Economic growth has rebounded stronglyin Georgia during 2010-12 and commendable fiscalconsolidation has been implemented, although considerablemedium-term macro-fiscal challenges remain.To meet thechallenge of generating rapid and sustainable growth in anuncertain global environment, Georgia will need to continueto implement and potentially deepen its fiscal consolidationprogram.This public expenditure review (PER) considerspossible sources of expenditure pressure that couldundermine the fiscal consolidation program and suggestsoptions to manage them.Social expenditure pressures arisefrom the need to provide adequate old-age income to an agingpopulation that relies primarily on the publicly fundedpension benefit, as well as from needs to improve socialassistance coverage of the poor, and improve healthoutcomes.Capital expenditure pressures arise from the needto rehabilitate a large backlog of the secondary and localroad network in poor condition, continued improvement theEast-West Highway, and from new investment needs in energy,water, agriculture, and regional development.The PERpresents a number of options for consideration to managefiscal consolidation, which can contribute toward greaterselectivity in capital expenditures, enhanced sustainabilityof the road investment program, and containing medium-termsocial expenditure pressures.The specific policy optionsdiscussed above could collectively curtail expenditurepressures estimated at about 2.8 percent of GDP by 2015,thus enabling Georgia to meet its fiscal consolidation targets.
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