Dushanbe, 6 November 2021 (TDI): Since joining the WTO in 2013, Tajikistan has been pursuing an open world of trade and investment. The country has strong growth potential, supported by its abundant water resources, young people, mountainous and tourist attractions, along with proximity to major regional markets.
Challenges arise mainly at the industry level, especially barriers to the financial system and infrastructure issues, as well as attracting private investors, diversification, and exports, and creating non-farm employment opportunities.
Tajikistan achieved strong economic growth
Tajikistan is a closed, mountainous, low-income country, with a per capita of $835 in 2018. During the review period (2013-19), the country achieved strong economic growth, estimated at 7% per annum. Growth is supported by domestic demand, which is driven by greater infrastructure investment and the resulting demand for the importation of more expensive assets, as well as private use backed by labor costs. At about 35% of GDP in 2019, remittances continue to play a significant role in the economy.
However, high growth did not translate into adequate job opportunities, more than 60% of workers are left in the agricultural sector, and many Tajik residents work abroad. The economy is trading strongly in dollars, indicating a lack of confidence in the domestic financial system.
The currency has been in a state of disrepair, with the central bank taking steps to strengthen foreign exchange controls and to move forward in the face of inflation. The government has adopted a monetary policy to increase, the rapid rise in public spending has led to a massive GDP deficit.
Trade plays a significant role: Tajikistan
Significant public investment in infrastructure projects also poses financial risks. Trade plays an important role in the economy, although total trade in goods and services as part of GDP fell from 74% in 2013 to 58% in 2018. Alternatively, declining cash flow, declining exchange rates, and a growing domestic base.
The export basket has been diversifying from being dominated by aluminum and cotton to blending additional fabrics, cement, and mineral products, among others. Exports are mainly mineral products, metals, and textiles, and our major trading partners include the Commonwealth of Independent States (CIS), China, the European Union, Turkey, and Afghanistan.
The current account deficit has dropped from 10% of GDP in 2013 to 5% in 2018. Trade policy is based on the 2030 National Development Plan, which sets out the goals for GDP growth and exports. Tajikistan’s Medium-Term Development Program 2016-20 has outlined plans to transform the economy from driven by public investment and remittances to a new model of high-growth growth based on investment promotion and expansion of domestic and export services.
Export promotion & Import substitution
The State Programme on export promotion and import substitution for 2016-20 aims to increase exports and reduce the supply of consumer goods and services to imports by increasing domestic production capacity. Tajikistan became the 159th WTO Member on 2 March 2013. It has tied all its strings and performed certain GATS commitments in 11 service areas.
The gap between the bound and applied rates is small. Tajikistan signed the Information Technology Agreement (ITA) upon accession and became an observer to the Committee on Government Procurement Committee (GPA) in 2014. In 2016, it introduced its 2005 protocol adoption tool amending the WTO TRIPs Agreement and acquired a viewer status on the Public Aviation Trading Committee.
Tajikistan participates in several preferential agreements. The Free Trade Agreement between CIS (CIS FTA) members came into effect in Tajikistan in 2015. In 2000, Tajikistan signed the Treaty establishing the Eurasian Economic Community (EAEC), which was later terminated by the Eurasian Economic Union (EAEU).
Improving Business Environment
Tajikistan authorities have indicated that there are no immediate plans to participate in the EAEU. Tajikistan is also a party to the Economic Partnership Agreement (ECOTA) Trade Agreement. Signed free trade agreements between Ukraine and Uzbekistan, both of which impose a free trade law on all goods, excluding the agreed-upon release list.
To improve the business environment, the authorities have implemented various reforms, including streamlining the business registration process through a single investor window system, strengthening the land tenure framework, and easing the burden of licensing and testing.
The changes have contributed to the gradual increase in the number of small and medium enterprises (SMEs) and the share of the private sector in the economy. Tajikistan remains at the lowest level of the World Bank in terms of cross-border trade, ranking 148 out of 190 economies by 2019, which may indicate a state of globalization.
In the WTO Committee on Property Evaluation, Tajikistan was subject to some trade concerns regarding the alleged use of reference prices. The 2019 tax schedule contains 11,411 lines at 10 HS level, with 98.1% tax Export taxes are levied on several products, including leather and leather skins, crude silk, silk cocoons, cotton, scraps, and debris copper, and aluminum.
Tax revenue has been steadily rising
Several products are subject to the requirements of an export license. Tax revenue has been steadily rising, and the main source is VAT, followed by income tax. Taxes collected at the border, which include import and export duties, VAT, and sales tax, cover about one-third of the total tax revenue. Tax grants are awarded to a wide range of sectors, including manufacturing and processing operations, hydroelectric power plants, cotton processing, agricultural and tourism sectors, and the securities market.
Tajikstan gas has the right to import natural gas through pipelines. During the WTO entry process, various SOEs, including the mining, chemical, and agricultural sectors, became private entities. However, the number of SOEs is still large, and some are still influential in the market, especially in the communications, transport, and energy sectors.
Tajikistan’s financial system
Tajikistan’s financial system, which has not been developed, especially in the non-banking sector, continues to hamper economic growth. At the time of the review, part of the banks had experienced performance constraints, resulting from high credit risks and concentration and exacerbated the high rate of dollar inflation in the economy.
The two troubled banks will be rescued by the State in 2016, under a pre-determined timeline to purchase their shares from the Treasury. In 2017, the regulatory and regulatory authority of the National Bank of Tajikistan was expanded to cover part of the insurance policy.
In line with Tajikistan’s GATS obligations, national and local restrictions on national governance in that sector would be abolished by 2018 but these restrictions remain. Although Tajikistan has great potential to increase its tourism output, disruptive and expensive transport links, especially the limited international network of direct flights, remain a major obstacle to the development of tourism.
Other challenges include inadequate funding, as well as weak infrastructure, especially in the provision of electricity and communications. During the review, Tajikistan reduced its consular tourist visa costs and took steps to facilitate visa issuance.
