IMF Staff Concludes Visit to Tajikistan

IMF News, May 29, 2018

Source details

IMF mission led by Ms. Padamja Khandelwal visited Dushanbe during May 14−23 to discuss recent macroeconomic developments and the economic outlook.
End-of-Mission press releases convey preliminary findings; the views expressed are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

Since late-2014, Tajikistan’s economy has suffered from external shocks that:
- affected economic confidence,
- reduced fiscal space and external buffers,
- increased vulnerabilities including in the financial sector.
2017 developments:
- Recovery in remittances contributed to growth and a narrowing of the current account deficit.
- Credit to the private sector contracted in 2017, but has started to stabilize.

Nonperforming loans (excluding two problem banks):
- Declined from 24.4 percent of loans at end-2016 to 19.5 percent at end-March 2018.
Public and publicly guaranteed (PPG) debt:
- Increased from 42 percent of GDP at end-2016 to about 50 percent of GDP at end-2017.
Fiscal deficit:
- Narrowed to 2.4 percent of GDP in 2017 from 9.8 percent of GDP in 2016 (the latter included bank recapitalization).
Assessment and concerns:
- Measures to improve regulation and supervision, asset classification and provisioning, and management of foreign exchange and credit risk are welcome.
- Decisive measures are needed to restore the confidence of depositors in the banking system.
- Lack of decisive measures to deal with two large problem banks continues to impede efficient intermediation.
- More needs to be done to implement the recommendations of the 2016 Financial Sector Assessment Program (FSAP).

Recent reform actions:
- Decree for unbundling energy sector operations into power generation, transmission, and distribution companies can help improve operational efficiency.
Remaining challenges:
- Lack of management accountability and deficient pricing policies of large SOEs have contributed to accumulated losses and the potential for contingent fiscal liabilities.
- More is needed to strengthen oversight and accountability of large SOEs to contain contingent liabilities.

Downside risks:
- There are sizable downside risks to the fiscal outlook owing to large public infrastructure projects.
Required policy response:
- Managing these risks will require significant fiscal consolidation to ensure debt sustainability.
- A growth-friendly fiscal consolidation can be achieved by:
- making cuts to non-priority capital expenditures,
- improving the efficiency of public spending,
- strengthening the social safety net to protect poor and vulnerable groups.
- A fiscal contingency plan, with identified revenue and spending measures, should be prepared so that it can be put in place should risks materialize.

The authorities have indicated they wish to start discussions on a possible IMF-supported program.
Steps already taken demonstrate reform progress that pave the way for program negotiations.
With further progress, especially in the financial sector, and careful preparation by both the Tajikistan authorities and IMF staff, negotiations could start in coming months.
IMF staff will remain closely engaged with the Tajikistan authorities to support efforts by the Government and the National Bank of Tajikistan to promote macroeconomic stability and inclusive growth.

Press Release No. 18/198 — May 29, 2018