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© 2006 International Monetary Fund

February 2006

IMF Country Report No. 06/63

Republic of Tajikistan—Ex Post Assessment of Longer-Term Program Engagement

This Ex Post Assessment of Longer-Term Program Engagement for the Republic of Tajikistan was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on January 13, 2006. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Republic of Tajikistan or the Executive Board of the IMF.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

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International Monetary Fund

Washington, D.C.

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INTERNATIONAL MONETARY FUND

REPUBLIC OF TAJIKISTAN

Ex Post Assessment of Longer-Term Program Engagement

Prepared by a Staff Team from the Middle East and Central Asia, Fiscal Affairs, and Policy Development and Review Departments¹

Authorized by Middle East and Central Asia and Policy Development and Review Departments

contents

• Executive Summary

• I. Introduction

• II. Overview of Program Objectives and Performance

  • A. Program Strategy

  • B. Macroeconomic Performance and Record of Implementation

  • C. Fiscal Policy

  • D. Monetary and Exchange Rate Policy

  • E. External Position

  • F. Structural Reform

• III. Collaboration with the World Bank

• IV. Assessment and Lessons

  • A. Program Effectiveness and Fund Engagement

  • B. Lessons

• V. Considerations for Future Involvement

• Boxes

• 1. Misreporting and Noncomplying Purchases

• 2. Bank-Fund Collaboration

• Tables

• 1. History of Lending Arrangements, 1996–2005

• 2. Real GDP Growth and Inflation, 1998–2004

• 3. Cases of Misreporting and Noncomplying Disbursements

• 4. Overview of Compliance Under IMF Arrangements

• 5. Compliance with Prior Actions Performance, Criteria, and Structural Conditions Under EASF/PRGF, 1998-2001

• 6. Compliance with Prior Actions, Quantitative and Structural Performance Criteria, Indicative Targets, and Structural Conditions Under PRGF, 2002–05

• Figure

• 1. Projected and Actual Performance Under Fund Arrangements, 1998–2005

Executive Summary

The Fund’s financial involvement with Tajikistan started in late 1996 with the approval of a Stand-by Arrangement (SBA). The SBA (1996) was followed by Emergency Post-Conflict Assistance in the last quarter of 1997, an Enhanced Structural Adjustment Facility/Poverty Reduction and Growth Facility arrangement (ESAF/PRGF) covering the period of 1998– 2001, and then by a second PRGF arrangement that originally covered the period of 2002–05. This assessment covers Tajikistan’s performance under the last two arrangements. It provides a broad picture of the lessons emerging from this experience and points to potential areas for future Fund engagement in Tajikistan.

Tajikistan’s macroeconomic performance during 1998–2005 has been robust, albeit with occasional lapses. Economic growth during this period has far exceeded program projections, but inflation performance has been at times volatile, and often overshot program targets. Macroeconomic stabilization was mainly driven by a strong fiscal consolidation. In contrast, monetary policy has occasionally undermined inflation performance.

Initial progress in implementing structural reforms was uneven. The broad and ambitious structural agenda in the first ESAF/PRGF arrangement, coupled with weak institutions, led to persistent underperformance, numerous requests for waivers, and eventually the program going off track in each of the last two years of the first arrangement. Performance has improved significantly since then, with stronger program ownership of the second PRGF and a much more streamlined policy agenda.

There are a few key lessons that emerge from the experience in Tajikistan: (a) weak institutional capacity posed a major constraint to reform; (b) the peace agreement introduced a number of constraints that ex-ante limited the ability of the authorities to move more quickly and effectively in many areas of structural reforms; (c) early programs clearly tried to reach too far in the area of structural conditionality. Moreover, a number of the structural measures included in the programs were not only out of the Fund’s areas of expertise but were difficult to monitor; (d) programs should have been more forceful in addressing the public financing of the cotton sector. In particular, they should have ensured that any public financial assistance was channeled in a transparent way through the budget; and (e) programs have failed to address institutional weaknesses in the design and implementation of monetary policy.

Given the still low level of per-capita income, the low level of reserves, lack of access to capital markets, and the high probability of financing gaps in the medium term, a return to a regular surveillance relationship or engagement under the policy support instrument (PSI) would not seem to be appropriate at this point. Rather, there is likely to be a strong case for a successor PRGF arrangement.