Speculation has gradually mounted this year that for President Emomali Rahmon, officially Tajikistan’s "Founder of Peace and National Unity, Leader of the Nation", 2019 could prove to be his last full year in office. The 67-year-old at the helm of Central Asia’s poorest nation since 1992, who survived a five-year civil war along the way, appears to have been grooming his son Rustam Emomali, to succeed him, and 2020 brings the country’s next presidential election. The Tajik parliament in 2018 lowered the age of eligibility for a presidential poll candidate to 30 from 35. Rustam Emomali, currently mayor of the capital Dushanbe, is 32.
Emomali Rahmon (Source: Kremlin.ru).
As a country of 9.1mn that has one of the most remittance-dependent economies in the world (remittances make up around 40% of its GDP), Tajikistan has struggled to achieve any significant economic development since the civil war in the 1990s and today most Tajiks still make a living of less than €1,000 a year.
The picturesque Pamir mountains—dubbed the "Roof of the World" by Victorian explorers—and high-altitude plateaus cover around one-half of this remote nation and 2018 saw officials attempt to build up its fledgling tourism industry by declaring a Tajik year of tourism. However, a brutal terrorist attack on touring foreign cyclists experienced during that year must have deterred quite a number of people from visiting the country. Prevailing anxieties over what level of safety Tajikistan can offer to visitors are yet to be satisfactorily addressed.
The US Department of State said in a travel advisory published in November that tourists should “exercise increased caution in Tajikistan due to terrorism”. The note came after Tajik authorities said that 20 armed militants, including three women, raided a post on the Tajikistan-Uzbekistan frontier in the early hours of November 6. According to official statements released on the day of the incident, 15 attackers and two security officers were killed in the ensuing shoot-out, and five perpetrators were arrested. Some knowledgeable sources put the death toll among government troops at seven.
Tajikistan, meanwhile, continues to improve its relations with neighbouring Central Asian countries. One example of such efforts resulted in a resolution approved by Turkmenistan in October. It envisages the creation of an intergovernmental Turkmen-Tajik commission on trade, economic, scientific and technical cooperation. The commission will likely help the two nations evade bizarre conflicts such as were seen early last year and at the end of 2018, when unexpected blockades on Tajik goods entering Turkmenistan were introduced. The first blockade came into force as Tajikistan announced that it was pulling out of the Turkmenistan-Afghanistan-Tajikistan (TAT) railway construction project. Tajikistan later cancelled the move.
Real GDP growth, annual % change, Tajikistan (red line) vs Middle East & Central Asia Region (Source: IMF Datamapper).
Tajikistan’s economic fortunes are inextricably tied to those of Russia and China. Reliable economic data emanating from Dushanbe is tough to get hold of. The country’s exports and money remittances from abroad may be affected by a worsening of global economic conditions in 2020.
According to the autumn 2019 edition of the World Bank’s biannual Tajikistan Economic Update, Tajik GDP grew by 7.2% y/y in the first nine months of 2019.
Tajikistan has benefited from growth in international prices for aluminium and cotton, but it felt the negative effects of falling prices for precious metals in export earnings, the report said. Real GDP growth slowed from 7.3% in 2018 to 6.2% in 2019. It is expected to slow further to 5.5%–5.0% over the 2020–2021 period. The slowdown will be driven by weaker growth in Russia and lower international commodity prices, as remittance inflows from Russia will remain sluggish over the medium-term, the report said.
During the first nine months of 2019, Tajik labour immigrants working in Russia sent home $2.49bn, up by 7% from the same period last year. Tajik remittances from Russia fell by 8% y/y to $2.3bn in 2018, despite general economic stabilisation in Russia. In 2017, remittances recovered from a decline to $1.9bn in 2016, which was caused by Russian economic difficulties.
Economic activity in the upcoming year will be mainly supported by mining, manufacturing, and construction, according to the World Bank.
Since 2000, Tajikistan’s annual growth has averaged around 7.7%. But the growth rate masks the plight of the poorest. According to the Asian Development Bank, almost 30% of Tajikistan’s population was living below the national poverty line in 2017. Yes, poverty in Tajikistan has declined, with the World Bank estimating that the country’s poverty rate fell by an average of 7 percentage points annually between 2002 and 2009. But since 2009 the reduction in poverty rates has decelerated, dropping just one percentage point each year says the World Bank. Lack of job creation and anaemic wage growth, partly caused by an oversized public sector crowding out the formal private sector, are two reasons for this.
A 2017 World Bank report said that only 13% of jobs in Tajikistan were in the formal private sector. In addition, corruption and an all-around abysmal business environment mean that potential entrepreneurs face high barriers to entry and high operating risks.
Tajikistan’s trade deficit narrowed year-on-year in the first half of 2019 due to falling import spending. The current account deficit stood at 7% of GDP in the first half. In 2019, the current account deficit is projected at 5% of GDP.
The Russia-led Eurasian Development Bank said in a statement in November that “Tajikistan’s GDP growth is forecast at 7.2% in 2019 and will be driven by households’ consumer activity and higher outputs in mining and agriculture.” “Compared to the previous estimates (April 2019), the figure was raised by 0.2 percentage points, primarily because of strong investment activity in the country. EDB analysts expect Tajikistan’s economic growth to slow down to an average of 6.5% in 2020-2021 due to lower capital investment in the power sector.”
