Public Information Notice: IMF Executive Board Concludes 2005 Article IV Consultation with the Republic Tajikistan

March 25, 2005

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On March 18, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Tajikistan.1


Tajikistan's transition to a market economy has been protracted, but reform efforts are paying off. Domestic political stability, deepening economic liberalization, a strong regional economy, and favorable terms of trade contributed to real GDP growth averaging 10 percent per year in 2000-04. Economic activity continued to diversify rapidly into the services sector. Real household incomes are on the rise, especially from remittances, and there is evidence of declining poverty. The private sector has grown and the banking system has been liberalized and strengthened. Rapidly growing migrants' remittances and small scale exports have become a major source of household supplemental income.

Strengthened fiscal discipline and tighter monetary policy have reduced inflation from 40 percent in 2001 to 5.6 percent in 2004. Strong growth in tax revenues and continued expenditure restraint contributed to small fiscal surpluses in the past two years. The implementation of monetary policy improved significantly in the past two years. Since late 2003, the National Bank of Tajikistan (NBT) has successfully focused on stabilizing reserve money growth that has contributed to the significant reduction in inflation. The exchange rate of the national currency, the somoni, remained remarkably stable in the past two years. The authorities have taken determined measures to significantly improve the external debt profile. The debt-for-asset swap with the Russian Federation, and debt relief received from Pakistan reduced Tajikistan's stock of external debt to 40 percent of GDP at end-2004. Under the relatively favorable external and domestic environment, the authorities completed the legislative changes to eliminate the few exchange restrictions on current transactions and accepted the obligations of the Article VIII, Sections 2, 3 and 4 of the Fund's Articles of Agreement on December 9, 2004. Through improved banking supervision and enforcement of prudential regulations, the authorities made further progress in strengthening the banking sector and the sector's capital rose sharply in 2004.

Nonetheless, progress in a number of priority reform areas envisaged in the PRSP ( has been slow. In particular, the business environment and public and private sector transparency and governance need to be strengthened further. In the energy sector, while gas prices have been adjusted, electricity tariffs are still well below long-run cost recovery levels. In the agricultural sector, the lack of underlying reform and the distortion of market signals and debt overhang in the cotton sector are holding back growth and rural poverty reduction. Although the initial measures in education and health reforms have been implemented, the remaining agenda for public administration reform is substantial.

Executive Board Assessment

Directors commended the authorities for the considerable progress made in 2004 in strengthening Tajikistan's economic performance. Sound macroeconomic policies and political stability have contributed to strong economic growth, a marked decline in inflation, and a reduction in poverty. Directors noted, however, that sustaining rapid growth required a stronger commitment to structural reform.

Directors welcomed the authorities' prudent fiscal program for 2005. They emphasized the importance of implementing effectively the new tax and customs codes, and strengthening revenue administration, including through the expansion of the Large Taxpayer Inspectorate and enforcing the collection of tax and utility payments by state-owned enterprises in the energy and aluminum sectors, in order to boost revenue and strengthen governance.

Directors noted the significant increase in the wage bill envisaged in the 2005 budget, which is aimed at retaining appropriately qualified personnel and stemming the deterioration in the provision of public services. While recognizing the need for flexibility in the composition of expenditure, they urged the authorities to monitor expenditure carefully and move expeditiously with public sector administration reform in order to improve efficiency, particularly in the health and education sectors.

Directors welcomed the continued improvements in monetary management. By adhering to the monetary and credit targets, the NBT has gained credibility, which has contributed to the significant reduction in inflation. Looking ahead, the authorities were encouraged to remain vigilant in assuring the achievement of inflation objectives and to move forward with steps to broaden the range of monetary instruments. Directors considered that the current managed float exchange rate regime, with intervention in the foreign exchange market limited to smoothing short-term exchange rate volatility, was appropriate. They also welcomed the authorities' recent acceptance of the obligations under Article VIII, Sections 2, 3, and 4.

Directors, taking note of the favorable medium-term macroeconomic outlook, pointed to the critical role played by workers' remittances in sustaining growth and smoothing the social impact of the transition to a market economy. Given the associated vulnerabilities, the authorities were encouraged to strengthen financial intermediation, regularize labor migration issues with neighboring countries, and resolve regional trade and transit impediments.

Directors commended the authorities for their success in reducing external debt obligations to manageable levels through effective negotiations and prudent new borrowing. They encouraged the authorities to further improve external debt management, and to start work on recording and monitoring private sector external debt, including that incurred by the cotton sector. They supported the authorities' continued debt restructuring discussions with bilateral creditors.

Directors welcomed recent steps to strengthen the banking system. They noted, however, that the level of financial intermediation is still low, and that a sound expansion of the system will be crucial to support private sector development. In this regard, Directors welcomed the authorities' intention to remove impediments to the entry of reputable foreign banks into Tajikistan, which is expected to contribute to enhancing banking services. The increase in minimum capital requirements for banks was regarded as a positive step to encourage further consolidation of the financial system. They commended the authorities on steps taken to implement Anti-Money Laundering/Combating Financing of Terrorism legislation, and encouraged them to continue their efforts.

Directors urged the authorities to accelerate structural reforms in order to stimulate private sector development and sustain strong growth. Reforms in agriculture should focus on eliminating local government interference in farm operations and improving access to financial services. Directors also underscored the importance of moving ahead with a market-based resolution of the cotton sector's nonperforming debt, without recourse to government guarantees. They also emphasized the need to address weaknesses in the business and governance environment, including by removing obstacles to private sector activity and promoting greater competition in key sectors, such as air transport, banking, and telecommunications.

Directors indicated that further measures were necessary to improve the financial viability of the energy sector. In particular, they stressed the need to improve collection rates, especially from large users, and to extend metering. Looking beyond the near term, Directors underscored the importance of raising electricity tariffs to cost recovery levels while implementing measures to reduce the impact on the poor, including through lifeline tariffs and improvements in the cash compensation mechanism.

Directors welcomed the progress made in improving the quality and transparency of economic data, and encouraged continued efforts in this area. In particular, they underscored the importance of addressing remaining statistical weaknesses in national accounts, fiscal, and balance of payments data.

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 revenues and grants





Total expenditure





Balance (incl. PIP)





Balance (excl. PIP)






(Annual percent change)

Monetary indicators


Broad money





Velocity 1/






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

External sector


Exports of goods & services





Imports of goods & services





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 quarterly average broad money.

2/ Imports of goods and services, excluding alumina and electricity which are trade 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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