Reforming the Georgian Government Securities Market: Regulatory Barriers and the Case for Open, Direct Investor Access

Abstract

This paper analyzes the Ministry of Finance and National Bank Regulation governing the issuance, circulation, and redemption of Georgian treasury bills and bonds. Bills are discount securities of up to one year, and bonds are coupon securities of 1 to 10 years, with a nominal value of GEL 1,000. All are sold at multiple-price auctions open only to commercial banks. The author identifies several weaknesses: a legal limit on using proceeds to deficit and cash-gap financing; a GEL 50,000 minimum competitive bid that excludes small investors; bank intermediation that creates conflicts of interest and lets banks see client bids; lari-only issuance with no currency hedging or inflation indexing; unregulated bank fees; a paper-and-electronic bidding duplication; and a central register run by the central bank. The paper recommends admitting brokerage firms, introducing a "Treasury Direct" system, lowering the minimum bid to GEL 100, trading through a single exchange, issuing inflation-indexed securities, setting uniform commissions, and creating an independent auction body.

Keywords: Government debt, Treasury Bills, Discount Securities, Coupon Securities, Bidding procedures on T-bills Market, Treasury Direct, TIPS, yield, taxation, budget deficit