## 1tjkea2024001 ## Source details **Canonical URL:** [1tjkea2024001](https://www.imf.org/-/media/files/publications/cr/2024/english/1tjkea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1tjkea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1tjkea2024001.pdf.json) --- ### Program purpose and framework - Authorities requested a twenty-two-month arrangement under the Policy Coordination Instrument (PCI) to anchor macroeconomic policies and foster inclusive growth. - PCI aims to: - strengthen fiscal resilience, - modernize monetary, exchange rate and financial policies, - improve governance and transparency to foster inclusive growth. - Staff supports the request for the new arrangement. - Staff view: Tajikistan does not have a present, prospective, or potential balance of payments need in the staff’s baseline that would require Fund financing and thereby meets the criteria for use of the PCI. ### Near-term outlook and key macroeconomic developments - Real GDP increased 8.3 percent in 2023. - Growth projected to moderate to 6.5 percent in 2024 and to 4.5 percent over the medium term (PCI reforms expected to raise potential growth by 0.5 percentage point to 4.5 percent). - Twelve-month inflation: 3.8 percent at end-2023 (y/y); expected to rise to 6 percent in 2024; medium-term inflation expected to remain within the NBT’s target range of 6 (±2) percent. - Remittances: about 38 percent of GDP in 2023; surged by about 80 percent in 2022 then cooled in 2023; projected to moderate to 34 percent of GDP in 2024 and converge to around 30 percent of GDP in the medium term. - FX reserves: around 7 months of imports at end-2023; net international reserves (NIR) program floors: 2500 (end-Jun 2024) and 2700 (end-Dec 2024) (USD mn). - Monetary policy: NBT reduced the refinancing rate by 300 bps in two steps in the first half of 2023 and 50 bps in February 2024 to 9.5 percent; NBT lowered the refinancing rate to 10 percent in 2023 and 9.5 percent in February 2024 (text contains both phrasings as reported). - Monetary aggregates: reserve money fell 5.6 percent during 2023 after an increase of 53 percent during 2022; reserve money program ceilings: 41000 (end-Jun 2024) and 45000 (end-Dec 2024). - Credit growth: about 32 percent (y/y) in December (2023), up from 19 percent at end-2022. - Banking sector: NPL ratio decreased to 11.1 percent in November 2023 from 23.8 percent at end-2020. - Poverty and incomes: poverty rate estimated 12.4 percent of the population in 2022 from 32 percent in 2009; per capita GDP US$1055 (2022); population 10 million (2022). ### Fiscal stance, projections, and quantitative targets - Fiscal deficit posture: - Authorities committed to a fiscal deficit target of 2.5 percent of GDP to anchor debt sustainability. - Fiscal deficit projected at 1 percent of GDP in 2023 (staff projects overall deficit to increase to about 1 percent of GDP for the full-year 2023 and reach 2.5 percent of GDP in 2024 in different text excerpts). - Public debt: declined to 30.9 percent of GDP in 2023 from 32.5 percent of GDP in 2022 and 42.1 percent of GDP in 2021; projected to decline to about 29 percent of GDP in 2027 following repayment of the Eurobond. - Key fiscal projections (selected): - Revenue and grants (percent of GDP): 2023 24.8; 2024 27.0; 2025 27.7; 2026 27.7; 2027 27.1. - Tax revenue (percent of GDP): 2023 18.3; 2024 19.5; 2025 19.7; 2026 19.6; 2027 19.3. - Expenditure and net lending (percent of GDP): 2023 29.2; 2024 27.6; 2025 28.0; 2026 28.7; 2027 29.6. - Capital expenditures (percent of GDP): 2023 12.1; 2024 11.3; 2025 11.6; 2026 11.3; 2027 13.2. - Overall balance (incl. PIP): 2023 -4.3; 2024 -0.7; 2025 -0.2; 2026 -1.0; 2027 -2.5. - Total public and publicly-guaranteed debt (percent of GDP): 2020 51.8; 2021 42.1; 2022 32.5; 2023 30.9; 2024 30.8; 2025 30.2. - Quantitative targets (selected, TJK somoni; million unless otherwise indicated): - Ceiling on general government overall fiscal deficit (cumulative): end-Jun 2024 Prog 2400; end-Dec 2024 Prog 3655. - Floor on general government expenditure on targeted social assistance (cumulative): end-Jun 2024 Prog 122; end-Dec 2024 Prog 244. - Ceiling on gross credit to general government from NBT: end-Jun 2024 Prog 4021; end-Dec 2024 Prog 3808. - Ceiling on the stock of reserve money: end-Jun 2024 Prog 41000; end-Dec 2024 Prog 45000. - Floor on NBT stock of net international reserves (USD mn): end-Jun 2024 Prog 2500; end-Dec 2024 Prog 2700. - Ceiling on the disbursements of external debt (USD mn): end-Jun 2024 Prog 510; end-Dec 2024 Prog 510. - Ceiling on Barki Tojik's new arrears to the private sector: end-Jun 2024 Prog 550; end-Dec 2024 Prog 550. - Issuance of domestic debt at positive real rates (memorandum item): end-Jun 2024 100; end-Dec 2024 300. - Program exchange rate (TJS/US dollar): 10.95 (end-Jun 2024); 10.95 (end-Dec 2024). - Program gold price per ounce (US dollars): 2029 (end-Jun 2024); 2029 (end-Dec 2024). ### Rogun Hydropower Project (HPP) — costs, financing, and implications - Remaining construction cost increased from $5 billion to $6.4 billion (about half of 2023 GDP) due to contract-embedded price indexations and additional safety-related civil works. - Rogun HPP is a 3,780MW facility; annual average generation expected to be around 14,400 GWh when reservoir reaches full supply level. - Project completion deadline extended from 2032 to 2033 (other text places completion projected in 2033 and 2035 in different excerpts). - Tentative financing package (Text Table 6, Commitment amounts, US$ million): - Total package: 6,360 - Government budget: 2,290 - Project revenue 1/: 1,100 - Grants: 850 - Concessional loans: 390 - Semi-concessional loans: 1,730 - Baseline financing assumptions: - Baseline assumes average annual Rogun borrowing ~1 percent of GDP during 2024-2033. - Rogun-related internally financed spending close to 3 percent of GDP during 2024-2026 and additional external financing from multilateral and bilateral partners. - Program caps external disbursements at about 2.3 percent of GDP in 2024 (net basis). - Anchors internal Rogun spending within sustainable envelope of 3-3.5 percent of GDP. - Debt treatment and limits: - Under IMF’s Debt Limits Policy (DLP) Tajikistan is subject to a zero limit on new non-concessional borrowing; a non-zero limit exception for Rogun-related loans is requested and supported by staff. - Rogun HPP exception capped at $1800mn cumulatively for June and Dec. 2024 (nominal terms; inclusive of all disbursements for Rogun HPP). ### Debt sustainability, DSA findings, and stress tests - DSA key judgments: - Public debt is sustainable but sizeable investment needs constrain fiscal space, and the risk of debt distress remains high due to upcoming Eurobond repayments. - IMF-World Bank DSA indicates the risk of external and overall public debt distress is high. - Under the baseline, total PPG debt-to-GDP ratio declines from 32.5 percent in 2022 to about 29 percent in 2027 once Tajikistan’s Eurobond is repaid and stabilizes at about 32 percent over the long run. - Increased debt service from 2025-2027 results in a breach of the DSA threshold for the debt service-to-exports ratio (Eurobond principal US$500 million repayments in three equal instalments from September 2025 to September 2027; IMF RCF repaid June 2025 to June 2030). - Key DSA metrics and scenarios: - NIIP as of 2023Q2: -33 percent of GDP. - Reserve assets buildup was about 25 percent of 2023 GDP. - EBA-lite CA model CA norm: -3.6 percent of GDP; CA-Actual: -0.7 percent of GDP; CA Gap: 3.3 percent of GDP. - REER misalignment: EBA-lite IREER model finds a REER undervaluation of 10 percent; implied REER gap about 18 percent using standard trade elasticities. - Stress tests show breaches: under export shock PV of external PPG debt-to-exports ratio reaches 381 percent in 2025 (threshold 240 percent); external PPG debt service-to-exports ratio reaches 49-51 percent in 2025-2026 (threshold 21 percent). - Contingent liability shock causes an 11-percentage point deterioration relative to the baseline debt ratio by 2033. - Policy priorities from DSA to reduce vulnerabilities: - Maintain fiscal discipline (including capping fiscal deficits and containing SOE risks). - Strengthen revenue mobilization and phase out inefficient tax exemptions. - Improve SOE oversight and electricity sector financial position. - Develop efficient domestic debt markets and contingency plans for Eurobond repayment. ### Revenue mobilization and fiscal structural reforms - Medium-Term Revenue Plan (MTRP) (October 2024 reform target) envisages raising total revenue (excluding grants) to about 26 percent of GDP by 2026 (about 24 percent in 2022). - Preliminary projections envisage a cumulative tax effort of about 1 percent of GDP during 2024-2025. - FAD diagnostic identified reform areas: - VAT: VAT revenue accounts for more than 40 percent of total tax revenue; collection trending down; 2021 tax reform envisages gradual reductions in the VAT rate from 18 to 13 percent by 2027. - Business income tax: focus on single tax rate on legal entities; refrain from granting new tax incentives. - Personal income tax: room to improve progressivity and broaden base by including capital gains. - Excise taxes: underutilized; automatic indexation for inflation could help effectiveness. - Fiscal adjustment composition (cumulative from end-2023; staff estimates, percent of GDP): - Overall revenues and grants: 0.9 - Tax revenues: 1.1 - Nontax revenues: -0.1 - Total expenditure and net lending: 2.3 - Current expenditures: -1.4 - Expenditures on goods and services: -0.9 - Wages and salaries: 0.4 - Others: -1.3 - Interest payments: 0.0 - Transfers and subsidies: -0.4 - Capital expenditures: 3.7 - Externally financed (PIP and Rogun): 2.5 - Domestically financed: 1.3 ### Social protection and targeted assistance - Social assistance spending: 0.8 percent of GDP (Tajikistan) compared with average 2 percent of GDP in MCD and EMEs. - New means testing formula (with World Bank support) expands coverage of the poorest decile from 38 to 63 percent. - Authorities committed to double the 2022 budget allocation for targeted social assistance (TSA) in 2024 in line with the quantitative target. - Annual TSA expenditure amounted to about 0.1 percent of GDP in 2022. - Program will expand the social registry and related information systems to broaden coverage. ### Monetary, exchange rate, and financial sector modernization - Monetary policy objectives under PCI: - Enhance exchange rate flexibility and monetary policy transmission to support gradual transition towards an interest rate-based/inflation targeting framework. - Use quantitative targets on reserve money and NBT outstanding gross credit to government to keep inflation within NBT target range. - NBT governance and instruments: - Prior action: Amendments to the NBT Law adopted in November 2023 to strengthen autonomy and governance. - Adoption of reserve averaging mechanism recommended by Fund TA (May 2025 reform target); amend active NBT instruction #244 (end-May 2025). - Enhance liquidity management and forecasting with Fund support. - FX market reforms: - Develop improved mechanism for executing public sector FX transactions (May 2024 reform target). - Introduce price-based auctions for FX interventions (December 2024 reform target). - Discontinue ruble auctions of NPCR transfers (April 2024 reform target). - Make FX quotes public in continuous time; update instruction to limit official rate corrections to exceptional circumstances and publish justifications. - Macroprudential and supervisory reforms: - Develop plan to phase in DSTI, LTV, CSFR, and countercyclical capital buffer (CCB) (June 2025 reform target). - Forward-looking stress tests and improved use of beneficial ownership information (April/June 2025 reform targets). - Interim measures to taper excessive credit growth until macroprudential tools come into effect. - Approve NBT regulation introducing liquidity stress tests (end-June 2025) and NBT regulation on use of UBO information (end-April 2025). ### SOE governance, electricity sector, and Barki Tojik (BT) - SOE risks: - Large SOEs remain key; loss-making SOEs benefit from budget support; unmet SOE obligations create budget pressures and can feed into banks’ NPLs. - Program strengthens MOF capacity to identify, manage and disclose contingent risks related to SOEs; align reporting and auditing with IFRS. - SOE-specific commitments: - Bring all companies with minimum 20 percent state ownership within MOF monitoring perimeter and covered by 2023 Statement of Financial Risks (April 2024 reform target). - Require SOEs monitored by MOF to provide detailed monthly expense reports to SOEMD. - Resume regular preparation, presentation to Parliament and publication of SOE Fiscal Risk Statements. - Establish supervisory boards in the 27 largest SOEs and enact transparent appointment regulations (end-December 2024). - Electricity sector and BT: - BT accounts for over 90 percent of SOE losses; arrears to private sector and suppliers about 7.5 percent of 2023 GDP. - Tariff increases: electricity tariffs increased by 15 percent at the beginning of 2024, with further increases planned each year to reach cost recovery by 2027. - Program supports the World Bank Power Utility Financial Recovery Program (PUFRP); collection rates of STB monitored as memorandum item. - Continuous target: ceiling on Barki Tojik's new arrears to the private sector set at 550 (end-Jun and end-Dec 2024). ### Governance, transparency, AML-CFT, and anti-corruption reforms - AML-CFT: - New AML/CFT Law enacted in March 2023 removed technical deficiencies and aligns framework with international standards. - Amend Law on State Registration of legal persons to align with FATF Recommendation 24 (beneficial owner definition, verification and sanctioning powers, access to BO information) — target end-December 2024. - Anti-corruption and asset declarations: - Amend asset declaration legal provisions to require high-level officials to file ADs accessible online and establish dissuasive sanctions — target end-June 2025. - Amend penal code to criminalize corruption consistent with Chapter III of the UN Convention Against Corruption. - Extractive sector transparency: - Reinstated to EITI after publication of 2019-2021 report; commit to 11 corrective actions and to publish mining revenue contributions to budget aggregates (end-November 2024). - Public financial transparency: - Publish quarterly fiscal data in line with GFSM2014 (end-November 2024). - Publish report quantifying revenue losses from tax exemptions/incentives (end-September 2024). ### Program monitoring, modality, financing, and review schedule - Program monitored through quantitative targets and reform targets assessed in three reviews. - PCI testing and review schedule: - Board discussion of PCI request: February 2024. - First Review: Test date June 30, 2024; Review date September 30, 2024. - Second Review: Test date December 31, 2024; Review date March 31, 2025. - Third Review: Test date June 30, 2025; Review date September 30, 2025. - Reporting and data requirements: detailed monthly, quarterly and semi-annual reporting obligations specified in the TMU (examples: monthly NBT reports within two weeks; MoF monthly budget tables within five weeks). - Financing: Program fully financed with firm commitments for the first 12 months and good prospects for adequate financing for the remaining program period; PCI expected to catalyze substantial financing from multilateral and bilateral development partners for Rogun HPP. ### Risks, vulnerabilities, and policy advice - External dependence and downside risks: - Heavy reliance on remittances (primarily from Russia) poses external vulnerability. - Risks tilted to the downside given heightened geopolitical tensions and sanctions on Russia. - Potential impacts: weaker remittances, lower domestic demand, reserve pressures, banking sector knock-on effects. - Debt service pressure: - Upcoming Eurobond repayments and increased debt service from 2025-2027 elevate the risk of debt distress. - Fiscal space constraints: - Sizeable public investment needs, especially Rogun HPP spending, constrain fiscal space for critical social and development spending. - Policy advice and contingency measures: - Maintain fiscal deficit target of 2.5 percent of GDP and credible medium-term revenue and debt management strategies. - Strengthen domestic debt market development and set contingency plans for Eurobond repayment. - Improve SOE oversight and electricity sector financial viability; phase in macroprudential tools and strengthen bank supervision. - Use exchange rate as a shock absorber while smoothing excess volatility and allow greater exchange rate flexibility over time. - Stand ready to provide liquidity to solvent banks, strengthen accounting/reporting/provisioning standards, and tighten fiscal and financial supervision if shocks materialize. *Source: REPUBLIC OF TAJIKISTAN — REQUEST FOR A TWENTY-TWO-MONTH POLICY COORDINATION INSTRUMENT (IMF staff report, February 15, 2024) (document 1tjkea2024001).