Tajikistan
Recent Economic Developments

This paper reviews economic developments in the Republic of Tajikistan during 1994–97. In 1996, the authorities embarked on their first comprehensive effort at economic reform, supported by financial assistance from the World Bank and the IMF. Although implementation was uneven, the authorities were successful in achieving a degree of macroeconomic stability during the first three quarters of 1996; progress was also made on structural reforms. However, confronted with substantial unanticipated expenditures, the budget deficit increased substantially in late 1996 and the first half of 1997.

Abstract

This paper reviews economic developments in the Republic of Tajikistan during 1994–97. In 1996, the authorities embarked on their first comprehensive effort at economic reform, supported by financial assistance from the World Bank and the IMF. Although implementation was uneven, the authorities were successful in achieving a degree of macroeconomic stability during the first three quarters of 1996; progress was also made on structural reforms. However, confronted with substantial unanticipated expenditures, the budget deficit increased substantially in late 1996 and the first half of 1997.

I. Overview

A. Country Profile

1. Tajikistan is a mountainous, landlocked country in Central Asia. With an area of 143,000 square kilometers, it is similar in size and geography to Nepal, and about three times the size of Switzerland. Tajikistan is bordered by Afghanistan, China, the Kyrgyz Republic and Uzbekistan. High mountain ranges make communications between regions difficult, especially in the winter, and only seven percent of the land is arable. The country is, however, well endowed with water resources, enabling irrigation of about 80 percent of the arable land and contributing to Tajikistan’s specialization in cotton production. Tajikistan also has substantial hydroelectric potential; inexpensive hydroelectricity led to the country’s other specialization—aluminum production, which constitutes the bulk of industrial output. Tajikistan has mineral resources in the form of gold, silver and uranium, which have only recently begun to be exploited.

2. Tajikistan’s population was estimated at six million in 1996, with a population growth rate of about 2 percent per year. Because the population is very young, the labor force has been growing at an average rate of 2.5 percent per year. Two-thirds of the population are ethnic Tajiks, one-fourth Uzbeks, and the remainder Russians, Kyrgyz and Tartars. Approximately 70 percent of the population lives in rural areas, with roughly half of the labor force engaged in agriculture. The capital is Dushanbe, with a population of about one million.

B. Political Developments

3. The years since Tajikistan’s independence have been marked by a violent and prolonged internal civil struggle. Following independence in September 1991, political turmoil and civil strife emerged and erupted into civil war in 1992. By early 1993, about 50,000 people had been killed; 15 percent of the population either had been internally displaced or had sought refuge in Afghanistan; a significant part of the skilled labor force had emigrated, mainly to other countries of the CIS; 36,000 homes had been destroyed; and almost 20 percent of schools were damaged beyond repair.

4. The fighting subsided in most parts of the country in 1993, and in September 1994 a UN-monitored 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 began to improve; it is estimated that by mid-1995, virtually all internally displaced persons had returned home, two-thirds of those who had fled to Afghanistan had returned, and about half of the damaged homes had been repaired. Unfortunately, a permanent political settlement eluded Tajikistan, with the situation remaining particularly tense along the Afghan border, which was guarded by CIS peacekeeping forces.

5. Late 1996 saw a renewal of violence in the civil war, and fighting broke out throughout Tajikistan in December 1996. In the face of the increased violence, the Government and the United Tajik Opposition (UTO) agreed on an agenda for accelerating talks aimed at reaching a peaceful resolution to this five-year-old conflict. On June 27, 1997, a peace agreement was signed in Moscow by President Rakhmonov and Mr. Nuri, head of the UTO, formally ending the civil war. With the signing of the peace agreement, the authorities were once again able to turn their attention to economic stabilization and structural reform.

6. Strained by the civil war and repeated changes of political leadership, the Government lacked a coherent policy to deal with the economic challenges facing Tajikistan after the breakup of the Soviet Union. The beginnings of economic reform were seriously delayed; the Tajik national currency was introduced only in May 1995, replacing the Russian ruble.1 As a result, Tajikistan’s economy deteriorated even more rapidly than those of other BRO countries (Baltics, Russia and other countries of the former Soviet Union), with GDP per capita in 1995 only about 40 percent of the 1991 level (Figure 1).

Figure 1.
Figure 1.

