87028 Tajikistan: Strong Growth, Rising Risks Tajikistan Economic Report No.5 Spring 2014 Tajikistan: Strong Growth, Rising Risks Tajikistan Economic Report No.5 Spring 2014 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 Acronyms and Abbreviations CIS Commonwealth of Independent States CPI Consumer price index GDP Gross domestic product LCU Local currency unit LHS Left-hand scale NBT National Bank of Tajikistan NPL Non-performing loan PIP Public Investment Program RHS Right-hand scale SME Small and medium enterprise SOE State-owned enterprise TajStat Agency of Statistics under the President of Tajikistan TJS Tajikistan somoni (unit of currency) $ U.S. dollar WTO World Trade Organization ii  │  TAJIKISTAN: STRONG GROWTH, RISING RISKS Contents Acronyms and Abbreviations ii Acknowledgementsiv Summaryv 1. Recent Economic Developments 1 Economic Growth and Domestic Demand 1 Labor Market Developments and Poverty 2 External Accounts 4 Inflation6 2. Economic and Structural Policies 7 Monetary and Exchange Rate Policies 7 Fiscal Policy 8 Structural Reforms 11 Outlook14 Appendix16   │  iii TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 List of Figures Figure 1. Economic Growth and Net Remittances 1 Figure 2. Composition of GDP Growth by Expenditure 1 Figure 3. Composition of GDP Growth by Sectors 2 Figure 4. Wage Employment by Type of Economic Activity 3 Figure 5. Average Monthly Wage by Key Economic Sectors 3 Figure 6. Real Wage and Labor Productivity Growth 3 Figure 7. Aluminum International Prices and Export Value 5 Figure 8. Composition of Export Value 5 Figure 9. Composition of Import Value 5 Figure 10. Main Drivers of the Current Account Balance 5 Figure 11. Contributions to Headline CPI Inflation 6 Figure 12. Credit to GDP versus GDP Per Capita 7 Figure 13. Interest Rates 7 Figure 14. Financial Soundness Indicators 8 Figure 15. Government Revenue and Spending 9 Figure 16. Composition of Government Spending* 9 Figure 17 . Public and Publicly-Guaranteed External Debt 10 List of Tables Table 1. Progress in Doing Business Indicators, 2013–2014 11 Table 2. Selected Macroeconomic Indicators for Tajikistan: 2012–2015 14 Acknowledgements The Tajikistan Economic Report was prepared by the economic team of Ravshan Sobirzoda, Marina Bakanova and Cevdet Cagdas Unal. Additional inputs were provided by Zuhro Qurbonova, Alisher Rajabov, Joao Pedro Wagner De Azevedo, Aziz Atamanov, Hassan Aliev, Bobojon Yatimov and Farzona Mukhitdinova. The report also benefitted from comments from Christos Kostopoulos (Lead Economist and Country Sector Coordinator) and Marsha Olive (Country Manager for Tajikistan) and was prepared under the general supervision of Ivailo Izvorski (Sector Manager). iv  │  TAJIKISTAN: STRONG GROWTH, RISING RISKS Summary Tajikistan’s economy grew at higher-than-projected rate of 7.4 percent in 2013 on the back of record high inflow of remittances of $4.1 billion, the equivalent of almost 49 percent of GDP . High remittances fueled private consumption and, to a lesser extent, investment. Supported by this inflow of remittances services have continued as the largest sector of the economy. Meanwhile, weaker external demand and lower prices for aluminum and cotton adversely affected exports and resulted in a widening of the current account deficit to about 3 percent of GDP from 1.3 percent in 2012. Inflation was reduced to a record low of 3.7 percent in 2013 thanks to the limited increase in food prices and stable exchange rate. The fiscal deficit widened to 1.3 percent of GDP in 2013 from near balance in 2012 because of higher investment expenditures and a reduction in non- tax revenues. The overall fiscal picture is likely to be different than official statistics suggests because of soft budget constraints on state-owned enterprises (largely in the energy sector), continued directed lending by banks, and other quasi-fiscal risks. The economy remains vulnerable to shocks. So far, remittances have largely benefited consumption, while a poor business environment, weak financial intermediation, and low confidence in the banking system have prevented them from being efficiently channeled into investments. The fiscal and debt position remains weak given the country’s remittance-driven growth model, narrow export base, high dependence on concessional financing, and large infrastructure needs (including in the social sectors). In addition, amortization of existing foreign debt is increasing sharply. All this makes the country extremely vulnerable to external shocks, while its ability to dampen the shocks is limited because of a lack of external and fiscal buffers but also, more importantly, because of its weak institutions and governance issues. Real wage growth in excess of productivity growth further deteriorated the country competitiveness. The profitability of the banking sector remains low with non- performing loans reaching a record high of 21.2 percent of total loans by the end of September 2013 as a result of capacity constraints and governance problems in the sector. Weak governance and financial sector accountability and the poor business climate hold back development in the financial sector and in the government debt market. The financial control and governance systems of state-owned industries lack consistency and transparency, which may create significant fiscal risks. The liabilities of the 24 largest companies are as large as the state budget, and the continued practices of mutual set-offs, tax forgiveness, and various other privileges granted to SOEs distort the market and undermine competition. Growth is projected to ease back to 7 percent in 2014 and it would further decline in the medium term in the absence of strong structural reforms. This slowdown is projected to happen as a result of an expected deceleration in the flow of remittances and in sectoral growth and a deteriorating external environment. Inflation is projected to remain relatively low due to the expected stability of global food prices and moderate nominal depreciation of the somoni (TJS). The fiscal deficit is projected to stay under 1.5 percent of GDP as improved revenue collection will partially compensate for the slowdown in economic growth. The current account deficit is projected to widen to 3.3 percent in the medium term because of low growth in exports and remittances. The slowdown in remittances may result in fewer imports of consumer goods, but growth in the imports of capital goods is expected to be strong. The government is aiming for at least 7.5 percent growth in the medium term as well as a reduction in the poverty headcount to 30 percent by 2015 and further to 20 percent by 2020. In order to meet its ambitious growth and poverty reduction objectives, the government needs to accelerate reforms aimed at improving the institutional environment for private-sector-led growth and job creation. Future growth and poverty reduction in Tajikistan as a small landlocked country will depend on its success in overcoming the binding constraints to diversified development and in reducing the costs and increasing the profitability of potential private investments (including in agriculture and agro-processing). Summary  │  v This page is intentionally blank. TAJIKISTAN: STRONG GROWTH, RISING RISKS 1. Recent Economic Developments