DUSHANBE, March 7, Asia-Plus — The National Bank of Tajikistan (NBT) intends to meet all decisions made by the Executive Board of the International Monetary Fund (IMF) on March 5 in time, Asia-Plus ahs learned at Tajik central bank.
As it had been reported earlier, the IMF Executive Board met Wednesday to review a report from the Managing Director on noncomplying disbursements to Tajikistan and a breach of obligations under Article VIII, Section 5 of the IMF”s Articles of Agreement.
The Executive Board reviewed matters related to five noncomplying disbursements to the Republic of Tajikistan, each in an amount of about US$15.8 million, that were made in January 2004, August 2004, March 2005, July 2005, and February 2006 following the completion by the Executive Board of the second, third, fourth, fifth, and sixth review under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The PRGF arrangement was approved by the Executive Board on December 11, 2002.
Based on new information provided by the authorities to IMF staff in December 2007 and January 2008, the Executive Board concurs that these disbursements were made on the basis of inaccurate information provided by the Tajik authorities relating to the performance criteria on the net international reserves of the Republic of Tajikistan, the net domestic assets of the National Bank of Tajikistan (NBT), and against the NBT issuing directed credits.
The IMF executive board said that in taking its decision, it “carefully weighed the Republic of Tajikistan’s very difficult economic circumstances, in particular its balance of payments position as well as the severe humanitarian crisis prevailing in the country, against serious instances of misreporting by the Tajik authorities.”
The source at Tajik central bank said that NBT is able to repay the Fund $47.4 million in loans together with interest accrued in six equal monthly installments. The first installment should be paid no later than September 5, 2008, and the final installment no later than February 5, 2009.
In the meantime, an article titled “IMF says Tajikistan broke borrowing rules” posted on the FT (The Financial Times) website on March 6, in particular, said that the Tajik authorities have agreed to undertake a special audit of the central bank, which will be conducted by an international firm. A person familiar with the IMF’s decision said that the IMF would have asked for more money to be reimbursed but part of the lending to Tajikistan had already fallen under a debt forgiveness agreement. The person said that the IMF had worked with Tajikistan on the basis of “audited accounts from the central bank that really proved to be incorrect.”
The IMF can only demand repayment of money that it has provided and its loans are for general budgetary purposes rather than sector specific. However, the breach emerged as part of separate investigations by donors and other multilateral institutions, including the Asian Development Bank, which established that the central bank had guaranteed about $500m of loans by commercial banks to the country’s ailing cotton sector. The World Bank also held meetings in Washington in January to discuss the sustainability of its cotton industry.
According to the article, the cotton sector is Tajikistan’s biggest employer, but the country’s export revenues from cotton are expected to slump this year because of indebted farmers’ inability to purchase quality seed and fertilizer or repair decrepit irrigation systems.
The funding problem and investigations, first reported by the Financial Times, come as donors forecast that the cotton sector, which also suffers from a lack of competition among processors, will require about $80m in additional lending a year to keep it afloat.
The Tajik cotton problem is embarrassing for the IMF because it helped set up Creditinvest, the Tajik company through which most of the loans have been steered. The company was initially designed to take over non-performing assets from Agroinvestbonk, the state agriculture bank, which was then undergoing privatization.
Since its establishment in 2003, Creditinvest has become the main conduit for borrowing by the cotton sector. Tajik law bans the use of land as loan collateral, leaving borrowers with little choice but to seek state guarantees.
