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

December 21, 1998

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 December 17, 1998, the Executive Board concluded the Article IV consultation with the Republic of Tajikistan1.


The signing of the peace agreement in June 1997 opened a new window of opportunity for economic reforms in Tajikistan. Subsequently, the fiscal deficit was reduced sharply, monetary policy was tightened, and structural reforms strengthened. In late 1997, the IMF and the World Bank resumed their financial support for Tajikistan and several donors, including the European Union, the United States, and Switzerland have provided financial support for the government’s stabilization and reforms efforts. In 1998, the Asian Development Bank and Islamic Development Bank extended their first loans to Tajikistan.

Macroeconomic performance under the government’s two economic programs implemented in 1997 and 1998 has been good. The recovery in output has been stronger than expected as economic growth resumed in 1997 and strengthened during 1998. In the first nine months of 1998, real GDP increased by 6.5 percent, driven mainly by a rebound in agriculture, retail trade, and transport services. Since September 1997, the real income of the population, measured by the average monthly wage, has increased by 47 percent. Inflation has subsided: in November 1998, consumer prices were only 2.1 percent higher than a year before. The nominal exchange rate vis-à-vis the U.S. dollar remained stable until September 1998.

Recently, Tajikistan faced two serious external shocks. First, world market prices of cotton—Tajikistan’s main export product—have declined sharply. Second, the financial crisis in Russia is having strong adverse effects on the Tajik economy. In addition, central bank credit expansion had accelerated. The external shocks and the slippages in domestic financial policies put heavy pressure on the exchange rate, which depreciated by 20 percent in October-November. In November, the authorities reacted vigorously to these adverse developments by rolling back central bank credits and tightening the fiscal stance. The stock of the central bank’s credit to the economy and government was cut sharply.

The implementation of structural reforms has been mixed. The liberalization process has been completed in the areas of prices, foreign trade, and the exchange system, and good progress has been made in small scale privatization, which is expected to be finalized in spring 1999. Privatization of larger enterprises started only last summer, however, and has been slowed down by asset valuation problems. The pace of land reform and farm restructuring has accelerated recently and the privatization of Tajikistan’s cotton ginneries is scheduled for early 1999. On bank restructuring, four major banks (the Savings Bank, Agroinvestbank, Tajikvneshekonombank, and Tajikbankbusiness) have been put under an operational restructuring program and they have been audited by internationally reputable auditing agencies. These banks have reduced staff, made progress in improving management practices, and strengthened their capital base, including through equity participation by foreign investors.

Executive Board Assessment

Executive Directors commended the authorities for the economic gains achieved in 1998. They noted that economic growth had accelerated, inflation had remained low, and the real income of the population had risen. Furthermore, important reforms to strengthen the institutional capacity of fiscal and monetary management had been initiated, as evidenced by the parliament’s approval of the new tax code and the recent introduction of treasury bill auctions.

Directors observed that recent external shocks—especially the financial crisis in Russia and declining world market prices of cotton—had had a serious impact on Tajikistan’s balance of payments and had complicated the task of macroeconomic management. However, domestic policy slippages had also contributed to the weakening of the external balance. Although the general government fiscal deficit had been kept within the program limits, the large quasi-fiscal deficit—the result of directed central bank credits—was a cause for concern. They supported the recent steps to stem the deterioration of the external balance through central bank credit restraint combined with a flexible exchange rate policy. Directors were encouraged by the recent significant decline in the central bank’s net domestic assets and the improvement in its foreign reserve position in a short period of time. They urged the authorities to persevere withtheir adjustment efforts in the coming months in order to restore confidence in the foreign exchange market, keep inflation under control, and generate the necessary international support for reforms.

Directors welcomed the adoption by parliament of the 1999 budget and the new tax code. They emphasized the importance of maintaining a tight fiscal stance. In this regard, Directors stressed that tax and customs administration should be further strengthened to improve revenue performance. On expenditure policy, they emphasized that, in addition to maintaining overall restraint, priority should be given to the timely payment of wages, pensions, and social benefits. Directors also noted that the inefficiencies in the cash compensation system underlined the urgency of a comprehensive reform of the social safety net.

Directors stressed the importance of maintaining a liberal trade and exchange system in the face of external shocks. They urged the authorities to resist pressures for regulatory interventions, and formal or informal restrictions on the availability of foreign exchange. Directors welcomed the further progress in rescheduling external debts and urged the authorities to complete expeditiously the remaining debt rescheduling negotiations.

Directors welcomed the progress on structural reforms, while noting that in some respects the implementation of structural policies had fallen short of what had been envisaged. They stressed that it was now time to shift the emphasis to large scale privatization where there had been start-up problems. New asset revaluation procedures had to be applied transparently and timely payments on sales contracts had to be enforced more vigorously. Progress in land reform and farm restructuring was also considered essential to achieve Tajikistan’s agricultural potential and support export-led growth. In this context, Directors recommended accelerating the distribution of land certificates to private farmers in order to improve transparency and equity in the land distribution process. Regarding the banking system, they welcomed the steps taken in the operational restructuring of the major banks and supported the authorities’ intention to continue deepening these restructuring programs. Directors stressed that strengthening the banking supervision capacity and strictly enforcing prudential regulations would be critical for the soundness of the financial system. The authorities should also be forceful in revoking bank licences and liquidating nonviable banks, in a timely manner, where this was necessary.

Directors stressed that economic recovery and progress in the peace process were closely related, and underlined the need for strong cooperation between the government and the United Tajik Opposition.

Tajikistan: Selected Economic Indicators

  1996 1997 19981

  (Percentage change over preceding period, unless otherwise indicated)
Nominal GDP (in billions of TR) 308 632 960
Nominal GDP (in millions of U.S. dollars) 1,034 1,087 1,242
Real GDP -4.4 1.7 4.0
Consumer prices      
12 months (end of period) 40.5 163.6 7.0
Monetary indicators      
Reserve money (end of period) 139.6 193.5 -0.4
Broad money (end of period) 93.2 110.7 5.1
Ruble broad money (end of period) 142.6 117.2 9.0
Banking system credit2 3 146.4 170.6 35.6
Velocity, level 20.3 18.5 19.6
General government (In percent of GDP)
Revenue (cash basis) 12.1 13.7 14.0
Expenditure (cash basis) 17.9 17.0 17.2
Cash balance (deficit -) -5.8 -3.3 -3.2
Exchange rate (TR per US$, end of period) (In millions of U.S. dollars)
Official 328 748 . . .
Curb market 340 815 . . .
External sector      
Exports of goods 770 746 714
Imports of goods -761 -785 -783
Current account balance -76 -60 -89
(In percent of GDP) -7.4 -5.5 -7.2
Net international reserves -8 -16 -4
Gross international reserves 14 30 91
In months of imports4 0.3 0.6 1.9

Sources: Tajik authorities; and IMF staff estimates.

1IMF staff estimates.
2Change relative to ruble broad money at the beginning of the corresponding period.
3Excludes special cotton financing.
4Imports of goods and services excluding
alumina and electricity.

1Under 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 directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


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