The World Bank in Tajikistan

Country Context

Over the last decade, Tajikistan has experienced strong economic performance, with growth rate averaging above 7.1%. Strong growth and higher wages helped reduce poverty from 32% of the population in 2009 to an estimated 12.4% in 2022 (at the international poverty line of $3.65/day).

Despite significant progress achieved, Tajikistan remains vulnerable to external shocks due to its high dependency on migrant remittances, the undiversified economy and export base, as well as a high risk of debt distress. The inflow of workers’ remittances accounts for a third of the annual GDP. Moreover, the private sector is small and accounts for only 15% of total investment, 30% of industrial output, and about 13 % of formal employment. While public debt is sustainable, the risk of debt distress remains high due to upcoming repayments of Eurobonds.

Tajikistan has enormous growth potential, which includes a young and growing population, water and hydropower potential, agriculture and food processing, mineral resources, tourism and much more.

The Government of Tajikistan has set an ambitious target to increase domestic incomes by 2 to 3.5 times between 2016 and 2030, which will require a new growth model based on a dynamic private sector that is motivated to invest and create jobs for the rapidly growing population. This transition requires implementing important structural reforms, focusing on public sector efficiency and transparency, including in the state-owned enterprises sector, improvements in the investment climate, energy sector reforms, trade connectivity, access to finance, and an enhanced competition framework, especially in the telecom and aviation sectors. Given Tajikistan’s high exposure to climate change risks, it is also critical to enhance environmental resilience through mitigation and adaptation measures.

Strategy

Tajikistan joined the World Bank in 1993 and the International Development Association (IDA) in 1994. Since then, the World Bank has provided over $2.9 billion in grants and highly concessional credits to support Tajikistan’s efforts to reduce poverty and improve people’s lives.

The Country Partnership Framework (CPF) for 2019-2023 supports Tajikistan’s efforts to complement its remittance-financed, import-reliant economic model with a focus on boosting private-sector development and exports. The portfolio has expanded rapidly during the current CPF period. As of April 2023, the active portfolio includes 26 IDA-funded investment lending projects with a net commitment of $1.62 billion—of which 23 national operations with net IDA commitments of $1.42 billion and three regional operations purely focused on Tajikistan ($200 million). The portfolio’s largest share is in the energy sector (43%), followed by water (11%), transport (8%), education and agriculture (per 7%). Six projects were delivered and approved between  December 2022 and September 2023, amounting $250 million (including $50 million allocation from CRW):

Additional Financing for the Tajikistan Strengthening Resilience of the Agriculture Sector Project will support the government’s effort in responding to the food and nutrition security emergency and in building resilience, focusing on the short-term food and nutrition emergency needs and some medium- to long-term investments that enhance resilience of the agricultural sector.

The Resilient and Sustainable Tajikistan Development Policy Operation (DPO) approved in January 2023 is reopening development policy dialogue between the Government Of Tajikistan and the World Bank. This is the first DPO for Tajikistan since 2012 that reflects the authorities’ request for sustained World Bank support to advance structural reforms. In doing so, the DPO contributes to the implementation of Tajikistan’s National Development Strategy 2030 that strives to raise the population’s living standards based on sustainable economic development. The recent shocks caused by the COVID-19 pandemic and Russia’s invasion of Ukraine significantly increased uncertainties and risks for Tajikistan. This DPO operation will help the government respond to these challenges by providing financial support and enabling reforms in areas critical to mitigating the negative impacts of the external environment, and helping Tajikistan enhance its resilience to shocks.

The World Bank is providing Technical Assistance for Financing Framework for Rogun Hydropower Project in Tajikistan, which aims to support the Government of Tajikistan in improving the financial and commercial frameworks of the Rogun Hydropower Plant (HPP) Project and enhancing its technical, environmental, and social sustainability. The Rogun HPP Project, currently under construction, has the potential to generate significant economic, social, and environmental benefits for Tajikistan and other countries in the Central Asia region if it develops in a financially, environmentally, and socially sustainable manner.

Two new human development projects  will specifically contribute to the CPF Focus Area ‘Human Capital and Resilience’: (1) the Learning Environment – Foundation of Quality Education Project supports Tajikistan National Strategy for Education Development and aims to enhance the quality of teaching and learning environments in selected general secondary schools and (2) the Social Protection Modernization and Economic Inclusion Project will support the Government of Tajikistan in protecting poor and vulnerable households from shocks, promoting economic inclusion, and improving social protection systems.

The Tajikistan Financial and Private Sector Development Project approved in July 2023, aims to support the Government of Tajikistan by strengthening the country’s financial sector, boosting the private sector—particularly in high value-added sectors, such as agribusiness, textile, and tourism—and stimulating economic growth.

Economy

Recent Economic Developments

Tajikistan’s economy expanded by 8.3% in H1 2023, driven by robust remittance inflows stimulating household consumption and investments. The share of households with a migrant reached 48% in June 2023, with the share of households receiving remittances rising gradually from 14% in January to almost 22% in June.

The average consumer price inflation rate declined from 7.7% during the first seven months of 2022 to 3.1% over the same period in 2023.

Tajikistan’s central bank reduced the policy rate gradually from 13.5 % in September 2022 to 10% as of May 2023. Since the transmission mechanism of the monetary policy is weak, the exchange rate is the main anchor to controlling inflation in Tajikistan.

The trade deficit widened from 30% of GDP in H1 2022 to 41% in H1 2023, primarily due to the doubling of vehicle imports and a complete halt in the export of precious metals. The export of precious metals was temporarily halted to prevent the re-export of non-Tajik products due to Russian sanctions and to improve compliance with OECD standards.

Monetary authorities intervened in the foreign exchange market to support the TJS, resulting in a fall in international reserves from $3.8 billion at end 2022 to $3.2 billion at mid-2023. Reserves remain adequate at more than 6.5 months of import cover.

Economic Outlook

Tajikistan's growth is expected to decelerate to 6.5% in 2023 due to a projected moderation in remittance inflows (to 32% of GDP from the high base in 2022), lower FDI, and weaker exports. The economy's growth potential is estimated to be 4.5–5% over the medium term in the absence of structural reforms. Inflation is projected to gradually rise toward the inflation target of 6%, after hitting a low in 2023.

Over the medium term, Tajikistan’s current account deficit is projected to hover at 2.5–3% of GDP, assuming the normalization of remittance flows and lower prices for major export commodities (metals and minerals).

To ensure macro-fiscal stability, the authorities will need to allow greater exchange rate flexibility and limit the fiscal deficit at 2.5% of GDP over the medium term.

Expenditure on the construction of the Rogun HPP and other large infrastructure projects is projected to be financed by borrowing from development partners and streamlining other non-priority spending. The authorities plan to continue increasing targeted social allocations to better protect the vulnerable.

Poverty is projected to fall from 12.4% in 2022 to 11.3% in 2023. Tajikistan is highly sensitive to climate change risks and natural disasters, among other economic challenges.