20210902-IMF-Republic_of_Tajikistan_2015_Article_IV_Consultation-Press_Release_and_Staff_Report_89页_1mb

2015 Article IV Consultation Summary: Republic of Tajikistan

Core Content

The 2015 Article IV consultation of the Republic of Tajikistan by the IMF was conducted to assess the country's economic developments and policy framework in light of recent challenges. The consultation focused on addressing vulnerabilities and promoting sustainable growth through structural reforms and policy adjustments.

Main Economic Developments

• Growth Trends: Tajikistan experienced strong GDP growth (average of 7.3% from 2004 to 2013), but growth began to slow in 2014 and 2015. GDP growth in 2014 was 6.7%, down from 7.4% in 2013, and is projected to fall further to 3% in 2015.
• Sectoral Contributions: In 2014, construction was the main driver of growth, while services (remittances) and agriculture slowed significantly.
• Inflation: Annual headline inflation remained moderate (3.5–7.5%) over the past two years, but is expected to rise to double digits in 2015 due to exchange rate pass-through.
• Exchange Rate: The official exchange rate depreciated by 24% over sixteen months through April 2015. The current account deficit increased to 9.1% of GDP in 2014, up from an average of 3.3% in 2011–13.
• Monetary Policy: Base and broad money expanded at a moderate pace in 2014 (13% and 7%, respectively), while private credit growth remained robust (32%). The refinance rate was kept at or below zero in real terms until late 2014.
• Fiscal Performance: The 2013 budget surplus was 0.2% of GDP, and the 2014 surplus increased to 1% of GDP. Tax revenue performance was stronger than expected due to the simplified tax code introduced in 2013. However, capital spending fell below plans due to delays in projects, including the Rogun HPP.
• Debt Levels: Total public and publicly-guaranteed debt was estimated at 28.2% of GDP at the end of 2014. The authorities maintained nominal external public debt below 35% of GDP.
• International Reserves: Official reserves were at a low level, equivalent to only one month of import cover. The somoni was overvalued, and the real effective exchange rate was above its 10-year average.

Key Issues and Risks

Downside Risks

• Lower emerging market growth
• Instability in Afghanistan
• Geopolitical risks from the Middle East

Upside Risks

• Diversification through stronger economic ties with China
• Access to large South Asian markets
• Potential discovery of commercially recoverable natural gas

Policy Recommendations

A. Exchange Rate and Monetary Policy

• Greater Exchange Rate Flexibility: The authorities should remove the administrative cap on the exchange rate and limit foreign exchange market interventions to prevent excessive volatility.
• Monetary Conditions: The central bank should focus on supporting banks with strong balance sheets and good collateral, while avoiding further deposit shifts to banks.

B. Financial Sector

• Banking System: Problem banks should be resolved, and directed lending should be discontinued.
• Supervision and Governance: Strengthen bank supervision, improve governance, and establish a financial stability committee.
• Crisis Preparedness: Enhance crisis preparedness and ensure the health of the financial system.

C. Fiscal Policy and SOEs

• Fiscal Buffers: Return to small fiscal surpluses to reconstitute fiscal buffers.
• Social Safety Nets: Improve social safety nets and protect social spending.
• SOE Reforms: Reform state-owned enterprises (SOEs), improve transparency and accountability, and integrate them into the budget.
• Dividends Policy: Enforce the SOE dividends policy introduced in 2013 and reduce quasi-fiscal risks.

D. Other Structural Issues

• Infrastructure: Improve infrastructure to support investment and growth.
• Education: Better align education with economic needs.
• Regulations: Streamline regulations to reduce bottlenecks and enhance competitiveness.

Executive Board Assessment

• Economic Progress: The Executive Board acknowledged Tajikistan's significant progress in economic and social development over the past decade.
• Vulnerabilities: However, the country faces rising vulnerabilities due to weak external demand, declining remittances, and reduced export earnings.
• Support for Reforms: Directors encouraged the authorities to act swiftly to restore fiscal and external buffers, strengthen the financial sector, and pursue structural reforms to support long-term growth and job creation.

Key Statistics

Additional Information

• Population: 8.3 million (2014)
• Per Capita GDP: US $1121 (2014)
• Poverty Rate: 42% (2011)
• Main Exports: Aluminum, cotton
• Main Imports: 65% of GDP
• Quota: SDR 87 million
• WTO Membership: 2013
• AIIB Membership: April 2015

Conclusion

The IMF emphasized the need for structural reforms, fiscal discipline, and greater exchange rate flexibility to address vulnerabilities and support sustainable growth. While Tajikistan has made progress in tax administration and debt management, financial sector reforms and SOE restructuring remain critical for long-term stability. The country's reliance on remittances and its narrow export base continue to pose risks, necessitating diversification and stronger economic ties with China and South Asia.