* ### 2.5 percent of GDP, but the risk of debt distress remains high while sizeable public investment ### 2.5 percent of GDP, but the risk of debt distress remains high while sizeable public investment ### Context and program purpose - The authorities requested a twenty-two-month arrangement under the Policy Coordination Instrument (PCI) to anchor macroeconomic policies and foster inclusive growth. - The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. - The PCI aims to: - strengthen fiscal resilience, - modernize monetary, exchange rate and financial policies, - improve governance and transparency to foster inclusive growth. - Staff supports the request for the new arrangement. ### Key economic backdrop and recent developments - Real GDP growth: "Real GDP increased 8.3 percent in 2023". - Growth drivers: remittances and public investment supported aggregate demand; growth was broad-based across services, construction and agriculture. - Inflation: "Twelve-month inflation declined to 3.8 percent at end-2023 (y/y)", compared with the NBT’s target range "6±2 percent". - Remittances: projected at "about 38 percent of GDP in 2023"; remittances surged in 2022, increasing by "about 80 percent" then cooled in 2023. - FX reserves: "around 7 months of imports at end-2023". - Monetary policy: NBT reduced the refinancing rate by "300 bps in two steps in the first half of 2023 and 50 bps in February 2024 to 9.5 percent". - Monetary aggregates: reserve money fell "5.6 percent during 2023" after an increase of "53 percent during 2022". - Credit growth: "about 32 percent (y/y) in December, up from 19 percent at end-2022". - Banking sector: NPL ratio decreased to "11.1 percent in November 2023 from 23.8 percent at end-2020". - Fiscal outturns and projections: - Fiscal deficit projected at "1 percent of GDP in 2023", below the deficit target. - Staff projects the overall deficit to increase to "about 1 percent of GDP for the full-year 2023" and reach "2.5 percent of GDP in 2024". - Public debt: declined to "30.9 percent of GDP in 2023" from "32.5 percent of GDP in 2022" and "42.1 percent of GDP in 2021". - Rogun Hydropower Project (HPP) financing need: additional spending of "about $6.4 billion (about half of 2023 GDP)" to complete construction by 2035. - Historical poverty reduction: poverty rate estimated "12.4 percent of the population in 2022 from 32 percent in 2009". - Growth record: "averaging close to 7 percent over the last five years". ### Debt sustainability and fiscal constraints - Assessment: "Public debt is sustainable but sizeable investment needs constrain fiscal space, and the risk of debt distress remains high due to upcoming Eurobond repayments." - Policy anchor: adherence to a deficit target of "2.5 percent of GDP is essential to anchor debt sustainability". - Staff emphasis: credible medium-term revenue and debt management strategies are needed to safeguard debt sustainability. - Public debt dynamics: - Although the public debt-to-GDP ratio remains below DSA benchmarks under the baseline, increased debt service from "2025-2027 results in a breach of the DSA threshold for the debt service-to-exports ratio." - Rogun HPP implications: - Completion could substantially boost electricity reliability and long-term growth; annual average generation expected to be "around 14,400 GWh" when reservoir reaches full supply level. - Rogun HPP is a "3,780MW" facility; significant spending must be consistent with medium-term fiscal and debt sustainability objectives. - Improvements needed in the electricity sector’s financial position and securing power purchase agreements with neighboring countries to support project viability. ### Main policy commitments under the PCI - Strengthen fiscal resilience: - Limit the fiscal deficit to "2.5 percent of GDP" while keeping debt on a downward trajectory. - Improve revenue mobilization, spending efficiency and SOE oversight. - Anchor debt sustainability in credible medium-term revenue and debt management strategies. - Develop a domestic government securities market. - Modernize monetary, exchange rate and financial policy frameworks: - Enhance exchange rate flexibility and monetary policy transmission to support a gradual transition towards an interest rate-based framework. - Employ new macroprudential tools, forward-looking stress tests, and beneficial ownership information to better monitor and manage financial sector risks. - Improve governance and transparency to foster inclusive growth: - Implement broad-based governance and transparency reforms to improve SOE risk management. - Bolster the NBT’s autonomy. - Strengthen the AML-CFT and anti-corruption frameworks. - Foster financial inclusion and resilience to climate risks. ### Executive Board and Director views - Executive Directors commended Tajikistan on "continued strong economic performance in 2023". - Directors welcomed the authorities’ commitment to a fiscal deficit anchor of "2.5 percent of GDP". - Directors commended plans to increase domestic revenue mobilization, including phasing out tax exemptions, and to improve spending efficiency. - Directors encouraged development of the domestic debt market to support more efficient resource allocation. - Directors welcomed focus on improved transparency and governance of SOEs and measures to strengthen SOE oversight and improve the financial position of the electricity sector. - Directors noted the importance of modernizing monetary, exchange rate and financial sector policies and a gradual transition to an inflation targeting framework, emphasizing improved policy transmission and deeper financial markets. - Directors supported expansions in macroprudential instruments, forward-looking analytical tools, and beneficial ownership information in supervision and macroprudential analysis. - Directors emphasized broad-based governance and transparency reforms, including enhancements to AML-CFT and anti-corruption frameworks, extractive sector transparency, financial inclusion and resilience to climate risks. - Directors noted authorities are considering a request for IMF support under the Resilience and Sustainability Trust to support climate policy priorities. ### Risks and vulnerabilities - External dependence: Tajikistan is reliant on remittances, primarily from Russia, which are a major source of foreign exchange and support domestic demand. - Downside risk: outlook tilted to the downside given heightened geopolitical tensions and sanctions on Russia. - Debt service pressure: upcoming Eurobond repayments and increased debt service from "2025-2027" elevate the risk of debt distress. - Fiscal space: sizeable public investment needs, especially Rogun HPP spending, constrain fiscal space for critical social and development spending. ### Program modalities and analytical content - The document includes: - Program Statement and Technical Memorandum of Understanding. - Quantitative targets under the PCI for 2024 and proposed prior actions and reform targets under the PCI for 2024-2025. - Tables and figures covering Selected Economic Indicators, General Government Operations (in millions of somoni and percent of GDP), Central Bank and Monetary Surveys, Balance of Payments, Financial Soundness Indicators, Inclusive Growth Indicators, and Sustainable Development Goals. - Annexes with a Risk Assessment Matrix and an External Sector Assessment. *Source: REPUBLIC OF TAJIKISTAN — REQUEST FOR A TWENTY-TWO-MONTH POLICY COORDINATION INSTRUMENT (IMF staff report, February 15, 2024).* ### 10. The near-term outlook is subject to significant uncertainty. Economic activity has thus ### 10. The near-term outlook is subject to significant uncertainty. Economic activity has thus far been resilient to spillovers from regional volatility but could be increasingly affected as prolonged sanctions are likely to weigh on economic prospects in Russia. ### Near-term outlook and medium-term projections - Growth is projected to moderate to 6.5 percent in 2024 as remittance inflows continue to normalize. - Twelve-month inflation (y/y) is expected to rise to 6 percent in 2024. - Over the medium-term, reforms under the PCI are expected to raise potential growth by 0.5 percentage point to 4.5 percent and keep inflation within the NBT’s target range. - Public debt is projected to decline to about 29 percent of GDP in 2027 following the repayment of the Eurobond. ### Risks to the outlook - Risks are tilted to the downside: - Prolonged sanctions and weak growth in Russia could adversely impact remittances, domestic demand, and reserves. - Potential knock-on effects on the banking sector could occur. - Budget performance could suffer from a potential scale-up of social assistance to accommodate returning migrants, increased security spending, higher oil prices and external borrowing costs. - Upside risk: - Elevated gold prices could countercyclically boost gold exports and stimulate exploitation of Tajikistan’s large proven gold reserves, supporting growth and bolstering external and fiscal buffers. ### Policy discussions — program objectives - The program to be supported by the new PCI is organized around three main pillars: - (i) strengthen the fiscal policy framework to create space for high-priority social and development spending while preserving debt sustainability; - (ii) modernize monetary, exchange rate and financial sector policies to improve resilience to external shocks; - (iii) advance governance and transparency reforms to support inclusive growth and help Tajikistan achieve its development objectives. ### Pillar I. Improving Fiscal Resilience — fiscal anchor and Rogun exception - Authorities committed to a fiscal deficit target of 2.5 percent of GDP; debt sustainability is anchored by a fiscal deficit ceiling of 2.5 percent of GDP. - Tajikistan is at high risk of debt distress and under IMF’s Debt Limits Policy (DLP) is subject to a zero limit on non-concessional borrowing; a non-zero limit exception for Rogun-related loans is requested and supported by staff. - Rogun project cost developments (as reported): - Remaining cost of the project increased from $5 billion to $6.4 billion (about half of 2023 GDP) due to contract-embedded price indexations and additional safety-related civil works. - Project completion deadline extended from 2032 to 2033. - A new financing envelope proposes annual Rogun-related internally financed spending close to 3 percent of GDP during 2024-2026 and additional external financing from multilateral and bilateral partners. - Program caps and envelopes: - Program caps external disbursements at about 2.3 percent of GDP in 2024 (on a net basis). - Anchors internal Rogun spending within a sustainable envelope of 3-3.5 percent of GDP. ### Strengthening Revenue Mobilization - Recent tax policy context: - New Tax Code introduced in January 2022 decreased tax and compliance burden by reducing the number of taxes; lowering the VAT and income tax rates; encouraging digitalization. - Government adopted a regulation transitioning all government services to electronic payments. - Under the program: - Medium-Term Revenue Plan (MTRP) (October 2024 reform target) envisages raising total revenue (excluding grants) to about 26 percent of GDP by 2026 (about 24 percent in 2022). - Mandate of the PFM Committee expanded to develop the MTRP and oversee implementation (March 2024 reform target). - MTRP will focus on (i) revisiting inefficient tax exemptions and tax incentives; and (ii) reducing tax compliance risks and administration costs, including through increased digitalization. - MTRP informed by a report quantifying revenue losses from tax exemptions and tax incentives (May 2024 reform target). - Preliminary projections envisage a cumulative tax effort of about 1 percent of GDP during 2024-2025. - FAD diagnostic (Box 1) identified reform areas: - VAT: VAT revenue accounts for more than 40 percent of total tax revenue; collection trending down due to import exemptions and multiple reduced VAT rates; 2021 tax reform envisages gradual reductions in the VAT rate from 18 to 13 percent by 2027. - Business income tax: focus on single tax rate on legal entities; refrain from granting new tax incentives; replace profit-based with cost-based incentives. - Personal income tax: room to improve progressivity and broaden base by including capital gains. - Excise taxes: underutilized; automatic indexation for inflation could help effectiveness. ### Enhancing Expenditure Efficiency - Fiscal adjustment requirements: - Meeting the 2.5 percent of GDP deficit target requires fiscal adjustment to offset higher Rogun-related costs. - On revenue side: higher project costs partly offset by gradual reduction in tax expenditures supported by Fund TA. - On expenditure side: lower spending on goods and services and reprioritization of capital spending to create space for higher Rogun expenditures. - Fiscal adjustment composition (cumulative from end-2023; staff estimates): - Overall revenues and grants: 0.9 - Tax revenues: 1.1 - Nontax revenues: -0.1 - Total expenditure and net lending: 2.3 - Current expenditures: -1.4 - Expenditures on goods and services: -0.9 - Wages and salaries: 0.4 - Others: -1.3 - Interest payments: 0.0 - Transfers and subsidies: -0.4 - Capital expenditures: 3.7 - Externally financed (PIP and Rogun): 2.5 - Domestically financed: 1.3 - Public investment management: - Public investment remains high by regional standards. - IMF Public Investment Management Assessment (PIMA) recommended strengthening appraisal, selection and execution; program will implement an operational roadmap based on PIMA. - Program will launch regular publication of quarterly fiscal data in line with GFSM2014 standards (November 2024 reform target). ### Scaling up targeted social assistance - Social assistance context: - Social assistance spending in Tajikistan is 0.8 per cent of GDP compared to an average of 2 percent of GDP in MCD and EMEs. - Benefit incidence and coverage in the bottom quartile are relatively low. - Program commitments: - New means testing formula (with World Bank support) expands coverage of the poorest decile from 38 to 63 percent. - Authorities committed to double the 2022 budget allocation for targeted social assistance (TSA) in 2024 in line with the quantitative target. - Planned expansion of the social registry and related information systems to broaden coverage of eligible applicants. - Note: Annual TSA expenditure amounted to about 0.1 percent of GDP in 2022. ### Improving SOE Risk Management and Transparency - SOE risks and program measures: - Large SOEs remain key; loss-making SOEs benefit from budget support via sub-loans or direct credits; unmet SOE obligations create budget pressures and can feed into banks’ NPLs. - Program strengthens MOF capacity to identify, manage and disclose contingent risks related to SOEs. - Measures aim to enhance SOE oversight and align reporting and auditing with IFRS, consistent with the Fiscal Risk Management Strategy (FRMS) adopted in 2021. - Specific commitments and targets: - Resume regular preparation, presentation to Parliament and publication of SOE Fiscal Risk Statements; bring all companies with minimum 20 percent state ownership within MOF monitoring perimeter and covered by the 2023 Statement of Financial Risks (April 2024 reform target). - All SOEs monitored by MOF required to provide detailed monthly expense reports to the SOE Monitoring Department (SOEMD). - MOF committed to improving disclosure of transfers to SOEs as part of publishing quarterly budget data (November 2024 reform target). - Civil Aviation Agency, with Fund TA, will assess financial viability of Tajik Air and develop a timebound action plan to address financial losses (May 2025 reform target). ### Power sector and Barki Tojik (BT) reforms - BT overview and liabilities: - BT accounts for over 90 percent of SOE losses. - Low domestic electricity tariffs and collection shortfalls resulted in significant arrears to private sector creditors and suppliers (about 7.5 percent of 2023 GDP). - Reforms and targets: - Government unbundled BT operations into generation, transmission and distribution and appointed a high-level committee to monitor performance. - PCI supports World Bank Power Utility Financial Recovery Program (PUFRP). - Electricity tariffs were increased by 15 percent at the beginning of 2024, with further increases planned each year to reach cost recovery by 2027. - Tariff increases aim to slow BT’s debt accumulation; tariff reform accompanied by measures to protect vulnerable households (stepwise tariff adjustments, cash transfers under consideration). - Collection rates of the distribution company (STB) are monitored as a memorandum item to the Table on Quantitative Targets. ### Developing Domestic Debt Markets and debt management - Domestic debt market context: - Despite ample bank liquidity, government securities issuance limited to small short-term treasury bills placed with the Deposit Insurance Fund at negative real rates. - Authorities rely on external funding for projects; financing shortfalls contribute to under-execution of capital spending and higher foreign currency-denominated public debt share. - Program measures: - Launch market-based auctions of government securities according to amounts specified in the Table on Quantitative Targets (June 2024 reform target). - Updated debt management strategy for 2024-2026 to align borrowing plans with fiscal and debt sustainability objectives (May 2024 reform target). - Strategy expected to include framework for market-based debt issuance and contingency plans to manage liquidity risk from upcoming Eurobond repayments (2025-2027). - Operational note: - Initial auction of securities at maturities of 6-, 12- and 24-months carried out in January (authorities advanced plans). ### Pillar II. Modernizing Monetary, Exchange Rate and Financial Policies - External position and reserves: - External position in 2023 was stronger than implied by fundamentals and desirable policy settings (IMF’s EBA-lite CA model). - Current level of reserves is above range suggested by reserve adequacy metrics. - Under the PCI, a floor on the stock of net international reserves (PS, Table 1) helps maintain an adequate buffer against external shocks. - Monetary policy stance and risks: - NBT lowered the refinancing rate to 10 percent in 2023 and 9.5 percent in February 2024 as headline inflation declined well below its target range and monetary growth eased. - Real policy rate close to 3.5 percent (using expected inflation). - Strong credit growth, especially rapid consumer lending, warrants caution toward further relaxation of monetary conditions. - Upside risks to wheat and oil prices given ongoing conflicts in Ukraine and the Middle East argue for caution. - Monetary policy under the program aims to keep inflation within the NBT’s target range of 6 (±2) percent through quantitative targets on reserve money and the NBT’s outstanding gross credit to the government (PS, Table 1). *Source: National authorities, and IMF staff estimates (excerpted from the provided content).* ### 28. Measures to enhance the NBT’s governance and capacity would facilitate a gradual ### 28. Measures to enhance the NBT’s governance and capacity would facilitate a gradual transition to an inflation targeting framework over the medium term ### Monetary policy framework and NBT governance - Prior action: In November 2023, the NBT adopted amendments to the NBT Law aimed at strengthening its autonomy and governance. - Ongoing and planned measures: - Enhance liquidity management and forecasting frameworks with Fund support to improve monetary policy transmission. - Adoption of the reserve averaging mechanism recommended by Fund TA (May 2025 reform target). - To support transition toward inflation targeting, authorities need to: - Adopt an interest rate operational anchor. - Strengthen forward-looking monetary policy communication. ### Exchange rate flexibility and FX market reforms - Objective: Enhance exchange rate flexibility to improve resilience to external shocks and strengthen FX market functioning and transparency. - Specific reform targets and measures: - Development of an improved mechanism for executing public sector FX transactions to better reflect prevailing market rates (May 2024 reform target). - Introduction of price-based auctions for FX interventions (December 2024 reform target). - Discontinuation of ruble auctions of NPCR transfers and transmittal of all the transferred amounts in the respective currency to the bank executing the transfer (April 2024 reform target). - Make FX quotes by FX market segments available to the public in continuous time. - Update the NBT instruction to explicitly limit any corrections to the official exchange rate to exceptional circumstances; require any corrections with justification to be published in the publicly available record. - Strengthen the responsibilities of FX market participants to execute transactions for their clients in the FX market. ### Financial sector reforms, supervision, and macroprudential measures - Context: Rapid credit growth requires supervisory vigilance and enhanced macroprudential risk analysis. - Planned measures and reform targets: - Develop a plan to phase in, with support from a long-term IMF advisor and Fund TA, new macroprudential requirements on: - Borrower leverage: debt service-to-income ratio (DSTI); loan-to-value ratio (LTV). - Bank liquidity: credit to stable funding ratio (CSFR). - A countercyclical capital buffer consistent with the Basel III regulatory framework (June 2025 reform target). - Forward-looking stress tests, based on World Bank TA, to enhance risk-based supervision and systemic risk analysis (June 2025 reform target). - Expand the use of beneficial ownership information in banking supervision to facilitate monitoring of related party risk (April 2025 reform target). - Continue to support the timely and transparent final resolution of AIB and TSB banks. - Interim measures: Interim policy measures may be needed to taper excessive credit growth until the macroprudential instruments envisaged under the program come into effect. ### Pillar III — Governance, transparency, and structural reforms - Program aim: Broad-based governance and transparency reforms to promote sustainable and inclusive private sector-led growth aligned with the National Development Strategy-2030. Key areas and reform targets: - SOE governance and fiscal risk mitigation: - SOEs brought under the coverage of the new procurement law. - Revised SOE Law requires SOEs to establish supervisory boards of directors. - Enact regulations to ensure supervisory board appointments are done through transparent and competitive procedures with clear fit and proper criteria; set rules for determining remunerations and evaluating performance; establish supervisory boards in the 27 largest SOEs following those regulations (December 2024 reform target). - Prepare an updated list of SOEs and joint stock companies with state shareholdings of at least 10 percent, specifying sector and legal basis to complete sectorization recommended by Fund TA (October 2024 reform target). - AML-CFT framework alignment: - New AML/CFT Law enacted in March 2023 removed technical deficiencies and aligns the framework with international standards. - Align the Law on State Registration of legal persons with the new AML/CFT Law (FATF Recommendation 24) with respect to: - Definition of beneficial owner. - Verification and sanctioning powers of the Unified State Registry. - Access to beneficial ownership information to competent authorities and AML reporting institutions (December 2024 reform target). - Anti-corruption measures: - National Anticorruption Strategy for 2021-2030 focuses on eradicating corruption across public service, education and healthcare, taxes and customs, and public procurement. - Amend asset declaration (AD) legal provisions so all high-level officials are obliged to file ADs that are accessible online, and put in place a dissuasive sanctions regime to prevent noncompliance, including filing of inaccurate information (June 2025 reform target). - Amend the penal code as needed to ensure corruption is criminalized in line with Chapter III of the UN Convention Against Corruption. - Extractive sector transparency: - Tajikistan was suspended from EITI in January 2022 and has since had its membership reinstated after publication of an EITI report covering 2019-2021. - Actions to reach compliance with 11 corrective actions from EITI second validation include clarifying legal framework for licensing processes and enhancing disclosure of SOE information, including financial relations with the government and related social and quasi-fiscal expenditures. - MOF to publish fiscal data breakdowns of the contributions of mining revenue to budget aggregates (November 2024 reform target). - Financial inclusion and climate resilience: - Support National Financial Inclusion Strategy for 2022-2026 to remove barriers to accessing financial products and broaden financial services. - Implementation plan includes strengthening digital infrastructure, diversifying financial services offered by banks, supporting innovative financial solutions for SMEs including female-led businesses, and improving financial literacy. - Authorities established a Coordination Council, Executive Committee and working groups to guide implementation. - Support Tajikistan’s Green Development Strategy for 2023-2037 and National Strategy for Adaptation to Climate Change for 2020-2030 to build resilience and develop renewable energy potential. ### Program modalities, financing, and risks - Program Statement (PS) elaborates authorities’ commitments under the PCI. - Staff view: Tajikistan does not have a present, prospective, or potential balance of payments need in the staff’s baseline that would require Fund financing and thereby meets the criteria for use of the PCI. - Monitoring: Program monitored through quantitative targets and reform targets assessed in three reviews. Quantitative targets set on the general government fiscal deficit, targeted social assistance, external disbursements, net international reserves, gross credit to general government and reserve money. Continuous targets set ceilings on external government arrears and new non-concessional external debt and on Barki Tojik’s arrears to the private sector. Standard continuous targets on trade and exchange rate restrictions, bilateral payments arrangements, multiple currency practices and external arrears apply. - Prior action met: NBT Law amended in line with the recommendations of the 2021 Safeguards Assessment followed by Fund TA. - Fund technical assistance (TA) priorities for 2024-2025 aligned with program objectives, assisting authorities to: - Design a Medium-Term Revenue Plan and Debt Management Strategy. - Complete an IMF Public Investment Assessment (PIMA). - Develop the domestic debt market. - Prepare SOE Fiscal Risk Statement. - Phase in macroprudential tools. - Improve fiscal statistics. - Financing: Program fully financed with firm commitments for the first 12 months and good prospects for adequate financing for the remaining program period. PCI expected to help catalyze substantial financing from multilateral and bilateral development partners for the Rogun HPP project, with key contributors being the World Bank, Asian Development Bank, European Investment Bank and Asian Infrastructure Investment Bank. Authorities reported no sovereign arrears to bilateral, multilateral, or commercial creditors. - Risks: Program implementation risks include potential delays from administrative hurdles and governance issues; uncertainties related to geopolitical tensions and sanctions on Russia could adversely impact remittances, exports, growth, and fiscal revenue. ### Staff appraisal — key judgments - Tajikistan’s economic performance has been favorable, but continued macroeconomic stability and vigorous structural reforms are key to fostering more inclusive growth. - Program aims to address three key challenges: - Balance ambitious development agenda with debt sustainability objectives. - Strengthen contribution of monetary, exchange rate and financial policies to growth and resilience. - Improve governance and foster more diversified and inclusive growth in line with National Development Strategy-2030. - Revenue and expenditure priorities: - Enhance revenue mobilization by broadening the tax base, reducing tax expenditures, and improving tax collection. - Improve expenditure prioritization, phase out energy subsidies, and improve the financial position of the electricity sector. - Fiscal anchor and debt sustainability: - Fiscal deficit target of 2.5 percent of GDP remains essential to balance infrastructure investment needs with debt sustainability and keep public debt on a downward trajectory. - IMF-World Bank DSA indicates the risk of debt distress remains high; credible medium-term revenue and debt management strategies supported by efficient domestic debt markets are critical. - Monetary and financial policy modernization: - Recent amendments to the NBT Law (prior action) strengthened NBT autonomy and governance. - Gradual transition to an inflation targeting framework requires improving policy transmission and deepening financial markets. - External position in 2023 assessed stronger than level implied by fundamentals and desirable policy settings; exchange rate flexibility remains essential. - Improve monitoring of financial sector risks through forward-looking macroprudential tools and stress tests to support financial deepening while safeguarding financial stability. - Governance and transparency: - PCI supports efforts to reduce contingent SOE risks through enhanced fiscal governance and transparency. - Structural reforms focus on improving SOE oversight, enhancing AML-CFT and anti-corruption frameworks, and fostering extractive sector transparency, financial inclusion, and resilience to climate risks. *INTERNATIONAL MONETARY FUND* ### 47. The PCI arrangement will anchor the authorities’ policies and help catalyze critical ### The PCI arrangement will anchor the authorities’ policies and help catalyze critical development financing ### PCI arrangement and program framing - A PCI arrangement is appropriate given that staff does not foresee a prospective balance of payments need in the baseline, with international reserves projected to remain above Fund adequacy metrics. - The PCI will support policy coordination and signal to development partners the authorities’ commitment to sound macroeconomic policies and structural reforms. - Staff supports the authorities’ request for a twenty-two-month PCI-supported program. ### Growth and inflation: recent developments - Recovery from the COVID-19 shock has been driven by services, industry and agriculture. - Per capita income remains low relative to comparators. - Unemployment remains elevated. - Inflation has trended downwards, with food price inflation subdued. Selected indicators (from text summary and figures) - Population: 10 million; 2022 - Per capita GDP: US$1055; 2022 - Poverty rate: 23 percent; 2021 ### External sector developments - The current account balance improved on the back of strong remittances and import substitution effects from REER depreciation. - The importance of remittances in the economy has increased recently; FDI inflows remain below pre-pandemic levels. - Reserves are above adequacy metrics, supported by NBT’s domestic gold purchases. ### Fiscal developments - Tax revenues are close to the regional average and have stabilized over the last several years. - Capital expenditures are high relative to peers and are a major contributor to recent deficits. - Debt performance has improved, driven by repayment of external debt. Key fiscal and public debt summary (Table 1 and Table 3 highlights) - Quota: SDR 174 million - Real GDP (annual percent change): 2020 4.4; 2021 9.4; 2022 8.0; 2023 8.3; 2024 6.5; 2025 4.5; 2026 4.5; 2027 4.5; 2028 4.5; 2029 4.5 - Headline CPI inflation (end-of-period): 2020 9.4; 2021 8.0; 2022 4.2; 2023 3.8; 2024 6.0; 2025 6.5; 2026 6.5; 2027 6.5; 2028 6.5; 2029 6.5 - Revenue and grants (percent of GDP): 2023 24.8; 2024 27.0; 2025 27.7; 2026 27.7; 