1. Georgia
  2. Local government PPP landscape

Local government PPP landscape

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  • Overview

    Georgia Local Government PPP Landscape

    Number of SNGs

    • Municipalities
      76
    • Intermediate
      ----
    • Regional/State
      2
    • Total Number of SNGs
      78

    SNG Expenditure (% of GDP)

    • Total SNG Expenditure
      5.9
    • SNG Current Expenditure
      4.7
    • SNG Staff Expenditure
      0.8
    • SNG Investment
      1.2

    SNG Expenditure (% of govt. expenditure)

    • SNG Expenditure
      20.3
    • SNG Current Expenditure
      ----
    • SNG Staff Expenditure
      14.9
    • SNG Investment
      32

    SNG Revenue (% of GDP)

    • SNG Revenue
      6.2
    • SNG Tax Revenue
      1.4
    • SNG Grants
      4
    • Other SNG Revenue
      0.8

    SNG Revenue (% of govt. revenue)

    • SNG Revenue (% of govt. revenue)
      22.4
    • SNG Tax Revenue (% of govt. tax revenue)
      5.6
    • SNG Grants (% of govt. grants)
      ----
    • Other SNG Revenue (% of other govt. evenue)
      ----

    SNG Debt Profile

    • SNG Debt (% of GDP)
      N/A
    • SNG Debt (% of govt. debt)
      N/A

    Transfers to SNGs from National Government

    • SNG Transfers Score
      A
    • Score for Transfer Allocation System
      A
    • Score for Info Transfer Timeliness
      A
    • Score for Collection and Reporting of Fiscal Data
      N/A

    GDP = gross domestic product, Govt. = government, N/A = not applicable, SNG = subnational government.

    Note: The Public Financial Management and Accountability Assessment report, developed by the World Bank and other development partners, comprised scoring of various indicators by rating them from A to D. These ratings, as per criteria stated in the Public Expenditure and Financial Accountability (PEFA) framework, are broadly interpreted as follows:
    A = good performance that meets international standards (i.e., the criteria for the indicator are met in a complete, orderly, accurate, timely, and coordinated way);
    B = a level of performance ranging from good to medium by international standards;
    C = a level of performance ranging from medium to poor; and
    D = a process or procedure that is either nonexistent or not functioning effectively.

    Sources: United Cities and Local Governments, Organisation for Economic Co-operation and Development, and Agence Francaise de Developpement. 2016. Subnational Governments around the World: Structure and Finance. Country Profiles. https://www.uclg.org/sites/default/files/global_observatory_of_local_finance-part_iii.pdf; and PEFA Secretariat. 2018. Georgia: Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report. Washington, DC. https://www.pefa.org/themes/pefa/pdfjs/web/viewer.html?file=/sites/default/files/assessments/reports/GE-Jun18-PFMPR-Public-with-PEFA-Check.pdf.

  • Local Governance System in Georgia

    The current system of local governance in Georgia is mainly composed of two tiers of self-government. The first tier consists of the smallest administrative units: villages, communes, small rural towns, and district cities.

    Elected bodies at this level enjoy a relatively full degree of autonomy, with the power to create executive bodies and supervise their activities.

    The second tier is made up of districts and cities with special status (Batumi, Kutaisi, Poti, Rustavi, Sokhumi, and Tskhinvali). This tier acts as a mediator between the regions and the central government and possesses greater powers. This level is centrally governed, not self-governed. Elected bodies may monitor the activity of executive agencies such as the city hall but these executive officials are appointed by and accountable to the central government.

    Tbilisi has a special status as the capital city as established by the law on the Capital of Georgia. The representative body is the local council, which is elected by proportional ballot. The executive branch consists of the mayor, the premier, and the district head of local administration, who are nominated by the mayor and appointed by the President.

    Local self-government bodies in mountainous territories have additional powers as determined by law. At all levels of government in Georgia, central and local, town and district, and elected representative institutions are required to coexist with executive bodies not under their control.

    The most important change in territorial structure was the creation of regions headed by a state commissioner, also commonly referred to as a governor. The institution of the governor is established by the President’s decree rather than by legislation. Governors currently head the nine regions of Georgia, namely, Kakheti, Shida Kartli, Kvemo Kartli, Mtskheta-Tianeti, Meskhet-Djavakheti, Imereti, Samegrelo and Zemo Svaneti, Ratcha-Lechkhumi and Kvemo Svaneti, and Guria.

