Republic of Tajikistan
First Assessment Under the 2008 Staff-Monitored Program

This paper on the First Assessment Under the 2008 Staff-Monitored Program (SMP) for the Republic of Tajikistan discusses the ongoing global financial crisis. The main purpose of the SMP is to allow the authorities to reestablish their credibility after a serious episode of misreporting to the IMF. Revenue collection was stronger than projected, mostly reflecting high nominal growth and imports. Monetary and exchange rate policies will have to focus on maintaining external stability. Moreover, a possible sharp depreciation of main trading partners’ currencies may require further exchange rate adjustment.

Abstract

This paper on the First Assessment Under the 2008 Staff-Monitored Program (SMP) for the Republic of Tajikistan discusses the ongoing global financial crisis. The main purpose of the SMP is to allow the authorities to reestablish their credibility after a serious episode of misreporting to the IMF. Revenue collection was stronger than projected, mostly reflecting high nominal growth and imports. Monetary and exchange rate policies will have to focus on maintaining external stability. Moreover, a possible sharp depreciation of main trading partners’ currencies may require further exchange rate adjustment.

I. Introduction and Background

1. The main purpose of the SMP is to allow the authorities to reestablish their credibility after a serious episode of misreporting to the Fund.1 The SMP provides an appropriate policy framework to secure macroeconomic stability in a difficult external environment, with a view to building a policy track record that could support the authorities’ request for a new PRGF arrangement.

2. Performance under the program at end-June was favorable. All end-June indicative targets were met with substantial margins, with one exception: the indicative target related to accumulation of new tax arrears by the state-owned power utility Barki Tajik was missed by a small amount ($2 million). Good progress was made in implementing key structural benchmarks.

II. Recent Economic Developments and Outlook

3. Economic developments in 2008 are broadly favorable, despite a severe winter and a difficult crop season. Real GDP growth is likely to reach 7 percent in 2008 (revised upward from 5 percent assumed under the program), mainly driven by remittance-financed demand in the services and construction sectors and non-cotton agricultural production. Inflation has receded from its August peak, and is projected to decline to 16 percent year-on-year in December 2008, helped by the recent retrenchment in international food and fuel prices.2 The balance of payments showed a surplus through September 2008, largely because of an increase in remittances by 70 percent over the same period in 2007.3

4. External developments are weighing on the outlook for 2009 (Box 1). On the positive side, the global financial crisis has so far had little impact on Tajikistan’s financial sector because direct linkages are limited. However, remittances are projected to stagnate, and export demand to wane. As such, staff projects real GDP growth to slow to 5 percent at best in 2009, with risks to the outlook being largely on the downside.4 In particular, remittances could be affected more severely than assumed and decline in absolute terms. Moreover, the ongoing electricity rationing, if exacerbated by another severe winter, could stifle industrial production and agriculture. The recent induction of a new hydropower plant (Sangtuda I) that is estimated to raise total capacity by more than 10 percent should bring some relief in this regard. Inflation is likely to decelerate to 10–12 percent by December 2009, or even less if international price changes are fully passed through.

Figure 1.
Figure 1.

Tajikistan: Main Economic Developments, 2006–08

Citation: IMF Staff Country Reports 2008, 382; 10.5089/9781451837162.002.A001

Source: Tajikistan authorities; and Fund staff calculations.

Tajikistan: Impact of the Global Crisis

Spillover effects from the global slowdown are expected to dampen growth and worsen Tajikistan’s external position. Most importantly, remittances are projected to stagnate due to a slowdown in the two major sources of remittances—Russia and Kazakhstan (an estimated 1 million migrants work in these two countries). Remittances, projected at over 40 percent of GDP in 2008, have been the largest source of current inflows during the last several years, supporting domestic demand and allowing the NBT to accumulate reserves. In addition, export growth is projected to decline, mainly reflecting falling demand and international prices for cotton, Tajikistan’s major export.1 These adverse effects on the external current account would only be partly offset by the projected decline in international food and fuel prices. There are also some reports of foreign direct investments being delayed, and trade credit drying up.