2027 27.1 - Tax revenue (percent of GDP): 2023 18.3; 2024 19.5; 2025 19.7; 2026 19.6; 2027 19.3 - Expenditure and net lending (percent of GDP): 2023 29.2; 2024 27.6; 2025 28.0; 2026 28.7; 2027 29.6 - Capital expenditures (percent of GDP): 2023 12.1; 2024 11.3; 2025 11.6; 2026 11.3; 2027 13.2 - Overall balance (incl. PIP): 2023 -4.3; 2024 -0.7; 2025 -0.2; 2026 -1.0; 2027 -2.5 - Total public and publicly-guaranteed debt (percent of GDP): 2020 51.8; 2021 42.1; 2022 32.5; 2023 30.9; 2024 30.8; 2025 30.2 Selected fiscal-level values in millions of somoni (Table 2) - Overall revenues and grants: 2023 20,842; 2024 27,266; 2025 32,084 - Total expenditures and net lending: 2023 24,485; 2024 27,940; 2025 32,354 - Capital expenditures: 2023 10,163; 2024 11,397; 2025 13,466 - Net external financing (2023–25 example, in millions of somoni): 2023 4,839; 2024 791; 2025 268 ### Monetary developments - NBT gold purchases have increased, supporting reserve accumulation. - This has contributed to a deceleration in monetary aggregates while excess systemic liquidity remains stable. - Despite a reduction in the refinancing rate, monetary conditions have remained in balance. Selected monetary indicators (Table 4 and Table 5 highlights) - Net international reserves (in millions of U.S. dollars): 2020 24,967; 2021 26,977; 2022 36,315; 2023 36,585 - Gross international reserves (in millions of U.S. dollars): 2020 25,293; 2021 28,236; 2022 38,797; 2023 39,523 - Reserve money (12-month percent change): 2020 20.2; 2021 11.6; 2022 52.9; 2023 -5.6; 2024 17.1 - Broad money (12-month percent change): 2020 18.4; 2021 8.2; 2022 40.4; 2023 -0.8; 2024 13.1 - Broad money (end-year stock, millions of somoni): 2020 26,253; 2021 28,400; 2022 39,884; 2023 39,549 ### Financial sector - The banking system remains profitable, as illustrated by ROA and ROE indicators, allowing banks to shore up capital buffers. - Despite a decrease, nonperforming loans (NPLs) remain elevated. - Large exposures are trending down, as is the degree of financial sector dollarization. Selected financial soundness indicators (Table 7) - Return on assets (ROA), annualized: 2019 2.1; 2020 2.5; 2021 1.1; 2022 5.9 - Return on equity (ROE), annualized: 2019 7.7; 2020 9.1; 2021 4.8; 2022 28.3 - Nonperforming loans to total gross loans: 2019 26.1; 2020 23.8; 2021 13.7; 2022 12.2 - Regulatory capital to risk-weighted assets: 2019 21.4; 2020 18.2; 2021 23.4; 2022 25.3 ### Structural characteristics and inclusive growth - Despite recent progress, Tajikistan scores below peers on governance, business environment, competitiveness, and transition quality indicators. - Inclusive growth and social indicators show mixed outcomes compared with low-income country averages. Selected inclusive growth and social indicators (Table 8) - GDP per capita growth (percent; 2020-23 average): 5.1 (Tajikistan) vs. 1.9 (LICs average) - Unemployment rate (% of total labor force, 2021): 7.7 (Tajikistan) vs. 7.0 (LICs average) - Gross Fixed Capital Formation (percent of GDP; 2018-20 average): 31.5 (Tajikistan) vs. 24.3 (LICs average) - Poverty headcount ratio at $3.20/day (percent of population; 2015): 25.7 (Tajikistan) vs. 40.5 (LICs average) - Human Development Index (2020): 0.70 (Tajikistan) vs. 0.5 (LICs average) - Access to electricity (% of population, 2020): 99.8 (Tajikistan) vs. 60.2 (LICs average) ### Key recommendations and policy follow-up (selected from 2022 Article IV) - Exchange rate policy and monetary operations - Allow greater exchange rate flexibility to facilitate adjustment to external shocks. - Note: In early 2023, Tajikistan experienced a 7 percent depreciation against the US dollar. Tajikistan’s de jure exchange rate arrangement is a managed float, and its de facto arrangement is classified as stabilized. - Use macroprudential controls to help contain rapid monetary growth and mitigate potential risks to inflation and financial stability. - Reserve money growth slowed in 2023 as remittance flows moderated. The authorities will prepare a plan to phase in new macroprudential tools with support from a long-term IMF advisor and Fund TA. - Improve monetary policy transmission to facilitate a gradual transition to inflation targeting. - The NBT is working on improving liquidity management and forecasting with support from Fund TA to enhance monetary policy transmission and facilitate transition to an interest rate-based framework. - Fiscal policy - Adhere to the fiscal deficit target of 2.5 percent of GDP as an important anchor to keep public debt on a downward trajectory. - The budget deficit has remained well below 2.5 percent of GDP over the last few years and public debt declined to 30.9 percent of GDP in 2023 from earlier years. *Source: IMF staff report content for the Republic of Tajikistan (selected figures, tables, and narrative).* ### 42.1 percent in 2021. ### 1tjkea2024001 - 42.1 percent in 2021. ### Fiscal pressures and key budget constraints - Sizable expenditures related to the Rogun Hydropower Project present a significant constraint on the budget. - Improved domestic revenue mobilization is needed to create space for critical social and development spending. - The authorities have continued to strengthen tax administration through digitalization of reporting and financial transactions. - Quantitative fiscal targets under the PCI (TJK somoni; million unless otherwise indicated): - Ceiling on general government overall fiscal deficit (cumulative, from the beginning of the year): end-Jun 2024 Prog 2400; end-Dec 2024 Prog 3655. - Floor on general government expenditure on targeted social assistance (cumulative): end-Jun 2024 Prog 122; end-Dec 2024 Prog 244. - Ceiling on gross credit to general government from NBT: end-Jun 2024 Prog 4021; end-Dec 2024 Prog 3808. - Ceiling on the stock of reserve money: end-Jun 2024 Prog 41000; end-Dec 2024 Prog 45000. - Floor on NBT stock of net international reserves (USD mn) 1/: end-Jun 2024 Prog 2500; end-Dec 2024 Prog 2700. - Ceiling on the disbursements of external debt (USD mn) 2/3/: end-Jun 2024 Prog 510; end-Dec 2024 Prog 510. - Ceiling on Barki Tojik's new arrears to the private sector: end-Jun 2024 Prog 550; end-Dec 2024 Prog 550. - Issuance of domestic debt at positive real rates (memorandum item): end-Jun 2024 100; end-Dec 2024 300. - Program exchange rate (TJS/US dollar) 5/: 10.95 (end-Jun 2024); 10.95 (end-Dec 2024). - Program gold price per ounce (US dollars) 5/: 2029 (end-Jun 2024); 2029 (end-Dec 2024). - Rogun HPP-specific debt treatment: - A zero NCB limit with exceptions applying exclusively to new non-concessional debt contracted for the Rogun HPP, which is capped at $1800mn cumulatively for June and Dec. 2024. - This figure is the full non-concessional loan amount to be disbursed in installments during the project implementation. This amount is based on the latest World Bank assumptions. - Given the country's capacity constraints related to the recording and calculations of grant elements and present values of external debt, these figures are being presented and monitored in nominal terms and are inclusive of all disbursements of debt contracted for Rogun HPP. ### Financial sector findings and recommendations - Recommendation: Strengthen banking supervision in line with the 2022 Financial Sector Stability Review. - Status: The NBT continues to work on aligning banking supervision with the Basel II/III regulatory frameworks. - Recommendation: Strengthen the AML/CFT regime. - Status: The authorities have adopted a new AML/CFT Law and ultimate beneficial ownership definition in line with international standards. - Quantitative and regulatory targets under the PCI: - Approve an NBT regulation introducing liquidity stress tests in line with forthcoming World Bank technical assistance. Target date: end-June 2025. Responsibility: NBT. - Approve a plan for phasing in new macroprudential tools (including debt service to income (DSTI), loan to value (LTV) and credit to stable funding (CSFR) ratios) and countercyclical capital buffer (CCB) based on 2022 FSSR. Target date: end-June 2025. Responsibility: NBT. - Issue an NBT regulation defining the mechanism of usage of ultimate beneficial ownership information in the banking supervision process. Target date: end-April 2025. Responsibility: NBT. - Policy advice in risk scenarios: - Stand ready to provide liquidity to solvent banks. - Strengthen accounting, reporting, and provisioning standards. - Improve risk-based supervision and macroprudential systemic risk analysis. ### Governance, SOEs, and transparency reforms - Improve SOE governance, support private sector development, enhance social protection and combat corruption. - Status: The authorities have resumed publication of the SOE Fiscal Risk Statements. - A new means testing formula expands social assistance coverage in the bottom decile of the population. - The authorities have approved a new AML-CFT law to support anti-corruption policies. - SOE-specific reform targets under the PCI: - Include all companies with a minimum of 20 percent state ownership in: (i) the list of SOEs monitored by the Ministry of Finance; and (ii) the 2023 Statement of Fiscal Risks. Require SOEs monitored by the MOF to provide detailed expense reports to the SOEMD each quarter. Target date: end-April 2024. Responsibility: MOF. - Complete a report assessing the financial viability of OJSC Tajik Air based on Fund TA and providing a timebound action plan for addressing its financial losses. Target date: end-May 2025. Responsibility: MOF/Civil Aviation Agency. - Publish an updated list of SOE and joint stock companies with state shareholding of at least 10 percent, specifying sector and legal basis; and complete a sectorization exercise to distinguish SOEs that are public corporations from those that are general government entities. Target date: end-October 2024. Responsibility: MOF/State Committee on Investment and State Property Management. - Based on the revised SOE Law and following international standards and best practice, enact regulations that ensure all supervisory board appointments are done through transparent and competitive procedures with clear fit and proper criteria and set out rules for determining their remunerations and evaluating their performance, and establish supervisory boards in the 27 large SOEs currently monitored by the SOEMD in line with those. Target date: end-December 2024. Responsibility: MOF. ### Structural, fiscal transparency, and revenue mobilization reforms - Key reform actions under the PCI (dates and responsibilities preserved exactly): - Publish a report quantifying revenue losses from tax exemptions/incentives on the MOF’s website. Target date: end-September 2024. Responsibility: MOF. - Expand the mandate of the PFM committee to include developing a Medium-Term Revenue Program (MTRP) and overseeing implementation. Target date: end-March 2024. Responsibility: MOF. - Approve an MTRP, including a time-bound action plan for implementation based on identified exemptions. Target date: end-October 2024. Responsibility: MOF. - Publish quarterly budget data for 2022 and 2023 in line with GFSM2014, including a breakdown of mining-related revenues and transfers to SOEs on the IMF’s website. Target date: end-November 2024. Responsibility: MOF. - Prepare an updated Debt Management Strategy for the period 2024-2026, including a plan for expanding domestic issuance and managing government obligations. Target date: end-May 2024. Responsibility: MOF. - Begin market-based issuance of government securities at positive real rates (according to amounts specified in Table on Quantitative Targets). Target date: end-June 2024. Responsibility: MOF. - Adopt amendments to the active NBT instruction #244 “On required reserves of credit institutions” to introduce the required reserve averaging mechanism in line with Fund TA recommendations. Target date: end-May 2025. Responsibility: NBT. - Develop improved mechanism to execute government and other public sector foreign exchange transactions to better reflect prevailing market rates. Target date: end-May 2024. Responsibility: NBT. - Introduce price–based auctions for NBT FX interventions. Target date: end-December 2024. Responsibility: NBT. - Stop conducting ruble auctions of NPCR transfers and instead transmit all the amounts of the transfer in the respective currency to the bank executing the transfer. Target date: end-April 2024. Responsibility: NBT. - Prepare an updated list of SOE and joint stock companies with state shareholding of at least 10 percent (see SOE items above). Target dates and responsibilities preserved above. ### Anti-corruption and beneficial ownership transparency - Enact legislation strengthening the asset declaration regime to ensure that: - elected members of the National Assembly, judges and justices of all high courts, all high level officials of the executive and the government, as defined in the Constitution, and the procurator general and his subordinates, are obliged to file with their asset declarations additional information regarding disclosure of interests (including financial, contractual and corporate) and assets beneficially owned; - asset declarations of high-level officials are publicly available and accessible online, except confidential data for personal and family safety and privacy reasons (e.g. account numbers, personal identification numbers); - a dissuasive sanctions regime is put in place to prevent noncompliance, including filing of inaccurate information by public officials. - Target date: end-June 2025. Responsibility: MOF/Civil Service Agency. - Amend the Law on State Registration of Legal Persons to align with the definition of beneficial ownership in the new requirements of the AML/CFT international standard (FATF Recommendation 24), with respect to (i) the definition of beneficial owner, (ii) strengthening verification and sanctioning powers of the Unified State Registry, (iii) providing access to beneficial ownership information to competent authorities (supervisory, financial intelligence unit, law enforcement and procurement authorities), and AML reporting institutions. Target date: end-December 2024. Responsibility: MOF/Tax Committee. ### Policy Coordination Instrument (PCI) implementation schedule highlights - PCI testing and review schedule: - Board discussion of PCI request: February 2024. - First Review: Test date June 30, 2024; Review date September 30, 2024. - Second Review: Test date December 31, 2024; Review date March 31, 2025. - Third Review: Test date June 30, 2025; Review date September 30, 2025. ### Risk Assessment Matrix — major risks, likelihoods, impacts, and policy advice - External risks and spillovers: - Intensifying spillovers from Russia’s war in Ukraine. - Likelihood / Timeframe: High / Short-Term. - Possible Impact: High — disrupt trade, remittances and FDI, lead to refugee flows, reduce confidence, adverse fiscal and external positions and growth. - Policy Advice: Strengthen policy frameworks, improve revenue mobilization, reprioritize spending, use the exchange rate as a shock absorber while smoothing excess volatility, diversify trade and financial linkages over the medium term. - Commodity price volatility. - Likelihood / Timeframe: High / Short-Term. - Possible Impact: High — adverse effect on external and fiscal positions and growth; Tajikistan depends heavily on commodity revenue and oil imports. - Policy Advice: Strengthen revenue mobilization, reduce nonpriority spending, mobilize donor support, provide targeted assistance to the vulnerable, allow greater exchange rate flexibility, tighten monetary policy if risk of de-anchoring of inflation expectations. - Abrupt global slowdown or recession in EMDEs. - Likelihood / Timeframe: Medium / Medium-Term. - Possible Impact: Medium — reduced confidence, adverse fiscal and external positions, slower growth. - Policy Advice: Reprioritize expenditure, provide targeted social assistance, allow greater exchange rate flexibility, tighten financial supervision, stand ready to provide liquidity to solvent and viable banks. - Domestic risks: - Fiscal slippages and a rise in debt. - Likelihood / Timeframe: Medium / Medium-Term. - Possible Impact: High — lower revenues, higher deficits, higher debt service, squeeze out social and development spending, or require fiscal consolidation that slows growth. - Policy Advice: Additional revenue and expenditure measures to ensure deficits are consistent with the deficit target and a declining medium-term debt path; strengthen fiscal frameworks and transparency; implement structural fiscal reforms; progress on SOE reforms to raise efficiency and governance. - Financial sector risks materialize (e.g., significant slowdown in remittances). - Likelihood / Timeframe: Medium / Medium-Term. - Possible Impact: High — asset quality deterioration, rising NPLs, weakened banking soundness, increased contingent fiscal liabilities. - Policy Advice: Stand ready to provide liquidity to solvent banks; strengthen accounting, reporting, and provisioning standards; improve risk-based supervision and macroprudential systemic risk analysis. - SOE reforms are delayed or poorly implemented. - Likelihood / Timeframe: High / Short-Term. - Possible Impact: Medium — lower investment and productivity, slower growth, increased public frustration. - Policy Advice: Stress the need for SOE reform and market liberalization; focus on highest priority reforms (price liberalization, SOE and banking sector governance, improvements to the social protection system and business environment). *Source: 1tjkea2024001 - 42.1 percent in 2021.