On Public Debt

LAW OF GEORGIA

ON PUBLIC DEBT

This Law regulates relations associated with incurring public debt by Georgia, granting authority to issue state guarantees for domestic and external debts, and establishes the main principles for covering public debt. This Law does not apply to the provision of guarantees by the Ministry of Finance of Georgia in the case of issuance of last resort loans provided for by the Organic Law of Georgia on the National Bank of Georgia, the procedure for issuing last resort loans being determined by the Ministry of Finance of Georgia in agreement with the National Bank of Georgia.

Law of Georgia No 5669 of 20 December 2019 – website, 31.12.2019

Chapter I − General Provisions

Article 1 − Terms used in this Law

Terms used in this Law:

a) public debt of Georgia – the total amount of domestic and external debts, expressed in the national currency, taken through agreements entered into by the Ministry of Finance of Georgia on behalf of Georgia and, with guarantees provided by the Ministry of Finance, by other bodies/institutions, also in amounts received from the placement of government securities denominated in the national and foreign convertible currency by the Ministry of Finance of Georgia on behalf of Georgia and received from the financial resources approved by the International Monetary Fund for Georgia;

b) domestic public debt of Georgia − a constituent part of the public debt of Georgia expressed in the national currency; aggregation of those principle amounts that have been formed by the outstanding direct liabilities provided for by agreements entered into by the Ministry of Finance acting on behalf of Georgia, as well as by amounts received from the placement of government securities denominated in the national currency by the Ministry of Finance of Georgia on behalf of Georgia;

c) external public debt of Georgia − a constituent part of the public debt of Georgia expressed in foreign convertible currency; aggregation of those principle amounts that have been formed by outstanding direct liabilities provided for by agreements entered into by the Ministry of Finance on behalf of Georgia, and, guaranteed by the Ministry of Finance, by other bodies/institutions, also amounts received from the placement of government securities denominated in foreign convertible currency by the Ministry of Finance of Georgia on behalf of Georgia and amounts received from the financial resources approved by the International Monetary Fund for Georgia;

d) public guarantees of Georgia issued for credits − the gross total of the amounts of public guarantees issued for debt by the Ministry of Finance of Georgia on behalf of Georgia;

e) public guarantees of Georgia issued for domestic debt − a part of public guarantees of Georgia issued for debts; which represents, according to guarantee agreements, the sum of all contingent liabilities expressed in the national currency taken on by the Ministry of Finance of George on behalf of Georgia for covering the amounts for lending institutions;

f) public guarantees of Georgia issued for external debt − a part of public guarantees of Georgia issued for loans; which represent, according to guarantee agreements, the sum of all contingent liabilities expressed in foreign convertible currency, taken on by the Ministry of Finance of George on behalf of Georgia to cover the amounts for lending institutions;

g) public debt registry − the registry of direct liabilities of domestic and external public debts;

h) registry of public guarantees for debts − the registry of liabilities based on public guarantees issued for domestic and external debts;

i) principal amount of a debt − the amount borrowed as a debt according to a debt agreement and/or other procedures related to the taking of public debt provided for by this Law;

j) government securities − a financial instrument that has been issued by the Ministry of Finance of Georgia on behalf of Georgia in the national or foreign convertible currency, for short-, medium-, or long-term periods;

k) principal amount of interest-bearing government securities − the face value of government securities payable by their maturity date;

l) discount − difference between the face value of government securities and their purchase price, that is less than their face value;

m) interest-free (discount) government securities − securities to be sold at a price less than their face value;

n) principal amount of discount government securities − the amount that a creditor lends on the day of the issuance of discount government securities and that is equivalent to the purchase price;

o) government securities in intangible form − government securities in the form of a book entry record, which are issued and held as book or electronic entries.

p) government securities in tangible form − a government security issued intangible form (in the form of a paper, plastic card or otherwise), and showing the details defining the given security;

q) appropriation − the right granted by the Parliament of Georgia, through the Treasury, to the executive branch of Georgia to make expenditures;

r) treasury account − the account in which all tax and non-tax revenues are accumulated and from which budget expenses are paid;

s) book-entry record system − a system through which the National Bank of Georgia registers and enters government securities in the registry in the form of a record;

t) monetary obligation − an obligation to pay a certain amount;

u) short-term period − a period of up to one year;

v) medium-term period − a period from one year up to 10 years;

w) long-term period − a period of more than ten years;

x) risk fund − a special public fund that is formed and used according to an established procedure and in which funds are accumulated for covering issued public guarantees;

y) guarantee agreement − an agreement between the Ministry of Finance of Georgia and a lending institution on the bases of which the Ministry undertakes to perform a number of payments in the case of non-payment by an economic agent of the principal amount and interest of a loan;

z) economic agent − a natural or legal person to whom a credit institution issues a credit;

z¹) credit agreement − an agreement under which an economic agent receives money from a lending institution and undertakes to cover the principal amount and accrued interest of the debt after a specified time;

z²) agreement for ensuring the repayment of credit − an agreement between the Ministry of Finance of Georgia and an economic agent, which includes certain measures to be implemented by the economic agent in order to ensure the repayment of the debt on time;

z³) acceptance − consent, guarantee of payment;

z⁴) conversion − the conversion (exchange) of the currency of the country concerned into a foreign currency. The public debt of Georgia shall be recalculated from other convertible currencies into the national currency at the official exchange rate established by the National Bank of Georgia as of the date when the debt is incurred, unless otherwise provided for by the agreement.

