TAJIKISTAN Country Economic Update Fall 2020 Economic Slowdown Amid the Pandemic Macroeconomics, Trade & Investment Global Practice TAJIKISTAN Country Economic Update Fall 2020 Economic Slowdown Amid the Pandemic Macroeconomics, Trade & Investment © 2020 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to: World Bank Publications The World Bank Group 1818 H Street NW Washington, DC 20433, USA Fax: 202-522-2625 Pre-press: alexpublishers.ru TABLE OF CONTENTS Foreword...........................................................................................................................................................................4 I. OVERVIEW.....................................................................................................................................................................6 II. ECONOMIC GROWTH AND INFLATION.............................................................................................................7 III. CURRENT ACCOUNT, EXPORTS, AND FDI......................................................................................................9 IV. FISCAL AND DEBT POLICIES...............................................................................................................................11 V. MONETARY POLICY AND FINANCIAL SECTOR.............................................................................................13 VI. ECONOMIC OUTLOOK AND RISKS...................................................................................................................15 VII. FOCUS SECTION: ECONOMIC AND SOCIAL IMPACTS OF COVID-19.................................................17 Annex 1. Selected Macroeconomic and Social Indicators, 2017–22.............................................................22 Figures Figure 1: Sector Contribution to Growth..................................................................................................................7 Figure 2: Consumer Price Inflation............................................................................................................................8 Figure 3: Credit and Deposit.......................................................................................................................................13 Figure 4: Non-performing Loans and Capital........................................................................................................13 Figure 5: No Household Member Working............................................................................................................17 Figure 6: Financial Situation Worse than 10 Days Ago.......................................................................................17 Figure 7: Change in Vacancies (Base: March 1).....................................................................................................18 Figure 8: Expect Falling Remittances.......................................................................................................................18 Figure 9: Received Remittances (Past 10 Days) ...................................................................................................19 Figure 10: Reduced Food Consumed......................................................................................................................19 Figure 11: Hunger Situation...........................................................................................................................................20 Figure 12: Changing Household Routines in Response to COVID-19...........................................................20 Figure 13: COVID-19 Information Sources ..............................................................................................................21 Figure 14: Sources of Official Information ............................................................................................................21 Tables Table 1: Contributions to Real GDP Growth............................................................................................................8 Table 2: Balance of Payments....................................................................................................................................10 Table 3: Consolidated Fiscal Accounts...................................................................................................................12 Table 4: Baseline Scenario: Selected Macroeconomic Indicators.................................................................16 4 FOREWORD This edition of the Tajikistan Country Economic Update (CEU) is part of a semi-annual series designed to monitor Tajikistan’s socio-economic developments. This CEU presents an analysis of the economic and social developments in 2020. It also includes a special Focus section highlighting the Economic and Social Impacts of COVID-19, based on the Listening to Tajikistan Survey. This edition’s main author is Bakhrom Ziyaev (Economist for Tajikistan). William