“Measures to minimize the effects of the crisis should be directed to the social, monetary and financial sectors, to curb the weakening of the national currency, reduce interest rates on additional costs, suspend financing of high-cost projects and freeze the allocation of funds for the construction of image facilities,” Professor Zarina Dadabaeva analyzes the consequences of the corona-crisis for the Tajik economy in an article, written specifically for CABAR.asia.
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The mirror year 2020 began with disturbing news about the emergence and spread of a new virus in the world. Tajikistan from the countries of Central Asia, except Turkmenistan, the longest declared the absence of a virus in the country, which was confirmed by the statements of then- representative of the World Health Organization (WHO) G. Perfilyeva. At the same time, it is possible to leave alone how these statements corresponded to reality at that moment in time. From March 2020, China’s neighbors in the region, Kazakhstan and Kyrgyzstan, gradually blocked the borders not only with China, but also with their closest neighbors in the region, and announced a quarantine or high alert. Uzbekistan has reacted quite quickly to the situation and since March 16, they have not only suspended air and road services, but also announced an unscheduled vacation for schoolchildren and students.
First of all, the problems of countries in a pandemic are felt in the social and economic plane. Ensuring access to quality medical care and maintaining a normal standard of living, largely depends on the economic situation of the country.
Before analyzing the impact of a pandemic on the country’s economy, which is inevitable and, unfortunately, will most likely be negative, it is necessary to understand how the country has developed in recent years and on which sectors the attention was primarily focused.
Economic development of the country
As is known, despite the efforts made by Tajikistan, it cannot yet boast of high economic achievements. In addition to objective natural factors, including: annual significant population growth (2% on average), high mountains, insufficient amount of land suitable for cultivation (93% of the mountain), lack of access to sea routes, outflow of highly qualified personnel; there are subjective factors: the choice of economic strategy, repressive fiscal policy, high taxes, difficult business conditions, dependence on foreign investment and technology, which inevitably left their mark on the country’s economic development.
In recent years, Tajikistan has paid special attention to “industrialism”, in order to increase the efficiency of the use of national resources. In particular, in the National Strategy for the Development of the Republic of Tajikistan for the Period until 2030, adopted in 2016, to ensure the sustainable development of the country, industrialism was mentioned in a series of three basic development principles. However, in April 2020, the President of Tajikistan emphasized that the country is still, to a greater extent, agrarian and agricultural.
Nevertheless, it can be said that a mixed agrarian-industrial economy has developed in the republic. The last five years gives reason to say that with small steps the republic is trying to develop industrial production, but it is growing at an extremely slow pace and one-sided, and the increase in industrial volumes in 2018-2019 was mainly due to increased mining and production of electricity, the efficiency of sewing and textile production, as well as a boom in infrastructure and civil construction.
According to the statistics agency under the President of the Republic of Tajikistan, in 2018 the growth rate of industrial production amounted to 111%, compared with 2017, due to a significant increase in the mining industry, in 2019 the share of industry, including energy, amounted to 17.4%. In 2019, the share of agriculture in the country’s GDP was 19.8% (in 2017 – 21.1%).
An independent search for sales markets by dekhkan (peasant) farms led to a change in the types of agricultural products, the cultivated area for cotton decreased from 239 thousand ha in 2000 to 188.5 thousand ha in 2019 with an increase in the area for sunflower, grain and leguminous crops. The share of the population employed in agriculture in 2018 was 44.8%, in industry – 10.4%. As of March 2019, 45.4% of the working age population was employed in agriculture, 9.7% in industry, including manufacturing, mining and construction. According to the World Bank in 2019 in Tajikistan, “industry and the service sector were the main factors of economic growth on the supply side …. on the demand side, economic growth was supported by increased demand in the domestic market”. In 2020, exactly these areas will be the most affected by the pandemic and the order of numbers by the end of the year will be clearly different, most probably downward.
Forecasts and problems
Growth drivers were the food industry, the production of non-metallic products and the generation of electricity. The improvement of bilateral relations with Uzbekistan, which stimulated domestic demand, wholesale and retail trade, had its positive effect. According to the World Bank, the volume of imports from Uzbekistan over the eight months of 2019 increased by 37% compared to the same period in 2018. Natural gas was imported into the republic from Uzbekistan in January – April 2019 in the amount of 8177, 2 thousand USD. Electricity generation in the republic increased by 10.8%.
