Press Release No. 00/58

The Executive Board of the International Monetary Fund (IMF) today approved in principle the third-year program for Tajikistan under the Poverty Reduction and Growth Facility (PRGF)¹ in an amount equivalent to SDR 40 million (about US$51 million), to support the government's economic program.

A final decision by the IMF Executive Board is pending discussion of Tajikistan's interim Poverty Reduction Strategy Paper (PRSP) by the World Bank Executive Board, expected to occur on October 31, 2000. The first quarterly disbursement under the third-year of Tajikistan's economic program will become available in an amount equivalent to SDR 6 million (about US$8 million) when a final decision is made by the IMF Executive Board.

Tajikistan's three-year program, originally supported under ESAF, was first approved on June 24, 1998 (see Press Release No. 98/25), in an amount equivalent to SDR 96 million (about US$123 million), which was increased in December 1998 to an amount equivalent to SDR 100.3 million (about US$128 million), of which an amount equivalent to SDR 60.3 million (about US$77 million) has been disbursed.

In commenting on the Executive Board discussion on Tajikistan, Eduardo Aninat, IMF Deputy Managing Director and Acting Chairman, said:

“Macroeconomic developments in Tajikistan during the first half of 2000 were favorable, despite the difficult external environment, as demonstrated by the continued growth of GDP and a decline in inflation. Although policy implementation was uneven under the Second Annual Arrangement under the Poverty Reduction and Growth Facility (PRGF), because of resistance by vested interests, the authorities have continued to pursue macroeconomic stabilization and economic reform, and have taken remedial steps to strengthen implementation. The proposed program envisages a three-pronged approach: stabilization, structural reforms to improve governance, and addressing the problem of the large external debt.

“Strict adherence to the program's monetary and fiscal policy targets will be required for macroeconomic stabilization, especially with respect to central bank net credit to government and the private sector, the elimination of all directed credits, the maintenance of disciplined budgetary management, and improvements in tax administration. The heavy external debt burden reinforces the need for strong macroeconomic management and accelerated structural reforms. This will require implementation of privatization and land reform programs with renewed impetus and greater transparency. The authorities have acknowledged the importance of improved governance, which will be essential for the successful implementation of the third-year program under the PRGF, and are committed to implement a special package of governance reforms.

“The Fund considers that the interim PRSP provides a sound basis for the development of a full, participatory PRSP and for Fund concessional support under the PRGF. Transparency and accountability in the management of public resources, as well as an effective strategy to ensure an all inclusive participatory process, will be critical in this endeavor,” Mr. Aninat said.

ANNEX

Program Summary

Macroeconomic developments in Tajikistan during 2000 have been favorable despite the difficulties brought by severe drought and high oil prices, with the economy growing for the fourth consecutive year and inflation declining to a moderate level. The strategy of Tajikistan's program is to address the three salient constraints to sustainable stabilization and growth-uneven implementation of financial policies, weak governance, and high external debt. The key macroeconomic objectives of the program are sustained real GDP growth of around 5 percent a year in 2000 from 3.7 percent in 1999 and halving the annual inflation in 2001 from its current level of 24 percent. The import coverage of official international reserves is programmed to increase to 2.7 months by end-2001 from the current 1.5 months.

Under the fiscal program, which calls for consolidation in order to move toward debt sustainability, the ratio of general government revenue to GDP is programmed to increase to 14.5 percent in 2001 from 13.5 percent in 1999. Revenue is expected to increase as a result of the favorable impact of growth on consumption tax bases (VAT and excises). Improvements in tax administration should also contribute to achieving the higher revenue targets. With the projected GDP growth and rising tax ratios, total general government expenditure could grow on average by 4-5 percent annually in real terms, creating room for a real increase in social spending, mainly for education, health, pensions, and income maintenance support. Monetary policy will remain tight to strengthen the balance of payments and contain inflation.

