Press Release No. 04/6

Press Release: IMF Completes Second Review of the Republic of Tajikistan's Three-Year PRGF Arrangement and Approves Request for Waiver of Performance Criterion

January 16, 2004

The Executive Board of the International Monetary Fund (IMF) has completed the second review of the Tajik Republic's economic performance under the three-year Poverty Reduction and Growth Facility Arrangement (PRGF). In doing so, the Board approved a request for a waiver for the nonobservance of the structural performance criterion on the elimination of subsidized tariffs for all privileged categories of consumers of gas and electricity. The decision enables the Tajik Republic to draw an amount equivalent to SDR 9.8 million (about US$14.6 million) under the arrangement.

The IMF's Executive Board approved the three-year arrangement effective on December 11, 2002 (see Press Release No. 02/54) for amount equivalent to SDR 65 million (about US$97 million). Completion of the latest review will bring total disbursements under the program to SDR 25.8 million (about US$38.5 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

Following the discussion of the Executive Board, Agustín Carstens, Deputy Managing Director and Acting Chairman, said:

"Tajikistan's performance under the Poverty Reduction and Growth Facility (PRGF) arrangement has been generally satisfactory. Growth remains strong, the sources of growth are becoming more diversified, and macroeconomic policies remain broadly on track, bolstered by continued fiscal prudence.

"Lapses in monetary policy implementation contributed to higher-than-projected inflation in 2003. Nevertheless, the recent restructuring of the National Bank of Tajikistan should lead to an improvement in transparency and the conduct of monetary policy, and support efforts to reduce inflation. The managed floating exchange rate remains appropriate, and foreign exchange market intervention should be limited to smoothing exchange rate volatility.

"The authorities' prudent fiscal policies resulted in a strong fiscal performance in 2003, supported by expenditure discipline and improved revenue collection. The projected fiscal stance for 2004 is appropriate and the budget's significant increase in social sector spending is consistent with the Poverty Reduction Strategy Program (PRSP) objectives. Nonetheless, the authorities need to constrain the public sector wage bill and make satisfactory progress with civil service reform.

"The authorities are committed to prudent use of foreign financing for the public investment program, consistent with the PRSP goals, and intend to ensure that commercial borrowing is avoided and that debt management is strengthened. Debt restructuring will contribute to improving debt sustainability.

"Structural reform is supporting efforts at macroeconomic control. The authorities have achieved a gradual reduction in quasi-fiscal deficits in the gas sector and have developed a mechanism to mitigate the impact of higher energy tariffs on low-income households. Further efforts to reduce quasi-fiscal losses by increasing collection rates and reducing arrears are necessary. Banking sector reform has led to restructuring of a major bank and improved performance of some key banks, and needs to be supported by improved bank supervision.

"In view of the largely rural nature of Tajikistan, it is essential to press ahead with the land reform program, develop a strategy for debt restructuring of state farms, and improve the equity and transparency of the farm privatization process.

"Strengthening governance in Tajikistan remains a critical objective, as improvements in the business environment are necessary to encourage private sector development and foreign direct investment," Mr. Carstens stated.