Abstract
This paper examines Tajikistan’s Third Review of the Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF), and Request for Waiver of Performance Criterion. Performance under the PRGF has been generally satisfactory. All quantitative performance criteria, two of the three structural performance criteria, and two of the three structural benchmarks were met through end-May 2004. The continuous structural performance criterion prohibiting directed credit by the National Bank of Tajikistan was not observed in May 2004, but this credit was repaid/reversed by late June, and a waiver is requested on this basis.
The following information has become available since the staff report was issued on July 8, 2004. It shows that economic conditions in Tajikistan continue to be buoyant and that the financial program remains on track. This information does not alter the thrust of the staff appraisal.
Real GDP grew by 11 percent in the first six months of 2004 (compared to the same period a year earlier). This is significantly above the 8 ½ percent annual growth projected for 2004 and appears to be due to the stronger-than-expected contribution of high commodity prices and remittances to domestic demand. However, cotton spot and future prices have declined sharply recently. Because cotton spot prices were higher than programmed in the first half of 2004, the implied annual average cotton price for 2004 remains in line with program projections. Consumer prices rose by 6.2 percent in June (12-month basis), in line with the objective of keeping annual inflation under 7 percent.
Preliminary data indicate that the authorities met the key quantitative targets for end June, 2004. Reflecting the strong growth of remittances and the favorable fiscal position, net international reserves exceeded the revised program floor, and gross reserves reached 2.4 months of imports. The net domestic assets of the central bank were below the ceiling, possibly because the anticipated seasonal high in budget expenditures did not occur and the revenue performance continued to be strong. Also, the stock of reserve money at end-June was below the revised program target. The somoni exchange rate continues to be stable.
On July 6, the respective governments agreed in principle on the specific terms of the restructuring of Tajikistan’s $299 million debt to the Russian Federation. This will exchange the debt for existing property valued at $237 million, including the Nurek space tracking station, and the remainder as investment in the Sangtuda hydro-power plant under construction.
On June 30, the authorities passed the “Plan for Implementing Education Reforms for 2004-09” (referred to in July 2004 MEFP paragraph 9, and December 2003 MEFP paragraph 17). This includes, starting September 1, increasing the teachers’ class time per week, reducing the number of teachers by 5 percent (a structural benchmark, end-July 2004) and using the savings to increase teacher salaries by 25 percent, and setting out the itemized costing for reforms. The details of this plan will be reviewed by the World Bank and other stakeholders. Based on the aggregate information now available, the plan appears to be consistent with the 2004 fiscal framework and the PRSP objectives.