Tajikistan

Asia

GDP per Capita ($)
$1,066.8
Population (in 2021)
9.8 million

Assessment

Country Risk
D
Business Climate
D
Previously
D
Previously
D

suggestions

Summary

Strengths

  • Abundance of natural resources (minerals and cotton)
  • Huge hydroelectric potential with the construction of the Rogun dam
  • Young population (50% under 25)
  • Assurance of financial support from multilateral and bilateral donors, including China
  • Member of the Belt and Road Initiative (BRI) led by Beijing

Weaknesses

  • Heavy dependence on Russia (diaspora transfers and defence) and China (infrastructure and debt)
  • Dependence on exports of raw materials and limited diversification of the economy
  • Weak and underdeveloped banking system
  • Limited role of the private sector compared with state-owned companies, low FDI (1.4% of GDP in 2023, 90% of which comes from China)
  • Nepotism, poor governance and a deteriorating business environment
  • Neighbouring Afghanistan and low-intensity conflict with Kyrgyzstan
  • Difficult geography and high vulnerability to natural disasters

Trade exchanges

Exportof goods as a % of total

Switzerland
32%
Kazakhstan
18%
Uzbekistan
13%
Turkey
12%
Europe
6%

Importof goods as a % of total

Russia (Russian Federation) 31 %
31%
Kazakhstan 22 %
22%
China 16 %
16%
Europe 5 %
5%
Uzbekistan 5 %
5%

Outlook

This section is a valuable tool for corporate financial officers and credit managers. It provides information on the payment and debt collection practices in use in the country.

Weaker growth against a backdrop of normalisation of diaspora remittances

Economic growth is set to slow in 2024 and even more so in 2025. Remittances are the country’s main growth driver. They derive from expatriate workers (37.4% of GDP in 2023) and mainly come from Russia. They largely fuel household consumption and are expected to become scarcer, signalling a gradual return to normal after the record figure of 2022 (50.9% of GDP). At the same time, virtually all sectors, apart from services, will record lower levels of growth after the positive results of 2023. Tajikistan will also be able to rely less on its limited export base (also in decline) made up mainly of mining products (gold, copper, zinc, lead, etc.), which represented 58.6% of exports in 2022, cotton (10.1%) and aluminium (7.0%), due to a fall in global demand.

All headwinds aside, the government is relying almost exclusively on a handful of flagship infrastructure projects, supported at arm's length by public spending, to sustain growth and create jobs, even if weak governance and an opaque business environment limit the prospects of such a strategy. The construction of the Rogoun dam, the highest in the world, on which work has been postponed several times, resumed in 2022 and is due to be completed in 2039, is just once such project. Accounting for almost a quarter of public capital expenditure (11.3% of GDP in 2023), the project should ultimately make Tajikistan a regional leader in electricity production, with significant gains in export revenues and potential growth (of the order of 0.5 percentage points). The government, which is financing a large part of the project, is struggling to mobilise external funding despite the support of several multilateral development banks and, to a lesser extent, a few long-standing bilateral partners (Saudi Arabia, UAE), while the remaining construction cost has been billed at close to USD 6.4 billion.

The development of credit to the private sector, which is lacklustre in Tajikistan (12.3% of GDP in 2023), should continue in 2025, as in 2024, accompanied by the expansionary policy of the National Bank of Tajikistan (BNT). Its main key rate (9% in August 2024) has fallen by 450 basis points since October 2022, while the gradual de-dollarisation of the financial sector (with the ratio of foreign currency loans falling from 65% to 35% between 2015 and 2023) is giving it an increasingly important role. Inflation is set to start rising again from 2024 – it still within the BNT's target range of between 4% and 8% – but is damping growth in household consumption in the process (84.5% of GDP in 2023), while the economic slowdown in its powerful neighbour Russia is likely to further reduce remittances to families back home beyond mere normalisation. At issue are the 40% increase in pensions and public salaries and the rise in electricity tariffs on 1 January 2024, while downward pressure on the somoni could exacerbate the rise in prices of basic products which are mainly imported.