* ### Annex II. External Sector Assessment ### Annex II. External Sector Assessment ### Overall assessment - The external position of Tajikistan in 2023 was stronger than the level implied by fundamentals and desirable policy settings, based on the IMF’s EBA-lite current account (CA) model. - This assessment is highly uncertain given the lack of full-year data for 2023. - The current level of reserves is above the range suggested by reserve adequacy metrics. - External risks are high but mitigated by large FX reserves and the concessional nature of external debt. ### Potential policy responses - Near-term: continue monitoring the external position as the pass-through from nominal currency appreciation from 2022 was partially offset in 2023. - Over time: adopt reforms for a gradual transition to a more flexible exchange rate. - Maintain the fiscal deficit target as an important anchor for the external position over the medium-term. - Increase the investment component of domestic absorption relative to national savings, while maintaining a sustainable fiscal framework, to facilitate adjustment. ### Foreign assets and liabilities: position and trajectory - As of 2023Q2, NIIP: -33 percent of GDP, increasing steadily after being broadly stable at -66 percent of GDP in 2017-19. - Reserve assets buildup was about 25 percent of 2023 GDP. - Liability structure (shares of GDP): Direct investments 28 percent of GDP; government borrowing 26 percent of GDP; total liabilities 69 percent of GDP. Multilateral and bilateral loans are at concessional rates. - Table-level positions (2023Q2, percent of GDP): - NIIP: -33 - Gross Assets: 36 - Debt Assets: 8 - Gross Liab.: 69 - Debt Liab.: 51 - Assessment: NIIP is expected to deteriorate over the medium-term, consistent with projections indicating gradual convergence to the CA norm. - Risks: larger negative NIIP implies external vulnerabilities from prospective large gross financing needs related to infrastructure projects and potentially adverse valuation effects. - Policy caution: avoid a fast expansion of external borrowing on market-terms by the government and/or SOEs until risks to debt sustainability are eliminated. ### Current account - Background facts: - 2022: large trade deficits in goods and services (in the order of 33 percent of GDP) were offset by large income and transfer balances, resulting in a CA surplus of 15.6 percent of GDP. - 2023 (projected): CA projected to reach a deficit of 0.7 percent of GDP, mainly due to normalization in remittances, reduction in non-gold exports, and acceleration in imports. - Exports of goods (USD-denominated) expected to increase by 8 percent in 2023. - Imports of goods projected to increase by 9 percent in 2023. - Remittances (income and transfers in Table 6) expected at nearly 38 percent of GDP in 2023 (13 percentage points of GDP lower than in 2022, but higher than in 2021, pre-war). - Over the medium term, external imbalances are expected to reemerge due to strong public investment (i.e., Rogun) which would be externally financed. - Assessment from models and metrics: - EBA-lite CA model (2023) estimates a CA norm of -3.6 percent of GDP (cyclically adjusted, including multilateral consistency adjustments). - Adjusted CA (model): -3.6 percent of GDP. - CA-Actual: -0.7 percent of GDP. - CA Gap: 3.3 percent of GDP under current policies. - The gap is primarily due to higher fiscal space for medium-term fiscal adjustment than in the rest of the world, higher public health spending, and the drawdown of reserves in 2023. - Using standard trade elasticities, the implied REER gap is about 18 percent. ### Real exchange rate - Background facts: - Official market exchange rate vs US dollar in 2023 depreciated by about 7 percent. - As of October 2023, the average real effective exchange rate was about 7 percent more depreciated than the 2022 average. - Assessment: - EBA-lite IREER model finds a REER misalignment with an undervaluation of 10 percent. - Staff notes larger uncertainty in this approach due to the short period for which all model variables are available (since 2011). - Policy guidance: recent nominal depreciation motivates continuation of reforms for a gradual transition to a more flexible exchange rate, introduction of a price-based mechanism to achieve market clearing, and other FX market modernization measures as proposed in the 2021 IMF FX TA mission. - Greater exchange rate flexibility is important for import compression and substitution effects to facilitate external adjustment to future shocks. - Competitiveness constraints: insufficient infrastructure quality, weak business environment, limited innovation capability and technology adoption, and underdeveloped financial sector weigh on competitiveness relative to CIS peers. ### Capital and financial accounts: flows and policy measures - 2023 projections and background: - Financial account expected to be 3.6 percent of GDP in 2023. - Dominated by capital transfers of 3.1 percent of GDP, offset by large capital outflows. - Net FDI flows modest in H1 2023 and expected to recover in H2 2023; about 90 percent of all 2023 FDI inflows are expected to be from China. - Other investment (mostly bilateral and multilateral government borrowing) is typically the second largest component of the financial account (3.9 percent of GDP on average during 2019-21); in 2023 it is expected to remain negative as authorities paused external borrowing per World Bank assessment under the Sustainable Development Finance Policy. - Portfolio flows minimal in 2023 (similar to previous years except 2017 Eurobond-related transactions). - Assessment and policy implications: - Reliance on FDI and concessional bilateral and multilateral instruments to cover external financing needs keeps risks related to capital flows low. - Recommendation: develop the domestic debt market steadily to increase resilience and diversify sources of financing prior to higher reliance on market-based instruments in the medium-term. ### FX intervention and reserves level - Background facts: - End-December 2023: reserves decreased by about US$ 200 million relative to end-December 2022. - FX interventions during 2023 amounted to US$ 290 million (2.4 percent of GDP)—a record high level in eight years—reflecting high demand for FX from importers amid reopening in China. - Reserve adequacy assessment: - ARA approach for credit-constrained economies estimates adequate reserves adequacy in the range 5.5 to 6.3 months for Tajikistan’s reserve import cover (depending on the assumption for the marginal productivity of capital). - Current level of reserves (about 7 months of import cover) is above this range. Staff assesses Tajikistan’s FX reserves are adequate for precautionary and operational purposes. - FX reserves provide insurance against shocks, ensure access to imports, and may be needed for operational purposes including smoothing FX market volatility while allowing exchange rate adjustment in line with market forces. - The NBT’s participation in World Bank’s Reserve Advisory and Management Partnership (RAMP) should enhance reserve management and governance, build capacity, and optimize reserve holdings. *Source: Annex II. External Sector Assessment, Republic of Tajikistan (IMF).* ### 11. We will continue to take steps to enhance social protection to support the most ### 1tjkea2024001 - 11. We will continue to take steps to enhance social protection to support the most ### Social protection and targeted assistance - Adopted a new means testing formula (with World Bank support) that will expand coverage of the poorest decile of the population from 38 to 63 percent. - Objectives: - Improve targeting of social assistance in the bottom quartile of the population. - Enhance the quality of social assistance spending. - Fiscal and implementation measures: - Increase budget allocations for targeted social assistance (TSA). - Propose a floor on targeted social assistance spending as a quantitative target under the program (Table 1). - Strengthen the social registry and integrate information systems to better capture eligible applicants. ### Revenue mobilization and public spending efficiency - Adopt a Medium-Term Revenue Program (MTRP) to anchor improved revenue mobilization and broaden the tax base by phasing out inefficient tax exemptions and refraining from granting new tax exemptions (Reform target for the 2nd Review). - Implementation steps: - Adopt a timebound implementation plan based on identified exemptions. - Conduct a study (with IMF Fiscal Affairs Department) to quantify foregone revenue from tax exemptions and incentives (Reform target for the 1st Review). - Task the PFM committee with developing the MTRP (Reform target for the 1st Review). - Preparatory work builds on recommendations of the January 2023 TA mission. ### Domestic debt market development - Rationale: Increase resilience to external shocks and diversify financing; reduce reliance on external FX-denominated debt. - Actions and timeline: - Completed legislative changes to allow gradual increases in the stock of marketable domestic debt. - Plan to start market-based domestic issuance of government securities in 2023 according to amounts specified in the Table on Quantitative Targets (Reform target for the 1st Review). - Developed an initial draft Debt Management Strategy covering 2024-2026 in consultation with the IMF’s Fiscal Affairs Department (Reform target for the 1st Review), including: - Strategy for developing the domestic government securities market. - Plan to manage large debt repayments and overdue debt liabilities during 2024-2026 (including contingency plans). ### Electricity sector financial recovery and Rogun HPP viability - Targets and measures: - Adopted action plans envisaging accelerated tariff increases to bring electricity tariffs to cost recovery and eliminate the cash deficit of the sector by 2030. - Efforts to reduce technical, commercial, and collection losses and improve governance. - Closely monitor collection rates of the electricity distribution company (STB) (memorandum item to Table on Quantitative Targets). - Propose a continuous target on increases in Barki Tojik’s overdue financial obligations toward the private sector. - Collaborate with the World Bank to meet targets on electricity tariff increases under the Power Utility Financial Recovery Program while taking timely measures to mitigate impacts on the most vulnerable to higher energy prices. ### Monetary and financial stability (Pillar II) - Monetary framework and targets: - Quantitative targets on reserve money, outstanding NBT credit to the government, and net international reserves. - Monetary policy will aim to maintain inflation within the NBT’s target range of 6 (±2) percent through ceilings on growth in reserve money and gross NBT credit to the government. - Continue to follow IMF Safeguards Assessment recommendations to avoid excessive monetary financing; amendments to the NBT Law adopted as a prior action. - Use open market operations and NBT standing facilities to mop up excess liquidity. - Quantitative target floor on net international reserves to support reserve money ceiling and maintain external buffers. - NBT capacity building and transition toward inflation targeting: - Laid groundwork for banks’ required reserves averaging mechanism recommended by Fund TA; an initial model has been developed. - Plan to study technical implementation and amend regulatory framework; adopt amendments to active NBT instruction #244 “On required reserves of credit institutions” to introduce reserve averaging mechanism (Reform target for the 3rd Review). - Streamline open market operations linked to the policy rate and improve standing facilities effectiveness. - Enhance liquidity forecasting framework with Fund TA support. - Approved and implemented amendments to the NBT Law proposed by the IMF’s 2021 Safeguards Assessment to strengthen NBT autonomy and limit monetary financing. - Exchange rate flexibility and FX market functioning: - NBT will allow exchange rate to adjust to supply and demand and intervene only to prevent excessive volatility. - Modernize FX markets and address exchange restrictions via measures including: - Develop improved mechanism for executing public sector FX transactions to better reflect market rates (Reform target for the 1st Review). - Introduce price-based auctions for FX interventions (Reform target for the 2nd Review). - Stop conducting ruble auctions of NPCR transfers and transmit transfers in respective currency to executing bank (Reform target for the 1st Review). - Make FX quotes by FX market segments available to the public in continuous time. - Update NBT Instruction #228 “On the procedure for determining and declaring the official ER of the national currency to foreign currencies” to limit corrections to exceptional circumstances and require publication of justifications. - Strengthen FX market participant responsibilities to execute client transactions; NBT circular to require banks to enter interbank market if unable to execute with own position and inform clients, including existence of market quotes on NBT website. - Financial sector reforms and supervision: - Continue reforms in line with 2022 FSSR recommendations. - Strengthen monitoring of banks’ credit quality and liquidity by implementing forward-looking stress tests, starting with liquidity stress tests (Reform target for the 3rd Review). - Enhance risk-based supervision and systemic risk analysis. - Issue an NBT regulation defining mechanism of usage of ultimate beneficial ownership information in banking supervision (Reform target for the 3rd Review). - Facilitate timely and transparent final resolution of AIB and TSB in line with 2022 IMF Article IV recommendations. - Macroprudential framework: - Monitor credit quality, especially foreign currency loans and large exposures. - Develop plan to phase in a countercyclical capital buffer and macroprudential limits on borrowers’ leverage (debt service-to-income (DSTI) and loan-to-value (LTV) ratios) and banks’ leverage (credit to stable funding ratio (CSFR)) in collaboration with long-term resident IMF advisor and with IMF TA as needed (Reform target for the 3rd Review). ### Governance, transparency, and SOE management (Pillar III) - National development objectives and priorities: - National Development Strategy up to 2030 aims to raise standards of living via sustainable economic development. - Key priorities: (i) education; (ii) health care; (iii) employment; (iv) inequality; (v) combating corruption; (vi) food security and nutrition; (vii) good governance; (viii) social welfare; (ix) prevention of potential conflicts; (x) energy security, environmental protection and management of demographic processes. - Reforms target fiscal risks from SOEs, AML-CFT standards, corruption control, extractive sector transparency, financial inclusion, and climate resilience. - SOE fiscal risk management and governance: - New Fiscal Risk Management Strategy (with Fund support) to strengthen SOE monitoring and align reporting/auditing with IFRS. - Resumed regular preparation, presentation to parliament, and publication of SOEs’ Fiscal Risk Statements. - Intend to bring all companies with a minimum of 20 percent state ownership into the list of SOEs