Tajikistan was hit by severe external shocks in 2009. The government plans to address the structural energy deficit and achieve energy independence. Tajikistan should proceed with care on the Roghun project, paying close attention to social, macroeconomic, and debt sustainability. The need is to strike a careful balance between social and capital spending, which are complementary for growth. Macroeconomic policies are appropriate, but the weakened health of the banking sector and of state-owned enterprises needs to be addressed urgently.

Abstract

Tajikistan was hit by severe external shocks in 2009. The government plans to address the structural energy deficit and achieve energy independence. Tajikistan should proceed with care on the Roghun project, paying close attention to social, macroeconomic, and debt sustainability. The need is to strike a careful balance between social and capital spending, which are complementary for growth. Macroeconomic policies are appropriate, but the weakened health of the banking sector and of state-owned enterprises needs to be addressed urgently.

June 3, 2010

1. This statement provides information on recent developments in Tajikistan that has become available since the staff report was circulated to the Board on May 24, 2010. This information does not change the thrust of the staff appraisal.

I. Recent Developments

2 Economic developments in 2010 to date were favorable. Real GDP growth in the first quarter reached 7 percent, mainly driven by buoyant construction and industry. Remittance inflows in January-April rose by 24 percent compared to the same period in 2009, partly reflecting the low base. CPI inflation stayed below 6 percent year-on-year at end-April.

3. In the spring of 2010, a number of natural disasters hit Tajikistan. Floods and mudslides claimed some casualties and left hundreds injured. Moreover, more than a hundred hospitals and schools were badly damaged, and roads and irrigation infrastructure have also been affected. The authorities intend to increase social spending in response to these events while maintaining the fiscal targets they have set under the program, including by asking for additional donor support.

4. Based on preliminary data through end-March, the authorities appear to have achieved most indicative targets.

  • The overall fiscal deficit (excluding externally financed investment) at end-March is estimated to have come in lower than programmed, despite revenue shortfalls. These shortfalls mainly emanated from lower imports due to rail transit disruptions in neighboring countries, and in response, the authorities contained spending which also led to underspending on social and poverty related expenditures (except for social sector wages). Preliminary April data points to improving revenues, in particular from import taxes.

  • The National Bank of Tajikistan (NBT) is estimated to have achieved its end-March 2010 targets on net international reserves and net domestic assets. Liquidity loans also remained within the program target, but appear to have increased again in April, pushing up net domestic assets.

  • Gross equity sales and contributions for the Roghun hydropower project stood at SM 800 million at end-March 2010. Monthly inflows have slowed more than projected under the program, with total contributions reaching SM 818 million as of May 20, 2010, compared to the end-June indicative target of SM 850 million.

II. Prior Actions

5. The authorities completed all three prior actions for the review.

  • On April 21, the external audit of the NBT’s financial statement for the year ending April 2009 was completed and published on its website.16

  • On April 21, the external audit of the NBT’s net international reserves (NIR) position as of June 30, 2009 was completed. On May 27, 2010, the external audit of the NBT’s NIR position as of December 31, 2009 was completed. Both reports were published on the NBT’s website.

  • On April 30, the NBT signed a contract with an external audit firm to conduct the internal audit of the activities of the international relations department, including foreign exchange lending and liquidity support, the domestic lending and liquidity support activities, and the management of foreign currency vault operations at the NBT headquarters. The external audit firm will also help the NBT’s internal audit department build its capacity.

III. Technical Revision to Net International Reserves Data

6. The end-December 2009 NIR audit report–which became available only after the authorities signed the letter of intent (LOI)–proposed minor revisions to the end-December 2009 NIR stock reported in the authorities’ LOI. The revisions relate mainly to the reported cumulative NIR flow at program exchange rates that resulted from using a current exchange rate instead of the program exchange rate for the NBT’s SDR holdings, and also impact the reported NIR flows for end-June 2009 and end-September 2009. As a result, the revised NIR accumulation at program exchange rates during 2009 is $1 million lower than reported in Table 1 attached to the authorities’ LOI. This does not materially change the assessment of performance under the program, and also with the revised data, the authorities achieved their NIR targets (Table). The audit report also proposed minor revisions to NIR at current exchange rates which do not affect the reported numbers in the staff report.

Table. Tajikistan: Revision to Net International Reserves, Cumulative Flow

(Millions of U.S. dollars at program exchange rates)

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Source: Tajik authorities.
16

Available on the NBT’s website at http://nbt.tj/?c=176&id=176&lang=en.

Tajikistan: First and Second Review Under the Three-Year Arrangement Under the Extended Credit Facility, Request for Waiver of Performance Criteria, and Request for Augmentation of the Arrangement: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Tajikistan.
Author: International Monetary Fund