Economic Growth and Domestic Demand Tajikistan’s economy grew by 7.4 percent in 2013 as continued strong inflows of remittances bolstered domestic demand and reduced the negative impact of deteriorated export performance. The slowdown in the Russian economy has not translated into lower remittances inflows, as the main sectors in which Tajikistani migrants are employed in Russia (construction and the retail trade) have continued to grow at high rates. Remittance inflows are estimated to have been at a record high of $4.1 billion in 2013, or almost 49 percent of GDP (Figure 1). This high level of remittances has fueled private consumption and, to a lesser extent, investment (Figure 2). Meanwhile, relatively weaker world economic growth and lower prices for aluminum and cotton affected adversely Tajikistan’s export performance as highlighted in the external accounts section below. Preliminary estimates indicate that the overall budget deficit was 1.3 percent of GDP in 2013 compared to a surplus of 0.1 percent of GDP in 2012 (see details in Fiscal Policy section). Figure 1. Economic Growth and Net Remittances Figure 2. Composition of GDP Growth by Expenditure in percent change in percent of GDP in percent 9 60 30 8 50 20 7 6 40 10 5 30 0 4 3 20 -10 2 10 -20 1 0 0 -30 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 JJ GDP growth ▬▬ Workers’ remittances, net (rhs) JJ Gross capital formation JJ Public consumption JJ Household consumption JJ Net XGS and statistical discrepancy ▬▬ GDP growth Source: TajStat, National Bank, World Bank Staff calculations. Source: TajStat, World Bank staff calculations. On the production side, all sectors contributed positively to GDP growth. Supported by inflows of remittances, services remained the largest sector of the economy, contributing almost half of gross value added, followed by agriculture with one-fifth (Figure 3). However, the rate of growth of agricultural and industrial output slowed down, while the construction sector growth rebounded to 17 .2 percent year-on-year. Within the industrial sector, extractive industries demonstrated high output growth (43.6 percent), while manufacturing output contracted by 0.8 percent. The government’s efforts to switch from gas to locally produced coal have contributed to the growth of extractive industries, with energy extraction having expanded by 2.5 times and coal production having increased by 29.3 percent in 2013. While agricultural output growth declined from its 2012 level of 10.6 percent year-on-year, it remained strong at 7 .6 percent in 2013, reflecting stable growth in crop production and livestock. Public sector infrastructure development projects, particularly roads, energy development, health and education, and increased real estate construction activity by the private sector provided a substantial 1. Recent Economic Developments  │  1 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 impetus to the growth in the construction sector. Figure 3. Composition of GDP Growth by Sectors The fact that this was starting from a low base (there in percent had been a 24.4 percent contraction the previous 9 year) also played a role. 8 7.9 7.4 7.5 7.4 7 6.5 Despite the positive trends observed in 6 agriculture, risks to the sector remain high. To 5 3.4 minimize production and marketing risks, farmers 4 grow relatively small areas of several different crops 3 that are selected from a narrow crop range. In the 2 case of cash crops, farmers target high-value fresh 1 0 produce markets, both local and export, and make 2008 2009 2010 2011 2012 2013 available for processing only those products that are JJ Services JJ Agriculture JJ Industry JJ Construction JJ Others ▬▬ Real GDP surplus to fresh market requirements. As a result, Source: TajStat, World Bank staff calculations. the amount of raw produce sent to processors varies depending on fluctuating crop yields, local market capacity, and export market accessibility. Most agricultural produce is sold fresh with only roughly a small share processed in the country. Nevertheless, the whole value- chain of agro-processing including storage (fruit and vegetables) holds the most promise for development in terms of potential scale of impact and numbers in employment along with textiles and clothing. A national and regional strategy for agro-processing would help guide the development of the sector. To fully exploit early season crops, logistical factors remain important.1 Labor Market Developments and Poverty High growth does not generate enough jobs, notably in the formal sector. Wage employment decreased by 2 percent year-on-year in December of 2013. This partly reflects the drivers of growth, especially remittances sent by Tajikistani workers abroad. There is a wide variance in sectoral employment growth rates, with services—wholesale and retail trade, real estate, and financial intermediation—experiencing double-digit increases. Employment in agriculture fell by 3.1 percent during the same period, reflecting largely migration of rural residents either to destinations abroad or to cities in Tajikistan (Figure 4). The number of registered unemployed rose to seven people per vacancy in 2013 from six people a year earlier. The number of official vacancies has grown by 4 percent. Inefficient and insufficient investments in human capital and low economic efficiency, including those of SOEs are among the key reasons for the low rate of job creation and the slow process of diversifying human capital as is indicated by the concentrated employment structure. Unemployment measured by the number of people registered at civil registry is moderate but the true unemployment is likely to be substantially higher. In January to December 2013, officially registered unemployment was 2.4 percent of the economically active population. The latest available Labor Force Survey 1 See in more detail World Bank (2013). Tajikistan: Reinvigorating Growth in Khatlon Region. Report No. 77725-TJ. 2  │  1. Recent Economic Developments TAJIKISTAN: STRONG GROWTH, RISING RISKS Figure 4. Wage Employment by Type of Economic Activity in percent Trade and repair services Transport, warehousing, communication Trade and repair services Transport, warehousing, communication Construction Construction Public administration and defense Public administration and defense 2.12 2.6 2.32.4 2.2 Other activities 3.3 3.3 Other activities 9.3 10.3 Processing industry Agriculture, hunting Agriculture, hunting 5.9 47.9 and forestry 46.5 and forestry Processing industry 5.6 Health and 8.4 8.5 social services Health and social services 18.5 18.9 Education Education December 2012 December 2013 Source: TajStat, World Bank staff calculations. (2009 LFS) recorded 11.5 percent unemployment, which was nearly four times greater than the official unemployment rate for the same year. Labor earnings have grown fast. Average seasonally adjusted wages for the whole economy doubled during the 2009–2013 period. There has been exponential growth in real wages in the agriculture sector after the end of 2012. This is likely to have been related to the threefold increase in the minimum wage between 2009 and 2013, which reached TJS 250 in September 2013. Overall, the highest wages are in the financial intermediation, construction, and transport sectors, while agriculture, health, and