DUSHANBE, October 9, Asia-Plus — The World Bank launched the first volume of the Programmatic Public Expenditure Review for Tajikistan with a focus on Public Expenditure, Fiscal Space and Growth; and Policy-based Budgeting.
Press release issued by the World Bank (WB) Dushanbe Office said that the PPER has been designed to cover five themes which represent key challenges for fiscal policy and public financial management reforms in Tajikistan. The other three themes to be covered by the subsequent two volumes of the report include: 1) Efficiency of Public Expenditures in the Social Sectors; 2) Fiduciary Risks; AND 3) Inter-governmental Fiscal Relations. The PPER work is also supported by the UK Department for International Development (DFID) and the Swiss State Secretariat for Economic Affairs (SECO).
Tajikistan is a small economy in Central Asia with 7 million population and a per capita income of US$410 (2007, WB Atlas Method). The economy, which has been growing on average at 8 percent during 2000-06, depends heavily on exports of cotton and aluminum, and on growing remittances of migrants to Russia (estimated at 36 percent of GDP in 2007). With such a steady GDP growth, the economy is now close to its production possibility frontier (PPF), which requires an expansion of aggregate supply for further growth. Poverty, although declining steadily, remains very high. In 2005 the headcount was 57 percent using poverty line of US$ PPP 2.15/day.
Structural and institutional reforms are now the major challenges for Tajikistan as it seeks to develop its economy and reduce poverty. The priorities for reform efforts are: firstly, the promotion of private investment to provide employment and gradually shift the economy away from the rigid capital intensive production structures built up during the Soviet era and secondly, the restructuring of the public sector so that it can focus scarce public resources on the efficient provision of essential public goods and services.
The Programmatic Public Expenditure Review (PPER) aims to deepen understanding of key analytical issues related to fiscal policy and public financial management (PFM) in Tajikistan and to support the ongoing PFM reform program in the country. The fiscal policy and PFM issues addressed in the PPER include the need to focus fiscal policy on supporting sustainable economic growth and poverty reduction, the introduction of policy based budgeting, improving the efficiency of public expenditures and strengthening fiduciary controls. The analysis and diagnostic work in the PPER will provide the basis for the preparation of a government owned PFM reform strategy and action plan which will guide the policy dialogue and technical assistance on PFM reforms.
“Tajikistan has good growth prospects over the medium term. However, as this report shows, fiscal prudence and critical review and sequencing of infrastructure investments are essential to realize this potential”, said Mr. Sudharshan Canagarajah, the World Bank Senior Country Economist for Tajikistan, “Failure to carefully manage the fiscal policy challenges will undermine macro stability and the high economic growth rates Tajikistan has enjoyed over the last seven years,” he added.
The report advises that the major long term challenges for fiscal policy in Tajikistan are to restructure government expenditures to improve the quality and efficiency of public services in a manner which can support economic growth and provide poverty reducing public services, while maintaining macroeconomic stability and reducing the large quasi fiscal deficit (QFD) in the electricity sector.
Fortunately the findings of this study suggest that there is potentially large fiscal space for expanding government expenditures, but realizing this fiscal space will require major reforms by government. Moreover, failure to implement effective reforms to public financial management, tax administration and the electricity sector would pose serious risks to fiscal sustainability and macroeconomic stability over the medium to long term.
The report also concludes that reforming of the budget system is a prerequisite for implementation of a meaningful Medium-term Expenditure Framework. The key reforms involve restructuring the budget process into sectors, so that a sector expenditure ceiling can be allocated in a coherent manner among competing expenditure demands in the sector, according to the sector’s expenditure priorities. In each sector a lead line ministry should be put in charge of coordinating the budget process in that sector.
The creation of functioning sectors, with sector wide expenditure ceilings and budget allocations, should be implemented first on a pilot basis beginning in the education sector. Consequently substantial financial and technical assistance from donors will be essential to support the implementation of the MTEF.
The report concludes that economic and institutional policy reforms will be critical if Tajikistan is to realize its potential for sustainable growth in the long term. Institutional reforms to the investment climate are necessary to stimulate the private investment which is required to create employment. Reforms to public financial management are required to create fiscal space for expanding the provision and quality of the essential public services needed for human resource development and poverty reduction. Reforms to the electricity sector, to reduce its quasi fiscal deficit, are critical for the long run sustainability of public finances. Finally greater care is needed in the planning and financing of public investments to ensure that these generate positive social rates of return, complement private investment and do not jeopardize fiscal and external debt sustainability.