Hutchins Seitz (Senior Economist) and Alisher Rajabov (Poverty Economist) prepared the Focus section. The authors are grateful for the guidance and comments provided by Jan-Peter Olters (Country Manager for Tajikistan) and Ivailo Izvorski (Lead Economist for Central Asia). Idibek Rahimov (Program Assistant in Dushanbe) and Sarah Nankya Babirye (Program Assistant in Washington, D.C.) provided administrative support. Nigina Alieva helped with the dissemination of the report. Sandeep Mahajan Practice Manager Macroeconomics, Trade and Investment Global Practice 5 ABBREVIATIONS AND ACRONYMS Government Fiscal Year: January 1–December 31 Currency Unit: Tajikistan Somoni (TJS) Currency Equivalents: Official Exchange Rate Effective on November 10, 2020 US$1 = 11.30 TJS Weights and Measures: Metric System ADB Asian Development Bank EFSD Eurasian Fund for Stabilization and Development FDI Foreign Direct Investment IFI International Finance Institution IMF International Monetary Fund L2T Listening to Tajikistan MOF Ministry of Finance of the Republic of Tajikistan NBT National Bank of Tajikistan TajStat Tajik agency on Statistics, under the President of the Republic of Tajikistan TJS Tajik Somoni 6 I. OVERVIEW COVID-19 slowed The COVID-19 pandemic had a significant adverse impact on the Tajik econ- down economic omy. Real GDP growth slowed to 4.2 percent year-on-year in the first nine growth and created months of 2020, compared to 7.2 percent a year earlier. Restrictions on labor social and health mobility and economic activity at home and abroad resulted in lower migrant pressures remittances, weaker consumer demand, and reduced investments. Although exports enjoyed a record global demand for gold, the domestic market col- lapsed, suggesting a more severe impact of COVID-19 on domestic jobs and incomes. A growing share of the population reported reducing their food con- sumption, and the inability of previously returned migrants to travel abroad led to a significant increase in the unemployment rate. The healthcare system faces unprecedented pressure to accommodate a sudden influx of patients. International financial institutions and partner countries rushed with financial and in-kind aid to help Tajikistan contain the pandemic’s impact. The authorities In an effort to ameliorate the economic fallout, the authorities deferred tax col- responded by lections, boosted health and social spending, and eased monetary policy. They adopting counter- established an interagency task force to address health challenges emerging cyclical fiscal and from the pandemic. The government amended the 2020 state budget, sub- monetary policies stantially increased healthcare expenditure, and expanded social assistance transfers to the population. Deferred tax payments and postponement of the administrative price increases provided liquidity support to firms and house- holds. The government honored its commitment to increasing public sector wages and pensions since September 2020. The monetary authorities cut the policy rate and asked banks to restructure loans and waive penalties for cor- porate and individual borrowers facing financial difficulties. Inflation declined from its peak at the onset of the pandemic but is expected to increase by the end of 2020, reflecting the exchange rate’s depreciation. A protracted The economy is expected to gradually bounce back in 2021-22, assuming pandemic and the availability and distribution of a vaccine, and a restoration of remittances structural constraints inflows and international trade. Inflationary and exchange rate pressures are risk undermining projected to moderate as import prices subside and foreign exchange inflows growth prospects edge up. With support from development partners, the government is expect- ed to continue shoring up healthcare and social protection systems. On the downside, intensification of the pandemic and prolonged restrictive measures would diminish growth prospects. High dependence on commodity exports and remittances magnifies exposure to external risks. Domestic risks primarily reflect limited fiscal space, inefficient SOEs, and challenges in the business environment. The risk of increasing borrower defaults may impair the financial system’s sound functioning, and an unexpected upsurge in infections could create additional stress on the country’s social and health situations. 