Mission Concluding Statement 

Tajikistan: Staff Concluding Statement for the 2025 Article IV Mission

May 2, 2025

Washington, DC: An International Monetary Fund (IMF) mission led by Mr. Matthew Gaertner held the 2025 Article IV consultation and discussions on the second review under the Policy Coordination Instrument (PCI) with the Tajikistan authorities during April 2-15, 2025, in Dushanbe. At the conclusion of the mission, Mr. Gaertner issued the following statement:

Economic Developments, Outlook and Risks

Strong broad-based growth continued in 2024, and the external position remained favorable. Real GDP increased 8.4 percent in 2024, marking the fourth consecutive year of growth above 8 percent, as strong momentum in mining, manufacturing and agriculture was underpinned by public and private investment. Strong financial inflows, including remittances, have also supported domestic demand and liquidity and contributed to a current account surplus of 6.2 percent of GDP in 2024. This alongside the NBT’s purchases of domestic gold production has boosted FX reserves from $3.6 billion at end-2023 to $4.7 billion at the end of February 2025, amounting to 7 months import coverage.

Inflation remains well contained within the NBT’s target range. Twelve-month inflation stood at 3.7 percent in February, within the NBT’s updated target range of 5 percent (±2 percent) for 2025, reflecting stable prices for imported food and fuel and an appreciation of the somoni against key trading partner currencies. Reserve money growth has moderated since mid-2024 as the NBT stepped up its sterilization efforts but remained strong at 32 percent (y/y) in February, boosted by the NBT’s gold purchases.

Banks’ asset quality continued to improve in 2024, amid strong growth in consumer lending. Banks’ NPL ratio declined to 7.0 percent in February as they continued to clean up their balance sheets, largely through write-offs of legacy NPLs. Credit to the private sector grew at 29 percent (y/y) in February, boosted by a continued expansion of banks’ deposit base. This has been primarily driven by household loans in local currency, supported by the introduction of new retail lending products.

The medium-term outlook appears positive. Real GDP is projected to increase by 7 percent in 2025, retaining the current strong momentum. Twelve-month inflation (y/y) is projected to remain close to the mid-point of the NBT’s target range in 2025 and 2026, in line with stable inflation expectations. The current account surplus is expected to narrow in 2025 as financial inflows stabilize, with FX reserves projected to remain at comfortable levels. Financial inflows are expected to normalize over the medium term after the strong inflows experienced since 2022, heightening the importance of continuing to advance structural reforms to strengthen potential growth over the medium-term.

Risks to the outlook are tilted to the downside, in the context of significant regional and global uncertainty. A pronounced decline in financial inflows due to a less favorable environment for remittances or a slowdown in Tajikistan’s key trading partners would adversely affect growth, fiscal performance, and the banking sector. More frequent and severe natural disasters and heightened security risks can also strain budget resources. On the upside, continued strength in gold prices and rising demand for rare earth metals could attract increased investment in the mining sector.

Fiscal Policy

Fiscal performance remained well within the program target in 2024, with a fiscal surplus of 0.3 percent. The favorable fiscal outturn was underpinned by stable revenue growth despite a reduction in the VAT rate from 15 to 14 percent, while externally financed capital spending was lower than planned. Revenue collection reflected continued improvements in tax and customs administration supported by digitalization measures. The 2025 budget envisages a fiscal deficit of up to 2.5 percent of GDP, conditional on available financing. In this context, continuing to expand the domestic debt market is key to diversifying sources of financing. The MOF successfully launched market-based auctions of government securities in 2024; establishing a robust secondary market for these instruments will help to expand the investor base and further deepen the market.

The fiscal deficit target of 2.5 percent of GDP remains an important anchor to ensure that debt remains on a favorable medium-term trajectory. Prudent fiscal policy coupled with strong GDP growth has contributed to a notable reduction in the public debt ratio over the past few years, with public debt declining to 25 percent of GDP at the end of 2024. Public debt is assessed as sustainable but remains at high risk of distress due to large debt service obligations during 2025-2027; the first semi-annual Eurobond repayment was completed as planned in March. Building fiscal buffers is key to mitigating fiscal risks from potential shocks to revenue and expenditure in the context of the uncertain external environment, with contingency plans for spending reprioritization to protect social assistance and other critical spending.