Thus, despite the opinion of some experts that the Tajik economy is stagnating, it was possible to observe a good GDP growth in 2017-2019, considering all the available negative external and internal factors. However, according to preliminary forecasts by the EDB and ADB, GDP growth in Tajikistan in 2020 will slow down within 2%, as in all countries of the region.
Nevertheless, compared with neighboring countries, Tajikistan will still have good indicators: although growth will slow down, it may reach 5.5% compared to neighbors with indicators no more than 1-2%. The fact that quarantine measures in the republic were not as long lasting as, for example, in Kazakhstan or Uzbekistan will play a role here. And business losses, which certainly exist and will continue to take place, will not be as high as, for example, in Kazakhstan, Uzbekistan and Kyrgyzstan. From June 15, enterprises rendering services to the population in Tajikistan should resume their work, but with the observance of preventive measures, while in neighboring countries they exit the lockdown very gradually.
Surely, some issues will occur, against the background of annual growth of 6-7% of GDP in 2013-2019, the dynamics of state budget revenues was only 3.6% and significantly behind GDP. If in 2017 this problem was solved by issuing Eurobonds in the amount of $ 500 million and loans from China, then in a pandemic, the government will most likely have to revise the country’s budget, which will receive less taxes: which according to forecasts, would have been 75 % of the state budget revenues ($ 2.5 billion).
There are no advantages from the pandemic for the economy due to the fact that the cost of imported and exported agricultural products is high, since the complexity of logistics leads to the need to cross three borders. Transportation of goods to and from the republic is carried out both by long and shorter routes, mostly by road, but also by railway and air services. There are various automobile routes that pass, including from Tajikistan, through Kyrgyzstan and Kazakhstan to Russia. There is a long way from Russia through Kazakhstan, Uzbekistan to Tajikistan. Since April 2020, in connection with the pandemic, international cargo transportation has been carried out through 7 checkpoints, the conditions of transportation have been tightened. In addition, Kazakhstan and Kyrgyzstan are part of the EAEU, where their phytosanitary measures have been taken, which without certified laboratories (there are no laboratories in Tajikistan) cannot be overcome. Similar types of products with neighbors (cotton, fruits, vegetables, dried fruits, drinks, wool) are not competitive in this case. Entrepreneurs, with the help of international organizations, are trying to diversify agricultural exports and expand the circle of importing countries.
Speaking generally, about the advantages of the economy of the Republic of Tajikistan with closer interaction, for example, for the EAEU countries, then they exist – this is energy sector. Great hydropower potential with proper management will provide cheap and clean electricity to the inland and southern part of Eurasia.
At the same time, the coronavirus pandemic can reveal the weaknesses of the economy of the republic. First of all, it will affect the most vulnerable sectors, such as trade, services: especially transport and tourism. In conditions of high dependence on imports, especially food products, and, accordingly, high dollarization and exchange rate hikes, this will lead to an inevitable increase in prices for basic food staples and inflation. In April 2020, inflation in the country’s consumer sector amounted to 4.9%. From January to April, according to the statistics agency under the President of the Republic of Tajikistan, food products went up by 9.3%, while non-food and paid services, on the contrary, fell by 0.3%.
The services sector, which occupies more than 45% of the sectoral contribution of the country’s GDP, will feel no less consequences. In the structure of the economy in 2017, services occupied a little less than industry and agriculture combined (49%). The short closure of restaurants, cafes, hotels, hairdressers, the shutdown of legal taxi services (one of the fastest growing segments of the market) caused significant losses in income alongside with the spread of coronavirus. Taxi orders, for example, fell by 50-60%.
In recent years, Tajikistan has devoted all its efforts to the development of skiing, medical, ethnographic tourism and even received support and grants from international organizations (ADB in the amount of $ 10 million) and UN agencies. Now, due to the pandemic and the closure of countries, the tourism sector will not receive the expected profit.
Decrease in foreign and domestic investments
Among other things, domestic investment is expected to decline, due to the general unfavorable situation in the economy. Tajikistan’s major investment partner is China, 75% of FDI belongs to China, and everything will depend on how quickly it recovers from the pandemic.
