Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the First Review under the Policy Coordination Instrument for Tajikistan on December 12, 2024, and endorsed the staff appraisal without a meeting on a lapse-of-time basis. The Board also granted the request for modification of the end-December quantitative target on reserve money and the reform target on SOE sectorization and endorsed the proposed new quantitative and reform targets.
Tajikistan's twenty-two-month program under the Policy Coordination Instrument (PCI) was approved in February 2024. The PCI aims to anchor macroeconomic policies and support structural reform implementation to maintain macro-financial stability and foster more sustainable and inclusive growth. Program implementation is on track, and all but two of the targets for the First Review were met.
Tajikistan is navigating the challenging external environment well. Real GDP rose 8.4 percent during January-September 2024, underpinned by public and private investment and financial inflows, while inflation remained well contained at 3.1 percent (y/y) in September. The external position remains strong as robust financial inflows have continued to keep the current account in surplus and international reserves at comfortable levels. Low fiscal deficits in the post-COVID period have contributed to a meaningful reduction in public debt, and improved banking sector soundness has supported gains in financial intermediation.
The near-term outlook remains favorable. Tajikistan is exposed to external geopolitical risks and climate challenges, but their potential impact is expected to be manageable in the near term. Economic growth is projected to moderate slightly to 6.7 percent for 2025, while the rate of inflation is expected to stay close to the central bank's target of 6 (±2) percent. The external current account is expected to shift to a small deficit in 2025 as financial inflows gradually begin to normalize following the strong performance experienced in recent years. The fiscal deficit is projected to remain within the long-term anchor of 2.5 percent of GDP, ensuring a continued decline in public debt.
Policies should aim to strengthen resilience against external shocks and address structural constraints to attaining more sustainable and inclusive growth. Improving revenue mobilization and spending efficiency is critical to increasing space for development priorities. Monetary policy should remain vigilant and manage liquidity proactively in the context of large foreign exchange inflows and strong credit growth, with the exchange rate playing a greater role as a shock absorber. Governance and transparency reforms in the SOE sector and more broadly are essential to improving productivity and the investment climate to support more diversified private sector-led growth.
Executive Board Assessment
In concluding the First Review under the Policy Coordination Instrument for Tajikistan, Executive Directors endorsed the staff's appraisal, as follows:
Tajikistan has shown considerable resilience to persistent geopolitical challenges. The economy has continued to experience strong growth and low inflation in 2024 despite lingering global and regional geopolitical tensions. Large financial inflows have contributed to strong domestic demand and comfortable levels of FX reserves, while prudent fiscal policy has resulted in low fiscal deficits and anchored a continued reduction in public debt. Improved banking soundness has bolstered confidence in the banking system, supporting financial deepening.
Policies should aim to build on recent macroeconomic performance to strengthen resilience against external risks and address structural vulnerabilities to growth. Broad-based governance and transparency reforms are central to improving the investment climate and supporting more diversified private sector-led growth.
Inflation remains well-contained, but large FX inflows and strong credit growth warrant caution. Strong monetary growth calls for greater exchange rate flexibility and proactive liquidity management to help manage financial inflows. Meanwhile, financial stability can be further strengthened by expanding the use of macroprudential tools and beneficial ownership information in banking supervision.
Improved revenue mobilization and spending efficiency are key to increasing fiscal space for priority social and development projects. A continued focus on streamlining tax exemptions and customs preferences is central to balancing large development spending needs and debt sustainability objectives and would reinforce ongoing efforts to improve tax administration. Improved appraisal, selection and oversight of internally financed capital projects is crucial for enhancing the efficiency of public investment in line with the PIMA recommendations. Well-functioning government securities markets are also essential to enhance budget flexibility and reduce reliance on external debt.
Pressing ahead with broad-based SOE reforms is critical to mitigate fiscal risks and create space for private sector led growth. Continued effort to improve the financial position of the state electricity generation company is essential to expand the role of the hydropower sector as a source of sustainable, green growth. Enhancing SOE governance and oversight can go a long way in raising productivity to unlock the economy's long-term potential and promote more diversified and inclusive growth.
