On 23 December 2022 the IMF issued a report following the conclusion of discussions with Tajikistan under Article IV of the IMF’s articles of agreement.
Tajikistan’s economy has continued to grow strongly in 2022, as a result of the broad growth of industry including mining, agriculture, and construction. The Ukraine war has not yet resulted in adverse spillovers; and strong financial inflows have increased domestic demand and liquidity. There is however uncertainty in the near term as weaker economic activity in Russia may affect Tajikistan. Real economic growth is expected to decrease from 7.5% in 2022 to 5% in 2023 and to reach its potential of around 4% in the medium term. Continued development of the extensive proven gold reserves can provide scope to increase fiscal resources.
Increased revenue from the mining sector as a result of the strong growth and a rate increase has helped to improve tax collection. Tajikistan has also begun to phase out some of the tax exemptions. Tax revenues were therefore broadly unchanged as a share of GDP in 2022, despite the introduction of reductions in VAT and income tax rates at the start of the year.
The report notes that domestic revenue mobilization could be further improved to create the space for priority spending. Further efforts could be made to broaden the tax base by continuing to phase out tax exemptions and by improving tax administration. This can increase the space for the investments needed to achieve Tajikistan’s development goals under the National Development Strategy 2030.
The IMF report recommends that a medium-term term revenue strategy could be developed to create a framework for the improved domestic revenue mobilization. As revenues from the mining sector are sensitive to changes in international commodity prices, it is important to collect relevant data on mining-related revenues to use as a basis for revenue forecasts and framing fiscal policy.
The IMF considers that Tajikistan should make more progress on structural reforms to transition to market-based principles and promote entrepreneurship, competition and private sector development. Improved governance can increase investment in the economy and allow the private sector to be an engine of growth. Market-based reforms can be accompanied by larger social safety nets to protect vulnerable groups.
As the climate and the economy are vulnerable to the effects of climate change, environmental reforms are important to achieving the long-term potential of the economy. The Green Development Strategy for 2023-37 can achieve the climate mitigation and adaptation goals, and promote sustainable growth.
