What is the global economic and financial crisis and how it can affect Tajikistan?

The global economy is now undergoing an economic and financial crisis. It has already put hard strain on the economies and on the people in many countries. What happened and how the situation may evolve in the coming months? What kind of implications will it all have for Tajikistan and how soon? The World Bank Lead Economist Sudharshan Canagarajah discussed these and other related issues with Tajik media.

 November 7, 2008 – About 10 journalists came together with the World Bank experts at the World Bank Tajikistan Office to find answers to some of the most pressing questions for the global and Tajik economies. Sudharshan Canagarajah, the World Bank Lead Economist for Tajikistan made a presentation on what the global economic and financial crisis is and how it came about. The main indicators of the recent global economic downturn were high oil and food prices, a substantial credit crisis that led to bankruptcy of the large and well established investment banks. This resulted in growing unemployment and possibility of the global economic recession.

No country is immune to the global crisis, including the countries of Eastern Europe and Central Asia. For instance, in 2008 it led to lower rates of economic growth in those countries.

The crisis was recently called a “once-in-a-century credit tsunami”, born of a collapse deep inside the US housing sector.  But metaphors from other recent disasters come to mind too, as we have watched this great wave overtop one economic levee after another.  Instability has surged from sector to sector, first from housing into banking and other financial markets, and then on into all parts of the real economy.  The crisis has surged across the public-private boundary, as the hit to private firms’ balance sheets has now imposed heavy new demands on the public sector’s finances.  It has surged across national borders within the developed world. And now there are reasons to fear that the crisis will swamp emerging markets and other developing countries, cutting into the considerable economic progress of recent years.     

The question that was addressed in particular at the media briefing was how these developments  affect the Tajik economy. The good news is that there will be no direct or immediate effect on Tajik economy. However, there will be some indirect effects over time depending on how the global economic crisis unravels over the coming months. For instance, price fluctuations in commodity markets may have dual impact on the Tajik economy - they may reduce cost of inputs, which is positive, but increase trade deficit due to lower export prices for aluminum and cotton that are the main commodities Tajikistan sells abroad.

More specifically, global economic outlook for 2009 from the World Bank and IMF projects that oil  and food prices are expected to go down, which will exert less pressure on trade deficit and inflation. However on the unfortunate side, global economic slowdown and financial sector contraction in Russia and Kazakhstan, can lead to slowdown in Tajik migration and remittances flows. This will, therefore, require creation of employment opportunities for those who are unable to migrate. In addition, the changes in world stock markets, will limit the space to attract foreign investors to invest in large infrastructure projects.  The financial crisis will limit the potential to borrow at concessional terms, except from the international financial institutions. This will reduce the access to finance and increase the cost of capital for private businesses.

Tajikistan can increase the efficiency of state-owned enterprises so they do not become an additional burden on limited public resources, reduce barriers for operation of private businesses and market entry by easing the burden of inspections, licensing, permits, etc. It will help create employment opportunities at home, especially for those labor migrants who might return to Tajikistan, and increase agricultural production by removing constraints to land use rights.

The bottom-line is that Government needs to lift all logistical and regulatory constraints for agriculture and private sector to develop, so that job opportunities can be created for  Tajiks at home.

Please read more in the Background Note.