education have the lowest wages (Figure 5). High real wage growth and large flows of remittances have contributed to poverty reduction. The poverty headcount ratio fell from 96 percent of the population in 1999 to 47 percent in 2009 according the latest World Bank poverty assessment. Preliminary calculations suggest that poverty in 2012/3 was approximately 36 percent using a revised national poverty line. Although this is only indirectly comparable with the previous Figure 5. Average Monthly Wage by Key Economic Figure 6. Real Wage and Labor Productivity Growth Sectors in TJS index, 2005=1 3,000 4 2,627 2,612 2,500 2,367 3.5 2,159 1,960 2,000 3 1,878 1,442 1,889 1,500 1,350 2.5 1,614 993 969 1,285 1,000 2 1,109 759 616 760 754 500 440 603 1.5 266 337 257 332 404 187 234 284 0 144 152 1 December 2009 December 2010 December 2011 December 2012 December 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013 ▬▬ Agriculture, hunting and forestry ▬▬ Construction ▬▬ Real wage growth ▬▬ Labor productivity growth ▬▬ Financial intermediary ▬▬ Education ▬▬ Health and social services ▬▬ Transport, warehousing and communication Source: TajStat, World Bank staff calculations Source: TajStat, World Bank staff calculations 1. Recent Economic Developments  │  3 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 methodology, simulations do also show that between 2009 and 20012/3 there was a continuous reduction in monetary poverty. At the same time, as real wage growth has not been matched by an adequate increase in productivity, this has had an adverse impact on the country’s competitiveness (Figure 6). The President set an ambitious target of reducing the poverty headcount to 30 percent by 2015 and to 20 percent by 2020. Tajikistan has the fastest-growing population in Europe and Central Asia (ECA) with a relatively high youth bulge. With 54 percent of the population under the age of 24, only 3 percent of the population is over 65, which is projected to rise to 9 percent by 2050.2 Young population is an important asset for country’s social and economic development. For instance, a number of East Asian countries reached impressive economic indicators due to the use of their abundant young labor force. Having abundant young labor is not enough for economic development; the education system needs to equip young people with the right skills to compete effectively in the labor market. Tajikistan has one of lowest share of the working-age population with a tertiary education in ECA, and 30 to 40 percent of Tajik enterprises have reported the lack of skills to be a significant barrier to doing business. Policies to build skills for jobs should focus on the development of a strong foundation of generic skills, an expansion of a tertiary education that ensures quality and relevance, and the promotion of training systems that are responsible to markets and sensitive to demographics so as to enable the lifelong upgrading of skills.3 Beyond investments in human capital, Tajikistan needs to pursue a comprehensive set of economic and structural reforms to create better and more productive jobs. One of the major findings of the recent World Bank report Back to Work: Growing with Jobs in Europe and Central Asia is that market reforms pay off in terms of jobs and productivity, although with some lag.4 Reforms to improve the quality of the business climate, make labor markets more competitive, modernize the public sector, deepen financial development, and increase integration in global markets are a necessary condition for positive and sustained employment creation. Thus, the report argues that countries should focus on reforms, enabling private sector-led job creation and encouraging workers with skills, incentives, access, and mobility necessary to take up new employment opportunities. External Accounts Large inflows of remittances largely offset the widened trade deficit. Weaker external demand and lower prices for major export commodities resulted in the contraction of export value, while imports continued to grow. This resulted in the widening of Tajikistan’s merchandise trade deficit. Although in 2013 Tajikistan received more remittances than in any other previous year, this did not fully compensate for the trade account deficit (Figure 10). Remittances are the largest source of Tajikistan’s foreign exchange earnings, higher than exports and official development assistance. Foreign direct investment is at a very low level—only 1.2 percent of GDP in 2013. 2 Laura Tuck, World Bank Vice President, Europe and Central Asia. Notes from the lecture at the Tajik National University, Dushanbe, Tajikistan, February 2014. 3 Arias, Omar S., Carolina Sanchez-Paramo, Maria E.Davalos, Indhira Santos, Erwin R. Tiongson, Carola Gruen, Natasha de Andrade Falcao, Gady Saiovici, and Cesar A. Cancho (2014). Back to Work: Growing with Jobs in Europe and Central Asia, Washington D.C.: World Bank. License: Creative Commons Attribution CC BY 3.0. 4 Ibid. 4  │  1. Recent Economic Developments TAJIKISTAN: STRONG GROWTH, RISING RISKS The economy is vulnerable to external shocks given its heavy reliance on cotton and aluminum exports and its high export market concentration. Even though the economy has diversified beyond those two commodities, the top 10 six-digit exports account for over 80 percent of all exports, making Tajikistan one of the more concentrated export economies in the region. Relatively low growth rates in the economies of its major trading partners including Turkey and Russia have negatively affected the demand for Tajikistan’s aluminum and cotton. As a result, exports of aluminum declined by 24.6 percent and exports of cotton declined by 20.5 percent in 2013 compared to the same period in 2012 (Figure 7). Despite this sharp fall in the exports of strategically important commodities, aluminum and cotton accounted for 48 percent of total export value for the last year (Figure 8). In general, the total export value contracted by 14.4 percent or $196.2 million. Figure 7. Aluminum International Prices and Export Figure 8. Composition of Export Value Value in USD/tonn in mln. USD in percent 3,000 250 100 2,500 200 80 2,000 150 60 1,500 100 40 1,000 50 20 500 0 0 0 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2005 2006 2007 2008 2009 2010 2011 2012 2013 ▬▬ Aluminum international prices ▬▬ Aluminum export value, rhs JJ Aluminum JJ Cotton fiber JJ Electricity JJ Others Source: National Bank of Tajikistan, World Bank staff calculations. Source: National Bank of Tajikistan, World Bank staff calculations. Figure 9. Composition of Import Value Figure 10. Main Drivers of the Current Account Balance in percent of total import value in percent of GDP 100 45 80 25 60 5 0 40 -15 20 -35 0 -55 2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013e JJ Alumina JJ Natural gas JJ Petroleum products JJ Electricity JJ Trade deficit on goods & services JJ Net current transfers ▬▬ Current account balance JJ Grain and flour JJ Other imports Source: National Bank of Tajikistan, World Bank staff calculations. Source: National Bank of Tajikistan, World Bank staff calculations. Tajikistan has been trying to diversify its export potential despite challenges related to its location and lack of transportation infrastructure. The only railway that can be used to