Economic studies
Tajikistan

Tajikistan

Population 9.5 million
GDP 844 US$
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 7.5 4.5 5.0 5.5
Inflation (yearly average, %) 7.8 8.6 9.5 9.0
Budget balance (% GDP) -2.1 -4.4 -4.5 -5.0
Current account balance (% GDP) -2.3 4.3 -1.0 -1.5
Public debt (% GDP) 43.1 49.9 49.4 50.0

(e): Estimate (f): Forecast

STRENGTHS

  • Plentiful natural resources (hydroelectric potential, cotton, aluminium, gold)
  • Untapped agricultural and tourism potential
  • Transit corridor between Uzbekistan, Kyrgyzstan, Afghanistan, Pakistan and China
  • Youthful population (50% under 25 years old)
  • Financial support from multilateral and bilateral donors, including China
  • Member of China's Belt and Road Initiative (BRI)

WEAKNESSES

  • High dependence on the Russian economy, via transfers from expatriate workers (25% of GDP), and on China (seventh-largest export market, creditor and provider of two-thirds of total FDI)
  • High dependence on commodities (cotton, aluminium), under-diversified economy
  • Tightly controlled foreign exchange market and trade
  • Weak and concentrated banking system; credit is expensive, underdeveloped, directed and dollarized (50% of total)
  • Challenging geography (landlocked and 90% mountainous) and high vulnerability to natural disasters
  • Inadequate infrastructure (energy, water, transportation, health)
  • High poverty (27.4% of the population in 2018), poorly educated and unproductive workforce
  • Limited role of the private sector, difficult business environment constraining FDI (1.8% of GDP)
  • Poor governance (corruption, organised crime, politicised judiciary)
  • Proximity of Afghanistan, destabilisation risk (terrorism on the rise, potential refugee flows)

RISK ASSESSMENT

Growth driven by remittances and exports 

After being strong for 20 years, growth slowed significantly in 2020 due to the health crisis, but subsequently stabilised after a slight rebound in 2021. In 2022, it will be supported by an increase in private consumption (80% of GDP) and exports (17%). With the global economic recovery, and particularly the pickup in Russia, expatriate remittances (25% of GDP) will contribute positively. Public consumption (11% of GDP) will increase slightly, but less than in 2021, due to the country’s weak public finances. Growth will, however, depend on the speed with which vaccinations are rolled out (only 38,7% of the population had received two doses by 13 January 2022), regular flights with the main countries that host expatriates, and a recovery in public investment (22% of GDP). The last of these is expected to be boosted by activity in the mining sectors, including aluminium, copper and gold.

 
The trade deficit will tend to widen compared with 2021. While exports of minerals, textiles and especially gold are expected to increase, electricity exports will probably be held back by the country’s potential decision to cut off supply to Afghanistan for non-payment and by the delay of the Rogun hydroelectric project. Imports (55% of GDP) are set to grow faster than exports due to purchases of food and manufactured goods, despite substitution efforts.

 
This increase in imports, combined with a rise in world food prices, is fuelling inflation. Inflation is expected to move out of the 6% (± 2%) target corridor, but the central bank (NBT) will restrict somoni depreciation by tightening liquidity. The NBT has already hiked its policy rate, which it increased to the high level of 13.25% in October 2021 (up 230 basis points since early 2021). However, inflation expectations are weakly anchored and monetary policy transmission is weak. Accordingly, the NBT will likely tighten capital controls in 2021-2022.

 

Public debt is increasingly unsustainable

The fiscal policy is expected to remain expansionary, leaving the government deficit almost unchanged in 2022. Expenditures are expected to increase, in particular because of COVID-19 and financing for social programmes to address rising poverty. Expenditures could be higher still if steps are taken to recapitalise troubled banks or clear the arrears of state-owned enterprises, or if the currency depreciates more swiftly. Revenues will be constrained by the continuing impact of the pandemic, although a new tax code should revitalise them in 2022.

 
Public, external and foreign currency debt is estimated at around 50% of GDP for 2021-2022, with the main creditor being China’s Eximbank (40% of the total). The country's second largest debt is its USD 500 million Eurobond issued in 2017 (7% of GDP). The authorities rely on international assistance to finance the debt burden. The International Monetary Fund (IMF) provided a rapid credit facility (RCF) worth USD 189.5 million (2% of GDP) in 2020, while the Asian Development Bank (ADB) supplied USD 323 million in grants (3.5%) for 2021-2023. As part of the Debt Service Suspension Initiative (DSSI), the Paris Club also suspended payments on debt obligations to Eximbank, the Kuwait Fund for Arab Economic Development (KFAED) and the German development bank, KfW. However, the country has started road works, which are costly given the rugged terrain and which will continue in 2022, thanks to multilateral loans (ADB, OPEC Investment Fund, etc.).

 
After a temporary improvement in 2020 due to the compression of imports, the current account deteriorated in 2021 with the recovery of domestic demand, and this trend is expected to continue in 2022. Despite the resumption of expatriate remittances, the end of pandemic-related restrictions will cause import volumes to return to pre-pandemic levels. FDI flows should also get back to pre-crisis levels (2% of GDP), enabling the current account deficit to be financed. Foreign exchange reserves will remain at around USD 2 billion (i.e. eight months of import coverage) covering about 50% of the total debt. Debt sustainability will depend on the willingness of multilateral donors to continue supporting Tajikistan.

 

Risk of destabilisation in the region 

In October 2020, President Emomali Rahmon, who has held power since independence in 1992, was unsurprisingly re-elected with 91% of the vote for his fifth consecutive term. Previously, parliamentary elections for the lower house in March 2020 saw his People's Democratic Party of Tajikistan (PDP) retain three-quarters of the seats. The relatively elderly Rahmon appears to be preparing to hand over power to his son, who was elected speaker of the upper house in April 2020. Internationally, a violent border conflict broke out between Tajikistan and Kyrgyzstan on 28 April 2021 over an old water dispute. Despite a cease-fire in May, there were clashes in July, suggesting that the violence may not be over yet. Furthermore, the return of the Taliban to power in Afghanistan raises the question of coping with an influx of Afghan refugees in the country. Foreign policy, aimed at attracting investment, financial aid and military support from China, Russia and the United States, remains strong.

 

Last updated: February 2022

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