Document of The World Bank FOR OFFICIAL USE ONLY Report No. 59123-TJ INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED GRANT IN THE AMOUNT OF SDR 6.4 MILLION (US$10 MILLION EQUIVALENT) TO THE REPUBLIC OF TAJIKISTAN FOR A FIFTH PROGRAMMATIC DEVELOPMENT POLICY GRANT May 6, 2011 Poverty Reduction and Economic Management Unit Central Asia Country Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. REPUBLIC OF TAJIKISTAN Government Fiscal Year: January–December CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 15, 2011) Currency Unit Tajikistan Somoni US$1.00 4.51 TJS 1.00 0.22 Weights and Measures: Metric System ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities IMF International Monetary Fund ADB Asian Development Bank LITS EBRD-World Bank Life in Transition Surveys AKF Aga Khan Foundation LRCSP Land Registration and Cadastral System for BBP Basic-Benefits-Package Sustainable Agriculture Project BEE Business Enabling Environment NBT National Bank of Tajikistan BEEPS Business Environment and Enterprise NERSP National Electronic Registry Of Social Performance Survey Assistance CPS Country Partnership Strategy NPL Non-Performing Loans CEM Country Economic Memorandum OSI Open Society Institute CIS Commonwealth of Independent States PDPG Programmatic Development Policy Grant DeMPA Debt Management Performance Assessment PHC Primary Health Care DFID Department for International Development PIP Public Investment Program (UK) PEFA Public Expenditure and Financial DSA Debt Sustainability Analysis Accountability EBRD European Bank for Reconstruction and PFM Public Financial Management Development PMT Proxy-Means Testing EC European Commission PPA Public Procurement Agency ECA Europe and Central Asia PPP Public Private Partnerships ECF Extended Credit Facility PRS Poverty Reduction Strategy EMIS Education Management Information System PSD Private Sector Development FIRST Financial Sector Reform and Strengthening RHP Roghun Hydropower Plant FMIP Financial Management Improvement Plan SHPP Small Hydropower Project FTI Fast Track Initiative SOEs State-owned Enterprises GBAO Gorno-Badakhshan Autonomous Oblast TA Technical Assistant GDP Gross Domestic Product TLSS Tajikistan Living Standards Survey GFS Government Finance Statistics UCOA Unified Chart of Accounts GNI Gross National Income UNICEF United Nations Children Fund GTZ German Agency for Technical Cooperation USAID United States Agency for International IDA International Development Association Development IDF Institutional Development Fund VAT Value Added Tax IFC International Finance Corporation WFP World Food Program IFRS International Financial Reporting System WHO World Health Organization Vice President: Philippe Le Houérou Country Director: Motoo Konishi Sector Director: Yvonne Tsikata Sector Manager: Kazi Mahbub-al Matin Task Team Leader: Salman Zaidi ii CONTENTS 1. Introduction ........................................................................................................................................ 1 2. Country Context ................................................................................................................................. 2 A. Background ............................................................................................................................... 2 B. Recent Economic Developments............................................................................................... 2 C. Medium-Term Outlook and Debt Sustainability ....................................................................... 5 3. Government Program and Participatory Processes............................................................................ 8 4. World Bank Support to the Government’s Program ........................................................................ 11 A. Linkages to the Country Partnership Strategy ......................................................................... 11 B. Collaboration with the IMF and Other Donors ....................................................................... 11 C. Relationship with Other World Bank Operations ................................................................... 11 D. Lessons Learned ...................................................................................................................... 11 E. Analytical Underpinnings........................................................................................................ 13 5. Proposed Operation .......................................................................................................................... 14 A. Description of the Operation ................................................................................................... 14 B. Policy Areas ............................................................................................................................ 18 6. Operation Implementation ................................................................................................................ 27 A. Poverty and Social Impact ....................................................................................................... 27 B. Environmental Aspects............................................................................................................ 28 C. Implementation, Monitoring, and Evaluation ......................................................................... 29 D. Fiduciary Aspects .................................................................................................................... 29 E. Disbursement and Auditing ..................................................................................................... 31 F. Risks and Risk Mitigation ....................................................................................................... 31 LIST OF TABLES Table 1: Selected Macroeconomic Indicators (2007-2010) .......................................................................... 3  Table 2: Government Operations (2007-2010) ............................................................................................. 4  Table 3: Medium-Term Macroeconomic Outlook ........................................................................................ 5  Table 4: Recent Bank-Sponsored Economic and Sector Work .................................................................. 13  Table 5: PDPG1-3: Key Development Outcome Indicators ....................................................................... 14  Table 6: PDPG4-6 Series: Some Interim Results ....................................................................................... 15  Table 7: Prior Actions under PDPG5 .......................................................................................................... 16  Table 8: Changes in PDPG5 Prior Actions Envisaged Earlier Under PDPG4 ........................................... 17  Table 9: Satisfaction with Public Service Delivery: 2006 - 2010 ............................................................... 19  LIST OF BOXES Box 1: Mining Sector Potential in Tajikistan................................................................................................ 6  Box 2: 2010 National Development Forum ................................................................................................ 10  Box 3: Governance in Tajikistan: Challenges and Efforts to Improve Outcomes ...................................... 12  Box 4: Improved Satisfaction with Public Service Delivery in Health and Education............................... 19  Box 5: Proposed Tajikistan Social Safety Net Strengthening Project ........................................................ 20  Box 6: Promoting Increased Private Investment......................................................................................... 21  Box 7: Strengthening the Electricity Sector in Tajikistan ........................................................................... 27  Box 8: Impact of Food and Fuel Price Increases ........................................................................................ 28  iii LIST OF ANNEXES Annex 1: Letter of Development Policy .................................................................................................... 33  Annex 2: PDPG 4-6 Program Matrix ......................................................................................................... 44  Annex 3: Debt Sustainability Analysis Under the Debt Sustainability Framework for............................. 48  Annex 4: Public Information Notice on Extended Credit Facility ............................................................. 61  Annex 5: Relations with the International Monetary Fund ........................................................................ 63  Annex 5: Tajikistan at a Glance ................................................................................................................. 69  Map of Tajikistan: IBRD 33493 ................................................................................................................ 73 The proposed Fifth Programmatic Development Policy Grant has been prepared by an IDA team comprising Hassan Aliev, Vladimir Kolchin, Zakia Nekaien-Nowrouz, Svetlana Proskurovska, Zuhro Qurbonova, Clelia Rontoyanni, Salman Zaidi (task team leader) (ECSPE); Takhmina Jumaeva (ECCTJ), Brett Coleman, Andrea Dall’Olio, Manuchehr Gadoev, (ECFPF); Sarvinoz Barfieva, Saodat Bazarova, Joost de Laat, Wezi Msisha, Menahem Prywes (ECSHD); John Ogallo (ECSPS) Yuling Zhou (ECSO2); Nicolas Ahouissoussi, Peter Goodman, Jessica Mott, Bobojon Yatimov (ECSSD); Sunil Khosla, Imtiaz Hizkil (ECSS2); Tihomir Stucka (PRMED); Raha Shahidsaless (CICRA); Christopher Miller (IFC). The team benefited from the guidance of Motoo Konishi, Mehrnaz Teymourian, Chiara Bronchi, Yvonne Tsikata, and Kazi Mahbub-Al Matin. iv REPUBLIC OF TAJIKISTAN Fifth Programmatic Development Policy Grant Summary Recipient Republic of Tajikistan Implementing Agency Ministry of Finance Financing data SDR 6.4 million (US$10 million equivalent) Operation Type Programmatic (2nd of 3), single-tranche Main policy areas The proposed program covers three main policy areas, each with several focus areas: 1: Protecting Delivery of Basic Services within a Sustainable Fiscal Framework  Maintaining or increasing budget allocation for health, education, and social protection services,  Supporting ongoing sector reforms. 2: Improving the Environment for Private Sector Development  Streamlining business regulations,  Reforming agriculture institutions,  Strengthening the financial sector,  Modernizing aviation services. 3: Strengthening Government Effectiveness  Strengthening capacity of government institutions,  Promoting transparent public financial management (PFM),  Enhancing transparency of state-owned enterprises. Key outcome indicators  Utilization of primary health centers in selected rayons is maintained at no less than 2008 levels,  Efficiency of expenditure for education improves,  The cost and time of starting a business and of dealing with construction permits declines,  Farmers gain control over farm management,  Access to formal financial services increases,  Access to Tajikistan by air improves,  Effectiveness of the government in Tajikistan improves,  Transparency of budget formation and execution improved. Program development The development objectives of PDPG 4–6 are to protect basic services objectives and within a sustainable fiscal framework, and to lay the foundation for contribution to Country post-crisis recovery and growth. The proposed operations are a central Partnership Strategy element of the Country Partnership Strategy presented to the Board in fiscal 2010. Risks and risk The implementation of the proposed reform program faces four major mitigation risks related to (i) general macroeconomic risks, (ii) risks related to poor governance, (iii) program specific risks, and (iv) other structural risks. The program contains measures to mitigate these risks. Operation ID Number P120445 v INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED FIFTH PROGRAMMATIC DEVELOPMENT POLICY GRANT REPUBLIC OF TAJIKISTAN 1. INTRODUCTION 1. The Fifth Programmatic Development Policy Grant (PDPG5) in the amount of US$10 million is the second in a programmatic series of three operations for the Republic of Tajikistan. The PDPG 4-6 series is central to the World Bank’s engagement in Tajikistan, as envisaged in the FY10-13 Country Partnership Strategy (CPS) discussed by the Board in May 2010. It supports the government’s two- pronged strategy to mitigate the impact of the global crisis and to pave the way for post-crisis recovery and sustained growth and poverty reduction. PDPG 4-6 build on the PDPG1-3 series completed in 2009. Under PDPG1-3, the government pursued a program of reforms aimed at increasing the competitiveness of the private sector, at strengthening public sector management, and at improving the delivery of services. Despite setbacks and delays, the earlier reform program resulted in improvements in a number of areas. Details of the reform program and its outcomes are presented in the Implementation Completion Report for the previous series.1 2. Tajikistan was affected adversely by the global economic crisis. Growth decelerated to 3.9 percent in 2009 from more than 8 percent per annum during 2000-08. The government budget experienced substantial revenue shortfall, resulting in pressures on public spending in education, health, and social protection. The government responded to these unfavorable developments by facilitating external adjustment through exchange rate flexibility, by increasing public spending under its anti-crisis action plan to protect critical expenditures, and by continuing reforms. 3. The PDPG 4-6 series seeks to protect social spending and increase its efficiency, improve the climate for private sector development, and strengthen government effectiveness. To protect basic services, the program seeks to maintain public expenditures on health, education and social protection and increase their efficiency and targeting. To improve private sector environment, it seeks to streamline business regulations, strengthen the financial sector, increase access to air transport and promote private investment, especially in agriculture. To enhance government effectiveness, the program seeks to promote transparency and efficiency in the management of utilities and of public expenditures. 4. PDPG4 focused mainly on protecting earlier gains in social spending and improving the climate for private investment, in the face of ongoing global crisis. For social spending, 2010 budget allocations for health, education and social protection were kept at no less than 2009 share of budget allocations for the respective sectors. For the private investment climate, the coverage of permits were reduced, amendments to commercial banking law and central bank law were submitted to Parliament, the aviation sector policy liberalizing the air transport market was adopted, the old cotton debt overhang on farmers was removed and an initial round of land-use certificates were issued to farmers. 5. The proposed PDPG5 supports actions in all three areas aimed at improving basic social services, private sector climate, and government effectiveness. To protect basic services, government has continued improving targeting and efficiency of social spending, specifically it has adopted a health sector master plan, issued resolutions for implementation of per capita financing in general education, and introduced pilot schemes for better targeting of social assistance in two rayons. To improve the environment for private sector, the government has submitted a law codifying reduction in coverage of 1 World Bank, 2010, Programmatic Development Policy Operations 1-3 Implementation Completion and Results Report, March 23, 2010. Report No. ICR00001279. 1 permits and procedures to restrict introduction of new permits, to continue issuing land-use certificates to farmers, and to take further actions to strengthen the financial sector. To enhance government effectiveness, Barki Tajik and Tajiktransgas have made progress in implementation of their financial management improvement plans and in encouraging more efficient use of power. 2. COUNTRY CONTEXT A. BACKGROUND 6. Tajikistan is a small landlocked country vulnerable to natural disasters and external economic conditions. Located in the heart of Central Asia, the country is blessed with abundant water resources, contributing to its specialization in cotton production. Tajikistan also has hydropower potential—inexpensive electricity has led to its other specialization: processing of aluminum. Only 7 percent of its total land area is arable; high mountain ranges make communication between different parts of the country difficult, especially in winter. Tajikistan is susceptible to natural disasters and is regularly affected by floods, landslides, earthquakes, and droughts. These factors combine to make Tajikistan one of the world’s poorest and most vulnerable economies. Its gross national income (GNI) per capita was estimated at US$700 in 2009. Limited employment opportunities at home have led 40 percent of working age population to seek better jobs in Russia. Shortly after its independence in 1991, the country descended into a civil war that lasted until mid-1997, which brought widespread physical damage and loss of life. 7. Strong economic growth during the past decade reflected post conflict ‘catch-up’ and rising domestic demand fuelled by remittances and other inflows. The economy grew at an average of 8.6 percent per year during 2000-2008. Total investment, dominated by public investment, has hovered around 20 percent of Gross Domestic Product (GDP) with private investment stagnating at only around 5 percent of GDP. Strong growth was made possible by five favorable factors: the peace agreement that permitted businesses and households to return to normal economic activity; a stabilization dividend from the Government’s success in stabilizing the economy; the growing global and regional economy that led to rising aluminum and cotton export receipts and remittances; rising inflows of donor assistance, including from the international financial institutions; and reforms that permitted existing businesses and households to take advantage of emerging opportunities. 8. The Government’s reforms, though gradual, covered areas relevant for the country to benefit from a growing world economy. In the early years, Tajikistan opened up trade, established a central bank and a commercial banking system, negotiated visa-free access for Tajik workers to go to Russia and removed taxes on remittance inflows. Private businesses and households were given a bigger role than before as a large number of small and medium-size enterprises were privatized, including cotton ginneries, and land reform provided more land for private farms and households. In recent years, reforms have sought to improve further the private investment climate, increase access to air transportation, rationalize cotton sector operations, remove restrictions on exports and strengthen governance in selected areas like the National Bank of Tajikistan (NBT), large state-owned enterprises (SOEs) and public expenditure management. B. RECENT ECONOMIC DEVELOPMENTS 9. Tajikistan was adversely impacted by the global economic crisis. Due to a decline in remittances and a fall in exports of cotton and aluminum, economic growth fell to 3.9 percent in 2009. Remittances fell from US$2.3 billion in 2008 (nearly 47 percent of GDP) to US$1.6 billion in 2009, while total export receipts dropped by almost 13 percent due to lower international prices of cotton and aluminum. Tajikistan’s financial sector was also adversely affected by falling exports, remittances and 2 GDP growth, with non-performing loans in the banking sector rising to record levels. The disruption of cargo deliveries due to Uzbekistan border closures and large amounts of directed lending to the cotton sector added to financial sector difficulties. Thus credit flows to private sector fell and have not yet recovered. 10. The Government pursued a two-pronged strategy in response to the growth slowdown by increasing public spending and facilitating external adjustment. To protect critical social spending (education, health, and social protection), it increased public spending under its anti-crisis action plan and expanded employment opportunities through social programs such as a cash-for-work scheme and measures to facilitate entrepreneurship. Greater exchange rate flexibility and depreciation of the somoni served as an effective shock absorber during the crisis, contributing to Tajikistan’s improved competitiveness compared to other countries in the region, and facilitated current account adjustment.2 The somoni depreciated on average by about 20 percent in 2009 relative to the US dollar, helping the current account balance change from a deficit of 7.6 percent and 5.9 percent of GDP in 2008 and 2009 respectively to a surplus of 2.2 percent of GDP in 2010 (Table 1). Higher international prices of aluminum and cotton in 2010 were also important contributory factors in facilitating external adjustment. Table 1: Selected Macroeconomic Indicators (2007-2010) Indicators 2007 2008 2009 2010 Real Sector Nominal GDP (in millions of somoni) 12,780 17,609 20,623 24,705 Nominal GDP (USD millions) 3,712 5,135 4.982 5,642 Real GDP growth (%) 7.8 7.9 3.9 6.5 Investment (% of GDP) 22.9 20.4 18.8 17.9 Gross national savings (% of GDP) 14.3 12.8 12.8 20.1 Public sector balance (as % of GDP) Revenue and grants 22.5 22.1 23.4 23.2 Expenditure and net lending 28.6 27.6 28.8 26.9 Balance (including externally funded PIP) -6.1 -5.5 -5.4 -3.7 Balance (excluding externally funded PIP) 1.6 1.4 -0.5 -0.4 Total public and publicly guaranteed debt 33.3 30.1 34.7 36.5 External accounts Exports of goods and services (USD, percent change) 16.9 12.8 -12.7 28.4 Imports of goods and services (USD, percent change) 57.9 45.0 -26.7 8.3 Current account balance (% of GDP) -8.6 -7.6 -5.9 2.2 Net transfers (USD millions) 1,555 2,499 1,735 2,162 of which: net migrants’ remittances 1,487 2,343 1,622 2,040 Prices CPI inflation (end-of-period) 19.8 11.9 5.0 9.8 CPI inflation (period average) 13.2 20.4 6.5 6.5 Memorandum items: Net international reserves (USD millions) 85 107 236 375 Official exchange rate (somoni/USD) 3.44 3.45 4.37 4.40 Source: Tajik authorities and IMF estimates. 11. While affected by the global economic downturn, Tajikistan’s economic growth of 3.9 percent in 2009 was better than that of almost all other countries in the region, and exceeded expectations at the start of 2009. The government maintained a slightly expansionary fiscal stance in 2009. To assist the Government of Tajikistan during the global economic crisis, development partners provided increased external assistance in 2009, which helped the government maintain expenditures on health, education, and social assistance. During implementation of the anti-crisis plan the fiscal deficit [excluding the Public 2 Tajikistan First and Second Review under the ECF. IMF Country Report No10/203, July 2010 Washington DC. 3 Investment Program (PIP) and related grants] remained fairly low at 0.5 percent and 0.4 percent of GDP in 2009 and 2010 respectively (Table 2). Table 2: Government Operations (2007-2010) (in percent of GDP) 2007 2008 2009 2010 Overall revenues and grants 22.5 22.1 23.4 23.2 Total revenues 20.5 20.5 20.0 20.9 of which Tax revenues 17.8 18.7 17.6 18.0 Non tax revenues 2.7 1.8 2.3 2.9 Grants 2.0 1.6 3.4 2.3 Total expenditure and net lending 28.6 27.2 28.6 26.1 of which Current expenditures 13.6 12.6 14.6 15.0 Capital expenditures 15.0 13.6 13.3 10.9 Net lending - 0.9 0.7 0.3 Statistical discrepancy 0.4 0.2 0.7 Overall balance (incl. PIP) -6.1 -5.5 -5.4 -3.7 Overall balance (excl. PIP and PIP related grants) 1.6 1.3 -0.5 -0.4 Memorandum item: Total public and publicly guaranteed debt (% of GDP) 33.3 30.1 34.7 36.5 Source: Tajik authorities and IMF estimates. 12. The economy recovered in 2010, growing by 6.5 percent, reflecting higher growth in hydroelectric power production, construction (up 11.5 percent compared to the previous year) and in manufacturing (up 9.7 percent). The agriculture sector performed well too, expanding by 6.8 percent. Remittances rebounded in 2010 (up nearly 26 percent), though their level remained below the peak recorded in 2008 (Table 1). However, recent increases in international wheat and fuel prices have pushed up the inflation rate to 9.8 percent in 2010. 13. Strong growth in recent years has contributed to good progress on poverty reduction. According to estimates derived from the Tajikistan Living Standards Survey (TLSS) series, the poverty headcount rate in Tajikistan has declined steadily from 72 percent in 2003 to 47 percent in 2009, while extreme poverty fell from 42 to 17 percent over the same period. Poverty incidence in Tajikistan is highest in the Gorno-Badakhshan Autonomous Oblast (GBAO) and Khatlon regions (respectively 62 and 54 percent in 2009), and lowest in Dushanbe (34 percent); nonetheless all regions achieved gains in poverty reduction during the period under review. Similarly, while poverty incidence in urban areas continues to be lower than in rural areas (respectively 42 and 49 percent in 2009), both regions have benefited from high economic growth in recent years. 14. Several key non-income dimensions of living conditions have also improved. Tajikistan is approaching universal enrollment in primary and lower secondary education. Enrollment for 14 year-olds increased from 88 percent in 2007 to 95 percent in 2009. According to data from a recent household survey, Tajikistan has one of the highest rates of life satisfaction in the Europe and Central Asia (ECA) region.3 Over 75 percent of respondents say that the economic situation improved since 2006 and 64 percent say that the political climate also got better. Almost 70 percent of households say they live better today than in 2006 and almost 60 percent are satisfied with their financial situation. There is widespread optimism for future generations across all age and income groups, despite the fact that Tajikistan remains among the poorest countries in the region. 3 2010 EBRD-World Bank Life in Transition Survey (LITS), Round 2 (forthcoming). 4 15. Notwithstanding these impressive achievements, significant challenges remain. Poverty in Tajikistan remains widespread and linked to specific characteristics, such as high fertility and poor labor market conditions and high dependence on remittances. The poor continue to be disadvantaged in terms of access to good-quality education services and health care, and receive little, if any, help from the weak social protection system. Health outcomes remain the weakest among countries in the region, in particular for infant mortality, under-five mortality, and maternal mortality. Child nutrition, especially stunting of children (i.e. low height-for-age) is of high concern, averaging 28.9 percent of children aged 6-59 months. C. MEDIUM-TERM OUTLOOK AND DEBT SUSTAINABILITY 16. Tajikistan’s performance in 2011 is expected to remain buoyant as part of the continuing recovery from the slump in 2009 in line with global and regional recovery. As exports and remittances rise from their depressed levels, growth in 2011 is estimated to reach 5.8 percent (Table 3). This is being driven by growth in construction and services sectors supported by large increases in export receipts and remittances. Table 3: Medium-Term Macroeconomic Outlook Projected 2010 2011 2012 2013 2014 Nominal GDP (USD million) 5,642 6,830 7,762 8,773 9,785 Real GDP growth, percent 6.5 5.8 5.0 5.0 5.0 CPI inflation (end-of-period), percent 9.8 12.6 9.8 7.6 5.0 Exports of goods and services (USD, percent change) 28.4 28.9 -4.7 7.0 7.9 Imports of goods and services (USD, percent change) 8.3 31.0 9.7 7.0 7.9 Net transfers (USD millions) 2,162 2,410 2,557 2,769 3,004 of which: net migrants’ remittances 2,040 2,293 2,476 2,699 2,942 (percent of GDP) Current account balance 2.2 -3.7 -7.0 -6.2 -5.9 Overall revenues and grants 23.2 22.8 22.4 22.2 21.9 of which: tax revenue 18.0 17.7 17.8 17.9 18.0 Total expenditures and net lending 26.9 28.3 26.5 25.5 24.4 of which: current 15.0 16.0 15.6 15.6 15.6 of which: capital 10.9 12.2 10.8 9.9 8.8 Fiscal balance (including externally funded PIP) -3.7 -5.4 -4.1 -3.3 -2.5 Fiscal balance (excluding externally funded PIP) -0.4 -1.0 -0.5 -0.5 0.0 Total public and publicly guaranteed external debt 36.5 35.2 36.2 37.1 37.3 Source: IMF and World Bank staff calculations. 17. Over the medium term real GDP is projected to grow at around 5 percent a year. This is significantly less than the pre-crisis rates of 8 percent a year averaged during 2000-08 because the potential for post-conflict ‘catch-up’ is smaller and the external environment is less favorable. Cotton and aluminum are unlikely to be as important as in the past. Initially, most of the projected growth is expected to come from construction, trade and other services but with time, exports of non-cotton agriculture, power, and even mining (see Box 1) are expected to contribute increasingly to growth. 