Press Release: IMF Approves Three-Year ESAF Credit for Tajikistan

June 25, 1998

The International Monetary Fund (IMF) has approved a three-year loan for the Republic of Tajikistan under the Enhanced Structural Adjustment Facility (ESAF),1 equivalent to SDR 96 million (about US$128 million), to support the government’s 1998–2001 economic program. The first annual loan is equivalent to SDR 36 million (about US$48 million) and is divided into two equal semiannual installments, the first of which is available immediately.


Tajikistan’s five-year civil war ended with the signing of a peace agreement in June 1997. Since then, Tajikistan has endeavored to strengthen macroeconomic discipline, accelerate structural reforms, and reschedule agreements with external creditors with the support of the IMF. Despite uncertainties in the peace process, Tajikistan has made substantial progress on macroeconomic stabilization: inflation has declined sharply since mid-1997, the exchange rate of the Tajik ruble has been stable, and real economic growth has begun for the first time since independence. This progress was made possible by tight monetary and fiscal policies. Progress on structural reforms has been slower, but recently privatization has accelerated, and the authorities have taken important initial steps to reform the banking sector.

Medium-Term Strategy and the 1998/99 Program

The government’s medium-term strategy is based on export-led growth, building on a liberal foreign trade and investment regime. It envisions real GDP growth of 4–4.5 percent a year from 1999 through 2001. To support this objective, the program calls for tight monetary policy and fiscal policies that contribute to a stable nominal exchange rate and a further reduction in inflation to 8 percent in 2001 from close to 164 percent in 1997. Increased domestic savings, supported by strong fiscal adjustment and combined with steady net foreign financing, would facilitate an increase in investment to 13 percent of GDP in 2001 from 7 percent in 1997.

At the same time, policies will aim to reduce the fiscal deficit to 0.3 percent of GDP in 2001 from 3.3 percent in 1997. To enhance the tight monetary policy, the program calls for no central bank financing of the budget after mid-1999. The authorities will adhere to their asymmetric exchange rate policy, which does not resist pressures for appreciation but responds to pressures for depreciation by tightening financial policies.

In the first year of the program, GDP growth is targeted at 3.4 percent in 1998, inflation at 16.8 percent; and the external current account deficit at 4.5 percent of GDP. To support these objectives, the fiscal deficit on a cash basis is projected at 3.3 percent of GDP and will rely on non-inflationary deficit financing through loans from international donors and treasury bill sales to meet priority expenditures during a period of fiscal restraint. The authorities will also endeavor to eliminate persistent wage and compensation arrears. Monetary policy will remain tight and will include ceilings on the creation of central bank credit, including credit to the government, consistent with the targeted increase in foreign reserves and the need to contain the growth of the monetary base. Credible policies and low inflation should lead to declining interest rates, which in turn should contribute to investment recovery.

Structural Reforms

Given the important link between structural reform and economic growth in transition economies, Tajikistan’s program strategy places great weight on strong structural policies to enhance productivity growth. Three areas are assigned high priority under the program. First, privatization will be accelerated to strengthen financial discipline, improve the economic incentive structure, enhance economic efficiency, and encourage investment. Second, land reform is expected to increase agricultural yields and consolidate output recovery in the cotton sector. Third, bank restructuring is necessary to facilitate domestic savings and channel funds to those investments offering the best rates of return.

Addressing Social Needs

The program will balance the need to reduce the general government deficit to attain the program’s savings targets with the need to improve the basic social safety net, health services, education, and the rebuilding of the public infrastructure. Efforts will focus on reconstructing houses, roads, bridges, schools, hospitals, water systems, and other key elements that were destroyed or severely damaged during the civil war. In the area of health, the government will promote efficiency and equity; review the health budget, while protecting basic health care; develop a plan to address infant and maternal mortality and selected common diseases; and review the pharmaceutical supply and distribution system. In the area of education, the government is committed to protecting and restructuring the education system.

The Challenge Ahead

The major risk to program implementation stems from security problems. On the economic side, the challenge to the program includes the continuing weak balance of payments position, a large external debt, and limited administrative capacity.

Tajikistan joined the IMF on April 27, 1993, and its quota2 is SDR 60.0 million (about US$80 million). Its outstanding use of IMF financing currently totals SDR 30 million (about US$40 million).

Tajikistan: Selected Economic Indicators






(Percent change)

Real GDP 1/






Consumer Prices 12-months (end of period)






(Percent of GDP)

Fiscal balance, cash (deficit -) 2/






Current account balance (deficit-)






(In months of imports 3/)

Gross international reserves






Sources: Tajik authorities and IMF staff estimates.
* Preliminary.
** Program.
*** Projections.
1/ Year-on-year growth rates.
2/ Excluding the externally financed component of the Public Investment Program.
3/ Imports of goods and services excluding alumina and electricity.

1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and to improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.

2 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.


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