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Tajikistan

Author(s):
International Monetary Fund
Published Date:
July 1996
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Tajikistan: Basic Data

Social and demograhic indicators (1993)
Area (in sq. km)143,100
Population (in millions) (1994)5.7
Urban1.7
Rural4.0
Infant mortality rate (per 1,000 births)40.0
Life expectancy at birth (in years)67.0
Adult literacy (in percent of population)96.0
Annual population growth rate (in percent)3.0
GDP per capita, annualized (US$, 1994)137
19941995 1/
Gross Domestic Product
Real GDP (percentage change over previous period)–21.5–12.5
Nominal GDP 2/1718.054.6
(Percentage change)
Consumer Price Index
Average350635
Within the period12,223
(In final month of period)
Wages 3/
Average monthly wage 4/50,9321,311
Average monthly wage (in USS)15.04.5
Index of real wage (January 1994 = 100)126.613.1
(Percentage change)
Monetary Indicators
Ruble broad money (end of period)159.45/
Cash outside banks (end of period)–18.05/
Credit to the economy (end of period)271.9211.5
Velocity (annual GDP/ruble broad money)1.26.2
(In percent of GDP)
General Government 6/
Total revenue44.515.2
Expenditure55.026.5
Cash balance (deficit –)–10.5–11.2
Domestic bank financing10.210.8
(In millions of U.S. dollars)
External sector
Export of goods559657
Import of goods707628
Current account balance–1701
(In percent of GDP)(–23.0)(0.0)
Sources: Tajik authorities and IMF staff estimates.

Preliminary estimates.

In billions of Russian rubles in 1994; in billions of Tajik rubles thereafter. For the period before the currency introduction in 1995, Russian rubles were converted at a rate of Rub 90 to 1 Tajik ruble.

Refer to wages earned. In 1994 and the first three quarters of 1995, wages paid were well below wages earned.

In Russian rubles in 1994; in Tajik rubles thereafter.

Due to the transition from Russian to Tajik rubles, calculations of changes in cash outside banks, and thus broad money, are not meaningful.

Data for 1995 refer to the period of May 10—the date of introducion of the national currency—to December 31, 1995.

Sources: Tajik authorities and IMF staff estimates.

Preliminary estimates.

In billions of Russian rubles in 1994; in billions of Tajik rubles thereafter. For the period before the currency introduction in 1995, Russian rubles were converted at a rate of Rub 90 to 1 Tajik ruble.

Refer to wages earned. In 1994 and the first three quarters of 1995, wages paid were well below wages earned.

In Russian rubles in 1994; in Tajik rubles thereafter.

Due to the transition from Russian to Tajik rubles, calculations of changes in cash outside banks, and thus broad money, are not meaningful.

Data for 1995 refer to the period of May 10—the date of introducion of the national currency—to December 31, 1995.

I. Overview

1. Country profile and developments before 1994

Tajikistan is a mountainous, land-locked country in Central Asia. With an area of 143 thousand square kilometers, it is similar in size and geography to Nepal and about three times the size of Switzerland. Tajikistan is bordered by Uzbekistan, the Kyrgyz Republic, China and Afghanistan. High mountain ranges, including the Pamirs (part of the Himalayas), make communication between regions difficult, especially in the winter; major traffic routes between regions traverse neighboring countries. While only 7 percent of the land is arable, the country is well endowed with water resources. About four-fifths of agricultural land is irrigated. The abundance of water has contributed to Tajikistan’s specialization in the production of cotton. Fruits and grains are also produced, and animal husbandry is also important. Tajikistan has substantial hydroelectric potential. Aluminum smelting—relying on inexpensive and abundant hydroelectricity—constitutes the bulk of industrial output, followed by textiles and food processing. Mineral resources include gold, silver and uranium.

Tajikistan’s population was estimated at 5.7 million in 1994. The country’s average annual population growth of 2.85 percent between 1970 and 1994 was one of the highest among the states of the former U.S.S.R. As a result, 45 percent of Tajikistan’s population is below 16 years old, 1/ while only 31 percent of the population is of working age. Two-thirds of the population are ethnic Tajiks, one-fourth Uzbeks and the remainder Russians, Kyrgyz and Tatars. Approximately 70 percent of the population lives in rural areas, with roughly 45 percent of the labor force engaged in agriculture.

Following independence in September 1991, Tajikistan suffered from serious political upheaval and natural disasters, as well as external shocks originating from the disintegration of the Soviet Union. Political turmoil and civil strife escalated into civil war in 1992. By early 1993, the consequences were devastating: about 50,000 people had been killed; approximately 15 percent of the population had either been displaced within the country or had sought refuge in northern Afghanistan; the bulk of the Russian-speaking population, which comprised a significant part of the skilled labor force, had emigrated; 36,000 homes had been destroyed and almost 20 percent of schools were damaged beyond repair. Extensive floods in 1992 and 1993 exacerbated the damage to the infrastructure.

Strained by the civil war and repeated changes of political leadership, the Government lacked a coherent policy to deal with the mounting economic problems. As a result, the beginnings of economic reform were seriously delayed in Tajikistan. Without economic reform, and confronted with the civil war and natural disasters, Tajikistan’s economy deteriorated rapidly, even in comparison to the declines taking place elsewhere in the former Soviet Union. Per capita GDP dropped from 39 percent of the average for states of the former U.S.S.R. in 1990 to 14 percent in 1993. 1/ In dollar terms, per capita GDP was estimated at only about US$120 in 1993. 2/

2. Developments in 1994 and 1995

In September 1994 a cease fire was arranged. Later that year a Constitution was adopted by referendum and a president elected. Parliamentary elections were held in February 1995. The political environment continued to improve in 1995 as the cease fire was extended, most refugees were resettled, and the Government consolidated its control over most of the country. It is estimated that by mid-1995 virtually all internally displaced people, and two-thirds of those who fled to Afghanistan, had returned home. However, few of those who had fled to other countries of the former U.S.S.R. had returned. In addition, about half of the destroyed homes had been repaired.

The primary exception to the improved security situation was along the border with Afghanistan where, reflecting the lack of a permanent political settlement with the armed opposition, tension remains despite the deployment of CIS (mainly Russian) peacekeeping forces. Signs of a renewed deterioration in the security situation emerged in early 1996, including the temporary lapse in the cease fire, which expired on February 26 before being extended to May 26, 1996.

a. Development prior to the introduction of the national currency

Aggregate production, dominated by the cotton and aluminum sectors, continued its decline in 1994, falling by an estimated 21 percent to less than half its 1991 level (Chart 1). GDP declined a further 18 percent in the first quarter of 1995 over the same period a year earlier. With production sharply lower across all sectors of the economy, recorded unemployment reached almost 8 percent of the labor force at end-1994, although less than 2 percent were officially registered as unemployed and eligible to receive unemployment benefits.

Chart 1TAJIKISTAN: Main Macroeconomic Indicators, 1994-95

Sources: Tajik authorities; and IMF staff estimates.

Economic problems had been compounded by the lack of a properly functioning monetary arrangement, a problem which the Government attempted to resolve in 1994 and again in 1995. Tajikistan remained the only country still using pre-1993 Russian rubles as its legal tender in late 1993. When pre-1993 ruble notes, no longer of value elsewhere, swamped Tajikistan in December 1993, the overall price level more than doubled.

In January 1994, pre-1993 rubles were withdrawn from circulation and the 1993 Russian ruble was introduced as the sole legal tender. A dual monetary system emerged, with cash supplied by the Central Bank of Russia on strictly commercial terms while deposit money was created at will by the NBT. The volume of noncash rubles more than tripled during 1994, while cash in circulation was reduced by two-thirds at the time of the conversion to the new Russian ruble and remained well below its end-1993 level by end-1994. Bank deposits became increasingly difficult to convert into cash or goods, and the value of deposit money slid sharply against cash in informal markets, with an effective discount of up to 95 percent by late 1994. Wage arrears accumulated rapidly, as bank deposits could not be drawn on by enterprises and taxes were collected largely in inconvertible deposit money. By early May 1995, wage arrears in the economy were estimated to have reached the equivalent of about seven to ten months’ wages. In response to the cash shortage, the Government imposed cash surrender requirements and cash rationing. This only accelerated currency hoarding and financial disintermediation. The economy relied increasingly on settlements through scarce foreign exchange and payment in kind.

As a result of the sharp initial drop in cash in circulation, consumer prices fell for several months following the transition to the new Russian ruble. As cash continued to be of relatively limited availability throughout the year, CPI inflation remained restrained for the balance of 1994. The wholesale price index (WPI), however, tripled in 1994, as interenterprise transactions were conducted mainly in rapidly growing noncash. Contractual average wages kept pace with CPI inflation in 1994, but wages actually paid were only 25 percent of wages earned due to the cash shortage. The minimum wage, which affects all public wages through a system of coefficients, remained unchanged from October 1993 through April 1995.

Since the authorities did not take account of the sharply different value for cash and noncash when recording budgetary transactions, analysis of the budgetary outcome in 1994 and early 1995 is severely impaired. Based on official data, the state budget deficit on a cash basis was reduced from 25 percent of GDP in 1993 to just over 10 percent of GDP in 1994. In 1995 before the currency reform, the state budget officially ran a cash basis surplus of 9 percent of GDP. This “improvement” in the fiscal position in 1994 and early 1995 reflected two factors: an overstatement of tax revenue, which was collected largely in increasingly valueless deposit money; and the accumulation of expenditures arrears as, despite revenues officially estimated at roughly half of GDP, the Government had insufficient cash to settle wage and other expenditure obligations.

Fiscal analysis is further impaired by the existence of the extrabudgetary State Foreign Exchange Fund; the details of its operation are not known. This fund collected “taxes” through the forced surrender of export earnings at unfavorable exchange rates or even without compensation, mainly from the cotton and aluminum sectors, and financed the importation and subsidization of grains, fuel and other items.

b. The 1995 currency reform and subsequent developments

In response to the deteriorating economy the present Government, formed in December 1994, was given a mandate to accelerate reforms. An economic reform program was launched, with the introduction of a national currency at the core of the agenda. 1/ The currency reform on May 10, 1995 was initially relatively successful, in large part because of the tight credit policies in the months preceding the reform. With a sharp cut in deposit money relative to cash through the use of differentiated conversion rates, the wide gap between the value of cash and noncash money disappeared. Exchange rates for the new currency were determined in weekly interbank auctions. Temporary withdrawal restrictions were quickly lifted, except on frozen deposits linked to pre-May 1995 wage arrears.

The success of the currency reform was short lived, however, as expansionary credit policies and fiscal problems quickly undermined confidence in the new currency. Bank credit to the economy doubled between end-May and end-August, while broad money more than doubled and the exchange rate depreciated. Budget revenues dropped, as tax liabilities were cut due to administrative errors and as tax arrears emerged. Enterprises resisted paying taxes as previously useless bank deposits, which had been sharply cut as part of the currency reform, could now be used for other purposes. Together with a sharp increase in budgetary wages just prior to the currency reform, this resulted in total revenue falling short of the budgetary wage bill. Bank credit to the Government was relatively restrained initially, at the expense of large wage and benefit arrears. The deficit from May 11 through September was 3.8 percent of GDP on a cash basis, but on an accrual basis it was almost 14 percent of GDP. As a result of the expansionary policies, inflation increased sharply, from 7 to 8 percent per month in June and July to almost 80 percent in August.

In response to the accelerating inflation, the authorities intensified their efforts to redress the deteriorating macroeconomic situation. Monetary expansion slowed somewhat in the fourth quarter of 1995, although foreign exchange equivalent to one-third of end-August reserve money flowed into the economy in September in the wake of the tightened domestic credit.

At the same time, the authorities failed to increase bread prices to compensate for a sharply rising cost of grain, mainly because of the continued appreciation of the exchange rate. The budget could not afford the increasing subsidy needed by the bread complex. The NBT and the cotton complex were ordered to “lend” large portions of their foreign exchange to finance grain imports. Deprived of a substantial portion of its export proceeds, the cotton complex demanded and received new domestic credits from the NBT. Official data show a state budget deficit on a cash basis in the fourth quarter—inclusive of the wheat transactions—of nearly 16 percent of GDP, and a deficit of 26 percent of GDP on an accrual basis.

Inflation in the fourth quarter averaged roughly 50 percent per month. While real wages earned fell sharply in the period after the currency reform, the share of wages paid rose. As a result, real wages received declined only modestly between end-1994 and end 1995. Moreover, the introduction in August 1995 of cash payments to compensate for higher bread prices, equivalent to one minimum wage, protected the incomes of the most vulnerable groups. This allowance was doubled in December 1995 when bread prices were raised again, although prices remained below costs.

The decline in production appears to have slowed down after the currency introduction; for all of 1995, GDP declined by about 12 percent. Declines in industrial production in the first half of 1995 were largely reversed in the second half of the year. Registered unemployment continued to rise, however, reaching 9.3 percent of the labor force by end-1995.

c. External developments in 1994 and 1995

Balance of payments developments were mainly driven by the availability of external financing and movements in the terms of trade, as well as the steadily declining domestic production. The current account went from a deficit of 31 percent of GDP in 1993 to one of 23 percent of GDP in 1994, before moving to rough balance in 1995. In 1993 and 1994, significant external financing was available to Tajikistan in the form of loans and trade credits. Both sources of financing dried up because of arrears. Disbursements in 1995 were only about one-quarter of their dollar value in 1993, while suppliers increasingly required advance payment for imports.

Tajikistan’s terms of trade deteriorated in 1994 due to rising energy and grain import costs. This was reversed in 1995 with the relative stabilization of import prices—which had reached roughly world price levels in 1994—and sharp increases in international prices for cotton and aluminum. These commodities accounted for 90 percent of exports in 1995. Reflecting also the decline in domestic production, the volume of imports and exports fell sharply in both 1994 and 1995.

Because the country’s key export products are internationally traded, Tajikistan was able to quickly shift its exports to the rest of the world. In 1991, over 80 percent of Tajikistan’s trade was with countries of the former U.S.S.R. Already in the period 1993-95, over 55 percent of imports came from countries outside the former U.S.S.R., and over 70 percent of exports were destined for these markets. This has not correspondingly decreased the country’s dependence on barter trade, however, as much trade with western countries has been conducted on barter terms.

Tajikistan signed the zero option agreement, and thus had no external debts at independence in 1991. Tajikistan quickly accumulated external debt, which amounted to US$817 at end-1995, or almost 150 percent of GDP, including debt service arrears of US$172 million. Interest on external debt increased from US$4 million in 1993 to US$27 million in 1995. The country had accumulated foreign exchange reserves of only US$7 million by the end of 1995, or about one week of nonalumina, nongrant imports.

d. Structural reforms

Progress on structural reform was limited during 1994 and early 1995, but accelerated in mid-1995. After limited price liberalization during 1992 and 1993, price controls were severely tightened in 1994. Price liberalization resumed in early 1995, and by mid-1995 direct price controls on all consumer items except bread and flour had been eliminated.

The system of state orders, particularly for agricultural products and aluminum, was tightened in the second half of 1993 and in 1994 through stricter implementation of existing regulations and the imposition of licensing requirements. A sharp reversal in policy occurred in late 1995. State cotton procurement was reduced to 70 percent of targeted production for the 1995 crop, while all other state orders—including for the 1996 cotton crop—were eliminated.

Privatization had begun in early 1992, and a substantial part of housing had been privatized. After its interruption during the civil war, privatization resumed in 1994 but slowed again in the period leading up to the currency reform. Private land ownership remained prohibited, although private farming was allowed on a small portion of unirrigated farmland in 1994 through long-term inheritable leases. In November 1995, Parliament adopted laws which eliminated several important barriers to privatization.

The banking system remained under tight state control in 1994, serving primarily to ration and channel centralized credits which were granted at negative real interest rates. Commercial bank interest rates were liberalized in May 1995, except for rates applying to onlending of NBT credits; rates nonetheless remained highly negative in real terms. The NBT’s independence was weakened by frequent government interventions. In 1995 the Ministry of Finance discontinued its credit operations and transferred its budgetary accounts to the NBT, which became responsible for managing the foreign exchange reserves.

There was little progress on external sector reforms in 1994. Exports were subject to multiple restrictions, including tariffs, licensing requirements, state orders, quotas, and trading directed through governmental monopoly agencies. Barter remained the dominant form of trade. A progressive tightening of control over international trade culminated in December 1994 with the nationalization of cotton and aluminum trade. Under this system, the Government allocated rights over specified quantities of cotton and aluminum to ministries and state enterprises. The foreign exchange market remained undeveloped under such circumstances.

External sector reform began in the second half of 1995, with the elimination of the State Foreign Exchange Fund and the establishment of an interbank foreign exchange market. Interstate trade agreements were allowed to expire, and the Government ceased to guarantee payments. Large gas consumers, such as the aluminum factory, entered into direct contracts with foreign exporters, bypassing Tajikgas. Export quotas and licenses were eliminated. New barter deals were prohibited, except for aluminum.

3. Developments in early 1996

The authorities embarked in early 1996 on a renewed effort at stabilization and structural reform, in close cooperation with the staffs of the International Monetary Fund and the World Bank. The authorities’ program has the following broad aims: to sharply reduce inflation, through tightened fiscal and monetary policies; to regularize Tajikistan’s relations with its external creditors through a comprehensive concessional debt restructuring; to increase foreign exchange reserves to the equivalent of almost 1 1/2 months of imports; to liberalize external trade and payments; and to make progress on structural reform, with the assistance of the World Bank, by initiating land reform, accelerating progress on privatization (in particular in the cotton industry), and improving the targeting of the social safety net. The authorities have requested financial support, both from the International Monetary Fund and the World Bank, for their comprehensive stabilization and adjustment effort.

In the first quarter of 1996, the authorities successfully implemented the initial components of this program. Monetary growth has slowed consistent with the program objectives and inflation is declining. The government deficit was well below the program target, and tax collection has been strong. Since the resumption of regular weekly foreign exchange auctions in February 1996, the nominal exchange rate of the Tajik ruble has appreciated by 7 percent against the U.S. dollar by mid-April.

In support of the program, a comprehensive set of policy measures has already been implemented, including the following: the price of bread has been freed; presumptive taxes have been imposed on the cotton and aluminum state monopolies, sharply increasing government revenue; foreign exchange surrender requirements and export duties have been abolished, and all resolutions that established administrative allocation of foreign exchange revoked; and the first payment into a special debt servicing account has been made. With the successful implementation of this program, Tajikistan will have started the process of economic reform and macroeconomic stabilization. This will create the basis for a resumption of sustainable growth. However, substantial donor support will be required to assist in this transformation and to help protect the most vulnerable groups during the transition.

This paper provides a review of economic developments in Tajikistan in 1994, 1995 and early 1996. Developments in the real sector are discussed in Chapters II and III. Fiscal, monetary and external sector developments are discussed in Chapters IV through V, I and structural issues in Chapter VII. The annexes provide detailed information on the currency introduction, tax system, social safety net, foreign exchange market, exchange and trade system, and statistical issues.