18. However, future growth will depend more on increasing efficiency and private investment. Concerted efforts will have to be made to reduce cost and raise profitability of private investments and exports, especially in agriculture and agro-processing. Earlier reforms in agriculture have created an improved environment on which to build further. The Government is committed to making it less costly for investors to start a business and pay taxes as well as to increase access to reliable power, in order to 5 address the major constraints cited by investors. Efforts are also underway to make investment in agriculture, especially for exports, more profitable by enhancing access to markets, empowering farmers by removing the debt overhang and strengthening their rights to land, targeting irrigation investment and improving farmers’ access to inputs. Remittances are expected to grow more slowly from their high base, but they could be a bigger contributor to growth if more go into private investment than before. In addition, private investment in hydro-power projects is also a possibility if appropriate conditions can be created. Construction of the Roghun hydropower project to address Tajikistan’s energy deficit is a government strategic priority, for which it allocated 650 million somoni (USD 148 million) in the 2010 budget. Box 1: Mining Sector Potential in Tajikistan Tajikistan has good mining sector potential that remains largely untapped. It has one of the world’s largest silver deposits, mostly concentrated at the Konimansur mine complex in the northern Soghd region. Various estimates put the size of the deposits at around 50,000 tons, while media reports indicate that total investments required to develop them may be in the order of USD 2 billion. Potential for other minerals, such as gold, zinc, lead, and precious stones, is also strong. Despite the country’s mineral wealth, there are few foreign companies active in the sector as the Government did not actively focus on attracting foreign investment. However, in the last two years, the Tajik authorities have shown a strong interest to promote investment in the mining sector and to undertake reforms. One of these reforms was Resolution 400 (passed on August 15, 2008) that mandated the competitive bidding of all licenses in the mining sector, including exploration and exploitation. The World Bank Group has begun working with the Tajik authorities in different ways in the mining sector. The International Finance Corporation (IFC) has worked with Tajik authorities over the past two years on bidding out the Bolshoi Konimansur silver deposit; this process is expected to be completed by June 2011. If successful, Tajikistan stands to attract a reputable large-scale mining company, which will favorably affect its fiscal revenues and overall economy. A preliminary review of the mining sector’s institutional, regulatory, and legal framework was recently carried out through support from an Institutional Development Fund (IDF) grant. The government has expressed initial interest to join the Extractive Industries Transparency Initiative in the next two years, and staff from the World Bank’s Oil, Gas & Mining Policy Group has been supporting these efforts. 19. Maintaining macroeconomic stability will be also critical for raising private investment, given the country’s high debt and its vulnerability to external shocks. The Government aims to keep its debt/GDP ratio at less than 40 percent and for this reason has planned to reduce its public investment program over the medium term. This will require continued vigilance by the central bank and the finance ministry to address problems facing the country. The room for additional public spending on infrastructure and social sectors is limited and thus public investment needs to be contained and prioritized for growth; in particular, public expenditure management will have to be strengthened to make spending more efficient. Large SOEs and banks require greater transparency and financial discipline, and the government must make more strenuous tax efforts, overhauling the tax regime. 20. The government aims to gradually eliminate the fiscal deficit (excluding PIP) by 2014. The overall fiscal deficit (including PIP) is expected to shrink from an estimated 5.4 percent of GDP in 2011 to 2.5 percent of GDP by 2014 (Table 3). With overall revenues and grants expected to remain stable at around 22 percent of GDP and current expenditures maintained at around 15-16 percent of GDP, most of the reduction in the fiscal deficit is planned through reduced capital spending. Total capital spending peaked during the 2007-2009 period, when the government undertook several large projects through concessional financing from China to improve road infrastructure and electricity transmission. Now that several of these projects have been completed, capital spending is projected to drop to around 9 percent of GDP in 2014, which though will still be higher than the levels of around 5-8 percent per annum prevailing over the period 2003-2006. 6 21. The external account is expected to revert to a deficit in 2011 and later years in light of the reversal of the one-off factors that curbed imports in 2010 (intermittent blockage of rail transit through Uzbekistan end) the full year impact of Russian export duties on fuel imposed in May 2010, and the rise in food and fuel prices that increase import cost. The recent growth in non-cotton agricultural exports suggests that there is considerable room to tap the potential for future growth in agriculture and in agro- processing, provided there are appropriate reforms to help stimulate higher private investment, and more competitive cross-border movement of goods to regional markets. Enhanced regional cooperation and priority public investments in roads and energy will be important for that purpose. Creation of capacity to export summer surplus electricity, which was lost in 2010 due to withdrawal of Uzbekistan from the Central Asia Unified Electricity Grid, will also be important for future export growth. 22. The government is taking remedial action to reduce financial sector vulnerability. Non- performing loans (NPLs) in the banking sector in Tajikistan have increased steadily since 2008, peaking at 28 percent of gross loans in March 2010, before declining to around 19 percent in September, and further to 17 percent in December.4 However, stress tests indicate that the financial system remains vulnerable to future shocks, highlighting the need for authorities to tighten supervision and enforce prudential standards, require banks to submit action plans to reverse growth in NPLs and return to compliance, and to abstain from directing banks to lend to any particular sectors. With support from the International Monetary Fund (IMF) and World Bank, NBT has moved to tighten prudential requirements in 2010, and has required problem banks to submit action plans to reverse growth in NPLs and return to compliance with prudential standards (e.g. through new capital injections and tightening of lending standards). These action plans have recently been received from the problem banks and are under review by NBT. The government has recently submitted to Parliament a bankruptcy law for credit institutions prepared with technical assistance from the World Bank, as well as a draft NBT law consistent with IMF advice aimed at strengthening its ability to address problem banks. 23. Tajikistan’s risk of debt distress remains high. According to the joint IMF-World Bank 2011 Debt Sustainability Analysis (DSA),5 debt to GDP ratio stands at 35 percent as of end-2010. External debt is largely concessional, held in broadly equal parts between multilateral and bilateral creditors, with the share of China at 38 percent; domestic debt represents only 2 percent of GDP. Under the baseline scenario, external debt burden indicators remain below their respective thresholds except the debt-to- exports ratio which is significantly above the threshold, but none of the debt-flow indicators breach their thresholds. The debt service-to-exports ratio (5 percent in 2011) and debt service-to-revenue ratio (5 percent in 2011) remain well within their respective thresholds of 15 and 25 percent under the baseline as well as under nearly all the bound tests and various alternative scenarios considered (including a high investment-low growth scenario). Sensitivity tests show that the following thresholds are violated (i) under most extreme shock scenario: four out of five indicators, with debt service-to-revenue being the only exception; (ii) under high investment-low growth scenario: debt-to-exports ratio violates threshold by a bigger margin and debt service-to-exports ratio in one outer year. 24. However, the risk of debt distress can be managed if the Government follows appropriate policies. Preliminary DSA results underscore the need for (i) the planned fiscal consolidation; (ii) cautious contracting of new debt; and (iii) careful cost-benefit assessment of large-scale investment projects to make sure that external resources are used productively. Furthermore, sound macroeconomic 4 Several external and internal factors have contributed to the deterioration, including the lagged impact of the 2009 global crisis, the negative effects on profitability of the disruptions to rail traffic through Uzbekistan, lax lending standards, regulatory forbearance, and directed lending to the agriculture sector. 5 The DSA (see Annex 3) was prepared jointly by World Bank and IMF staff, in consultation with Asian Development Bank (ADB) staff. It updates the last DSA of May 2010 presented in the IMF Staff Report for the First and Second Review under the Extended Credit Facility (EBS/10/95, 05/24/2010). The fiscal year for Tajikistan is January 1–December 31. 7 policies and acceleration of structural reforms would be needed to strengthen Tajikistan’s growth potential and safeguard external stability. The program of reforms supported by the proposed operation can thus contribute to the management of the risk to debt sustainability. 25. The Tajik authorities have reaffirmed their commitment to the importance of maintaining macroeconomic stability as a precondition for sustained high growth and poverty reduction, and to take appropriate measures to strengthen Tajikistan’s financial sector with a view to reinvigorating private sector credit growth. The implementation of the IMF program remains broadly satisfactory. The fourth review of the Extended Credit Facility (ECF) is expected to be approved by the IMF Board on May 11, 2011. The government’s 2010 fiscal deficit was well under the ECF target of 1.0 percent; in addition, the government has reaffirmed its commitment to maintain a sound medium term fiscal framework, notwithstanding pressures for social and infrastructure spending, and to gradually eliminate the fiscal deficit by 2014. The government has identified debt management as an area for priority reform, and requested the World Bank’s help in using the Debt Management Performance Assessment Tool (DeMPA) to conduct a comprehensive assessment of Tajikistan’s debt management policy, functions, objectives, legal and institutional arrangements, and strategies for debt management. 26. Tajikistan’s macroeconomic policy framework is adequate for purposes of the proposed operation. While the economy remains vulnerable to external shocks and some key risks noted above, on the whole the Tajik authorities have maintained a sound macroeconomic framework. Among the main risks to fiscal sustainability warranting close monitoring include the quasi-fiscal risks from the financial sector and further increases in international food and fuel prices. 3. GOVERNMENT PROGRAM AND PARTICIPATORY PROCESSES 27. In February 2010 the government formally approved its Third Poverty Reduction Strategy (PRS 3) for 2010–2012. Building on the first and second PRS, PRS 3 operationalizes the country’s long- term development vision outlined in the 2006-2015 National Development Strategy. Its overarching objectives are to promote sustainable strong economic growth and improve the population’s living standards, especially of vulnerable groups, through three main strategic areas: 28. The functional block aims at (i) improving overall institutional conditions to stimulate economic growth, and (ii) enhancing the quality and scope of provision of social services, and encompasses the following main pillars:  Establish an effective public administration system through introduction of professional civil service; enhance capacity to implement development policies; improve the public financial management (PFM) system to enable transparent and effective use of public resources; link policy decision making to the budget process, and strengthen the public procurement function.  Improve the investment climate by lowering barriers to and reducing the costs of operating business through reforms to reduce the regulatory burden, introduce one-stop shop for business registration, reduce the number of inspections, simplify the process of bankruptcy, strengthen property rights, establish free economic zones, and refine tax administration.  Develop more effective regional cooperation to stimulate trade, reduce exposure to external shocks by diversifying export base and formulate a sound labor migration policy to reduce high exposure of remittances to fluctuations in the Russian economy. 29. The government has taken a number of important steps to strengthen public sector performance. Following adoption of the Public Sector Reform Strategy in 2006, it has taken several measures to (i) 8 reform the public administration system to reduce fragmentation and clarify mandates, (ii) introduce competitive recruitment and link pay to job descriptions to modernize the wage and career progression systems, and (iii) modernize the PFM system. In 2010, PDPG4 supported the introduction in five pilot ministries and agencies of a civil service salary grid linking compensation to levels of responsibility, experience, and complexity of work. With the support of the Public Sector Reform Project, the government has undertaken preparatory work to introduce the salary grid throughout the civil service, including by approving a revised job classification and developing the salary grid that ensures a uniform pay structure based on a single job classification system applicable across civil service organizations, while ensuring that the wage bill remains fiscally sustainable. 30. The production block calls for improving food security situation by developing the agriculture sector, addressing infrastructure bottlenecks, and resolving the chronic energy deficit in winter period along with building capacity to export summer electricity surpluses:  Secure access to land-use rights for small farmers; ensure universal adherence to the freedom- to-farm declaration, promote equal access to land both by men and women; enhance agricultural research and training, and strengthen access to financial services.  Harness the country’s significant hydropower potential; prioritize the construction of the Roghun Hydropower Project (RHP), but also build small hydroelectric power plants; invest in coal-based energy to resolve persistent winter energy deficit.  Invest in largely worn-out railroad and road infrastructure; roads upgrades include routes connecting Dushanbe to the Kyrgyz and Afghan border and markets in Iran and Pakistan. 31. The social block of the PRS 3 emphasizes the government’s commitment to continue improving social service delivery:  The recently approved health sector strategy (2010-2020) aims to improve quality, equity, efficiency and cost-effectiveness of the health system through, inter alia, an increase in public funding, in particular to primary health care (PHC).  The National Strategy for Education Development for 2006-2015 guides the Government’s efforts in reforming the sector, targeted at improving the quality of high school education, increasing school attendance rates and addressing gender inequalities, including switching to per capita financing countrywide by 2010.  Social protection reforms include work to strengthen social insurance and pension systems, improve coverage and quality of social assistance services, develop better labor market regulations and enhance management capacity; consolidate multiple social assistance programs and introduce better targeting mechanism to improve pro-poor focus. 32. The health financing strategy aims to improve equity, efficiency and cost-effectiveness of the health system through inter alia an increase in public funding to the health sector and in particular primary health care, an introduction of per capita financing for primary health care (PHC), the introduction of the Basic-Benefits-Package (BBP) at hospital level and purchasing function by means of pooling of public resources at regional level, thereby moving away from input- to output-based financing and better- matching needs and resource allocation. The BBP provides free services for vulnerable population groups and provides a legal framework for developing the copayment policy for selected health services in hospitals. At the same time, the BBP is designed to reinforce the role of the PHC given that the majority of PHC services remain free to the population. The implementation of BBP in hospitals will support efforts to formalize informal payments and to gradually move hospitals away from budget finance to a combination of budgetary funds and fee revenues from patients. 9 33. PRS 3 has been developed through a participatory process. Sector working groups, comprising government officials, civil society organizations, private sector representatives, academia, and development partners all contributed to its development. A coordinating group was established to oversee the process of drafting and regional consultation. The Ministry of Economic Development and Trade has commissioned the Association of Scientific and Technical Intelligentsia of Tajikistan to conduct the public monitoring of the execution of the PRS. As part of this effort, pilot families living across the country will be surveyed by a program monitoring support group that includes 19 civil society support organizations. Among the topics covered in the planned survey is peoples’ access to medical services, education, and other such public services, with a view to developing recommendations for the government on improvement of implementation of the national development programs. 34. A Development Forum was organized by the Government in Dushanbe in December 2010 to review recent economic developments and, in particular, to discuss Tajikistan’s reform priorities for the next two years of its third PRS for 2010-12 (Box 2). Box 2: 2010 National Development Forum The Development Forum was held in Dushanbe on 3-4 December 2010 with the support of development partner members of the Donor Coordination Council. It was chaired by Prime Minister Akil Akilov and attended by over 200 participants including senior Government officials and representatives of 20 countries and 19 development partner organizations. During the intensive discussions at the Forum on reviewing progress and challenges regarding Tajikistan’s strategic goals and national priorities, the following next steps and decisions were reached: Business environment: The following key measures were identified: continue implementation of ongoing reforms (e.g. simplify construction permits, implement the “One-stop Shop”, enact the new law on permits codifying the reduced list and regulating the process for introducing new ones); reform tax administration to improve administration and compliance; strengthen the role of a single agency to provide comprehensive information on the business environment to potential investors; assess comparative advantage for potential investment in sectors such as mining and tourism. Agriculture: The government reaffirmed its commitment to complete the “Action Plan on Reforming the Agricultural Sector” (Resolution 406); continue implementing ongoing reforms - e.g. “freedom to farm,” issuance of land use certificates, farmland restructuring; develop an action plan for trade, tax, and rural finance regulatory reforms to increase farmers’ access to inputs, financing, advisory services, and markets; reform existing support services services—input supply, marketing/processing, training/veterinary services—to the needs of new smallholder-based agriculture. Financial sector: Participants agreed on the importance of defining a comprehensive financial sector development strategy, including a properly sequenced roadmap, aimed at strengthening the banking system, enhancing the regulatory role of the central bank, and expanding the banking system’s capital base; modernize the collateral regime to facilitate the use of movable assets as collateral, thereby improving SMEs’ access to credit. Energy: Participants agreed to continue the dialogue on both short- and long-term priorities and to work together towards: completing reforms in Barki Tajik and Tajiktransgas; adjusting electricity tariffs to ensure full-cost recovery; energy conservation and loss reduction; a review of overall energy strategy to reflect short- and medium-term priorities, including alternatives to very large projects; and, revision of the legal framework for the construction of small hydropower plants. Social Sectors: There was consensus that the education, health, and social protection sectors were underfunded and that existing state budget allocations should be maintained (and, if possible, increased). The preparation and implementation of a Health Strategy action plan for 2010-13 was identified as a priority. 10 4. WORLD BANK SUPPORT TO THE GOVERNMENT’S PROGRAM A. LINKAGES TO THE COUNTRY PARTNERSHIP STRATEGY 35. The PDPG4-6 programmatic series of operations are central to the World Bank’s recently approved FY10-FY13 Country Partnership Strategy. The two main objectives of the CPS are to (i) mitigate the negative impact of the crisis on poverty and vulnerability, and (ii) pave the way for post- crisis recovery and sustained growth. PDPG 4–6 support these objectives. These operations serve as the World Bank’s primary vehicle for engaging in policy dialogue with the government and for discussions with other development partners on how best to align support for the Government’s program (Section 3) as well as ongoing efforts to improve governance (Box 3). B. COLLABORATION WITH THE IMF AND OTHER DONORS 36. The World Bank, the IMF, and other development partners are collaborating closely to help the government implement its PRS 3. The World Bank and the Fund are coordinating their policy dialogue and support programs. As outlined in the 2010 Joint Management Action Plan for World Bank- Fund Collaboration, the World Bank takes the lead in private sector development, enterprise reforms, agriculture sector issues, and regulatory reforms. The Fund leads in the formulation and execution of fiscal and monetary policies, tax policy, external trade policies, and issues involving economic and financial statistics. The World Bank and the Fund share responsibility for public sector management, budget planning and execution, and financial sector reform. The Joint Country Partnership Strategy signed in November 2009 by the Government of Tajikistan and 12 development partners, including the World Bank, provides a shared framework for improving aid coordination and increasing aid effectiveness in Tajikistan. 37. Many development partners are providing technical assistance, policy advice, and financial support for the reform program supported by PDPG 4–6. For example, the United States Agency for International Development (USAID) is assisting with some key financial sector reforms and with streamlining of business regulations. The Asian Development Bank (ADB) and the European Commission (EC) are supporting the implementation of agriculture sector reforms, including establishment of privately-led agriculture finance schemes. The World Bank, the EC, the UK Department for International Development (DFID), and USAID are working closely to support the government’s public sector reform and public financial management. The World Bank, EC, World Health Organization (WHO), USAID, and United Nations Children Fund (UNICEF) are all supporting reforms in the health and education sectors. In addition, the EC is also collaborating with the World Bank to help the government improve the targeting and administration of the country’s social protection system. The Swiss State Secretariat for Economic Affairs is considering technical assistance for external audit. C. RELATIONSHIP WITH OTHER WORLD BANK OPERATIONS 38. The PDPG 4-6 series support policy reforms that are critical to the success of World Bank- financed investment and technical assistance operations. The reforms supported by PDPG 4-6 complement the World Bank’s ongoing and planned investment projects in public administration, public financial management, agriculture, energy, education, and health. D. LESSONS LEARNED 39. The design of the proposed operation reflects several lessons from the implementation of PDPG 1–3 and other operations in Tajikistan. Experience with past such operations has shown that 11 PDPG implementation was most successful in areas that benefited from strong government ownership, complementary technical assistance, consensus among development partners on the way forward, and long-term engagement on the part of the World Bank Group. Box 3: Governance in Tajikistan: Challenges and Efforts to Improve Outcomes Tajikistan’s governance situation remains weak. The 2009 World Governance Indicators rank Tajikistan in the bottom 15 percent of countries on voice and accountability, rule of law, and control of corruption, significantly below ECA and low-income-country averages. It also scores poorly in other major surveys of governance, including Transparency International’s Corruption Perception Index, the Global Economic Forum’s Global Competitive Index, and EBRD’s transition indicators dataset. Recent household surveys show corruption to be a problem: for instance, 39 percent of 2010 LITS respondents in Tajikistan report that unofficial payments are usually/always needed when using the public health system. Notwithstanding these challenges, Tajikistan has made progress in improving its governance, even if gradually. As a poor post- conflict country (it was in UN’s post-conflict status until 2005) the pace and focus of governance-related reforms have been influenced by concerns about continued peace and stability, weak country capacity, and the requirements for sustaining growth and poverty reduction. The Government’s reforms to improve governance and reduce corruption over the last decade have sought to enhance transparency, accountability, and efficiency of the public sector and of private property rights. In the public sector these areas relate to budgetary management, NBT and key SOEs; in private property rights they relate to land-use rights for farmers and business regulations and investor rights. The Government is committed to continuing its efforts to improve the situation and its development partners plan to support those efforts with financial and technical assistance. Public Sector: On budgetary management there have been improvements in transparency and accountability but a good deal remains to be done. The Bank has and continues to support this area of reform. The Government developed a (PFM) system from scratch over more than a decade. In doing that, it adopted the IMF Government Finance Statistics classification, implemented a treasury single account system at republican levels, automated large parts of the system, enacted a modern Procurement law, improved budget preparation including a medium term plan with sector involvement and more recently strengthened internal controls including the setting up of internal audit units in line ministries. Since 2009 Tajikistan has published detailed annual reports with both budget execution data as well as the proposed budget, and since 2010 has started publishing budget execution reports on a quarterly basis. The budget reports contain information by both economic and functional breakdowns. On the central bank (NBT), the Government has taken actions during the last four years to enhance transparency and accountability of its governance in response to the revelations in 2007 that the central bank misreported net international reserves to the IMF. In 2008, the special external audit of NBT was completed and its recommendations implemented, including a plan for recapitalization. Since then, the NBT remains committed to hiring reputed international auditors to conduct annual audits using international accounting standards; these audits were done in 2009 and 2010 and published. The Government also enacted amendments to the NBT and Commercial Banking laws that includes the following: to appoint the NBT chairperson and his/her deputies for fixed terms that do not coincide with the electoral cycle, including explicitly outlining the reasons for their dismissal in the law; to require official identification and disclosure of beneficial owners of companies registered with the Agency for Securities in the ministry of finance and other authorized entities, including financial institutions; to clarify the provisions covering conflicts of interest for the NBT management and staff, and require them to disclose their personal holdings in financial institutions and excuse themselves from official decisions affecting those institutions. Overall, the NBT is being run with greater transparency and accountability than before, which is important for good macroeconomic management. On SOEs, the Government sought to increase transparency and accountability by publishing external audits of large enterprises, as well as to improve efficiency and financial performance through enterprise restructuring. External audits of TALCO, Barki Tajik, and Tajiktransgas were conducted by international auditors for years 2008 and 2009 and published; Government is committed to doing this annually and has initiated the process for 2010. A supervision unit has also been established in the Ministry of Finance for regular monitoring of the financial operations of the 10 largest SOEs, including their contingent liabilities. Tajik Airlines and Barki Tajik have undergone restructuring. The external audit of TALCO management has also been initiated. Private Property Rights: On land use rights, the Government has taken steps to strengthen these rights by allocating a large share of arable land to private farms and families and more recently by issuing land-use certificates to farmers with such allocated land (more than 40,000 issued so far) to empower farmers to choose crops without interference from local authorities. On private investors’ rights, the country has made progress in easing licensing regulations, reducing/limiting arbitrary inspections of businesses, and removing a large number of sectors/sub-sectors from the requirement of permits thereby reducing restrictions on investors. The establishment of a one-stop shop for business registrations as well as the enactment of a revised Joint Stock Companies Law granting minority shareholders access to all corporate documents and eliminating minimum capital requirements for non-financial private companies has contributed to a better investment climate. Tajikistan still has a significant unfinished reform agenda. Although the private investment climate has improved, more must be done to enhance the stability and predictability of property rights by continuous monitoring of enforcement of reforms and limiting arbitrary interventions in businesses and farms for non-business-related reasons. Increased financial viability and transparency of the large SOEs is needed to ensure that government revenue finances infrastructure and social services instead of SOE losses. Similarly, public expenditure must be managed more efficiently and transparently so that government revenue can be used to support growth and reduce poverty. The PDPG series supports these reforms and other such efforts to improve governance. 