Georgian Model and its adaptability to SL | Daily News

Georgian Model and its adaptability to SL

The Ceylon Chamber of Commerce invited Aleksi Aleksishvili, former Minister of Finance in Georgia to address the preliminary session of the 2022 Economic Summit held on December 5, 6 2022. The Chamber invited a smaller group to interact with Aleksi informally.

This article presents the insights gained from this discussion and analyses the applicability of the Georgian model in Sri Lanka.

The Georgian reform strategy

Fiscal Reform

The fiscal reform described was reforming the main fiscal institutions, namely Customs and Inland Revenue and reorienting the tax policy. The success of this reform increased the ratio of Tax: GDP from 12% to 27% in a mere three years, which is an amazing achievement.

Fiscal Agency Reform

The driver of institutional success was described to be the training of a team of young professionals to perform a specific function within Customs or IRD, and then moving the entire team into an operational unit suddenly, and unannounced. The Georgian experience found replacing individuals ineffective but replacing the entire team, very effective.

Tax Reform

Tax reform consisted of a simplified system, shown below;

•Import duties imposed only on four items, automobiles, fuel, tobacco, and alcohol. All other imports were duty free

•Wide reaching VAT (including on food) at 18%

•Personal tax and corporate tax at 20%, with no cascading tax and no exemptions

Law Reform

The two agencies that were reformed were the judiciary and the Financial Police. Aleksi stressed that the independence of these two institutions were the backbone of the reform process.

Regulatory Reform

This process identified unnecessary bureaucratic processes and eliminated them from the system along with the people who performed this process.

Factors that led to the Georgian Success

The Government drove the initiative of reform on an end-to-end basis. This included economic reform, to encourage investment and trade. The fiscal reform was an integral area of a broader economic reform programme. The entire Government being aligned on this programme enabled Georgia to achieve the desired results very quickly.

Implementation Orientation

The budgeting process adopted was where the finance minister allocated funds to ministries, and the minister then decided on the allocation of these funds on projects. This brought the line ministers online with the finance minister and made the budget a collaborative process. Further, the process enabled each minister to be held responsible and accountable for the tasks that they identified on their agenda.

In general, squeezing the time between policy adoption and implementation drove a results-oriented culture that the Government mechanism began adapting to.


The Government reform programme came on the back of a mass uprising of the people, like the Aragalaya in Sri Lanka. The Government used this backdrop to implement rapid and aggressive changes. These changes being implemented led to downsizing of Government institutions. This led to the termination of Government employees. Strong communication with the people on top of the overall reform agenda and popular support for reform allowed this to happen. The narrative used was that a corrupt or ineffective Government employee was an unnecessary cost to the citizenry. This is an example of how a unified approach together with proactive communication can drive a development agenda.

Georgia and Sri Lanka – How different are they?

The policies and the process of adoption implemented in Georgia seem applicable in Sri Lanka with some reorientation.

The similarity between Georgia and Sri Lanka is that the people wanted change.

Sri Lankan politicians do not demonstrate a unified approach to reform and any serious commitment to implementing change. They do not demonstrate fiscal discipline or commitment to austerity when it comes to themselves.

The President has articulated a clear policy that if implemented will lead to rapid and sustained growth in Sri Lanka. The challenge that the President seems to face is a lack of commitment to his policy and reform agenda by his own Cabinet. One has to ask, does he have the team required to drive the implementation of his vision?

Georgian model

Segmenting reform into the three categories of fiscal, legal, and regulatory and driving all three elements concurrently makes good sense. It also seems to enable rapid policy reform.

Fiscal Reform

The fiscal reforms can be segmented into reform of fiscal agencies and taxation. These can be looked at in terms of people, process, and digitisation. Digitisation can be a means of driving agency reform. The process at Customs and IRD have evolved to facilitate a degree of corruption and streamlining and digitizing this process will help eliminate it.

Fiscal Agencies

The agencies to be reformed are Customs and the Inland Revenue Department.

The customs reform is particularly important as apart from being a major source of revenue for the Government it can also be a major source of leakage of foreign currency from the banking system. The underground banking network begins with a Sri Lankan abroad giving cash to a collector who gives LKR via his agent to a local recipient. The collector abroad, uses the forex to send goods to Sri Lanka via the agent. These goods are usually smuggled as these imports cannot be officially declared. The agent recovers his money through the sale of these goods.

Tightening customs in Sri Lanka can exert significant pressure on the non-bank forex network.

Digitising and de-peoplising both agencies will assist the reform process very significantly. Review of the Customs Ordinance so they are not both the ‘judge and jury’ on customs issues and the simplification of taxation together with strengthening the tax enforcement team can also help. The Georgian example of introducing new teams into these institutions is an interesting idea than could be experimented with.


My article of October 28, 2022 ( ) argued for increased indirect taxes as a means of boosting short term revenue collection. The Georgian model gives an empirical case study of a successful model that can be experimented with. The low tax incidence, together with tax simplification, and the strengthening of tax enforcement can achieve this in Sri Lanka.

Government Expenditure

Sri Lankan Airlines alone is estimated to lose around Rs. 50 billion per year – approximately US$ 135 million. The Government Wage Bill is over Rs. 1,100 billion almost US$ 3 billion per year. This is as unsustainable as our debt. On the other hand, this is a good problem to have, as there is so much room for expenditure reduction.

Legal Reform

Areas of potential legal reform that could be considered in Sri Lanka are;

• Increased judicial independence

• Adopting of a ‘Financial Police’ and give such an entity significant independence and autonomy

• Regulating election expenditure

• Enforcing the requirement of asset declarations for all Government officials and ensuring asset declarations are consistent with IRD submissions

Regulatory Reform

Taking away unnecessary processes along with the teams who implement such processes is a bold yet effective means of reducing the size of the Government and enhancing its efficiency. Strengthening regulatory agencies by enhancing their independence through enacting them under the constitution could be considered.

Sri Lanka needs rapid and aggressive reform like Georgia did. And this reform could be as successful as in Georgia. The question is, do we have the ingredients that led to the success of reform in Georgia? Having a President that is committed to reform is not sufficient. The President needs to be able to drive this reform. He needs political support to do so. And he has to have a team of people to implement reform.

Since this discussion was initiated by the Ceylon Chamber of Commerce, the premier business Chamber in Sri Lanka, could they not play a pivotal role in negotiating political consensus towards required reform, and assisting the President in implementation?

Sheran Fernando is a Co-Founder of Innosolve Lanka (Pvt.) Ltd, a start-up dedicated to introducing sustainable mobility solutions in Sri Lanka. He is an economist by training with wide commercial experience, including 20 years in the automotive industry. He belongs to the alumni of Harvard Business School (OPM53)


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