A potential International Monetary Fund (IMF) deal could reduce downside risks to the Tajikistan economy if agreed upon in 2019 but China will need to be on board for an IMF program to be fully effective, according to the material posted on the website of the Fitch Solutions (a division of Fitch Ratings that distributes analytical products).
An IMF program could go some way to reducing the mounting downside risks to Tajikistan's economy. A deal would likely speed-up fiscal consolidation and reforms, increasing debt sustainability, and would be a boost for foreign investor confidence. President Emomali Rahmon's willingness to adhere to IMF recommendations has been chequered in recent years. Recommendations on improving monetary policy, tightening fiscal budgets and reforming the energy sector have been largely followed. However, progress on reforming the banking sector has been slow and debt accumulation through infrastructure projects has increased fiscal stability risks, despite warnings from the IMF. With gross external debt rising to 50.4% of GDP in 2017, from 42.0% in 2016, and the banking sector still struggling with a high non-performing loan (NPL) ratio, the economy reportedly remains in a precarious position. Fitch Solutions sees economic growth slowing over the coming years, to 5.8% and 5.5% in 2018 and 2019 respectively, from an estimated 7.1% of GDP in 2017.
The rating agency notes that China will need to be on board for an IMF program to be fully effective. China remains Tajikistan's largest creditor, with Chinese loans accounting for around a third of government debt.
China has reportedly extended over 1 billon U.S. dollars in loans to Tajikistan, to support the development of infrastructure, particularly as part of China's 'Belt And Road' Initiative (BRI). The IMF has warned of debt related to the BRI previously and any fiscal consolidation programs will fall short without the cooperation of China, according to the rating agency. The repayment schedule of Chinese loans has reportedly been favorable to Tajikistan, with the country's natural gold reserves used as collateral in some cases.
The agency notes that much depends on China's willingness to keep supporting Tajikistan's economy. The desire to avoid instability on its western border and increase its regional presence will likely mean China remains supportive in the coming years.
Headquartered in New York, Fitch Ratings Inc. is one of the "Big Three credit rating agencies", the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975.