monitored by Ministry of Finance and covered by the 2023 Statement of Financial Risks (Reform target for the 1st Review). - All SOEs monitored by MOF required to provide detailed monthly expense reports to MOF SOE Monitoring Department (SOEMD). - Prepare report assessing financial viability of OJSC Tajik Air and develop timebound action plan to address financial losses (Reform target for the 3rd Review). - Amended SOE law to require supervisory boards; 24 SOEs have established supervisory boards; intend to expand to cover the 27 largest SOEs monitored by SOEMD and enact regulations for transparent, competitive supervisory board appointments with fit and proper criteria, remuneration rules, and performance evaluation (Reform target for the 2nd Review). - Publish updated list of SOEs and joint stock companies with state shareholding of at least 10 percent, specifying sector and legal basis, and complete sectorization to distinguish public corporations from general government entities (Reform target for the 2nd Review). - AML-CFT and anti-corruption measures: - New AML/CFT Law enacted in March 2023 (drafted with Fund TA) aligns framework with international best practices. - Plan to amend Law on State Registration of legal persons to align with FATF Recommendation 24 on beneficial ownership, verification and sanctioning powers of the Unified State Registry, and access to beneficial ownership information by competent authorities and reporting institutions (Reform target for the 2nd Review). - National Anticorruption Strategy 2021-2030; first phase (2021-2025) includes an action plan with 17 actions and an annual progress report. - Plan to amend asset declaration (AD) regime legal provisions (requesting IMF Legal Department TA) to require additional disclosures by high officials, make high-level officials’ asset declarations publicly available online (with confidentiality exceptions), and establish a dissuasive sanctions regime to prevent noncompliance and inaccurate filings (Reform target for the 3rd Review). - Intend to amend the penal code to criminalize corruption consistent with Chapter III of the United Nations Convention Against Corruption. - Extractive sector transparency: - Continue improvements in line with EITI Standard 2016; completed online mining cadaster and systematic disclosure initiatives. - Committed to 11 corrective actions recommended by EITI. - Published 4th National EITI report covering 2019-2021 and reinstated EITI membership; third validation process expected in 2024. - Financial inclusion and digital finance: - Advance National Financial Inclusion Strategy for 2022-2026 to remove barriers to financial access and broaden financial services. - Strengthen digital infrastructure, diversify bank-offered financial services, support innovative solutions for SMEs (including female-led businesses), and improve financial literacy. - Established Coordination Council, Executive Committee, and working groups to implement the strategy. - Bolster public trust through enhanced banking supervision and financial safety nets. - Climate resilience and green development: - Green Development Strategy for 2023-2037 to reduce carbon footprint and support green transformation of agriculture, energy, transport, and water management. - Strategy supports renewable energy development and environmental sustainability for accelerated industrialization during 2022-2026. - Advance National Strategy for Adaptation to Climate Change for 2020-2030 to strengthen resilience and ensure social protection in disaster-prone areas. ### Program monitoring, targets, and review schedule - Monitoring framework: - Program monitored through quantitative and reform targets. - Quantitative targets set on general government overall fiscal deficit and targeted social expenditures, external loan disbursements, NBT’s net international reserves and gross credit to general government and reserve money (Table 1). - Continuous targets on ceilings for new general government external payment arrears, new non-concessional external borrowing, and Barki Tojik’s accumulation of new arrears to the private sector. - Definitions and reporting requirements detailed in the Technical Memorandum of Understanding (TMU). - Table 2 includes proposed reform targets for the three reviews; completion of quantitative targets assessed at each test date (Tables 1 and 3); reform target implementation evaluated as of dates specified in Table 2. - Review timeline: - First review scheduled to be completed by September 30, 2024. - Second review scheduled to be completed by March 31, 2025. - Third review scheduled to be completed by September 30, 2025. *Source: Excerpt from the IMF document 1tjkea2024001 (Republic of Tajikistan program text).* ### 1. Floor on NBT stock of net international reserves (USD mn) ### 1. Floor on NBT stock of net international reserves (USD mn) ### Quantitative targets (selected from Table 1) - 1. Floor on NBT stock of net international reserves (USD mn): - 2500 - 2700 - 2. Ceiling on gross credit to general government from NBT: - 4021 - 3808 - 3. Ceiling on the stock of reserve money: - 41000 - 45000 - 4. Ceiling on general government overall fiscal deficit (cumulative, from the beginning of the year): - 2400 - 3655 - 5. Floor on general government expenditure on targeted social assistance (cumulative, from the beginning of the year): - 122 - 244 - 6. Ceiling on the disbursements of external debt (USD mn) (cumulative, from the beginning of the year): - 510 - 510 ### Definitions and monitoring (key operational definitions) - Net international reserves (NIR) of the NBT: reserve assets (monetary gold; holdings of SDRs; reserve position at the IMF; all holdings of foreign exchange; other liquid and marketable assets) minus reserve liabilities (short-term foreign currency liabilities to non-residents; outstanding IMF purchases and loans; liabilities to residents in foreign currency). - Program NIR are monitored in USD; assets/liabilities in other currencies converted using program exchange rates (Table 1). Monetary gold valued in USD at exchange rates and gold prices prevailing on the start date of the program. - Information requirements for NIR: NBT will report monthly data on international reserve assets and liabilities; provide a quarterly cash flow table; NIR for each test date must be verified and provided by NBT’s Internal Audit Department. Monthly data reporting should be completed within two weeks after the end of the month and provided by the NBT’s International Reserves Management and Exchange Rate Policy Department. ### Ceilings and floors — additional operational definitions and information requirements - Ceiling on gross credit to general government from NBT: NBT’s holdings of government securities plus NBT’s loans to the general government. Monthly reporting within two weeks after month-end. - Ceiling on the stock of reserve money: includes domestic currency in circulation and total deposits of depository corporations at the central bank (including reserves and other deposits) in both domestic and foreign currency. Monthly reporting within two weeks after month-end. - Ceiling on general government overall fiscal deficit: defined as cumulative overall fiscal balance from the beginning of the year (overall revenues including tax revenue and grants minus overall expenditures including current and capital expenditures). MoF will report monthly within five weeks after month-end. - Floor on general government expenditure on targeted social assistance: social assistance benefits dedicated to the poorest and vulnerable, defined as Social Benefits and Social Assistance subcomponent of Transfers to Households account of the central government yearly budget. MoF/Ministry of Health and Social Protection will share quarterly data within five weeks after quarter-end. - Ceiling on disbursements of external debt: applies to disbursements on concessional and non-concessional external debt contracted or guaranteed by the general government (excludes rescheduling agreements). MoF will report quarterly within five weeks of the disbursement. ### Continuous targets (II. Continuous targets) - 7. Ceiling on increase in external general government arrears: - 0 - 0 - 8. Ceiling on new non-concessional external debt contracted or guaranteed by the central government (USD mn): - 0 - 0 - Note (footnote 4/): A zero NCB limit with exceptions applying exclusively to new non-concessional debt contracted for the Rogun HPP, which is capped at $1800mn cumulatively for June and Dec. 2024. This figure is the full non-concessional loan amount to be disbursed in installments during the project implementation. This amount is based on the latest World Bank assumptions. - 9. Ceiling on Barki Tojik's new arrears to the private sector: - 550 - 550 ### Memorandum items (selected) - Issuance of domestic debt at positive real rates: - 100 - 300 - Collection rate of electricity distribution company (STB), overall - Collection rate of electricity distribution company (STB), SOEs - Overall fiscal and quasi-fiscal deficit (including BT arrears) ### Program parameters (Table 1: Program Exchange Rates and Gold Price — values fixed from January 23, 2024) - Euro: 1.087 (USD per Currency Unit, unless otherwise indicated) - Chinese Yuan (per USD): 7.171 - British Pound: 1.271 - Japanese Yen (per USD): 148.1 - Swiss Franc: 0.865 - Tajik Somoni (per USD): 10.95 - SDR: 1.331 - Gold price/ounce (in USD): 2,029 - Program exchange rate (TJS/US dollar): 10.95 - Program gold price per ounce (US dollars): 2029 - Note (footnote 5/): Closing price as of January 23, 2024 according to Bloomberg which will be fixed throughout the program period. ### Reporting, review, and program governance - Program duration: Policy Coordination Instrument (PCI) adopted on February 28, 2024, covering February 2024 to December 2025. - Semi-annual program reviews at end-June 2024, end-December 2024, and end-June 2025 will evaluate quantitative targets. - In the event of a missed target, a request for a waiver will be submitted to the IMF Executive Board with explanation. - Definitions: Public sector refers to general government and public nonfinancial corporations; general government includes central government and state and local governments; central government is defined per GFSM 2014 (budgetary central government, extra-budgetary central government, social security fund). External sector defined as non-resident sector. SOE defined as a commercial or industrial unit fully or partially owned by the central government that sells goods and services to the public. ### Policy and operational restraints (selected) - Not to impose or intensify import restrictions for balance of payment reasons. - Not to impose or intensify restrictions on the making of payments and transfers for current international transactions. - Not to introduce or modify multiple currency practices. - Not to conclude bilateral payment agreements which are inconsistent with Article VIII. - Due to capacity constraints in recording and calculating grant elements and present values of external debt, external debt figures are presented and monitored in nominal terms and are inclusive of all disbursements of debt contracted for Rogun HPP. Planned Fund TA will aim to improve recording and reporting of public debt. ### Selected fiscal and structural reform targets (extracts from Table 2) - Strengthen NBT's independence and governance: Government approval of the amendments to the NBT Law recommended by the 2021 Safeguards Assessment (Prior action) — Responsibility: NBT/Government. - Fiscal sector priorities include: - Publish a report quantifying revenue losses from tax exemptions/incentives on the MOF’s website (end-September 2024) — MOF. - Expand mandate of the PFM committee to include developing a Medium-Term Revenue Program (MTRP) and overseeing implementation (end-March 2024) — MOF. - Approve an MTRP with a time-bound action plan (end-October 2024) — MOF. - Publish quarterly budget data for 2022 and 2023 in line with GFSM2014, including mining-related revenues and transfers to SOEs on the IMF’s website (end-November 2024) — MOF. - Prepare an updated Debt Management Strategy for 2024-2026 (end-May 2024) — MOF. - Begin market-based issuance of government securities at positive real rates according to amounts in the Quantitative Targets table (end-June 2024) — MOF. - Monetary sector priorities include: - Adopt amendments to active NBT instruction #244 to introduce required reserve averaging mechanism (end-May 2025) — NBT. - Develop improved mechanism to execute government and other public sector FX transactions to better reflect market rates (end-May 2024) — NBT. - Introduce price–based auctions for NBT FX interventions with specified auction pricing rules (end-December 2024) — NBT. - Stop conducting ruble auctions of NPCR transfers and transmit amounts in respective currency to executing bank (end-April 2024) — NBT. - Financial sector and structural measures include improved UBO rules, macroprudential tools phasing plan, liquidity stress tests, expanded SOE monitoring and governance reforms, anti-corruption asset declaration strengthening, and alignment of beneficial ownership definitions with FATF Recommendation 24 (various end-dates and responsibilities detailed in Table 2). *Source: Attachment I. Technical Memorandum of Understanding, Program Statement (quantitative targets, definitions, information requirements, Table 1 and Table 2).* ### 17. Ceiling on new non-concessional external debt contracted or guaranteed by the general ### 1tjkea2024001 - 17. Ceiling on new non-concessional external debt contracted or guaranteed by the general ### Definitions, limits, and scope of the ceiling on new non-concessional external debt - New non-concessional external debt: defined as new external debt with a grant element lower than 35 percent. - Grant element calculation: the difference between the loan's nominal value (face value) and the sum of the discounted future debt-service payments (present value), expressed as a percentage of the loan's face value, converted at the program exchange rate. - Discount rate for present value calculation: 5 percent per annum, in line with the IMF-World Bank Guidance Note on Debt Sustainability Analysis in Low Income Countries. - Program target: establishes a zero limit on new non-concessional external debt contracted or guaranteed by the general government. - Exception: new non-concessional external debt contracted or guaranteed by the general government for the Rogun HPP are subject to a continuous cumulative non-zero ceiling specified in the Program Statement (Table 1). - Guaranteed debt by the general government: where a borrowing contracted by a public entity such as a State-Owned-Enterprise on non-concessional terms is guaranteed by the general government, the guaranteed amount is considered new non-concessional external debt under this target. ### Information and reporting requirements for the ceiling - The MoF will provide to IMF staff a quarterly report on government external borrowing and guaranteed borrowing, with detailed information on interest rates, currency, and maturity, within five weeks after the end of the quarter. ### Other continuous targets and prohibitions (standard continuous targets) - Continuous nonquantitative targets require: - Not to impose or intensify restrictions on the making of payments and transfers for current international transactions. - Not to introduce or modify multiple currency practices. - Not to conclude bilateral payments agreements that are inconsistent with Article VIII. - Not to impose or intensify import restrictions for balance of payments reasons. ### Memorandum items tracked (not formal conditionality) - Issuance of domestic debt at positive real rates: - Defined as general government issuance of short-term securities on the domestic primary market at real rates that are positive and determined by competitive auctions. - Real rate = nominal rate minus inflation rate. - Issuances comprised of domestically issued T-bills and other government securities. - Issuance volumes are reported as a memorandum item (not formal conditionality). - Reporting: MoF reports data on issuance amounts, rates (yields) as well as calculated real rates, and maturity within two weeks after the end of each test date. - Collection rate of the electricity distribution company (STB), overall: - Defined as the ratio of overall revenue effectively