12  Given the importance of government ownership of the reform program, PDPG 4–6 was designed in close collaboration with the relevant ministries and with the support of the Executive Office of the President.  The Government has mobilized substantial technical assistance, expert advice, and training to support its reform agenda. Such technical assistance was found critical for successful implementation of various parts of the earlier programmatic series.  Given the importance of enhanced policy coordination within government, the PDPG missions brings together decision makers across different ministries and agencies to discuss the rationale for reform, progress in implementation, and its expected benefits.  In areas where there has been limited buy-in from the authorities, World Bank’s Analytical and Advisory Activities (AAA) have helped to explain, demonstrate, and provide evidence on the benefits of reform. E. ANALYTICAL UNDERPINNINGS 40. The World Bank has been undertaking economic and sector work in most areas covered by the PDPG 4–6 series. In addition to the work outlined in the table below, the World Bank’s AAA have also included several round-tables with the government, civil society and private sector representatives, and other development partners on the broad spectrum of policy issues covered by the World Bank’s program of economic and sector work (Table 4). Table 4: Recent World Bank-Sponsored Economic and Sector Work PDPG-Supported World Bank ESW Policy Area 2010 Country Economic Memorandum. Protecting delivery of 2010 Delivery of Social Services to the Poorest Households. basic services within 2010 Feasibility Study for Results-Based Financing in the Health Sector. a sustainable fiscal 2009 Poverty Assessment. framework 2009 Assessment of Multisectoral Constraints to Child Health. 2008 Programmatic Public Expenditure Review. Ongoing Health, Education, and Social Protection Policy Dialogue. 2010 Country Economic Memorandum. Improving the 2010 Business Environment and Enterprise Performance Survey (BEEPS). environment for Assessment of Implementation of Inspections and Licensing Reforms. private sector 2008 – 2010 Doing Business Reforms Technical Assistance and PSD Dialogue. development 2009 Financial Sector Assessment. 2006 Review of the Air Transport Sector in Tajikistan. 2006, 2009 IFC Business Environment as seen by Small and Medium Businesses. Ongoing Macro-Economic Monitoring, Agriculture, & Financial Sector Policy Dialogue. 2010 Institutional and Governance Review (ongoing). Strengthening 2008 Policy Note on Medium-Term Pay Reform in Public Sector. government 2008 Programmatic Public Expenditure Review. effectiveness 2007 Public Expenditure and Financial Accountability Assessment. Ongoing Public Sector Reform and Energy Sector Policy Dialogue. 13 5. PROPOSED OPERATION A. DESCRIPTION OF THE OPERATION 41. PDPG4-6 follows the completion in 2009 of the first programmatic PDPG1-3 series. PDPG1-3 began as Tajikistan was coming out of its UN-designated post-conflict status and thus the end-of series outcome targets were relatively modest. The government adopted a program of reforms aimed at improving private investment climate and at strengthening public sector management. On the first, actions were taken to reduce licensing restrictions and frequency of inspections of businesses by Government agencies. On the latter, it supported the enactment and implementation of a new Procurement law, adopted steps including audits to strengthen internal financial control, and introduced medium term expenditure framework for budgetary planning. In addition, the aviation sector was restructured which involved the separation of policy making from technical regulation function as well as the restructuring/splitting of Tajik Airlines into an airline, two airport management companies and other entities for greater transparency and accountability of performance; there was also a gradual expansion of access of foreign airlines to Dushanbe. Actions were also taken to improve delivery of health and education services. Despite setbacks and delays, the reform program resulted in improvements in a number of areas (Table 5), with further details of actions and outcomes provided in the Implementation Completion and Results Report for the previous series.6 Table 5: PDPG1-3: Key Development Outcome Indicators Indicator Comments Improving the investment climate: Time and cost to Targets exceeded. Time taken fell from 12.3 days businesses of dealing with licenses falls (as monitored by (2005) to 6.6 days; target to reduce burden on IFC Business Enabling Environment program bi-annual businesses of dealing with inspections met. survey of SMEs (2007 and 2009). Burden on businesses dealing with inspection falls. Aviation: Access to Tajikistan by air increases (number of Target exceeded, from 557,200 (2004) to 709,000 passengers per year, Tajik air records). vs. targeted 660,000 (2008). Reforming Public Sector Management: Effectiveness of Target exceeded. Score rose from 3.01 (2004) to the government increases, as measured by Tajikistan’s 3.8 vs. target of 3.7 (2008). score in the World Economic Forums’ annual Global Competitiveness Index. Wage reform: Remuneration of civil servants better Target met. matches complexity and responsibility of job (wage spread between classes of civil servants attains the targeted decompression ratios). Primary Health Care reform: Wage bill for PHC Targets not fully achieved; funding to implement workers rises faster than for other health workers. asymmetric wage increases did not materialize. 42. PDPG5 is the second in the programmatic series of three operations (PDPG 4-6). The main rationale of the PDPG4-6 series, coming as it did during the global economic crisis, was to strike an appropriate balance between the actions to mitigate the impact of the global crisis and actions to support post-crisis recovery and sustained growth, with emphasis on the latter rising with time. This rationale and approach remains valid. As a result, greater attention was paid under PDPG4 to protect social spending 6 World Bank 2010, Programmatic Development Policy Operations 1-3 Implementation Completion and Results Report, March 23, 2010. Report No. ICR00001279. 14 and gains from earlier reforms, while PDPG5 pays more attention to supporting recovery and growth through actions to raise private investment and to increase transparency, accountability, and efficiency of public resource use. PDPG5 supports actions in respect of investment climate, financial sector, and agriculture aimed at enhancing transparency and predictability of private property rights for investors. In addition, it supports actions to strengthen public financial management and financial performance of energy sector SOEs. Though implementation of these actions has been uneven (e.g. over-performance on agriculture and under-performance in energy SOE and PFM), the end-of-series outcome targets remain unchanged, and interim results so far (Table 6) suggest that they are achievable. Table 6: PDPG4-6 Series: Some Interim Results Improved efficiency of public expenditures on health and education According to data from the 2010 EBRD-World Bank Life in Transition Surveys (LITS), 61 percent, 57 percent, and 51 percent of Tajik citizens were satisfied with the quality and efficiency of public service delivery in primary / secondary education, public health system and vocational/tertiary education respectively. Compared to 2006, the data show a 20 percentage point increase for the public health system, and 6 percentage point increase for vocational/tertiary education (assessment of over-time changes in satisfaction with primary/secondary education cannot be carried out as data are not available for 2006). Streamlining business regulations The World Bank’s 2011 Doing Business reports that Tajikistan is among the top 10 reforming countries for two years in a row, with country’s overall ranking rising but remaining low at139 among 183 economies. Reforming agricultural institutions Good progress with the land agenda and accelerated issuance of land-use certificates: 40,332 land use certificates had been issued as of March 25, 2011, far exceeding the PDPG5 target of 30,000 certificates by March 31, 2011. Results from the 2009 cotton farm survey covering 15 districts of Khatlon oblast indicate that farm managers or farm members (i.e. family, household, cooperative members, etc.) are the key decision makers in terms of determining the cotton area in 66 percent of surveyed farms, confirming farmers increasing freedom to farm. Strengthening government effectiveness According to data from the 2010 EBRD-World Bank Life in Transition Survey (LITS), the following share of survey respondents in Tajikistan rated the overall performance of the national government as good/very good: local government: 61 percent; regional government: 64 percent; national government: 75 percent. Promoting transparent public financial management Since 2009 the Ministry of Finance website publishes a comprehensive budget execution/performance report annually, and since 2010 publishes quarterly reports as well. Information provided includes revenue and expenditure analysis, analysis by sector, as well as by sub-national administrative entities (oblasts and rayons). Enhancing transparency of energy state-owned enterprises Implementation of Financial Management Improvement Plan (FMIP) by Barki Tajik (including migration to International Financial Reporting Standards [IFRS]) has proceeded, even if slower than envisaged earlier. Tajiktransgas has made more progress in this respect. 43. Prior actions for PDPG5 support ongoing government efforts to improve basic social services, private sector environment, and government effectiveness. They are presented in Table 7 below. To protect basic services, the government is continuing to work on improving targeting and efficiency of social spending, and specifically has adopted a health sector master plan, amended respective legal and normative documents to accommodate national implementation of per capita financing in general education, and introduced a pilot scheme for improved targeting of social assistance in two rayons. To improve environment for private sector, the government has submitted a law to parliament codifying reduction in permit coverage and procedures to restrict introduction of new permits, has continued issuing 15 land-use certificates to farmers to promote greater farmer control over land-use, and taken further actions to strengthen the financial sector. To enhance government effectiveness, the government has strengthened public financial management by submitting to parliament a new external audit law, while Tajiktransgas and Barki Tajik have taken some steps to implement financial management improvement plans, though progress in case of the latter has been slower than envisaged earlier. Table 7: Prior Actions under PDPG5 POLICY AREA 1. PROTECTING DELIVERY OF BASIC SERVICES WITHIN A SUSTAINABLE FISCAL FRAMEWORK  The Recipient, through Government Resolution Number 169, dated April 1, 2011, has adopted a health sector master plan consistent with the Recipient’s National Health Sector Strategy.  A draft Law on Public Finances to accommodate implementation of per capita financing requirements in general education at the national level has been submitted to the Parliament pursuant to the Government Resolution Number 100, dated March 3, 2011.  The Recipient, through the Government Resolution Number 586, dated October 30, 2010, provided the basis for the introduction of a pilot scheme in at least two (2) rayons for improved targeting of social assistance. POLICY AREA 2. IMPROVING THE ENVIRONMENT FOR PRIVATE SECTOR DEVELOPMENT  The Recipient has submitted to the Parliament a new draft Permits Law, Government Resolution Number 159, dated April 1, 2011, to introduce new procedures for issuing permits and to codify the decision and recommendations made by the Government Commission for Permits Review.  The Recipient has issued forty thousand three hundred and thirty-two (40,332) land use certificates in accordance with the agreed standards and targets as set forth in Decree Number 374, dated July 2, 2009.  The Recipient has submitted to the Parliament: (i) a revised Deposit Insurance Law, Presidential Resolution Number 2.1/1-8, dated April 4, 2011; and (ii) the Recipient enacted the Law on Anti-Money Laundering and Countering Financing of Terrorism, Number 684, dated March 25, 2011. POLICY AREA 3. STRENGTHENING GOVERNMENT EFFECTIVENESS  The Recipient, through the Presidential Decree Number 1018, dated February 18, 2011, introduced a new performance appraisal system for public administration employees.  The Recipient has submitted to the Parliament a draft External Audit Law (Law on Chamber of Accounts), Presidential Resolution Number 23.4/1-7, dated April 7, 2011.  The Recipient has caused Barki Tajik and Tajiktransgas to introduce IFRS in the calendar year 2011 and to prepare an action plan for Barki Tajik to complete implementation of FMIP (including migration to IFRS) in accordance with the principles and procedures agreed upon with the Association. 44. There have been changes in several PDPG5 prior actions. Seven of the original eleven prior actions supported by PDPG5 have been implemented as envisaged earlier under PDPG4 and one has been dropped. Two prior actions envisaged earlier under PDPG 4 have been reformulated as they have been implemented only in part due to delays, and will be completed under PDPG-6, while one has been moved to PDPG6. The reasons for these changes are shown in Table 8. 16 Table 8: Changes in PDPG5 Prior Actions Envisaged Earlier Under PDPG4 PDPG5 Prior Action Reason for Change Earlier: The government (i) submits revised deposit Submission of draft law on “Anti-Money Laundering insurance law to Parliament, and (ii) issues and enforces a and Countering Financing of Terrorism” added as a regulation on a process for a prompt remedial action new prior action to PDPG5. framework for commercial banks. Remedial action framework moved to PDPG6; as per Current: The government submits (i) revised deposit the findings of the vulnerability assessment recently insurance law, and (ii) law on “Anti-Money Laundering carried out by the World Bank, several more months and Countering Financing of Terrorism” to Parliament. work is needed to complete this task. Earlier: Barki Tajik and Tajiktransgas complete the Good progress achieved at Tajiktransgas. However, implementation of the (FMIP) (including migration to while Barki Tajik has introduced IFRS at IFRS) in line with the agreement specified in the Energy headquarters and in some regional offices, FMIP Loss Reduction Project and the January 2006 implementation has been slower than earlier memorandum of understanding. envisaged. Barki Tajik has agreed on an action plan Current: Barki Tajik and Tajiktransgas adopt action for completion of FMIP implementation before end- plans for completing by December 2011 implementation 2011. The target for PDPG6 remains unchanged, of FMIP (including migration to IFRS) in line with the namely that Barki Tajik and Tajiktransgas publish agreement specified in the Energy Loss Reduction Project financial reports in compliance with International and the January 2006 memorandum of understanding. Financial Reporting Standards and audited in accordance with International Standards on Audit. The government approves chart of accounts for public Compared to what was envisaged earlier, institutions. considerable additional work is entailed in approval Moved to PDPG6 and implementation of the Unified Chart of Accounts (UCOA), including integration with Government Finance Statistics (GFS) 2001, introducing UCOA into an automated treasury system for budget implementation, and training of about 6,000 accountants to use the UCOA. Govt. approval of UCOA is still expected to take place before PDPG6 approval though use of the UCOA for budget execution and reporting will not take place until 2013 In respect of aviation Government issues a government This sector was an important focus area for PDPG1-3 order, satisfactory to IDA, assigning technical regulation to restructure aviation for greater transparency and function to an autonomous body, independent from any accountability, as well as for increasing air-transport form of policy making influence, and assigning the access for passengers and cargo in a land-locked functions of investigation of accident and incidents to a country, and was retained in PDPG4-6 mainly for the new body with complete independence from the technical new aviation sector policy which was envisaged regulator or the Ministry of Transport and under the earlier series but implemented under Communications. PDPG4. Further improvements in the sector will Dropped require investments for impact and thus no further prior actions are envisaged in PDPG5 and PDPG6. 45. The proposed PDPG6 also envisages actions in all three areas to improve basic social services, private sector environment, and government effectiveness. The government expects to extend to at least two new districts the per-capita formula to allocate PHC resources, continue implementing ongoing reforms in the education sector to promote more equitable financial resource planning and allocation across rayons, and continue the social assistance reform pilot. To improve the environment for private sector development, the government expects to submit to parliament a new law on public-private partnerships and amendments to the custom code to simplify trade procedures, continue issuing land-use certificates to farmers and improve access to water and other essential inputs, and to take further actions to strengthen the financial sector. To strengthen government effectiveness, the government plans to 17 introduce a new salary grid and submit a new law on public administration to Parliament, implement an action plan aimed at making fully functional an external audit body, publish IFRS-compliant audit reports for Barki Tajik and Tajiktransgas, improve collection of billed energy, and complete an audit of TALCO’s energy use to identify options for increasing efficiency. B. POLICY AREAS Policy Area 1: Protecting Delivery of Basic Services within a Sustainable Fiscal Framework (i) Protecting the gains in access and improving efficiency of public spending on health 46. To help mitigate the adverse impact of the crisis, PDPG4 supported the maintenance of the 2010 health budget at no less than the 2009 level. Public spending on health (excl. PIP) rose from 5.1 percent of the budget in 2005 to 6.9 percent in 2008, but then fell to 6.1 percent in 2009. Under PDPG4, the government committed to maintain the budget share allocated to health services in 2010 at no less than 2009 levels. According to latest available data, actual expenditures on health during 2010 constituted 7.1 percent of total expenditures from budget sources (i.e. excluding the PIP and extra-budgetary funds). 47. PDPG5 has supported the adoption by the government of the health sector master plan consistent with the new health sector strategy. The World Bank is providing technical assistance to the government in designing and implementing structural health financing and service delivery reforms. Through the Community and Basic Health Project, the World Bank has partnered with several development partners in this endeavor, such as the (WHO) and other United Nations agencies, and bilateral partners including USAID and the EC. To help achieve the sector objectives laid out in the health sector strategy and PRS 3, the government has developed a health sector master plan that will guide more efficient planning of the health service delivery system. The draft master plan was discussed with a wide range of stakeholders, including at regional level, and the final version was adopted by the Government on April 1, 2011. 48. PDPG6 will focus on implementation of a health financing reform that is a critical step of the new health sector strategy. In particular, it will support as a prior action the utilization by at least 2 new districts of a per-capita formula in allocating 100 percent of primary health care resources. 49. Expected results: Utilization of primary health centers in pilot rayons maintained at no less than 2008 levels. Please see Annex 2 for details. (ii) Protecting the gains in access and improving efficiency of public spending on education 50. PDPG4 protected the 2010 budget allocation for education. The government is implementing the National Strategy for Education Development 2006–18 and its strategic action plan, which focuses on ensuring equal access to education, addressing gender issues, improving the quality of education, and increasing literacy. Key strategy pillars include resource mobilization and introduction of progressive financing methods. Education accounted for 18.8 percent of the central government budget in 2007, 18.0 percent in 2008, and 17.8 percent in 2009. With support from PDPG4, the education share of the central government budget in 2010 was set at 17.9 percent. According to latest available data, actual expenditure on education in 2010 constituted 19.8 percent of total expenditures from budget sources (i.e. excluding the PIP and extra-budgetary funds). 51. PDPG5 has supported submission to Parliament of amendments to legal documents to accommodate national implementation of per capita financing in general education. This has aligned the legal basis for per capita financing to other major laws governing education financing and budgeting. The Ministry of Education hired consultants under the Fast Track Initiative grant to perform this task— 18 i.e. to consult with key stakeholders and review existing legal basis to identify the changes needed. A new draft law on public finances was submitted by the government to Parliament on March 3, 2011. 52. Recent survey data show improvements in recent years in satisfaction with public service delivery in the health and education sectors (Box 4). Partners supporting education sector reforms in Tajikistan include the UNICEF, German Agency for Technical Cooperation (GTZ), EC, Open Society Institute (OSI), World Food Program (WFP), Aga Khan Foundation (AKF) and USAID. 53. PDPG6 will support as benchmarks measures agreed by the government at the 2010 Development Forum, including to (i) review, and revise as needed, the current schedule and related arrangements for planned transition to 10/12 years of general education to allow more time for adequate high quality preparation and implementation, (ii) maintain increased state budget allocations for education (17.8 percent of total expenditures from budget sources), and (iii) continue to fully implement per capita financing and adopt a more equitable approach to financial resource planning and allocation across rayons. Box 4: Improved Satisfaction with Public Service Delivery in Health and Education Citizens’ satisfaction with education and health service delivery in Tajikistan lags prevailing levels in other poor Commonwealth of Independent States (CIS) countries. According to the 2010 EBRD-World Bank (LITS 2) 62 percent of respondents were satisfied with the quality and efficiency of primary/secondary services received during the past 12 months, compared to 82 percent in Georgia and 80 percent in Moldova. Similarly, only 57 percent and 51 percent of users were satisfied with the quality and efficiency of public service delivery in the public health system and vocational/tertiary education systems respectively. On a more heartening note, the data show that current rates of satisfaction with service delivery are considerably higher than prevailing levels in 2006; the data show a 20 percentage point increase for the public health system between 2006 and 2010, and 6 percentage point increase for vocational/tertiary education (Table 9). Table 9: Satisfaction with Public Service Delivery: 2006 - 2010 Percentage of Respondents Satisfied with Services Vocational/Tertiary Prim/Secondary Public health system Country Education Education 2006 2010 Change 2006 2010 Change 2010 Georgia 63 75 12 72 83 12 82 Moldova 43 67 25 44 79 35 80 Uzbekistan 48 64 16 61 65 4 74 Belarus 49 59 9 59 79 20 74 Armenia 64 61 -2 66 70 4 72 Russia 42 58 16 48 79 31 75 Kazakhstan 39 54 15 53 62 9 69 Tajikistan 37 57 20 45 51 6 62 Kyrgyzstan 50 53 3 38 56 18 58 Ukraine 34 45 11 35 73 38 72 Albania 40 45 5 57 49 -8 67 Azerbaijan 56 45 -10 42 54 13 48 Source: 2006 and 2010 EBRD-World Bank Life in Transition Surveys. 54. Expected results: More efficient resource use. Please see Annex 2 for details. (iii) Maintaining an adequate social protection system 55. PDPG4 protected social protection spending in 2010. The Government of Tajikistan operates a relatively large contribution-based pension system and supplements this with non-contributory social pensions for poor households. However, the consolidated budget for social assistance is one of the lowest in the ECA region—about 0.2 percent of GDP in 2009. To help protect the population from the adverse 19 impacts of the crisis, PDPG4 set the total expenditures on social protection at 20 percent of the 2010 budget (i.e. no less than in 2009). 56. PDPG5 has supported the issuance of a government resolution to introduce improved targeting of social assistance in at least two rayons. The pilot envisions employing an explicit mechanism for poverty-targeting, likely based on proxy-means testing (PMT) methodology—i.e. deriving a “proxy estimate” of need to determine eligibility for social assistance. In addition, the two main social assistance programs will be consolidated to facilitate and lower the cost of administration. PDPG6 will support continued implementation of this pilot in 2011. Once the pilot has been completed, an evaluation will be carried out to assess the targeting effectiveness of the pilot PMT-based program in the two rayons. It is expected that the results of the pilot will help in the design and eventual approval by the government of an action plan to scale-up an improved social assistance program nationwide using refined targeting mechanisms to channel scarce resources to needy households.7 To support the overarching objective of improving targeting, priority complementary areas of reform include more efficient administration of social services, rationalization of benefit schemes, and further refinement of the pension system to ensure that it provides a secure income in old age. To help improve the government capacity to plan, monitor, and manage social assistance benefits for the poor, the World Bank is working with the government to help prepare a Social Safety Net Strengthening Project, which will build a national registry of social assistance and invest in training, equipment, and related items (Box 5). Box 5: Proposed Tajikistan Social Safety Net Strengthening Project The Government of Tajikistan addresses poverty, in part, through two main social assistance programs. The largest program is for electricity and gas compensation, the second largest is for needy families whose children attend school; there is also a small program for resettled people, and some further tiny programs. However, the social assistance programs exert almost no downward influence on poverty rates; in large part this is because (i) consolidated government budget for social assistance is very low, and (ii) not well targeted to the poor. The lack of accurate and accessible information on recipients of social assistance weakens budgeting, management, and financial controls. There is no national electronic registry (or even a basic consolidated listing) of beneficiaries, but only paper files in district offices. As a result, the Ministry of Finance cannot analyze how funds disbursed from the Treasury flow to beneficiaries, since there is no central and accurate registry to audit. These weaknesses in oversight and controls undermine the credibility of the social assistance system. In January 2011, the Government launched a pilot of a consolidated social assistance benefit, which (i) consolidates the two largest social assistance programs into a single benefit, and (ii) tests the scoring formula (proxy-means test) for targeting the benefit to the poorest 20 percent of households, and (iii) develops and tests a database for recording applications for social assistance and for computing eligibility using the scoring formula. The main development objective of the proposed social safety net strengthening project is to establish a national electronic registry of social assistance (NERSP) that contains accurate information on social assistance applicants and beneficiaries which can be used to manage social assistance programs, to budget for social assistance, and to monitor and oversee payments of social assistance. In particular, a NERSP would help the government to avoid double payments, to monitor changes in the status of beneficiary households, to make better-informed decisions, and to plan for the future. The proposed project would help the Ministry of Finance to track payments of social assistance and to conduct audits. Finally, the presence of a credible registry would encourage both the government and development partners to channel aid to poor households through the system, in times of crisis and otherwise. 