Structural policies will provide critical support for monetary stability and equitable growth objectives of Tajikistan's poverty reduction strategy, and include strong initiatives to improve governance, as well as continued emphasis on earlier priorities of bank restructuring, privatization, and land reform. Governance measures that Tajikistan aims to undertake are to complete rapid reform of the treasury system, establish a single independent auditing agency to control the efficiency of public finances and eliminate redundant inspection rights, stop the quasi-fiscal operations of the central bank, prevent unjustified interventions of public officials in the operations of private enterprises, and complete public procurement reform. Privatization of medium and large enterprises will continue, and it is expected to raise productivity and support growth targets, as well as aid fiscal goals by bolstering revenues and lowering direct or indirect subsidies.

Tajikistan joined the IMF on April 27, 1993; its quota² is SDR 87 million (about US$111 million). Tajikistan's outstanding use of IMF credits totals SDR 80.9 million (about US$104 million).

Tajikistan: Selected Economic Indicators, 1998-2001   1998   1999   2000   2001   Year   Year   Q1 Q2   Q3 Q4 Year   Year   Actual   Actual   Actual   Revised projections     Production                           Nominal GDP (billion Tajik rubles) 1,025   1,345   243 306   508 638 1,695   2,008   Nominal GDP (million U.S. dollars) 1,289   1,033   157 184   ... ... 943   1,057   Real GDP (percent change cumulatively over a year earlier) 5.3   3.7   3.8 6.5   ... ... 5.0   5.0                           Key prices                           CPI (12 month change, e.o.p.) 2.7   31.3   29.2 36.3   12.6 19.0 19.0   12.4   Treasury bill interest rate (e.o.p.) 1/ 53.9   84.7   59.7 48.2   41.7 ... ...   ...                           Monetary indicators                           Reserve money (percent change over 12 months, e.o.p.) 4.9   20.0   17.1 21.6   18.0 20.3 20.3   19.0   Ruble broad money (percent change over 12 months, e.o.p.) 14.8   29.2   24.9 31.3   30.7 24.2 24.2   25.2   Velocity 2/ 21.1   22.4   22.8 21.9   22.0 22.1 22.1   20.8                             (In percent of GDP) General government                           Revenue (cash basis) 3/ 12.0   13.5   18.0 17.1   10.2 14.0 14.0   14.5   Expenditure (cash basis) 15.8   16.6   16.7 19.6   12.5 14.7 15.2   15.1   Cash balance (excluding PIP, deficit - ) -3.8   -3.1   1.3 -2.5   -2.3 -0.7 -1.2   -0.6                             (Tajik rubles per U.S. dollar) Exchange rate                           Official (average) 4/ 783   1,235   1,552 1,666   1,887 ... ...   ...   Official (e.o.p.) 4/ 977   1,436   1,631 1,681   1,990 ... ...   ...   Curb-market (e.o.p.) 1,190   1,683   1,786 1,865   ... ... ...   ...                             (In millions of U.S. dollars; unless otherwise indicated) External sector                           Exports of goods 586.1   665.6   163.5 176.3   192.7 208.9 741.4   821.6   Imports of goods 724.9   692.6   194.4 165.4   218.7 208.2 786.7   859.0   Current account balance 5/ -120.1   -35.6   -26.2 4.9   -28.1 -4.5 -54.0   -69.0     In percent of GDP -9.3   -3.4   ... ...   ... ... -5.7   -6.5   Net international reserves -31.8   -40.8   -52.8 -55.1   -56.4 -36.5 -36.5   -25.9   Gross international reserves 65.3   58.1   61.6 56.8   52.9 78.2 78.2   121.3     In months of imports 6/ 1.5   1.7   1.7 1.5   1.3 1.9 1.9   2.7 Sources: Tajik authorities; and IMF staff estimates. 1/ Weighted average of yields for treasury bills of one month maturity. 2/ Nominal GDP divided by average ruble broad money. 3/ Includes grants. 4/ For July 2000 and thereafter the official exchange rate is computed as a weighted average of the exchange rate on transactions in the interbank market. For program purposes, an accounting exchange rate of 1,900 is used. 5/ Includes transfers.                         6/ Imports of goods and services excluding alumina and electricity. 1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Tajikistan, pending the completion of a PRSP, a preliminary framework has been set out in an interim PRSP, and a participatory process is under way. It is understood that all policy undertakings in the interim PRSP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement. PRGF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5½-year grace period on principal payments. 2 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.