export goods passes through Uzbekistan, and increasing rates for their railway lines result in high transportation costs. Moreover, according to the Ministry of Economic Development and Trade, the average distance to reach the end buyers of Tajik 1. Recent Economic Developments  │  5 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 aluminum is 4,156 kilometers while the average distance to reach the final consumers of Tajik cotton is 3,241 kilometers. In terms of price, this makes aluminum and cotton less competitive, and local producers have to reduce their margins. However, the only way to become sustainably competitive is to increase efficiency of production and reduce logistics costs.5 Remittances have supported the growth in imports, which increased by 9.1 percent to $4.1 billion or about 49 percent of GDP in 2013. The increase in import value was largely driven by imports of consumer goods, especially passenger cars. Despite the introduction in February 2013 of 18 percent VAT, 5 percent customs duty, and 10 percent excise tax, imports of vehicles increased by 29.3 percent year-on-year in 2013. With the decline in imported alumina (by 18.8 percent year-on-year), wheat flour (by 22.5 percent), and petroleum products (by 5.2 percent) and no imports of natural gas, the structure of Tajikistan’s imports has changed in favor of “other goods, ” which accounted for 78 percent of total imports in 2013 (Figure 9). Transport vehicles (19.1 percent of total imports), machinery and equipment (11.1 percent), and chemicals (10.7 percent) are the largest “other goods” categories. The importance of trade with the CIS was reduced further in 2013 as Tajikistan’s market concentration grew. CIS countries accounted for 20 percent of Tajikistan’s total exports and 48 percent of its total imports in 2013. Its top six export markets, totaling almost 85 percent of total exports, were Turkey (40.7 percent), Russia (10.6 percent), Iran (9.9 percent), Afghanistan (8.7 percent), and China and Kazakhstan (7 .4 percent each). Imports were even more concentrated with three countries accounting for almost 52 percent—Russia (22 percent of total imports), Kazakhstan (15.2 percent), and China (14.5). Major machinery and transportation equipment are imported from China and Russia, and most raw materials are exported to those countries as well as to Turkey, Iran, and Afghanistan. Inflation Figure 11. Contributions to Headline CPI Inflation in percent Inflation fell to a record low of 3.7 percent in 2013 12 thanks to the limited increase in food prices and 10 the stable exchange rate. Consumer price inflation has been declining since 2010 on the back of easing 8 food prices inflation (Figure 11). This downward trend 6 continued in 2013, with inflation reaching a record low of 3.7 percent, down from 6.4 percent in 2012. 4 Food prices, which constitute around 58 percent of 2 the consumer basket, increased by only 2.8 percent 0 in 2013 and became the main driver of low inflation 2010 2011 2012 2013 once again. This benign picture was mostly due to JJ Food JJ Non-food JJ Services ▬▬ Headline CPI lower global prices and the stable exchange rate Source: TajStat, World Bank staff calculations. keeping food price inflation low, which is important as food imports account for 80 percent of total food consumption in the country. Administrative price controls during the month of Ramadan also contributed to lower food price inflation. 5 Tajikistan ranked 136th out of 155 in the world in 2012 Logistics Performance Index (LPI), with its LPI score, which reflects the extent of trade facilitation, is below the regional and income group averages, suggesting that Tajikistan has a less conducive climate for trade. It scores 2.28 on a scale of 1 to 5 (a deterioration as compared to 2.35 in 2010 LPI), while the regional and income group averages are 2.71 and 2.37 , respectively. 6  │  1. Recent Economic Developments TAJIKISTAN: STRONG GROWTH, RISING RISKS 2. Economic and Structural Policies Monetary and Exchange Rate Policies Lower inflation allowed the National Bank of Tajikistan (NBT) to implement further monetary easing, but the transmission mechanism of monetary policy remains weak. Following two cuts in 2013, the NBT was able to reduce the refinancing rate further to 4.80 percent on January 10, 2014, down from 6.50 percent a year ago, thanks to favorable inflation dynamics. Nevertheless, the impact of monetary easing on domestic demand (and inflation) is expected to be limited as the share of NBT funding from the refinancing rate in the banking sector is very low and the economy is highly dollarized with 63 percent of total deposits and loans being dominated by foreign exchange. Accordingly, there is a significant gap between the refinancing rate and the interbank loan rate, which stood at 17 .2 percent as of December 2013. The managed floating exchange rate regime was preserved in 2013 while the exchange rate was stable against major currencies. As announced in the Monetary Policy Guidelines (MPG) for 2013, the NBT did not alter its managed floating exchange rate regime last year. The somoni remained almost unchanged against the dollar while depreciating by 4 percent against the euro but appreciating by 8 percent against the ruble. In the same document (the MPG), the NBT set a target of 15 percent for the growth rate of net international reserves (NIR) and achieved this target, with the growth rate of NIR reaching 15.9 percent as early as September 2013. However, the NIR still remained very low in absolute terms at around $800 million (1.7 months of imports of goods and services), thus limiting how much room the NBT has to mitigate the effects of any sharp exchange rate movements. The NIR declined to below 1.5 months of imports by the end of 2013. Despite strong credit growth and high margins, the banking sector is not profitable. Credit growth surged to 39 percent year-on-year at the end of 2013 from 13 percent year-on-year in 2012, mostly driven by microfinance credits, which increased by 50 percent in the first 10 months of 2013. Tajikistan’s credit to GDP ratio is still below an adequate level for a country with Tajikistan’s per capita income (Figure 12). Meanwhile, the interest rate margin is also high with the average weighted deposit rate standing at 15 percent compared to an average Figure 12. Credit to GDP versus GDP Per Capita Figure 13. Interest Rates credit to GDP ratio in percent refinancing rate 350 35 12 300 30 10 250 R2=0.5011 25 8 200 20 6 150 15 4 100 50 10 2 TJK 0 5 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 2010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 GDP per capita (PPP, constant 2005 $ ▬▬ Interest rate on loans ▬▬ Interest rate on deposits ▬▬ Refinancing rate Source: World Development Indicators, World Bank staff calculations. Source: NBT, IMF. 2. Economic and Structural Policies  │  7 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 weighted loan rate of 23.3 percent (Figure 13). Despite these developments, the banking sector’s profitability remained poor, and returns on assets and on equity reached only 2 percent and 10.4 percent respectively in the third quarter of 2013. The low level of profitability in the banking sector was mostly due to non-performing loans, which reached a record high of 21.2 percent of total loans as a result of capacity constraints and governance problems in the sector. Overall, financial intermediation remains limited Figure 14. Financial Soundness Indicators while the financial sector is vulnerable to liquidity shocks. The level of financial intermediation is low in 45 20 Tajikistan relative to its per capita income level (Figure 40 18 14). There are substantial constraints on financial 35 16 14 deepening in the country including weaknesses in 30 12 the infrastructure for banking, problems with financial 25 10 accountability, inefficiency of financial service 20 8 providers, and low confidence in the banking system. 