DUSHANBE, January 14, 2009, Asia-Plus — According to the paper on First Assessment Under the 2008 Staff-Monitored Program for Tajikistan prepared by a staff team of the International Monetary Fund (IMF), economic developments in 2008 were favorable, but the global slowdown weighs on the 2009 outlook.
This paper, posted on IMF’s website, prepared as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on December 10, 2008.
The paper, in particular, notes that the ongoing global financial crisis is expected to impact Tajikistan mainly through spillovers from the global slowdown. A direct impact on the financial sector seems unlikely. Real GDP growth should slow in 2009 on account of stagnating remittances and sluggish export growth. Inflation is projected to slow in 2009, following the expected decline in international commodity prices. Tajikistan’s external position is likely to weaken significantly in 2009, after the projected surplus in 2008 that allowed the central bank to build reserves.
External developments are weighing on the outlook for 2009. On the positive side, the global financial crisis has so far had little impact on Tajikistan’s financial sector because direct linkages are limited. However, remittances are projected to stagnate, and export demand to wane. As such, staff projects real GDP growth to slow to 5 percent at best in 2009, with risks to the outlook being largely on the downside.4 In particular, remittances could be affected more severely than assumed and decline in absolute terms.
Moreover, the ongoing electricity rationing, if exacerbated by another severe winter, could stifle industrial production and agriculture.
Spillover effects from the global slowdown are expected to dampen growth and worsen Tajikistan’s external position.
Most importantly, remittances are projected to stagnate due to a slowdown in the two major sources of remittances — Russia and Kazakhstan (an estimated 1 million migrants work in these two countries). Remittances, projected at over 40 percent of GDP in 2008, have been the largest source of current inflows during the last several years, supporting domestic demand and allowing the National bank of Tajikistan (NBT) to accumulate reserves.
In addition, export growth is projected to decline, mainly reflecting falling demand and international prices for cotton, Tajikistan’s major export.
The projected decline in international aluminum price would not affect Tajikistan’s exports because, under the tolling arrangement, the aluminum smelter receives a fixed fee which has shown little correlation with international prices. The offshore counterparty to the tolling arrangement is thus buffering price movements. However, there could be a quantity effect, if global demand for aluminum falls.
These adverse effects on the external current account would only be partly offset by the projected decline in international food and fuel prices.
There are also some reports of foreign direct investments being delayed, and trade credit drying up. Tajikistan’s financial sector has limited linkages to global financial markets. The sector consists mostly of commercial banks, and is funded primarily by local deposits and capital. Around 1½ percent of banks’ liabilities is external debt with a specific clause that would allow the creditor to request early repayment. One foreign-owned bank operates in Tajikistan, and its capital constitutes around 20 percent of total banking sector capital. Banks’ profitability could decline as remittances slow, since the associated fee income constitute around one-third of total income. Deposit growth may also be affected by slowing remittances or a spillover of declining confidence in banks from other countries in the region.
