Tajikistan - Economy
Tajikistan’s economy is small and vulnerable to shocks. It relies heavily on imports (65 percent of GDP in 2015) and its exports (19 percent of GDP) are narrowly based and largely commodity-driven (aluminum, cotton, and gold). Most of its fuel and a large share of food are imported. Tajikistan depends heavily on exports of labor and the resulting remittance income (equivalent to about 50 percent of GDP in 2013), earned mainly by migrant workers in Russia. The vulnerabilities are exacerbated by a poor business climate; Tajikistan stands last among the seven Caucasus and Central Asia (CCA) countries in terms of the ease of doing business .
Tajikistan’s economy, like several others in the region, experienced large external shocks in 2015. These shocks resulted in a decline in the US dollar value of migrants’ remittances, lower export earnings, and exchange rate depreciation. They reduced imports and consumption, and affected banks’ financial positions. Economic performance was affected accordingly. While exchange rate flexibility alleviated some pressures, Tajikistan’s economy continued to adjust to lower migrants’ remittances and export earnings, against the backdrop of returning migrant workers.
By mid-2015 Tajikistan’s economy was entering a downturn and the banking sector was showing substantial weaknesses. In particular, the economy and the financial sector faced the downside risks and negative spillovers from: (i) a protracted period of negative growth in Russia, coupled with a possible slowdown of growth in China; (ii) commodity (especially cotton and aluminum) price shocks; and (iii) delays in structural reforms, particularly in banks and state-owned enterprises.
System-wide nonperforming loans grew substantially in 2014 and capital buffers were likely to be overstated due to misclassification and underprovisioning of bad loans. Credit quality is poor, owing to inadequate credit assessment methodologies and insufficient credit information, but also to directed and related-party lending in the past, which heightened moral hazard. h. While rapidly growing economic ties with China may help underpin the outlook, the fallout from the adverse external environment—most notably, in Russia - and the slow pace of structural reforms - weighed heavily on growth in 2015 and beyond.
Tajikistan is the poorest Commonwealth of Independent States (CIS) country and one of the poorest countries in the world. The country has almost no industry and an underdeveloped agricultural sector; it faces severe, factory-crippling power shortages during winter; it is 2,000 miles away from the nearest port; it has a Soviet-era quality control system (where any system at all exists); and it has difficulty feeding its own population, 53% of which live below the poverty level. Foreign revenue is precariously dependent upon exports of cotton and aluminum and on remittances from Tajik migrant workers abroad, mainly in Russia. The economy is highly vulnerable to external shocks. Tajikistan's economy suffered from the global recession through major drops in exports, imports, and remittances from a million Tajiks working in Russia. The money they sent home was equal to over 50% of GDP in 2008, and literally kept rural communities alive. Remittances dropped 34% in 2009 alone.
The Tajiks are open to whomever comes with funding. Nowhere is President Rahmonov's "open door" foreign policy more evident than in economic development - "All money smells the same." Tajikistan managed modest growth during the height of the recent economic crisis, and growth picked up again in 2010 (6.5%) and 2011 (7.4%). On 10 December 2012 the Republic of Tajikistan was officially admitted to the membership of the World Trade Organization at the session of the WTO General Council held in Geneva of Swiss Confederation.
Tajikistan is more mountainous than Afghanistan, with earthquakes, floods, droughts, locusts and extreme weather. Parts of the country are often cut off by snow and avalanches. External links pass through obstructive Uzbekistan, unstable Afghanistan, or over the rough, remote Pamir passes to western China. Its only industrial products are aluminum and hydroelectricity. The Tajik Aluminum Company (Talco) accounts for most of Tajikistan's exports. Though it is technically state-owned, most of its revenues end up in a secretive offshore company controlled by the President, and the state budget sees little of the income. Talco consumes up to half of Tajikistan's electricity, contributing to major seasonal shortages and suffering.
During the Soviet period, subsidies from the center used to make up at least 50 percent of the budget, and in some years they were as high as 80 percent. Without that support, combined with civil war and the exodus of nearly 500,000 skilled Russians, the Tajik economy went into a freefall following independence. The output of most industries declined sharply during the mid-1990s; despite widespread privatization, in the early 2000s industry rallied very slowly. In 2006an estimated one-third of Tajikistan’s 700 major industrial enterprises were completely idle, andthe remainder were operating at 20 or 25 percent of capacity. The causes are outmodedequipment, low investment levels, and lack of markets.
Tajikistan has great hydropower potential and has focused on attracting investment for projects for internal use and electricity exports. Meanwhile, the country faces severe electricity shortages, particularly during the winter and beyond, when most of Tajikistan's inhabitants receive little or no electricity for weeks at a time. The government sees the construction of the massive Roghun hydroelectric dam as the solution to the country’s chronic energy woes, but the dam has been a source of increasing friction with Uzbekistan.
Tajikistan has followed a relatively strict fiscal and monetary policy, which has resulted in macroeconomic stability. However, government interference in the economy and massive corruption stifle economic growth and private investment. The government has attracted state-led investment for major infrastructure projects, particularly from China, rather than implementing the necessary economic reforms to attract private investors.
Though Tajikistan has a small amount of arable land (6.2% of total area) which is almost entirely dependent upon irrigation, its economy remains primarily agrarian. Two-thirds of the workforce of Tajikistan is in agriculture, where wages are abysmally low and sometimes non-existent. Tajikistan struggles to implement agricultural reforms that would allow many farmers to grow the crop of their choice, rather than being forced to grow cotton, as has been the practice from Soviet times. Income from narcotics trafficking, while difficult to quantify, has an increasingly visible impact on the Tajik economy. The government, which has been generally slow to discard poor Soviet economic models, still controls the agricultural sector through state-run farms and strict rules for private land use. Forty percent of agricultural output is cotton -- Tajikistan's Soviet-era cash crop -- with the remainder being mainly cereals and potatoes.
Agribusinesses, which account for 70 percent of small and medium sized enterprises (SME), are especially vulnerable because of poor government regulation. The government has never understood how to regulate agriculture and simply copied Russian and Kazakh laws posted on the Internet. Farmers can't buy their own land and are required to file onerous reports about their crops and harvests.
Excessive interest rates, an incomprehensible tax code, and the lack of a sound legal structure hinder the growth of private enterprise in Tajikistan. Just starting a business is difficult because no information about registration procedures is available. Banks offer no short term credit, and the interest rate on longer term loans is 18 to 40 percent. Those that manage to register have to deal with twenty different ministries that issue decrees which they rarely share with business leaders. Businesses like the Orima supermarket chain that prevail despite overwhelming odds are at risk of having their leaders falsely accused of crimes and/or being taken over by rivals connected to powerful officials.
The country's industrial sector is run inefficiently thanks to outmoded methods of state control, outdated equipment and to a lack of foreign investment: In 2006, one-third of Tajikistan's major industrial facilities were idle, and most of the rest operated at only 20-25% capacity. Tajikistan has several major aluminum processing facilities built during the Soviet era, yet the country has no indigenous sources of the metal. However, Tajikistan is rich in rare metals such as gold, silver, uranium, and strontium, though extraction operations fall short of what is possible.
Tourism, though potentially a lucrative sector, is almost nonexistent thanks to the legacy of the civil war, a lack of security, and a failure of the government to cultivate a tourist industry. Energy export could also be a major source of revenue if the country could build more dams to take greater advantage of its hydropower potential.
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