57. Expected results: Improved social assistance targeting. Please see Annex 2 for details. 7 Note: The design and envisaged scaling-up of the improved social assistance program nationwide will extend well beyond the envisaged time-frame of the PDPG4-6 programmatic series. 20 Policy Area 2: Improving the Environment for Private Sector Development (i) Reducing the burden of regulations on business 58. Despite recent progress in reducing the burden of doing business, Tajikistan remains a relatively unattractive country for investment with significant under-exploited economic diversification potential: the 2011 Doing Business report ranks it 139 among 183 economies on the overall Ease of Doing Business index. In Tajikistan, as in many other countries, there is a strong connection between corruption and the excessive and highly complex regulations imposed on businesses. According to the 2009 Business Environment and Enterprise Performance Survey, major constraints to business growth cited by firms include tax rates (55 percent), corruption (41 percent), and electricity supply (39 percent of respondents). Box 6: Promoting Increased Private Investment Key recommendations from the World Bank’s 2010 Country Economic Memorandum include:  Continue to simplify regulations and processes for starting and operating businesses.  Make special efforts to attract foreign and regional investors with technology and market linkages in agriculture and agro-processed goods, by increasing transparency, and limiting arbitrariness in the application of regulations.  Reduce complexity and non-transparency of tax administration; reduce the number of taxes and payments, clarify tax regulations; develop a tax manual showing clearly obligations and rights of tax administrators and payers.  Strengthen banking sector by implementing recently adopted strategy and action plan to increase soundness of banks and improve financial services.  Consider the option of establishing a special export/industrial zone area in Dushanbe and Khujand where businesses would have streamlined processes for investment and operation, reliable power supply etc.  Increase efforts at regional cooperation by working closely with neighboring country governments for various purposes, including the goal of improving trade and transport connections to regional markets.  Upgrade and rehabilitate a few key legs of the north-south corridor that would reduce transportation cost of moving goods to regional markets, and ensure better connections of the cities with their hinterlands.  Continue to foster competition in air transport to expand access; strengthen aviation sector operations.  Issue land use certificates to confirm family farms’ land-use rights, announce/implement elimination of old cotton debt of farmers, enhance timely access to working capital, irrigation, and inputs; expand availability of storage facilities with access to electricity. 59. The PDPG series has provided a multi-year framework for policy dialogue to support reforms to improve the business environment (Box 6). PDPG1-3 supported reforms to streamline the licensing and inspection system, increase the transparency of the privatization process, and promote market competition. PDPG5 has supported as a prior action the submission to parliament of a new permits law to codify the reduction in coverage of sectors by permits in line with the recommendations of the Government Commission for Permits Review, and to regulate the procedures for introducing new permits. This commission was set up by the government to implement and monitor a guillotine process to review and eliminate permits. The primary success of the permits reform has been to reduce the number of permits from 609 to approximately 85.8 PDPG5 has also supported the establishment of one-stop-shops to enable entrepreneurs to receive information, forms, and other services needed to start a business, including consolidated registration with the Tax Authority, Statistical Committee, and with the Social Insurance and Pension Agency. The World Bank Group is also supporting a number of initiatives to 8 According to a Standard Cost Model analysis recently carried out by IFC, this will result in an estimated annual savings by the private sector of around USD18 million. For more details, please see The Impact of Reforming the Permits System to the Private Sector in Tajikistan, (mimeo), International Finance Corporation, Washington DC. 21 strengthen the business enabling environment in Tajikistan.9 These reforms have helped place Tajikistan among the top 10 countries in improving the environment for doing business for the past two years. 60. PDPG6 will support as a prior action (i) the passage of a new PPP law and (ii) amendments to the customs code to simplify trade procedures. Public Private Partnerships (PPP) are a viable option for Tajikistan to attract more investment for key sectors such as energy, infrastructure, transport, and potentially health. However, there is no regulatory framework for PPPs, and as a result each potential investment must be negotiated individually case-by-case basis.10 The government has expressed an interest in developing a new PPP law, and in receiving technical assistance from IFC and EBRD to craft the new law in line with the best practice. PDPG5 will also support the submission of amendments to the Customs Code to simplify trade procedures. These amendments, which have already been drafted and circulated within government for comments, aim to simplify trade by reducing the number of required documents for trade, including a certificate of origin, certificate of conformity with mandatory standards, and the document confirming tax identification number. 61. Expected results: Total cost (direct and indirect) of acquiring permits, time and cost of registering property, starting a business, dealing with construction permits and trading will decline, and the rights of minority shareholders will be better protected. Please see Annex 2 for details. (ii) Reforming agricultural institutions 62. Agricultural reform is critical to enhancing Tajikistan’s productive capacity and reducing poverty in rural areas. In the past, resources in agriculture have been misallocated with widespread restrictions on the “freedom to farm” (i.e. to choose what crops to grow), with regulations forcing farms to maintain production of cotton for exports at levels far above what was economically viable, and conversely neglect the non-cotton sector. Farmers were also saddled with high debt arising from past mistakes.11 The main objectives of PDPG4-6 are to improve property rights (allowing farmers greater freedom to farm)12 and improve access of farmers to farm inputs to help raise agricultural productivity. 63. Through PDPG 4 support, the government undertook several measures to reduce farmers’ debt and improve the agricultural financial system. In 2009, the government took several key steps to 9 The IFC’s Business Enabling Environment (BEE) project seeks to reduce administrative barriers in inspections and permits and lower tax compliance costs by simplifying tax administration. Through its Agri-finance and Regulatory Reform program, IFC is helping the government strengthen the regulatory framework for private investment, improve access to finance for agribusinesses, and support leasing development. The Bank, through its Private Sector Development (PSD) Dialogue and Doing Business Reform Program has also been working with other development partners (notably DFID) to help the government simplify the business regulatory environment. With World Bank support, the State Investment Committee recently presented an action plan for reforms to the Investment Council, which is expected to be endorsed in the form of a Presidential Decree. Through support from the ongoing PSD Dialogue, a number of reforms have already been completed, including the elimination of a number of procedures for registration of businesses, improvements to the rights of minority shareholders in cases of self- dealing, improvements to the bankruptcy law and procedures involved in construction, and reduction of corporate income tax rates for businesses. 10 There is limited experience with PPPs in Tajikistan. In the energy sector, Pamir Energy, with Aga Khan Development Network and IFC financing, is operating a 28MW Small Hydropower Project (SHPP) concession in GBAO region. In the mining sector, the government has contracted IFC’s PPP Infrastructure Advisory team as an advisor for the Bolshoi Konimansur concession to ensure it adheres to best international practice for social, environmental, and fiscal sustainability. 11 World cotton prices fell in 2005, leading to a collapse in seasonal financing for agriculture, loan defaults from bankrupted farmers, and precipitated the so-called “cotton debt crisis”. 12 Securing famers’ rights to land is essential to improve incentives to invest in agriculture, which in the medium term will help to raise productivity, while lowering its risk through diversification. Agricultural growth in Tajikistan has been hampered because past land reform initiatives in the 1990s and early 2000s remained shallow and lacked substance. Although a number of state and collective farms were split to smaller units, they were often reorganized as cooperative farms whose operations did not deviate much from those of the previous organizational arrangements, and peasants lacked the incentive to develop land on which they did not feel they had real property rights. 22 overhaul the agricultural policy framework. Local governments were advised to stop interfering in farms’ operations and several working groups were established to design further steps towards less controlled agriculture. A working group for cotton debt resolution was established in August 2009, which defined and subsequently implemented specific procedures for write-off to cotton related debts. PDPG4 supported completion of the issuance of 6,390 debt write-off certificates to farmers as part of the cotton debt resolution. 64. To promote farmland restructuring, PDPG 4-6 support as prior actions the accelerated issuance of land use certificates to family farms to empower farmers. The cumulative target for land use certificates issued in accordance with agreed standards is 10,000 for PDPG4, 30,000 for PDPG5, and 65,000 for PDPG6.13 There has been good progress with the land agenda: as of March 25, 2011, a total of 40,332 land use certificates had been issued. The government is also taking steps to reduce the time and cost of preparation of land use certificates, and to strengthen the security of the tenure rights provided by them.14 PDPG5 has also supported the strengthening of criteria for site selection for on-farm irrigation investments, including confirmation that at least 70 percent of each irrigation command area proposed to benefit from investment comprises farms held by individuals or families who have their own land use certificates and perceive they can take production and marketing decisions free of intervention.15 65. PDPG6 will also support deepening of reforms in agricultural institutions. A high-level Working Group on Agricultural Reform of Government and Development Partner experts has been created to help design a comprehensive agriculture reform strategy, and comprises six main sub-working groups: (i) water and irrigation, (ii) land reform, (iii) new mechanisms for agricultural financing, (iv) rural social development, (v) local government reform, and (vi) cotton debt write-off. PDPG6 will support measures to improve the enabling environment for agriculture based on an action plan for reform developed by these various sub-working groups.16 In particular, it will also support as a prior action, implementation of an improved irrigation investment framework and action plan to reform policies for better farmer access to inputs. 66. Expected results: Greater independence for farmers in making production and marketing decisions. Please see Annex 2 for details. 13 The government is issuing land use certificates to family farms in accordance with standards and targets agreed under the Bank-financed Land Registration and Cadastral System for Sustainable Agriculture Project (LRCSP). 14 These include decentralization of certificate issuance and use of a more simplified format. An important requirement for certificates is that unique numbers be assigned for the land parcels on the certificates. This helps ensure that a specific parcel is not on more than one certificate and thereby helps prevent conflict and fraud. The Government has agreed to begin assigning unique parcel numbers for all new family farm certificates and also to assign unique numbers to the parcels on for most family farm certificates issued since 2007. Only those certificates with land parcels that are unique and have unique parcel numbers assigned accordingly will be counted toward the agreed PDPG6 target. 15 These criteria are important foundations for successful irrigation investments: they provide farmers with incentives to invest in long term land improvement and encourage diversification, and have already been adopted by LRCSP (with grants covering irrigation rehabilitation of 7,790 ha for 34 water user associations benefitting 14,514 family farms) and other projects. 16 Some of the priorities identified to-date include: (i) further implementation of resolution 111 (ii) further issuance of land certificates, support to the reorganization of larger farms, improving farmland restructuring through several measures including simplification of the process, application of performance standards, monitoring, and curtailing of policy disincentives; and fostering a consistent and clear legal framework for immovable property through amendment of the Land Code, the Mortgage Law and the law on Dehkan Farms, and issuance of implementing regulations for land and real estate registration; (iii) compulsory use of bank transfers for payment for cotton to farmers, development of the agro-leasing market and of an alternative financing mechanism; (iv) establishing effective institutional arrangements (e.g. River Basin Authority) for improved water management (v) identification of alternative employment opportunities and training needs for those in rural communities that are not able to benefit from ongoing reforms; (vi) a functional review of local government and public awareness campaigns. 23 (iii) Strengthening the financial sector 67. The government is implementing high-priority recommendations of the Financial Sector Assessment Program supported by the World Bank and IMF to address weaknesses in the legal and regulatory framework and in NBT. Specific measures include adoption of new legislation and governance improvements in NBT. The authorities also prepared, with assistance from a grant from the Financial Sector Reform and Strengthening Initiative (FIRST) Trust Fund, a medium-term (2010–2015) Banking Sector Strategy and Action Plan, issued as government Resolution No. 261 on May 28, 2010, to implement other key recommendations. The action plan represents a comprehensive, prioritized, sequenced approach to develop a stronger, more stable financial sector that can operate more efficiently and broaden and deepen financial services. It starts with building the legal foundations that are a prerequisite for stability and growth. While some legal and regulatory work will continue throughout, emphasis in subsequent years of the action plan is on institutional strengthening, capacity building, product and service development, and financial infrastructure development. 68. PDPG4 supported the implementation of key first-year legal and regulatory actions, including submission to parliament for approval of a revised banking law and of amendments to NBT law. It also assisted the issuance by the NBT of revised versions of key regulations and instructions in line with the new or amended laws. These legal and regulatory changes, among other things (i) strengthened prudential norms (e.g. with respect to insider lending and large exposure limits); (ii) strengthened NBT’s authority to require stronger credit appraisal standards, risk management, and governance in commercial banks; (iii) restored NBT’s authority to grant and revoke bank licenses; (iv) strengthened NBT’s independence and improved NBT governance; and (v) enabled NBT to conduct consolidated supervision. 69. PDPG5 and PDPG6 continue to support reforms laid out in the government’s financial sector development strategy and action plan. In particular, PDPG5 has supported as prior actions the submission by government to Parliament of (i) a revised deposit insurance law and (ii) the Law “On Anti- Money Laundering and Countering Financing of Terrorism”. These actions have been developed in consultation and coordination with the IMF, which has included in its program complementary actions to (i) submit a revised legal framework for bank insolvency to parliament (such legal work being partially supported by the World Bank’s FIRST TA), and (ii) requiring banks to submit action plans to NBT explaining how they will restore their financial health. PDPG6 will include implementation of key elements of the third year of the financial sector action plan, including: (i) preparation of an improved prompt remedial action framework for banks and its implementation for a minimum of 4 months; (ii) preparation of a contingency planning framework and its implementation for a minimum of 4 months; (iii) strengthening consumer protection regulation and supervision of banks, and (iv) strengthening the legal and institutional environment for secured transactions. Additional actions to support financial sector stability may be considered as needed. 70. Expected results: Stability of, access to, depth of, and efficiency of the financial system are expected to improve. Please see Annex 2 for details. (iv) Modernizing aviation services 71. Through PDPG4 support, the government approved the national aviation policy in March 2010, which (i) explicitly allows progressively increased access to international airlines in terms of routes and frequency capacity; (ii) removes any restrictions on air cargo in terms of aircraft types, size, frequency, uplift or discharge (as long as technically feasible); (iii) ensures equal treatment at the airports for all carriers in terms of pricing, fueling, and other services; and (iv) improves air safety through adequate funding and strengthened licensing certification, monitoring compliance and inspection. No further prior actions are envisaged under the PDPG series in the aviation sector. The team will continue to monitor ongoing implementation on the new aviation policy by the government, and conduct an assessment of the 24 extent to which PDPG-supported reforms have helped expand access to cheaper, safer, and more frequent aviation services. 72. Expected results: Tajikistan is better connected to regional and international markets (increases in the number of flights and passengers). Please see Annex 2 for details. Policy Area 3: Strengthening Government Effectiveness (i) Strengthening capacity of government institutions 73. PDPG5 supports introduction of a performance appraisal system in the civil service. The Government prepared a regulation on performance appraisal system (a prior action for PDPG5) in consultation with line ministries, which was also reviewed by the Executive Office of the President, and a new decree was issued in February 2011. In parallel, the Civil Service Department has also drafted an action plan to implement the new performance appraisal system in the civil service in 2011, which inter alia will involve extensive training as well as various informational and awareness-raising events. PDPG5 has also supported as a benchmark the development of a law on public administration reform (the second draft of this law has been reviewed through an inter-ministerial coordination process, and comments submitted to the Executive Office of the President), and approval of reorganization plans of 7 ministries developed through ongoing vertical functional reviews in these ministries. 74. PDPG6 will continue supporting implementation of ongoing public sector reforms. In particular, following-up on reforms introduced under the PDPG4 and PDPG5 operations, the proposed PDPG6 will support as prior actions (i) introduction of the new salary grid in all central government entities and (ii) enactment of a law on public administration. In addition, PDPG6 will support implementation of various short-term measures under the action plans to restructure seven line ministries.17 Partners in public service reforms include the EC, which is focusing on capacity-building through training. 75. Expected results: Improvements in attractiveness of the civil service as an employer and in the overall regulatory environment. Please see Annex 2 for details. (ii) Promoting transparent public financial management 76. With support from the PDPG1-3 series, the government promulgated a new procurement law, issued implementing regulations, adopted standard bidding documents, and established procurement departments in six key government entities. It also adopted in March 2007 a public internal financial control strategy and started to implement a decentralized internal audit approach and methodology. In November 2007 the parliament approved amendments to the law on public finances, which cover the key budget organizations, managerial accountability, and the internal control and audit function. In addition, the government agreed on a model for an independent external audit body, and initiated work on the drafting of legislation to establish it. 77. PDPG 5–6 support measures to further strengthen public financial management. The government has embarked on further reforms with support of the World Bank-financed Public Financial 17 The Government has developed the grid through close cooperation among core Government institutions, including the Executive Office of the President, the Civil Service Department, the Ministry of Finance, and the Ministry of Labor and Social Protection. Once fully implemented, the new pay system is expected to ease payroll administration, support predictability in wage bill management, and lead to greater transparency in setting pay levels, particularly as it supports the principle of ‘equal pay for equal work’ based on the job classification system and eliminates all previous bonuses and salary increments, including for length of service. The public sector wage bill in Tajikistan amounted to 4.7 percent in 2009 and is projected to drop to 4 percent of GDP in 2010, which is the second-lowest in the ECA region. 25 Management Project. Partners with the World Bank in strengthening public financial management include the IMF, EC, DFID, and USAID. PDPG5 has supported as a prior action the finalization of the external audit law and its submission by government to parliament. The Swiss State Secretariat for Economic Affairs has helped provide funding for the preparation of the external audit law. The World Bank will continue providing advisory support to the government, especially towards development of a legal and institutional structure for the external audit function, outreach, and capacity building. PDPG6 will support the implementation by the government of an action plan to make the independent external audit body fully functional. 78. Expected results: Improved transparency of budget execution. Please see Annex 2 for details. (iii) Enhancing transparency of state-owned enterprises 79. The government has implemented some measures to improve financial viability and efficiency of energy services and strengthen governance of the largest state-owned energy sector enterprises. With World Bank support, the government has continued implementing agreed measures, such as improvement of billing and collection systems and steady adjustments of tariffs. Installation of electricity and gas meters by Barki Tajik and Tajiktransgas has enabled migration from the old practice of normative-consumption-based billing to one based on actual meter readings, which has increased billed electricity consumption by around 50 percent in the last two years. Losses in the gas sector are down about 5 percent in the last three years, and collections have also improved. The electricity tariff, which was amongst the lowest in the region, is progressively catching-up with semi-annual revisions (although the latest increase announced in January 2011 has been deferred). The gas tariff has been linked to the purchase/import price of natural gas. Measures to lower demand by introducing energy efficiency for lighting of the buildings, have also been initiated through a Presidential decree and winter electricity services have been maintained at reasonable levels with the World Bank and other Donors’ support over last few winters. These ongoing steps have helped bring some improvement in the financial performance of both utilities and better services to consumers, although their sustainability remains to be seen, given reportedly falling collections of Barki Tajik from power bills. 80. PDPG5 has continued tracking measures to improve financial viability and governance of Tajikistan’s energy utilities, in particular the government’s efforts to improve financial viability and efficiency of services of Barki Tajik and Tajiktransgas (Box 7). The financial management improvement program (including migration to IFRS) would continue to be further implemented in line with the agreement specified in the Energy Loss Reduction Project. As noted earlier, while IFRS has been introduced in Tajiktransgas and at Barki Tajik’s headquarters and a few regional offices starting 2011, this process has not been completed. PDPG5 has supported as a prior action the adoption of an action plan by government to ensure timely FMIP completion, including the commitment to prepare by July 2011 the draft 2010 accounts for Barki Tajik and Tajiktransgas in accordance with IFRS. 81. PDPG6 will support the publishing of audited financial reports prepared in compliance with IFRS, improved collection of billed energy, and completion of an audit of TALCO’s energy use to identify options for increasing efficiency. 82. Expected results: (1) Financial viability of Barki-Tajik and Tajiktransgas increases; (2) efficiency of energy sector improves. Please see Annex 2 for details. 26 Box 7: Strengthening the Electricity Sector in Tajikistan Even though nearly all households in Tajikistan have access to grid-based electricity, supply is unreliable due to poor functioning of the transmission and distribution system, weak financial management and performance of the main state-owned power utility, Barki Tajik, and power shortages in winter. Tajikistan has huge potential to develop additional hydropower projects and export power surpluses in summer to South Asia, Russia, and Central Asia, provided the government creates appropriate conditions to implement such projects. The Bank’s Country Economic Memorandum has made several recommendations in this regard:  Reorganize Barki Tajik to transform it into a commercially and technically efficient business-oriented company with management autonomy, necessary to attract investments for this sector.  Eliminate the quasi-fiscal deficits in the power sector by reducing losses, increasing tariffs to cost recovery levels and enhancing commercial efficiency of Barki Tajik.  Focus on enhancing domestic energy supplies while developing energy supplies for export.  Undertake hydropower development in a concerted manner, by expanding small scale hydropower projects for remote areas; ensuring that the proposed hydropower projects can service their debt from project revenues; undertaking discussions with other countries in the region to ensure that riparian countries are not adversely affected and other neighbors permit transmission of power exports over their territory.  Ensure that revenue from hydropower exports are used to support growth and poverty reduction in the country. Public expenditure management must also be strengthened. These efforts ought to be built into the design of the hydro projects, as is evident from the experience of other successful hydropower export projects.  Strengthen public financial management systems and start to develop hydropower revenue management rules to ensure that project revenues help to support growth and poverty reduction. 6. OPERATION IMPLEMENTATION A. POVERTY AND SOCIAL IMPACT 83. The PDPG series is expected to have a positive social and poverty reduction impact. A key objective of the series is to protect delivery of basic services (health, education, and social protection) and support implementation of reforms designed to ensure more equitable resource allocation across regions. Per capita financing reforms being pursued in the health and education sector are expected to have a strongly positive impact on the poor. At the heart of the health sector master plan are steps to strengthen primary health care. Key objectives of the introduction in the education sector of per capita financing mechanism nationwide are to reduce inequality in resource allocation across regions, and reduce the share of school budgets allocated to wage bill, thereby increasing funds available to improve the quality of education. The funding formula being used in the education sector includes scaling-up coefficients for some areas that take into account their special circumstances and needs (e.g. schools in mountainous regions, where poor people are more likely to live). The social assistance pilot supported by the program is expected to help the government design and eventually scale-up an improved social assistance program nationwide using refined targeting mechanisms to channel resources to needy households. In the medium term, strengthening farmers’ rights to land and improving access to inputs is likely to lead to greater agricultural profitability, reduced production risk, and lower rural poverty. A stronger financial sector will benefit the poor by expanding access to affordable financial services. More reliable energy services will help promote growth—essential for poverty reduction. Finally, there is no expected poverty or social impact from implementing performance appraisal scheme or from introduction of the law on public administration (neither includes any provision or envisages lay-off of public sector employees). 