameters to a large extent shielded from exogenous interest (base) rate fluctuations and ensures that external public debt service costs remain low and affordable despite global economic uncertainties. No refinancing risk exists in the foreseeable future 9

10 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Fiscal Framework and Public Debt Performance External Public Debt Situation Affordable Public Debt Stock and Very Low Interest Rate on External Public Debt External Public Debt by Interest Type: Interest Rate Risk Brought to a Minimum Domestic 25% External 75% Multilateral 51% External Public Debt Portfolio Average Weighted: - Interest Rate 1.9% - Contractual Maturity 23 years Variable 25% Bilateral 15% Eurobond 9% Source: MOF Fixed 75% Source: MOF Georgian Sovereign Eurobond 2021 Georgian Sovereign Eurobond Price Yield Spread to UST Source: Bloomberg 10

11 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Fiscal Framework and Public Debt Performance Eurobonds Issued by the State Owned Enterprises Georgian Railway Eurobond 2022 Georgian Railway Eurobond Price Yield Spread to UST Georgian Oil and Gas Company Eurobond 2017 Georgian Oil and Gas Company Eurobond Price Yield Spread to UST Source: Bloomberg 11

12 Coupon Coupon Discount Coupon Fiscal Framework and Public Debt Performance Treasury Bills and Treasury Notes 12-month Treasury Bills 2-year Treasury Notes 12-month T-bills 2-year T-notes 16% 12% 8% 4% 7.6% 12.0% 6.0% 5.2% 14.6% 11.7% 9.7% 9.4% 9.3% 6.9% 6.7% 6.5% 5.9% 4.4% 6.7% 6.2% 17% 15% 13% 11% 9% 7% 5% 15.6% 13.8% 14.3% 12.6% 10.2% 10.4% 9.1% 7.3% 6.9% 6.5% 5.5% 8.0% 7.5% 0% 3% 5-year Treasury Notes 10-year Treasury notes 16% 14% 12% 10% 8% 15.3% 14.1% 13.5% 11.3% 5 year T-bonds 9.6% 10.3% 8.4% 8.2% 8.7% 8.5% 7.9% 7.4% 9.5% 13% 12% 11% 10% 10 year T-notes 12.3% 11.6% 10.9% 11.1% 10.4% 10.6% 10.5% 10.3% 10.0% 10.2% 9.6% 11.7% 11.6% 6% 9% Source: MOF 12

13 Fiscal Framework and Public Debt Performance Taxation is Simple, Low, Efficient and Fair Number of Taxes VAT 20% 20% 18% 18% 18% 18% 18% 18% 18% 18% 18% Income Tax 12-20% 12% flat 12% flat 12% flat Social Tax + Income Tax 32% 25% Social Tax + Income Tax 20% 20% 20% 20% 20% 20% Social Tax 33% 20% 20% 20% Corporate Income Tax Dividend & Interest Income Tax 20% 20% 20% 20% 15% 15% 15% 15% 15% 15% 15% 10% 10% 10% 10% 10% 5% 5% 5% 5% 5% 5% No payroll tax or social insurance tax No capital gains tax No wealth tax, inheritance tax or stamp duty Foreign-source income of individuals fully exempted Tax rates reduction timetable was further accelerated in 2008 Very strong political commitment to low and simple taxation and improvement of services Significantly streamlined tax and customs administration geared towards provision of maximum comfort to businesses and investors 13

