Tajikistan economic growth slowed to an estimated 4.2 percent in 2015 from 6.7 percent a year earlier, due to the spillover effect from the slowdown in Russia and the weak global demand and lower prices for key export commodities. The U.S. dollar value of remittances, about 80 percent of which originate from Russia, fell by 33 percent in 2015 compared to 2014, largely due to the sharp depreciation of the Russian ruble.
Tightening legislation on migration in the Russian Federation since January 2015 has also contributed to the decline of remittances. The slowdown in remittances affected domestic demand, which in turn depressed growth in services, the major contributor to economic growth in the past.
The slower growth in services was largely offset by an acceleration of growth in construction and industry as a result of the implementation of a number of projects, financed by private foreign and public investments
Growth is projected to significantly slow down in the medium term, with a very gradual recovery, putting Tajikistan's poverty reduction gains of the last decade at great risk.
As this trend in the economy is likely to persist in the medium term, it is even more important that Tajikistan implements sound macroeconomic policies and structural reforms that are necessary to create the foundation for more domestically generated inclusive growth, while investing in quality public services. The current situation should be seen as an opportunity to reform the economy and to adopt new engines of growth - private investment and export - to generate more and better-paying jobs in the country.
To date, Tajikistan has done a remarkable job in reducing poverty. During the period 1999 and early 2014, poverty fell from over 80 percent to about 31.3 percent. Tajikistan’s pace of poverty reduction over the past 15 years has been among the top 10 percent in the world.
However, the country has done less well in reducing non-monetary poverty. Recently available micro-data suggests that limited or no access to education (secondary and tertiary), heating, and sanitation are the main contributors to non-monetary poverty. These three are the most unequally distributed services, with access to education varying by income level and heating and sanitation according to location.
The Government of Tajikistan has set ambitious goals to be reached by 2020: to double GDP, to reduce poverty to 20 percent, and to expand the middle class.
To achieve higher growth, Tajikistan needs to implement a deeper structural reform agenda designed to: (a) reduce the role of the state and enlarge that of the private sector in the economy through a more conducive business climate, thus increasing private investment and generating more productive jobs; (b) modernize and improve the efficiency and social inclusiveness of basic public services; and (c) enhance the country’s connectivity to regional and global markets and knowledge.
The difficult environment for doing business in Tajikistan, as well as obstacles to foreign direct investment, have discouraged private investment and limited overall investment. Averaging about 15 percent of GDP annually since 2008, total investment is low by regional and international standards.
Public investment accounts for 80 percent of the total, or 12 percent of GDP, and private investment for 20 percent, or only 3 percent of GDP - much lower than the Europe and Central Asia developing country average. The main obstacles cited by both local and foreign entrepreneurs are inadequate infrastructure, in particular insufficient and unreliable energy supply, the weak rule of law, especially as regards property rights, and tax policy and administration. Increased private investment and new business development are crucial prerequisites for increased job creation.
With 20 percent of GDP and 53 percent of employment, the agriculture sector in Tajikistan offers a solid foundation for economic development. The Government of Tajikistan displays a strong commitment to the agricultural reform program, which includes the resolution of the cotton debt crisis, accelerated land reform, freedom to farm, improved access to rural finance and increased diversification of agriculture.
Efforts are underway to make investment in agriculture more profitable, especially for exports, by enhancing access to markets and by empowering farmers through strengthening their land-use rights, improving their access to credit and inputs, and enabling them to make their own cropping decisions. The recent growth of non-cotton agricultural exports indicates the potential for growth in agro-processing, including storage of fruit and vegetables, which holds great promise for development, along with textiles and clothing.
Meeting Tajikistan’s energy demand will be an important part of the agenda to reduce poverty and create an enabling environment for private businesses. Approximately 70 percent of the population suffers from extensive electricity shortages during winter. The shortages increased considerably starting in 2009, when Tajikistan’s power network was severed from the Central Asia Power System and power trade with Central Asian countries stopped. Electricity shortages in winter are estimated to be at least 2,000 gigawatt-hours, or about 20 percent of winter electricity demand.
Tajikistan is also faced with a young and rapidly growing population. Recent estimates show that 55 percent of the population in Tajikistan is under the age of 25, making improved public services in social sectors (education, health, and social protection), as well as job creation, imperative components of Government’s Poverty Reduction Strategy.