The Tajikistan Economic Update is an annual report that analyzes recent economic developments, prospects, and policy issues in Tajikistan.
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Recent Economic Developments and Outlook
Tajikistan has demonstrated robust economic growth, with a significant expansion of 8.3% in 2023 and 8.2% in early 2024. This was driven by increased revenue from gold exports and public infrastructure spending. Worker remittances and public wage increases have also buoyed the country's economic activity, bolstering domestic demand and contributing to poverty reduction. Tighter monetary policy, coupled with moderating inflation as global food and fuel prices have dropped, has helped further strengthen the country's economic landscape. Tajikistan¡¯s fiscal position has been bolstered by enhanced external grants, leading to a reduction in the public debt level.
Yet the country¡¯s economic outlook faces challenges. GDP growth is expected at 6.5% in 2024 and 4.5% in the medium term due to sluggish growth in key trading partners and domestic reform inertia. Remittances, a key growth driver, are expected to moderate, impacting private consumption and investment. Inflation is likely to rise due to electricity tariff hikes and higher public service wages. And the fiscal deficit is projected to widen in 2024 due to reduced VAT revenue and increased spending on the Rogun Hydropower Plant, maintaining a high risk of debt distress until Eurobonds are repaid by 2027.
There are several risks that could potentially hinder Tajikistan's economic forecast, including global and regional tensions and Russia's stricter migration policies. To ensure sustainable growth, Tajikistan needs to implement reforms focusing on enhancing economic openness, improving public sector governance, and ensuring effective public service delivery. Additionally, the country should promote adaptation measures to mitigate the adverse impacts of climate change and strengthen economic resilience against natural disasters.
An Assessment of the Footprint of State-Owned Enterprises and Competitive Neutrality
Tajikistan's economy is heavily influenced by state-owned enterprises (SOEs), with over 1,000 registered and more than 600 majority state-owned. SOEs have prominent positions in key sectors like mining, energy, and telecom, with the top 10 SOEs holding 97% of total SOE assets. However, most are unprofitable, with the top 25 SOEs incurring a net loss of TJS 4.2 billion (3.2% of GDP) in 2023, posing fiscal risks.
State involvement in SOEs distorts market dynamics through preferential treatments like tax breaks and subsidized loans, hindering private sector development. The absence of a clear policy framework for SOE creation and ownership results in their widespread presence, including in competitive markets, where the rationale for state involvement cannot be justified by the need to address market failures. The state footprint reduces market efficiency and deters private investment. In competitive sectors, SOEs exacerbate market distortions by not being required to achieve commercial rates of return, thus enjoying an unfair advantage over private competitors. Their dual roles in policymaking and market participation create conflicts of interest, and legal provisions favoring SOEs, such as lenient insolvency procedures, further hinder fair competition. Moreover, the lack of transparency in state aid distribution and restrictions on foreign investment limit market access and efficiency. Outdated price regulation methodologies in SOE-dominated sectors also undermine efficiency and competition.
To tackle these challenges, Tajikistan requires well-defined policies to ensure competitive fairness, transparent state aid, and reforms that encourage equitable competition. By creating a level playing field for investors, the country can unleash its economic potential by nurturing private sector growth and achieving sustainable economic development.