The consolidated budget deficit, according to IMF methodology, is estimated to have narrowed to 6.3% of GDP in 2010 from 9.2% of GDP in 2009. A return to economic growth in 2010 supported an increase in tax revenue. The government kept expenditure on social benefits and education in 2010 close to 2009 levels, although cuts were made in other areas. Maintenance of spending on social welfare was important in 2010 to offset the negative effects of higher unemployment and increased poverty.

The government's 2011 state budget targets revenue of Lari5.95bn (US$3.3bn) and expenditure of Lari5.73bn. The government plans to keep social spending in line with 2010 levels in order to provide support to the more vulnerable sections of the population as the effects of the global economic recession of 2009 continue to be felt. The government will increase spending on infrastructure in 2011, and further improvements in this area will continue to be supported by loans from multilateral organisations and foreign investment. We forecast that the consolidated budget deficit will narrow to 4.4% of GDP. It will shrink to 3.1% of GDP in 2012 as the government begins to tighten its fiscal policy further, and as an improvement in economic conditions provides support to revenue inflows.