14 Fiscal Framework and Public Debt Performance Double taxation avoidance treaties Effective Rates of Source Taxation N Country Dividends Interests Royalties 1 ARMENIA 5% / 10% 10% 5% 2 AUSTRIA 0% / 5% / 10% 0% 0% 3 AZERBAIJAN 10% 10% 10% 4 BAHRAIN 0% 0% 0% 5 BELGIUM 5% / 15% 10% 5% / 10% 6 BULGARIA 10% 10% 10% 7 CHINA 0% / 5% 10% 10% 5% 8 CZECH REPUBLIC 5% / 10% 8% 0% / 5% / 10% 9 DENMARK 0% / 5% / 10% 0% 0% 10 ESTONIA 0% 0% 0% 11 EGYPT 10% 10% 10% 12 FINLAND 0% / 5% / 10% 0% 0% 13 FRANCE 0% / 5% / 10% 0% 0% 14 GERMANY 0% / 5% / 10% 0% 0% 15 GREECE 8% 8% 5% 16 HUNGARY 0% / 5% 0% 0% 17 INDIA 10% 10% 10% 18 IRAN 5% / 10% 10% 5% 19 IRELAND 0% / 5% / 10% 0% 0% 20 ISRAEL 5% 15% 0% 21 ITALY 5% / 10% 0% 0% 22 KAZAKHSTAN 15% 10% 10% 23 LATVIA 5% / 10% 10% 10% 24 LITHUANIA 5% / 15% 10% 10% 25 LUXEMBOURG 0% / 5% / 10% 0% 0% 26 MALTA 0% 0% 0% 27 NETHERLANDS 0% / 5% / 15% 0% 0% 28 POLAND 10% 10% 10% 29 QATAR 0% 0% 0% 30 ROMANIA 8% 10% 5% 31 SERBIA 5% / 10% 10% 10% 32 SINGAPORE 0% 0% 0% 33 SLOVAK REPUBLIC 0% 5% 5% 34 SPAIN 0% / 10% 0% 0% 35 SWITZERLAND 10% 0% 0% 36 TURKEY 10% 10% 10% 37 TURKMENISTAN 10% 10% 10% 38 UKRAINE 5% / 10% 10% 10% 39 UNITED ARAB EMIRATES 0% 0% 0% 40 UNITED KINGDOM 0% / 15% 0% 0% 41 UZBEKISTAN 5% / 15% 10% 10% 42 NORWAY 5%/10% 0% 0% 43 SAN MARINO 0% 0% 0% 44 SLOVENIA 5% 5% 5% 45 CROATIA 5% 5% 5% 46 SWEDEN 0% / 10% 0% 0% 47 KUWAIT 0% / 5% 0% 10% Source: MOF Signed and Ratified Treaties (effectiveness pending) 1. Portugal DTA treaties with 26 other states initiated. Negotiations to be held in the coming months. Awaiting Signature 1. Oman 2. Cyprus 3. Liechtenstein 4. Iceland 5. Lebanon 14

15 External Sector 15

16 External Sector Current Account funding structure ,000 Services (Tourism, net) Current Transfers (Remittances) C&F Account 1,000 FDI (net) 0 Portfolio Investments Other Investment (Public and Private Sectors) Increase in Reserves -1,000-2,000 CA Structural reforms would further enhance Georgia s competitiveness and increase exports in general, including of agriculture products, tourism, and hydropower energy. Access to Russian market was regained in ,000 Trade Deficit -4,000 16

17 mln USD External Sector Balance of payments - in sustainable equilibrium Current Account Balance (% of Nominal GDP) 30% Goods Services Income, net Transfers, net Current Account Net FDI 20% 10% 0% -10% -20% -30% P -9.6% -6.9% -5.9% -11.1% -10.5% -10.2% -15.1% -12.7% -11.7% -19.8% -22.0% -40% FDI Breakdown by Sectors 2013 Foreign Direct Investment Manufacturing 17% Transports and Communications 15% Agriculture 3% Financial Sector 19% Real Estate 3% Energy 22% Other Sectors 21% Source: Geostat 2,500 2,000 1,500 1, FDI FDI as % of Nominal GDP 25.0% 19.8% 20.0% 15.3% 12.2% 15.0% 7.7% 5.7% 7.0% 2, % 5.8% 10.0% 6.1% 1,564 1,190 1, % % P Note: spike due to large-scale privatization Source: Geostat 17

18 million USD million USD % External Sector Current Account - steadily growing external revenues Net FDI /GDP ratio compares favourably with peers (2012) ,500 3,000 2,500 2,000 1,500 1, Gross International Reserves Source: World Bank, IMF, NBG 1,361 1,480 2,110 2,264 2,818 2,873 2,823 6,000 5,000 4,000 3,000 2,000 1,000 0 Rapidly Growing Contribution of the Tourism Sector, with significant untapped potential 15% 13% 12% 763 1,052 1,290 20% 1,500 25% 27% 2,032 2,822 33% 4,428 49% 5,392, National Tourism Administration Current transfers, incl remittances steady source of external revenues 1,600 1,400 1,200 1, Foreign Visitors (thousand persons) Tourism Revenues as % of Trade Deficit (Goods) ,142 1,039 1,183 1,459 1,510 1, P 18 60% 50% 40% 30% 20% 10% 0%

19 Monetary and Banking Sector 19

20 Monetary and Banking Sector Core inflation remains subdued; exchange rate flexibility a policy priority; flattening yield curve Price pressures have eased. Core inflation has been traditionally subdued at around 1-3%. The National Bank of Georgia has continued to smooth out excessive exchange rate volatility, while at the same time building FX reserves. Shift to the inflation targeting mode has provided for the enhanced exchange rate flexibility. The flattening of the yield curve for treasury securities attests to the confidence in monetary and fiscal instruments and policies Exchange Rate Evolution Georgia: Yield Curve (in percent) US$ - GEL (period average) US$ - GEL (e-o-p) % 13% 11% 9% 7% 5% 3% 1% 9.7% 10.0% 13.8% 12.4% 9.3% 9.1% 7.5% 7.8% 7.3% 7.0% 6.1% 6.3% 6.3% 7.3% 4.5% 4.7% 6.0% 5.2% 3.5% 4.0% 4.0% 4.3% 3.5% 13.0% 8.7% 7.5% Dec-10 Dec-12 Source: Ministry of Finance, NBG % 10.0% Dec-11 Dec-13 O/N 1 W 3 M 6 M 1 Y 2 Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y