Figure 2.
Figure 2.

Remittances and Trade Deficit, 2003–2008

(in billions of US dollars, unless otherwise indicated)

Citation: IMF Staff Country Reports 2008, 382; 10.5089/9781451837162.002.A001

Sources: National authorities; and staff estimates.1/ Data net of $250 mln. of debt-equity swap with Russia.

Tajikistan’s financial sector has limited linkages to global financial markets. The sector consists mostly of commercial banks, and is funded primarily by local deposits and capital.2 One foreign-owned bank operates in Tajikistan, and its capital constitutes around 20 percent of total banking sector capital. Banks’ profitability could decline as remittances slow, since the associated fee income constitute around one-third of total income. Deposit growth may also be affected by slowing remittances or a spillover of declining confidence in banks from other countries in the region.

1 The projected decline in international aluminum price would not affect Tajikistan’s exports because, under the tolling arrangement, the aluminum smelter receives a fixed fee which has shown little correlation with international prices. The offshore counterparty to the tolling arrangement is thus buffering price movements. However, there could be a quantity effect, if global demand for aluminum falls.2 Around 1½ percent of banks’ liabilities is external debt with a specific clause that would allow the creditor to request early repayment.

III. Policy Discussions

5. Policy discussions focused on two issues:

  • Performance under the program in 2008; and

  • The macroeconomic policy mix for 2009.

In addition, the authorities reiterated their request for a PRGF arrangement in early 2009 after completion of the SMP.

A. Performance under the Program in 2008

6. Performance under the program is broadly favorable. The authorities met most quantitative targets for end-September, and took key structural measures. Prospects for meeting their end-December targets are good.

7. The overall fiscal balance (excluding the externally financed public investment program, PIP) registered a surplus through September 2008, higher than programmed. Revenue collection was stronger than projected, mostly reflecting high nominal growth and imports. Disbursements of concessional external financing under the PIP exceeded the program ceiling because existing projects moved faster than anticipated. The authorities emphasized that this merely reflected a frontloading of disbursements and not new borrowing. Taken together, the overall deficit widened to 4.5 percent of annual GDP, while total public and publicly guaranteed debt declined to 30 percent of annual GDP.

8. The authorities should achieve a modest overall fiscal surplus for 2008 as a whole, thus again exceeding program expectations. The revenue overperformance is likely to continue, and the authorities are committed to maintaining strict expenditure control. This should yield an overall surplus (excluding the PIP) of 1 percent of GDP compared to the program target of a balanced budget. In light of the faster disbursement of concessional external financing through September, staff agreed with the authorities to raise the end-December ceiling to accommodate the availability of financing and move ahead with planned investment projects.

9. The NBT was able to build net international reserves through September ahead of program projections. Since the beginning of the year, net international reserves increased by $111 million to $167 million at end-September.5 The surge in remittances allowed the NBT to buy foreign exchange and thus satisfy demand for somoni liquidity from the banking system. With the interbank market still developing, and in the absence of an effective monetary policy instrument, the authorities see unsterilized foreign exchange purchases as the most effective means for liquidity provision. In addition, they are concerned about competitiveness, and interventions served to keep the somoni broadly stable against the U.S. dollar—the somoni appreciated by about 2 percent in 2008 to date. Helped by the fiscal overperformance, net domestic assets of the NBT were contained below program.

10. Reserve accumulation is likely to be reversed in the fourth quarter. The authorities thought that money demand had been underestimated somewhat in the program, partly because nominal growth was higher than initially projected. At the same time, remittance growth showed first signs of slowing in October. On balance, reserve money growth for 2008 has been revised upward, and the authorities were confident that this was consistent with their objective of reducing inflation, also given that international food and fuel prices are projected to decline. In light of the overperformance so far, the authorities agreed to raise the end-December program floor on net international reserves. They expect to keep net domestic assets of the NBT below program, given the projected fiscal outturn.

