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AKIPRESS.COM - Real GDP growth in Tajikistan slightly decelerated from 6.6 percent in the first half of 2016 to 6.0 percent in 2017, per official statistics, the World Bank's Regional Economic Update report said.
Growth was led by the strong performance in net exports and the incipient pickup in private consumption, supported by recovering remittances. On the supply side, growth was driven by industry – particularly non-energy extractives and services. While agriculture contributed modestly, construction dragged down growth due to a sharp contraction in public and foreign investments, part of which reflects the base effect from the last year.
The financial sector remains depressed, with the system-wide NPL ratio exceeding 50 percent in mid 2017. Credit to the private sector has been contracting since the second half of 2016; the recapitalization of the two largest banks in December 2016 has not reversed this trend. The recently conducted Asset Quality Reviews revealed significant under-capitalization of the several largest banks. While positive steps were made to stabilize the financial system, needed legislative amendments and institutional changes for banking resolution are still pending. The fiscal position was balanced in the first half of 2017, as the authorities trimmed non-priority government spending against the backdrop of sluggish revenue performance.
Tax revenue suffered from a sharp contraction of imports, which was partially offset by non-tax revenues reflecting increased penalty charges or tax incompliance. Public outlays in the first half of 2017 were 10 percent lower than budgeted, while large infrastructure
and social-oriented projects were financed in full. In September, the government issued a US$500 million Eurobond to finance the construction of the Roghun hydropower project (HPP), which is expected to push up public and publicly-guaranteed debt to above 50 percent of GDP by end 2017.
The somoni depreciated by 11 percent against the U.S. dollar during the first half of 2017, owing to the monetization of the banking sector bailout, and leading to an improvement in the country’s current account. The latter was near balanced in the first quarter of 2017 driven by a sharp contraction of imports, recovery of exports, and a pick-up in remittance inflows. The large decline in imports reflected primarily the reduced demand for capital goods and construction materials, whereas the export recovery was led by minerals and a general recovery in the demand for Tajik exports by its key trading partners, particularly Russia.
By June 2017, official reserves increased to over 3 months of imports. Inflation rose to 7.4 percent y/y in June 2017, compared to 5.7 percent a year earlier, driven by the somoni depreciation and a supply-side shock on certain domestic agriculture products. To curb inflationary pressures, the central bank tightened monetary policy further, sterilizing excess liquidity in the market and raising the
policy rate from 12.5 percent in January 2017 to 16 percent in March.
The official poverty rate fell slightly from 31.3 percent in 2015 to 30.3 in 2016, while extreme poverty fell from 15.1 percent to 14 percent over the same period. Income from employment remains the primary driver of poverty reduction, however lower remittances continued to slow the pace of poverty reduction in 2016. The trends for urban and rural poverty diverged in 2016. Although poverty fell from 35.3 percent to 33.5 percent in rural areas, it was relatively stagnant in urban areas at around 24 percent. The rising cost of food is expected to negatively affect households that are net-buyers, while benefiting net sellers. Food expenditure accounts for about 75 percent of total consumption for poor households, and the Listening to Tajikistan survey identified a large increase in the share of households reducing food consumption to pay for other basic needs on average from about 40 percent to 62 percent through January-May 2017.