Remittances are a significant source of income for the country: in 2019, labor migrants transferred over 2.7 billion dollars to the republic, which amounted to about 30% of the country’s GDP. In 2020, according to Bloomberg, cash receipts from Russia to Tajikistan decreased by 50%. This was facilitated by preventive measures introduced in Russia and Kazakhstan related to the pandemic, a sharp drop in oil prices, which led to a crisis in Russia and deprived most of migrant workers of their earnings. This is important, because in January-April 2020, the budget of Tajikistan has already lost $ 58 million. At the same time, the decrease in transfers began in December 2019, but then, this happened due to the introduction of the National Processing Center in the republic, which was created to control the funds received in the republic, bypassing which, the money could not get into the country.
The Center envisaged special rules for the transfer of funds through correspondent accounts. Money transfers made through Russian and international systems: “Unistream”, “Contact” (about 12% of all transfers), “Blizko”, “MoneyGram”, “Western Union”, “Zolotaya Korona” (more than 90% of transfers) were to be implemented only within the limits of funds placed with the National Bank of Tajikistan, that is, prepaid. And this entailed not only additional expenses, but in the case of, for example, Russia violated Russian financial legislation (161 – Federal Law of the Russian Federation “On the National Payment System”), according to which: “a clearing center for Russian money transfer systems, and they maybe … the Central Bank, or a Russian bank, or VEB.RF, but not a foreign structure.” By the end of December, the situation was resolved, and Unistream, Contact and Western Union connected to the processing center, through which in December 2019 the volume of transfers amounted to 18 million USD compared to the same period in 2018 (9.6%). For the whole of 2019, 2731 billion USD was transferred to Tajikistan by labor migrants. In January-February, traditionally, the flow of remittances decreases due to long holidays in Russia, but already at the end of the first quarter this indicator usually increases by 30%. In 2020, due to the pandemic, the closure of borders, the restriction of the activity of small and medium-sized businesses, migrants lost their usual earnings and transferred about 15% of the usual remittances to the republic in March.
The work of the republican headquarters on the prevention of the spread of COVID-19 is aimed at combating a new viral infection in Tajikistan, it is focused, first of all, on minimizing the consequences in the field of public health and social security. To alleviate the situation and minimize possible risks, even before the official announcement of the presence of coronavirus infection, President E. Rahmon turned for financial, and technical assistance to international organizations and developed countries.
The international community has responded with humanitarian aid, soft loans and grants. Thus, in May, the IMF allocated 189 million USD to Tajikistan to support the economy in a pandemic through an accelerated concessional lending mechanism for 10 years with a 5-year exemption period. The balance of Tajikistan’s debt to the fund at the beginning of 2020 amounted to about 30 million USD. Tajikistan was also among the 25 countries of the world (the only one in the post-Soviet space), which the IMF facilitated the payment of debts through the provision of grants for two years.
For activities aimed at preventing possible risks, a grant of 11.3 million USD was provided by the World Bank.
The country received a grant of 100 thousand USD from the Asian Development Bank for the prevention and control of the new coronavirus, as part of an ongoing project for the comprehensive care of maternal and child health.
The European Union allocated 78 million Euro, of which a grant of 48 million Euro and a loan from the European Investment Bank in the amount of 30 million Euro to implement the government’s anti-crisis plan. As well as special target funds of 1.3 million Euro for the purchase of workwear for health workers and 780 thousand Euro for sanitary products for educational institutions.
Through the German Development Bank (KfW), Germany allocated 1 million Euro to purchase personal protective equipment, medical equipment and financing the training of doctors and other specialists. For accelerated funding, it was decided to allocate funds under the current program for the protection of mothers and children in Tajikistan.
The US Government, through the United States Agency for International Development (USAID), the US Centers for Disease Control and Prevention (CDC), and the Aga Khan Foundation (AKF), have allocated a total of 5 million USD to support the country’s efforts to combat the pandemic and implement programs aimed at to control, prevent, food support, create new jobs for the most vulnerable segments of the population. The USAD partners will also be involved in this work: The International Federation of the Red Cross, the World Health Organization through its representative offices in the Republic of Tajikistan.
