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How to Reform the Financial Market of Tajikistan?

   The financial market of Tajikistan is subject to imbalances and is not able to fully perform its functions, considers Bahrom Sharipov, Doctor of Economics. Further reforms are needed in the financial market to form it as a system of integrated segments, Bahrom Sharipov notes in an article written specifically for CABAR.asia.


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National Bank of Tajikistan. Photo: asiaplustj.info
National Bank of Tajikistan. Photo: asiaplustj.info

A brief summary of the article:

There is a need for a systematic approach to the study of the essence and content of the financial market as a system of integrated segments;

The development of the financial market as a system of integrated segments allows to obtain the effect of synergy;

The financial market of Tajikistan, which is subject to imbalances, is not able to fully perform its functions and is subject to high risks of global challenges and contradictions, and hinders opportunities for additional acceleration of innovative economic growth;

It is important to ensure the effectiveness of interaction between financial market segments for the innovative development of the real sector of the country’s economy;

The formation of the financial market has contributed to the fact that, for example, since 2009, annual inflation does not exceed two-digit values, which indicates the long-term financial stability of the economy;

It is necessary to further expand the degree of integration of the domestic financial market into the global and regional financial markets;

It is necessary to improve state regulation, including the creation of a mega-regulator;

It is necessary to develop and implement a long-term Strategy for the Development of the Financial Market of Tajikistan for the period up to 2050.

Where to find money for development?

The economy of Tajikistan continues to face difficulties in finding funds to finance the national economy. The current model is based on attracting external foreign investment, migrant remittances, and dominated by budget financing of the economy.

At the same time, the tax burden of market participants remains high, which narrows their self-financing potential. The potential of financial market entities, including banks and non-banking financial institutions, is also used to a limited extent.

The latter limits their ability to ensure effective mobilization of domestic savings, their accumulation and transformation into adequate (in terms of size, timing, types of currencies, risk and price) financial resources and placement in the sectors of the national economy, especially in the real sector due to the current imbalances in the domestic financial market.

This also reduces the financial market’s ability to attract foreign investment, which leads to a reduction in lending to the real economy, the disappearance of alternative financing channels, and a deterioration in the availability of financial services for industries in the real sector.

In this regard, the presented article is not only relevant from a scientific point of view, but also practically significant from the position of searching for priority directions for the development of the financial market as the main source of financing for the national economy.

What is a financial market?

Financial globalization, associated with the growth of savings, coverage of all countries and regions of the world, the use of modern information technologies and the emergence of new financial innovations haы become the material basis for the emergence of qualitatively new industrial relations and linkages in the economy.

These processes affected the functioning of the credit market, the market for the circulation of securities, the insurance and foreign exchange segments, determined the growth of their interdependence and integration, and the formation of the financial market as a single system.

However, until now, economists have not come to a unified interpretation of the concept of the financial market. There is also no consensus among scientists on the list of segments that make up the financial market. A number of foreign economists equate the financial market with the stock or securities market.

A number of researchers identify the financial market only with its credit component, as a mechanism for redistributing the capital between lenders and borrowers[1].

In this article, we cannot give a detailed opinion on this issue. However, in our opinion, the above-mentioned methodological approaches, unreasonably impoverish and limit the content of the concept of the financial market as a system. Such approach, firstly, narrows the focus of scientific research and practical use of all channels, mechanisms and tools for mobilizing free savings and their transformation into a wide variety of financial instruments.

Secondly, it leaves out other components outside its regulation, in particular the credit, insurance and currency segments. This creates conditions for the growth of imbalances in the economy and the financial market. This can create conditions for the concentration and growth of risks, which in certain circumstances turn into financial (currency, credit, payment, etc.) and economic crises.

“We propose to approach the understanding of the financial market as a single system of integrated segments.”

Thus, summarizing the scientific works of scholars, we propose to approach the understanding of the financial market as a single system of integrated segments of the far and near abroad, and also considering the work of domestic scientists-economists, we propose to approach the understanding of the financial market as a single system of integrated segments (credit, securities, insurance, currency and gold).

All internal elements of this unified system are in interaction and interdependence with each other, as well as with the external environment, causing the appearance of new connections, including the energy of synergy (enhancing the effect of interaction of several factors).

The main functions of the financial market are the mobilization of free savings in monetary form; accumulation and concentration of small savings by their centralization into large funds of financial resources; redistribution and placement in progressive and efficient industries, enterprises and other market entities; insurance of financial risks; pricing of financial instruments; information and investment functions.

At the same time, the basic principles of the scientifically based formation of the financial market as a system of integrated segments (systematic, integrativeness, manageability, prevention, innovativeness, accessibility, efficiency, etc.) ensure the comprehensive implementation of its goals and functions, achieving high performance, as well as the synergy effect.

Taking into account this methodology, the formed financial market of Tajikistan can be characterized as low-efficient, unable to perform its full functions, and subject to high risks of global challenges and contradictions. This conclusion is confirmed by such trends in the development of the financial market as:

– a slowdown in the banking sector due to the growth of its instability, associated with high risks of lending to the real sector of the economy within the framework of state programs for the development of domestic producers, causing high risks and pressure on the growth of their capital;

– insufficient volumes of lending to the real sector and inadequate resources provided in terms of duration, volumes and debt load;

– huge amounts of cash turnover (up to 79%) in the total monetary circulation, which are outside the banks, as they cannot be effectively mobilized and serve as a basis for credit growth, in particular in the national currency;

– a high level of foreign borrowing by both the state as a whole (public debt is already 32% of GDP) and the banking system (foreign resources and deposits in foreign currency). As a result, any significant fluctuations in the exchange rate of the national currency in relation to foreign currency leads to an increase in the debt burden, both on the budget and on the capital of banks;

– the resource base of banks determines the issuance of most of the loans in foreign currency, shifting some of the costs and risks to private businesses. This is largely the reason that the demand is met for many commodity items through imports.

“The imbalance in the development of the financial market hinders opportunities for additional acceleration of innovative economic growth.”

Prerequisites and results of formation of the financial market as a system of integrated segments in the transition economy of Tajikistan

The analysis of the prerequisites revealed the main institutional prerequisites for the establishment and formation of the financial market of the transition economy of Tajikistan. They include a set of fundamental transformations related to the transition to market relations, the expansion of ownership forms, the privatization of state property, the transformation of the former state banking and insurance systems into market structures, etc.

Consequently, appeared a network of modern commercial banks, new types of credit organizations such as micro-deposit and microfinance organizations and funds, credit unions, as well as such types of non-bank financial institutions as insurance and leasing companies, guarantee funds, credit bureaus, pawnshops, stock exchanges, etc. Their appearance led to the formation of other segments of the domestic financial market in addition to credit, and improved use of domestic free savings to finance the economy.

In general, the formation of the financial market has contributed to the fact that, for example, since 2009, annual inflation does not exceed two-digit values, which indicates the long-term financial stability of the economy. Over the period 2000-2018, the growth of industrial production and agricultural production increased by 5.2 and 3.8 times. Over the period 2010-2018, the country’s average GDP increased by 6.7% annually, and over the past three years, real GDP growth ranged from 6.9 % in 2016 to 7.3% in 2018[2].

At the same time, the admission of serious mistakes in the formation of the country’s financial market has caused it to fail to meet modern requirements in the context of supporting the transition of the national economy to a sustainable, innovative type of economic development.

“Currently, in the structure of the emerging financial market of Tajikistan, only 5% of assets are in the non-banking segment, and the remaining 95% are in the credit segment.”

A network of non-bank financial institutions issued loans to the economy totalling only 95 million somoni (about $ 9.5 million) in 2018.[3]

In the presence of imbalances in the financial market, the main channel for financing enterprises in the real sector of the economy is the credit (banking) segment. It is subject to more pressure and carries financial burden of lending to large and medium-sized long-term investment projects, subject to high risks and costs.

The process of systematic formation of the financial market of Tajikistan was also constrained by the low level of monetization.

Although the rate of monetization of the economy increased, from 7% in 2005 up to 27% in 2018, however, it cannot be assessed as sufficient for the needs of sustainable economic development[4]. Thus, the level of monetization of the economy in most developed countries exceeds 60-150% of GDP, and in advanced transitional and developing financial markets its value exceeds 40-60% of GDP.[5]

Also, due to financial market distortions, in particular the low maturity level of the credit segment, and especially the segments of securities circulation and insurance in the monetary turnover of Tajikistan, most of the free savings are in cash and are traded outside banks and non-bank financial institutions.