11. Arrears remain a problem, though the authorities have largely succeeded in avoiding new gross arrears. As at end-June, Barki Tajik missed the indicative target on nonaccumulation of new tax arrears in September. New arrears arose largely from noncollection from consumers, including the ministry of land and water resources, and the nonpayment of penalties to the Revenue Authority on the outstanding stock of arrears. The authorities noted that tax arrears are part of a complex problem of cross arrears and also related to the debt overhang of cotton farmers.6 They believe that the arrears problem can only be solved over time, but intend to raise penalties as a first step, since many firms reportedly abuse tax arrears as a cheap source of financing.

12. Outside the agricultural sector, the authorities have made good progress on implementing structural reforms, and completed the end-September structural benchmarks on time:

  • The NBT has selected Ernst&Young London to conduct the special audit of the NBT. The auditors have completed the on-site field work, and plan to deliver a draft report to the NBT in late December. They briefed staff on their work so far, but had not yet finalized their assessment. Once the special audit is finished, the annual external audits of the NBT for 2006–08 need to be completed.

  • The authorities have prepared a first draft of the amendments to the NBT and commercial banking laws with assistance from the World Bank. The drafting has taken longer than envisaged, in part because the initial plan to fully redraft the laws instead of only making the amendments under the program (an end-December benchmark) did not prove feasible within the short time frame. The authorities have thus reverted to first amending the existing law to address the key recommendations from the Financial Stability Assessment Program (FSAP) report. They now plan to submit the amendments to parliament in March 2009.

  • The terms of reference for the audit of Talco, the state-owned aluminum smelter, by an internationally reputable auditing firm, was issued in September (benchmark). The audit of the state electricity company Barki Tajik has been concluded, but the auditor has not been able to give an opinion on the 2007 financial statement because of missing information and other concerns. The government and the World Bank are now analyzing the findings in the context of the World Bank’s Energy Loss Reduction Project.

  • The government issued a decree establishing a supervision unit in the ministry of finance for regular monitoring of the financial operations of the 10 largest state-owned enterprises in September (benchmark). The authorities have requested technical assistance from the Fund to make the unit operational.7

  • The authorities are preparing legislative changes for establishing a contingent liability reporting regime to cover state-owned enterprises, public institutions and the NBT with the assistance of the FAD regional adviser (end-December benchmark).

  • Agricultural sector reforms, in particular in the cotton sector, are progressing only slowly, but remain essential to reduce one of Tajikistan’s key vulnerability and growth obstacle. The authorities have drafted a decree stipulating the abolishment of cotton export licensing by the NBT which is now pending government approval. The NBT reported that negotiations with foreign creditors over guarantees are ongoing. In one case, they were successful in securing at least partial payment by the debtor. The authorities confirmed their intention of settling all guarantees to foreign banks in a timely fashion, while seeking to maximize loan recoveries from cotton investors.

  • On October 28, 2008, the government adopted a three-year debt management strategy that sets an external debt ceiling of 40 percent of GDP. Based on existing borrowing plans, total public and publicly-guaranteed external debt is projected to reach 31 percent of GDP at end-2008.8 As such, the debt strategy’s ceiling can accommodate additional projects, and is unlikely to be binding in the next year. The ceiling is, however, consistent with the recommendations from the last DSA (IMF Country Report 07/144).

B. Macroeconomic Policy Mix for 2009

13. The projected global slowdown clouds the economic outlook for Tajikistan. On the positive side, the expected decline in international food and fuel prices should contribute to a notable decline in headline inflation.9 Moreover, such a fall in international food prices should provide some relief to poor households, since Tajikistan imports almost all of its food. However, a marked slowdown in economic growth on account of external factors is projected to dampen economic activity, while stagnating remittances and sluggish exports are expected to weaken Tajikistan’s external position. As such, the authorities aim for a modestly counter-cyclical macroeconomic policy mix. Fiscal policy will support activity, significantly raising expenditures while not taking any notable revenue measures. Monetary policy will be passive in the absence of an effective monetary policy instrument, while the exchange rate will need to facilitate external adjustment.

14. The 2009 budget targets an overall deficit (excluding the PIP) of ½ percent of GDP. Given Tajikistan’s development needs, the authorities intend to raise spending by around 25 percent in real terms, mostly for domestically financed capital spending, but also reflecting civil service wage increases.10 Expenditure on health and education will see large increases of 45 percent and 35 percent in real terms, respectively, albeit from a low base and mostly on account of wages. The budget also provides for continued financing of cotton farmers, via on-lending by commercial banks. The authorities project an increase in revenues by around 2 percent of GDP that would largely stem from improvements in revenue administration. Staff cautioned that this may be difficult to achieve without specific measures and projects an overall deficit of 1 percent of GDP in 2009, absent further measures. The authorities intend to finance the deficit from domestic sources by drawing down deposits at the NBT, privatization proceeds, and issuing a small amount of government securities.11

15. The authorities see little scope for further enhancing their reserves position in 2009. They expect the excess supply of foreign exchange to fade, and will let the exchange rate move with market trends, following an asymmetric intervention strategy. To achieve their inflation objective, they aim to reduce broad money growth and will constrain reserve money growth accordingly. Reserve money growth itself will come mainly from the government drawing down its deposits at the NBT, and the authorities remain committed to refrain from direct lending to banks or the economy. They anticipate liquidity shortages to continue, and some banks may reduce their excess reserves.

16. The new cotton financing scheme that was introduced in 2008 could impact banks’ asset quality as of 2009. Under the scheme, the government provides funds to commercial banks who then on-lend to cotton farmers at negative real interest rates. The credit risk remains with commercial banks which have also made additional loans to the agricultural sector from their own funds. Some scheduled repayments have been received in October 2008, but the bulk is expected to start in the spring of 2009. With the international cotton market weakening, many farmers—who are, in many cases, already highly indebted—may not be in a position to service those new loans.

C. Post-SMP Fund Involvement and Structural Reform Agenda

17. The authorities reiterated their intention to move to a PRGF arrangement soon after the completion of the SMP. They appreciated the Fund’s ongoing involvement, stressing that Fund advice has helped them maintain macroeconomic stability as well as a reform momentum. They were concerned that Tajikistan’s external position would be fragile in 2009, and wanted to benefit from the stability that a Fund financial arrangement could bring. In this regard, the authorities noted that budget support from the Asian Development Bank, the World Bank, and the European Union has been put on hold pending the successful completion of the SMP and the initiation of negotiations for a PRGF.

18. With their 2009 structural reform agenda, the authorities seek to strengthen public institutions and ease growth bottlenecks. The results of the ongoing special audit of the NBT will be used to further strengthen its governance, and the authorities intend to improve the NBT’s balance sheet to facilitate monetary policy execution. State-owned enterprises are still a dominant part of the economy, and the new monitoring unit in the ministry of finance will work to enhance transparency and management to ensure that these enterprises are put on a sound financial footing, and share the burden of taxation. Audits of key SOEs should be used to further develop the reform agenda. The authorities plan to continue revenue administration reforms to raise the revenue yield and strengthen the business environment. Ongoing public financial management reforms will seek to ensure that budget allocations reflect policy priorities and expenditures are carried out in a cost-effective manner. With World Bank assistance, the authorities are finalizing their strategy to resolve the domestic cotton debt problem before the next harvest season, which is key to the sector’s viability. In addition, there is a need to develop a sustainable financing model for the sector that is free from government interference.

IV. Staff Appraisal

19. Staff welcomes the good performance under the SMP through end-September 2008. In particular, the substantial increase in net international reserves above program objectives is an important step toward reducing external vulnerabilities. Moreover, the cautious approach to fiscal policy, saving the revenue overperformance, allowed the government to increase its deposits with the NBT. This helped constrain reserve money growth and should reduce inflationary pressures going forward. However, the continued accumulation of tax arrears by Barki Tajik is regrettable, and the authorities need to address the underlying problems at the state-owned power utility and prevailing cross-arrears urgently. The results of the ongoing audits of the NBT and Talco, as well as the completed audit of Barki Tajik should help design reforms to enhance governance and transparency.

20. The authorities are well placed to achieve their end-December 2008 targets. Staff commends the authorities for raising the net international reserves target under the program despite the projected slowdown in remittances inflows. Fiscal policy needs to stay the course, saving the projected revenue overperformance and keeping expenditures within budget limits, which is needed to contain money growth. Staff agrees with the proposed increase of the program ceiling on disbursements of concessional external financing since it only reflects a faster execution of existing projects and does not affect debt sustainability. The expected delay in making certain legal changes to the NBT and commercial banking laws to strengthen governance is unfortunate, and staff urges the authorities to submit the needed amendments to parliament as soon as possible.

21. Fiscal policy will be the main instrument to support domestic activity in 2009. In light of the projected growth slowdown, the targeted overall deficit (excluding the PIP) of ½ percent of GDP is appropriate. However, achieving this may require some expenditure restraint relative to the budget or specific revenue measures. Much of the increase in expenditures is intended for energy projects—given the country’s large infrastructure needs—but individual projects need to be closely scrutinized to ensure cost effectiveness and debt sustainability. A somewhat less ambitious increase in capital expenditures would help to safeguard the authorities’ deficit target.

22. Monetary and exchange rate policies will have to focus on maintaining external stability. With weaker remittance inflows, pressures could arise in the foreign exchange market. And while improved, the NBT’s international reserves position is not sufficient to defend the exchange rate. Thus, the somoni will have to be allowed to move in line with market trends. The NBT aims to contain money growth to reduce inflation. However, without an effective direct monetary policy instrument, the NBT has limited scope to exert control over monetary developments or stabilize economic activity. This points to the need to develop and deepen the market for government securities or NBT bills, and strengthen the functioning of the interbank market in line with recommendations from the FSAP.

23. There is a need to step up supervision to safeguard the banking system’s soundness. The risk of a spillover from the global financial crisis to Tajikistan’s banking system is low, given that direct linkages are limited. Still, the NBT needs to monitor banks carefully to detect early any deterioration in their balance sheets. More generally, the NBT needs to watch financial soundness indicators closely, and ensure that banks, without any exceptions, fully comply with reserve requirements. Strengthening the existing deposit insurance system with ongoing assistance from the World Bank should help maintain depositor confidence. The authorities also need to closely monitor banks’ exposure to the agricultural sector, and particularly to the cotton sector, where loan portfolios have expanded rapidly since 2007.

24. Risks to the outlook stem largely from external developments. Most importantly, remittances could fall in absolute terms in 2009 (rather than just stagnate as in staff’s baseline scenario). This would require significant external adjustment while further curtailing a key income source for many households living below the poverty line. Fiscal policy would need to react flexibly and provide relief, even in the absence of an effective social safety net and there may be a need to revisit spending priorities and the deficit target, e.g., by maintaining the expenditure envelope while allowing for revenue shortfalls. Monetary and exchange rate policy would need to let the somoni move with market trends. Moreover, a possible sharp depreciation of main trading partners’ currencies may require further exchange rate adjustment. In addition, banks’ balance sheets and profitability could be hit, e.g., due to a worsening of asset quality in case of further decline in international cotton prices, or a loss of fee income.

Table 1.

Tajikistan: Selected Economic Indicators, 2005–09

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Sources: Data provided by the Tajikistan authorities; and Fund staff estimates.

Private investment and savings are estimates. Investment includes changes in stocks.

