Legal acts governing fiscal decentralisation

The main legal acts governing fiscal decentralisation are the Law on local government budgets, the Law on property of local municipalities, the Law on distribution of revenues between central and local governments, the Law on the budget system of Georgia, and the Tax Code of Georgia.

Qualifying fiscal decentralisation

Local government revenue derive from own revenues (local taxes, local charges and fees), assigned revenues (shared taxes), the central state budget and other revenues (e.g. grants and loans). In 2014 local taxes amounted to 16.2%, shared taxes 8.9%, inter-budgetary transfers 58.5 and other revenues 16.3% compared with 13.8% local taxes in 2013, 8.5% shared taxes, 64.1% inter-budgetary transfers and 167.3 from other sources. In 2014 the share of local government revenue as a percentage of GDP was 4.9%. Since 2009, local government revenues have decreased by 1.7 percentage points.  On the whole, the composition of municipal expenditures reflects the range of competences devolved to them. However, the needs of local municipalities are higher than their revenues and part of their competences is financed from the central budget.

Fiscal equalisation mechanism

The Law on local government budgets lays out the country's fiscal equalisation mechanism. It takes into account a range of factors including the size of population, the area, the number of children aged from 0-6, the number of young people aged from 6-18 years, the status of the capital and roads of local importance. In addition to ambiguities surrounding the definition of the transfer. The mechanism, which is financed from the central state budget, is activated when local governments own revenues are not enough to cover its expenditure. However there are ambiguities concerning the definition of the transfer mechanism and its method of calculation has changed over time.

Deficit, debt at the sub-national level and borrowing capacity

The Law on local government budgets stipulates that local governments can borrow only from the central government or with the consent of central government.  There is no other legal act, which defines ways in which local government can access debt markets and there are no limits on non-sovereign borrowing. While reliable statistical data on the outstanding debt of local municipalities is unavailable, given the very low level of local government borrowing (around 0.5-1.0% relative to revenues and around 0.1% relative to GDP) per year on average, the stock of outstanding debt is likely to be negligible compared to own revenues and GDP. Local government borrowing mostly consists of World Bank financed projects, but as already mentioned local government borrowing is very low compared to both its revenues and GDP.