The financial market does not sufficiently interact with the real sector

Maintaining accelerated industrialization of production on an innovative basis requires attracting additional external financing from the financial market resources. First of all, by improving the availability of bank loans, which must meet such requirements as long-term investments (from 3 to 5 years or more), low cost of servicing them, and large volumes sufficient to invest in the renewal and expansion of fixed assets.

“The imbalances between segments of the domestic financial market cause a shortage of long-term financial investments, narrow diversification of financing channels, high financial risks and costs of using financial resources, especially bank loans.”

The credit segment, and banks, respectively, were in a difficult situation during the global financial crisis of 2008-2009 and later in 2014-2016. The problems were caused by a slowdown in growth and a decline in lending to the economy, as well as a deterioration in the financial condition of credit institutions. As a result, some credit organizations ceased to exist. So, if in 2010 there were 137 credit organizations, in 2015 their number decreased to 123, and by the end of 2018 to 79.[6]

There is also a tendency towards a decrease in the share of bank assets – from 35.03% of GDP in 2008 to 30.8% of GDP in 2018, or by 4.2%. It is alarming that the share of bank loans in GDP also has a steady tendency to decrease – from 26.54% of GDP in 2008 to 12.60% of GDP in 2018, or by 13.9% .[7]

The problem of rapid rehabilitation and recovery, as well as further sustainable and dynamic development of the credit segment, can only be solved within the framework of the formation and development of the financial market as a single system and the establishment of effective interaction between its main segments and sub-segments.

“The government does not pay due attention to the development of the domestic financial market and its segments.”

However, the government of the country, currently having facilitated access to external foreign financial sources, does not pay due attention to the development of the domestic financial market and its segments. For example, issuing long-term and medium-term government and corporate securities in order to mobilize domestic free savings and invest them in domestic industrial enterprises.

In the primary segment of corporate securities, capitalization increased from 8.45% of GDP in 2008 to 50% of GDP in 2018, or by 41.6%.[8] The volume of accumulated primary capitalization exceeds 34.4 billion somoni or more than 50% of GDP.

However, the growth rate of primary capitalization in the country in recent years has tended to decrease. The primary issuance segment of corporate securities primarily serves the flows of incoming foreign direct investment, which are directed mainly to the development of raw materials and extractive industries, which leads to the preservation of the raw material orientation and backwardness of the economy.

The formation of the primary sub-segment of securities is accompanied by an increase in the gap with the secondary sub-segment, which has not received proper development. The latter is practically not used to mobilize free monetary savings of the population and other market participants for the purpose of direct investment in the national economy. Accordingly, due to the distortions in the financial market in Tajikistan, there is no alternative domestic channel for financing the real sector, including innovative projects, at the expense of domestic savings, in addition to the credit channel.

There is a slowdown in the development of the insurance sub-segment. If in 2008 the share of insurance premiums to GDP was 0.46%, in 2018 it was at the level of 0.34% of GDP, or decreased by-0.12%.[9]

Domestic insurance companies, lacking sufficient capital and reserves, are limited in the ability to take on the risks of real economy entities when implementing investment projects. They do not have modern insurance tools for minimizing and hedging operational, market, credit, currency and other types of risks in the list of insurance services provided. Reinsurance activities are also insufficiently developed, which narrows the possibilities for insuring major risks through reinsurance in foreign insurance companies.

The insurance segment of Tajikistan is many times behind the level of development that is typical of developed financial markets and corresponding insurance segments. The share of insurance premiums in developed financial markets is 6-8 % of GDP (USA, Germany, and Australia), 11-14% of GDP (Great Britain, Finland, South Korea, South Africa) and more than 17-19% of GDP (Hong Kong, Taiwan).

The presence of internal imbalances in the insurance segment, between the predominance of short-term insurance products over long-term types (life insurance, pension savings), as well as between it and the securities circulation segment, limits the possibility of transforming domestic insurance companies into institutional investors that could compete on equal terms with banks and investment companies, both in terms of attracting free savings and investing them in the real economy for a long time.