21 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Monetary and Banking Sector Price Stability: declining headline inflation, absence of second-round effects World Food Prices Average Inflation Rate - Georgia Inflation Dynamics - Georgia Source: UN FAO Source: Geostat Annual Inflation Rate (y-o-y) - Georgia 16.0 Core (non-food, non-energy) Headline Inflation Core (non-food) Source: Geostat 21

22 GEL million GEL million Monetary and Banking Sector Banking sector on the solid footing: banks well-capitalized with low NPLs, strong balance sheets and prudent loan-book expansion patterns The banking sector represents only a very moderate contingent liability to the sovereign (Ratio of assets to Nominal GDP is 58.8% as of end-2013). Stress tests of the banking system, using general and bank specific shocks did not raise concerns. Bank Assets On The Rise No taxpayer support over recent years (no bailouts!); shareholder-friendly governance and incentives; very conservative bank-level risk management; high quality core capital; exceptionally prudent NPL coverage ratios with impressive history of core deposit growth; no external securitization funding to win market share; no overreliance on wholesale funding; very strong microprudential risk based regulation/oversight by the National Bank of Georgia; track record of using macro prudential countercyclical tools; conservative capital requirements; prudent oversight of liquidity and funding risks Total Assets (eop) 18,000 16,000 14,000 12,000 10,000 Banks highly capitalised with average Basel I capital adequacy ratio of 26% (18% local standards) and liquidity ratio of 42.8%; NPLs declined to 3.3% (IMF definition) by end- November 2013 Loan to deposit ratio has been tightening as deposit growth has outstripped loan growth 8,000 6,000 4,000 2,000 0 Borrowings from IFIs represent large share of the banking sector s non-deposit funding Banking system privately owned since 1995; no restrictions on foreign ownership Georgia system-wide Loans to GDP and Equity to Assets Bank Deposits On The Rise 80.0% 60.0% 40.0% 20.0% 0.0% 40.2% 39.3% 13.4% 16.8% Loans/GDP 55.6% 44.3% 19.4% 11.1% Equity/Assets 63.8% 64.3% 63.3% 68.1% 14.5% 11.7% 14.2% 15.9% Deposits (eop) 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 and Citigroup Global Markets 22

23 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 Monetary and Banking Sector Banking sector on the solid footing: banks well-capitalized with low NPLs, strong balance sheets and prudent loan-book expansion patterns Traditionally High Capital Adequacy Ratio (NBG and Basel I Definition) 40% 34% 35% 30% 25% 20% 20% 15% 10% 36% 22% 31% 18% 36% 21% CAR - NBG 30% 16% 24% 14% CAR - Basel I 26% 19% 24% 26% 25% 26% 17% 17% 17% Total Bank Deposits and Loans moving in tandem GEL bln Total Loans Total Deposits % 25% 20% 15% 10% 5% 0% -5% -10% -15% High Profitability as Measured by ROE Sound Non-Deposit Funding Structure as of June-2014 Domestic Borrowing 11% Borrowing from Non-Resident Parent Banks 4% Borrowing from IFI's 20% Equity Capital 47% Private External Sources 18% 23

24 Monetary and Banking Sector Banking sector on the solid footing: banks well-capitalized with low NPLs, strong balance sheets and prudent loan-book expansion patterns 70% 60% 50% 40% 30% 20% 10% 0% Assets of the Banking Sector as % of GDP 21.9% 30.7% 42.4% 46.5% 46.1% 50.9% 52.1% 54.9% 64.4% Banking Sector Liquidity Ratios Ample Liquidity Buffers 70% 60% 50% 40% 30% 20% 10% 0% Liquid Assets to Customer Deposits 43% 57% 52% 54% 51% 44% 23% 27% 23% Liquid Assets to Total Assets 52% 46% 48% 54% 49% 52% 45% 18% 20% 25% 27% 28% 29% 27% 25% 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, % 80% 75% 70% 65% 60% 55% 1,730 Commercial Bank Lending, GEL mln 2,681 4,589 5,993 Credit continues to grow at a healthy rate 7,739 5,185 6,261 8,733 10, Banking Sector Dollarization on the Downward Path 85% 73% 69% 76% 74% Loan Dollarization 76% 66% 68% 66% 71% 78% 74% 68% 70% Deposit Dollarization 74% 68% 61% 71% 60% 69% 63% 65% 61% 24

25 International Rankings of Georgia 25

26 International Rankings of Georgia Sovereign Credit Ratings BB- Stable (Affirmed in May 2014) BB- Stable (Affirmed in May 2014) Ba3 Stable (Affirmed in August 2013) 26

27 International Rankings of Georgia Consistently outperforming sovereign peers Georgia - one of the most liberal labor environments (5th best globally), according to the Heritage Foundation, 2014 Greater Labor Freedom Georgia Frontier Markets average Source: MOF and Heritage Foundation, 2014 Heritage Foundation Index of Economic Freedom Ranking World Bank Doing Business: number of procedures required to start business have been reduced from 9 to 2 in Georgia Frontier Markets average Georgia Source: MOF and WB-IFC Doing Business, 2014 World Bank Doing Business: number of procedures required to register property have been reduced from 8 to 1 in Georgia 75.0 Greater Economic Freedom Georgia Frontier Markets average 65.0 Frontier Markets average Georgia Source: MOF and Heritage Foundation, 2014 Source: MOF and WB-IFC Doing Business,

28 International Rankings of Georgia Consistently outperforming sovereign peers Economic Freedom Trend (Economic Freedom Index, 2014) Georgia is ranked 12th out of 43 countries in the Europe region Transparency International Global Corruption Barometer : Public Perception of Georgia as a Corruption Free Destination % of surveyed who assess their current government's actions as effective in the fight against corruption Source: Heritage Foundation, 2014 Georgia NIS+ EU+ % of surveyed who claim that the level of corruption has decreased in the past two years % of users paying a bribe to at least one of 8 different service providers in the past 12 months 4% 12% 14% 10% 25% 26% 27% 54% % 0% 20% 40% 60% 80% Source: Transparency International 2013 Global Corruption Barometer, MOF Economic Freedom Index, 2014 (Heritage Foundation) USA UK Germany Georgia Czech Rep. Latvia Hungary Romania Turkey Kazakhstan France Azerbaijan Italy Ukraine Georgia s overall score is 0.4 points higher than last year, with improvements in six of the 10 economic freedoms including management of public finance, investment freedom, monetary freedom, and property rights Source: Heritage Foundation, 2014 Ease of Doing Business, 2014 (WB-IFC Doing Business Report) USA Georgia Norway UK Sweden Estonia Armenia Montenegro Kazakstan Turkey Azerbaijan Romania Czech Rep. Serbia Ukraine Source: WB-IFC Doing Business,

29 International Rankings of Georgia Georgia has the fourth lowest tax burden globally According to 2009 Tax Misery & Reform Index, released by Forbes Business & Financial News, Georgia is the fourth least tax burden country after Qatar, UAE and Hong Kong Since 1 January 2009, income tax reduced to 20% from 25% 29

30 Disclaimer This presentation is being made by the Ministry of Finance of Georgia (the Ministry of Finance ) only for information purposes. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of the State of Georgia ( Georgia ) or any of its ministries, governmental agencies or instrumentalities, nor should it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision in relation to any such securities or otherwise. The information contained herein has been obtained from sources believed by the Ministry of Finance to be reliable. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the opinions and expectations contained herein are fair and reasonable, no representation or warranty, expressed or implied, is made by the Ministry of Finance or Georgia or any of its other ministries, governmental agencies or instrumentalities with respect to the fairness, completeness, correctness, reasonableness or accuracy of any information and opinions contained herein. None of the Ministry of Finance or Georgia or any of its other ministries, governmental agencies or instrumentalities shall have any liability whatsoever (in negligence or otherwise) for any loss or damage howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. Information contained in this presentation for the fiscal year ended 31 December 2013 and for any period in 2014 is preliminary (unless otherwise stated) and is subject to revision and amendment. Except where otherwise indicated, the information provided in this document is based on matters as they exist as of the date stated or, if no date is stated, as of the date of preparation and not as of any future date, and the information and opinions contained herein are subject to change without notice. None of the Ministry of Finance or Georgia or any of its other ministries, governmental agencies, instrumentalities undertakes any obligation to update or revise any such information to reflect information that subsequently becomes available or circumstances existing or changes occurring after the date hereof. The information contained in this presentation has not been subject to any independent audit or review and may contain forward-looking statements, estimates and projections. These forward-looking statements can be identified by the use of forward-looking terminology, including (without limitation) believes, expects, may, is expected to, will, will continue, should, approximately, would be, seeks or anticipates or similar expressions or comparable terminology, or the negatives thereof. Forward-looking statements are subject to inherent risks and uncertainties. There can be no assurance that actual results or circumstances, or future events, will not differ materially from the expectations or intentions conveyed in such forward-looking statements. As a result, you should not rely on these forward-looking statements. None of the Ministry of Finance or Georgia or any of its other ministries, governmental agencies, instrumentalities undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.