2006 overall balance excludes the MDRI debt relief that is reflected in grants. PIP expenditure includes investment financed by loans from China.

Starting from 2005, the export and import figures reflect the transition to tolling arrangement for aluminum exports. Therefore, the export and import figures are lower than earlier years.

Gross reserves are net of the pledged deposits of the NBT.

Excluding electricity, which is on barter basis, and imports related to projects financed with loans from China.

Table 2.

Tajikistan: General Government Operations, 2005–09

(In percent of GDP; unless otherwise indicated)

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Sources: Tajik authorities; and Fund staff estimates.

2006 grants figure includes the MDRI debt relief of 3.5 percent of GDP.

Includes SM140 mn lending to the cotton sector in 2008, and SM170 mn for 2009.

2006 overall balance excludes the MDRI debt relief that is reflected in grants.

Table 3.

Tajikistan: General Government Operations, 2005–09

(In millions of somoni; unless otherwise indicated)

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Sources: Tajik authorities; and Fund staff estimates.

2006 grants figure includes the MDRI debt relief of 3.5 percent of GDP.

Includes SM140 mn lending to the cotton sector in 2008, and SM170 mn for 2009.

2006 overall balance excludes the MDRI debt relief that is reflected in grants.

Table 4.

Tajikistan: Accounts of the National Bank of Tajikistan, 2004–09

(End-of-period stock; unless otherwise specified)

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Sources: National Bank of Tajikistan; and Fund staff estimates.

In June, September and October the program ceiling on net domestic assets of the National Bank of Tajikistan was adjusted upwards to reflect the retention of the pledged deposits.

Based on accounting exchange rates: somoni 3.435=1 U.S. dollar, 1 SDR = 1.65 U.S. dollar, and gold price of 978.3 U.S. dollar per troy ounce (end-March 2008 rates).

Table 5.

Tajikistan: Monetary Survey, 2004–09

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Sources: National Bank of Tajikistan; and Fund staff estimates.

Liabilities to cotton financiers related to domestic cotton financing.

Broad money divided by reserve money.

Table 6.

Tajikistan: Balance of Payments, 2005–13

(In millions of U.S. dollars)

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Sources: Tajik authorities; and Fund staff estimates.

Starting from 2005, the export and import figures reflect the transition to the tolling arrangement for aluminium exports.

Includes accumulation of foreign currency balances by residents of Tajikistan.

For 2008, includes the decline in other foreign liabilities which resulted from pledged deposits settlement.

Excluding electricity, which is on barter basis, and imports related to projects financed with loans from China.

Data for 2006 exclude $99 million IMF repurchase under MDRI assistance.

Attachment I. Letter of Intent

November 26, 2008

His Excellency

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, DC 20431

Dear Mr. Strauss-Kahn:

Using the opportunity I would like to express my gratitude to the International Monetary Fund for its continued support of our economic reforms, including through the ongoing staff monitored program (SMP). We are currently taking the necessary measures to address the problems associated with the episode of misreporting that was exposed late last year, and to remove the institutional weaknesses that led to it. The field work for the special audit of the National Bank of Tajikistan (NBT) has been completed and the draft report will be made available to the NBT in late November of this year. We also made three repayments to the IMF through November, and expect to make the remaining three monthly payments as scheduled.

It is heartening that macroeconomic developments through end-September 2008 were positive, despite last winter’s difficulties and the drought and locust problems during the recent crop season. Economic growth was stronger than envisaged under the SMP. This was partly driven by a surge in remittances, which allowed the NBT to accumulate net international reserves faster than programmed. We were able to achieve an overall fiscal surplus (excluding the externally financed public investment program, PIP), higher than targeted, largely because of buoyant revenues. At the same time, concessional loan disbursements under the PIP at end-September were faster than anticipated, though all disbursements were made under existing loan agreements and do not constitute additional borrowing. As a result of these disbursements, we now project a higher amount of concessional external borrowing at end-December than programmed. In this context, the government, on October 28, 2008, approved a three year debt management strategy that sets a debt ceiling of 40 percent of GDP. We also tendered the audit of the state-owned aluminum smelter Talco and the state-owned electricity company Barki Tajik, and issued a decree establishing a supervision unit in the Ministry of Finance for regular monitoring of the financial operations of the 10 largest state-owned enterprises. Despite our efforts, Barki Tajik’s tax arrears increased, mostly due to the non-payment by water users in the agricultural sector. In this regard, we are working on a plan to significantly reduce tax arrears, including through higher penalties for all categories of tax arrears, and the implementation of an effective mechanism of arrears repayment by water users.

