IMF Approves Second Emergency Post-Conflict Credit Assistance for Tajikistan

Background
Tajikistan's five-year long civil war ended with the signing of the peace agreement in June 1997. In December 1997, Tajikistan received financial assistance from the IMF under a program that sought to strengthen macroeconomic discipline, accelerate structural reforms, and intensify efforts to seek rescheduling agreements with external creditors. Despite uncertainties in the peace process, the Tajik economy has responded favorably to stabilization efforts as shown by decelerating inflation and improving confidence in the domestic currency. In 1997, the economy experienced the first growth in real GDP since the country's independence.

The 1998 Program
The government's 1998 economic program covers a transitional phase possibly leading to a program supported by loans under the Enhanced Structural Adjustment Facility (ESAF).¹ Progress in institution building will be critical in laying the foundation for such a successor program.

Under the current program, real GDP growth is expected to reach 4-5 percent in 1998, compared with preliminary rates of about 2 percent in 1997, and about -4 percent in 1996; inflation is targeted to fall to about 18 percent during 1998, from about 164 percent during 1997; and gross international reserves are programmed to rise to 1.4 months of imports at end-1998, from 0.7 months of imports at end-1997, and 0.3 months of imports at end-1996.

To achieve these objectives, fiscal policy is designed to further reduce the government deficit to below 3 percent of GDP in 1998, from 3.4 percent of GDP in 1997, and 5.8 percent of GDP in 1996. On the revenue side, strong collections are expected to enable the government to eliminate budgetary wage and cash compensation arrears, while reducing central bank credit to the government. On the monetary side, the annual growth rate of broad money is projected to fall from around 120 percent in 1997 to just under 25 percent in 1998.

Tajikistan's economic program places great emphasis on completing the process of regularizing the country's relations with its external creditors, clearing the external debt service arrears, and avoiding new debt service arrears.

Structural Reforms
Banking sector reform, which is crucial to achieve sustainable and balanced economic growth, will consists of two main elements. First, the regulatory and institutional environment for banking will be enhanced through a New Banking Law and the strengthening of the National Bank of Tajikistan's banking supervision capacity. Second, plans for the restructuring of the five major banks will be developed once internationally reputable auditors have completed audits.

Privatization plans, while taking into account institutional constraints to rapid privatization, call for the sale of smaller enterprises, and the restructuring and sale of medium- and large-scale enterprises. Progress in institution building will be consolidated by continuing to strengthen tax administration, finalizing introduction of a treasury system, and beginning to conform fiscal accounts to international standards.

Addressing Social Needs
In view of the social cost of the war, outlays on the social safety net will need to be increased. The financial position of the Social Protection Fund (SPF) will be reassessed to determine whether a further increase in minimum and social pensions is feasible.

The Challenge Ahead
The importance of the peace process for consolidation of the early gains in economic stabilization cannot be overestimated. Tajikistan's economic program will continue to be challenged by ongoing political uncertainties, the high level of external debt, and limited foreign exchange reserves.

Tajikistan joined the IMF on April 27, 1993, and its quota² is SDR 60 million (about US$80 million). Its outstanding use of IMF financing currently totals SDR 22.5 million (about US$30 million).

¹The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5 1/2-year grace period.

²A 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.