Public Information Notice: IMF Concludes 2002 Article IV Consultation with the Republic of Tajikistan

January 3, 2003

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On December 11, 2002, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Tajikistan.1


During 2001 and the first half of 2002, Tajikistan's real GDP growth continued to be strong. Although growth was derived largely from increased agricultural output, some evidence suggests that growth is becoming more broad based. Domestic demand continues to be supplemented by remittances from seasonal workers employed in neighboring countries. Inflation was moderate during much of 2001 and 2002 except for occasional spikes attributed to regional trade factors and lapses in monetary discipline. The nominal exchange rate depreciated by 33 percent since end-2000. The current account deficit widened during 2001 as prices for the main exports (cotton and aluminum) fell to a three-year low.

Macroeconomic management generally improved during 2001 and the first half of 2002. The implementation of monetary policy was, however, sometimes uneven. Strong tax revenue collections and continued expenditure restraint contributed to a near balanced budget in 2001. Weaknesses in debt management contributed to several incidents of misreporting and noncomplying disbursements in the last 18 months. The authorities have, however, taken steps to address these weaknesses, including the establishment of a debt inventory, to improve debt monitoring.

Uneven progress in structural reform prevented the conclusion of the third and fourth reviews of the third year program under the Poverty Reduction and Growth Facility (PRGF). Progress was particularly slow with respect to regularizing relations between the NBT and the government, improving the operation of the treasury and tax administration, and enhancing fiscal transparency. The implementation of structural reforms improved during the Staff Monitored Program (January-June 2002) and subsequently. The creation of a Ministry of State Revenues and Duties contributed to improved tax and customs administration in 2002. Measures to enhance fiscal transparency were implemented and governance was enhanced by the issuance of a resolution that restricts the involvement of local authorities in the agricultural sector. The authorities have also taken initial steps to reduce quasi-fiscal activities in the energy sector. The banking system has been strengthened with the implementation of restructuring agreements.

Tajikistan became a member of the Fund in 1993, and since then has had a number of Fund-supported programs. A three-year PRGF arrangement was approved on June 24, 1998 covering the period 1998-2001. After successful implementation of a staff monitored program in January-June 2002, the Executive Board approved a second three-year arrangement under the PRGF on December 11, 2002.

Executive Board Assessment

Directors welcomed Tajikistan's steady economic progress in recent years based on strengthened ownership and commitment to reform, despite adverse exogenous shocks and domestic constraints, as evidenced by a decline in inflation and continued strong economic growth that is becoming increasingly broad-based. Nevertheless, they noted that Tajikistan's economy remains extremely vulnerable, with low per capita income, a narrow export base, high external debt, and limited capacity to undertake reforms. Directors agreed that the authorities' new medium-term economic program constitutes an appropriate response to these problems, and that success in achieving the program's objectives will hinge in considerable part on the authorities' determination in implementing the program.

Directors welcomed the focus of monetary policy on reducing inflation and increasing exchange rate stability, but regretted the recent lapse in monetary discipline and the resumption of directed credits by the National Bank of Tajikistan (NBT). They urged the authorities to adhere to their commitment to refrain from issuing such credits and to pursue a firm and consistent monetary stance. They also urged the authorities to address the administrative weaknesses at the central bank identified by the safeguards assessment and the recent international audit report, to formulate a comprehensive restructuring strategy that will enhance the effectiveness of monetary policy, and to take steps to reinforce the independence of the central bank. They also stressed the importance of developing an interbank market. Continued restructuring of the banking system was also considered important to reduce the demand for directed credits from the NBT. Directors encouraged the authorities to take further action to combat money laundering and the financing of terrorism.

Directors welcomed the authorities' plans to maintain the managed floating exchange rate regime, with no pre-determined path, as the best protection against external shocks. They welcomed the intention to prepare the ground for acceptance of Article VIII obligations.

Directors commended the good fiscal performance in 2001 and 2002, when the budget-excluding externally-financed investment spending-achieved near balance. Directors supported the emphasis on continuing fiscal discipline in the authorities' economic program, as they considered this crucial to achieving macroeconomic stability and reversing the adverse debt dynamics. They stressed the need to eliminate lingering quasi-fiscal activities, and to restructure civil service wages in the context of civil service reform. Expressing concern about the low level of spending on education and health, they endorsed the reallocation of budgetary resources toward the social sectors. Noting the relatively low revenue effort, Directors advised that the revenue base be broadened, and hoped that the efforts underway to strengthen tax administration and reform the tax system will help generate the resources needed for poverty alleviation. They were encouraged to seek further technical assistance by the Fund to support these efforts.

Directors noted that the medium-term outlook could be complicated by Tajikistan's external debt burden. While welcoming the fiscal consolidation projected for the next few years, they stressed that additional measures will be necessary to further enhance debt sustainability. In this context, Directors welcomed the recent progress with bilateral debt restructuring agreements, but stressed that a lasting improvement in Tajikistan's debt service profile will require more comprehensive debt restructuring and improved debt management. A few Directors noted that, for such further restructuring to be considered, it would be important for the authorities to stay on track with the Fund program and build up good relations with creditors. While acknowledging the authorities' efforts to strengthen debt management, they believed that additional measures are urgently needed, especially to streamline the public investment program and to limit new borrowing to concessional loans.

Directors noted that progress with structural reform improved in 2002, following an uneven pace in 2001. In particular, they welcomed the regularization of financial relations between the NBT and the government, the steps taken to reduce quasi-fiscal deficits in the energy sector, and the progress in bank restructuring and in strengthening financial sector regulation. Nevertheless, they noted that the structural agenda remains large, and encouraged the authorities to redouble their efforts to implement key reforms. Directors considered institution strengthening and capacity building to be a major priority, and advised the authorities to work closely with the Fund, Bank and other international donors in this area.

In view of the limited implementation capacity, Directors underlined the importance of appropriately pacing and sequencing the reforms. They considered farm privatization to be a key reform for future economic growth and poverty reduction. They noted the decline in foreign direct investment, and recommended that action be taken to improve the business climate, strengthen governance, and revise the legal and judicial system in order to reverse this trend.

Directors welcomed the completion of the authorities' Poverty Reduction Strategy Paper (PRSP), noting that it was developed through a broad participatory process and has been endorsed by the Parliament. They looked forward to its further refinement in the context of the Annual Progress Report, noting the need for costing and prioritization of measures.

Directors noted that while data availability and quality are adequate for surveillance purposes, there are several weaknesses that hinder policy implementation. They encouraged the authorities to continue their efforts to improve data quality.

Republic of Tajikistan: Selected Economic Indicators







(Annual percent change)

Production and prices


Real GDP





CPI (e.o.p.)






(In percent of GDP)

General government


Total revenue and grants





Total expenditures





Cash balance






(Somoni per U.S. dollar, e.o.p.)

Monetary indicators


Reserve money





Somoni broad money





Velocity 1/






(In millions of U.S. dollars, unless otherwise specified)

External sector


Exports of goods





Imports of goods





Current account balance





In percent of GDP





Gross international reserves





In months of imports 2/






Sources: Tajik authorities; and IMF staff estimates.

1/ Annual GDP divided by average broad money.

2/ Imports of goods and services, excluding alumina and electricity which are traded on a barter basis.

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. 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.


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