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© 2008 International Monetary Fund
June 2008
IMF Country Report No. 08/197
Republic of Tajikistan: Staff-Monitored Program
This paper on the staff-monitored program for 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 information available at the time it was completed on June 10, 2008. 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.
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INTERNATIONAL MONETARY FUND
REPUBLIC OF TAJIKISTAN
Staff–Monitored Program
Prepared by the Middle East and Central Asia Department (In consultation with other departments)
Approved by David Owen and Mark Plant
June 10, 2008
Mission dates: The mission team visited Dushanbe April 17–30, 2008.
Team: C. Piñerúa (head), S. çakir, F. Alturki, S. Vtyurina (all MCD), A. Unigovskaya (PDR), M. Cortes (MCM), and L. Moers (resident representative). Mr. Owen (MCD) and Mr. Moser (OED) participated in the final discussions.
Key Tajik officials: President Rakhmon, State Economic Advisor Davlatov, Minister of Finance Nadjmuddinov, and National Bank of Tajikistan Chairman Rakhimzoda.
Fund relations: The last Article IV consultation was concluded on March 28, 2007. On March 5, 2008, the Executive Board met to discuss the misreporting episode under the last PRGF arrangement. They supported the Managing Director’s recommendation that Tajikistan repay early the three noncomplying disbursements (amounting to SDR 29.4 million) that were not discharged under MDRI relief, with the first payment of SDR 4.9 million expected on September 5, 2008 and equal monthly payments thereafter.
Staff-Monitored Program: In the Memorandum of Economic and Financial Polices attached to the President’s Letter of Intent (LoI), the authorities have indicated their intention to implement an economic program covering the period through end-2008, including prior actions, structural benchmarks, and quarterly indicative targets.
Outreach: The mission met with local representatives of the Asian Development Bank, the World Bank, EBRD, EU, UNDP, and briefed members of the diplomatic community. There were two press briefings during the mission.
Contents
Executive Summary
I. Introduction and Background
II. Recent Economic Developments
III. Program Discussions
A. Macroeconomic Framework for 2008
B. Fiscal Policy
C. Monetary and Exchange Rate Policies
D. Debt Strategy
E. Structural Policies
F. Program Monitoring and Risks
IV. Staff Appraisal
Boxes
1. Central Bank Autonomy and Governance
2. Special Audit of the National Bank of Tajikistan
3. Status of Safeguards Issues
4. Cotton Sector Reforms
Figure
1. Recent Economic Developments
Tables
1. Selected Macroeconomic Indicators, 2005–09
2. General Government Operations, 2006–09
3. General Government Operations, 2006–09
4. Accounts of the National Bank of Tajikistan, 2005–08
5. Monetary Survey, 2005–08
6. Balance of Payments, 2005–08
7. Medium-Term Balance of Payments, 2005–10
8. Medium-Term Macroeconomic Projections, 2005–12
Attachments
I. Letter of Intent
II. Memorandum of Economic and Financial Policies
III. Technical Memorandum of Understanding
Executive Summary
Recent Developments. Severe weather conditions and related energy shortages early in the year led to a significant slowdown in growth, with real GDP expanding by only 3.2 percent in the first quarter of 2008 relative to the same period in 2007 (compared to 7.8 percent for 2007 as a whole). The inflation rate as of end-March 2008, at 20.3 percent on a 12-month basis, remained essentially unchanged from its end-December 2007 level. Perhaps reacting to the economic hardship, remittances surged in the first quarter, which allowed the National Bank of Tajikistan (NBT) to accumulate reserves and led to a significant overperformance in consumption-related tax revenue collections.
The Staff-Monitored Program (SMP). The program envisages a slowdown in growth in 2008 (to 5 percent), largely reflecting the impact of the harsh winter, and targets a reduction in inflation to 15 percent. The program targets a balanced budget (moving from a small surplus in 2007), which will allow for a real increase in social outlays and transparent financing of the cotton sector. The monetary policy framework relies on a reserve money target and a managed float exchange rate regime. The program’s debt management framework includes a zero ceiling on the contracting of nonconcessional debt and the establishment of a contingent liability reporting regime to cover state-owned enterprises and the NBT.
Measures to address governance and management problems at the NBT are central to the SMP. Program conditionality in this area is linked to the conduct of a special audit of the NBT. Terms of reference (ToR) for the audit were finalized and agreed with staff as a prior action. On May 14, the authorities forwarded the ToR to the potential specialist auditor firms seeking bids for the contract (also a prior action). The program also includes measures to strengthen the autonomy and governance of the NBT, including through the passage of appropriate amendments to the central bank law. In addition, the SMP attempts to address long-standing shortcomings in the governance and monitoring of the largest state-owned enterprises (SOEs), including through the undertaking of external audits of the two largest SOEs by reputable international firms.
Key Risk. The main risk to the success of the program is the possibility of delays in completing the special audit of the NBT. This could arise because of the complexity and lack of adequate documentation of cotton sector transactions; the authorities’ full cooperation with the auditors will therefore be essential. The first review of the program (October 2008) will focus on assessing progress in this area.
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INTERNATIONAL MONETARY FUND
June 10, 2008
Staff-Monitored Program—Informational Annex
June 10, 2008
Contents
I. Relations with the Fund
II. Relations with the World Bank Group
III. Relations with the Asian Development Bank
IV. Statistical Issues