7 II. ECONOMIC GROWTH AND INFLATION Economic activity After a significant slowdown in the Figure 1: Sector Contribution to Growth picked up after the second quarter of the year, economic (Annual percent) easing of movement growth accelerated in mid-summer after restrictions the ease of lockdown measures, leading to a pickup in economic activity. Accord- ing to official estimates, real GDP growth reached 4.2 percent (y/y) through nine months of 2020 compared to 3.5 per- cent in January-June 2020 and 7.2 per- cent in January-September 2019. While household consumption continued to suffer from a weak inflow of migrant remittances, public and private invest- ments fell compared to their pre-pan- demic levels. In the first nine months of 2020, GDP growth primarily benefit- ed from the export of precious metals, whereas domestic demand collapsed by about 4 percent (y/y) compared to last Source: TajStat and World Bank staff calculations. year’s same period. This suggests that the pandemic’s hit on domestic incomes and jobs was more severe than on the GDP growth rate. In 2020, a growing share of the population is projected to fall into poverty. Hospitality and The agricultural and industrial sectors were the largest contributors to growth tourism experienced in the first nine months of 2020. Despite locust invasion in the country’s south- the most severe hit ern regions, agriculture grew by 8.1 percent (y/y). Favorable weather condi- from the pandemic tions, new arable land development, and growing production capacity in the poultry sector helped boost total sector output. Industrial production grew by 10.7 percent (y/y), supported by food processing and metallurgical indus- tries, which rose by 25.9 percent (y/y) and 23.3 percent (y/y), respectively. The impact of the pandemic on the services sector was severe. In January-Sep- tember 2020, hotel occupation rates declined by 67 percent (y/y), restaurant services by 19.5 percent (y/y), and passenger turnover by 14.3 percent (y/y). On the other hand, banking, communication, and healthcare showed a jump compared to the previous year. The overall services sector grew by 1.1 per- cent (y/y). On the demand side, cuts to public investment and disruptions to foreign investments led to a drop in construction activity by 6.9 percent (y/y). More than half of construction is financed through the budget, a quarter by the domestic private sector, and about one-fifth by foreign investors. 8 Tajikistan. Economic Slowdown Amid the Pandemic Inflation steered Twelve-month inflation declined to 8.5 percent by October 2020 after a peak towards the target of 10.6 percent in April 2020. Favorable agriculture output and restrained ex- band port reduced yearly food inflation to 11.3 percent from 16.3 percent at the onset of the pandemic. On the other hand, disruptions to air and ground transpor- tation led to price hikes in non-food products, with annual inflation peaking at 5.5 percent in October 2020, compared to 4 percent in April 2020 and 4.8 percent a year earlier. In- flation rose sharply in phar- maceuticals and cleaning Figure 2: Consumer Price Inflation and disinfection products, (Annual percent) reflecting a sudden surge in 20 demand due to the pandem- ic. Administrative adjustments 15 in natural gas and electricity prices from the last year and 10 climbing prices in commu- nication services increased 5 overall services inflation to 5.1 percent (y/y). Although head- 0 Okt. 19 Nov. 19 Dec. 19 Jan.20 Feb. 20 20 20 20 Jun. 20 Jul. 20 20 Sep. 20 Okt. 20 дек.19 р.20 пр.20 окт.19 окт.20 фев.20 сен.20 вг.20 янв.20 й.20 ноя.19 июл.20 июн.20 line inflation moved towards Mar. а Apr. May Aug. -5 the central bank’s inflation tar- ма ма а get band of 6±2 percent, the Headline CPI Food exchange rate’s devaluation Non-food Services – by over 9 percent in early November – has created new Source: TajStat and World Bank staff calculations. inflationary pressures. Table 1: Contributions to Real GDP Growth Percentage points 2017 2018 2019 Jan-Sep 2020 Real GDP growth 7.1 7.3 7.5 4.2 Industry 3.6 2.2 2.6 2.1 Agriculture 1.6 0.9 1.5 2.1 Construction 0.5 0.8 -0.7 -0.6 Services 1.4 3.3 4.1 0.5 Source: TajStat and World Bank staff estimates. 9 III. CURRENT ACCOUNT, EXPORTS, AND FDI Surging gold exports Tajikistan’s external position improved in the first half of 2020, supported by narrowed the surging export prices for precious metals. The current account deficit narrowed external deficit to 1.8 percent of GDP during January-June 2020 compared to 7.6 percent of GDP a year earlier. Merchandise exports were up by 54.8 percent (y/y) in the first nine months of 2020, benefiting from the export of gold as the authorities took advantage of the strong global demand. In nominal terms, the export of precious metals reached US$ 690 million and comprised about 58 percent of the total exports basket. The export of mineral products and other primary commodities such as aluminum, cotton suffered from falling international pric- es. An insufficient level of water in the reservoir suppressed electricity gener- ation and sales to the neighboring countries. Merchandise exports excluding precious metals dropped by 22.4 percent (y/y) through January-September 2020. Total imports declined because of cuts in imports for public investment projects and muted consumer demand. While the government scrutinized in- vestments in the context of falling revenues, falling migrant transfers – at 14.8 percent (y/y) through mid-year1 – forced households to taper consumption. To- tal merchandise imports fell by 6.6 percent (y/y) in January-September 2020, mainly showing up in machinery and equipment, vehicles, and other consum- er goods. FDI substantially fell The COVID-19 had a drastic negative impact on the already low foreign direct investment. The volume of inward FDI fell by over 70 percent (y/y) to US$ 59.8 million, or 1.8 percent of GDP, in the first half of 2020. Mining, manufacturing, and financial intermediation saw the largest drop in FDI inflows. 