II. Output and Employment in 1994-95

1. Overall developments

Tajikistan’s real growth rates began declining well before the disintegration of the U.S.S.R. The average annual growth of real output declined from 2.6 percent in 1980-85 to 1.1 percent in 1986-90. Combined with rapid population growth, this resulted in a continuous decline of per capita income throughout the 1980s. Real GDP has fallen steadily since independence. The cumulative decline in real GDP during the period 1991-94 was 54 percent, higher than the declines experienced in Russia (40 percent) and Kazakstan (33 percent), but comparable to the experience of other wartorn countries in the CIS—Azerbaijan (53 percent), Armenia (57 percent), and Georgia (63 percent) (Chart 2). Following a decline in 1994 and the first part of 1995 at an annual rate of 20 percent, the GDP appears to have slowed somewhat in the second half of 1995, limiting the 1995 annual decline to about 12 percent (Table 1 and Chart 3). However, all these figures must be viewed cautiously, as the compilation of national accounts remains at a preliminary stage due to the understaffing and underfunding of the State Statistical Service. 1/

Chart 2STATES OF THE FORMER U.S.S.R Output Decline, Inflation and Dollar Wages

Sources: National sources; and IMF staff calculations

Table 1.Tajikistan: Indices of Real GDP, 1990–95
GDP Outside
Industry &
GDPIndustryAgricultureTradeTransportConstructionServicesAgriculture
(1992=100)
1990151.5133.0142.747.6279.9254.8160.4171.6
1991140.8130.3136.566.1252.0199.0145.7151.9
1992100.0100.0100.0100.0100.0100.0100.0100.0
199389.082.295.699.139.172.8104.991.4
199469.956.495.722.327.749.898.768.1
1995 1/61.1
1991Q1146.3131.8140.362.4250.7215.6158.4161.6
Q2144.9123.6147.453.7266.3214.7159.7161.6
Q3135.6121.5132.966.8253.5195.8140.7148.8
Q4136.5144.4125.381.6237.6170.0124.2135.7
1992Q1112.3114.4110.577.1118.9132.2112.7111.5
Q2111.1100.6129.784.2128.0118.0113.9110.6
Q383.991.464.2106.3137.882.876.287.6
Q492.793.695.7132.515.467.097.290.4
1993Q181.182.190.037.126.756.7105.375.7
Q283.168.293.978.546.085.0103.190.3
Q388.977.796.192.262.682.1106.294.8
Q4102.9100.8102.6188.621.067.4104.8104.8
1994Q164.967.976.028.523.654.372.456.7
Q274.952.998.032.442.570.0110.281.7
Q368.348.4100.318.018.444.8105.568.9
Q471.356.2108.410.426.130.2106.865.2
1995 1/Q153.251.459.333.539.151.6
Q257.946.178.413.459.057.4
Q366.747.194.528.343.269.1
Q464.9
(Percentage change from preceding period)
1991−7.0−2.0−4.438.8−9.0−21.9−9.2−11.5
1992−29.0−23.3−26.751.3−60.3−49.8−31.4−34.2
1993−11.0−17.8−4.4−0.9−60.9−27.24.9−8.6
1994−21.5−31.4−77.5−29.2−31.6−5.9−25.5
1995−12.5
1994Q1−36.9−32.6−25.9−84.912.6−19.5−30.9−45.9
Q215.4−22.129.013.879.929.152.244.2
Q3−8.8−8.62.3−44.7−56.9−36.1−4.3−15.7
Q44.416.28.0−42.142.2−32.51.2−5.4
1995 1/Q1−25.5−8.7−45.3222.429.4−20.9
Q29.0−10.232.3−60.150.911.4
Q315.22.220.5111.5−26.720.3
Q4−2.7
Memorandum item:
Sectoral shares in 1992 GDP1.0000.3590.2170.0760.0300.1030.2150.424
Sources: State Statistical Agency; and IMF staff calculations.

Preliminary estimates.

Sources: State Statistical Agency; and IMF staff calculations.

Preliminary estimates.

Chart 3TAJIKISTAN: Real GDP, 1991-95

Source: State Statistical Agency.

The protracted output decline reflects a number of factors. First, import prices for natural gas and petroleum products increased by about 140 percent in 1994. Most enterprises could not absorb, or pass on, the higher energy costs to end-users, and lacked the voluntary financing necessary to postpone adjustment. As a result, external arrears accumulated rapidly, in response to which gas supply was repeatedly suspended and foreign suppliers shifted to requiring pre-payment. This brought about a sharp contraction of energy imports. Shortages and energy black-outs were frequent in 1995.

Second, imports of raw materials and spare parts dropped significantly as a result of the disruption of traditional interenterprise relations. This was primarily due to the phasing out of state orders and the liberalization of markets in the rest of the states of the former U.S.S.R. As a result, producers of raw materials began to switch to non-CIS markets.

Third, demand from other states of the former U.S.S.R. declined, due to the sharp and protracted income decline that these countries have experienced and to their increasing reliance on non-CIS countries for their imports. Fourth, grants from the central government of the former U.S.S.R., on which Tajikistan used to rely heavily, were eliminated, while investment programs begun under the U.S.S.R. have been suspended or canceled.

Fifth, the civil war and natural disasters had both permanent and temporary effects on output and productive capacity. The war devastated the infrastructure of the country and the capital of enterprises, raised production costs (mainly transportation costs and insurance premiums), forced enterprises in conflict areas to suspend or even cease production, and delayed structural transformations that could have mitigated the output decline and paved the way for recovery. The damage to the infrastructure and capital was exacerbated by extensive floods and landslides, especially in the south. Population displacement was massive, resulting in serious regional mismatches in the labor market. Skilled workers, particularly those lacking ethnic ties to Tajikistan, emigrated in large numbers. This had a particularly severe impact on public administration.

Finally, the highly distorted monetary system of 1994 and early 1995 also contributed to the decline in output. With a severe cash shortage, and the divergence of cash and noncash prices, wage arrears accumulated rapidly, price distortions deepened and enterprises increasingly resorted to hoarding of inventories.

The pace of structural transformation has accelerated since late 1994, but progress remains limited. By mid-1995 just over 7 percent of stateowned enterprises, mainly small ones, had been privatized. The restructuring of loss making enterprises has also proceeded at a slow pace. This slow progress in structural transformation may have helped contain the decline in output and the emergence of large-scale unemployment which, in the absence of an effective social safety net, may have had serious social consequences.

The slowing of the output decline in the second half of 1995 appears to have been related to the cessation of the armed conflict and the restoration of Government control over most of the country, the improved monetary system and the negotiated reduction in the cost of imported gas in the fourth quarter. The 1994 and 1995 increases in world market prices for cotton and aluminum, the main export items, also helped mitigate the decline in output by generating hard currency to finance needed inputs.

2. Sectoral developments

Tajikistan is mainly an agricultural country, with a narrow production base and a heavy reliance on imported inputs. The pattern of specialization (mainly cotton and aluminum) was intended under the Soviet system to exploit the rich endowment of the country in water resources. Tajikistan operated as a cotton growing enclave, with limited interaction between the cotton and other sectors of the economy: less than 15 percent of locally produced cotton is processed domestically, while the bulk of inputs needed for cotton growing are imported. Aluminum, which accounts for over half of industrial production, also has minimal linkages with other domestic sectors, except for electricity. Smelting is concentrated in one city, with limited spillover effects on the rest of the economy. Cotton and aluminum are significant sources of foreign exchange earnings for the country, accounting for 32 and 59 percent, respectively, of total exports in 1995.

The decline of industrial production by over half, and the collapse of construction and transport, explain most of the 54 percent decline of GDP from 1991 to 1994, while the cumulative decline in agriculture was more modest. Industry accounted for just over one-third of GDP in 1994, construction for one-tenth of GDP, and the remaining third was primarily public administration, procurement and trade. With the massive decline of output and the shift in the sectoral composition of GDP, official unemployment increased to about 7 percent of total employment in 1994 (Table 3). The share of agriculture in total employment increased from 43 percent to 55 percent between 1990 and 1994, while that of industry fell slightly, from 13 to 11 percent (Table 4).

Table 2.Tajikistan: Nominal GDP by Sector of Origin, 1993-94(In millions of Russian rubles)
19931994
SectorNet Product 1/ShareNet Product 1/Share
Industry227,76536.1595,21934.6
Agriculture147,55623.4326,04019.0
Construction72,39111.5206,52712.0
Trade6,5211.023,7411.4
Transport10,0271.658,3933.4
Supplies3,0860.513,1410.8
Procurement6,4861.015,0970.9
Other material sectors8,1421.346,8342.7
Nonmaterial services39,4076.256,9333.3
Other small, private activities30,9634.944,7532.6
Net indirect taxes78,81812.5331,30019.3
GDP631,162100.01,717,978100.0
Sources: State Statistical Agency; and IMF staff calculations.

Calculated as value added plus an estimate for depreciation.

Sources: State Statistical Agency; and IMF staff calculations.

Calculated as value added plus an estimate for depreciation.

Table 3.Tajikistan: labor Resources and Employment, 1985–94
1985198619871988196919901991199219931994
(In thousands of persons)
Population 1/4,630.84,784.94,938.25,085.95,232.05,342.35,554.85,555.75,703.75,763.8
Of which:
Working age 2/2,209.02,275.82,343.12,409.62,470.62,509.52,610.52,600.92,598.1
Nonworking age2,421.82,509.12,595.12,676.32,761.42,832.82,944.32,954.83,105.6
Urban1,519.01,567.01,609.01,653.01,676.01,668.01,689.01,636.01,640.7
Rural3,112.03,218.03,329.03,433.03,556.03,674.03,866.03,920.04,063,0
Labor force participation rate 1/3/76.175.375.775.676.177.375.573.675.9
Total labor resources 4/2,174.72,240.12,302.12,368.92,428.92,469.42,526.32,674.82,607.02,622.5
Economically active population 4/5/1,680.81,714.01,774.81,820.61,879.01,939.41,971.41,915.01,972.41,983.6
Total employment 4/1,680.81,714.01,774.81,820.61,879.01,939.41,971.41,908.21,844.81,844.2
Government 6/1,172.81,196.41,228.01,246.01,251.11,255.01,073.4997.6968.8924.1
Collective farms237.6242.3248.4250.9252.7263.0293.3284.6296.5333.6
Cooperatives1.87.431.751.951.949.143.437.7
Private farming270.0274.8295.0313.1340.6365.7373.0398.7416.8453.1
Other private activity0.30.41.52.82.52.73.02.12.12.1
Clergy and other religious activity0.10.10.10.40.41.11.11.11.11.1
Unallocated175.7175.0116.192.5
Registered unemployment 1/6.821.532.1
Total unemployment 1/6.8127.6139.4
Nonworking students 4/215.5219.3230.4236.5234.8231.3237.2229.9230.0234.0
Working age population at home 4/278.4306.8297.0311.8315.1298.7317.7529.9404.6404.9
(In percent of total employment)
Total labor resources129.4130.7129.7130.1129.3127.3128.1140.1141.3142.2
Total employment100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
Government 6/69.869.869.268.466.664.754.552.252.550.1
Collective farms14.114.114.013.813.413.614.914.916.118.1
Cooperatives0.10.41.72.72.62.62.42.0
Private farming16.116.016.617.218.118.918.920.922.624.6
Other private activity0.10.20.10.10.20.10.10.1
Clergy and other religious activity0.10.10.10.10.1
Unallocated8.99.26.35.0
Registered unemployed0.31.21.7
Total unemployment0.36.97.6
Nonworking students12.812.813.013.012.511.912.012.012.512.7
Working age population at home16.617.916.717.116.815.416.127.821.922.0
Source: Ministry of Labor.

End of year.

Men between 16 and 59; women between 16 and 54.

Defined as the ratio of economically active over working age population.

Annual averages.

Equals total employment plus total unemployment.

Includes central and local governments, state enterprises, and state farms.

Source: Ministry of Labor.

End of year.

Men between 16 and 59; women between 16 and 54.

Defined as the ratio of economically active over working age population.

Annual averages.

Equals total employment plus total unemployment.

Includes central and local governments, state enterprises, and state farms.

Table 4.Tajikistan: Employment by Sector of Economy, 1985-94
1985198619871988198919901991199219931994
(In thousands of persons, annual average)
Total employment 1/1,680.71,713.91,774.71,820.21,878.61,938.31,970.31,907.91,844.81,844.2
Material sphere1,279.31,298.31,334.61,364.41,411.11,463.01,489.81,450.51,472.21,490.1
Agriculture721.9720.0742.8762.4790.1831.0878.1888.5945.01,004.8
Industry240.6247.2251.4251.4254.4260.7256.4249.8213.0205.4
Construction118.1125.6131.0131.0160.7160.8147.7132.4125.5104.9
Transport and communications79.281.180.983.665.664.765.056.373.063.0
Trade, supply, and other119.5124.4128.5135.2140.3145.8142.6123.5115.7112.0
Nonmaterial sphere401.4415.6440.1455.9467.5475.3480.5457.4372.6354.1
Government38.640.841.741.039.239.740.926.618.921.0
Education, culture, and art173.7179.9189.4199.3210.5217.3222.1219.3202.9191.9
Medical care, physical training and social security79.283.090.895.2101.7103.7105.9110.4101.9100.2
Scientific research29.730.630.729.830.228.526.221.17.97.4
Communal services40.441.647.550.450.350.850.743.836.426.9
Other39.839.740.040.235.635.334.733.24.66.7
(In percent of total employment)
Total employment100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
Material sphere76.175.875.275.075.175.575.676.679.880.8
Agriculture43.042.041.941.942.142.944.646.651.254.5
Industry14.314.414.213.813.513.413.013.111.511.1
Construction7.07.37.47.28.68.37.56.96.85.7
Transport and communications4.74.74.64.63.53.33.33.04.03.4
Trade, supply, and other7.17.37.27.47.57.57.26.56.36.1
Nonmaterial sphere23.924.224.825.024.924.524.424.020.219.2
Government2.32.42.32.32.12.02.11.61.01.1
Education, culture, and art10.310.510.710.911.211.211.311.511.010.4
Medical care, physical training and social security4.74.85.15.25.45.45.45.85.55.4
Scientific research1.81.81.71.61.61.51.31.10.40.4
Communal services2.42.42.72.82.72.62.62.32.01.5
Other2.42.32.32.21.91.81.81.70.20.3
Source: Ministry of Labor.

Slight differences between total employment in Tables 3 and 4 reflect data discrepancies.

Source: Ministry of Labor.

Slight differences between total employment in Tables 3 and 4 reflect data discrepancies.

Agriculture: Agricultural output remained stable in 1994, but is preliminarily estimated to have declined by 15 percent in 1995. With the cultivated area remaining virtually unchanged in recent years, the cumulative decline reflected policy and nonpolicy factors. Administrative control of agricultural prices, delays in paying agricultural workers, and administrative confiscation of cotton export proceeds all contributed to reducing the incentive to produce agricultural products. In addition, weather conditions and persistent shortages of fertilizers, pesticides, and spare parts for agricultural machinery contributed to the falling yields. 1/ The effects of pesticide shortages were particularly severe in early 1995, when one-fifth of arable land was infested with locusts. Only a third of the affected area could be treated.

After reaching a peak in 1988-89, yields have been declining steadily, with the average cumulative decline reaching 38 percent (Table 6). Particularly affected have been grain products, while vegetable production has been more resilient. The yield of raw cotton production declined by over one-third. 2/ The 1995 decline in production and average yield is possibly overestimated due to the inadequate statistical coverage of production outside state and collective farms.

Table 5.Tajikistan: Registered Unemployment, 1992-95(In thousands: end of month)
1992199319941995
TotalReceivingTotalReceivingTotalReceivingTotalReceiving
BenefitsBenefitsBenefitsBenefits
January8.64.322.74.134.51.0
February8.94.825.24.637.91.4
March9.74.226.84.830.67.6
April0.50.111.34.627.44.829.88.4
May1.30.812.75.627.76.032.16.6
June3.51.811.75.028.02.830.910.3
July3.62.612.54.827.74.829.213.6
August5.53.613.75.127.34.930.79.9
September7.24.816.65.129.64.835.1
October8.15.118.05.330.35.230.53.6
November8.65.420.55.830.75.434.75.0
December6.84.721.54.932.14.8
Source: State Statistical Agency.
Source: State Statistical Agency.
Table 6.Tajikistan: Production and Yield of Major Agricultural Crops, 1985-95
19851986198719881989199019911992199319941995
(In thousands of tons)
Production
Grain326246359381306318304276273229
Sweet corn1017385881098560323318
Feed corn1,3381,3851,2931,2061,3021,2221,150727599498
Rice37272837372926202323
Raw cotton935992872964921842826515524531510
Potatoes185199192183217207181167147135
Vegetables473505517556567528628543485495
Fruits245245210215197220177183149148
Grapes1711991321781741901211008780
Hay1,6581,7481,7531,6981,5481,5211,4861,2121,1121,014
(In kilograms per hectare)
Yield
Grain1,5201,6001,5501,5601,6101,3701,3101,040980900
Sweet corn5,7104,4404,1904,4705,6904,9903,9202,9762,9701,880….
Feed corn25,20023,60023,00022,70023,40022,50021,60016,25015,41013,150
Rice3,9203,4103,1403,2903,1503,0102,7401,9201,8201,748
Raw cotton3,0002,9502,6903,0102,9802,7702,7601,8001,9101,890
Potatoes18,10018,50017,10016,30016,50014,30014,10012,88011,90010,970
Vegetables20,90021,80020,80020,90020,70019,50019,30016,84017,86015,800
Fruits4,9505,0104,3304,1703,6203,9803,2103,2802,5502,490
Grapes7,3708,4805,6307,1806,7507,1604,4503,5003,0102,590
Hay3,4603,4203,7203,6603,2803,2903,2203,0102,8002,650
Source: State Statistical Agency.
Source: State Statistical Agency.

Crops represent two-thirds of total 1994 agricultural production, with cotton accounting for over half the value of crop production, and vegetables the next most important item (Table 7). Raw cotton production peaked in 1988; 1995 production is estimated to have been just over half of the 1988 level. 3/ The cumulative output decline since the peak in 1988 was comparable for crops and livestock. The production of selected livestock items, however, such as pigs and poultry, plummeted as a result of changes in consumption patterns and shortages of fodder and antibiotics (Tables 7, 8, and 9). The country relies heavily on grain imports, as the annual grain consumption requirement is about three times the 1994 production of roughly 230 thousand tons. The combination of high world market prices at the end of 1995 and the precarious balance of payments situation have created temporary grain shortages. Tajikistan has received humanitarian assistance to cover part of the cost of grain imports; in 1995 this assistance covered over 20 percent of imported grain needs. Together, the declining agricultural production and the rapid population growth has reduced the country’s self reliance in foodstuff.

Table 7.Tajikistan: Agricultural Production, 1980-94 1/(In millions of Russian rubles at consent 1983 prices)
19801985198619871988198919901991199219931994
Total production2,3242,4332,5232,3452,5652,2892,3552,2511,6501,5771,578
A. Crop production1,6331,6421,7111,5431,7441,4901,5831,5331,0571,0551,046
Of which:
Grain3427364850454340373736
Potatoes383735424035322822
Vegetables125105174174184185176209187172167
Fruits (excluding grapes)15814515313414612311910449
Grapes938283818987474136
Tobacco563651465358506057
Cotton1,060590969847999791844813458451543
B. Animal husbandry690791812802821799772718593522532
Meat434430435427400373284252268
Of which:
Cattle246242246240227230167152154
Pigs23222120159834
Sheep and goats838484827668848299
Poultry565054575539211110
Other263230282727441
Milk121120121123118121202188185
Eggs28303231293928157
Wool242324262120322828
Other205199209192204165473944
Source: State Statistical Agency.

See Table 10 for cross reference.

Source: State Statistical Agency.

See Table 10 for cross reference.

Table 8.Tajikistan: Animal Husbandry, 1985–94(In thousands of heads)
1985198619871988198919901991199219931994
Total number of animals4,7844,8834,8964,9714,9694,8794,9274,3634,2583,990
Of which:
Beef cattle846860843833810795805702690650
Milk cows505507515530539557586544560549
Pigs205243235217210183128564633
Sheep2,4372,4712,4792,5392,5442,4622,4842,1732,0811,958
Goats749759778802815830871840826742
Horses42434650515253485558
Source: State Statistical Agency.
Source: State Statistical Agency.
Table 9.Tajikistan: Production of Meat, Milk, and Eggs, 1985–94(In thousands of tons unless otherwise specified)
1985198619871988198919901991199219931994
Meat179185190193191185151126113109
Of which:
Beef9192979910094837166
Pork141719191915953
Mutton545554565252434239
Poultry1820181718211375
Milk547571567574580575587509447500
Eggs (in million pieces)469555579632619592454296150100
Source: State Statistical Agency.
Source: State Statistical Agency.

Agriculture is still dominated by large state and collective farms, which cultivate most of the arable and all of the irrigated land. There is a wide differentiation in yields across types of farms. Collective farms produce about 60 percent more per hectare than state farms (Tables 10 and 11). This difference in productivity is partly due to the fact that collective farms have a 34 percent higher irrigation rate than on state farms. Private plots, which account for less than six percent of arable land, produce more than one quarter of agricultural production, despite lacking access to irrigation. This suggests sizeable inefficiencies in resource allocation and corresponding opportunities for rapid efficiency gains. State monopolies also continue to dominate most output markets. However, in 1994 the bulk of vegetables were raised in private plots and over one-third of agricultural production was sold at public markets (Table 12).

Table 10.Tajikistan: Production by Type of Farm, 1985-94 1/(In millions of Russian rubles at constant 1983 prices)
1985198619871988198919901991199219931994
Total for all types of farms2,4332,5232,3462,5662,2902,3552,2521,6501,5771,578
Crop production1,6421,7111,5431,7441,4901,5831,5331,0571,0551,046
Animal husbandry791812802821799772718593522532
Kolkhozy9931,0159281,051902922902587565565
Crop production852870780902749772760474479474
Animal husbandry1411451491501531511421138691
Sovkhozy785830793870769809673430350351
Crop production525548510580490552468283261258
Animal husbandry2602812832902792572051478993
Other state-owned farms31272527334955153031
Crop production1215141617212772526
Animal husbandry19121212162728855
Personal lots582614572592562550601609621619
Crop production237264232238227229271291284282
Animal husbandry345350340354335321330318337337
Source: State Statistical Agency.

See Table 7 for cross reference.

Source: State Statistical Agency.

See Table 7 for cross reference.

Table 11.Tajikistan: Allocation of Agricultural Land in 1994
Enterprises and CollectivesPrivate Plots
TotalKolkhozesMezhoses 1/ShovkhosesOther FarmsCollective FarmersEmployeesOther
(In hectares)
Total crops780,038380,6368,593339,2859,26820,67519,6981,883
Of which:
Irrigated land532,507315,8154,923211,769
Winter crops254,655108,9894,168130,0225,0232,3972,9261,130
Of which:
Winter wheat131,34356,8232,44167,3722,5405311,154482
Wheat117,71450,6302,13560,9732,318335906417
Rye86041326289247038
Spring crops123,26152,1601,72762,6502,4381,8661,772648
Of which:
Wheat59,45123,12693332,7061,283532432439
Barley26,10510,89520614,1036011419168
Maize9,4565,3872813,0345940526723
Rice13,3558,0211734,46721733612318
Cotton281,033190,69374988,758729104
Linen9,4863,1451895,89520512634
Tobacco4,2683,45510652135108394
Potatoes12,1221,745194,2682142,2673,58227
Fodder176,14660,5973,05495,6872,0798,1416,212376
(In percent of total)
Total crops10049143133
Of which:
Irrigated land10059140
Winter crops10043251211
Of which:
Winter wheat1004325121
Wheat1004325221
Rye10048334384
Spring crops100421512211
Of which:
Wheat100392552111
Barley1004215421
Maize10057332143
Rice10060133231
Cotton1006832
Linen100332622
Tobacco10081212131
Potatoes100143521930
Fodder10034254154
Source: State Statistical Agency.

State farms (Shovkhozes) in transformation into collective farms (Kolkhozes).

Source: State Statistical Agency.

State farms (Shovkhozes) in transformation into collective farms (Kolkhozes).

Table 12.Tajikistan: Sale Outlets tax Selected Agricultural Products in 1994
Total 1/Delivared to or sold through:
Identified SalesProcurement OrganisationsConsumer CooperativesPublic MarketsCaterersBarterOther
(In tons, unless otherwise indicated)
Grains, total115,65324,9141,54740,58843,7174,170717
Of which:
Wheat84,54718,10066028,33734,5902,442418
Maize6,7443,874341,70296015222
Barley11,8051,1796654,4253,9651,379192
Raw cotton527,586527,159427
Potatoes29,4656,2761,23515,9204,4631,310261
Vegetables, total161,02087,6293,17650,10918,0551,701350
Of which:
Tomatoes73,19762,3419928,0621,748531
Onions47,78311,3261,12023,55310,4201,116248
Cabbage9,5334,0794984,49716620984
Carrots18,2484,2922078,7054,72630711
Grapes56,93945,7172999,055857699312
Mellons and watermellons27,5524,74567813,1388,464384143
Tobacco8,1236,7601,363
Livestock and poultry, total37,94114,0072239,92612,0141,258513
Of which:
Cows23,75410,3951695,9356,249820186
Sheep, goats10,9962,21133,4504,790404138
Pigs1,055463517843429
Poultry1,3007442413135177
Milk and dairy products99,38289,70526,0542,788833
Eggs 2/92,81577,65415613,2961,682252
Wool1,80671794626226449
Honey142262472515
(In percent of total)
Grains, total100221353841
Of which:
Wheat10021134413
Maize10057125142
Barley1001063734122
Raw cotton100100
Potatoes100214541541
Vegetables, total10054231111
Of which:
Tomatoes100851112
Onions100242492221
Cabbage10043547221
Carrots10024148262
Grapes10080116211
Mellons and watermellons100172483111
Tobacco1008317
Livestock and poultry, total100371263231
Of which:
Cows100441252631
Sheep, goats10020314441
Pigs1004457413
Poultry10057191014
Milk and dairy products10090631
Eggs10084142
Wool10044435153
Honey100181751411
Source: State Statistical Agency.

Total production for which SSA could identify sales outlet.

In thousand pieces.

Source: State Statistical Agency.

Total production for which SSA could identify sales outlet.

In thousand pieces.

Industry: Industrial production declined at an average annual rate of 17 percent from 1992 through 1994. However, with the progress on peace, industrial production was broadly unchanged in 1995 from 1994. Production declines from 1991 to 1995 varied widely across sectors, from a modest decline in electricity output to declines of over 90 percent in the output of the fuel, wood, paper and construction materials sectors (Table 13). Movements in the share of industrial output across sectors reflected relative price movements as well as output movements. For example, the doubling in the share of heavy industry between 1991 and 1994 (Table 14) largely reflects the relative increases in the prices of energy products and aluminum.

Table 13.Tajikistan: Industrial Output by Sector at Constant Prices, 1980-95
Output
Number of Enterprises 1/Employees 2/19801985199019911992199319941995 3/
(In thousands)(In millions of rubles at constant January 1994 prices)
Industry, total318148.02,036,0812,546,2693,108,6982,934,6682,148,4691,891,3261,302,8981,236,025
Of which:
Electric energy87.773,30481,64790,58389,22484,22789,36580,51879,471
Fuel, refinery52.5116,926101,53770,62053,88322,95413,3828,6456,648
Nonferrous metallurgy816.2281,640507,580753,670633,083512,164377,465349,155357,186
Chemical and petrochemical96.7116,862179,763266,038272,423125,04272,02448,97651,082
Mechanical engineering and metal working5816.0111,148138,349180,074179,534117,05691,30456,15252,053
Wood and wood-working, paper101.539,11144,90547,34753,50233,59926,5775,6612,400
Glass7,87516,19221,53928,13025,45818,4578,527
Construction material346.3193,364228,486257,888243,44688,37171,84644,83219,547
Light industry7348.1526,028617,088655,785658,408580,716655,628407,145380,273
Food7216.8346,605368,281408,751347,030232,510199,494138,848110,384
Flour grinding143.2223,218262,441356,403376,005326,372275,784154,439129,420
(1990 = 100)
Industry, total65.581.9100.094.469.160.841.939.8
Of which:
Electric energy80.990.1100.098.593.098.788.987.7
Fuel, refinery165.6143.8100.076.332.518.912.29.4
Nonferrous metallurgy37.467.3100.084.068.050.146.347.4
Chemical and petrochemical43.967.6100.0102.447.027.118.419.2
Mechanical engineering and metal working61.776.8100.099.765.050.731.228.9
Wood and wood working, paper82.694.8100.0113.071.056.112.05.1
Glass36.675.2100.0130.6118.285.739.6
Construction material75.088.6100.094.434.327.917.47.6
Light industry80.294.1100.0100.488.6100.062.158.0
Food84.890.1100.084.956.948.834.027.0
Flour grinding62.673.6100.0105.591.677.443.336.3
Sources: State Statistical Agency; and IMF staff calculations.

Number of enterprises reporting to the SSA in 1995.

For 1995; represents employment of reporting enterprises.

1995 figures were attained by applying 1995 growth rates to the figures for 1994.

Sources: State Statistical Agency; and IMF staff calculations.

Number of enterprises reporting to the SSA in 1995.

For 1995; represents employment of reporting enterprises.

1995 figures were attained by applying 1995 growth rates to the figures for 1994.

Table 14.Tajikistan: Industrial Production by Sector at Current Prices, 1985–94(In millions of Russian rubles)
1985198619871988198919901991199219931994
Total production4,5894,7124,9265,1755,2995,47412,34193,993734,7271,920.062
Of which:
A. Heavy industry1,5331,6811,9921,9441,9362,0383,99247,773349,6921,227,381
Of which:
Power generation1771611952242022955095,62674,951152,318
Metallurgy3474004385065195241,29126,470170,909604,705
Chemical production1852062152432252414714,00323,47268,892
Engineering products4134474775035205218777,01835,27777,331
Cellulose and paper8186929190841858024,9147,412
Building materials2332472602622642484692,52320,39166,304
B. Light industry2,1392,1132,1622,2142,2892,2745,82030,003247,749528,120
Of which:
Texiles1,7671,7421,8091,8461,9041,8534,82927,129225,826496,481
Clothing2952852732752983207721,87014,76525,593
Tanning and shoemaking7778808487901969397,1586,045
C. Food processing7177497627748208551,84811,09069,078163,559
Of which:
Food and flavoring4855045125245385811,2809,42354,309121,804
Meat and dairy products2262382432422742655501,62713,96540,256
Fish processing67788918408041,499
Source: State Statistical Agency.
Source: State Statistical Agency.

Energy: Tajikistan has limited amounts of oil and natural gas deposits, but their exploitation is unprofitable at current world prices and, due to a difficult geography, would require substantial investment. As a result, virtually all oil products and all natural gas are imported. The country does, as noted above, have a large potential for hydroelectric power. Tajikistan is currently both an exporter and an importer of electricity.

The civil war, the decline in GDP and the lack of external financing have led to sharp reduction in energy consumption: consumption declines between 1991 and 1994 were 90 percent for kerosene, 88 percent for gasoline, 81 percent for crude oil, 79 percent for household fuel, 62 percent for diesel fuel, and 46 percent for natural gas (Table 17). 1/

Table 15.Tajikistan: Industrial production by sector in 1995
Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec.
(Percent change from the same month of the previous year)
Total−28.8−12.2−29.3−30.8−20.6−15.08.4−14.927.3−1.72.3−4.3
Of which:
Electricity−14.7−31.0−2.4−32.5−21.4−26.9−11.0−10.2141.2−7.22.15.9
Fuel−51.1−46.1−54.5−49.8−62.5−43.4−36.1−31.112.025.115.3−27.6
Nonferrous metalurgy−22.21.7−19.2−11.610.28.336.212.530.2−6.04.00.9
Chemical and petrochemical−71.352.3−42.5−54.6−41.71.521.432.64.069.9−4.526.9
Tool making−47.0−35.4−1.3−6.00.2−32.9−2.0−11.3−12.058.4−34.355.9
Wood−78.02.9−63.8−82.3126.8−57.2−65.0−58.0−28.1−3.3−3.2−46.0
Construction material−42.9−69.8−76.3−83.1−74.2−69.613.2−80.7−16.423.1−63.943.2
Light industry−44.5−32.5−51.4−21.2−21.0−25.3−21.2−54.667.16.813.11.8
Food Industry−17.6−24.2−42.3−32.8−34.3−40.3−41.9−6.98.3−24.3−27.9−11.8
Flour grinding21.7133.59.1−70.5−55.228.444.0−28.610.0−57.831.6−44.8
Source: State Statistical Service.
Source: State Statistical Service.
Table 16.Tajikistan: selected Indicators of Industrial production, 1985–95
1985199019911992199319941995
Machine tools (thousands)5.96.73.40.41.1
High-capacity electrical transformers (thousand kw)2,5722,0541,6824892542941
Aluminum (thousand tons)316450380345252237237
Cement (thousand tons)1,0801,0681,01344726217878
prefabricated reinforced concrete construction elements (thousand cubic meters)1,0671,06896541632618036
construction bricks (thousand cubic meters)305298263144936848
Asbestos-roofing (million sheets)12695331886
Lumber/Timber (thousand cubic meters)12195723315111
Roofing materials (million square meters)10.39.55.41.80.80.1
caustic sods (thousand tons)54.645.331.316.46.15.62.2
Fertilizers (thousand tons)88.481.583.552.819.77.912.6
Detergents and soaps (thousand tons)19.019.121.218.85.13.90.6
Kintwear (million items)12.615.711.28.27.64.12.2
Cotton fabrics (million square meters)10812210358573929
Woolen fabrics (million square meters)1223310.3
Silk fabrics (million square meters)6576696654248.4
Rugs, carpets (million square meters)9.910.97.68.55.72.10.7
Hosiery (million pairs)33.159.849.235.834.716.84.5
Shoes (million pairs)9.810.98.65.54.00.90.6
Refrigerators and freezers (thousands)125.7166.9145.261.318.03.20.1
Source: State Statistical Agency.
Source: State Statistical Agency.
Table 17.Tajikistan: Fule consumption,1990–95(In tons, unless otherwise indicated)
GasolineKeroseneDieselHousehold FuelCrude OilEngine FuelNatural Gas 1/Liquified GasCoalCoke (dry)Firewood 2/Other
1990year542,49154,150389,54611,627596,7447,8631,772,92423,578466,01423,00653,6744,382
1991Q1104,5406,32298,7223,072118,8971,762619,6514,701107,4861,82329,82112
Q2105,4694,740101,2171,94881,3711,609369,2045,66272,1451,84132
Q3157,61670,428194,5962,351199,1642,451336,57510,270106,1829,2771,143
Q4157,61570,428194,5952,350199,1632,450478,90110,269106,1829,27725,3871,142
year525,240151,918589,1309,721598,5958,2721,831,33130,902391,99522,21888,2032,329
1992Q1153,4832,75181,0361,425149,1031,754638,81321,07776,7982,53313,575400
Q24,2134,49198,5947,97578,824999360,89620,68236,3292,1403,861134
Q336,18630750,10134740,232139267,99913,00921,5602,6798,082237
Q476,24637,55046,54734743,5201,120365,63828,14228,3332,4373,426236
year270,12845,099276,27810,094311,6794,0121,633,34682,910163,0209,78928,9441,007
1993Q132,02379880,4882,39236,62486586,1602,16128,2511,3352,32290
Q232,02279880,4872,39136,62486277,9952,16028,2511,3342,32389
Q352,4201,07271,3062,17963,126200201,36411,46417,7671,4332,435962
Q452,4201,07171,3062,17863,125200328,33111,46317,7671,4332,435961
year168,8853,739303,5879,140199,4995721,393,85027,24892,0365,5359,5152,102
1994Q117,0934,99146,2091,64462,57889410,41926635,7059182,178119
Q216,1561,54752,73422214,99518206,3403628,7737672,411977
Q316,1566,36052,73422114,99518130,8893618,7727662,410976
Q412,0412,48874,6022023,143137246,812896,235169395123
year61,44615,386226,2792,107115,711262994,4601,07859,4852,6207,3942,195
1995Q15,8223,25936,6253158337,8376546,9805661,546130
Q29,1394,19244,42912739189,3294163,692220495
Q395,738
Source: State Statistical Agency.

In thousand cubic meters.

In cubic meters.

Source: State Statistical Agency.

In thousand cubic meters.

In cubic meters.

Before July 1993, gas was imported from Turkmenistan via Uzbekistan. Arrears started to accumulate in July 1993 when correspondent accounts were closed and limits set on interstate borrowing. Since July 1993, almost all gas has been imported from Uzbekistan, reportedly because Uzbekistan refused trans-shipment of Turkmen gas on the grounds that its pipeline system lacked the capacity to handle Tajikistan’s import volumes.

Since the first half of 1993, gas prices have been expressed in U.S. dollars. The price was set at US$46.6 per thousand cubic meters in the second half of 1993, increased to US$84 in 1994 and for the first nine months of 1995, and was lowered to US$64 on October 1, 1995. 1/ Payment was made partly in foreign currency and partly in kind. Payment arrears for gas imports have been converted into state debt (see Section VI).

Until July 1995, all gas was imported by Tajikgas. Since then, the aluminum company has been importing gas through its own pipeline, under a separate contract. Since October 1995, other major enterprises (including textile plants and the electric power plant) connected with exclusive pipelines have started importing gas under separate contracts. Tajikgas now sells only to public organizations (municipalities, schools, hospitals), households and enterprises which lack access to an independent pipeline.

Currently, the full cost of imported gas is not passed on to the population. Charges depend on installed household capacity, which is often under-reported. Prior to a rate increase in November 1995, Tajikgas collected about 75 percent of its bills; collection rates with the new tariff schedule are not yet known. The difference between the cost of gas and the below cost price to the population was covered by enterprises: they were required to supply Tajikgas with goods to be delivered to Uzbekistan as payment for gas. There was also substantial cross-subsidization, as industrial enterprises were charged more than the import price plus distribution costs. Since December 1994, prices for industrial users have been indexed to the U.S. dollar, and since November 1995 payment has to be made in U.S. dollars or in goods that can be sold for foreign exchange.

III. Prices and Wages

1. Price developments during 1994 and early 1995

In 1994 and 1995, until the Tajik ruble was introduced as the national currency, Tajikistan had two price systems, one based on cash and the other on noncash transactions. This distinction between cash and noncash prices developed in 1994, as cash in circulation remained relatively scarce while noncash money increased rapidly due to a rapid expansion of credit (see Section V.3). This led to a large and increasing premium for cash relative to noncash, and an informal exchange rate between noncash and cash which reached 20:1 in late 1994. However, the exchange rate between cash and noncash money was far from homogenous, and the premiums associated with cash transactions typically depended on the product and the parties involved in the transaction, as well as time and location. For example, some transactions between state-owned enterprises continued to be conducted at cash prices—prices which had not undergone the inflation of noncash prices elsewhere in the economy—even though they were settled in noncash.

CPI changes largely reflected cash price developments, since the CPI survey covers mainly retail outlets transacting in cash (Chart 4). WPI movements, on the other hand, represented a mixture of cash and noncash inflations, as the WPI covers both types of transactions and, as stated above, within the state sector some noncash prices for intermediate inputs did not reflect the depreciation of noncash money in retail transactions.

Chart 4TAJIKISTAN: Consumer 1/ and Wholesale Price Inflation, 1991-95

Source: Stale Statistical Agency.

1/ Retail prices until 1993; consumer prices thereafter.

The distinction between cash and noncash prices is crucial in interpreting CPI and WPI inflation in 1994. Following the introduction of the 1993 Russian ruble as legal tender, there was a large and sudden contraction of currency in circulation, as pre-1993 rubles withdrawn from circulation were only gradually replaced with new Russian rubles. This was reflected in a fall in the CPI by 30 percent from January to March 1994 (Table 21). On the other hand, the WPI increased almost 30 percent during the same period (Table 22), reflecting loose credit policies.

Table 18.Tajikistan: Electricity Consumption and Output, 1980–94(In billions of kilowatt hours)
19801985198619871988198919901991199219931994
Output13.615.713.615.918.215.318.217.616.817.7
Hydropower stations12.614.412.114.617.013.816.916.415.917.1
Thermal power stations1.01.31.51.31.21.51.31.20.90.6
Imports 1/4.15.57.46.55.58.06.96.96.45.24.7
Total internal consumption9.715.316.616.917.719.119.419.117.617.2
Industry4.68.79.49.910.811.211.110.79.78.0
Construction0.30.40.40.40.40.40.40.30.10.1
Agriculture2.73.53.73.53.84.04.24.54.34.5
Transport0.10.10.10.10.10.10.20.20.10.1
Other sectors0.40.50.50.60.60.60.60.50.40.3
Households0.71.01.11.11.21.31.31.11.21.4
Losses0.91.11.41.31.41.51.61.81.82.2
Discrepancy−0.60.6
Exports85.94.45.56.04.25.75.445.645.685.17
States of the former U.S.S.R.85.94.45.56.04.25.75.45.65.64
Other countries0.040.040.04
Source: State Statistical Agency.

All electricity imports come from states of the former U.S.S.R.

Source: State Statistical Agency.

All electricity imports come from states of the former U.S.S.R.

Table 19.Tajikistan: Indices of Real GDP, Employment and Energy Consumption, 1990–94(1990 = 100)
19911992199319941995
Real GDP92.966.058.746.140.3
Employment101.698.495.195.1
Energy consumption Electricity 1/98.490.785.6
Oil and oil products 2/112.056.143.826.3
Coal84.135.019.712.8
Natural gas 3/103.392.178.656.1
Sources: State Statistical Agency; and IMF staff calculations.

Total electricity consumption excluding household consumption and unaccounted losses.

Sum of gaslion, diesel, crude oil, and engine fuel consumption.

Includes household consumption due to data availability problems.

Sources: State Statistical Agency; and IMF staff calculations.

Total electricity consumption excluding household consumption and unaccounted losses.

Sum of gaslion, diesel, crude oil, and engine fuel consumption.

Includes household consumption due to data availability problems.

Table 20.Tajikistan: Sectoral Output, Employment, and Electricity Consumption, 1990–94(1990 = 100)
1991199219931994
Industry
Output94.469.160.841.9
Employment98.495.881.778.8
Electricity consumption96.487.472.1
Agriculture
Output95.670.167.067.0
Employment105.7106.9113.7120.9
Electricity consumption107.1102.4107.1
Transport
Output90.035.713.99.9
Employment 1/100.587.0112.897.4
Electricity consumption100.050.050.0
Construction
Output78.139.328.619.5
Employment91.982.378.065.2
Electricity consumption75.025.025.0
Sources: State Statistical Agency; Ministry of Labor; and IMF staff calculations.

Employment data refers to sum of transport and communications.

Sources: State Statistical Agency; Ministry of Labor; and IMF staff calculations.

Employment data refers to sum of transport and communications.

Table 21.Tajikistan: Consumer Price Inflation, 1993–95 1/
Overall CPIFoodstuff 2/NonfoodServices
(Monthly changes in percent)
1993Jan.19.020.212.350.3
Feb.24.426.422.421.6
Mar.34.634.026.477.5
Apr.63.960.972.849.7
May33.731.042.023.9
June17.321.315.321.5
July31.825.540.233.7
Aug.43.082.88.814.5
Sep.36.432.447.621.1
Oct.25.117.529.453.4
Nov.63.276.764.410.9
Dec.176.9
1994Jan.−23.2−26.8−0.251.6
Feb.−4.4−16.7−14.33.1
Mar.−4.2−4.6−4.80.5
Apr.3.1−2.6−1.445.9
May5.13.84.611.4
June2.72.70.16.8
July4.020.70.5−2.2
Aug.5.96.58.00.5
Sep.3.44.72.80.7
Oct.6.68.02.87.0
Nov.1.61.33.10.2
Dec.4.76.71.31.5
1995Jan.13.311.617.413.6
Feb.10.913.24.512.4
Mar.17.922.23.522.4
Apr.20.930.66.813.2
May 3/15.054.65.236.3
June8.2−12.534.311.0
July6.76.813.5−0.9
Aug.78.183.9107.39.8
Sep.62.964.564.936.4
Oct.56.954.863.545.8
Nov.23.122.121.137.1
Dec.67.585.611.632.
(Percent change during the period)
1993Q199.3103.673.7224.4
Q2157.0155.7182.9125.4
Q3157.1203.7125.185.4
Q4465.3
1994Q1−29.7−41.8−18.657.1
Q211.33.83.273.6
Q313.934.611.6−1.0
Q413.416.77.48.8
1995Q148.154.427.056.3
Q2 3/50.476.750.971.3
Q3209.6223.1288.048.4
Q4223.5250.8121.0165.7
19937,343.7
19941.1−5.10.7193.7
19952,131.92,991.21,542.6955.4
Source: State Statistical Agency.

Retail price index through 1993; consumer price index thereafter.

Food comprises approximately 3/4 of the total weight.

The May 1995 figure for overall CFI inflation is an estimate incorporating price realignments during the 1995 currency reform, and is thus not directly comparable to the May 1995 figures for food, nonfood and service inflation.

Source: State Statistical Agency.

Retail price index through 1993; consumer price index thereafter.

Food comprises approximately 3/4 of the total weight.

The May 1995 figure for overall CFI inflation is an estimate incorporating price realignments during the 1995 currency reform, and is thus not directly comparable to the May 1995 figures for food, nonfood and service inflation.

Table 22.Tajikistan: Wholesale Price Inflation—Selected Categories 1993–95
Overall WPIFoodstuffFuelIndustry Light
(Monthly changes in percent)
1993Jan.146.1
Feb.83.2
Mar.50.0
Apr.41.5
May13.2
June16.0
July17.9
Aug.23.3
Sep.13.1
Oct.74.8
Nov.24.3
Dec.35.8
1994Jan.10.97.043.217.0
Feb.11.12.719.22.9
Mar.5.4−1.519.471.6
Apr.2.7−0.50.5
May24.50.9−1.040.0
June25.316.150.024.6
July14.90.29.7
Aug.6.54.21.012.3
Sep.11.0−0.24.111.8
Oct.5.50.35.6
Nov.12.72.313.411.1
Dec.17.450.60.4
1995Jan.2.80.97.8−0.7
Feb.19.06.034.512.0
Apr.4.65.10.1
Apr.6.81.46.56.7
May6.311.512.8
June10.627.71.99.7
July−0.26.914.21.0
Aug.7.317.13
Sep.35.246.287.3
Oct.59.814.795.040.1
Nov.65.239.017.5
Dec.18.627.417.1
(Percent changes end period)
1993Q1576.3
Q285.8
Q364.4
Q4195.1
1994Q129.98.2103.8106.6
Q260.216.648.575.3
Q335.84.25.137.7
Q439.654.513.417.8
1995Q128.012.445.011.3
Q225.644.48.532.0
Q344.883.014.294.8
Q4213.1103.195.092.8
19935,995.9
1994294.5103.1260.9487.6
1995628.3503.3250.4452.1
Source: State Statistical Agency.
Source: State Statistical Agency.

As a result of the continuing shortage of cash and rapid credit growth, WPI inflation substantially exceeded CPI inflation throughout 1994. Monthly CPI inflation averaged just over 4 percent in the last half of 1994 compared with a continuation of over 10 percent monthly WPI inflation. This pattern was, however, reversed in the first four months of 1995 as a result of several factors: 1) the receipt of a large (Rub 21 billion) cash shipment from Russia in March 1995, enabling payment of some back wages and pensions; 2) the imposition of tight credit ceilings in February, which froze credit and broad money until April; and 3) an extensive consumer price liberalization between January and May (see Section VII). As a result, CPI inflation averaged almost 16 percent in the period January-April 1995, while WPI inflation averaged just over half that rate.

2. Price developments since the introduction of the national currency

One of the main objectives of the currency introduction was to reestablish full convertability of deposit money into cash at par. The currency conversion had been designed to produce Tajik ruble (TR) cash prices which were lower than prevailing Russian ruble (Rub) prices by a factor of 50. In the event, TR cash prices as measured by the CPI were set at a level lower than the prevailing Rub prices by a factor of ninety, for reasons described in Annex 1. 1/

Following the currency conversion, Tajikistan experienced relatively modest CFI inflation in June and July. This was in part due to seasonal influences, such as declines in the prices of certain foodstuffs, but was primarily due to the lagged effects of the strict credit policies pursued in the months prior to the currency conversion. In August, however, CPI inflation accelerated to 78 percent—the highest monthly rate since December 1993. While the liberalization of bread prices on August 20 contributed to this increase, the main reason was the high rate of credit and monetary expansion. Credit policy remained expansionary throughout most of the second half of 1995, resulting in an average monthly CPI inflation of over 57 percent in the last five months of the year.

3. Wage developments

In Tajikistan, budgetary wages are tied to the minimum wage through a system of coefficients, or ratios to the minimum wage. As a result, any increase in the minimum wage is automatically passed on to the wages of government employees. Outside the budgetary sphere, there is no longer centralized wage setting; the only formal restriction on enterprise wages is the minimum wage.

Average wages kept up with the modest CPI inflation during 1994, but decreased in real terms in early 1995 (Table 24). In May 1995, just before the introduction of the national currency, the Government increased the minimum and average budgetary wages by 80 percent. While this increase did not restore average real wages to their 1994 level, it substantially increased government wages relative to wages in other sectors. After the currency introduction in May, government and minimum wages remained unchanged in nominal terms, and were thus eroded by the high inflation in the second half of 1995. For the year, real wages in 1995 averaged about 50 percent of their average level in 1994; the average wage at the end of 1995 was under US$4. This was the lowest in the states of the former U.S.S.R., about one-third the dollar wage in Armenia and Azerbaijan, and only one-tenth the level in neighboring Kyrgyz Republic and Uzbekistan (Chart 5).

Table 23.Tajikistan: Wholesale Prices in 1995(Monthly changes in percent)
WeightsJan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec.
Total100.02.819.04.66.86.310.6-0.27.335.259.865.218.6
Electricity6.179.0258.8154.1
Fuel0.47.834.56.51.914.295.0
Non-ferrous industry28.734.40.60.148.312.30.185.4131.129.1
Chemical industry4.388.248.30.7101.4
Tool making6.44.328.233.34.17.94.666.059.5
Forestry0.9−5.15.090.5−17.165.78.7
Construction material2.7112.716.52.712.720.247.8−27.10.35.5122.79.5
Glass0.431.213.610.615.9−4.669.33.9
Light Industry32.6−0.712.00.16.712.89.71.03.087.340.117.517.1
Foodstuff17.60.96.05.11.411.527.76.917.146.214.739.027.4
Meat25.112.54.620.825.754.2
Dairy products100.427.533.958.030.6149.2
Fish25.79.011.7
Flour mills−0.8−6.240.93.112.125.132.446.75.382.323.8
Source: State Statistical Agency.
Source: State Statistical Agency.
Table 24Tajikistan: Monthly Wages. 1/ 1993-95
Average Monthly Wage
Total EconomyIndustryAgricultureConstructionNonmaterial productionMinimum WageReal Wage 2/ (Total economy)
(In rubles) 3/(January 1994=100)
1993
January3,9528,1791,4914,7123,3772,000620.9
February4,8878,7632,2806,0534,7682,000617.3
March6,31610,8683,0879,3086,5522,000592.6
April6,86513,5533,29912,3996,3222,000393.0
May8,19516,3544,17815,8507,2954,000350.9
June12,52121,0307,11824,42614,3854,000457.1
July13,54324,1247,70231,61912,0914,000375.1
August13,23426,2586,16830,43112,3054,000256.3
September17,26433,0679,23835,92614.1754,000245.1
October20,99338,97813,72140,35816,5048,000238.3
November23,93145,82913,93250,90218,5328,000166.4
December34,49765,37823,55874,63422,7538,00086.6
1994
January30,57659,83812,65355,89922,3908,000100.0
February31,00460,44011,60561,83024,0528,000106.1
March36,72471,35414,99264,68229,5098,000131.1
April35,44571,87013,82280,62431,6868,000122.8
May35,90468,31916,56970,03835,6158,000118.3
June40,22669,88621,59389,90736,5728,000129.1
July35,37366,33416,73684,76834,0848,000109.1
August35,72766,53318,00283,35834,6918,000104.1
September38,38567,44222,15269,00937,0688,000108.2
October38,97266,75424,68280,54034,0898,000103.0
November37,80567,09322,88280,02932,6168,00098.4
December50,93276,66039,192103,08842,3388,000126.6
1995
January39,09073,31613,35379,72433,0258,00085.7
February39,65878,70012,91883,87734,8388,00078.4
March43,61084,34218,09680,58037,7238,00073.2
April49,51987,92920,31883,73555,7518,00068.7
May6061,1272761,00859214465.8
June7791,5953591,21678314478.2
July7711,5003641,85074714472.5
August7791,5864091,53977714441.1
September9631,8436651,88377514431.2
October1,1422,3398322,51788814423.6
November1,0322,3715762,20785214417.3
December
Source: State Statistical Agency.

Table reflects wages due. Between May 1994 and May 1995, in many instances wages either were not paid or were paid in noncash.

Deflated by the CPI.

In Russian rubles until April 1995 and in Tajik rubles thereafter.

Source: State Statistical Agency.

Table reflects wages due. Between May 1994 and May 1995, in many instances wages either were not paid or were paid in noncash.

Deflated by the CPI.

In Russian rubles until April 1995 and in Tajik rubles thereafter.

Chart 5TAJIKISTAN: Wages, 1993-95

Sources: State Statistical Agency and IMF staff calculations.

The path of real and nominal payroll wages (Tables 24 and 25), however, bears little relationship to actual earnings, for two reasons. First, earnings from nonwage sources and payments in kind, which have risen in relative importance, are omitted. Second, nominal wages reflect wages earned, rather than wages paid. Substantial wage arrears were accumulated during 1994 and 1995, particularly in the budgetary sphere, as well as among state and collective farms. Table 26 gives an indication of the discrepancy between the economy-wide monthly wage bill and actual wage disbursements during 1994 and 1995. It shows a sharply decreasing ratio between wages actually disbursed and wages earned from January to April 1994. In the year from May 1994 through April 1995, an average of just over 20 percent of wages were disbursed each month. 1/

Table 25.Tajikistan: Average Monthly Wages by Sector, 1985-94
1985198619871988198919901991199219931994
(In Russian rubles)
Total economy157.8162.0165.9177.1188.3206.9339.81,915.616,204.834,904.0
Agriculture135.3141.8141.5151.3160.1176.6314.81,424.511,097.018,192.0
Industry175.2178.6181.9198.5213.7230.8389.42,521.826,906.065,162.0
Forestry119.5119.5125.6129.8151.4164.1229.21,321.710,721.018,171.0
Transportation176.0178.0182.4195.4204.3223.1323.81,611.617,916.047,377.0
Communications136.0139.3143.8160.0172.6190.8329.92,083.617,299.046,661.0
Construction200.4205.3212.2232.9252.5276.3434.22.616.032,377.076,674.0
Trade and supplies134.9138.3138.1142.9155.1190.0295.01,440.415,594.033,478.0
Housing and municipal services119.0120.5121.5129.7142.7159.8272.91,814.716,108.038,046.0
Health care131.1132.1133.2144.7145.8167.4269.21,557.510,384.026,018.0
Education161.4166.6178.8180.3180.3182.6294.11,720.812,072.028,341.0
Culture 1/111.5112.8113.1116.5119.1142.5233.51,445.310,317.022,532.0
Arts136.9137.5143.4145.5151.2173.0274.11,428.6……
Sciences184.5188.4197.0230.0259.6287.5435.22,533.916,567.044,508.0
Banking and insurance157.7163.6167.0178.6192.1296.0712.44,664.941,304.0113,959.0
Management of state and other public bodies152.0157.0166.1179.1210.7300.0419.32,994.322,576.043,106.0
(Percentage change) 2/
Total economy1.62.72.46.86.39.964.2463.7745.9115.4
Agriculture1.74.8−0.26.95.810.378.3352.5679.063.9
Industry2.11.91.89.17.78.068.7547.6966.9142.2
Forestry0.35.13.316.68.439.7476.7709.2711.169.5
Transportation0.71.12.57.14.69.245.1397.71,011.7164.4
Communications1.42.43.211.37.910.572.9531.6730.2169.7
Construction2.22.43.49.88.49.457.1502.51,137.6136.8
Trade and supplies0.72.5−0.13.58.522.555.3388.3982.6114.7
Housing and municipal services1.21.30.86.710.012.070.8565.0787.6136.2
Health care0.80.80.88.60.814.860.8478.6566.7150.6
Education2.73.27.30.81.361.1485.1571.3601.5134.8
Culture 1/0.51.20.33.02.219.663.9519.0613.8118.4
Arts1.10.44.31.53.914.458.4421.2……
Sciences1.22.14.616.812.910.751.4482.2553.8168.7
Banking and insurance1.93.72.16.97.654.1140.7554.8785.4175.9
Management of state and other public bodies0.73.35.87.817.642.439.8614.1654.090.9
Sources: Ministry of Labor; and IMF staff calculations.

In 1993 and 1994 this number refers to employment in culture and arts combined.

Percentage change information for 1985 indicates the annual average over the period 1980–85.

Sources: Ministry of Labor; and IMF staff calculations.

In 1993 and 1994 this number refers to employment in culture and arts combined.

Percentage change information for 1985 indicates the annual average over the period 1980–85.

Table 26.Tajikistan: Monthly Wage Bill and Wage Disbursements, 1994-95
Monthly Wage Bill 1/ (1)Monthly Wage Disbursement 2/ (2)Percent of Wages Disbursed (2)/(1)
(In million of rubles) 3/(In percent)
1994January31,50927,72088.0
February34,59215,05743.5
March43,13311,82227.4
April44,2535,03811.4
May46,4447,48616.1
June54,75017,01931.1
July48,8725,63911.5
August48,90412,71426.0
September52,6594,5868.7
October52,28412,40323.7
November49,91817,41934.9
December65,80912,15718.5
1995January42,0896,19614.7
February43,6826,07013.9
March50,97719,50238.3
April59,3198,78814.8
May (1-9)4/20,5005,59427.3
May (10-31)4/53330557.2
June96364066.5
July97669871.5
August9941,231123.8
September1,2471,287103.2
October1,4831,23783.4
November1,3281,28496.7
December1,524
Sources: State Statistical Agency (SSA); National Bank of Tajikistan; and IMF staff calculations.

Total economy excluding private farm employment. SSA estimate based on enterprise data.

NBT estimate of total cash disbursement of wages and salaries by the banking system.

Russian rubles before May 10, 1995; Tajik rubles thereafter.

The wage bill figure is based on SSA’s estimate of TR 738 million for May 1995.

Sources: State Statistical Agency (SSA); National Bank of Tajikistan; and IMF staff calculations.

Total economy excluding private farm employment. SSA estimate based on enterprise data.

NBT estimate of total cash disbursement of wages and salaries by the banking system.

Russian rubles before May 10, 1995; Tajik rubles thereafter.

The wage bill figure is based on SSA’s estimate of TR 738 million for May 1995.

There was a sharp rise in the share of wages paid after the introduction of the national currency, with economy-wide wage payments averaging over 90 percent of wages due from June through September 1995. There was a net reduction of budgetary wage arrears in the fourth quarter of 1995. Thus, while December 1995 wages earned were less than one-fifth of their December 1994 level in real terms, the decline in real wages paid was only an estimated 20 percent.

In addition to changes in the real value of wages earned and the portion of wages paid, household incomes were affected by changes in bread price compensation payments (see Annex 3). These changes contributed to a further decline in household incomes in May 1995, when this allowance was abolished at the time of the currency reform, and a somewhat offsetting increase in incomes for vulnerable households in August and December 1995, when bread price compensation payments were reintroduced and doubled, respectively..

IV. Public Finance

1. Structure of Government

The general government consists of the republican government, 19 local governments 2/ and the social security funds: the Pension Fund, Employment Fund, and Social Insurance Fund. Until its abolition in mid-1995, there was also a State Foreign Exchange Fund. Occasionally, the authorities have transferred resources between state enterprises via extra-budgetary operations. Also, the NBT has at times undertaken quasi-fiscal operations at the behest of government.

The republican budget finances higher education, defense, justice, major infrastructure projects, bread compensations and general subsidies. Local governments are responsible for hospitals, elementary and secondary education and local infrastructure projects. The main sources of revenue for the state budget—which is the consolidation of the republican and local budgets—are the value-added tax (VAT), enterprise profit tax, personal income tax, and excise and customs taxes. Revenues are divided between the republican and local budgets; local governments receive the personal income and land taxes, 50 percent of the enterprise profit tax, and a share—which varies by local government—of VAT and excises collected locally.

The social security funds provide benefits that, combined with general subsidies and transfers from the republican and local governments, constitute a broad but poorly targeted social safety net. These funds are largely financed from payroll taxes. The Pension Fund provides old-age, disability and social pensions, and child allowances; it has an autonomous administration, with policies set by the Ministry of Social Welfare. Family benefits are administered by the Pension Fund, but financed by budgetary transfers. The Employment Fund is independent of the budget, but managed by the Ministry of Labor and Employment. The Social Insurance Fund is also independent of the budget; it is in charge of health-related benefits, and is managed by the trade unions. The operations of the social security funds and the social safety net are described in greater detail in Annex III.

2. Fiscal developments prior to the currency introduction

Interpreting budgetary developments in 1994, and up to the currency introduction on May 10, 1995, is complicated by the fact that the government budget treated cash and noncash interchangeably. As most revenues were in nearly value-less noncash, and important expenditures—such as wages and social benefits—had to be paid largely in cash, official figures significantly overstate revenue/GDP ratios, understate expenditures relative to GDP, and therefore understate deficits relative to GDP. In the absence of separate information on cash and noncash transactions, no comparison of budgetary figures before and after May 10, 1995 is meaningful.

The assessment of fiscal policy in 1994 and early 1995 is further complicated by the existence of the State Foreign Exchange Fund. Until its abolition in mid-1995, this fund was involved in sometimes large extra-budgetary foreign exchange operations, including making payments for external debt obligations and some imports of grain and gas. This fund was financed by surrender requirements on the foreign exchange earnings of the aluminum and cotton monopolies. These enterprises were entitled to payment from the budget for their foreign exchange—in noncash rubles at the prevailing exchange rate for cash—but did not always receive payment in full or on a timely basis. As there is little information available on the operations of the State Foreign Exchange Fund, the following discussion excludes its operations.

a. The 1994 outcome

Budgetary outcome: Based on the authorities’ data, the state budget deficit, on a cash basis, 1/ was reduced from 25 percent of GDP in 1993 to 10.5 percent in 1994 (Table 27 and Chart 6). These deficits were financed by credits from the NBT. The major factors behind the apparent reduction in the cash deficit were the relative overstatement of the value of taxes and understatement of expenditures, as described above, as well as the accumulation of wage and other expenditure arrears totalling 13 percent of GDP. As a result of these factors, the overall deficit of the general government as officially reported gives a severely distorted picture of the fiscal stance in 1994; it is possible that the true underlying fiscal stance deteriorated further. Despite significant noncash revenues, the state budget came under increasing pressure during the year as a result of several factors: the lack of cash to pay wages and social benefits; rising bread subsidies in the face of fixed administered prices; higher than anticipated capital outlays related to reconstruction; and deepening inadequacies in tax administration.

Table 27Tajikistan: State Budget By Economic Classifications of Expenditure 1992-95
1992199319941995
Jan 1–May 10May 11–sep 30Fourth QuarterMay 11–Dec 31
(In millions of Russian before May 10, 1995 and in millions of Tajik rubles thereafter)
Total revenue17,235171,224765,290582,3442,2044,7736,977
Tax revenue16,622159,195725,086447,2131,3474,5035,849
Individual income tax1,65413,95451,74822,823205345550
Enterprise profits tax5,77845,527207,831162,6513841,0831,467
Value-added tax4,34165,417248,720164,5924051,1451,550
Excise taxes2,29813,40196,41248,0851591,1611,320
Customer revenue885,90054,17031,75074352426
Other taxes2,46314,99666,20517,312119417536
Non–tax revenue 1/61312,02940,204135,1318572711,128
Expenditure 2/37,453329,056945,245490,1052,8549,27812,132
Current31,587288,951689,624441,5692,6948,32511,019
Wages and salaries6,73553,720125,34067,4501,5221,8793,401
Goods and ser and other 3/15,390124,679257,832184,0577855331,318
Subsidies7,05956,880220,175136,3721854,2924,477
Social safely net1,97144,94886,27724,990202295497
Total interest4328,72428,7001,3261,326
Capital5,86640,105255,62148,5361609541,114
Balance on cash basis (deficit –)−20,218−157,832−179,95592,239−651−4,505−5,156
Balance on accrual basis−20,218−157,832−395,955−2,761−2,347−7,509−9,856
Of which identified expenditure arrears216,00095,0001,6963,0044,700
Financing20,218157,832179,955−92,2396514,5055,156
External
Domestic19,796156,419174,871−97,0006304,3014,931
Privatization proceeds4221,4135,0844,761212044,931
Memorandum items:
GDP64,760632,0001,717,9741,058,18017,10328,75045,853
(In percent of GDP)4/
Total revenue26.627.144.555.012.916.615.2
Tax revenue25.725.242.242.37.915.712.8
Individual income tax2.62.23.02.21.21.21.2
Enterprise profits tax8.97.212.115.42.23.83.2
Value-added tax6.710.414.515.62.44.03.4
Excise taxes3.52.15.64.50.94.02.9
Customs revenue0.10.93.23.00.41.20.9
Other taxes3.82.43.91.60.71.51.2
Non - tax revenue 1/0.91.92.312.85.00.92.5
Expenditure 2/57.852.155.046.316.732.326.5
Current48.845.740.141.715.829.024.0
Wages and salaries10.48.57.36.48.96.57.4
Goods and ser and other 3/23.819.715.017.44.61.92.9
Subsidies10.99.012.812.91.114.99.8
Social safety net3.07.15.02.41.21.01.1
Total interest0.71.42.74.62.9
Capital9.16.314.94.60.93.32.4
Balance on cash basis (deficit –)−31.2−25.0−10.58.7−3.8−15.7−11.2
Balance on accrual basis−31.2−25.0−23.0−0.3−13.7−26.1−21.5
Of which identified expenditure arrears0.00.012.69.09.910.410.3
Financing31.225.010.5−8.73.815.711.2
External
Domestic30.624.710.2−9.23.715.010.8
Privatization proceeds0.70.20.30.40.10.70.5
Sources: Ministry of Finance; and IMF staff estimates.

Includes sales (TR 265 million) of hard currency and gold in 1995.

1995 outcome includes wheat purchases of TR 33 billion.

Includes purchases (TR 451 million) of hard currency and gold in 1995.

Due to differential value of cash and non-cash prior to the currency reform of May 1995, fiscal perfomance in percent of GDP before the currency reform is not comparable to one thereafter.

Sources: Ministry of Finance; and IMF staff estimates.

Includes sales (TR 265 million) of hard currency and gold in 1995.

1995 outcome includes wheat purchases of TR 33 billion.

Includes purchases (TR 451 million) of hard currency and gold in 1995.

Due to differential value of cash and non-cash prior to the currency reform of May 1995, fiscal perfomance in percent of GDP before the currency reform is not comparable to one thereafter.

Chart 6TAJIKISTAN: State Budget, 1992-95 1/

Source: State Statistical Agency.

1/ The break in the graph reflects the fact that data before and after the currency conversion are not comparable.

The extrabudgetary social security funds ran a 1994 surplus of 5 percent of GDP on a cash basis, while accumulating roughly five months of pension and unemployment compensation arrears. On an accrual basis, these funds ran a surplus of 3 percent of GDP, compared to a balanced position in 1993.

Revenue performance: 2/ Tax revenue increased in 1994 to 42 percent of GDP, substantially above the 25 percent of GDP in 1993. The main reason for this increase in tax revenue was that taxes were paid in increasingly worthless noncash rubles. Additional factors included higher customs revenues and excise collections due to higher world prices for cotton, and tax rate hikes for the VAT, excises, and enterprise profit taxes. 3/ Tax evasion continued to be a problem. Evasion was largely explained by three factors: poor tax administration, the absence of a tax code and a weak legislative framework for collecting from tax evaders.

The tax structure in Tajikistan placed heavy reliance on the VAT and enterprise profit taxes, which accounted for almost 60 percent of total tax revenue in 1994. One serious deficiency in Tajikistan’s tax laws was the numerous exemptions for selected taxpayers. This problem was compounded by the fact that Parliament and the Ministry of Finance had the right to grant additional exemptions and deferrals. Significant examples included the effective exemption of state and collective farms from the VAT and the enterprise profit tax; enterprise profit tax exemptions for some new small businesses and joint ventures; and the deductibility of enterprises’ outlays on health, education, culture and housing. These exemptions and deferrals reduced the neutrality of the tax system and narrowed the tax base.

In July 1994, the enterprise profit tax rate was increased from 32 to 40 percent; the ratio of the profit tax to GDP rose by 5 percentage points in 1994. Personal income tax threshold levels were adjusted upward, in line with inflation. Revenue from this tax increased modestly relative to GDP, despite the accumulation of wage arrears throughout the economy. Personal income tax collections were low relative to GDP, with little progressivity; almost the entire population was taxed at rates of 10 and 15 percent.

Also in July 1994, a 3 percent surcharge was imposed on top of the existing 20 percent VAT rate. The revenue yield of the VAT rose by 4 percent of GDP, reflecting the increase in the rate and the reduction in inflation. The yield of the land tax was unchanged in 1994, at about 0.2 percent of GDP (Table 28). Export tariffs had been introduced in July 1993, but yielded little revenue that year. In January 1994, the Government centralized cotton exports in one state agency, simplifying customs collection. In addition, the dollar price for exported cotton rose 58 percent and the customs committee was strengthened through improved legislative powers, an increase in the number of personnel and enhanced training. Together, these factors led to a sharp increase in customs revenue relative to GDP in 1994.

Table 28.Tajikistan: State Budget, 1992-95(In million of Russian rubles before May 10,1995 and in millions of Tajik rubles thereafter)
1992199319941995
Jan 1–May 10May 11–Sep 30Fourth QuarterMay 11–Dec 31
Revenue17,235171,224765,290582,3442,2044,7736,977
Individual income tax1,65413,95451,74822,823205345550
Enterprise profits tax5,77845,527207,831162,6513841,0831,467
Enterprise5,60443,948198,555157,0823751,0601,435
Cooperatives1741,5799,2765,56992332
Revaluation of inventories1,8189,84826,2165,669334881
Value-added tax4,34165,417248,720164,5924051,1451,550
Excise taxes2,29813,40196,41248,0851591,1611,320
Tax on vehicles2711260325131417
Tax on casinos and videos26
Customs revenue885,90054,17031,75074352426
Forestry tax5281811
Land tax2181,27133,3818,53366320386
Prospection tax1381,5132,8751,102426
State duties and local taxes2622,2453,0961,739143245
Nontax revenue61312,02940,204135,1318572711,128
Industrial water charges972787876257
Rent fees and other local revenue60410,76338,48121,74195228323
Other 1/1,194936112,31476038798
Expenditure37,453329,056945,245490,1052,8549,27812,132
National economy18,783117,051404,214166,7914052,3122,717
Socio-cultural activities13,403103,428286,091105,6261,1841,5862,770
Education7,20755,653149,00755,0466848371321
Culture529431017,011530178148226
Health3,67934297110,05939385391552943
Fitness and sports1782704740369
Social security1,9719,08693104,954284371
Allowances to population35,86276,96720,036174323497
Science2371,7047,7462,671253863
Defense25624,33834,74423,135129353482
State authorities2263862832572734
State bodies and administration2,05817,72693,84132,642139268407
Law enforcement and judicial bodies6599,075153147,078329516845
Interest: foreign debt28,7001326
Interest: domestic debt4328,72455
Foreign exchange outlays3271,109404434587
Refugees1,820810500156
Bond lottery prizes743
Transfers to CIS budget211104
Chernobyl cleanup33614
Reserve fund
Other 2/1,6008,07523,272102,0794192,4742,893
Balance on cash basis (deficit –)−20,218−157,832−179,95592,239−651−4,505−5,156
Balance on accrual basis−20,218−157,832−395,955−2,761−2347−7309−9356
Of which: identified expenditure arrears216,00095,0001,6963,0044,700
Financing20218157,832179,955−92,2396514,3055,156
External
Domestic19,796156,419174371−97,00063043014,931
Security issue
Bank borrowing19,796156,419174371−97,00063043014,931
Privatization proceeds4221,4135,0844,76121204225
Sources: Ministry of Finance; and IMF staff estimates.

Includes sales of hard currency and gold.

Includes purchases of hard currency and gold.

Sources: Ministry of Finance; and IMF staff estimates.

Includes sales of hard currency and gold.

Includes purchases of hard currency and gold.

Tajikistan relied on a large number of excise duties; cotton, vodka and rugs accounted for 77 percent of excise revenue in 1994. In July 1994, the excise rate was increased for vodka and rugs, and excises were imposed on tobacco. Together, these changes increased excise revenue by 3.5 percent of GDP. Privatization generated little revenue for the budget. Enterprise contributions to the Pension Fund increased by 1.4 percent of GDP in 1994.

Expenditure performance: The major factor behind the containment of expenditures in 1994 was the shortage of cash. All government organizations accumulated arrears, primarily for expenses which had to be paid in cash. A number of other factors also contributed to the expenditure containment: lower than budgeted defense and security-related outlays; 1/ the lack of adjustment of budgetary wages and social benefits for inflation; the virtual elimination of loans to budgetary organizations; and the partial freeze of expenditures for goods and services. Capital outlays, however, increased sharply—by about 9 percent of GDP—due to reconstruction expenditures in areas damaged by the armed conflict.

The compression of current expenditures was not uniform. Expenditures on health increased by 1 percent of GDP, due to the higher import cost of medicines and higher than planned spending on programs to control epidemics. Expenditures on state bodies and administration rose by 3 percent of GDP, due to increases in personnel in area councils (rayons) and the Council of Ministers, 1/ while purchases of goods and services were cut by 5 percent of GDP relative to 1993. Social safety net transfers, wages and salaries decreased by a total of over 3 percent of GDP. Bread allowances—cash compensations paid to the entire population without regard to need—constituted the major social safety net. 2/ These compensations were only partially paid during 1994.

Subsidy reform proceeded unevenly: subsidies were eliminated for dairy and meat industries, children’s clothing, and book printing and publishing, but total subsidies nonetheless increased by almost 4 percent of GDP. Flour and bread products alone received direct subsidies totalling 8.4 percent of GDP. 3/ Other subsidized products included water to agriculture (2.3 percent of GDP) and communal services (1 percent of GDP). During 1994, defense outlays decreased by 2 percent of GDP, in part due to a 10 percent reduction in armed forces personnel. 4/

b. Fiscal developments in 1995 prior to the currency introduction

Until May 1995, fiscal policy in Tajikistan continued to be hampered by the cash shortage, which distorted the fiscal stance and contributed to growing wage, pension, and other expenditure arrears. The draft 1995 budget aimed at a cash deficit of 9 percent of GDP, to be achieved in part by new revenue measures, including the introduction of an enterprise property tax. However, when the new Parliament took office in March 1995, approval of the 1995 budget was postponed and, after the introduction of the Tajik ruble on May 10, the authorities decided to prepare an updated budget for the balance of 1995, Parliament did not discuss the revised budget proposal until early November, so the Government operated without an approved budget, or new revenue measures, for most of 1995.

According to official figures, the state budget during January 1-May 10, 1995 ran a surplus of almost 9 percent of GDP on a cash basis, and a balanced budget on an accrual basis (Table 29). The reversal of the cash deficit was achieved by expenditure cuts, the accumulation of wage and other expenditure arrears and the increasing overvaluation of noncash revenue relative to cash expenditures. 1/ The surplus of the state budget was used to repay part of the government debt to the NBT in depreciated deposit money. The social security funds had a surplus of 8 percent of GDP on a cash basis, 2 percent of GDP on an accrual basis (Tables 30, 31, and 32).

Table 29.Tajikistan: State Budget, 1992-95(In percent of GDP)
1992199319941995
Jan 1-May 10May 11-Sep 30Fourth QuarterMay 11-Dec 31
Revenue26.627.144.555.012.916.615.2
Individual income tax2.62.23.02.21.21.21.2
Enterprise profits tax8.97.212.115.42.23.83.2
Enterprise8.77.011.614.82.23.73.1
Cooperatives0.30.20.50.50.10.10.1
Revaluation of inventories2.81.61.50.50.20.20.2
Value-added tax6.710414.515.62.44.03.4
Excise taxes3.52.15.64.50.94.02.9
Tax on vehicles0.1
Tax on casinos and videos
Customs revenue0.10.93.23.00.41.20.9
Forestry tax
Land tax0.30.21.90.80.41.10.8
Prospection tax0.20.20.20.1
State duties and local taxes0.40.40.20.20.10.10.1
Nontax revenue0.91.92.312.85.00.92.5
Industrial water charges0.1
Rent fees and other local revenue0.91.72.22.10.60.80.7
Other 1/0.20.110.64.40.11.7
Expenditure57.852.155.046.316.732.326.5
National economy29.018.523.515.82.48.05.9
Socio-cultural activities20.716.416.710.06.95.56.0
Education11.18.88.75.24.02.93.3
Culture0.80.71.00.50.50.50.5
Health5.75.46.43.72.31.92.1
Fitness and sports0.1
Social security3.01.40.50.50.20.10.2
Allowances to population5.74.51.91.01.11.1
Science0.40.30.50.30.10.10.1
Defense0.43.92.02.20.81.21.1
State authorities0.10.10.1
State bodies and administration3.22.85.53.10.80.90.9
Law enforcement and judicial bodies1.01.40.90.71.91.81.8
Interest: foreign debt2.72.9
Interest: domestic debt0.71.4
Foreign exchange outlays0.10.10.20.20.2
Refugees0.3
Bond lottery prizes
Transfers to CIS budget
Chernobyl cleanup
Reserve fund
Other2/2.53.11.49.62.58.66.3
Balance on cash basis (deficit –)−31.2−25.0−10.58.7−3.8−15.7−11.2
Balance on accrual basis−31.2−25.0−23.0−0.3−13.7−26.1−21.5
Of which: identified exp. arrears12.69.09.910.410.3
Financing31.225.010.5−8.63.815.711.2
External
Domestic30.624.710.2−9.23.715.010.8
Security issue
Bank borrowing30.624.710.2−9.23.715.010.8
Privatization proceeds0.70.20.30.60.10.70.1
Sources: Ministry of Finance; and IMF staff estimates.

Includes sales of hard currency and gold.

Includes purchases of hard currency and gold.

Sources: Ministry of Finance; and IMF staff estimates.

Includes sales of hard currency and gold.

Includes purchases of hard currency and gold.

Table 30Tajikistan: Operations of the Pension Fund, 1992-95
1992199319941995
Jan 1–May 10May 11–Sep 30Fourth QuarterMay 11–Dec 31
(In millions of Russian rubles before May 10, 1995 and in millions of Taijk rubles thereafter)
Revenue7,15660,833166,873116,9217823011,083
Contributions5,38349,948160,46096,986595301896
Enterprises5,21647,950154,63090,145577292869
Employees1671,9985,8316,84118927
Other revenue12,2832,11319,935
Transfers from the Republican Budget1,7728,6024,300187187
Expenditure6,53452,21187,17735,7148155821,397
Pensions4,56243,86567,46532,9386704901,161
Nonworking pensioneers3,96439,55257,36229,2205754281,002
Working pensioneers3852,7504,5052,237473178
Military1681,4341,8511,001442871
Other451293,7474815510
Allowances1,8607,57318,5522,44914592236
Children under 18 months439564
Children from 1.5 up to 6 years8791,147
Children between 6 and 16 years4821,287
Other604,575
Other expenditure1127731,161327
Balance (deficit –)6228,62379,69681,207−33−281−314
(In percent of GDP)
Revenue11.09.69.711.04.61.02.4
Contributions8.37.99 39.23.51.02.0
Enterprises8.17.69.08.53.41.01.9
Employees0.30.30 30.60.10.1
Other revenue0.40.11.9
Transfers from the Republican Budget2.71.40 31.10.4
Expenditure10.1835.13.44.82.03.0
Pensions7.06.93.93.13.91.72.5
Nonworking pensioneers6.16 3332.83.41.52.2
Working pensioneers0.60.40 30.2030.10.2
Military0.30.20.10.1030.10.2
Other0.10.2
Allowances2.91.21.10.20.80.30.5
Children under 18 months0.70.1
Children from 1.5 up to 6 years1.40.2
Children between 6 and 16 years0.70.2
Other0.10.7
Other expenditure0.20.10.1
Balance (deficit –)1.01.44.67.7−0.2−1.0−0.7
Sources: State Pension Fund; and IMF staff estimates.
Sources: State Pension Fund; and IMF staff estimates.
Table 31.Tajikistan: Operations of the Employment Fund, 1992–95
1992199319941995
Jan 1–May 10May 11–Sep 30Fourth QuarterMay 11–Dec 31
(In millions of Russian rubles before May 10, 1995 and in millions of Tajik rubles there after)
Revenue2081,5864,5922,410121122
Mandatory contributions1641,4654,3801,69610920
Other revenue35113221411
Transfers from the Republican Budget427080500112
Expenditure3862,7122,146935111021
Unemployment benefits18855722872112
Training and retraining4218228158134
Other1561,9721,6388069615
Balance (deficit –)−178−1,1252,4461,475112
Unemployment benefits arrears1,1912,2008715
Balance on accrual basis (deficit –)−178−1,1252,255−725−3−10−13
(In percent of GDP)
Revenue030303020.1
Mandatory contributions0.30.20.30.20.1
Other revenue
Transfers from the Republican Budget0.1
Expenditure0.60.40.10.10.1
Unemployment benefits030.1
Training and retraining0.1
Other0.20.30.10.10.1
Balance (deficit –)−0.3−0.20.10.1
Unemployment benefits arrears0.2
Balance on accrual basis (deficit –)−0 3−0.20.1−0.1
Sources: State Employment Fund; and IMF staff estimates.
Sources: State Employment Fund; and IMF staff estimates.
Table 32.Tajikistan: Operations of the Social Insurance Fund, 1993–95
199319941995
Jan 1–May 10May 11–Sep 30Fourth QuarterMay 11–Dec 31
(In millions of Russian rubles before Mav 10, 1995 and in millions of Taiik rubles thereafter)
Revenue10,69529,70211,8081272125
Of which: mandatory contributions10,47528,91210,1161071108
Expenditure8,10224,1069,079953116
Sick leave3,72 511,1004,20342667
Maternity1,9104,8992,695335
Birth105405346012
Sanatorium services1,5816,0151,64521933
Administrative392795145024
Other38989245025
Balance (deficit –)2,5935,5962,7293209
(In percent of GDP)
Revenue1.71.71.10.10.30.3
Of which: mandatory contributions1.71.71.00.10.20.2
Expenditure1.31.40.90.10.20.3
Sick leave0.60.60.40.10.1
Maternity0.30303
Birth
Sanatorium services0.30.40.20.10.1
Administrative0.1
Other0.10.1
Balance (deficit –)0.4030.30.1
Sources: Social Insurance Fund; and IMF staff estimates.
Sources: Social Insurance Fund; and IMF staff estimates.

Total expenditures during the period were sharply lower than envisioned in the first draft budget, because the Government accumulated wage arrears totalling some Rub 95 billion (9 percent of GDP), and because the shortage of cash contributed to delays in expenditures or payments for other goods and services. To improve cash management and expenditure control, state budget accounts held in commercial banks were transferred to NBT branches, except in those regions where there was no NBT branch.

3. The period after the currency introduction

Fiscal developments in 1995, in the period after the currency introduction, were dominated by four developments: the sharp, unplanned increase in real budgetary wages at the time of the currency introduction, followed by a continual real decline in those wages during the remainder of the year because of inflation; the unintended one-time reduction in tax liabilities during the currency conversion; the growth in tax arrears; and developments in bread prices, subsidies and cash compensations.

Real budgetary wages after the currency introduction were almost double the intended level, putting strong upward pressure on government expenditures. At the same time, tax collections were falling sharply, because of a currency conversion-related decline in tax liabilities and growing tax arrears (See Annex I).

There was a temporary collapse in revenues at the time of the currency introduction, as tax liabilities which had been accrued but not yet paid were converted by a factor far greater than the eventual adjustment in prices. This revenue shortfall was aggravated by, and persisted because of, growing tax arrears caused by a number of factors. First, as a result of the fact that deposits were converted at a rate greater than the eventual adjustment in prices, there was a reduction in enterprise liquidity which contributed to growing interenterprise and tax arrears. Second, the elimination of the opportunity to pay taxes in a depreciated form (relatively worthless noncash money) sharply increased the tax burden on enterprises, contributing further to tax arrears. Third, prior to the currency reform, paying taxes was one of the few uses for deposit money. With the renewed convertability, at par, between cash and noncash, noncash could now be used for almost anything, including wages and inputs, thereby increasing the opportunity cost of paying taxes with noncash and contributing to the increase in arrears. In addition, there were delays by banks in transferring tax payments to the budget accounts at the NBT because of bank liquidity problems. Finally, there were significant problems related to the reorganization of the Tax Inspectorate.

As a result, monthly tax revenues in the first three and half months after the currency conversion were insufficient even to cover monthly budgetary wages. As inflation continued, and accelerated in August, the Government kept nominal wages unchanged while tax obligations and tax payments rose. Thus in September, for the first time since the currency conversion, revenues exceeded wage obligations, although they remained insufficient to cover all government obligations.

Revenues increased relative to GDP in the fourth quarter of 1995, as a result of several factors: the seasonality of cotton earnings and thus tax payments; the modest success of the Tax Inspectorate in collecting arrears from large taxpayers; and the reduction of tax exemptions and deferrals—including for the aluminum plant and railway company—in November. In addition, some local fees and tax payments, including the land tax, are largely due in the last quarter of the year. As a result of this improved revenue collection, the Government settled some previously accumulated wage arrears in the fourth quarter, despite running new arrears on other expenditure items. Net wage arrears in 1995, after the currency conversion, amounted to about 15 percent of total wages due.

The other important influence on the fiscal outcome during this period was the evolution of policy regarding bread prices, bread subsidies and cash compensations. In 1995 prior to the currency introduction, explicit bread subsidies had totalled 5.2 percent of GDP, in addition to the cash compensation payments that were made to all Tajik citizens. 1/ At the time of the currency introduction, in an effort to reduce the associated budgetary costs, bread and flour prices were increased 140 percent, while cash compensations were completely eliminated. These measures, which lowered budgetary obligations for subsidies and social safety net expenditures, were nonetheless insufficient to address the growing fiscal problem. As a result, substantial arrears were incurred; total subsidies paid from May 11 to July 31, 1995 were only about half of the bread subsidy due in the month of July alone.

The situation concerning bread prices and subsidies deteriorated further as the summer progressed. The price of bread was kept unchanged from May through July, despite a number of factors which would have warranted increasing the bread price: the Government’s inability to pay subsidies to the bread complex; a sharp increase in the dollar price of imported wheat; 2/ a 16 percent nominal depreciation of the Tajik ruble relative to the U.S. dollar from the time of currency introduction until end-July; and rising domestic costs due to inflation. The authorities were forced to adjust the bread price in August when the market exchange rate depreciated by over 130 percent that month alone. Bread prices were increased by 275 percent, while cash compensations—equal to one minimum wage—were reintroduced for targeted groups.

In addition, improved revenue collection facilitated an increase in subsidy payments, as bread subsidies paid by the budget more than doubled from third quarter, to 2.5 percent of GDP in the fourth quarter of 1995. Despite this increase in prices and subsidies, the bread complex was unable to generate sufficient resources to finance needed grain imports. The exchange rate continued to depreciate, falling by a further 120 percent before the end of the year. The dollar price of imported grain rose roughly another 10 percent, domestic costs continued to grow rapidly with inflation, but bread prices were held constant until December. 1/

Due to the shortfall in the earnings of the bread complex, the NBT was ordered to provide, between September and December 1995, about US$11 million in foreign exchange to the bread complex to finance grain and wheat imports. 2/ This quasifiscal operation was defacto an implicit bread price subsidy—there is little prospect that the bread complex will be able to repay this “loan”—which brought fourth quarter bread subsidies to 14 percent of GDP (total subsidies were 15 percent of GDP). To begin to address this growing problem, the Government in December increased bread prices by over 130 percent, while at the same time doubling cash compensation payments to two minimum wages.

Largely as a result of these implicit and explicit bread price subsidies, the budget deficit increased dramatically on a cash basis, to 16 percent of GDP in the fourth quarter of 1995, bringing the 1995 deficit on a cash basis in the period after the currency conversion to 11 percent of GDP. In addition, wage and tax developments contributed to growing arrears, so that the deficit on an accrual basis was 26 percent of GDP in the fourth quarter, and 21 percent of GDP for the entire period after the currency reform. As noted above, almost three-fourths of the fourth quarter deficit stemmed from the NBT-financed wheat imports.

In an effort to combat this growing deficit, the Government took a number of measures in November 1995: some agencies and organizations were removed from the budget; there were cuts in loans to organizations and ministries; investment expenditures were reduced, bringing budgetary capital expenditures to their lowest level since the onset of the civil war; and import duties, which had been approved in June, became effective. Defense spending remained modest in the period after the currency conversion, at 1.1 percent of GDP, as the cost of the CIS peace keeping forces is paid by the providing countries. 1/

The Pension Fund recorded a deficit (0.2 percent of GDP) in the period May 11 to September 31. In the fourth quarter the situation deteriorated further, so that for the last seven and a half months of 1995, the Pension Fund accumulated total arrears of 0.8 percent of GDP and a cash basis deficit of 0.7 percent of GDP. The Employment and Social Insurance Funds were roughly balanced on a cash basis. The Employment Fund, however, accumulated arrears of TR 15 million. The problems of the Pension and Employment Funds were due in part to government arrears on its payroll tax obligations. 2/ ln addition, there was substantial evasion of contributions by other employers, as these funds lacked the administrative capacity to enforce payroll tax compliance.

4. The 1996 budget

A tight fiscal stance is a key element of the Government’s economic program in 1996. With the 1996 budget, the authorities have focused on strengthening public finances and minimizing domestic bank financing of the budget. The budget reflects a commitment to a restrictive fiscal policy stance, and a move toward greater transparency by incorporating previously extra-budgetary operations.

The 1996 budget targets a deficit of 5.4 percent of GDP, to be achieved through a number of measures: presumptive taxes on cotton and aluminum; the reduction of tax arrears; and the elimination of bread subsidies in March, with simultaneous increases in budgetary and minimum wages by 60 percent and cash compensation payments to TR 500 (thereby eliminating the linkage between these payments and the minimum wage). 3/ The Government is planning to improve the targeting mechanisms of the social safety net along the lines of IMF technical assistance recommendations, including by introducing an auditing procedure for eligibility decisions, and improving the flow of information from enterprises to local authorities responsible for determining eligibility.

Additional budget savings are expected from the continuation of the process of removing from the budget public agencies and organizations which do not perform strictly budgetary functions, and from substantial cuts in budgetary allocations to individual ministries, including the elimination of some ministries.

Presumptive taxes on Tajikistan’s two major monopolies (aluminum and cotton) replace previous extrabudgetary expropriation and allocation of foreign exchange earnings. The combined revenue yield of these taxes is estimated at 6 percent of GDP. The budget also contains measures to reduce tax exemptions. With the introduction of presumptive taxes, all export taxes were eliminated in March 1996. To improve compliance, a tax police unit (under the control of the Tax Inspectorate) was established in February and became operational in March. Over the next few months, the authorities are planning to hire 700 tax policemen and 100 new tax inspectors. Moreover, the VAT and excise tax base has been broadened to cover imports from outside the CIS.

During 1996, the extrabudgetary social security funds will be consolidated with the 1996 state budget, but their financial independence will be kept. To improve cash management and expenditure control, the Government intends to establish in 1996 a treasury in the Ministry of Finance, with the assistance of an expert from the Fund.

V. Money and Credit

1. Monetary arrangements

Monetary arrangements in Tajikistan have undergone radical changes since the break up of the Soviet Union in 1991. These changes were initially dominated by developments in other states of the former U.S.S.R. With the introduction of national currencies in the three Baltic states and Ukraine in 1992 and in the Kyrgyz Republic in May 1993, Soviet and pre-1993 Russian rubles were withdrawn from circulation in these countries (Table 34). When the Russian Federation in July and August 1993 introduced the new Russian ruble, Belarus, Moldova, Azerbaijan, and Georgia introduced national currencies. Other countries, including Tajikistan, continued to use pre-1993 rubles, in the hope of creating a new ruble zone. These prospects faded rapidly, however, and Armenia, Turkmenistan, Kazakstan and Uzbekistan introduced national currencies in November 1993, leaving Tajikistan as the only country still using the pre-1993 ruble. This resulted in pre-1993 rubles—no longer of value in other countries—swamping Tajikistan, and the overall price level more than doubled in December 1993. In response, Tajikistan introduced the new Russian ruble as its currency in January 1994, without, however, establishing a monetary union with Russia.

Table 33.Tajikistan: Consolidated Operations of the General Government, 1992–95 1/
1992199319941995
Jan 1–May 10May 11–Sep 30Fourth QuarterMay 11–Dec 31
(In minions of Russian rubles before May 10, 1995 and in millions of Tajik rubles thereafter)
Revenue22,786235,667962,077712,9832,8215,1568,019
State Budget17,235171,224765,290582,442,2044,7736,977
Tax revenue16,622159,195725,086447,2131,3474,5035,849
Nontax revenue61312,02940,204135,1318572711,128
Pension Fund 2/5,38452,231162,573116,921595301896
Employment Fund 2/1671,5164,5121,91011920
Social Insurance Fund10,69529,70211,8081272125
Expenditure42,560383,4081,054,294535,3333,5029,92113,478
State Budget 2/35,640320,384940,865489,6052,6679,27711,943
Pension Fund6,53452,21187,17735,7148155821,397
Employment Fund3862,7122,146935111021
Social Insurance Fund8,10224,1069,079953116
Overall Balance (deficit –)−19,774−147,742−92,17177,650−680−4,765−5,459
Financing19,774147,74292,217−177,650−680−4,765−5,459
External
Domestic 3/19,352146,32987,133−182,4116594,5615,234
Privatization proceeds4221,4135,0844,76121204225
(In percent of GDP)
Revenue35.237.356.067.416.517.917.5
State Budget26.627.144.555.012.916.615.2
Social Security Funds8.610.211.512.33.61.32.3
Expenditure65.760.761.450.620.534.529.4
State Budget55.050.754.846.315.632.326.0
Social Security Funds10.710.06.64.34.92.23.3
Overall Balance (deficit –)−30.5−23.4−5.416.8−4.0−16.6−11.9
State Budget 2/−28.4−23.6−10.28.8−2.7−15.7−10.8
Social Security Funds−2.10.24.98.0−1.3−0.9−1.1
Financing:
External
Domestic 3/29.923.25.1−17.23.915.911.4
Privatization proceeds0.70.20.30.40.10.70.5
Memorandum items:
Identified expenditure arrears14.614.910.511.511.1
Overall balance on accrual basis (defic−30.5−23.4−19.91.9−14.5−28.1−23.0
Sources: Ministry of Finance; Pension Fund; Ministry of Labor; and IMF staff estimates.

Includes operations of the Social Insurance Fund since 1993.

Excludes transfers from the State Budget to the Pension and Employment Funds.

Mostly borrowing from the National Bank of Tajikistan.

Sources: Ministry of Finance; Pension Fund; Ministry of Labor; and IMF staff estimates.

Includes operations of the Social Insurance Fund since 1993.

Excludes transfers from the State Budget to the Pension and Employment Funds.

Mostly borrowing from the National Bank of Tajikistan.

Table 34.Introduction of National Currencies in the States of the Former U.S.S.R.
CountryMonth of Currency Introduction, Currency NameMonths of Pre-1993 Rubles WithdrawnMonth of New Currency Becoming the Sole Legal TenderNote
LatviaMay 1992, Latvian rubleJuly 1992July 1992The Lats, a new national currency, was Introduced in March 1993.
LithuaniaMay 1992, Talonas (coupon)October 1992October 1992The Litas, a new national currency, was introduced in June 1993.
BelarusMay 1992, Belarussian rubleJuly 1993May 1994
EstoniaJune 1992, KroonJune 1992June 1992
MoldovaJune 1992, Moldovan couponJuly 1993July 1993The Moldovan coupon became a de facto national currency in July 1993; the Leu was introduced as sole legal tender in November 1993.
AzerbaijanAugust 1992, ManatJuly-August 1993January 1994Small denomination notes of the pre-1993 ruble remained in circulation until December 1993.
UkraineNovember 1992, KarbovanetsNovember 1992November 1992
GeorgiaApril 1993, Georgian couponAugust 1993August 1993The Lari, a new national currency, was introduced in September 1995 and became sole legal tender in October 1995.
Kyrgyz RepublicMay 1993, SomMay 1993May 1993
RussiaJuly 1993, 1993 Russian rubleJuly-August 1993July 1993Pre-1993 rubles were converted at par to 1993 Russian rubles.
ArmeniaNovember 1993, DramNovember 1993March 1994Small denomination notes of the pre-1993 ruble remained legal tender on an interim basis until March 1994.
KazakstanNovember 1993, TengeNovember 1993November 1993
TurkmenistanNovember 1993, ManatNovember 1993November 1993
UzbekistanNovember 1993, Sum couponNovember 1993November 1993The Sum was introduced in July 1994.
TajikistanMay 1995, Tajik rubleJanuary 1994May 19951993 Russian rubles were used as a legal tender between January 1994 and May 1995.
Sources: Various IMF Economic Reviews.
Sources: Various IMF Economic Reviews.

During 1994 and early 1995, Tajikistan maintained a highly distorted dual monetary system. Cash was supplied by the Central Bank of Russia on commercial terms, with vague understandings of possibly treating the cash supplied as a sharing of seignorage if a new monetary union were created. At the same time, domestic credit was provided mainly by the NBT, by on-lending through commercial banks and through direct credits. This was done largely in accordance with directives of the Parliament and the Government. The highly expansionary credit policy created a large imbalance between deposit money and cash money. The resulting relative cash shortage caused a sharp depreciation of noncash against cash, currency hoarding and financial disintermediation, and contributed to the accumulation of wage arrears.

The Tajik ruble was introduced as the national currency on May 10, 1995, as part of a comprehensive currency reform designed to restore the balance between cash and deposit money. The Tajik ruble was allowed to float against foreign currencies, including the Russian ruble.

2. The banking system

Tajikistan has a two-tier banking system, for which the legal system was established in 1992. It consists of the NBT and 17 commercial banks, most of which are owned by state enterprises; the banks are largely independent of the Government (Table 35). Commercial banks were largely limited to channeling credit from the NBT.

Table 35.Tajikistan: Commercial Banks as of January 1, 1996
Name of BankNo. of BranchesMajor Holders of Bank Equity
1. AKb Agroprombank “Shark” (JSC) 1/56a) State Property Committee of the Republic of Tajikistan; b) Konibadam Cotton Processing Plant of Leninabad Region; c) Collective Farm Kasymova, Kurgan-Tube Region; d) Collective Farm Goibzade, Kulyab Region; e) Other shareholders.
2. Tajik AKb “Orion” (JSC)25a) Ministry of Finance; b) Tajikpromstroybank; c) Corporation on Energy and Electricity; d) Other shareholders; e) State Property Committee.
3. AKb Tajikbankbusiness (JSC)28a) Ministry of Trade and Material Resources; b) Concern Tajiklegprom (light industry); c) Concern Sanoati Makhalli; d) Other shareholders.
4. Vheshekonombank (JSC)5a) Joint Stock Society Somonion; b) State Commercial Insurance Corp.; c) Cotton Processing Corp. St. Aini; d) Joint Venture Sov-Pak-Service; e) Asia-Austrian Association; f) Worker Collective of Vheshekonombank; g) Joint Venture Cotton Kamiani; h) ‘Paul Reinhard Ltd.’ Swiss; i) Ministry of Finance
5. AKb Tajbank (JSC)1a) Association Industrial Cooperatives ‘Vega’; b) Bare; c) Small Enterprise ‘Iskra’.
6. Khatlon Bank (State)1Khatlon Regional Government.
7. Kb Khojent (C)0a) Collective farms; b) State farms; c) Khojend Canning Plant; d) Kistakuz Canning Plant; e) Leninabad Abbitoir; f) Khojand Cotton Plant.
8. Dekhkon Bank (CP)0Collective farms.
9. AKb Akbar Bank (C)0Joint Stock Company ‘Akbar’; ‘Small Enterprise’; Firm ‘Adolat’.
10. Kb Somon Bank (C)4a) Ministry of Construction; b) Lease Corporation Promstroy; c) Small Enterprise Tajikinformatica; d) Joint Venture; ‘Axartaj’; e) Small Enterprise ‘Sado’; f) Tajik Construction Dept. g) State Joint Stock holding company ‘Bang Tajik’.
11. Aviabank (C) 2/1State and private organizations.
12. Savings Bank (State)3 Regional headquarters 62 Main branches 435 SubbranchesState owned
13. AKb Ganchina(JSC)0a) Toohid Holding Co.; b) Joint Stock Society ‘Ekhyo’ c) Joint Stock Society ‘Kolinkhoi-Khojand’.
14. Kb Fonon (C)0a) ‘ELTO’ Plant; b) ‘Dovud’ Firm; c) Cooperative ‘Zeraat; d) Small Enterprise ‘Asia’; e) Baradar Corp.; f) Individuals.
15. Ayem Bank (CP) 3/0Concern ‘Shukhrat’. Agro-industrial Complex ‘Sharivov’.
16. Eskhata Bank (C) 4/0Commercial firms
17. Central Asian Bank 4/0Commercial firms
Sources: National Bank of Tajikistan; and the World Bank.Notes: JSC = Joint Stock Commercial, C = Commercial, CP = Cooperative

“Shark” means “East”.

A foreign branch of a Moscow-based bank.

Founded in September 1994.

Founded in November 1994.

Sources: National Bank of Tajikistan; and the World Bank.Notes: JSC = Joint Stock Commercial, C = Commercial, CP = Cooperative

“Shark” means “East”.

A foreign branch of a Moscow-based bank.

Founded in September 1994.

Founded in November 1994.

The banking system is dominated by the three largest banks (Shark, Orion, and Tajikbankbusiness), which account for over 80 percent of total credit to the economy (Table 36). These banks are successors to the previous state banks of the Soviet Union, with specialized lending areas in agriculture, industry and construction, and trade and light industries, respectively. Credit to agriculture, mostly through Shark—the largest bank and successor to the former Agroprom Bank—accounts for more than half of total credit to the economy. The Savings Bank continues to be the only commercial bank with deposit insurance from the Government and remains the main holder of household savings, accounting for about 75 percent of total household deposits. The banking system is in the process of gradual restructuring. Three new banks were opened in 1994 and 1995, and one small bank was liquidated in 1995 because of continued violations of banking regulations.

Table 36.Tajikistan: Qredit of the Banking System, 1993–95 1/
199319941995
Dec.Mar.JuneSep.Dec.Mar.MayJuneJulyAug.Sep.Oct.Nov.Dec.
(In millions of Tajik rubles; end of period) 2/
Banking Credit to the Economy634.1741.81072.91397.11686.41724.11993.92749.13591.33918.33808.14169.15456.15498.0
From Commercial Banks604.6718.41046.71365.51652.71694.91968.22720.13548.33884.33774.14131.15422.15415.0
Shark360.8381.2609.2871.1919.41045.61219.81739.62407.92133.92190.32576.03798.337317
Orion71.5123.0148.7181.5270.2236.5252.7324.0442.4557.5608.3608.9671.2760.3
Tajikbankbusiness83.1103.6132.3142.5166.9187.3193.5229.6228.0305.7341.9388.5381.9385.3
Vneshekonombank11.327.017.613.6118.017.266.5121.1155.2521.4235.3161.6183.1125.1
Taj Bank21.021.543.142.761.853.264.651.240.626.732.350.138.733.1
Khatlon Bank32.731.839.443.543.243.945.447.047.118.218.217.917.517.5
Khojent13.513.621.622.529.624.938.464.852.096.081.273.170.576.5
Dekhkon Bank3.113.017.614.617.517.659.467.1109.7109.7117.1117.3117.3
Akbar Bank0.02.18.111.67.03.73.75.37.17.4857.47.4
Somon5.48.312.513.15.822.325.631.147.854.675.361.364.890.0
Aviabank1.11.93.03.73.720.219.519.919.817.916.916.916.715.6
Farang is 3/0.40.61.02.13.56.17.214.017.211.317.8
Savings Bank1.30.31.91.92.07.97.17.07.910.218.522.422.422.6
Ganchina2.12.11.01.40.91.32.60.91.81.91.91.51.82.4
Fonon0.40.40.30.20.91.21.20.81.32.76.65.99.37.9
Eskhata0.61.61.30.20.91.41.92.32.32.4
Aycm1.21.55.86.08.110.610.610.410.4
Central Asia Bank 4/858.58.5
From the National Bank of Tajikistan29.523.426.231.633.729.225.729.043.034.034.038.034.083.0
Source: National Bank of Tajikistan (NBT).

From operational data of the NBT, which slightly differ from monthly balance sheet data.

Ruble credits provided prior to the national currency introduction were converted to Tajik rubles at 1000:1 in May 1995.

Liquidated in October 1995.

Opened in October 1995.

Source: National Bank of Tajikistan (NBT).

From operational data of the NBT, which slightly differ from monthly balance sheet data.

Ruble credits provided prior to the national currency introduction were converted to Tajik rubles at 1000:1 in May 1995.

Liquidated in October 1995.

Opened in October 1995.

3. Money and credit in 1994 and 1995

a. Developments in 1994

A severe cash shortage emerged in 1994, as the growth rates of cash money and noncash money diverged. As a result of the currency reform in 1994, currency in circulation decreased sharply, as pre-1993 ruble notes withdrawn in January 1994 were only gradually replaced with new Russian rubles. Cash emission in the first half of 1994 was Rub 95 billion, and total emission in 1994 was Rub 140 billion, 60 percent less than the total pre-1993 rubles withdrawn. 1/ By contrast, ruble deposits increased by 225 percent in 1994, as domestic credit increased by 125 percent (Table 37). These increases were modest compared with the over seven-fold increases in broad money and credit in 1993. However, the more than tripling of deposits in conjunction with the contraction of currency in circulation led to a sharp increase in the ruble deposit to currency ratio, from 2.2 at end-1993 to 9.6 at end-1994 (Table 38 and Chart 7). With the rapid WPI inflation, however, credit and ruble deposits declined in real terms (Chart 8).

Table 37.Tajikistan: Monetary Survey, 1993–05
199319941995
Der.Mar.JuneSep.Dec.Mar.MayJuneJulyAug.Sep.Oct.Now.Dec.
(End of period; in millions of Russian rubles before May 1995 and in millions of Tajik rubles thereafter)
Net foreign assets 1/−141,478−179,490−98,923−681,994147,360291,6131,7261,6821,6151,1824,4286,8627,4148,874
Net claims In freely converlible currencies17,77022,90328,275−493,43354,89493,5226777838779803,5446,0556,3267,853
Net claims in currencies of FSU countries 2/−159,248−202,393−127,198−188,56192,466198,0911,0498997388327848071,0881,021
Net domestic assets714,199787,410996,6552,247,6571,338,0891,163,8564351,3832,7463,4233,7433,6673,7964,524
Domestic credit828,785886,7761,127,8581,424,6091,865,3091,728,8131,8432,7603,7893,8004,1865,3106,9869,093
Net credit to general government188,48787,44724,874−14,645124,584−39,397−16613194−962973731,4073,590
Net credit to government 3/202,318118,00179,90567,621231,20090,073−1058429403915121,594 6/3,821 7/
Net credit to extrabudgetary funds 4/−13,831−30,554−55,031−82,266−106,616−129,470−61−71−100−96−94−139−187−231
Credit to the economy640,298799,3291,102,9841,439,2541,740,7251,768,2102,0092,7473,5953,8963,8894,9375,5795,503
Other assets, net−114,586−99,366−131,203823,048−527,220−564,957−1,408−1,377−1,043−377−443−1,643−3,190−4,569
Broad money572,722607,920897,7321,565,6641,485,4491,455,4692,1583,0644,3615,2348,07110,52811,21113,398
Of which: ruble broad money562,419595,571880,1881,158,5851,441,2241,374,7891,7332,4933,7164,5596,170732478158884
Currency outside banks 5/159,38452,62185,523101,987130,721154,6706471,2382,0093,0094,0074,4054,9475,521
Deposits413,338555,299812,2091,463,6771,354,7281,300,7991,5111,8262,3522,2254,0646,1236,2647,877
Ruble deposits403,035542,950794,6651,056,5981,310,5031,220,1191,0861,2551,7071,5502,1632,9192,8683,363
Deposits denominated In foreign currencies 1/10,30312,34917,544407,07944,22580,6804255716456751,9013,2043,3964,514
(Percentage change)
Domestic credit477272631−75037010273230
Broad money7264874−5−24242205430620
Rubte broad money766483224−54449233519714
Source: National Bank of Tajikistan.

Preliminary, pending resolution of problems in resident/nonresident distinctions, revaluation and coverage.

Includes pre-1993 rubles collected during a currency reform of January 1994.

Includes the central and local governments.

Includes the Pension Fund, the Employment Fund and the Social Insurance Fund.

Russian rubles (Rub) issued less Rub in vaults of the banking system before May 1995 and Tajik rubles Issued less Tajik rubles (TO) in vaults of the banking system since May 1995.

Includes grain loans of US $2.2 million (TR 637 million) to the Ministry of Bread and state trading organisations.

Includes grain loans of US $7.3 million (TR 2143 million) to the Ministry of Bread and state trading organizations.

Source: National Bank of Tajikistan.

Preliminary, pending resolution of problems in resident/nonresident distinctions, revaluation and coverage.

Includes pre-1993 rubles collected during a currency reform of January 1994.

Includes the central and local governments.

Includes the Pension Fund, the Employment Fund and the Social Insurance Fund.

Russian rubles (Rub) issued less Rub in vaults of the banking system before May 1995 and Tajik rubles Issued less Tajik rubles (TO) in vaults of the banking system since May 1995.

Includes grain loans of US $2.2 million (TR 637 million) to the Ministry of Bread and state trading organisations.

Includes grain loans of US $7.3 million (TR 2143 million) to the Ministry of Bread and state trading organizations.

Table 38.Tajikistan: Monetary Authorities Accounts, 1993–95
199319941995
Dec.Mar.JuneSep.Dec.Mar.MayJuneJulyAug.Sep.Oct.Nov.Dec.
(End of period; in millions of Russian rubles before May 1995 and in millions of Tajik rubles thereafter)
Net foreign assets 1/−156,518−198,438−123,969−185,07295,907200,7061,1508727558452,2463,4353,2072,234
Net claims in freely convertible currencies 2/2,0101,266893993754909474961581,4472,6182,1111,209
Net claims in currencies of FSU countries 3/−158,528−199,704−124,862−186,06595,153199,7971,1038236947877998171,0961,025
Net domestic assets545,211516,381644,453774,216743,190605,3637251,8372,2913,0383,2842,2593,5185,690
Net credit to general government255,207205,182207,336249,108367,225322,9072332383631727449702,0533,906
Net credit to government 4/260,323215,199236,582304,046446,487424,6002722814302287901,0342,137 7/4,053 8/
Net credit to extrabudgetary funds 5/−5,116−10,017−29,246−54,938−79,262−101,693−39−43−67−56−46−64−84−147
Claims on banks203,873217,923299,575356,016369,678416,6041,6281,8991,8012,0482,0671,8382,6072,600
Credit to the economy29,46323,43926,15931,78433,94426,8062929433434383483
Other assets, net56,66869,837111,383137,308−27,657−160,954−1,165−32984784439−587−1,176−899
Reserve money388,692317,943520,485589,145839,098806,0691,8762,7093,0453,8835,5315,6946,7257,924
Currency in circulation 6/185,19661,52895,312109,353137,164156,1649241,4682,0453,1374,2284,4735,0095,561
Required and excess reserves197,955249,051409,601447,315673,108624,0299411,2129897301,1311,1391,6292,212
Required reserves62,278113,969164,671207,063244,447250,460275267285364409474654667
Excess reserves135,677135,082244,930240,252428,661373,5696669457043667226659751,545
Other deposits5,5417,36415,57232,47728,82625,876112911161728287151
Memorandum items:
Money multiplier (broad money/reserve money)1.471.911.722.661.771.811.151.131.431.351.461.851.671.69
Ruble deposits/currency in circulation2.179.098.3310.0010.007.691.180.850.830.500.510.650.570.61
Required reserves/ruble deposits0.150.210.210.200.190.210.250.210.170.230.190.160.230.20
Excess reserves/iruble deposits0.340.250.310.230.330.310.610.750.410.240.330.230.340.46
Bank credit to the economy/NBT claims on banl3.143.673.684.044.714.241.231.452.001.901.882.692.142.12
Source: National Bank of Tajikistan (NBT).

Preliminary, pending resolution of problems in resident/nonresident distinctions, revaluation and coverage.

Includes foreign currency holdings of the NBT and reserve position in the Fund. Also includes foreign currency holdings of the Ministry of Finance held with the NBT.

Includes pre – 1993 rubles collected during a currency reform of January 1994.

Includes the central and local governments.

Includes the Pension Fund, the Employment Fund and the Social Insurance Fund.

Before May 1995, refers to Russian rubles (Rub) issued less Rub in NBT vaults and thereafter, Tajik rubles issued less Tajik rubles (TR) in NBT vaults.

Includes grain loans of US $2.2 million (TR 637 million) to the Ministry of Bread and state trading organizations.

Includes grain loans of US $7.3 million (TR 2143 million) to the Ministry of Bread and state trading organizations.

Source: National Bank of Tajikistan (NBT).

Preliminary, pending resolution of problems in resident/nonresident distinctions, revaluation and coverage.

Includes foreign currency holdings of the NBT and reserve position in the Fund. Also includes foreign currency holdings of the Ministry of Finance held with the NBT.

Includes pre – 1993 rubles collected during a currency reform of January 1994.

Includes the central and local governments.

Includes the Pension Fund, the Employment Fund and the Social Insurance Fund.

Before May 1995, refers to Russian rubles (Rub) issued less Rub in NBT vaults and thereafter, Tajik rubles issued less Tajik rubles (TR) in NBT vaults.

Includes grain loans of US $2.2 million (TR 637 million) to the Ministry of Bread and state trading organizations.

Includes grain loans of US $7.3 million (TR 2143 million) to the Ministry of Bread and state trading organizations.

Chart 7TAJIKISTAN: Deposits to Currency Ratio, 1993-95

Sources: National Bank of Tajikistan; and IMF staff estimates.

1/ The increase in January 1994 reflects the surge in deposits associated with the withdrawal of the pre-1993 ruble from circulation, as discussed in SM/94/209.

2/ The drop in May 1995 Is due to differential conversion rates applied to cash and deposits, as part of the currency reform.

Chart 8TAJIKISTAN: Credit and Deposits, 1994-95

Sources: National Bank of Tajikistan; and IMF staff estimates.

Administrative restrictions on cash holdings, imposed in 1994 to deal with the cash shortage, aggravated the situation further. Enterprises were required to surrender most cash receipts to banks, and only limited withdrawals were allowed for paying wages. The balance of the accrued wages were transferred to individual savings accounts and could not be withdrawn, except for special occasions such as funerals and emigration. 1/ In view of the confiscatory nature of the cash surrender requirement, only state enterprises under strict government control complied with the cash surrender requirements, while others either hoarded cash or spent it in private markets.

The cash shortage led to a limited convertability of noncash to cash. As a result, an informal market for cash developed, with noncash money trading for cash at a sharp discount. Through the informal market, cash holders, who were mostly private enterprises, could buy noncash at a deep discount for a variety of purposes such as purchasing materials from state enterprises, paying taxes and repaying bank loans. At the same time, the economy started to rely increasingly on barter trade, the U.S. dollar and currencies of neighboring countries.

b. Developments in 1995 until the currency introduction

As the monetary system deteriorated, a consensus in favor of the introduction of a national currency built within the Government. On the advice of Fund staff, the NBT in February 1995 froze credit from the banking system, as a first step toward creating the conditions for a successful currency introduction. In view of the lack of experience with the use of indirect monetary instruments, bank-by-bank credit ceilings were imposed that were consistent with no increase in overall credit to the economy until the currency introduction. These credit ceilings were largely observed. In addition, no central bank credit was issued to the Government until the currency introduction in May. As a result, bank deposits remained roughly unchanged from January to April 1995. Currency in circulation, however, increased by 15 percent in March, as part of the accumulated wage arrears throughout the economy were paid with ruble notes purchased from the Central Bank of Russia.

In April, a high level state commission was established to design and implement a currency reform, with the introduction of a national currency at the core of the agenda. This commission was headed by the Prime Minister, and included other high ranking government officials and members of Parliament. Parliament and the government delegated a wide range of authority to this Commission. In close consultation with Fund staff, preparatory work was quickly completed. The Tajik ruble was introduced on May 10 and became the sole legal tender on May 15.

Several supporting measures were introduced to ensure the stability and internal convertability of the new currency. The ceilings on credit to the economy were extended through June 1995; the refinance rate was raised from 25 percent to 100 percent per annum; exchange bureaus were opened and the Tajik Interbank Foreign Exchange (TICEX) was created; bank deposit and lending interest rates were liberalized except for on-lending to “priority” sectors; and wage arrears that had been accumulated prior to May 1995 were transformed into special accounts for future conversion into privatization certificates. At the same time, restrictions on the withdrawal of enterprise deposits were eliminated and a temporary liquidity facility was established to support commercial banks in case of excessive deposit withdrawal. Restrictions on household deposits were lifted on July 1, completing the liberalization of all deposits except those linked to pre-May 10, 1995 wage arrears. In addition, prices of vegetable oil, milk and dairy products were fully liberalized and bread and flour prices were increased 150 percent.

c. Developments after the currency introduction

The currency introduction was orderly, and succeeded in unifying the money supply, as the premium for cash over deposit money was eliminated. The initial success of the currency introduction was short lived, however, as expansionary credit policies over the summer months quickly undermined confidence in the new currency. Under pressure from the agriculture sector and other public sector enterprises, the NBT was ordered to issue directed credits. Credit to the economy more than doubled between end-May and end-August, with credit in August already exceeding, by 54 percent, the NBT’s original ceiling for end-September. Broad money increased by over 140 percent, between end-May and end-August.

The rapid credit expansion led to a sharp depreciation of the national currency, widespread dollarization and financial disintermediation. The exchange rate depreciated from TR 50 per U.S. dollar in May to TR 80 per dollar by late July on the official market. The depreciation of the exchange rate accelerated when the foreign exchange auctions were discontinued in early August due to the depletion of foreign exchange reserves, with the exchange rate moving to TR 135 per dollar in late August. Dollarization became prevalent, most notably in the northern region of the country, adjacent to Uzbekistan and the Kyrgyz Republic.

Fearing the inflationary impact of this monetary expansion, the authorities briefly reintroduced deposit withdrawal restrictions in late July and increased the refinance rate by 20 percent in early August to 120 percent per annum. Reflecting the growing lack of confidence in the banking system, currency in circulation grew much faster than deposits. When the restrictions on withdrawals were lifted in August, deposits declined by 5 percent. Combined with rapidly expanding bank lending, this led to serious strains on bank liquidity and contributed to substantial bank overdrafts, including, by Shark.

Since late August, the authorities have sought to intensify their efforts to redress the rapidly deteriorating macroeconomic situation. The NBT raised the refinance rate from 120 percent to 250 percent per annum as of September 1, and to 40 percent a month in early October. The NBT also established a system of weekly bank credit monitoring, and in September imposed new bank-by-bank credit ceilings consistent with virtually no increase in total bank credit to the economy through October and a slight decline (for seasonal reasons) through December 1995.

Despite these efforts, monetary expansion accelerated in September, before decelerating in the last quarter of the year. In the wake of a tighter domestic credit policy, foreign exchange equivalent to well over one-third of reserve money flowed into the economy in September, mostly in the form of advance payments obtained from foreign cotton buyers. Partly because of the thin foreign exchange market and the temporary liquidity shortage of key commercial banks, the National Bank purchased this foreign exchange. This contributed to an expansion of Ruble broad money by 35 percent in September. The banks’ liquidity situation improved, as some loans were repaid by the cotton farms, and banks abstained from issuing new credits.

Despite the tightened credit policy, there was significant demand for foreign exchange as evidenced by a further sharp depreciation of the exchange rate in October. However, the opportunity for sterilization of the September foreign exchange inflows was lost when the National Bank was instructed to lend most of its international reserves to the Ministry of Bread and state trading organizations to finance grain imports, as described in Section IV.3. In addition, the Government ordered the administrative allocation of a substantial part of the foreign currency receipts of the state cotton complex for the financing of further grain imports. The cotton complex in turn demanded and obtained large Tajik ruble credits from the NBT to offset its loss of liquidity. As a result, during the fourth quarter of 1995, credit to the Government and to the economy rose by 60 and 40 percent of end-September reserve money, respectively, while ruble broad money increased by 44 percent. The exchange rate depreciated further, to about TR 300 per U.S. dollar.

4. Interest rates

The NBT refinance rate of 25 percent per annum, which had been set in 1993 by a Parliamentary Resolution, continued to be in effect through May 1995 (Table 39). 1/ More favorable lending rates, which ranged from 5 percent to 15 percent, were applied to special loans provided to priority sectors, including agriculture, and to regions affected by natural disasters. All NBT lending rates, except for budget loans, were unified and raised to 100 percent in June 1995, 120 percent in August, 250 percent in September and 480 percent in October. Nevertheless, the refinance rate stayed negative in real terms in 1994 and 1995 (Chart 9).

Table 39.Tajikistan: Annual Intaraat Ratas, 1994–95
19941995
Mar.JuneSep.Dec.Mar.JuneSep.Dec.
(End of period)
Lending rates
National Bank of Tajikistan
To banks 1/252525252525100480
Priority sector loan 1/2/10-1510-1510-1510-1510-1510-15100480
Long-term credit 1/5-105-105-105-105-105-10100480
Budget financing
Connercial banks
Directed loans 1/2/303030303030110-125528-600
Four largest commercial banks 3/4/
Shark4.65.07.15.46.725.1
Orion10.617.826.932.079.268.7139.7
Tajikbankbusiness16.516.613.017.925.045.066.6133.4
Vneshekonombank8.57.111.012.357.383.0139.0173.0
Interbank credit market rate 5/152.5
Deposit rates
Commercial banks
Savings Bank
Demand deposits8.08.08.08.08.025.025.025.0
Savings deposits (1 year)30.030.030.030.030.0100.0100.0100.0
Four largest commercial banks 6/
Shark3.63.85.54.19.410.7
Orion5.08.111.726.928.952.341.6129.5
Tajikbankbusiness6.56.63.48.021.165.072.1137.0
Vneshekonombank6.97.17.24.821.921.072.082.9
Source: National Bank of Tajikistan.

Set from early 1993 until June 1995 by Parliament Resolution No. 776 of 1993.

Maximum rate.

Account for about 85 percent of the total banking system credit to the economy.

Effective weighted average (paid Interest revenues divided by outstanding credit).

Weighted average interest rates of credits sold in the Central Fund Exchange.

Effective weighted average (interest expenditures divided by outstanding deposits).

Source: National Bank of Tajikistan.

Set from early 1993 until June 1995 by Parliament Resolution No. 776 of 1993.

Maximum rate.

Account for about 85 percent of the total banking system credit to the economy.

Effective weighted average (paid Interest revenues divided by outstanding credit).

Weighted average interest rates of credits sold in the Central Fund Exchange.

Effective weighted average (interest expenditures divided by outstanding deposits).

Chart 9TAJIKISTAN: Inflation, Currency and Interest Rates

Sources: National Bank of Tajikistan; and IMF staff estimates.

Commercial bank interest rates remained largely unchanged in 1994 and early 1995. Although commercial banks were free to set rates for loans from their own funds, the interest rate on on-lent funds and loans to priority sectors, which were the bulk of loans, were regulated, with spreads above the refinance rate not to exceed 5 to 10 percent. Shark’s effective lending rate was considerably lower than that of other large banks, since Shark handled a larger portion of NBT credit. Lending rates were not determined on the basis of risk assessments, but according to the past relationship between the bank and its customer. Throughout 1994 and early 1995, deposit rates of the Savings Bank were regulated by Parliament at 8 percent per annum for demand deposits and 30 percent for one year savings deposits.

In May 1995, in conjunction with the currency reform, all commercial bank interest rates were liberalized, except for on-lending of NBT credits. In response, the Savings Bank more than tripled deposit interest rates, and other commercial banks followed suit. Nevertheless, nominal deposit rates remained highly negative in real terms throughout 1995. This, combined with the generally weak financial condition of the commercial banks and the public distrust of banks, limited the scope of financial intermediation.

The Central Fund Exchange, an interbank credit auction market, was established on May 24, 1995 to facilitate sales and purchases of funds between commercial banks. The trading sessions were intended to be held on a weekly basis. However, there were few transactions; the auction came to a halt in August 1995, due to the lack of funds in the banking system and relatively cheap and plentiful NBT credits. During its operation, 17 weekly auctions were held, for funds with a typical maturity of three to six months and interest rates of 150-195 percent per annum, considerably higher than the prevailing NBT refinance rate (Table 40).

Table 40.Tajikistan: Interbank Credit auction (Central Stock Exchange)(May 24-September 13, 1995)
OffersActual Deals
No.DateWeighted Maturity (month)Amount (nil. TR)Annual Interest Rate (I)Amount (nil. TR)Interest Rate (I)Avarage Rate (I)
105/24311951195195
205/3131195
306/0731195
31501150150
406/14311504.9150152.5
506/2134.9150
606/2833150
63.3160
707/05330140
33150
63.3160
807/12351503150155
63.31603160
907/19651605160160
1007/26311751175175
1108/0231175
1208/09
1308/1631200
1408/2331180
1508/3031180
1609/0632200
31275
1709/1231275
————
Total86.120.6
Source: The Central Fund Exchange.
Source: The Central Fund Exchange.

5. Banking regulation and supervision

There were no major changes in banking regulation or supervision in 1994, but several important changes in regulations were introduced in 1995 in conjunction with the currency reform. These changes were aimed at reducing direct controls over banking activities, while reorienting the NBT’s function toward being a central bank. Most restrictions on deposit and lending interest rates were eliminated, and surrender requirements for cash were removed at the time of the currency reform. In mid-1995, reserve requirements—20 percent on demand deposits and 15 percent on savings deposits—were extended to the Savings Bank, which had previously been exempted. In November 1995, reserve requirements were unified at 20 percent for all types of deposits (Table 41). In addition, state budget accounts held with commercial banks were transferred to NBT branches in February 1995, and international reserves were transferred from the Vneshekonombank (VEB) to the NBT in June 1995.

Table 41.Tajikistan: Reserve Requirements, 1988–95 1/
Months when changes were introduced198819901991199419951995
Aug.Jan.Mar.JulyNov.
Deposits with commercial banks
Demand deposits51015202020
Time deposits for less than one year51012202020
Time deposits more than one year51010151520
Deposits with the Savings Bank15-2020
Source: National Bank of Tajikistan.

Reserve requirements on domestic currency deposits only. There are no reserve requirements on deposits denominated in foreign currencies.

Source: National Bank of Tajikistan.

Reserve requirements on domestic currency deposits only. There are no reserve requirements on deposits denominated in foreign currencies.

To compensate for the effects of high inflation and depreciation, minimum capital requirements for all commercial bank were raised from Rub 100 million to US$500,000 in 1994. Following the currency reform in 1995, the NBT introduced lower minimum capital requirements of TR 10 million for banks established by legal entities and TR 5 million for banks set up by private citizens.

Further regulatory reforms were needed, to complete the transformation from a financial system appropriate for a planned economy to one appropriate for a market economy. For example, an enterprise still required the NBT’s authorization to change its bank, and it could not keep settlement accounts in several banks. On the other hand, there were no reserve requirements for foreign currency deposits and no exposure limits on the foreign exchange positions of banks.

Overdrafts from commercial banks were rare in the first half of 1995, largely due to intensified supervision, with the NBT monitoring balances on the correspondent accounts of commercial banks at the end of each day. Overdrafts were charged a penalty rate of 0.5 percent per day. If the overdrafts persisted, the NBT’s settlement service was stopped. Despite the NBT’s efforts, however, overdrafts grew in the second half of 1995. Shark in particular incurred large overdrafts, prompting frequent suspension of inter-bank settlements. In December 1995, in an attempt to tighten control, the NBT ordered all branches of Shark to open separate correspondent accounts with the NBT and suspended settlement services for individual branches of Shark where overdrafts occurred.

There is as yet no evidence of open problems with loan collections. However, the data on this issue is of limited value, since overdue loans are often extended, rather than being classified as in arrears. In addition, the easy credit policies of 1995 may have contributed to a masking of the problem.

In general, banking supervision remained relatively ineffective because of a lack of expertise and organization. The work of the Supervision Department was limited to licensing, and monitoring bank compliance with legal requirements, including the capital asset and liquid asset ratios (Table 42). However, these ratios do not necessarily reflect the true financial standing of the banks, as the norms could be fulfilled by insufficient provisioning and accounting for doubtful and bad loans. On-site inspections were carried out mainly to verify accuracy of reported data, and little effort was devoted to reviewing asset quality or management performance of banks in order to determine their financial health.

Table 42.Tajikistan: Capital Asset and Liquid Asset Ratios, 1995
Capital Asset Ratio (K1) 1/Liquid Asset Ratio (K2)2/
BanksMay 95June 95July 95Aug. 95May 95June 95July 95Aug. 95
Tajikbankbusiness0.330.330.941.120.360.830.801.05
Orion0.360.330.400.260.806.701.201.26
Agroprombank0.120.080.02*0.010.031.161.140.34
Tajbank0.120.100.160.200.15*0.200.120.002*
Vneshekonombank0.583.132.352.682.3212.8035.308.30
Fonon3.101.912.342.400.801.091.090.82
Khojent0.340.400.300.721.01−1.13*−2.20*0.03*
Faxangis 3/0.190.01*0.240.205.700.90−16.20*−31.00*
Fanchina4.902.702.203.053.300.601.402.01
Somonbank0.390.880.800.590.301.600.500.66
Akbar Bank1.373.403.433.072.700.70−0.90*−1.12*
Eskhata2.502.071.802.802.9010.005.5014.20
Ayem3.402.150.570.541.747.0049.00−0.80*
Source: National Bank of Tajikistan (NBT).Note: * denotes a violation of NBT rules.

K1 is the ratio of bank’s own resources to its risk-weighted assets.

K2 is the current liquidity ratio (bank’s liquid assets per the sum of demand deposits).

Liquidated in October 1985.

Source: National Bank of Tajikistan (NBT).Note: * denotes a violation of NBT rules.

K1 is the ratio of bank’s own resources to its risk-weighted assets.

K2 is the current liquidity ratio (bank’s liquid assets per the sum of demand deposits).

Liquidated in October 1985.

6. Settlements system

Significant progress was made in reducing interbank settlement delays in 1994 and 1995, due to improvements in logistics and the security situation. Most intra-bank payments were settled in four days, compared with frequent delays in 1993 of more than a week even within the Dushanbe area. It generally took a maximum of one week for inter-bank inter-regional settlements. Many branches of commercial banks were linked by computers, and daily courier services were set up along six routes across the country. In addition, as of March 1, 1995, commercial bank branches were allowed to transact through their regional or head offices, rather than through NBT clearing centers. Since then, several branches of the largest banks have chosen to clear through their head offices, as such settlements were superior in terms of security and speed. In an effort to accelerate the settlement process Parliament, in November 1995, issued a resolution under which banks can be penalized severely for intentionally delaying settlements.

VI. External Sector Developments

1. Balance of payments developments in 1993-94 1/

Tajikistan’s external current account deficit was 31 percent of GDP in 1993 (Table 43). 2/ The high trade deficit in 1993 was caused by an adverse shift in the terms of trade and a sustained fall in the volume of exports. After the disintegration of the former Soviet Union, prices faced by Tajikistan for imports of energy and grain products rose more than 150 percent, reaching roughly international levels by end 1994. Over the same period, the collapse of the Tajik economy and the breakdown of traditional trade and payments arrangements contributed to a steady decline in the volume of Tajikistan’s exports. 3/ Exports of cotton and aluminum had been falling for several years because of shortfalls in fertilizers and other inputs, and because of failure to maintain and upgrade plant and equipment. By 1993 exports of both commodities amounted to only about half of their 1990 levels. The current account deficit in 1994 improved somewhat, to a deficit of 23 percent of GDP. This reflected a further in import volumes as the economy continued to adjust to higher import prices and tighter external financing constraints; and a rise in world prices for cotton and aluminum (Tables 44-47).

Table 43.Tajikistan: Balance of Payments, 1993–95(In millions of U.S. dollars)
199319941995
Current account balance−208−1701
Trade balance−204−14829
(States of the former U.S.S.R.)(-125)(-177)(-98)
(Other countries)(-78)(29)(128)
Exports, f.o.b.456559657
Aluminum230313385
Cotton117155212
Other exports1099060
Imports, c.i.f.660707628
Alumina108146182
Energy101163149
Natural gas488466
Petroleum products537983
Grains & flour9511378
Other imports356284218
Services & transfers−5−22−28
Interest payable, net−4−19−28
Services, net−26−28−25
Grants & assistance252525
Capital account balance−29−52−133
Disbursements714419
Amortization payable−15−19−102
Direct investment91213
Change in Commercial banks NFA (– increase) 1/−2−8
Errors & omissions & other short-term capital−95−86−56
Overall balance−238−223−132
Financing items:238223132
Change in gross reserves (– increase) 2/−21−3
Change in arrears (+ increase)1737118
Exceptional financing 3/22218417
Memorandum items:
Current account balance (percent of GDP)−31−230
Trade balance (percent of GDP)−30−205
States of the former U.S.S.R. (percent of GDP)−19−24−17
Other countries (percent of GDP)−12422
Exports (percent of GDP)6776115
Imports (percent of GDP)9897110
External debt stock (end period, US$ millions) 4/509760817
External debt stock (percent of GDP)75104143
External arrears stock (end period, US$ millions)1754172
Debt service payable (percent of exports)4720
Gross official reserves (US$ millions)007
Gross official reserves (weeks of non-alumina, non-grant imports)0.00.00.9
Sources: Data provided by the authorities; and IMF staff estimates.

Available data on commercial banks’ net foreign assets in 1992-93 are unreliable due to valuation problems.

Gross convertible foreign assets of the monetary authorities. Available data on the monetary authorities’ gross non-convertible foreign assets are unreliable due to valuation problems.

Includes conversions of debt service arrears, trade arrears, and correspondent account balances into debt.

External debt stock includes estimated interest arrears.

Sources: Data provided by the authorities; and IMF staff estimates.

Available data on commercial banks’ net foreign assets in 1992-93 are unreliable due to valuation problems.

Gross convertible foreign assets of the monetary authorities. Available data on the monetary authorities’ gross non-convertible foreign assets are unreliable due to valuation problems.

Includes conversions of debt service arrears, trade arrears, and correspondent account balances into debt.

External debt stock includes estimated interest arrears.

Table 44.Tajikistan: Import Prices, 1993–95
199319941995
(In U.S. dollars per metric ton, unless otherwise noted)
Total imports, c.i.f.
Alumina223312413
Natural gas 1/368479
Petroleum products 2/77188198
Grains and flour63173204
Other imports
(Prices indices: 1993 base)
Total imports, c.i.f.100160177
Alumina100140185
Natural gas100235220
Petroleum products100244263
Grains and flour100275316
Other imports100133148
(Percentage changes)
Total imports, c.i.f.6010
Alumina4032
Natural gas135−6
Petroleum products1447
Grains and flour17515
Other imports3311
Memorandum items:
Terms of trade (index)1008599
Terms of trade (percent change)−1517
Sources: Customs Department; State Statistical Agency; Tajik aluminum; Tajik gas; Tajik oil; Ministry of Bread; aid organizations; and IMF staff estimates.

In U.S. dollars per thousand cubic metres.

Weighted average composite price for imports of petroleum products which comprise mostly diesel fuel and similar products.

Sources: Customs Department; State Statistical Agency; Tajik aluminum; Tajik gas; Tajik oil; Ministry of Bread; aid organizations; and IMF staff estimates.

In U.S. dollars per thousand cubic metres.

Weighted average composite price for imports of petroleum products which comprise mostly diesel fuel and similar products.

Table 45.Tajikistan: Export Prices, 1993–95
199319941995
(In U.S. dollars per metric ton)
Total exports, f.o.b.
Aluminum92812991698
Cotton fiber78012301809
Other exports
(Price indices: 1993 base)
Total exports, f.o.b.100136176
Aluminum100140183
Cotton fiber100158229
Other exports100109119
(Percentage changes)
Total exports, f.o.b.3629
Aluminum4031
Cotton fiber5845
Other exports99
Sources: Customs Department; State Statistical Agency; Glavkholpkoprom; Tajik aluminum; and IMF staff estimates.
Sources: Customs Department; State Statistical Agency; Glavkholpkoprom; Tajik aluminum; and IMF staff estimates.
Table 46.Tajikistan: Import Volumes, 1993–95
199319941995
(In thousands of metric tons)
Total imports
Alumina483470441
Natural gas 1/1345994842
Petroleum products685421410
Grains and flour1521655394
Other imports
(Volume indices: 1993 base)
Total imports1006754
Alumina1009791
Natural gas1007463
Petroleum products1006160
Grains and flour1004326
Other imports1006041
(Percentage changes)
Total imports−33−20
Alumina−3−6
Natural gas−26−15
Petroleum products−39−3
Grains and flour−57−40
Other imports−40−31
Sources: Customs Department; State Statistical Agency; Tajik aluminum; Tajik gas; Tajik oil; Ministry of Bread; aid organizations; and IMF staff estimates.

In thousand cubic metres.

Sources: Customs Department; State Statistical Agency; Tajik aluminum; Tajik gas; Tajik oil; Ministry of Bread; aid organizations; and IMF staff estimates.

In thousand cubic metres.

Table 47.Tajikistan: Export Volumes, 1993–95
199319941995
(In thousands of metric tons)
Total exports
Aluminum248241227
Cotton fiber150126118
Other exports
(Volume indices: 1993 base)
Total exports1009082
Aluminum1009791
Cotton fiber1008479
Other exports1007646
(Percentage changes)
Total exports−10−9
Aluminum−3− 6
Cotton fiber−16−6
Other exports−24−39
Sources: Customs Department; State Statistical Agency; Glavkholpkoprom; Tajik aluminum; and IMF staff estimates.
Sources: Customs Department; State Statistical Agency; Glavkholpkoprom; Tajik aluminum; and IMF staff estimates.

Tajikistan’s trade deficit with states of the former U.S.S.R. rose from 12 percent of GDP in 1992 to 19 percent in 1993 (Chart 10). In 1994 this deficit grew to 24 percent of GDP, reflecting three factors: (i) higher prices for imports (especially energy) from states of the former U.S.S.R.; (ii) trade and other credits from Russia and Uzbekistan that were often tied to imports from those countries; 1/ and (iii) a continuing shift in exports toward non-CIS markets. The trade deficit with non-CIS countries rose from 7 percent of GDP in 1992 to 12 percent in 1993. In 1994, trade with non-CIS countries shifted to a surplus of 4 percent of GDP, reflecting the increasing share of exports to these markets and falling imports due to financing constraints and the declining Tajik economy.

Chart 10TAJIKISTAN: External Trade Balance, 1992-95

(In Percent of GDP)

Sources: Data provided the authorities; and IMF staff estimates.

The current account deficits led to a rapid accumulation of external debt which, in turn, has resulted in a rising deficit on services trade, as accrued interest payable continued to grow. Inflows of humanitarian grant assistance from UN agencies, private foundations, states of the former U.S.S.R. and other official donors, together with military assistance in kind from CIS countries, helped reduce the current account deficits by about US$25 million per year over the period 1993 to 1994. 2/

The capital account (including errors and omissions) shifted from a surplus of US$193 million in 1992 to deficits of US$29 million in 1993 and US$52 million in 1994. Unidentified net inflows of about US$140 million contributed to the 1992 surplus. 3/ These inflows probably reflected unrecorded suppliers’ credits, and perhaps also the repatriation of foreign exchange holdings after independence. There were unidentified net foreign exchange outflows of US$95 million in 1993 and US$86 million in 1994. These outflows are consistent with the experience of other transition economies, and may have reflected foreign exchange flight (from both capital and trade sources) and dollarization. There are indications of over-invoicing of imports and, to a lesser extent, under-reporting of export earnings during this period, even though trade continued to be dominated by centralized state orders. 4/ The dwindling level of disbursements from official loans also contributed to the capital account deficits during 1993-94.

The large current account deficits, and the emergence of capital account deficits, led the overall balance of payments to shift from an estimated surplus of US$140 million in 1992 to deficits of US$238 million in 1993 and US$223 million in 1994 (Table 48). The balance of payments was financed by the accumulation of liabilities, mainly to Russia and Uzbekistan, including in the form of trade and debt service arrears that were subsequently converted into interstate debt. 1/ During 1993-94, arrears on trade payments grew rapidly, as did arrears on debt service payments to virtually all creditors (see Section VI.7).

Table 48.Tajikistan: External Debt Stock Including Arrears, 1992–95(In millions of US dollars)
1992199319941995
States of the former U.S.S.R.163386537570
Russia, total99257329341
1. Trade credit 07/20/93173333
2. Cash delivery 11/23/93498080
3. Correspondent account conversion 05 & 07/9385128130130
4. Trade credit, 04/13/94717
5. Trade arrears 1993–94153032
6. Railway debt, 10/1/9414282829
7. Oil company debt, 11/4/93202020
Uzbekistan, total45101179200
1. 1992–94 debt45101179183
2. 1995 trade arrears17
Kazakhstan (correspondent account conversion)12181918
Other States of the former U.S.S.R.8111111
Other creditors4292124148
Multilateral32627281
European Union32627281
Bilateral10305167
U.S.10242425
Turkey2025
China555
India4
Pakistan6
Switzerland1122
Other external debt 1/1231100100
Other government–guaranteed debt10267979
Other non–guaranteed debt252121
Total217509760817
Memorandum items:
External debt stock (percent of GDP)7575104143
External debt service payable (US$ millions)1838130
External debt service payable (percent of exports)4720
Sources: Ministry of Finance; Vneshekonombank; and IMF staff estimates.

External debt for which accurate breakdown by creditor is not currently available.

Sources: Ministry of Finance; Vneshekonombank; and IMF staff estimates.

External debt for which accurate breakdown by creditor is not currently available.

2. Balance of payments developments in 1995

The current account moved into approximate balance in 1995, largely reflecting a shift in the trade balance from a deficit of 20 percent of GDP in 1994 to a surplus of 5 percent of GDP in 1995. This reflected an improvement in the terms of trade and a further compression in the volume of imports, external financing dried up. Import volumes in 1995 are estimated to have been just over 50 percent of their 1993 level.

With the shift to international prices in trade being largely complete, import prices rose at a much slower pace in 1995. An exception was alumina (the key input in the production of aluminum), for which import prices are estimated to have risen sharply over 1994-95. Creditors became less willing to extend new financial support—including by delivering goods prior to payment—or to disburse new credits in the absence of payments on outstanding credits. Overall, the value of imports fell by over 11 percent in US dollar terms. Tajikistan did not reap the full benefits of the increase in world cotton and aluminum prices over 1994-95, as cotton and aluminum export volumes continued to fall in 1995 from already low levels. In addition, the prolonged slump in imports and economic activity contributed to a steep decline in the volume of other exports.

The trade balance with states of the former U.S.S.R. remained substantially in deficit (17 percent of GDP) in 1995, reflecting the permanent impact of higher energy costs on Tajikistan’s trade relationship with the region. In trade with other countries, the upswing in international cotton and aluminum prices, and a sharp fall in imports other than alumina, energy and grain products, led to a rising trade surplus (22 percent of GDP). Interest payments were met in part in 1995, as US$12 million was paid to CIS creditors, primarily Uzbekistan. These payments generally occurred in exchange for the resumption of energy supplies. These supplies had been disrupted several times during the year due to nonpayment. Arrears continued to accumulate rapidly. The value of humanitarian and other assistance reaching Tajikistan is estimated to have remained unchanged in 1995, despite some disruption in deliveries of U.S. and EU grain assistance late in the year, related to difficulties with the generation of counterpart funds. Because of the external financing constraints, the quarterly pattern of imports (Table 49) was largely driven by the timing of resource availability rather than by seasonal demand factors.

Table 49.Tajikistan: Quarterly Balance of Payments, 1995(In millions of U.S. dollars)
19951995
Q1Q2Q3Q4Prel.
Est.Est.Est.Est.Est
Current account balance11−405251
Trade balance18−32133029
(States of the former U.S.S.R.)(-23)(-53)(-15)(-7)(-98)
(Other countries)(41)(21)(28)(38)(128)
Exports, f.o.b.182161159155657
Aluminum1019710186385
Cotton67494354212
Other exports1515151560
Imports, c.i.f.165192146125628
Alumina48464841182
Energy43572722149
Natural gas281681466
Petroleum products144119883
Grains & flour2024171878
Other imports54655444218
Services & transfers−7−8−8−5−28
Interest payable, net−7−7−10−4−28
Services, net−7−8−6−5−25
Grants & assistance668525
Capital account balance−4632−82−37−133
Disbursements059619
Amortization payable−19−6−76−1−102
Direct investment333313
Change in Commercial banks NFA (– increase) 1/−432−9−8
Errors & omissions &, other short–term capital−2626−20−36−56
Overall balance−35−8−77−12−132
Financing items:3587712132
Change in gross reserves (– increase) 2/0−1−96−3
Change in arrears (+ increase)225856118
Exceptional financing 3/13417
Memorandum items: