By Nick Mann | 10 April 2013
Tajikistan has been urged to embark on a ‘gradual’ process of fiscal consolidation while ensuring it protects social spending and ‘priority’ public investment.
The International Monetary Fund’s annual review of the Central Asian country also said the fragility of the global economy meant it was important to keep inflation under control while also supporting growth.
A strong increase in remittances helped Tajikistan’s gross domestic product to increase by 7.5% last year, while annual inflation kept pace with global food and fuel prices and remained in single digits.
A slight slowdown in growth to 7% is expected this year. This is partly due to a weakening in aluminium exports and a slowdown in growth of neighbouring Russia, Tajikistan’s second biggest trading partner. However, inflation pressures are expected to remain low.
In a statement issued yesterday, the IMF noted that Tajikistan’s government had also strengthened its finances last year on the back of improved revenue collection and ‘rationalisation’ of spending, while budgeted social spending was fully implemented. External debt was also ‘moderate’ at 30% of GDP, it added.
In 2011, according to the most recent IMF figures available, Tajikistan posted a 0.5% budget surplus. Media reports claim this fell to a 0.3% deficit last year.
The IMF said it should now move towards regular surpluses. ‘Over the medium term, gradual consolidation to small fiscal surpluses – while protecting social expenditure and priority public investment – will be needed to preserve fiscal and debt sustainability.’
In particular, Tajikistan was urged to carry out tax administration reforms and implement a dividends policy for state-owned enterprises, including the Tajikistan aluminium company, Talco Management. State-owned enterprises should also be monitored more closely and reformed.
‘Systematic implementation of structural reforms could help to offset any negative impact of fiscal consolidation by helping the economy earn more rapid growth dividends,’ the IMF added.
Supporting investment and growth also required ‘urgent’ changes to the country’s largest bank, Agroinvestbank, or AIB, the IMF said.
‘To protect the value of AIB and the government’s investment in the bank, the mission recommends that the government hires, on a competitive basis, a reputable international management team to run the bank,’ it explained.
It added: ‘To help minimise the fiscal cost of its intervention in AIB, the government should consider re-privatising AIB by hiring an investment bank to market the government’s share globally. The government should also enforce collections on the loans that it purchased from AIB.’
