Program Note
Republic of Tajikistan
Last Updated: September 29, 2009
Current IMF-Supported Program
Three-year, US$116 million arrangement under the Poverty Reduction and Growth Facility (PGRF), approved by the IMF’s Executive Board on April 21, 2009.
Background
Tajikistan is being hit by sharp declines in workers’ remittances and exports. In 2008, workers’ remittances inflows—mainly form Russia—amounted to US$2,400 million (47 percent of GDP). These remittances support many low-income households and help finance Tajikistan’s imports. With Russia’s economy contracting, remittances inflows to Tajikistan are projected to decline by 35 percent in 2009, and recover slowly by 5 percent in 2010.
In addition, global demand for cotton and aluminum has faltered, hurting Tajikistan’s traditional exports. As a result, the Tajik somoni has depreciated by around 30 percent against the U.S. dollar so far in 2009, and real GDP growth is expected to slow to 2 percent compared with 8 percent in 2008. If the global recovery takes hold, real growth could reach 5 percent again in 2010, still much below the levels needed to make fast progress in reducing poverty. Per capita disposable income could decline by 20 percent in U.S. dollar terms, in a country where 53 percent of the population was below the poverty line in 2007.
Role of the IMF
The IMF is working closely with the Tajik authorities to formulate an appropriate policy response to the external shock and return the country to a path of high and sustained growth. The PRGF loan, together with grants to the budget from the Asian Development Bank, the European Union, and the World Bank, will help Tajikistan meet its external financing needs. The program aims to:
- alleviate the economic impact of the crisis on the population by raising social expenditures—that is, transfers to households, and spending on education and health—by 1½ percent of GDP in 2009;
- reform the agricultural sector by addressing the cotton sector debt overhang and introducing a market-based financing mechanism to raise the sector’s growth potential;
- improve the financial health of state-owned enterprises by setting up a supervision unit in the ministry of finance that will exert proper ownership control; and
- strengthen central bank governance by, for example, improving oversight, enhancing the internal audit function, and removing potential conflict of interest issues.
The IMF is also providing technical assistance to build capacity in public financial management and to strengthen the central banks' liquidity management framework.
The Challenges Ahead
The authorities face three key challenges. First, remittance inflows could be weaker than currently expected, necessitating a further reduction in imports and additional social spending. Second, the authorities will need to design an exit strategy from the current supportive fiscal stance and accommodate the significant central bank recapitalization costs while returning government debt to below 40 percent of GDP over the medium-term. Third, the banking system is burdened with loan defaults that constrain banks’ ability to provide new loans to the private sector needed for a sustained growth acceleration. Additional assistance from the international community would ease these pressures and help the authorities meet their objectives.