84. An important objective of the program is to strengthen national monitoring systems to track poverty and human development outcomes. With the support of a 2-year trust fund financed by DFID, the World Bank has substantially increased technical assistance (TA) provided to the government. The main development objectives of the TA program are to contribute to improved social policies by increasing in-country capacity to collect policy-relevant data through integrated multi-topic household surveys, analyze these data, and utilize the analysis in policy formulation. To this end, the program focuses on (i) facilitating greater interaction and information exchange between data producers and users, 27 (ii) providing TA to strengthen local analytic capacity both within and outside government and to improve availability of locally produced analytical outputs of requisite high-quality, and (iii) promoting peer-assisted learning and experience-sharing from other countries in the region. The target audience includes local data collection agencies, researchers, government policy makers, and other development partners in Tajikistan. In view of Tajikistan’s vulnerability to food and fuel price increases, new analytic work has been carried out to assess the poverty and social impact of the recent food and fuel price increases (Box 8). The World Bank is also supporting several other poverty-focused analytical works in Tajikistan.18 Box 8: Impact of Food and Fuel Price Increases The recent food and fuel price increases represent a significant source of vulnerability for Tajikistan. In 2010, the country had a combined food and energy trade deficit of 16.3 percent of GDP. Wheat provides more than half the calories in the average diet. Annual demand for grain is an estimated 1.4 million metric tons, and the deficit between domestic production and demand is approx. 400-600,000 metric tons. Flour and grain prices are particularly affected by market trends in Kazakhstan, the main supplier of grain/flour. A 30 percent increase in net food and fuel imports would raise the trade deficit by 4.9 percentage points of GDP. Simulations based on the most recent household survey data indicate that the combined food and energy price shocks have the potential to increase the poverty rate (measured as proportion of the population below the international $PPP 2.50/day line) by 8 percentage points. Wheat prices in Tajikistan in December were 37 percent higher than in June 2010. In February, following the sharp surge in food prices, the Government released some of its food reserves to the market, aiming to curb further rises. In order to have a meaningful impact in the medium-term on curbing food insecurity in poor rural communities, the two areas of action are: (i) safety nets to protect the vulnerable against shocks, and (ii) support to production response to make Tajikistan more resilient to external shocks. During the 2008 food crisis, the lack of a well-functioning social safety net presented a major challenge for the government. To improve the effectiveness of the safety net system, it has launched a pilot testing of the scoring formula (proxy-means test) with help from the World Bank, and consolidated the two largest social assistance programs into a single one, targeted to the poorest 20 percent of the population. The World Bank is also assisting the government through an emergency food security response project to increase domestic food production and improve the ability of poor households to deal with seed shortages. A temporary revolving fund has been set up for fertilizer imports to help farmers cope with the collapse of the existing fertilizer supply chain. A community public employment with irrigation rehabilitation operation is underway that generates temporary employment and that is helpful to agriculture at the same time rehabilitates irrigation and drainage infrastructure in selected areas. The Bank is also providing emergency assistance to help the government to meet domestic energy demand, to upgrade its transmission and distribution system to reduce losses, and boost energy trade through the Central Asia/South Asia regional energy market. B. ENVIRONMENTAL ASPECTS 85. As noted in the PDPG4 program document, country policies supported by the PDPG program are not expected to have strong impacts on Tajikistan’s environment and natural resources. The measures contemplated under this operation are primarily geared at enhancing the efficiency and effectiveness of spending in the social sectors, strengthening government effectiveness, and helping to pave the way for post-crisis recovery and growth. Positive impacts on the environment are expected through measures such as farmland restructuring. International experience has shown that 18 Under the Education Fast Track initiative, the Ministry of Education will conduct a survey on the distance-from-school as a factor in explaining low enrollment and attendance, especially among poor and girls. Based on the survey results, the Fast Track Initiative (FTI) grant may support school bus pilot in remote and poor areas. Also, analysis of school enrollment and attendance in basic education has been carried out using the 2009 TLSS and Education Management Information System (EMIS) data, as well as of labor market and labor migration outcomes comparing basic education graduates (grade 9) with secondary graduates (grade 11). As part of the support to the Ministry of Labor and Social protection on the planned consolidation of the two main social assistance programs (gas and electricity and school compensation programs) and introduction of a new PMT methodology to identify program beneficiaries, the Bank is helping with the design of the PMT and evaluation of the targeting effectiveness of the pilot PMT-based program in two rayons. 28 command-economy approaches to agriculture and/or insecure tenure contributes to land degradation. The PDPG4-6 operations support farmland restructuring, whereby larger government-directed farms are being broken down into smaller family farms. The tenure security associated with the issuance of land use rights to families strengthens the incentive framework for sustainable natural resource management and empowers the families to have more control over farm management. Other more indirect positive impacts are expected due to various other measures to accelerate growth and improve living conditions, which will likely reduce environmental degradation due to more efficient use of natural resources. Finally, the process of simplification of the permits system supported by this operation included extensive efforts to help ensure that the objective of reducing the burden of regulation on businesses did not adversely impact existing standards for public health and safety and the environment. C. IMPLEMENTATION, MONITORING, AND EVALUATION 86. The Ministry of Finance will be responsible for overall implementation of the proposed operation and for coordinating actions among other concerned ministries, agencies, and departments, with additional help to be provided by the State Advisor of the President of Tajikistan for Economic Policy. The Executive Office of the President will be responsible for implementing the public sector reforms. The agencies and line ministries involved (NBT, agriculture, energy, and transportation, and labor) are accountable for implementing the reforms under their responsibility. The State Committee for Investments and State Property Management will be responsible for overseeing policy actions related to streamlining business regulations. World Bank staff will monitor actions and review progress using the Program Policy Matrix. D. FIDUCIARY ASPECTS 87. Public Financial Management System and Budgetary Resources. The 2007 Public Expenditure and Financial Accountability Assessment (PEFA) highlighted a number of weaknesses in the country’s (PFM) system, including: (i) poor systems of public accountability and weak mechanisms for public sector transparency; (ii) weak internal control systems and internal audit function; (iii) weak institutional capacity to implement some of the budget reforms being undertaken; (iv) fragmented budgets and poor cash management; and (v) weak capacity within the legislative bodies to provide effective oversight over the working of the government. As noted in the PDPG4 PD, the IDA-financed PFM Modernization Project in Tajikistan is addressing many of the weaknesses identified by the 2007 PEFA. The World Bank and other development partners have also provided advisory support to the government on establishing an independent external audit function, including through the PDPG series, and a draft law on external audit has been submitted to Parliament. The EC has supported the establishment of internal audit function that resulted into adoption of the internal audit law and establishment of internal audit units in key pilot ministries. Other steps towards strengthening the PFM system include the revision to the organic budget system and changes made in the budget classification system. A PFM strategy has also been drafted that aims, among other things, at eventual introduction of a full Treasury Single Account at the Republican level and implementation of an electronic financial management information system. A Public Sector Accounting Strategy has been developed together with a proposal for step-by-step introduction of Public Sector Accounting Standards. 88. Due to weaknesses in the overall PFM structure most World Bank-financed projects in Tajikistan do not rely on country systems of accounting, reporting, and audit. However, with reforms being undertaken in the country’s PFM systems, including implementation of the PFM strategy, as well as planned introduction of international public sector accounting standards and establishment of a Supreme Audit Institution, the World Bank and other development partners may begin to progressively rely on some elements of the country’s PFM system. 29 89. Foreign exchange environment. The IMF’s most recent safeguards assessment that was completed in June 2010 noted that Tajikistan has taken initial steps to address the risks identified by the special audit on cotton sector financing. However, considerable safeguard risks at the NBT remain. Both the accounting and the organizational structure are still fragmented; due to the weak internal audit function and an absence of any oversight bodies, access to broad and complete information remains restricted. Consequently, there is a need to further enhance data systems and the transparency of operational integrity. Restoring the credibility of the central bank and building the required capacity in key functions, such as internal audit and financial reporting will require more time. The last safeguards assessment recommended several measures to address these weaknesses, mainly in the areas of financial accounting and reporting and auditing. 90. The external audit of the NBT’s financial statements for the year ended April 2009 resulted in the auditor issuing a disclaimer of opinion, similar to the opinion issued on the financial statements for the year ended April 30, 2008. Audit of the financial statements for 2010 is underway and is expected to be completed by end-June 2011. However, the audit report is not expected to be significantly different from the previous two years; and details on progress made in implementing various recommendations, including results of audits for the latest three years have not been made publicly available on NBT website. There have been delays in setting up structures to conduct quarterly internal audits at the NBT. Given the weaknesses in the PFM arrangements in the country, as well as the risks identified in the NBT, dedicated foreign currency and local currency deposit accounts will be opened at the NBT, in the name of the Ministry of Finance, to receive funds under the proposed operation. 91. Public Procurement. The latest Country Procurement Assessment Report was prepared in 2003; more recently, fiduciary capacity assessments/updates were carried out for the health (2008) and education (2010) sectors, which included procurement assessments at the sector and national levels. The 2007 Public Expenditure and Financial Accountability Assessment also included some assessment of public procurement practices. The government has implemented several recommendations made in various World Bank assessments to improve the public procurement system. For example, the 2006 “Law on Public Procurement of Goods, Works, and Services” includes formal recognition that the public procurement agency (PPA) should not be a central procurement/purchase organization; instead its main role should be as an oversight, advisory, and regulatory body. Preparation and dissemination of standard bidding documents and implementing regulations to procuring entities at various government levels, along with training and capacity-building efforts, have facilitated substantial decentralization in the system. To-date, ten ministries and entities have been certified to conduct public procurement on their own.19 In May 2010, the Government issued a decree to establish the “Agency on Public Procurement of Goods, Works and Services”; consequently, the PPA was de facto transferred to the Presidential Administration from the Ministry of Economy and Trade, and the Director now reports to the President. The PPA has a head-office in Dushanbe along with five regional offices, and has 38 key personnel. 92. The World Bank’s procurement team has been in close contact with the PPA to discuss ongoing procurement reforms and identify areas for World Bank assistance. The PPA has also participated in the World Bank-sponsored Regional Public Procurement Forum.20 Coordination and regulation of the various procuring entities, training and capacity building, and further decentralization in public procurement remain priority areas of the new PPA. The PPA is also considering introducing e-Procurement in 19 These include the Ministries of Agriculture, Economy & Trade, Education, Energy & Industry, Health, Justice, and Labor & Social Protection; State Committee on Investments; Dushanbe Hukumat; and the National State University. 20 The Regional Public Procurement Forum, an annual event initiated in 2005, provides a platform for public procurement officials from Central Asia and neighboring countries to share knowledge and learning, exchange views and experiences, and discuss policy issues in public procurement reforms. Countries from other regions (such as Korea and Singapore) as well as relevant international organizations were also invited to share experiences and good practices. The Government of Tajikistan has actively participated in the Forum including hosting the one in 2008. 30 Tajikistan, starting with (i) a study of the models and practices in other countries; (ii) assessment of readiness and capacity in the country, and (iii) development of the related legal framework and procedures. A benchmarking study based on the OECD/DAC “Methodology for Assessment of National Procurement System”21 is planned in 2012 in partnership with the government. The study will help develop a better understanding of existing and forthcoming challenges and identify actions required to deal with them in a cost-effective manner. The team will also explore the possibility of providing further TA to the Government through restructuring the on-going PFM Modernization Project or an IDF grant in the priority areas mentioned above, and help establish a comprehensive public procurement reporting and information system with indicators to assess the efficiency of the public procurement system and make it more transparent. E. DISBURSEMENT AND AUDITING 93. Disbursement. The Recipient is the Republic of Tajikistan. The proceeds of the Grant will be disbursed in one single tranche upon effectiveness of the Financing Agreement. The Recipient will open and maintain a separate foreign currency deposit account (in US dollars) at the NBT, as part of the official foreign exchange reserve, and a separate Somoni deposit account for reimbursing expenditure for the foreign debt servicing that has been incurred in the current year. At the request of the Ministry of Finance, the Association will deposit the proceeds of the IDA Grant into the foreign currency deposit account. Disbursement of the Grant will be in line with the Association’s procedures for development policy lending. The government will utilize the proceeds of the Grant in foreign currency for either foreign debt servicing or for crediting the local currency equivalent into the Somoni deposit account for financing budget expenses. If the Grant proceeds are used for ineligible purposes as defined in the Financing Agreement, the Association will require the Recipient to refund the amount directly to IDA, in which case IDA will cancel an equivalent amount of the Grant. 94. Reporting and auditing arrangements. Through the Ministry of Finance, the Republic of Tajikistan will provide confirmation of the amounts withdrawn and/or transferred from the deposit accounts, including bank account numbers, date and names of beneficiaries, and ensure that the proceeds of the Grant are not used for ineligible expenditures defined in the IDA “negative list” as agreed during negotiations and specified in the Financing Agreement. The final statement on the utilization of the proceeds of the foreign currency, showing the total amount deposited into the deposit accounts and the transactions from these accounts to the ultimate beneficiaries’ accounts will be independently audited in accordance with terms of reference agreed with IDA and by independent auditors acceptable to IDA. The audits of the deposit accounts are to be conducted once at the end of the fiscal year following utilization of the final balance in the deposit accounts. The audit reports will be submitted to the association not later than four months after the end of the fiscal year. F. RISKS AND RISK MITIGATION 95. Successful implementation of the reform program faces four main risks: general macroeconomic risks, risks related to poor governance and corruption, program specific risks, and other structural risks. 21 The OECD/DAC methodology is based on four pillars: (i) the legislative and regulatory framework; (ii) the institutional framework and management capacity; (iii) purchasing operations and market practices; and, (iv) the integrity and transparency of the public procurement system. Each pillar includes several baseline indicators (BLIs) and sub-indicators that describe formal and functional features of the system. A score of 0 to 3 is assigned to each sub-indicator, with 0 indicating failure to meet the standard, 1 indicating the need for substantial work, 2 indicating less-than-full achievement with need for improvement, and 3 indicating full achievement of the standard. 31  General macroeconomic risks. First, overall macroeconomic management may deteriorate due to a slower than projected regional and global recovery which could undermine projected improvements in growth as well as in fiscal and current account balance. Second, the asset quality of the banking sector which has relatively high non-performing loans may face greater difficulties if growth slows or if more borrowers face hardships. As noted earlier, the government is taking remedial action to reduce financial sector vulnerability with support from the IMF and the World Bank. Third, political or economic instability in neighboring countries poses a significant risk to Tajikistan’s economic health; recent border closures disrupted trade and had an adverse impact, and there remains uncertainty about how this is likely to play out in the coming months. There are also risks to Tajikistan’s efforts at enhanced regional cooperation as to whether they will deliver the results needed for ensuring that private sector efforts to diversify exports and Government efforts to expand road network can succeed.  Risks related to poor governance. Tajikistan’s PFM system is characterized by insufficient internal controls, inadequate transparency, weak governance, low capacity, poor cash management and budget execution, all of which could undermine efforts to enforce fiscal discipline and accountability. During implementation, fiduciary risks will be mitigated by: (i) creating a dedicated foreign currency account into which World Bank funds will be disbursed, (ii) regular reporting on the use of funds disbursed, and (iii) requiring an independent audit on the use of funds provided under the proposed operation. In addition, the following actions will be required in order to realize longer term progress in public financial management: (i) implement key recommendations of the PEFA, the Country Procurement Assessment Report, and IMF reports; (ii) satisfactory implementation of the Public Sector Reform Project, and the PFM Modernization Project. The World Bank sees closer collaboration with donor partners as key to moving this agenda forward as well as a high degree of vigilance. Nevertheless, some risks related to weak PFM remain and cannot be fully mitigated.  Program-specific risks. Tajikistan’s institutions remain very weak and vulnerable to capture by special interests. Stakeholders who benefit from the current institutional arrangements are likely to resist reforms that will leave them worse off. Although no signs of protest are currently apparent, vested interests that would be worse off from farmland restructuring or changes in the management of irrigation may block reforms. The World Bank will continue to support reforms by improving and expanding its efforts at communications, emphasizing the costs of continuing with the economic status quo, and the long-term benefits of reforms. Better dissemination of the findings of World Bank-supported analytical work, especially the CEM, will be an important vehicle of this enhanced communications effort, but it will also involve proactive efforts. The World Bank will regularly monitor progress and actively engage in dialogue and continue to coordinate closely with other development partners to monitor and respond to political developments. Nevertheless, the above risks related to weak institutions and their capture by special interests remain high and cannot be fully mitigated.  Structural reform risks. The PDPG series supports a program of reforms agreed upon with the government which are important, but not all that are relevant actions for structural strengthening. Several areas related to TALCO, Roghun construction, cotton sector policies, and judicial reform are outside the scope of this program. However, there is complementarity between PDPG supported reforms and the above highlighted areas that could turn problematic, and if they do, there may be spillovers into fiscal area as well as into PDPG reform implementation. 32 Annex 1: Letter of Development Policy Unofficial translation Letterhead of the President of the Republic of Tajikistan Ref#23.1/I-16 April 7, 2011 Your Excellency Mr. President, I would like to express my sincere gratitude to you and World Bank Group for your continuous support provided to the Government of the Republic of Tajikistan in implementation of social and economic and institutional reforms. This letter on development policies (hereinafter referred to as LDP) is submitted to inform of the progress and recent changes in social and economic situation in Tajikistan and relevant actions for the following mid-term perspective. It is based on the fundamental strategic documents of the Republic of Tajikistan, including the National Development Strategy up to 2015 (hereinafter referred to as NDS), World Bank Country Partnership Strategy for 2010-2013 (hereinafter referred to as CPS) and Poverty Reduction Strategy Paper for 2010-1012 (hereinafter referred to as PRSP). In addition the National Development Forum (hereinafter referred to as NDF) was organized by the government in Dushanbe in December 2010 with the support of development partners, to review recent economic developments and, in particular, to discuss Tajikistan’s reform priorities for the next two years of its PRSP. Overall vision of the state within the strategic development of the country in a long term perspective is reflected in the NDS and the CPS, while PRSP is a mechanism for implementation of the NDS objectives and tasks in a medium term perspective. In addition, the LDP is also drafted based on sector strategic documents such as Public Administration Reform Strategy (2006), the National Education Sector Development Strategy (NEDS) and National Health Sector Development Strategy (NHDS) which are presently being implemented under support of development partners. H. E. Robert Zoellick, President, The World Bank 1818 H Street, N.W. Washington DC, 20433 33 Under CPS for 2010-2013, the Government of the Republic of Tajikistan closely cooperates with World Bank in the context of the Programmatic Development Policy Financing (hereafter referred to as PDPF) to implement reforms and development of social sector, key sectors of economy including energy, agriculture, transport infrastructure, aviation, including improvement of public administration efficiency and promotion of entrepreneurial activity. PDPF actions are aimed at ensuring a sustainable economic development, public sector reform, private sector development, and improving quality of provision of public services in social area. The Government of the Republic of Tajikistan continues to be fully committed to implement these reforms under PDPF as elaborated in the earlier Letter of Development Policy dated May 7, 2011, which is proved by success achieved in implementing four previous PDPF, as well as ongoing discussion of the reform program under the fifth tranche. I. MANAGEMENT OF MACROECOMOMIC SITUATION While affected by the global economic downturn, the economy of Tajikistan managed to grow at 3.8 percent in 2009, and thus performed better than most other countries in the region. The growth rate has accelerated to 6.5 percent in 2010, but is still lower than the pre-crisis 2000-08 average rate. The 2010 growth was supported by the recovery in exports mainly due to high international prices for aluminum and cotton, which are two major export staples and a quick rebound of the inbound remittances, which increased from $1.6 to $2 b.. At sector level, largest contribution to growth came from services, followed by agriculture and industries. The Government of Tajikistan has reached an understanding with IMF staff on macroeconomic policies for 2011. We seek to achieve GDP growth of at least 6 percent, and limit year-end inflation to 10 percent. Given the need to balance pressing social and development needs against limited domestic resources, we intend to target a deficit of 1 percent of GDP in 2011 (excluding the externally financed public investment program—PIP). This will help to ensure that the economic recovery does not falter, and that the government can modestly increase social spending. We will protect social spending from expenditure cuts in case of unexpected revenue shortfalls, and use any additional donor grants that are available for spending in this area. We will also closely monitor the overall deficit (including the externally financed PIP) to ensure debt sustainability. In the medium term, we hope that a more favorable international environment will pave the way toward higher growth and external balance. In the fiscal area, we will balance the pressing spending needs in the social and infrastructure areas, while broadly aiming for overall fiscal balance (excluding PIP), with a view to keeping government debt below the ceiling of 40 percent of GDP that we have set in our debt strategy. We are committed to strengthen public debt management and reporting by public enterprises, and have requested World Bank help in using the Debt Management Performance Assessment Tool to conduct a comprehensive assessment of Tajikistan’s debt management policy. II. PRIVATE SECTOR DEVELOPMENT, INVESTMENT CLIMATE FACILITATION AND FINANCIAL SECTOR REFORMS Creation of more favorable investment climate and private sector development are the priority directions of the country. Significant progress has already been achieved in several sectors—notably major reforms in agriculture underway since 2009 and continued efforts to rehabilitate and modernize the country’s energy and transport infrastructure. The improved business environment is exemplified by Tajikistan’s repeat performance as a top reformer in the World Bank/International Finance Corporation’s Doing Business. 