Deterioration in public and external accounts

Despite the authorities' apparent plan to remain close to a balanced budget, the deterioration in the country’s public finances is likely to continue in 2024 before stabilising in 2025, in line with a maximum deficit of 2.5% of GDP. This trend reflects, above all, the ever-increasing capital expenditure (the main item of expenditure) needed to finance the construction of the Rogoun hydroelectric power station and other major infrastructure projects. It is also the result of the government maintaining the pervasive social spending policy (in particular in the energy and agricultural sectors) which has been in place since the pandemic. Despite the tax cuts provided for in the new tax code introduced in January 2022 (under the supervision of the World Bank), revenues are also set to rise, driven by economic growth (albeit at a slower pace) and the gradual abolition of certain inefficient tax exemptions, although they will not be able to offset the government's expansionary policy. The public deficit will be largely financed by external resources, by the extension of loans granted by China (the largest creditor) and the support of regional multilateral donors, reassured by the technical assistance provided by the IMF through its Economic Policy Coordination Instrument (EPCI) since February 2024 for a period of 22 months. Public debt, almost 90% of which is held abroad, will continue to fall, albeit at a much slower pace.

The current account balance has returned to a slight deficit since 2023, after three years of surplus driven by record levels of remittances from the diaspora. The large deficits in the trade balance (-29.8% of GDP in 2023) and the services balance (-5.4% of GDP) are widening under the combined effects of slower export activity and the robustness of imports of consumer goods, inputs and services for infrastructure projects. These imbalances are no longer being fully offset by remittances from seasonal workers or expatriates in Russia and Kazakhstan (34.4% of GDP in 2023), the growth of which slowed in 2023 and is likely to decline further in 2024 and 2025 as they are no longer as welcome there since the Crocus City Hall terrorist attack. The current account deficit will be financed by grants and project loans, which are still largely concessional, from bilateral and multilateral partners so that foreign exchange reserves - equivalent to 7 months of imports at the end of 2023 - will remain at a comfortable level.

Fierce repression by Emomali Rahmon's regime

The President of Tajikistan, Emomali Rahmon, maintains an authoritarian and repressive political system while gradually anchoring his family in power. His son, Rustam Emomali, became president of the Upper House of Parliament in April 2020, putting him in prime position to succeed his father, who has ruled the country since 1994. Exacerbated by the lack of individual freedoms in this landlocked country, which is one of the poorest in Central Asia, the population's discontent continues to grow. However, the risk of an uprising remains relatively unlikely given the severe political and religious repression by the current government. Hence, barring any surprises, Emomali Rahmon and those close to him will remain firmly in power well beyond the next legislative elections set for 2025 and the Presidential elections in 2027 which, like all those previously, will most probably be marred by numerous irregularities.

Internationally, Tajikistan is maintaining a neutral stance on the war in Ukraine despite its strong historical ties with Russia (both in relation to the economy and security) and its membership of the Collective Security Treaty Organisation (CSTO), which brings together six former Soviet republics under Moscow's leadership. However, as the Kremlin becomes more involved in the war, the influence of China, Russia's leading bilateral partner in terms of aid, loans and investment, is growing, in tandem with Beijing’s expanding military presence. The country has also been a member of the Shanghai Cooperation Organisation (SCO) since its creation in 2001. Tajikistan also faces two direct threats in the region. The first is with Kyrgyzstan, where disputes over borders and the sharing of water following the collapse of the USSR have led to regular clashes, the most recent of which resulted in the deaths of several hundred soldiers and civilians between 2021 and 2022, as well as in the massive displacement of the population. The second is with Afghanistan, where Dushanbe disapproves of the Taliban regime, which has been in power since 2021, and the proliferation of even more extreme terrorist groups which pose a threat to Tajikistan's internal security. All the more so as the extremely porous border between the two countries encourages the comings and goings of a predominantly Tajik population in northern Afghanistan, which recruits easily in Tajikistan where religious repression is much resented. Tajikistan's international image has also suffered since the Islamist attack on Moscow's Crocus City Hall in March 2024 that was perpetrated by Tajik immigrants and resulted in the deaths of almost 150 people.

Last updated : August 2024

Other country with similar country risk