Press Release No. 18/198

IMF Staff Concludes Visit to Tajikistan

May 29, 2018

• Measures to improve financial sector regulation and supervision are welcome. However, further measures are needed to restore the confidence of depositors in the banking system.
• There are sizable downside risks to the fiscal outlook owing to large public infrastructure projects. Managing these risks will require significant fiscal consolidation.
• The recent energy sector reforms can help improve operational efficiency in this sector, but more is needed to contain contingent liabilities from the large state-owned enterprises (SOEs).

An International Monetary Fund (IMF) mission, led by Ms. Padamja Khandelwal, visited Dushanbe during May 14−23 to conduct discussions on recent macroeconomic developments and the economic outlook. At the conclusion of the mission, Ms. Khandelwal issued the following statement:

“The Tajikistan authorities and the IMF team held constructive discussions on Tajikistan’s recent economic developments and the economic outlook. Since late-2014, Tajikistan’s economy has suffered from external shocks, which affected economic confidence, reduced fiscal space and external buffers, and increased vulnerabilities (including in the financial sector). In 2017, a recovery in remittances contributed to growth as well as a narrowing of the current account deficit. Credit to the private sector contracted in 2017, but has started to stabilize. Excluding two problem banks, nonperforming loans declined from 24.4 percent of loans at end-2016 to 19.5 percent at end-March 2018. The fiscal deficit narrowed to 2.4 percent of GDP in 2017 from 9.8 percent of GDP in 2016 (the latter included bank recapitalization). Public and publicly guaranteed (PPG) debt increased from 42 percent of GDP at end-2016 to about 50 percent of GDP at end-2017.

“Decisive measures are needed to restore the confidence of depositors in the banking system. The IMF team welcomed recent measures to improve regulation and supervision, asset classification and provisioning, and management of foreign exchange and credit risk by banks. However, more needs to be done to implement the recommendations of the 2016 Financial Sector Assessment Program (FSAP) In addition, the lack of decisive measures to deal with two large problem banks has continued to impede efficient intermediation.

“The recently initiated energy sector reform is welcome, but more is needed to strengthen oversight and accountability of large state owned enterprises (SOEs). The recent decree for the unbundling of energy sector operations into power generation, transmission, and distribution companies can help improve operational efficiency in this sector. However, lack of management accountability and deficient pricing policies of the large SOEs have contributed to accumulated losses and the potential for contingent fiscal liabilities.

“There are sizable downside risks to the fiscal outlook owing to large public infrastructure projects. Managing these risks will require significant fiscal consolidation to ensure debt sustainability. A growth-friendly fiscal consolidation to reduce the risks of debt distress can be achieved by making cuts to non-priority capital expenditures and improving the efficiency of public spending, while strengthening the social safety net to protect poor and vulnerable groups. Additionally, a fiscal contingency plan, with identified revenue and spending measures, should be prepared so that it can be put in place should risks materialize

“The authorities have indicated they wish to start discussions on a possible IMF-supported program. They have already taken steps demonstrating reform progress that pave the way for program negotiations. With further progress, especially in the financial sector, and with careful preparation by both the Tajikistan authorities and IMF staff, negotiations could start in coming months. In the meantime, IMF staff will remain closely engaged with the Tajikistan authorities to support the efforts of the Government and the National Bank of Tajikistan to promote macroeconomic stability and inclusive growth.

“The mission would like to thank the National Bank of Tajikistan, the Ministry of Finance, the Ministry of Economic Development and Trade, the Ministry of Energy, and other government agencies for their generous cooperation, frank discussions, and warm hospitality.”