20210902-IMF-Republic_of_Tajikistan_2013_Article_IV_Consultation-Press_Release_and_Staff_Report_67页_1mb

Summary of the 2013 Article IV Consultation with the Republic of Tajikistan

Core Content

The 2013 Article IV Consultation with the Republic of Tajikistan was conducted by the IMF Executive Board, which concluded its review on July 19, 2013. The consultation aimed to assess the economic developments and policies of Tajikistan, with a focus on fiscal sustainability, financial sector stability, and structural reforms. The consultation was based on discussions held from March 28 to April 11, 2013, and the staff report was finalized on July 1, 2013.

Main Points

Economic Overview

• Growth: Tajikistan experienced robust GDP growth in 2012 at 7.5%, driven by the service sector, agriculture, and industry. Growth was expected to moderate in 2013 due to slower Russian growth and potential declines in aluminum production and exports.
• Inflation: Headline inflation declined to 6.4% in 2012, aligning with international food price trends. It remained stable at 6.5% in the first quarter of 2013.
• Current Account Deficit: The deficit narrowed to 1.3% of GDP in 2012, due to slower import growth and strong remittance inflows (up 26.8%).
• External Debt: Public and publicly guaranteed external debt decreased to 28.3% of GDP at the end of 2012, thanks to large amortization payments to China and a slowdown in external loan disbursements.
• Reserves: Gross international reserves stood at 1.6 months of imports at the end of 2012, the lowest in the region.

Fiscal Policy

• Fiscal Surplus: The fiscal position moved to a surplus of 1.9% of GDP in 2012, exceeding the budget target. This was due to increased tax and non-tax revenues and reduced capital expenditure.
• Debt Anchors: The fiscal outcome aligned with the goal of keeping total public and publicly guaranteed debt below 35% of GDP.
• Fiscal Risks: Despite the surplus, fiscal risks remain due to quasi-fiscal spending through state-owned enterprises (SOEs) and directed lending.

Monetary Policy

• Monetary Stability: The National Bank of Tajikistan (NBT) maintained a low inflation rate, focusing on price stability.
• Exchange Rate: The NBT's policy is based on an exchange rate anchor to the U.S. dollar, limiting flexibility.
• Reserve Money: Reserve money growth was slower than expected in 2012 due to overperformance of the budget and reduced liquidity lending.

Financial Sector

• Challenges: The financial sector faces vulnerabilities, including low profitability, rising non-performing loans (NPLs), and high lending-deposit spreads.
• Directed Lending: State-directed lending displaces market financing and creates fiscal risks. The NBT's independence is compromised by pressure to support quasi-fiscal activities.
• Banking Reforms: There is a need to curtail directed lending, improve prudential norms, and strengthen financial sector supervision. A prompt resolution of Agroinvestbank (AIB) is a priority.

Structural Reforms

• Private Sector Development: The main challenge is to create conditions for private-sector-led, sustainable, and inclusive growth.
• Business Climate: Tajikistan ranks poorly in the ease of doing business, limiting private investment and job creation.
• Reforms: The country has made progress in some areas, such as tax administration and AML/CFT, but more is needed in financial sector governance and structural reforms.

Risks and Outlook

• Downside Risks: Include deterioration in terms of trade, slowing Russian growth, weak PFM reforms, and financial sector fragility.
• Upside Potential: Structural reforms, higher remittances, and possible hydrocarbon production could drive growth.
• Other Risks: Limited transport links, strained relations with Uzbekistan, and the drawdown of NATO troops from Afghanistan add to uncertainty.

Key Recommendations

• Rebuild fiscal and external buffers to better respond to shocks.
• Strengthen financial sector governance and eliminate directed lending.
• Enhance transparency and accountability in public financial management.
• Develop financial markets, particularly the government securities market.
• Implement structural reforms to improve the business climate and competitiveness.
• Continue fiscal consolidation while maintaining social and developmental objectives.
• Improve tax administration and expand the tax base.
• Strengthen the AML/CFT framework and enhance social safety nets.

Policy Discussions

The IMF Executive Board emphasized the importance of:

• Fiscal and External Buffers: To provide resilience against external shocks and ensure debt sustainability.
• Inclusive Growth: Through private-sector-led development and diversification of the economy.
• Public Sector Governance: Improving transparency and accountability in public finances.
• Monetary Policy Flexibility: To support external adjustment and protect foreign exchange reserves.
• Financial Sector Stability: Addressing NPLs, improving prudential norms, and restoring central bank independence.

Conclusion

The 2013 Article IV Consultation highlighted Tajikistan's economic strengths and vulnerabilities. While the country has made progress in fiscal performance and some reforms, challenges remain in financial sector governance, structural reforms, and external sustainability. The IMF encouraged continued efforts to build resilience, promote private investment, and maintain macroeconomic stability. The next Article IV consultation is expected to follow the regular 12-month cycle.