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Economic Activities Strong as IMF Executive Board Concludes 2019 Article IV Consultation with Republic of Tajikistan

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The economic activities of Tajikistan have been rated strong as the International Monetary Fund (IMF) submitted its report after it concluded the Article IV consultation with the Republic of Tajikistan.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.
On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.
The Executive Directors commended the authorities for the solid growth performance, poverty reduction, and improvements to bank supervision and regulation, as well as progress in further developing the monetary and macroprudential frameworks.
Noting that continued large external and fiscal deficits create a challenging macroeconomic outlook over the medium term, Directors emphasized the importance of protecting macroeconomic stability and supporting sustainable growth.
They encouraged further fiscal consolidation, greater exchange rate flexibility, measures to strengthen the financial sector, and structural reforms to improve the business environment and governance framework.
The IMF team reported that reported that economic activity was strong in 2018-19 while inflation has picked up in the past year due to base effects and food price inflation in partner countries but remained within the National Bank of Tajikistan’s (NBT) target range.
“Weak remittances and exports and strong imports have contributed to a deterioration of the external current account. The real effective exchange rate has appreciated, and foreign exchange shortages have emerged.
“Fiscal policy has been expansionary with the overall 2019 deficit projected to reach 3.8 percent of GDP. Public and publicly guaranteed debt has been stable as the deficit has been financed from the proceeds of the 2017 Eurobond.
“Reforms to place the loss-making energy sector on a sound financial footing are underway. Nonetheless, debt vulnerabilities are rising on account of non-guaranteed borrowing by state-owned enterprises (SOE).
“The financial sector is recovering from the 2015-16 crisis, with a decline in nonperforming loans and improved profitability. The authorities have taken steps to strengthen bank supervision and regulation. However, two formerly-systemic banks remain insolvent and further reforms are needed to restore public confidence in banks,” the IMF team reported.
It was also gathered that the fiscal deficit is expected to remain high over the medium-term owing to the large Roghun hydro-power construction project, putting debt on an unsustainable path.
“Together with limited exchange rate flexibility, the fiscal deficit is expected to contribute to a weak external position, with the current account deficit over 5 percent of GDP.
“In a weak global environment, these factors are expected to weigh on confidence and growth is projected to moderate to 4 percent over the medium term. Inflation is expected to remain moderate,” it added.
The directors encouraged sustained and strong implementation of structural reforms to improve the business environment and foster higher and more job-rich growth in the medium term.
They also underscored the importance of undertaking measures to improve the governance of core economic institutions and SOEs and to enhance the rule of law and anti-corruption policies to boost investment and inclusive growth. Improvements in the quality and timeliness of economic data would strengthen economic analysis and policy making.

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