Tajikistan Tackles Debt Crisis and Competitiveness of Cotton
Sector
Contacts:
In Dushanbe: Dilya Zoirova, (+992-372) 21 07 56
dzoirova@worldbank.org
In Washington: Steven Jouy, (+1-202) 473 4215
sjouy@worldbank.org

WASHINGTON , May 30, 2007 – The World Bank Board of Executive Directors today endorsed a USD15 million credit for Tajikistan ’s Cotton Sector
Recovery Project. The project, to be funded by the International Development Association, aims at improving the livelihood of cotton farmers and
supporting the cotton production in selected, low-income areas of Tajikistan. The project will assist the Government with resolving the debt crisis among
cotton producers, improving the policy environment, and increasing cotton output and profitability.

Cotton makes an important contribution to both the agricultural sector and the national economy. Cotton accounts for 60 percent of agricultural output,
supports 75 percent of the rural population, and uses 45 percent of irrigated arable land. At the national level, it is an important source of both export
earnings and tax revenue. Tajikistan is the world’s fourth largest exporter of cotton, and there is strong demand on international markets for its high
quality product.

Given the importance of the cotton sector, the current combination of low productivity, low on-farm profitability and excessive debt are major impediments
to agriculture sector development and rural poverty reduction. Overdue debt is the most visible aspect of this crisis, paralyzing the private sector
ginneries and export marketing agents who provide most seasonal finance, and inhibiting access by cotton producers to alternative markets. In addition,
the privatization of collective farms has been slowed because the growth of alternative sources of rural finance has been constrained, markets for farm
inputs are distorted, and a large proportion of Tajik farmers live in abject poverty.

The aim of the project is to support government efforts to rejuvenate the cotton sector and create the conditions for sustainable growth of the Tajik cotton
production. In addition to resolving the debt crisis, the project will guide and support policy reforms conducive to increased competition and higher
producer returns, and demonstrate the capacity of privately owned family farms to drive future cotton production.

“Debt resolution will be the immediate focus, but the broad emphasis will be on measures to reform policy, increase competition, encourage private
investment, and increase producer incomes. The project therefore addresses not only the direct causes and consequences of the debt crisis, but also
the underlying policy distortions and institutional weaknesses that have caused it. It also translates the Government’s newly completed agriculture
strategy into action, a strategy that identifies land reform and cotton sector recovery as the two pillars of future sector growth,” said Bekzod Shamsiev,
the Task Team Leader of the Project.

Debt resolution and policy reform will be supported at the national level. The remaining project components will be implemented in selected districts of
Khatlon, which accounts for the highest share (60 percent) of cotton production in Tajikistan and has the highest incidence of rural poverty (75 percent of
rural people live below the poverty line). The selected districts account for around forty percent of the region’s cotton output.

The specific project components include:

· Resolution of Farmers’ Cotton Debt throughdebt restructuring and associated national awareness campaigns to inform farmers about debt
resolution;
· Support to Policy Analysis and Reform to strengthen government capacity and guide reform in the areas of debt resolution, competition, land use
and local government activity;
· Cotton Supply Chain Development to promote foreign direct investment in ginneries, cotton seed supply and provide technical assistance,
training and information to the rural population;
· Project Implementation to support sound project management, including procurement and financial management.

The credit has a maturity of 40 years with a grace period of 10 years. The project will be implemented over five years and has been prepared in parallel
with the Asian Development Bank’s Sustainable Cotton Sub-sector Project. The World Bank emphasis on support for cotton producers and increased
competition among processors complements the ADB’s focus on marketing and export promotion.

The World Bank’s mission in Tajikistan is to promote economic growth, reduce poverty, and encourage a better quality of life. The World Bank plays a
role as a catalyst of change and an institution bringing global experience to developing countries. The financial assistance committed to Tajikistan
amounts to nearly US$440 million, both in form of grants and concessional credits.

To date, the Bank has supported projects and carried out non-lending activities aimed at agriculture and rural development, health, education, social
security, energy, water resources, infrastructure rehabilitation, and disaster management, among other things. World Bank assistance, in the form of
soft loans, has helped the country rebuild the infrastructure destroyed during the civil war and has supported economic reforms.

                                           For more information about the World Bank in Tajikistan, please visit
                                                               http://www.worldbank.org/tj