The Executive Board of the International Monetary Fund (IMF) has completed its third review of Tajikistan’s economic performance under a program supported by the Extended Credit Facility arrangement (ECF)15. The Board’s decision was taken on a lapse of time basis16. The decision enables the authorities to draw an additional SDR 13.045 million (US$20.11 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 65.265 million (US$100.59 million).
The three-year SDR 104.4 million (about US$160.91 million) Extended Credit Facility arrangement with Tajikistan was originally approved by the IMF’s Executive Board on April 21, 2009 and subsequently augmented on June 7, 2010 (see Press Releases No. 09/136 and No. 10/230.
Tajikistan has joined many other Central Asian countries on the path to economic recovery. An improving external environment, an upswing in inward remittances, and favorable climatic conditions (leading to an increase in hydroelectricity production) helped Tajikistan recover from the slowdown of 2009. Inflation has been low for most of the year, and although now rising, is expected to remain in single digits in 2010. Barring new shocks, the recovery should continue to take root in the remaining months of 2010 and into 2011.
Program performance through the first half of 2010 has been good. Despite a notable shock to VAT on imports, the government was able to boost domestic tax revenue and limit the shortfall in overall tax collections. Social spending through June fell short of expectations, however, and addressing this shortfall should be a priority for the remainder of the year given the high incidence of poverty and pressing social needs.
The overall fiscal deficit target for 2011 (at 1 percent of GDP) is appropriate, given pressing social and infrastructure needs. Over the medium term, the fiscal accounts (excluding the foreign-financed public investment program) will need to be broadly in balance to preserve fiscal and debt sustainability, as well as ease pressures on the balance of payments. On monetary policy, provision of liquidity support to commercial banks has been important during the economic downturn but should be phased out as conditions improve. Exchange rate flexibility will also be necessary to ensure orderly adjustment while continuing to build foreign exchange reserves.
Good progress on structural reform has been made in a number of areas, but it is important to maintain momentum—particularly with respect to measures on transparency in the state enterprise sector. Addressing underlying weaknesses in this sector, moving expeditiously in implementing the cotton debt resolution, strengthening the financial system, and pressing ahead with public financial management and revenue reforms will be essential to ensuring high and sustained rates of economic growth.
Continued successful program implementation under the ECF arrangement will help to strengthen Tajikistan’s resilience to external shocks, improve the prospects for stable and sustained economic growth and poverty reduction, and help to mobilize external support.
The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality. Financing under the ECF carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years (http://www.imf.org/external/np/exr/facts/ecf.htm). The Fund reviews the level of interest rates for all concessional facilities every two years.
The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.