Lela Bakhtadze – Doctor of Economics, Associate Professor of Georgia David Agmashenebeli University

Economic Profile N12, May  2013, pp 12-15 

Abstract

Monetary, budgetary and price policy issues are of vital importance for transition economies, because their in time realization can determine rapid economic development, minimization of inflation, decrease of unemployment, and settlement of the social problems in the country. According to the above-said, during the formation process of market economy it’s crucial to work out new approach to state financial system’s key entity –budget, balance budget receipts and outlays, identify the real deficit limits, improve taxing system, enhance enterprises, monetary policy regulation and management issues. For socio-economic development of the country, structural transformation of economics and speedy stabilization processes it’s significant to cleverly analyze the basics of budget formation, income sources and channels, mechanisms of their creation and utilization, rational involvement of country’s leading political and economic potential. transition, which is accompanied by high level of inflation to take security measures for budget receipts. At an early stage, budget should be used as the key instrument for economic stabilization as: to reduce liquid funds, at least to prevent their additional growth and provide necessary resources for the recovery of different economic sectors. While shifting to market economy it’s important to transform institutional practice of deficit financing and cash management. As far as cash inflows are not automatically sterilized, budget cannot be financed by means of money emission with the help of savings. Such a strict budget constraint forces official bodies to change work practice. Because the difference between deposit rate and loan rate is significant and government is obliged to  pay much more on its own loans, the practice of keeping big amounts on bank accounts, by those bodies that owe much to banks, will become inefficient. Efficient capital management is necessary for reducing expenditures. Moreover it’s important to eliminate the practice of accumulated unsettled debts by different public enterprises and organizations. At an early stage of transformation the structure and amount of budget outlays are not formed according to the demands of country, but according to the financial position of the country. As a result budget should be drawn up socially oriented. One of the concerns of budgetary policy is to clarify the priority of financing expenses from the budget. Obviously state cannot finance equally every sphere of socio-economic activity. Thus the priorities of financing expenses should be defined and proved, which the state will undertake for a certain time. Preference should be given to such fields as economics, state investments, defense, the social infrastructure, education and science. Furthermore, expenses of legislative and executive bodies should be cut down. For effective solving of state financial and monetary policy, it’s strategic and tactical objectives, of greatest importance is the management and regulation of state debt. As a result of this successful mechanisms of man-aging domestic and foreign debts should be established and put into practice, which is not exercised yet in most transition countries. Main concern of foreign debt management should be gaining benefit from foreign finances, providing macroeconomic stability and maintain payment consumption. To achieve this state should well con sider the relationship among investments, economic growth and foreign loans. However, appropriate legislative and methodological documentation should be created for managing domestic debts.

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Article in Georgian