In terms of statistics, unless they are the rosy government sort, Tajikistan often appears to be on the edge of an abyss. But somehow the poorest country to emerge from the Soviet Union chugs on.
So a grim World Bank report out this week probably does not indicate imminent collapse. But it is unnerving to see that almost every macroeconomic indicator suggests trouble ahead. And Tajikistan’s latest predicament coincides with a push from Moscow to join Russia’s new Eurasian Economic Union.
Tajikistan’s economic dependence on Russia is, as economists have long warned, a liability—and not only because it gives Moscow enormous influence. “The possible spillover effect from the Russian slowdown onto the Tajikistan economy is estimated to be one of the largest in the [Europe and Central Asia] region: a 1 percentage point reduction in the growth of Russia’s GDP would reduce growth in Tajikistan by the same amount,” says the October 27 report, “Tajikistan: Moderated Growth, Heightened Risk.”
For starters, over a million Tajiks, or about one-half of working-age Tajik men, labor in Russia, usually in menial jobs. Their transfers are worth about half of Tajikistan’s GNP, making it the most remittance-dependent country in the world.
But as the Kremlin sacrifices Russia’s economy for its Ukraine policy, which has caused a new low in relations with the West, the resulting downturn is hurting the ruble and Tajikistan’s economy at large. An ailing ruble buys fewer dollars to send home.
Remittances slid in the first half of 2014, but are expected to fall much more sharply by the end of the year. They dropped 2 percent year on year between January and June, according to official data (which is often suspiciously upbeat). The inflows are likely to continue falling as Russia sputters. “Slowing remittances have been translated into lower domestic demand and slower growth in services and housing construction,” says the report.
Global prices for aluminum and cotton, Tajikistan’s main hard-currency earners, fell 50 percent and 46 percent, respectively, year on year in the first half of 2014, “pushing total industrial growth below 3 percent from nearly 7 percent a year earlier.”
Yet while exports fall, state spending on massive infrastructure projects – palatial government buildings, for example, and a quixotic mega-dam – will help widen the trade deficit to 3.7 percent of GDP this year.
Agricultural output has also slowed, though growth in the sector remains a “healthy” 6 percent. Food exports to Russia have grown significantly this year – by 15.2 percent year on year even before Russia banned much Western meat and produce in August – and that number is expected to grow further. But there are limits to how much Tajikistan can export because of its “fragile market links, limited economies of scale, poor access to credit, and barriers” to entering the market.
One answer to many of Tajikistan’s economic woes lies hidden in the small businesses sector, the Bank says, but that has been undercut by difficulty accessing credit and an overall sorry state of the banking sector.
“Poor financial sector governance” has allowed the share of nonperforming loans to rise from 18 percent in late 2012 to 25 percent by the middle of this year, the report said. The real numbers are probably higher “because loans continue to be seriously misclassified.” Banks are under “severe stress” and dependent on bailouts that are poorly regulated, representing “transfers from taxpayers to delinquent borrowers [that] undermines development of a strong credit culture.”
Almost every positive development in the report has a caveat. The budget deficit narrowed to 0.6 percent of GDP in the first half of this year from 1.3 percent last year, for example. But “the true fiscal picture is likely to be less positive” because of the government’s “elaborate” support for opaque state-owned enterprises.
In several places “governance issues” and other euphemisms stand in for what non-diplomats call corruption.
The somoni is more stable than some other Central Asian currencies, but has lost almost 5 percent of its value against the dollar this year and continues to depreciate. A weaker somoni boosts import prices and feeds inflation. Consumer prices grew more in the first six months of this year than they did in all of 2013, says the report.
The National Bank has tried to slow inflation by increasing interest rates, but that discourages investment and threatens overall growth.
All this – especially what the World Bank calls Tajikistan’s “remittances-driven growth model” – makes the country vulnerable to external shocks and Russian influence.
Russia’s troubles at home have not tempered the Kremlin’s mission to expand its Eurasian Economic Union to include Tajikistan. Last week the speaker of the Russian parliament’s upper house, Valentina Matviyenko, led a delegation to Dushanbe and said point-blank: “We hope very much that Tajikistan will also join the Eurasian Economic Union eventually.”
Authorities back in Moscow piled on the pressure, announcing this week that they are considering quotas for migrants, including in construction, where many Tajiks find jobs. Starting in January, Russia will tighten entry requirements for Tajik visitors; these will be loosened again if Tajikistan joins the EEU, Prime Minister Dmitry Medvedev said this summer.
Tajikistan’s long-time president may not have done much to offer migrants an alternative, but he has a survival instinct and knows that large numbers of Tajiks returning home suddenly could destabilize the country. This month he instructed his government to study the EEU "with the aim of possible future entry,” state media reported. The way he has steered the economy, Tajikistan seems to have little choice.