34 At the recently concluded NDF in Dushanbe in 2010, we have reaffirmed our commitment to continue implementation of key measures seeking to improve the business environment. With regard to the financial sector, these include a properly sequenced roadmap aimed at strengthening the banking system, enhancing the regulatory role of the National Bank of Tajikistan, and expanding the banking system’s capital base. We are also continuing implementation of reforms to improve the business environment based on ongoing collaboration with private sector and civil society institutions, as well as Doing Business indicators, such as simplifying construction permits, completing implementation of the “One-stop Shop”. We have recently enacted a new law on permits (codifying the reduced list and regulating the process for introducing new ones), and also plan to (i) establish a “Single Window” for trade; (ii) reform tax administration to make it more “user-friendly” and encourage compliance; (iii) modernize the collateral regime to facilitate the use of movable assets as collateral, thereby improving small- and medium-enterprises’ access to credit; (iv) strengthen the role of a single agency to provide comprehensive information on Tajikistan’s business environment to potential domestic and international investors; (v) implement the leasing law and remove VAT discrimination against leased equipment; (vi) assess Tajikistan’s comparative advantage for potential investment in sectors such as mining and tourism; and (viii) ensure full implementation and public awareness of business-related reforms. There have been a number of notable achievements in the energy sector in the areas of energy conservation, loss reduction, and improved governance. In this latter connection, we recognize that continued institutional reforms in both JSHC Barki Tajik and OJSC Tajiktransgas are prerequisite for attracting private and public investments. The government’s main priority is to develop capacity to export energy surpluses in the summer and to reduce, ultimately eliminate, energy deficits in the winter. The government is committed to continue working with its development partners towards (i) completing reforms in JSHC Barki Tajik and OJSC Tajiktransgas; (ii) adjusting electricity tariffs and improving collection rates to ensure full-cost recovery; (iii) energy conservation and loss reduction; ; and, (iv) revising the legal framework for the construction of small hydropower plants. In transport, we feel that the construction of additional road and railroad track are key measures needed to boost regional trade integration, but at the same time also recognize that this sector faces similar institutional challenges in financing, management and transparency as the energy sector. The government plans to work with development partners to prepare a transport action plan, and to take measures to (i) improve traffic planning and management; (ii) ensure that road user charges reflected full economic costs; and (iii) implement national aviation policy, including access to international airlines. The provision of rights to land is a fundamental issue in the context of improvement of private investment prospects of the agricultural sector. Restructuring of agricultural lands by issuance of land use certificates to family farms is one of the government’s main reform priorities. A precondition for having a private-sector led financing mechanism will be the ability to use land-use rights as collateral. We are working closely with the World Bank, ADB, and other donors on the implementation of the action plan. We are also seeking donor financing for the agriculture sector to ensure that farmers have sufficient access to credit under the new mechanisms being developed. At the recently concluded NDF, the following measures related to the agricultural sector have been prioritized: (i) complete the “Action Plan on Reforming the Agricultural Sector” (Resolution 406); (ii) continue implementation of ongoing reforms such as “freedom to farm,” (iii) issuance of land use certificates, farmland restructuring, etc.; (iv) develop and action plan for trade, tax and rural finance regulatory reforms to increase farmers’ access to inputs, financing, advisory services, and markets, and (vi) reform existing support services services—input supply, marketing / processing, training/veterinary services—to the needs of new smallholder-based agriculture. 35 III. PUBLIC ADMINISTRATION REFORMS With assistance from the World Bank, we continue strengthening the civil service, and the health, and education sectors. In the health sector, this involves allocating resources in an asymmetric fashion favoring primary health care. In education, we are moving ahead with a per capita funding pilot system. In this context, we are working toward a competitive and affordable civil service wage system. We raised the minimum wage and pension in July 2010 and in October 2010 raised public sector salaries in the context of introducing a new grade scale at five pilot government agencies. A new health insurance law has been passed that plans, to introduce mandatory universal health insurance over the medium-term. We are also preparing a new pension law that seeks to reform the pay-as-you-go and the fully funded pillar, and generate an actuarially balanced system for migrant workers with pension entitlements. Implementation of these laws will be postponed until they have been costed and integrated into our medium-term budget framework and their poverty and social impact assessed. We seek to moderately raise the revenue-to-GDP ratio over time to create space for pressing spending needs. The Government has recently approved a tax administration reform strategy to be implemented during 2011-15, with a view to building capacity in tax administration and contributing to improving the quality of tax administration services and increasing collection of budget revenue. This includes an initiative to increase the number of taxpayers covered by the Large Taxpayer Inspectorate (LTI) by June 2011. We have also prepared an initial inventory of existing tax and customs exemptions, and an assessment of their costs, and a proposal for reform of the exemptions regime is now under consideration. We intend to undertake a review of tax policy, with a view to formulating a strategy for reform of the tax regime and decreasing our reliance on non-tax revenues. We have asked the IMF, the World Bank, and other international financial institutions for technical assistance in these areas. We are also pursuing steps to further enhance public financial and debt management. We have also recently adopted a law on internal audit and state financial control, and also plan to submit to parliament a new external audit law as well as a new law on public administration soon. CONCLUSIONS Taking into account the current social and economic reforms being conducted in industrial sectors of the economy, and initiatives aimed at improving country’s investment climate and private sector development, the Government of the Republic of Tajikistan is firmly committed to continue implementing respective critical reforms to promote a sustainable economic growth and improvement of quality of the public services. In this context, the World Bank support of the actions of the Government of the Republic of Tajikistan in implementation of the reforms will be significant through approval of the Programmatic Development Policy Financing. We hope for further fruitful cooperation with the World Bank in implementation of the above reform agenda. I availing myself of the opportunity to reassure Your Excellency in my highest consideration. Emomali Rahmon 36 37 38 39 40 41 42 43 Annex 2: PDPG 4-6 Program Matrix Medium-term Policy Actions Outcomes Objectives PDPG4 PDPG5 PDPG6 (Monitoring Indicators) (Actions Taken) (Prior Actions) (Proposed Triggers) POLICY AREA 1: PROTECTING DELIVERY OF BASIC SERVICES WITHIN A SUSTAINABLE FISCAL FRAMEWORK (a) Protecting delivery  The Recipient has maintained in the  The Recipient, through  At least two new districts utilize a  Public funding of PHC progressively of health services 2010 budget, an allocation for health Government Resolution Number per-capita formula in allocating all increases / is maintained (measured by care at no less than 2009 levels of 6.1% 169, dated April 1, 2011, has Primary Health Care resources. overall PHC expenditures as a share of of the state budget as stated in the adopted a health sector master plan total regional health budget). Baseline Budget Law # 1456 dated November consistent with the Recipient’s for 2007: Sughd 16.2 percent; Khatlon 11, 2009. National Health Sector Strategy. 22.6 percent. Target for 2012: Sughd 30 percent, Khatlon 33 percent.  PHC visits per capita per year in Khatlon and Sughd regions maintained Baseline for 2007: Sughd 4.0, Khatlon 1.4. Target for 2012: Same. Source: Administrative data. (b) Protecting delivery  The Recipient has maintained in the  A draft Law on Public Finances to  Efficiency of expenditure on of education services 2010 budget an allocation for education accommodate implementation of education improves (measured by at no less than 2009 levels of 17.8% of per capita financing requirements proportion of schools’ budget allocated the state budget as stated in the Budget in general education at the national to wages. Baseline: 92 percent in 2007; Law, Number 1456, dated November level has been submitted to the Target: not higher than 80 percent in 11, 2009. Parliament pursuant to the 2011/12) Government Resolution Number Source: Ministry of Education. 100, dated March 3, 2011. (c) Protecting delivery  The Recipient has maintained in the  The Recipient, through the  Improved targeting mechanism is of social protection 2010 budget allocation for social Government Resolution Number available for channeling social services protection at no less than 2009 levels of 586, dated October 30, 2010, assistance. Baseline: efficient targeting 20% of the state budget as stated in the provided the basis for the mechanism does not exist in Budget Law, Number 1456, dated introduction of a pilot scheme in at 2009.Target: improved targeting November 11, 2009. least two (2) rayons for improved mechanism is available in 2013. targeting of social assistance. POLICY AREA 2: IMPROVING THE ENVIRONMENT FOR PRIVATE SECTOR DEVELOPMENT (a) Streamlining  The Recipient issued instructions The Recipient has submitted to the  The government submits to  Total cost (direct and indirect) of business regulations Number 633 of March 7, 2009, Number Parliament a new draft Permits Law, parliament (i) a public-private- acquiring permits reduced (from 305 of May 28, 2009, Number 3 of Government Resolution Number 159, partnership law, and (ii) 1,588 somoni in 2009 survey to 1,300 in March 1, 2010, and Number 4258 of dated April 1, 2011, to introduce new amendments to the Customs Code 2011 survey. Source: IFC SME survey). April 23, 2010, approving the list of the procedures for issuing permits and to to simplify trade procedures.  Cost and time of dealing with ninety-one (91) permits retained by the codify the decision and construction permits declines. (From Recipient’s Permits Commission, while recommendations made by the 250 days in 2010 to 230 in 2013. the rest are revoked. Government Commission for Permits Source: Doing Business survey). Review. 44 Medium-term Policy Actions Outcomes Objectives PDPG4 PDPG5 PDPG6 (Monitoring Indicators) (Actions Taken) (Prior Actions) (Proposed Triggers) (b) Reforming  The Recipient has issued land use  The Recipient has issued forty  The government (i) issues land  Farmers gain control over farm agricultural institutions certificates in accordance with the thousand three hundred and thirty- use certificates in accordance with management (as indicated by the agreed standards and targets as set forth two (40,332) land use certificates the agreed standards and targets, proportion of farmers who perceive that in the Decree, Number 374, dated July in accordance with the agreed and (ii) implements an improved they can take independent production 2, 2009. 22 standards and targets as set forth in irrigation investment framework and marketing decisions. The baseline  The Recipient has completed the Decree Number 374, dated July 2, and an action plan to reform (2008) is 35 percent according to a 2008 issuance of six thousand nine hundred 2009. policies for better farmer access to survey. The target (2011) is 75 percent, and thirty (6,930) debt write-off inputs. with performance to be measured by the certificates for the value of Rural Vulnerability Study, and the US$423,600,000 for farmers under the Russian Trust Fund Technical tripartite Kredit Invest credit scheme by Assistance on the Role of Local the end of December 2009, as set forth Government in Agricultural in the letter from the National Bank of Development in 2011. Tajikistan, Number 02t-07/18125, dated April 30, 2010, and specified in the Government the Decree Number 663, dated May 30, 2009. (c) Strengthening the  The Recipient through Decree of the  The Recipient has submitted to the  The government (i) prepares an  Access to formal financial services financial sector National Bank, Number 110, dated Parliament: (i) a revised Deposit improved prompt remedial action increases (accounts in banks and April 26, 2010, approved the financial Insurance Law, Presidential framework for banks and microfinance organizations rise). sector development strategy and action Resolution Number 2.1/1-8, dated implements it for a minimum of 4 Baselines (2008 for bank accounts and plan, in addition to: (i) Submitting to April 4, 2011; and (ii) the months, (ii) prepares a 2009 for microfinance accounts): Parliament for approval a draft Banking Recipient enacted the Law on Anti- contingency planning framework 210,378 bank accounts and 381 Law, Number 524, dated May 19, 2009, Money Laundering and Countering and implements it for a minimum microfinance accounts. Targets (2012): including submitting to Parliament Financing of Terrorism, Number of 4 months, (iii) strengthens bank accounts 250,000, microfinance amendments to the Law on the National 684, dated March 25, 2011. consumer protection regulation accounts 1,000). Bank, Number 383, dated December 14, and supervision of banks, and (iv)  Financial system becomes deeper 1996; and (ii) Issuing revised versions strengthens the legal and Measured by: of key regulations and instructions in institutional environment for o Increase in non-directed private line with new Banking Law secured transactions. sector credit. Baseline (2008) 14 instructions, namely, Number 524, percent of GDP. Target (2012) 18 dated May 19, 2009, and amending the percent, 23 and Law on the National Bank related to o Increase in deposits. Baseline Government instruction Number 548, (2008): 11 percent of GDP. Target dated August 25, 2009. (2012) 14% of GDP. 22 “Agreed standards” refer to farmland restructuring to individual and family farms which have no more than 25 adult shareholders per farm. For PDPG6, “agreed standards” also refers to the land parcels on the certificates being unique, with unique numbers assigned accordingly. The target number of land use certificates for PDPG4 is the applicable scheduled result target specified for the Land Registration and Cadastral System for Sustainable Agriculture Project (LRCSP), as it corresponds to the appraisal date of the operation (i.e., 10,000). The agreed target for PDPG5 is 30,000 between January 1, 2007 and March 31, 2011 in both LRCSP and non-LRCSP areas, and quarterly reports describing progress with addressing relevant policy and institutional reforms which promote the acceleration of farmland restructuring. The agreed target for PDPG6 is a cumulative total of 65,000 from LRCSP and non-LRCSP areas. 23 Note that these figures can be skewed by the ostensibly “private” lending to cotton (through Kredit Invest or through the Ministry of Finance credit lines). Including such cotton lending, the figure is 25 percent in 2008; but the result focuses on the non-directed lending by private financial institutions, and this is only 14 percent of GDP in 2008. 45 Medium-term Policy Actions Outcomes Objectives PDPG4 PDPG5 PDPG6 (Monitoring Indicators) (Actions Taken) (Prior Actions) (Proposed Triggers)  Financial system becomes more efficient (interest rate spread between lending rate and average deposit rate falls. Baseline (2008) 18 percent in somoni and 17 percent in US$. Target (2012): 14% somoni; 14% US$). Source: NBT statistics. (d) Modernizing  The Recipient has adopted a resolution  Access to Tajikistan increases aviation services dated May 3, 2010 No.229 setting forth Measured by: an aviation sector policy aimed at o Number of flights serving Tajikistan. liberalizing Tajikistan’s aviation Baseline (2008) 101. Target (2012) market. 150. o Number of passengers. Baseline (2008): 709,000. Target (2012) 1.5 million. Source: Ministry of Transport and Communication. POLICY AREA 3: STRENGTHENING GOVERNMENT EFFECTIVENESS (a) Strengthening  The Recipient, through the  The government introduces new  The attractiveness of the civil capacity of government Presidential Decree Number 1018, salary grid in all central service as an employer improves institutions dated February 18, 2011, government entities. (measured by the ratio of applicants introduced a new performance  The government submits to to published vacancies). Baseline is appraisal system for public parliament law on public 1.25:1 in 2010. Target is 1.7:1 in administration employees. administration. 2013.  The regulatory environment improves, as evidenced by an at least 15% increase in the share of firms (50% or more compared to the baseline of 44% in 2008) saying that "licenses and permits are not a problem in doing business" and/or reduced reported "time tax" reported by firms in BEEPS 2012 (14% of all firms' management time was reportedly spent dealing with public officials according to the 2008 BEEPS). (b) Promoting  The Recipient has submitted to the  The government implements the  Transparency of budget formation transparent public Parliament a draft External Audit action plan aimed at making fully and execution improved. Measured by financial management Law (Law on Chamber of functional an independent external o Budget implementation reports Accounts), Presidential Resolution audit body. produced based on the new budget Number 23.4/1-7, dated April 7,  The government (i) approves chart classification. Baseline (2008): not 2011. of accounts for public institutions, based on the new budget 46 Medium-term Policy Actions Outcomes Objectives PDPG4 PDPG5 PDPG6 (Monitoring Indicators) (Actions Taken) (Prior Actions) (Proposed Triggers) and (b) prepares and executes classification. Target (2012): is state budget based on new budget based on the new budget classification. classification. o Consolidated budget execution reports are posted on the government website). Baseline (2008): not posted on the government website. Target (2012): posted on the government website. Source: Ministry of Finance. (c) Enhancing  The Recipient has caused Barki  Barki Tajik and Tajiktransgas (i)  Financial viability of Barki-Tajik and transparency of energy Tajik and Tajiktransgas to complete FMIP implementation, Tajiktransgas increases (measured by state-owned enterprises introduce IFRS in the calendar year and publish the financial reports increase in cash collection ratio to the 2011 and to prepare an action plan prepared in compliance with IFRS billed consumption). for Barki Tajik to complete and audited in accordance with o Barki Tajik (Dushanbe) baseline implementation of FMIP (including International Standards on Audit; (2009): 81.1%. Target (2012): 92%. migration to IFRS) in accordance (ii) improve collection of billed o Tajiktransgas baseline (2009): close with the principles and procedures energy; and (iii) complete an audit to 100%. Target (2012): close to agreed upon with the Association. of TALCO's energy use to 100%. identify options for increasing its  efficiency.  Transparency of Energy SOEs is increased (measured by: entity audits are conducted based on IFRS with unqualified reports) o Barki Tajik (Dushanbe) baseline (2010): conversion of BT annual accounts to IFRS is in progress. Target (2012): unqualified audit report of BT annual accounts submitted to the World Bank as per IFRS. o Tajiktransgas (country) baseline (2010): conversion of TTG annual accounts to IFRS is in progress. Target (2012): unqualified audit report of TTG annual accounts submitted to the World Bank as per IFRS. Source: company reports. 47 Annex 3: Debt Sustainability Analysis Under the Debt Sustainability Framework for Low Income Countries Based on the external low income country (LIC) debt sustainability analysis (DSA), Tajikistan’s risk of debt distress remains high.1Under the baseline scenario, external debt burden indicators in present value terms remain below their respective indicative thresholds, with the exception of the debt-to- exports ratio. Stress tests within the public DSA demonstrate the sensitivity of the fiscal position with respect to a slightly lower long run growth rate and the necessity of the assumed fiscal consolidation. The DSA results thus underscore the need for: i) the planned fiscal consolidation; ii) caution in contracting new debt; and iii) careful cost-benefit assessment of large-scale investment projects, to make sure that external resources are used productively. Furthermore, a one-off increase in the government’s debt obligations, e.g. related to existing contingent liabilities, would push the debt-to- GDP ratio higher, but would not put the country on an unsustainable debt path in the long run. Sound macroeconomic policies and acceleration of structural reforms would also be needed to strengthen Tajikistan’s growth potential and safeguard external stability. I. BACKGROUND 1. While declining significantly over the last decade, Tajikistan’s debt burden remains high. Tajikistan’s external debt2 to GDP ratio decreased from slightly over 100 percent in 2000 to about 34½ percent in 2010. A debt-for-equity swap with Russia in 2004 reduced considerably the debt burden and tilted the composition of debt toward multilaterals. Against the backdrop of a sharp increase in loans from China since 2007, the share of bilateral creditors picked up rapidly. As of end- 2010, Tajikistan’s external debt is largely concessional and held in broadly equal parts between multilateral and bilateral creditors, with the share of China quite prominent at about 38 percent. The share of commercial creditors is small.3 2. Domestic debt has constituted a very small part of overall public debt owing to low primary fiscal deficits (excluding the externally financed public investment program) and a shallow government securities market. Domestic debt represented about 2 percent of GDP (6 percent of total public debt) at end-2010, consisting mostly of nontradable government securities held by the National Bank of Tajikistan (NBT). Since 2009, the government has undertaken regular issuance of Treasury-bills (T-bills), but only in small amounts, with short maturity, and at rates below the current NBT refinancing rate.4 Moreover, eight-year government bonds were issued to commercial banks in 2010 as part of the cotton debt resolution with rollover provisions and an interest rate of only 2 percent. 1 The DSA has been produced jointly by World Bank and IMF staff, in consultation with Asian Development Bank staff. It updates the last DSA of May 2010 presented in the IMF Staff Report for the First and Second Review under the Extended Credit Facility (EBS/10/95, 05/24/2010). The fiscal year for Tajikistan is January 1–December 31. 2 Tajikistan’s public and publicly guaranteed external debt covers the general government and both guaranteed and non- guaranteed debt of SOEs (state-owned enterprises). 3 In addition, the authorities accumulated a trivial amount of arrears, which are not taken into account in this DSA as they do not have any macroeconomic impact. External payments arrears were accumulated in 2010 on two loans guaranteed by the government. For the first loan, arrears reached a maximum of Euro 103,032 (US$148,428) during the course of the year. Original payment arrears were cleared by end-August 2010, and penalty interest was cleared by end-December. For the second loan, an arrears of US$216 was cleared in January 2011. 4 In 2010, the total level of issuance was less than 0.3 percent of GDP. 48 3. The present value (PV) of public and publicly guaranteed (PPG) external debt at end- 2010 was higher than projected in the last DSA, mainly on account of higher external borrowing. PPG external debt came to about 34½ percent of GDP at end-2010—roughly 2½ percent of GDP higher than projected in the last DSA update. 4. The current DSA concludes that Tajikistan’s risk of debt distress remains high (see Figure 1).5 The PV of PPG external debt to exports of goods and services stood at 147 percent at end- 2010, significantly above its threshold, and prolonged breaches of the threshold throughout the projection period are anticipated. Other debt burden indicators are projected to remain below their respective thresholds under the baseline scenario. In Tajikistan, remittance inflows have become the most prominent source of foreign exchange earnings through a dramatic structural increase from less than 10 percent of GDP in 2003 to almost 40 percent in 2010 (after posting a pre-global crisis peak of 49 percent of GDP in 2008). However, projected prolonged breaches of the original threshold for the NPV of debt-to-exports ratio under the baseline scenario and stress tests preclude the incorporation of remittances in the debt sustainability assessment.6 If debt burden indicators incorporating remittances in the denominator are used, Tajikistan’s risk of debt distress would likely be reduced to medium (see Figure 2). II. UNDERLYING DSA ASSUMPTIONS 5. The macroeconomic framework over the medium term is broadly comparable to the one presented in the last DSA and is described in more detail in Box 1.  Tajikistan’s underlying growth potential is projected to be about 5 percent, broadly comparable to the last DSA. Real GDP growth in 2010 turned out stronger than projected at 6½ percent, supported by robust growth in remittances and a pickup in manufacturing and construction.  On account of anticipated terms of trade shocks in 2011 and 2012, a modest depreciation of the real effective exchange rate is incorporated, which would help bring the current account balance towards its estimated medium-term norm.7  Medium- and long-term projections for growth in nondebt creating flows are comparable to the last DSA (see Table 1a).  Underlying assumptions for the fiscal projections are that the government budget deficit (excluding Public Investment Program) of about 1 percent of GDP in 2011 will be eliminated in the medium term and beyond. This seems feasible based on current spending plans and revenue projections. 5 According to the latest three-year average of the World Bank’s CPIA rating (2007–09) of 3.2, Tajikistan’s policies and institutions are assessed as those corresponding to a “weak performer.”Three-year average of CPIA ratings is used according to recently issued joint Bank-Fund Staff Guidance Note on the Application of the joint Bank-Fund Debt Sustainability Framework (October 2008). These guidelines aim at a less volatile assessment of risk than that based on a single latest CPIA rating. The thresholds for the debt burden for weak performers are 100, 30 and 200 for the NPV of debt to exports, GDP and revenue respectively; debt service thresholds are 15 and 25 percent of exports and revenue, respectively. In the scenarios that include remittances, the thresholds have been revised downward by 10 percent so the corresponding threshold for NPV of debt and debt service to exports and remittances is 90 percent and is 13½ respectively. 6 Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low Income Countries (Jan 25, 2010 available from http://www.imf.org/external/pp/longres.aspx?id=4419) identifies the maximum permissible length of the breach of the thresholds as 10 years starting from the current period, i.e., half of the projection period. 7 Based on the Methodology for the Consultative Group on Exchange Rate Issues (CGER) Exchange Rate Assessments (November 8, 2010 available from http://www.imf.org/external/np/pp/eng/2006/110806.pdf). 49 Box 1. Tajikistan: Macroeconomic Assumptions Real GDP growth is projected at 5¾ percent in 2011, and at 5 percent beyond 2011. These figures are significantly below their ten-year historical average of 8 percent (2001–10). The historical output trajectory was supported by fast growth in the aftermath of the civil war, a sharp structural increase in remittances during 2004–08, and a benign global environment for the most part of the historical base. Expected long-term growth will be driven primarily by exports once investment in the energy sector is completed and structural reforms trigger a more dynamic private sector. The U.S. dollar GDP deflator is projected to increase from 6 percent in 2010 to 12 percent in 2011, but expected to decelerate to about 3 percent through 2031 reflecting progress toward a low-inflation environment while assuming no commodity price shocks beyond the medium term. Export of goods and services is expected to pick up to an average of 9 percent during 2011–16, despite a projected sharp deceleration in 2012 on account of an anticipated adverse shock to cotton prices. Expansion in nontraditional agriculture sectors and increase in energy exports would support this growth. An average growth rate of about 7¾ percent is projected for 2016–31 as export will be supported by completion of the infrastructure projects in the energy sector and progress with structural reforms, including in the agriculture sector and improvement in the business environment. The external current account posted a surplus of 2¼ percent of GDP in 2010. However, the improvement is expected to be temporary with the current account reverting to a deficit of 3¾ percent of GDP in 2011 in light of anticipated adverse terms of trade shocks (higher food and fuel prices), the full year impact of Russian export duties on fuel (imposed in May 2010), and the reversal of the one-off factors that curbed imports in 2010 (intermittent blockade of rail transit during the first half of 2010 and a slowdown in external disbursements for the Public Investment Program). A projected significant drop in cotton prices in 2012 would add to the balance of payments pressures. Reflecting these adverse shocks, a modest depreciation of the real effective exchange rate that would help bring the current account balance close to its medium-term norm is factored in. During 2012–15 external borrowing on concessional terms to finance the construction of Roghun HPP is incorporated. Owing to its high import content, the current account deficit is expected to rise temporarily to a range of 6–7 percent of GDP. Beyond the medium term, the current account balance is expected to improve gradually. Reserve coverage is projected to build up gradually to about 3¼ months of imports by 2031. Fiscal policy is assumed to aim for an overall balance (excluding the externally financed public investment program) over the medium term and beyond, after modest deficits in 2009–11. External assistance. Official external loan financing on concessional terms is estimated to decline from 4¾ percent of GDP in 2011 to 2¾ percent of GDP through 2031. The grant element of new external debt is assumed to decline slightly to 31 percent from 35 percent over the projection horizon. Public domestic debt. A modest increase in domestic debt to GDP ratio is assumed from about 2 percent to 5½ percent by 2017 and gradually declining to 4 percent by 2031. Real interest rates. For domestic debt, it is expected that real interest rate becomes slightly positive starting 2016. 