Law of Georgia No 5903 of 14 March 2008 − LHG I, No 4, 14.3.2008, Art. 10

Law of Georgia No 1673 of 24 September 2009 – LHG I, No 27, 24.9.2009, Art. 155

Law of Georgia No 5436 of 22 June 2016 − website, 11.7.2016

Article 2 − Powers of the supreme public authorities of Georgia with respect to entering into agreements on public debt and issuance of public guarantees for debt

1. The Parliament of Georgia shall ratify agreements entered into with other states, international financial institutions, relevant bodies of other states and other entities in relation to the borrowing of external public debt or the issuance of public guarantees for debt, except in cases provided for by paragraphs 4¹ and 4³ of this article.

2. The Ministry of Finance of Georgia shall have the exclusive right, with the consent of the Government of Georgia, and in consultation with the National Bank of Georgia, to:

a) enter into agreements for borrowing funds in the national and other convertible currencies;

b) give public guarantees for loans to Georgian and foreign financial organisations in the national and other convertible currencies, which are allocated to the economic agents of Georgia regardless of the form of ownership and economic activities.

2¹. A proposal on entering into an international agreement related to obtaining external public loans or the issuance of public guarantees for a loan shall be submitted to the Government of Georgia in the manner established by the Law of Georgia on International Treaties of Georgia.

2². The Ministry of Finance of Georgia shall apply to the Government of Georgia to receive consent for entering other agreements related to the borrowing of an external public debt, or the issuance of public guarantees for debt. The consent of the Government of Georgia on the borrowing of external public debt, or the issuance of public guarantees for debts, shall be issued in the form of a decree.

2³. A proposal submitted by the Ministry of Finance of Georgia to the Government of Georgia shall be accompanied by:

a) a draft agreement in Georgian (if the text is in a foreign language: it shall be submitted together with an officially certified Georgian translation). The Ministry of Finance of Georgia shall ensure the translation of foreign language texts and official certification of translations of other agreements to be entered into in relation to the obtaining of external public debt or to the issuance of public guarantees for debt;

b) opinions as to the appropriateness of an agreement, issued, within the scope of their authority, by the Ministry of Finance of Georgia, the Ministry of Justice of Georgia, the Ministry of Economy and Sustainable Development of Georgia and the Ministry of Foreign Affairs of Georgia, as well as, by the National Bank of Georgia, and where required, by a relevant administrative body.

2⁴. The Government of Georgia shall submit to the Parliament of Georgia the agreements provided for by paragraphs 2¹ and 2² of this article for ratification, except in the cases provided for by paragraphs 4¹ and 4³ of this article. The documents provided for by paragraph 2³ of this article shall be attached to the documentation to be submitted for ratification.

3. The Ministry of Finance of Georgia shall service external debts, make decisions on attracting external loans, conduct negotiations with foreign creditors, sign relevant documents on taking loans, record and use borrowed amounts.

4. An agreement entered into for the purpose of undertaking a debt or issuing a guarantee shall not be considered as a public debt or a public guarantee issued for debts without the participation of the Ministry of Finance of Georgia and without the ratification of the Parliament of Georgia, except in the cases provided for by paragraphs 4¹ and 4³ of this article.

4¹. The Government of Georgia shall define the regulatory standards of government securities denominated in foreign convertible currency to be issued by the Ministry of Finance of Georgia on behalf of Georgia. The maximum volume of the issuance of public securities shall be defined by the annual budget law of the relevant year.

4². (Deleted – 8.4.2011, No 4509).

4³. The Government of Georgia shall, on the bases of a proposal of the Ministry of Finance of Georgia in agreement with the National Bank of Georgia, make decisions as to the amount of financial resources to be requested from the International Monetary Fund. The Government of Georgia shall apply to the Parliament of Georgia for directing into the state budget the financial resources requested from the International Monetary Fund. The Parliament of Georgia shall express its consent on the said issue by a resolution.

4⁴. The Ministry of Finance of Georgia shall, in agreement with the National Bank of Georgia, request funds from the International Monetary Fund within the limits of approved financial resources.

5. The Ministry of Justice of Georgia shall perform a legal examination of contracts (agreements) entered into in relation to the taking of public debts and the issuance of public guarantees for loans.

