WB report predicts Tajikistan’s fiscal deficit to widen this year

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 The Tajik economy reportedly registered strong growth in 2019. However, the impact of the COVID-19 outbreak, including a deteriorated external environment, reduced demand abroad, and lower remittances, imply a much lower growth for 2020. The fiscal deficit will widen in 2020 for the same reasons and be limited by opportunities by the government to finance more spending. The poverty rate may well remain little changed in 2020 after falling from 29.5 percent in 2017 to 27.4 percent in 2018, when it reflected a recovery in remittances and rising wages.

According to official statistics, GDP growth remained strong in 2019 at 7.5 percent, supported by robust year-on-year growth in industry (14 percent), agriculture (7 percent), and retail trade (9 percent). On the demand side, consumption and net exports drove growth, while investment fell by 7 percent.

A jump in exports and a recovery in remittances helped narrow the current account deficit to an estimated 4.3 percent of GDP in 2019. Merchandise imports increased by 6.3 percent in U.S. dollar terms. Export earnings rose by 9.4 percent in 2019, supported by higher shipments abroad of precious metals and electricity.

The fiscal stance remained cautious in 2019. The fiscal deficit of 2.7 percent of GDP was little unchanged from 2018. Cuts in non-energy capital spending accompanied with lower-than-projected revenue collection helped to contain the deficit.

Meanwhile, delays in rolling out the Targeted Social Assistance (TSA) program to an additional 28 regions and slow progress in deciding to increase the TSA’s budget by 10 percent put this important anti-poverty measure on hold. Spending on the Roghun Hydropower Plant (HPP) comprised the largest share of public investment in 2019, facilitating the launch of the second of six turbines in 2019.

After subsiding to 5.4 percent in 2018, 12-month consumer price inflation surged to 8 percent in 2019, close to the upper range of the NBT’s target band of 5–9 percent.

The main drivers of consumer price inflation in 2019 were rising food prices, currency-depreciation pass-through effects, and the 15-percent electricity tariff increase.

Except for two problem banks, the financial sector continued its recovery from the 2016 banking crisis, showing an improvement in the quality of the credit portfolio. The share of nonperforming loans (NPL) stood at 26 percent at the end of 2019 (down from 48 percent in 2016), and the capital adequacy ratio rose to 21.4 percent (from 17 percent in 2016). Banking sector profitability also continued to improve, and the level of dollarization declined to 53 percent at the end of 2019 (from a peak of 64 percent in 2015).

The poverty rate—using Tajikistan’s official poverty line—fell to 27.4 percent in 2018, reflecting a recovery in remittance inflows. The rural poverty rate declined markedly from 36.1 percent in 2014 to 30.2 in 2018, reflecting rising household consumption. The rate of extreme poverty also fell steadily from 18 percent in 2013 to 12 percent in 2018.

The outbreak of the COVID-19 disease and risks to growth in Russia – the main source of migrant remittances – has resulted in a substantially worse macro-fiscal framework. GDP growth is expected to fall to 1.7 percent in 2020 or lower, reflecting the implications of the COVID-19 outbreak and the slowdown in Russia and China. These implications include the sharp decline of trade and lower commodity prices, a likely large drop in remittances, and worsened prospects for transport and tourism industries. Growth will likely remain weak at about 3.5 percent in 2021– 22 supported by public investment ahead of Tajikistan’s commemoration of 30 years of independence in 2021.

Source: Asia Plus