DUSHANBE, March 31, 2009, Asia-Plus — In 2008, Tajikistan’s economy posted solid growth estimated at 7.9%, despite a decline in industrial production and contraction in the key aluminum and cotton subsectors, the Asian Development Bank’s (ADB) annual economic publication, Asian Development Outlook 2009 (ADO 2009), that was released on March 31 noted.
Industrial production as a whole declined by 4% in 2008. Including aluminum production, industry was hit by an energy crisis (and subsequent power rationing) that was triggered by an unusually cold winter in 2008. This lowered the water level in the country’s largest reservoir below that needed for generating normal hydropower supplies.
Agriculture picked up to 7.9% growth in 2008 from 6.5%, supported by robust expansion in noncotton subsectors, including livestock and fruits and vegetables, as higher global prices made food production more profitable. The area planted to cotton was reduced further in 2008, allowing farmers to grow other crops. The cotton subsector continued to suffer from low productivity, a legacy of heavy debt and a sluggish pace of structural reform.
Noncotton agriculture, which was a growth driver in 2008, should benefit from the loans allocated from the budget through banks and from a further reduction in the cotton-planted area. Moreover, consumers are expected to switch from imported food to domestically produced food, due to the impact of falling remittances on incomes and prices, according to ADO 2009.
Inflation fell to 11.9% in December 2008 from 19.9% a year earlier, though the average annual rate remained relatively high at 20.7%. Wheat was a major driver, due to a global price spike and the sizable weight of wheat products in the consumer price index basket. Inflation is expected to ease to 15.5% this year and to 9.5% next year, helped by trends in global food and energy prices and weaker domestic demand. Food and energy items are the main determinants of inflation in Tajikistan, given their large weight in the consumer price index basket.
Real GDP growth is forecast to fall in 2009 to 3.0%, reflecting the global slowdown. Services growth, the main driver in recent years, will decelerate as remittances decline and credit dries up. The financial system will have difficulties in increasing lending to the economy due to tighter monetary policy and liquidity shortages in the system. Lower international prices and demand for aluminum, as well as weaker domestic spending, will keep industry a drag on growth. Agriculture, though, is expected to continue expanding on favorable supply and demand factors.
However, the economy is expected to pick up slightly in 2010 to 4.0%, as new hydropower plants become operational, which will limit energy shortfalls and boost exports. The pickup also depends on some recovery in the global economy and the availability of funding, particularly external private capital and development assistance.