1 According to Central Bank of Russia, individual transfers dropped by 39 percent (y/y) through January-June 2020. 10 Tajikistan. Economic Slowdown Amid the Pandemic Table 2: Balance of Payments (Percent of GDP)   2017 2018 2019 Jan-June 2020 Current account balance 2.2 -5.1 -2.3 -1.8 Merchandise trade -21.2 -25.5 -23.7 -21.9 Exports f.o.b. 12.2 11.8 12.3 17.8 Imports f.o.b. 33.4 37.3 36.0 39.7 Services -1.7 -2.9 -3.0 -4.1 Primary income 16.9 16.5 16.4 15.5 Secondary income 8.1 6.7 8.0 8.7 Capital Account 1.9 2.4 2.0 1.9 Financial Account 1/ -6.1 -2.8 -4.5 -10.4 Foreign direct investment, net -0.9 -3.4 -2.3 -0.4 Portfolio investment -7.0 0.0 0.9 0.0 Other capital flows 1.7 0.6 -3.0 -9.9 Errors and omissions -1.6 -3.6 -2.0 -2.7 Overall Balance 7.4 -3.6 2.2 7.7 Financing 7.4 -3.6 2.2 7.7 Reserve assets 7.4 -3.6 2.2 7.7 Credit and loans with the IMF 0.0 0.0 0.0 0.0 The exceptional financing (residual) 0.0 0.0 0.0 0.0 Memorandum items: Nominal GDP (US$ million) 7,162 7,406 8,117 3,240 Source: NBT and World Bank staff estimates 1/ Based on the BPM6 Methodology, a (+) denotes an increase in assets or a decline in liabilities; a plus sign on FDI, for example, shows net outflows of FDI. A (-) denotes an increase in liabilities – in this case, a minus sign on FDI shows net inflows of FDI. 11 IV. FISCAL AND DEBT POLICIES The budget shifted According to preliminary estimates, the authorities pursued a contractionary to a large deficit fiscal policy in the first nine months of 2020. Despite lower revenues, the gov- because of the ernment managed to consolidate the state budget by scaling up spending COVID-19 outbreak cuts in the maintenance and repair works, purchasing new equipment, and deferring low-priority projects. However, commensurate with mid-year amend- ments, budgetary spending is expected to escalate in the remaining part of the year, once disbursements accelerate and funds become available for the use of the Ministry of Finance. Because of higher spending on healthcare and social assistance programs, the amended 2020 state budget targets a fiscal deficit of 5.8 percent in 2020. Foreign budget In the first nine months of 2020, tax collections underperformed by tumbling support helped offset 3.7 percent (y/y). Nearly all tax receipts saw a drop led by profit and income the revenue shortfall taxes, value-added tax, and social contributions. Declining tax collections can be explained by the contraction of domestic demand and temporary fiscal reliefs granted to firms and households during the pandemic. The Tax Com- mittee reported that the agency could collect only 53 percent of the large tax- payers’ collection targets. Most turnover declines were observed in airports, airlines, and hotel and tourism companies. In nine months of 2020, tax arrears rose by TJS 440 million, reaching more than 1 billion somonis. Collections also under-performed in extra-budgetary funds and other non-tax revenues – down by 12-13 percent (y/y). In the first nine months of 2020, the government received TJS 515 million in budget support grants, which helped offset the shortfall in tax revenues. The budget While prioritizing budget expenditures, spending cuts mostly concerned the prioritized spending energy sector – down by 23.1 percent (y/y) – and the state administration – to strengthen down by 11.4 percent (y/y) – through January-September 2020. In contrast, healthcare and social the government propped up spending in healthcare by 19.6 percent (y/y) and protection systems social protection by over 9 percent (y/y) to build new medical capacities and support livelihoods. Since July, the authorities rolled out the targeted social assistance program to an additional 28 districts, covering the entire country. Eligible families received TJS 400 per year, which is expected to increase fur- ther to TJS 464. The government also provided a one-time COVID assistance of TJS 500 to the vulnerable groups of the population. Since September 1, 2020, public sector wages and pensions have increased by 10-15 percent with the previously envisioned plans. New borrowing The government financed the higher deficit related to COVID-19 by borrowing. needs increased the To address the pandemic’s challenges and to close the fiscal deficit arising level of public debt from the revenue shortfall, international organizations supported the govern- ment by stepping up healthcare projects and budget support programs. In- 12 Tajikistan. Economic Slowdown Amid the Pandemic ternational emergency