Tajikistan’s Covid-19 recovery needs private sector participation

Tajikistan needs to unleash its pent-up investment potential to ensure it recovers from Covid-19.

The Covid-19 pandemic has had significant adverse impacts on Tajikistan’s economy, as in other parts of the world, and is amplifying health and social pressures, according to the World Bank.

Growth slowed to 4.2 per cent in the first nine months of 2020, compared to 7.2 per cent a year earlier.

“Restrictions on labour mobility and economic activity at home and abroad have resulted in lower migrant remittances, weaker consumer demand, and reduced investments,” says Bakhrom Ziyaev, an economist at the World Bank. “Unfortunately, a growing share of the population is projected to fall into poverty, undermining the progress made in this area over the past years.”

Food insecurity

According to the bank’s Tajikistan Economic Update: Economic Slowdown Amid the Pandemic, after a sharp decline in April and May 2020, the labour market began quickly recovering from June to August in the absence of lockdown measures.

However, severe vulnerabilities remain. Among these are continued work disruptions, with a rising share of analysts believing that job losses may be permanent. Food insecurity meanwhile remains seriously elevated and far above 2019 levels: over 40 per cent of households reported that they had been forced to reduce their consumption of food. Among those households seeking any medical care since the outbreak, 20 per cent reported being unable to obtain that care.

Experts note, however, that with the right policy responses, Tajikistan’s economy is expected to gradually bounce back in 2021–22. This scenario assumes availability of the Covid-19 vaccine, strengthened regional economies, and the restoration of remittance inflows and international trade.

“The key to unlocking dynamics with which to respond to Tajikistan’s principal policy challenges, now amplified by the Covid-19 pandemic, rests with the ability to provide entrepreneurs and investors with the predictability and perspective inherent in clear and fair rules,” says Jan-Peter Olters, World Bank country manager for Tajikistan.

“The ongoing work on tax reforms, joint with a focus on upgrading the environment for the telecom sector or food production and processing, could help to unleash pent-up investment demand, increase economic self-reliance, foster exports, and contribute to the creation of new enterprises, jobs, and additional budgetary revenues.”

Risks to recovery

Among potential risks to the recovery, experts note intensification of the pandemic with the following prolonged restrictive measures, as well as slow progress in structural reforms, including on business environment and inefficient state-owned enterprises.

The private sector’s role in the economy remains limited, contributing to only 13 per cent of formal employment and 15 per cent of total investments.

Tajikistan’s public debt is expected to spike over 50 per cent of GDP  in 2020, and any new non-concessional borrowing will significantly add to the pressure on public debt sustainability.

To ensure the soundness of public finances, the government has committed to consolidating the budget and has updated its debt management strategy for 2021-2023 to guide it through borrowing criteria and debt ceilings over the medium term.

With support from development partners, the government is expected to continue maintaining healthcare and social protection expenditures.

Tajikistan’s high vulnerability to climate change and natural disasters also represents an additional challenge to successful economic management. Between 1992 and 2016, natural and climate-related disasters led to GDP losses of roughly 1.8 billion US dollars, affecting almost seven million people.

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