February 12, 2016
A team from the International Monetary Fund spent 10 days in Tajikistan discussing the country’s economic situation, policies and reform agenda. Upon the mission’s conclusion, the team released a brief statement and the IMF also released a longer report on the stability of the country’s financial systems. Neither the statement nor the report are very hopeful in their outlook–and place the necessity for action squarely on Dushanbe.
The report concludes that the Tajik economy “is entering a downturn” and that the banking sector, in particular, is vulnerable. Keep in mind that the data for this particular report was as of May 2015, meaning it does not take into account the economic malaise that has settled more firmly over Eurasia. Though the signs were all there, in May 2015 there had been some improvements in one of the biggest factors in regional economies: oil prices.After a freefall in late 2014, by May 2015, oil prices had recovered slightly (rising from a January low near $48 per barrel to a May high of around $64 per barrel).
The just-released report highlighted “a protracted period of negative growth in Russia” and “possible slowdown of growth in China,” slipping commodity prices, and delays in much-needed structural reforms as posing significant risks to the Tajik economy. Poor credit and bad loans top off the country’s fiscal troubles. Within the country’s small banking sector, one major bank (Agroinvestbank) is insolvent and another “fails to meet all prudential requirements.” Together the two account for 41 percent of total Tajik bank assets.
The case of Agroinvestbank (AIB) is troubling in of itself and highlights the difference between what Tajikistan’s government has decided to do and what financial experts with the IMF believe is most prudent:
The authorities believe that the recent appointment of a new Chairman will expedite the collection of NPLs [non performing loans] and position the bank well for new lending. However, this may delay the needed resolution and restructuring of the bank.
Non-performing loans are loans which are in default (meaning the debtor has not paid) or close to it.
The best recommendation the IMF has for fixing AIB is “recapitalizing with conditions” which could cost as much as 2.5 percent of GDP. For Central Asia’s poorest state, that’s not insignificant. Other options for resolving the bank’s issue entail legal changes or fully liquidating the bank. The bank is considered systemically important by the National Bank of Tajikistan.
On the broader situation, the report urges prompt action. Nearly a year later, as the IMF’s team (a different team, presumably, than that which compiled the report) returns from Tajikistan, the message is the same: urgent action is (still) necessary. The team’s lead, Paul Ross, said in a statement “The IMF stands ready to assist the authorities’ economic and reform program, including by considering financial assistance provided the authorities take early and substantial policy actions.” The last clause is key: “…provided the authorities take early and substantial policy actions.” It’s never too late to take early action, right?
Per the statement, the Tajik authorities are “resolved” and the IMF welcomes their “determination.” I’m sure that’s a warm comfort for Tajiks defaulting on their loans because work in Russia doesn’t pay like it once did and employment opportunities in Tajikistan remain grim. Given that 2015 was worse than expected, 2016 isn’t looking great either.
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