Tajikistan: Macroeconomic Indicators, 1992-96

Citation: IMF Staff Country Reports 1998, 016; 10.5089/9781451836943.002.A001

Sources: Tajik authorities; and IMF staff estimates.

C. The First Reform Effort

7. In 1996 the authorities embarked on their first comprehensive effort at economic reform, supported by financial assistance from the World Bank and the International Monetary Fund. While implementation was uneven, the authorities were successful in achieving a degree of macroeconomic stability during the first three quarters of 1996; progress was also made on structural reforms. However, confronted with substantial unanticipated expenditures—both those related directly to the civil war and those related to attempts to mobilize support for the Government’s efforts in the peace process—the budget deficit increased substantially in late 1996 and the first half of 1997. As a result, monetary policy was relaxed, and reserve money growth accelerated continuously from the fourth quarter of 1996 through the second quarter of 1997. At the same time, the authorities increasingly reverted to direct controls to influence economic activity; they abandoned foreign exchange auctions, in favor of administrative allocation of the National Bank of Tajikistan’s (NBT) foreign exchange, and trade restrictions were reimposed in the form of export taxes, discriminatory excise taxes, and protectionist import duties.

8. The 1996 economic program aimed at sharply reducing inflation, regularizing Tajikistan’s relations with its external creditors, increasing foreign exchange reserves, liberalizing external trade and payments, improving the social safety net, and accelerating structural reform, particularly in the areas of land reform and enterprise privatization. Initial implementation of the program was successful. The government deficit was kept below the program target, as the new presumptive taxes on cotton and aluminum provided a source of significant revenues for the budget. Monetary growth slowed sharply, consistent with the program objectives. Combined with the regular foreign exchange auctions which were introduced in February, these factors led to a stabilization of the exchange rate of the Tajik ruble at around TR 300 per U.S. dollar, and inflation declined rapidly. Consumer price inflation had averaged around 50 percent per month in late 1995; it declined to 16 percent during the first quarter of 1996 and, reflecting strong seasonality as well as the tight financial policies, prices actually fell during the second quarter of 1996.

9. Early progress in structural reform was also satisfactory. Bread and grain prices were liberalized, and general bread subsidies replaced with targeted bread price compensation payments. User charges were introduced for irrigation. Trade restrictions were almost completely eliminated, as export surrender requirements were abolished, along with export and import licenses and export duties. The state grain fund was terminated, and the system of mandatory contributions to this fund from the proceeds of cotton and aluminum exports abolished. The authorities also announced the liberalization of cotton marketing beginning with the 1996 harvest, effectively removing price controls on cotton.

10. In the second quarter of 1996, these favorable developments were interrupted. Floods in late May forced the replanting of many cotton fields, and led to numerous roads, bridges and houses being severely damaged. At the same time, uncertainty surrounding the forthcoming Russian elections led to a temporary slowdown in cotton exports. The authorities extended credits, both in Tajik rubles and U.S. dollars, in response to these pressures. As a result, monetary expansion accelerated rapidly, while foreign reserves declined to very low levels. The budget also suffered, as it became increasingly difficult to collect the presumptive taxes on cotton and aluminum on a timely basis.

11. In addition, there were reversals in structural reforms. The foreign exchange auctions, which were to be held weekly, became irregular in timing as the NBT was lending its foreign exchange outside the auction. Unofficial restrictions on access to the foreign exchange auctions were also introduced. One of the few positive developments during this period was the adoption by the Government and approval by Pariliament of a land reform program which had been designed with assistance from the staff of the World Bank.

12. In the third quarter of 1996, the authorities embarked on a concerted effort to get their reform program back on track. With the state budget roughly balanced on a cash basis, and a decline in net foreign exchange credits,2 reserve money growth slowed significantly while gross international reserves returned almost to their level at the end of the first quarter. Nonetheless, it was apparent that there remained serious problems with the implementation of the economic program. Despite the fact that a key element of the program was to be a strengthening of the social safety net, arrears on compensation payments grew rapidly in the third quarter of 1996.