assistance in the form of grants and loans was agreed with the IMF (US$189.5 million), ADB (over US$102.5 million), and EFSD (US$50 million). The World Bank’s support for COVID-19 in the healthcare sector made US$11.3 million available, and this will be supplemented by another US$16.2 million. The country’s external public debt reached almost 40 percent of GDP by September 2020 compared to 36.6 percent of GDP at the end of 2019. While the IMF’s emergency credit comprised the largest loan disbursement in the first nine months of 2020, other IFI lending is expected to accelerate in the remaining part of the year, thus pushing the debt level even higher. Since Ta- jikistan has a high risk of debt distress, any new non-concessional borrowing adds to the pressure on public debt sustainability. To ensure the soundness of public finances, the government committed to consolidating the budget and updated its Debt Management Strategy for 2021-2023 to guide through borrowing criteria and debt ceilings over the medium term. Tajikistan applied for Tajikistan is in the group of countries that recently applied to the G-20 Debt debt suspension Service Suspension Initiative (DSSI). The DSSI’s objective is to support low-in- come countries by suspending official bilateral debt servicing through mid- 2021. This should free up some fiscal space to fund social, health, and eco- nomic measures to battle the pandemic. Under DSSI, Tajikistan benefited from the suspension of debt repayments to China. The government continues ne- gotiations with other bilateral creditors to have temporary debt service breaks. Table 3: Consolidated Fiscal Accounts (Percent of GDP)   2017 2018 2019 est. 2020 proj. Revenues and Grants 29.7 29.1 27.3 24.6 Tax Revenues 22.3 22.1 21.0 18.4 Taxes on Goods and Services 12.3 11.9 11.8 10.4 Direct Revenues 6.3 6.6 6.0 5.4 Social Insurance Contributions 2.6 2.6 2.2 2.0 Taxes on International Trade 1.2 1.1 1.0 0.6 Non-Tax Revenues 4.9 4.1 4.0 3.2 Grants 2.4 2.9 2.2 3.0 Total Expenditures 35.6 31.9 30.0 29.7 Current Expenditures 16.9 18.0 17.2 18.4 Capital Expenditures 18.3 14.0 12.7 11.2 Net Lending 0.4 -0.1 0.1 0.1 Government Balance -6.0 -2.8 -2.7 -5.1 General Government Debt 50.4 47.9 45.2 52.5 Source: MOF and W.B. staff estimates and projections 13 V. MONETARY POLICY AND FINANCIAL SECTOR NBT eased the The authorities have pursued an accommodative monetary policy to support monetary policy to the economy during the pandemic. The National Bank of Tajikistan (NBT) cut support lending the refinance rate by 100 basis points on May 1, and again by the same mag- nitude on August 3 to 10.75 percent. On April 1, the bank cut reserve require- ments from 3 percent to 1 percent for national currency deposits, and from 9 percent to 5 percent for foreign currency deposits. The authorities also asked lending institutions to restructure loans by extending grace periods and waiv- ing penalties for corporate and private borrowers facing financial difficulties. The NBT committed to providing emergency credit funds to the banking sys- tem in the case of force majeure situations to ensure financial stability across the board. Lower interest rates Following rapid growth in the first quarter of the year, credit expansion slowed stimulated new as the pandemic spread. Credit to the private sector increased by 13.4 percent borrowing (y/y) in March 2020, and slowed down to 6.1 percent (y/y) by June 2020. Since mid-summer, the gradual easing of lockdown measures and a pickup in eco- nomic activity stimulated new borrowing by the private sector, which reached 8.8 percent (y/y) by August. Commercial banks facilitated new lending by re- ducing the average interest rate from about 24 percent early in the year to 18 percent in July 2020. Figure 3: Credit and Deposit Figure 4: Non-performing Loans and Capital (TJS million) (Percent) 11 000 33 23 10 500 31 22 10 000 29 9 500 21 27 9 000 25 20 8 500 8 000 23 19 7 500 21 Jan. 19 19 19 Jul. 19 Sep. 19 Nov. 19 Jan. 20 20 20 Jul. 20 Sep. 20 р.19 р.20 сен.19 сен.20 янв.19 янв.20 й.19 й.20 ноя.19 июл.19 июл.20 19 18 Mar. May Mar. May 2018 2019 ма р.20 Mar. 20 июн.20 Jun. 20 ма ма ма ма Credit to private sector Non-Performing Loans (left axis) Outsanding volume of deposits Capital Adequacy Ratio (right axis) Source: NBT Source: NBT 14 Tajikistan. Economic Slowdown Amid the Pandemic Deposits recovered Households and firms reduced their deposits in the second quarter of the year as the economy when the country was under lockdown. Households reduced their deposits by gained traction 6.2 percent and firms by 4.7 percent between March-June 2020. However, the withdrawals were temporary; by August, deposits recovered to their pre-pan- demic levels and continued to increase through September 2020. Financial indicators The pandemic and associated slowdown in economic activity increased deteriorated during non-performing loans from 27 percent of total loans at the end of 2019 to 31 the pandemic percent