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World Bank Update on Tajikistan

Spring 2018: Changing regional environment is critical to capitalize

Friday 3 August 2018

This edition of the Tajikistan Country Economic Update (CEU) is part of a semi-annual series published by the World Bank, designed to monitor socio-economic developments in Tajikistan. It presents an analysis of political, economic, and social developments, as well as the progress of and challenges with the implementation of structural reforms in 2017. It also includes a special section highlighting the key fiscal management challenges in Tajikistan.

According to the IMF, total gross external debt as a percentage of GDP for Tajikistan averaged 59.3% between 2000 and 2014, and was estimated at 67.9% in 2017. Tajikistan’s external debt is projected to keep rising in 2018 and 2019 as the government ramps up construction of the Rogun dam and other infrastructure projects.

On the other hand, ADB experts think to maintain their current growth momentum, Tajikistan must invest almost 8% of GDP in infrastructure.

  1. Tajikistan’s real GDP growth accelerated to 7.1% in 2017, from 6.9% in 2016.
  2. The poverty rate continued to slowly decline, falling to an estimated 29.5% in 2017.
  3. Going forward, the economy is expected to benefit from an improving regional environment and stable commodities prices. Strong economic growth and a continuing recovery in remittance inflows are projected to help drive down the poverty rate.

Overview of the World Bank Update

Tajikistan Country Economic Update — Spring 2018 (PDF)
(Click to download)

Growth in Tajikistan remained robust, albeit with low poverty reduction.

Real GDP growth accelerated in 2017, to 7.1% (from 6.9% in 2016), and was sustained at 7% during the first quarter of 2018 on the back of a robust recovery in remittances driven by a resumption of growth in Russia and an improved external environment. A boost in the mining sector supported net exports, which contributed substantially to overall GDP growth. The high rate of economic growth was sustained due to a significant fiscal stimulus and a reduction in the external imbalance.

However, the fiscal expansion undermined the recently adopted strategy envisaging fiscal consolidation in 2017-201. The nearly balanced current account was helped by improving terms of trade and the undervaluation of the somoni. Progress on structural reforms — including the resolution of pending challenges in the financial sector, which inhibit the development of a vibrant private sector — remained weak.

The poverty rate continued its muted decline, falling to an estimated 29.5% in 2017; this relatively small improvement corresponded to the weakened growth elasticity of poverty observed in recent years. The real challenge for Tajikistan is not only to sustain high rates of economic growth, but to pursue public policies that promote inclusiveness and the shared benefits of growth. Such aims could be achieved by improving the efficiency of redistributive policies and creating a business-friendly environment for the private sector with a view to generating more jobs and achieving better results in poverty alleviation through employment earnings.

The fiscal discipline was breached whereas the monetary policy kept inflation in check.

Following a massive fiscal expansion in 2016, the Tajik authorities approved the 2017 State Budget with an objective to commence fiscal consolidation against the backdrop of shrinking fiscal space and quickly rising debt service obligations.

However, as Eurobond proceeds became available, the government continued the expansionary path which pushed up the fiscal deficit to about 6% of GDP from 3.7% of GDP (excluding the 6.1% of GDP bank bailout program) in 2016. In the context of the persistent spending pressures it is very likely the approved State Budget deficit of 2.9% of GDP in 2018 will be infringed as well compromising the prospects for meeting the fiscal consolidation target.

Reflecting the recovery of remittance inflows, exchange rate pressures subsided during the second half of 2017, while moderating inflation triggered a cut in the policy rate in early 2018. Meanwhile, the central bank has continued its work to lay the foundations for a smooth transition to the inflation-targeting.

Domestic policy induced vulnerabilities pose downside risks to the growth outlook.

Tajikistan’s economic outlook has strengthened, but faces some notable downside risks. The economy is expected to benefit from an improving regional environment and stable commodities prices. Strong economic growth and a continuing recovery in remittance inflows are projected to help drive down the poverty rate. While the changing regional landscape presents new prospects for Tajikistan’s energy exports, it also exposes shortfalls in the country’s external competitiveness which will require swift policy actions to address so that Tajikistan can catch up to its neighbours in terms of investment attractiveness and business regulatory reform.

Moreover, to improve the poverty reduction and job creation elasticity of growth, the authorities need to embark on a wide range of structural reforms to facilitate the development of the domestic private sector, improve the governance and financial accountability of state-owned enterprises (SOEs), and resolve challenges in the banking sector which pose significant downside risks to growth.

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