13. The balance of payments situation remained difficult. While Tajikistan received its first financial assistance from the IMF and the World Bank during 1996, this was offset by continuing declines in cotton and aluminum exports. As a result, imports were severely compressed. There was some progress on regularizing Tajikistan’s relations with its creditors during 1996, as an agreement was reached with Russia on a stock of debt rescheduling. The terms of this agreement were broadly consistent with those assumed under the program supported by Tajikistan’s first credit tranche Stand-by Arrangement.3

D. A Renewed Period of Violence

14. In early December 1996, the UTO managed to take control of a key mountain pass. Within a week, fighting was taking place in many parts of Tajikistan, including close to Dushanbe. Following the intensified fighting, the Government and the UTO strengthened their efforts to find a diplomatic solution to the civil strife. In late December, an agreement was reached between the Government and the UTO on an agenda for talks aimed at reaching a peaceful solution to the civil war by mid-1997. However, at about the same time Tajikistan was hit by a new type of civil disturbance, as 23 foreigners were kidnaped and briefly held hostage by an armed group not directly connected either to the government or the UTO.

15. These events had a detrimental effect on economic policies. As a result of the fiscal pressures, the budget deficit increased sharply, to almost 10 percent of GDP in the fourth quarter of 1996. Disbursements under a World Bank credit financed about two-thirds of this deficit, but the NBT was forced to finance the remainder by monetary means. Combined with the growth in central bank credit to banks, this led to a doubling of reserve money growth from just over 10 percent in the third quarter of 1996 to more than 25 percent in the fourth quarter. The growing foreign exchange credits from the NBT resulted in gross international reserves again declining, and foreign exchange auctions were halted. Thus, the year ended with policies and the economy clearly headed in the wrong direction.

16. Developments in early 1997 aggravated the political and security problems. In February, a number of UN and Red Cross employees and Russian journalists were kidnaped. In response to the deteriorating security situation, the UN first evacuated all nonessential personnel and then, in late February, ordered the evacuation of all UN personnel. At the same time, the IMF and World Bank resident representatives were evacuated from Dushanbe.4

17. Confronted with growing security problems and complex peace talks, the authorities found themselves unable to adhere to sound economic policies. The budget deficit remained at about 10 percent of GDP; continuing problems (both financial and security) at the aluminum plant meant that no aluminum taxes were paid in the first quarter of 1997, while pressures for expenditure remained high. While World Bank disbursements under the loan approved in 1996 financed a majority of the budget deficit, the NBT was also provided substantial new credits. The external debt situation was also complicated when, in January 1997, Tajikistan signed a rescheduling agreement with Uzbekistan. This agreement was significantly less favorable to Tajikistan than the earlier agreements reached with Kazakstan and Russia.

18. Financing the fiscal deficit, as well as the continued extension of new foreign exchange credits, led to a rapid monetary expansion. While receipts from cotton sales allowed a modest recovery in gross international reserves, foreign exchange auctions remained suspended. As a result of the lax financial policies, the Tajik ruble—which had depreciated from around TR 300 during most of the first nine months of 1996 to TR 328 by end-1996—depreciated further, to almost TR 400 by the end of the first quarter of 1997. Inflation accelerated to roughly a 60 percent annualized rate in the fourth quarter, and stayed at this level in the first quarter of 1997.

19. The authorities responded to the depreciation by restrictive trade policies. Import tariffs, which had ranged from 5 to 25 percent since October 1, 1996, were revised to a range of zero to 50 percent. Excise taxes on imported goods were set at substantially higher levels than excise taxes on comparable domestic goods. Finally, the authorities reintroduced export duties and introduced new controls on cotton marketing.

20. Financial policies deteriorated further. With the fiscal deficit continuing at about 10 percent of GDP, and with virtually no external financing of the budget in the second quarter of 1997, the NBT provided substantial credits to the government. Also, the NBT—on instructions from the Government—entered into a commercial loan contract with a foreign bank for the purpose of financing the planting and harvesting of the 1997 cotton crop. This led to a rapid decrease in the NBT’s net international reserves, as foreign exchange liabilities grew while the on-lending of the foreign exchange prevented a corresponding increase in assets. Domestic credit was rising rapidly, fueling reserve money growth. The value of the Tajik ruble continued to decline; the official exchange rate reached TR 540 per U.S. dollar by end-June 1997, while the curb market rate—which had been very close to the official rate for most of 1996—reached more the TR 600 per U.S. dollar. Inflation accelerated to an annualized rate of almost 250 percent in the second quarter of 1997. Severe import compression continued, due to limited foreign inflows and the requirement to service the new debt agreement with Uzbekistan. There was no further progress on regularizing relations with other creditors, and external arrears again increased.

