Political

There is a possibility that for Emomali Rahmon, officially Tajikistan’s "Founder of Peace and National Unity, Leader of the Nation", 2019 will be his last full year in office as president.

The 66-year-old, who has led Central Asia’s poorest nation since 1992, surviving a five-year civil war along the way, appears to have been grooming his son Rustam Emomali, to succeed him, and 2020 brings the next Tajik presidential election. Early this year, the Tajik parliament lowered the age of eligibility to run for the presidency to 30 from 35. Rustam Emomali, the current mayor of Dushanbe, is 31.

Analysts have recently engaged in a lot of conjecture over how unstable Tajikistan’s volatile Gorno-Badakhshan Autonomous Region might have once more become. A government crackdown on the region, which has historically supported groups opposed to the Rahmon administration, has been under way in recent months. Troops were reportedly deployed to Khorugh, the capital of Gorno-Badakhshan, in October for a “special operation”. The previous month, Rahmon visited the region and criticised regional leaders for failing to put an end to weapons and drug-trafficking operations. He gave them one month to “establish order” and replaced many top-ranking officials.

Tajikistan, a country of 9.1mn that has one of the most remittance-dependent economies in the world (remittances make up around 40% of its GDP), has struggled to achieve any significant economic development since the civil war and today most Tajiks still make a living off less than €1,000 a year. The picturesque Pamir mountains—dubbed the "Roof of the World" by Victorian explorers—and high-altitude plateaus cover around one half of the remote nation and this year saw officials attempt to build up its fledgling tourism industry by declaring a Tajikistan year of tourism. However, a brutal terrorist attack on touring foreign cyclists in late July that left two Americans, a Dutchman and a Swiss citizen dead, struck a chilling blow to any such efforts.

The attack, claimed by Islamic State, demonstrated that Tajikistan has a significant problem with extremists. The country managed to generate just $8mn in revenues from foreign tourists in 2017 (compare that to Turkey’s $22.4bn) and reports of other bloodcurdling incidents that took place there in 2018—a prison riot in Khujand in early November, which Islamic State claimed was triggered by one of its “fighters”, reportedly claimed the lives of 50 inmates and two prison guards—may deter plenty of adventurous foreign tourists from exploring its natural beauty.

President Emomali Rahmon.

Given that the Tajik language is a dialect of Persian, Dushanbe might be expected to have positive relations with Tehran, but Iran’s regional arch-rival Saudi Arabia seems to be attempting to drive a wedge between the Tajiks and Iranians by granting Tajikistan badly needed aid and investment. Saudi Arabia's embassy in Dushanbe has provided more than $200mn in aid to the country “in recent years”, the Saudi ambassador to Dushanbe said in July. Rahmon, meanwhile, in blatantly anti-Iran statements, has claimed that the banned Islamic Renaissance Party of Tajikistan (IRPT), which was the only source of opposition in the country prior to the president cracking down on it, had converted to Shia Islam. 

Another political development is the growing cooperation between Tajikistan and its neighbour to the west Uzbekistan, made possible by the coming to power of reform-minded Uzbek President Shavkat Mirziyoyev in late 2016. This year has seen Uzbekistan officially state that it no longer holds water-flow objections to the construction of the massive $3.9bn Rogun hydropower dam in Tajikistan; recommence the purchase of Tajik electricity exports after nine years; restart exports of gas to Tajikistan after six years; conduct its first ever joint military exercise with Tajikistan and provide $100mn to support three Tajik banks, with the funds to be on-lended to entrepreneurs for use in importing Uzbek goods.

Those Tajik officials intent on filling Dushanbe’s coffers will, of course, continue to look east to giant neighbour China for any capital inflows that can be secured.

In October, Tajikistan launched China-funded construction works for new government and parliament buildings, with Beijing providing approximately $140mn. Tajikistan is notorious for spending millions on constructing grandiose buildings, seen by critics as vanity projects. Examples include the $60mn Nowruz Palace, the $100mn construction of “the largest theatre”, and Central Asia’s tallest flagpole and largest library.

The foreign ministers of Tajikistan, Kyrgyzstan, Kazakhstan, Uzbekistan, Pakistan and Russia during the spring “reaffirmed support for China’s huge One Belt One Road modern trade and transport infrastructure initiative. China has been trialling its first freight trains that pass through all five of the Central Asian countries.

