A report released by the World Bank on January 11, in particular, notes that despite the sustained high rates of economic growth, the future growth prospects remain overshadowed by the protracted resolution of the banking crisis and long-awaited improvements in the business environment.
The package of amendments to the financial sector legislation was adopted in June 2018 and is expected to upgrade the regulatory and supervisory framework. However, the resolution of the two problem banks is still pending, the report says.
Despite some initiatives by the Tajik authorities to foster the overall investment climate and improve the business environment, structural reforms reportedly fell behind global trends. Based on the national definition, the poverty rate fell from 30.3 percent in 2016 to 29.5 percent in 2017.
Though the urban poverty has declined at a faster pace, the poverty response to growth in recent years has slowed significantly from a few years ago, challenging the inclusiveness of growth and its distributional effects, especially for the lower-income segments of population.
After extensive fiscal expansion of 2016–17, the authorities sought fiscal consolidation path in 2018. However, the magnitude of fiscal consolidation fell short of initially targeted level because of pressure to launch Roghun hydroelectric power plant (HPP) by November 2018. The latter reportedly drove the fiscal deficit up to an estimated 4.9 percent of GDP by the third quarter of 2018.
The report notes that a disproportionally high share of public investments into the energy sector has undermined public expenditures in other sectors, leading to spending cuts and delays.
On October 15, 2018, during the International Entrepreneurship Forum, President Emomali Rahmon criticized the country’s banking system for inaccessibility of low-interest loans for entrepreneurs. It was also 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).
The report notes that although liquidity indicators have stabilized in the past two years, the picture hides restricted access to withdraw deposits in insolvent banks, which are still pending the government’s resolution.
In line with the Financial Sector Assessment Program (FSAP) recommendations to harmonize minimum capital requirements for old and new institutions, the microfinance segment of the financial sector reportedly experienced substantial consolidation. The number of microfinance organizations decreased from 120 in 2014 to 66 in March 2018, driven primarily by sharp reduction of microcredit organizations from 42 to 7, followed by microdeposit organizations from 42 to 27 and to a lesser extent by microcredit funds from 36 to 32
The Word Bank analysts note that Tajikistan’s risk of debt distress remains high in the context of the elevated public debt and further spending pressures to support the construction of the Roghun HPP.
According to them, the Tajik authorities need to accelerate reforms in public finance in order to increase resilience of the country’s economy.
