Tajikistan: Risk Assessment
Country Rating1
Rating: D
Business Climate Rating1
Rating: D
Risk Assessment2
Economic recovery dependent on favorable external conditions
After a balance of payments crisis in 2009, Tajikistan achieved stronger growth in 2010 thanks to improved external conditions. The recovery of world demand for aluminium and cotton (80% of exports) resulted in the strong increase of export earnings. Households benefited from wages rise in the public sector and the return of remittances from migrant workers. Economic growth is expected to continue to gain momentum in 2011 thanks to the dynamism of the country's main trading partners (Russia, China, Turkey, and Kazakhstan) and the high level of prices for cotton and aluminium. The Tajik economy will be vulnerable, however, to any new shock, particularly relative to raw material prices or to economic conditions in Russia. The upsurge of inflation (about 10%) due to the rise of food prices could also undermine consumption. Economic growth will moreover depend on the impact of weather conditions on farm production and the tense relations with Uzbekistan, which blocked Tajik rail freight on several occasions in 2010.
A very weak financial position
Continued official aid is crucial to ensuring Tajikistan's financial stability. In the fiscal point of view, the government proved unable to avoid several wage payment delays in 2010 due to the smaller-than-expected volume of tax revenues. This shortfall was due mainly to the reduction in customs revenues caused by the Uzbek blockade of rail freight and the negative effect on household purchasing power and VAT receipts of the share subscription campaign to raise funds to finance the Rogun Dam - with the mandatory subscription decreed in the public sector accomplished via automatic deductions from wages. Financing the public deficit has thus been difficult and the public debt has reached high levels. Balancing external accounts has also proven hard to achieve. And the current account deficit will likely grow in 2011 amid the recovery of imports and the level of foreign exchange reserves is still very low despite the devaluation in 2009. The risk of the public default on foreign debt will be high since it is subject to official aid, especially with the banking sector also weakened by very poor asset quality and extensive dollarization. The IMF has, however, agreed to increase the country's credit facility by 30% in 2010 to $152 million.
Increased political risk
Tajikistan is the poorest Central Asian country and suffers from weak governance. It has also been contending with an upsurge of violence that resulted in 2010 in the spectacular escape of 25 inmates from Dushanbe Prison and by several suicide and armed attacks against the police. The simultaneous presence of several Mafia networks that control drug trafficking, warlords that opposed the government during the civil war, and Islamist militants that fought in Afghanistan and Pakistan constitutes a threat to central government authority. The risk of turmoil that might affect the government thus remains high.
Strengths
- Financial support with aid coming from multilateral and bilateral institutions
- Significant hydroelectric potential
- A wealth of raw materials (aluminium, cotton)
Weaknesses
- Strong dependence on remittances from migrant workers
- Poverty, weak institutions and mainly rural population
- Low level of foreign exchange reserves
- Rise in external public indebtedness
- Central government authority in jeopardy
- High government involvement in economic activity