    According to the Organic Law on Local Government and Self-Governance, local self-government is the right and possibility of citizens of Georgia to solve local issues through local self-government bodies in the interests of the local population. The local self-governing unit is a municipality. A municipality is a settlement (self-governing city) with administrative boundaries or an aggregation of settlements (self-governing community) with administrative boundaries and an administrative center. A municipality will have elected representative and executive bodies (the ‘Municipal Bodies’), a registered population and its property, budget, and revenue. A municipality is a legal entity under the public law of Georgia.

    The Organic Law on Local Government and Self-Governance1 addresses local governance at the first level, rather than self-governance in general, and does not provide for any elective bodies at the regional level. There is a need for a constitutional law on the administrative-territorial organization of Georgia to regulate the territorial organization and relations between the central government and autonomous republics in the future.

  • Infrastructure Development Plan of Local Governments

    Local governance reform has been a strategic priority. Several initiatives and strategic plans were developed in an attempt to advance the reform. In 2011, an action plan was developed for the 2010–2017 State Strategy for Regional Development of Georgia. It promoted the expansion of municipal services and infrastructure to secondary towns and villages. In 2013, the Decentralization Strategy was adopted and in February 2014, the Law of Local Self-Governments was endorsed. The Social-Economic Development Strategy of Georgia (Georgia 2020) views decentralization as a paramount factor for achieving inclusive growth and stimulating local economic development. The government was challenged to convert plans into reality by introducing an effective local self-government system that could carry out decentralized functions. Georgia has implemented two phases of the Regional and Municipal Infrastructure Project to improve municipal infrastructure.1

    Local Government Public–Private Partnership Landscape

    The Regional Development Program of Georgia was a medium-term government document that set out the main goals for Georgia’s regional development and determined the priorities and measures for 2018–2021. The program was built on the national planning documents: the Social-Economic Development Strategy of Georgia (Georgia 2020), the State Strategy for Regional Development 2010–2017, and the Regional Development Program 2015–2017. The program’s strategic vision and delivery modalities align with the European Union’s recent approaches to social-economic cohesion policy, including territorially integrated interventions and focus on the exploitation of territorially differentiated potentials. The program provides a coherent framework for public and private investments, promotes regional development, and enables all stakeholders to concentrate resources in a single, common strategy to maximize the effectiveness and efficiency of the intervention.

    The analysis of the stages of the local self-government reform and the introduction of high standards of self-government by constitutional reform has revealed new challenges affecting the consistent implementation of the decentralization process.2 As a result of an analysis of the drawbacks and problems of the development of local self-government, the following main challenges have been identified:

    • Past stages of the reform reveal that they were primarily connected to the political changes in state government. The implemented reform, which was mainly manifested by legal amendments before the elections, envisioned further development of the process in a midterm perspective to a varying degree. It did not envisage further development of the process from a medium-term perspective. Therefore, the decentralization strategy should be based on a medium-term vision and foresee main directions for improvement, while the strategic action plan should define all activities to be implemented annually to ensure the sustainability, consistency, and goal-oriented nature of the decentralization process, and key preconditions for the successful implementation.
    • The question of what role local authorities have in deciding on public matters and what their place might be in the organization of the state power begs for answers. According to the European Charter, local self-government should regulate and manage “a substantial share of public affairs.” Rather, the limited powers of local self-governing units have prevented local authorities from playing an important role in public life. The principle of separation of power between the state and local self-governments based on the principle of subsidiarity enshrined in the Constitution of Georgia lays the legal groundwork for the ultimate transformation of centralized governance inherited from the former Soviet Union and progressive devolution of power from the center to the local level, that will allow for more effective and timely responses to local issues and due consideration of local context. Full exercise of powers prescribed to local self-governments, widening and expanding the scope of such powers to cover a substantial part of public affairs, is likely to bolster the effectiveness and efficiency of measures for responding to local needs and, at the same time, allows local communities to have a stronger say in the process of resolving local concerns, and coverage of major part of public welfare issues increases the flexibility and effectiveness of problem solving and enables the due consideration of interests of the population in solving these matters.

