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Mr. Peter J Kunzel, Phil De Imus, Mr. Edward R Gemayel, Risto Herrala, Mr. Alexei P Kireyev, and Farid Talishli
The Caucasus and Central Asia (CCA) countries are at an important juncture in their economic transition. Following significant economic progress during the 2000s, recent external shocks have revealed the underlying vulnerabilities of the current growth model. Lower commodity prices, weaker remittances, and slower growth in key trading partners reduced CCA growth, weakened external and fiscal balances, and raised public debt. the financial sector was also hit hard by large foreign exchange losses. while commodity prices have recovered somewhat since late 2014, to boost its economic potential, the region needs to find new growth drivers, diversify away from natural resources, remittances, and public spending, and generate much stronger private sector-led activity.
International Monetary Fund

This paper evaluates Tajikistan’s 2002 Article IV Consultation and a Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). Tajikistan’s previous IMF-supported program went off track in mid-2001 largely because of poor progress with structural reform and weak management of external debt. To revitalize the reform process, the authorities satisfactorily implemented a Staff-Monitored Program that covered the first half of 2002. The IMF staff commends the authorities for the progress in economic areas realized over the past few years, and supports the authorities' request for a new three-year PRGF arrangement.

International Monetary Fund. Middle East and Central Asia Dept.
Growth has been strong and poverty has fallen in the past decade, though Tajikistan faces rising vulnerabilities. Growth is now softening and the external position has weakened dramatically as remittances have fallen with the sharp slowdown in Russia and earnings from cotton and aluminum exports have dropped due to global market developments. The exchange rate is under pressure and international reserves are thin. The fiscal position has been near balance in recent years and debt has been kept low, while fiscal space is becoming limited by rising debt service and contingent liabilities.
International Monetary Fund. Middle East and Central Asia Dept.
Tajikistan is the poorest of the eight Central Asian and Caucasus countries. Economic growth has been high and funded by inward remittances, but poverty remains significant. Macroeconomic policies were generally prudent before the external shocks (lower oil and commodity prices and weaker growth in trading partners) in 2015-16, but slow progress in structural reforms constrained diversification and employment generation. External shocks (through lower remittances and currency depreciation) and an inadequate policy response weakened the external position, exposed major weaknesses in the banking system, and contributed to a rise in public debt. Program discussions held in 2016 were not concluded. While the authorities launched a bank recapitalization plan in December 2016 to maintain depositor confidence and financial stability, additional banking sector reforms are needed.
International Monetary Fund. Middle East and Central Asia Dept.
Tajikistan successfully completed a 3-year ECF-supported program in May 2012 and needs to continue with ambitious reforms. While growth is robust, it is non-inclusive, leading to large-scale outmigration that makes Tajikistan the most remittance-dependent country in the world. The country remains the poorest of the eight in the Caucasus and Central Asia (CCA) and stands next to last among the seven with rankings in the ease of doing business. Reliance on commodity imports, a narrow export base, and low buffers leave the economy vulnerable. Weak macroeconomic policy frameworks restrict the authorities’ ability to dampen shocks. State-directed lending and investment displace market-financed activity and create fiscal risks. Presidential elections are scheduled for November.
International Monetary Fund. Middle East and Central Asia Dept.
Reported economic activity has been strong in 2018-19 and inflation has picked up. The monetary framework is being strengthened. The external position has deteriorated. The fiscal deficit has widened as revenues have declined. Reforms to place the loss-making energy sector on a sound financial footing are underway. The authorities’ development strategy relies on large infrastructure projects— Roghun dam and other large SOE-implemented projects — that need sizable external financing. The financial sector is recovering from the 2015-16 crisis, with a decline in nonperforming loans and improved profitability. The authorities are making efforts to strengthen bank supervision and regulation. However, two formerly-systemic banks remain insolvent and further reforms are needed to restore public confidence in banks.
International Monetary Fund. Middle East and Central Asia Dept.
With a strong recovery in train, the authorities are gradually withdrawing the policy stimulus released during the pandemic. Although debt is sustainable, there is a high risk of debt distress. At the same time, financing the Roghun dam project while implementing tax reform remains a key challenge. The financial sector has stabilized, but intermediation remains low. Risks to the outlook are tilted to the downside due to uncertainty on the pandemic and regional spillovers.
International Monetary Fund. Middle East and Central Asia Dept.

1. Tajikistan is the poorest of the eight Central Asian and Caucuses (CCA) countries. The 1990’s civil war caused a large decline in output and income. Subsequently, output and incomes have grown significantly, but income per capita growth has lagged other CCA oil importers. President Rahmon has led the government since 1994 and the next presidential elections will be in 2020.

International Monetary Fund. Middle East and Central Asia Dept.

1. Tajikistan has made significant progress in reducing poverty over the last two decades.1 With many households having a family member working abroad, remittances remain high at around 30 percent of GDP. These inflows offset persistent low employment and underpin consumption and growth. Despite gains in poverty reduction, Tajikistan still ranks relatively low on the 2020 Human Development Index. Moreover, the economy has remained undiversified with a narrow export base—primarily cotton, aluminum, and increasingly gold.