Strong Growth in Tajikistan Masks Underlying Problems

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Increasing the dynamism of Tajikistan’s private sector could encourage the country’s young people to stay and contribute to its economy at home instead of moving abroad to countries like Russia for work. 

Tajikistan experienced strong economic growth and record-low inflation in 2022, despite regional instability and global inflation, according to the World Bank’s annual Tajikistan Economic Update.  

The country’s economic activity was bolstered by remittance flows and expanded services and industrial production, leading to real gross domestic product (GDP) growth of eight per cent in 2022. The national poverty rate fell from 34.3 per cent in 2013 to 22.5 per cent in 2022, with lower rates of poverty in the industrial centres of Sughd and Dushanbe than rural areas. 

According to the report, Tajikistan’s external position remained strong due to migrant transfers, with international reserves sharply increasing to cover more than nine months of imports.  

However, the financial sector continued to struggle, driven by high levels of non-performing loans, dollarisation, and high exposure to inefficient state-owned enterprises. Small and medium-sized businesses (SMEs) continue to face challenges in obtaining financing due to high-interest rates and high collateral requirements. 

The report highlights that Tajikistan’s prudent monetary policy and exchange rate appreciation contributed to achieving the lowest inflation rate in the region, with consumer price inflation dropping to 4.2 per cent. This is significantly lower compared to the double-digit inflation rates observed in most other economies within the region.  

The report also forecasts that while Tajikistan’s economy is expected to grow at 6.5 per cent in 2023 and 4.5 to five per cent over the medium term, the country remains highly sensitive to external and internal shocks, such as geopolitical uncertainty in the region and slow implementation of structural reforms, especially in state-owned enterprise performance and the dynamism in the private sector.  

“To accomplish the goals outlined in its National Development Strategy 2030, Tajikistan must address the obstacles that are impeding its economic growth potential and preventing the creation of a sustainable high-quality employment opportunities,” says Ozan Sevimli, World Bank country manager for Tajikistan.

“Despite prior reform efforts, there remains a substantial scope for enhancement in order to transition from being among the reformers to emerging as one of the top performers.” 

Tajikistan’s private sector continues to face challenges and low new firm entry rates, low firm productivity, and limited integration to the international trade compared to the economies of peer Central Asian countries.  

The business environment does not reward efficient firms and those with the highest growth potential, and innovation intensity among private sector firms is also low, suggesting underdeveloped firm capabilities. 

While the short-term effects of the Covid-19 pandemic on sales are undoubtedly negative and financial fragility is persistently high, the pandemic may have increased the productivity-enhancing use of digital solutions. The pandemic’s limited impact on employment might indicate that private firms managed to preserve employment-productive links, which can help boost future productivity growth. 

The need for reform

To boost the dynamism of the private sector in Tajikistan, the report emphasises the need to remove barriers to competition, strengthen the regulatory framework for attracting investments, and enhance trade policies and trade facilitation measures. 

The effective enforcement of competition law in Tajikistan is restricted by insufficient control of cartels—which are only deemed unlawful if very specific conditions are met—and an incomplete merger control regime as well as low fines and limited human resources to tackle anti-competitive practices.  

Many reforms have been implemented to reduce the time, cost, and number of procedures required to start a business, declare and pay taxes, import and export, obtain electricity, and manage insolvency, but the required efforts and costs related to establishing a business remain high, and enforcement of licensing and inspections is inadequate due to weak supervision and coordination.  

The World Bank offers an exhaustive list of reforms that could address the aforementioned issues including introducing amendments to competition law to simplify turnover thresholds for merger notification purposes and eliminate simple corporate reorganisation and liquidation from merger control. 

Successfully increasing the dynamism of Tajikistan’s private sector will boost job creation and allow many of the country’s young people to stay and contribute to its economy at home instead of moving abroad to countries like Russia for work. 

Source : Emerging Europa