E. A New Start

21. With the signing of the peace agreement and the formal end of the civil war in late June 1997, the authorities once again turned their attention to economic stabilization and reform. They quickly requested a renewal of the policy dialogue with IMF and World Bank staff. Monetary and fiscal policies were tightened and trade policies again liberalized. In July 1997, the President issued a decree which brought an end to all directed credits, as well as all foreign exchange credits from the NBT or the Ministry of Finance.5 This enabled the NBT to restart the weekly foreign exchange auctions in late July 1997, after almost eight months with virtually no auctions. Freed from the pressures of financing the civil war, the budget deficit declined sharply, to just over 1 percent of GDP. These developments made it possible for the NBT to significantly reduce the growth rate of reserve money. While the loose financial policies in the first half of 1997 continued to put pressure on the exchange rate, the rate stabilized starting in early September after reaching approximately TR 750 per U.S. dollar. Similarly, inflation was very high—around 20 percent per month—in July and August, but declined to less than 8 percent in the last month of the third quarter.

22. In October, the benefits of financial tightening became apparent, as inflation declined to just over 1 percent and the exchange rate remained stable. However, October brought renewed slippage in monetary policy. The conduct of foreign exchange auctions improved,6 and net credit to government was virtually unchanged as the budget deficit remained under control. However, the net domestic assets of the NBT grew rapidly, as the NBT extended credit to finance the cotton harvest in two ways. First, the NBT on-lent to GKP the ruble counterpart of new disbursements from the foreign commercial bank loan without first selling the foreign exchange received from the bank.7 Second, the NBT extended additional short term credit to GKP from its own resources. As a result, reserve money growth accelerated. In late October and November, the NBT attempted to speed up the pace of foreign exchange auction sales, and took other measures to bring reserve money growth back under control.

23. In October the authorities designed, with the assistance of the IMF staff, a new economic program for late 1997 and the first half of 1998. The objectives of this program are to reestablish macroeconomic stability, finish the process of regularizing Tajikistan’s relations with its creditors, increase foreign exchange reserves, accelerate structural reform, and strengthen Tajikistan’s institutional capacity for implementing economic policy. The authorities have requested post-conflict financial support from both the International Monetary Fund and the World Bank in support of this renewed adjustment effort.

24. This paper provides a review of economic developments in Tajikistan in 1996 and the first three quarters of 1997. Developments in the real sector are discussed in Chapter II. Fiscal, monetary and external sector developments are discussed in Chapters III through V, and structural issues in Chapter VI. Appendices provide detailed information on statistical issues and the tax system.

II. Output, Employment, Prices and Wages 1995-97

A. Total Output

25. Real output in Tajikistan declined by more than half from 1991 to 1996.8 (Table 1 and Figure 2). This sharp fall in economic activity reflected a variety of factors. First, there were external factors—largely stemming from the break-up of the Soviet Union—and including the collapse of inter-republican trade arrangements, sharply higher prices for imported fuel products, the sharp decline in demand from other BRO states, and the elimination of grants from Moscow which had been equivalent to as much as 40 percent of Tajik GDP. Second, there were internal factors beyond the authorities’ control, most notably natural disasters—including floods in 1992, 1993 and 1996—which contributed to economic difficulties. Third, the design and execution of economic policies compounded these economic problems, fueling inflation and accelerating the economic decline.

Table 1.

Tajikistan: Nominal and Real GDP, 1990-97

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Sources: State Statistical Agency; and IMF staff calculations.

Converted to Tajik rubles using a conversion factor of 90.

Figure 2.
Figure 2.

Tajikistan: GDP, 1991-97

Citation: IMF Staff Country Reports 1998, 016; 10.5089/9781451836943.002.A001

Sources: Tajik authorities; and IMF staff estimates.

26. Moreover, the civil war had both permanent and temporary effects on output and productive capacity. Besides damaging or destroying much of the economy’s infrastructure, the war disrupted industrial and agricultural production, caused widespread dislocation of the population, all but eliminated foreign investment, and diverted the authorities’ attention from much-needed economic reforms.

27. In 1996, the decline in real output slowed to 4 percent, compared to double digit declines in earlier years. In late 1996, there was a renewal of hostilities between the government and the UTO. This led to policy slippages and the re-emergence of high inflation. In the first three quarters of 1997, real output is nonetheless estimated to have increased modestly, largely in response to recovery of the cotton harvest from its very low level in 1996 and the increase in the grain harvest. In part, this rebound of agricultural production may reflect reforms which have been taking place: the early steps toward land reform, the restructuring of the cotton industry and the liberalization of cotton, grain and bread prices.

Sectoral developments

28. Agriculture’s share of output increased sharply starting in 1996, after having fallen steadily for several years; it is estimated to have been 27 percent in the first nine months of 1997, compared to 15 percent two years earlier (Table 2). This turnaround largely reflects changes in relative prices, as the prices of cotton and wheat were liberalized. Conversely, industry’s share has fallen since 1995, from 35.3 percent to 19.5 percent.9 Construction output has virtually collapsed, falling from 10.4 percent to 1.4 percent of output over the last three years, as a result of declining investment. Meanwhile, services have greatly increased in relative importance, with their share of GDP almost doubling from 11.4 percent of GDP to 20.9 percent of GDP, reflecting the increased importance of small-scale private activities, mainly retail trade.

Table 2:

Tajikistan: Nominal GDP by Sector of Origin, 1993-97

(In millions of Russian rubles)

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Sources: State Statistical Agency.

Data for 1995 onwards are measured in Tajik rubles.

Calculated as value added plus an estimate for depreciation.

Shares based upon preliminary January to September 1997 GDP figures.

29. Tajikistan’s foreign exchange earnings are heavily dependant on aluminum and cotton production, which together account for over 50 percent of exports. These areas of specialization were inherited from the Soviet era and operate largely independent of the rest of the economy. Most inputs for these sectors are imported. Virtually none of the aluminum is used domestically, and less than 15 percent of the cotton fiber is processed in Tajikistan. The country’s aluminum plant, TADAZ, is heavily indebted, has experienced an exodus of skilled workers, and is in need of substantial investment. The cotton sector—dominated for years by the state cotton marketing monopoly, Glavchlopkoprom (GKP)—is undergoing reforms which should improve its prospects, both in the short term and in the longer run.

30. The grain sector’s prospects have improved with the liberalization of grain and bread prices and the initial stages of land reform, but the grain balance remains in deficit. In the energy sector, while the country has ample hydroelectric resources, these are not being fully utilized because of a lack of investment. While Tajikistan has other mineral resources—such as coal, gold and silver—many of these remain largely inaccessible and have suffered from a lack of modern technologies and foreign investment. Initial attempts to exploit these resources began in 1996, with the first significant exports of gold from Tajikistan occurring in that year.

Agriculture

31. Even though only seven percent of the land area is arable, agriculture remains a key sector of the Tajik economy. Agriculture’s increased share of GDP is largely due to changing relative prices, as noted above. The cumulative output decline by 55 percent since independence reflected, inter alia, the poor design of agricultural policies, including price controls and state orders, a lack of adequate agricultural machinery, and shortages of spare parts, fuel, lubricants, pesticides and fertilizers. In 1996, agricultural production fell by 18 percent, despite a good grain harvest. Apart from the liberalization of grain and bread prices in 1996, this improved grain harvest reflected an increase in private farming. Furthermore, in 1996 user charges were introduced for irrigation, which has improved cost awareness and contributed to the maintenance of the irrigation system.

32. The decline in agricultural output since independence has mainly reflected declining yields, as land use has not changed appreciably. After reaching a peak in 1988-89, yields declined steadily for most crops (Table 3). Cotton yields declined by almost one half between 1991 and 1996, although this trend appears to have been reversed in 1997. Vegetable yields also declined, albeit at a more moderate rate of 17 percent. Grain yields fell by 31 percent between 1991 and 1994, but this trend was reversed in 1995. In 1996, grain yields were 1,410 kilograms per hectare, compared to 1,310 kilograms in 1991.

Table 3.

Tajikistan: Production and Yield of Major Agricultural Crops, 1985-96

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Source: State Statistical Agency.

33. In 1996, crops represented over 80 percent of total agricultural production (Table 4), with cotton, grain and vegetables the most important components. The share of grain in total crops has increased rapidly since 1994, reflecting higher yields per acre, the continuing reduction in the yields of other crops, and the shifting of land from cotton to grain production. This increased acreage devoted to grain production reflected the supply response to the liberalization of bread prices, the usefulness of grain as a barter instrument and a means of payment for workers, and the movement from cotton towards grain production due to payment problems in the cotton sector. As a result, Tajikistan is becoming increasingly self-reliant in grain production. In 1994, Tajikistan relied on imports for two-thirds of its grain consumption; it is estimated that this figure fell to 20 percent in 1996.

