20210902-IMF-Republic_of_Tajikistan_2019_Article_IV_Consultation-Press_Release_and_Staff_Report_82页_1mb

Summary of IMF Country Report No. 21/200: Republic of Tajikistan 2019 Article IV Consultation

Core Content

The IMF conducted the 2019 Article IV consultation with the Republic of Tajikistan, focusing on macroeconomic stability, fiscal sustainability, financial sector reforms, and structural improvements. The consultation concluded on January 13, 2020, and the report highlights both progress and ongoing challenges in Tajikistan's economic landscape.

Main Views and Key Information

Economic Performance and Inflation

• Economic activity in 2018-19 was strong, with real GDP growth exceeding 7%.
• Inflation increased to 7.4% in 2019, driven by base effects and rising food prices, but remained within the National Bank of Tajikistan's (NBT) target range of 7% ± 2%.
• Inflationary pressures are expected to remain moderate.

External Position and Fiscal Deficit

• The current account deficit widened to 5% of GDP in 2018 and remained at a similar level in 2019.
• The fiscal deficit reached 3.8% of GDP in 2019, with expansionary fiscal policy and declining revenues contributing to the widening gap.
• Public and publicly-guaranteed debt remained stable, but non-guaranteed debt from state-owned enterprises (SOEs) is rising, increasing debt vulnerabilities.

Financial Sector Recovery

• The financial sector is recovering from the 2015-16 crisis, with a decline in nonperforming loans (NPLs) and improved bank profitability.
• However, two formerly-systemic banks remain insolvent, and further reforms are needed to restore public confidence.
• The NBT has introduced measures to strengthen bank supervision and macroprudential policy, including liquidity coverage requirements and higher reserve requirements for FX deposits.

Structural Reforms and Governance

• Structural reforms are underway to improve the governance of SOEs and the financial sector.
• Reforms to the energy sector, particularly the state-owned company Barki Tojik (BT), are ongoing, with efforts to unbundling operations and reducing subsidies.
• Weak governance in banks and SOEs is a key barrier to efficient resource allocation and investment.

Policy Recommendations

• Exchange Rate Policy: Greater exchange rate flexibility is needed to support external adjustment and macroeconomic stability.
• Fiscal Consolidation: Tax reforms and spending prioritization are recommended to reduce the fiscal deficit and manage debt sustainability.
• Monetary Policy: Strengthening the monetary policy framework and moving towards inflation targeting is encouraged.
• Financial Sector Reforms: Continued efforts to reduce NPLs, improve bank governance, and implement AML/CFT policies are required.
• Structural Reforms: Enhancing the business environment, improving governance, and reducing corruption are essential for inclusive growth.

Risks and Challenges

• Downside risks include potential cost overruns or delays in the Roghun dam project, which could lead to significant fiscal and external risks.
• Delays in structural reforms could result in additional fiscal liabilities.
• Slower growth in emerging markets, especially Russia and China, may reduce remittances, loans, and FDI, further straining the external position.
• The risk of external debt distress remains high, and the debt sustainability analysis (DSA) indicates that current policies are leading to an unsustainable debt path.

Key Issues and Outlook

• The authorities are relying on large infrastructure projects, such as the Roghun dam, which require substantial external financing.
• Public investment is high but inefficient, contributing to rising debt vulnerabilities.
• The NBT's financial position remains weak, with negative equity of nearly 9% of GDP.
• The real effective exchange rate (REER) has appreciated, leading to FX shortages and a parallel market.
• The staff report emphasizes the need for comprehensive reforms to address macroeconomic imbalances and improve the business environment to foster sustainable and inclusive growth.

Conclusion

The IMF encourages the authorities to pursue a more sustainable growth model by increasing private-sector participation, enhancing fiscal and monetary policy frameworks, and continuing financial sector reforms. While progress has been made in reducing NPLs and improving bank profitability, the country still faces significant challenges in terms of external and fiscal sustainability, debt management, and structural reform implementation. The report underscores the importance of maintaining macroeconomic stability and improving governance to support long-term economic development.