by the end of June 2020. Deteriorating loan portfolio withered returns on assets and equities down to 1.9 percent and 7 percent, respectively. So far, the pandemic has had little impact on the banking sector’s capital levels. As of June 2020, the system-wide capital adequacy ratio stood at 19.7 percent compared to 20 percent a quarter earlier. Limited access to foreign exchange sharply increased sensitivity to market risk, with net open foreign exchange positions reaching 6 percent of regulatory capital, compared to 1.1 percent at the end of last year. 15 VI. ECONOMIC OUTLOOK AND RISKS Economic growth is Economic growth is likely to start improving in 2021, assuming that a COVID-19 projected to pick up vaccine becomes available. Growth bounce-back in neighboring countries, from 2021 especially China and Russia, will help support trade activities, remittances in- flows, and foreign investments. We project growth at 3.5 percent in 2021 and higher levels in the outer years of the projection period. Inflationary pressures are likely to moderate in the medium term as import prices subside, and NBT pursues a tighter monetary policy. The external position A likely rebound in global demand should increase Tajikistan’s exports of com- is expected to modities. The mining sector is expected to continue attracting most FDI in- improve gradually flows as economic growth firms up in the region. Migrant remittances are likely to strengthen once travel restrictions are eased, and access to foreign labor markets is restored. Projected consolidation of public finances will help keep the external deficit at a more sustainable level. The government The government has committed to fiscal consolidation in 2021 and over the plans fiscal medium term. The 2021 state budget plans to reduce the fiscal deficit by in- consolidation creasing tax collections and containing expenditures. At TJS 18.8 billion, the next year’s budget targets a 17.1 percent increase in tax receipts over the amended 2020 state budget. Similarly, non-tax collections are expected to increase by 17 percent in 2021 and reach TJS 1.4 billion. Protraction of the pandemic and introduction of the new tax code in 2021 may create some challenges in achieving revenue targets. Total expenditures are planned to increase by 5.3 percent to TJS 28.1 billion. Allocations for the social sectors will be maintained at 47-48 percent of total spending. However, spending among social sectors will be realigned to account for a substantial funding increase to healthcare in 2020. Over the medium term, the state budget will contin- ue experiencing high pressure from large-scale infrastructure projects, while sustaining adequate social spending levels in health, social protection, and education will remain crucial for nurturing human capital. COVID-19 and Risks to the economic outlook are primarily shaped by the progress in finding structural challenges a vaccine for COVID-19, and the recovery of remittances and external trade. continue to impose The economic recovery will be stifled if the outbreak resurges, and movement a risk on the socio- restrictions are reinforced. Heavy reliance on remittances inflows and a small economic situation in basket of export commodities continue to pose a high external risk to the Tajik Tajikistan economy. Domestically, the country faces the challenge of addressing inefficient SOEs and carrying out much-needed structural reforms to revive the private sector. Rising non-performing loans and reduced profitability may impair bank bal- ance sheets and erode capital buffers. A possible new wave of infections will 16 Tajikistan. Economic Slowdown Amid the Pandemic strain the social and health situation in the country. Without a sufficiently broad tax base, the authorities will continue to struggle to mobilize enough reve- nues to finance social outlays and strategic infrastructure projects. The fiscal space has been largely exhausted, and a high risk of debt distress suggests avoidance of non-concessional borrowing. On the other hand, the macroeco- nomic environment is likely to benefit from the tax system’s envisaged reforms and rehabilitation plans in the energy and financial sectors. Poverty alleviation prospects have weakened as the economy struggles through the pandemic and the link between GDP growth and job generation remains weak. Table 4: Baseline Scenario: Selected Macroeconomic Indicators (In percent, unless otherwise indicated)   2019 2020f 2021f 2022f Real GDP growth 7.5 2.2 3.5 5.5 Private consumption 7.1 -3.8 5.4 5.6 Government consumption 3.5 4.2 2.0 2.9 Gross fixed investment -6.4 -1.8 10.7 13.0 Exports: goods and services 3.5 7.0 1.4 5.1 Imports: goods and services 2.2 -1.0 0.3 0.4 Consumer price inflation 8.0 10.0 8.0 7.5 Current account balance (percent of GDP) -2.3 -3.2 -3.4 -3.0 Overall fiscal balance (percent of GDP) -2.7 -5.1 -3.3 -2.9 Source: Tajik authorities, W.B. staff estimates and projections 17 VII. FOCUS SECTION: ECONOMIC AND SOCIAL IMPACTS OF COVID-19 Summary After a sharp decline in April and May 2020, the labor market began quickly recovering from June to August in the absence of lockdown measures. In August, the number of vacancies posted online recovered to the pre-crisis level. However, severe vulnerabilities remain. Among those reporting contin- ued work disruptions, a rising share believe that job losses may be perma- nent. Food insecurity remains seriously elevated, and far above 2019 levels. Among those households seeking any medical care since the outbreak, 20 percent report being unable to obtain it. About 5 percent of household have reported newly receiving official financial or in-kind support from government since the outbreak. Livelihoods Domestic employment regained lost ground after sharply deteriorating fol- lowing the outbreak. The share reporting that no member had worked in the preceding week spiked to nearly 40 percent in May but converged to its 2019 level by August. Led by construction jobs, the number of postings on popular site somon.tj rose to 7 percent above its pre-crisis level in August after falling by more than 70 percent. Figure 5: No Household Member Working Figure 6: Financial Situation Worse than 10 Days A 45% 25% 40% 20% 35% 30% 15% 25% 20% 10% 15% 10% 5% 5% 0% 0% Jan Feb ма янв фев Mar Apr рт а пр May Jun июль Jul Aug ма й июнь окт Nov Sep Okt а вг сент Dec ноя дек фев ма янв Feb Jan Mar а пр ма рт Apr May Jun июл й июн Jul а вг сент Aug Oktноя Sepокт Novдек Dec 2019 2020 2019 2020 Source: W.B. staff calculations based on somon.tj Source: W.B. staff calculations based on somon.tj 18 Tajikistan. Economic Slowdown Amid the Pandemic Figure 7: Change in Vacancies Construction, realestate Other All Source: W.B. staff calculations based on somon.tj Work disruptions are less pervasive than immediately following the out- break, but a rising share of remaining unemployment may be permanent. The share reporting work disruptions of household members due to COVID-19 fell to about 40 percent in August from 63 percent in May. However, a rising share who halted work were reported as “unlikely to resume,” from 19 percent to 33 percent over the same period. The extent of severe financial strain is moderating but remains elevated. The share with deteriorating finances moderated by August to 3 percentage points above its level in 2019. The share who believe they could pay an emer- gency expense of 100 somoni (about $10) rose from 43 percent in May to 52 percent in August. The share who reported being very concerned about the impact of COVID-19 on the economy and their livelihoods was nearly 53 per- cent in August, down from about 71 percent in May. Migration and Remittances Among households with migrants already abroad, remittance income fell dramatically in April 2020 but recovered some lost ground through August. The share of migrants sending remittances over the preceding 10 days re- mains severely lower than last year, by more than 25 percentage points in August. About 62 percent of recipient households reported a decline in re- mittances in April, the highest share ever recorded in the L2T survey. How- ever, through August expectations of continued transfers steadily closed the gap with 2019 levels. Rather than having fully lost employment arrangements, respondents typically report short-term income loss among migrants as the cause of less frequent remittance transfers. Focus Section: Economic and Social Impacts of COVID-19 19 Figure 8: Expect Falling Remittances Figure 9. Received Remittances (Past 10 Days) 70% 45% 60% 40% 35% 50% 30% 40% 25% 30% 20% 20% 15% 10% 10% 5% 0% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan фев янв Mar апр Febмарт Apr май May июн Jun июл авг сент Jul Aug ноя Dec окт Nov Sep Okt дек 2019 2020 2019 2020 Source: W.B. staff calculations based on somon.tj Source: W.B. staff calculations based on somon.tj Lower remittances are expected to push the poverty rate higher. Poor households in Tajikistan depend much more on remittances than those better off. More than 80 percent of households that receive remittances reported that they primarily spend them on food and other basic necessities. Interest in migrating abroad for work is returning. After falling to about 2 percent of households in May, interest in migrating abroad rose to 7 percent of households in August, nearly the same level as the same time in 2019. The share of households providing details of at least one member currently abroad fell to 32 percent in August, in comparison to 41 percent at the same time last year. Food Security and Spending Reports of reduced food con- Figure 10: Reduced Food Consumed sumption spiked in May to 45% 41 percent of the population and remained 10 percentage 40% points above 2019 levels in 35% August. Overall food security deteriorated during the peak 30% of the crisis across a range of 25% indicators, with rising shares reporting going hungry, reduc- 20% ing dietary diversity, and wor- ries over obtaining enough 15% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec food, before recovering some- 2019 2020 20 Tajikistan. Economic Slowdown Amid the Pandemic Figure 11. Hunger Situation 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% голода ли кончила сь еда ели меньше пропуска ли приемы нера знообразная нездоровая пища беспокоились went hungry ran out eat less skip meal low diversity unhealthy worried пищи диета янв Jan фев Feb ма Marрт а пр Apr ма Mayй июн Jun июл Jul а вг Aug Figure 12: Changing Household Routines in Response to COVID-19 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Hand тие Рукопожа Другие Greet Поездки Travel Посещения Visit бота Ра Work Ма ски mask Соц.