In addition to humanitarian aid, Russia provided sets of test systems designed for 22 thousand studies. The assistance from China consisted of lung ventilation devices, medicines, protective equipment and other equipment for a total amount of more than 1 million USD.
India have sent humanitarian aid to the country in the form of medicines and special equipment, the Tajik pharmaceutical company Orienfarm managed to acquire in India and deliver medicines and medical equipment to the republic on a special charter flight. Assistance in the amount of 50 thousand USD was transferred to Tajikistan from Switzerland and UNICEF in the form of personal protective equipment and medical materials.
Tajikistan received food aid and medical products from its neighbors in the region (Uzbekistan and Kazakhstan) as well. Uzbekistan also sent doctors and medical containers to deploy a temporary hospital.
Thus, the external assistance of the international community amounts to millions of USD and Euro and is aimed primarily at supporting the population, medical institutions and workers, which should contribute to the effective fight against COVID-19. If financial means and medical equipment, food aid are properly distributed, then perhaps the risks of a pandemic will be less destructive.
With regard to internal factors, measures aimed at easing the fiscal policy should play a significant role here, through soft loans (loans are now issued at 25%) and deferred tax payments, subsidies to the most affected sectors, and the development of incentives to support small businesses, private sector and services, which include: tourism, hotels, cottage industry, dehkan (peasant) farms. It is also necessary to allocate additional funds to the social sector, increase the amount of benefits to support families with children, as well as financial assistance to migrant workers who remained at home.
Thus, in the context of a corona-crisis, as noted by most experts, the Tajik economy will be in a difficult position. As it was noted, the closure of borders has already led to higher prices for food and basic industrial goods, the flow of remittances has decreased, due to quarantine measures introduced in the countries of traditional residence of labor migrants. The available reserves of the National Bank, according to experts, may be insufficient to support the country’s economy in a crisis.
In this connection, measures to minimize the consequences of the crisis should be directed to the social, monetary and financial sectors, to curb the weakening of the national currency, reduce interest rates on additional costs, suspend financing of high-cost projects, such as, for example, the construction of the Rogun HPP, and freeze the allocation of funds for construction of image facilities.It is necessary to change the drivers of economic growth and create competitive products.
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.
 Socio-economic situation of the Republic of Tajikistan. Report 2018.S. // http://stat.ww.tj/posts/february2019/12-180-2018-doklad.pdf
 Annual review of the state of the economy and the main directions of foreign economic activity of the Republic of Tajikistan for 2017 – Dushanbe 2018.P.11-12
 Chorshanbiev P. V. Agriculture still dominates Tajikistan’s GDP structure https://asiaplustj.info/ru/news/tajikistan/economic/20200122/v-strukture-vvp-tadzhikistana-vse-etshe-preobladaet-selskoe-hozyaistvo
 Annual review of the state of the economy and the main directions of foreign economic activity of the Republic of Tajikistan for 2017 – Dushanbe 2018.P.11-12
 Socio-economic situation of the Republic of Tajikistan. Report 2018.P.218 // http://stat.ww.tj/posts/february2019/12-180-2018-doklad.pdf
 Socio-economic situation of the Republic of Tajikistan. Report 2019. Dushanbe. Agency for Statistics under the President of the Republic of Tajikistan. S.219
 Tajikistan economic report. Autumn release 2019 // http://pubdocs.worldbank.org/en/778131575020956619/Tajikistan-economic-update-fall2019-ru.pdf P.6
 Ibid. P 9
 Socio-economic situation of the Republic of Tajikistan. Report 2019. Dushanbe. Agency for Statistics under the President of the Republic of Tajikistan. S.253
 The crisis ahead: what awaits the Tajik economy after the coronavirus // https://m.tj.sputniknews.ru/country/20200427/1031141289/krizis-ekonomika-tajikistan-koronavirus.html
 Crisis in Russia Puts $13 Billion of Remittances at Risk // https://www.bloomberg.com/news/articles/2020-04-14/russia-s-coming-crisis-puts-13-billion-of-remittances-at-risk
 Chorshanbiev P. The state budget of Tajikistan for four months missed about $ 60 million.
 Dementieva K., Arapov V. Tajikistan runs ahead of the transfer // Kommersant newspaper No. 147 P from 08.19 2019 P.1