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Transition Report 2013 Stuck in transition?


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Country assessments

Tajikistan

Main macroeconomic indicators %
  2009 2010 2011 2012
est.
2013
proj.
GDP growth 3.9 6.5 7.4 7.5 7.1
Inflation (end-year) 5.0 9.8 9.3 6.4 4.6
Government balance/GDP -5.2 -3.0 -2.1 0.5 -2.3
Current account balance/GDP -5.9 -1.2 -4.7 -1.3 -1.7
Net FDI (in million US$) 66 16 65 146 149
External debt/GDP 51.7 50.5 48.3 46.2 n.a.
Gross reserves/GDP 3.4 6.6 7.4 7.8 n.a.
Credit to private sector/GDP 25.0 23.6 13.7 14.9 n.a.

2013 sector transition indicators

Corporate

Energy

Infrastructure

FI

Source: EBRD.
Note: Water – Water and wastewater; IAOFS – Insurance and other financial services; PE – Private equity.

Highlights

  • Economic growth has remained strong. Output expanded at the rate of 7.5 per cent in 2012, and at a similar rate in the first half of 2013, as the level of remittances remained high.
  • Tajikistan joined the World Trade Organization (WTO) in March 2013. The terms and conditions of Tajikistan’s accession were agreed at the WTO’s December 2012 Ministerial Conference.
  • The new tax code simplified the tax regime. Provisions of the code – which will be phased in gradually between 2013 and 2017 – reduce the number of taxes, and introduce a number of important simplifications and exemptions.

Key priorities for 2014

  • Business practices and supervision in the banking system need to be strengthened. Support to the real sector should be accounted for transparently in fiscal accounts, while bank lending practices need to be strengthened, with lending fully based on commercial principles.
  • The business environment for small and medium-sized enterprises needs to be further improved. In particular, improvements are needed in the areas of access to electricity, construction permits and cross-border trade.
  • Further steps need to be taken to achieve compliance with the Extractive Industries Transparency Initiative (EITI). In February 2013 Tajikistan achieved candidate country status with this global standards initiative. Tajikistan must meet EITI standard requirements on transparency and quality of governance within the next two years in order to achieve EITI compliant country status.

Macroeconomic performance

GDP growth remained strong. The economy grew at the rate of 7.5 per cent in 2012 – which was broadly unchanged from the previous year – and similarly strong growth was recorded in the first half of 2013. The growth was supported by continued strong remittances inflows (equivalent to up to 50 per cent of GDP), mainly from Russia. High aluminium prices and a strong cotton harvest also contributed to the growth performance in 2012.

Inflation remained reasonably moderate, fluctuating between 5 and 7 per cent. These fluctuations in the inflation rate mainly reflected food price volatility. Sustained remittance inflows helped to ensure that the overall current account deficit has been moderate, and the Tajik somoni has remained broadly stable since mid-2011. Negotiations with the International Monetary Fund, over a new Extended Credit Facility programme, continue. The previous Extended Credit Facility programme was completed in May 2012.

The fiscal deficit remained moderate at around 3 per cent of GDP in 2012. However, this improvement may partly reflect the use of off-budget, quasi-fiscal operations, including support to selected sectors of the economy directed through commercial banks. The situation in the banking sector remains a source of significant economic vulnerability, and the non-performing loans ratio has been rising. Concerns remain over bank capitalisation, profitability of operations and the true quality of bank assets – especially credit extended under various government-sponsored programmes.

Growth is expected to remain strong in 2013, but is subject to considerable uncertainty. The economy remains highly dependent on remittances inflows from Russia, where the economy has been slowing. A sustained slow-down in Russia is likely, over time, to affect key remittances-generating sectors. The heavy dependence on Uzbekistan for rail shipments of exports and imports is also a source of concern.

Major structural reform developments

The new tax code is expected to reduce the burden on businesses. The new code, adopted in September 2012, reduces the number of taxes, abolishes the retail sales tax and the highway tax, and exempts selected equipment from value-added tax and customs duties. In addition, domestic enterprises producing wool, leather and agricultural goods enjoy exemption from all taxes during their first five years of operation. The new provisions will be phased in gradually over the period 2013-17. The reforms tackle important obstacles to operating a business in the country. In the World Bank 2014 Doing Business report, Tajikistan ranked one hundred and seventy-eighth of 189 countries in the paying taxes category.

The overall business environment remains very difficult, notwithstanding recent steps to improve it. In the World Bank 2014 Doing Business report, Tajikistan was ranked one hundred and forty-third of 189 countries. Over the past two years improvements have been made in the area of protecting investors, by making it easier for affected investors to seek redress in cases of prejudicial related party transactions.

Tajikistan joined the WTO in March 2013, which should assist its integration in the global economy. The terms and conditions of Tajikistan’s accession were agreed in December 2012, and were subsequently ratified by the parliament.

Tajikistan achieved candidate country status under the Extractive Industries Transparency Initiative. The EITI board accepted Tajikistan’s application in February 2013. As an EITI candidate country, Tajikistan is expected to begin disclosing payments from its expanding extractive sector, and to meet all EITI standard requirements within two-and-a-half years, in order to achieve EITI compliant country status. This global standards initiative – which is designed to improve the quality of governance and transparency in the extractive sector – is highly significant for Tajikistan’s economy, as it is home to over 600 mining operations, including the extraction of gold, silver and aluminium, as well as significant discoveries of as-yet untapped hydrocarbon resources and deposits of metal ores.

Significant vulnerabilities remain in the banking sector. While certain improvements have been made in terms of accounting and provisioning, banks remain burdened by high proportions of non-performing loans, and profitability remains low. Directed lending practices further expose banks to risks related to the poor quality of assets. Risk management in banks should be assisted by the establishment of the first private credit bureau, which will manage individual credit histories. The bureau was licensed in December 2012, in accordance with the 2010 Law on Credit Histories, and was officially launched in June 2013. It is co-owned and managed by an international specialised firm with vast experience in developing countries.

Tajikistan expressed interest in joining the Eurasian Customs Union. Currently Tajikistan cannot become a member of this Union, as it does not share a common border with any current member countries (Belarus, Kazakhstan and Russia). However, membership may become possible in the future, if the Kyrgyz Republic – which has obtained formal candidate country status of the union – becomes a full member country. Meanwhile, in October 2012 Tajikistan and Russia signed a memorandum on tax-free supplies of petrol from Russia to Tajikistan, which helped Tajikistan to significantly lower its fuel imports bill.

Tajikistan signed a memorandum of understanding paving the way for a new cross-border rail link. At a trilateral summit in Ashgabat, in March 2013, the presidents of Afghanistan, Tajikistan and Turkmenistan signed a preliminary memorandum of understanding on the construction of a 350 km railway linking Tajikistan with Turkmenistan, via Afghanistan, at an estimated cost of US$ 2 billion. The completion of this link could substantially boost Tajikistan’s external trade, given the difficulties experienced with shipments via Uzbekistan. However, the sources of funding for this project are yet to be clarified.

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