50 III. EXTERNAL DSA A. Baseline 6. Under the baseline scenario, only one of Tajikistan’s external debt burden indicators, the PV of debt-to-exports ratio, is projected to breach the indicative policy-dependent thresholds significantly and for a protracted period of time (see Figure 1 and Table 1a). The debt- to-exports ratio will peak at 178 percent in 2015, exceeding the threshold of 100 percent significantly. After that, it is projected to decrease gradually throughout 2031. However, during the entire projection period the threshold will be breached by a wide margin. 7. External debt service ratios are expected to stay below their thresholds over the entire period. During the projection period, debt service payments continue to be manageable, albeit spiking during the years when principal payments on loans from China fall due. As a result, from 2016 to 2019, the debt service-to-export trajectory approaches the indicative threshold. It is assumed that all of Tajikistan’s external public and publicly guaranteed debt is contracted on concessional terms. B. Alternative Scenarios and Stress Tests 8. Under the historical scenario, the debt burden indicators are significantly lower than under the baseline scenario. The historical scenario is based on averages from 2001 to 2010,8 during which the current account deficit was relatively low—at below 3 percent of GDP, and growth was much stronger. Therefore, under this scenario, all debt burden ratios—excluding the PV of debt-to- exports ratio—remain well below the baseline trajectory and follow a downward trend throughout the projection period. 9. A high-investment low-growth scenario underscores the risk to debt sustainability if growth dividends are less than projected (see Table 1b). The scenario demonstrates that, starting in 2012, when growth is reduced by half due to lower-than-expected productivity of investments, all ratios deteriorate notably, with the ratio of the PV of debt-to-GDP approaching its sustainability threshold by the end of projection period. The ratio of the PV of debt-to-exports deteriorates even further. Nevertheless, the growth projections under the baseline are already cautious and no significant growth impact from the completion of Roghun HPP and other energy projects are incorporated. Consequently, a high-investment low-growth scenario may prove pessimistic. 10. A scenario assuming contracting external debt on less favorable terms would lead to a significant deterioration of Tajikistan’s external debt indicators compared to the baseline scenario. If all new borrowing were to be contracted on less favorable terms during the projection period, Tajikistan’s PV of debt-to-export ratio would rise substantially. Specifically, with the increase in the average interest rate on new disbursements by 2 percentage points, the PV of debt-to-GDP ratio would rise continuously and breach the threshold starting in 2030, and the PV of debt-to-exports ratio would increase further from levels projected under the baseline and stay above the threshold. 8 For exports and noninterest current account averages for only 2006–10 were used due to a break in the export series reflecting a change in the treatment of exports of aluminum in the current account. For all others, the usual ten-year historical average was applied. 51 11. Bound tests show that adverse macroeconomic shocks would also have a profound negative impact on Tajikistan’s external position. In the event of a shock to nondebt creating inflows, all ratios, except debt service-to-revenues, exceed the indicative policy-dependent thresholds by a significant margin and almost all of them remain above the thresholds throughout the projection period. IV. PUBLIC DSA 12. The baseline trajectory in the public sector DSA is very similar to the trajectory in of the external DSA, given that public sector domestic debt is small. The most extreme stress test is embodied in a lower long run growth compared to the baseline. In other words, a growth rate 0.5 percentage points smaller compared to the one assumed in the baseline would result in ever- increasing trajectories of all solvency and liquidity debt burden measures in the public template. This stress reflects the sensitivity of fiscal sustainability to the underlying growth assumption. Another important stress test in the public sector DSA includes the impact of the government facing a contingent liability notionally equal to 10 percent of GDP.9 In this scenario, the PV of debt-to-GDP ratio peaks at 40 in 2015, indicating considerable risks to debt sustainability from contingent fiscal liabilities. Under low growth and/or fixed primary balance scenarios public debt is unsustainable (see Figure 3). This highlights the importance of relying fully on concessional financing and risks associated with diverging from the fiscal consolidation assumed in the baseline scenario. V. DEBT DISTRESS CLASSIFICATION AND CONCLUSIONS 13. The current DSA concludes that Tajikistan’s risk of debt distress remains high. The PV of PPG external debt to exports of goods and services breaches the indicative threshold significantly throughout the projection period. Other debt burden indicators are projected to remain below their respective thresholds under the baseline scenario. 14. The results of the alternative scenarios and stress tests indicate that the debt sustainability situation could further deteriorate. A modestly lower long run growth rate, borrowing on less favorable terms of financing or absence of a fiscal consolidation could result in an unsustainable debt burden trajectory. The DSA results thus underscore the need for fiscal consolidation and extreme caution in contracting new debt and to carefully vet large-scale investment projects, to make sure that external resources are used productively. Sound macroeconomic policies and acceleration of structural reforms would also be essential for maintaining debt sustainability by strengthening Tajikistan’s growth potential and safeguarding external stability. Going forward, continued emphasis should also be placed on strengthening debt management capacity by closely monitoring the debts of the state-owned enterprises (SOEs), assessing potential contingent liabilities arising from the financial sector and quasi-fiscal activities of SOEs. The mission highly recommended the authorities to undertake the Debt Management and Performance Assessment (DEMPA) to identify and address weaknesses in various aspects of Tajikistan’s debt management institutions and practices. 9 Possible contingent fiscal liabilities stem from nonperforming loans in the financial system and arrears (tax and inter- enterprise) in the state enterprises. The figure of 10 percent of GDP is notional, but likely represents an outer bound for potential fiscal costs. 52 15. The authorities concurred with the conclusions of the DSA exercise. The External Debt Unit at the Ministry of Finance has received technical assistance to improve the in-house capacity for debt sustainability assessment. The authorities’ results were in agreement with the staff findings. In response to the authorities’ request, a World Bank DEMPA mission will take place during April 14– 24, 2011. Staff welcomed the authorities’ voluntary and swift action in this area that will help facilitate assessment of the strengths and weaknesses in debt management and design of actionable reform plans to improve debt management capacity. Figure 1. Tajikistan: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2011 - 2031 1/ Grant element of new borrowing (% b. PV of debt-to GDP ratio 4.5 40 60 4.0 35 50 3.5 30 3.0 40 25 2.5 20 30 2.0 15 20 1.5 1.0 10 10 0.5 5 0 0.0 0 2011 2016 2021 2026 2031 -10 Rate of debt accumulation 2011 2016 2021 2026 2031 Grant-equivalent financing (% of GDP) Grant element of new borrowing (% right scale) c. PV of debt-to-exports ratio d. PV of debt-to-revenue ratio 400 300 350 250 300 200 250 200 150 150 100 100 50 50 0 0 -50 -50 2011 2016 2021 2026 2031 2011 2016 2021 2026 2031 e. Debt service-to-exports ratio f. Debt service-to-revenue 20 30 18 16 25 14 20 12 10 15 8 6 10 4 5 2 0 0 2011 2016 2021 2026 2031 2011 2016 2021 2026 2031 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Country authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2021. In all figures it corresponds to a nondebt creating flows shock. 53 Figure 2. Tajikistan: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios Incorporating Remittances, 2011 - 2031 1/ a. Debt accumulation b. PV of debt-to-GDP+remittances 4.5 40 60 4.0 35 50 3.5 30 3.0 40 25 2.5 20 30 2.0 15 20 1.5 1.0 10 10 0.5 5 0 0.0 0 2011 2016 2021 2026 2031 Rate of debt accumulation 2011 2016 2021 2026 2031 c. PV of debt-to-exports+remittances d. PV of debt-to-revenue ratio 250 300 250 200 200 150 150 100 100 50 50 0 0 2011 2016 2021 2026 2031 2011 2016 2021 2026 2031 e. Debt service-to-exports+remittances f . Debt service-to-revenue ratio 16 30 14 25 12 20 10 8 15 6 10 4 5 2 0 0 2011 2016 2021 2026 2031 2011 2016 2021 2026 2031 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Country authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2021. In all figures it corresponds to a nondebt creating flows shock. 54 Figure 3. Tajikistan: Indicators of Public Debt Under Alternative Scenarios, 2011 - 2031 1/ Baseline Fix primary balance Contingent liability Growth LT 90 PV of Debt-to-GDP Ratio 80 70 60 50 40 30 20 10 0 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 450 PV of Debt-to-Revenue Ratio 2/ 400 350 300 250 200 150 100 50 0 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 35 Debt Service-to-Revenue Ratio 30 25 20 15 10 5 0 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 Sources: Country authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2021. 2/ Revenues are defined inclusive of grants. 55 Table 1a.: External Debt Sustainability Framework, Baseline Scenario, 2008-2030 1/ (In percent of GDP, unless otherwise indicated) Actual Historical Standard Projections Average Deviation 2011-2016 2017-2031 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Average 2021 2031 Average External debt (nominal) 1/ 149.5 130.3 113.6 81.5 57.4 52.6 44.0 41.2 46.5 53.5 53.8 49.4 49.8 50.9 50.6 50.0 47.4 49.7 41.4 32.3 38.8 o/w public and publicly guaranteed (PPG) 123.4 105.6 91.8 64.3 43.9 40.5 34.2 34.0 29.4 35.9 34.6 32.1 33.3 34.0 33.5 32.8 30.5 32.7 29.2 26.4 28.3 Change in external debt ... -19.2 -16.7 -32.1 -24.1 -4.9 -8.6 -2.8 5.4 7.0 0.2 -4.3 0.4 1.0 -0.2 -0.6 -2.6 -1.1 -1.3 -0.6 -1.0 Identified net debt-creating flows ... -6.2 -17.0 -26.6 -29.6 -6.5 -8.9 -6.3 -9.6 7.0 -9.2 -0.4 2.4 1.1 0.6 0.7 -1.4 0.5 -2.7 -0.5 -2.0 Non-interest current account deficit -1.4 -0.8 -0.9 -3.4 1.0 -0.2 0.5 6.8 6.4 4.5 -3.4 1.1 3.7 2.5 6.0 5.2 4.8 4.8 3.3 4.4 2.3 2.4 2.3 Deficit in balance of goods and services 1.9 10.8 10.8 10.1 11.6 25.8 34.2 48.2 55.3 39.3 34.9 38.1 39.1 37.0 35.8 34.7 32.1 36.1 28.9 24.3 27.5 Exports 89.0 71.1 66.8 63.4 58.4 27.0 23.3 20.7 16.8 15.2 17.2 18.3 15.4 14.5 14.1 13.5 12.9 14.8 13.8 12.5 13.4 Imports 90.9 82.0 77.6 73.5 70.0 52.8 57.5 68.8 72.1 54.5 52.1 56.4 54.4 51.5 49.8 48.2 45.1 50.9 42.8 36.8 40.9 Net current transfers (negative = inflow) -4.0 -10.7 -12.0 -14.6 -11.4 -27.5 -35.0 -41.9 -48.7 -34.8 -38.3 -27.5 14.3 -35.3 -32.9 -31.6 -30.7 -29.6 -28.6 -31.4 -26.2 -21.6 -24.8 o/w official -4.0 -8.4 -8.2 -7.9 -3.3 -3.5 -2.9 -1.8 -3.1 -2.4 -2.2 -1.8 -1.1 -0.8 -0.7 -0.3 -0.3 -0.8 -0.1 -0.1 -0.1 Other current account flows (negative = net inflow) 0.7 -1.0 0.3 1.2 0.8 1.5 1.3 0.6 -0.2 0.0 0.0 -0.3 -0.2 -0.2 -0.3 -0.3 -0.3 -0.2 -0.4 -0.4 -0.4 Net FDI (negative = inflow) -2.5 -0.9 -3.0 -2.0 -13.1 -2.4 -2.3 -4.3 -5.8 -0.3 -0.9 -3.5 3.8 -1.6 -2.4 -3.0 -3.0 -3.0 -3.5 -2.8 -4.0 -2.0 -3.3 Endogenous debt dynamics 2/ ... -4.5 -13.1 -21.2 -17.6 -4.0 -7.0 -8.8 -10.2 2.9 -5.0 -1.4 -1.1 -1.2 -1.2 -1.2 -1.2 -1.2 -1.1 -0.9 -1.0 Residual (3-4) 3/ ... -13.0 0.3 -5.5 5.5 1.7 0.3 3.5 14.9 0.0 9.5 -3.9 -2.0 0.0 -0.9 -1.3 -1.1 -1.5 1.4 -0.1 1.0 o/w exceptional financing ... -1.4 1.9 0.0 -0.6 0.0 0.0 0.0 0.0 -0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PV of external debt 4/ ... ... ... ... ... ... ... ... ... ... 44.3 41.7 41.4 41.9 41.7 41.1 39.4 41.2 34.0 25.6 31.6 In percent of exports ... ... ... ... ... ... ... ... ... ... 258.0 227.7 269.4 288.2 296.6 304.8 304.7 281.9 246.3 205.7 235.9 PV of PPG external debt ... ... ... ... ... ... ... ... ... ... 25.2 24.4 24.9 25.0 24.5 23.9 22.5 24.2 21.8 19.7 21.1 In percent of exports ... ... ... ... ... ... ... ... ... ... 146.6 133.3 162.0 172.1 174.4 177.6 174.0 165.5 157.9 158.4 158.2 In percent of government revenues ... ... ... ... ... ... ... ... ... ... 120.8 117.8 119.1 119.3 116.4 113.1 106.0 115.3 102.7 92.8 99.5 Debt service-to-exports ratio (in percent) 6.6 13.5 13.3 11.2 28.1 17.3 32.7 13.2 15.1 26.6 12.0 9.0 13.0 15.0 15.5 15.6 16.6 14.1 14.0 11.2 13.5 PPG debt service-to-exports ratio (in percent) ... ... 10.4 8.2 25.9 14.5 26.8 8.8 14.2 21.3 7.9 5.4 8.9 10.6 10.9 10.8 11.7 9.7 10.5 9.3 10.4 PPG debt service-to-revenue ratio (in percent) ... ... 41.5 30.5 87.6 20.3 33.0 8.9 11.7 16.2 6.5 4.8 6.5 7.4 7.2 6.9 7.1 6.7 6.8 5.5 6.6 Total gross financing need (Billions of U.S. dollars) ... ... ... ... 0.1 0.0 0.2 0.2 0.2 0.4 -0.1 0.2 0.4 0.4 0.4 0.4 0.2 0.3 0.0 0.7 0.2 Non-interest current account deficit that stabilizes debt ratio ... 18.4 15.8 28.8 25.1 4.7 9.0 9.7 1.1 -2.5 -3.7 6.9 5.6 4.2 5.1 5.5 5.8 5.5 3.6 3.0 3.3 Key macroeconomic assumptions Real GDP growth (in percent) 8.3 10.2 9.1 10.2 10.6 6.7 7.0 7.8 7.9 3.9 6.5 8.0 2.1 5.8 5.0 5.0 5.0 5.0 5.0 5.1 5.0 5.0 5.0 GDP deflator in US dollar terms (change in percent) -15.8 -1.8 6.2 17.9 20.6 4.5 13.7 22.5 28.2 -6.6 6.3 11.1 11.2 14.5 8.2 7.6 6.2 6.7 6.7 8.3 2.9 2.9 2.8 Effective interest rate (percent) 5/ 2.4 4.9 4.2 5.7 4.6 3.7 5.5 5.5 4.1 3.0 2.8 4.4 1.0 2.7 2.4 2.4 2.4 2.4 2.4 2.4 2.3 2.0 2.2 Growth of exports of G&S (US dollar terms, in percent) 18.4 -13.5 8.8 23.2 22.9 -48.4 5.2 16.8 12.8 -12.7 28.4 10.1 15.2 28.9 -4.7 7.0 7.9 7.5 7.6 9.0 7.7 6.6 7.7 Growth of imports of G&S (US dollar terms, in percent) 18.4 -2.5 9.7 22.9 27.1 -15.9 32.5 57.9 45.0 -26.7 8.3 15.8 26.5 31.0 9.7 7.0 7.9 8.3 4.9 11.5 6.7 7.5 6.5 Grant element of new public sector borrowing (in percent) ... ... ... ... ... ... ... ... ... ... ... ... 34.8 34.8 35.5 33.8 34.9 22.9 32.8 30.8 31.0 31.0 Government revenues (excluding grants, in percent of GDP) 14.0 15.5 16.7 17.0 17.3 19.3 18.9 20.5 20.5 20.0 20.9 20.7 20.9 21.0 21.1 21.1 21.2 21.0 21.2 21.2 21.2 Aid flows (in Billions of US dollars) 7/ 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.2 0.1 0.2 0.3 0.3 0.2 0.2 0.1 0.2 0.2 0.4 0.3 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... ... ... ... ... ... ... ... ... 3.1 3.6 3.2 2.2 1.9 1.0 2.5 1.4 1.4 1.4 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... ... ... ... ... ... ... ... ... 61.9 48.0 47.5 45.1 43.4 39.4 47.6 42.9 43.4 42.9 Memorandum items: Nominal GDP (Billions of US dollars) 1.0 1.0 1.2 1.6 2.1 2.3 2.8 3.7 5.1 5.0 5.6 6.8 7.8 8.8 9.8 11.0 12.3 17.8 38.7 Nominal dollar GDP growth ... 8.2 15.8 29.9 33.3 11.5 21.7 32.0 38.3 -3.0 13.2 21.1 13.6 13.0 11.5 12.1 12.1 13.9 8.1 8.1 8.0 PV of PPG external debt (in Billions of US dollars) 1.4 1.6 1.9 2.1 2.4 2.6 2.7 3.8 7.5 (PVt-PVt-1)/GDPt-1 (in percent) 3.4 4.0 3.4 2.4 2.3 1.3 2.8 1.5 1.5 1.5 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Assumes that PV of private sector debt is equivalent to its face value. 5/ Current-year interest payments divided by previous period debt stock. 6/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 7/ Defined as grants, concessional loans, and debt relief. 8/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 56 Table 1b.Tajikistan: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2011-2031 (In percent) Projections 2011 2012 2013 2014 2015 2016 2021 2031 PV of debt-to GDP ratio Baseline 24 25 25 25 24 23 22 20 A. Alternative Scenarios A1. Key variables at their historical averages in 2011-2031 1/ 24 19 15 12 9 7 3 -2 A2. New public sector loans on less favorable terms in 2011-2031 /2 24 26 28 28 28 27 29 30 A3. Alternative Scenario : High investment-low growth 23 26 28 29 29 28 30 31 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 24 24 24 24 23 22 21 19 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 24 24 26 25 25 23 22 20 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 24 26 28 28 27 26 25 23 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 24 40 54 51 49 45 39 25 B5. Combination of B1-B4 using one-half standard deviation shocks 24 33 41 40 38 35 32 23 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 24 33 34 33 32 30 30 27 PV of debt-to-exports ratio Baseline 133 162 172 174 178 174 158 158 A. Alternative Scenarios A1. Key variables at their historical averages in 2011-2031 1/ 133 123 106 85 66 52 23 -15 A2. New public sector loans on less favorable terms in 2011-2031 /2 133 170 191 201 211 209 210 242 A3. Alternative Scenario : High investment-low growth 128 177 201 213 221 222 224 258 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 133 157 168 171 174 170 155 156 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 133 160 205 208 211 207 186 182 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 133 157 168 171 174 170 155 156 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 133 260 371 366 361 350 282 200 B5. Combination of B1-B4 using one-half standard deviation shocks 133 199 273 271 270 262 219 175 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 133 157 168 171 174 170 155 156 PV of debt-to-revenue ratio Baseline 118 119 119 116 113 106 103 93 A. Alternative Scenarios A1. Key variables at their historical averages in 2011-2031 1/ 118 90 74 57 42 32 15 -9 A2. New public sector loans on less favorable terms in 2011-2031 /2 118 125 132 134 134 127 137 142 A3. Alternative Scenario : High investment-low growth 113 126 134 137 135 130 141 145 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 118 115 114 112 109 102 99 90 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 118 116 123 121 117 109 105 93 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 118 125 136 133 129 121 118 106 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 118 191 258 244 230 213 183 117 B5. Combination of B1-B4 using one-half standard deviation shocks 118 158 197 189 179 167 148 107 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 118 160 161 158 153 143 140 126 57 Table 1b.Tajikistan: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2011-2031 (continued) (In percent) Projections 2011 2012 2013 2014 2015 2016 2021 2031 Debt service-to-exports ratio Baseline 5 9 11 11 11 12 10 9 A. Alternative Scenarios A1. Key variables at their historical averages in 2011-2031 1/ 5 8 8 7 7 6 2 0 A2. New public sector loans on less favorable terms in 2011-2031 /2 5 8 10 11 12 12 13 15 A3. Alternative Scenario : High investment-low growth 5 9 11 11 12 12 13 16 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 5 8 10 10 10 10 9 9 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 5 8 11 12 12 12 11 11 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 5 8 10 10 10 10 9 9 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 5 8 12 14 14 14 19 14 B5. Combination of B1-B4 using one-half standard deviation shocks 5 8 10 12 12 12 14 12 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 5 8 10 10 10 10 9 9 Debt service-to-revenue ratio Baseline 5 7 7 7 7 7 7 5 A. Alternative Scenarios A1. Key variables at their historical averages in 2011-2031 1/ 5 6 6 5 4 4 2 0 A2. New public sector loans on less favorable terms in 2011-2031 /2 5 6 7 7 7 7 8 9 A3. Alternative Scenario : High investment-low growth 4 6 7 7 7 7 8 9 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 5 6 7 7 6 6 6 5 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 5 6 7 7 6 6 6 6 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 5 7 8 8 7 7 7 6 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 5 6 8 9 9 8 12 8 B5. Combination of B1-B4 using one-half standard deviation shocks 5 6 8 8 8 7 10 7 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 5 8 9 9 9 8 8 8 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 30 30 30 30 30 30 30 30 Sources: Country authorities; and IMF staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitely assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. 58 Table 2a. Tajikistan: Public Sector Debt Sustainability Framework, Baseline Scenario, 2009-2031 (In percent of GDP, unless otherwise indicated) Actual Projections 2011-16 2017-31 2009 2010 2011 2012 2013 2014 2015 2016 Average 2021 2031 Average Public sector debt 1/ 36.6 36.7 34.2 35.5 37.3 37.6 37.5 35.6 34.2 29.8 o/w foreign-currency denominated 35.9 34.6 32.1 33.3 34.0 33.5 32.8 30.5 29.2 26.4 Change in public sector debt 6.4 0.1 -2.4 1.3 1.8 0.3 -0.1 -1.9 -0.3 -0.5 Identified debt-creating flows 7.7 -1.0 -0.1 -0.5 -1.1 -1.6 -1.9 -1.4 0.3 -2.4 Primary deficit 4.7 3.1 4.8 3.6 2.8 1.9 1.7 2.2 2.4 2.3 -0.6 2.0 Revenue and grants 23.4 23.2 22.8 22.4 22.2 21.9 21.7 21.8 21.8 21.8 of which: grants 3.4 2.3 2.1 1.5 1.3 0.8 0.6 0.6 0.6 0.6 Primary (noninterest) expenditure 28.1 26.2 27.6 26.0 25.0 23.8 23.4 24.0 24.1 21.2 Automatic debt dynamics 3.0 -5.2 -4.8 -4.0 -3.8 -3.5 -3.5 -3.6 -2.0 -1.8 Contribution from interest rate/growth differential -1.1 -2.3 -2.3 -2.0 -2.0 -2.1 -2.1 -2.2 -1.8 -1.5 Contribution from real exchange rate depreciation 4.1 -2.9 -2.6 -2.0 -1.8 -1.4 -1.4 -1.4 ... ... Other identified debt-creating flows -0.1 1.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes -1.3 1.0 -2.3 1.7 2.8 1.9 1.8 -0.5 -0.6 1.9 Other Sustainability Indicators PV of public sector debt 0.7 27.2 26.5 27.0 28.3 28.6 28.6 27.6 26.8 23.1 o/w foreign-currency denominated 0.0 25.2 24.4 24.9 25.0 24.5 23.9 22.5 21.8 19.7 o/w external ... 25.2 24.4 24.9 25.0 24.5 23.9 22.5 21.8 19.7 Gross financing need 2/ 5.4 3.7 5.4 4.1 3.3 2.5 2.3 2.8 3.0 -0.1 PV of public sector debt-to-revenue and grants ratio (in percent) 3.2 117.6 116.0 120.6 127.3 130.7 131.5 126.4 122.9 105.8 PV of public sector debt-to-revenue ratio (in percent) 3.7 130.5 127.8 129.5 135.0 135.9 135.0 129.8 126.3 108.7 o/w external 3/ … 120.8 117.8 119.1 119.3 116.4 113.1 106.0 102.7 92.8 Debt service-to-revenue and grants ratio (in percent) 4/ 3.0 2.8 2.7 2.2 2.3 2.6 2.9 2.9 3.1 2.7 Debt service-to-revenue ratio (in percent) 4/ 3.5 3.1 3.0 2.3 2.4 2.7 3.0 3.0 3.2 2.8 Primary deficit that stabilizes the debt-to-GDP ratio -1.6 3.0 7.2 2.3 1.0 1.7 1.8 4.1 2.6 -0.2 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 3.9 6.5 5.8 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Average nominal interest rate on forex debt (in percent) 2.1 1.9 1.8 1.4 1.4 1.4 1.5 1.4 1.4 1.5 1.5 1.5 Average real interest rate on domestic debt (in percent) -2.4 0.9 -10.5 -8.3 -6.6 -5.0 -4.7 -4.6 -5.9 0.2 0.3 0.2 Real exchange rate depreciation (in percent, + indicates depreciation) 14.6 -8.7 -7.9 ... ... ... ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 12.7 12.5 18.6 15.8 13.6 11.0 11.0 11.0 12.5 6.0 6.0 6.0 Growth of real primary spending (deflated by GDP deflator, in percent) 0.1 0.0 0.1 0.0 0.0 0.0 0.0 0.1 0.0 0.1 -0.1 0.0 Grant element of new external borrowing (in percent) ... ... 34.8 34.8 35.5 33.8 34.9 22.9 32.4 30.8 31.0 ... Sources: Country authorities; and staff estimates and projections. 1/ [Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.] 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 59 Table 2b. Tajikistan: Sensativity Analisys for Key Indicators of Public Debt, 2011-2031 Projections 2011 2012 2013 2014 2015 2016 2021 2031 PV of Debt-to-GDP Ratio Baseline 26 27 28 29 29 28 27 23 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 26 24 24 23 22 20 15 11 A2. primary balance is unchanged from 2011 26 28 32 35 38 40 53 85 A3. Permanently lower GDP growth 1/ 26 27 29 30 30 30 34 48 A4. Alternative scenario: Contingent liability 26 37 38 39 39 38 38 36 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2012-2013 26 27 27 27 27 25 23 15 B2. primary balance is at historical average minus one standard deviations in 2012-2013 26 28 31 31 31 30 29 26 B3. Combination of B1-B2 using one half standard deviation shocks 26 26 27 26 26 24 19 6 B4. One-time 30 percent real depreciation in 2012 26 36 36 36 35 34 32 29 PV of Debt-to-Revenue Ratio 2/ Baseline 116 121 127 131 131 126 123 106 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 116 109 107 105 102 93 69 53 A2. primary balance is unchanged from 2011 116 126 142 159 175 182 242 391 A3. Permanently lower GDP growth 1/ 116 122 130 135 138 136 153 219 A4. Alternative scenario: Contingent liability 116 165 173 178 179 175 175 166 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2012-2013 116 119 123 125 123 117 104 67 B2. primary balance is at historical average minus one standard deviations in 2012-2013 116 124 137 141 142 137 134 119 B3. Combination of B1-B2 using one half standard deviation shocks 116 116 121 121 118 109 87 28 B4. One-time 30 percent real depreciation in 2012 116 163 163 163 160 154 147 132 Debt Service-to-Revenue Ratio 2/ Baseline 3 2 2 3 3 3 3 3 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 3 2 1 0 0 0 0 0 A2. primary balance is unchanged from 2011 3 2 3 5 7 10 16 33 A3. Permanently lower GDP growth 1/ 3 2 2 3 3 4 6 14 A4. Alternative scenario: Contingent liability 3 2 10 10 10 10 9 10 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2012-2013 3 2 2 2 2 2 1 -1 B2. primary balance is at historical average minus one standard deviations in 2012-2013 3 2 3 4 5 5 4 4 B3. Combination of B1-B2 using one half standard deviation shocks 3 2 2 2 2 1 0 -6 B4. One-time 30 percent real depreciation in 2012 3 3 3 4 4 4 5 6 B5. 10 percent of GDP increase in other debt-creating flows in 2012 3 2 10 10 10 10 9 10 Sources: Country authorities; and IMF staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period. 2/ Revenues are defined inclusive of grants. 60 Annex 4: Public Information Notice on Extended Credit Facility IMF Executive Board Completes Third Review Under ECF Arrangement for Tajikistan and Approves US$20 Million Disbursement Press Release No. 10/464 November 30, 2010 The Executive Board of the International Monetary Fund (IMF) has completed its third review of Tajikistan’s economic performance under a program supported by the Extended Credit Facility arrangement (ECF) 1. The Board's decision was taken on a lapse of time basis2. The decision enables the authorities to draw an additional SDR 13.045 million (US$20.11 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 65.265 million (US$100.59 million). The three-year SDR 104.4 million (about US$160.91 million) Extended Credit Facility arrangement with Tajikistan was originally approved by the IMF’s Executive Board on April 21, 2009 and subsequently augmented on June 7, 2010 (see Press Releases No. 09/136 and No. 10/230. Tajikistan has joined many other Central Asian countries on the path to economic recovery. An improving external environment, an upswing in inward remittances, and favorable climatic conditions (leading to an increase in hydroelectricity production) helped Tajikistan recover from the slowdown of 2009. Inflation has been low for most of the year, and although now rising, is expected to remain in single digits in 2010. Barring new shocks, the recovery should continue to take root in the remaining months of 2010 and into 2011. Program performance through the first half of 2010 has been good. Despite a notable shock to VAT on imports, the government was able to boost domestic tax revenue and limit the shortfall in overall tax collections. Social spending through June fell short of expectations, however, and addressing this shortfall should be a priority for the remainder of the year given the high incidence of poverty and pressing social needs. The overall fiscal deficit target for 2011 (at 1 percent of GDP) is appropriate, given pressing social and infrastructure needs. Over the medium term, the fiscal accounts (excluding the foreign-financed public investment program) will need to be broadly in balance to preserve fiscal and debt sustainability, as well as ease pressures on the balance of payments. On monetary policy, provision of liquidity support to commercial banks has been important during the economic downturn but should be phased out as conditions improve. Exchange rate flexibility will also be necessary to ensure orderly adjustment while continuing to build foreign exchange reserves. Good progress on structural reform has been made in a number of areas, but it is important to maintain momentum—particularly with respect to measures on transparency in the state enterprise sector. Addressing underlying weaknesses in this sector, moving expeditiously in implementing the cotton debt resolution, strengthening the financial system, and pressing ahead with public financial management and revenue reforms will be essential to ensuring high and sustained rates of economic growth. Continued successful program implementation under the ECF arrangement will help to strengthen Tajikistan’s resilience to external shocks, improve the prospects for stable and sustained economic growth and poverty reduction, and help to mobilize external support. 61 1 The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality. Financing under the ECF carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years (http://www.imf.org/external/np/exr/facts/ecf.htm). The Fund reviews the level of interest rates for all concessional facilities every two years. 