    The following factors have hampered the full execution of powers by local self-governments:

    • Absence of a long-term vision for the development of municipalities results in solutions that are not focused on long-term outcomes and fail to yield desirable results.
    • Strict regulations and frameworks restrict freedom of action and discretion for decision-making, hampering the attainment of goals that are locally appropriate and tailored to the local context.
    • A low level of involvement of the general public, including businesses in the exercise of power at local level results in a mismatch between decisions and the local needs and interests. In addition, there are no effective mechanisms for public and private partnerships while the potential of the business sector in diversifying municipal services and protecting public interests remains under-used.
    • The lack of human, material, and financial resources necessary for the exercise of power prevents local self-governments from fully and effectively executing their mandate prescribed by the Organic Law of Georgia.
    • Underdeveloped cooperation between municipalities results in low-quality municipal services and failure to maintain cost-effectiveness and consolidate available resources.
    • Discrepancies within the legal framework create conflicts and gaps between provisions of sectoral legal acts and the organic law on local self-governments resulting in the inability of local authorities to fully execute their powers.
    • Prolonged process of transferring property to municipalities as well as complicated and controversial procedures of primary registration of property transferred to the ownership of local self-governments.

    According to the Decentralization Strategy 2020–2025, the vision of the decentralization process implies the formation and development of a system of local government which will ensure effective and quick solutions of local importance in due consideration of the interests and active participation of the population, independently and within its responsibility, full realization of opportunities for local municipalities, sustainable economic development, solutions to household problems of the population, and permanent raising of quality of life. The following measures are believed to ensure progress toward this vision:

    • Create a legal framework to ensure diversity and sustainability of the revenues of self-government units, which will create a prerequisite for a medium-term vision for development.
    • Execution of municipal powers should be based on consistent planning for the development of self-government units. The legislation should define the types of planning documents, their terms, procedures for drafting and adoption, methodology, hierarchy of planning documents, status, and their relationship with the local budget.
    • A principle enshrined in the Constitution of Georgia and the European Charter of Local Self-Governance allowing wider discretion and greater freedom of action by municipalities in decision-making should be introduced for the operation of local self-government bodies so that municipal authorities execute local self-governance in a manner that is tailored to local contexts and needs insofar as possible.
    • Introduction and implementation of good governance principles as part of the work carried out by local self-governments, ensuring wider public participation in the execution of local self-governance, establishment of sustainable mechanisms for PPPs, creating an environment conducive to partnership between self-governing units and the business sector in the implementation of joint projects and delivery of services, also allowing municipalities to fund public–private initiatives and invest in joint projects.
    • With regard to the powers attributed to self-government, a minimum standard of implementation should be set and observed through the provision of adequate resources.
    • Intermunicipal cooperation, creation and development of municipality associations, and intermunicipal cooperation institutions should be fostered, and joint activities of municipalities should be encouraged.
    • A complex review of the legislation should be conducted and a package of legislative amendments should be prepared for the harmonization of legislation with the organic law on self-government.

    The main directions of the decentralization strategy for 2020–2025 are as follows:

    • Increase of powers of local self-government
    • Build material and financial capacity of local self-government
    • Develop reliable, accountable, transparent, and results-oriented self-government

    The following strategic goals, objectives, and activities are outlined in the strategy:

    • Strategic Goal 1: Increase the role of self-governments in managing a substantial share of public affairs
      • Objective 1.1: Ensure the full implementation of powers granted to local self-governments by the law
        • Activity 1.1.1. Identify factors hampering full implementation of competencies by self-government units
        • Activity 1.1.2. Support of the implementation of competencies granted by law upon self-government units
      • Objective 1.2: Increase competencies of local self-governments based on the principle of subsidiarity
        • Activity 1.2.1. Define powers to be transferred to municipalities following the principle of subsidiarity
        • Activity 1.2.2. Ensure legal framework for the implementation of additional competencies by self-government bodies
        • Activity 1.2.3. Ensure technical and financial support for municipalities for the execution of their additional competencies
    • Strategic Goal 2: Ensure adequate material and financial resources for local self-governments
      • Objective 2.1: Support a consistent increase in local government’s revenues
        • Activity 2.1.1. Set up legislative mechanisms to increase municipalities’ share in revenues collected from the disposition of state property in the territory of a self-governing unit
        • Activity 2.1.2. Revise local fees
        • Activity 2.1.3. Define competencies of local self-governing units about specific types of licenses to use
        • Activity 2.1.4. Continue the process of sharing state taxes with local selfgovernments
        • Activity 2.1.5. Revise the rule for calculating property tax, taxpayers, and taxable objects
        • Activity 2.1.6. Transfer of property
      • Objective 2.2: Improve mechanisms for the allocation of state resources
        • Activity 2.2.1. Improve the principle for revenue distribution
        • Activity 2.2.2. Improve mechanisms for providing funds for the implementation of delegated competencies by local self-governments
    • Strategic Goal 3: Develop reliable, accountable, transparent, and results-oriented self-government
      • Objective: 3.1 Introduce effective and innovative management and quality service delivery systems at the local level
        • Activity 3.1.1. Improve management systems and administrative structure of local self-governments
        • Activity 3.1.2. Improve the system of public finance management at a local level
        • Activity 3.1.3. Build capacity of staff working for local self-governments
        • Activity 3.1.4. Adopt unified (minimum) standards for the delivery of municipal services and support to effective delivery of municipal services
        • Activity 3.1.5. Develop intermunicipal cooperation
        • Activity 3.1.6. Develop a mechanism for the collection of reliable statistical data about each municipality for informed decision-making
      • Objective 3.2: Introduce high standards of transparency and accountability
        • Activity 3.2.1. Support Open Governance Program in all municipalities
        • Activity 3.2.2. Revise the legal framework to introduce high standards of transparency and accountability
      • Objective 3.3: Facilitate effective participation in decision-making and implementation at a local level
        • Activity 3.3.1. Improve legal framework and mechanisms for ensuring effective participation of stakeholders in decision-making and implementation
        • Activity 3.3.2. Ensure public participation in the implementation of a decentralization strategy
      • Objective 3.4. Set up local development planning and coordination system
        • Activity 3.4.1. Legal arrangements for development planning
        • Activity 3.4.2. Create a methodological framework and standards for development planning
        • Activity 3.4.2. Create a methodological framework and standards for development planning

    In scope of Objective 3.1 (introduce effective and innovative management and quality service delivery systems at a local level), the strategy declares that successful implementation of the decentralization reform and the establishment of an effective government system at a local level requires institutional empowerment of self-government bodies and improvement of the management system. In this respect, it is planned to introduce a modern system of organizational management, including human resource management, an automated system of monitoring and evaluation of organizational management, and an improvement of the system of public finance management in municipalities.

    A consistent and transparent system of planning will be created at the local level, which will be tightly linked to the budget and financial management system. It should be noted that the aim of the devolution of powers, resources, and functions is to improve the quality and effectiveness of services and fiscal management, support the development of the private sector, including public–private partnerships, and encourage the participation of local communities in decision-making, including young people. Local authorities stand closest to the population and therefore, can swiftly respond to the problems of every local citizen.

  • Sectors in which Local Governments can Implement PPPs

    Within the general government, budgetary central government and subnational governments (SNGs) are mostly responsible for infrastructure, with Legal Entities under Public Law (LEPLs) playing a limited role. Public corporations’ investment spending, estimated by the level of capital transfers received from the budgetary central government, contributes an additional 20% of the total public investment portfolio. The remainder of the total public investment portfolio is delivered through PPPs and PPAs, mostly in the electricity sector.1

  • Revenues for Local Governments

    The Budget Code of Georgia includes a definition of local self-government resources and charges. This code divides the public revenue assignment into nationwide taxes that municipalities receive through tax sharing, local taxes, and fees.1

    Tax Revenue

    Local taxation can be received on income and profits, payroll and workforce, property, goods and services, and international trade, among others. Nonetheless, the small share of taxation from the total revenues reveals the limited autonomy of local self-governments, as fiscal decentralization is still an ongoing process. Other tax revenues will consist of shared taxes from personal income tax collected at the national level. Local governments do not influence the tax base, tax rate, or tax administration. Personal income tax has not been shared yet (delayed) but is tentatively planned for 2025. The VAT is shared as noted.

