Questions? +1 (202) 335-3939 Login
Trusted News Since 1995
A service for investment professionals · Friday, March 29, 2024 · 699,674,062 Articles · 3+ Million Readers

IMF Executive Board Concludes 2017 Article IV Consultation with the Republic of Tajikistan

November 9, 2017

On November 03, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of Tajikistan.

In the past few years economic activity in Tajikistan was strong, despite large external shocks that weakened the external position and exposed vulnerabilities. While remittances declined by 45 percent in nominal USD terms in 2015-16, real GDP growth was 6-7 percent supported by an expansionary fiscal policy that boosted investment in construction and industry and informal sector activity. Inflation remained low. The current account deficit widened from 2.8 percent in 2014 to 6 percent of GDP in 2015 before narrowing to 3.8 percent of GDP in 2016. End-2016 reserves provided 2.3 months of import cover. Public debt increased to nearly 42 percent of GDP. The sharp decline in remittances resulted in a large depreciation against the dollar, which in turn led to a significant escalation in banking sector stress owing to short open foreign exchange (FX) positions and FX lending to unhedged borrowers. By end-2016, nonperforming loans (overdue more than 30 days) in the banks rose to 54 percent, profitability fell, capital adequacy deteriorated and the two largest banks became insolvent and illiquid. Private sector credit declined in 2016.

Following robust growth in 2016, the macroeconomic outlook for Tajikistan is expected to be generally weaker this year and beyond. Growth is projected to decrease to 4.5 percent in 2017 and decline further to 4 percent in 2018 due to fiscal consolidation and credit contraction. Banks have made progress in reducing nonperforming loans to 48.8 percent at end-September. The authorities target a decline in the overall budget deficit (including the Public Investment Program and excluding bank recapitalization) of two percentage points of GDP, mainly by reining in capital spending. Staff projects a higher budget deficit mostly due to the need for additional bank recapitalization. The external current account deficit is projected to widen to 6.3 percent of GDP, reflecting the liquidity created by the bank recapitalization and imports for a large energy project.

Risks stem from potential delays in structural reforms, particularly in the banking sector or state-owned enterprises, which would hurt confidence and have an adverse impact on growth. Slower growth in emerging markets would reduce remittances, loans, and FDI. Tajikistan’s risk of external debt distress has increased from low to high suggesting heightened fiscal vulnerabilities to adverse shocks.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities’ response to external shocks since 2014, including allowing exchange rate flexibility and convergence, containing the government wage bill, raising the liquidity support interest rate, implementing measures to preserve financial stability, and accumulating international reserves. Nevertheless, they noted that the Tajik economy continues to face vulnerabilities, which requires maintaining a prudent macroeconomic policy stance, building fiscal and external buffers, and stepping up reforms, especially in the banking sector.

Directors welcomed the steps taken by the authorities to repair the financial sector and strengthen banking supervision, but stressed that more decisive action is needed to address longstanding weaknesses in the sector. They noted that the bailout of the two large banks has appropriately been complemented with rehabilitation plans to improve their financial positions, and that two of the smaller banks that were determined to be unviable were liquidated. Nonetheless, deeper and more urgent reforms are needed, based on an assessment of the banks’ viability. Plans to resolve these banks should be time-bound, protect the public finances, and ensure equitable treatment of creditors. Directors stressed that legislation on bank resolution and emergency liquidity assistance needs to be strengthened, and weaknesses in other banks should be addressed promptly to help ensure financial stability and maintain depositor confidence.

Directors called for a careful implementation of fiscal and monetary policy to ensure macroeconomic stability. They emphasized that fiscal consolidation and concessional financing would reduce the risk of debt distress and help rebuild policy space. Expansion of the tax base and cuts in non-priority expenditure while protecting critical social outlays will be important. Disciplined implementation of the 2017 budget would be a welcome start to this consolidation. Directors also noted that a further tightening of monetary policy, including limiting the use of central bank credit to finance public investment projects, would help contain inflationary pressures.