диста нция Больше Social Dist еды More food Ка рантин Lockdown приветствия measures а пр Apr ма Mayй июн Jun июл Jul а вг Aug what from June to August. Similar increases were seen in reduced ability to pay for utilities, and in coping mechanisms such as selling assets and reduced spending on medical care. Very few households reported local shortages of basic goods in August. Less than 2 percent of respondents reported that items are out-of-stock, down substantially from 10 percent in May. Knowledge, Education, and Behavior Nearly all respondents report changing their routines due to COVID-19. About 97 percent report reducing handshakes consistently since May. A re- markably higher share report reducing other greetings, such as kissing and hugging, following the outbreak. Reported mask use and social distancing Focus Section: Economic and Social Impacts of COVID-19 21 Figure 13: COVID-19 Information Sources Figure 14. Sources of Official Information 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% ТВ TV Га зеты Newspa- Ра дио Radio Соцсети Social СМС SMS Личное Personal Прочее Other ТВ Га зеты Ра дио Соцсети СМС Личное Прочее TV Newspa- Radio Social SMS Personal Other pers networks здоровье health pers networks здоровье health а пр Apr ма Mayй июн Jun июл Jul а вг Aug а пр Apr ма Mayй июн Jun июл Jul а вг Aug also rose substantially in May. Respondents in Tajikistan increasingly reported more frequent handwashing, rising from a median of 7 times per day in April to a median of 10 times per day in August. Levels of concern about COVID-19’s impacts on health and the economy are moderating. In August, about 56 percent of respondents reported being very concerned about the health of their family, down from about 79 percent in April. Slightly more than 53 percent reported being very concerned about the impact of the outbreak on the economy and their livelihoods, down from more than 70 percent in April. About 28 percent of households reported having needed medical care per month since the outbreak. Among them, 20 percent report not having been able to obtain it. Reports of inability to access care have been higher among those living in urban areas (22 percent of attempts vs. 18 percent in rural areas). 22 Tajikistan. Economic Slowdown Amid the Pandemic ANNEX 1. SELECTED MACROECONOMIC AND SOCIAL INDICATORS, 2017–22 2017 2018 2019 2020 2021 2022   Actual Actual Estimate Projections     (Percent) National Income and Prices Real GDP growth 7.1 7.3 7.5 2.2 3.5 5.5 Private consumption growth 0.0 7.2 7.1 -3.8 5.4 5.6 Gross investment, growth 20.3 7.9 -6.4 -1.8 10.7 13.0 Consumer price inflation, period average 7.3 3.9 8.0 10.0 8.0 7.5 Average exchange rate (TJS per USD) 8.5 9.2 9.5 … … …   (Percent of GDP) External Accounts Exports of Goods and Services 15.7 14.8 15.3 17.0 13.4 13.6 Imports of Goods and Services 38.7 42.8 42.0 39.4 38.3 40.3 Current Account Balance 2.1 -5.0 -2.3 -3.2 -3.4 -3.0 Capital Account 1.9 2.4 2.0 2.1 2.1 2.0 Financial Account -5.0 -2.8 -4.5 -7.6 -3.7 -4.2 Foreign direct investment, net -0.9 -3.4 -2.3 -1.4 -2.0 -2.6    (Percent of GDP) Consolidated Fiscal Accounts Revenues 29.7 29.1 27.3 24.6 27.4 28.6 Expenditures 35.6 31.9 30.0 29.7 30.7 31.5 Overall fiscal balance -6.0 -2.8 -2.7 -5.1 -3.3 -2.9 Primary fiscal balance -5.5 -1.6 -1.3 -3.7 -2.0 -1.0 Total Public Debt 50.4 47.9 45.2 52.5 51.9 50.7   (Percent) Monetary Accounts Broad money growth 21.8 5.1 16.9 … … … Reserve money growth 21.0 7.0 20.1 … … … Private sector credit growth -20.2 1.3 7.7 … … … Refinance rate, end of period 16.0 14.0 12.3 … … …             Social Indicators Population, total (millions) 8.9 9.1 9.3 … … … Population growth (percent) 2.1 2.3 2.1 … … … Unemployment rate (officially registered) 2.2 2.0 2.1 … … … International poverty rate ($1.9 in 2011 PPP) 3.6 3 2.6 2.6 2.4 2.3 Lower middle-income poverty rate ($3.2 in 2011 PPP) 15.8 14.6 12.7 12.9 12.4 11.5 Upper middle-income poverty rate ($5.5 in 2011 PPP) 48.6 45.1 42.6 42.8 41.8 39.6 Inequality – Gini coefficient 34 … … … … … Life expectancy (years) 70.6 70.9 … … … … Source: Tajik authorities, and World Bank staff estimates and projections 24 Tajikistan. Economic Slowdown Amid the Pandemic Tajikistan Country Economic Update Fall 2020