collected from sales of electricity in the country to the overall revenue that was expected to be collected. - Reporting: quarterly, within five weeks after the end of the quarter (MoF, Ministry of Energy and Water Resources, Barki Tojik, Electricity Distribution Company). - Collection rate of STB from SOEs: - Defined as the ratio of revenue effectively collected from sales of electricity to SOEs to the revenue expected from SOEs. - Reporting: quarterly, within five weeks after the end of the quarter (MoF, Ministry of Energy and Water Resources, Barki Tojik, Electricity Distribution Company). - Overall fiscal and quasi-fiscal deficit (including Barki Tojik arrears): - Defined as the sum of the overall fiscal deficit of the general government and the new Barki Tojik arrears (excluding arrears to the government). - Reporting: quarterly, within five weeks after the end of the quarter (MoF, Ministry of Energy and Water Resources, Barki Tojik, Electricity Distribution Company). ### Data reporting framework and principal data sources - Authorities commit to report data required to monitor quantitative targets with frequencies indicated (Table 3) and to report all data revisions immediately. - Authorities commit to report within three weeks, at the Fund's request, any information or data not specified in the TMU but needed to monitor program implementation. - Principal data sources: - Integrated monetary database provided by the National Bank of Tajikistan (NBT), including standardized reporting forms 1SR, 2SR. - General government provisional budget execution tables and government debt tables provided by the Ministry of Finance (MoF). - Barki Tojik’s balance sheet (MoF, Ministry of Energy and Water Resources, Barki Tojik, Electricity Distribution Company). - Collection rate data (Ministry of Energy and Water Resources, Barki Tojik, Electricity Distribution Company). - Data on T-bills and other government securities issuances from the MoF. - Specific document reporting obligations (electronic format, within indicated deadlines in Table 3): - Any decree, decision, circular, ordinance, or law with implications for the program: provided within two weeks after adoption. - Preliminary data on monthly general government budget operations; quarterly projected public debt service breakdowns; quarterly report on public investment projects including Rogun. - NBT reporting to IMF staff: monthly central bank balance sheet; monthly consolidated balance sheet of all banks; monthly depository corporations survey; monthly data on lending and deposit interest rates of commercial banks. ### Summary of key data reporting deadlines (selected items from Table 3) - International Reserve Assets and Liabilities of the NBT: Monthly (M), two weeks, NBT-IRM-ERP. - International reserves cash-flow table: Quarterly (Q), two weeks, NBT. - Reserve/Base Money: Monthly (M), two weeks, NBT. - Central Bank Balance Sheet: Monthly (M), two weeks, NBT. - Consolidated Balance Sheet of Banking System: Monthly (M), four weeks, NBT. - Depository corporations survey: Monthly (M), four weeks, NBT. - Revenue, Expenditure, Balance, and Composition of Financing of the General Government: Monthly (M), five weeks, MoF. - New and planned external borrowing of the General Government or guaranteed by the General Government: Quarterly (Q), five weeks, MoF. - Disbursements of external debt (concessional and non-concessional) contracted or guaranteed by the General Government: Quarterly (Q), five weeks, MoF. - Barki Tojik’s balance sheet and table on arrears: Quarterly (Q), five weeks: MoF, Ministry of Energy and Water Resources, Barki Tojik, Electricity Distribution Company. - Domestic T-bills and other government securities issuances with amounts, rates, and maturities: Semi-Annually (SA), two weeks after each test date, MoF. - Revenue collection rate of the electricity distribution company on sales to SOEs: Quarterly (Q), five weeks, Ministry of Energy and Water Resources, Barki Tojik, Electricity Distribution Company. - Overall revenue collection rate of the electricity distribution company on sales to domestic consumers: Quarterly (Q), five weeks, same reporting entities. - Stocks of Public and Publicly Guaranteed debt: Quarterly (Q), five weeks, MoF. - Projected public debt service — domestic and external: Quarterly (Q), five weeks, MoF. - Comprehensive report on public investment projects execution including Rogun: Quarterly (Q), five weeks, MoF. - Interest rates (market-based and officially determined): Quarterly (Q), two weeks, NBT. - New decrees, decisions, circulars, ordinances, or laws submitted to Parliament: two weeks, Ministry of Justice. ### Debt sustainability assessment and key debt indicators reported - Joint Bank-Fund Debt Sustainability Analysis (DSA) findings: - Risk of external debt distress: High. - Overall risk of debt distress: High. - Granularity in the risk rating: Sustainable. - Application of judgment: No. - The DSA indicates that Tajikistan’s debt is sustainable while external and overall risk of debt distress remain high (unchanged from the February 2023 DSA). - External borrowing revised upward to reflect re-estimated construction costs for the Rogun HPP. - Composition of borrowing revised to incorporate semi-concessional financing beginning in 2024 due to rising global interest rates. - Public debt remains on a sustainable path anchored by authorities’ commitment to maintain a fiscal deficit of 2.5 percent of GDP over the medium term. - Under the baseline: total PPG debt-to-GDP ratio declines from 32.5 percent in 2022 to about 29 percent in 2027 once Tajikistan’s Eurobond is repaid and stabilizes at about 32 percent over the long run. - Tajikistan’s high risk of debt distress mainly results from the breach of external PPG debt service-to-export indicator in 2025-2027. - Debt service peaks in 2025-2027 due to principal repayments on the Eurobond (US$500 million) and the RCF loan (about USD $183 million). - Vulnerabilities in stress tests: shocks to exports, contingent liabilities, and commodity prices. - Policy priorities to reduce vulnerabilities: maintain fiscal discipline (including capping fiscal deficits and containing SOE risks) and diversify exports. - CI for Tajikistan estimated at 3.07, based on October 2023 WEO and 2022 World Bank’s CPIA, indicating a strong Debt Carrying Capacity (DCC) rating. - Historical and stock data highlights: - External PPG debt rose from 24 percent of GDP in 2014 to 43.8 percent of GDP at end-2020. - External PPG debt declined to about 27.6 percent of GDP in 2023. - Domestic PPG debt increased from 3.5 percent of GDP at end-2014 to 6.6 percent of GDP at end-2020 and declined to about 3.3 percent of GDP in 2023. - Temporary increase in domestic PPG debt reflected cost of recapitalization of two large banks in December 2016, estimated at about 6 percent of GDP. - External PPG debt in 2022: nearly 88 percent of total PPG debt; over 80 percent owed to multilateral and bilateral creditors. - China was the largest single creditor, holding about thirty percent of total PPG external debt. - Eurobond: US$500 million issued in September 2017 at an interest rate of 7.125 percent, to be repaid in three annual installments from 2025-2027. - Arrears on domestic government securities issued for NBT recapitalization: government repaid about TJS 380 million (0.3 percent of GDP) to NBT during 2023; overdue obligations to NBT amounted to about 3 percent of GDP at end-2023. - T-Bills: a small stock outstanding issued at an interest rate of 0.99 percent held entirely by the Deposit and Savings Insurance Fund. *Source: 1tjkea2024001 - Republic of Tajikistan (IMF).* ### 4. This DSA covers the central government, central bank, and government-guaranteed ### 1tjkea2024001 - 4. This DSA covers the central government, central bank, and government-guaranteed ### Debt coverage - Debt coverage includes external and domestic debt and guarantees of the Central Government (CG), including extrabudgetary funds, and the social security fund. - Excluded from baseline due to weak debt recording and monitoring capacity: - non-guaranteed liabilities of state-owned enterprises (SOEs), - debt of state and local government (bulk recorded as central government debt and passed on as sub-loans), - demand or guarantees triggered from existing public-private partnership (PPP) agreements. - Text Table 3 (selected instrument balances, in local currency units as presented): - Tajiksodirotbank recapitalization bonds: 2020: 2,134; 2021: 2,133; 2022: 2,118; 2023: 2,013 - MoF's bond related to Agroinvestbank: 2020: 1,748; 2021: 1,707; 2022: 1,609; 2023: 1,500 - o.w. Agroinvestbank recapitalization bonds: 2020: 1,065; 2021: 1,024; 2022: 931; 2023: 823 - o.w. bonds to settle Agroinvestbank's loan liabilities: 2020: 484; 2021: 484; 2022: 477; 2023: 477 - o.w. bond for capitalization of Agroinvestbank: 2020: 200; 2021: 200; 2022: 200; 2023: 200 - MoF's bond for Roghun financing: 2020: 251; 2021: 122; 2022: -; 2023: - - T-bills (total): 2020: 278; 2021: 73; 2022: 100; 2023: 50 - Long-term T-bills: 2020: 154; 2021: 23; 2022: -; 2023: - - Short-term T-bills: 2020: 125; 2021: 50; 2022: 100; 2023: 50 - Amonotbank's lotteries: 2020: 10; 2021: 10; 2022: 10 - MoF's bonds to support cotton producers: 2020: 59; 2021: 59; 2022: -; 2023: - - Loan from the NBT: 2020: 1,059; 2021: 953; 2022: 847; 2023: 741 - Total (sum row shown): 2020: 5,539; 2021: 5,058; 2022: 4,684; 2023: 4,303 ### Stress tests and contingent liabilities - Standard/default stress parameters applied: - PPPs’ demand and guarantees: 1.73 percent of GDP. - Banking sector stress (default): 5 percent of GDP. - Currency depreciation shock: 30 percent. - Commodity price default-tailored tests are applied reflecting importance of non-fuel commodity exports. - Tailored contingent liability stress test for potential non-guaranteed SOE debt: - Shock set at 11.7 percent of GDP. - Shock composition: - BT’s arrears estimated at 8.2 percent of GDP, - TALCO’s external debt: 2 percent of GDP, - Rogun HPP’s security placed in the Pension Fund: 1 percent of GDP, - Tajik Air financial losses: 0.5 percent of GDP. - Rationale and context: - Government-guaranteed debt definition excludes non-government guaranteed debt of non-financial public corporations (NFPC) under baseline due to data limitations. - The Ministry of Finance does not record non-guaranteed debt of SOEs. - Historical banking sector costs: troubled banks’ bailout in 2016 incurred about 6 percent of GDP; liquidation process since 2021 repaid most obligations through the Deposit Insurance Fund. ### Public sector subsectors and coverage summary - Sub-sectors covered (as presented): - Central government: X - State and local government: (not covered) - Other elements in the general government: X - Social security fund: X - Extra budgetary funds (EBFs): X - Guarantees (to other entities in the public and private sector, including to SOEs): X - Central bank (borrowed on behalf of the government): X - Non-guaranteed SOE debt: not included in baseline - Country's coverage of public debt used for analysis: - The central government plus social security and extra budgetary funds, central bank, government-guaranteed debt. - Default shock parameters and totals (as presented): - Other elements of the general government not captured in 1.: 0.0 percent of GDP - SoE's debt (guaranteed and not guaranteed by the government) 1/: 11.7 percent of GDP - PPP: 35 percent of PPP stock → 1.7 percent of GDP - Financial market (default minimum): 5 percent of GDP → 5.0 percent of GDP - Total (2+3+4+5): 18.4 percent of GDP ### Macroeconomic background, assumptions, and projections - Overview: - Updated projections reflect strong recovery from the global pandemic, with downside risks from regional/global geopolitical tensions and global financial tightening. - Key macro assumptions: - External: - Current account surplus expected to switch to a small deficit in 2023 and over the medium term, reflecting normalization of remittances and transfers from Russia and increased infrastructure investment. - Remittances expected to moderate to 34 percent of GDP in 2024, then converge to around 30 percent of GDP in the medium term. - Gold exports expected to remain at around 1.5 percent of GDP over the medium term. - Rogun HPP electricity exports projected to boost exports over medium and long term. - International reserves projected to remain above 6 months of imports over the medium term. - 2021 SDR allocation remains unused and is included as part of FX reserves. - Interest rates: - Higher world interest rates to raise cost of new external borrowing for Rogun HPP. - Term sheet with Uzbekistan signed; plan to sign with Kazakhstan by end of March 2024; PPAs to be signed in 2024. - Projected grant element of the entire financial package for Rogun about 38 percent (see Text Table 6). - Grant element on non-Rogun financing from IFIs assumed close or above 50 percent. - Development of domestic bond market expected to require gradual convergence toward market rates. - Fiscal: - Overall fiscal deficit expected to remain in line with authorities’ medium-term target of 2.5 percent of GDP. - Rogun and other large infrastructure spending to be financed through improved revenue mobilization, phasing out tax exemptions, and offsetting cuts to non-priority capital spending. - Rogun expenditure should remain within a sustainable financing envelope; fiscal discipline reinforced by strengthening SOEs’ financial position. - Growth and inflation: - Growth projected at 8.3 percent in 2023 (up from 8 percent in 2022). - Medium-term potential growth expected to converge to about 4.5 percent (4 percent in previous DSA). - Inflation expected to remain close to mid-point of NBT target range over medium term. - Rogun HPP project assumptions and impacts: - Completion projected in 2033 (instead of 2029 as initially planned and 2032 in previous DSA). - Electricity generation projected to reach 65 percent of total capacity by 2032 and 100 percent by 2039-2040 once reservoir reaches full capacity. - Designed to mitigate against extreme climate change events. - Text Table 4: Rogun HPP—Estimates of Economic Benefits - Impact on potential GDP: 0.5 percentage points - Total electricity sales: 1.2 percent of GDP, annually - Export revenues: 0.7-0.85 percent of GDP, annually - Fiscal revenues: 0.2 percent of GDP, annually ### Baseline DSA quantitative assumptions (selected series, in percent of GDP) - Real GDP growth (Current DSA): 2019: 7.4; 2020: 4.4; 2021: 9.4; 2022: 8.0; 2023: 8.3; 2024: 6.5; 2025: 4.5; 2026: 4.5; 2027: 4.5; 2028-32: 4.5 - CPI Inflation (period avg) (Current DSA): 2019: 7.8; 2020: 8.6; 2021: 9.0; 2022: 6.7; 2023: 3.5; 2024: 4.9; 2025: 6.3; 2026: 6.5; 2027: 6.5; 2028-32: 6.5 - Primary fiscal balance (Current DSA): 2019: -1.2; 2020: -3.4; 2021: 0.2; 2022: 0.5; 2023: -0.2; 2024: -1.8; 2025: -1.7; 2026: -1.9; 2027: -1.8; 2028-32: -1.7 - Overall fiscal balance (incl. PIP) (Current DSA): 2019: -2.1; 2020: -4.3; 2021: -0.7; 2022: -0.2; 2023: -1.0; 2024: -2.5; 2025: -2.5; 2026: -2.5; 2027: -2.5; 2028-32: -2.5 - Current account balance (Current DSA): 2019: -2.2; 2020: 4.1; 2021: 8.2; 2022: 15.6; 2023: -0.7; 2024: -2.2; 2025: -2.2; 2026: -2.3; 2027: -2.4; 2028-32: -2.8 - Public debt (Current DSA): 2019: 43.5; 2020: 51.8; 2021: 42.1; 2022: 32.5; 2023: 30.9; 2024: 30.8; 2025: 30.2; 2026: 29.4; 2027: 28.8; 2028-32: 30.3 ### Rogun HPP financing package and implications for debt sustainability - Updated estimated remaining construction cost: US$6.4 billion (up from US$5 billion in previous DSA), driven by higher costs for imported components, higher inflation, additional safety related civil works and retrofitting required for ESF compliance. - Tentative financing package (Text Table 6, Commitment amounts, US$ million): - Total package: 6,360 - Government budget: 2,290 - Project revenue 1/: 1,100 - Grants: 850 - Concessional loans: 390 - Semi-concessional loans: 1,730 - Notes and assumptions: - Project revenues estimated at 12 percent of total package; project revenues affect debt sustainability primarily via export revenue. - World Bank projects grant element of overall financial package at about 38 percent. - Baseline assumes average annual Rogun borrowing ~1 percent of GDP during 2024-2033. - Semi-concessional loans used due to criticality of project and absence of fully concessional alternatives. - Loans expected to have long maturities and grace periods; most loan contracts assumed to be signed during 2024. - Debt accumulation and debt service projected to peak after Eurobond is repaid in 2027. - Financing composition rationale: - Project is a key priority under National Development Strategy to provide low-cost clean energy and support energy security. - Rogun HPP is expected to export a large share of output and export revenues projected to more than offset debt service costs. - World Bank providing TA and mobilizing development partners; IMF Public Investment Management Assessment conducted in 2023. - The financing package would largely consist of floating rate loans tied to the SOFR expected to be hedged through interest rate swap arrangements. ### Fiscal financing and sustainability considerations - Medium-term fiscal financing: - Baseline assumes medium-term financing primarily from external sources, with gradual increase in domestic financing. - Domestic financing projected to rise beginning in 2024, reaching about 42.6 percent of gross financing needs by 2033 as local market develops. - Average real interest rate on new publicly issued domestic debt projected to gradually converge to market rate. - Budget financing (excluding loans) projection: - Expected to decrease from about 3.5 percent of GDP over the past decade to about 2.7-3 percent of GDP during 2024-2026, easing to about 1 percent of GDP afterwards. - Financing accommodated within the deficit target of 2.5 percent of GDP by delaying non-priority capital spending and improving revenue mobilization. - Realism tools and long-term outlook: - Under baseline, external PPG debt accumulation higher by around 2.6 percent of GDP by 2032 compared to previous DSA due to Rogun borrowing. - External debt projected to stabilize at about 28 percent of GDP by 2033 and decline to 22.5 percent by 2043 as Rogun-related debt is repaid. - Debt repayment supported by projected increase in electricity exports and higher potential growth. - Important assumption: macroeconomic environment remains stable and contribution of currency depreciation to debt accumulation is lower than in recent years. *Source: International Monetary Fund (excerpt from DSA for Tajikistan).