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A new EBRD two-year strategy for Tajikistan has assessed the country’s progress towards a market economy as clearly evident, while transition towards a multi-party democracy and pluralism remains uneven.

Macroeconomic conditions in Tajikistan have improved during the past two years. The economy grew by 10% a year. Inflation was sharply lower. The state budget is in near balance and the country’s poverty reduction strategy is having a measure of success, although per capita income of US$316 in 2004 still leaves Tajikistan one of the lowest-income of the bank’s countries of operation.

Tajikistan’s external debt to GDP ratio has shrunk from 82% to 40% following bilateral agreements with Russia, Pakistan and Iran and strictly observed limits on new borrowing. Although Tajikistan made rapid progress in small-scale privatisation and trade and price liberalisation in a difficult environment during the 1990s, there are still enormous challenges in moving forward.

Little progress has been made in large-scale privatisation, enterprise restructuring and governance, and market-oriented development of infrastructure. The financial sector remains weak, despite steady development in recent years, and does not yet offer the corporate sector sufficient financing resources. Government capacity to introduce and implement new laws remains weak and the functioning of domestic markets is still impeded by informal and physical barriers.

The EBRD identifies four key areas of its new strategy: private sector development through enterprise restructuring and large-scale privatisation, along with improvements in the business environment; strengthening the financial sector; and attracting investment in public infrastructure projects especially to realise the potential of Tajikistan’s hydropower sector and policy dialogue with the authorities geared towards improving the investment climate and governance.

To promote the private sector, the bank will expand its micro and small business credit lines to SME and agricultural lending, pursue opportunities for direct financing in services and industry, encourage foreign trade and seek to attract outside investors. Tajikistan is one of the seven lower-income early transition countries identified by the bank in the ETC initiative launched in 2004 to stimulate market activity by using a streamlined approach to financing more and smaller projects.

The bank will make use of ETC products to explore opportunities for direct financing in several sectors. To strengthen banking, it will develop the existing programmes in size and outreach, involve more financial institutions, introduce co-financing facilities for larger local companies, invest and attract investment in the capital of the Tajik banks, and pursue through technical assistance capacity-building in the sector.

To support critical infrastructure, the EBRD will develop more municipal and transport projects. Along with other international financial institutions, the bank will also seek opportunities to promote private-sector participation in the hydropower sector. Tajikistan’s investment needs in infrastructure are considerable but restrictions on sovereign borrowing constrain progress. The EBRD will therefore consider financing non-sovereign infrastructure that produces cash flows loans to meet debt repayments without recourse to sovereign guarantees.