DUSHANBE, September 22, 2015, Asia-Plus —
Asian Development Outlook 2015
by the Asian Development Bank (ASB) notes that economic growth in Tajikistan is projected to slow to 4.0% in 2015, reflecting a recession of at least 3.0% in the Russian Federation and continued weakness in the global economic outlook. Growth could recover somewhat to 4.8% in 2016 with some improvement in the Russian Federation and the external environment generally.
This will likely be supported by new job creation along the Trans-Tajik Gas Pipeline, which was ratified by Parliament in December 2014 and is slated to begin construction this year. Plans to increase social spending and raise public sector wages by 25% beginning in September 2015 should add to growth in 2016. Inflation will likely accelerate in 2015 to 10.0% or more as currency depreciation raises the prices of imported consumer goods. A more stable currency and some recovery in remittances would allow inflation to ease back to 6.5%–7.0% in 2016. With growth slowing, the current account deficit is forecast to narrow to 5.9% of GDP in 2015. It could narrow further to 4.8% in 2016 with some recovery in remittances. Exports are projected to grow by 14% to $1.6 billion in 2015 and a further 13% to $1.8 billion in 2016, while imports are projected to decline by 16% to $4.8 billion in 2015, before recovering by 6% to $5.1 billion in 2016. Remittances will likely contract further in 2015 as new regulations require that migrants to the Russian Federation have Russian language proficiency, as well as medical tests and health insurance that are estimated to cost about $500 per Tajik migrant. This will induce more to return home. Remittances are expected to recover somewhat in 2016 along with the economy of the Russian Federation.
The report says that landlocked and possessing limited arable land and a narrow industrial base, Tajikistan is highly vulnerable to external shocks. Geopolitical tensions have heightened this vulnerability, given Tajikistan’s heavy dependence on remittances and a few export commodities. Remittances are a critical lifeline for Tajikistan and its primary source of development finance. In 2011, remittance inflows were eight times official development assistance. However, because remittances are used mainly for household consumption, imports, and cover for Tajikistan’s rising trade deficit, their potential benefits for domestic growth, job creation, and long-term poverty reduction are limited. Further, remittance inflows are unpredictable and highly sensitive to economic and political developments in the Russian Federation. A 2014 World Bank study estimates that a 1 percentage point reduction in the GDP of the Russian Federation causes a 1 percentage point GDP contraction in Tajikistan.
During the past decade, aluminum and cotton fiber have reportedly provided about two-thirds of Tajikistan’s exports. Prices and external demand for these commodities are highly volatile. Since 2013, falling aluminum and cotton prices have significantly limited export growth. Tajikistan’s longstanding dependence on aluminum and cotton fiber has discouraged industrial diversification. Currently, Tajikistan’s exports constitute less than 17% of GDP, compared with 50% in countries with similar income.
The Ministry of Economic Development and Trade has developed an action plan for risk mitigation in 2015–2016 that identifies medium-term financial and economic risks for the economy, the report says. The plan outlines strategies to increase foreign exchange reserves, improve revenue collection, and reduce quasi-fiscal risks, emphasizing the financial operations of two large state enterprises, Barqi Tojik and Agroinvestbonk. It further aims to strengthen governance in state-owned enterprises by implementing international financial reporting standards, improving financial and operational disclosure, and introducing external auditing. The plan includes targeted social assistance and support programs, as well as steps to enhance the investment climate. The government anticipates that several factors will counterbalance falling remittances and a deteriorating industrial base. These include planned investments by China amounting to $6 billion from 2015 to 2017 and recent agreements to increase food exports to the Russian Federation, export surplus summer energy to Afghanistan and Pakistan under the Central Asia South Asia Electricity Transmission and Trade Project, strengthen regional road transport linking member states of the Shanghai Cooperation Organization, and participate in the Turkmenistan–Afghanistan–Tajikistan Railway. Over the longer term, unlocking the potential of Tajikistan’s valuable resources can help it overcome the limitations of being landlocked. The development of road and rail networks in the subregion and beyond offers an opportunity to access niche markets in Asia and Europe for exotic mountain fruits and herbs and for the fish that are abundant in Tajikistan’s unpolluted rivers. The country’s significant gold and silver resources provide scope for expanding exports of lightweight finished products that can be transported by air, given the country’s favorable location for international flights connecting Europe and Asia. Realizing this potential will require structural reform. Despite some improvement during the past year, Tajikistan still ranks 166 out of 189 economies in the World Bank’s Doing Business 2015 survey of investment conditions, with exceptionally low scores of 168 for getting construction permits, 178 for getting electricity, 169 for ease of paying taxes, and 188 for trading across borders. Tajikistan needs to address these problems to boost its exports and thereby mitigate its vulnerability to external shocks.