* ### 15. A key assumption is that the Rogun HPP is financially viable based on export revenues and ### 1tjkea2024001 - 15. A key assumption is that the Rogun HPP is financially viable based on export revenues and ### Rogun HPP financial viability and domestic electricity sector - Rogun is expected to export about 60 percent of its total output to the region, which would be backed by PPAs. - Authorities prepared an action plan under the Power Utility Financial Recovery Program (PUFRP) with the World Bank to improve the financial position of Barqi Tojik (BT), which continued to accrue liabilities to electricity suppliers in 2023. - The PUFRP plan envisages: - raising electricity tariffs to cost recovery levels by 2027; - reducing technical, commercial, and collection losses; - improving governance; - addressing BT’s arrears. - The text emphasizes the need to follow sound procurement and financial management practices during the construction phase to avoid cost overruns. - Maintaining Rogun HPP’s long-term financial viability depends on improved payment discipline in the domestic electricity sector and secured export revenues (PPAs). ### External borrowing plan (Text Table 7) - PPG external debt contracted or guaranteed — Volume of new debt, USD million: 509; Present value of new debt, USD million: 270. - Sources of borrowing: - Concessional debt 2/ — Volume: 497; Present value: 265. - o/w Multilateral — Volume: 488; Present value: 258. - o/w Bilateral — Volume: 9; Present value: 7. - Non-concessional debt — Volume: 12; Present value: 4. - o/w Semi-concessional 3/ — Volume: 12; Present value: 4. - o/w Commercial terms 4/ — Volume: 0; Present value: 0. - Use of borrowing: - Total — Volume: 509; Present value: 270. - o/w Rogun — Volume: 12; Present value: 4. - o/w Budget financing — Volume: 497; Present value: 265. - Memorandum items — Indicative projections: - 2025 — 650; 400-500. - 2026 — 651; 400-500. - Footnotes provided in the table: - 1/ Present value of debt is calculated using the terms of individual loans and applying the 5 percent program discount rate. - 2/ Debt with a grant element that exceeds a minimum threshold of 35 percent or higher. - 3/ Debt with a positive grant element not meeting the minimum grant element. - 4/ Debt without a positive grant element. For commercial debt, the PV would be defined as the nominal/face value. - Sources: Tajikistan authorities and IMF staff estimates and projections. ### External debt sustainability (A. External Debt Sustainability Analysis) - Under the baseline: - External PPG debt trajectory shows some deterioration relative to previous DSA. - External PPG debt declines to 25.5 percent of GDP by 2027 (in line with the Eurobond repayment), then rises 2.6 percentage points to 28.1 percent of GDP by 2031 as Rogun-related borrowing increases. - External PPG debt is projected to gradually decline to 22.5 percent of GDP in 2043 as electricity exports increase and Rogun debt is repaid. - Flow/liquidity and burden indicators: - One external debt indicator breaches its threshold in the medium term but falls below the threshold over the long term. - The baseline external PPG debt-service-to-exports ratio breaches its threshold during 2025-2027; after a spike in 2025, the flow/liquidity indicator remains elevated throughout 2027 and then falls below the threshold after 2027. - The three-year breach starting in 2025 is mainly due to principal repayments on the Eurobond and the IMF RCF loan. - The external PPG debt service-to-revenue ratio remains below the threshold under the baseline. - Both solvency indicators are stable throughout the projection horizon. ### Historical and stress scenarios; key stress outcomes - Historical scenario: - Based on averages from 2013 to 2022 (current account deficit averaged 2.6 percent of GDP). - Debt flow ratios remain higher than baseline; external PPG debt-service-to-exports ratio breaches its threshold in 2025-2027. - Stress scenarios: - Two external debt indicators breach their respective thresholds under stress. - Under a shock to exports: - PV of external PPG debt-to-exports ratio reaches 381 percent in 2025 (compared to 240 percent threshold). - External PPG debt service-to-exports ratio reaches 49-51 percent in 2025-2026 (compared to 21 percent threshold). - Contingent liability shock also causes deterioration in external debt sustainability. - These outcomes underscore the importance of improving the business environment and connectivity, sound debt recording and management (especially for SOEs), and strong fiscal discipline. ### Market-financing risk and reserves - Market-financing risk is assessed to be moderate. - Spread on Tajikistan’s Eurobond has gradually narrowed to about 800 basis points (bps) but remains above the benchmark (570bps) under the market module. - The authorities have adequate levels of international reserves (about 7 months import coverage at end-2023). ### Public debt sustainability (B. Public Debt Sustainability Analysis) and risk rating - Under the baseline: - Overall public debt-to-GDP does not breach its threshold but is assessed at high risk due to baseline breaches on the external debt indicators. - PV of total public debt-to-GDP ratio stabilizes and remains well below the 70 percent benchmark throughout the projection horizon. - Public debt service-to-revenue indicator significantly increases during 2025-2027, reflecting Eurobond principal repayments. - Standardized sensitivity analysis: - Shocks to combined contingent liabilities in the most extreme and historical scenarios adversely affect all public debt indicators. - The contingent liabilities shock causes an 11-percentage point deterioration relative to the baseline debt ratio by 2033. - This highlights the need to strengthen SOE oversight and improve the electricity sector’s financial viability during Rogun construction. - Overall risk assessments: - The debt sustainability analysis under the new LIC DSF framework suggests Tajikistan’s risk of external and overall public debt distress is high. - Tajikistan’s risk of external debt distress remains high: external PPG debt service-to-exports ratio breaches its threshold under the baseline for three years (2025-2027) and stabilizes after Eurobond repayment completes. - The overall risk of public debt distress is high under the baseline due to a breach of an external debt threshold. ### Eurobond, RCF repayment schedules and liquidity measures - Eurobond principal will be repaid in three equal instalments from September 2025 to September 2027. - The IMF’s RCF will be repaid from June 2025 to June 2030. - Authorities prepared a Medium-term Debt Management Strategy (MTDMS) for 2024-2026. - Planned measures to mitigate Eurobond-related liquidity risks: - start issuing government securities to commercial banks in 2024-2025 to mitigate external refinancing risk and reduce dependence on external borrowing; - repay the Eurobond using a combination of budget revenue, domestic debt issuance and reserve holdings; - revenue mobilization measures planned under the prospective PCI with the IMF based on recent Fund TA; - IMF and World Bank TA on (i) implementation of the MTDMS including management of liquidity risk related to Eurobond repayment and (ii) domestic debt market development including contingency plans to safeguard against unexpected shocks to budget revenue. ### Fiscal and Rogun-related fiscal risk management recommendations - To maintain fiscal sustainability the report highlights: - maintaining an overall fiscal deficit of 2.5 percent of GDP would require offsetting fiscal measures and contingency plans if downside revenue shocks occur; - keep average Rogun internal spending within a sustainable budget envelope (excluding loans) of about 3-3.5 percent of GDP; - strengthen revenue mobilization, including phasing out inefficient tax exemptions; - enhance spending efficiency to safeguard high priority social spending; - improve Barqi Tojik’s financial position and capacity to meet obligations to electricity suppliers to help ensure Rogun HPP’s long-term financial viability; - contain contingent liabilities from SOEs, strengthen debt reporting and the linkages between the medium-term debt management strategy and fiscal borrowing plans; - diversify exports and enhance debt management practices, including setting aside dedicated funds for the Eurobond repayment; - implement the medium-term SOE FRMP and strengthen governance frameworks in public enterprises, including the Rogun HPP. *Sources: Tajikistan authorities and IMF staff estimates and projections.* ### 31. The authorities broadly agreed with the overall assessment. They concurred with staff that ### 1tjkea2024001 - 31. The authorities broadly agreed with the overall assessment. They concurred with staff that ### Recent economic developments - Real GDP grew by 8.3 percent year-on-year in 2023, supported by strong growth in services, construction, and agriculture. - Inflation was contained at 3.8 percent year-on-year, supported by lower food and fuel prices and an appreciation of the Tajik somoni against the Russian ruble. - In 2022, the inflow of remittances reached its highest level since the pandemic, helping maintain FX reserves at more than seven months of imports. - Higher-than-expected tax revenues, including from the mining sector, and lower-than-budgeted capital spending supported a sound fiscal performance; the budget deficit was lower than expected. - External borrowing remained below its budgeted amount. ### Fiscal policy and debt sustainability - Authorities and staff concurred that adherence to the fiscal deficit target of 2.5 percent of GDP is critical to keep public debt on a downward path while creating space for high priority development and social spending. - The public debt-to-GDP ratio decreased by 9.6 percentage points between end-2021 and end-2022 as a result of strong growth and somoni appreciation. - Authorities reiterated commitment to: - Anchor Rogun HPP spending in a sustainable budget envelope and borrowing plan. - Carry out a medium-term fiscal adjustment to offset higher borrowing costs associated with Rogun. - Maintain the budget deficit at 2.5 percent of GDP to preserve medium-term debt sustainability and fiscal space. - Improved revenue mobilization is expected to help accommodate high-priority spending needs. - Fiscal strategy for 2024 includes contingency plans should revenues weaken. - Authorities will enhance the quality and transparency of fiscal statistics to improve fiscal governance. ### Debt management and market development - In collaboration with the Fund’s Fiscal Affairs Department, authorities set up a new debt management strategy for 2024-2026. - Strategy elements: - Develop a domestic government securities market. - Comprehensively address risks to debt repayments and overdue domestic liabilities. - Diversify the debt portfolio by reducing the large share of foreign currency-denominated debt. - Initial issuance already attracted domestic financial intermediaries, including retail banks and insurance companies. - Authorities plan to gradually increase the stock of marketable debt in the domestic securities market. ### Monetary and exchange rate policy - The National Bank of Tajikistan (NBT) pursued a conservative strategy to safeguard monetary and financial stability. - NBT actions and stance: - Broadly contained inflation within its target range in recent years, supported by maintaining a double-digit refinancing rate and quantitative ceilings on reserve money growth and on the stock of NBT credit to the government. - With Fund technical assistance, will pursue a gradual transition toward an inflation targeting regime, including amending NBT legislation to introduce a reserve averaging mechanism as proposed by staff. - Streamline open market operations and better integrate the key policy rate. - Improve the liquidity forecasting model. - Commit to improving the functioning of the foreign exchange market and enhancing exchange rate flexibility. ### Structural reforms, governance, and climate strategies - Authorities expressed firm commitment to comprehensive structural and institutional reforms to improve governance and transparency and support long-term inclusive growth. - Reform agenda includes: - Financial sector reform based on recommendations from the Financial Sector Stability Review. - Financial inclusion reforms under the National Financial Inclusion Strategy. - Reforms to adequately manage fiscal risks of state-owned enterprises (SOEs). - Reforms to address AML/CFT. - Reforms to improve surveillance, governance, and transparency of the extractive sector. - Fiscal Risk Management Strategy (developed with Fund support) aims to improve SOE financial performance by establishing corporate governance structures to ensure: - (i) a supervisory board has adequate oversight over SOEs; and - (ii) all best international corporate practices are coherently implemented over an initial set of 24 SOEs, which will subsequently be augmented to include the 27 largest SOEs currently monitored by the Ministry of Finance. - Environmental and climate strategies: - Green Development Strategy for 2023-2037 focuses on green transition in energy, water management, transportation, and agriculture to reduce the economy’s carbon footprint and support accelerated industrialization during 2022-2026. - Authorities committed to advance reforms under the National Strategy for Adaptation to Climate Change 2020-2030 to strengthen resilience and ensure adequate social protection of populations in disaster-prone areas. ### Key statements and procedural points - Statement by Mr. Marcel Peter and Mr. Ilhomjon Rajabov on Republic of Tajikistan — February 28, 2024. - Authorities welcomed the analysis of the implications of the Rogun HPP project for long-term debt sustainability. - Authorities consented to publish the staff report to ensure a high level of transparency. - Proposed arrangement under the Policy Coordination Instrument is expected to help preserve macroeconomic stability and support sustainable growth by underpinning comprehensive structural and institutional reforms. *Source: IMF staff report excerpt and authorities' statement.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1tjkea2024001.pdf_