public sector, including SOEs. Resolving structural issues in the energy system, im- TAJIKISTAN Key conditions and proving regulation and competition in the telecom and aviation sectors, and remov- challenges ing inefficient tax exemptions are crucial for unlocking the country's economic po- Table 1 2023 Tajikistan is the poorest country in the tential. Strengthening the education, Population, million 10.1 ECA region, with a GNI per capita of healthcare, and social protection systems GDP, current US$ billion 12.1 US$1,440 (Atlas method) and a poverty is vital for human capital development GDP per capita, current US$ 1189.0 rate of 10.7 percent (based on the LMIC and equipping the workforce with the a 6.1 International poverty rate ($2.15) poverty line) in 2023. The country is necessary skills. Given Tajikistan’s high a 25.7 struggling to overcome structural bottle- exposure to climate change and natural Lower middle-income poverty rate ($3.65) a 66.4 necks, such as poor human capital, insuf- disaster risks, the country should also ex- Upper middle-income poverty rate ($6.85) Gini index a 34.0 ficient physical infrastructure, and weak pand on measures to build better envi- School enrollment, primary (% gross) b 95.9 institutions, hampering productive job ronmental resilience. b 71.3 creation and making the economy suscep- Life expectancy at birth, years tible to external shocks. Total GHG emissions (mtCO2e) 18.6 Tajikistan heavily depends on remittances Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2015), 2017 PPPs. (38 percent of GDP in 2023), particularly Recent developments b/ WDI for School enrollment (2017); Life expectancy from Russia, and has a narrow export (2022). base comprised mainly of primary com- According to official preliminary esti- modities. This lack of diversity makes it mates, Tajikistan's economy grew 8.2 per- vulnerable to external economic shocks, cent year-on-year (yoy) in the first half such as fluctuations in the Russian econo- (H1) of 2024. Growth was driven by strong my, shifts in migration policies, and glob- household consumption and investments, al commodity market changes. while net exports declined. Increased re- Two of Tajikistan's most pressing issues mittance inflows fueled domestic demand In the first half of 2024, Tajikistan's GDP are persistent high unemployment rates as labor migrants benefited from a tight grew by 8.2 percent due to strong remit- and weak private sector dynamism. Most Russian labor market and robust real wage tance inflows and investments. Growth is of the population has limited access to ba- growth. The economy saw broad-based sic services, such as quality education and output expansion across all sectors, with projected to exceed 7 percent in 2024 healthcare, and clean water. Deterrence in services and agriculture leading the way. and to slow over the medium term. To foreign investment and local private sector In H1 2024, Tajikistan's current account im- sustain robust economic growth, ambi- development is due to an uneven playing proved, with a 2.6 percent GDP surplus tious policy reforms are needed to facili- field for private enterprises, uncompetitive compared to a 1.9 percent deficit in the tate the transition to a dynamic private state-owned enterprise (SOE) practices, same period of 2023. Despite a widening and weak governance and rule of law. trade deficit, remittance inflows grew by sector-led development model. 50 percent yoy to US$3bn, more than off- Reform priorities for Tajikistan should fo- cus on opening the economy to fair com- setting the trade deficit increase. Foreign petition and improving governance in the direct investment (FDI) has remained low FIGURE 1 Tajikistan / Fiscal balance and public debt FIGURE 2 Tajikistan / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) -0.5 45 90 1200 80 1000 -1.0 70 40 60 800 -1.5 50 600 35 40 -2.0 30 400 20 30 200 -2.5 10 Fiscal balance (lhs) 0 0 Public and publicly guaranteed debt (rhs) 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 -3.0 25 International poverty rate Lower middle-income pov. rate 2021 2022 2023e 2024f 2025f 2026f Upper middle-income pov. rate Real GDP pc Sources: Ministry of Finance and World Bank staff estimates and projections. Source: World Bank. Notes: see Table 2. MPO 1 Oct 24 at 0.5 percent of GDP due to challenges The financial sector's earnings have im- Strong remittance inflows and elevated in the business environment. The central proved due to strong foreign exchange in- prices for Tajikistan’s major export com- bank accumulated international reserves flows. Return on Assets (Equity) increased modities are expected to