15 6 Meanwhile, although the capital adequacy ratio (tier 10 4 I) was high at 21.2 percent as of September 2013, 5 2 0 0 misclassification and under-provisioning of NPLs 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 2013 suggest that capital is overstated and that banks ▬▬ Capital adequacy ratio ▬▬ Non-performing loans as % of total loans are facing liquidity pressures because of maturity ▬▬ Reported return on assets, rhs ▬▬ Reported return on equity, rhs mismatches. Directed lending remains a problem Source: National Bank of Tajikistan, IMF. with the number of banks exceeding the maximum single borrower limit having increased to two in 2013. To strengthen the financial sector, the government should tighten supervision and lending policy and take the necessary measures to improve governance in the sector. Fiscal Policy In 2013 the overall budget balance deteriorated relative to 2012 largely on the back of higher expenditures on donor-financed projects in transport, construction and in the energy and increased current expenditures. Preliminary estimations of the overall budget deficit was 1.3 percent of GDP in 2013 compared to a surplus of 0.1 percent of GDP in 2012 (Figure 15). Excluding the public investment program (PIP), the budget narrowed to near balance compared with a projected deficit of 0.5 percent of GDP and a 1.5 percent of GDP surplus a year earlier. Lower than budgeted actual spending on Rogun hydro power plant maintenance or 82 percent out of budgeted TJS 929.4 million—helped to prevent a larger deterioration in the fiscal outcome for 2013. Increases in salaries and pensions (which came into effect on September 1, 2013)6 boosted current expenditures. Overall revenue collection was on target and amounted to around 27 percent of GDP in 2013. Revenue collection grew by 18.1 percent in nominal terms in 2013, suggesting that fears that the implementation of the new Tax Code (in effect from January 1, 2013) would have a negative initial impact were too pessimistic. 6 Following up the President’s address to Parliament, the wages of school and kindergarten teachers were increased by 30 percent, while a 20 percent increase in wages was provided to staff in all other sectors. All pensions and scholarship allowances were also increased by 20 percent. The minimum monthly wage grew by 25 percent, from TJS 200 to TJS 250. 8  │  2. Economic and Structural Policies TAJIKISTAN: STRONG GROWTH, RISING RISKS Figure 15. Government Revenue and Spending Figure 16. Composition of Government Spending* in percent of GDP in percent of GDP 35 25 30 25 20 20 15 15 10 10 5 0 5 -5 -10 0 2008 2009 2010 2011 2012 2013e 2008 2009 2010 2011 2012 2013e JJ Expenditure JJ Revenue and grants ▬▬ Fiscal balance (incl. PIP) ▬▬ Fiscal balance (excl. PIP) JJ Social sectors JJ Public admininstration JJ Energy JJ Industry & transport JJ Agriculture JJ Others Source: Ministry of Finance. World Bank staff calculations. Source: Ministry of Finance. World Bank staff calculations. Note: *Excluding the PIP, e – estimate. However, revenue performance was uneven. Stronger than projected revenues that were collected from several large taxes, primarily, value added tax (VAT), compensated for a shortfall in non-tax revenues and in some other taxes (such as excises on imported goods, sales tax, and payroll tax). The installation of special software programs to ensure better control over medium-sized and large taxpayers had a positive effect on revenue collection. A decline in aluminum production capacity in the Tajik Aluminum Plant during 2013 in response to falling world aluminum prices7 resulted in lower sales tax proceeds (6.2 percent below the target). Lower than budgeted import excises (by 29.6 percent) were largely due to a reduction in the volume of imported petroleum products. VAT remained the main contributor to revenue collection, accounting for 43 percent of total revenue, having grown by 20.4 percent year-on-year in line with import growth and expansion in domestic economic activity. Growth in foreign grants was mainly due to the receipt of some grants for budget support from the World Bank and Asian Development Bank, which were delayed in 2012. Tax arrears increased, accounting for 7.6 percent of total government revenues and grants. The stock of tax arrears increased by 30 percent as of the end of November 2013 compared with the end of 2012 to TJS 833.2 million ($175 million). The largest state-owned enterprises (SOEs) account for 61.4 percent of total tax arrears. Despite periodic settlements of inter-enterprise arrears on electricity services by the Tajik Aluminum Company and “Sangtuda-1” HPP , the electricity company Barki Tojik remains responsible for the lion’s share of total tax arrears (over 43 percent). Government spending increased from 25.1 percent of GDP in 2012 to 28.2 percent of GDP in 2013, with its composition shifted towards the social sectors  (Figure 16). In 2013, social expenditures accounted for almost 44 percent of total expenditures or equivalent of 12.3 percent of GDP , a 1.6 p.p. of GDP increase compared to 2012. Social protection and education benefited the most from these increased outlays, while spending on health in relation to GDP, already the lowest in ECA, decreased marginally. As highlighted in the World Bank Public Expenditure Review Policy Note “Government Expenditures: Size, Composition and Trends” , the level and composition of public spending needs to be carefully reviewed to keep it aligned with the government’s 7 During 2013 the Tajik aluminum industry was under pressure from falling world aluminum prices as low prices and high production costs made it unprofitable to produce primary metal in the country. In response to low aluminum prices, aluminum producers reduced capacity by 57 .8 thousand tons in 2013 compared to 2012. 