A report by the Bureau of Economic and Business Affairs of the U.S. Department of Statement notes that Tajikistan presents high-risk, high-reward opportunities for foreign investors who have experience with the region and are willing to put in significant research and effort.  The Tajik government has reportedly expressed interest in attracting more U.S. investment, but has not yet implemented reforms that would make the poorest of the Central Asian countries a more competitive investment destination.

Investment Climate Statements for 2018, in particular, notes that Tajikistan’s economy is heavily exposed to external shocks, especially to those from Russia, where it sends close to one million labor migrants whose remittances fund about 30 percent of Tajikistan’s economy.  Tajikistan’s banking sector, which had suffered from lower remittance flows during the 2015 Russian recession, began to stabilize in 2017 despite an official non-performing loan rate of 36.5 percent in December.  Some Embassy contacts believe this rate should be closer to 70 percent of the total loan portfolio.  Nonetheless, the improved stability was more a result of a rebounding world economy and larger remittance volumes than a result of structural, economic changes.  At present, the National Bank of Tajikistan (NBT)’s policy rate is at 14 percent, with nominal lending rates at about 27 percent for loans in local currency and 18 percent for dollar loans.  A low financial inclusion rate of about 11 percent has forced commercial banks to restrict loan amounts they make available to borrowers.  Loans are therefore unaffordable for small and medium sized businesses (SMEs).  Although international financial institutions (IFIs) have worked to make Tajikistan’s banking sector more resilient, many of the same vulnerabilities that led to Tajikistan’s 2015 liquidity crisis remain.

As the Russian ruble devalued in 2014 in response to lower oil prices and Western sanctions, Tajik households reportedly received fewer somoni after their ruble-denominated remittances lost value.  In addition to precipitating Tajikistan’s banking crisis, the fall in remittances decreased consumption, and – in return – government revenue.  This hurt the government’s ability to hit its consumption targets, anecdotally a driver of the country’s GDP growth.  To compensate, Tajikistan’s tax authority has increased business inspections and tax audits to recover the shortfall.  Besides worsening Tajikistan’s business climate, these policies had the double effect of hurting workers.  This transfer to the government occurred as real incomes slipped more than 40 percent between 2015 and 2016 and again by 12 percent in 2017.

While the somoni appreciated against the ruble, it lost value against the dollar, causing the price of all imported goods to rise, according to the report.  Tajikistan’s real effective exchange rate, a weighted average against its import partners, has also steadily declined.  Since Tajikistan relies on imports for about 70 percent of the food needed to feed its population and 60-70 percent of consumable spending, this depreciation proved inflationary.

Despite Tajikistan’s March 2, 2013 accession to the World Trade Organization (WTO), contract sanctity and adequate intellectual property right protections remain elusive.  The Tajik government has not fully engaged with international stakeholders to provide these protections.  The Tajik government has also imposed arbitrary trade policy to protect fledgling, domestic industries without notifying its partners, as occurred with its ban on imported chicken meat in 2017.  It continues to develop its WTO post-accession plan which requires adaptation and amendment of the legislation and regulation aspects for the post-accession period.  Tajikistan is still considering joining the Russian-led Eurasian Economic Union.  Should they apply for membership and be accepted, it could result in higher trade tariffs and greater difficulty for U.S. firms to invest in Tajikistan.  In 2017, Chinese trade, investment, and loans made China Tajikistan’s dominant economic partner.  Tajikistan’s external debt to China as of the beginning of 2018 was USD 1.2 billion or 41.3 percent of all external debt.

Tajikistan has focused heavily on energy security.  To meet domestic energy demand while also generating surplus electricity for export, Tajikistan has reportedly pursued the construction of Roghun Dam – the world’s tallest when construction is complete; this pursuit often occurred unilaterally and to the detriment of its public finances.  In 2017, it issued its maiden, USD 500 million Eurobond which propelled debt-to-GDP to about 40 percent.  Many experts have warned that Roghun’s construction puts its macro-fiscal stability at risk.

Despite these challenges and risks to potential investors, Tajikistan is in the midst of historical opportunities.  Some economists believe the Tajik government recognizes the harm its tax and customs policies, as well as its fragile banking sector, pose to economic growth and understands that they may not finish Roghun’s construction without sustainable economic and structural changes.  Other experts are optimistic that improved regional cooperation might lead to supply and value chains and the harmonization of customs and standards.

In 2016, the government introduced a 2016-2030 National Development Strategy and a 2016-2020 Mid-Term Economic Development Strategy.  These strategies emphasize the importance of investment as a driver of growth.