maintain a sur- of US$4.2 billion by June 2024, equivalent from 3.7 (19.2) percent at end-2023 to 4.7 plus in the current account, while FDI in- to about seven months of imports. (25.2) percent. The banking sector has a flows are expected to remain subdued due Prudent monetary policy and exchange capital adequacy ratio of 21.4 percent, well to the weak business environment. rate stability reduced headline inflation to above the 12 percent minimum threshold, To ensure the stability of public finances, 3.5 percent yoy in June 2024. In August, the but it faces risks from poor asset quality. authorities intend to maintain the medi- central bank cut the policy rate to 9 per- Nonperforming loans accounted for 12.2 um-term fiscal deficit below 2.5 percent of cent (from 10 percent at end-2023), mark- percent as of mid-2024. GDP and restrict non-concessional bor- ing a third cut in 2024 as the inflation out- According to the Listening-to-Tajikistan rowing solely to finance the construction look became more favorable. survey, 3 percent of the population aged of the Rogun hydro power project (HPP). The government maintained a conserva- 15+ reported to have lost a job or busi- External and domestic risks weigh on eco- tive fiscal stance, with a budget deficit of ness, and about 2.4 percent reported to nomic prospects. A potential escalation in 0.7 percent of GDP in H1 2024 (compared be looking for a job during H1 2024. Russia's invasion of Ukraine, as well as Rus- to 0.2 percent in H1 2023). Revenue collec- A higher share of households (approxi- sia’s stricter migration policies and a new tion declined to 31 percent of GDP in H1 mately 25 percent) received remittances risk of military mobilization, could nega- 2024 from 33.5 percent the previous year. during H1 2024 compared to 17 percent tively impact labor outmigration and remit- Despite strong economic growth, tax rev- in H1 2023. tance flows. On the domestic front, slow enues were adversely affected by a reduc- progress in implementing structural re- tion in the VAT rate, from 15 percent to forms to support private sector-led growth 14 percent. This reduction, coupled with a and efficient public services could hamper decrease in grant disbursements following Outlook growth prospects. There is also pressure on a significant increase last year, resulted in public finances due to loss-making SOEs, an overall revenue decline. Concurrently, Tajikistan’s economy is projected to grow the upcoming repayment of a US$500 mil- budget expenditures were cut to 31.7 per- by 7.2 percent in 2024, supported by re- lion Eurobond, and the construction of the cent of GDP in H1 2024 from 33.7 percent mittance-induced household consumption Rogun HPP. Climate change and natural the previous year. The government cur- and investments. Inflation is projected at disasters could further impede economic tailed spending on goods and services. The 3.5 percent for 2024 and remains below development and stability. budget deficit was primarily financed the central bank’s inflation target range of Poverty, at US$3.65/day, is projected to through external borrowing. 6 percent (+/-2). further decline to 9 percent in 2024. TABLE 2 Tajikistan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 9.4 8.0 8.3 7.2 5.5 5.0 Private consumption 4.4 15.1 4.9 14.6 3.2 3.0 Government consumption 4.6 -0.7 13.4 11.0 5.0 5.5 Gross fixed capital investment 12.0 11.9 22.5 13.4 5.1 2.6 Exports, goods and services 55.4 -24.0 24.8 -2.9 2.7 3.2 Imports, goods and services 20.0 4.0 29.3 12.8 5.8 3.1 Real GDP growth, at constant factor prices 9.9 9.0 9.3 7.2 5.5 5.0 Agriculture -0.3 -4.5 5.0 5.0 4.5 4.5 Industry 13.2 9.1 8.0 7.5 6.6 6.0 Services 12.8 16.9 12.9 7.9 4.7 4.0 Inflation (consumer price index) 9.0 6.6 3.7 3.5 5.2 5.4 Current account balance (% of GDP) 8.2 15.3 4.8 9.8 8.3 6.8 Net foreign direct investment inflow (% of GDP) 0.4 1.5 0.8 1.1 1.3 1.4 Fiscal balance (% of GDP) -1.1 -1.3 -1.0 -2.3 -2.4 -2.4 Revenues (% of GDP) 26.7 27.2 30.1 28.4 27.8 27.7 Debt (% of GDP) 41.9 31.8 30.5 30.2 29.6 29.0 Primary balance (% of GDP) -0.3 -0.6 -0.2 -1.6 -1.7 -1.7 a,b International poverty rate ($2.15 in 2017 PPP) 2.8 2.3 2.1 1.7 1.5 1.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 14.2 12.4 10.7 9.0 8.3 7.7 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 50.6 46.8 43.8 40.8 38.6 36.8 GHG emissions growth (mtCO2e) 0.0 1.9 2.3 2.3 2.0 2.3 Energy related GHG emissions (% of total) 42.4 42.8 43.3 44.1 44.7 45.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2015-HSITAFIEN. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2015) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 2 Oct 24