2. Economic and Structural Policies  │  9 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 long-term strategy and the needs of Tajikistan’s population.8 Strengthening the public finance management system will be critical to use scarce public resources more efficiently and effectively. The government needs to consider carefully any large-scale investment projects as they reduce the fiscal space for the other important expenditures, including the resources available to spend on developing human capital. Government debt—three-fourths of it to external creditors—fell further. The ratio of the country’s public and publicly guaranteed external debt to GDP further decreased from 28.6 percent in 2012 to 25.4 percent in 2013, although it remained little changed in dollar terms (Figure 17). The Chinese Export-Import Bank remained the largest creditor to Tajikistan, with its loans representing around 42 percent of total external public debt by the end of 2013. The other main lenders are the World Bank and the Asian Development Bank with 16.7 and 14.7 percent shares of Tajikistan’s total external public debt respectively. Despite continued improvement during the last Figure 17. Public and Publicly-Guaranteed External three years, Tajikistan’s fiscal and debt position Debt remains fragile and subject to significant risks. in percent of GDP The fiscal and debt position remains weak given the 40 country’s remittance-driven growth model, narrow 35 export base, high dependence on concessional 30 financing, and large infrastructure needs (including 25 in the social sectors). In addition, the amortization of 20 existing foreign debt is increasing sharply. All of this 15 makes the country extremely vulnerable to external 10 shocks, while its ability to mitigate the shocks is 5 limited due to low external and fiscal buffers but, 0 more importantly, due to its weak institutions and 2007 2008 2009 2010 2011 2012 2013 governance issues. Domestic policies, including soft Source: Ministry of Finance of Tajikistan. budget constraints in the SOE sector and directed lending, create substantial quasi-fiscal risks and may undermine fiscal consolidation efforts. Public expenditure must be managed more efficiently and transparently so that government revenue can be used to support growth, reduce poverty, and boost shared prosperity. Although seven new loan agreements totaling $121.6 million were signed during 2013, this amount did not affect the threshold for public and publicly guaranteed external debt of 40 percent of GDP . Among the new loans, two were contracted with the Chinese Export-Import Bank for the construction of a 500 kWt voltage electricity transmission substation in Regar ($35 million) and for an automated transport management system in Dushanbe city ($20.9 million). Other agreements were signed with the Islamic Development Bank ($36.7 million), the Saudi Fund ($25 million), and the European Bank for Reconstruction and Development ($4 million). The government should remain cautious about contracting and guaranteeing new debt, particularly non-concessional debt, and should conduct cost-benefit studies of large- scale infrastructure projects and carefully assess their conclusions. 8 World Bank (2013). Tajikistan: Policy Notes on Public Expenditures. Policy Note No. 1. Government Expenditures: Size, Composition and Trends. Report No. 77607- TJ, June 2013. 10  │  2. Economic and Structural Policies TAJIKISTAN: STRONG GROWTH, RISING RISKS Structural Reforms WTO accession On March 2, 2013, Tajikistan became the 159th member of the World Trade Organization (WTO). The country has committed to fully applying all WTO provisions without any transitional period. As a part of the accession process, Tajikistan has repealed trade barriers and enacted over 100 separate pieces of legislation and regulation to apply the WTO Agreements directly in its legal framework. The successful conclusion of the accession process is the end of the first phase of the country’s integration into the world economy and the beginning of a new phase in trade policymaking for Tajikistan. In addition to the challenge of implementing and enforcing the WTO agreements, Tajikistan will need to address policy and supply side constraints in order to fully benefit from the new opportunities opened up by its WTO membership. Business regulatory environment Progress in regulatory reforms has been slow in 2013. In the World Bank’s Doing Business (DB) 2014 report, Tajikistan ranked 143rd globally and 25th regionally on ease of doing business (Table 1). There were no significant reforms in regulating business environment in the areas of entry and exit in 2013. The most important reform affecting business operation was the establishment of the first credit information bureau (CIB) aimed at increasing access to financial information. The bureau is expected to play an important role in Table 1. Progress in Doing Business Indicators, credit risk management by offering timely, credible, 2013–2014 and objective information on borrowers to creditors. Topic DB 2014 DB 2013 It should also help financial institutions to make Starting a business 87 77 faster and more accurate credit decisions, thereby Dealing with construction permits 184 184 increasing the availability and affordability of financial Getting electricity 186 186 services for individual consumers and micro, Registering property 78 78 small, and medium enterprises in the country. It is Getting credit 159 182 expected that making available objective information Protecting investors 22 21 on borrowers will allow financial institutions to Paying taxes 178 179 reduce their loan processing times and borrowing Trading across borders 188 188 costs and will cut default rates in the financial sector. Enforcing contracts 39 39 The progress made in this area in Tajikistan was Resolving insolvency 81 78 reflected in its improved ranking in “getting credit” section of the Doing Business 2014 report, moving Doing Business rank 143 141 Source: The World Bank Group, International Finance Corporation (2013), Doing Business up 23 places. 2014: Understanding Regulations for Small and Medium-Size Enterprises. Washington, D.C. Public Finance Management The government is developing a new accounting policy and a unified chart of accounts (UCOA) consistent with Government Financial Statistics (GFSM) 2001 and International Public Sector Accounting Standards (IPSAS). The revised budget classification, which incorporates GFSM 2001-based economic and functional categories, has been applied to budget execution since January 1, 2014 in conjunction with the new UCOA. It 2. Economic and Structural Policies  │  11 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 was preceded by a massive preparatory effort, with more than 6,800 budget organizations (BOs) involved in the training and subsequent implementation of the system. The first 10 accounting standards based on IPSAS are being introduced in 2014. A new Treasury organizational structure has also been implemented from January 1, 2014 to put the UCOA and the accounting reform into practice. This process has been supported by the World Bank’s Public Finance Modernization Project and by the Bank’s budget support series (PDPG4-6), which was completed in 2013, as well as by technical advice from the IMF . Medium-term expenditure frameworks have been developed for six pilot sectors. In 2013 the Ministry of Finance delegated much more authority to the line ministries in these sectors to develop their sectoral budgets. The ministries developed their baseline budgets based on program budgeting and a new program classification on a new information system (SGB.NET). Each ministry identified its priorities, programs, and sub-programs and then allocated its expenditures according to a range of objectives, having developed performance indicators to measure the achievement of these objectives. At present, 10 to 20 programs have been developed by lead line ministries9 for each appropriate sector. Since January 2014, a new information system has been supporting some new functions such as accounting and commitment control. All local treasuries will be using