Law of Georgia No 1429 of 12 June 1998 − The Parliament Gazette No 23-24, 30.6.1998, p. 26

Law of Georgia No 601 of 25 November 2004 − LGH I, No 37, 16.12.2004, Art. 176

Law of Georgia No 2018 of 9 November 2005 – LHG I, No 48, 29.11.2005, Art. 315

Law of Georgia No 5903 of 14 March 2008 − LHG I, No 4, 14.3.2008, Art. 10

Law of Georgia No 1673 of 24 September 2009 – LHG I, No 27, 24.9.2009, Art. 155

Law of Georgia No 4469 of 22 March 2011 − website, 1.4.2011

Law of Georgia No 4509 of 8 April 2011 − website, 8.4.2011

Law of Georgia No 1276 of 20 September 2013 − website, 8.10.2013

Law of Georgia No 5436 of 22 June 2016 − website, 11.7.2016

Law of Georgia No 3573 of 31 October 2018 − website, 20.11.2018

Article 3 − Limits for public debt and public guarantees provided for credits

1. The public debt, including the total amount of domestic and external debts, as well as the sum of the public guarantees issued for domestic and external debts, shall be defined each year in absolute and relative terms by the Law of Georgia on the State Budget.

2. Under the Law of Georgia on the State Budget, the Parliament of Georgia shall approve limits (maximum amount) of the public domestic debt, public external debt, and public guarantees for domestic and external loans for the relevant year.

Article 4 − Credit repayment obligations

1. Public financial obligations are sovereign and absolute obligations of Georgia for the payment of principal amounts and accrued interest, which are secured by the entire assets of the State.

2. The payment of interest and principle amounts according to an agreement shall be insured, within the scope of this Law, by permanent appropriations, which shall continue until the complete repayment of monetary liabilities.

3. Monetary liabilities undertaken on behalf of Georgia shall be deemed as priority debt obligations, which are treated as equal to the protected articles of the state budget.

4. Public financial obligations shall be considered to be fulfilled in accordance with the terms and conditions of a credit agreement upon the payment of the interest and repayment of the principal amount to the creditor.

Law of Georgia No 5903 of 14 March 2008 − LHG I, No 4, 14.3.2008, Art. 10

Article 5 − Obligations for the fulfilment of public guarantees issued for domestic and external debt

1. Public guarantees issued for domestic and external debt shall represent contingent liabilities in the event a credit recipient turns out to be unable, under the conditions of the credit agreement, to repay the debt with the relevant interest.

2. If the funds of the risk fund are not enough to carry out obligatory payments based on the public guarantees issued for domestic and external debt, the Ministry of Finance of Georgia shall, according to the established procedure, raise an issue before the Parliament on covering the deficit existing in the risk fund.

Article 6 − Registry of public debt and registry of public guarantees issued for debt

1. The Public Debt Registry and the Registry of Public Guarantees Issued for loans shall be established in Georgia in order to record all direct and contingent liabilities.

2. Direct public liabilities, information on the public debt dynamics, type of debts, the date of the contract (agreement), the total amount of the debt, its due date, and other required data shall be registered according to domestic and external debt agreements in the Public Debt Registry, which is updated as necessary.

3. Contingent public liabilities, information on the issuance of public guarantees for loans and their coverage, names of guarantees, their issuance date and term of validity, total amount, payments made and payments to be made, and other required data shall be registered, according to the agreements on public guarantees for domestic and external debts, in the Registry of Public Guarantees Issued for Debt, that is updated as necessary.

4. The Ministry of Finance of Georgia shall maintain the Public Debt Registry and the Registry of Public Guarantees Issued for loans.

5. The Ministry of Finance of Georgia shall, in accordance with the legislation of Georgia, submit to the Parliament a state budget progress report, in which it shall indicate the amount and content of direct and contingent liabilities.

Article 7 − Relationship of the Ministry of Finance of Georgia and the National Bank of Georgia in public debt management issues

The Ministry of Finance of Georgia shall:

a) after consulting with the National Bank of Georgia in accordance with legislation, determine the volume of domestic and external debt for the next year and the conditions for taking on the debt;

b) provide information to the National Bank of Georgia on the public debt and on the debt for which public guarantees have been issued;

c) notify the National Bank of Georgia of direct and contingent liabilities assumed under external debts within three days after their registration.

Law of Georgia No 3012 of 11 May 2006 − LHG I, No 13, 13.5.2006, Art. 88

Article 8 − Review of credit agreements and guarantee agreements in relation to external public credits

The drafts of credit agreements and guarantee agreements related to the external public debt of Georgia, which define the ratification deadlines and conditions for meeting these deadlines, shall be submitted under the established procedure in order to give recommendations to the Parliament of Georgia.

Article 9 − Performance of obligations of those institutions that use public loans or public guarantees when issuing loans

1. Institutions using public credit funds or, at the time of issuing credits, the funds received though public guarantees, shall use and place these funds according to the contracts entered into with the Ministry of Finance of Georgia.

2. Sanctions established by the legislation of Georgia shall be used in the case of misuse of funds or violation of repayment deadlines, unless otherwise provided for by the obligations assumed under the contracts.

Article 10 − Monitoring and control

1. Institutions using public credit funds or, at the time of issuing credits, the funds received though public guarantees, shall quarterly submit to the Ministry of Finance of Georgia complete information on the spending and repayment of the funds.