Table 4.

Tajikistan: Agricultural Production, 1980-96 1/

(In millions of Tajik rubles at constant 1996 prices)

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Source: State Statistical Agency and IMF staff calculations.

See Table 7 for cross reference.

34. Animal husbandry has declined more rapidly than output in the crop sector. This decline was especially pronounced in the officially recorded production of certain livestock items, such as pigs and poultry, which plummeted as a result of changes in consumption patterns and shortages of fodder and antibiotics (Tables 5 and 6). It is likely, however, that these declines in output are overstated because of the increased importance of private sector activities, which may be under reported.

Table 5.

Tajikistan: Animal Husbandry, 1985-96

(In thousands of heads)

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Source: State Statistical Agency.
Table 6.

Tajikistan: Production of Meat, Milk, and Eggs, 1985-96

(In thousands of tons unless otherwise specified)

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Source: State Statistical Agency.

35. Because increased land use to boost agricultural output is not an option, reforms have concentrated upon improving yields. These include the transformation of state farms into collective farms, and the conversion of collective farms into small-scale private farms operated by individuals or groups. These goals are embodied in a land reform program, which was designed in consultation with the World Bank and approved by Parliament in 1996. However, while the Land Reform Committee is reportedly committed to the land reform process, this process is largely controlled at local levels, where there is greater resistance to change.

36. Important reforms have been taken in the cotton sector. The first significant step was the removal of state orders starting with the 1996 crop, which effectively freed the price of cotton by allowing farmers to sell to any cotton marketer. The further dilution of the power of GKP in 1997, together with its corporatization, led to the entry of private sector cotton marketing companies. The authorities also set up a Cotton Exchange by decree in February 1997. Finally, a resolution of April 1997 called for the privatization of all ginneries; this has yet to produce substantial results, however, as just over a third of ginneries have been transformed into joint stock companies, with little effective privatization to date.

37. All the above reforms contributed to the reversal in 1997 of the long decline in agricultural output. Estimated agricultural output increased by 6 percent for the first eight months of the year compared to the same period in 1996. Thus, 1997 is the first year in which agricultural production has not declined since 1990. Although the usage of agricultural land remains dominated by large state and collective farms, private plots are far more productive. While private plots represented only 18 percent of total agricultural land in 1996, and none of the irrigated land was in private hands, private farmers produced 45 percent of agricultural output (Tables 7 and 8a, 8b). This suggests that there is room for sizeable productivity gains as land reform progresses. Many constraints still hamper the agricultural sector, however, such as the continued domination of state land holdings, poor crop production and livestock management techniques, serious soil erosion problems resulting from deforestation and overgrazing, and severe financing constraints.

Table 7.

Tajikistan: Production by Type of Farm, 1985-96 1/

(In millions of Tajik rubles at constant 1996 prices)

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Source: State Statistical Agency and IMF staff calculations.

See Table 4 for cross reference.

Table 8a.

Tajikistan: Allocation of Agricultural Land in 1995

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Source: State Statistical Agency.

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

Table 8b.

Tajikistan: Allocation of Agricultural Land in 1996

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Source: State Statistical Agency.

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

Industry

38. The pattern of Tajikistan’s narrowly-based industrial production reflects the country’s abundant natural hydroelectric resources. Electric energy and energy-intensive nonferrous metallurgy (primarily aluminum) constituted over half of the country’s industrial output in 1996 (Table 9). In addition, other energy-intensive industries—such as petrochemicals, chemicals, mechanical engineering and metal working—were important during the Soviet era, but their share of output has since declined sharply. Light industry accounted for 16 percent of industrial output in 1996, with cotton processing representing 97 percent of this figure.

Table 9.

Tajikistan: Industrial Output by Sector at Constant Prices, 1980-96

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Sources: State Statistical Agency; and IMF staff calculations.

Number of enterprises reporting to the SSA in 1996.

For 1996; represents employment of reporting enterprises.

39. Because of input shortages, periodic power disruptions, a loss of markets, and a lack of funds for investment, the industrial sector has declined rapidly. Given the precarious security situation and the lack of progress to date on economic reforms, there has been little foreign direct investment in Tajikistan. Overall, industrial output had declined to around 35 percent of its 1991 level by 1996; it is reported that the majority of industrial enterprises operate for only a few months of the year.