the new SGB.NET information system, which has a unified national database that will consolidate all data online. In Resolution 499 of November 2, 2013, the government approved a state-owned enterprise (SOE) dividend policy. This is a long-awaited and a welcome step that needs to be extended to commercial enterprises in which the government has an ownership stake of less than 100 percent and to subsidiaries, including Talco Management Ltd.10 An European Union-funded project on SOE monitoring started in late December 2013. Its inception report and related activities as well as a forthcoming World Bank Public Expenditure Review Note on Fiscal Risks from SOEs will all be important inputs into the development of reforms that should harden budget constraints for SOEs, phase out any of their quasi-fiscal activities, and increasing their financial viability. The Chamber of Accounts is authorized to conduct external audits of all public institutions in Tajikistan. On July 19, 2013, the Lower House of Parliament supported the government’s amendments to the Law of the Republic of Tajikistan “On the Inspection of Business Entities. ” According to these amendments, auditors from the Chamber of Accounts are entitled to conduct external audits of all government and non-government agencies who receive funding from the state budget. The Chamber of Accounts was established in summer 2011, under the supervision of the Head of State and the Parliament, to oversee the revenue and expenditure parts of the state budget, extra-budgetary funds, and foreign investments. According to the country’s legislation, the President and the Lower House of Parliament appoint the head of the Chamber of Accounts who serves for a maximum of two seven-year terms. Water and land sector reforms Major structural reforms were enacted in the water sector. Following the President’s decree on structural changes from November 19, 2013 that aimed to separate policy and strategic guidance (regulation) and operations (service delivery), the former Ministry of Melioration and Water Resources was restructured into two bodies—the Ministry of Energy and Water Resources and the Agency for Melioration and Irrigation. The 9 Lead line ministries are Ministry of Education and Science; Ministry of Healthcare and Social Protection; Ministry of Labor, Migration and Employment; Ministry of Energy and Water Resources; Ministry of Transport; and Ministry of Agriculture. 10 Talco Management Ltd is an intermediary company with 70 percent of state stake, registered in the British Virgin Islands. 12  │  2. Economic and Structural Policies TAJIKISTAN: STRONG GROWTH, RISING RISKS water sector reform aims to lay the foundations for an Integrated Water Resource Management (IWRM) approach to the use of Tajikistan’s water resources. This new approach is based on decentralizing responsibility for water management to local authorities and outsourcing services in the transitional process towards sharing responsibility between the national government and civil society. These reforms are based on generally accepted guiding principles for IWRM and aim to manage and develop water resources in a sustainable and balanced way, taking into account all social, economic, and environmental interests. Following two and half years of extensive consultation and policy dialogue, on March 2, 2013, the government approved a decree that provides for a unified property registration system. The decree stipulates that the functions of the State Unitary Entity Markaz-Zamin (or Land Center), which is part of the State Committee for Land Management and Geodesy (SCLMG), and the Inter-regional Bureau of Technical Inventory (BTI) are to be merged. A single registration system has been established under the State Unitary Enterprise for the “Registration of Immovable Property” (SUE RIP) with subsidiary organizations in all the regions of the Republic. In addition, the Temporary Instruction titled “On the procedure and features of the state registration system of immovable property and rights to it in the pilot areas” is another partial step toward clarifying the roles of different actors in the creation of the registration system. This document was developed by the government with the support of the Bank-financed Land Registration and Cadaster System Project and was approved by a Resolution of the Government of the Republic of Tajikistan 447 , dated October 4, 2013. The reforms aim to simplify business registration procedures, improve the business environment, and increase transparency and accountability in the registration of immovable property. 2. Economic and Structural Policies  │  13 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 Outlook GDP growth is estimated to ease modestly to 7 percent in 2014 due to a slowing down of sectoral growth and a deteriorating external environment ( Table 2). Growth in Russia is projected by most observers to remain subdued, which may affect negatively remittances to Tajikistan. At the same time, simplified visa and registration regime for Tajikistani migrants in Russia is expected to work in the opposite direction. All in all, we project that remittances will be growing, albeit at a lower rate as compared to 2012–2013, at 8 percent per annum on average. This, in turn would have a negative impact on services and construction sector performance. Extractive industries growth is projected to be slower than in 2013, largely, due to high base effect, whilst moderate recovery in manufacturing sector growth is not expected to offset a slowdown in extractive sector, so that the total industrial output growth is projected to be lower than in 2013. The weaker ruble and the 19 percent devaluation of the Kazakhstan tenge in January 2014 is also having a negative impact on financial markets in Tajikistan, with the official rate of somoni down 0.3 percent year on year in January 2014. Inflation pressures are expected to increase somewhat as a result of instability of exchange rate, but stable global food prices would help to keep inflation within a one-digit level. In the absence of strong structural reforms, growth will further ease to around 6 percent per annum in the medium term. Despite this slowdown, improved revenue collection is expected to help to keep the fiscal deficit (excluding PIP) at 0.5 percent of GDP in the medium term. In addition, moderate nominal devaluation will help to maintain and even increase revenues from foreign activities (customs duties, VAT on imported goods), despite projected lower (consumer) imports growth. Table 2. Selected Macroeconomic Indicators for Tajikistan: 2012–2015 in percent of GDP, unless otherwise indicated 2012 2013 a/ 2014 b/ 2015 b/ Real GDP growth (percent) 7.5 7.4 7.0 6.5 CPI inflation (end-of-period percent change) 6.4 3.7 5.5 6.5 Overall revenues and grants 25.2 26.9 25.6 25.2 Expenditures and net lending 25.1 28.2 27.0 26.8 Overall Fiscal Balance (including PIP) 0.1 -1.3 -1.4 -1.6 Fiscal Balance (excluding PIP) 1.5 0.1 -0.2 -0.5 Total public and publicly guaranteed external debt 28.6 25.4 27.0 26.7 Current account balance -1.3 -2.9 -3.2 -3.3 Source: Ministry of Finance, TajStat, IMF, World Bank staff estimates. a/ Estimates. b/ Projections. The current account deficit is projected to widen to over 3 percent of GDP in 2014 because of low