The World Bank in Tajikistan

Country Context

Over the last decade, Tajikistan has experienced strong economic performance, with growth rate averaging above 7 percent. Sustainable economic growth has translated into improved living standards, with the poverty rate falling from 32 percent in 2009 to 13.4 percent in 2022 (at the international poverty line of $3.65 a day; 2017 PPP). 

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 percent of total investment, 30 percent of industrial output, and about 13 percent 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 IDA in 1994. Since then, the World Bank has provided over $2.5 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 (38 percent), followed by water (10 percent), transport (8 percent), education and agriculture (per 7 percent). Five projects were delivered and approved in December 2022 – March 2023 amounting $200 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 and the World Bank. This is the first DPO for Tajikistan since 2012 that reflects the authorities’ request for sustained World Bank’s 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 COVID-19 shock and Russian 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’: 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; 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.

Economy

Recent Economic Developments

Tajikistan’s economy expanded by 8 percent in 2022, driven by Russia’s strong labor demand, which combined with the appreciation of the Russian ruble resulted in substantial remittance inflows. This positive shock fueled household consumption. Private investment was buoyant, led by the mining industry. 

The trade deficit widened due to lower exports of precious metals and buoyant imports. However, the substantial remittances offset this and led to a current account surplus of 6.1 percent of GDP. 

The average CPI inflation rate declined to 6.6 percent in 2022 from 9 percent a year earlier. The Tajik somoni appreciated by 2.6 percent against the USD in 2022, which helped curb external price pressure, while solid agricultural output and the sale of strategic food reserves contained domestic food inflation. 

The overall fiscal deficit widened to 1.9 percent of GDP in 2022, from 1.4 percent in 2021. Tax collections declined by approximately 2 percent of GDP with the enactment of the new tax code in 2022, which streamlined the number of taxes and reduced rates. The shortfall was partly offset by development partner grants and higher non-tax revenues. 

Migration increased significantly in 2022 before reversing after Russia announced mobilization in September 2022. The share of households with a migrant increased from 42 percent to 50 percent during H1 2022 but steadily declined afterward. 

Poverty measured at the international poverty line of $3.65 is projected to have declined to 13.4 percent in 2022, from 14.3 percent in 2021. The share of households reducing food consumption in H1 2022 was less pronounced than in previous years. 

Economic Outlook 

Tajikistan’s economic growth is expected to decelerate to 5 percent this year as the 2022 positive shock subsides and remittance inflows diminish, which is expected to result in a contraction in private consumption. Inflation is expected to move within range of the National Bank’s 4–8 percent target, supported by tight monetary policy. 

Over the medium term, the fiscal deficit is expected to remain in line with the Government’s target of 2.5 percent of GDP. Spending on the energy sector and other large infrastructure projects is expected to be financed by improving revenues over time, following the introduction of the new tax code and gradually phasing out tax exemptions.

Tajikistan’s outlook faces substantial downside risks. Holders of dual Tajik and Russian citizenship remain at elevated risk of military mobilization in Russia, which could trigger a return of migrants and a greater need for social assistance. Extensive pressure on the state budget due to mounting SOE contingent liabilities, including the national power company, and pressure on spending to complete the Rogun HPP, could divert resources from spending needed for human capital development. 

Poverty, at the USD 3.65 line, is projected to decline further from 13.4 percent in 2022 to 12.6 percent in 2023. Tajikistan among other economic challenges is highly sensitive to climate change risks and needs to adopt better mitigation and adaptation measures.