Observers looking for any substantial opposition to the Rahmon regime must now track figures in exile. In September in Warsaw, four Tajik opposition groups—the IRPT, the Movement for Reforms and Progress, the Forum of Freethinkers of Tajikistan and the Association of Migrants of Central Asia—officially set up an opposition coalition. Just days later in the Polish capital, Tajik government officials and opposition activists engaged in a scuffle outside an Organisation for Security and Cooperation in Europe (OSCE) Human Dimension Implementation Meeting. The fight broke out after an opposition activist handed a flyer headlined "Free political prisoners" to a government delegate who had recently renounced his former ties to the IRPT. 

In the latest annual World Press Freedom Index from Reporters Without Borders, Tajikistan ranked 149th (the same as in the previous ranking). The report accompanying the index stated that Tajikistan is faced by “President Emomali Rahmon [who] increasingly indulges his authoritarian tendencies which threaten the fragile national consensus constructed over the ashes of a civil war that ravaged the country from 1992 to 1997”. It added: “On the pretext of combating terrorism, the government has reduced the media drastically and has eliminated the political opposition. Telephone calls from intelligence officers, interrogation sessions, intimidation, and blackmail are now all part of the daily fare of independent journalists who have been hit hard by the economic crisis. Surveillance of communications is getting more sophisticated, while the blocking of the main news websites and social networks is virtually permanent.”

Economic

Tajikistan, GDP growth. Source: World Economic Outlook, IMF.

The EBRD saw major fiscal challenges, a deteriorating public debt situation, unresolved financial sector weaknesses and significant business environment constraints that were “all likely to have a negative impact on the Tajik economy in spite of the ongoing recovery in remittances from Russia”.

The World Bank also expects Tajik growth to fall to 6.1% in 2018. The International Monetary Fund (IMF) sees 5% as likely for 2018 and 4% for 2019. For 2018, the government has stuck with a forecast of 7%. That figure was achieved for the first three quarters of the year, officials said in October.

Consumer prices in Tajikistan officially rose by 5.3% y/y in October, slightly up on the 5% y/y growth seen in September. Inflation slowed from June 2017, when it reached 9%, to July 2018, when it started moving up again. The central bank cut its refinancing rate from 16% at the beginning of 2018 to 14.75% and further to 14% in March. Prices have been intertwined to some extent with the weakening of the Russian ruble, which put the Tajik somoni under pressure.

Finance

In September 2017, Tajikistan raised $500mn from its inaugural international bond, priced at 7.125% for a 10-year term. Proceeds from the debt issue are being ploughed into realising the nation’s four-decade-old mega-infrastructure dream—construction of the 3,600MW Rogun hydropower project, complete with the world's tallest embankment dam. Tajikistan launched the first unit of the project in mid-November 16.

Tajik officials announced plans to borrow an additional $850mn in the 2018-2020 period on the international bond markets. Much of that would also go into Rogun, to have six hydropower turbines in all. The project is meant to end the country’s winter energy shortages as well as enable it to become a regional energy exporter via the CASA-1000 investment.

Tajikistan’s foreign debt stood at $2.893bn in the first half of 2018, up slightly from $2.879bn recorded at the end of 2017.

In total, the country attracted $1.1bn in foreign investment last year.

In December, reports in Tajik media revealed that troubled and largest Tajik lender Tojiksodirotbank (TSB) was considering selling a 70% stake to Chinese company “Junan”, with the two sides having to a deal in principle. The reports also noted that TSB was still in talks with Saudi Investment Group, which preliminarily agreed to acquire a 51% stake in the bank earlier this year.

The bank was hoping to sell a controlling stake to the side that offered the best deal. Other parties TSB was engaged in talks with included Russia's VTB and Sberbank. Tajikistan has so far been unsuccessful in its attempts at prompting foreign investors to bail out TSB and other lenders in its ailing banking sector. Efforts made by Tajik authorities to acquire stabilisation funds from the IMF have not borne much fruit.

Tajikistan has failed to secure IMF support since 2015, when its banking sector collapsed under the weight of its bad lending practices.

Non-performing loans (NPLs) in the Tajik banking sector officially had a value of approximately $200mn as of August 1, and made up 22% of total loans.

