Jacopo Dettoni in Almaty -

The World Bank has called for "comprehensive" reforms in Tajikistan to tackle intensifying economic challenges rising from weak commodity prices worldwide and economic slowdown in Russia.

"Tajikistan needs to put in place a comprehensive structural reform program to bolster growth, job creation, and poverty reduction," a World Bank report released on October 27 reads. "Strengthening fiscal and external buffers will be critical for mitigating the impact of external shocks, particularly given Tajikistan's close links with Russia and such other trading partners as Kazakhstan, Turkey, and China. In the near term, prudent macroeconomic policies could help the country absorb the shocks, especially allowing for greater exchange rate flexibility."

The poorest country in the Commonwealth of Independent States (CIS) with a per-capita income of just $1,040 per year, Tajikistan heavily relies on the remittances sent back home by Tajiks working abroad, mostly in Russia, and the sale of a few major export commodity such as aluminium and cotton. Things have turned south for both remittances and export sales over the last months. 

Remittances make up around half of the national GDP, turning Tajikistan into "the most remittance-dependent country in the world", to put in in the words used by the  World Bank report. As Western sanctions and weakening oil prices took a toll on the Russian economy and the ruble, the flow of remittances has decreased for the first time in five years. The drop was only moderate in the first half of 2014 - down 2% on year according to the country's central bank figures - but officials estimate as much as one fifth of total remittances have dried up since the summer, the Financial Times reported.

At the same time, less external demand and lower prices for major export commodities such as cotton and aluminium caused the value of exports to contract by almost 15% on year in the first half of 2014 and translated into slowing industrial activity. Production at state aluminium smelter Talco alone was down 45.7% on year in the first six months of 2014. 

Resilience

So far, Tajikistan's economy has shown some resilience to adverse exogenous factors. Economic growth only moderated to 6.7% in the first half of 2014 from 7.5% a year earlier, and the World Bank still forecasts it growing at 6.5% and 6% in 2014 and 2015, respectively. Official unemployment was 2.5% in June, unchanged from a year earlier; the Tajik somoni depreciated less than other regional currencies, losing about 5% against the US dollar year to date; and the budget deficit and public debt still appear under control. 

Yet "the main risks to the near-term outlook relate to the serious financial sector vulnerabilities and governance issues, fiscal risks caused by state owned enterprises (SOEs), a slower recovery in the prices of aluminum and cotton, and a further slowdown in activity in Tajikistan's main trading partners," the World Bank's report reads. 

The authorities are already working on a set of reforms aimed at weathering such risks. Parliament has passed new laws and regulations directed to improving banking supervision and registration of collateral; a number of measures to overhaul the troubled power sector in the country, which suffers from recurrent power shortages, have been approved too; and the government has teamed up with the World Bank's International Finance Corporation (IFC) to improve the country's hardly appealing business environment - Tajikistan ranked 143rd globally out of 188 in the World Bank's "2014 Doing Business" report.

Local authorities are also trying to put Tajikistan on the map of foreign investors. A first-ever investment summit was held in mid-October in Dushanbe, attracting some 500 investors, state officials and representatives of leading international financial institutions. The Chinese have already pledged some $6bn for a gas pipeline, cement plants and a railway over the next three years - a game-changing sum for the $8.5bn economy. Authorities now hope that others will follow suit.