    Grants and Subsidies

    Georgia’s local governments are largely dependent on the central budget. A majority of municipal governments rely on intergovernmental transfers. The Budget Code includes the following types of transfers from central government to local governments:

    • Special transfer. Allocated from the state budget of Georgia for municipal budgets or the budget of an autonomous republic to eliminate the effects of disasters triggered by natural hazards, hostilities, epidemics, and other emergencies (damages), as well as to assist municipalities in the implementation of other activities. This transfer type is allocated only if the reserve fund of the respective municipality budget is not enough to finance the measures to mitigate the aforementioned events.
    • Capital Transfer. Allocated to municipalities according to the rule approved by government Decree No. 23, which indicates that:
      • A special commission be created which includes the Deputy Minister of Finance, Budget Department representative of the Ministry of Finance, Deputy Minister of Regional Development, and representatives of respective departments dealing with coordination with municipalities from the Ministry of Regional Development and Infrastructure. Municipalities submit proposals for different capital projects to the commission.
      • The decree defines criteria for selecting the projects.
      • Municipalities are obliged to cofinance the projects at least by 5%.
      • The special commission allocates available funds per specific project and money is transferred to the municipality according to the contract amount and actual performance.
    • Targeted transfer for delegated competencies. Municipalities exercise delegated competencies based on various laws. Municipalities perform functions and services delegated by the central government.
    • Equalization transfer. In 2019, the equalization transfer system was replaced by one based on a VAT-sharing system. This system directs at least 19% of VAT mobilized in the state budget to the municipal budgets. This revenue becomes a municipality’s revenue, which a municipality uses at its discretion. VAT is among municipalities revenue according to population characteristics and the area of the municipality. Although municipalities record the amount received from the distribution of VAT as sales tax revenue, the revenue is from the distribution of VAT as a grant transfer from the central government. The amount is not related to the actual VAT collected in the municipality.2

    Other Revenues

    Other local governments’ nontax revenues mostly consist of user fees, although there is limited data available on their distribution and base. The following table shows revenues for local governments.

    Revenues for Local Governments

    Revenue by Type% GDP% General Government (same revenue category)% SNG
    Total revenue (2022)5.319.7100.0
    Tax revenue (2022)0.843.522.3
    Grants and subsidies (2022)3.92-64.1
    Other revenues (2022)0.9721.113.6

    GDP = gross domestic product, SNG = subnational government.

    Note: “% SNG” has not been updated as no information is available.

    Source: United Cities and Local Governments, Organisation for Economic Cooperation and Development, and Agence Française de Developpement. 2016. Subnational Governments around the World: Structure and Finance. Country Profiles. https://www.uclg.org/sites/default/files/global_observatory_of_local_finance-part_iii.pdf; and International Monetary Fund (IMF). Statement of Operations (Revenue, Expenditures, Net Lending/Borrowing and Financing). https://data.imf.org/regular.aspx?key=60991462 (accessed 1 May 2023).

  • Borrowings by Local Governments

    The Constitution of Georgia limits indebtedness to 10% of the assessed value of all taxable property located within a municipality. Counties and school districts have their own 10% limits. Municipalities may only apply for loans from Georgia’s investment market after submitting the necessary information to the State Chancellery and receiving presidential approval.

    According to the Local Self-Government Code of Georgia, with the permission of the government, the municipality is authorized to take a loan or loan obligation from a legal entity within the scope of its authority and in its name, to make a capital investment in the manner and the amount established by the legislation.

    The total amount of the loan borrowed by a municipality shall not exceed 10% of the average annual own revenues of the municipality for the previous three budget years. If Tbilisi takes out a loan, the loan servicing amount (principal and interest) to be covered annually shall not exceed 5% of its own revenues of the annual budget of Tbilisi. The property owned by the municipality may not be used as a means to secure the claim.

  • Budgetary Allocation to Local Governments

    The municipality has the right, with the permission of the Government of Georgia, to receive a grant under the law, to exercise its authority. The municipality’s executive body applies a petition to the government for permission to receive a grant. The permission of the government is not required if (i) the grant is received based on the international agreement of Georgia ratified by the Parliament of Georgia, (ii) the grant issuer is the Ministry of Georgia or a legal entity under the relevant public law provided for by the Law of Georgia “On Grants,” and (iii) Tbilisi is the recipient of the grant.

    Revenues between the state, republic, and municipal budgets of the Autonomous Republics of Abkhazia and Adjara are distributed following the Annex of the Budget Code of Georgia. Local taxes and fees are fully paid into the municipality budget.1

  • Credit Rating of Local Governments

    There is no system of allocating credit ratings to local governments. The only credit rating that is assessed in Georgia is at the country level. No information is available on the local governments.