Press Release No. 04/154

Press Release: IMF Completes Third Review of the Republic of Tajikistan's Three-Year PRGF Arrangement and Approves US$14.5 million Disbursement

July 21, 2004

The Executive Board of the International Monetary Fund (IMF) has completed the third review of the Republic of Tajikistan'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 non-observance of the continuous structural performance criterion prohibiting the National Bank of Tajikistan from issuing directed credits. The decision enables the Republic of Tajikistan to draw an amount equivalent to SDR 9.8 million (about US$14.5 million) under the arrangement.

The IMF's Executive Board approved the three-year arrangement on December 11, 2002 (see Press Release No. 02/54) for amount equivalent to SDR 65 million (about US$96 million). Completion of the latest review will bring total disbursements under the program to SDR 35.6 million (about US$53 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 5½-year grace period on principal payments.

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

"Tajikistan's performance under the Poverty Reduction and Growth Facility arrangement has been satisfactory. As a result of program implementation and the favorable economic environment, growth has remained robust and inflation has fallen sharply. These developments have contributed to a decline in poverty.

"The authorities have made improvements in the overall implementation of monetary policy, especially the more effective management of reserve money, which have led to a significant reduction in inflation. Going forward, it will be important to sustain these improvements, while adhering to the floating exchange rate system. The central bank's efforts in implementing bank supervision regulations have been welcome. These efforts should be accompanied by steps to promote greater competition in the sector, including from regional and international banks.

"The authorities are to be commended for their continued commitment to maintain fiscal discipline. In view of Tajikistan's heavy dependence on volatile international commodity prices for cotton and aluminum, the authorities are encouraged to take stronger actions to improve tax administration and broaden the tax base.

"Looking ahead, Tajikistan continues to face serious challenges, including the high poverty rate. In addressing these challenges, a key task will be to speed up the implementation of reforms, including measures to promote private investment, improve the civil service, and make the energy sector more efficient. It is also important to improve governance and transparency, especially in prioritizing the allocation and execution of government expenditure to better align these with Tajikistan's poverty reduction strategy.

"In light of Tajikistan's economic performance and its policies for the remainder of the program period, the Executive Board approved the waiver of the performance criterion on the central bank's use of directed credit and completed the third review under the PRGF arrangement. The First Progress Report of the PRSP was also endorsed by the Board as a sound basis for continued Fund concessional assistance," Mr. Carstens said.