40. Output decline has varied dramatically across industries. Electric energy and nonferrous metallurgy have declined much more slowly than other sectors. As a result, their shares of industrial production increased from 3 and 22 percent in 1991, to 17 and 35 percent in 1996, respectively. The state-run electricity company is in great difficulty, however, as explained below, and TADAZ is also facing serious problems. Tursunzade, where TADAZ is located, is in an area which has been badly affected by civil unrest. In addition, TADAZ, operates at a loss and has not invested adequately in its plant and machinery for years. As a result, production has fallen to less than 40 percent of nominal capacity, and the quality of metal produced has deteriorated. A recent UNIDO report concluded that, unless major actions are taken soon, TADAZ may be forced to close its operations.

Energy and mineral sectors

41. Tajikistan has vast resources of high-quality coal, and substantial deposits of gold and silver. These resources are hard to exploit, however, given their difficult accessibility. Recently, there has been some initial foreign investment in the gold sector. Furthermore, Tajikistan has limited amounts of oil and gas resources, although these reportedly cannot be profitably developed at present world market prices. Mineral excavation remains repressed due to a lack of maintenance of mines, damage due to war and flooding, and shortages of spare parts, equipment and fuel. Although import prices for oil products are passed on to the consumer, this is not the case for gas imports, with the result that the state-run company responsible for importing and distributing gas, Tajik Gas, is unable to pay for its imports. Tajikistan imports gas from Uzbekistan. Some of these imports are paid for under barter arrangements, whereby Tajik Rail provide services in return for gas supplies. Lack of prompt payment for non-barter imports has, however, resulted in repeated disruption of supplies.

42. Electricity—the most important part of Tajikistan’s energy sector—suffers from numerous problems. No major investment has been carried out since independence, and the power supply infrastructure is deteriorating rapidly. Barki Tajik, the state-owned electricity company, has serious debt problems, and power shortages are commonplace. In addition, tariffs are well below the estimated long run marginal cost of generating and transmitting electricity, recently estimated at 3 cents per kilowatt hour. Since a government decree of July 1996, the household sector has been billed at 0.1 cents per kilowatt hour, industry at 1.5 cents, and TADAZ—a base-load customer—at 0.85 cents. Despite these low rates, payment arrears are endemic; only 42 percent of household and 14 percent of agricultural bills were paid in 1996, while TADAZ paid for only 8.6 percent of the electricity it used. Despite a sharp fall in overall electricity consumption since 1991, household consumption has almost doubled over the same period (Table 11).

Table 10.

Tajikistan: Selected Indicators of Industrial Production, 1985-96

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Source: State Statistical Agency.
Table 11.

Tajikistan: Electricity Consumption and Output, 1980-96

(In billions of kilowatt hours)

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Source: State Statistical Agency.

43. Tajikistan has abundant hydroelectric resources, which have not been adequately harnessed due to the lack of full development of their export potential. Energy trade between Tajikistan and its neighbors has been restricted, inter alia, by political disagreements and the absence of an agreed regional energy policy. Actual electricity production falls far short of potential and has been declining since independence. The technically and economically feasible capacity of electricity production has recently been estimated at 120 billion kilowatt hours (KWH) per year; actual production, however, has declined from 17.6 billion KWH per year in 1991 to 15.0 billion KWH in 1996.

44. The decline in overall economic activity has led to a sharp decline in energy consumption (Tables 12 and 13). Overall electricity consumption has reportedly fallen by 26 percent, diesel by 76 percent, natural gas by 61 percent, and gasoline and household fuel by 97 percent. These latter figures probably overstate the decline in fuel consumption, however, as they do not appear to adequately cover private sector activity in this area.

Table 12.

Tajikistan: Fuel Consumption, 1991-97 1/

(Index 1991 = 100)

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Source: State Statistical Agency; and IMF staff calculations.

The figures in this table probably overstate the decline in fuel consumption as they do not appear to adequately cover private sector activity in this area.

Table 13.

Tajikistan: Indices of Real GDP, Employment and Energy Consumption, 1990-96

(Index 1990=100)

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Sources: State Statistical Agency; and IMF staff calculations.Notes:

Total electricity consumption excluding household consumption and unaccounted losses.

The figures in this table probably overstate the decline in fuel consumption as they do not appear to adequately cover private sector activity in this area.

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

Includes household consumption.