Directors agreed that sustained and strong implementation of structural reforms, accompanied by prudent macroeconomic policies, would result in higher and more job-rich growth in the medium term. Maintaining exchange rate flexibility and strengthening the monetary policy framework will help support competitiveness, while paving the way for a transition to inflation targeting. Directors underscored that ambitious reforms to improve bank governance and performance, upgrade the financial regulatory and supervisory framework, clarify the tax code and tax administration, enhance SOE oversight and accountability, boost the efficiency of public spending, create a better business environment, and bolster anti-corruption efforts would lift growth significantly over the medium term. Directors also encouraged further development of Tajikistan’s AML/CFT framework.

It is expected that the next Article IV consultation with the Republic of Tajikistan will be held on the standard 12-month cycle.

Table 1. Selected Economic Indicators, 2014–22, Baseline
(Quota: SDR 174 million)
(Population: 8.7 million; 2016)
(Per capita GDP: US$799; 2016)
(Poverty rate: 31 percent; 2015)
(Main exports: aluminum, gold, cotton; 2016)
2014 2015 2016 2017 2018 2019 2020 2021 2022
Est. Est. Est. Proj. Proj. Proj. Proj. Proj. Proj.
(Annual percent change; unless otherwise indicated)
National accounts
Real GDP 6.7 6.0 6.9 4.5 4.0 4.0 4.0 4.0 4.0
GDP deflator (cumulative) 5.5 0.1 5.3 10.0 6.0 6.0 6.0 6.0 6.0
Headline CPI inflation (end-of-period) 7.4 5.1 6.1 10.0 8.0 6.0 6.0 6.0 6.0
Headline CPI inflation (period average) 6.1 5.8 5.9 8.9 8.0 6.0 6.0 6.0 6.0
(In percent of GDP; unless otherwise indicated)
Investment and saving 1/
Investment 19.3 19.2 21.7 17.4 17.4 16.4 16.1 16.7 16.7
Fixed capital investment 16.3 17.5 20.2 16.1 15.9 15.9 15.8 16.2 16.7
Government 10.1 13.8 15.0 11.6 11.2 11.0 10.7 10.9 11.2
Private 6.2 3.7 5.2 4.5 4.7 4.9 5.1 5.3 5.5
Gross national savings 16.5 13.2 17.9 11.1 11.1 10.8 11.0 12.1 12.4
Public 10.1 11.9 4.4 5.1 5.7 9.1 8.9 9.2 9.5
Private 6.4 1.3 13.5 6.0 5.4 1.7 2.1 2.9 2.9
General government finances
Revenue and grants 28.4 29.9 28.8 27.4 29.1 29.4 29.6 29.6 29.8
Tax revenue 22.8 22.0 20.6 19.3 21.0 21.5 21.8 22.1 22.4
Expenditure and net lending 28.4 31.8 39.4 33.9 34.5 31.3 31.4 31.4 31.4
Current 18.2 18.0 18.3 18.3 19.8 20.3 20.6 20.4 20.3
Capital 10.1 13.8 15.0 11.6 11.2 11.0 10.7 10.9 11.2
Overall balance (excl. PIP and stat. discrepancy) 2/ 3/ 0.9 1.2 -7.5 -3.7 -3.1 0.6 0.7 1.2 1.5
Overall balance (incl. PIP and stat. discrepancy) 2/ 3/ 0.0 -1.9 -10.6 -6.5 -5.4 -1.9 -1.8 -1.7 -1.7
Domestic financing -1.7 -2.0 7.3 1.6 0.6 -2.8 -0.7 -0.4 -0.2
External financing -0.1 1.9 2.8 4.9 4.8 4.7 2.5 2.1 1.9
Total public and publicly-guaranteed debt 27.5 34.3 41.8 52.4 56.2 56.3 54.6 52.9 51.8
Monetary sector 4/
Broad money (12-month percent change) 7.1 18.7 37.1 9.9 17.3 11.8 16.4 17.2 18.4
Reserve money (12-month percent change) 13.2 16.0 71.1 15.7 7.7 6.7 10.6 15.5 17.6
Credit to private sector (12-month percent change) 31.5 12.7 -4.9 -11.2 3.0 4.7 5.6 8.4 12.4
Velocity of broad money (eop) 5.0 4.5 3.3 3.9 ... ... ... ... ...
