The Eurasian Development Bank (EDB) presented the latest issue of the Macro Review of its member states on May 11.  This is an intermediate issue between the projections published in March and June that monitors current macroeconomic developments in the EDB member states – Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, Russia, and Tajikistan.

The report says economic growth in Tajikistan slowed from 7.5% in 2019 to 4.5% in 2020.  With the spread of the coronavirus (both around the world and in Tajikistan), domestic demand contracted, as evidenced by the decline of trade turnover (retail and wholesale) by 6.8% (2019: up by 9.0%), of the volume of services provided to the general population by 9.9% (2019: up by 2.4%), and of fixed capital investments by 4.6% (2019: down by 6.4%).

In 2020, economic growth indicators reportedly remained positive owing to the industrial and agricultural sectors.  In 2020, industrial and agricultural output increased by 9.7% and 8.8%, respectively.  Positive changes in those two sectors were attributable to supply-side factors, specifically expansion of production capacity (in particular, in metallurgy) and a good harvest.  

Data for January 2021 indicate that domestic demand is recovering.  In particular, trade turnover and capital investments increased by 10.0% y/y and 6.9% y/y, respectively.  The recovery of consumer and investment activity is leading to high output growth rates (19.1% y/y) in various industries, including food processing and manufacturing of rubber, plastic, and other non-metal mineral products (construction materials constitute a dominant share of the latter’s output).

In 2020, inflation accelerated, and by the end of December it reached 9.4% y/y (2019 EoY: 8.0% y/y).  The CPI growth breached the upper boundary of the target interval set by the National Bank at the beginning of 2020.  The report notes that one of the reasons for that was the rise in food prices (by an average of 13.1% relative to December 2019), to a large extent due to the global food price hike.  The weakening of the national currency from TJS 9.7 per USD 1.00 to TJS 11.3 per USD 1.00 in 2020 also spurred accelerated growth of prices in the country. Inflation decreased in late 2020 and early 2021.  By the end of January 2021, inflation went down to 9.5% from the peak of 9.8% reported in November 2020.

By the end of 2020, the merchandise trade deficit went down to USD 1.7 billion from USD 2.2 billion in 2019, or from 26.2% to 21.9% of GDP.  Exports increased to USD 1.4 billion (17.7% of GDP) from USD 1.2 billion (14.2% of GDP) the year before, due to the doubling of revenues from sales of precious metals and stones (particularly gold) to abroad. Imports decreased from USD 3.3 billion in 2019 to USD 3.2 billion in 2020 (from 40.4% to 39.6% of GDP) in the context of declining domestic demand and falling energy prices.  There was a decrease in foreign purchases of certain goods, such as mineral products (by 12.3%), vehicles (by 30.4%), and stone, gypsum, and cement (by 13.9%).

The current account surplus and the increase of the net inflow of foreign investment in January September 2020 reportedly resulted in a positive balance of operations with reserves of USD 874.0 million (January–September 2019: USD 103.6 million).  That and rising gold prices boosted NBT reserve assets from USD 1.5 billion at the end of 2019 to USD 1.9 billion at the end of August 2020 (data for later months have not yet been published).

In 2020, the state budget of Tajikistan was executed with a deficit of TJS 600.4 million (0.7% of GDP). Due to the need to fund coronavirus response programs, government spending increased to TJS 24.9 billion from TJS 23.7 billion in 2019.  The increase in revenues in 2020 was more modest – they went up to TJS 24.3 billion from TJS 23.2 billion in 2019.  Tax payments dropped from TJS 15.8 billion to TJS 15.4 billion, but that decrease was offset by an increase in other receipts, including grants provided by international donors.

The debt burden remains the same as at the end of 2019.  At the end of 3Q 2020, liabilities of the General Government sector amounted to TJS 38.0 billion, or 44.2% of GDP (2019: TJS 34.9 billion, or 44.4% of GDP).  In January–September 2020, the share of domestic debt in total liabilities decreased from 8.8% of GDP to 6.5% of GDP.  External liabilities of the government, conversely, increased from 35.6% of GDP to 37.7% of GDP from USD 2.9 billion to USD 3.1 billion.  The chief source of funding raised by the government was international donor organizations, which expanded their financing programs to support emerging economies in their fight against the COVID-19 pandemic.  The soft terms of the loans extended by international financial institutions, as well as the decrease of liabilities to Tajikistan’s debt holders, limit the growth of the debt service burden over the medium term.

In 2020, the somoni weakened against the U.S. dollar by 16.7%.  

The COVID‑10 pandemic may last longer than envisaged by the EDB baseline scenario. If that risk is realized, global economic recovery will be slow.  That may boost the probability of a drop in commodity prices and long-term preservation of restrictions on labor migration.  As a result, under the risk scenario, the 2021 Tajikistan GDP will increase by 4.1%, which is 2 p.p. less than envisaged by the baseline scenario.  Inflation may persist above the upper boundary of the target interval set by the National Bank.

That could be the result of high volatility of food prices in the country or strong fluctuation of the exchange rate of the national currency. It would impede economic support with monetary policy tools and, as a consequence, have a negative impact on GDP growth.