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Country Brief 2011

Updated August 2011
  • A timely policy response and generally good overall macroeconomic management, supported by emergency loans from the IMF and the World Bank helped Tajikistan recover from the global crisis. Economic growth fell to 3.9 percent in 2009 during the peak of the crisis, but has since risen to 6.5 percent in 2010, and to 6.9 percent in the first half of 2011.

  • However, despite these achievements, the country continues to face challenges related to unemployment, food security, banking sector weaknesses, unfavorable investment climate for the private sector, high dependence on remittances inflows, and vulnerability to external shocks. Achieving energy independence, creating more job opportunities, and reducing poverty remain key long-tem priorities.

• The poverty headcount rate has fallen from 72 percent in 2003 to 47 percent in 2009, while extreme poverty declined from 42 to 17 percent during the same period.
• Tajikistan is heavily dependent on remittances (there are more than 1.5 million Tajik workers in Russia and Kazakhstan); in 2010 migrant remittance inflows were equivalent to 42 percent of GDP;
• Tajikistan’s real economic output is expected to grow by 6 percent in 2011, driven by exports and continued recovery of remittances (which support domestic trade and services);
• Annual CPI inflation is estimated to reach 13.9 percent in 2011. Since the beginning of the year to June 2011, the CPI has risen by 7.1 percent, on the back of high international food prices and the recent introduction of export fuel tax by Russia in April;
• According to official data, the unemployment level rose by 15 percent in the first half of 2011 compared to the same period last year. Unofficial data suggest an even higher unemployment rate;

 

 

RESULTS
Tajikistan's economy is gradually recovering from the 2009 growth slowdown, with real GDP growth rate rising to 6.9 percent in the first half of 2011. The Tajik authorities remain strongly committed to a close relationship with the World Bank to help maintain macroeconomic stability and implement structural reforms, and have acknowledged the importance of Bank’s assistance in the development of the energy and agriculture sectors, as well as in providing better services in education, health, social protection, and public sector areas.

Agriculture and Land Reform

Result Stories
 
 

  • The World Bank is helping to accelerate farmland restructuring and issue land certificates to individual and family farms to enable the rural population to become independent farmers and improve their livelihoods. More than 10,000 certificates have been issued to family farms alone. A new, transparent system for measuring and mapping terrain has been installed, use of this system been legally recognized for official purposes, and special aerial photographs covering 6,000 km2 have been processed.

Business Climate

  • The World Bank with other donors is helping Tajikistan to improve the business climate and strengthen its capacity in attracting investments. Tajikistan ranked among the top 10 reforming countries in the World Bank Doing Business Surveys for 2010 and then again in 2011, improving its ranking to 139. 2011 reforms included the creation of a one-stop shop for business registration, improved corporate disclosure requirements, better access to information for minority investors, and a lower corporate income tax rate. Several additional measures are underway to improve the investment climate. The Parliament has recently passed a new law on permits, which has cut the number of permits by more than 80 percent and is expected to significantly reduce the time and cost for receiving new permits. A private credit bureau is being set up with the majority of large financial institutions in Tajikistan as shareholders. In addition, a moveable asset collateral registry is being established with a stronger legal basis to improve access to finance.

Education

  • The World Bank is helping to modernize the education system through reform of education financing, developing and supplying textbooks, community participation in the decision making process at the school and district levels. Using the World Bank and Catalytic Funds, Tajikistan has been able to introduce per capita based financing in education, improve sector management and implementation capacity, and has increased access to schools and reduced shortage in textbooks.

Energy

  • The World Bank is helping Tajikistan to increase the volume and reliability of the national energy supply, especially in the winter season, when hydropower availability is constrained, electricity imports are difficult and, as a result, large parts of the population remain without electricity and heating in the coldest months. It is also helping Tajikistan to reduce energy losses and strengthen the financial position of the state-owned energy utility companies. Technical assistance is also provided to strengthen institutional capacity for energy sector reforms in the country.

Health

  • The World Bank’s involvement in the health sector in Tajikistan is closely aligned with the first pillar of the Bank’s current Country Partnership Strategy aimed at mitigating the negative impact of the crisis on poverty and vulnerability. With the IDA support WB is supporting a project implemented by the Ministry of Health and aimed at increasing access to health services in project-supported areas, and strengthening capacity and efficiency at the national, oblast, and rayon levels in administering the basic benefit package and per capita financing for primary health care.With funding from Japanese Social Development Fund (JSDF) WB is supporting the Ministry of Health to address the shockingly high malnutrition rates among infants and young children by reducing the exposure of poor people to food insecurity and by improving the long-term health and well-being of infants and children.

