The Tajikistan Economic Update is an annual report that analyzes recent economic developments, prospects, and policy issues in Tajikistan.
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. 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 (SOEs) and Competitive Neutrality
Tajikistan's economy is heavily influenced by state-owned enterprises (SOEs), with over 1,000 registered entities of which more than 600 are majority state-owned. SOEs have prominent positions in key sectors like mining, energy, and telecoms; with the top ten SOEs holding 97% of total SOE assets. However, most are unprofitable; with the top twenty-five 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 results in their widespread presence including competitive markets where state involvement cannot be justified by market failure considerations.
The state footprint reduces market efficiency deterring private investment; especially when SOEs do not achieve commercial rates of return thus enjoying an unfair advantage over private competitors creating conflicts between policymaking roles versus market participation exacerbated by legal provisions favoring SOEs such as lenient insolvency procedures hindering fair competition transparency issues surrounding state aid distribution restrictions on foreign investment limiting market access efficiency outdated price regulation methodologies undermining competition further exacerbates these inefficiencies requiring well-defined policies ensuring competitive fairness transparent state aid encouraging equitable competition leveling playing fields unleashing potential nurturing private sector growth achieving sustainable development.
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