The report released by the World Bank on January 11 notes that financing of the current account deficit was predominantly ensured by growing foreign direct investments (FDIs) and to a lesser extent by the drawdown of international reserves. In the first half of 2018, net FDI reportedly rose by almost 4.5 times, though from a low base, and reached 3.7 percent of GDP (US$267 million) compared to 0.9 percent of GDP (US$61 million) in the corresponding period of last year.
Supported by vast tax exemptions, the mining industry received almost 60 percent of total FDI inflows and was followed by manufacturing at 34 percent, according to the report.
About 78 percent of FDI originated from China whereas the other two largest contributors were Turkey accounting for 8.7 percent and Great Britain at 5.2 percent.
The country’s external position is reportedly projected to remain highly imbalanced due to capital-intensive import needs for the construction of the Roghun hydroelectric power plant (HPP), an appreciated somoni, and increasing private consumption—the latter propelled by remittance inflows. The current account deficit is estimated to reach 3.8 percent of GDP in 2018 and steadily reduce in the medium term. FDIs are expected to remain low, suffering from the general business climate. Over the medium term, capital outflows are expected to accelerate, assuming Tajikistan’s slow reforms in creating a business-friendly environment compared to regional economies, especially Uzbekistan. International reserves will drop in line with construction of the Roghun HPP.
Tajikistan continues with a recently initiated inspections reform including by streamlining planning procedures, applying a risk-based approach, and developing checklists. The government is enhancing the legal framework on investments by amending the Investment Law and defining, among others, the types of state support which could be provided to investors, including financial, property, and natural grants. The Amended Investment Law appoints the State Investment Committee as the government body responsible for providing natural grants and stresses that such grants (amount, size, and use conditions) are subject to investment agreements. Amendments to tax and customs legislation include expansion of the excise product list and introduction of a special payment system for certain types of goods on cross-border trade. Despite ongoing changes in legislation, the overall business environment has not yet improved, and the economy feels the high regulatory burden.
Recall, in a statement delivered at the International Entrepreneurship Forum in Dushanbe on October 15, 2018, President Emomali Rahmon noted that over US$5 billion has been invested by private sector firms into Tajikistan’s economy over the past five years, US$2 billion of which is foreign direct investments (FDIs).
