KIEV, May 20, Asia-Plus  -- Serious economic situation is in store for Tajikistan in the coming year, Mr. Erik Berglof, Chief Economist at the European bank for Reconstruction and Development (EBRD), announced at a briefing in Kiev Ukraine on May 18 on sidelines of the EBRD 2008 Annual Meeting and Business Forum.

The two-day forum, opened in Kiev on May 18, attracted over 2,000 participants including government ministers, CEOs, investors and the media from the EBRD region and beyond.      

Mr. Berglof noted that the serious economic situation results from the past winter and slowdown in loan portfolio growth because of crisis in confidence connected with inaccurate financial information provided by the Tajik authorities to the International Monetary Fund (IMF). 

According to him, Tajikistan breached rules and provided the IMF with an inaccurate financial information, and scaling financial investigation is now in store for the country.  The situation will not change until the thorough investigation is carried out, and therefore, the EBRD expects the complex economic situation to remain in the country through the year.         

However, the Bank realizes that Tajikistan is now in complex situation.  “We currently seek solution to the issue of supporting, first of all, the vulnerable sectors of Tajikistan – small and medium-sized enterprises (SMEs), water supply and energy” said Mr. Berglof.  “As soon as the IMF monitoring program is complete and decision on Tajikistan is taken, we will determine what to do next and how to work with this country in the future.”    

The EBRD sees economic growth in the transition region moderating in 2008, although most countries in eastern Europe and the former Soviet Union are proving to be surprisingly resilient in the face of disruptions on the international credit markets.

However, it added that any extended period of global economic slowdown is likely to take its toll on growth in then region over the medium term.

Inflation, now in double digits in many countries, is the region’s most pressing current problem. If left unaddressed, inflation could risk price-wage spirals, exchange rate re-alignments, or could force a belated and sharp response by monetary policy.

In its latest update of economic forecasts, the EBRD is predicting overall growth for the region of around 6 percent for this year, compared with 7.3 percent in 2007. The anticipated slowdown reflects very rapid increases in consumer prices, which are likely to impact household incomes and consumption, especially in the CIS.  A more restrictive international funding environment, together with interest rate rises to combat inflation, could reduce domestic credit growth and limit growth in domestic investment. In addition, slowing global growth is expected to reduce import demand from key trading partners such as the countries in the eurozone.

In the meantime, speaking at the country presentation that was held the same day, Mr. Farrukh Hamraliyev, the head of Tajikistan’s State Committee for Investments and Management of the State-owned Property, said that the country’s macroeconomic indices are still stable and economic growth exceeded all expectations that promoted reducing the poverty level in the country and increasing economic wellbeing of the population.  There are difficulties connected both external and internal factors, such as increase in inflation resulting from sharp rise in food and fuel prices and the extreme winter weather that has negatively impacted the country’s economy this year.  

Commenting on the crisis in confidence, Tajik official noted that no one international financial institutions has stopped cooperation with the Tajik Government.  “Both the IMD mission and the World Bank, as well as other international financial institutions such as the Islamic Development bank and the Asian Development Bank and the Swiss Government are continuing to cooperate with Tajikistan,” said Hamraliyev, “I would like to noted that after the misreporting case no one international organization has reduced financing in Tajikistan.”    

The head of State Committee for Investments and Management of the State-owned Property stressed that Tajikistan intends to increase its loan portfolio for implementation of important infrastructural and economic projects.  “Therefore, there is no question of the confidence crisis,” Hamraliyev said.  

For his part, Mr. Matthieu Le Blan, Head of the EBRD Resident Office in Tajikistan, noted that the Bank will cooperate with Tajikistan and it intends to increase financing of projects this year.  According to him, development of small and medium-sized enterprises (SMEs), energy and water supply, as well as development of leasing operations and insurance remain priorities of EBRD’s cooperation with Tajikistan.

According to him, the Government of Tajikistan is doing all in its power to return its prestige; however, there are a number of unsolved problems.  Tajikistan adopts good laws but they are not always observed, the investment climate still remains unfavorable.  Among the unsolved problems, he also named insufficient capital concentration, existence of so-called gray market of capital, and non-transparency of various structures.  He further added that they even cannot receive real financial information from some organizations.  “It is a lot to be done but all these issues could be solved, and we are currently working with the Government of Tajikistan on that,” Mr. Le Blan said at the briefing.             

In 2007, the EBRD signed and Tajikistan signed nine projects totaling 26 million euros.  To date, the EBRD has invested in 31 projects in Tajikistan with a total value of 102.8 million euros.  In Tajikistan, the EBRD is supporting the progress of the private sector by fostering development of small and medium-sized enterprises (SMEs) and strengthening the banking sector, in parallel to tackling critical infrastructure concerns.