In Tajikistan, in the context of limited opportunities for hedging currency risks, the dollarization of the economy is of particular relevance.

Hence, the low level of maturity and capacity of the securities circulation segment, including the sub-segment of derivative financial instruments, as well as the insurance segment, causes an almost complete lack of mechanisms and financial instruments to minimize currency risks in the country’s economy. Accordingly, losses from the realization of currency risks of both financial and non-financial enterprises are growing, which, due to this, lose their stability and competitiveness.

In financial markets with developed and balanced segments, the level of currency risks is minimal, which provides additional competitive advantages to the production and financial sectors of the economy.

The fragmentation and formation of three sub-segments (interbank, intrabank, and retail) for the purchase and sale of foreign currency in the currency segment has led to the presence of three types of exchange rates of the national currency and the growth of currency risks, and the deterioration of the availability of foreign currency, primarily for real sector enterprises. The latter is due to the growing financial costs of purchasing foreign currency at an inflated exchange rate, which is necessary for purchasing equipment and technologies from abroad, thereby limiting the opportunities for innovative development of the real sector.

In general, the analysis of the impact of the integrated interaction of financial market segments on the development of the real economy revealed the low efficiency of their interaction, burdened by the high costs of the parties.

On the one hand, this leads to de-industrialization of the national economy, a low share of the real sector in GDP, the backwardness of the structure of branches of the real economy, and the low potential for growth of added value for export and import substitution. On the other hand, the dynamic development of the financial market and its internal segments is constrained, as a result of which there is a low capacity, limited availability of financial resources for market participants, limited opportunities to mobilize available free savings and transform them into investments.

There is a need to integrate the country’s financial market into global markets

The chronically low level of development of the financial market in Tajikistan is also evidenced by the indicator of the composite financial development index calculated by the International Monetary Fund (IMF). The data show that over the period 2007-2017, the level of financial development of Tajikistan remained almost unchanged. There is a slight change in the value of the composite index of financial development – from 0.09 in 2007 to 0.11 in 2017, or an increase of 0.02%.[10]

The main parameters of the financial market of Tajikistan remain low relative to its optimal calculated indicators, as well as relative to the level of parameters of developed and a group of advanced developing countries.

Keeping the indicator of development of the financial market of Tajikistan at a low level among 183 analysed countries of the world, reduces the inflow of private foreign investment into the national economy. Further reforms are needed in the financial market to form it as a system of integrated segments and improve the efficiency of its functions.

Despite the implementation of comprehensive measures for the further development of the domestic financial market, they will not allow to eliminate the existing shortage of financial resources in the near future. This makes it necessary to further expand the degree of integration of the domestic financial market into global and regional financial markets.

For the conditions of Tajikistan, it is necessary to ensure priority in expanding the interaction and interpenetration of those segments of the financial market that are in a depressed and/or rudimentary state, including insurance and securities circulation. This should include the creation of joint pension companies, investment funds, hedge funds and business angels, and other types of non-bank financial institutions that are not yet available in the financial market of Tajikistan.

The latter will make it possible to eliminate existing structural imbalances in a short timeframe, intensify the mobilization of existing domestic savings and their transformation into investment financial resources, and ensure the flow of commercial types of foreign financial resources.

To expand financial integration into the global financial market, it is planned to: gradually remove barriers to transnational financial flows and capital; make extensive use of modern digital and financial technologies; connect to the global financial infrastructure; participate in global financial initiatives; transition to international standards for regulating and supervising the functioning of the domestic financial market; establish close coordination between monetary regulators and supranational financial institutions, etc.

Improving state regulation of the financial market formation

It is proposed to create a mega-regulator on the basis of the National Bank of Tajikistan. It must be endowed with new and expanded additional powers for a cross-sectoral approach to regulating the financial market as a single system object;

It is also necessary to expand the list of regulatory tools and mechanisms, activate self-regulation processes, including transferring part of the authority of the mega-regulator to self-regulating organizations in order to reduce the regulatory burden, costs and risks of financial intermediaries, maintain their initiative and competitiveness with international counterparts, etc.

One of the functions of the mega-regulator is the creation of a modern design of the financial market as an objective condition for the transition to a sustainable and innovative development of the national economy.