“Since late-2014, Tajikistan’s economy has suffered from external shocks, which affected economic confidence, reduced fiscal space and external buffers, and increased vulnerabilities (including in the financial sector),” IMF official Padamja Khandelwal said in a May statement. However, Tajikistan “has taken steps demonstrating reform progress” which may lead to negotiations for an IMF support programme, Khandelwal added. The Fund welcomed government measures to improve asset classification and provisioning, regulation and supervision, as well as management of credit and foreign exchange risks by banks.

In a report on Central Asian banking sectors, EBRD said in November that in Tajikistan “the main short-term priority is to resolve challenges in the financial sector and restore public trust in banks”. It added: “Policy actions are required to handle the two troubled banks, Agroinvestbank (AIB) and Tojiksodirotbank (TSB)… In addition, improvements are needed to central bank supervisory functions and corporate governance in banks. System-wide measures to reduce non-performing loans (NPLs) should also be implemented.”

The Asian Development Bank’s (ADB's) updated 2019-2021 Country Operations Business Plan (COBP) for Tajikistan is set to allocate up to $300mn in grants over the three years, the bank said in December. The funds are to support private sector development, road and energy development, food security, education and healthcare improvement and municipal infrastructure. However, the finalised amount of ADB’s assistance will depend on Tajikistan’s performance and the availability of ADB funds.

Business and trade & investment potential

Source: World Bank's Doing Business 2019 report.

In the World Bank’s Doing Business 2019 report, Tajikistan saw its ranking come in at three positions below the previous year's, placing it at 126, although its score was more or less unchanged, edging up by 0.08 points to 57.11.

The 2018 edition of the Global Competitiveness Index (GCI) of the World Economic Forum (WEF) brought better news for Tajikistan. It improved 23 positions to 79th.

Swedish-Swiss ABB and Indian Kalpa-Taru Power Transmission agreed in September to construct the Tajik segment of the Kyrgyz-Tajik-led CASA-1000 power transmission project. The CASA-1000 project’s goal is to construct 1,200 kilometres of electricity transmission lines in order to create a four-country electricity transfer system. Kyrgyzstan and Tajikistan will supply 1,300MW of power to Pakistan during the summer months. Afghanistan will not receive electricity for consumption, but will stand as a transit zone for supplying power to Pakistan. Electricity supplied by Tajikistan will account for 70% of the project, while Kyrgyzstan will cover the remaining 30%.

Tajikistan said in late October it had once again agreed to participate in constructing a railroad to link the country with Turkmenistan via Afghanistan, reversing its decision in September to pull out of the project. The three countries are interested in claiming their piece of China’s One Belt One Road trade infrastructure initiative by establishing a direct route spanning the nations from China to a Turkmen seaport.

Next year might bring more news of progress in Tajikistan joining the Russia-led Eurasian Economic Union (EEU) bloc. Dushanbe was offered observer status by Moscow early this year, but there have been few reported developments since then.

Chinese company Tibet Huayu Mining and Tajik state-owned aluminium smelter Talco are pushing ahead with a $200mn gold and antimony mining venture in Tajikistan. Tajik authorities intend to increase gold production to 17 tonnes by 2022. Tajikistan’s gold production grew by 11.2% y/y to 5.5 tonnes in 2017 and the 2018 target was 6.6 tonnes, according to the Tajik Ministry of Industry and New Technologies. Tajikistan has 28 known gold deposits with total estimated reserves of 400 tonnes, but the government says the total number of gold deposits in the country amounts to 137.

The Tajiks were on course to export approximately 90,000 tonnes of aluminium this year, 12.6% below last year’s figure, according to customs data released in October. State-run Tajikistan Aluminium Company (Talco) had plans to boost aluminium production to 168,000 tonnes in 2018, up from 103,000 tonnes in 2017, but the chances of it actually delivering on that target seem slim. Talco’s output has continuously declined in the past three years despite promises to the contrary.

Government plans showed Tajikistan aimed to collect 400,000 tonnes of cotton by end-2018. The cotton harvest in 2017 stood at 390,000 tonnes up from 312,000 tonnes in 2016. Dushanbe wants to see cotton processing capacity expanded in order to produce finished value-added, cotton-based products, in place of raw cotton exports. Officials have spoken of plans to construct four new cotton-processing plants with a total capacity of 400,000 tonnes. In 2017, Tajikistan’s cotton processing capacity only accounted for approximately 10% of the country’s cotton output.