Tajikistan plans anti-crisis package as GDP plummets

By bne IntelliNews April 15, 2009

Clare Nuttall in Almaty -

Tajikistan's Finance Ministry has approved a package of measures to help the country survive the economic crisis. It won't come a moment too soon, as falling remittances, the local energy crisis and a worsening balance of payments have caused a sharp decline in the country's GDP; latest figures show that GDP shrank an incredible 50.9% in January from the month before.

A statement on the Finance Ministry's website says the measures are intended to transform Tajikistan's 2009 budget into an anti-crisis budget. The original budget focused heavily on infrastructure development. Key elements of the new programme include increased social protection, job creation, support for companies investing in labour productivity or production increases, and the development of human resources, education and healthcare infrastructure.

In the longer term, the government plans to reduce Tajikistan's dependence on imports and the international economy by stimulating domestic production, and to develop the country's banking system and stock market, Asia Plus reports.

Poor data

The poorest country in the former Soviet Union, Tajikistan had enjoyed steady growth in recent years, but this stopped abruptly in the second half of 2008.

Concurrent with the drop in GDP has been a precipitous decline in industrial production, which fell 18% on month in January. Tajikistan's currency, the somoni, has also declined rapidly, falling from 3.40 somoni to the US dollar in October 2008 to around 3.80 at the start of April. Currency reserves fell by more than 40% to $198m in December. This is partly due to low demand for its main export, aluminium, which has slashed Tajikistan's export revenues. Aluminium production fell 5% in 2008, and was down a further 12% on month in January.

Tajikistan also saw a fall in remittances from overseas workers. Labour migration to Russia has been the main source of income for many Tajik households, with around 1.5m of the country's 7.2m population living abroad (mainly in Russia), and contributing around 43% of GDP.

Two recent reports on the situation in Tajikistan have speculated that the country's economic and infrastructure problems are raising the threat to President Emomali Rakhmon's rule for the first time since the civil war in the early 1990s. They warn that Tajikistan could become a failed state like neighbouring Afghanistan. "The current problems experienced by the Russian economy (and especially the construction sector, where most Tajik migrant workers have historically been employed) may shake the job-migration foundations of Tajikistan's internal stability," says a report from the Warsaw-based Center for Eastern Studies (OSW).

"The consequences of the economic crisis and the progressing decomposition of Tajikistan's state structures may bring the country to a stage where it will transform into a 'failing state' - unable to perform its basic functions, posing a threat to the stability of its neighbours and seriously impeding Nato's stabilisation operation in Afghanistan," it cautions. "Within the next few months, an outbreak of open manifestations of popular discontent is also possible, or attempts may even be made to overthrow the central government, and Tajikistan may become submerged in chaos and internal conflicts."

An earlier report from the Crisis Group concurs that as a result of the expected fall in remittances and the breakdown in Tajikistan's energy infrastructure, President Emomali Rakhmon may be facing his greatest challenge since the civil war of 1992-97. "At the very least, the government will be confronted with serious economic problems, and the desperately poor population will be condemned to yet more deprivation. At worst, the government runs the risk of social unrest."

Natural disasters have added to the problems. The severe winter of 2007-08 was followed by droughts, floods, locust infestations and a record low cotton harvest. This year, a hike in gas prices by neighbouring Uzbekistan resulted in the worst energy crisis since the break-up of the Soviet Union. "As a result, large parts of the country were left without electricity, gas or heating, which has not only made the lives of the ordinary people more difficult, but also impeded the normal functioning of the economy," the OSW's report says. Both the OSW and the Crisis Group warn that several hundred thousand people across the country are at risk of famine.

Until the announcement from the Finance Ministry, the "anti-crisis measures" coming from Dushanbe consisted of a handful of bizarre cost-saving decrees - banning, for example, gold-plated teeth and wedding ceremonies with more than 200 guests - and the wholesale firing of high-level state employees. "President Rahmon's 'anti-crisis' strategy has been focused on measures designed to safeguard his rule and prevent the emergence of any opposition, either in his own circle or in the marginalised regional clans," says the OSW report. These include the sacking of the interior minister Makhmadnazar Salikhov, the heads of the largest energy companies, the governor of the Sogd region and the chief of the special police force. "This 'cleansing' was covered on national television, and was intended, on the one hand to prevent the emergence of anti-presidential plots within the elite or destroy existing ones, and on the other to make it clear to the public who is (allegedly) responsible for the crisis."

International loans

Dushanbe has been tapping international financial organisations for funds. Last year, the International Monetary Fund demanded that the country repay $47m after irregularities were revealed. In a sign Dushanbe wants to clean up its act, an independent audit was commissioned after the scandal emerged.

The audit by Ernst & Young, published March 13, reveals corruption on a massive scale. It found that Murodali Alimardonov, who chaired the central bank from 1996 to 2008, diverted $856m to a company run by himself and his family. In addition, $221.5m intended for investment in the cotton sector remains unaccounted for.

Tajikistan is still hopeful it may secure a bailout package from Russia, similar to those provided to Armenia and Kyrgyzstan. Despite the strained relations between the two countries recently, OSW forecasts it is likely that, "Moscow and Dushanbe will work out a compromise and Russia will grant Tajikistan financial aid to combat the crisis in return for certain concessions (stakes in establishments such as the Rogun power plant or the Talco aluminium plant for Russian companies, limiting co-operation with the USA, etc.). This might enable Rahmon to stay in power, and prevent a social and economic disaster."

However, it cautions that given the systemic nature of Tajikistan's problems and the expected contraction of the Russian economy, it is likely that the breakdown of the Tajik state will continue. "It is possible that this process will continue at a slow speed, as before, with the weakening of the state as the only consequence," the OSW report says. "However, it is equally likely that Tajikistan will become a failing state, unable to perform its basic functions... In an extreme negative scenario, Tajikistan might experience serious internal destabilisation in the next few months. The country's situation will depend primarily on further developments in Russia." This would have severe consequences for the entire region.

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