2. The Ministry of Finance of Georgia may monitor institutions that use credits over the entire period of the use of the credits or over the entire validity period of public guarantees until their full repayment.

3. The Ministry of Finance of Georgia shall, in accordance with the legislation, review and approve the Regulations on the Maintenance of Public Debt Registry and the Public Guarantees Registry.

Chapter II − Domestic Public Debt

Article 11 − Types of domestic public debts

Types of domestic public debts are:

a) government securities;

b) (deleted);

c) other debt liabilities that the Ministry of Finance of Georgia, in agreement with the Government of Georgia deem to be domestic public debt and the Parliament of Georgia has approved them as such.

Law of Georgia No 3012 of 11 May 2006 − LHG I, No 13, 13.5.2006, Art. 88

Law of Georgia No 1276 of 20 September 2013 − website, 8.10.2013

Article 12 − Using funds received as a result of taking domestic public debts

The funds received as a result of taking domestic public debts shall be used for the purposes defined by the annual budget law.

Law of Georgia No 3012 of 11 May 2006 − LHG I, No 13, 13.5.2006, Art. 88

Law of Georgia No 5903 of 14 March 2008 − LHG I, No 4, 14.3.2008, Art. 10

Law of Georgia No 5436 of 22 June 2016 − website, 11.7.2016

Article 13 − Management of domestic public debts

The Ministry of Finance of Georgia shall ensure the management of domestic public debt through the organisation of their repayment and record-keeping, determination of interest and its payment and through other measures.

Article 14 − Government securities

1. The Ministry of Finance of Georgia may, in consultation with the National Bank of Georgia, issue securities on behalf of Georgia.

2. The issuance of government securities may be implemented in an intangible form – such as a book-entry record or in a tangible form.

3. If government securities are issued in intangible form, they shall be registered in the registry in the book-entry record system in an established manner.

4. The payment of the principal amount and interest on government securities shall be carried out according to the legislation.

5. The issuance of government securities, their circulation, recording and repayment shall be regulated on the bases of this Law and subordinate normative acts prepared according to this Law.

Law of Georgia No 5436 of 22 June 2016 − website, 11.7.2016

Article 15 − Types of government securities and purpose of their issuance

1. Types of government securities are:

a) treasury obligations;

b) treasury bonds;

c) public bonds and bills of exchange.

2. Government securities shall be issued for:

a) covering short-term cash deficits and financing a budget deficit;

b) promoting the development of the securities market and for accomplishing other objectives defined by the annual budget law.

Law of Georgia No 5436 of 22 June 2016 − website, 11.7.2016

Article 16 − Normative acts on the management of government securities

1. The Ministry of Finance of Georgia and the National Bank of Georgia shall jointly prepare subordinate normative acts that define the conditions for the issuance, circulation, recording and repayment of government securities.

2. The Ministry of Finance of Georgia may designate a fiscal agent for the activities to be carried out regarding government securities.

Article 17 − Repayment of government securities

1. government securities shall be repaid according to the conditions of their issuance and normative acts developed within the scope of this Law. The repayment of government securities shall result in the termination of public liabilities arising from the government securities.

2. If the repayment date of government securities coincides with a non-working day, the repayment shall be carried out on the following working day without charging additional interest.

3. The Ministry of Finance of Georgia may repurchase government securities before their maturity date at a certain price if so established by the conditions of issuance of government securities and carried out in compliance with the normative acts developed under this Law.

Article 18 − Compensation for damaged and destroyed government securities issued in tangible form

The Ministry of Finance of Georgia shall compensate for damaged and destroyed government securities issued intangible form, provided that the government securities are identified according to their details under applicable normative acts. The compensation shall be issued after the Ministry is satisfied that this compensation will not result in the duplication of the same government securities.

Article 19 − Taxation of income received from government securities

Income from government securities shall be taxed according to legislation.

Article 20 − (Deleted)

Law of Georgia No 3012 of 11 May 2006 − LHG I, No 13, 13.5.2006, Art. 88

Article 21 − (Deleted)

Law of Georgia No 3012 of 11 May 2006 − LHG I, No 13, 13.5.2006, Art. 88

Chapter III − External Public Debt

Article 22 − Types of external public debts

1. Types of external public debts are:

a) debts borrowed from other states and financial agents of other states;

b) debts borrowed from foreign financial institutions and international organisations;

c) government securities denominated in a freely convertible currency, different from the national currency;

d) other bilateral and multilateral debt.

2. External public debt agreements shall be signed according to the legislation.

Article 23 − Using funds received from external public debts

The funds received from external public debts shall be used for the purposes defined by the Law of Georgia on the State Budget.