The analysis made it possible to determine the outlines of the prospective design (model) of the financial market (table below) and specify its main parameters until 2050:

Design (theoretical model) of the developed financial market as a system of integrated segments. Scheme of the author of the article. During its establishment, the data from the website of the Bank of Russia were used: cbr.ru

– in the credit (lending) segment – expanding up to 70-75% of GDP;

– in the segment of circulation of securities (shares) – up to 80-85% of GDP;

-in the secondary sub-segment of securities, in particular the corporate sub-segment of securities – expanding up to 30-35% of GDP;

– expanding the sub-segment of private pension savings – up to 10% of GDP;

– in the insurance segment – an increase of up to 8% of GDP.

The achievement of the above indicators will have a complex impact on the qualitative and quantitative parameters, the structure of the emerging financial market in Tajikistan, eliminate existing imbalances, ensure the effectiveness of its functions, etc.;

For its implementation in practice, it is proposed to develop a Strategy for the Development of the Financial Market of Tajikistan until 2050.

The most acceptable option for establishing a financial market in Tajikistan is a forced-regulated scenario (from 25 to 35 years). This recommendation was adopted taking into account the experience of new industrial countries, which in a short period of time, on the basis of a forced-liberal scenario, were able to increase the level of maturity of national financial markets to parameters close to the developed countries of the world.

The development and implementation of the long-term Strategy for the Development of the Financial Market of Tajikistan for the period up to 2050 should be based on the following methodological provisions:

– long term period – up to 2050;

– phased implementation;

– validity of the provisions of the concept of “financial market as a system of interconnected and integrated segments”;

– using a cross-sectoral approach and taking into account the close interaction and interdependence between the main segments;

– defining the financial market as a single system object of regulation; ensuring continuity of the mentioned strategy with previously adopted concepts, strategies and programs for the development of the national economy, including the MTDP-2020 and NDS-2030, etc.

The implementation of the strategy in practice will ensure the transformation of the financial market of Tajikistan into the engine of future sustainable development of the national economy, reaching the level of maturity of the developed countries of the world.


This material has been prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project. The opinions expressed in the article do not reflect the position of the editorial board or donor.


[1] Марыганова  Е.А. Макроэкономика. Экспресс-курс: учебное пособие/Е.А. Марыганова, С.А. Шапиро.-М.: КНОРУС, 2010.-302с., с . 66

[2] Банковский статистический бюллетень, 2012 (208)-с. 9-21; 2014 (223)- с. 9-20; 2019, с. 8- 20.; TAJIKISTAN, Asian Development Bank (ADB), Key Indicators for Asia and the Pacific 2019, www.adb.org/statistics.

[3] По данным Монетарного обзора финансовых корпораций за 2018 г. Национального банка Таджикистана. сайт http://www.nbt.tj/ru. 10.05.2019

[4] Банковский статистический бюллетень. Февр. 2007/2(139) -С. 15; Там же. – Дек. 2011 /12 (197) -С. 21; Там же. Февр.2014 /2 (235) -С. 16; Там же. – Февр. 2015/2(235) – С. 17. Там же. – Февр. 2017/2() – С.17.  там же.  ноябрь, № 289, 2019. -127., с.18.

[5] Миркин Я.М. Финансовое будущее России: экстремумы, бумы, системные риски. М.: GELEOS Publishing House; Кэпитал Трейд Компани, 2011. — 480 с. с. 27-28

[6] Бонкдори ва сиесати пулию карзи (1991-2011). Нашри аввал. Душанбе, “Эр-граф”, 2011, – 176 с., с. 164. Банковский статистический бюллетень, 2019, № 282, – 127с.,с. 86.

[7] Банковский статист. бюл.*2009, с. 65; за январь 2011- с.; за 2014 – декабрь, с. 100-102; за 2018г.- с.77-78.

[8] По данным Агентства по ценным бумагам и центральному депозитарию при Министерстве финансов РТ

[9] Статистический ежегодник. Агентство по статистике при Президенте Республики Таджикистан, 2019. Душанбе.- с.464-464.

[10] Индекс финансового развития. Сайт Международного валютного фонда.  https://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33B

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