Tajikistan needs “a new model of growth”, World Bank says

By bne IntelliNews May 27, 2015

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Tajikistan needs to break loose from its dependence on remittances from migrants working abroad and set the foundations for a more sustainable development model, the World Bank says in its Tajikistan Economic Update Spring 2015.

“The impact of Russia’s recession on Tajikistan underscores the immediate need to create the foundations for a new model of growth and development,” the report reads.

Because of limited opportunities at home, as much as 40% of the country’s working age population have sought better jobs abroad, mostly in Russia, the World Bank report notes. The average number of Tajik labour migrants in Russia grew to an average of 740,000 between 2011 and 2014, according to the country’s Statistical Agency, from a relatively low base in the early 2000s.

As such, massive labour migration has increased the country’s dependence on the flow of money sent back home by Tajik migrants, to the extent that total remittances amounted to $3.9bn in dollar terms in 2014, when total GDP was TJS45.6bn ($7.27bn at the current official exchange rate), which makes Tajikistan the world’s most dependent country on remittances.

The Russian economic slowdown is now hitting hard Tajik migrants working in Russia, with 25% of them risking the loss of their jobs and ability to send money back home. Remittances from Russia are expected to plunge by 40% in 2015, which will impact Tajikistan's whole economy, with economic growth set to slow to 3.2% in 2015, from 6.7% in 2014, the World Bank estimates. “Declining remittances would significantly reduce disposable incomes in Tajikistan, forcing the poorest and the lower middle class to cut non-priority expenditures, including those on social services, such as education and health. Reintegration of returned migrants will be difficult given the limited jobs available, mismatched skills, and competition from youth entering the labour market. Returnees are likely to lack awareness of employment and business opportunities, and related legislation — employment information and services are both inadequate," the World Bank's report reads.

In addition, Russia is increasingly limiting re-entry opportunities for those Taijk migrants who have lost their jobs and gone back to Tajikistan, blacklisting hundreds of thousands of them (numbering 270,000 at the end of November) and banning them from entering Russia for five years at least.

In turn this is increasing social pressure at home as unemployed, returning migrants augments the vulnerability of the Tajik society to radical Islamic movements. Despite the lack of official figures, Islamic State is believed to have recruited dozens of Tajik men to fight in Syria and Iraq. “As the decline in remittances is likely to be long term, it is even more imperative that Tajikistan execute the structural reforms that are necessary to create the foundation for more internally generated inclusive growth,” the World Bank report reads. “With a highly uncertain external environment and growing domestic pressures, Tajikistan must put in place a comprehensive structural reform program to bolster growth, job creation, and poverty reduction.”

Poor base

Tajikistan lags behind other former Soviet countries in social and economic development. Since President Emomalii Rahmon emerged victorious from the bloody civil war in the 1990s that claimed the lives of tens of thousands of Tajiks, the country has struggled to achieve any significant economic development. Today, most Tajiks still make a living off less than €1,000 a year. Meanwhile, corruption, poor governance and repression have emerged as characteristic traits of Rahmon’s regime.

The country has a limited industrial base and imported goods worth an equivalent of over one-third of national GDP in 2014. On the other hand, economic slowdown in major trading partners such as China, Kazakhstan, Turkey and Russia has hit demand for Tajikistan’s main export commodities such as cotton and aluminium. Overall, the country’s trade deficit increased to $3.36bn in 2014, up from $2.96bn in 2013, according to figures from the National Bank of Tajikistan. Demand for imported goods has slowed down in 2015, but the total trade deficit still amounted to $741.4mn between January and April, down by 30.3% on year from a year earlier.

Such trade imbalances, combined with plunging remittances, are eating into the country’s foreign reserves, which stood at only $465mn, or 1.1 months of import cover, in mid-March, according to central bank figures. The Tajik somoni is thus feeling the pain, with the official exchange rate depreciating by 9% against the dollar in 2014, and by a further 18% year-to-date, forcing the central bank to sell an additional $1.5mn to $3mn per day to stabilise the currency market.

The World Bank is now calling for wide-ranging reforms aimed at planting the seeds of a more sustainable, less fragile economic growth. “High on the agenda are addressing financial sector vulnerabilities and assuring that state-owned enterprises (SEOs) are well-governed so as to minimise fiscal risks and deliver services to consumers cost-efficiently,” the report reads.

“The environment for business needs to be reformed in sync with comprehensive public sector reform. In the short to medium term, policies to promote job creation in the private sector, which has been very limited since 2009, will be critical to facilitate absorption of returning migrants; in the medium term, more access to opportunities and basic services, such as education, water, sanitation, and heating, will be needed to ensure the sustainability of poverty reduction and of the monetary welfare gains achieved in recent years,” the World Bank says.

SEOs such as power utility Barki Tojik and aluminium producer Talco are reportedly known as loss-making enterprises, with their finances opaque and run through offshore structures. A November report by the IMF also highlighted the need of a wide overhaul of the country’s SEOs.

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