Law of Georgia No 5903 of 14 March 2008 − LHG I, No 4, 14.3.2008, Art. 10

Article 24 − Functions of the Ministry of Finance of Georgia relating to the management of external public debt

1. The Ministry of Finance of Georgia, jointly with the Ministry of Economy and Sustainable Development of Georgia, the National Bank of Georgia and other interested agencies and organisations shall:

a) review agreements on the term and conditions of external public debts, study the possibilities and conditions of financing available on international financial markets;

b) analyse the possibility and conditions of refinancing the external public debt; ensure the creation of a situation where the net balance of new debts do not exceed the annual limit (maximum amount) of the external public debt established by the Law on the State Budget;

c) develop normative acts under this Law and submit them to the Parliament of Georgia and the Government of Georgia in order to fulfil the obligations resulting from the right of management of external public debt.

2. The Ministry of Finance of Georgia shall be responsible for the management, servicing and repayment of the external public debt borrowed on behalf of Georgia.

Law of Georgia No 1276 of 20 September 2013 − website, 8.10.2013

Article 25 − Public fiscal agents servicing external public debts

The issuance of the amount borrowed in the form of external public debt on the bases of an agreement entered into by the Ministry of Finance of Georgia on behalf of Georgia shall be carried out according to an established procedure. The Ministry shall repay and make external public debt service payments through the National Bank of Georgia.

Article 26 − Management of the external public debt borrowed under international treaties

The external public debt of Georgia borrowed under international treaties shall be used, serviced and repaid according to the term and conditions established by the treaties.

Article 27 − Converting the funds received for covering the budget deficit from external public debts

The currency resources received by the Ministry of Finance of Georgia on behalf of Georgia for covering a budget deficit from the external public debts shall be sold on the exchange market and transferred to the treasury account.

Article 28 − Using the funds received from external public debts in order to finance import or investments

The funds received on behalf of Georgia from external public debts in order to finance import or investments shall be used to:

a) create new workplaces and support private or public enterprises on the bases of the economic and social priorities defined by the Indicative Plan of Georgia

b) produce export products and import- substitute products and render services;

c) to finance investment projects in order to develop infrastructure (including social services);

d) accomplish other purposes defined by the State.

Article 29 − Decision on the acceptance of external public debts received through agreements in order to finance investments or import

1. All decisions regarding the acceptance of external public debts taken for financing investments or import shall be made by the Government of Georgia upon the proposal of the Ministry of Finance of Georgia and in agreement with the Ministry of Economy and Sustainable Development of Georgia. An agreement shall be drawn up on the basis of this decision and shall be ratified by the Parliament of Georgia, except for the cases provided for in Article 2(4¹) and (4³) of this Law.

2. All recommendations of the Ministry of Finance of Georgia shall comply with the requirements of this Law and other laws of Georgia.

Law of Georgia No 5903 of 14 March 2008 − LHG I, No 4, 14.3.2008, Art. 10

Law of Georgia No 1673 of 24 September 2009 – LHG I, No 27, 24.9.2009, Art. 155

Law of Georgia No 1276 of 20 September 2013 − website, 8.10.2013

Article 30 − Distribution of funds received from external public debts for financing investments or imports

1. On the basis of the decision of the Government of Georgia, the funds received under agreements on external public debts for financing investments and imports may be distributed to the financial institutions of Georgia upon the proposal of the Ministry of Finance of Georgia.

2. The conditions for the repayment of funds borrowed as a debt shall be defined by the agreements entered into between the Ministry of Finance of Georgia and financial institutions; the agreements shall define the interest rate to be paid to the Ministry, the margin limit on the interest rate, which may be collected by financial institutions from economic agents, also the number of economic agents selected for receiving funds and other obligations of the parties. The debt agreements entered into between the Ministry and financial institutions shall indicate the currency that is used to calculate and repay the principal amount and related interest.

Law of Georgia No 1276 of 20 September 2013 − website, 8.10.2013

Article 31 − Distribution of funds received from external public debts for financing investment projects

1. The funds received from external public debt for financing investment projects shall be distributed to economic agents according to the Indicative Plan.

2. The funds received from external public debt for financing investment projects provided for by the Indicative Plan shall be distributed through financial institutions. For this purpose:

a) economic agents shall submit to financial institutions investment projects, including business plans, and other necessary documents demonstrating the economic and financial activities of the economic agents;

b) financial institutions shall examine the investment projects, including business plans, the ability of economic agents to repay the funds received from external public debt, and make decisions on the distribution of funds;

c) on the basis of the decisions on the distribution of funds, financial institutions shall enter into contracts with credit recipients and transfer funds to them.

3. The management of the funds received from external public debts for investment projects to be financed from the state budget shall be implemented directly by the Ministry of Finance of Georgia according to the conditions established by the decisions of the Parliament of Georgia and the Government of Georgia. In that case:

a) the distribution procedure shall be the same as the procedure described in paragraph 2 of this article, with the difference that the economic agent shall directly present all the materials indicated in paragraph 2 to the Ministry of Finance of Georgia in order for it to be considered jointly by the Ministry of Economy and Sustainable Development of Georgia, line ministries and other interested departments, structures and organisations;

b) after the Parliament of Georgia and the Government of Georgia make decisions on the distribution of funds received from external public debt of Georgia for the financing of investment projects, only the Ministry of Finance of Georgia shall be responsible for the management of these funds.

Law of Georgia No 1276 of 20 September 2013 − website, 8.10.2013

Article 32 − Distribution of funds received from external public debt for financing import

1. The funds received from external public debts of Georgia for financing imports shall be distributed to economic agents according to the requirements of this article.

2. The Ministry of Finance of Georgia shall sell at auction the funds received from external public debt for financing imports.

3. If it is impossible to sell at auction the funds received from external public debt for financing imports, they shall be distributed through the financial institutions of Georgia, according to the provisions of Article 30(2) and 31(2) of this Law.

4. The funds received from external public debt for financing imports and designated for organisations to be financed from the budget shall be distributed directly by the Ministry of Finance of Georgia under the Law of Georgia on State Budget.

5. The funds received from external public debt shall be distributed under the following conditions:

a) the funds that are to be distributed in accordance with the provision referred to in paragraph 3 of this article, may be issued only for one year;

b) economic agents in order to receive external public loans shall submit to financial institutions their business plans exactly indicating the purpose of imported products and demand for them;

c) if the amount of the imports to be carried out directly by public bodies exceeds USD 50 000, the purchase of goods shall be made on the basis of tenders under the legislation of Georgia.

Article 33 − Repayment of debt issued at the expense of external public debts

1. Economic agents, or financial institutions, shall, in accordance with credit agreements, ultimately return to the Ministry of Finance of Georgia the funds that are received from external public debt and allocated by the Ministry of Finance of Georgia for the financing of investment projects, or import of goods.

2. The Ministry of Finance of Georgia may, in accordance with the established procedure, collect funds from the recipients of external public debt in order to cover expenses relating to currency exchange operations, also to the acceptance, distribution and repayment of funds.

3. The Ministry of Finance of Georgia may, in order to ensure the repayment of funds received from external public debts, take all necessary measures established by this Law and the legislation of Georgia, including an unconditional write-off of funds from bank accounts and confiscation of the property of debtors by a court decision.

Chapter IV − Public Guarantees of Debts

Article 34 − Limits of public guarantees of domestic debts

The Law of Georgia on the State budget shall, in relation to public guarantees of domestic debts, envisage the following restrictions:

a) correlation between the amount of budgetary transfers to the Risk Fund and annual expenses envisaged in the state budget for servicing the public debt;

b) the issuance of public guarantees of domestic debt within the limits of the Risk Fund, which includes the amount defined by the Law of Georgia on the State Budget and the amounts transferred by borrowers for public guarantees taken by them earlier.

Article 35 − Procedure for issuing public guarantees

1. An economic agent shall, in order to receive public guarantees, file an application with the Ministry of Finance of Georgia indicating:

a) the name and address of the economic agent;

b) the settlement account and the account number in the servicing financial institution;

c) the credit amount for which the guarantee is requested and the conditions for issuing the credit;

d) a business plan that includes the purpose of the credit, the expenses to be envisaged, the validity period, the estimated benefits and possible risks;

e) the name of the credit institution issuing the credit for which the guarantee is requested;

f) the date on which the borrower requested a public guarantee on the credit.

2. An economic agent shall, along with the application indicated in paragraph 1 of this article, submit required documents and information on its financial condition and solvency, which includes:

a) the accounting balance-sheet (accompanied by an audit report) covering the last two years of economic activities;

b) information on any arrears of the economic agent towards the budget, or towards a financial or another institution;

c) copies of the investment project documents;

d) projected earnings and their distribution during the guarantee period;

e) the draft credit contract entered into between the economic agent and the financial institution;

f) information on the assets of the economic agent, which may be pledged and used to cover arrears;

g) information on outstanding debts, indicating the names and addresses of creditors, also the status of the payment of debts.

3. Public guarantees shall not be given for loans to:

a) legal persons who have borrowed and have not returned (in due time, or with delay) any other credit;

b) legal persons who have tax delinquency;

c) newly restructured enterprises (in relation to tax and other liabilities).

Article 36 − Determining the risk taken by the Ministry of Finance of Georgia when issuing public guarantees

1. The Ministry of Finance of Georgia shall carry out an economic analysis of submitted documents and determine the degree of risk for each guarantee, which is expressed in percentages with respect to the amount of the guarantee.

2. The Ministry of Finance of Georgia shall, on the bases of risk assessment, define the amount that is to be transferred to the Risk Fund by the economic agent.

3. The guarantees shall not be issued if the funds of the Risk Fund are less than the funds required for the total volume of the guarantees.

Article 37 − Funds of the Risk Fund

1. The Ministry of Finance of Georgia may not give any public guarantees if the funds that are sufficient for covering the financial risk determined by the Ministry of Finance of Georgia are not defined and transferred to the Risk Fund.

2. The funds of the Risk Fund may have two possible sources for each public guarantee:

a) budgetary funds that are provided for by the Law of Georgia on the State Budget and that have permanent appropriation;

b) funds transferred by economic agents for the guarantees received, which shall not be less than 5 per cent of the principal amount of the guaranteed credit.