2 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions. IMF EXTERNAL RELATIONS DEPARTMENT Public Affairs Media Relations Phone: 202-623-7300 Phone: 202-623-7100 Fax: 202-623-6278 Fax: 202-623-6772 62 Annex 5: Relations with the International Monetary Fund (As of May 4, 2011) Country Director: Mr. Motoo Konishi Country Economist: Mr. Salman Zaidi Partnership in Tajikistan’s Development Strategy 16. The Bank’s Country Partnership Strategy discussed by the Bank’s Board of Executive Directors on May 25, 2010, aims at reducing the negative impact of the crisis on poverty and vulnerability, and paving the way for sustained post-crisis recovery and sustained development. It supports the implementation of Tajikistan’s Third Poverty Reduction Strategy for 2010–2012 that was formally approved by the Government of the Republic of Tajikistan in February 2010. 17. Tajikistan has been badly affected by the 2008/09 global economic crisis. The economy, which had been growing strongly during from 2000–08, grew by an estimated 3.4 percent in 2009, due to a sharp decline in remittances and a fall in exports of cotton and aluminum. Remittances, which accounted for nearly 47 percent of gross national product (GDP) in 2008, declined in 2009 by nearly 31 percent from US$2.4 billion in 2008 to US$1.6 billion in 2009 (see Figure 1). Exports of goods and services fell by 18.3 percent, due to lower international prices of cotton and aluminum. Revenues (excluding grants) diminished substantially from 2008 levels. At the same time, expenditures rose to provide essential services to the population and to returning migrants who have lost their jobs abroad rose. Budget support from development partners helped to make up the revenue shortfall, resulting in an overall fiscal deficit in 2009 of –0.5. While affected by the global economic downturn, Tajikistan’s performance was better than that of any other country in the region, and significantly exceeded expectations at the start of 2009. 18. To restore growth to the previous robust levels, Tajikistan now needs to undertake much deeper structural reforms to improve the business climate, strengthen the financial sector, promote agricultural diversification, enhance transparency and governance of large state-owned enterprises, better public financial management, and strengthen regional trade. Growth in non-cotton agriculture and related agribusinesses following institutional reforms, a restoration of the inflow of remittances as the Russian economy recovers, increased trade with other countries in the region and the world, and carefully sequenced investments in hydropower infrastructure have the potential to support strong growth over the long term. 19. The IMF has taken the lead in assisting Tajikistan in enhancing macroeconomic stability. The Fund has encouraged the authorities to continue with fiscal consolidation, maintain a restrictive monetary policy, and manage debt prudently to enhance its sustainability. 20. The World Bank has taken the lead in the policy dialogue on structural issues, including reforms aimed at reducing poverty, promoting agricultural diversification and growth, encouraging private sector investment, building public sector capacity, creating transparent public financial management, and improving governance. The Bank has been supporting policy dialogue through policy based lending. Following the successful completion of the first series of Programmatic Development Policy Operations (PDPG) in 2009, the Bank is preparing a new series of three operations with the first expected to be presented to the Bank’s Board for approval in June 2010. The development objectives of the programmatic series are to protect basic services within a sustainable fiscal framework, and to lay the 63 foundation for post-crisis recovery and growth. The series is providing support for reforms to improve the investment climate and to improve public sector effectiveness. 21. The development policy operations complement support of investment projects and technical assistance in health, education, municipal infrastructure, energy, agriculture and rural development, public financial management, and public sector reform. The Bank in collaboration with other development partners also undertakes analytical work to provide the basis for policy dialogue and for investment operations. The most recent Bank work is the Country Economic Memorandum (CEM 2010). Tajikistan: Collaboration of the World Bank and the IMF Specialized Advice Specialized Advice Area Key Instruments from Fund from Bank Economic Monetary policy, Economic growth, IMF: ECF Dialogue on Framework/ exchange rate, fiscal, economic statistics performance criteria and Management and trade policies, benchmarks on monetary and economic statistics fiscal targets for fifth and sixth ECF reviews. Bank: PDPG and Strengthening National Statistics System Project (under implementation). Budget Medium-term budget Budget management, IMF: Dialogue on performance framework, tax and debt management and criteria on overall fiscal balance, customs policy and statistics, public including the public investment administration, and expenditure and program. Structural benchmark treasury and debt financial on treasury development. Tax management management reform. Policy, TA, DSA. Debt management Bank: PDPG, Public Sector Reform Project (PSRP), Public Financial Management Modernization Project (both under implementation), and external audit. DSA Public Sector SOEs fiscal risks Civil service reform, IMF: Dialogue. Following up on Reform public sector wage TALCO, Bardi Tajik, Roghun reform, public Fund, Tariff and Cost Recovery. administration Bank: PDPG and PSRP, reform, health and Education Modernization education financing Project, Community and Basic Health Project and Education for All Fast Track Initiative Catalytic Fund Grant (all under implementation). Private and Bank supervision; Investment climate, IMF: Dialogue. Financial development of the developing and Bank: PDPG, Land Registration Sector interbank market and implementing the and Cadastre Project, Development increasing competition private sector Community Agriculture and in the banking sector. development strategy, Watershed Management Project, 64 farmland Cotton Sector Recovery Project, restructuring, Ferghana Valley Water Project, financial sector (all under implementation). reform. TA for Private Sector Development Strategy under implementation with grant funding from the IDF. A grant from FIRST financial sector reform, including reform of NBT, is under implementation. Other Sectors Reforms in Bank: PDPG, Education agriculture, energy, Modernization, Community and health, education, Basic Health, Avian Flu, water and sanitation, Municipal Infrastructure environment, Development, Energy Loss infrastructure. Reduction, Pamir Private Power, Dushanbe Water Supply, Land Cadastre, Ferghana Valley Water, Cotton Sector Modernization Projects (all under implementation). Rural Investment Climate Study (with DFID TF). World Bank Collaboration in Specific Areas Areas in which the World Bank leads and there is little direct IMF involvement 22. Areas in which the Bank leads and there is little direct IMF involvement include the social sectors, infrastructure, and environmental management. In the social sphere, the Bank has carried out regular poverty assessments to monitor poverty and develop programs to alleviate poverty, the most recent of which was issued in November 2009. Under the Strengthening National Statistics System Project, data collection of a new living standards survey was completed in 2009; analysis of the results is underway. 23. In education, the Bank is providing policy advice and investment resources. The ongoing Education Modernization Project (fiscal 2003) aims to upgrade the basic education system by supporting reforms in education financing and management, curriculum and textbooks development; teacher training and student assessment improvement, and upgrading school facilities. Tajikistan has also received grant funding from the Education for All Fast Track Initiative catalytic fund, administered by the Bank. Key issues in education, apart from infrastructure rehabilitation and capacity building, are pay reform, and education financing reform, and implementation of measures to improve efficiency of resource use. Assistance to this sector will continue through the PDPG, a multi-donor education investment program, and the Public Sector Reform Program. The Bank is also helping with wage reform in education through the PDPG. Jointly with the UNICEF the Bank assists the government in the overall national education strategy formulation. 24. In health, the Bank is helping the government to improve the effectiveness and efficiency of delivery—both of which are aimed at ensuring the poor access to a basic level of services. Through the Community and Basic Health Project and the PDPG, the Bank is helping to strengthen the institutional 65 capability (both at the center and district levels) to carry out health care reforms, to improve the system for budgeting and spending for basic health services, and pay reform. It is also supporting programs to prevent the spread of HIV/AIDS, malaria, and other communicable diseases. The Avian Fluenza Control and Human Pandemic Preparedness and Response is minimizing the threat of highly pathogenic avian influenza infection and other zoonoses posed to humans and poultry; and preparing for control and respond to influenza pandemics and other infectious disease emergencies in humans. 25. With regard to infrastructure development, the Bank is concentrating on upgrading basic utility services for the population as a whole and especially the poor. The Dushanbe Water Supply Project is helping the Dushanbe municipality and the local water company to address the most critical deficiencies of water supply services. The Pamir Private Power Project is supporting improvements in reliability of electricity supply in the Gorno Badakshan region with participation of the private sector. The Energy Loss Reduction Project is helping to reduce commercial losses and improve the financial viability of the power and gas sectors. The Bank has also been leading policy dialogue (under the PDPG) on increasing efficiency/viability to ensure long-term growth prospects of the energy sector. The Municipal Infrastructure Project is providing support to improve urban infrastructure in big towns. 26. In agriculture, the Bank is concentrating on restructuring farmland, rehabilitating irrigation and drainage infrastructure, and reforming the cotton sector. The PDPG is leading the dialogue on farmland restructuring and cotton debt resolution. The Land Registration and Cadastre Project is assisting the government with the issuance of land certificates, and establishment of a modern cadastre system. The Ferghana Valley Project aims to increase water supply and efficiency of irrigation systems in the Ferghana Valley, and develop institutional capacity in land and water resources management. The Cotton Sector Recovery Project is helping to improve the livelihoods of cotton farmers and to create conditions for sustainable growth of cotton production in selected, low-income areas. The Community Agriculture and Watershed Management Project is improving agricultural livelihoods and sustainable land management in upland areas. 27. The Bank is supporting measures to improve environmental management and to deal with natural disasters through all its investment projects. A 2008 Country Environmental Analysis has highlighted the country’s most severe environmental issues and proposed measures to strengthen the legal and institutional framework for addressing them. 28. The Bank also supported the government in coping with emergencies. The Energy Emergency Project assisted the government in implementing an Energy Emergency Mitigation Action Plan to address the energy crisis in 2008 due to the harshest winter in 25 years. Through the Global Food Price Crisis Response Trust Fund, the Emergency Food Security and Seed Imports Project and Community and Basic Health Project Additional Financing assisted the government in mitigating the impacts of food prices crisis in 2008. Areas in which the World Bank leads and its analysis serves as input into the IMF program 29. The Bank leads the dialogue on structural reforms through the PDPG series. Institution building and technical assistance in support of PDPG structural reforms come from several sources, including the Public Sector Reform Program, the Education Modernization Project, the Fast Track Initiative Catalytic Grant, and the Community and Basic Health Project. 30. The Bank and the Fund both support private sector development, including in the areas of financial transparency and improvements in the regulatory framework. The Bank is preparing a Country Economic Memorandum to identify the key constraints to growth and propose solutions to overcome them. The Bank Group has also undertaken investment climate assessments, small and medium 66 enterprise surveys, and agriculture sector reviews to deepen understanding of issues affecting performance in specific areas. Tajikistan has participated in Doing Business surveys and in Business Environment and Enterprise Performance surveys since the mid-2000s. These provide insight into trends within Tajikistan to improve the business environment and show how Tajikistan is performing relative to other countries of the region. The Bank has supported the preparation of the government’s private sector development strategy, which is now under implementation with support of an Institutional Development Fund grant. 31. Regulatory reforms include (a) changing role of anti-monopoly agency and further strengthening its capacity, (b) improving the inspection regime for businesses; and (c) streamlining the licensing and permitting systems. In addition, under the PDPG, the Bank is assisting with reforms aimed at fostering competitive, convenient, and safe aviation services. It has supported the preparation and adoption of the national aviation sector policy. Previously, it assisted with separating in aviation the functions of policymaking, technical regulation, and accident investigation, with the aim of increasing the transparency and performance of operations. It is has also helped with the restructuring the Tajik Air Company aimed at creating separate entities to operate the airport, airline, and air traffic control system. This aviation sector reforms are expected to increase the competitiveness of Tajikistan’s aviation sector, with benefits for economic growth and poverty reduction. 32. While the Bank has taken the lead in privatization and in structural reforms in the private sector, the IMF has also a strong interest in these areas, since many of these reforms are critical to achieving macroeconomic stabilization and enhancing growth. Accordingly, the two institutions maintain an active dialogue with each other on these matters to ensure good coordination of interventions. Areas of shared responsibility 33. The Bank and the Fund are working jointly in the following four main areas (supported by the Bank’s PDPG, grants, and several investment operations, and the Fund’s Extended Credit Facility):  Public sector management. The Bank has provided technical support to the government to develop a comprehensive public administration reform strategy. It includes policy actions in public administration reforms aimed at redefining the role of the state in line with the market economy needs, reorganizing key ministries, strengthening the internal control and audit function, and supporting the pay reform. The Bank is involved in civil service reform while the Fund is providing technical assistance in support of tax and customs administration and treasury management.  Public financial management. Both institutions work on providing support for a treasury, adoption of new law on public finances introducing modern budgetary procedures and improved fiscal management, and switching from norm-based costing and allocation of expenditures to per capita based financing in education and health sectors. The Bank will continue to provide technical support and mobilize donor funds to implement the medium-term budget framework. The Bank will also continue to support reform of public financial management through the PDPG, Institutional Development Fund grants, and the Public Financial Management Modernization Program. Both institutions work on Tax Policy and Administrative issues.  Financial sector reforms. This area includes the acceleration of financial sector restructuring and closure of weak banks, a new regulatory framework for the establishment of non-bank intermediaries, and significant changes in the tax code making tax authorities’ access to bank accounts conditional on a court authorization. In terms of banking supervision, the IMF is monitoring the closure and merger of banks that do not satisfy prudential requirements. A 67 Financial Sector Assessment Program (the country’s first), carried out jointly by the Bank and the Fund, was discussed with the authorities in late 2007. The Bank is administering a grant from the FIRST trust fund to support implementation of the assessment’s recommendations, especially reforms at the National Bank of Tajikistan and for resolution of problem banks.  Utilities reform. The Fund included in its program supported under the Extended Term Facility a structural benchmark on preparing and releasing to the public external audits of the financial statements of Talco, the state-owned aluminum company, and Talco Management. The Bank is providing financial assistance to help Barki Tajik and Tajiktransgas to improve its financial management. It is also assisting repair the electricity and gas transmission system, to import the energy needed to meet periodic winter shortfalls, and to help implement the Energy Emergency Action Mitigation Plan. The Bank-supported Energy Loss Reduction Project is supporting implementation of reforms.  Debt sustainability analysis: The Bank and the IMF have started carrying out joint debt sustainability analyses (DSA). The most recent update was prepared in March 2010. Areas in which the IMF leads and its analysis serves as input into the World Bank program 34. The Fund leads the dialogue on fiscal matters, setting the overall envelope for public expenditures. The Bank’s work in key sectors, such as health, education and infrastructure, necessitates close cooperation. 35. In the budgetary area, the Fund is taking the lead on tax reforms and budget preparation and execution. The IMF also leads the dialogue on polices to rationalize and contain expenditures in the public sector. These include policies regarding wage setting in both the public service, and defining the ceiling for public investment expenditures. In these areas, the Bank takes into account the policy recommendations of the IMF and ensures that its own policy advice is consistent with the Fund’s. Areas in which the IMF leads and there is no direct World Bank involvement 36. The Fund takes the lead in the formulation and execution of fiscal and monetary policies, tax policy, external trade policies, and issues involving economic and financial statistics. The Bank-financed Strengthening National Statistics System Project is improving Tajikistan’s capacity to collect, analyze, and disseminate key information required for evidence-based decision-making. 68 Annex 6: Tajikistan at a Glance Tajikistan at a glance 5/2/11 Euro pe & Ke y D e v e lo pm e nt Indic a t o rs Central Lo w Tajikistan A sia inco me Age distribution, 2009 (2009) Male Female P o pulatio n, mid-year (millio ns) 7.0 403 828 75-79 Surface area (tho usand sq. km) 143 23,549 17,838 P o pulatio n gro wth (%) 1.7 0.3 2.2 60-64 Urban po pulatio n (% o f to tal po pulatio n) 26 64 28 45-49 30-34 GNI (A tlas metho d, US$ billio ns) 4.9 2,772 389 GNI per capita (A tlas metho d, US$ ) 700 6,880 470 15-19 GNI per capita (P P P , internatio nal $ ) 1,950 13,297 ,1 1 31 0-4 10 5 0 5 10 GDP gro wth (%) 3.8 4.0 6.2 GDP per capita gro wth (%) 2.1 3.6 3.9 percent of total population ( m o s t re c e nt e s t im a t e , 2 0 0 3 – 2 0 0 9 ) .25 P o verty headco unt ratio at $ 1 a day (P P P , %) 21 4 .. Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 51 9 .. Life expectancy at birth (years) 67 69 57 140 Infant mo rtality (per 1,000 live births) 52 20 77 Child malnutritio n (% o f children under 5) 15 .. 28 120 100 5 A dult literacy, male (% o f ages 1 and o lder) 100 99 73 80 5 A dult literacy, female (% o f ages 1 and o lder) 100 97 59 60 Gro ss primary enro llment, male (% o f age gro up) 104 100 107 40 Gro ss primary enro llment, female (% o f age gro up) 100 98 100 20 0 A ccess to an impro ved water so urce (% o f po pulatio n) 70 95 64 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 94 89 35 1990 1995 2000 2008 Tajikistan Europe & Central Asia a N e t A id F lo ws 19 8 0 19 9 0 2000 2009 (US$ millio ns) Net ODA and o fficial aid .. 12 124 291 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2008): United States .. 10 23 60 15 Euro pean Co mmissio n .. 0 13 31 10 5 Germany .. 0 3 22 0 -5 A id (% o f GNI) .. 0.6 15.0 5.7 -10 -15 A id per capita (US$ ) .. 2 20 43 -20 -25 Lo ng- T e rm E c o no m ic T re nds -30 -35 Co nsumer prices (annual % change) .. 203.6 32.9 6.5 95 05 GDP implicit deflato r (annual % change) .. 6.2 22.7 12.2 GDP GDP per capita Exchange rate (annual average, lo cal per US$ ) .. 0.0 2.1 4.1 Terms o f trade index (2000 = 100) .. 63 100 21 19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 0 9 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 4.0 5.3 6.2 7.0 2.9 1.5 1.3 GDP (US$ millio ns) .. 2,629 861 4,982 2.0 -10.4 8.5 (% o f GDP ) A griculture .. 33.3 27.4 21.1 -2.8 -6.5 8.2 Industry .. 37.6 38.9 24.5 5.5 1 -1 .4 4.0 M anufacturing .. 24.8 33.7 12.3 5.6 -12.3 3.9 Services .. 29.1 33.7 54.4 3.4 -10.8 12.8 Ho useho ld final co nsumptio n expenditure .. 73.8 76.8 1 0.9 1 .. -8.1 6.6 General go v't final co nsumptio n expenditure .. 8.7 8.3 9.7 4.1 -12.6 1.6 Gro ss capital fo rmatio n .. 24.8 9.4 18.8 1.7 -20.9 2.7 Expo rts o f go o ds and services .. 71.4 98.8 15.1 .. -5.3 9.5 Impo rts o f go o ds and services .. 92.6 100.9 54.4 .. -6.0 10.6 Gro ss savings .. 17.5 15.2 12.8 No te: Figures in italics are fo r years o ther than tho se specified. 2009 data are preliminary. .. indicates data are no t available. a. A id data are fo r 2008. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 69 Tajikistan B a la nc e o f P a ym e nt s a nd T ra de 2000 2009 (US$ millio ns) Governance indicators, 2000 and 2009 To tal merchandise expo rts (fo b) 788 408 To tal merchandise impo rts (cif) 811 2,387 Voice and accountability Net trade in go o ds and services -19 -1,958 Political stability Current acco unt balance -16 -294 as a % o f GDP -1.9 -5.9 Regulatory quality Wo rkers' remittances and Rule of law co mpensatio n o f emplo yees (receipts) 79 1,748 Control of corruption Reserves, including go ld 87 278 0 25 50 75 100 C e nt ra l G o v e rnm e nt F ina nc e 2009 Country's percentile rank (0-100) higher values imply better ratings (% o f GDP ) 2000 Current revenue (including grants) 13.8 23.4 Tax revenue 1 3.1 17.6 Source: Kaufmann-Kraay-Mastruzzi, World Bank Current expenditure 12.6 14.6 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2008 Overall surplus/deficit -5.6 -5.2 P aved ro ads (% o f to tal) .. .. Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual .. .. 00 subscribers (per 1 peo ple) 4 58 Co rpo rate .. .. High techno lo gy expo rts (% o f manufactured expo rts) 41.8 .. E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 1,269 2,598 A gricultural land (% o f land area) 33 33 To tal debt service 137 179 Fo rest area (% o f land area) 2.9 2.9 Debt relief (HIP C, M DRI) – – Terrestrial pro tected areas (% o f surface area) .. 13.7 To tal debt (% o f GDP ) 147.5 52.1 Freshwater reso urces per capita (cu. meters) 10,506 9,699 To tal debt service (% o f expo rts) 16.0 7.5 Freshwater withdrawal (billio n cubic meters) 12.0 .. Fo reign direct investment (net inflo ws) 24 16 CO2 emissio ns per capita (mt) 0.69 1.1 P o rtfo lio equity (net inflo ws) 0 0 GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 2.2 2.9 Composition of total external debt, 2009 Energy use per capita (kg o f o il equivalent) 462 580 Short-term, 46 IDA,0373 IBRD, IMF, 73 Wo rld B a nk G ro up po rt f o lio 2000 2009 Private, 906 (US$ millio ns) Other multi- lateral, 440 IB RD To tal debt o utstanding and disbursed 0 0 Disbursements 0 0 P rincipal repayments 0 0 Bilateral, 760 Interest payments 0 0 US$ millions IDA To tal debt o utstanding and disbursed 143 373 Disbursements 8 8 P riv a t e S e c t o r D e v e lo pm e nt 2000 2009 To tal debt service 0 6 Time required to start a business (days) – 38 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 24.3 To tal disbursed and o utstanding po rtfo lio 13 10 Time required to register pro perty (days) – 37 o f which IFC o wn acco unt 13 10 Disbursements fo r IFC o wn acco unt 0 3 Ranked as a majo r co nstraint to business 2000 2009 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 1 1 Tax rates .. 22.0 Tax administratio n .. 22.0 M IGA Gro ss expo sure – – Sto ck market capitalizatio n (% o f GDP ) .. .. New guarantees – – B ank capital to asset ratio (%) .. .. No te: Figures in italics are fo r years o ther than tho se specified. 2009 data are preliminary. 5/2/11 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 70 Millennium Development Goals Tajikistan With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) T a jik is t a n G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2008 .25 P o verty headco unt ratio at $ 1 a day (P P P , % o f po pulatio n) .. .. 44.5 21.5 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. .. 74.9 53.5 Share o f inco me o r co nsumptio n to the po o rest qunitile (%) .. .. 8.1 7.8 P revalence o f malnutritio n (% o f children under 5) .. .. .. 14.9 G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) .. .. 96 97 P rimary co mpletio n rate (% o f relevant age gro up) .. 99 95 98 Seco ndary scho o l enro llment (gro ss, %) 102 81 74 84 Yo uth literacy rate (% o f peo ple ages 1 5-24) 100 .. 100 100 G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) .. .. 89 91 Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) .. 40 40 37 P ro po rtio n o f seats held by wo men in natio nal parliament (%) .. 3 3 18 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 1 17 1 14 94 64 Infant mo rtality rate (per 1,000 live births) 91 89 75 54 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 68 70 88 86 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) 120 170 120 64 B irths attended by skilled health staff (% o f to tal) .. 79 71 88 Co ntraceptive prevalence (% o f wo men ages 1 5-49) .. .. 34 37 G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) .. 0.1 0.1 0.3 Incidence o f tuberculo sis (per 100,000 peo ple) 92 92 120 200 Tuberculo sis case detectio n rate (%, all fo rms) 50 38 39 47 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) .. 58 60 70 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. 89 90 94 Fo rest area (% o f to tal land area) 2.9 2.9 2.9 2.9 Terrestrial pro tected areas (% o f surface area) .. .. .. 13.7 CO2 emissio ns (metric to ns per capita) 4.5 0.9 0.7 1.1 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) 2.9 2.0 2.2 2.9 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt 00 Telepho ne mainlines (per 1 peo ple) 4.5 4.5 3.5 4.2 00 M o bile pho ne subscribers (per 1 peo ple) 0.0 0.0 0.0 53.7 00 Internet users (per 1 peo ple) 0.0 .. 0.0 8.8 00 P erso nal co mputers (per 1 peo ple) .. .. .. 1.3 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 70 100 60 75 50 75 40 50 50 30 25 20 25 0 10 2000 2002 2004 2006 2008 0 0 1990 1995 2000 2008 2000 2002 2004 2006 2008 Primary net enrollment ratio Fixed + mobile subscribers Ratio of girls to boys in primary & secondary Tajikistan Europe & Central Asia education Internet users No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 5/2/11 71 Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 68°E 70°E Rayons KAZAKHSTAN 1 2 Tursunzoda Shahrinav 20 21 Murghob Nosir Khusrav 39 Kulob 40 Baljuvon 41 Moskva TAJ IK ISTAN 3 Rudaki 22 Shahrituz 42 Shurobod SELECTED CITIES AND TOWNS 4 Hissor 23 Qabodiyon 43 Khovaling AUTONOMOUS OBLAST CENTER* 5 Varzob 24 Jilikul 44 Muminobod 6 Fayzobod 25 Khuroson 45 Pandjakent OBLAST CENTERS To 7 Vahdat 26 Qumsangir 46 Ayni Tashkent NATIONAL CAPITAL TAJIKISTAN 8 Roghun 27 Bokhtar 47 Shahriston 9 Nurobod 28 Kolkhozobod 48 Zafarobod MAIN ROADS To 57 Andijon 10 Rasht 29 Jomi 49 Istaravshan RAILROADS Fergana 11 Tojikobod 30 Vakshs 50 Ghonchi To Valley Dary UZBEKISTAN JAMOAT (SUB-DISTRICT) BOUNDARIES a 12 Tavildara 31 Yovon 51 Spitamen Tashkent Taboshar r 52 Sy To 13 Jirgatol 32 Sarband 52 Matchin Andijon RAYON (DISTRICT) BOUNDARIES 55 14 Darvoz 33 Panj 53 Jabor Rasulob Kayrakkum 15 Vanj 34 Danghara 54 Kuhistoni Mastchoh AUTONOMOUS OBLAST BOUNDARY* Khodjand Reservoir Konibodom 16 Ishkoshim 35 Farkhor 55 Ghafurov Chkolovsk 56 OBLAST BOUNDARIES 17 Roshtqala 36 Norak 56 Konibodom To 48 51 53 58 18 Rushon 37 Vose 57 Asht INTERNATIONAL BOUNDARIES 40°N Bukhoro 49 19 Shughnon 38 Sovet 58 Isfara 40°N Ura- To * Area with no oblast-level administrative divisions, SOGD Tyube Kyzyl-Kiya 72°E where rayons are under direct republic jurisdiction. To REGION 50 KY RGY Z REP. Bukhoro 47 74°E To To Sary-Tash Osh 0 20 40 60 80 Kilometers an Pendzhikent Zeravsh Ayni 54 45 ge 46 i- Ran Jirgatal' 13 Pik Lenin 0 20 40 60 Miles Ala (7134 m ) 10 Tr ans Rasht Pik Imeni Lake 11 Ismail Samani Karakul' (7495 m ) Komsomolabad 5 7 9 12 Region under 4 8 direct Republic Obigarm GHORNO- 1 DUSHANBE 14 subordination 2 6 BADAKHSHAN Rangkul' 40 Kalaikhum Pik Revolution Nurek 43 Vanj 15 (6,974 m) A.O. CHI N A UZ B E K IS TAN 36 P ng Rukhch 20 3 a ta Murgab Murgab r 31 m Ba j Pan 44 25 38 i Lake Sarezskoye 38°N 38°N 34 18 r 29 Kulyab 39 s 32 42 Ak 27 Kurgan- ksu 37 To Tyube Alichur Qarshi 41 24 30 Moskovskiy 22 19 Garavuti 35 Pamir 28 Khorog 23 KHATLON Shahrtuz 26 33 REGION h Pyanj Vakhs 21 Andarob Pik Karl Marx (6723 m ) 17 Vrang nj To Pa Baghlan 16 Ishkashim IBRD 33493R AF GHA NISTA N This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information MAY 2007 PAKISTAN shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any 68°E 70°E 72°E endorsement or acceptance of such boundaries. The original had problem with text extraction. pdftotext Unable to extract text.