Public Sector Reform

  • The World Bank is assisting the Government of Tajikistan in implementing the Public Sector Reform Strategy, which is aimed at establishing legal and organizational prerequisites for improved public sector management, enhanced public access to information, and strengthening regulatory framework in selected areas. The Bank is also helping in modernizing public finance management through establishing basic processes for efficient and transparent management of public expenditures and developing adequate capacity to support implementation and sustained functioning of automated financial management information system.

Social Welfare

  • The recently approved World Bank-funded social safety net project is expected to improve the capacity of the Government of Tajikistan to plan, monitor, and manage social assistance for the poor through the development of a national registry of social protection and the provision of training, equipment and related items for improving this capacity. This would help offset some of the worst consequences of poverty and could contribute to addressing the impact of shocks, such as financial crises and droughts. Moreover, the project would also benefit the broader public by supporting mechanisms designed to improve targeting and reduce waste in the use of scarce public funds for social assistance. Importantly, it would promote accountability to the public by opening channels for complaints of abuses and for appeals of social assistance decisions.
ANNUAL REAL GDP GROUTH (%)

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ECONOMY

Recent Economic Performance

Economic activity grew by 8.6 percent on average between 2000 and 2008, after falling by more than 60 percent since independence in 1991. In 2009, economic growth slowed down to 3.9 percent as the effects of the global financial crisis hit the country’s economy. Sharp reduction in remittances, by 31 percent from 2008 peak level, lower prices for Tajikistan’s key export commodities, aluminum and cotton, and falling demand for them were the main effects of the financial crisis. The domestic currency depreciation, by 26 percent by the end of 2009, facilitated external adjustment by contributing to narrowing of the trade deficit and to slight curtailing of the current account deficit.

Despite macroeconomic challenges brought up by the global crisis, Tajikistan has been able to maintain a tight fiscal policy and external adjustment with assistance of the International Financial Institutions. Under the expenditure management anti-crisis plan the authorities revised its state budget in May 2009 to reflect the revenue shortfalls compared to the approved budget. Revised anti-crisis budget for 2009 followed reduction of all expenditures with the exception of prioritized social sectors and energy development programs. The government restrained current spending, including operation and maintenance spending, but excluded essential nondiscretionary expenditures like wages and salaries, employer contributions and interest payments. In addition, on the revenue side, the VAT rate was reduced from 20 to 18 percent. The monetary authorities have committed to a flexible exchange rate regime which has served well so far and allowed a buildup of higher international reserves.

Tajikistan has begun gradually recovering from the crisis in 2010, when GDP growth rate of the country was recorded at 6.5 percent. Growth was mainly ensured by services and domestic trade as well as industrial activity (which grew by 13.1 and 9.7 percent, respectively), benefiting from increased remittance inflows and stronger hydroelectricity production. Additionally, exports also partly contributed to growth, rising by 18.3 percent due to higher international prices for cotton and aluminum in 2010. Construction also performed well, expanding by 11.5 percent. External conditions for Tajikistan appeared to be stabilizing in 2010. Due to recovering Russian economy from the global financial crisis, workers’ remittances were up again, increasing by 29 percent compared to 2009.

While target annual benchmarks set for real GDP growth in 2011 as 6 percent, economic growth in the first half of 2011 was generally optimistic with real GDP growth at 6.9 percent. Economic activity was driven mainly by export (up 23.2 percent) and services (up 13.5 percent). Agricultural also increased by 8.6 percent, boosted mostly by growth in non-cotton agricultural production. According to the preliminary results in the first half of 2011 migrant remittances inflows have risen significantly by 38 percent compared to the same period in 2010, and were equivalent to 48 percent of bi-annual GDP. Significant increase of prices for gasoline contributed to higher inflation in the second quarter of 2011 as a result of customs duties on exports introduced by Russia effective April 1. Headline inflation reached 7.1 percent by July 2011. By the end of 2011 CPI is projected to rise above 13.9 percent in line with international prices for food and fuel.

The Tajik Government made good progress towards fiscal recovery. The bi-annual 2011 targets were reached especially those related to revenue collection. By July 2011 the state revenue (excluding PIP and Special Funds) recorded a 47 percent increase over the corresponding period of 2010. In percentage ratios to GDP, shares of public revenues increased by 5,9 percent of GDP (from 21.8 percent in the first half of 2010 to 27.7 percent in the same period in 2011). Both the improved performance of the domestic economy as well as the increase in imports contributed to the strong growth in revenue collection. However, given the need to meet pressing social and development goals with limited budget resources, a fiscal deficit of 1 percent of GDP is targeted for 2011. The share of external public debt to GDP was 33 percent in July 2011, well below the notional ceiling of 40 percent

*Most recent data available 2001-2007 More Tajikistan data

Challenges Ahead

Even though the situation in Tajikistan has improved notably during the last years, Tajikistan’s per capita income of $780 remains one of the lowest in Central Asia. Most of the population, especially in rural areas, lacks access to water, sanitation, and other basic services. With a less favorable external environment than in the past, the government will need to accelerate reforms to meet its ambitious growth target, as set in its Poverty Reduction Strategy Paper for 2010–12, of doubling gross domestic product (GDP) in a decade.

As highlighted in the World Bank’s 2011 Country Economic Memorandum, Tajikistan’s biggest challenge in the coming years will be lifting its low rates of private investment to sustain high GDP growth. Improving business environment and managing relations with neighboring countries will be important factors in raising foreign direct investment and stimulating private investment. Poor reliability of electricity supply, difficult tax administration processes, and insufficient storage facilities, among other hindrances, reduce private investment profitability.

Agriculture may be a driving force for growth if land reform is completed and freedom to farm is guaranteed. Strong growth in agriculture sector in 2009 was largely due to efforts to diversify agricultural production. This has also increased domestic food production, partly easing the burden of high food prices. A sustained policy shift towards greater freedom to farm would help ensure sufficient levels of domestic food production and have a lasting effect on poverty reduction.

Maintaining macroeconomic stability will be critical for raising private investment for growth, in view of the country’s vulnerability to external shocks. This will require continued vigilance by the central bank and the finance ministry to address problems facing the country. Increased financial viability and transparency of the large state-owned enterprises (SOEs) is needed to ensure that government revenue finances infrastructure and social services instead of SOE losses. Similarly, public expenditure must be managed more efficiently and transparently so that government revenue can be used to support growth and reduce poverty.

Upgrading and rehabilitating roads will be important, but they should be selected in a way that maximizes their impact on growth. Tajikistan’s energy sector is critical not only for the electricity it provides to all sectors of the economy, but also as a potential source of economic growth through hydropower exports, provided these increased revenues are used judiciously to finance priory public investments.

Improving access of the poor in all parts of the country to education and health services will continue to be a priority. Tajikistan’s social protection system is ineffective at reducing extreme poverty and vulnerability, partly because it is dominated by old-age and disability pensions. Introduction of better targeted assistance is needed to achieve higher coverage of the extreme poor and vulnerable, while being cognizant that fiscal space is limited. Investment in health care, too, is crucial. Public health functions such as disease surveillance and health promotion will require significant overhauling to effectively address old challenges such as malnutrition, high infant and maternal mortality rates as well as new ones such as chronic and non-communicable diseases.

World Bank Program

Tajikistan became a member of the World Bank and International Development Association (IDA) in 1993. The World Bank has been present in Tajikistan since 1996 and since then a total of more than US$ 630 million in commitments have been approved.

The new World Bank Country Partnership Strategy for 2010-2013 was endorsed by the Board on May 25, 2010. The Country Partnership Strategy (CPS) has two-fold objectives: (i) reducing the negative impact of the crisis on poverty and vulnerability; and (ii) paving the way for post-crisis recovery and sustained development. Improving core governance will be mainstreamed in the CPS program in the context of Tajikistan’s Country Governance and Anti Corruption (CGAC) strategy.

In FY 11 the World Bank has approved four grants with a total commitment of $38.2 mln. These include a development policy grant, a water supply project in Dushanbe, a social safety net strengthening project and a regional project for capacity building for hydrometeorology service.

Active Portfolio: The active portfolio of the World Bank as of 30 June 2011 consists of 16 projects with net commitments of $ 220 million.

The largest share of portfolio is in agriculture and rural development (34 percent), followed by energy and water (32 percent), education (16 percent), economic policy and public sector (14 percent incl. DPL), and health (8 percent).

Trust Funds: The Tajikistan portfolio includes 40 TF operations with US$ 80 million in commitments, which represents about 30 percent of the portfolio. In addition, Tajikistan is the beneficiary of two large TFs, one that addresses climate change (Pilot Program for Climate Resilience, US$50M) and another for food security (Global Food Security Program, US$28M). Trust Fund activities complement the Bank assistance program and finance a wide range of projects in key strategic sectors including energy, agriculture and social sectors. The Bank continues to be very active in efforts to seek additional TF resources for Tajikistan. TFs co-finance ongoing IDA operations in education, agriculture, food security, migration, demand-side governance that are expected to strengthen Bank’s involvement in these areas.

 

NB: Lending is per fiscal year, July 1-June 30

 
Active Portfolio by Sector as of September 2010
(US$ millions)

 

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CONTACT INFORMATION

For more information, please contact:

Faridun Sanginov
Phone: Dushanbe +(992 48) 701 58 00
E-mail: fsanginov@worldbank.org
Website: http://www.worldbank.org/tj





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