An International Monetary Fund (IMF) mission, led by Paul Ross, visited Dushanbe on May 17-30 to conduct the 2017 Article IV consultation discussions. The team reportedly welcomed the authorities’ intention to resume discussions on a possible IMF program, and discussed steps that would demonstrate reform progress and pave the way to resume program negotiations. At the conclusion of the mission, the IMF team issued a statement.
The statement, in particular, says Tajikistan has implemented positive reforms in the past two years, but external shocks have affected economic confidence, reduced buffers, and increased vulnerabilities.
The team commended the authorities for reforms implemented in past two years and stressed that deeper reforms were needed.
According to the statement, since late-2014, Tajikistan’s economy has been suffering from external shocks, which affected economic confidence, reduced fiscal space and external buffers, and increased vulnerabilities.
In 2017, with subdued external and domestic demand, fiscal consolidation and lower credit to the private sector, the IMF team projects real economic growth to slow, while the authorities project a somewhat higher growth. Strong and sustained reforms are needed to lift growth over the medium term.
Tajik authorities and the IMF team reportedly agreed on the importance of generating inclusive and job-rich growth to increase incomes and reduce poverty. The authorities and the mission agreed that generating inclusive growth would require prudent macroeconomic policies to lift economic confidence in addition to strong and sustained structural reforms. Regarding macroeconomic policies, Tajikistan’s 2017 budget appropriately targets a decline in the deficit. The authorities and the IMF team agreed that the deficit should gradually narrow over the medium term to assure debt sustainability.
The team welcomed the recent efforts to unify the official and market exchange rates and noted that a flexible exchange rate policy and supporting monetary policy – with greater sales of National Bank of Tajikistan (NBT) notes – would control inflation, restore confidence in the somoni, and help rebuild the reserves buffer.
The statement notes that banking reform is critical to reduce macro-financial vulnerabilities, support economic growth, and financial inclusion. The team supported the improvements made in banking regulation and supervision, monitoring of systemic banks’ asset quality and implementing resolution plans for two of them. Also, it welcomed the increase in financial inclusion. Further, it urged early action to strengthen the bank resolution and emergency liquidity assistance frameworks, measures to assure sustainable viability of the two systemic banks, and to develop strategies to address non-performing loans and improve transparency in this sector.
“The authorities indicated they wish to resume discussions on a possible IMF-supported program. Concrete steps in key reform areas will need to be taken, building on the efforts already made by the Tajikistan authorities, to resume program negotiations,” said the statement. “These steps include preparing a medium-term fiscal strategy to assure debt sustainability, an assessment of the macroeconomic implications (on growth, exports, and debt sustainability) of large infrastructure projects, and banking reforms. Steps that demonstrate reform progress would pave the way for resumption of program negotiations, which will need careful preparation by both the Tajikistan authorities and IMF staff.” (News.tj/Business World Magazine)