external demand, low prices for aluminum, and the slowdown in remittances. In the medium term, lower remittances may help to improve the trade balance by reducing imports of consumer goods. This stabilizing impact, however, is expected to be offset by the increased imports of capital goods for public infrastructure projects. Export growth (especially of aluminum) is likely to remain muted due to lower prices and economic 14  │ Outlook TAJIKISTAN: STRONG GROWTH, RISING RISKS slowdowns in the economies of Tajikistan’s major export partners.11 Overall, some deterioration in the current account is projected in the medium term and foreign currency reserves remain well below their prudential level, at about 1.5 months of imports of goods and services. Should the government decide to smooth the pressure on the exchange rate by intervening in the forex market, foreign reserves—which are now at the very low level of less than 1.5 months of imports—will deplete quickly. This outlook is subject to significant downside and upside risks. Downside risks stem from even lower than projected Russian and global growth, a steeper reduction in remittances, and a slower recovery in the prices of aluminum and cotton. Domestic policy risks include those stemming from the financial sector increasing vulnerability with a spillover effect to the whole economy as well as from fiscal risks associated with the SOE sector. There is also major uncertainty about the possible timing, pace, and financing of large infrastructure projects. On the upside, in addition to better than projected growth in the economies of Tajikistan’s main trading partners and improvements in the country’s terms of trade, more decisive actions on structural reforms by the newly appointed and reorganized government, including those allowing Tajikistan to reap the benefits of its WTO membership, would yield medium and long-term growth dividends. In order to meet their ambitious growth and poverty reduction objectives, the Government needs to accelerate reforms, aimed at improving institutional environment for private-sector led growth and jobs creation. So far, remittances largely benefited consumption, while a poor business environment, weak financial intermediation, and low confidence in the banking system prevented their efficient channeling into investments. The government needs to ignite a new engine of growth, based on private (including, foreign) investment. Prudent macroeconomic management and structural reforms aimed at diversification would create better economic opportunities and reduce the vulnerability to shocks. Investing in human and institutional capital would support productivity improvements and job creation and the transition to a more sustainable growth model. 11 According to the International Trade Center, the global aluminum market is experiencing a reduction in trade because of oversupply and lower demand for aluminum. Moreover, in November 2013, the London Metal Exchange introduced changes to its warehouse policy to cut queues, and investment banks are reluctant to work in the raw materials business. Therefore, in 2014 the price of aluminum is expected to drop further because of widespread selling of metal stocks on the global market, and banks are likely to reduce the number of operations on the futures markets. Outlook  │  15 TAJIKISTAN ECONOMIC REPORT NO.5  –  SPRING 2014 Appendix Annex 1. Economic and Social Indicators in Tajikistan, 2008–2015 Selected Indicators 2008 2009 2010 2011 2012 2013 a/ 2014 b/ 2015 b/ Income and Economic Growth GDP growth (percent change) 7.9 3.9 6.5 7.4 7.5 7.4 7.0 6.5 GDP per capita (in US dollars) 697 662 741 836 951 1,026 1,100 1,192 Private consumption growth (percent change) … … … … … … … … Gross fixed investment (percent of GDP) 19.6 14.3 12.9 15.5 14.9 15.3 14.7 14.1 Gross fixed investment – public (percent of GDP) 13.6 13.3 10.9 12.5 10.9 10.3 10.4 10.5 Gross fixed investment – private (percent of GDP) 6.0 1.0 2.0 3.0 4.0 5.0 4.3 3.5 Savings (percent of GDP) 12.8 12.8 20.0 18.1 17.7 16.1 14.6 13.3 Savings – public (percent of GDP) 8.1 7.8 7.2 10.0 9.5 10.1 9.8 9.3 Savings – private (percent of GDP) 4.7 5.0 12.9 8.1 8.2 6.0 4.8 4.0 Money and Prices Consumer price inflation (percent change, year-end) 11.9 5.0 9.8 9.3 6.4 3.7 6.0 7.0 Consumer price inflation (percentage change, annual 20.4 6.5 6.4 12.4 5.8 5.1 5.7 5.4 average) Average exchange rate (TJS/USD) 3.43 4.14 4.38 4.61 4.76 4.76 … … Real effective exchange rate (index 2000=100) 104.1 97.3 92.1 90.2 … … … … Fiscal Revenue and grants 22.1 23.4 23.2 24.9 25.2 26.9 25.6 25.2 Expenditure and net lending 27.6 28.8 26.9 27.3 25.1 28.2 27.0 26.8 Fiscal balance excluding PIP 1.4 -0.5 -0.4 0.5 1.5 0.1 -0.2 -0.5 Fiscal balance including PIP -5.5 -5.4 -3.7 -2.5 0.1 -1.3 -1.4 -1.6 External public debt (millions of US dollars) 1,371 1,691 1,943 2,124 2,169 2,248 2,501 2,698 External public debt 26.7 35.8 34.4 32.6 28.6 25.4 27.0 26.7 Total public debt 27.7 36.6 37.6 35.0 32.6 31 32 31.6 External Accounts (In millions of US dollars unless otherwise indicated) Export growth of goods and services (percent change) 12.8 -12.7 14.6 34.8 16.8 -5.5 4.8 5.8 Import growth of goods and services (percent change) 45.0 -26.7 9.4 47.6 12.9 14.4 8.0 7.8 Export of goods & services 865 755 866 1,167 1,384 1,310 1,389 1,485 Import of goods & services 3,703 2,714 2,968 4,382 4,894 5,417 5,860 6,335 Workers’ remittances, net 2,343 1,622 2,122 2,844 3,557 4,094 4,422 4,776 as percent of GDP 45.2 32.6 39.8 46.2 47.5 48.6 47.8 46.5 Current account balance -392 -295 -68.8 -304.7 -99.1 -244 -317 -365 as percent of GDP -7.6 -5.9 -1.2 -4.7 -1.3 -2.9 -3.2 -3.3 Foreign direct investment 300 16 16 65 146 100 109 118 16  │ Appendix TAJIKISTAN: STRONG GROWTH, RISING RISKS Population, Employment and Poverty Population (millions) 7.37 7.5 7.6 7.8 8.0 8.13 8.23 8.4 Population growth (percent change) 2.2 2.2 1.1 2.6 2.3 2.4 2.4 2.4 Unemployment rate (percent of labor force) 2.3 2.0 2.1 2.4 2.4 2.4 … … Poverty headcount (percent of the population) at national … 47.2 … … … … … … poverty line At $1.25 a day PPP … 6.6 … … … … … … At $2 a day PPP … 27.7 … … … … … … Gini coefficient (income) … 30.8 … … … … … … Life expectancy (years) 67 67 67 67.1 … … … … Other GDP (millions of local currency units) 17,609 20,623 24,705 30,069 36,161 40,507 45,943 52,011 GDP (millions of US dollars) 5,134 4,981 5,642 6,523 7,593 8,495 9,576 10,763 Doing Business rank c/ 153 159 152 139 147 141 143 … Human Development Index ranking d/ 127 127 127 127 125 … … … CPIA (overall rating) 3.2 3.2 3.3 3.4 3.4 … … … Economic management 3.5 3.5 3.7 3.8 3.8 … … … Structural policies 3.2 3.2 3.2 3.2 3.2 … … … Social inclusion and equity policies 3.4 3.4 3.4 3.5 3.5 … … … Public sector management and institutions 2.6 2.7 2.8 2.9 3.0 … … … Notes: “ ” indicates that data are not available. a/ Estimates. b/ Projections. c/ This indicator is ranked out of 175 countries in 2007; 178 in 2008; 181 in 2009; 183 in 2010 and 2011; 185 in 2012; ... and, 189 in 2013. d/ The HDI ranking in 2001 is in relation to 175 countries; from 2005 to 2008, it relates to 177 countries; in 2009, to 181 countries; in 2010, to 169 countries; in 2011, to 187 countries; and, in 2013 (estimates for 2012) to 195 countries. 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