Improved revenue mobilization and spending efficiency are key to increasing fiscal space for priority social and development projects. The Medium-Term Revenue Plan (MTRP) aims to raise total revenues by at least 2 percentage points to 26 percent of GDP in 2026 through a combination of tax policy, tax administration and SOE reform measures. In line with the MTRP, the MOF has taken steps to improve revenue mobilization through the expansion of digitalization of payments. Moreover, tax exemptions granted to several large investment projects were discontinued in 2024. A time-bound action plan is essential to anchor a further streamlining of tax exemptions and customs preferences over the medium-term. On the expenditure side, strengthening appraisal, selection and oversight of internally financed capital projects are crucial for enhancing the efficiency of public investment.

Strong corporate governance and oversight is essential to strengthen SOE efficiency and minimize fiscal risks. Recent reforms include the expansion of the MOF’s financial monitoring coverage from 27 SOEs to 77 entities with state participation, and amendments to the regulations for SOE board composition to ensure that board members are appointed through transparent and competitive procedures in line with best practices. The MOF has also continued to expand the scope of the annual fiscal risk statement, which provides an overview of SOE performance, including profitability, leverage, and budget allocations to SOEs. The publication of an updated SOE list and completion of the ongoing sectorization exercise will also improve monitoring and oversight.

Greater efforts are needed to improve the financial performance of the electricity sector. Low collection rates for key electricity consumers, together with high technical and commercial losses and end-user tariffs that are below cost recovery levels has led the state electricity generation company Barki Tojik to accumulate sizable arrears to suppliers and creditors. Reducing quasi-fiscal losses in the electricity sector will require sustained efforts to improve collection rates for the largest electricity consumers, as well as implementation of the authorities’ strategy to roll-out smart metering, increase penalties for electricity theft and improve cost controls across the electricity sector. The electricity tariff was increased by about 15 percent in April 2025, and further annual tariff adjustments are envisaged to reach cost recovery by 2027.

Monetary, Exchange Rate and Financial Sector Policies

Inflation remains well contained, but strong credit growth warrants continued vigilance. The NBT lowered its inflation target from 6 to 5 percent (±2 percent) for 2025 to reflect well-anchored inflation expectations, and the policy rate was lowered by 25 basis points to 8.75 percent in February 2025 as inflation remains close to the lower bound. Although the real policy rate is still relatively high at about 5 percent (based on realized inflation), monetary policy should remain data-driven and vigilant to potential upward demand pressure on inflation from strong credit growth and robust financial inflows. Proactive liquidity management also remains essential to moderate the impact of the NBT’s gold purchases and FX interventions on the money supply.

Enhancing exchange rate flexibility is essential to build resilience to external shocks. The NBT has taken several measures to modernize the local FX market, including ending auctions of inward transfers improving the mechanism for executing public sector FX transactions; enhancing the dissemination of information on FX rates; and introducing price-based auctions for FX interventions to facilitate price discovery. The NBT should also aim to limit its FX operations only to avoid disorderly market conditions to facilitate development of the FX market and further support greater exchange rate flexibility.

Strong macroprudential oversight and banking supervision are key to mitigating external risks to financial stability. The banking system has strengthened its balance sheet following the resolution of two troubled banks but may face possible challenges from the volatile external environment and any reversal of recent inflows. Strong lending to households warrants careful oversight of macroprudential norms to ensure prudent lending standards, and close monitoring of maturity mismatches and funding- and asset-side concentration risk. The planned introduction of macroprudential tools and forward-looking stress tests is essential to manage risks posed by strong credit growth.

Structural Reforms

Governance and transparency reforms across economic sectors aim to foster sustainable and inclusive growth. Structural reforms are underway to close existing governance gaps across the public and private sectors through upgrades to the legal and regulatory frameworks. The reforms aim to (i) improve public sector efficiency; (ii) foster financial and private sector development; and (iii) promote an enabling investment climate for private sector-led growth.

Transparent governance and policy frameworks and robust financial safety nets are key to further strengthen trust in public institutions. Good governance fosters macro-financial stability both directly and indirectly by enhancing the credibility and effectiveness of macroeconomic policies. Transparent corporate ownership is critical to promote an enabling business climate based on the rule of law and prudent AML-CFT standards.

Timely and comprehensive macroeconomic data is essential to economic policymaking. The authorities have started publishing fiscal statistics in line with GFS standards and broadened the coverage of state-owned enterprises. Compilation of quarterly demand-side GDP data and expanding the use of GFS-based fiscal data would further strengthen data quality.

Discussions on the policies to complete the second review under the PCI are well advanced and will continue following this mission. The mission would like to thank the Tajik authorities for their hospitality and close collaboration and express its appreciation for the constructive and insightful discussions.