The International Monetary Fund (IMF) notes that following robust growth in 2016, the macroeconomic outlook for Tajikistan is expected to be generally weaker this year and beyond.
The IMF Executive concluded the Article IV consultation with Tajikistan on November 3.
A statement released by the IMF on November 9 notes that in the past few years economic activity in Tajikistan was strong, despite large external shocks that weakened the external position and exposed vulnerabilities. While remittances declined by 45 percent in nominal USD terms in 2015-16, real GDP growth was 6-7 percent supported by an expansionary fiscal policy that boosted investment in construction and industry and informal sector activity. Inflation remained low. The current account deficit widened from 2.8 percent in 2014 to 6 percent of GDP in 2015 before narrowing to 3.8 percent of GDP in 2016. End-2016 reserves provided 2.3 months of import cover. Public debt increased to nearly 42 percent of GDP. The sharp decline in remittances reportedly resulted in a large depreciation against the dollar, which in turn led to a significant escalation in banking sector stress owing to short open foreign exchange (FX) positions and FX lending to unhedged borrowers. By end-2016, nonperforming loans (overdue more than 30 days) in the banks rose to 54 percent, profitability fell, capital adequacy deteriorated and the two largest banks became insolvent and illiquid. Private sector credit declined in 2016.
Following robust growth in 2016, the macroeconomic outlook for Tajikistan is expected to be generally weaker this year and beyond, the statement says. Growth is reportedly projected to decrease to 4.5 percent in 2017 and decline further to 4 percent in 2018 due to fiscal consolidation and credit contraction.
Risks stem from potential delays in structural reforms, particularly in the banking sector or state-owned enterprises, which would hurt confidence and have an adverse impact on growth. Slower growth in emerging markets would reduce remittances, loans, and FDI. Tajikistan’s risk of external debt distress has increased from low to high suggesting heightened fiscal vulnerabilities to adverse shocks.
IMF Executive Directors reportedly noted that the Tajik economy continues to face vulnerabilities, which requires maintaining a prudent macroeconomic policy stance, building fiscal and external buffers, and stepping up reforms, especially in the banking sector.
They called for a careful implementation of fiscal and monetary policy to ensure macroeconomic stability. They emphasized that fiscal consolidation and concessional financing would reduce the risk of debt distress and help rebuild policy space. Expansion of the tax base and cuts in non-priority expenditure while protecting critical social outlays will be important. Disciplined implementation of the 2017 budget would be a welcome start to this consolidation. Directors also noted that a further tightening of monetary policy, including limiting the use of central bank credit to finance public investment projects, would help contain inflationary pressures.