We are confident that we will achieve our SMP policy objectives for end-December 2008. In this context, we remain committed to the policies and targets I set out in my letter dated June 10, 2008. During the last quarter of 2008, we expect to strengthen our net international reserves position somewhat faster than previously projected, and intend to save any revenue overperformance while maintaining strict expenditure control.

1 However, it will take more time than initially thought to finalize the amendments to the NBT Law of the Republic of Tajikistan and the Commercial Banking Law of the Republic of Tajikistan. We have prepared a first draft of these amendments which go beyond the scope of the program, incorporating additional recommendations from the Financial Sector Stability Assessment (FSSA) report, and which we will now discuss with Fund staff. We plan to submit these amendments to the national parliament by March 2009.2

It is of note that the external environment will weigh on Tajikistan’s macroeconomic outlook in 2009. The projected global slowdown, in particular in Russia and Kazakhstan, may affect remittances and thus dampen domestic demand. In addition, cotton and aluminum exports are likely to be adversely affected by a reduction in external demand and declining international prices. However, with little direct linkages to global financial markets, we do not foresee any direct impact on Tajikistan’s financial sector. All in all, we still aim to sustain the same growth level as in 2008. At the same time, with global food and fuel prices subsiding, we see inflation slowing throughout the year.

In this difficult global context, macroeconomic policies will be geared toward maintaining stability, while structural reforms will aim at raising Tajikistan’s medium-term growth potential. The 2009 budget targets a modest overall fiscal deficit (excluding the PIP) of ½ percent of GDP, allowing us to raise social spending by over 60 percent and undertake important investments in hydropower and other infrastructure. We see only little scope for a further build-up of reserves in 2009, and will allow the exchange rate to move in line with market trends.

Negotiations with foreign creditors over guarantees issued by the NBT are currently ongoing, and we are committed to settling all valid claims promptly while maximizing loan recoveries from domestic investors. Our structural reform agenda for 2009 will focus, inter alia, on: improving the financial position and governance of the NBT, enhancing transparency and management at key state-owned enterprises, strengthening tax administration and public financial management, creating an environment for financial sector development, and resolving the domestic cotton debt problem.

In line with our commitment to transparency of economic policies, we will continue publishing all SMP-related documents on the IMF’s website as well as the recent FSSA report. In addition, we will publish all key findings of the special audit of the NBT on the NBT’s website.

Given the good progress we have made so far under the SMP and our firm commitment to successfully completing our 2008 program, we hope to begin discussions on a new program that could be supported by the Fund under the Poverty Reduction and Growth Facility in early 2009.

Your Excellency, please accept my assurances of my highest consideration,

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Table 1.

Tajikistan: Quantitative Indicators under the 2008 Staff Monitored Program

(In millions of somoni, unless otherwise indicated)

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Sources: Tajik authorities; and Fund staff estimates.

In June, September and December the program ceiling on NDA of the NBT was adjusted upwards to reflect the retention of the pledged deposits.

At program exchange rates.

Cumulative from January 1of the year.

Continuous quantitative targets.

Short, medium and long-term debt by the government, NBT or any other agency acting on behalf of the government as defined in the Technical Memorandum of Understanding, excluding normal trade-related loans.

Excluding the obligations resulting from the restructuring of the cotton debt.