Refinancing rate (in percent, eop/ latest value) 8.0 8.0 11.0 ... ... ... ... ... ...
(In percent of GDP; unless otherwise indicated)
External sector
Exports of goods and services (U.S. dollar, percent change) -10.7 -1.4 12.0 0.5 0.4 2.8 3.1 14.2 3.1
Imports of goods and services (U.S. dollar, percent change) -19.1 -19.9 -10.4 12.4 10.5 10.4 7.2 7.0 4.7
Current account balance -2.8 -6.0 -3.8 -6.3 -6.2 -5.6 -5.1 -4.6 -4.3
Trade balance (goods) -32.5 -28.7 -27.5 -31.3 -36.5 -38.8 -39.5 -38.9 -38.4
FDI 3.3 5.4 4.9 3.0 3.2 3.2 3.2 3.2 3.2
Total public and publicly guaranteed external debt 24.0 31.0 32.4 39.7 42.1 44.6 45.0 45.1 45.0
Exports of goods and services, in millions of U.S. dollars 836 824 923 928 931 957 987 1,127 1,161
Imports of goods and services, in millions of U.S. dollars -4,143 -3,319 -2,974 -3,341 -3,691 -4,073 -4,365 -4,668 -4,888
Current account balance, in millions of U.S. dollars -258 -472 -265 -458 -444 -429 -412 -400 -395
Total public and publicly guaranteed external debt, in millions of U.S. dollars 2,065 2,149 2,243 2,616 2,960 3,345 3,581 3,811 4,038
Gross official reserves (in millions of U.S. dollars) 511 494 653 701 758 911 1,057 1,197 1,401
In months of next year's imports 1.8 2.0 2.3 2.3 2.2 2.5 2.7 2.9 3.2
In percent of broad money 29.8 32.0 34.8 41.0 39.1 43.4 45.0 45.1 46.2
Memorandum items:
Nominal GDP (in millions of somoni) 45,605 48,402 54,471 62,625 69,037 76,107 83,900 92,492 101,963
Nominal GDP (in millions of U.S. dollars) 9,242 7,857 6,953 7,234 7,133 7,607 8,091 8,606 9,143
Social and poverty-related spending (in percent of GDP) 11.9 12.5 13.1 13.7 14.3 14.8 15.3 15.8 16.3
Nominal effective exchange rate (Index 2010=100) 99.2 93.9 77.7 ... ... ... ... ... ...
Real effective exchange rate (Index 2010=100) 109.4 104.2 88.4 ... ... ... ... ... ...
Average exchange rate (somoni per U.S. dollar) 4.93 6.16 7.83
Sources: Data provided by the Tajikistan authorities, and Fund staff estimates.
1/ Private investment and savings are estimates. Investment includes changes in stocks.
2/ Including statistical discrepancy, except in 2013-2015 where statistical discrepancy is treated as below the line domestic financing item.
3/ The 2016 overall balance includes 6.1 percent of GDP for bank recapitalization in addition to regular fiscal operations and projects 4 percent of GDP for bank recapitalization in 2017 and 3.5 percent of GDP for bank recapitalization in 2018. Estimates of bank recapitalization costs are preliminary and subject to change.
4/ Figures differ from those reported earlier due to structural revision to monetary and financial sector statistics based on recent IMF TA.

[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

Powered by EIN Presswire


EIN Presswire does not exercise editorial control over third-party content provided, uploaded, published, or distributed by users of EIN Presswire. We are a distributor, not a publisher, of 3rd party content. Such content may contain the views, opinions, statements, offers, and other material of the respective users, suppliers, participants, or authors.

Submit your press release