Article 38 − Necessary conditions for issuing public guarantees

1. The following conditions shall be observed when the Ministry of Finance of Georgia issues public guarantees on the basis of the resolution of the Parliament of Georgia:

a) agreements ensuring the repayment of the entire amount directed towards the coverage of public debts shall be entered into between economic agents and the Ministry of Finance of Georgia, in particular:

a.a) a pledge agreement;

a.b) an agreement on debt assignment;

a.c) an agreement that gives the right to withdraw funds from the settlement or deposit account of the economic agent;

a.d) an agreement which envisages the right of unconditional control of the Ministry of Finance of Georgia over the bank accounts of the economic agent;

b) the amount of public guarantees on domestic credits shall not cause the increase in the limit of liabilities towards the banking system, which is defined for the given period according to the monetary policy;

c) an economic agent shall make a transfer to the Risk Fund in a defined volume and within a defined period.

2. Public guarantees on domestic loans, shall be issued, within the Law of Georgia on the State Budget, mainly to enterprises and organisations of Georgia that serve the institutions financed from the budget.

3. Public guarantees on external credits may be given to finance only those projects that are of high priority for Georgia. Furthermore, the selection criteria shall be the same as it was in the case of external credits attracted by the agreements entered into.

4. The Ministry of Finance of Georgia shall define the form of guarantee agreements and their validity period, which shall be agreed with the relevant parliamentary committees of Georgia.

Law of Georgia No 1276 of 20 September 2013 − website, 8.10.2013

Article 39 − Making a decision on the issuance of public guarantees

The Government of Georgia shall, on the recommendation of the Ministry of Finance of Georgia and according to the conditions provided for by this Law, make a decision whether or not to issue a public guarantee. An agreement shall be drawn up on the basis of this decision and ratified by the Parliament of Georgia.

Law of Georgia No 1276 of 20 September 2013 − website, 8.10.2013

Article 40 − Liability of a guarantee seeking economic agent towards the Ministry of Finance of Georgia

1. The Ministry of Finance of Georgia shall enter into an agreement with an economic agent with respect to measures to be taken to ensure the repayment of the guaranteed debt.

2. Under the agreement entered into between an economic agent and the Ministry of Finance of Georgia the economic agent shall have the following liabilities towards the Ministry:

a) not to enter into additional contracts that include priority debt obligations compared with the guaranteed debt;

b) provide all the information necessary for the assessment of its own financial situation;

c) use the cash received from all accounts to cover arrears on the guaranteed debts;

d) pay default interest in the case of failure to fulfil the conditions provided for by the agreement

Article 41 − Essential elements of a guarantee agreement

The essential elements of a guarantee agreement are:

a) the name and address of an economic agent that will be given a loan with a public guarantee;

b) the name and address of a financial institution that uses the guarantee;

c) the object of the guarantee;

d) the cost of the guarantee;

e) the form of liability of the Ministry of Finance of Georgia;

f) the validity term of the public guarantee within which the payment obligations of the Ministry of Finance of Georgia are to be fulfilled;

g) terms of payment;

h) the conditions under which the guarantee can be carried out;

i) the liabilities of financial institutions using public guarantees − repay the credit and interest due.

Article 42 − Securing loans with public guarantees

Public guarantees secure the repayment, in whole or in part, of the principal amount and interest due on the guaranteed credit, if the agreement provides for the repayment of interest.

Article 43 − Fulfilment of public guarantees issued for credits

1. A public guarantee shall transform into a public debt as soon as the Ministry of Finance of Georgia establishes that the payment on the guaranteed loan has not been made according to the term and conditions of the loan, due to which the borrowing economic agent is a party at fault.

2. If an economic agent does not fulfil the payment obligations to a creditor financial institution in accordance with a credit agreement and the creditor financial institution has taken all measures provided for by this Law and by the debt repayment guarantee agreement, then the credit institution shall submit to the Ministry of Finance of Georgia a an application for payment in order for the Ministry to fulfil the public guarantee.

3. An application for payment shall include the principal amount and interest that the Ministry of Finance of Georgia is to pay to the credit financial institution under the conditions of the guarantee agreement and according to the requirements of this Law.

4. The Ministry of Finance of Georgia shall transfer the amount indicated in the application to the credit institution if the conditions of the application comply with this Law and the conditions of the guarantee agreement.

Article 44 − Repayment of the funds defined for the fulfilment of public guarantees on credit

1. After the payment of funds by the Ministry of Finance of Georgia according to the public guarantee, the economic agent shall take all measures to repay the allocated funds to the Ministry according to the provisions of this Law.

2. The Ministry of Finance of Georgia shall take all measures provided for by this Law and other laws of Georgia for the return of funds allocated for the public guarantee.

Article 45 − Conditions for converting into public debt the public guarantee issued in relation to debts

A public guarantee shall be deemed as the public debt of Georgia if creditors make an application for payment in compliance with all the conditions specified in the guarantee agreements. The Parliament of Georgia shall be notified about this and a draft amendment to the Law of Georgia on the State Budget shall be submitted to the Parliament.

Article 46 − Conditions for the termination of public guarantees on credits

1. A public guarantee shall be considered to be covered if:

a) the guaranteed credit was fully repaid by the economic agent or the Ministry of Finance of Georgia;

b) the intended purpose of the credit defined by the guarantee agreement has been violated;

c) all the conditions of the guarantee agreement have been fulfilled.

2. The Parliament of Georgia shall be notified of each event of termination of a public guarantee on credit.

Chapter V − Final and Transitional Provisions

Article 47 − Normative acts to be adopted in relation to the entry into force of the Law

1. The Ministry of Finance of Georgia shall be tasked with drafting, within three months after the entry into force of this Law and in accordance with Article 3(2) of this Law, the amendments and additions to be made to the Law of Georgia on the Budgetary System and Budgetary Powers.

2. The Procedural Issues Committee of the Parliament of Georgia shall be tasked with drafting, within two months after entry into force of this Law and in accordance with Article 8 of this Law, the amendments and additions to the Rules of Procedure of the Parliament of Georgia.

3. The Government of Georgia shall, before 1 June 2008, adopt a resolution that ensures the establishment of the regulatory standards specified in Article 2(4¹) of this Law for the government securities denominated in foreign convertible currency and issued on behalf of Georgia.

Law of Georgia No 5903 of 14 March 2008 − LHG I, No 4, 14.3.2008, Art. 10

Article 48 − Recognition of various liabilities as domestic public debt liabilities before the entry into force of this Law

1. The following debt liabilities shall be recognised as domestic public debt liabilities before the entry into force of this Law, except for the liabilities defined by Article 11(a) and (b):

a) arrears originated from the indexation of deposits placed by the population with former state commercial banks;

b) arrears originated from the non-payment of the funds belonging to natural and legal persons of Georgia deposited to the account of the Tbilisi branch of the Bank of Foreign Economic Activities of the former Soviet Union and blocked by the same bank;

c) arrears originated as a result of the debiting by the Central Bank of the Russian Federation towards the external public debt of funds belonging to legal persons of Georgia and existing on the correspondent accounts of this Bank;

d) arrears existing in the compensation of the value of the products shipped by the enterprises and organisations of the country upon the instructions of the Government of Georgia in exchange for the payment of the cost of the natural gas provided from Turkmenistan until the year 1995 inclusive;

e) arrears originated from the issuance of internal premium bonds of 1992 of the Republic of Georgia;

f) obligation to cover special-purpose passive bonds of 1990 of the former Soviet Union;

g) obligation undertaken by the State relating to co-operative housing;

h) arrears originated from the failure to provide apartments to the drivers of the municipal enterprise TBILTRANSI who worked under contracts;

i) arrears originated from the non-compensation of items won in the state lottery by the population;

j) arrears originated from the non-compensation of the monetary funds belonging to legal persons of Georgia blocked by the Industriabank of the former Soviet Union and existing on the account of the Batumi branch of this Bank.

2. The public debt liabilities provided for in paragraph 1(a) and (e) of this article shall be repaid according to the edicts of the President of Georgia No 716 and 717 of 8 December 1997.

3. The procedure for covering public debt liabilities specified in paragraph 1(b), (c),and (j) of this article shall be defined annually according to the appropriations allocated by the Ministry of Finance of Georgia in the state budget.

4. The procedure for covering public debt liabilities specified in paragraph 1(f), (g), (h) and (i) of this article shall be developed by the Ministry of Finance of Georgia until 1 September 1998 and agreed with the Budget and Finance Committee of the Parliament of Georgia.

Article 48¹ − Debts owed to the National Bank of Georgia

The debt of the Government of Georgia owed to the National Bank of Georgia (received credits and re-registered debt liabilities), which represent the domestic public debt, shall be covered before 16 March 2030 on the basis of the agreement entered into between the Government of Georgia and the National Bank of Georgia, in such a way that annually one part of the debt is re-registered as a public bond − a one-year annually renewable public debt liability intended for the National Bank and the second part is re-registered as public obligations with various term of validity for open market operations, the covering of which shall be carried out from the state budget of respective years.

Law of Georgia No 3012 of 11 May 2006 − LHGI, No 13, 13.5.2006, Art. 88

Article 48² − (Deleted)

Law of Georgia No 5903 of 14 March 2008 − LHG I, No 4, 14.3.2008, Art. 10

Law of Georgia No 4509 of 8 April 2011 − website, 8.4.2011

Article 49 − Entry into force of the Law

This Law shall enter into force upon promulgation.

Article 50 − Normative acts repealed in relation to the entry into force of this Law

Decree of the State Council of the Republic of Georgia of 8 September 1992 on the Public Debt of the Republic of Georgia shall be considered repealed upon entry into force of this Law (collection of normative acts of the State Council of the Republic of Georgia, 1995, Vol. II, Art.158).

President of Georgia                                                    Eduard Shevardnadze

Tbilisi

5 March 1998

No 1285-IIს