The weak external inflation environment will contribute to a slowdown in food prices in the second half of 2019 and inflation will “remain within the target interval of 6±2% in 2020,” the EDB added.
The EDB also noted that the Tajik central bank “reduced the refinancing rate after the first six months of 2019, expecting that non-monetary factors, which play a crucial role in speeding up inflation in the country, and high agricultural outputs will slow down price increases in Tajikistan in the near future”.
The National Bank of Tajikistan may reduce its rate further in 2020-2021 provided inflation remains within the regulator’s targets.
The EDB said it believed that, to ensure stable development, Tajikistan needed to continue its balanced fiscal and monetary policies and carry out measures to improve labour productivity and the business climate.
Current account balance, % of GDP, Tajikistan (red line) vs Central Asia and the Caucasus Region (Source: IMF Datamapper).
Tajikistan’s public external debt was recorded at $2.9bn or 40% of GDP at end-2018. The latest debt sustainability analysis has shown that the country remains at high risk of debt distress.
The International Monetary Fund’s programme in Tajikistan is on hold for the time being as the Tajik government is not seen as ready to commit to policies needed to support it—they include banking sector reform, a switch to a flexible exchange rate and fiscal prudence. Tajikistan has failed to secure IMF support since 2015, when its banking sector collapsed under the weight of its bad lending practices.
In September 2017, Tajikistan raised $500mn from its inaugural international bond, priced at 7.125% for a 10-year term. Proceeds from the debt issue are being ploughed into realising the nation’s four-decade-old mega-infrastructure dream—construction of the 3,600MW Rogun hydropower project, complete with the world's tallest embankment dam. Tajikistan launched the first unit of the project last year.
Tajik officials announced plans to borrow an additional $850mn in the 2018-2020 period on the international bond markets. Much of that would also go into Rogun, which according to current plans is to have six hydropower turbines in all. The project is meant to end the country’s winter energy shortages as well as enable it to become a regional energy exporter via the CASA-1000 investment.
The viability of the project and of the associated bond have been continuously questioned by international observers.
For example, the analytical arm of Raiffeisen Bank International (RBI) said in December that “in 2019 the Tajik bond was the worst-performing among all [emerging markets] with the yield swelling by 265bp to 10.7%”.
“Market valuations of [the Tajik bond] bond include a steep discount similar to crisis-hit Ecuador, which has bad debt repayment history, while TJ yields are substantially above rating comparable Ukraine or Pakistan. Nevertheless, higher macro risks make us feel sceptical about risk-reward in Tajik market as higher price volatility is likely to offset potential price gains,” RBI continued
RBI added that high distressed spread levels on the Tajik eurobond revealed mounting concerns about insufficient funding—that, in turn, can potentially undermine the Rogun project implementation, the bank argued. Total costs of the Rogun plant’s construction are said to be at around 50% of Tajikistan’s annual GDP spread during 2017-2027. As such, scepticism shown by the World Bank and other international lenders about the Rogun project’s viability further fuels negative outlooks on its implementation risks.
The ex-Soviet state has cut its annual aluminium output growth target for this year to 5% from 20%, a government source told Reuters in October. The source cited a decline in prices and feedstock supply issues as primary reasons behind the re-evaluation. They added that several incidents had disrupted the supply of coking coal and alumina to Tajikistan's aluminium smelter TALCO. The company's aluminium output stood at 95,800 tonnes in 2018, down from 103,000 tonnes in 2017.
TALCO's aluminium output has been experiencing a continuous decline despite promises to the contrary for the past three years. The company produced 139,000 tonnes of aluminium in 2016. This raises questions as to whether the company will manage to increase production at all.
Beijing’s former ambassador to Tajikistan, Yue Bin, was cited as saying on December 4 by RFE/RL’s Tajik service that a Chinese company was set to acquire a stake in TALCO in exchange for a $545mn investment in TALCO. The fully state-owned TALCO has not publicly commented on such possibilities. Yue Bin has not mentioned any specific size of a stake planned for sale.
The situation reflects Tajikistan’s increasing dependence on Chinese financing and debt to keep its economy running. Last year, the Washington-based Center for Global Development listed Tajikistan among countries receiving China’s trade infrastructure Belt and Road Initiative funding and prone to a high likelihood of debt distress.
Despite financial issues, Tajikistan was in 2019 named as among the top 10 improvers in the latest World Bank Doing Business rankings. Central Asia’s poorest nation came 106th out of the 190 surveyed economies, earning a special mention for improvements in three areas: starting a business, getting credit, and trading across borders.
Other China-tied projects in Tajikistan include Chinese company Tibet Huayu Mining and Tajik state-owned aluminium smelter Talco's launch of a $200mn gold and antimony mining venture in Tajikistan in 2018. The project envisages the construction of a new mine expected to produce its first gold and antimony in 2020—the annual output will amount to 1.5 tonnes of gold and 16,000 tonnes of antimony. Jointly owned Talco Gold will operate the project. The total deposits of the mine are estimated at 50 tonnes of gold and 265,000 tonnes of antimony.
Tajik authorities intend to increase gold production to 17 tonnes by 2022. They state that they are convinced that the country has “favourable investment conditions”, which should allow it to develop its Taror, Chore and Porkud deposits. Tajikistan has 28 known gold deposits with total estimated reserves of 400 tonnes, but the government says the total number of gold deposits actually amounts to 137. Tajikistan's gold production officially rose by 50.14% y/y in the first six months of 2019.