Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with the Republic of Tajikistan







January 17, 2020















On January 13, 2020, the Executive Board of the International Monetary Fund
(IMF) concluded the Article IV consultation

[1]

with the Republic of Tajikistan.

Reported economic activity has been strong in 2018-19. Inflation has picked
up in the past year due to base effects and food price inflation in partner
countries but remained within the National Bank of Tajikistan’s (NBT)
target range. Weak remittances and exports and strong
imports have contributed to a deterioration of the external current
account. The real effective exchange rate has appreciated, and foreign
exchange shortages have emerged. Fiscal policy has been expansionary with
the overall 2019 deficit projected to reach 3.8 percent of GDP. Public and
publicly guaranteed debt has been stable as the deficit has been financed
from the proceeds of the 2017 Eurobond. Reforms to place the loss-making
energy sector on a sound financial footing are underway. Nonetheless, debt
vulnerabilities are rising on account of non-guaranteed borrowing by
state-owned enterprises (SOE). The financial sector is recovering from the
2015-16 crisis, with a decline in nonperforming loans and improved
profitability. The authorities have taken steps to strengthen bank
supervision and regulation. However, two formerly-systemic banks remain
insolvent and further reforms are needed to restore public confidence in
banks.

The fiscal deficit is expected to remain high over the medium-term owing to
the large Roghun hydro-power construction project, putting debt on an
unsustainable path. Together with limited exchange rate flexibility, the
fiscal deficit is expected to contribute to a weak external position, with
the current account deficit over 5 percent of GDP. In a weak global
environment, these factors are expected to weigh on confidence and growth
is projected to moderate to 4 percent over the medium term. Inflation is
expected to remain moderate.

READ ALSO  De offentlige virksomheder øgede investeringerne

Downside risks stem from potential cost overruns or difficulties in
implementing large infrastructure projects would pose sizable fiscal risks.
Delays in structural reforms, particularly to improve the governance of
banks or state-owned enterprises, could result in additional fiscal
liabilities. Slower-than-expected growth in emerging markets would reduce
remittances, loans, and FDI and put further pressure on the external
position and growth. Tajikistan’s risk of external debt distress remains
high, suggesting heightened fiscal vulnerabilities to adverse shocks.


Executive Board Assessment

[2]

Executive Directors commended the authorities for the solid growth
performance, poverty reduction, and improvements to bank supervision and
regulation, as well as progress in further developing the monetary and
macroprudential frameworks. Noting that continued large external and fiscal
deficits create a challenging macroeconomic outlook over the medium term,
Directors emphasized the importance of protecting macroeconomic stability
and supporting sustainable growth. They encouraged further fiscal
consolidation, greater exchange rate flexibility, measures to strengthen
the financial sector, and structural reforms to improve the business
environment and governance framework.

Directors encouraged fiscal consolidation measures to put debt on a
downward trend, including broadening the tax base and gradually phasing out
tax incentives. On public investment, they called for greater
prioritization and improvements in efficiency to create fiscal space for
important infrastructure projects. Targeted social assistance should be
stepped up to protect vulnerable groups. Directors urged the authorities to
avoid non-concessional borrowing and implement a comprehensive debt
management strategy, with IMF technical assistance, to manage risks from
large infrastructure projects and SOEs. Fiscal risks from the largest SOEs
should be further mitigated through passage of the SOE law in line with IMF
recommendations.

Directors emphasized the need for greater exchange rate flexibility to
facilitate adjustment to shocks, help preserve external buffers, and
support growth. Removing the exchange restriction and improving the
transparency and functioning of the FX market should also be priorities,
with due attention to dollarization and inflation considerations. Directors
encouraged further efforts to strengthen the monetary policy framework and
transmission. They considered that the National Bank of Tajikistan’s (NBT)
planned transition to inflation targeting remains an appropriate
medium-term goal and would be supported by enhancements to exchange rate
flexibility and the NBT’s financial position and independence. As
inflationary pressures have risen in recent months, Directors considered
that tighter monetary policy might be needed to mitigate possible
second-round effects.

READ ALSO  Fortsat faldende antal tvangsauktioner

Directors emphasized that, despite the reduction in NPLs and improved
profitability of banks, more is needed to restore financial stability and
boost confidence in the banking sector. In this regard, an important
priority to be considered is the liquidation of two formerly-systemic
insolvent banks and payout of insured depositors. Directors also
highlighted the importance of continued efforts to strengthen bank
governance and supervision, and implementation of AML/CFT policies to
mitigate pressures on correspondent banking relationships and boost
financial integrity.

Directors encouraged sustained and strong implementation of structural
reforms to improve the business environment and foster higher and more
job-rich growth in the medium term. They underscored the importance of
undertaking measures to improve the governance of core economic
institutions and SOEs and to enhance the rule of law and anti-corruption
policies to boost investment and inclusive growth. Improvements in the
quality and timeliness of economic data would strengthen economic analysis
and policy making.




Table 1. Selected Economic Indicators, 2017–22

(Quota: SDR 174 million)

(Population: 9.1 million; 2018)

(Per capita GDP: US$827; 2018)

(Poverty rate: 29 percent; 2017)

(Main exports: mineral products, aluminum, cotton; 2018)

2017

2018

2019

2020

2021

2022

Est.

Proj.

National accounts

(Annual Percent Change, unless otherwise indicated)

Real GDP

7.1

7.3

5.5

4.7

4.5

4.5

Headline CPI inflation (end-of-period)

6.7

5.4

7.4

6.8

6.7

6.5

General government finances

(Percent of GDP, unless otherwise indicated)

Revenue and grants

29.7

29.1

26.7

27.2

27.2

27.1

Tax revenue

21.6

21.3

20.1

20.2

20.2

20.2

Expenditure and net lending

35.6

31.9

30.4

31.5

31.5

31.4

Current

17.0

17.2

17.7

17.9

17.9

17.7

Capital

18.6

14.6

12.8

13.5

13.6

13.7

Overall balance (excl. PIP and stat. discrepancy)

-3.4

1.6

0.5

1.5

1.5

1.5

Overall balance (incl. PIP and stat. discrepancy)

-6.0

-2.8

-3.8

-4.3

-4.3

-4.3

Total public and publicly-guaranteed debt

50.4

47.9

45.2

46.4

47.5

48.9

Monetary sector

Broad money (12-month percent change)

21.9

5.1

13.5

12.1

11.8

11.4

Reserve money (12-month percent change)

21.0

7.0

12.1

11.7

11.6

11.1

Credit to private sector (12-month percent change)

-20.2

1.3

7.8

9.3

9.6

9.8

Refinancing rate (in percent, eop/ latest value)

16.0

14.8

External sector

Current account balance

2.2

-5.0

-4.5

-5.2

-5.3

-5.3

Trade balance (goods)

-21.2

-25.1

-23.0

-23.3

-23.0

-22.8

FDI (net)

0.9

3.3

3.0

2.4

2.1

1.8

Total public and publicly guaranteed external debt

40.6

38.7

36.8

38.7

40.6

42.7

Memorandum items:

Nominal GDP (in millions of somoni)

61,093

68,844

77,351

86,130

95,593

105,622

Average exchange rate (somoni per U.S. dollar)

8.55

9.15

Sources: Data provided by the Tajikistan authorities, and
Fund staff estimates.


READ ALSO  Colombia Draws on IMF Flexible Credit Line to Address the COVID-19 Pandemic


[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Randa Elnagar

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson