/379' Ta jikis tan H1 A W O R L D B A N K C O U N T R Y S T U D Y A W OR L D B AN K CO UN TRY STUDY Tajikis tan The World Bank Washington, D.C. Copyright 0 1994 The International Bank for Reconstruction and DevelopmentITHE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. AlI rights reserved Manufactued in the United States of America First printing Novcmber 1994 Wodd Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published in this seres with the least possible delay for the use of governments and the academic, business and financial, and development commu- nities. The typescript of this papcr therfora has not been prepared in accrdance with the procedures appro- priate to fornal printed texts, and the World Bank accepts no responsibility for errors. 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Suite 910,222Rosewood Drive, Danvers.Massachusets 01923, U.SA. The complete backlist of publications from the World Bank is shown in the annual Inder of Publications, which contains an alphabetical title list (with fIll ordering information) and indexes of subjects, authors, and countries and regions. The latest edition is available frec o. charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A, or from Publications,The World Bank, 66, avenue d'CIna, 75116 Paris, France. ISBN: 0-8213-3105-1 Library of Congress Cataloglng-iln-Publication Data Tajikistan p. cm.r-(AWorld Bank country study) "The economic report was prepared by Reza Ghasmi (main author) . . and others" ISBN 04213-3105-1 1. Tajikistan-Economic conditons. 2. Tajikistan-Economic policy. 3. Post-communism-Economic aspects-Tajikistan- I. Ghasimi, Reza. II. Intemational Bank for Reconstruction and Development Im. Series. HC421 .3.T35 1994 33.958'6-dc20 94-40254 CIP m CONTENTS PREFACE ............................................... vil ABBREVIATIONS ............*.....*........... CURRENCY.EQUIVAL ..*................. .................... x EXECTYXVE SKM3VIARY ............................. i THlE MACROECONOMIC FRAMiEWORK . .............................. . I CHlAPTER 1: Background and Recent Econonmc Derdopmens ................ 3 CHAFFER 2: Econodc Reforms and Externl FIuancing Req rments .... W... is THE AGEND A FO R REFOR. ........................... 27 CHAPTER 3: Enterprise Reonr and Private Sector Developm en t............. 29 CHAPPTER 4: The Financi Sect ................................ . 53 CIAPrFER 5: TradeRegim ................ ............, 69 CHAPTER 6: TheSocidlSector .................................. 77 SECrORAL TRANSFORMATION ........*............. .... .. 93 CHLAPTE.R 7:. Agricultmral Sector . ........... ......... ........ 95 CHAFPER 8: Industry and Blin Secto ............ ............ . 111 CIAPrER 9 TheEnergy Sector .... ....... .................. 11 CHAPTER 10: n ttr ............... ... ... .......... 147 CHAPIER 11: Invetment in Human Capital .......... . ....... ..... 169 CHAI'ER 12: EUviranuF It .... ...... ....... . ............... ... 183 STATPL CAL APPEYIX ................... 193 MAP iv Tabls 1.1 Re GrowthinNet Maial Product ............................ 4 1.2 National AccontsSummary .................................. 5 1.3 StaeBudget, 1991-93 ...................................... & 1.4 Man Monetury Aggegates ................................... 10 1.5 List of Main Consumer Products and Services Subject to State Price Regulation ......................................... 11 1.6 Monthly Changes in Retail and Wholesale Prices ..................... 12 1.7 International Trade, 1991-93 ................................. 12 1.8 BalanceofPayments ...................................... 13 2.1 Projectionof Key Economic Indicators .......................... 19 2.2 Medium-Term Pojections: External Fincing Requirements .... ........ 21 2.3 Creditworthiness and Required Concessionaity ..................... 24 3.1 IndustryStruictsre,1992 .................................... 32 3.2 Medium and Large Republican Enterprises to be Privatized in 1993-1995..... 33 3.3 Medium and Lare Priratizatbn Accomplishments, as of October 1993 ...... 35 3.4 Small State Businesses, Cooperatives and Private eris ............E. 45 3.5 Self-Employed Persons ............................... 46 3.6 Foreign-Owned Companies, 1991-93 ............................ 49 3.7 Sources of Foreign nvestmnt, Joint Venturs, October13 ............. 50 4.1 TajikBanks ........................................... 55 4.2 Bak Assets and Funding from Ceral Sources ..................... 56 4.3 InteestRates .......................................... 57 4.4 htr-enterprise Arrears by Bark . .............................. 60 4.5 Inter-enterprise Arrears by Selected S. . rs......................... 61 4.6 Seected Short Term Credit, Growth by Catgory .................... 61 4.7 Lending by Naional Bank of Tajikistan, end September 1993 .......... 62 4.8 Loan ArrearsbyBank ..................................... 63 5.1 The Cearing Arrangement with Russia .......................... 70 6.1 Comparative Social Statistics . ................................ 77 6.2 Minimum Food Basket Composition for Poor Families . .78 6.3 Population Distribution by Family Size and Rural/Urban . .79 6.4 Sources of Family Income by Lvel of Per Capita Income Pcet - 1989 81 6.5 Social Protection Payments as Percent of NWP, GDP and Budget Expendiures ............. 82 6.6 Composition of Pension Fund Beneficiaries ........................ 83 6.7 PensionFundBudgcts .................................... 84 6.8 Employment by Sector, 1980-92 . ............................. 87 8.1 Gowth in Fixed Assets by Subsector ........................... 113 8.2 Aggregate Financial Position of Industry Sector .............. 114 V 8.3 Batk Credit by Industry Subsector ............................. 115 8.4 Non-State Owned Enterprises ............................. . .117 8.5 Silver Mines & Deposits ................................... 121 8.6 Coal Deposits .......................................... 122 8.7 Gold Mines adDeposits .. 123 9.1 Energy Balance .131 9.2 Energy Trade .133 9.3 Energy Prices .134 9.4 Imports of Oil Products .135 9.5 Generation Facilities in Tajildstan .136 9.6 Energy Supply-Demand and Trade Outlook .140 9.7 Oil, Gas and Coal Production .141 10.1 Telephone Service Quality - Selected Indicators .158 10.2 Summary of Telephone Tariffs ................................ 159 10.3 Summary of Financial Results, MOC - All Sevics ................... 160 11.1 InfantMortadity Rates ..................................... 170 11.2 Cuses of Infant Mortality .171.... 171 11.3 Matenal Mortaity Rates .................................. 172 11.4 Social Sector Spending - Percent of Budget .173 11.5 StudentTeacher Ratio .174 11.6 AverageClass e ....................................... 175 11.7 Salary andBenefits a ShareofSectorBudgets .177 1.1 Main Macroeconomic Indicators ...... ,.. 3 1.2 Retai and Wholesale Pice Index .11 1.3 Structure of Exports, 1990 .13 1.4 Structure of imports, 1990 .13 5.1 Trade and Supply Contacts .74 7.1 Land Use by Category ..................................... 95 7.2 Value of Agricultural Production .95 7.3 LandUse byType of Organization ............................ 96 8.1 Industry Structure, 1992 .11 8.2 Industry Trend, Output Index ................................ 112 8.3 Age of Equipment, as of 1988 ............................... 114 8.4 Industry Cost Structure ...1..5.... .... ,. .... : ....l15 11.1 Tajikistan Education System ................................. 174 vi Boxes 2.1 Tajikistan Emergency Reconstruction Program . ..................... 22 3.1 Leg F ramework in a Market Eco ynM .......................... 30 32 Privatization Accomplishments ................................ 34 3.3 Privatizaion Decision Process .36 3.4 Small-Scale Privatization Experience in Eastern and Central Europe .37 3.5 Aziz aothing Store, Dushanbe: A Success Story .38 3.6 Bottom-up/Top-downApproach .39 3.7 Technical AssisceinPrivatsizatin... 51 4.1 A DescriptionofdieLargerTajikBan. .58 4.2 PrudentialRegulatiou ofNBT .63 4.3 Technical Assistance in the Financial Sector .65 5.1 TheStateOrderSystem .................................... 72 6.1 Summary Data . 80 6.2 Social Protection: Insitdons .... 82 7.1 Visitto aCobonGin................... ................... tO0 7.2 Central Asian Water Resourcem iagement .....M............ ... 105 7.3 Technical Assistance in Agriculture ........... 108 8.1 jor Industry Subsectors ........... 112 8.2 Enterpris Sectr Orgniaton and Managemnt ........... 116 8.3 The Aluminum Industry ........... 120 8.4 Regional Mers Profile ........... 121 8.5 Todical Assismc in the Industrial Seor ........... 128 9.1 Tajikn Enery ........... 138 9.2 Technical Assistae in the EnergySeo ............ 143 10.1 Technical Assistc Needs in tbe lnfisuctumrSector .164 vii PREFACE This report is based on fndings of a World Bank missions to Tajidsta in October 1993 led by Peza Gbasimi. The World Bank wishes to thank the authorities of Tajildstan for their hospitlitr, support and excellent cooperation. The Economic Report was prepared by Rem GObsimi (main autbor), Jamal Saghir and Lueja Swiakowski (Privatization), Cevdet Denizer (Macoeomics), Hong Wet ad Barra Ossowidca (Statistics), Per Sdireiner (Trade), Radwan Al-rid (Legal Framework), David Wilton (Financial Sector), David Kunkel (Agriculture), Ruth Klinov-Halul and Meskeem Mulau (Social Sector), Michael Levitsky (Energy), Ranjan Sengupta (ndustry and Mini, Jean Charles Crochet (Transport), Eloy Vidal and Ejorn Wellenius (Telecommunicatiou) and Sherry Login (Envionmment). Valuable comments were provided by Isabel Guerro, Costas Michalopoulos, and Laura Tuck Halch Bridi provided continus support The report was processed by Cielito Pelegrin. The work was carried out under the general spervision of Kadir Tanju Yurukoglu, Division Chief, and Russell J. Chktham, Director. ix ABBREVIATIONS ACU Aid Coordination Unit CAR Central Asian Railways CBR Central Bank of Russia CMEA Council for Mutual Economic Assistance DTCS Department of Transport and Commercial Services EAMU Extermal Assistance Management Unit EBRD European Bank for Reconstruction and Developmnt EC Employment Center ETA Environmental Impact Assessment FDI Foreign Direct Investment FSU Former Soviet Union GAAP Generally Accepted Accounting Principles GDP Gross Dom-estic Product GMP Good Manufacturing Practices GNP Gross National Product IBRD Inernational Bank for Reconsn and Dev dpmt IMF Iternatonal Monetary Fund MOA Ministry of Agricultr MOC Mnistry of Communications MOE Ministry of Education MOF Ministry of Finance MOH Ministry of Health MOH Ministry of Highways MORT Ministry of Road and Travel MPC Maximum Poilutant Concentatio MTMR Ministry of Trade and Material Resources NBT National Bank of Tajikistan NGO Non-govemmental Organization NMP Net Material Product PF Pension Fund S/C State and Collective SIF Social Insurance Fund SOE State Owned Enterprise SPC State Property Committee STF Systemic Transformadon Facility TBB Taj Bank Business TRACECA TraWort Comdor Europe Central Asia UNICEF United Nations Childrens Fund VAT Value Added Tax WHO World Health Organizaton K CURRENCY EQUIVALENTS CURRENCY UNIT = RUBLE Excag Rat 1992 January 110 February 103 March 93 April 100 May 94 June 89 July 137 August 138 September 217 October 349 November 426 December 417 1993 January 484 Fubruary 569 March 662 April 767 May 919 June 1082 July 1025 August 1233 September 1350 Mooiy Aveage Source: National Bank of Tajikistan. EXECUTIVE SUMMARY Tajikistan's economic situation has been affected by unprecedented shocks since it gained independence. Since 1992 the country has undergone a protracted period of civil war, political instability, and major natural catastrophes. The resulting economic difficulties have been compounded by additional shocks stenuning from the collapse of the trade and payment system, sharply higher prices for transport and energy imports, and the discontinuation of the transfers from the fomier Soviet Union (FSU). Between 1992 and 1993, civil strife and political turmoil killed about 50,000 Tajiks and displaced 850,000 more, of whom 150,000 sought refuge in neighboring countries. Many villages were substantially destroyed. Looting was extensive and total damage to homes, infrastructure and other sectors in the country reached devastating proportions. In addition, in 1992 and 1993, the Yakhsu and Kyzylsu Rivers, north of Kulyab, severely flooded and caused extensive damage to flood protection dikes, roads, bridges, villages and cultivated land. Because of the political turmoil and fragile secrity situation, Tajikistan has received very little development aid other than UN humanitarian assistance. Even before these shocks Tajikistan was the poorest country in the FSU, and therefore faces some of the development issues common to most lower income countries. Per capita income was already below US$500 in 1992. Tajikistan is also a rral country. While agriculture only contributes about 40 percent of Net Material Product (NMP), 70 percent of the population lives in nual areas. Only 7 percent of the land is amable, and is heavily irrigated. Tajilkstas main products are cotton, silk, and livestock, especially sheep. Industry, which contributes 30 percent of NWP, consists mainly of labor- intensive processing of indigenous and imported materials. Hydroelectric power supplies 75 percent of the county's electric requirements. Although Tajikistan has many natural resources, including gold, mercury, and other minerals; its foreign trade focuses on a limited range of products. Aluminum, raw cotton. and textile products make up about 60 pecn of exports. The remainder is concentred mainly in fruits and vegetables, silk, marble, hides and electricity. The couty imports a large part of its energy needs, parficularly petroleum products, almost all manufacred consumer goods, and, increasingly during the last two years, grain. The economic difficulties posed by the combinton of shocks and impoverished initial conditions were aggravated because initial progress on structural refoncs was not ssained, and even reversed. Total output has declined so much that in 1993 real NM was only about 40 percent of the 1988 level. The drop in output has been accompanied by a very large fiscal deficit, resulting from the Govermnent's attmpts to mantan living standards by increasing wages and subsidies. The budget deficit was around 30 percent in 1992 and 24 percent of GDP in 1993. Such a high deficit was somewhat masked by the fact that Tajikistan was part of the mble zone and, thereby, continued to be financed by the Russian Central Bank. During 1993, the consumer price index increased tweny-fold in line with Russian inflation. In addition, given Tajflistan's unp ed output declines, it is urgent to adopt htrucural and stabilization measures that will bring about an eventual supply response and recovery. This reform must be coprehenive; a piecaemal approach will neither move the economy out of its current crisis nor help obtain much needed assistance from the iternational financial communty. xii Executive Summary Economic Reform Program The Government's first priority should be to stabilize Tajikistan's fragile political and security simation. As soon as conditions allow, reconstruction should begin in parallel with efforts to stabitize the economy. The most essential infrastructure which was damaged by civil strife and recent floods will need to be reconstructed first. A recent review undertaken by the World Bank to identify the main elements of an Emergency Reconstruction Program identified urgent needs, partiularly in agriculture and flood protection, transport, teleconmmnications, housing, and the power subsector. In addition to reconstruction and stabilization, the Govern-ent needs to inplemnt structural and sectoral reforms to promote a smooth transition to a market economy. Some of these reforms could start to beu fruit even before there is an improvement in the security situation. Others would stand a better chance of success once there is political stability, and should therefore be postponed for the time being. Stabilizatio Policy Faced with a tense security situation and economic difficulties, the authorities continue to rely heavily on close political, military, and economic ties with fte Russian Federation am have been negotiating for Tajildstans entrance into a monetary nion with Russia for almost a year. In September 1993, the two countries signed an agreement on the general principles to create a monetary union but the framework and operational arrangements are yet to be finalized. The authorities' efforts to form a monetary union are understandable since present conditions are not the most propitious for launching an independent currency. If the Goverunent decides to enter a monetary union, negotiations with Russia should be quickly completed. If the decision is made not to enter into such a union, the appropriate conditions for the successfil intoducion of a new currency should be created as soon as possible. The resolution of monetary arrangem.ents, whether entering a monetary union with Russia or issuing a national currency, will determine the nature of the country's stabilization program. If Tajikistan decides not to enter the monetary union, it would be able to follow independent monetary and fiscal policies conducive to achieving macroeconomic stability. However, having an independent currency would have some drawbacks. It would probably bring about a reduction in the level of financing and transfers from Russia and greater short-term obricles to trade. Moreover, the existence of low and distorted interest rates, restrictive excbange and trade regulations, and insufficient institutional capacity, including at the National Bark of Tajikistan (NBT), suggest that the Govermnmen is not yet ready to manage a national currency. Although under a monetary union macroeconomic stability would be contingent upon the policies of the Russian Federation, Tajilistan would have to address some of its institutional shortcomings as it would be required to harmonize the country's monetary and exchange policies with those of Russia. Regardless of which choice is made over currency arngemets the authorities need to stop their expansionary fiscal policy. Introducing a new currency would require the budget deficit to be reduced to diminish inflationary pressures and establish confidence in the new currency. A monetary union with Russia would also inpose constraints on money and credit expansion and require the budget deficit to be brought under control because of monetary union provisions and limits on the amount of financing to be provided by the Russian Federation. The need to reduce the budget deficit (expected to be around 20 to 25 percent of GDP in 1994) leaves authorities no choice but to contain subsidies to enterprises and consumers and to accelerate efficient revenue generating measures. Measures already introduced in the 1994 budget include Executive Summary xiii conining local expenditures within available resources and requiring the Pension and other funds to submit anmual financial statements on their operations. There are several important measures that the Government should take in the next year to reduce social expenditures, while at the same time rationalizing social services. Some revenue genaing measures have already been introduced, such as increasing the income tax and elimit exemptions to the eterprise profits tax. TMese measures should be supplemented by applying a uniform enterprise profit tax rate to different sectors. This would discourage investment of resources in relatively less productive sectors to exploit tax advantages. In addition, the Value Added Tax (VAT) should be fully paid by state fanms and cooperatives. Excise taxes that result in little revenue, together with all taxes on aluniinmm exports, should be abolished. Stuctural Reforms In the Short Term In the short term, the most urgent strutural reforms are price liberalization, the acceleration of privatization of small-scale enterprises, and removing obstacles to private sector growth (most critically for small businesses). These reforms could start to bear fruit even before there is an improvement in the security situation. The design and implementation of the institutional and legal enviroment needed to support a market economy is an area were progress should also be made in preparation for the post war period. Price Libalion. Tajikistan iinated price liberization in April 1991, fbllowed by a wider mund of price increases in January 1992. when price controls on 80 percet of goods were eliiated. Although the Government has further liberaized prces since then, a significant portion of consumer goods still remain under price controls. These include varous grades of flour, bread, milk, energy products, utilities, rent, transport and commications services. The budgetary cost of subsidies for all these commodities amounted to about 7 percent of GDP in 1993, burdening an already difficult fscal situation. Moreover, subsidies create a distorted incentive struu through which producers of agricultural goods and providers of basic services are penalized. Subsidies, therefore, result in a disincentive to produce the very goods that the Government so highly values. Stronger measures are required to reduce or discontinue all commodity subsidies, especially on bread, meat, and milk, allowing their prices to rise to market-determined levels. The adverse impact of diminating price subsidies on the poor should be addressed by means-tested budgetary transfers and targeted social asisn. Privatiation of Sma-Scale Enterprises. The Tajik Government has developed a privazation progran for small enterprises. Implemenion has been slow and the progran should be accelerated during 1994-95. The privatiztion program requires adininistatively simple procedures since it will involve privatizing over 5,000 small-scale enterprses. The Govermment needs to develop stndardized guidelines for enterprise seecton and valuation and to accelerate the work of individual privatizaton committees. In 1994-95, the State Propety Committee (SIC) should laumch a series of fair. open, and regularly scheduled small-scale auctions. beginning m Dushanbe. Auctions of small-scale enterprises are a proven way to encourage privadzation. The pmcedures for holding such auctions are not complex, and the implementation rements are simple, once consensus is achieved on the need for privatization. For small-scale enterprises, the transition from collective forms of ownership should occur as soon as possible. xiv Executive Summary Primate Seaor Deelopment. A stromg private sector must be developed to support Tajikistan's transition to a market-oriented economy. The Govermnent has taken certain measures in that direction, creating the National Association of the Medium and Small Business and establishing a fund to support private business. However, these types of organizations should be created by the private sector. Government-established business organizations do not have a good track record in prmoting private sector development. The Goverment, however, has a very important role to play in the transition in removing t constraints that ihibit the growth of the private sector. Private initiative in Tajikistan is now constrained by political and economic instability, legal and regulatory inconsistencies, and constraints on foreig trade. As a first step the Govenment should adopt a simple and automatic license and registation process for new businesses, with inimal requiemnts and uncomplicated forms. The Goverment should also allow business associations and information centers to disseminate inormation and provide business services. Completing the legal framework necessary to move to a market economy should also be a priority to promote private sector development, including the specific measuems descrbed below. In addition to a clear Legal framework, the private sector needs confidence in the enforceability of agreements, transparency in dispute resolution, and recourse against arbitrary administrative acts. hutaional and Lega Environent. Tajikistan has enacted several laws aimed at developing a market economy that address specific areas and actvites but do not yet provide an overall framework for developing a market economy. There are signficant gaps in such areas such as property rights, conact law, securd tansactions, transfer of property, and protection against unfair trade practices. In 1994-95, emphasis should be on adoptirg a modem constitution that gouantees the right of natual and jundical perso to own and exchange property protecs prvate property, and provides for an indendentjudiciay. Modem civil and commecl codes thatprovide awell-defined framework for entry and exit and for market activities, need to be deveioped. Other importa aspects of a necessary enabling legal environmen include implementin mechanisms to register proper rights, and revision of th 1991 law of stm ownership and privatzion of property and related implementtion decrees. Institutions critical for the success of legal reform, such as company registration offices and banking regulation offices, should also be established. This requir an overall review of administrative refform masures and traing officials in legal and regulatory aspects of economic reform. It will also involve srting the judicial system's ability to enforce the ecomic laws and contractual obligations essentil to protect property rights. In the Mediun Term Over the medium term, the structural reforns which are discussed below are necessary to continue building the foundation for a market-oriented economy. They include the implemention of a modium- and large-scale privatization progrm, enterprise restructuring, financial sector reform, reforms of foreign tade and the foreign investment framework, and a social safety net. These reforms would probably stand a betr chance of success once there is political stabiity after the ongoing conlict is resolved. Medium- and Large-Scale Pvadon. The design and inplementation of a medium- and large-scale privatization program is cnucial for the reallocation of resources to their most productive use and, therefore, for long-term growth. Without a change of ownership from smte to private hands, the enterprises may not gain access to investment, technology, and market-oriented management needed to survive. Also, until they are privatized, many state enterprises arc operating in a planning vacuum. The currentprivaizaion strategy has severl flaws, including a cumbersome and non-competitive decision Executive Summary xv maldng process, which will not allow privatization to accelerate. The privatization program needs to be redesigned and the numerous legal and political obstacles removed. The revised program should encourage broader participation by private individuals. The inidtial cautious and restrictive policies -mst be revised to encompass a broad range of methods and sales strategies. Once this is completed the Governmen should: (i) implement a mass privatization program and prepare a list of medium and large enterprises to be privatized; (ii) establish voucher-based schemes (paper vouchers, points, or savings accounts) while simultaneously introducing case-by-case larger scale privatization; (iti) simplify procedures for enterprise valuation and develop smndardized documents and guidelines to accelerate the work of individual privatization committees; (iv) design information packages for enterprises explaining what needs to be done, and by when; and (v) set up simple systems to evaluate and approve privatizazion plans. Enterprse Resmruuring. Enterprise restrucaring is likely to be one of the most challenging components of the reform program because it will probably entail output decline and unemployment. The experience of other countries suggests that it will take several years to complete the privatizaion process. In the interim, those enterprises remaining in the public sector should operate in line with private sector practice. Commercialization should be encouraged by establishing commercial goals and imposing hard budget construaints. Organizational changes that delegate authority to appropriate levels of management, create mechanisms for owner representatives to monitor performance, reward success and punish failure should also be promoted. The major loss-making enterprises should be liquidated and prevented from having access to the finani sector, so they do not comromise stabilization or financial reform. The Govermnent has started this process but management has very lite autonomy. New measures should remove the state frm direct involvement in day-to-day decision making of the enterprise. Credit to enterpnses should be conditional on clearly defined restucturing or liquidation plans for nonviable enterprises. These steps are all necessary, since htying to maintain employment in stte-owned enterprises will put more pressure on the already staned budget, making stabilization of the economy more difficult. Fainwcial Sector. Financial reforms should focus on eiminating the centmal dieton of credit to specific sectors and allowing commercial banks to play their in di role. The Government should encourage development of a financial system capable of mobiiig financial savings and channeling them to the most efficient sectors of the economy This will require allowing noninal interest rates to increase, at least to Russian levels in the event that TaJikistan does finalize monctay union arrangemnents. Emerging commercial banks should be fieed from the influence of non-viable clients and be allowed to focus on supporig the emerging private sector. In the medium term, bank lendng Fhould be based on commercial criteria and proper evaluation of client creditworthiness. Effecive prudental regulon modern accounting and auditing stndards, allowing entry to foreign bans, ind enforcement of existing regulations on concentrated lendig and loans to reLated parties, are needed if commerdal banks are to fulfill their necessary role in the transition to a market economy. While all te measures would only have an impact in the mein term, it is important to start preparng them since they take a long time before theW are ready for ilemeon. Trade Regime. Tajikistan has inherited an economy that is highly dependent on trade and vulnerable to exernal shocks. Approximately 80 to 90 percent of Tajikistan's exports and imports are with the FSU. The country's production strun also requires considerable imports of capital goods. well in excess of export earnings. Exports make up about 40 prcent of NMP; imports. 50 percn. Tajikistan's trade regime is charactrized by substnial Govenment intervention and effrts to sustain xvi Executive Summary the old production structure. The focus of the trade regime should shift to the future. The activities where Tajikistan entrepreneurs have comparative advantage n inteanational markets will only emerge after the trade regime is simplified and protection made low and homogenous. Trade policy should not be designed to protect ailing industries. Imports will have an important role in the post war recovery. They will also provide competitive pressure on domestic enterprises, especially on existing monopolies. Trade liberalization can, thus, be a major force behind productivity growth in Tajildstan. But to finance imports. exports need to provide the necessary foreign exchange earnings. And existing policies wiUl not geneate the desired carnings as they penalize exports. Therefore, export licensing and export quotas should be discontinued. Trade poliry should be simple and tasparent. Tariffs should be uniform and ad valorem. If Tajildstan joins the monetary union with Russia, its import tariffs should be consistent with Russian tariff coverage and rates. Foreign Direct Invement. Tajikistan's experience with foreign imvestnent is very linited. As of October 1993, only 12 enterprises were whoUy owned by foreigners and 47 were registered as joint ventures with foreign participation. Atacting fbreign direct invesutent would help Tajikistan to obtain access to modem technology and intemational marketing know-how. Enbancing inernaional confidence in the economy is the most important prerequisite for attracting foreign interest. To build up such confidence requie politcal and economic stabity as well as credibility in the Governments commitnent to the appropriate policies. It also requires an enabling legal emviromment The Government guarantees that the provisions of the current Law on Foreign lnvestnen adopted in 1992, will be applied for 10 years and that foreign prperty will not be nationalized or requisitioned. Forign investors are granted the right to tansfer their investments and pmfits out of the country. However, a detailed set of rules pemitting .foreign investors to tansfer dteir bard currency in and out of the country has not yet been fmalized. The law on foreign investment also needs to be reviewed to remove excess registration requirments and simplify concessions. The essential prerequisites for negotiating investment agreements are curently weak because information, such as conditions of local enterprises, sectoral analysis, and fincial statmets with intrational standards (usually demanded by intrational investors) is incomplete or unavailable. The institutional seting for foreign irvestment is complex, involving at least two ministries. The Government intends to create an independent Agency for Foreign Ilvestments that will have a central role in coordinating foreign investment acivities and will become a center for information, policy, and investment promotion. This is an important step. The Govemment will also need to develop an easy entry and exit process and improve the country's infrastructure in telecommunications and transportation. Opening up the privatization process to foreign investors by removing dght requirements and ceilings on participation will also stimulate and attract further foreign capital. Over time, attention should turn to atcing interational investors to explore the country's promising but as yet unexploited geological fornations. Social Safety Net. The transition to a market economy will impose unavoidable hardships on the population. Reducing subsidies will diminish living standards. Real wages, which have already declined, will further decrease. And unemployment could rise considerably. Inefficient enterprises will probably fold faster than efficient private ones can emerge - this is a comnon feature of the transition toward a market economy. If popular support for reform is to be maintained, the Governmem wii need to revise its social policies to address these transitonal problems. inescapably, the generosity of the old social system cannot continue and mst be replaced by more realistic responses. Resources are scarce and notwithstanding the impornce of immediate revenue-generating measures, the possibiliry of considerable tax increases are limited in the short run. On the other hand, the scope for financing budget deficits through currency emission is limited if stabilization is to succeed. Under these conditions, while F-xecutive Summary xvi essential social safety net spending should be protected, social expenditures should be restructured and econonized through targeting to the most needy and reducing the level of some benefits. During 1994-95, steps should be taken to rationalize social expendiures by improving targeting and sharpening the eligibility to the various welfare program. Temporrily disabled workers and working pensioners should not be eligible for pensions. The minimum pension age, currently 60 for men and 55 for women, should increase over time. Unemployment benefits should be paid only to persons employed regularly during the previous year. And paid sick leave should be cut to one month per year and paid maternity leave to six months instead of a full year. For the remaining eligible population, several changes in payment scales should be made. A sliding payment scale, reflecting the decli-'- in margia cost per extra child, should be implemented. At the same time, the Government should also balance its policy of providing child allowances to large fimilies against its objective of population control. Per capita monthly paymen of 1800 rubles to compate for rising bread prices should be scaled back and targeted to the very poor. Sectoral Transformation Structural reform must first be implemented in the specific sectors, such as agricalture, that can generate the faest growth response. The infrastuCture that was damged during the civil stife and recent floods must also be reconsed as soon as the seuity sitation impres to facilitate a supply response in the productive sectors. The agriadtural seaor, which domintes the Tajik economy, needs immediate refonm to promote the economy's rcovery. Although per hectare yields of cotton, the major cash crop, had been the highest in Cental Asia, because of lack of inputs and poor weather, production in 1993 was 38 percent below 1991 levels. The main policy actions required in the short term inude the eiminon of the state order system, Liberalization of prices, and the establishment of prvae land ownship. There has been ittle change so far and the state stil dominates prices, input distribton, and production of key crops. In 1993, the Goverment tightened controls, icreasing cotton delivery quotas from 70 percent to 90 percent of production. Free output prices, coupled with the demonopolizadon of agricuural tade, would give an immediate incentive for collective and state farms to incease efficiency. State farms should also be made accountable by andonnming them to private individual farms or cooperative farms with fll legal and tradeable property rights. Price liberzation should bring about an immedit supply response as soon as profitabMity improves and armers take beter care of their crops and lnd. Over the medim tem, agricultural output should increase even more as farmers faced with higher pnces for their products look for better crop varieties and improve their on-fam water managemet and production techniques. For example, former levels of cotton production could be obtaned with 20 percent less crop area if yields would increase to those of other counties with similar cmate conditions. There is also considerable room to improve livestok production. While almost half of the sectr - other than poultry - is privately owned, the remaining state livestock sector should be privatized. The agricultal sector's problems cannot be resolved under the structure of a command economy. Not only do prices of inputs and outu have to be left free of state intrvention, but the private sector has to be allowed to trade, transport, and disbute. Mega trucding enteprises should be broken up and the ransportion units of various ministries, of the concern Madad, and of state farms should be privatzed. In a market economy, the state does not have a role in direct distribution, processing, or in wholesale and ret trade. When farmers are allowed to get the market price for all xviii Executive Sumnary their products, the rationale to subsidize inputs and credit will disappear. This sector's pmductive profile is likely to look very different under a market economy than it does now. The inevitable restrucuring that will take place will challenge deeply rooted political beliefs concerning the role of the state and its ownership of land. Some products will not be profitable in a market economy and some existing kolhotz and solhotz will inevitably incur losses. The temptation for the Govermment to step in and hinder the development of the market should be avoided. Otherwise, the benefits of the reforms will not be allowed to surfac. Industri Sector. The collapse of the interrepublic payment system, the disappearance of markets, supply shortages, terms of trade shocks, and a general drop in investment during the 1980s have put considerable pressure on the industria sector. In real terms, industial output decl,ed by over 50 percent between 1990 and 1993. Controls, through decrees and resolutions which seek to centrally manage procurement and distribution and implement intergovernmcntal agreements by state orders (now covering 70 percent of output), have been tightened. This desperate effort to secure minimum supply levels has not been effective. Moreover, Govemment intervention in the industrial sector has hampered restructuring and has postponed necessary adjustment to the new ranlities imposed by the loss of Tajikistas main tradig parmers and other permanent shocks. In 1994 and 1995, reforms should begin by elmnating state orders and by lmiting price regulations to specal cases of natural monopoly. All enterprises, whehreprivate or state, should have equal access to credit, have the same tx reannent, and be subject to the same provisions of the comnercial code and bankruptcy la-ws. Subsidies, if any, should be explicit budgetary transfers, so that their fiscal cost is clear. Budgetary tansfers, in trn, should be compatible with the desired budget deficit reduction. Because of its implications for the overall industrial sector, it is urgent for the Government to decide, by the end of 1994, on the particula option it will choose regarding the alumnrwum smelter, which currently wastes a large amount of resources. At present, about 40 perct of hydro- power goes to the alumi=n smneter. If a strategic investment partner cannot be found to provide the necessary technology and capital to carry out the required restuctring, it is recommended that the Government consider shutiing down the smelter, thus saving on electricity use. The social costs of closing down the unit, in terms of unemployment and family hardship, can be addressed though the social safety net. Another urgent industia subsector that needs atention is the food industry. where quality ard safety standards are in urgent need of improvement. The mining sector in Tajikistan has substantial potential, in gold, silver, mercury, zinc, and other metals. Despite the richness and diversity of deposits, some of the existing mines are depleted, remaining deposits are underdeveloped, and national production is far below previous levels. In order to realize its potential, the mining sector must mobilize substantial amounts of capital. Investment will be required not only to reconstuct and rehabilitate war-danaged operations, but also to develop some of the potentially valuable deposits. Tajikistan faces significant competition from other resourc-rich countries for what is likely to be a limited global pool of mining funds. To auact even a small share of these foreign funds the Govermnent must have a sound policy framework for mineral development including a revised mining law that is not open to ministerial discretion and which has transparent samtutes and a clear tax and royalty regime. The authorities should also document internationally acceptable evidence of the attractiveness of deposits in terms of size, grade, and other technical specifications. Tajikistan's educational system provides free education for virtually every citizen. Educational ataintent is high relative to the countrys GDP per capita and there is universal access to nine years of education. Nevertheless, the quality of education is rapidly deteriorating. There have been declines in enrollmet, inmuctional hours, and teacher-to-student-contact. The declines can be linked Executive Summary xix to expenditure reductions in inputs such as textbooks and teacher skill upgrading and the growing share of expenditures going to saaries and benefits to compensate their erosion by high inflation. In the short term, non-salary recurrent expenditures should be protected from furtfer cuts. Over the nedium term, efficiency gainsare one of the few tools the Government has at its disposal to halt the decline in the quality of services. Considerable efficiency ga-s could be realized by expanding the mber of teachng hours, increasing class size, and reducing the oversupply of teachers (which might have already happened due to the sharp decline in real wages in education). Health sertices in Tajikistan are free. The Government inherited from the soviet system a widespread regional network of health faclities that deliver a quality of care above Tajistan's inc level. The population's health profile is a mixture of developed and developing countries. In the past, immnmization coverage was excellent and childhood diseases were under control. Currently, infant and child mortality and morbidity are caused mosty by infectious diseases, while chronic disease is responsile for most adult mortality. High incidence of diarrheal diseases, hepatitis A, and other gastrointesnal diseases indicates poor water and sanitation, as up to one-third of the popuon has no access to rnng water In the short term, the Government needs to address problems in the health sector that stem from the civil war and natural disasters. Rect outbreaks of measles, polio, diphtheria, and cholera should be viewed as early signs of a breakdown in healdt care delivery. The shortage of supplies is contbuting to the health care emergerny now developing in Tajikistan. It will be necessary to provide vaccines and essential pbarmacriial supplics to most of the population for at least a year. Provision of equipment and spare parts to rplace some of the mateials lost in the war and flood, as weU as some important equipment rendered useless due to lalck of maintenance, is also necesary. In addition, there are structural problems facing the sector, some of which need to be quicldy addressed. Private sector paricipation needs to be encouraged by establis'ing clear procdures for licensing private practitioners and nursing homes. This could immediately relieve pressure on the health care system. In the medium trm, improvemeanls in efficiency, planning, and management in the health scetor are vital. Population-to-doctor raios in Tajikista are generous by middle-income developing country standards, though below other FSU oDuntries. The Ministry of Health needs to ientify those specities most in need of new personnel and those that are overstaffeI, so it can stop training health professionals that are in oversupply. Attention should also be paid to promoting preventive care, health education. and imprvement of mntrition and fraily planning. Training health care professionals in modem medical technologies and pmceAres and strengthening the Ministry of Healts institutional capacity are other important areas for the medium term. The Energy Sector. Although Tajistan's per capita overall ener consumption has fortunately been historically among the lowest of the PSU, the fuel shortages which have resulted fm the war are among the worst ever experienced in the region. Most of domestic energy production is concentrated on hydro-dectricity and the country relies on imports for nearly all of its oil and gas needs. In the short tern, the Government must develop a strategy to deal with the fuel shortges, ensuring that key agricultur and essential industry activities and services are not fiurthr disrpted. It is important that the acdvities of Nafesmn (which is responsible for oil product distbution) be made more transparent to allow fidl oversight of its economic activity. To ensure that energy use is as efficient as possible, a rapid transition to economic pricing of energy should be implemented. Prices for electricity and fuel to households wDI have to be raised. While it may not be practical to ask households to pay the full economic cost of fuels immediately, prices shoud be raised substantially and comensaton tough the social safety net mechanism shouid be considered for some spedfic groups. xx Executive Summary In the medium term, the energy sector's institutional capacity must be strengthened in order to better develop and implement energy policy. The responsibility for energy policy and oversight of energy enterprises should be centralized within a single ministry or department. Once the fuel supply situation has been stabilized, the policy focus should shift to strategic investment planning and restructuring. An assessment of fuel use priorities will be important. A key consideration will be the best use of Tajikistan's large, installed hydro-power base. As part of a review of both the energy situation and the alumninmn smelter's future, it will be important to tale full account of the economic cost of this enterprise's large use of fuel. Reduced demand fron the smelter could allow greater use of electricity in domestic heating and cooking, for example, which would save high cost imports of LPG and natural gas. It also is possible that power saved by reducing the alumiinm smelter's use could be exported to neighboring countries to help fnance the costs of oil and gas imports. The future development of Tajildstan's large hydro potendal is another key imsue. In view of the high costs involved in constructing the Rogun and Sangtudin projects, and given the uncertainty of demand from both domestic and export markets, it is recommended that further work on these projects await the outcome of a special study to analyse the export demand for power from the Rogun project (from such countries as Pakistan and other Central Asian countries). Environmental and social impact of the construction of these projects should also be careful!y evaluated before further work. Transport and Telecommunicadons. Although Tajildstan's transport system is relatively well developed, lack of competition has kept it from reaching a state compatible with the requirements of a market economy. Eliminating excessive regulations and creating necessary incetives to restructure the transport enterprises are critical for the system's efficient development. In the medium term, the privatization plan should cover enterprises in the transport sector. Enhancing the efficiency and productivity of the remaining state-owned trsport enterprises should also be emphasized. Like its trasport systems, Tajikistan's telecommunications system also needs inprovement. Immediate emergency reconstructon is needed in Dushanbe and the southern part of the country to restore capacity to levels prevailing before the civil war and floods. Active private sector participation could play an important role in developing this sector. Enmironnment. Water resources, fertile soils, and biodiversity (flora and fauna) are primary national assets of Tajikistan. These assets, as well as clean air, are being threatened by failure to take environmental considerations into account in agricultural practices, industrial development, and waste management. For instance, the inappropriate use of pesticides and fertilizer in the major cotton producing areas has contaminated the soil as well as surface and ground water. Given the wealth of its resources and the considerable vulnerability imposed on them by topographic and climatic conditions, it is important for Tajildstan to develop mediun-term strategies to promote better drinkdng water distribution, treat waste water, manage solid/hazardous waste, replace polluting technologies with cost- effective dean technologies, construct adequate drainage systems that minimize soil salinization, install efficient irrigation systems and implement environmentally benign pest-control options. The authorities should adopt realistic standards for air and water qualiry and establish interim emission standards that will allow a move to the new standards within a reasonable time period. Medium-Term Outlook and External Financing Requirements As the political and security conditions stabilize and the Govermnent demonstrates its comnmitment to the stabilization and structural reforms outlined in this document, the economic decline could be moderated. Overall output could stabilize within a few years after reforms have started and have shown positive growth rates thereafter. Over the medium term, the agricultural sector can be expected Excutive Summary xxi to grow steadily as reforms are implemented in the areas of producer prices, state orders, distribution and ownership of agricultural assets. Assumning that trade agreements with the FSU, particularly Russia, are reached and that the Government proceeds with privatization and enterprise reform, the industry, service and trade sectors will likely stabilize after a few years and will start growing thereafter. Provided that the Government remains committed to reforms, a limited recovery of investment may be expected to materialize primariy in infrastructure repairs, housing, and construction. Since the population will try to maintain previous consumption levels, it is expected that private savings will not start to rise before the third or the fourth year after reforms begin. With progress in privatization, price reforms, better targeting of social assistance, and tax reform, p"blic savings could improve. It should be noted, however, that even with strong stabilization and structural reforms and adequate donor support after four years. real GDP will most likely reach only 50 percent of its 1990 level. The country's development prospects will not be realized if the Government is unable to introduce a comprehensive economic reform program. Without reforms, the process of reallocating factors of production would not start for sometime and adjustment in the industial sector would be delayed, severely limitng supply response possibilities. With continued state orders in agriculture, tight control of production, and inadequate supplics of imported inputs such as ferlizer, agricultural output would continue to decline. Wlthout die necessary legal and regulatory framework it is expected that the formal serice sector would not resume growth. Delayed trade reforms would cause Tajikistan's exports to stagnate while its import requiements would continue to be high. Lack of inputs, condtnd centrlzed procurment, and export restictions would limit cotton exports. Sinee Tajiastan's imports are made up mostly of petroleum. natural gas, and grain, - products with low easticities of substitution - the decline in import requirements would be limited despite fallig growth rates. Under these conditions, Tajikistan's extrnal financing requiements would keep on growng. In the absenmc of a stabilization and stn dual reform program such a gap could not be financed. If the refom measures are implemented, the interatiDnal community is likely to contnrbute to the financial and techical assitance needs of the country. Technical assistan=c will be needed to overcome exisg bottlenecks and istitutional constrawits. External financial resources will be required to finance pnority imports needed to rehabilitate the economy and fcilitae the recovery of production. Due to isufficient information, it is extremely difficult to project the cor's trade prospects and financing requirement. But prelinary estmat suggest that Tajikistan's financing reqirements could average US$260 to US$280 million per annm over the fist few years of reform. Although these are large amounts they could be mobilized from international donors provided Tajikistan undertakes meanigful economic reforn and atains political stability. Tajikdstan's financing requiements are large in reion to its economy and debt servicing capacity. To decrease debt servicing costs - to a manageable level of around 20 percent of export earigs - most of the country's financing and technical assistance would need to be in the fonn of grants or highly concessional loans. The combination of a strong reform program, the country's low per capita income, very large consumption decline in the past few years. and almost negligible creditwortess justify a large degree of concessionality in its financing requirments. The World Bank has identified Tajistian as an IDA-eligible country. There are risks to the reform program: (i) continued political instability; (ii) weak commitment to reform; (iii) limited implememttion capacity; (iv) adverse external enviromnent; and (v) unavailability of exernal finang. The frile political situation poses the most uncertinty, xxii Exeutive Summary diminishing public confidence in the economy and hindering the successful implementation of reforms. Even if political stability is achieved, lementng the reform program may result in a drop in real wages. generating dissatisfaction among wage earners. Reductions in conswner subsidies and the need to exercise financial discipline by enterprises may also increase opposition from managers who have benefited from soft loans and easy budgeing. Pressure from dissatisfied grups may delay or even derail the reform program. However, without reform, economic instability will increase and the economic crisis will deepen. The costs of exorbitant inflation, inefficient enterprises, and unfulfilled financial and technical assistance requirements would then far exceed the costs of continuing reform. With political stabiity and genuine Government commitmen to reform, the authorities wiU still be confronted with the complex task of designing and implementing the reform program. Tajikdstan curently lacks the institutional capacities and the skill and experience required to design and carry out the refonn program and move toward the market economy. Tecnical assisuce from the World Bank and other donors should be provided to facilitate the design of a refonn program and enhance the Govermnent's implementation capacity. The extrnal and exogenous environment may also undermine the success of the reform program. ln addition to the increase in security-related expenditures in te absnce of peace, odter exogenous fctors influencing the reform programn include economic and political developmentsin dh Russian Fedration, with which Tajikistan mamitins close ties. FmnaUy, lack of adequate extenal financing could jeopardize the success of the reform progranL Extenmal financing is dependent upon both the resolution of the conflict and the implementation of reforms. W-ithout extenal financing Tajildstan must cunrml investent and consumpdon - to the detrnent of output recovery and public support for oontnuing the reform progrm. Design and implementation of a comprehenive reform program wil be critical to mobiizing the necessary external resources for on and to meet the countrs technical assistance requiremets. Tajikistan has no dieu experience with manag eterna fianca and technical assistance. Effecrve use of these resources very much depends on the countr's ability to coordinate the varous types of assince, inludig matching requirements with available resources and making effective use of available aid funds through knowledge of the ive, financial, and procurement procedures of various aid agencies and donors. The World Bank has provided a grant under the Insdtutional Developmet Fund to assist Tajildstan in setting up an External Assistance Management Unit. THE MACROECONOMIC FRAMEWORK This part of the report reviews recent economic development in Tajikistan (Chapter 1). It then analyzes the priority measures necessary for the transformation and stabilization of the economy, assesses the medium-term outlook of the economy and evaluates the country's external financing requirenit (Chapter 2). The disruption in the trade and payments systems has complicated macroeconomic management and the civil strife and floods have heavily damaged the country's infrastructure. Output bas significatly declined, prices have sbarply increased, public finances have deteriorated considerably and real incomes have been substantially eroded. Resolving the current economic difficulties requires the Government's firm comitment to initiate a reasonable refonu program. The economnic crisis has deepened to an extent that no further delay of reform measures can be countenanced. Provided the Government shows strong commitment to stabilization and strucural reform as discussed in Chapter 2, the decline in economic activities can be moderated, overall output is likely to stabilize by 1995, and positive growth rates will be realized thereafter. Adoption of such a reform program will encourage financial and technical assistance support from the donor community. CHAPrER 1 BACKGROUND AND RECENT ECONOMIC DEVELOPMENTS 1.1 Tajikisman is bordered by Uzbekistan, Kyrgyz Republic, China and Afghanistan. Its territory is largely mountainous and includes the FSU's tallest peaks. With an area of 143,000 sq kan and a population of 5.6 million in 1992, Tajikistan has the highest rate of population growth - 2.9 percent - in the FSU. Eighty percent of the population is Muslim. The ehinic distribution is 62 percent Tajik, 23 percent Uzbek, 8 percent Russian, 1.4 percent Tatar and 1.3 percent Kyrgyz. The modem Uzbeks, Xazakhs, Kyrgyz and Turknens are of Turkic origin; the Tajiks are Persian in origin. 1.2 The political situation remains tense and fragile. After independence in September 1991, clan and regional rivalries, dormant during the Soviet era, erupted into civil war. The war ended in May 1992 %t'en a coalition Government was formed, but was short-lived, as the parliament voted the President out of power in September 1992. A broader based coalition ruled for one month, after which Parliament elected Imamali Rahmanov Head of State. The Rahmanov Government has been able to gain control of most of Tajikistan's territory with skirmishes confined to a strip around the Tajik-Afghan border. Outside military support has come mostly from Russia and Uzbekistan, although some troops from other neighboring republics have also been involved, e.g. Kazakhstan and Kyrgyz Republic. 1.3 Since 1929, when it became a Soviet republic, Tajildstan has had a centrally planned economy with extrmely close ties with the other FSU republics. Before its independence in 1991, the country gradually shifted from a strictly rural and nomadic economy to one with a substantial industnal sector, which primarily produced semni-processed raw materials. idustrialization was made possible by large investments financed by Union grants and subsidized loans. A basic transportation network of roads, railroads and aviation was developed. Substantial investment in the social sector has resulted in near universal adult literacy and a free and relatively well developed health care systemn However, with per capita income of US$480 in 1992 - about 55 percent of the Soviet average - Tajilcistan remains the poorest FSU republic. 1.4 - Despite its independence from the F Mal a m hdcatm FSU, Tajikstans economy remains highly FM"* of 9Sa _d. Unin dependent upon that of the Russian Federation and tanr%m hIn S- si*dudod. other FSU menbers. The structure of production, - particularly the industrial sector, is still highly integrated with the FSU, due to regional specmalizaion imposed by central planning. This 1 1 fli exposes Tajikistan to the FSU's economic -'a U J instabilities caused by disruptions in trade and -s payments systems and complicates -| macroeeonomiv management. At the same tme, civil war and floods have heavily damaged -o -n an _ Tajistan's infrstructure imposing additional _ W constraints on the country's development. As a result, Tajikistan has experienced much more severe output declines tm other FSU countries, as well as unprecedented price increases, an erosion of real income and loss of control over public finances. (Sce Figure 1.1.) 4 Chapter 1 1.5 Poor data make it difficult to assess the overall mac oom ic situation. The civil war led to breaks in key production figures. Data on consumption, savings, and investment after 1991 are not fully consistent or organized in a national accounting framework. Price indices arc not comparable over tine. Items that could not have been produced, due to shortages of raw materials and the civil war were dropped from the indices, making inflation calculations difficult. Trade data are not reliable, and there are significant gaps between domestic production and export and import figures, particularly with respect to cotton (possibly reflecting unrecorded transactions). Due to the civil war and the country's instability, the newly created NBT lost a large number of its skilled staff, which led to breaks and inconsistencies in monetary data. Production and Expenditure 1.6 After growing at an annual avcrage rate of 2.5 percnt between 1980-85 and 4.7 percent between 1986-88, Tajikistan's economy began to contract in 1989. NW fell by 2.9 percent that year. Since then, output has been declining. While the drop in output was limited to 1.6 percent in 1990, it accelerated significantly during 1991 and 1992, when NMP declined by 12.5 and 33.7 percent respectively. The economy continued to contract in 1993 with output falling another 28 percent (Table 1.1) and real GDP in 1993 down to about 40 percent of its 1988 level. Table 1.1: Real Growlh In Net Material Product 1988 1989 1990 1991 1992 1993 Agricuklre. including foresty 10.9 -13.0 -9.18 -9.9 -27.7 Industry 15.0 1.9 1.9 -7.4 -35.7 Oher 5.8 6.4 2.2 -26.8 -47.2 Net Material Product 12.1 -2.9 -1.6 -12.5 -33.7 Gross Domestic Product -28 Souwe: Star Stalisal Commite of Tajikistn. 1.7 Although all sectors have expeienced the decline in economic activity, the decline in agriculture began earlier. The agricultural sector, which has registered negative growth rates since 1989, fell by about 10 percent in 1991 due to cold weather and heavy rainfall early in the planting season. In 1992, the situation worsened as shortages of key inputs and eruption of civil war severely hampered production despite relatively favorable weather conditions. Output of almost all agricultural products declined and production targets for cotton, a key export item, could not be attained. Important items, such as silk thread and cotton fibers, declined by 56 percent and 67 percent respectively. The agricual sector as a whole declined 28 percent in 1992. 1.8 As Table 1. 1 shows, the industrial sector did not start to decline until 1991. Before that, the FSU fmnanced continued investment in the sector and funded ongoing projects. With the reduction and ultimate cut off of these transfers, as well as trade and payments system problems. industrial output declined by about 7.5 percent in 1991. The contraction deepened in 1992 and sectoral output fell by about 36 percent, contributing to the large decline in NMP. The construction subsector was hardest hit, declining by 73 percent in 1992. Service sectors also declined. Retail activity dropped 35 percent in Background S 1991 and 68 percent in 1992. Road freight and passenger traffic decreased about 60 percent in 1992, and preliiinary estimates suggest another 50 percent decline in 1993, with rail freight expected to be only 33 percent of its 1991 level by the end of 1993. 1.9 Two main reasons for the sharp output declines reinforced each other. First, with the break up of the FSU, supply and marketing links under the interrepublican trade system deteriorated and eventually broke down, triggering the initial decline. Bilateral trade agrements between Tajikistan and the rest of the FSU could not make up for the loss of previously centralized trade arrangements, and given Tajikistan's dependence on importing key inputs, the situation gradually worsened. Disruptions in the flow of raw materials and fuel led to progressive reductions in capacity utilization rates. By 1992, a large number of factories were not operating at all. The drastic fall in real household income reduced aggregte demand and contributed to the decline in economic activity. Second, the advent of the civil war and floods in 1992 and 1993 delayed reforns and severely reduced the effectiveness of initial measures, introduced in 1991. In addition, the war and floods damaged the country's infrastructure, imposing serious constraints on the activities of productive units and preventing the development of a new system to take the place of the old one. Table 1.2: T2jldatamn Natinal Accounts Sumnary (percent of NMP) 1985 1986 1987 1988 1989 1990 1992 National Income Produced (Net Material Product) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 National Income Used 118.0 120.0 120.0 116.0 118.0 115.0 116.1 Consumption 85.0 94.0 95.0 89.0 96.0 98.0 91.9 Private consumption 78.0 84.0 84.0 79.0 85.0 87.0 83.9 Social consumption 10.0 10.0 11.0 10.0 11.0 10.0 8.1 Accumulation 30.0 26.0 25.0 26.0 22.0 17.0 14.8 Resource Balance e -18.0 -20.0 -20.0 -16.0 -18.0 -15.0 -16.1 aI Resource balance reprsents the difference between national ime produced and nationu income- used, except for 1992, whenr an actual trade deficit figure is used. Sources: Goskomstt, IME and Bank staff esfimates. 1.10 The lack of data on aggregate demand and its components makes comprehensive review of patterns and changes in national expenditures difficult. However, Table 1.2 provides a rough picture of Tajikistan s overall expenditur pattern. From 1980-85, Tajikistan maintained a relatively high negative resource balance because a large amount of external resources came in from the FSU. As the table shows, external resources from the Union climbed to 20 percent of Tajikistan's NMP in 1986 and 1987, and declined to 15 percent in 1990. Consumption over the 1985-90 period rose from 88 percent of NM!P to 98 percent, almost all due to the increase in private consumption, which accounted for 87 percent of NMP in 1990. 6 Chapter I 1.11 Since 1990, there are no consistent consumption estimates.' Nevertheless, preliminauy national income accounts suggest that real consumption may have declined in 1991 and 1992 by 22 and 40 percent respectively. Trends in monetary income and personal expenditures, retail turnover and wages, which also can be taken to indicate the evolution of consumption, point in the same direction. During 1992 and 1993, price increases surpassed these indicators by a wide margin, suggesting a substantial decline in real consumption. Real decline may have been partially mitigated by dissaving and the emergence of black markets. Based on a survey, the Govenznent estimates that black m.arket tumover ray be as high as 25 percent of total retail turnover. 1.12 lnvestment accounted for about 30 percent of NMP in 1985, gradually declining to 26 percent in 1988 and 15 percent in 1991. The initially high levels of investment reflect the capital- intensive nature of hydroelectric, infrastructure and other industrial projects. Lack of savings due to high levels of domestic consumption during 1985-91 meant that most investennt financing came from Union transfers. According to preliminary data, real investment fell by about 36 percent in 1992. There are two reasons for this. First, the external resources from the former Union abruptly ended that year. Faced with this revenue shortfall, the Governent started tightening its expenditures. Second, as a result of thc civil war, there was virtually no fixed investment in the second half of 1992. In 1993, budgeted capital expenditures, which provided the only source for enterprise investment, were further reduced to as low as 5 percent of NMP. The sharp falls in investment significantly contributed to the decline in the overall economic activity. 1.13 Except for 1988, domestic savings steadily declined during the 1985-90 period, reflecting the rise in consumption. Savings as a percentage of NMP fell from 12 percent in 1985 to only 2 percent in 1990. Since then, data are not reliable enough to make an accurate assessment, but anecdotal evidence suggests that dissaving continued in 1992 and 1993 as the population sold off assets to maintain consumption levels. Since the loss of Union transfers is permanent, Tajildstan must take immediate action to reverse the declining savings trend in order to finance new investment and take the initial steps necessary to put itself on a path of self-sustaining development. Employment ad Wsges 1.14 Offcial figures vary as to unanployment levels, with some figures indicating very low levels of unemployment. As a centrally planned economy, Tajikistan did not previously experience open unemployment because the State would employ almost everybody. For 1991, official data shows only 8000 people unemployed. In 1992 and 1993, official data show little change in the unemployment figure. However, anecdotal evidance, together with Taji.kistan's high population growth rate, 3.1 percent per annum, and declining output, suggest that unemployment is much higher than official figures. 1.15 From 1980-1990, wages remained fairly stable growing at an average annual rate of about 8 percent. Since 1990, wages have steadily increased, although these increases did not keep up with rising price levels, implying a decline in real terms. Goskomstat data indicate that average wages increased by 10 percent in 1990, to 207 rubles and by 64 percent in 1991 to 340 rubles. Wages rose throughout 1992, from 724 rubles in January 1992 to 4336 rubles in December 1992. The average wage 1. Ptior to 1990, Goskomsta in Mosww provided these statistics. Since then, this responsibility has been assigned to Tajikistan's Goskomstat, which has no skilled personnel to prepare such data in a national accounting framework. Background 7 reached 14,317 rubles in August 1993. In the beging of 1992, the minimum wage was doubled, from 1000 rubles to 2000 rubles. To mitigate the effects of price rises, the minimum wage was again doubled in May 1992, to 4000 rubles and in October 1992, to 8000 rubles. However, with prices increasing at a rate of about 30 percent per month during 1993, real wages declined. Public Finance and Fical Policy 1.16 The state budget of the Republic of Tajikistan includes the Republican Budget, and covers eleven regions, five cities (including Dushanbe), three oblasts and some villages. There are four other main extrabudgetary funds: the Social Insurance Fund, the Pension Fund, the Employment Fund and the -Road Fund. Although these are funded from wages, the state budget covers revenue shorfall. 1.17 Under the centrally plamed system, the state budget was an instrument for attaining plan targets. While state enterprises operations were not included in the state budget, they accounted for about 20 percent of revenues and received transfers from the budget to finance their investmen. Thus, the stte budget accounted for a large part of overall economic actvity. The state's dominance in the economy is reflected by the high ratio of expenditures to NM, averaging around 65 percent during 1985-90. However, domestic revenues persistently lagged behind expenditures over the same period, resulting m a structural deficit of 17 percent of NMP on average in the second half of the decade. Union transfers more than financed the difference between domestic expenditures and revenues and kept the overall budget in surplus until the end of 1991. In that year, these transfers accounted for about 50 percent of total revenues. 1.18 Traditionally, the main domestic sources of revenue have been mmovcr, profit, and personal income taxes. During 1985-90, their shares in total revenues averaged 50, 25, and 8 percent, respectively. On the expnditre side, current expenditures averaged about 85 percent of total outlays, or 65 percent of NMP in 1985-90. The largest item, subsidies and tansfers, absorbed about 36 percent of all expenditures between 1985-90. Capital expenditures, financed by the budget, averaged 15.5 percent of all budgetary exenditures between 1985-90. 1.19 The sudden drop and eventual cutoff of Union tansfers after independence has led to major changes in public finances. Anticipating a lower level of transfers for the remainder of 1991, the Government imposed strict expenditure controls. Almost 70 percent of all budgeted capital investments were put on hold and funding for unfinished projects, particularly in housing, was sharply reduced. As a result, total capital expenditures in the budget declined to 2.6 percent of total expendiures in 1991, from 17 percent in 1990. However, social expenditures could not be adjusted. To compensate for rising prices, subsidies and transfers were increased, absorbing 55 percent of total outlays, up from around 39.4 percent in 1990. In real terms, however, expenditures declined as price levels rose 200 percent followitig the first round of price liberaliaion in April 1991. Nevertheless, owing to the severe capital outIay cuts, total expenditures for the year were below the targeted figure. 1.20 The 1992 budget originlly targeted deficits at 6 percent of expenditures to adjust for the permanent loss of Union transfers. At the same time, as part of fiscal reforms, the Government introduced value added (VAT) and excise taxes in early 1992 and eiminated tunmover and sales taxes. While these measures moved in the right direction, coupled with declines in production and trade, their immediate effect was to generate less revenue than expected. VAT receipts were 700 million lower than expected, while excise taxes brought in only 2 billion rubles of targeted 5 billion rubles (Table 1.3). Revaluation tax revenues were the only revenues exceeding planned amounts, due primarily to rising infladon. 8 hapter 1 Tae 1.3: TaJaInI SWte Budng, 1991-93 (in u:E1I of nuhks) 199 g1992 1993 Planned Budnel for the Year flra! acar original amended Total Revenues and Gns 5.457 17.441 74.352 14.021 170.113 TuhroverTax 955 112 - - - VAT - 4.300 32.00, 39.565 65.417 Excise Tax - 2.145 9.100 22.757 13.401 Sdes Tax 219 172 - - - Eterprise Profits Tax 604 5,398 1,879 19,455 43.947 blcwe Fom Puivazation - 434 100 100 1.412 Tax on Proflis of Cooperavs - 305 427 400 1,S78 Persa ncue Tax 333 1,634 5,363 8.,87 13.954 Sxte Fees. Loa Taxes and bIeomes 1692 230 320 328 2.109 Revahuaton of Enteqis Ivendtis 393 1.431 1.000 4,4S 9.848 Export Tax 1 43 320 160 1,316 InpotTaX 1 42 - - - Union Tansfers 2.543 - - - - Othr - - 7.569 - 17.131 Total Expediue 5.02D 37.094 14.570 255,549 326.532 Naioul Economy 1.315 18,142 46.1S7 48.775 117.051 ScandOw Cullor tivites 3.138 13.744 79.471 34.000 103.428 ducinron - 7.542 48.403 48.318 55.653 Culmuc - 581 3.093 3.425 4.310 Healtb - 3.611 19.419 19.858 34,29 Sports - 19 57 79 82 Aid for Singlc Molbs - 25 39 39 - Social Smcurity - 1.966 8.460 11,781 9.086 Science 18 196 I'M27 1,394 1.704 Ste Apponts and Coon 82 602 7.151 7928 17.726 Police 49 2.056 17.779 18.231 638 Defence - 255 14.463 28.664 24338 Coenao- - - - 4.500 35.862 Other 418 1,124 3.833 48.371 25.785 SuupkslDeticit 437 -19.653 -110213 -151.831 -156.419 As per t of GDP 3 -37 -24 -33 -25 Scuuc Maisty of Fbince. 1.21 Meanwhile, the outbreak of the civil war and rising ation caused expenditures to increase sharply. In part, the rise in expenditures reflected the Govermnent's efforts to mintai the populations living standards by increasing nominal wages and subsidies. hvestme expenditurcs have declined. The actual deficit was 19.6 billion rubles in 1992, accounting for 53 percent of expenditures and 37 percent of GDP. 1.22 The fiscal situation continued to deteriorate in 1993, with deficits at 25 percent of GDP. Revenues remained stagnant, in large part reflecting the effects of declining output. At the same time, prices increased more than 20 fold during 1993. With price controls on seven key items, the subsidies incrased the budget deficits. As a result, the budget was amended again in 1993. The original budget, Bac-9p6md 9 which planned a 110 billion rubles deficit, was revised to 249 billion rubles. However, the actual deficit for 1993 was 152 billion rubles. Large deficit increase was caused mainly by new wage incrases along with subsidies, which started in August 1993 to cmpensate for price increases for bread and butter, and payments of arrears to bakery houses, arising from previous subsidies. Increased defence expenditures and flood relief also contributed to the rise in expenditures. 1.23 In the absence of ocher sources of financing, the budget deficits were financed entirely by NBT. This proved to be highly inflationary and its continuation would seriously undermine any stabilization reform. Current fiscal policy has also become an instment for financing consumption, particularly in the forn of higher wages and subsidies. The current fiscal policy is not sustainable and must be reversed. Serious efforts are needed to increase tax revenues and reduce expenditures to amounts in line with available resources. In the absence of fiscal adjustment, the Central Bank of Russia (CBR) may refuse to honor its commitments under the proposed mnonetary union with Russia, which will complicate macroeconomic management In any event, economic stabilization will not be possible if budget deficits are not brought under control. Monetary and Financial Developments 1.24 Prior to the FSU's break up, Tajikistan's monetry policy passively aoodated the financing needs of the annmal plan and the budget The overall money and credit conditions in the coumtrv were determined by the former USSR's Gosbank and depended upon actual mplementation of the plan. Policies were carded out by the Dushanbe branch of the Soviet Gosbank through the credit plan, which set out deposit and credit targets for the entire econmy, credit programs fbr the Stare banks and direct lending to state enterprises, cooperadves and individuals. Interest rates were not used to mobilize and allocare resources or to manage aggregate demand Hence, monetary policy did not play its role in the sen-- understood in market economies. 1.25 In early 1991, the Government took some steps to initiate refonns in the financial sector. In February 1991, the Supreme Soviet enacted laws founding the NBT and regulating banking and other financial activities. NBT was authorized to conduct monetary policy and supevise dte bandng systeuL However, reforms have not yet led to changes in the way resources are mobilized and allocated. While the banks have been given more feedom in their lending decisions, in practice, credit allocation has remained subject to a varety of controls aimed at supporting existing state enterpnses and pnonty sectors. Banldng operations are also heavily concentrated. At present, three former stae bank control about 96 percent of lending, while the Sberbank dominates mobilizing the population's savings. Since 1991, interest rates have remained highly negative in real terms and have been lower than Russian rates. 1.26 In September 1993, Tajikistan signed an agrment in principle only, with Russia to create a monetary union. However, the basic terms of agreement are still being negodated and the framework and operational arrangements for full monetary union with Russia are yet to be finalized. In November 1993, Kazakhstan and Uzbekistan opted out of the mble zone and introduced their own currencies. This cxposed Tajikistan to a massive inflow of old rubles, further increasing inflationary pressures. After monthly inflation rates of 33 percent on average during January and October 1993, consumer prices rose to 63 percent in November and 176 percent in Decenber due mainly to te influx of old rubies from neighboring countries. On Jamuary 1994, Tajikistan stoped using the old (pre-1993) Russian ruble as its legal tender, with the exception of small denomination notes which continued to be used to purchase bread, newspapers, stamps and for city tasport. Tajikistan obtained a loan of 120 billion rubles for the shipment of new cash rubles from Russia in Januay 1994. This loan carries an e., 10 Chapter 1 ilnterest of L1BOR plus 2; repayment is expected to begin in June 1994, although Tajikdstan's full entry into a monetary union would forgive this loan. 1.27 As Tajikistan exhasted its credit with most FSU republics, interrepublican payments through official channels declined throughout 1992 and 1993. To avoid appropiating their earnings and delays caused by blockage of the interrepublican crespondent accounts, Tajik enterprises resorted to shipping curency, barter and maintaining new ruble accounts in Russia. The resulting sharp increase in enterprises' demand for cmurey and the use of currency for interrepublican trade has reuled in a currency shortage in the country. Table 1.: MaI Monetary Aggregates (u nionms or rubles) Dec 1991 Jun 1992 Dec 1992 Sep 1993 Dec 1993 Net Foeign Asses 16.7 12.424.1 676,150.8 1.173.2942 1.047.055.9 Net Domestic Assets 5,1179 21,919.8 -40,846.7 439,16L0 -50,704.2 Credit to Govenmt -5052 -967.8 706.6 100.009.4 202,103.0 Credit to Odter Governim -336.1 -9923 -1,674.2 -19,2082 -20,666.6 Credit to the Economy and Other Items, et 7,0291 4,879.9 639.879.1 -919962.2 -688.140.6 Credt to die Economy 6,884.6 26.702.7 71,916.2 467,183.0 633,680.6 Other Items, net 144.6 -21.822.8 -711.7953 -1,387.145 -,321,821.3 Liabiities 5,204.6 15,3429 35,339.7 334,126.2 540,3S1. Currency Outside Bns 2.1142 4.414.8 17,617.1 131.3722 175.4042 Deposits 3,090.4 10,928.1 17.722.6 202,754.1 364,947.6 Veleity of Broad Money 2.57 2.09 1.95 2.3 1.54 Nomna GDP 13,400.0 7,971.0 17,2S7.0 203,110.0 207,400.0 Sources: NIT. 1.28 According to official daa provided by NBT, domestic credit growth has been high. with one third allocated to finance the Govermen budget and two thirds to state entprises. Credit to Goverment increased from 707 million rubles at the end of 1992 to 100 billion rubles by September 1993. Between September 1993 and December 1993, credit to Government doubled to 200 billion rubles. Credit to economy, mostly enterprises, also increased dramatically - about 9 times relative to its 1992 level (Table 1.4). In line with these developments money supply has been increasing since 1991. By the end of 1992 and 1993, broad money increased by 7 and 15 times respectively, which was more than broad money increases in Russia. Prices 1.29 The Government initiated the process of price liberalization in April 1991. At that time, price controls on a limited range of goods were lifted and the prices of goods that remained under price control were raised significanly. On January 10. 1992, a second round of price increases on a much wider scale took place. Price contols on 80 perent of goods were eliminated and only eight items of industria goods and fiftee items of consumer goods were r:t liberalized. These controlled item represented abot 15 percent of goods and services. Since then, the Govenment has fiuther reduced price controls. As of the end of October 1993, only 2 percent of the number of goods covering seven Background 11 items re.i undcr price controls Crable 1.5). Fi12;Rtl&Woe ePreInx hose seven items stl rep a significant 2: Retail Who Poe Index portion of consumer expendib, however, and continued control of these prices would wormen the budgetary situation. 0 / 1.30 When Taildstan was part of the U . Soviet Union, prices were severely repressed. so Official figures show a very modest infaion rate of 4.4 percent in 1990. However, since 1991, prce increases have begn to accelerate and t __ S I follow a patern similar to that found in other . _ FSU ountries, which depends on the pace and -*w -w_ magnitude of Russian price liberlzation. It is _ esmated tt the iial round of pnce liberalization resulted in an inflation rate of 95t1 pee in 1991. In January 1992, after Russia raised its prices, Tajikta experienced an inflation rate of more than 200 percent in that month alone. Price increases continued fhroughout 1992. Preliminary Table L3: LIt of Mai Cnsume Ptoduts and Sevies Subjec Slat Pike Reguaton kern Date of Liberaliato Flow (CrdelIudl) * Bread * Wilk. Dir Swr-Milk Products. Fa e Curds * Lomcly Pod M Mah 31, 1992 Baby Food. including nutritio conats June 1, 1992 Food Salt March 31, 1992 Sugar Ju 1. 1992 Vegetable OH October22 1993 odkac Spirit November26, 1992 Matches December27. 1991 Medicine and Medical Tools Febna 1, 1992 Technical Means of Prophylctic Trmnt and RehabjaiSon of Disabled February 1. 1992 Ptroleum, Diesel, Kerosene * Fud. Fiewood. Gas, Oil July 6. 1993 Utilities S Housing Fee. induding dorm fee Transport and Communications Services * * Indicates prices undr Govenmen conol Sauce: Miny of Econoy. data Cable 1.6) show an inflation rate of about l400 percent in l992 in terms of reail prices. The monthly inflation rates averaged about 30 percen between January and October 1993. However, inflation rates increased to 63 percnt in November and 176 percent in December due to the ianux of old rubles finm several neighboring countries when they introduced their own currencies in the last two months of 12 Chapter 1 1993. Between December 1992 and December 1993, prices inreased more than 20 times, measured in terms of the Consumer Price Index. Foreign Trade Table L6: Monibly anges in Retail and Wholesale Prices L31 Tajikistan has inherited an Year Moab Reail Price Wholesale Pice economy that is highly dependent on trade and vulnerable to eternal shocks. By 1990, 1992 1 213.1 136.9 merchandise exports and imports accounted for 1992 2 73.1 260.2 36.5 percent and 56.2 percent of NW. 1992 3 12.5 7.5 respectively. Iterrepublican trade accounted for 1992 4 87 57.8 89 percent of total exports and 81 percent of total 1992 6 13.4 7.1 imports in 1990. Such a high share of trade does 1992 7 13.0 42.8 not reflect the openness of the ecnomy, but 1992 8 17.5 10.6 rather, the interdependency of FSU economies 1992 9 IOA 67.6 due to pronounced regional specializion 1992 to 8.0 6.1 imposed by centra planing. Tajikistan's foreig 1992 11 6.8 6.6 1992 12 13.6 13.1 trade is characterized by a limited range of IM 1 19.0 146.1 products. Alumium, raw cotton and etcile 1993 2 24.4 832 products, make up about 60 percent of its 1993 3 34.6 50.0 exports, with the rest mainly fruts and 1993 4 63.9 415 vegetables, silk, marble and hides. The country 193 6 3.9 16.2 imparts a large part of its energy needs - 1993 7 31.8 17.9 particularly petroleum products - almost all 1993 5 43.0 23.3 manuhctured coner goods and, increasingly 1993 9 36.4 13.1 during the last two years, grain It is estimated 1993 10 25.1 74.8 that between 1985-90, Tajikisran cuent ac t 1993 i 63 24.3 deficits averaged about 18 percen of uW. In 1993 12 176.9 35.8 part, these large and sustained deficits reflected O GosCoosa cetrally planned development policies that required substnt imports of capital goods and were financed by Union transfers. 1.32 The external shocks, civil war and natural disasters of the last two yea esulted in Table L7: btleal Trad 11-3 (n mUon df large declines in trade volume. A sharp collapse of output, pardcWlarly in 1992, also contributed to 1991 19 declining trade volumes. Tajildstan's inability to - - honor some of its trd agreemens led other FSU Eart 3.944.6 37.093J countries to reduce their shipments to Tajilistan Balm= 276.9 46.917.9 and insist on settling interrepublican correspondent accounts before issuing new trade SOUwcC GLoscasb credits. 1.33 Official data, although not reliable due to measurement problems and the multiplicity of exchange rates and prices. indicate that tade has been contracting. According Goskoma, in 1991, imports totalled 3.67 billion rubles, 84 percen from FSU and 16 percent fiom non-FSU sources. Exports amounted to 3.94 billion rubles, 79 percent going to FSU and 21 percent to non-FSU, creating a small Background 13 FI.tS: Sutm of Expats 1990 (YakS Cams In ICmd prisms F4l:Stulhn af Impart 1990 IW _" b 10110sd6 pries cetala ~ ~ ~ ~ ~ ~ ~ au amew fluuiwy 27 f I surplus of 278 million rubles. Howeer, the surplus was Talme 1J.: Ralc or pans (in mama of US due to the shar fall in imports than improved export dolgn) performance. Trade balance deteriorated in the following im years. Official figures indicate that, in 1992, exports were about 37.5 billion rubles, while imports were about Tool Expons 418 44 bilion rubles, resulting in a trade deficit close to 7 Tot IWnyn 637 billion rubles in 1992. Relative to NMNP, boti exports Trade Brn -219 and imports fell in 1992. For 1993, total exports and NetSevices -6 imports were expected to be US$418 million and US$637 Net le= -6 million, respectvely, resulting in a trade deficit of about Net Non4acwr Senices 0 30 percent of GDP. counAcount -22s 1.34 Official data also indicate a maded et Lon-Tae Capitl Taow change in the direction of trade in 1992 and 1993. Trade Blw. 50 figures provided by Goskomstat indicate that the share of Comrpondeuc Acu 175 FSU exports, which had been 79 pecent in 1991, D F 0 declined to 45.3 percent in 1992 and to 34.7 in the first Change in Resrv 0 half of 1993. This men that almost 56 percent of all exports in 1992 and 65 percent in 1993 were shipped to Memorandum Ieni non-FSU countries. Similarly, the share of FSU imports CunAcnt/CDP(e) -33 declined from 84 percent in 1991 to 54.2 percent in sowcc no. 1992. Cotton and aluminum exports to non-FSU counties appear to bave increased somewhat. However, in the absence of volume data, the extent of diversification suggested by official figures must be intpreted cautiously. Non-FSU trade data is reported in rubles by enterprises that convert their forei exchange earnings using an exchange rate close to the market rate, which produces a high value and high share for non-FSU trade. It is therefore difficult to detenrine accurately the actala volume of non-FSU trade. CHAPTlE 2 ECONOMIC REFORMS AND EXTERNAL FINANCING REQUIREMENTS 2,1 A comprehensive economic riform program is miperative to overcome Tajilkktan's current economic crisis. Policies directed toward onomic stabilization and stuctral reforms are fundamental prerequisites to securing external financig and transforming Tajkistan's economy into a market-oriented one. Ultimately, the reform program's success will hinge on implementng strucural reforms and the necessary sectoral trsformaton The enling evronent for developing the pnvate sector should be established as soon as possible to ensure that this sector becomes the driving force in the economy. 2.2 Political stability and security are precondidons for implementng a successful economic refrm progmn. It will also be essendal to sequence stabilization and structural reforms in an orderly maner. Inital reform measures should include lieralizing prces, phasing out stte orders and reducing the budget deficit. These steps should be immediately followed by acceleraing privatimon of small scale entrises, developing the legal framework for private sector development and initiating a comprehensive privatization and restructuring program for large state-owned enterprises. Since the civil war and recent floods have crippled the economy's infrasue and a large part of its productive capacity, it is essential to reconstruct the infrastructre at the same time that specific refomr measures are implemented. Reform Program 2.3 As discussed in Chapter 1, Tajlkstan has experienced sustined output falls since 1989. By the end of 1993, the eountry's real GDP is expected to be only about 40 percent of its 1988 level. This magnitude of output contraction uodesres the serous nature of the collapse of the old production arrangements, the pemanent loss of Unix transfers and the impact of war and floods on the economy and highlights several important reasonm for the Goverment to implement an economic reform program, provided poLitical stability is attained. First, it will not be possible to rebuid the economy, which has suffered such great damage and had so much of its structure destroyed, by reurning to cental planning, as the old Union no longer exists to provide the necessary transfers. Second, in order to lay the foundations to develop a market-oriented economy, the economy must be stabilized and reform measures adopted that reallocate factors of production toward their most productive use. Third, design and implementaton of a refom program will be essenta to atract the external resources rquired for the economy's rehabilitaion. 2.4 The Government's proposed reform agenda does not lend itself to speedy economic refem Particularly in the enteprise sectr, it fails to promote medium scale privatization plans and enterprise restructuring programs. Although it envisions establishing small-scale private businesses, adequate consideration has not been given to developing the private sector or creating the enabling business environment required to operate small businesses. Since Tajistan's small business sector is severely underdeveloped, the reform program should give priority to promoting it by providing the necessary legal and institutional famework The economic refonn program should also establish a stable macroeconomic enviromnent and nurture sustainable economic growth through effectve monetary and fiscal policies. Prospects for the succsful stur trnsformation and stabilization of Tajikistam's economy also depend on the Government's ability to: (i) restructure the legal and institutional framework so that it is conducive to a market economy and private sector development; (i) restrucure and pridvatize 16 Chapter 2 state owned entprises; (iii) establish a trade policy compatible with output recovery; (iv) reform the financial sector; and (v) initiat a social safety net to protect the most vulnerable groups from the inevitable hardships of the transition period. Stabilization Measures 2.5 Fiscal Polcy. The unstable political and economic enviromet has caused the fiscal sitnion to deteriorate markedly. Public finnce has rapidly worsened and initl budget targets have not been attained due to the civil war and natur disasters. With normalization of political and security conditions, the Goverment should implement policies to stablize the conomy. As an essential element of stabilization, fiscal policy should aim at controlling the fisl deficit. The fact that Tajikistan is in the process of completing negotiations with Russia on a monetry union will impose certain constraints on fiscal policies in Tajikistan and require policy coordination with the Russian Federation. If these constraints are not being adhered to when the monetay union is established, and the Russian Federation finances large budget deficits for Tajikistan, the Govemment would bave little incive to implement tight fiscal policy. On the other hand, if under the agrement limits are imed on money and credit expansion and the deficit is rduced or if Tajkisln decides to introduce new currency, serious efforts will be needed to expand tax revenues by broadening the tax base, increasing certain taxes and strengthening the tax collection process. In the latter cases, the authorities mnust also tighten expenditures and enhance the efficiency of Govermen services if fiscal policy is to be effective. 2.6 Monetary Pofty. As noted in Chapter 1, Tajlkstan has ratified the agreement on monetary union with Russia, but the tenms, framework and operational arrangements stll are being nalized. Under the monetary union, macreconomic management will depend to a considerable extent on coordiating monetary policies with the Russian Federation and hamoning reserve requrements, bank suersion and other prudential regulations to estabhish equal interest rates wih Rui In fact, the Central Bank of Russia would conduct monetay policy and determine monetary conditions in Tajikistan. Under these conditions, it would b essenfial that NBT adopt management and operational methods necessary to coordinate with CBR. If Tajlksn is to have an input in formulating policy, it will need to significantly improve its instittional and implementation capacities. Technical assistance from the IMF will help strengthen the NBT's institutional capacity. On the other hand, if Tajikistan deides to introduce its own currency and pursue an independent monetary policy, it should do so with caution and assistance from the IMP, paying special attention to the timing of introducing the new currency and making sure that strong structurl and stabiizaion measures are already in place. Structural Reforms 2.7 Systemic change from a centlied planned economy to a market economy requires political stability and sustainable and consistent reform that encompasses both short- and medium-term measures. Simultaneous progress m various program components is necessary for a successful, efficient and equitable transition to a market economy. In the short run, the infrastrucntre must be reconstructed and improved to support the adjustments and :afeguard a supply response in the productive sectors. 2.8 Legal Framemwro. The transition from a command to a market economy will require significant changes in the legal and institutional framework. Sustinable development and, in particular, increased private sector involvement in economic activities can only be secured if an appropriate legal system is put in place. Although some relevant laws have been enacted, they reflect concepts of property rights, privatiation and entrepreneurial venatres that were prevalent at the very beginning of the FSU's Economic Reforms and External Financing Requirements 17 econonmic transfornation. Some laws have gaps in their coverage, others remain inoperative becuse of lack of implementing regulations. Moreover, they have been considered in isolation from one anther, creating a potential for inconsistency or conflict. Much needs to be done to integrate legal and adinimstrative institutions conducive to market activities. Important steps include: puting private ownership and business activities on an equal footing with public enterprises; defining property rights clearly; promoting competition through anti-monopoly legislation; and encouraging new private firms through company and foreign investment laws. Immediate action is required to brWg the various legal reform activities into a comprehensive and systematic framework. The various branches of Govermnent, as well as the Supreme Soviet, should all participate in the lawmaking process to facilitate development of an effective legal reform program. 2.9 The Government should accelerate privatzation of the small enterprises and a schedule of small scale enterprises auctions, focusing first on Dushanbe, should be established in the near term. The Government should establish clear and realtisc ipletmenon plans for pnvatzng medium and large enterprises in the medium term. Individual proposals for privating large scale enterwises should be developed and the insfitutions responsible for carrying out prvatization should be strengtiened. Prvatization alone will not promote efficiency, however, and needs to be accompanied by a conmpetite and conducive environment for private sector development 2.10 Enterprise Rtuctng. The Government should defie a set of clear strategies to iprove the performance of enterpnses that will remain under state ownership. The success of enterprise reform hinges on adoptig hard budget constrais and i le measures to reduce the flow of interenterprise arrears. Enterprise restructuring should focus on rationalizing production and enployment, improving accounting methods and giving management more freedom to create new business methods. For non-viable enterprises, the Government should develop socially acceptable critea for closure. Subsidizing positive value-added enterprises suffeing from cash flow problems should be considered only within budgetary constaints. 2.11 Attracting foreign direct investment to facilitate private sector developmet and dontribute to capital formation is crucial to developing Tajikstan's economy. Natual resource development offers the greatest possibilities for foreign investment. Tajikdstans natural resources have not been well developed due to lack of capital and know-how. An enabling and conducive anvironment must be established to prmote private sector development and attract foreign investment in this area. Specifically, the essential prerequisites for negotiating investmnt agreements need to be improved, there is currently a dearth of information about the condition of local enterprises; sectoral analyses are unavailable; and financial statements meeting international financial standards do not exist. 2.12 Fmancial Sector Reform. Financial reforms are an important element of a successful transition program. Focus should be on designing an efficient financial system to moblize savings and channel them to the most efficient sectors of the economy. In the short-tm, a credit ceiling might be used to control the volume of the credit. The medium-term objective should be to reduce the NBT's intermediating role and the central direction of credit to specific sectors. It is also vital to develop conmnercially oriented bankdng guidelines and supervision capabilities in the NBT. In shifting to a commercial banking structure, suitable rules for supervision must be put in place. If the monetay union with Russia materializes, interest rates will be the same as in Russia. If national currency is introduced, adopting real interest rates should be a goal. Iniatives should also be taken to improve credit assessment, positive risk management skills and accounting systems in commercial banks. 18 Chapter 2 2.13 Trade Polides. Tajikistan's economy is highly dependent on trade. This does not imply opemness of the economy, but instead reflects a division of labor based on FSU policies and the Gosplan. Tajikistan's trade regirn. involves considerable Govemment intervention, including a system of complex licenses and quotas, barter agreements and an enhanced state order mechanism that are not compatible with structural refonn objectives. To help output recovery, the Govermnent must diminish its role in international trade and the current intricate procedures must be simplified. As an overall objective, trade policy needs to promote industries with potential comparative advantages. Trade with the neighboring countries should be strengthened and exports to non-FSU countries should be developed. Tajik exporters should pay attention to marketing factors such as quality control, distribution, pre-sales and after-sales services and services of embassies and Government representatives abroad should be used for the promotion of exports. In general, the Govermnent should indicate that the present commad and control system in trade is transitional and announce a clear timetable for allowing the private sector to assume a larger role and greater control. 2.14 Social Saety Ne. The Government wants to make every effort to protect vulnerable groups against the adverse impact of economic adjustment. After implementing economic reforms, ineffiient enterprises most probably will fold faster than efficient ones emerge and considerable time may elapse before the reform measures manifest net positive results. During this period, the Govermment should protect vulnerable groups against the most severe consequences of economic reform. However, because of budgetary constraints, the past system of generous social benefits should be rescinded and replaced with special assistance programs that target only the most vulnerable groups like targeting the per capita payments to compensate for rising bread prices. Medium-Term Outlook 2.15 The acute econonic crisis and the extent of required adjustment make a strong case for switching to a market economy as quickly as possible. As previously indicated, the authorities have prepared a reform program that includes some elements of stabilization, as well as structural reform measures that are currently being revised. The development prospects discussed below assume that the Govenmuent is strongly conunitted to the reasonable stabilization and structural reform outlined in the previous section. 2.16 There has been some recent progress made in resolving the internal political conflict. These included: Govermnent efforts to negotiate with the opposition; public debate of the draft constitution before the July 1994 referendum; Presidential elections planned for October 1994; and the establishment of parliamentary conunissions on human rights and political prisoners. However, under any circumstnces, assessing development prospects is difficult. Many factors may affect Tajikistan's economy in unpredictable ways. One key issue is political instability and the continuation of civil strife, since it is not yet clear how the political situation will evolve notwithstanding the recent developments. There is also significant uncertainty as to how fast the economy's current bottlenecks can be reduced, particularly with regard to state enterprises and private sector development. The amount of foreign exchange the country will receive from exports and foreign aid remains unclear. Another complicating factor will be the shortage of skilled and technical personnel. The country lost some of its best people because of the civil war, which will adversely effect the development of institutions to support a market- based system. Economic Reforms and Extemal Financing Requirements 19 Development Prospects Output 2.17 With political stability and improved security conditions, economic reform is expected to help slow down the output decline and set the stage for the ultimate resumption of growth. If political stability is achieved and ecoromic reform is begun immediately, the following projections about GDP and its components, presented for illustrative purposes, may be realized. After four consecutive years of decline beginning in 1989, it is assumed that the decline in GDP may slow in 1994, which will be called year 1 for illustrative purposes, to 7 to 5 percent. Output recovery is not expected to materialize until the end of year 2 due to negative growth in the industry sector. Agriculture is expected to respond quickly to the new incentives of reform such as price liberalization. As reforms take hold, GDP could be expected to increase by 4 to 5 percent in year 3. In the following years, it is anticipated that the industrial sector could start to recover and that the agricultural and service sectors will become the leading sectors. Output could grow by 7 to 9 percent in year 4 and about 10 percent in year 5. However, taldng into account the sustained large declines since the late eighties, at these rates economic expansion could restore real GDP in year 5 to only about 50 percent of its 1990 level. Table 2.1: Projection of Key Economic Indicators (percentage of change) 1993 Year 1 Year 2 Year 3 Year 4 Year 5 GDP -2B -7 tw-S -Ito 1 4 to S 7 to 9 9 to 11 Agricnltre -10 3 bo5 S to 7 6to 8 to 10 10 to12 Idustry -32 -21 to -19 -11 to 9 O to 2 3 to 5 4 to 6 Services -37 -2w 0 0 O 2 5 to 7 10 o 12 13 to 15 Source: World lBank staff. 2.18 Over the medium-term, the agriculture sector is expected to grow steadily and provide the impetus for supply response to restore growth in de rest of the economy. In 1993, because of fiul shortages, floods and civil war, agricultra output declined by another 10 percent. As critical import shortages are eased and structural refonns, especially price liberalization, begin to be implemented, agricultural output is expected to increase by about 3 to 5 percent in year 1. As reform deepens particularly in the areas of producer prices, state orders, distribution and ownership of agricltural assets, growth is expected to reach 5 to 7 percent in year 2. The culative effect of these structual reforms should be felt in year 3, increasing yields substantially, and leading to 6 to 8 percent growth in the sector. Provided that the Govemment continues its reform policies, agricultural output could grow by 8 to 10 percent in year 4 and 10 to 12 percent in year 5. 2.19 The industrial sector, comprised of manuf , construction, mining and energy production, declined about 32 percent in 1993 due to continuing shortages of raw materials, spare pxts and energy caused by the collapse of interrepublican trade arangements. It is anticipated that intowing reforms, which wil start the process of reallocating resour, will result in a furth drop of about 20 percent in the sector's output in year 1. However, rapid small scale privatizaion and relaxing central 20 Chapter 2 controls over industry is expected to slow the sector's contraction to 9 to 11 percent in year 2. Assuming that trade agreements with former FSU republics, particularly Russia, are reached and that the Government presses ahead with privatization and enterprise corporatization, industrial output will likely stabilize by the end of year 2 and start growing in year 3. Efforts to attract foreign direct investment, establish new small and medium-sized companies and upgrade technology, particularly in agroprocessing, is further expected to increase output by about 3 to 6 percent in both year 4 and year 5. 2.20 Since the service and trade sectors were underdeveloped under the centrally plamed economy, reforms are expected to lead to rapid supply responses in these sectors. Tajikistan has a relatively well educated human resource base and strong entrepreneurial capacity. Provided that the necessary legal and regulatory framework is put in place and financial sector reforms are undertaken, the service sector could be another fast growing part of the economy by year 4. Encouraging the service sector could also serve to limit the departure of skilled people, particularly Russians and other minorities. Investment, Savings, and Consumption 2.21 As previously indicated, investment has declined from 26 percent of NMP in 1988 to 15 percent in 1991, reflecting the loss of Union transfers. While there is no consistent estimate for 1992, all indications are that fixed investment fell further. Considering the impact of two consecutive years of floods and the 1992 civil war, Tajikistan's investment needs are substantial. Sectoral reviews undertaken by the World Bank as part of an Emergency Reconstruction Program indicate that there are urgent needs, particularly in agriculture and flood protection, transport, telecozmnunications, housing, and the power subsector which total about US$116.4 million, of which US$97.9 million is in foreign exchange (See Box 2.1). These investment requirements relate only to the Emergency Reconstruction Program; aggregate investment requirements are much higher. 2.22 Tajikistan will need to define a core investment plan that can be financed in part by extemal borrowing and in part by domestic resources. Investment will have to be conFuied to essential minhimums until national savings start to recover. Provided that the Govcrnment remains committed to reforms, a limnited recovery of investment may be expected to materialize in year 2 of the projection, primarily in infrastructure repairs, housing and construction. It is expected that during the projection period, investment will not reach to pre-independence levels. 2.23 Private savings start from a very low base and are expected to recover slowly after adjusting to lower income levels. Since the population will try to maintain previous consumption levels, it is expected that savings will not start to rise before year 3 or year 4. While revenue generating and expenditure control methods would improve public savings, these will continue to be absvjbed by social expenditures for some time, leaving a negative balance. With progress in privatization, price reforms, better targeting of social assistance and tax reform, public savings could improve. 2.24 As discussed in Chapter 1, while post-1990 data are not reliable, official figures indicate that consumption declined by 22 percent in '991 and about 41 percent in 1992. Although there is no data for 1993, anecdotal evidence suggests that it fell further. Such sustained declines in consumption must be reversed if the population is to support reforms. Since, in the absence of large foreign assistance, the economy is not expected to start growing before year 3. it is not likely that consumption will increase in real terms before that year. Economic Reforms and External Financing Rquirements 21 Trade Prospect and Exenal Fiancing Requiremeats 2.25 Due to insufficient information, it is extraenely difficult to project the country's trade prospects and financing requirements. The following projections assume that reforms are introduced in the base year 1994, which for iliustrative purpose will be called year 1 of the projections. The projections indicate the evolution of key macroeconomic variables for years 1 to 5 and thus are illustrative and subject to change. Over the medium term, Tajildstan's exports will be dominated by cotton and aluminium. It is assumed that the possible dosing down of the aluminum smelter will not change estmates of Tajikistan's current account as increases in eports of electicity and reduction in imports of raw materials used in the smelter would compensate for the exports of aluminium.. Based on sectral reviews, if reforms are implemented in year 1, exports of these two items are expected to be around US$200 million each in this year. In the same year. total exports are estimated to be about US$530 million. As the effects of reform start to take hold and the economy stabilizes, exports are expected to increase to around US$597 million in year 2 and grow at an average anumal rate of about 3.5 percent per annum until year 5. Total exports could average about US$650 million per annum during the years 3-5. 2.26 Over the medium-term, it is anticipated that energy imports will dominate all other items. In year 1, it is expected that imports of petroleum and related products wil amount to about US$215 million, although this is the largest single import item, it is still US$185 million less than the Government's esdmate. Natural gas imports are anticipated to be US$100 million in year 1. Grain imports will be the second Lagest item and are expected to reach about US$170 million in year 1, grdually declini;g in the following years as a result of inceased domestic production. Total imports for year 1 are expected to be around US$692 million. As the economy stabilzes, imports are projected to average about US$ million during the years 2-5. Tab L2: Me&a-Tn PeeJes lesot Exterd Ibanag Rhqiirmfl On U ia) YeC I Year2 Year3 Ycar4 YearS Lower Upper Lower Upper Lower Upper Lower Upper Lower Upper 1993 Bound Bound Round Bound Bound Bound Bound Boun Boun Boud Totl Financing Needs 225 264 293 275 303 290 320 301 332 2S6 315 Non-inter Cumnt Acoun -219 -L5 -171 -177 -196 -173 -191 -218 -241 -215 -235 Debt Service Amonizadon 0 -90 -99 -61 -68 -86 -3 -38 -42 -28 Net [nrest -6 -17 -V9 -19 -21 -23 -2S -35 -39 -3S Changes in Resms 0 -3 -4 -18 -20 -9 -10 -11 -4 Tool Fhmncing Sources 225 264 293 275 305 290 320 301 332 3L1 Foreign Dirctlnvesmnen 0 9 11 9 11 16 17 20 21 27 Multam Flisncing 0 0 0 0 0 49 54 40 45 57 63 Bilatel Fuizaniug 225 2S5 212 266 294 225 249 241 266 206 225 Note: The rnges slect unceaindec aummd die midpoint of each kem ow alurnadve polt senaros Source: World Bank saff. 2.27 The export and import projections discussed above are expected to result in a cmrrent account deficit (excluding net interest) of about US$162 million in year 1, which correwponds to apprxmaely 23 percet of estmated GDP. In toe following years, highe outu growth rates should 22 Chapter 2 cause current account deficits to grow to about US$250 million in year 5 or about 27 percent of GDP. In that case, the financing needs could range fom US$Z70 to US$350 milon for yeas 1-5. Box 2.1: TaJiOdan Emergeny PRecontructio Program Tajilsan suffered a short but disrous civil war during the second half of 1992. To addition. scvere flooding occurred in the springs of 1992 and 1993. Damage from dtese disasts was umjor. Tbe relatively densely populated southwest coner of the ounty has been by far the nmst affected. Over 850.000 people (about 1S percnt of Tajismn's popuaioi-iwert displacd and abot300.000 lost their homes. lnpon pas of the coumrs infrastu wer destmyed or vrly damaged, incluing about 600 k of rcds and 165 brie, over 200 km of flood proection dikes, irration system of about 39,000 ha of agriculturAl land, rainsforme - substions and abot 1.100 km of powr lies. andover5.000 telepo line. Publicserviyces, mainydhealth and educatin, also-: sdfred morlosses About 80 bealth care cean over200 schools w ptcar affec.. addi may i and public serces fes wee lood, with major losses in equipment and parts ani supplies.- The Govenme has -en umerus measures to rcconstrct eiy infrastructure ad to rest ore ervie -Most of these efforts have been efficierl coordind and nmnitored b5y th Star Commissio on Emegency Sibtin (SCES). -Accoing to its data, abu pzl load br b paired 66zsm Ite biinc -; -d d Rubles 60 bfllo have been spent so far. The Dushanbe-Kbojan road has beer reaie jmd sum key boalenecklivebeen eliinate. According to icplete SCES date about 45 km of flood protcion dikes, 20 bridgs, and 1701km of roads have eun rd. At the Governmeu(s requst, a mnuldt-s l missiom frm te WohId Bank visted Tajksninm Octber 1993 to prepan Emergency Rec rtion Progrm (P joidnty with de-Govmes exper:t. Alough tbheare veq.lageneds for habilitti and moda tion in all sects of Tajin's econmy, te missions work was maiy liid tD eeds stemming fom te 1992ad 1993 disasters. Only in vry few areas (mainly belth and agriculture,-where shortages could havc disastrou s on the populazion ad.ie economy) broader needs were duhedin theERP. lTh-ER?was2Lalsoliitedtio emergency actiiies, ir.e. those which can be filly completd wih two to three years. The missio found tt high poioy reon _oneeds a_mtd to USS16Amillion, of whichUS$97.9miion was in- foreign echange. A brief descripdon of the ERP by secto follows: (I Ariculbr and W MnamuL The ERP provides for ut 10-fam uactosnd spare pmr:forifanrm -- machinery and the supply of agrocherals to satisfy essena nds to rso the capaciLy of stae farms i the souenpan watof the- country. T ERPaso iudes provinforcivil wos equmet spar pans pmps,onorsant trial su as reorcing se to arry out the im portat repirs still reqied on about 200 km of flood protcion dikes and on die irrigaton sysms of about 39,000 becs of agricutual lAd. (ii) Education and Trainin. he ER pwvide mosty for r ctr schools and supping esntial tahg** equipmt and materials. (iin) Health Given dt the shortage of supplies is a najor cause of the heald care emergency now deveoping in Tajilkisan. the ERP icbudes vaccines and essent pbamacetcals for about a year for most of the populaio It also includes equipm and spare parts so reptce some of the mafte lost in tc war and floods. as wel as some importnt equipment redered usekss by lack of maintance. (i) Power. The ERP includes spar panm and sAplies for the mai hydro power plants, rehabilitation of te Dushaube dtrmal plan taform breakers and spar pars to repair dt ansmission sysm. overead lines, tansformer ard other supplies t rieconstruct the distrbuton syern in the southen regio. teecomnicaos ad tanspot equip t and spplies o faite genrl operatin, and an investme planning study. (v) Oi and Glas Prduction. The ERP provids ir pumps. elecic mooxrs and odter equipmnt and supplies to re the producmity of wells in the Beenyak od and gas field wo at leas te 1991 leveL (vi) Teleconnurmcmnons. The ERP includes tdephonc cablcs and mateials t reconstut dhe cable distribution network for 47,000 kn-pair of tephone lines in Dushanbe and Kurgm-Tyube. It also includes spe pars for telephone exchanges and miscella_eus equipment (vii) Roads. Th UP inmcdes civil works equipment spare pans. workshop equipment frel. bitmen, steel and odter matrials for repaing 592 kmn of rads and 165 bridges. cont'd. Economic Reforms and Externa Financing Requiramnts 23 1Ds 21 TWan Emegncy- Rammtrun fropm (cmtd'4 - -viii) - Houssind. Toepand ondsuccesoNiUNECEhoug prgrIhe ERPiindesthprovsion of onsmdon mateia (moasdy rooig dsn a!tinber fobout 00vill uts)y o el dispcace poplaio of due Smutuhwest=ad Centa gions~ to recnstnuct thidrhonu.' -7~ elw ..s..a. c f . .. . . . . .. , ;. . , .,,......................... :,,: : -' ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. -!;=........-. .= Agnadmr and Wate Mainagement Ag-culift 0.3 5. - ;- 5.8 Hoad PRon - 5 10.4 15.9 - Mpdor.. - - -- - -3 - 26 . 3.9 EMducation an! Trainin Eucafi,n ... . LO :. . Trainn 1.0 9.0- 10-0 .eId: - = - - - -- - . O.S . . : J.0-. 83 Power . - 2.9: . 14.8 ... . i7.7 Oilandf Gauducdou .,,, , 0.1. ..Z .0.5 0.6 Telecon muicatio- * .0.6- -. 3. .. 4.0 -RaD: : 44:- - 18:2 22.6 s=.9,,^.i am , -: .:S0.. iS.7 .07 Imple ima& (CMU). - 0.2 - -*1 Total -: - - .:973.9 : 116A4 Soure: World ank-staff amnates. 2.28 The country 's develoment prospects will not be realized if the Government is unable to mitroduce the economic reform program outlined above. For that case, the process of reallocatig factors of production would not start in year 1 and adjustme in the industrial sector would be delayed, severely limiting the supply response of the econmy. With continued state orders in agrculture, tight control of production and inadequate supplies of imported inputs such as f:rtilizer, agriculumal output would not be anticipated to recover. Industria sector adjustmt would also be delayed. Without the necessary legal and regulatory frmework it is expected that the service sector woudd not resume growth. Delayed reforms would caus Tajikdstans exports to stagmte while its import requirems would continue to be high. Lower production from lack of inpts and continued centaized procurement would limit cotton exports. Since Tajikistans imports are made up mostly of petroleum, natumal gas and grain, the decline would be limited despite falling gowh rates. Under these conditions, Tajilsta's exrnal fiancing requirements would be very large and in the absence of a stabilization and strual reform program, such a high financing requiremcnt could not be met and there would be little direct foreig investment 24 Chapter 2 Creditwortbiness 2.29 During 1993, Tajildstan signed the zero option agreemaet with he Russian Federation. This means that it did not inherit any debt from the FSU era, except for unsettled correspondent account balances with FSU counties. However, the exact amount of these balances - and particularly their termIs for settlement - is difficult to determine. The Goverinent is in the process of negotiatng with its FSU parmers on these issues. At present, there is considerable uncertaint as to how to value these balances, sice it is not clear whether these debts wil be paid in goods, hard currency or new rubles. 2.30 As anew independent ste that lacks any previous credit record, Tajikstn Table 23: Credtworthiessand Requhred currenly has a limited capacity to borrow at c onaly (am miles) market interest rates and must establish itself as 2M a crediworthy country. Over the medium term, Tajksta's ability to obtain credi will Exports 734 depend upon amtining political stability, Debt 3615 sustined implmnation of strucral reform Dd tservic8 and strong export performance. Reaching an (100% on-1} 50 Deft Service Ratio early agreemet witth the IMF on a Systemic (IO% ns 115% Transfonnation Facility (STF) will also help Deg of cancessioalaw esmblish creditworthiness. Tajikistan's assets reahed o miaamta for mediu-m-m development include its well 20% debt serviace ratio 80% educted human resource base, agricltural and nanual. resources, and an irstu that canff. be repaired quidldy with reasonably small investents. The Governmfet's ability to deal with the cumrt unstable political and economic situation wi also significantly affect Tajikistan's creditworthiness. 2.31 Since Tajikistan's financing requimnents are substantial, one important question is whetr they should be based on concessional or non-concessional terms. Table 2.3 presents an analysis of these issues. If all extemal financing reqrmens are met through non-concessional borrowing, rapidly increasing debt and a high debt service ratio of 115 percen for the year 2000 would lead to a debt crisis. Alternatively, if there is a financing mix of concessional and non-concessional elements, the debt rado should not exceed 20 percent of market-based borrowing in order to keep debt servicing capacity manageable. The degree of concessionality in the financig requirements will be 80 percent in 2000. In order to help Tajildstan attain this concessionality, the World Bank bas identified it as an IDA eligible counry. Extnal Assstance Miana ent Unit 2.32 Tajikistan has no direct experience with foreign assistance and is unfamiliar with the terms and conditions of obtauiing such assistance and with the budgetay and appropriation procedures of various potnWial donors. The success of the exemrnal assistance programs depends on Tajildsta's ability to internally coordinate the requirements for various typos of assistance, matching these requirements with available resources and makming effective use of available aid funds through knowledge of the adminisative, fiancial and procume procedures of various aid agencies and donors. To overcome these difficulties, the Government has agreed to establish an Extemal Assistance Management Unit. Economic Reforms and External Financing Requirements 25 EAMU will facilitate contacts between potential donors and various ministries, fiamiliai Government agencies with the sources of fumds and with donors' procedures and help match the available technical and financial assistance with the country's needs while ensuring that required domestic counterpart resources are made available. The unit will coordinate aid programs according to the Govermments economic priorities and policies and will advise the Goverment on the level and sources of foreign assistance and the allocation of this assistance across sectors of the economy. The World Bank has provided a grant under the Institutional Development Fund grant to assist Tajikistan in establishing this unit External Debt ManagemeLt 2.33 Establishing and maintining creditworthiness requires an effective debt management system. Such a system should enable policymakers to record, monitor and manage the country's existing debt and new extnal borrowing. In addition, Tajikisrans membership in the IMF and the World Bank rqires it to periodicaly report debts and debt servicing. The Govemment needs to creat a cental debt anagement office within NBT or the Ministry of Finance (MOFl In market economies ctenal debt is managed joindy by the Central Bank and the MOF. Tajikistan should adopt this approach and define the respective roles of the NBT and MOF in the debt management process as soon as possible The MOF should keep all records on central Goverment borrowing and closely monitor the level and terms of public and publicly guaraneed debt. The Central Bank should monitor and report the extemal debt and new borrowing by commercial banks and public and private enterprises. The NBT should also be responsible for managing the counrys foreign exchange reserves. This division of labor, while faciliing effective debt management, requirs close cooperaon between the NBT and MOF. The MOF would undertake eternal borrowing and related ransactons and ensure that funds for debt servicmg are budgeted. It would also prepare periodic reports on the debt siuation, including upcoming debt servicing needs. This information will need to be shared wih the NBT, which wil ensure that foreign xchage for debt sericing is availble. Since Tajisan has no experience in the area of debt management, technical and financial assistce will be needed to assist in establishing an effective debt management system. Major Risks to the Refonn Program 2.34 There are five key risks to the refonn progrm: (i) contined political instability; (ii) weak commitment to reform; (iii) limited implemention capacity; (iv) adverse external environment; and (v) unavailability of extemal financing. The fragile polidcal situadon poses the most uncertinty; contiumaion of the current fragile polical siation diminishes public confidence in the economy and impedes successf implemenion of reform measures. 2.35 Even if political stabilt is achieved, imple the reform program may result in a drop in real wages, generating dissatisfation among wage earners. Reductions in consumer subsidies and the need to exrcise financial discpline by enterprises may also increase opposition from managers who have benefited from soft loans and easy budgeting. Pressure from dissatisfied groups may delay or even derail the reform program. However, without reform, economic instbility will increase and the economic crisis will deepen. In this case, te costs of exorbitant inflation, ourd and inefficient enterprises, and unfulfilled financial and technical assistance requirmts will far exceed the costs of continig refonn. 26 Chapter 2 2-36 With political stability and gemnine Government commitment to reform, the authorities will still be confronted with the complex task of designing and implementing the reform program. TajikistTn currently lacks the institutional capacities and the skdll and experience required to design and carry out dhe reform program and move toward Lhe market economy. A technical assistance package will facilitate designing a reform program and enhance the Government's implementation capacity. The World Bank, in collaboration with the authorities, has identified a package of core technical assistnce needs covering a wide range of activities. 2.37 The external and exogenous enviromnent may also undermine the success of the reform program. The country suffers from civil strife and flood damage. Continuation of the civil war will imcrease secarity-relaed expenditures at the cost of essential consumption and ivestment Peace will ensure a conducive environment for implenenting the reform program and atracting foreign investment. Exogenous factors influencing the reform progrm include economic and political developments in the Russian Federation, with which Tajikistan maintains close ties. The country's decision to join the monetary union with Russia will make it very difficult for Tajikistan to guard itself against the risks of macroeconomic instbility in the Russian Federadon. Developments in the international market, especiay in the cotton and alumium markets, pose another exogenous rsk. To cushion the negative impact of developments in the intemational market, Tajikistan should consider policies that will diversify the composition and direction of its exports. The future of the alumium smelter is licely to impact both imports and exports. The closure of the plant could conceivably constitute a positive risk as net exports could increase. 2.38 Finally, lPck of adequate external financing could jeopardize the success of the reform progrm. Without external financing, Tajildstan mst cural investment and consuption, to the detriment of output recovery and public support for contiuing the reform program. Design and implementation of a comprehensive refum program will be critical to mobilizing the necessary extenal resources for reconstruction and to meet the country's tmchnical assistanc requements. THE AGENDA FOR REFORM Adoption of a comprehensive economic reform program is essential to overcome the current economic crisis and facilitate movement toward a market economy. As will be discussed in Chapter 3, a number of priority meau shold be undertken in order to pomote private sector parucipation in the economy md initiate a programn for restructuring public enterprises. These measures include: (i) significant changes in the legal and institutional framework; Cii) rapid acceleration of privatization of small enterprises; (iii) establishing clear and realistic targets for privatization of medium and large enterprises; (Iv) strengtheing the instiutional capacities of the agencies responsible for inplementation of privafizafion; and (v) creating the enabling and conducive environmet necessary to attract foreign investment An efficient financial sector will play an important role in the success of the reform program. Chapter 4 provides an analysis of the following priorities: (i) assigning the role of mobilizing savings and channeing credit to the banking system; (ii) developing commercially oriented prudential guidelies and strengening the supervision- capacity of the NBT; (iii) aligning nominal interest rates with the Russian rates and considering furer increases; and (iv) improvig credit assessment, risk management skills, and commercial accounting systems. An efficient intemational trade system will provide a competitive environment and help to achieve a quicker moderation of the declining output and earlier reowery of the economy. Chapter 5 presents a description of the trade regime and discusses the importance of dimiishing the role of the Govermment in international trade and promotng industries with potential comparative advantges. A sound safety net system is essential if popular support for the reform program is to be mainted. Chapter 6 discusses why the past geermos social benefits can no longer contiue and targeting special assistance programs to the most vulnerable groups is a viable alternative. Modification of pensions, redrement age, paid maternity leave, and leave-without-pay periods are among the main topics of this chapter. CHAPTER 3 ENTERPRISE REFORM AND PRIVATE SECTOR DEVELOPMENT 3.1 Tajildstan's difficult political and economic conditions, recent natral disasters, and delay in reforming the institutional and legal framework all impede the growth of the private sector and retard foreign investment. To support Tajildstan's transition to a market oriented economy, a strong private sector must be developed rapidly. Private initiatives are constrained by political and economic instability. legal and regulatory inconsistencies, the absence of adequate support institutions, and severe constraints on foreign trade. Underdeveloped financial markets and institutions that do not provide financing on a commercial basis also hamper private sector development. In addition, inflation has eroded the value of domestic savings, so that capital to finance both privatization and private sector development is limited. 3.2 Although privatization began in 1991, the Government is still in the process of establishing the legal and institutional basis for developing of the private sector. TajikistanWs entepreneial sklds, trading tradition, and natural resources provide the basic ingredients needed by a private sector. This chapter discusses the legal framework that would support a market-onented economy and an emerging private sector. It then reviews the privatzation program and analyzes the various issues related to strategy. methods, and instimtional framework. It also identifies the obstacles to privaizaion and addresses governance and resructm ng issues. The final section assesses impediments to developing the private sector and foreign investment. Each section concludes with a set of recomnons. The Legal Framework to Support a Market Economy and Private Sector Development 3.3 Tajikistanhas enacted several laws aimed atdeveloping amarket economy. Several laws deal with privatization and private sector development: Leasing (1990); Registration of Enterprises (1991); Privatizaion of StatOwned Enterprises (1992); Joint Stock Companies (1992); Foreign Invesunent (1992); Enteurship (1992); Bankruptcy (1992); and Enterprises (1993). These laws address specific acdvities and areas, but do not yet provide an overall famework for developing a market-oriented economy. Ther are significmt gaps in such areas as property rights, contract law, and secured tamnsacons and collateral. Other deficient areas include the recording and transfer of property, intellectual property Ights, and protection against unfair tade pracdtes (false adverdsing, faud, collusion, etc.). In additior to a clear legal framework, the private sector needs confidence in the enforceability of agreements, transpaency in dispute resolution, and recourse against arbitary administraive acts. The judicial and disputes settlement system must be mproved if thy are to effectively bandle the complex disputes that are likely to emerge. The current legal framework does not reflect a coherent legislative stategy and displays an increasing dichotomy between enactment and implementation. The lack of coherence is further underscored by the fact ta Tajikistan has yet to adopt a modern post-Soviet era constituon. Although several amendments relating to the economic system were introduced, notably to Chapter 2 of the Constituton, the extent to which private property is recognized remains obscure. Summary of New Laws 3.4 The Property Law, enacted in 1990 divides property into three categories: (a) state property, (b) collective property, such as labor collectives, cooperatives. joint stock companies, leased 30 Chapter 3 property, and other economic associations; and (c) "property of the cifizen", such as individual economic activity and small enterprises engaged in production of consumer goods and trade. This tripartite arrangement has its origin in fte administrative-ommand economy; in market economies, the only distinction is between state and private property, with collective property a subset of private property relationships. Draft amendments to the Property Law recently introduced in the Supreme Soviet do not substantially change these types of property. Citizen's property is now teamed as "private property", and its definition is expanded to include other types of producton such as shares. Moreover, in the draft amendmonts, there are stili a nunber of open issues relating to property rights, including the absence of transparent and enforceable systems of creditors' rghts and debt coilection; potential liabilities attachng to property, such as enviromental risks and costs; and inadequate clarification and protection of ownership nghts associated with inteliectual property and technology. Box 3.1: Legal Framework in a Market Economy The legal fmeworkl m a market economy has ata mmimum four basic economic functions. Thse are to: (a) defime the 'universe of property rights in the systemr. I) establish a framwork for exhanging chs rights. (c) set rules for acorsentering and exitingproductiveactivuiies; and (d) overseemarkctstrmurandbehavioroprmtEompetition These four basic tasks of a legal system relate to specific and well-recognized areas of law.. Pmqpery rightr are usually defmied in the country's cntitio and more speific lkas deal with ra tangible, and intellectual property. Exchange is generaly govened by contat la wnryis goverd by company and' foreign investmentlaw. while bankruptcy and liquidation laws govem exit. Fnlly. antonopoy ad u nY. laws are intnded to promote competition. These basic arms of law are augmented-by laws addrg many-other nportunt activides such as labor. taxation. and banking. The resuliing complex environment co s the legal frmework for privat sector activity in advanced market economies. Souce: Cheryl W. Gray and Associats. Evolving Legl Frameworks for Private Sector Development in Central aiid - Eastern Eope. 1993. The World Bank, 1993. 3.5 The Law on State Ownership and Privatizauion, adopted February 21, 1991, defines privatization as an activity of the state which twansfers its ownership rights to collective gmups and citizens of Tajikistan. The law authorizes transfer property rights to foreigners, including citizens of other FSU republics. Transformation of state owned properties inthe privatizationprocess include: lease, lease with option to buy, sale of shares, sale by instllment to labor groups and otflers, purchase of state entity by workers, and free transfer of state property. Discounts, favorable terms, and priority are given to labor collectives. The draft amendments to the privatzation law introduce novel and desirble elements such as: and public participation, social protection of all citizens, equality of citizen' rights to obtain a share of property, use of privatization vouchers and savirg amount schemes, intuction of a mass privatization program, and better control over the privatization process. The State Property Committee (SPC) is requested to submit a privatization program for the approval by the Council of Ministers. Although the draft amendments add valuable concepts to the privatization law, they do not change essentially the process or guarantee the independence of privadzed property. 3.6 The Joint Srock Company Law defines three types of joint stock companies that can operate in Tajikistan open joint stock, closed joint stock, and limited liability companies. Each must have at least two shareholders. The SPC and the labor collectives of the enteprise that is being Enterprise Reform and Private Sector Development 31 transformed are usually the main shareholders. According to the law, dhese companies are independent and fee to detmine their own form of management, marketing, wages, and profit distnbution. They have a board of directors, and can issue preferred and common stock and bonds. They also can pay dividends, keep reserves, and give stock options to staff. Despite this corporate form, which is similar to that found in free market economies, corporate independence is rather illusory. 3.7 TheLaw on Leases sets the conditions for an enterprise lease with an option to purchase. The period of lease is determined in accordance with agrement. Purchase price is based on the cost of the property at the time of lease. Purchase occurs when a cash payment is made after the lease has expired. Labor groups have priority, but any citizen or group can lease enterprises by forming a leaseholders organimzation that can issue securties. Leased enterprses have mnmerous operating restrictions. They continue to receive budgetary support and subsidies, but are held responsible for the social and economic development of the local territory. They must carry out state orders and set prices as specified for state enterprises. They are essentially state enterprises, owned by a labor group and carying out state-sanctioned activities. 3.8 The draft Antmnopoly Law, based on Russian legislation, recognizes that increased competition is necessary to improve the efficiency of stat-owned enterprise (SOEs). The law forbids certai monopolistic activities, oulines sanctions and penaldes. and designates a specific office in the Ministry of Economy to monitor the behavior and price setting policies of monopolies. 3.9 The Law on Entreprewship regulats the economic activities of ciizens and individual "juridical persons'. It emphasizes equalty of different types of property and feedom to engage in any economic actvity. However, the state also claims a large role in entrepreneurial activities by atrcting conditions and opeaing restrictions to the transfer of state assets. It also closely regulates these activities through registration and licensing requirements. Although it is a step in the tight direction, the law on Entrepreneuri still contains too many of these restictions. 3.10 The recently enacted Law on Enteprises sbeds many of the archaic concepts about property. Enterprises can engage in any type of domestic business activity and can independently engage inforeimgneconomic acevitis, buyforeigacurren.y, and obtanforeigncredits. Government interference in the economic, finacial, and other opeational activities of enteprises is prohibited, and price seting is an exception rather than the rule. This law is a significant step toward liberalization of rules that govern enterprise activities. 3.11 he Law on Peasant Households establishes the legal rights of firmer households tO carry out economic activities, eithr individually or in associaion with other enterprises, and receive a land plot, which is granted for life and can be inherited. The household is given the rights to personal plots adjoining the house. Plots may also be allocated from the land reserve or other agricultural lands not now in use. Reconumendations 3.12 Completing the legal framework necessary to move to a market oriented economy should be a priority. Areas that need special attetion during 1994-95 include: 32 Chapter 3 a. Adopting a modern constiuon that guarantees the right of natural and jundical persons to own and exchange property, protects private property, and provides for an independent judiciary and for juridical review of legislative acts. b. Enacting modm civil and commercial (mcluding company) codes that provide a well-defined framework for entry and exit and market activities, exchanging property rights, operat business activities and overeing the stucture and behavior of such activities. c. Implementing mechanisms to register property rights. d. Revising the 1991 law of state ownership and privadation of property and related implemention decrees. e. Establishing and developing insituons critical for the success of legal reform and the proper application of the ne-w laws, including privatization agencies, company registration offices, anti-monopoly agencies, baning regulation offices, land offices, legal departments in ministries and other government offices. This requires an overall review of administrative reform measures and training officials in legal and regulatory aspects of economic reform, It will also involve strengthenin the judicial system's ability to enforce the economic laws and contractuat obligations essential to protect property rights. Mrivatization Privaton, Enterprie Reform, and Corporatization 3.13 Early in the refoM. Table 3.1: Industry Structure,1992 process the Government designed a program fo conunercilization ~Subseaior No. of Output Employ- program for commercialzation andEmpie h rl) ea privatizacon of state enterprises. hnplementation began in mid-1991, but Enery 6 234 3,049 economic and political instability Elecmricir 28 4.859 7,354 interrupted thie process. The new Memillurgy 10 19.301 13.87 Governmen. appointed in November Fefous 1 30 118 1992, decided to activate the stalled Machnr Bulding 398 19,271 377190 reform in the face of the rapidly Chemical 13 3,392 10.955 deterioratig econo situation. Building Marial 210 1,901 11.351 Wood & Paper 189 767 5,598 Strucure of Industry Light 130 27,692 69.872 Texte 53 25,543 45.342 Food 267 9.487 23,922 3.14 In the late 1980's, the Others 314 - - industrial sector comprised about 30 TOTAL 1.628 98,421 228,505 percent of GDP. By 1992. as a result of the civil war, several natural disasters, Source: GoskonS.aL and disniptions il interrepublican trade, industrial out had fallen to less thzan 50 percent of 1990 levels. The most important industries are Enterprise Reform and Prvate Sector Development 33 mining (ores, gold, silver, and coal) aluminm processing, and the textiles. The number of indusal enterprises is somewhat uncertain because some were destroyed during the civil war or are inactive, due to shortages of fuel or spare parts. In the agricultural, trade, industrial, and transport sectors, there are about 2000 state-owned enterprises, all classified as republican property. In the industry sector alone, there are 1304 medium and large enterprises (Table 3.1). At the municipal level, there are about 5,000 enties with less dan 50 employees. These are segmented units of small state enterprises, mosdy shops, service establishments, and trade units. In sum, there are over 7,000 state enterprises/entities of all sizes. Scope and Progress of the Privatization Program 3.15 Although the Government regards private enterprise development as a key element of the economic reform program, the current privatization program is too narrowly defined. It focuses on small and medium enterprises, and to some extent, on larger enterprises that are non-profitable or heavily subsidized. The 1991192 privatzarion program, approved in October 1991, targeted the sale of 1Z76 enterprises, of all sizes and from different sectors of the economy. The 1993-1995 privatizaton program proposed to add medium and large enterprises to the list. Thus, by the end of 1995, the objecdve is to privatize over 19 percet of all enterprises. This represents only 6 percent of the 1304 the medium and large enterprises (Table 3.2). 3.16 Household plots can only be leased from collectives and stae farms. Table32 MediumandLareRepublianFeprbestobe Privaizaton of houses, and aparments is P t i99S proceeding on the basis of a special order of se= 1993 1994 1995 the Council of Ministers, since a draft law on privatization of housing has not been Inusry 26 7 2 adopted. The district (rayon) executive Constuio 5 3 council is in charge of privatization of TasPrtion 2 - housing. As of October 1993, over 50 Trade 9 percent of all dwellings were priatized; the AgiP l 14 1 average nominal price chrged to insiders was O,ers 7 l 12,000 rubles. The Chairman of the Supreme TOTAL 65 12 2 Counci signed an order to provide free apartments to social sector employees (doctors Snc: Se P Co . and teachers) and invalids. 3.17 As of October 1993, 846 enterprises of all sizes (excluding housing) were privadzed. More than 600 of these were small-scale enterprses with less than 50 employees, while 152 were medium and large enterprises in the agicultural, industdal, tasport, trade, and building sectors (Table 3.3). Box 3.2 sumarizes the privatization of small, medium, and large enterprises. bnstitutional Framework for Privatdztion 3.18 Privatzation policy is carried out at two levels: the SPC and its regional representaives for republican prper and the Municipal Execive Committee for mumicipal propery. SPC, which is part of the executive branch, has oblast-level commiltte for the Leninabad and Khatlon oblasts and th Gomo Badakhan Autonomous Region; a conmm for the city of Dushanbe, and eight district offices in regions diectly administered by the central Goverment. The SPC is responsible for the privaintion and copora on of medi and large enteprises. In practice, supervision of large enterprises is still 34 Chapter 3 Box 3.2: Privatiation Accomplihments Regional and district communities are moving ahead with smal scale priwzadoan mostly trough negotiations with labor collectives. As of October 1993, only 12 percent (600) of small enterprises had been priatized. They included enterprss in industy, transport. trade, construction. services. and sales:kiosks. Marrket orierned methods of privatization have not been used often enough. Sixty percent of the privatization agreemen have been concluded wilh labor coflectives, often in non-competive tenders. which has limited the scope of outsider paricipation. As part of the small scalc pratization program, 35 unfinisued buildings were also offered for sale but only one was sold. A change in the Tegulations and procedures and a list of additional enerprises are being prepared to give more chances tO outsiders and emphasizing auctions as a method of sale. Medium and hlre pruadon is moving slowly. Only 12 pcnt of entepises (50) in the industrial, agricdlure. transport, servicts. trade. mining and building sectors havc been privatized.Only:6Centerprises were sold to private companies, whilc over half of the entrprs have been sold to collectives (witL most shares often retained by the director general). Privatized eanerprises are bound to see no change in mangemt and depend on previously established netwoks of suppliers and distributors; under the relevant niinisties and bodies. Under existing law, the SPC responds to collective initiatives, and does not control the privatization timetable. As a result, the privatization program is proceeding slower than planned. 3.19 In tenns of inernal organization, the SPC has seven policy departments, one internal adminisration department, and a related Center for Valuation of State Property. The seven deparmet are: the Joint Stock Companies and Investment Funds Deparument, which prepares regulations in these areas; the Privatzation Department, which works with local organizations at the municipal level, prepares privatizaton programs. and supervises implementation; the Valuation and Privatizaon Plas Department which provides expert advice and drafts correspondence and contracts; the Admistration of State Property Department, which supervises the state portfblio; and the Methodology and Statistcal Information Department. which provides advice on processes and procedures of privatization, and compiles statistical data on enterprises. In addition, there are legal and accounting departments. The Center for Valuation of State Property is a self-financing autonomous body charged with valuation of SOEs. 3.20 The SPC has 70 personnel slots at the central office, of which about 50 are filed. Personnel shortage is more evident at the regional and district level. Duties are often delegated to the disrict executive committees which are not always imerested in carrying out the additional tasks. Curremn Prvatiztom Stategy 3.21 According to the June 1993 draft of the Government's program of economic transformation. the objectives of the privadzation policy are: to eliminate state subsidies to enterprises; to develop small and medium businesses; and increase efficiency and competition. There seems to be some confusion about the ultimate goals of pnvatization and establishing private property. The most important goal of privatization is to reallocate resources to their most productive use. Transferring ownership of state assets and permitting the free flow of capital and labor will conbute to this goal. The objective of maximizing the sale proceeds of pnvatization should be secondary to the main objective. Enterprise Refom and Private Sector Development 35 Tabl 33: Medium md lrge prihadtkon necomplhbmmut, - of October 1993 Sector Private Employee Lased Jhint Stock Bought Tobl Company Colective Company Real Edtate Agriculture 15 1 16 Industy it 3 13 27 Construction & Materials 2 16 5 11 34 Transport 3 3 2 8 Trade, Reuil 3 15 2 3 1 24 Catering 1 3 4 Services 1 14 5 7 2 29 Mining Metallurgy 5 1 1 7 Other I 1 1 3 Total 6 R1 22 38 5 152 a/ List of joint stock companies were 40% of shares were sold to labor collectives. Source: Ste Property CouIitteC. 3.22 As stated in the draft rogram of economic reform, as well as in the decree on Privatization dated April 18, 1991, the Government's objective is not to undertake a rapid privatizaion program, but to promote legal and economic equality in the forms of owmership. This is a very narrow concept of privatization ta aims only at freeing the state from the obligation of providing financial support to unprofitable enterprises. This can be seen in the way the Government has categorized all Republic'.n properties or SOEs for purposcs of privatization: a. SOEs that will not be privadzed becuse they are of strategic imporne, such as minerals, electi;c power lines, gas pipelines, trantation links, telecommunications, land, banks, health facilities, scbools, mil , etc. b. SOEs that will not be privatized during the initial stage of reform because of their role in the national economy, such as the largest industrial enterprises, railways, aviation companies, etc. c. SOEs that will be privatized tirough auctions but with management and control remaining with the state. d. SOE which are low profit or bankrupt enterprises that will be privatized through auctions with a transfer of control to new owners. e. SOEs that will be privatized through a direct transfer to private ownership on a compensatory and non-co xmpsaory basis. 3.23 The current privatization strategy is restrictive and lacks an overall systematic approach. The decision process is cumbersome (Box 3.3), and the phasing-in of the program has not been well designed. There is a need to develop more innovative methods, to move rapidly into the accelerated 36 Chapter 3 phase of privatizing of medium and large enterprises, and to immediately intensify privatization of small scale enterprises (Box 3.4). Box 3.3: Privatization Decision 1m The current decision making process for privatatitaon is cumbersome and takes place as follows: 1. Transform selected numbers of medium and largc enterprises into joint Stock companies that can be sold later. 2. Encourage and build on employee initiatives; offer to sell small scale enterprise to the employees; if they are not willing to buy, tie enterprise is then aucdoned (which has never happened so far). 3. For medium and large entrprises, the labor collectives first decide whether or not they would like to be privatized; the SPC jointly with the employees, examine different privadzation options. 4. In rare cases, the SPC takes the lead in selecting enterprises for privatizadon. This happens mainly with non-profitable enterprises or those on the verge of bankruptcy. Mehods of Privatization 3.24 The 1991 privatization law specifies several methods of privatization: * leasing enterprises and other state property; * leasing enterprises and other state property with the right of subsequent buyout; * auctioning state enterprise property; * sale, including on an installment basis, of enterprises, production facilities, and other state property to labor collectives, other legal entities, and citizens; * gradual buyout of state enterprise property by its labor collectives; * sale of integral property, which may be carried out through public trading, competitive bidding or auction; and * transfer of state property without compensation. 3.25 In Tajikistan, the main method of privatization used, so far, has been sale to labor collectives, which have the right of first refisal in the privatization process. This method has allowed the privatization program to start quickly. Often, the privatization of an enterprise goes through various forms of privatization in succession. First, the labor collcctive leases the enterprise. Accumulated profit is then used by the employees as a downpayment for the purchase of a portion of the shares (up to 40 percent) in the joint stock company. At the end of the process, the labor collective buys 100 percent of the shares. Some employees are lost at each stage, while the remaining ones accumulate more shares. This leads to large inequalities in the ownership interests of managers and workers, and old and new employees. Enterprise Refonn and Private Sector Development 37 Box 3A: SmalkSae Privatizaiou Expience in Eser and Central Europe- Privatization of smallscale enterprises in Central and Eastern Europe is widely acknowledged to have bee:n successfihl. The sale or uamfer of ownership andlor leasehold rights bas occurred quickly, and has-notbeen-intensively- opposed, either by fonner employees or the overall population- Small-scale privatization has led to a substantial improvement in the quality and quantity of goods. services, and jobs. -- Small-scale enterprises have been th first entites to be pivatized in di .1rmnerly socialicountrie of C and Easen Europe. These commercial enterprises usually involve retail trade, public catering, and conmer services. While some Cenatmad Eastern European counries have adopdspecial and laws govering tpiviz.t-.-: of small-scale enterprises, in most, the transfer of ownership has been decentralized and left to tedi of rgiWnal,: municipal. and local officlals using a variety of techniques..including admasiguave measurcsm. rtransactio _sand:-- a wide range of intennediate options. One key element of-market-oriented approaches to- Is e been the liqwation of sate entrprises befiore privaion. which has creased conditio for a more effi K permitting greater resources and efficient use and transfer of assets of the privaid en of dhe aCminisraive approach to privatization bas involved.negotiatng comtratsi insid (elsn manageminot). excluding other interested parties from competing for the p ty. In diate pt. tender invitations made exclusively to insiders, and open auctions that offer pre tial reatmeD inidOb the most market-oriented approach has involved selliingsmallsca terprises open auconaeowne r leasehold rihs go to the highestbidder.. In some coutries of ECenlad bEasmeEu noaec aSv Republics, all bidders in open auctons participate on an equal footing,ad insidersrist. However, in some cases, new. owners are obligated to-maintain existing employmaet lkeelsvadbuinep ctin period of time Irespective of the mode of tansfer, privazation in CentraldEaster Euwp e' allw bod (i) Sale, lease, or transfer of existing P as -c h d; obligations to employees; and (ii) Liquidation ofexisting nerprses. with subsequent sale or tansfer of only their assets (freholds or .- leaseholds, as well as equipment and inventory). --'5; 3.26 In many cases, the labor collecdves have been able to turn around the company in a very short period of time (Box 3.5). However, the cumbesome and non-competitive aspects of this method have several drawbacks, especally when applied to medium and large si enterpnses. Fist, the method will not allow privatization to accelerate. Second, it does not lead to effective corporate goverance and socially just distribution of ownership. 3.27 The privatization process in Tajildstan could be described as "bottom-up", since the proposals and decision to privatize come from labor collectives and managers. On the other hand, once the decision is made, a quasi "top down" approach is followed by the SPC in impleming the tansaction. The two approaches are not well balanced (Box 3.6). 38 Chapter 3 Box 3.5: Azi clothing store, Dushanbe: A Success Story The case of AZIZ. a dottng store in Dushanbe, is a good example of sucsu piation and how it has effected the saes operation. Prior to privatization. the shop was sae-owned and subordinated to the industrial amalgamatioa. In 1990. die labor coDective leased die shop from the city. prepared a business plan, opened a bank account, and began to accumulate profiL In August 1991, the labor colective applii for privat'zation. submitPing to the city and to de SPC a set of documents and a program of privatizaion. In September 1991, a formal offer for purchase was submitied. The Stm Property Commitee and the City Commission examined the application and agreed on the sale price suggested by the SPC. A contract was signed between the City Executive Commitee and the labor collective. Twenty percent of the price was paid as a down-pymen, while the remainder was to be paid by insallments in five years. AU payments. howcver, were paid off in one year. Before privatizion, 20 persons were employed, there was no possibility to increase production and the average turnover was 250,000 rubles, which alowed the sbop to fulfill the fied state targeL The shop was sold to the laborcoOective at the end of 1991. In 1992-1993 the laborcollective opened two other brnch stores in Dushanbe and started a sewing operaon doubling the number of emplyees. k also opened a subsidiary in another town, with bodh a shop and a warhouse. Production was diversified and increased threefold; salaries also increased. Since privatian, the company has reinvested 2 m llion rubles from the afher tax profits. The price of the clothes they sell is now lower than those in stae owned shops. New employees can become parmers after a three year trizl period. The company's future plans include opening other subsidiaries in Tajikistan and in neighboring republics. The company also wants to diversify its line of products by offering foodstuffs. Corporatization 3.28 Corporatizadon is progressing and 38 entprises from all sectors have been tansformed into joint stock companies. The basic criteria for corporatization is for the company to have over S0 niillion rubles book value. The transformation is undertaken on a case by case basis, and is done at the enterprise level with the assistance of the SPC. In the case of a group of 25 industi companies that were transformed into joint stock companies, the Govermnent turned 40 percent of the shares over to the labor collectives, retained 40 percent for the state, and reserved 20 percent for later sale to private investors. In other cases, often more than 40 percent is sold to the labor collectives and 20 percent of the price is required as a downpayment, with the remainder to be paid off within a few years. Post-Privatization Conditions 3-29 Notwithstanding the possible detrimental efflcts on the newly privatized firms, many of the post-privtization restrictions stem from Government interest in regulating economic activities. Five main post-privatization conditions usually are incorporated in the sale contract. For a period of three years, the new owner is required to: (i) keep the same type of business profile; (ii) increase the volume of production and not reduce the output to a level lower than before privatization; (iii) fulfill all comnitments and contracts signed by the previous owner; (iv) attempt to find jobs for laid off employees for six months after the layoff, with this obligation ending after six months only if the owner can prove that he followed all of the requirements of the labor laws and still failed to find jobs; and (v) not resell or transfer the entity before the final payment is made. Use of Privatization Proceeds 3.30 The revenues from the privatization of republican property are transferred into a special account and their use is decided by the Supreme Soviet. So far, privatization proceeds have been totally Enterprise Reform and Private Sector Development 39 Box 3.6: Bottom-up/Top-dowvi Approach The privaization progams dth-have -been developed across the Fonrer Soviet Unioni (FSU) Republ incorporate all tbe adidonal methods of privatizaion. The principal privatization approach toe.merge:so far inmast of:- the FSU counties relies on a balanced use of 'top down and 'botom up4M ' approaches.-- In general. most Republics have adopted a pd setting rules and anapproval.- prcess, while adopting a 'bottom up' appmach *hat allows the enterprises thmsdlvs to put together thi privatization - plans and implment the trascti. With regard to medium and lag scale e pi, Russia has -optedfor the 'bottomup' approach forenterprise-pmposals whil the centlauthoritybas settrulks of the gpzne adiom the top down. In smal scale privation. both rules and program initiatives have largely been delegaed toelocal auhorities,- leaving dte entprises and central authorities with a notably passivetrole. Exceptions to this balanceof 'top down' and 'botom up' approaches have occurred in Kazakst. where a -top doW .-approach seems to have;-prevailed. -In Lidnia, dhe '"p down' approach appears to have ben suessidin promong rapid. impl icssof privatization. As for larger nuepries. the 'top-down" approach so farhs been limied to a f irwhere.either hard curcy eanuigs or early success have been sought. jlightof th r ve siw cievei . privatization relying on inatives firm outside buyeis -some FSURepublics -. .arecousidegmos iitiatives in the future; It is clar that, regardsi of theapproach,l ther l isa neo.ed Irtransparent.ruesand. governing the process. In countrieswhere amass sagyh2 sbeenmplenteedbis comenp&ete entprses, a combinatin of 'op-down¶ and 'booM-up' ppr ap bepr&ec. As l*_-j, jedividfla privazation plans can then be prepared by the henmrprisethmselves, under close state guidance witina id frame. Moldova appears to be the only.FSU Republic considering a purechtp-dowi? mass paa -e wi virtualy no participation fom non-stare bodies- Indes g as in progm bot of enterprises and the desired-speed of implementation should be considered to strike- a appropriate baance-beween enmteprise initatves and stat control. transferred to the budget. Proceeds from privatization of municipal property are tansferred to the appropriate local authorities. Since 1991, the total proceeds of privatization of republican and municipal properties have amounied to approximately 3 billion rubles.' For 1993, the budgeted proceeds were 1A billion rubles. Obstades to Privatization 3.31 There are numerous obstacles to privatiztion in Tajildstan. Ftst, the let famework is incomplete. The law on privatization dates from 1991 and reflects concepts about d Ivatization of enterprises that were prevalent at the very beginning of the economic transformation cf the formally socialist economies. To move forward, new concepts of privatzatica should be introduced. The procedures for privatzation are cumbersme and not easy to understand. There is also litde capacity to plan a coherent program of privatization and carry it out in a timely fashion. The second major impediment to privatizadon is political conflict over policy and methods. One conflict involves the exclusion of employees in the social sector and agricultural suppliers from privatization under current rules. Underdeveloped financial markets and institutions are a tird obstacle that undoubtedly is I. The proceeds from privatization of republican and municipal properties are consolidated into one account. 40 Chapter 3 contibuting to slowing the pace of privtization since they are not organized to provide financing on a coammrcial basis. Thefourth constrin takes the form of restrictions prohibitig foreign investors from investing in medium and large SOE's. As a general rule, foreigners are not allowed to purchase more than 40 percent of the equity in tbese enterprises. The participation of foreign investors is also subject to: () acceptance by the employee collectives of a decision to sell their enterprise; (ii) a grant of special permission by the sector rnisty and (iii) the agreement of the executive city district. FuiaUy, because of confusion as to property rights and politcal instability, it is difficult for the State to guarantee the security of the privafized property. Recommendations 3.32 The Goverment of Tajikistmn should accelerate privatization of small scale enterpnses during 1994-95, and quickly develop a consistent and coherent overall privazaftion program with the objective being rapid movement to a market economy. Without a dhange of ownership from state to private hands, the enterprises may not gain access to the investment, technology, and market-oriented management needed to survive. Also, until they are privatized, many state entcprises are operating in a planming vacuum. If the experience of other transitional economies are any guide, most sector ministries will do little to prvent the depletion of assets and accmulation of ientprise debt. 3.33 The Governmt must keep in mind a number of critical points in developing and viwing its privatiaon program. Fiust, speed is essental. Many Tajik enterprises wil be operating in a govemance vacuum until they are privafized. Market-driven strategy should stimulatc private sector demand to purchase those enterprises and promote rapid and successful padzaton. This can be achieved only by offering as broad a variety of entrprses and assets as possible to the private sector. Second, the privatization process should be as transparent and open as possible at all stages, including publication of the fact that assets are available for privatizaton, and disdlosure of financial and operating information, recipt and review of offers, and negotiation of specific tansactions. Third, the privatization process should encourage the transfer of assets to pnvate owners with demonsred technical knowledge, operatng expertise, and financial strength. Finalty, the revsed program should introduce measures and financial vehicles to encourage broader participation by pnvate individuals and institutions and to otherwise diversify the methods of privatiation. The initial cautious and restrictive policies must be revised to encompass a broad range of methods and sales stagies. 3.34 Prepare a cornprhemnsie program. SPC needs to refocus its efforts on the supply side of privatization by acceleating implementation of the 1993l95 privatzation program during 1994. The draft 93-95 privatization program includes some 80 medium and large siz enterprise as candidates for privatization. Some framework must be prepared to assess the size and impact of the privatization of these enerprises on the economy and the budget. Privatization should include all types of state-owned property (medium and large enterprises, small enterprises, separate assets, housings, etc.). The program should not be limited to enterprises that are not profitable or on the verge of bankruptcy. The Government should state that all enterprises are candidates for sale except those on a specific negative list of enterprises that will not be sold during the next, e.g., five years. The Goverment also should approve and publish a specific list of candidates for privatizaion on a yearly basis. 3.35 Speed the process and prepare a priority work program for the next 12 months. The govermnent should adopt a multi-tack approach, in which it prepares the goundwork necessary to hold Enterprise Refirm and Private Sector Development 41 voucher auctions while simultaneously conducing a series of small scale auctions and case by case larger scale privatization This should include the following actions: a. Clanfy targetr. SPC should: establish realistic targets for its 1994 program; schedule auctions of small scale entrprises (focusing first on Dushanbe); select a few large scale entrprises for case by case privaizaion; and begin initial preparations for a Mass Privatization Program. b. In the next six montfhs, od a series offair, open, and regularly schedled small scale aucuons. beginng in Dushanbe. Auctions of small scale enterprises are a proven way to encouage privatzation. The procedures for holding such auctions are not complex, and the impleme on requiemnts are simple, once conssus is achieved on the need for priaizaion. c. Design a Mass Priaiaon Program. In designig a method to incorporate vouchers/points/saving accounts in a mass-privaizaton scheme, a number of factors should be considered, including: the number of SOEs to be privatized USing vouchers; the perctage of total shares to be offered in exchange for vouchers; the strcngth of the baning system; the rate of inflation; and especially the level of public support These and other factors should be used to determine Oi) whether vouchers should have fawe value; CH) whether vouchers should be tradable; and (ih) how to disbute the voucers, i.e., in a physical form or through savings accounts. 3.36 Diversing medho ofpriniaton. Collective ownersip of property limits resource mobility and the efficient transfer and use of an enterprise's assets. For small-scale enterprises, the ansition from collective forms of ownership should occur as soon as possible. For this reason, public auctions should be the method of prvatization for small scale enterprises. Il rare cases, conditional auctions should be used, in which buyers agree in writing to observe certain conditicns of sale. 3.37 Swipfy3ingproceures. Given the scale and compleity of Tajllcws pratzion program which will involve privatizing over 5.000 small scale and a large munber of medim and large scale enterprises, successful implentation reqres adminisatively sipe procedures, for, among other things, enteprise valuation enterpnse selection, privaimation plan review. SPC should also develop standardized documes and guidelines to accelerate the work of individual privaizaton committees. 3.38 ImpnleneingMass Corporaizaion. So far, around 126 enterprises have beentransformed irto joint stock companies. To accelerate this process, it is recom nded that the Goverment adopt a decree that imediately trasforms all enerprises employing more than 200 people unto joint stock companies. This nmss oon approach would define property rights and clear the path for a range of necessary privatiztion measures and options. 3.39 In the medim-term, once thee design issues for privatization are resolved, SPC should begin to implement the early stages of the Mass Privaiztion Program by focusing on: (i) Demandside. The next steps for voucher/points schemes shoud include: (i) gaining final consersus on voucher design, including the scope of the 42 Chapter 3 program and security measures; (ii) if a paper voucher is chosen, settling on a process for selecting a printer, determining how to pay the printer, choosing a printer, and printing; and (iii) if the points or savings accounts scheme is chosen, developing a distribution mechanism in the financial institutions. (ii) Supply side. Other steps for enterprise selection and preparation include: (i) agreeing on a list of 1994 enterprises to be privatized under the Mass Privatization Program, (ii) designing infonmationpackages for enterprises explaining whaE needs to be done, and by when, in the preparadon of privatizadon plans, Ciii) distributing information packages to enterprises, and (iv) setting up systems to evaluate and approve privatization plans. 3.40 Corporation, and privauing trading enterprises. Trading enterprises including distribution, wholesale, local tansport, and othertrading enterprises shouldbecorporatized and pnvatized in the short run as quicldy as possible in order to reduce monopolistic structures in distribution and trade. 3.41 Privatizing Land. This issue should be reconsidered in the medium-term in light of the Government's concerns regarding legal ownership rights associated with land attached to an enterprise, dwelling, farm, etc. 3.42 In the medium-erm, it is important for utilities to undergo institutional reform as a prerquisite to prvatzation, and to develop a program for intrcre privatization and private sector involvement in the delivery of public utility services. Governance R of Viable Enterpi Governane 3.43 The experience of other countries suggests that privatization will take several years. In the interim, enterprises should operate in line with private sector practice as much as possible. Conmmcilization should be encouraged by introducirn user charges, formulating a limited set of achievable targes, establishing commercial goals and imposing hard budget constraits Also, organiational changes that delegate authority to approprizte levels of management, create mechanisms for owner representatives to monitor performance, reward success, and punish failure should be promoted. 3.44 lhe Govemment has started this process. However, enterprises transformed into joint stock companies have not adopted the corporate structure. In essence, corporatized enterprises stiU operate under the system of state orders and instructions from the state to nmanagemnent. Management has very little autonomy. A shareholders meeting approves a detailed program for the year, elects the board of directors, and appoints die director general. The Board of Directors has no relion to shareholders and is composed of industria experts and economists. The actual evaluation process should be strengthened. Presently, there are no: (i) planning, evaluation, or managerial incentive programs; (ii) systematic performance reviews; or (iii) requirements to prepare corporate plans and undergo approval Enterprise Reform and Private Sector Development 43 procedures. The concept of autonomy and accountability varies between sectors, activities, and enterprises. Restructuring Viable Enterpries 3.45 The Goveniment's current restructuring plans involve three main areas. The first intends conventing large defense-oriented plant. The second, management of natural resources. Since Tajikdstan has serwed as a natural resource supplier, many of its ntural resources are not processed at home. Efforts are being made to build processing facilities, largely with the help of foreign investors. The third area involves upgrading the product quality and building the marketing infrastructure to a point where it can support exports to new markets. So far, Tajiklstan has not tackled fiancial and managent restructuring of viable large SOEs. This will become urgent as the liquidity shortage and delays in interenterprise payments take many potentialy viable SOEs to the verge of bankruptcy. Govermnce and Rtruct 3.46 The corporatiion process in Tajikistan should be accelerated and modified to allow a range of necessary private sector involvement. New measures and options should. (i) clarify the ownership of enterprises; (ii) clarify te decision-making process; (iii) remove the state from direct involvement in day-to-day decision making of the enterprise and management; and Civ) open infornnation flows. Rec nations for 1994-S95 3.47 Adopt a set ofprdnd tat will be the basis for corporase governance. The reform of the remainn SOEs in Tajildstan can be achieved if the Goverment: (i) provides autonomy to magement; (ii) seeks greater acoutability from them; (iii) rewards good performance, and sanctions poor perfommance; (iv) establishes adequate Manageme Information Sysms to monitor SOEs' financial perfornance; and (v) clarifies the role and responsibility of SPC, Ministries of Fmance and Economy, sector ministries, and other supervisory agencies with respect to the SOEs. 3.48 Prepare a coporate governance system A comprehensive program for strengthenig enterprise governance and accountability should be established. Managers need clear performance contracts listing their obligations to the owner. These obligations should include using accounting systems and financial reporting based on previously established criteria. Since some companies will need financial restructring at an early stage, decisions will have to be made about debt restucturing so that limits will be placed on future borrowing and growth of arrears in the medium term Reduction and rationalization of subsidy programs and directed credit should start during 1994-95. No physical rehabilitation should be planned for companies that will be privatized in the short term. For strategic companies that will remain in the public domain, investment or rehabilitation expenditures must conform with the new role of the enterprise in a liberalized economy. 3.49 Develop a Managemen Information System. A corporate governance system includes a monitoring system to review business plans, investment expenditures, and financial results. This will require a data base and training program for the new directors. A transparent system to appoint boards and managers also is required. 44 Chapter 3 3.50 Prepare a performance eluation systan. Performan evaluaton systems must include incentives or bonuses for good performance and sanctions for poor performance. 3.51 Restructurng programs for v'able enterprises will need to be undertaken where prwatiation in the near to medium-tum is not feasible. Restructuring programs in large enterprises would involve financial restructuring; taining; and labor redeployment. Some enterprises may require relatively minor but essential capital expenditures to become economically viable level. As far as possible, this should be financed by the enterprises themselves, though some budget support may be needed. However, such support should be conditional upon enterprise performance and the availability of budgetary resourcs. Facilitation of Private Sector Devlopment Pivate Sectors Cureet Role 3.52 The devclopnt Tajikistan's private sector effectively began around 1985, when Soviet law allowed the crcation of cooperatives. The Enterprise Law, adopted in June 1993, specifies the type of enterpises and includes personal, parmerihip, limited joint-stock companies, and state enterprises. According to Goskomstat, in the middle of 1993 Tajikistan had over 3,000 so-called entrepreneurial stuctursn (Table3.4), including 643 cooperatives, 1,749 small sae enterpis, 182 enterprises registered as joint ventures (but only about 45 of which were active), and 556 private enterprisesO Tajikistan also allows the registration of idvidual "juridical* persons who engage in business and are essentially self- employed. In the middle of 1993, there were 4,318 such self-employed persons (Table 3.5). 3.53 The entrepreneurial sector is both severely underdeveloped and unevenly distributed thrughout the country. Over 40 percent of the so-called entrepreneurial structures are located in the Leninabad region. However, a change in official atitude was demonstrated by the Entrepreneurial Activity Congress in Khojand in October 1993 when Government officials pledged instiutional and financial help needed to develop small and private business in all regions. Using the U.S. assisunce funds. a Center of Entrepreneurship will be established at Khojand University to act as an incubator for enteprises and help develop new insmmet to support entrpreneurial activities. 2. The statistics on the number of enterprises differ from one source to another. According to the tax administrtion, therc are 4,580 private enterprises. 742 state small enterprises, 199 associations. 126 joint stock companies, and 3.08R cooperAis and public organitions that report profits. There are also over 1.2 million household plots in the agricultur sector which wcounted for almost one third the value of agricultral output in 1992. For the purpose of this report, official statistics fumished by Goskomstat are used. Enterprise Reform and Private Sector Development 45 Table 3.4: Smna State usibesse, Cooperati and Phte Entuerprbes, as of uly 1993 Secor No. of Percent Employe Total Revenues Units (mbL ibi.) SMALL BUSINESS 1,749 S9% 24,558 5,266 Consumer goods production 435 14.7% 9.440 339 Trade 196 6.6% 2.744 1.328 Construction 293 9.9% 5,345 1.551 Agriculr 136 4.6% 1.231 83 Everyday Services 12Z 4.1% 1.105 188 Other 567 192% 4,693 1.775 COOPERATIVES 643 22% 9,641 1,395 Consumer goods production 122 4.1% 2,353 125 Trade 29 1% 420 396 Construction 185 6.3% 3.552 423 Agricalt 50 1.7% 707 8 Everyday Services 68 2.3% 1,249 m Other 189 6.4% 1.360 170 PRIVATE ENTERPRISES 556 19% 5,310 1,337 Consumer goods production 80 2.7% 1.095 209 Tade 196 6.6% 1.23! 531 Constuction 70 2.4% 1.438 193 Agriculturc 18 0.6% 161 21 Everyday Services 8 0.3% 51 4 Other 184 6.3% 1,335 379 TOTAL 294 10W 39,509 7,996 Sorc Ministry of Econory. Conflaints to Private Sector Development 3.54 Despite the Goverment's intenion to promote prvate sector development, there are severe constraints dth inhlbit its development The most serious are: (i) entry and exit rules; Ci) labor regulations; (iii) limited access to buss infonnation; (iv) the commercial market for office space; (v) lack of competition; and (vi) access to credit. Entry and Exit Rules 3.55 Registration of new enteprs takes about two to four wek from the time all required documents are submitted to the municipal council. In countries that have succsfully developed the private sector, registration takes only few hours. In Tajikdstan, preparation of the required volulmi documents takes a long time and involves great expense. Registaon of entrises with foreign participation and joint ventures involves three agencies (Ministries of Finance, Ministry of Foreign Economic Affairs, and the District Executive Committee). Registation of private enteprises (100 percent Tajik owned) or individual economic activity involves only the district exeutive committe. 46 Chapter 3 3.56 Once regi:steed, businesse still face licensing rquements, especially for Tabl 3J.: SeIEmploye Person, July 1. 193 importing and exporting goods. services, and o or related fianca trnactions. Certain kinds of Tyt orp No. or activities are not allowed at all, such as Adi___Seff__mployed production of liquor, weapons and ammunition, Consumer Goods 2805 narwtics, chemicals and medicines; and working sevices 240 with precious metals and stones. A draft law Rcpais 333 being prepared to siiplify registraion and TranLon 86 Other 4 licensing procedures will shorten the registration TOm, 4318 process to a maximum of one weelk Source: Mmisuy of Fiance. 3.57 The Bankrptcy Law, enacted in 1992, is not yet operational, so that the exit procs remains under question. In all likelihood, as the economy moves toward a free market, many private and public enterprises will fail and be shut down. A well-functioning system of bankruptcy law and practice is thus critical to the new framework and requires serious and immediate autention. Labor Regulation 3.58 Labor rtand d of redundant employees are very sensitive issues in Tajildstan. If the mnagemt of a newly privatized enterprise, or any private cnterprise, decides to lay off an employee for economic reasons, the labor law obliges the owner to find a job for the dismissed employee. B ess foa 3.59 Lack of iormation, managerial know-how, and technical and financial advisory services hinder the ability of private businesses to adjust to the rapidly changing conditions of the overall business envitonment Access to data about technology, markets, and potental domestic and foreign partners for new enteeurs is also inadequate. Few small entrprenurs have any business training; new organizations are trying to fill this vacuum The National Association of Small and Medium Busines, created on September 1. 1993 and operating under the Council of Ministers, aims to act as a Business Information Center to provide services such as marketing, advertising, insurance, banking, business training, cargo, a tranpWort. Commercial Market for Office Space 3.60 Contrary to the siuation in other FSU republics, in Tajikdstan, many premises are empty. However, there is no commercial market for office space. To obtain space, businesses ca (i) buy an unfinished building, furnish it, and use it as an office building or warehouse; (ii) form a joint ventre with a state enterprise; oi (iii) apply for a lease to different organizations (SPC, city district, committee, or the Supreme Soviet). The process can be long and cumbersome. Lack of Competition 3.61 The new Antimonopoly Law could play an important role in maintaining well-functioning competitive markets. However, the legislation alone will not increase competition. Tajildstan inherited Enterprise Reform and Private Sector Development 47 an economic structure highly concentrated in production and trade, with often only one domestic state- owned supplier or buyer in specific markets. The fagmetation of wholesale enteprises into smaller units is not yet a government priority nor is privatization of trucking and distribution. A competitive network of distributors, agents, and brokers are necessary for a commercial market to emerge. 3.62 Currently, private busies do not have access to state supply networks, which depend on many middleman organiztions and favor stale enteprises. lTese middleman organizations appropriate a large percentage of profits from the sale of the product and make the basic suppliers unresponsive to the qualitative and quantitative demands of final producers. Sewring basic inputs is also a problem because state enterprises get priority in an economy suffering severe input shortages. Organizations, such as the Association for Entreprnurship, are trying to fill this need by helping pay members secure inputs necessary for their businesses. Some commodity exchanges also facilitate this task, but they are often inactive because of the civil war. 3.63 The Ministry of Economy has an Animonopoly Department that, together with the Department of Price Controls, has the power to supewrise application of the Antimonopoly Law, which uas approved on December 27, 1993. If an enterprise has more than a 40 percent market share, it is listed in the Register of Monopoly Enterprises. These enterprises must report their prices to the Ministry of Economy which then calculates their profitability and checks it agamst guidelines. Those who break the law are punished. 3.64 The Antmonopoly Department has also prepared a draft law on consumer protection. It was approved by the Council of Ministers and is being examined by the Supreme Soviet. The antinonopoly department's institutional capacity is limited. As of October 1993, two professionals were worldng there and only three more staff are planned. However, in the new Ministry of Economy and Forecasting, more professional staff are envisioned. Access to Credit 3.65 Access to credit probably remains the most significant obstacle to private sector development. Private enterpnses have litle access to credit and the financial system is still dominated by NBT and specialized Banks. Stae owned enterprises continue to enjoy almost exclusive access to credit and preferential interest rates. As of October 1993, only 5 percent of totaI lending was channelled to the private sector. Since there is no coilatal and land cannot be privately owned, loans to the private sector represent high risk to the banks. Moreover, most credit presently is channelled to support state priority areas, such as agribusiness, consumer goods, and child nutrition products. 3.66 Some banks, such as Tajik Business Bank, Saving Bank, and Soman Bank are lending to small and private businesses at interest rates between 40 to 60 percent per annum ( With monthly rate of inflation of 30 percent, these rates are highly negative in real tems). A few Tajik business banks are planning to increase their lending to private entrepreneurs and are establishing credit departments to serve small businesses. 3.67 Overll, Tajikistan is making an effort to support development of small and private business. On September 1, 1993, the Council of Ministers adopted a resolution on extraordinary measures to support entrepreneurship structues. The resolution resulted in the organization of the National Association of Small and Medium Business under the authority of the Council of Ministers and the establishment of the Fund to Support Private Business is under review in the Co'.rncil of Ministers. 48 Chapter 3 Also, pursuant to the resolution, the Ministry of Finance will establish a special commission that will have the. epeie to evaluate investment projects. In addition, a Public Bank for Support of Private Business is. expmcted to be established. Recommenldations. 3.68 To stimulate private business development, the Government of Tajikistan will have to actively eliminate the reminig barriers to entry and undertake specific actions to promote businesses. Specific actions that it needs to consider duing 1994-95 are disussed in the following paragraphs. 3.69 Office space. Undertake a cesus of excess space m Goverment owned bildis and other spaces available in major cities tat could be leased to small businesses. 3.70 Epand contacting acdtives to the private sector. To firther increase private business development, the Goverment should consider ways to expand contact between the state-owned productive sectors and the emerging private secor. Small business could become important suppliers of inputs and provider of services to larger manuacr e and to state and local governments. 3.71 Coordbaringpriwzesectordevelopmentpoices. At present, The Government has little capacity to coordinate policies in the area of private sector development. The Department of Entrprensh in the Ministry of the Economy, which is already playing an inportant role in proposing new policies and actions to stimlate privatc sector development, could expand its coordinating role. Specifically, it could: (i) analyze the implications of Govermnt policies for private entrepreneurs; CHi) Frovide liaison with business associations; and ('i) ensure that basic materials for business start-ups are available and that regulatory compliance is properly addressed. 3.72 Entry rule. The Goverment should adopt a simple and automatic license and registration process with minimal requirements and simple, uncomplicated forms. 3.73 Ease injonnaron boalenec*l. The Goverent should provide business with timely updates of Government policy and regulatory hnges, and help facilitate contact with suppliers, distributors, and foreign irvestors. The Government should also support: (i) development of business associations;. (i) private initiatives and information centers to disseminate information and provide business services through such means as the publication of business directories; (iii) establishment business -centers across the country that provide fee-based services to new businesses; and (iv) the development of training institutions, priate business schools, and other facilities for developing entrepreneurial sidlls. 3.74 Over the medum-tern, Encourage devlpment ofsefnces such as management consulting firms; economic information anl forecasts; market research and databases. Foreign Investment 3.75 Tajikistan's experience with foreign investment is very limited. The actual amount of foreign investment is not easy to determine. Although detailed records have been kept, the valuation of ruble assets in combination with foreign investment is problenatic. As of October 1993, 12 enterprises were wholly owned by foreigners and 182 enterprises registered as joint ventures with foreign Enterprise Reform and Private Secor Dvelpmt 49 ruble assets in combination with foreign investment is problemadc. As of October 1993, TEble 3.6: F O Cuq.u 2 -I 12 enterprises were wholly owned by foreigners aaz Varl in pr and 182 enterprises registered as joint ventures d with foreign participation, but of these only about 47 are active (Tables 3.6 and 3.7). The dearth of United States 14 5 foreign investment is the result of political and Afghanisun 90 1 economic instability. The Law on Foreign abanon 2 Ilvestment, adopted in 1992, delineated rules for India 3 setting up joint ventures as well as wholly-owned Bulpria 6 foreign companies, that are no less favorable than Italy 3 those applied to local citizens. The Government Turkey 4 guarantees that the provisions of the current law China 8 2 will be applied for 10 years and that foreign Fmland 2 property will not be nationalized or requisitioned. Gnay 6 Foreign investors are granted the right to transfer V,-emm 2 their investments and profits out of the country. Brad 5 However, a coherent and detailed set of rules Swizerlmnd 3 1 permitting offshore and, to a lesser degre. &Begum 1 onshore foreign investors to trasfer their hard Hunpry I Sweden I currency in and out of the country has not yet Macedoia I been finalized. The large drop in output, Spain 1 considerable imbalances in the can 6 situation, the deepening budget deficit and rising Korea 3 nBlation have created impediments for auracting Slovakia 1 foreign investment. The essential prerequisites C osant 2 for negotiating investment agreements are F1ce I currently weak; information, such as Si-Lmna - 2 representations and warranties about the CYprus I conditions of local enterprises, sectorial analysis. Pmna I and fiancial statements with intemational WeLd I standards (usually demanded by intemational Luxambou 1 investors) are incomplete or not available. Malaysia 1 Chambers of Commerce currently handle Pakistan 1 2 investment promotion activities, but their capacity Totl 12 12 is limited and they lack experience. The institutional setting for private investment in Note: 152 e umrprses am regued a joint wear general and foreign investment in particular is butonly47 are ve (see Tabl3.1). complex. At present, the Ministry of Foreign soure: Mimy of Fimcc. Economic Relations collects and analyzes information on foreign investment and makes recommendations to the Government on policy as well as on apprval of individual projec. The Imiftty of Finance registers foreign investment enterpnses, The Government intends to cet an independent Agency for Foreign Investments that will have a central role in coordinatg foreig invesm acities and will become a center for infornation, policy and investment prmotion. 50 Chapter 3 Reommn4daons Table 3.7: Sources of Foreign Ilvestment, Joint Ventures 3.76 Developing a (October 1993) comprehensive policy of Sourc Number of Capital in invesment promotion. The of Investnent Enterprisese Hard Currency creation of a single Government agency dealing Afghanistan 7 S10,522.000 + CA$30.000 with foreign investment USA 2 560,165,000 during 1994-95 san Swden 1 323,000 rbl. in convertible curency dupriang s9t4-9 ina Bulgari 3 $168,500 impurtant step in aracting Itly 1 S6,900.000 and retaining foreign Chia 5 S1.543.000 + 431,24 Swiss Francs investors. This agency should Austria 3 S300.000 + DM7.000,000 develop a comprehensive Israel 6 S7.595.000 policy of investment GermanY 3 DM 420,000 promotion to inform potential Luend 3 54.860.000 Luxembourff1 51.100,000 interested parties about Swinrland 2 S146,000 Tajikistan and its investment Turkey 1 53.800,000 opportunities. The Pakistan 1 54,700,000 Govermnent also needs to Czechoslovakia I S10,o00 improve the country's Lebanon 2 S25w000 Finlnd 1 5400 i n f r a s t r u c t u r e Yugoslavia I $50,o000 (telecommunications, Hungpry 1 S12,000 transportation, etc.) Multational 2 5430,000 3.77 Simplifying TOTAL 47 registration requirements and aJ Number of acttve joint ventures. reguaions. If an easy entry and exit process is developed Nate: This table presents only the contribution of the foreign investors in hard during 1994-95 it will currency. improve the business climate at the local level and help Sourc: Ministy ofFnanc. foreign investors make their venures a success. 3.78 Reviewing foreign investment law. Investment legislation must be reviewed to remove excess registration requirements, simplify concessions, and establish a coherent and detailed set of rules in the medium-term permitting foreign investors to legally transfer hard currency in and out of the country. Opening up the privatization process to foreign investors by removing tight requirements and ceitings on participation will also stimulate and attract fiuher foreign capital. Enterprise Reform and Private Sector Development 51 Box. 3.7 Technial Aistance In Privatintion Technical assistance program is needed to support Govemment efforts to: * . review existng privaXtion progrm an reconendng a comp_ehnsive program and to accelerate the implemnation and use of alknatdve mehds of privarimadon : assisdng in the prparion of guidelines for small scale prtatization and. pmposing amendmets a privatization law and reguladtons. * 00 -assist i te preparton of derailed implmntazon schedule and datae and nctions. * review existing laws n property, civil code (focms ow contcts). privatization. banrptcy. o, emprensip, -oompany and lease aid malke neessay proposas for either revion or replacement - - - develpaid nt atrainin progmm forprivat n andprvat sectordevelopment(-cty semi.s lectu - and overs sdy rs). . . . . . .. . . . . . .- . . - * : develpaall-clpriaiaioniorprgamlrDsbne ih *jectie o ep kXlctn hsexeinei thenego - -.of the cournzy - :-. ;~ :--E-: :- ;~~ assist in tie seltkion of businesses to be privtized and the id-- e f the reeasseto he tr::f--: 0 - - -: ;~~~~~~~~~~~~~~~~ .: -.:.-- . . . . - . . ,--.:-- .: * - d p prp srpinam ation. ollect danenterpses,deve asimapl4 dieinfraonl: requiren-e.ts on the privatizauion proicesszad. ---* . assist in:i) organizingoam!nsorducting auction or prprto o- enterprises for pbrivazno. the mco vn,adps-auction closin pof privaintion tsationt (ii.. estblishingh necessary financial suctures a ii)ag finanal and l -. * --. :-.assist i ds o crig fe y s anXd ni i id p rices fio ehols nen toi -. = q . u p S: . .. f * evlo ariatntoncomuictin trtey jndseltawaraness.campazgn.' - @ - - : a w n : _ a Rtmits:-dvvk)in _ -pome fbcii a - -nd0 - : -Advise on teinipleenaioofte sratey m!dlseiai ofifrrnation-) a3 ditiuin . : Organize.seminars an neviews on prianaouas mchnisms arine p uidil pece-n an: ati;ds * remview thecrenstforegnrnvestmeet,oicibesand regulaionsincuinlegal~ sytm,bsasewrinn,cmeiiees etc; iden; its g and ct t deveg tgy toproote foiinvestment'fanditing infdriing- - amenments t die law aid regulatifn. .: .. ....= .,i Y. . :... '..... .- review tax ~ationad taritffpolicies inocder tosrnte h necenfaeokn euabrrest oeg tvsr * develop the Agencyfr fon 'Invem npafricuarinteelorationo itstf posiion proedr on sstems. ec. - - - ; = * strngthentheGov~ernetcapacity tob attract adngtaewt frinivs . * identifydie barriers - domestic and interaiintiol - tad -.-afftitheidevelpmnt of d:f private scr an assist in - develpkmeit and imeinttion of poliies.to faciit te pnivate sector actvities h the trade-services. : - - ; -: . , - f :' ;-' 0 S n - ; :~~~~~~~~~~~~~. . . . . . CHAPTER 4 FINANCIL1 SECTOR 4.1 The Tajik financial sector is dominated by large specialized banks, a heritage from the state banks of the FSU. These banks - Agroprombank, Orienbank, and Tajikbanusiness- account for over 96 percent of bank lending. Sberbank remains the dominant institution in mobilizing the savings of the population but has little role in lending. The National Bank of Tajikistan (NBI) retains a significant role in intennediation. The regulations it administers are largely ex-Soviet regulations; the accoutng system used by the NBT and the banks remains the old Soviet system. 4.2 Cash is the dominant method of payment. Enterprises are not free to encash their bank deposits at will and nust use payment orders for the majority of itrsactions. The use of checks by individuals is limited by controls and lack of geneal acceptability. 4.3 In the transition to a market economy, the Govemnt's policies in the monetary and financial areas have generally hindered resource allocation. Credit, subject to a variety of controls, has been directed mostly toward sustaining existing industries and mnining livmg standards. This has driven inflation to unprecedented levels. Deficit finacing has allowed the Goverment to avoid encouraging chnge in old activities and behaviors. 4.4 Iterest rates which are subject to controls, are severely negative inm xal terms and lower td-m Russian nominal interest rates. This contbuted to an outflow of rrncy befo: the collapse of the ruble zone, as arbitrage between Russian and Tajik interest rates took place. The bighly negative real rates have imposed a severe tax on household savings. 4.5 Interrepublican payments tbrough official channels have almost stopped, as Tajilistan has exhausted its credit with most FSU republics. To avoid appropriation of their earnsigs or to get around delays caused by the blockage of the in ubli oespondent accounts. Tajik enterprs had resorted to shpping (old) mble currency, barter and mntaining (new) ruble accounts in Russia before January 8. 1994, when the old (pre-1993) Russian ruble stopped being legal tender in Tajikistan. This contributed to a sharp icrease in the demand for currency by enteprises. The use of currency for interrepublic trade and arbitrage resulted in a curency shortage m Tajikstan for making large payments. 4.6 The skill base of the financial sector bas been significantly eroded by the loss of Russian professional staff. This affects the NBT, the bans and the State Insurance Campany. The exodus of skilled personnel has affected the NBT regtory ability, banks' ability to manage their accounts and modemize, and the efficiency of the domestic paymes system. 4.7 Although reliable figures on bank solvency are not available, the Government faces a large and growing contingent liability in terms of a future need to recapitalize the banking sector. A number of factors support this view: the continuation of banks' lendig relationships with traditional clients, wik: Govenment encouragement; lack of an anrs-length relationship between banks and their shareholders; lack of effective NBT supervision, particularly in rdation to concentrted lending; the existence of long term overdrafts in NBT settlemnt accounts; and the effct of hyperinflation on dte capital of solvent banks. 54 Chapter 4 The Settflg for Financial Reform 4.8 There are 13 banks in Tajikistan in addidon to the NBT and Sberbank. A structural view of the banks (see Table 4.1) shows that most of them are partially owned by state enteprises. In addition to the banks, there is a state insurance company and 7 new cooperative insurance companies. There is no stock exchange. The laws regulating the financial sector are: Law on Banks and Banldng Activities in the Republic of Tajikistan; Law of the Republic of Tajildstan on the National Bank of the Republic of Tajikistan 1991; Resolution No. 778 of the Supreme Soviet of the Republic of Tajikistan Concerning the Basic Thrusts of Monetary Policies for 1993; October, 1991 Gosbank Rules Govering the Reguation of the Activities of Commercial and Cooperative Banks; Inurance law (draft); Stock Exchange law. New laws to replace seveal of these laws were in draft form in October, 1993. 4.9 There are several different legal types of bank: state; joint stock commercial; commercial; and cooperative. The two state banks are Sberbank, which has a Government guarantee on its deposits from households, and Khadon Reconstruction and Devdopment Bank. Khatlon Bank was recently established by the Goverment as a vehicle to assist development in the Khatlon region. Once this role is fulfilled, it will be dismanded. The difterence between the Joint Stock Commercial, Commercial and Cooperative banks relates more to their capital structure more than to their fnmctions. Joint Stock banks issue equities to attract capital, in addition to the capital provided by theWir founders. Comnercial and Cooperative banks have no ability to issue equity and must rely on their founders for capital. 4.10 Bank branches have their own correspondent accounts and use the balances in these rather than a group net balance. in deciding whether they can extend credit. Braches are not strongly directed in the use of resources by bank Head Offices due to lack of information systems. There is some speciaiation among branches by client type. Itermediation in Tajfldstan 4.11 Although intermedtion in Tajikistan has broken away from the previous highly cenualized allocation of resources, most credit allocation remains based on regulations, central funding and past relationships. This greatly impairs the financal system's efficiency in allocating resources. To improve the situation, the Government needs to reduce its role by eliminating credit directives and reducing deficit financing; the NBT should end its intermediaton; and commeial bank skill levels should be raised. More broadly. a stable macroonomic environment and realistic aessment of the viability of the larger enterprises in a market evironment are also required. 4.12 National Bank of Tajii"san. NBT has taken over the role of the former Gosbank- NBT has eight main departnents and eight sub-departments, many of which reflect the role of the old Gosbank NBT's present lack of independence is highlighted by the Government's extenive deficit financing through NBT, to which NBT is strongly opposed. NBT has a significant role in mediation. A decision was made to transfer manageme of Tajikistan's foreign reserves to NET frmm Tajvneshekonombank, but this has now been reversed. The Ministry of Finance controls most of the resources via Tajvnesheconombank, while the NBT has only a working balance. 4.13 NBT has suffered from loss of experienced staff. Several Directors are relatively new to Central Banldng, baving been brought in from other areas. The loss of sldlled staff at all levels is significant enough chat there is doubt as to NBT's functional ability in some areas. Financial Sector 55 Table 41: TjIIk Blab Nme or Bank N.. or Fum Bratrche 1. AKb Agroprombank 54 a) SmCommiteeoflepublicofTajikisanonStae Propery; b)Konadam Comn SHAIUC" (ICS) Processing Plant of Leninad Region; c) Coeeve Fuma VasyMv. Kurn-be Region: d) Cdocdve Farm Goiba. Xuyab Region e) Oder shaolders. 2. Alb T b (JSC) 2 2 a) Minstry of Trade .d Mateil Resour; b) Concern, Talkldgpm (igt iN); c) Cone Saad Matbii; d) Odlder aeoldm 3. Tajik Alb Oienbiank ISC) 2 0 a) Promroybn; b) Miniy of Fnca; c) T*IMm smobak: d) Coporaton an Enr Elecukiqt; c)Orber shrhlde. 4. Tajvnehekoonbank * OMSC 0 a) Joint Stock Sodety So _onin b) Scm Com.e;-l bIane Corp.; c) Cotta Prcesg 'Corp- St m; d) loint Ventr Sov-hk-Servie; e) AsaAustrian Association; ) Tsjve nomba o) Joint Venur CooDn amnian h) Awul Reikad Li. SwisL 5. Alb Taiak USC) 1 a) Associadon Iasal Cooperat WeVe; b) 'Berm; c) Smn Enerpe 6. Kb Porbon (C) 0 a) 'ELTO' Plant b) Dovudr: Funm; c) coopertv 'Zer.a:; d) s Enerprise 'ASW; e) Baidr Corp.; ) Individuals. 7. Xb Khojad (C) 0 a) Collective fci b) S F c) Dojund Cumi Plan d) Ksakuz Can Pa; e) ebad Abboir; l hojud Coo Plant L. Kulyabcopbank "Fargi 0 a) Klyab tad Poduc Pnt b) Un of Coopera of iab Regin-; c) (C) CabinetMakersCooperae; d)UnibdCopemdv cAn-s; c)ndta-Cou o fin "Zhilyernro. 9. ADb Gandhina (ISC) 0 a) ToOid Holding Co.; b) Jois Suk Society Ehbo ; c) Joint Stock SocW Kolikii- Xhojad. 10. Kb Samon Bank (C) 0 a) yMi y of CoimscS b) Lease Corporaon Pmmswor c) Siall Enepis T i a d) Joint Veu 'Aamuj-; e) San Entrpis 'Sado; I) Tajik Consrcdom Dax.: s) Sm Joint Sock holdi company Bang Tajik. I 1. Aviabak (C) 0 Str and Pive oraadons. 1 It Express Dak - (C) 0 Ste and private organzaduns. 13. Smarflu anfReconsrucion 0 Sure. md Development by Xhadon Region Soviet of Popkes D tics (Sm) 14. Sbeebak UT (St) Ss main S5re 3 PAion 4110 9Slb * The Ministy of Fiane recenty agreed o become a shrolder. fodowing Ste garanee of forigs oas manged -n behalf of he Sute. *¢ The NBT is hi tbe process of initati liquation poceedig aint Epe BuD Notes JSC - Joint Smock Commial C - Comercial Cp s Coopceti Soww:NWr. 56 Chapter 4 Tabl 4.2: Dan ASni ud adg Ir Cartd Seur. an milkior. nab).) Capil Tol Shot Long Totl Fuds en Credit Ten Tem Crdit Growh fraimNE Ag. 1993 ad d inTonE end Aug.. 1993 Aug.. 1992 Credit Sept, 19 Agoprom 1300.0 2 42976.3 2303m.6 12592.3 14275.5 1602 159000.9 Taijlbankbusin 2928.8 61735.9 56290.0 5378.1 10857.2 469 45213 Orienbak 2454.7 51341.6 50671.3 105112 910.3 482 199.3 Tajvnesbelwnambank 303.7 892.6 392.6 0 2942.7 -70 0 jbma 126.S 4451.7 44501 15 312 5332 15100.0 Fonoa 22.6 146.0 143.8 0 91.0 60 7.0 bojand 168.9 6073.1 S507.7 270.4 743.1 712 400.0 Faangs 20.9 112.0 112.0 0 2.6 4207 0 Gaacbim 200.0 381.7 53.0 291.7 0 - 0 Somon 112.0 715.3 713.3 0 0 - 0 Avbank nia 359.6 859.6 0 39.3 2087 400.0 Expss Bank 511.7 19 1.9 0 3.3 -50 0 Sberbank see a. 274.8 79.1 19517 107.3 - 3000.0 aI Capital bfcides peid4u caial and rtied ar sp Agrpremuk i icesg i cail to 4bR and US$5000. Taeackonombun is incr its cqpital o2b and US$1.5u. Serbanck bas been capitlized via a SSbR iner fre loan ror S yeus. h Th creditfgror Sebank do o corsod to os fom Sbebak insE whch in commeci lding of I1bnR, mebak ledn of 6MbeR and la to NOT of 1IbhnL NBT kndig to Sbebnk is for eonucdo distributed in ft Regio via SbeRba d Diffeces betwe Total Credit and tears of Long Ter ad sort Tem Crd are due to forn di In additin to abe banks shw above. lOndon Reona Dank had a 31000 million ruc line of credit approved by NBT. el NBT fnds ro Agop_mbak aea 20000.9 miin ule la and a 139000 miion rble ovadrdL Sa: NBT. 4.14 Draft legislation on NBT gives it many of the usual functions of a central bank: formulation of Monemry Policy; Pmdenti Superision; Bank L iceng; operation of bank corrspondent accounts for clearing in the domestic payment system; and isae of currency. NBT is also responsible for seting accounting standards. The legislation provides NBT with a range of sanctions with which to enforce policy, including fines, incasing the reserve rquem appointing provisional management, and canceling bank licenes. The legislation also provides NBT with a range of insmets with which to operate policy, including reserve ratios, dealing in secuities. i est rate controls and credit ceilings. It is envisioned that NBT's policy formation. will be done in conjunction with the Council of Ministers or with tbe approval of the Supreme Soviet No lender of last resonr is specified in the legislation, nor is any deposit isurance role. The draft law has certain weakmess: the goals of NBT are mixed, leading to possible contadiions; NBT's cur intmediation role is confinued; NBT's role in maging foreign exchange reserves is not made clear; and NBT is not given the role of sole banker to the Govenment, since Ministries are permitted to bank with commercial bank. 4.15 Decree 778 of the Supreme Soviet on Money and Credit estblihes priority areas for lending, including agriculture, energy and reconst on. The decre futer establishes reserve requirmeme for banks, raging fom 10 to 15 percent of deposits, depending on the manurity. NBT is Financial Sector 57 free to on-tend the finds it receives as reserves. Baziks are also to allocate no less Tabe 4.3: hute Rat (ctober 1I93) than 15 percent of resources obtained from UENDING: rcmt sources other than NBT (self-mobilized funds) to long term lending. The decree does not NJT: define long tenn lending. Interest rates are W rmu cra 1015 specified for lending to different sectors (see As agt defic fnacing 0 Table 4.3); the margin on lending is fixed at 5 percent for funds borrowed from NBT and C oeR . . ~~~~~Prionriy IeUing a iouuy Regions (I) S 10 percent on self-mobilized funds. In, tading in s practice, margins appear to be 6 percent on OdierpLiafy 20 NBT fimds and at least 10 percent (and often VDtcsc 2540 more) on commercial lending, based on self- |5 P|poes SD-60 mobilized funds. Nominal interest raes are highly negative in real terms and considerably aoudes L5-25 lower than Russian rates. oes 20D Fwmxing 60 4.16 NBT borrows from the State Insurance Company, the Pension Fund and DEPOSITh Sberbank. NBT no longer has a compulsory Bob : right of acquisition, and these organizations Dmand & Ce Babe of E rises 4 are now free to place their money elsewhre, did 20.60 which they do. However, thdir ability to S a adopt a filly active in iary role is Demnd 8 limited by lack of experience. Or 36 4.17 NBT lends according to the No= (1)Sct bydeen 7 priorities of the Supreme Soviet. Banks Sme NET and vas banks. approach NBT with specific loan proposals, for wbich they do not have sufficient resources themslves. NBT checks to make sure that these proposals fall within the Supreme Soviet priority guidelines, examines the solvency and profitability of the enterprise for which the loan is proposed, and checks to make sure that the bank has received sufficient guarant from third parties to cover the loan in case of default. 4.18 With the exception ofAgroprombank, funds received from NBT constitute a small portion of funds mobilized by the banks. For the major banks, dependence on NBT resources as a percentage of total deposits ranges frm 0 percent for Tajvueshekonombank, to 18 percent for Agroprombank. However, Agropronbank has the special circumstance of having a very large overdraft with NBT, which raises its total dependence on NBT funds to 145 percent of total deposits. Khatlon Regional Bank is totally financed by NBT resoures, although this is a special case of a bank established by the State for reconstruction. 4.19 Apart from Government direcives, commercal bank lending is heavvly influenced bypast associations. Some of these past associations have been made stronger via ownership ties. Founders of banks generally receive preferental interest rates and preferntial access to loans. This re-enforces the status quo and reduces pressure on enterprises to change. Ownership ties aside, there are sevral reasons for the banks attachment to traditional clients: a desire to keep established cliens operating over "difficult 58 Chapter 4 times" in the hope of future repayment; a lack of banking skills, which blunts the response to existing weak clients and limits ability to diversify; and the debt relief given to existing clients by hyperinflation, which enables then to maintain interest and principal payments, disguising the paucity of their cash flow, which would be revealed in more stable circumstances. Box 4.1: A Description of the Larger Tajik Banks Agrproombank *SHARKW. 'SHARK' is tie successor to the previous Agroprombank. By fir the largest bank (see Table 4.2), its lending is heavily concetrated in agriculire and agriculiaral industries. Because of its role in this traditional pior area. thc bmnk has reeived 20 bilion rublcs in loans. in addition to a 139 biUion ruble overdraft from NBT. Agrprombank is tbe bank most dependent on NET as a source of finance for its operations. it has suffered heavily from loss of skilled staff, to the extent that some of this funcnming is impaired. Tajldbkbusiness. TajiiankbusinessCrBB) is the second largest bank, after Agropmbank, in: terms of assets. MIBs clients are maimly in trade, light and local industries. TBB has two branches, which deal wit entrepreneurs, lessees and small enterprises. kt plans to combine the two branches into a larger sub-buk to further develop its presence in this marker. Tajik Orienbank. Orienbank. based on the previous Promstroy Bank, mostly finances industry and consruction. but also has some trading concerns and colective famrs as clients. Most big iual_ projects has been financed by Orienbmnk, including the aluminum plt and the hydroelectric plants. Tajvnesheconombank. PrevioLuly a subsidiauy of Vuesbeconombank of the USSR. this bank is the agent cf the Republic of Tajikistan in servicing external debt In this role, its borrowing is guaranteed by the state. As a result, it is descnbed as a State Jomt Stock Commerci Bank, although it is not in fact a sate entiy. The bank mamages the existing foreign exchange reserves under the audority of the Ministy of Fnance. SberbakL Sberbank repors to the Council of Ministry. not to the NBT. and is not included within the sphere of NBT's supervisory powers. Indiridual deposits at Sbebanmk are guaranteed by the State. With 1-5m clients, Sberbank continues to dominate the market for individual savings, although other barks have been expanding their role. Although 2.7 billion rubles of the bankWs finds were kept by (osbank Moscow, individual accounts at the Savings Bank are freely available and have not been subject to restricted access. The Govenmnent via NBT, has given ihe bank an interest free loan of 5.5 billion rubles for 5 years. dhe earnings on which are imtended to enable Sberbank to both recapitalize itsdf and repay the loan. Sberbank is cautiously developing its lending capability. with a focus on smaller cnteprises. private firms and individuals: it sees its extensive branch network as a potential advantage in developing this market Although fie bank has been training its staff in lending since lace 1992. a lack of trained staff limnits to making loans only from one branch in Dushanbe and one in Leninabad. Previously. Sberbanlk had no lending role. 4.20 It is very difficult to assess how much credit is extended on an approximately commercial basis, using a non-concessional interest rate and impartial risk assessment. The amount differs from bank to bank, depending on the sectoral composition of the client base and the relationship between bank management and the bank's owners. Over the whole commercial banking system. only a small portion of loans are made on an approxinately commercial basis. 4.21 While traditional clients continue to get most of the credit, lending to entrepreneurs, small industry, leasees and individuals has grown relatively fist. The Government bas in fact considered making fiuds available to these sectors a priority. Although only approximately 7 percent of all outstanding bank and NBT credit (excluding credit extended via deficit finance) was allocated to these Financial Sector 59 new groups as of September, 1993, this was up from approximately 4 percent a year earlier. Banks appear to be more careful in their ri.* assessments when lending to these new areas. Tajikbankbusiness, Sberbank, and some of the newer commercial banks are interested in these markets, as they are the most profitable area of lending, even allowing for risk. 4.22 Most banks require collateral or a guarantee from a third party before they will make commercially based loans. Typically, the party providing the guarntee must have a statement from its bank certifying solvency. The warranty of the third party's bank often appears to allow fuids to be taken from the third party's account, or the correspondent account of the guarantor's bank, in the event of a clain. The guarantee system appears to work well for the banks, although it is a barrier to obtaining credit for those without concts to provide a guarantee. Collateral is far less popular with the banks, due to the lack of a clear and easily enforced law on collateral. The most acoeptable forms of collateral are warehouse contents, small items which a banc can keep in its safe, and motor cars. Real estate and fixed assets are the least acceptable. Enforcement of credit contracts is difficult and costly. Twenty percent of the amount claimed has to be deposited with the court in advance and in the event of a successful claim, has to be reclaimed fromn the debtor. As the means of enforcing a court order are limited, a bank may do nothing more than lose the use of irs 20 percent deposit by applying to the courts. This has reinforced the popularity of third party guarantees. The risks of trade finance have icreased, as the deterioration in the payments systen, particularly interrepublic, has caused vendors to require advance payment This has also resulted in an increase in the requirement by banks for third party guarantees Paymen Systen Inerepublican 4.23 The accumulation of debt in correspodent accounts began to cause problems for interrepublican settlements in May, 1993, as other states started isisting on payment. Intenrepublican payments through the use of corespondent accounts continue under conditions set periodically on a bilateral level. Many exporters have bank accounts in Russia, in the names of Russian subsidiaries. Trade was conducted out of these accounts in new rubles before new nibles became the iegal tender in Tajikist. Exporters were motivated by a desire to retain the use of their receipts for themselves and the stare kept the majority of export earnings for its own use. II an atempt to make exporters use the official corresponciznt accounts, the Government passed Decree 317, gming the State a monopoly over 35 export commodities. From Septmber, 1993, exporters were rquired to get a license through one of 6 general contactors and the export receipts were required to go to official orespondent accounts (including the accounts of Tajik banks). Payment System: Domestic 4.24 A system of Clearing Houses (CHs) was intduced in November, 1991. In addition to Dushanbe, there are S regional cleaing houses in Kulyab, Khojand (2), Kurgan-Tube, and Khorog. Each bank branch has its own cor dent account at the clearing house. The Dusbanbe clearing house deals with 45 branches, 22 within Dushanbe and 23 outside Dushanbe, that are not served by one of thAt regional clearing houses. The Dushanbe clearing house is served by two computer centers - one at NBT and the other at Orienbank. Transactions are cleared at three levels, depending on the relationship between the place of clearing of the payer and the receiver. If the branches of both payer and receiver use the same computer center, the transaction is done most quicky. If they use differen computer centers, but the same clearing house, an additional day is required to send the documents from the clearing house to the other computing center. If different clearing houses are involved, several days are 60 Chapter 4 required to transport the documents to the clearing house of the receiver's bank. NBT has an arrangement with Aeroflot and bus companies to provide a daily document service. 4.25 In theory, clearing should take 2 to 3 days within Dushanbe and 5 to 7 days between centers. In practice, it takes 5 to 7 days in Dushanbe and 15 to 20 days in the more remote regions. The delays are in part related to the current civil situation. Fuel shortages affect the delivery of documents widtin and between cities, since cars are not available and busses and air trsport are delayed. The most signficant problem is the current CH technology, which is old, the lack of sldlled CH staff has resulted is a large nunber of processing errors. While commercial bank staff should check the retuned documents for errors, there is a physical limnit on the number of documents that can be handled, especially since staff leave early because of the civil situation. Once an error has been made, it can take many months to rectify. 4.26 The banks are actively seeking to improve the efficiency of Tabk 4.4: ntemere Arrems by Dak domestic payments. This is in part Cm mN of rubl) motivated by a competitive urge to offer ad Aug.. cd Dec.. d Aug.. a better service that will attract clients. It 1992 i192 1993 is also motivated by a desire to free Toul 9520.2 11866.8 286. capital by reducing the size of the paymens float (fuids tied up in clearing NBT 0.3 1.6 15 and not available for use), which is in the Agropmbank 1812.4 2901.9 16937.1 OTIenbank 5968.5 6153.6 9698. region of 90 billion rubles and has nsen 1gS ISSSA 9981 at approximately the rate of inflatioThe Odher Banks 196.8 254.3 4392 bank's first concern is to centralize D clearing between their own branches on a same day basis. This will both reduce the float and the number of tansactions passing through the clearing house. The objecdve is to process payments documents as much as possible inside each bank, rather than in the clearing house, and to have the uransfers made electronically between banks. 4.27 Sberbank is interested in linking its branches, but does not have access to foreign exchange to buy the necessary equipment. Each branch is - at least partly - comoputerized, but there is no communications link between branches. To facilitate transactions for its clients, Sberbank offers settlement cheque and telegraphic transfers. 4.28 Interenterprise arears have grown considerably more slowly than inflation. Tables 4.4 and 4.5 indicate the level of interenterprise arrs by bank and by sector. The information presented in the tables are based on settlement docunents that have not been cleared when presented, due to insufficient funds. Trade credit and debts not matched by presented settlemenw documents are not captured by the data. Three net-offs of interenterprise debt were conducted by NBT in 1992. The more rapid growdt in arrears of Agroprombank may reflect its practice of allowing selected clients "unlimited checkbooks' that are honored regardless of account balance. 4.29 While NBT perrnits negative balances in correspondent acconts, Decree 778 imposes a fine of 0.2 percent per day for every day there is a debit balance in a bank's correspondent account on all banks, excluding Sberbank. Poor infonnation systems within the banks and delays in the payments Financial Sector 61 system cause overdrafts to be permitted in spite of the credit risk this places on Tabk 45: Iuteriue Anan by Seleced Setor (in nlem of NBT's balance sheet. The credit risk is ____) not an academic issue; Agroprombank has ad ,Au.. IM run a large and growing overdraft for at 140.0 least two years. Although the overdraft Agrculou: 2265.6 has grown at less an the infladon rate Domesti Supply Opainitions 623.8 over the last year, at end August, 1993 Etprene. Ie s Sma Agroprombank's overdraft stood at 139 Enterpead Individas 567.7 ..ead Podluction Mnisy 933.8 billion rubles. The imposition of a fine Metal noy 355.8 may encourage Agroprombank to manage Coumer Reeated ownizhiom 3380.7 its liquidity. but it also may simply add to Trd 1033.4 the debt. The overdraft is a further Co|5 3392.0 Consaucdon ~~~~~~~4124.7 avenme that banks use to deal with dumsy, nonAgziculaw 2277.8 financial constrain. Tranuort 743.8 Sauc ND?. Credit 4.30 As was discussed in Tabk 4.6: Seded UMf-Tam Creli, Grow& by Cat_q On bU g Chapter 1, growth in money and ria) credit over the past year has been d cd S Ti TOW TOW very large. Much of this growth has Aug.. Aug.l. and Aug.. end Aug.. been diven by the growth in deficit 1993 1992 1993 1992 financing re ement and the Agr-cu= Fam 55.1 3.2 13.7 10.0 extension of overdraft facilities to Other 36.0 3.8 13.9 tl.8 AgroprombanIk The bulk of the Domesic St Org. 45.4 3.1 11.3 9.6 credit growth appes to have been ' 'i directed toward support of agriclture a indiv 28.7 1.3 7.1 4.1 and traditional industries and Bad PotnMinismy 28A 2.5 7.1 7.8 maintag living standards. From Mea industy 26.9 1.4 6.7 4.3 Coneumer Related 23.6 1.3 5.i 4.0 Table 4.6, it can be seen that credit Thade 23.2 2.1 S. 6.0 supplied in real tems to agricultur, Enezgy 16.4 3.0 4.1 8.8 metal industries, domestic supply c 3 os 3.8 2.8 cndusem. General 11.2 3.4 2.7 10.6 organiztions, consumer related TISO 7.8 0.5 1.9 1.5 organizations, construction and transport increased over the year to Soe: N. end August, 1993. This is consistent with the priorities set by the Governm. 4.31 The two areas tht suffered the largest declines in real credit wre non-Wagricultural indusay and energy. Real credit allocated to tade also declined. This is consiste with fth disruption of trade caused by the breakdown in the interrepublican paymets sstm Banks with a client base in trade and non-agricultural industries reported a lack of demand for credit relative to their ability to supply, which thus attnbuted to the disruption of trade reducing the need for finance to co%t trade flows and capital goods imports. 62 Chapter 4 Prudential Retons 4.32 NBT is using the 1991 Gosbank prudential ratios (see Table 4.7). Sberbank reports directly to the Council of Ministers and is not covered by the regulations or by NBT's prudential oversight. 4.33 NBT has few staff in the prudential area and no capacity for off-site Tide 4.7: Lndin by NBT, end Sepmbe 1993 n bll no inspectioL The deparm responsible for e rubls) ensuring that NBT credit is applied to the correct TarAL z7no sector seems to be considered more important than the deparmnent responsible for prudential SouccFm 13 oversight. This is a reflection of the previous NBT own souzcu 42.7 Gosbank system m which prudential supervision Unfmnccd 22s.0 meant litde, since all entities belonged to the A o state. ComalCU Bank 40.6 XOzadon Bank 31.0 4.34 At the end of August. 1993, the Sberbak 3.0 majority of banks were failing to meet the capital R3is of FUNe 1453 to liabilities ratio. Three banks, including Dirc to end user 33.1 Agroprombank, reported negative ratios, which would indicate insolvency. Orosbnk 139.0 4.35 The data on concentrated lending Soua NWT. and lending to related parties was not reported by the majority of banks. NBT did not appear to piace much empbasis on this data. Concentrated lending appears to be common. With NBT's agreement one major bank had a third of iEs loans to one client (equal to 7 times total capital) and 55 percemn of its loans were to stockholders. Another major bank extended 60 percent of its credit to two parties. There is no requirement for provisioning against doubtful loans. The only provisioning requirement is the Law on Banks and Bankdng requirement that 25 percent of capital be placed in an insurance fund. 4.36 The Law on Banks and Banking makes clear that the State is not responsible for the liabilities of the banks. In law, if there are not sufficient funds after liquidation, there is nothing firther NBT can do to assist depositors. NBT currently is initiating the process for liquidating Express Bank. The procedure for liquidating a bank does not specify what happens to clients with credit balancs if the liquidation of assets does not yield sufficient funds to cover their balances. NBT's position is that in theory (the case has not arisen in practice, since the liquidation of Express Bank is expected to cover credit balances) the clients of an insolvent bank will lose their deposits and that clients should take the responsibility for choosing the bank with which they deal. In theory, this lack of state responsibility for deposit insurance provides a useful separation between the State budget and banks' activities. In practice, however, the separation is unlikely to exist because it would be politically difficult for the Government to do nothing in response to the collapse of one of the larger banks. Financial Sector 63 Box 42: luelal Reguations of NUT Capital to Labile he raio of net wordt to liabilities mun exced 5% for commial banks. 8% for cooperadve - a nd 3.3% for Agroprombn - Indviduals deposits to CapL Deposin of individuals ms not exceed capital. M-aximm -Idebtedms of as-n borer. TIhe maxm exposat to a single borrowersbmuld notexceed 50% of Ciapt.'. Lans t related parftieu Lios to any one iiocldIeder or org_adon condctedwith bkianagemt suld not: exceed.30%. of Capital. .:-.:----:--- Major Credlts. A-y ulender the bank-has an exposure exceeding 15% ofeapital is considered a majr credit The toal of -all majorcreditsshould not exceed8m mes 1. bank's capital.- : - . ..-.-- - - , :. -- . . j-ar; - - : - n - cc -ii .--: --v lags Ma-=}jor Crledit. e tolb of det five lrgesti Ma net wort:h ,- -.-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . ,,,... -. -...r - - Sourcer NETw~~~~~~~~~~~~~~~~. . .... .. --- Dank SoIvency 4.37 No adequate data are available on bank solvency. The figures Tabl 4.3: Is Arrear by Bank on loan arrears in Table 4.8 are very On =Mous of __e__ likely to considerably understate the case. A Aug., end Dec., end ug.. Some banks indicated that they had 1992 1992 1993 delayed classifying loans in arrears Total 4473 1835S8 1955.1 because they hoped to get relief from the Government. This hope has been encouraged by the allocation of funds to NN1T 0.0 50.1 438.4 .Agopoman 142 45.8 123.5 assist enterprises and cooperatives Oricabank 78.8 425.8 118.7 affected by the war and floods, and TaikbanhwOnas 320.0 1274.1 479.4 enterprises made illiquid by OtdMUns 34.3 40.0 795.1 byperinflation. It also seems that the debt Source: NBT. of enterprises that have stopped operatig due to a lack of funds may net have been classified where the bank hopes to recover the debt through sale of assets or the assumption of debt by a new owner. 4.38 All banks, however, face a common set of circstances: * The former state banks have inherited portfolios from a period when credit was allocated according to a central plan. * The State still influences credit allocation and interest rates. * Banks' experience with lending on a commercial basis is limited. Lending tends to be conducted on the basis of historical relationhips and shareholdings. In the current 64 Chapter 4 environment of uncertinty, distorted cost s=uctures and non-market based accounting systems, it would be difficult for any banker to assess credit risk. * Bank portfolios are concentrated in terms of geography, industry and individual clients. * if ormation and accounting systems for managing overall balance sheet risks do not seem to exist. * Hypernflation is eroding the real value of accumulated debt. * Hyperinflation is also tiecapitalizing solvent banks. a situation exacerbated by a 55 percent tax rate on nominal profits and by the payment of dividends out of nominal profits. 4.39 In terms of credit risk, Sberbank's asset portfolio is possibly less risky than that of other banks. Its main risk lies in its exposure to the other banks. Sberbank has lent 1.9 billion rubles directly to individuals and collectives. These loans are covered by guarantees of two third parties andlor coUateral that Sberbank is confident of being able to collect. 1.55 billion rubles is lent to NBT and 6.55 billion rubles to other banks. Sberbank has maintained full access to deposits, and so has retained the confidence of the public. In light of tiis, and its recavitalization and the probable quality of its assets relative to ocher banks. Sberbank does not present the special problem that Saving Banks in other republics present. 4.40 In the short run, macroeconomic stabilizaton would reveal the weakness of the cash flow of many bank clients. Liquidity problems would lead to a more realistic appraisal of the value of the clients' fixed assets. In this process, the solvency of Tajik banks is likely to be severely tested. The absence of stabilization will merely delay the revelation of the problem and further weaken any remaining solvent banks. Bank Registration 4.41 Establishing new banks and branches of existing banks (except Sberbank) is controlled by NBT. All banks had to reregister after the USSR dissolution. NBT considers there to be suffiient banks in Tajikistan. Certainly, NBT's ability to supervise more banks is limited. However, the law permits more banks to be established, and NBT must examine each application on its merits and respond the application within six months. Somon Bank, the most recent bank to register, was in July, 1993. It was not a new banic. but the branch of a Russian bank tansferring to local ownership. 4.42 The minimum authorized capital is 100 million rubles for Joint Stock Commercial Banks and Conmmercial Banks and 20 million rubles for Cooperative Banks. The capital must be fully paid up, an account is opened at NBT for this purpose. A bank cannot have fewer than three Founders. No Founder may own more than 35 percent of the authorized capital. The chairman and the chief accountant of the bank must each have at least three years experience in banldng. Each applicant must provide a staemen of purpose and a set of forecast accounts for the first year of operation. NBT's head office must receive positive reports from audits of the financial position of the Founders of the proposed bank, as well as from the NBT branch in the region in which the bank plans to open, which will conduct a feasibility study. The regional authorities nust also approve the bank. Financial Sector 65 Other Financial Insfitutions 4.43 In addition to the banks, there is the State insuranee company and seven cooperative insurance companies. The state insurance company (SIC) has 63 branches and 700 staff, down from 1500 previously. SIC was split off from the Ministry of Finance in 1992 but was not provided with any capital. During the FSU's dissolution, central bodies in Moscow retained 360 million rubles of capital, and local capital was retained by the Ministry of Finance. The SIC has thus been left trying to establish a capital base from profits in an environent that is not the most attractive for insurance. There is no State guarantee if the SIC becomes insolvent. SIC has twice approached the Government for re-imbursement for war related claims, but has received no response. 4.44 Hyperinhfaiion is eroding the value of capital faster than it can be accumulated. In the last year, SIC had premium income of 1.8 billion rubles and paid out claims of 1.7 billion rubles. SIC has funds of 250 million rubles, which it invests. Investing funds is a new exercise, since previously the Ministry of Finance had use of eserves. 4.45 Inflation is erding the value of life insurance, diminishing a business already hit haxJ by the departure of many Russian professionals. Both compulsory and voluntary insurance exist in Tajistan. Insurance is compulsory for State and Collective faim property, enterprises, and on passengers. Voluntry insurance is available on life, children, weddings, accidents and personal property. At present SIC does not insure small businesses, due to the civil instability and the risk of faud. 'Bo ' 43:- Teebld 'Assst inthe Fhial Sector Tehnica assisanccin fin a rtr sho:ld help Xt: * - copare Tai sa ultiwa oiw NrT staff to reco nad' a st of ma*et-orerited pmdeniale f cand uavin i padilowingbank to adjustD Iii du tW rgltos hudb osdrd . tbl rpotig bak d oif.:cwrent-zof Tkac-c .and on- deiernatony.based - ,accountinstandard adopied -e o t f a iendfjsofta're and harwazeueedafd ucwrendmi acuston i fn eds. * Id = 9-ientify te causes of sov j;osiotpaces and s concenaedlmlin d -rcf. ocredit on--::omrcialcra,and: * Asies .e mainauesof cmearin m seulent deys S Identify -hoywtest to imprvedue~ paymemwsystenakiui'itoconocIdevelopmetz arayud andISne- to imgure the SavW Bank into ette peyni ste.Th lanisou be divided i-t an stages.- *~ FaCllbt riigcusst mrv akmngmn nesnigo akn practice in .a antaretecnmadte ac teingd a innimn systems rquiedfor adequite -bak managem.L 66 Chapter 4 4.46 To develop a system capable of efficiently allocating financial resources, financial discipline must be imposed on clients and credit allowed to be allocated by the market. A banking system can be assessed in terms of five elements: capital adequacy; skill in banking, risk management and other staff skills; information systens that permit bank-wide analysis and management of risk and liquidity; the quality of the potential pool of clients; and the distribution system for accessing the nmarket. In Tajikistan. capital adequacy is very problematic; baniing skiDls are limited, accounting and information systems are not those required by a market enviromnent; and the quality of the potential pool of clients is highly uncertain, due to business adjustments and lack of economic stability during the transition period. While the Tajik banking system has an adequate distribution system, this alone cannot ensure efficient resource allocation or impose financial discipline. A plan to develop the other four elements is therefore required. 4.47 When a baking system bas the above-mentioned five elements, the incentive structure present in the market econo'y acts to allocate resources efficiently. The market incentive structure is shaped by competition, bro'. ownership structure, prudential regaion and the absence of inappropriate central bank and Government behavior. In Tajildstan, an appropriate market incenive stmcture is absent. Too often bank owners' objectives are to fud their own businesses, as opposed to the business of banking. Prudential reguLtion is underdeveloped. There is no requirement for provisioning for bad debts and existing reguations on concetated lending and lending to related parties are not enforced. By directing credit to area of political priority, the Goverment reduces the incentive for banks to develop their own credit allocation skdlls and creates "moral hazard", to the eaent that banks consider their loans the Government's responsibility. Hyperiflation erodes bank capital and greatly shortens fte lending horizon. The ability to operate overdrafts on correspondent accounts at NBT reduces banks' incentives to manage their liquidity, while the .bility to borrow from NBT reduces the incentive to competitively mobilize deposits. To move toward a fimctioning market environmet, these problems must be redressed. 4A8 Developing the baing system is a long term task, which should begin by focussing on skill levels and information systems. Information and traiaing should be made available to bank management to familize then nth concepts and methods used i bankg in market economies, including credit analysis, managing credit risk by diversification. the rationale for provisioning doubtful debts, and management of liquidity risk, and risks caused by interest rate fluctuations. The training needs of Tajikistan's financial sector are very large. During 1994-95, training should start at the senior and middle levels, since support at senior levels will encourage more effective training programs to be developed intenally. 4.49 Awareness of the information necessary to manage banking risks should also be developed. This will stinulate demand for a new acounting system, more suited to banking in a market environment. Initially, a mapping from te eisting accoundng system to market-relevant information is needed to enable management to obtain a betnr view of the consolidated bank position and inprove risk management. This process has begun for the domestic payments systm but the use of computer networks should be expanded to include managemen information over the medium-termL 4.50 Each bank's worst problem clients, particularly those of the major banks, should be isolated to reduce the flow of problem loans. At the very least the influence of major problem clients over banks, by virtue of ow=-ship, should be broken. The process of identifying and isolating the least viable major enterprises is likely to be difficult. Apat from social and political issues, the current accounting systems and unstable economic environment wiU make analysis of the terprises long term viability Fmiancial Sector 67 difficult. This suggests that the assessment will take dme and that in the meantime, funding of these enterprises will continue. To enable the process to begin as soon as possible, banks should be required to provide details to NBT on all loans on which: (i) interest andlor principal is overdue; (ii) interest has been capitalized; or (iii), no interest or principal is being paid, regardless of the terms of the loan. Regular reporting on all loans representing 10 percent or more of bank capital should be initiated. The bank secrecy provisions of the Law on Banks and Banking should not preclude fiurnishing client information. An independent agency could be established to Liquidate, downsize or establish ground rules for continued operation of major enterprises identified as non-viable. This would also assist -NBT to establish limits on enterprises' access to credit. Subsidies to enterprises considered socially important should be financed direcly from the budget. While this would not save extenal resources, it would enable bankers to concentrate on bank development. Makdng the baning systen undertake the burden of non-viable SOEs would severely hinder financial intermediation. 4.51 In the short term providing adequate corporate governance in the bankdng swnr is likely to be difficult. If the political will to reform enterprises and agriculture was strongly evident, the Government could appoint managers to oversee the banks, which would provide better governance than management controlled by Ministries and enterprise shareholders. For now, however, it is likely that the most that can be achieved is to isolate banks from their worst clients, train bank staff and develop prudential regulation. 4.52 Recpitalizing bans will be of little benefit until the contimed flow of bad loans is dealt with by improvig banklng skIls and information systems and isolatng banks from major non-viable clients. Recapitaizing before the problem of bad loans is addressed would discourage bank management from changing their previous lending practices. However, over the medium-tenn, eventually recapitalization has to occur. The Government should ensure that the baning system will not automatically assume recapitaliation. Othewise, banks will be encouraged to postpone dealig with bad loans. 4.53 The prudentil supervision capability of NBT needs to be developed. As an initial step, existirg prudential regulations need to be monitored and enforced, particularly requirements relating to concentrated lending and lending to related parties. Once effective monitoring is in place, regulations on lending to related parties and concentrated lending could be gradually tightened to intrnational standards, encouraging diversification and reducing owners' ability to influence bait lending. As suggested above, more detailed reporting on large loans and reporting potential doubtful debts needs to be initiated to help identify potentially nonviable enterprises. Sberbank should be brought under NBT's prudential oversight on the same basis as other banks. During 1994-95, staff should be trained in current concepts in prudential supeion, provisioning and risk-based capital adequac requirements. 4.54 An important part of NBrs transformation into a central bank for amarket economy will be its withdrawal from its current role in intennediation, which is inconsistent with effective prudential supervision. NBT's current practice of apprving the use to which commercial ba-:i put the funds it advance to them will keep it from effecdvely engaging in prudential supervision. Intnnediation by the central bank also reduces bank incentive to develop neworks and skils to mobilize funds. At the same time, NBT should reduce the central direction of credit to specific sectors and abolish it as soon as possible. Staff resources freed by eliminating the intermediation role could be used in prudential supervision. Retention of short term (ovenight) overdraft facilities is a practical necessity, given the difficulty banks have in managing daily liquidity. However, as the domestic payments system miproves, NBT should stop extending further long term overdraft facilities and should monitor the need for continued short term overdrafts. Over the medium-term, NBT's capacity to conduct monetary policy and 68 Chapter 4 control the volume of credit to the economy also needs to be developed as part of the financial reform. In the short-nm, in the absence of other means, credit can be controlled through credit ceilings. In the medium term, NBT should rely more on market-oriented monetary instrments to influence the volume of credit in the economy. 4.55 Support for socially sensitive enteprises should be shifted from the banks to the budget. If this is not possible, banks should distinguish between State directed lending and lending made entirely at the bank's discretion in their balance sheets. The quality of the banks own lending would be an indicator of banking skills. State direction of credit should be substantially reduced during 1994-95 and eliminated in the medium-term. In the current environment, any bank that made loans on a purely commercial basis would likely withdraw from all lending except trade finance and very short term secured loans. It is thus not credible to expect an immediate switch to commercially based lending and the cessation of all State direction of credit. 4.56 As a first step toward liberalizaton, interest rates should rcach Russian levels. Margin rcstictions on banks should also be removed, consistent with reducing NBT's role in intermediation. Total liberalization of interest rates will not achieve the expected market response until enterprises are sensitized to the fact that they have to pay back. 4.57 The developments underway to improve the domestic payments system are very encouraging. Efforts should be made to ensure that as it develops, the systen is capable of being used by all banks. Banks should be helped to develop the ability to clear inter-branch transactions internally and to link into the sstem for inter-bank transactions during 1994-95. 4.58 The flow of bad loans will gradually slow as the steps suggested above begin to affect bank behavior. Skill building, developing infonnation systems, isolating banks from their worst clients and developing prudential supervision will all take time. However, the longer it tauds, the more the real stock of bad debts will go up. Intervention in the financial sector needs to be closely tied to the timing of macroeconomic stabilization, since once stabilization is achieved, inflation will no longer reduce the stock of bad debts. CHAPTER 5 TRADE REGIME 5.1 Since the break up of the FSU, Tajikistan has sought primarily to maintain its old trade patterns. With the deterioration and eventual collapse of trade arrngements in the FSU. the Govemment increasingly reinstated the national command system and relied on state orders and quotas and centralized trading. This system, officially described as a transitional anti-crisis measure, has pushed trade into barter. Moreover, coupled with high surrender requirements, the system has reduced incntives to export. Import requirements, particularly energy and grains, have increasingly moved to world prices, resulting in a significant rise in trade deficits. The current trade regme prevents resolution of this imbalance. Tajikistan has not been able to diversify its exports to non-FSU counties. While official data implies diversification, it largely rcflects the differential exchange rates that the Government applies to non-FSU countries. Trade has not diversified, with the possible exccption of cotton and aluminm exports. 5.2 In the short term, the Goverment wil have to dramatically reduce imports to bring them in line with current exports. I should reconsider its policy of state controUed trade and subsidies. Arresting output decline in the short run depends upon reestlishing FSU tade, medium-term policies need to promote exports and generate foreign exchange. It may not be possible to alter the pattern of trade quicldy but to alleviate the trade imbalance, the Goverment sbould: i) stop controling exports, end the state ordering system, and remove itself from direct ownership of production and services; and hi) develop a new trade regime, rather than focusig on bilateral trade arrangements. Trae An and Trade Regime 5.3 As noted in Chapter 1, the regional specalization imposed by central planming made Tajikistan's economy heavily dependnt upon inter-republican trade. Approximately 80 to 90 percent of Tajikistan's exports and imports are with the FSU. The countrys production structure also required considerable imports of capital goods, well in excess of exports. During the 1980's, Tajiistn had current accmt deficits averaging about 20 percent of NMP. These were financed by ansfes from the Union. In 1991, the last year with reliable trade statistics, exports made up 37.4 percent of NM!', imports 54.8 percent. This resulted in a trade deficit of 19.6 percent of NM!, and the dependence of the economy on trade continued. 5.4 Under the old system, trade arrangements were managed in a cenalized manner. Almost all FSU trade with Tajildstan was part of the overall national economic plan, specified and directed from Moscow. Trade with nn-FSU countries was organized by central trading organizations. There were no local tading organizations in Tajiistan and few officials had trading experience. As the system deteriorated, the Govermnent sought to maintain its exisdng FSU links and trade patterns by negotiating bilateral trade and economic agreements. Beginning in March, 1991, such agreements were signed with most of the FSU Republics. 5.5 These bilateral agreements were similar to those used previously to determine CMEA trade. Volumes, not values, were specified for goods to be delivered and received. In some agreements, supplying and receiving enterprises were also specified. The agrements specified key items and stipulated that their trading volumes would not fall below 70 percent of the agreed volume. However, these bilateral agreements did not make up for the trading arrangements that had existed under the old 70 Chapter 5 system trade volumes progressively declined for two reasons. First, the bilateral agrements were based on the assumption that the FSU Republics could rely on ihe old system of state orders to fulfill their obligations. With growing shortages in most FSU Republics, these agreements could not be fulfilled. Second, as a result of severe output declines, Tajildstan did not fulfill its trade obligations. This situation, coupled with exhaustion of trade credits, made Tajikistan's tradig partners unwilling to deliver goods. As a result, the flow of trade dropped sharply. 5.6 During 1992 and 1993, most of the trade was part of a single clearing agreement with Russia. I covered the inport of certain key essential commodities from Russia in reumr for exports to Russia (Table 5.1). The clearing agreement was intended to address the deficiencies in the inter-republic payment systems, and to curb the build-up of imbalances in inter-republic obligations. Under the clearing agreemt, no money changed bands. The exchange was denominated in world prices, with quantities calculated to exactly offset exports against imports. The total amount of exchange with Russia was set at US$1O million for 1993. The Goverment, through the Ministry of Trade and Material Resources (Ministry of Trade), procred domestically items for export at less than world prices, but traded the items at or near world prices. Table 5.1; The Clearing Arragement with Russa, I992 Exports to Russa Imports from Russia Cotton 50,000 tons Fuel 260,000 tons Raw Alumimnu 42,000 tons Wood 260.000 cubic meters Grain 25,000 Souc: Ministry of Trade and Material Resourcs. 5.7 For an additional, 'indicative" list of items, trade agreements were set up with different republics including Uzbekdstan and the Ukraine. The Ministry of Trade, in conjunction with the Ministry of Economy, forecasts production targets and supply requirements from different sectors of the econony. It then sends these forecasts to their trading partner Republics and in tur receives from them their corresponding requiements lists. Based on this exchange of information, a set of interrepublican agreements are made. This implies that there is an implicit exchange rate for every product 5.8 The above trading arangements were carried out in 1992 within a trade regime chracterized by export licenses and the state order system. These measures were extended in 1993, and on June 30, 1993, the eport regime was further cnalized and licensing tightened. In the second half of 1993, Tajikistan's export regime was defined in decree no. 317 from the Council of Ministers. It was characterized by six elements: a. All exports were controlled by six so-called genera! cowactors that were either ministries or state trading organizationslenterprises. The contractors organize exports and were entitled to issue exrort licenses to themselves and other entities. b. Quotas for the main export and import commodities were allocated to the six contractors and to some selected trading finms. The quotas constitute most of the Trade Regime 71 estimated production for exports, and gave the state a de facto export monopoly in these commodities. c. State orders were used to make enterprises deliver their products according to quotas. d. Licenses were required for all exports. e. Export tmes were imposed on exports outside of bilateral agreements, except for aluminum. f. Hard currency aings had to be surrendered to a State hard curency fund. 5.9 The six conrwors, through which exorts were to be traded or licensed were: a. Ministry of Trade and Material Resources: all items of import and eort including processed agriculural products. b. Union of Co4-peratives of Agriculural Prduction (Tajianatlubot, also refrrd to as Consmer Union): agricultural crops and processed products procured by its system. c. Coton acaning Industry (ginners): coon d. Tajik Aluminum plant: aluminum. e. Ministry of Industry: all types of industrial production, including precious and semi-precious metals and products made of them. f uTajikglavlegpromsyrye (Orgnizaion for Light and Local Industry under the Cabinet of Ministers): cotton sales. 5.10 Each of these contracto, was required to follow a plan designed by the Council of Miisters that specifies quotas for a list of exports and imports from FSU and non-FSU countries. An institution that was allocated a quota, either directly in the decree from the Counci of Ministers or via one of the contractors, had to obtain an eport permit from the Ministry of Econmy and from the Council of Ministers. With these two permits, it could apply for an export license from one of the six export contractors. 5.11 All exports sold for bard currency were subjet to a 100 percent surrender requirement. Export items not on th list to be traded by contractors might be traded without quotas but were subject to licenes and surrender requment. Until October 1993, these were classified undcr 33 categories and were subject to 10 different surrender requiremets, ranging from 32 to 100 percent of export proceeds. In November, 1993, the Supreme Soviet passed a new decree that unified different surrender requiremet at 30 percent of export proceeds for exports not traded by the general contractors. Customs duties applied to exports that were not included in barter trade agreements. They ranged from 5 to 1000 pecent of ruble value. but could be lower if paid in foreign exchange at a rate specified by the NBT. 72 Chapter 5 Box S& The State Order Systm The staeonersysrmwasneverquite abolisbed izTajikisan. Since independence inSepteunbr. 1991. the Governmnhascontimrd to impose a stat order system. e.g.. Resolutions 292 for 1992, 1161 for 1993. and an updated W49 for the last six months of 1993. AIdtough enfonrcment durnng 1992 nd eady 1993 was noty eectv prinmanly due to the war and its afdermh m-ny enuepises continued to fohlow the state orders. as they lcked thb ability to eectvy pocure and distute on their own. Also, the Governmnut vacilad in is sun o cental planning. as cvident in the variou transrounatious of the Goskoolan over this period. By way of illustration, sting in 1991. Gakomplan became thde Commiee of Foracast, dien the Comnince on Economy and Forecsing, and final dic Ministry of Economy. Two events in the furstlafof 1992 precipittd th pwscnrinfomnemr of hbe st odersystm through updaud resolutions #317, n9s7 & 1449: The Russian Govermt (i scaed off a11 payment channs in April. to addres th competitive issuing of crcdit by die Republics and the consequent lare buup of interrepublic hnbalances and (u) ler intoduced due new Russian ruble. Te Govrnmet monopoly over expoms, established in 1317 and updated in #449 (which unhlke #161. indicued volumcs in money tems), was designed to contol TajiismYs baLaces in other rpublies and allocate them tD uses deemed most cricd by die Govment The state oder system for 1993. in resoluion 1161. was updatd in June by 1449. However, Aluminum, Cotton and Feulirer(Uxca) wee covcred sepately by svera othfer esolutions. eg., 1108. 1109. 1106. c. In h case of Aluhmm 9108 specified iha 400 tlLtons had to be prodced tD stmeorder in 1993. but ththe pbntcould etin 230 ittols arths. Tis goal was rvised underl387 to 1S6 dLons. for the bance of 1993, ie., June thmugh December. Of tbis, the p-a could keep 124.5 Ltans. As for comon. by Govermme resolution of May 1992, comn produces umd keep 30 percent of thir output. For 1993. this should have tanslated to 207 h.trans of fibre. basod on current esti . Nowcver. due to the farmrs reponed inability tO propely hnle and ntct this residual 30 pecenit,ws reduced toO percent in June, 1993M, uder 1387. Proposals t rais thce retntion agin to 10 pce:cnt, were awaitng ppoval by de abiet of mte. By Oonber 1993. the gimneies output is allocated by Klopkoprom. the snrccotton industry depamen wbicb implmeste icerepublicmdeagreementsforhdiecutnindusy.Tobcoandifertizerbothhaveto bedelivered 100 pecent to st ordcrs. The considerable stregthng of the st otder sysem by mn of the several new resolotions, sicter unplementon and the supermposition of lic:sig rqume appears to be - aneta by the Goveranment to cope with adverse external circumtncs. primarily th breakdown of the intrpublic pyment system. In some cases, i.e tghtenng of contols has been atibuted o rported aciites of domestcproducer Forexample. esotion # 447, sg te price of co and ithe related requirement Stall coton sale conas be approved by the Minitry of Trade reportcdly rectsselling by famcne of the pevious 3% r tntino t givcaway prices of $400Iton while the market price was Sll200/I tn additon to sarng econic grounds to dismande the sare oder systm. ere is another competing n to end cenralized procurement and distribuioon: the biity to guaantee a supply of maw matrials with which to meet statc order quotas renders th inmplentaon of the system futile. For this reason aloe, the feasibiliy of continuing the system is questionable. 5.12 The clearance and interrepublican agreements were implemented through a system of state orders (see Box 5.1) that are then formalized under Government resoludons. The Ministry of Trade admidstered the state orders by sending a notification to each enterprise for the items and quantities that have to be delivered. They indicated to whom, where and when these deliveries were to be made. Based on these notifications, the respective enterprises negotiated and agreed upon prices and delivery schedules. 5.13 On average, state orders covered about 70 pesent of the output of the industrial sector. However, the allocation might range from 40 percent, all the way up to 100 percent, depending on the product. Enterprises were free to dispose of any production in excess of the state order quotas. In practice, however, the dispositior. of these items was dictated by the Government to prevent pilferage and because the enterprises often did not know how or where to supply or procure goods. For this reason, many enterprises relied very much on the Ministry of Trade to provide themn with raw materials znd orders for their output. Trade Regime 73 5.14 As an additional measure to ensure compliance with the state order system, the state introduced mandatory licensing of all exports, except those covered by official tade agreements. While items under the official trade agreements were duty file, all other items were subject to export licensing and duties. The state did not issue the export license umless the state order quotas were fulfilled. The licensing policy was formalized under resolution #387, which also assigned the state monopoly export rights over a fairly long list of items. This prevented the export of these commodities by other than authorized "state export contractors" although this was broader because these contractors are also authorized to issue export licenses to enterprises that wanted to export items under the jurisdiction of the contractor. 5.15 Administering this program proved to be difficult since enterprises tried strenuously to avoid these regulations or simply got around the blockage of their interrepublican corresondent accounts, by resorting to shipping currency (old rubles), barter and mainaining accounts in Russia- Management of the system was fiurher complicated by the fact that some of the trading entcrprises were owned by the general contractors which reduced their incetive to bring ruble or foreign exchange earnigs into the country. By Septmber, 1993, actual exports were only 40 percent of designaed quotas. Surrender requiements also did not produce the expected amounts, as the largr part of the trade was carried out through barter arrangements. Trade and the Eoenomic Trasition 5.16 The irreversible nature of the collapse of the preious production and trade arrangements wrill inevitably change the structure of Tajilidstas extnal trade over the medium-tem. Tajikistan will have to develop trade policies based on the country's comparative advantage, not on sustaining the old production structure. Nevertheless, trade with the FSU will continue to be important In the short term reversing the decline in output will depend upon reestablishing FSU trade. However, without resources to pay for imports, the situation will not iumprove quicldy. While Tajikistan's joining the monetary union with Russia is likely to increase trade with Russia, it is not realistic to expect a return to the previous level of imports. Over the medium and long term, higher imports will be possible if exports expand. Trade policies will need to encourage promotion of exports, which requires a signficant reduction of administative controls and taxes on exports. It also requires the discontinuation of the state order system and state ownership of productive sectors. 5.17 Export quotas to FSU countries need to be gradually reduced. Such a policy could be pursued within the context of the trade agreements that Tajikdstan has been negotating with its trading partners. As the prices of items under export quotas move to world levels, there would be no rationale for keeping them under quotas. For other goods, for which there are significant differences betwen FSU and non-FSU prices, the Government needs to adopt a flexible policy, and may consider reducing the coverage of quotas by a fixed amount each year. At the same fime, the Government will need to reduce state orders and ensure that prices are market *,'etermined during 1994-95. During the same period, domestic supply contracts should be eliminated, starting with those that do not pertain to any of the interstate agrements (see Figure 5.1). 5.18 Export licensing policy will also need to be discontinued in the medium-term. The present system is too complicated and discriminates against the private sector. In particular, organzations that are themselves exporters (e.g., Tajik Consumers' Cooperative Union) should not be in charge of licensing organizations that could be in competiton with them. This is particularly important in the 74 Chapter 5 context of private sector exporters. In many developing countries, licensing in any form has often prvided the opportnity for corrupdon. Careful consideration should be given to this issue before embarldng on any licensng program. 5.19 As of Novanber, Figure 5.1 1993, exports sold outside the Goverment monopolies were TRADE AND SUPPLY CONTRACTS subject to a single surrender requarement rate of 30 percent. OR All exports not part of barter urade arrangements were also subject to M l- wuc custom duties, ranging frm 5 percent to 1000 percent of the amount of the transaction. 5.20 Over the medium- term, Tajikistan needs to diversify its agicultura exports and \ !J domestic production, instead of \ UmcN concentrating on cotton production and importing gains. The country already has a weU developed textile and clothing industry that can serve as a basis for futher ___ exanion. grain producti.on might be economical, in which case it should reduce import requirements. The future development of the Tajik aluminum plant is critical for Tajildstan's external trade and available options should be considered by the end of 1994. If a partner can not be found to provide the necessary capital for its restructuring, the Govenmnent should consider and develop a plan for shutting down the smelter. 5.21 More emphasis should be put on developing labor intensive exports. Over the medium- term, the Government plans to extend the mining indtry and develop hydroelectric projects. However, these activities are extmly capital intensive and will require large investments. More emphasis should be put on developing labor intensive exports. The Government's investnent program needs to take this factor into account, since Tajikistan is experiencing high population growth, and since 45 percent of the labor force is still in agriculture. 5.22 The present import regime is characterized by import quotas for items traded by the general contractors, as explained in para. 5.8. For all other items, except annaments and narcotics, imports are not subject to any restriction and there are no import quotas. With the dimnination of the state order system, import quotas wiR also need to be removed. Since quotas distort and don't produce revenues, they should be avoided in Tajikistan's trade policy, which should be simple and transparent. If Tajilisman joins the monemry union with Russia, its import tariffs should be consistent with Russian tariff coverage and rates. Tariffs should be uniform and ad valorem. 5.23 Pricing policies for exports have been distortive. The state stipulates the prices paid for exported goods procured centrally through the state order system. However, the domestic payments for the centrally procured lems are not related to the proceeds from the exports or to the value of bartered Trade Regime 75 goods at international prices. This situation discourages production and does not provide incentives for producers to declare th actual amount of production. In 1992 and the first half of 1993. domestic prices of imported goods were kept low and the difference was subsidized tbrough the budget. It appears that in the second half of 1993, however. the domestic prices of imported goods were based on actual import price, plus tariffs, transport costs and a mark up for the institutions that manage the trade. Instiional Infrtuctre for a Freer Trade 5.24 At present, the Government is conceed over the lack of compliance with the export regime and state orders. The current rgime has not bmught exports under control during 1994-95. An improved system of customs delrations and border inspections would make the control of tade simpler, and trade statistics more reliable. The Govemment should speed the full establishment of the customs administration. 5.25 The Government shodd establih clear priorities and policies to respond to the changed market siation and ectvely deal with the transition period. At the present time, questions relatig to trade are handled by many ministries. There are overlapping fields of responsibility and rivalries over authority. To create a unified trade policy with clear priorities, the responsibilities m-st be gathered and entrusted to one ministry. The most urgen task of the Govanment with respect to extemal trade should be to put in place a proper incentive structure to promote economicafly viable trade flows and to establish the necessary institutions for tLade - particularly payment and credit facilities. This will require both the establishment of new insttutions and a reorientation and s ing of dsting insdtitions during 1994-95. 5.26 There is a also a need for institutional arrangements to expand Tajkistn's exports in non- FSU markes. Experience from export development initaes in market economies indicates that it should be approaced in a broad and systemic manner. By developig an institutional set-up dtat removes anti-export bias and assists with information coilection. the Governmt could promote exports. Most countres that have expeienced periods of strong export growth have had an ample supply of trained manpower for production, marketing and managem Manpower taining is therefore anoter important insument to promote exports during 1994-95. For new businesses, Government assistance may help overcome disadvantages of small scale in intemational markerting. CHAPFER 6 THE SOCIAAL SECTOR General Living Standards 6.1 Tajikdstan is the poorest of the FSU republics and identified by its per capita income as a low-income country. Based on purchasing power conversion (PPC), it is simila to thc poorer counies of Cental and South America (Bolivia, El Salvador) and Asia (Sri-Lnlka, Pakistan) (see Table 6.1). Tajikista's popuation is mostly rural (67 percent). Annual population growth is high (3.1 percent) and fertility rates have declined only marginally since 1971. As a result of the young age stmcturc and the predominance of large families, with a larger proportion of children under 14 in the mral population, Tajikistan is faced with low labor force participation. Like other FSU republics, Tajikistan has a better health and education infastructure than its non-FSU comparison group. In 1991, life expectancy at birth was comparaively high - 69 years; nine years of schooling is almost universal; and the ratio of population to uhysicians is low, at 350:1. TaLE 61: CsnpauIv Soda! Sudis ONP RC Eadoms POp. S pop. % pop. per cap. of GDP per cap gSwwdz nam 0-14 15s - Toe feailiy Us$ (990) U.S. - 100(1991) (1980-91) (1991) (1991) rae (1991) Paidsn 400 1.9 3.1 44.0 53.5 5.7 El Salador 1090 935 1.4 43.0 55.2 4.1 BoEa 650 9.5 235 41.2 55.8 4.S Taikiian 050 9.9 3.0 M9 51.2 5.3 Sri Lanka SW 12.0 14 31.7 64.2 2.5 Uzbecistn 1350 12.6 2.4 41.6 53.B 4.3 Pera 1070 14.1 2.2 37.9 60.8 3.4 Kyryz Repult 1550 14.8 1.8 38.2 55.6 3.9 Thrknenismn 1700 16.0 23 41.3 56.2 4.5 Jamaica 1380 16.6 1.0 33.0 61.9 2.7 Azerbijan 1670 16.6 1.4 33.1 60.1 2.8 Ecuador 1000 18.7 2.6 36.9 58.9 3.7 Kazakhsta 2470 20.3 12 31.6 52.4 2.5 Jordan 1050 22.0 4.7 43.6 56.7 5.3 Syri 1160 23.6 33 46.1 49.3 6.3 Colombi 1260 24.7 2.0 34.8 6Q9 2.7 source: World Deveopt Repor 1993. 6.2 Per-capita GDP fell from US$1050 in 1990 to USS4SO in 1992, causing poverty to rise. While the level of bread and grain consumption is high and contus to rise, the averag consumption of most other food and non-food items is decling (see Table 6.2). The general decline in food consumption is Tajikstan's firt and most acute probleam The Governmentes decision to maiai living standards has diversified a very large part of extemal resources to importing grain at the expense of investment and intermediate goods, including fuel. Tajikistan now faces the challenge of finding ways to break this patter, which prpetates the output declie, while protecting the most vulnerable groups in the country. 78 Chapter 6 Table 6±1 Mlam FdaS B Cmpliln frw Pew Famihn IW Poduct 1993 199L 1992 Tajiistan al Tajilistan ia Kyrz Republic Annal Consumpn per Cap.) Consumpon (per Cap.) Conumption (per cap.) Bmad Poducs 196.9 131.0 111.5 POates 25.8 31.0 60.8 Vcgcables (and Mdel) 662 72.0 104.4 Fnuiis ad Beries 16.8 27.0 35.0 Sur ad Pastrs 10Q 21.8 20.4 Mat ad Mat Prdus 20.6 21.0 25.0 FiL 1.7 2.7 8.3 Mtlk ad Mt Ptoduct 131.4 124.0 212.0 Es (No.) 66.1 32.0 140.0 Vegeable OlalMrae 12.1 10.5 10.2 Kilocalorie 1a (per day) 2760.0 2090.0 Sowc Go Lats 6.3 The solution will not be easy, because Tajikistan is an etmely poor country and ctting - imports could lead to widespread malnutrition. On the other hand, the present policy cannot be mainained. Family allowancs conbute to inflation, while input shortages cause feaher declines im output. In these ci an, complementay growthoriented poLicies should be implented, including special measures to enhance local food pro on, obtaining extenal fignang, and targeting social protion to the most needy. This chapter fouses on the latter. Income Distrbuon and Charcterstics of Povert 6.4 Source of informauon. Information on faimly livig stdards comes mainly from a comprehensive Family ncme and Epnditure Srvey, carried out in 1989 and continued on a reduced scale on a quarterly base thereafter.' The 1989 survey consisted of 1,230 families out of a total of 90,000 families in the country. Thereafter, it was reduced to 625 fimilies. Income inequality is grossly underestimated becase the sample selection method is designed to reflect th.1 cost of living of the average family, rather dtan income distnbution. The State Committee for Sbistics (Goskomstat) applied three criteria in seecting fmilies; region. idustry, and family sze.' Refugees and ex-refugees, and individuals employed in the private sector are thus excluded. Actua im iequalty must necessarily be greater in 1993 than in 1989 because of the large increase in refugees. Howcecr, Goskomstat ceased publishing this data, due to the snall sample size and also because of the high sensitivity of the issue. 6.5 The dftion of poverty. The concept of minimum income, or a poverty line, has opeTational significance insofar as it serves as a basis for revising minimm wages, minimum pensions 1. The suvy started in 1951 as pan of an all-mion suney. Definitions wer chadnged in 1966 and in 1983. In 1994, Goshowit expects to chage dhe sawplc desin. 2. Famiies w selected so dt household heads -am within plus and minus 5% of de average wage in thir indulsty. The Social Sector 79 Tabl L.3: Pqndatn DIsIbIs by Fmiy Sine .d by RaIIUrb am) Fmly URBAN RURAL RURAL Weightd % of X of Size Number of Famil Tool Tool Tol motly Totl Totl Mondy Ammal Mondlly per cap. Income Persons Tool Urban Rt per cap. Famiy per ap. Incme (RU) Income income Income (RUl) (R-U) (RU) I 218542 138.567 79.975 271.35 .. .. 271.35 13.51 4.29 2 89.143 62,475 26.668 19326 4052.2 163.14 185.96 7.55 3.50 3 90,7t7 58,260 32.457 156.64 4327.1 120.20 143.60 3.90 5.34 4 115.201 65.943 49256 127.09 4510.3 93.96 112.93 11.86 9.05 5 103.5 43.142 60.113 93.49 47J1.5 79.69 85.46 10.05 10.14 6 95.043 23.849 66.194 84.24 6440.6 89.45 37.87 11.42 11.20 7 80.141 19.544 60.597 72.21 6440.6 76.67 75.58 9.66 11.02 3 64.931 13.054 51.884 63.18 6440.6 67.09 66.30 7.8S 10.20 9 48,557 8,483 40.074 56.16 6440.6 59.64 59.03 5.88 8.58 10+ 111.919 19.932 91.987 40.85 6440.6 44.39 43.75 13.34 26.68 Totl IGOD. 100.00 Sczues Suamm of the A11.Unkm Census of Popultin te Repbic of TailkisL 1989. and child allowancs. TaJiktan has two measures for the povety linu the first, set by the Ministry of Labor, is based on consumption norms rther than on actual consumer behavior and adds a 27 percent mark-up for cxpeditures not included in the norms list. Using this method, the minimum food consumption basket (without the mark-up) on October 1, 1993 was 22,000 rubles. Over 90 percent of the popuaion feil below this threshold. The other measure, compiled by Goskomstt, contains a 44 pecent mark-up for non-food consumption. This measure is based on the Income and Expenditure Survey, which is updated to determine the nomina inome requied for a family earning 75 rubles a month in 1989 to buy that yeas cnsumption basket. This is adjusted by auming tat 25 percent of what is consumed is the result of ones own production. On October 1, 1993, the minimum food basket was estimated to be 15,000 rubles; 80 percent of the population fell below dtis poverty line. Since a majority of the population is at or below it, the absolute level of minimunm income is useless as a redistributive tool. However, the pcentage change in its nominal value can be usefl for the updating of social payments. 6.6 Social payments are related to the minimum wage, to which minimum pension levels and child allowances are linked. The mimum wage is periodically revised to take into account informally changes in minimum nominal incomes, as described above. On October 1, 1993, the minimum monthly wage was 4,000 rubles, but was maised to 8,000 rubles shordy thereafter. 6.7 Size di sribruon of income. Although the 1989 survey underestimates the exent of income inequalt, because of its samnpl selection and grouping methods, two outcomes stand out: first, the inverse relationship of incom with family size (see Table 6.3), which is probably stronger an the table suggests;3 and second, the small difference between incoes of rural and urban families. Though data are not published by region, interregional inequality is substnial, as evidenced by large intrregional 3. Based on gouping by fmily siz. ike Gini index i vey low, at 0.146. 80 Chapter 6 differentials in life expectancy and infant and matnal mortality rates. To Box .1: Sumry Data redress these inequalities, an interregional transfer mechanism The rebtive size of v.rius social proueaion payments can be urgently is needed at present. Much of msen in the following compaisons. AU figures are monthly, in rubles, the social protection network is set up for Septenber, 1993. by oblast, and often operates at the Minimum Wage 4000 even lower rayon or individual Average Wage 13000 employer level, so that resources are Minkwnm Pension 6000 not transferred to where they are most Bread Allowance needed (see paragraph 6.18). Since tper fimnily member) 1800 poverty concentrates in certain (up toU) wance geographic regions and in large families, these characteristics can serve In January-June, 1993. an average urban family had 5.3 as guidelines for income maintenance presen members, of which 1.6 were salaried employees. 0.4 programs and as a basis for pensions and 3.3 dependents. An average rural family had 6.8 interregional transfers. presnt members, of which 1.9 were employed. 0.5 were pensioners and 4.9 were dipendent. Assuming averge wage per earner, an urban family would have 20,800 rubles income from work and 12,130 6.8 The share of SOCia rubles in ransfers. A mrni family has 24,700 rubles in salaries and payments in family' income. This 17.690 in uasfers. To compete the picture, income from private share of social payments in family activities should be added, but reliable infonnation about this is income is high and not very 2acindg. progressive. In 1989, transfers were 9 Source: Ministry of Labor. percent of income for an average urban family, and 12 percent for an average rural family (see Table 6.4). Parallel data for January-June, 1993 show similar percentages but are more difficult to interpret. An order of magnitude for 1993 can be gained from Box 6.1. Based on this infornmation (and ignoring incomec from private activities) an average family is estimated to derive a much higher share of its income from transfer payments. The share could reman very high under any plausible assumption about income from private activities, so that the disincentive for work has risen dramatically. An Overview of Soa Expenditures 6.9 Following independence, the Government has tried to cover the loss of social expenditure resources previously transferred by Moscow out of domestic resources, and has sought to maintain the same scope of social payments in spite of dte declining tax base due to the fall in output. Economically, this has resulted in a steep increase in wage-bifl taxation and, when enterprises could not come up with the required taxes, an expansion in credit to finance the tax payments. The Government has also tried to maintain minimum consunption standards by distributing ever-increasing lump sum per capita payments to the population. In addition, the Govermnent lhs maintained its full employment policy, in spite of sharp declincs in production. This was made possible partly by real wage reductions, and partly by expanding credit to enterprises. Though employment fell, it did so mostly as a result of the civil war - - no significant layoffs took place. 6.10 The overall result is an unsustainable pressure on resources in several ways: expanding The Social Sector 81 credit to finance wages. taxes and transfers pushes inflation: the high tax rate -39 percent on the wage bill for social expenditures alone - raises labor costs and reduces take-home wages; the attenpt to maintain previous consumption levels deprives the economy of investment goods and contrbutes to a firther decline in GDP; and the rising share of transfers in family income discourages work effort. It is clear that the scope of social expenditures and taxation must be radically narrowed. But because of the country's general poverty, the reduction must be implemented without pushing segments of the population below subsistence levels. 6.11 In the longer term, redesigning the social sector could allow it to serve as a source for private savings: when the present hyper-inflation is curbed, the young and relatively healthy population could be a net saver by contributing to pension funds. While the redistribution function would still be important, the social funds could be transformed from being mainly redistributors of income to being agents for private savings. Tabk 64: Saurce of Famly Income by Level of per capita Income Perent (1919) Per-Capita Tota Family Salries (including Pensons. stpends Individual Fam Other income Income collective farm and awances bcome salamy) Non-Farmers IW 73.8 9.3 7.5 9.4 0-50 100 67.0 13.3 12.4 73 50-75 IW 66.8 11.0 14.1 8.1 73-LW 100 69.4 9.1 13.4 3.1 100-125 100 75.9 19.9 4.9 9.3 125-150 100 73.8 10.2 4.5 11S 150-175 IW 82.S 8.9 0.5 3.1 175-200 1W 79.1 8.6 2.1 102 200+ 100 82.8 4.3 0.4 12 FARMERS 100 60.4 12.1 22.2 5.3 0-50 100 6212 18.1 15.7 4.0 50.75 100 59.1 12.5 23.3 5.1 75-IW 100 63.4 3.5 24.2 3.9 100-125 100 61.9 9.5 20.2 8.4 125-150 100 63.0 12.5 21.9 2.6 150+ 100 44.5 7.8 35.1 12.6 Source: Goskomsta. The Mai Institutions 6.12 Socia Fumns. The reorganization of the social sector refles te tasition from extenal to domestic financing and administration (see Box 6.2). Until 1990, all social protection expenditures were budgeted and administered by the Ministry of Social Protection. They consisted primarily of pensions, maternity and sick leave payments, family allowances and allowances to the institutionalized (i.e., the disabled). In 1991. an extrabudgetary Pension Fund (PE) and a Social Insurance Fund (SIP) were established. PF and SIF derive their revenues from a 37 percent wage bill tax, of which 84.5 percent goes to PF and 15.5 percent to SIF. In addition, employees pay 1 percent vf wages to PF, and a transfer from the Republican budget to PF finances child allowances. The Emnployment Fund (EF), established in 1992, is in charge of unemployment benefits and retraining and derives its revenues from 82 Chapter 6 a 1 percent wage tax and from transfers from the Republican budget. Nu 6.2: Sodd alroteilom Insdtuttona 6.13 Bread Compensation. When The main insunaons responible for socicl protection are: bread subsidies were removed in August, 1) .ro SocialS Protecion (MOS): Traditionally. MOSP 1993, the Government introduced a flat rate was in chge of most of the social prtcuion fucions. At monthly income transfer of 1800 rubles to presat it support special populations. such as invalids, nuas therypersonini ie republic, to compensate Dtis (old age. invalids), and is hi charge of pensions and every person in terpbi,ocmenae child allowances, die actal delivery of wlhich it dclegates to the for the rise in bread prices. Pension Fund. 6.14 Subsides and price sering. 2) Tmhe Pensie F (m): Esablished in 1991. overses pensions ad chid aownc. Colects mes earmarked for pensions and Subsidies were substantial in 1993. mainly for allwances for chldren up to 11% yeas old; receives mnsfers because of arrears in payments of bread fiom the republican budget to finae child allowances for ages lA- subsidies, along with otlier subsidized items, 16- notably coal and gas for heating. Prices in 3) SxCl. wnc FFund (SW: Esmblisbed in 1993. fmances Governmet shops are regulated but there is manity leave, sick leave and vanous workerr anmniues. no rationing and an active private market 4) Te Emp F exists for all consumption goods. Aside from of unemploytent be-nfits and rerining. bread, state shops seem to offer litte else; other food items are offered mosdy in the free market. 6.15 Share in NMP and in budget. The reorganization of social protection prevents full comparison of the situation before and after 1991. Still, several facts stnd out (see Table 6.5). Social protection expenditures are high. In 1990, they constituted 10 percent of NMP - much higher than non- FSU countries having the same range of per capita income and higher than most middle income countries, though somewhat lower than other FSU republics.' After independence, these Tae C.S: Soiad Pdeeton Payame as Pertof flMP, GDP expenditures jumped to 19 an Budget Ejeidis percent of NMP and stayed % in Social Payments i there. Most of this rise is Year Paymens Subsidies concentrated in family (min. I-) (nin. rb.) NMP GDP Budget allowances, which are administered per capita. In 1928 659 13.5 29.8 1939 701 14.6 27.4 1993, social payments were 19% 763 13.9 10.4 24.0 exceptionally high exceeding 1991 2,s48 242 18.8 50.6 20 percent of GDP becaUse NEWSEES2 1 arrear payments of subsidies 1992 9.573 796 2S.4 19.7 53.1 overlap the new compensation. 1993 57.091 8.432 31.4 30.9 Sour: World Bank estimates. The Pension Fund 4- sc. ILO: The Cost of Social Security, Geneva. 1992. Table 6.1 shows the following percent of social security expenditure-s in GDP in 1986 for comparable non-communist countries (See Table 6.1): Bolivia 1.9; Ecuador 3.0: El Salvador 1.1: Pkistan 0-8: Philippines 0.7; Sri lanka 2.3 and FSU 15.5. The Social Sector 83 6.16 Established in 1991, the Pensior. Fund governed under a 1990 USSR law until July 1993, when a new law was passed. At that time, there were 540,000 beneficiaries, or about 10 percent of the population. The variety of groups eligible for benefits is indicated by Table 6.6 (although Table 6.6 excludes recipients of child allowances financed through budgetary transfers). Most collection and distribution is done at the rayon level. The local PF supervises tax collection from the rayon enterprises. Funds are put in an authorized rayon bank and then transferred to an oblast bank for redistribution among rayons. No money is transferred between oblasts, except for Dushanbe, which pays to the central PF and to the rayons administered directly from the center; and Leninabad, which volunteers some of its balance for redistribution. 6.17 Old Age Pension Eligibility. The new pension law distinguishes between individuals entided to receive a pensions, based on the number of years worked, and those who have not worked at all before reaching the threshold age, who are entitled to only a reduced "social" pension, equal to half the minimum retirement pension. Retire are entitled by law to receive minmum retirment pensions. plus 1 percent for each seniority year. Worldng pensioners receive the same pensions as non-working pensioners. Those reaching pension age but not having the required number of working years receive a proportionally reduced pension. 6-18 In practice, 70 percent of the pensioners, including Table 6. C:modmh of Peula. F d BDefwie (muse of persorm) almost all retirees, receive the Socdl PenMi 41000 minimum pension (which is usually 1.5 times the minmum wage).' Fury reid from work 256.64 Early rei 6.111 Currently, Retirement age is 60 for Caqor I invalids 4000 Dependenm 201.600 men and 55 for women, with cumulative work requirements of 25 Category 2 invalds 25420 Red from MiDat 11.885 and 20 years, respectively. People engaged in certain categories of 2l0eired 4.880 demanding physical work are eligible for pension at age 55 and 50, workig 42.480 Retred Republic respectively; others at age 50 and 45 level empls 2233 respectively. PF labels these as "list hWuium pension for rred union officis 400 I and list II"). non-workers 120.000 Retrd witiout required senioity 12.173 Special paym to 6.19 Rayon committees "o. y*kig care determine eligibility for invalid of invalids 42.422 pensions. There are ftree invalid S nsd. categories from complete (category 1) to temporary (category 3) disability. Pension depends on the category and the reason for disability. Work accidents are a special case. 6.20 Work accidents. For invalids who contine to work, employers pay the pre-accident salary. For those who leave fte employer, regardless of whether they work somewher else, the S. Oddly, somn receive wo minimum pensions. and othes even throe. dtough their number is small. 84 Chapter 6 emloyer pays a lump sum and PF pays a current pension. 6.21 Suriwor pensions. Each surviving family member - parents, children, and remaining spouse - receives a pension on a per-capita basis when eidter spouse in a family dies. In practice, each child gets the social pension (half the minimum pension), as does a non-working wife. If the deceased was employed, the employer pays the family the difference between the deceased's wage and the PF pension. Table 6.7: Peak. had Nudge, 1"91- 1992 Actual and 13 Ple (in Mio, rules) 1991 1992 1993 REVENUES I. Balance fom as year - 135.1 650 2. Taxes from State enterpris 1.0872 5.216.2 33.810 3. Taxes frm workes 54.6 166.3 1,081.4 4. Taxes from pris entpris - - - S. Oter ansfers 472.1 1.2 1.5 6. Budge tuansfer 455.8 1.771.5 3.824.9 7. Year-End Balance 135.1 751.9 1.000 8. TOTAL REVENUES (I w 6. excludIng 7) 1.934.6 6.531.9 38.367.8 9. Toed Revenues (without Budget tnsfer and cash balaces) 1513.9 5,384.2 34,892.9 ENDURES 10. Pensin tDo filly retrd 792.6 3,964.4 31,264 11. Pensions o panly retied 64.0 384.8 3.696 12. Other pensions (military. VIP) 39.9 190.6 1.218.9 13. Childrn under 13 years 230.7 439.1 1.189.06 14. Children 1.5 - 6 years SB2.8 879.4 1.450 IS. Children 616 - 482.0 1.049.6 16. Needy Familis 150.9 59.6 66.0 17. Other Expendiures 73.6 152.9 1.072.0 18. TOTAL EXPENDITURES 'S5 6.5525 41.016.1 19. Totl Expeaditurs (minus Children 13-16) [.351.7 5.191.1 38,506.5 Surplus Definition A (8 minus 13) 0.1 -13.6 -2641.3 Surplus Defuiition B (9 minus 19) 162.2 193-1 -3613.6 Soure: Pcnsion Fund. 6.22 Child allowances. PF pays a monthly allowance to all children aged 0-1.5 years out of its own revenues. Until September 1, 1993, 204 rubles were given to working mothers and 150 rubles to non-working mothers. Since then, all mothers have been given a flat rate of 500 rubles. PF also acts as an agent of the Ministry of Finance and distributes a mondtly allowance to children between age 1.5 and 16. Until Septmber 1, 1993. the monthy rate was 100 rubles for ages 1.5-6 and 50 mbles for ages 6-16. Thereafter, all eligible children received 500 rubles regardless of age. The Social Sector 85 6.23 PFbudget. Since the Ministry of Finance fully finances PF in delivering child allowances (beyond 1.5 years), this part of PF's activities should be ignored on both the revenue and expenditure side (see Table 6.7). The balance is defined as the difference between PF revenues (other than the budget transfer) and its own expenditures (other than child allowances). By this definidon (defmition B in Table 6.7), there was a small surplus in 1991 and 1992, but a planned deficit in 1993. The money is deposited in authorized oblast banls, but since there are no financial inments to maintain its real value, it is being eroded by inflation. 6.24 For reasons set forth above, Tajildstan's generous eligibility conditions for social payments cannot be maintained. With regard to pensions, suspending the eligibility of working pensioners and of temporarily disabled category 3 invalids will reduce PF expenditures up to 10 percent. Raising men's and women's retirement age by five years is another possibility, although this may increase unenployment among the young people. In contrast to a certain flexibility in restricting eligibility, there is little room to reduce the size of the pension itself. However, in the longer run, when prices have stabilized and a capital market has developed, PF could serve as a major saver and investor. In a country with a young age structure, even a 20 percent wage contribution by workers should provide sufficient savings for a respectable pension. For example, in Singapore, employers and employees contribute to a personal account that is kept for each insured person and covers old age, work related accidents, and major medical expenses; PF is not used for redistribution. The fiud invests its revenues to provide profits, that pardy cover its adnistrative expenses and partly go to the insured. With respect to child allowances, Tajikistan's lump-sum per capita transfers are simple to administer, but do not focus on the poor or take into account the true cost of additional children by using equivalence scales, or provides too strong an incentive to have large families in a counry taalready has one of the highest naual incmrase rates in the world. The Social Insurance Fund 6.25 SIF is respwnsible for paying for sick leave, subject to a doctor's certificate and Trade Union approval. For the first four months, the ra rises from 60 percet of salary, for persons with 0-3 years seniority, to 100 percent, for persons with more than eight years seniority. Thereafter, the person may submit a request for invalid samts. SIF also pays for matemity leave. Full wages are paid for 56 days pre-natal and 56 days post-natal (if the birth is abnormal, then 170 days pre-natal and 170 days post-natal), plus dtree years of baby care upon return to work. Women who do not return to work when their paid leave expires retain the right to retn to their old jobs up to three years after the return date. In addition, SIF gives lwnp-sum paymentfor each new-born baby. amounting to one and a half minimm salaries. It also provides vouchers for sanatoria. many of which are owned by the enterprises, for summer camps, and for participating in subsidized sanatoria and sport activities. 6.26 With the disintegration of the FSU, SIF, which is based in the trade unions and previously received a large part of its resources from Moscow at the aU-republican level, became dependent on revenues. For funding, it now sets 15.5 percent of the proceeds of the total wage bill tax, of which the center should, theoretically, get 5.7 peent for redistribution, with the rest (9.8 percent of the tax) remaining at the enterpris. At present, very litle is acually paid out Each enterprise-level union is self-funding. There is no information on whether these scbemes guarantee sick and maternity leave payments in poorer enterprises, and it is doubfl that a consolidated budget is available at all. 86 Chapter 6 6.27 SIF faces two issues: the generous sick and matemnity leave benefits, and the level at which the Fund operates. By any standards, the allotment for sick leave is excessive and breeds abseneeism and low work commitment. A maximum of one - not four - months of paid sick leave is more in line with the rules in most countries, as is six months paid matemity leave, plus a one year job guarantee. 6.28 Given the fragmentation of financial operations, the question becomes which is better: (i) having the employer pay sick and matemity leave; (ii) a tax with the local union paying the benefits; or (iii) transfg both to the republican budget? Direct payment by the employer for sick leave, combined with transferrng paid matemity leave to the general budget, may be a solution. Unlike union- paid leave, employer-paid sick leave does not fosters absenteeism. Since short sick leaves are sufficiently widespread, they will not bias employers for or against a specific group of workers. In contrast, transferring responsibility for maternity leave to employers might bias them agaimst employing women. At the same time, matemity leave should not be administered by the local union. Industries differ by gender mix, and since there is no interindustry redistributior some industries will accumulate funds while others will lose them. Paid matrnity leave should, therefore, be shortened and its financing, as well of that of the lump-sum payment at birth, should be transferred to the general budget, with a matching cut in the wage-bill tax to reflect the transfer. The Labor Market Overview 6.29 In 1990, there were 1.254 million employed persons; of whom 0.8 million were engaged in agriculture, 0.3 million in industry, and 0.3 million in education and health services (see Table 6.8). Since then, substantial changes have occurred. By 1992, total employment declined. Employment in industry and construction decreased, while that in agriculture increased. The decline in aggregate employment reflects the uprooting of refugees and emigration - layoffs were apparently marginal. The rise in agricultal employment has been accompanied by urban to rura migration. 6.30 Though activity in the private labor market is apparent to the visitor, official sistics maintain that, nationally, it is marginal. However, data on family income sources indicate a rise in income (and labor input) from private sales. Private sector work seems to be developing gradually as employees in the state sector or on collective farms increasingly work at their official jobs only on a part- time basis. 6.31 The labor market's mainproblem is coping with decliningjob opporunities, and creating jobs for the large additions to the labor force -3 percent annually. The fall in -uDP. shortages in raw materials, fuel and machines all reduce labor demand. But even if these problems are solved, the required annual additions exceed those in most countries, due to the high birth rate. 6. In the country's sUtstics, employment is sometm defined broadly and someimes narrowly. The broad defition (see Table 6.8) includes 'others'. such as students and 'able-bodied persons not employed in the national economy.' We use Ihe more customary narrow deftmion. which incluies only those employed in the lbor market- The Social Sector 87 6.32 Even though creating jobs depends largely on the economic regime as a whole, rather than on specific labor market policies, the latter are also significant. Given die ongoing structural chge, long-run job creation is possible only if labor is relocated. Since it is impossible to synchronize reductions and additions in employment, some unenployment is inevitable. Creating long-run employment depends on two sets of factors in the labor market: i) the ability of the labor force to relocate (i.e., its ability to retrain and internally migrate); and ii) the economy's ability to sustain transitional unemployment (i.e. to allow necessary layoffs) and set up an unemployment conpensation policy. The next sections address these issues. Table 6.8: Employmet by Seclor, 1980-1992 (_otumds) AnuS Growth Rate Sector 1989 1983 2990 1991 1992 1980-90 1990-92 Agriculurc rand sy 618 724 933 881 892 3.0 33 lndusty 207 241 261 257 250 2.3 -2.0 Cousuucdon 104 118 161 148 132 435 -9.4 Other Mitd. Spher 170 197 208 205 177 2.1 -7.5 Health 66 79 104 106 110 4.7 7.4 Educadon 121 150 189 197 200 4.0 02 Other Non-Material Sphere 149 173 182 177 147 1.2 02 Other 514 592 680 6S3 nMI 2.8 Ula Toal 1442 1681 1938 1970 I908 3.0 0.6 Sour=: Mist of Labor. 6.33 Prospects are good for the labor force's general flexibility to restucture. The labor force is young and reasonably well educated, with 77 percent having ten or more years of schooling. Recently, however, massive out-migration, in which a large number of highly qualified employees have left mostly for other FSU countries, has badly damaged the country's human reources capacity. To facilitate retraining, a wider retraining network is required. Training Facilities 6.34 At present, retraining facilities are very meager. Facilities are administered by Employment Centers (ECs) for the benefit of the uneWloyed. No facilities exist for the employed and for those outside the labor force. Courses last up to 6 months, but ffie total nmuber of trainees is small. In 1992, there were 1531 trainees; in 1993 (January to September), there were 2537. Trainees get a stipend, set at minimum wage level. Until this year, courses were opened only to fulfill specific requests of enterprises. Graduates were assured a job in these enterprises. Staring this year. dte ECs opened courses for accountants and construction workers St were not commissioned by enterprs. The scale of these courses, however, is small. 6.35 The ECs should consider expanding open-ended trining courses, that would admit not only the unemployed, but also, for a fee, the general public. Night courses might be appropriate English, computer skills, accountancy, and marketng would be worthwhile offering. Cmrently, there is no network, other than the ECs, capable of handling adult retraining courses. In time, private schools may pardy take over this function. Training courses are especialy important in view of the recent brain drain. It is inportn to involve employers in the process of determining what traiing should be done, but training should not be restricted to what is specifically comnmissioned by the enterprises. 8B Chapter 6 6.36 Residence Permits. At present, the old Soviet system, requiring a residence permit from each citizen, prevails. Since it prevents efficient labor allocation, in the medium-terff, it may be desirable to cancel residence permits. Unemployment 6.37 Despite the recent fall in employment, official unemployment as refleced in the EC's statistcs is low - less than 2 percent of the labor force. The apparent lack of unemployment may be attributed in part to definitions and data collection, but is also traceable to the mral nature of the labor market, which has been intensified by migration from towns, and to the fact that unemploymem may be minor in both villages and towns bec of fainly fallback. As in many rural and large-family societies, under-employment, rather than unemployment. may be the prevailing form of labor under-utilization.' The difficulties encountered by enterprises in dismissing workers offer another reason for the low unemployment. Layoff Practces 6.38 At presert, dismissing workers is very costly to enterprises. Normal dismissals require the consent of the relevan trade union. Under the 1991 law for the Protection of Unemployed Population, shut-downs or massive lay-offs by an enployer require two-months advance notice to the Employment Center. In this period, the EC tries to arrange for loans, or for Government procmment of the enterprise's product. 6.39 After dismissal, the 1993 employment law, which applies to persons employed at least nine consecutive months prior to their dismissal, requires the enterprise to pay dismissed employees one month's salary. Those who do not find another job contnue to get their salary from the enterprise for up to a maximum of 3 months after dismissal. Enerprises tbat do not have the means to pay their ex- workers get loans for this purpose. The Employmun Fund and Emplyment Ceners 6-40 Prior to 1991, there was a network of labor bureaus whose sole fimction was to plac job seekes. By the 1991 Law, the labor bureaus were renamed Employment Centers (EC) and undertook, in addition to their traditional role, the following functions: 7. EC defines as unemployed all persom registered in ECs who did not find ajob within 11 days of registaton. These persons are entitled to unemploymentbencfits and muke up die official unemployment fgu on and are idenified as 'registered unemployed'. Their esimated number on September 1. 1993 was 13.673. The figure includes both those actally rceving benefits and those who, in princple, are entiled but do not curready receive tm (e.g. ihose unemployed for more than 6 months). RegisLtered unmployed iclude those enidted to benefits who are nming retainig. or working hi public works. This definon of unemploymnnt does or inclue job seekers who are not eied to unemploymen benefits, such as new entrants or rme-ans intoI te labormarket evenathough hey are notemployedandare looking forajb houghutheC. The more comprehensive groupig indcdes all unemployed who seek jobs troh ECs and is labelled in EC smiatics as 'jobless person'. On August 1.1993. this group ed 37,222 pers . All together, registeed unemnployed and job seekerscont only 2 percent of the labor force. 8. Another form of hidden unmployment is an extended leave widtut pay, wher the person is formally couned as employed. This praice has been expanded recendy. The Social Sector 89 a. payment of unemployment benefits; b. training and retraining the unampleyed; c. public works for the unemployed; and d. refugee services. Recenly the EC networkundertook to work with the country's refugees. Activities include registration, providing ac dons and transportation to their destinions, and distributing humanitarian aid. 6.41 ECs operate under the Mnistry of Labor, with a special deputy minister in charge. Tbey are financed by the State Fund for Employment Support (SFES), established by the 1991 Employment Law, as an ihependent fimncial institution. The Fund is the major fiancier of the ECs, and has only few activities, such as resarch. Its budget revenues are derived from two sources: i) a I percent tax on the wage bill on all enterprises regardless of ownership (except public sector non-profit entities, including ministries, which are exempt from this tax); and ii) transfcrs from the general budget, which are not registered in any ministry's budget, but rather as a special item. 6.42 Because only a small number of people were eligible for unemployment beneis in 1992, the Fund had a surplus of over 80 milion rubles, most of which was kept in the regions. A surplus was expected for 1993 as well. Although dhse surpluses would allow dte Fund to act as a saver or lender; at present, the sums ae held in bank. 6.43 Unmployment BeqU. After the first thre months of unemployment, presently paid by di. previous employer, the EC takes over, and pays those who cannot find a suitable job an unemployment benefit amounting to the prevailing minimum monthly wage (4000 mbles in October 1993) for up to three additional months. The same benefits are extended to aeployees who quit voluntarily if they worked mne consecutive mots before living. 6.44 The 1993 Employment Law also authorizes benefits for other categories of unemployed, ncluding etts and re-entrants into the labor force, perso newly released from the army, and dtose who worked less than nine months in the prvious year. The EC has proposed that benefits be exted to all of these categories. 6.45 The coverage of tbe present rules seems too wide in terms of dte categories of eligible unemployed, and too narrow in terms of the benefits granted to those laid off after a nine moth steady employment Tajikstan cannot afford benfits to employees who voluntarily quit or enter or reenter the labor force, and they should be made ineligible for beneits. 6.46 Public workv. Under the Es. the scale of publc works is small, and many of the onemployed are reluctnt to undertake em. This is unfortmate, in view of the need for post-flood road and bridge repairs and the low import componet of such jobs. Howevr, in mplenting pubic works, it is important to keep the wage rate low in order to avoid inappropriate disicie effects. 90 Chapter 6 Recommendations Social Sector 6.47 Social policy should be designed to achieve three targets: i) cut the share of social expenditures in line with the avaiiability of budgetary resources; ii) create an insurance system for old age and health, that may, in the longer run, increase private saving and investnent, as well as achieve social purposes; and iii) cut wage taxation to a maximum of 20 percent of the wage bill. While expenditure and tax cuts may be implemented immediately, the creation of insurance programs should be coordinated with measures aimed at establishing a financial market. 6.4g Short-term steps. On the expenditure side, during 1994-95, the World Bank suggests that steps should be taken to cut eligibility to the various programs: i) category 3 invalids and working pensioners should not be eligible for pensions; ii) the ninimm pension age should be raised over time; iii) unemployment benefits should be paid only to persons employed regularly during the past year; iv) paid sick-leave should be cut to one month per year; v) the poverty line should be defined and, to the extent fiscally feasible, people should not be allowed to fall below it; and vi) in view of the need for reconstruction of the roads and bridges the scale of public workcs should be expanded. 6.49 For the remaining eligible population, several changes in payment scales should be made: More support should be provided to qualifying amilies for child allowances, diverting part of the sum saved by not paying small families, and a sliding scale of payments reflecting the decline in marginal cost per extra child should be implemented. Paid matenity leave should be cut to six months, instead of a full year. Per capita payments to compensate for rising bread prices should be targeted and scaled back. Sick leave payments should be cut to a maximum of a mondi per year. 6.50 As long as no insurance network is establshe and hyper-inflation persists, no attempt should be made to establish personal accounts, since their value will be eroded. Likewise, no general reserve programs requinng extra taxation should be implemented. The Pension and Employment Funds should continue their present policy of paying a minimum sum to everybody. Persons who receive two or three minimum pensionc should havc that privilege cancelled. The special fund for ex-KGB and Ministry of Interior employees should be abolished. The Pension Fund should increase its efforts to transfer money from the relatively wealthier to the poorer oblasts. 6.51 In the short run, two institutiond changes are called for. transferring responsibility for sick leave payments to the employer; and transferring maternty leave and child allowances for children under 1.5 years old to the general budget. 6.52 Reducing wage-bill taxation can be achieved by restricting eligibility for pensions and by the institutional restructuring suggested here. Estimates put the required new taxes at around 20 percent of the wage bill. 6.53 Longer term strucural changes. Several programs, which until now have been financed through taxation, should become self-financed on an insurance basis, and funded by employer and employee contributions. These include pension payments for work-related accidents, and partial health insurance. Contributions should be administered by an extra-budgetary fund. It is recommended that the Pension Fund cover insurance against old age, low income, work-related accidents, and health insurance. The Social Sector 91 6.54 All other functions that act as a safety net, regardless of contribution, should be transferred to the general budget. These include child allowances and minimum pensions to persons not contributing to pension funds. Maternity payments are a border-line case: they may be addressed as an insurance item for working mothers or included in the general budget. Labor Markets 6.55 The following recmendations aim to improve the labor market situation: * The existing vocational schools should be used effectively and effort should be made to establish a retraining network that serves not only the unemployed, but also the genial public. Suitable organizers of such a network are the Employment Centers and various Institutes of Education. * Artificially contining employment in defunct enterprises through special loans obtined via Employment Centers should be discouraged. * Seve.ance pay should be reduced and unemployment benefits should be paid by the Employment Cents fiom the first month of unemployment, and extend up Wo a year. * Efforts should be made to recruit public-works employees from the unemployed and undmremployed. e To facilitate labor reallocation, traing and retaining courses for the general public should be expanded. In the medium-term, residence permits should be abolished. SECTORAL TRANSFORMATION Systemic reform measures should be formulated in close coordination with sectoral refonns if the overall reform program is to succeed. Sectoral reforms should give priorities to high productivity sectors that are capable of leading the economy out the current economic crisis. Reconstruction and improvement of the infrastructure damaged during the civil war and floods is also necessary to ensure a supply response in the productive sectors. The agricultural sector could become a leading recovery sector. Chapter 7 presents the priority policies in agriculture as follows: (i) providing economic incentives to inc,rease efficiency through price liberalization; (ii) withdrawing the state from direct distribution of agricultural input; and (iii) creating accountable and responsive econonmic agents by restructuring state and collective farms. Industrial and ninng sectors could also play an important role. Chapter 8 maintains that serious oDnsideration should be given to linmiting price regulations to special cases of aaonopoly; upgrading, improving, and maintaining industrial plants: and developing a mining law and a conducive environment to attract foreign direct investment into these sectors. Variout aspects of the energy sector wiUl be the topics of chapter 9. The immediate priority should be to obtain essential import requirements, including eergy, food, and other basic industrial inputs. Efficient pricing of energy and efficient use of the hydro-power base are among the medium- tmn policies discussed in this chapter. Infrastruc is crucial for Tajilistan's developmet. Chapter 10 discusses the impotance of reducing and ultimately elmnating regulations in creatng incentives to the transport and telecommunication sectors. bmnediate reconstruction of the telecom_mication system in Dushanbe and the southern part of the country is a short-term priority. In the medium term, promotion of the private sector in both the transport and tlecommunication sectors could play an important role. Educational and health have been provided free to every citizen. But, as discussed in Chapter 11, the Govermnent cannot coniue these services because of budget constints. Immed'ate priorities are to expand the mnmber of teaching hours, ineas class size, streamline dte teaching force, and inease the private sector's role in both education and halth. Chap.c. 12 discusses the imporance of cc.mbining economic reforms with appropriate environmental considerations. Developing waste water treatment systems, constructing proper drainage systems and adopting regulations to minimize the impact of industrial pollution are among the immediate necessary measures. CHAPTER 7 AGRICULTURAL SECTOR The Setting 7.1 Tajikistan is a Figure 7.1 mountainous, landlocked country of 143 thousand square kilometers (approximately the size of Greece), of which 7 percent is arable (see Lend Use by Category Figure 7.1). Crop production is concentrated in the irigated valleys (24.6%) Pasture along the tributaries of the Amu and Syr Darya rivers, which originate in Tajikistan. The different regions of (5.0X] Araile the country are separated by high i iL mountain ranges and are often cut off from each other during the winter months. The PaTnir (55.41) Non Arable mountains in tle southeast are part of the Himalayan chain and are amnong the highest mountains in the Source:Gostomstal. world. 7.2 The agricultural sector dominates the economy, accounting for a large share of the NMP. Although 4 million people live in the mral area, because of the large family size, 45 percent of the labor force is engaged in the agricultural sPctor. Since 1989, agricultural production has declined FIgure 7.2 considerably. Within the sector, crop production accounts for approximately two thirds of the gross TAJ IKI STAN *:t tAgrlcultursl Production value of output in constant ternis, of 3.1t which half is cotton (Figure 7.2). For 1993, there was a large increase a.s im.-. in the gross value of agricultural ... J 7 :K: :7"' output in nominal terms because of price increases. But the net value of agricultural output in real terms decreased, due to increases in input costs, fiel shortages and unfavorable weather. Current price levels for inputs and outputs are still below international prices; substantial adjustment will be required before the economy is integrated into the *T-. unn. international marketplace. 96 Chapter 7 7.3 A mechanized agricultural sector has been developed in Tajikistan with relatively high levels of production compared to neighboring countries. Production growth occurred at a high cost, however, in both human and monetary terms, as well as in foregone opportunities to produce and consume other goods and services. The agricultural sector must now become competitive. This transformation is constrained by the structure and incentive system governing production and processing developed over the last 75 years. The task of moving agriculture toward a market oriented system has also been made more difficult by the rupture of economic ties with the other Republics and by the Civil War. Because of broad changes now taking place in Russia and the other Republics, agriculture will have to adjust and become more market-oriented. There has been only linited change so far. 7.4 The state still Figure 7.3 dominates the sector. Collective and state farms control 9.6 million hectares of land, but only 854 Lafnd Use thousand hectares are arable (see by Type of Orqauizatian Figure 7.3). Under the FSU, neither managers nor workers on 115,} Slate Farms state or collective farms had strong -. - incentives to improve productivity, reduce costs or preserve capital and land. Regulated prices often penalized low cost producers. Inputs were provided according to thecentmlplan, withfarmnmanagers (11.151 CoIlectives having little choice over quantities or quality received. Finally, the (0.511 Prl.te Plots tl2 ing Reserve large degree of specialization dictated by the Soviet system left the economy heavily dependent on cotton, while the FSU provided grain and other food imports. Because of Tajikistan's dependence on outside sources, imports and food security remains a principal concern. 7.5 Production of cotton and other key crops is still controlled by state orders (see box 5.1). Production quotas and prices are set by the state. However, state and collective (S/C) farms are allowed to retain a small, specified percentage for their own use. For non-controlled crops, prices are set on a cost-plus basis. Other than production from family plots. the only move toward privatization has been the development of schemes to lease land on some of the S/C farms to individuals. The Agriculhtra Sector 7.6 Farm Structure: In 1991, there were 206 Collective farms (Kolkoz), 362 state farms (Sovkholz), and 19 inter-enterprise farms (Meshkov). Out of Tajikistan's 14 million hectares, these enterprises control '- million hectares. of which orny 854,000 hectares are arable. Because of limited rainfall, 718,000 hectares are irrigated. In addition to the arable land, there are 3.5 million hectares of permanent pasture and hayfields. mostly in the more mountainous areas. In 1991, private plots and land Agricultural Sector 97 allocated to state farm employees totaled only about 75,000 hectares. Allocations of land and leasing have led to some expansion of areas controlled by individuals, but no figures were available as of November 1993. In 1992, the total cropped area was 812,000 hectares, of which 698,000 hectares were irrigated. The non-irrigated areas were principally devoted to grains and fodder crops, as well as some orchards and vineyards. Irrigated areas are devoted to cotton, fodder crops, potatoes, vegetables, melons, vineyards and fruit. 7.7 Conon is still the major cash crop, occupying 42 percent of the irrigated area and 35 percent of total cropped area. Per hectare yields of cotton had been the highest in Central Asia but have since fallen considerably because of poor weather and lack of fertilizer, pesticides and fuel. Cotton production in 1992 and 1993 was severely affected by civil war, floods, weather and the economic dislocation caused by the breakup of the FSU. The reported production of 515,000 tons of raw cotton in 1992 was almost 38 percent below 1991. Production in 1993 was bctter. Historically, about 20 percent of cotton production has been of good quality extra long staple. Before the breakup of the FSU, most of the cotton was either used by the FSU or exported. Tajildstan exported some lint cotton (fiber) internationally for the first time in 1993 for US$1,100 per ton. The country's cotton exports outside the FSU are hampered by long distances to market and the FSU grading system. which does not meet international standards. 7.8 Grains: Tajikistan is a large net importer of grains, both for human consumption and for livestock. Most grain is produced on large rainfed state farms, with only limited irrigated areas devoted to grains (mosdy corn feed for livestock). In 1992, 264,000 hectares devoted to grain produced 257,000 metric tons, clean weight. Wheat production was 133,000 tons - about one third of requirements. Except for com, yields historically have averaged about 1.1 ton per hectare. Tajikistan also normally produces 25,000 to 30,000 tons of rice annually, though production in 1992 was down to 20,000 tons. 7.9 Vegetables, Fruit aand Vineyards: Under the FSU, Tajikistan was known for its fuits, vegetables, grapes and wine. The country's soil and climatic conditions are well suited to produce high quality horticultural products. However, because of distance from markets, Tajikistan will need to improve quality and concentrate on high value products. Poor post-harvest handling practices result in high shipping losses. Because wine botdes and botling capacity are limited, much of the wine was shipped in bulk to the Republics of the FSU. Domestic supplies of fruits and vegetables are plentful and relatively inexpensive. 7.10 Livestock In 1992, there were 3.0 million head of sheep and goats, 1.2 million head of cattle (of which 531 thousand are diy cows), 56,000 hogs, and 48,000 horses. Approximately three fourths of the cattle, almost half the sheep, and most of the goats are individually owned. Although, hogs are raised primarily on the SIC fanns, numbers are decreasing rapidly. Large-scale poultry production is carried out by the state and is highly subsidized. Poultry numbers have declined from a high of about 7 million birds to around 2 million birds, due to lack of feed and vaccines. Tajikistan has been largely self-sufficient in meat and dairy products. The production of silk cocoons and honey is important for providing household income. 7.11 Prices and distributon: While some prices have been freed, the state still sets procurement prices. Distnbution of inputs and outputs is still very much under state cotrol through the state order system, which has been tightened in recent months. The Ministry of Economy, under the 98 Chapter 7 direction of the Council of Ministers, is responsible for establishing the level of state orders and prices. Under the old system, each enterprise was given a quota based on past production levels, and the enterprise was provided with the inputs necessary for production. With the breakup of the FSU, the system has broken down because the state can no longer ensure that inputs will be provided or that output destined for other republics will be acccpted or bartered. However, the distribution system for collective farm markets still operats in most cities and towns. While not as full of goods as other such markets in Central Asia, tey nevertheless provide an oudet, at market prices, for production from private plots, collective farns and emerging private farmers operating on leased land. 7.12 Interaiond rade is cotolled by the Government, which has designated several different orgamizations for carrying out trade. In turn, these organizations can license other enterprises and organizations to undertake individual transactions. Until recently, most trade was carried out with Russia and other republics of the FSU through barter or clearing arrangements. The principal exports are cotton, tobacco, grapes, wine, other fruits and vegetables. In 1993, the Cotton Ginning Organization made the first ineaional sale of cotton, brokered by a U.S. firm. Exports of grapes, wme and other fruits and vegetables. both fresh and processed, to the FSU have declined substanally since the breakup. Approximately thre fourdts of cereals, all sugar, and many processed food products are imported from oiler republics, even though Tajikistan exports fruits and vegetables to them. The agricultural sector is also dependent on imports of petroleum prducts, fertlizer, agricultural chemicals, feed and machiney, but produces the hydropower used to operate the irrigation system. Short-Ten. Issues and Reco ns 7.13 The problems of the agricultural sector cannot be solved under a command economy. The policy changes needed to realie the potential of the agricultural sector challenge deeply rooted political beliefs regarding the role of the state and its ownership of land and industry. However, the potental impact of reforms is great. Tixs has been demonstrated in China, where the restrucring process began in one of its poorest areas and then spread rapidly to the rest of the country. China's introduction of the household responsibility system, price hiberalization and reduction of state orders and quotas resulted in large gains in agricultral output from 1978 to 1984. 7.14 Because Tajikistn has a large rural population, the agricultural economy must be transformed with litle disruption in production of key commodities if incomes are to be maintained in the short run At the same time. there must be parallel development of other institutions required for developing a market economy and price liberalization. The Govemet of Tajiistan should begin the transformation to a market economy by takdng the following priority policy actions: a. Establishing Necessary conditions for Privare Sector to Support Services for Markeing Outputs and Supplying npu: One ofthemost critical prionties must be a sectoral policy that provides the right signals for establishing strong support services. This policy should include the witbdrawal of the state from direct distribution of agricultural inputs; the privization of most processing, wholesale, retail trade and small-scale transport operations; and reform of agricultural credit, research, information and marketing services. b. Improing the Incentive Structure: Equally inportant is providing economic incenidves to collective, state and inter-enterprise farm to increase efficiency through price liberalization, evental elimination of state orders, Agricultural Sector 99 deanopolization of trade and thc gradual removal of non-tariff barriers to foreign trade in agriculnntal products. c. Decentraliring Decision Making to die Lowest Level Possibe: The final step is to restructure smte and collective fanms, and ofter agnbusiness enterprises, in a way that decentralizes decision making to the lowest level possible. This step is needed to enable state and private agnbusinesses to respond to market demand and price opportnities. 7.15 During 1993, the Government's policy was to tighten controls rather than provide more incentives to producers. Cotton delivery quotas were increased from 70 percent to 90 percent of production, with similar dcanges for other comodities. The offlcial rationale for this policy change was to provide the Government with more resources to obtain necessary imports and stabilize the economy. Medium-Term Issues and Rhconnendatio to Sustan Ouut Expansion 7.16. Since Tajiidsta's economy will be dependent upon agriclture for some time, the development of sustainable land use practices is of prime importance. For the irrigated areas, this means improving yields, improving on farm water managemaent to minimize water waste, avoid waterlogging and salinintion, and develop vironm ta y sound practices for using fertlizers, pesticides and other agricultal chemicals. On rainfed areas and pasture land, management practices are requwird that maintain productvity and avoid land degradation. Box 7.1: tDsto a Cottoim Gh- .. . . . . . . ,. ... , . B * [ * _ , , . .~~~~~~~~~~~~~~~~~~~~~~.. ... _ .. . .._.. .. _ . ..,--r Avsitla 2cotongan DushambesbowedsdtbattheinasfarodwerinXentralAsiu., The cottors mstnj uitwas in ful swingand he xiRWs wis (nIL prto. Because of weathr and other-factors the cotton harves- was normal ba en deivered. The cotton rec arme had a numbe of hIwi Oncrdte p u re cotows - stacked. Wbhn a stack-ws s i w c wilh tantl jimedl- When the co samples - .:vwee ake and- i was speg d accoidg tograde, using vsualmethods While the nstndaidstablshed bytlhetm. PFSU are faitr well defmed and d. gaders aknowledgeabjle theotton did- ot - to be rigorous-graded..-. . - Since tahe cn picked first -is the best quality,- S.better co will-be-on the botom ofstac k, -wis:h'uon- pickem later on top. When the -cottnis gined, the stack is used-vertcay,*thus blenng Uecoonfinr top-o ...o b -.wle this practice produces ia consistent grade; ieJ 1=produced wi f-ef varng wc ssod - inatiMlly, theshestalengthfibrs-establh its grade, resultingisalowerclassification:antprichan-if t .e comon were graded o pdu uniform lengths. :. .-. The ginnng faciit wlean, dust feie and well maintined. There double rws-of sw gii stands.. The second produced lhtes (shot fibers), frs d.second paM-e the:seed canon. Saws were ped -as required and replaced at the proper times. The ginned con was then wapped wit coton clot and baled using .wi: Noislly, imported stel bands are sed, but these wer not availa,ei' Tbe ginngout-n for band picked coows32pe cotto wfiber, 59 pa t seid and the reminde.r lianrs and wait. Except for cown espaly gwn for plag sd,tctton seds weresod to teoil psmng-S facory. - Thc ginning entprise pays the farmer for the seed con and is alowed a:10 pecent commission for. ginming; any losses are made up by the Goverment. 100 Chapter 7 7.17 There appears to be substantial room for increasing agricultural output from existing crops in the short run by using improved crop varieties. on-farm water management, integrated pest control and better production techniques. Current yields of most crops are below those attained by other countries with similar climatic and agronomic characteristics. For example, fonner levels of cotton production could be attained with 20 percent less crop area if yields were increased to those obtained in other areas with similar climatic conditions (e.g. Australia, Israel, Syria and, in the U.S., Arizona and California). Similar increases are possible for grains and fodder crops using proven technology and existing varieties and genetic materials available from inernational agricultural research centers. Efforts should be made to link Tajildstan and these research centers. 7.18 There is also considerable room to improve livestock production of which almost half - other than poultry - is privately owned. Output per unit of inventory is low and much higher productivity could be obtained with better livestock management practices. Within the livestock sector, productivity of small runinants could be greatly improved. As for the beef and dairy sector in 1991, only milk production was profitable on collective farms. Once prices adjust to market levels and subsidies are reduced. there will be considerable restructuring of catle production, with only the more efficient units likely to survive. Since most ctle operations are dual meat and milk operations, specializaton is also likely to occur. Poultry operations were the most inefficient (losses of up to 70 percent) and are not likely to survive as presently organized. A thorough review of the livestock sector is needed to detemiine where the comparative advantage lies and how the sute livestock sector should be privatized. The Changing Role of the Government 7.19 An important step m moving toward a market economy is separating govemmental unctions from conmnercial functions now provided by state and collective farm enterprises and ensuring that local governments have adequate sources of revenue to take on these functions. At the national level, in the agricultual sector, while the Government should provide public goods investments and basic infrastructure, the Government must stop controlling and directing production, distnbution and maldng pricing decisions. The Government's role in a decentralized market economy is to regulate the market, promote competition, support development of new technology and provide market information. Thus, it is important that a functional Ministry of Agriculture be molded from the disparate entities and branches of ministries that came from the FSU. Pries and the Economic Environment 7.20 A key requirement for long term development of the agricultural sector is prices that accurately reflect the relative cost of commodities both locally and internationally. Some increase in agriculture production can be achieved in the short-tern through price liberalization alone. Even if there is a shortage of fertilizers, farmers will take better care of their plots if they know they will receive a good price. There are also severe shortages in such key areas as fuel, fertilizer, agricultural chemicals, seeds and spare parts, which will have a large impact on the 1994 crop if they continue. The main impact on the 1993 crop was to slow the harvesting of cotton and winter fodder. The winter grain crop was reduced by at least one half because the S/C farms were unable to prepare the land for planting. Agricultural Sector 101 7.21 Based on an averap exchange rate in September of $1.00 = 1,500 old rubles, most agricultral commodity prices are still below world market prices. While the initial prourment price was fairly close to the internatioual price at the tie it was established, adjustments in state purchase prices lag behind overall price increases. For example, the average procurement price for raw cotton was raised the last week in October 1993, from rubles 2501kg. to 3501kg. This level is still below the equivalent border price of $100/kg. for lint cotton, which would translate into a raw cotton price of around rubles 800/kg.' lIput prices have also increased and are beginnmg to approach intemational price levels, particularly for fertilizer and chemicals. 7.22 Under the Soviet system, food prices were kept artificially low thereby squeezing agriculture. Further development of the agricultural sector will be difficult without commodity pricing parity with world markets, oeomic stabilizationand newexport market development. Inflationary conditions have distorted relative prices, so that it has become difficult to determine which investmet would have a positive retum The successful development of viable agnbusinesses and transformation of the agricultural sector depends upon a favorable enviromnent that can ensure the long- temm viability of prvatzed enterprises and services. Processing and Distribution 7.23 Marketing and distribution of agricultural commodities is dominated by state enterprises. In 1993, th state purchased all the ctton, silk and kurall pelts. State purchases are less than one half of production only for vegctables, fruits, milk and meat. The state purchases only limited quantities of grain because most production is used on the SIC farms for feed or for individual consumption. There are two chanmels of distribution: stae managed chins of retai stores under the Ministry of Trade, which serve the urban areas, and consumer coopvervs (Tajik Matlubot), which serve the rural areas. The quantty of goods in state shops is oftn limited and the quality average, in addition, a number of free markets are run by consumer cooperadves and municipalities. Consumers also receive commodities through their work place and non-market channels. Private shops or sections within stores that have been rented to private retailers are begnning to come into exisence. Road side sellers sell a variety of fresh fruits, vepgtables and other goods, with prices usualy higher than in state shops. 7.24 The development of a modem consumer oriented marketing system will require service oriented marketing and distnbution firms linked by modem com ications and information systems and selling goods of consistent and known quality. Price liberalization by itself wil not produce this result since marketing and distribution is still under state cotol. Privahzation of the retail sector is the easiest step that can be taken to improve marketing. However, of more importance is the development of wholesale markaes that are not dominated by the public setor enterprises already operaing in this area. Development of the distribution system requires: i) a privafization strategy that allows fee entryotfinns; ii) a regulatorv framework that provides for food safety, stnd on and quality control; and iii) support services such as market information, food inspection, financial services, training and technical assistance. 7.25 Fanners markets are playing an increasing role in marketing and distnrbution and Govenmment support should be given to expanding their role. Consideation should be given to developing modem wholesale markets near Dushanbe and Khojand that are centrally located near the 1. Based on an exchange rare of $1.00 = Old Rubles 2,500: a border price of SL.0001mn lint (fiber) coaon: a 30 percent conversion rate from seed conon o lint (fiber) cOtton; and value of cotton seed equal to g8nrg cost. 102 Chapter 7 main highway and rail line. Undeveloped space could be used to expand the market area and acconumodate access roads, unloading docks, warehouses, and cold storage facilities. 7.26 Agro-processing is carried out by several different organizations. The Ministry of Cereal Products imports grains, wheat flour, and animal feeds, manufactures flour and animal feed, distributes flour; and operaLes bakeries. The Ministry of Agriculture manages the meat and dairy processing plants. Other food processing is managed by the Committee for Food and Processing Industries (Tajik Pishchprom) under the Council of Ministers. The Cotton Gining Organization, also under the Council of Ministers, has responsibility for ginning and marketing cotton. The Rural Cooperative Association (Tajik Matbulot) also has some processing facilities, as do some collective and state farms. 7.27 Except for cotton ginning, most agro-processing plants are small and the processing technology is relatively unsophisticated. Only a limited amount of processed food of modest quality is produced, though Tajikistan does export some fruits and vegetables. Losses of fresh fruits and vegetables are high because of poor handling and lack of cold storage facilities. Meat and dairy processing plants generally produce a safe product but need to be substantially upgraded to improve quality. 7.28 The cotton processing subsector is the most developed and integrated because of the high priority placed on cotton production (see Box 7.1). Because of the variety of agricutunal crops that could be grown, substantial potential exists for developing the agro-processing industry in other areas. However, because of Tajikistan's location and the similarity of climate conditions to other Central Asian republics, potential areas for investnent must be carefully evauated in terms of markets and altenmative suppliers. Since the FSU republics are likely to be the major market for Tajikistan's products, predicing potential demand and likely prices after structural adjustm will be a difficult task. Until the direction of adjustments becomes clear, investments in this area should be carried out only by the private sector and only when there is a clear comparative advantage. Infrastructure and Services 7-29 Transport: Because of Tajildstan's location, transport costs are unportant in determining which commodities have a comparative advantage. Under the FSU, transportation services were heavily subsidized and geared long distance transport was geared largely to railroads. Because Tajikistan is very mountainous, building, maintaining and keeping roads open during the winter months is costly. The current shipping cost by rail from St. Petersburg to Dushanbe - a distance of approximately 3,500 kIlometers - is about $30/ton For bulk conmodities, such as cotton and grain. This rate can be expected to increase as energy prices increase to international levels. Roads within Tajikistan are generally adequate for moving conmnodities to market. 7.30 Road transport services are provided by state and collective fanns; Concem Madad, the Ministry of Agriculture's food processing enterprises (eg. milk); and the State Transport Agency under the Ministry of Trade. There are only a few independent truckers. Other than cotton, which is wrapped and baled, shipping losses are high for perishables because of poor packing and handling practices. 7.31 In Western economies, the most efficient means of moving perisbables over long distances is long haul road transport. These low cost road transporation services are provided by a large number of independent trucking and service firms. Improvements in long haul capability by rail are also needed to reduce delivery costs and losses for cotton. Because of Tajikistan's distance from its markets, the most efficient form of transportation is likely to be a combination of short and iong haul road transport and rail, using efficient transfer terminals and containerized cargo. Agricultual Sector 103 7.32 Recommendatons: Private ownership transportation services should be legalized and regulated. The breakup of mega trucking enterprises and the spining off of transportation units of various Ministries, Concern Madad, economic enterprises, municipalities and SIC farms into independent companies should be encouraged. Even with these steps, there will need to be large invesmnts in road and rail imprc'ements; all sizes and types of trucks; service facilities; logistics management; long haul tractor-trailers and refrigerated trucks. 7.33 Supply of agicu a inputs: The input distrbution structure reflects the FSU's policy for highly calid, interdependent and specialized production. Thus, Tajikistan is totally dependent on imported inputs except hydro-electric power and small amounts of urea produced by an outdated plant. Two organizations are responsible for providing inputs: Concem Madad, which was the Republican branch of Agroprom; and Tajik Agrokimya. These have prnmary responsibility for supplying all agricultural inputs to S/C farms and the rest of agricultural sector. Tajik Agroldmya handles f:rtilizer and agricultural chemical sales and application. Most pesticides are imported, but some agricultural chemicals are expGrted. Pesticide management seems reasonably well controlled because it is the responsibility of this single special service. Tajik Agrokimya decides on import levels, which fertilizer and pesticides should be used and - based on availability of fertilizer -allocates supplies to S/C farms and other enterprises. 7.34 Feraizern Average fertlizer application rates were relatively high prior to the breakup of the FSU. In 1992, the average application of mineral fertilizers (nutrient basis) for all crops was 151 kg./ha. Crops with the highest level of fertilization were: cotton, at 268 kg./ha. (158 N, 83 P205, 27 K); corn for grin, at 320 kg./h; vegetables, at 467 kg./ha.; and rice at 217 g./ha. The fertilizer applicatica rates for cotton are within the range of those for Califoniia and Arizona, which produce irrigated cotton under similar climatic conditions. Without more infonnation on actual field conditions and fertilizer response levels, it is not possible to determine whether these rates were economical or not. Fairly high levels of orgamc fertlizers were used on potatoes, vegetables and corn. More careful use of mineral fertilizrs can be expected becaus of their high cost and lmited availability. For 1993, the limited availability of mineral fertilizers has affcted crop yields. 7.35 Agricutr Chanikr (Pesticides, Hericides, Defoliant, Grot Regulators, etc.): Application rates of pesticides on cotton have been reported to have come down considerably. Also, because Tajidstan has invested heavily in specialized cotton production, which requires the heavy use of agricultural chemicals, there will continue to be a high demand for these products. At this time, the Ministry of Agriculture is not projecting major changes in current agricultmral prctices. However, serious efforts are being made to reduce the use of agro-chemicals and develop integrated pest management systems using biological pest control methods. Wide-scale intoduction of integrated pest management is hampered by lack of funding for laboratories and personnel training. The use of hazardous defoliants has boen curtailed and is no longer applied using aerial methods. 7.36 Because of limited infonation with which to evaluate economically and environmentally sound cropping intensity and input requirements. cooperative arrangements should be established with Westem reseauch institutions with similar agrononic conditions. The goal should be to review and compare existing research results, develop an updated methodology that incorporates economic and environmental factors and undertake new field trials using the updated methodology. 7.37 Maciey and Equipmentn Concern Madad is responsible for the distribution and of agricultural machinery. In 1991, there were 37,000 tractors of all types, one for every 22 hectares, and 3,000 cotton picking machines, one for every 95 hectares. In 1991, Tajildistan received almost 2,900 104 Chapter 7 new trctors. This number dedined by about one half in 1992, and even fewer tractors have been delivered in 1993. Deliveries of other machinery have dedined in a similar manner. A visit to a regional madinery repair facility and parts depot showed that only a few tractors in for rehabilitation and on which work had halted because of lack of spae pars! Little acdvity was observod and ordy a few pieces of new machinery were present. The parts depot had a number of empty bins for needed parts, while at ct same time, other bins were full of items not in grat demand. Agreement has been reached to provide Tajikistan with a number of grain harvesters. The prices quoted for tractors and grin combines, while substantially higher than previously quoted prices, sti were well below U.S. prices for siMilar equipment. 7.38 Most machinery is energy inefficient and larger than appropriate if farm sizes are reduced. Over the longer term, this equipment will need to be replaced with modern, energy efficient equipment suited to a restructured agriculture. The key to improving the farm machnery efficiency is to develop an independent dealer and service network that maintains adequate repair hcilities and supplies of spare parts. Because of emphasis on machine production under the FSU, the ratio of spare parts inventories to new equipment has been much lower than that found in most market economies. Privaization of repair depots and promotion of independent repair services is the most efficient way to provide farm machinery services. Even in developing countries. there are usually a large number of private repair failities, many with the capability to fabricate otherwise unavailable parts. A similar service sector should be promoted to help develop Tajikistan. Igton ad Water Ma t 7.39 While Tajilkistan's mountainous terrain gives rise to a wide range of cima, since the cultivated areas are located in the flood plains of the Kafirnagan, Vakbsh, Yaksu, and Kyzylsu rivers in the southwest, and along the Syr Darya in the North, any implementtion of flood control measures could decrease fertility of the alluvial soils. The climate in these areas consists of hot, dry summers and mild, warm winters, malkng irrigation necessary for intensive, bigh yielding agriculture. Approximately 720.000 hectares are irrigated, of which about 670,000 are served by large to medium scale irrigation prjects. Rivers are the main source of water. The river system includes the Nurek Dam on the Vakhsh, one of world's highest elevation dams. Approximately 60,000 hectares are irrigated from ground water and 370,000 hectares are served by pumps with lifts ranging from lm to 400m. An additionai 0.85 million hectares havc been identified as irrigable, but water availability is limited due to water sharing agreents with the downstream riparians of Uzbeldstan, Turkmenistan, and Kazakhstan (see Box 7.2). Tajikistan is entitled to 8 percent of the Syr and 13 perent of the Amu Darya's annual water volume. The largest area that could be developed is near Danagra, which is already partially served by a tunnel from the Nurek reservoir. The Danagra area currently produces dryland grain on large, extensive state and olective farn. 7.40 The Minity of Water Managemt is responsible for managing and maintaining the irrigation systems in Tajikistn. Irrigation project design is carried out by Tajik Giprovodkhoz and new system construction by Tajik Vadstroi. Almost all land is irrigated using the furrow method. Because water is a very scarce resource, improved drainage and water management and control, both on the farm 2. The FSU mainance and rpair systni completely kocked down and rebuit acos evy seven yeas. m cantr to Mon market economies whe macimes are regularly mantained, repaired as needd and replaced when repair eost become ncononmic. Thus. Tajkin's fle wili contain taors that ae quite old by U.S. stards. AgriculWal Sector 105 and at the system level, is of foremost importance. Drainage and salinity problems affect aproximately 180,000 hectares, of which only 10,000 hectares have high salinity. Box 7.2: Cenra Asin Water Rueoum Managemnent Water aibcaion in Centra Asiai was inily goned by decr from Moscowt. More recen, the allocatioi was comfirmed by agreeets betwieen the-ripain rmpublics. Coordination s overse by dth inter- Govermenal Coordination Committee and ioplemented by two river basin conuissioM (BVO's), one adi for the Amu Darya and the-Syr Dary rives;. The BVOs conol all riverandal off akes tatafftmore tdan-one country, manage iwerepubhic and inmnectoral allocafious and monitor water use and water quali. Poposals are being deedoped for senheing the analytical and monitoring capabiliy for the Syr Darya and the Anu Daya BVOs. 7.41 Ilvestmens inmodern water savmgs techniques, such as sprinuer and drp systems, are quite expensive (US$647,000/ha). Therefore, the applications most likely to provide a positive return on investment will be on farms near cities, to which vegetables can be sold and for production of other higher value cros, such as fruit and nut trees that can be grown for processing or export. Water can be saved under the existing system through better intake controls, by lIng canals to reduce water loss and by improving drainage to reduce salinity levels. More efficient use of water can also be achieved through better on farm water manageme, land leveling and changes in the cropping patter. 7.42 The Government should give strong considemion to intoducmg water charges that at least cover operation and maintenae costs. These charges are also needed to reflect the scarity of water and promote its most efficient use. In addition, a system wide review should be undertaken to iden where efficiency improvement are possible and to develop a long-tefm water strategy for the next 25 to 30 years. Land 7.43 The transition from a cetalized command economy to amarket driven economy requires continuous decentralizaion of decision making, from the centra planners to idependent firms and individuals in all sectors of the economy. This, in turn, requires that the Governmet develops a set of legally defined property rights for land, watcr and intelleeal services. The first steps, allowing leasing and the allocation of private plots at the farm level, have been takel However, before economic actors will risk investing, there must be securc. tradeable rights for the particular activity. If the private ownership is not to be allowed, leases must have long-term well-defined rights and be trdeable. Secondly, privatzing only part of the econmy will not have the desired results because production decisions will still be subject to control by the non-privazed part of the economy. 7.44 While Government officials recognize the need for evenal privatizon, they do not favor private ownership of land out of fear that privatzation would lead to large numbers of small subsistence fanrs. Although a land reform law has been passed that wold allow leasing, little has been done to implement it. Another new law allocates land to peasant households and provides for transfer by inheritance, as well as allocating unuilized land and leasing addidonal land. Offcials stae that 145,000 hectares of land have becn allocated to peasant households for their use. Individuals and "entrepreneurs" also can make use of the leasing law to obtain land for productive purposes. There are indications that leasehold farms are beginning to have an impact A number of produce sellers in farmers markets stated that they had leased land from the collective or state farm and some stated that this was 106 Chapter 7 their only source of income. One individual statd that he was selling a tnrckoad of potatoes that he and sval odter famers produced on leased land. 7.45 While there is a clear need for more rapid progress in developng responsive economic units in the agricatural sector, it is equally important to clearly separate governental from commercial functions. In the agriculture sector, this is particularly true because the collective and state farms are bo govenmetal and commercial units. A number of options are available to privatize the agriculural saeor by establishing true cooperative farms, joint stock companies, locallforign joint -nures, or solc prprietorships with individual legal and tradeable property rights. Agricultwr Fnmn 7.46 Agwprombank, which provides the largest share of agricultural lending in Tajikhstan, charges iterest rates that are lower than those charged to other enteprses, pardcuarly interest rates of commrcial banks, which when compounded, are over 100 pecn. The Govcrnment has set priority lending rates for agricultural production or processing at 5 percent while regular lending to agcultre is 15 percen Agroprom curnly pays 25 percent on individual and enterprise depository accounts that are from their own fuids. Enterprises earn 5 percs for deposits on borrowed funds, but no inte is paid for direct budgetary transfers. Total deposits are around 116 billion rubles, of which 24 billion rubles is from leg from other banks (mosdy the NBT), and 85 billion rubles from regular deposits frm agricultual enteprises, distict and rural govrnments and other eapses and Ministies. 7.47 Agroprombank's lending has inceased dramatically, reaching 243 billion mbles in September 1993. On the other hand, Agroprom's capital is curently only 1.3 billion rubles, dhugh it is expeed to beincreased to 4 billion rubles in the near fture. Agroprom is fang a number of difficuldties due to loss of pesnnel and, reportedly. is unable to provide lending to newly formed leasehold fm for this reason. In addition, it has been running a negative balance on its correspondent account with the NBT, which has rise from 14 million rubles in September 1992 to 123 million rubles in September 1993. Of greater significance is the increase in overdrafts on in ise and overdue setlement accounts, from 1.8 billion rubles to 16.9 billion rubles during the same time period. Agricultal enterprs have becn given virtually unlimited ovredraft permission, which implies that a large buildup of debt is occurring. 7.48 The key issues for agricultural finance are to: * Establish a sound agricultural banking system that uses established lending criteria; * Establish real positve lending rates for all enterise lending; and * Stop the use of credit to prop up unprofitable operations; if unprofitable antrprises are to be naintained, cxplicit budget subsidies should be used. 7.49 As privatization occurs, means will have to be developed to provide credit to snall produces. It appears that only limited financing is now available to farmers operating under the new easing system. In the future, as the number of private farmers increase, the rumral bankdng system will have to serve the needs of independent produces. Agricultural Sector 107 Trade 7.50 Prior to the brealkp of the FSU, Tajikstan's trade was almost exclusively with the republics. In 1991. cotton accounted for one third of total exports of 3.9 billion rubles. In addition, Tajiistan supplied 29,000 tons of vegetables, 3,500 tons of potatoes, and 12,000 tons of fruits to the All Union Fund for use by the other republics. Tajikistan also exported tobacco, wine and silk. On the inpor, side, wheat and sugar were the main food imports, representing 4 percent and 7 percent respectively, of the 3.7 billion rubles total. Some meat, dairy products, and processed foods were also inported. 1992 figures are not very reliable, due to lack of reporting during the civil war. The official figures for cotton show only 45,000 tons exported - about one third of the expected amount. Fruit and veget-ble exports recovered to about 30,000 tons - still well below the 1990 figure of 85,000 tons. Cereal imports (including cereal products and feed) were around one million tons, but official sugar imports were only 4,000 tons - well short of the 110,000 ton requirement. 7.51 1993 data are not available but indications are that export figures will be less than in 1992. Because of the poor crop in 1992, cotton exports in 1993 will be down considerably. The available supply, including carry over stocks, is approximately 200,000 tons of lint (fiber) cotton. Domestic use and ending stocks of 50.000 tons will leave 150,000 tons, with a net value of approxinately USS150 to US$175 mnillion. Some 30,000 tons of cotton have been sold internationally, leaving the remainder for trade with the FSU. Because of the fuel shortage and other difficulties, fruit exports are not likely to be any larger than last year; tobacco, silk and wine exports wili probably be about the same. Total agriculural exports for 1993 will probably be around US$200 to US$225 million. On the demand side, gain imports will be around 1.2 million tons with a value of approximately USS150 million. About 360,000 tons of grain are hard currency imports from Hungary and the Czek Republic, along with 35,000 tons of orn from the U.S. under P.L. 480. The rest will come though barter with Kazakhstan and other FSU republics. Sugar is the other large import, usually from the Ukraine. Consumption requirements are approximately 110,000 tons of refined sugar, with an approxinate value of USS30 million. Estimates of other food and agricutural imports are not available, but would cover items such as tea and processed food items. Imports of seeds, fertilizer, agriculural chemicals and machiey which would have been through barter were much lower than in 1992. Finally, the agriculural sector has been hampered by the lack of fuel, which is all imported. 7.52 Agricultural trade is constrained by lack of domestic financing and a suitable bankdng and payments system. For cotton, the other main constraint are the need to develop cotton grading standards acceptable on the international market; good transportation facilities and linkages through Russia, Ukraine, Kazakhstan and Uzbekistan or neighboring countries; and international marketing experience. To regain market share for fresh fruits and vegetables, Tajklistan will need to develop new marketing channels to the other FSU republics, reduce shipping losses and improve marketing. Market development will require producing products that meet in ational standards at low cost and that are either easily transported or have high value. Imports are constrained by lack of access to foreign exchange, import and price controls, lack of information on the availability and cost of foreign goods and high transportation costs. 108 Chapter 7 Strategy for Development of a Diversified AgricitUre 7.53 Tajikistan will be dependent upon the agricultural sector to provide food, fiber and raw materials to the rest of the economy for at least the next five to ten years. Because Tajikistan's agricultural sector has reached a relatively high level of development, efforts should focus on rationalizing and improving the existing production system until more economical alternatives are proven. The long run goal for Tajikistan should be a market driven agricultural sector based on economically sustainable yields that are environmentally sound and provide broad income opportunities to all segments of the rural population. This means making the most efficient use of limited land, inputs and water resources. Agriculture could flourish if prices are liberalized and the trade system is not biased against profitability. Developing viable agribusinesses and transforming the agricultural sector requires a favorable enviromnment that can ensure the long term viability of privatized enterprises and services. Bo.x 7.3 Technkal Assitance in Agriculture The objectives of the technicl assistance progrm in the agriclua sector should be to: * Improve the efficiency of water use, improve system maugement, review project planning and implementaion and develop a long tenn water management plan. * Review the efficiency of existing cropping systems and propose ways to improve the curaet system with die aim of increasing agricultural producivity and econowm efficiency. Because of the importance of cotton as a major souce of foreign exchange and Tajikistan's large dependency on grain imports, the prinary focus will be on these two crops. The program will be in several phases. * Develop she capaciq to tin specialists needej for a modern market-orien agrcultural economy. The progm would provide assista o assess die curent training capacity and develop a plan for meeting the future needs of the agricultual sector for trained people in all specialties. The program would identify priority areas for tang and rearch in agnbusiness, marketing, agricultural economics and technology dissmimaion. The training program should incude modern accounting nethods. business management and strategic planming, devepment of business plans, marketing. economics of plant and animal husbandry, trade policy, subsidies. contracing and the function of property rights in a market economy. The training programs would be expected to cover all regions. with emphasis on trabing of trainers in the beginning. A joint team of local and foreign experts in agricultural education, extcsion, firm management and agribusiness would carry out the study. * Provide guidance to dte Ministry of Agricultur for developing a modern administative system capable of providing the services needed in a market-oriented agriculture. An analysis will be undertaken of tie organizations now serving the agricultural secor, the curent organizational structure, staffing numbers and quality and the positive and negative aspecs of the existing swuctue. Options and proposals would be developed for a structure more conducive to serving a modemn agricultural sector- These proposals would provide organizaLional charts. analysis of function and job descriptions for key areas and managerial positions. Particular atention would be paid to developing modern management infornation services, such as statistics. market news, commodity forecasting and economic policy analysis. 7.54 The commodity systems approach, which identifies viable market development opportnmities and business links that need to be established among input suppliers, producers, processors, and distributors, will be most useful for developing a program to carry out this transformation. In order Agricultural Sector 109 to provide a guide for policy formation and related legisladve, regulatory and administradve iritiatives, an analysis should be carried out that will: a. Determine what basic policy reform and investnent incentives are needed to foster demand led private sector development, and what program can best implement these reforms; b. Analyze the total commodity systan, begimiing with intemational and domestic market requirements for agricultural produtcts now produced in Tajikistan and follow with an analysis of commodity production, processing and marketing conponents to identify constraints and opporunities associated with the development of a viable private sector; c. For the commodity systems targeted, propose specific market driven policy, investment and agribusiness development interventions that will enable the viable growth of these systems. 7.55 The reform program should begin with cotton and grains, since these are the most critical subsectors. For coton, the focus should be on identifying the total system requirements needed to produce, market, process and export high quality cottn or cotton based products and quanifying its comparative advantage widt other crops. For grains, te focus should be on determining if there are feasible ways to increase domestic production, particularly for wheat. In the rainfed areas, which already are farmed using large scale mechanized methods, this means reviewing curent production practices and adapting metods from similar agro-climatic areas, such as the United States, Canada, and Australia, that are both land conserving and productive. 7.56 In the mediumterm, the reform program will need to consider rangeland and pastures on steep, hilly loose soil that is prone to wind and water erosion that leads to flooding damage in the valleys. Improved range management techniques, conservation dams, and oher conservation practices are needed, along with ways to manage private and public use. For the high mountain are- of the Paniirs, which have only liminted agricultural value, sustainable activities should be developed. Some of these activities can be related to plans for establishing an inunational nature park in a portion of the area. CHAPTER 8 INDUSTRY AND MINNG SE1CTOR Industry Sector 8. 1 Tajikistan accounted for only 0.5 percent of the indusui. ouitput of the FSU in 1990, Cie latest year of steady state industrial operadons in most of the FSU republics. For perspective, the industrial sector of Tajikistan is less than half the size of those of Azerbaijan. or Georgia, but larger than that of Turkmenistan. In spite of its small size with respect to the rest of the FSU, the sector plays a major role in Tajikistan's economy. Strcture and Performance outu 8.2 In 1990, industry accounted for 27 percent of the net material product, 13.5 percent of employment, 92 percnt of exports and 84 percent of imports. About 40 percent of industrial output was exported to the FSU, but about 70 percent of material inputs for industry were imported from the FSU. For most of the 1980s, this resulted in a negative resource balance for the sector of auout 10 percent of output. 8.3 As can be seen Figure 8.1 from Figure 8. 1, light industry was thelargest sutsector, both interns INDUSTRY STRUCTURE of output and emplqyment. Within 1992 light idustry, textiles accounted for 92 percent of output and 65 peren of employment. Non 5 ferrous metallurgy was second in o 1a terms of output while mechanical industry was second in terms of employment. Labor intensity, based on output measured in terms uNuE s puyruT EuwnuYu sMen of existing transfer prices was the EUN LO " L highest for mechanical industry, _m - us. - O = even though in general, this - us - a' Eugt MD Eaw subsector is also very capital intensive. The average size of , - , l. . enterprises, measured in terms of nunbers of employes, was about 133. This is relatively smail compared to the other FSU Republics - - e.g., Uzbekistan at 433, or the Baltics, at over 800. Within subsectors, non ferous metallurgy has the largest single operation - an aluminum complex near Dushanbe. A brief description of the major industry subsectors is provided in Box 8.1. 8.4 By June 1993, industrial output in real terms had declined by about 50 percent compared to 1990 output. The decline was as much as 70 percent in subsectors such as electrical energy, chemicals and building materials. The fall in output was steepest during 1991 and 1993 when the country suffered 112 Chapter 8 significant tmoil and dislocations due to civil war and natural disasters. While these events contributed to the fall in output, the failure of the interrepublic payment system also played a significant role. 8.5 The interrepublican payment Figure L2 system is virtually paralyzed. Almost no transactions are completed through the baning INDUSTRY TREND system in a reasonable period of tim Delayed OUTPUT iNDEX transactions generaly arc not easily traceable. In effect, enterprises cannot pay each other across republics through the banking system. Instead, pavments are made through barter arrangemnts or by cash crossing borders. The problem hbas been exacerbated by the Russia's introduction of 40 new rubles in 1993. As a result, even cash 20_ tansactions within the ruble zone have ceased to o - be an available means for entexprises to pay each Woo MO '' i 1a3 u MO) other. Cash transactions are also beginning to be Moupurr impeded by new customs procedures instinted in many republics. Production in many enterprises has now come to a standstll. Box tI: Major Industry Subscrs There are 1628 industi enterprises in Tajikistan distbuted over 9 subsectors. The major subsectors are Metallurgy, Mechanical Indusuy. Durable Cosumer Goods and Food Industry. These account for 75 percent of the secrus output and comprise 805 enterprises. Th bllowing is a brief review of these subsectors: Metlmlurgy (10 enterpries): This subsebores major component is the Aluminum opetio near Dushanbe (separaely described in Box 83). The aluminum opeation is presenty also engaged in the production of profiles and otler conversion. Also significant is the lage Hydra Metllugical operation in Isphara, in die north of the country, which formerly produced Strontium. Barim and various other rare metals. There is also a ferro-Vanadium combine with a 1500 ton capacity. Mechanical Industry (398 entrprises): The machine building grup and the electrotechnical group compose this subsector. The machine building products include industrl appliancs. autmotive, aviation. oil and gas equipment. textile and agriculturl machinery andjeweilery. The eleetrotechnical group manhufctures various cectrical and eleronic equipment. iuding transformers, cables, light bulbs and various electronic components, some of which s-ure used in the soviet space program. Licht Industr (130 eneprises): This subsecior's primay output is textiles and textile products based on sit, cotton and some wool. It has spinning, weaving, and kniting mills, as well as plants for making garments, footwear, haberdashery and china. Food Industry (267 enterprises): Under three sepaate groups, this subsector incades food and confectionery, meat and milk, and bread products. The Food and Confectonery Assoiion. which isthe largest group. produces canned products, oils and magarine, wine and spirits. tobacco prducts, beer, salt and biscuits. In addition, the Consumers Cooperative Union is also engaged in the manufactre of various fbod and kindred prducs. Indusry and Mining 113 8.6 Other causes for the contraction iu industrial output are dufficult to isolatc from the collapse of the payment system, but include lack of supplies' and terms of trade shocks. It is difficult to ascertain if a particular product cannot be sold or procured because there is no futher need or availability, or because it cannot be paid for through the banking system or otherwise, even though there might be financial ability to do so. The issue of costs or prices also becomes somewhat irrelevant, since interrepublic commercial transactions are -no longer possible under the present bankng and transaction system. Viability 8.7 The same fcors make it difficult at present to assess the intrinsic viability of industial cnterprises or to prescribe actions for restuctuing their internal operations. Intrnsic viability based on value added remains significantly distorted, since the emergence of market based prices is inhibited in inuoarepublic transactions due to the payment system problem. 8.8 A strategic evaluation of indusay viability thus needs to consider Table 1.1: Growth in Ried AsJ by Subsector (percenta) more than just data on current financial 19B8 l99S-1990 19W1990 performance. One source of information bearing on the potential viability of the Fud & Eer compl 16 13 31 industry sector and its individual MOoDUgy Complex 59 33 112 Mechanical bdfs -20 2D 4 subsectors is the sector's historical c als 199 11 233 investment profile. Table 8.1 shows a Buildig Maerials 30 10 43 geneal decline in investment during the Ligiztndusy 43 52 118 Foodlndusy 25 47 as 1980's with investment levels markedly 35 22 6 lower for the second half of the decade. Soc Stitc Yeabok e.9 Among subsectors, Chemicals had the highest investment rate for the decade, followed by Light Industry and Metallurgy. Machine Building suffered disinvestment during the decade, even though investment in fixed assets for the sub tor stepped up in the second half of the decade. Industries with historically higher levels of investmt are typically more likely to be viable, due to their newer plant and equipment and possibly more up to date tedcmologies. By this reasoning, Chemicals, Metallurgy and Light Industry, and to some extent Food Industry, should have a better chance of adjusting to the present terms of trade changes. However, the capital intensity of these industries means that additional amounts of capital will clearly be needed before adequate adjustmet is possible. 8.10 In addition to investmnent levels, the data on the overall age of plant and equipment in th industry sector also provides some indication of the sector's competitive ability. As of 1988, the average age of plant and equipment in Tajilistans industries was around 10 years; over 40 percent of the equipment was under 5 years old (Figure 8.3). This reflects the possibility that various subsegments of the industry sector can be intrinsically efficient and, with proper management, have the potential to be 1. This is certainly a facwor since in the past. many components and parts came from factories, dit in many cases, are now eiter dosed or no longer produce tde same item. lbis is especially the case in Easten Europe. where my of the Tajik machiny and supplies come from. 114 Chapter 8 Figure 8.3 operationally competitive. However, intrinsic or operazing efficiency is not always a guarantee of AGE OF EQUIPMENT viability in the face of uncertain terms of trade shifts. As of 1988 8.11 A strategic evaluation of industry Uoaeah viability also needs to account for the impact of terms of trade shifts and the eenual transition to world prices. The difference between historical data on profitability at trasfer prices versus that based on Sv¶ 2 ' _a shadow world prices can sometimes serve as a rough as indication of the likely potential for each idustry subsector to adjust to the altered terms of trade and as or 1988 exposure to world prices? Fmancial Condition 8.12 Enterprise financial performance in the FSU republics is generally very difficult to ascertain accuately. This is because even m normal times several factors tend to distort reported performance. These factors include transer price mechanisms that do not reflect scarcity values (now futher distorted under present price regulations); accounting standards that do not fully conform to generally accepted accounting principles; historic asset values that are not conmensurate with present cost structures; and depreciation rates that histoncally have not been objective but were used to allocate resources. These normal distortions have been compounded by interrepublican payment problems and the ensy ng low opeating levels. 8.13 Because of these TableS2:AzgrevPeIN3DE1UFOsIimISobStorDDUlUiOUhrubt) uncertaintes, indcators other than profitability should also be inspected to ACcouNT 1992 1993 CHANGE assess financial condition and measure KE mT ASSr recent performance and future oudtok. Accu sRccb 5.150 37.651 Balance sheet data is sometimes less IDnveris 30.332 82.S02 nisleading, since it tends to more fully TOTAL 35,482 120.453 84.971 represent the actual flow of funds. A m cuRRNTrLumsnLm suwmary of the key balance sheet data Acun Pyable 23.288 93.529 aggregated for the sector is provided in Sho Tenm Bank Lan 11.895 30.084 Table 8.2. This table shows the changes TOTA 35.183 123.613 88.430 in financial position during 1992. Sourcc: GoskomsL 8.14 It can be sen from this table that the increase in key current assets in nominal terms has been financed by increases in bank credit and in accounts payable or trade 2. 'Indtril rolfitability anTdeamong theFonerSovitRepublics ClaudiaSenik-Legoynie. GordonHughes. June 1992. The study rdies on ipucoutput tables on each republic; data on panems of trade between republics; and a set of coefficin to convent domestic values to world prices for traded items. The coffients are based on ratios of domestic to world prices for dte year immediate to the colapse of the former Soviet economy and a weighted average conStucted by Goskomsiat (Moscow) to rpresen, as far as possible. ihe typical product mix of each subsector. Goskomstat was the major source for the inputroutpu datr. Industry and Mining 115 credit. However, the ratio of trade credit to bank credit has gone up from 1.96 to 3.11. This could be the beginning of an interenterprise arrars problem similar to those that have plagued many of the other FSU countries and Eastern and Central Europe. Careful policy measures should dhus be taken to prevent disintermediation in the banling sector, which has generally been one of the causes of the inteprise arrears problem in similarly sinated countries. It should also be noted that while there have been significant nominal increases in the key current assets, these assets have in fact been significantly reduced in real terms. 8.15 To prevent disiermi:on, it is, among odter things, necessary to better Tbe 8.3: Ba Creit by Judy Sulstur (nMinrubles- manage the bankdng system assets. A review of June 1993) the allocanon of bank credit within the industry SUBSsaOR DEPOSITS LOANS sector shows significant inbalances, as is illustrated in Table 8.3. For example. Metallurgy maau iS M359 (mostly non ferrous metallurgy and Alumi=n in Mwhaia Idusy 19452 41,243 paricular) and Light Industry (mostly textiles) CienlSs 341 2,743 provides 60 percent of industi output but BuIIdhhSMaUSls S32 - consumes 70 percent of the bank credit available W 14.649 62S79 to the industry sector. This might reflect directed credit lolicies, which often lead to inefficient Toi 78,235 267.254 allocat.on of resources, increase the risk of the uc NaSni Ban of Tajikismn. banldng sector's loan portfolio, and ultimately contibute to disimermediaio 8.16 Another financial issue that should be addressed early in the tnsition is the valuation of fixed assets for pricing and tax purposes. Undervaluing fixed assets helps to compens fbr operating inefficiencies in meeting competition, but in the long run, Figure 8A this practice decapitalizes the enterprise, postpones necessary restructuring and ultimately INDUSTRY COST STRUCTURE thireatens the enterprise's survival. Decapitalization occurs in several ways. For example, if prices do not reflect the true replacement cost of assets, the depreciation reserve is inadequate and the product can UL8 64S often be underpriced, depriving the enterprise ofadditional rents and the OMEPMEAD 55 appropriate return on capital that it INUANCES might have obtained. In times of high inflation, the enterprise also incurs excess taxes if assets are not 1992 AGGREGATE COSTS appropriately revalued. Most importandy, undervalued assets 3. See also ibt section on finuncal indi Chapter 4. 116 Cbapter 8 postpone the need for discipline in enterprise management and relieve the pressure to restructure and increase operating efficiencies.' 8.17 In Tajildstan, almost 80 percent of the cost of products is reported as material cost, as illustated in Figure 8.4. Ths cost profile has several important implications for setting restructuring priorities for the sector. Even if assets were revalued, wages still would be only 9 percent or less of total cost and m all licelihood would not keep pace with matenal cost inreases in the short term. Thus, operational restructuring must focus on material cost reduction via price and usage management The costs and benefits of employment reduction strategies, commonly associated with restructuring in the West, shoudd be re-exmined in this context. Box 32: Enterprise Sector Organzatimon snd Management The enterprises are all sutl grouped under the preious branch ministries, some of which have been reorganized into assocns, amalgamtion, concems and comminees. The associations or amalganauion are agglomeratons formed by individual enterpris to benefit from synergis that might be geneated. Each enteprise pays a corpore fee to the Association md receives guidance and assistanc on procurement and distribution, as weU as on dealings wih the state order systm A 'conawn is more of a wtop down' conglomation of enterpriss fonned dilecty to replace the branch mistry, but oerwise similar to the associaion. Association concerns are not genaUlly joint stck companies; their legal stats are somewhat nebulous kI some cases, the associatin guaranees the debt of ixrdvidual enterprises. A committee is coser to a Mnistry, but lower in the hierarcby. It geneally is formed by a resolution of the Goverment, while a Mnistr is formed by the decision of Parliam-en Associato and concens are govened by Boards composed of the directors of member enterprises. CIommits. Ik=e state owned enterprses, have administrative (or management) Boards. Govance at the individual enprie level varies according to its legal enti stats. Joit sok companies gmeally have supeviry Boards composed of 13 membes, all of whom are company employees elected by the shareholder The superiso Board elects its chairman. The state owned enterpise has no supervisory Board of directon, but raher an adminis ve board composed of employees. There are no independent outside diectors on any of the boards. The chairman of an association is accountable to the enterprises and the Counci of Ministrs. Major Systemic Issues 8.18 In view of the civil war, natural disasters and payments systems problems, the Govermnent has found it necessary to tighten control over the industry sector and the economy in general in the hope of securing minimm levels of eenti goods for the populace. These increased controls, as discussed in Chapter S, were manifested in some of the recent decrees and resolutions, which seek to centrally manage procurement and distnbution and implement interstate agreements by a state order system that now appears to encompass over 70 percent of the country's output. This section reviews the issues of price control and enterprise reform. 4. While assets at some enteprises were revalued at the end of 1992. this is not yet reflected in prices (which, for all prtical purposes. are controlled by the state) or in the depreciation tax shield. Industry and Mining 117 Price Controb 8.19 Pricing is regulated under the present monopoly laws, which idertify a list of items and entaprises deemed to be monopolics. The definition of monopolies is somewhat unclear and the govanment is allowed significant discretion in deermining both the monopoly status and whether pricing has been improper. In such instances, the law provides the government with the tools to accomplish restitution through profit drawbacks, which accrue to the goverment but not affected customers. 8.20 Unlike some other FSU republics, the law does not set specific margin ceilings for industries or subsecors, but branch ministries seem to adminter margin fairly uniformly across the board. The exact mechanism or the statutory basis for these margin ceilings remains unclear, though moral suasion clearly appears to be one means of enforcement applied by the Govremment. Abeyance of Enterprise Reform 8.21 Enterprise reform has been in abeyance. While some conversions to joint stock companies and transfers of ownership to employees trogh collectives have taken pla, the process of coiporatizaon, com ion and privazation has not progressed very far. The present ownerhip and organization Table SA: NmES.be Owned ESeprse gamnuae be 15 of the sector includes a mix of state owned enteprises, collectrve owned ChES-dWI No- of Oqm No. of enterprises (which are not joint stock or "ris ) Rmv Em$oes limited liability companies), joint stock ts 46 7.544 16.429 companies (pardy owned by employee Coileie 20 5.1S6 7.161 collectives), and leased enteprise Jon t Sck 8 32.055 22.88S There are alm no privae non- SCe r,unt. employee owned manufacturing companies. A synopsis as of September 1993 is provided in Tabie 8.4. 8.22 Box 8.2 descnbes the stnruture of enterpre organization and management. Enterprise management does not have the autonomy required to fimction effectively, but instead is subject to moral suasion from the Governent and pressure from employees, who constitute the majority on the boards. While employees naturally seek to use their power to maLxmize wages, workers are still Govremmnt employees and their pay scales are ddemined eiher by civil service norma or by statute. This removes critical work incentives. Moreover, as real salaries and wages decline, the absence of adequate accounting and auditmg standards threaens the secuity of enterprise assets and mcreases the need to provide safeguards. Ulmaely, hower, many of these problems should be addressed via privatization. 8.23 Even if all the enterprses were corporatized or privatized, they would be unable to function as commercial enttes without an adequate framework of commercial laws. Few of these laws exist at present. Furthenrmre, eristing adminirAtve and commercial practices, discretionary governmenal powers and potential conflicts of intrest-eg., export liceing by exporting endties - do not help to ensure equal commercial reaent or oppornty for private or privatized enterpnses. 118 Chapter 8 Toward Reviving the Reform Effort 8.24 While Governent measures adopted to centrlly manage the industry sector and the economy in general might provide the necessary temporary stability and security of supplies, very soon they will begin to have the opposite effect. Such central control impedes critical supply response and postpones the necessary adjustment process. The Government should reverse its control regime through a clearly defined program to reorient the industry sector and the economy to a market basis. The liberalization timetable could be phased in as the interrepublican payment system begins to operate more effectively and internal security levels return to normal. 8.25 First, the program should begin by gradually unravelling the stae order systen and remove quotas as discussed in Chapter 5. Procurenents related to clearing agreements (in case these need to be continued for some time) should be based on price and bid mechanisms, rather than on obligatory administrative processes. 8.26 Second, price regulation under the present monopoly legislation should be stricdy limited to true monopolies. Since over 70 percent of Tajikistan's industrial output serves external markets, competition will essentially be external and for many entrprises (e.g., aluminum), global. These enterprises need to be free from intervention in order to compete efficiently Li global markets. Since domestic markets, where these enteprises might be monopolies, arc only a small segment of the relevant overall market, monopoly pricing in domestic markets wil offer only marginal benefis and might in fact jeopardize external markets because of anti-dumping laws. Liberalizing imports, rather than constricting prices and implementing anti-monopoly legislation, should be used to ensure domestic competition for these enterprises. 8.27 Finally, the role of the Ministry of Trade and Material Resources MMR) should be fuindamentally altered to facilitate a tnsition to a market based industrial system and ensure adequate competition in procurement and distbution. The MTMR should be reorganized so that the business administration functions it perfomis are clearly separated from its public aministion functions. Public administration funcions should be retained withi the Government, while the busimess administration fnctions, such as providing supply and market information to enterprises, should be continued on a commercial basis until the enterprises develop their own marketng and procmment skils. The additional value that these services bring to the enterprises should be determined by the enterprises' willingness to pay for them. At some point, it might be necessary to privatize or commercialize the business administration functions of the MTMR. The wholesale warehouse enterprises controlled by the MTMR should be corporatized' and then privatized as soon as possible. These wholesale enterprises should also be allowed to change and choose their product lines, so that there can be competition in the procurement and distribution of individual products. 8.28 The liberalization of the procurement and distribution regime should be accomepaned by key enterprise reforms. First, all enterprises in the sector should be corporatized immediately whether or not they are t remain in the stae sector. Corpoatization should result in autonomy, and with govemance but independent board of directors (the majority of whom should not be employees of the enterprises or ihe respective branch ministries). This board would act as a buffer between the Government and enterprise operations and would function through such instruments as management S. That is. cotvenmd imo join stock companies a imizaly dtc GoveNmme condue to wholly OWnL ndustry and ning 119 contracts, related compensation plans, and interal and extenal audits to safeguard assets and measure performance. In this regard, it is essential to briog present enterprise accosting systems into conformity with internationally accepted accouting principles. Simultaneously, the privaizaton program, as discussed in Chapter 3, should be accelerated. 829 Second, a uniform commercial code should be promugated to support the commercialization of enterprises and provide an adequate legal framework within which commeal activity can take place. Such a code would need to include prvisin commonly funtd in commercial codes in market economies, such as those govering contract enforcemnt, secrty and collateral, fraudulent conveyance. bulk sale of assets, etc. 8.30 Thirdly, discriminaion between smt and private entprises should end, and a "level play field" should be provided for all entprises - state owned, privaized or private. Irrespeve of whether an enterprise is private or state owned, it should have equal and equitble access to credit, be similarly treated for tax purposes, and be subject equally to the provisions of the commerci code and bar*ruptcy laws. The Govenme's privileges and liabilities in corporaized state owned a should be no more or less than those of a shareholder in ajoint stockcompony. Subidies, if any, should be explicit budgetay tnsfers, so that a clear and ackmowledgd fiscal cost is associated with any relaxation of the hard budget constraints imposed by commercialon. Suibuector Level 8.31 At the subsector level, particlar attention shoud be paid to the almim industry (see Box 8.3). The opporunity cost of electricity consumed by the alumina smdter far eceeds the value added by the unit. Unless these can be brought into balance, carefil consideration would need to be given to the costs and benefits of contiing to operate the planL Options to achiev viablity could include finding a strategic investm partner to provide the necessary teoology and capital. The relatedvimnt bens (in additionto pollutx control measures necessry to continue operations), as well as the economic logic of these options based on current global aluminum industry data, seem to support their serious evaluation through technical assistac 8.32 Ation also needs to be given to the food hitusy subsector, wher qua and safety sndards are in urgent need of improvement. Training and technology needs to be immediately provided for this purpose, and standards and protocols need to be established for the industry. Tbis is especially crtical in order to provide a 'Good t Practices" (GMP) famework within which a pnvate and privatized food processing industry can em 8.33 Inadequate storage nd n p faclities have lead to large losses of agrcultural output throughout the FSU. In Tajilistan, this problem is cmpounded by the terain and fuel shortage. Although losses generaly occur at the fam level, and not so much during or after the processing stage, the acountg systems m the FSU have always indluded thse losses on the books of th food procsing industry, thereby introducing an additional distortion into the financial results of both the food and agricultural industries. Measures need to be taken to reduce losses wherever they ocur. Privaization and fimancg offer options to help address this problem; furtier study is dearly needed and is likely to yield significant benefits. 120 Chapter 8 8.34 There is also a need to accelerate theprivatization process in textiles, the biggest industry subsector. While some disaggregation and pnvatiion of the larger umits has already stared more needs to be done to support the growth of private inidative and fully realize the potential domestic and export bendits of the raw materials (cotton) advantage of the sector. Minig Sector 8.35 While there is substantial potential for developing gold, silver, mercury, zinc, and other metals, exst mines are in part depleted and remaing deposits are undeveloped. In order to realize its potential, the mining sector must mobilize substial amounts of capital in the near future. These and other issues are discussed below in furher detail by examhiing the major minerals, their minin and the status and future of the sector. A regional mie profile is presented in Box 8.4. BNm 33: The Mmse Inusry Tajiistans absninum industy bas one of the world's lar smelts (514,000 s). It consumes nary 40 Percenx of dIe natin's production of ckctical power, Wploys over 12,O0 peopk and sappon an entire coumidky of about 100.000 peopler In addition to enironmenta concrns, the maor issue acidng ealuminum Musty is diii at present the esimad vlue added by th mnim smeltr (S is farless dnte tcmd oppoumny cost (54591I oft dlect power itconumes Duet poorqualit ad locaon t T;aJik alumim is bein sold at a discount of over $2S01i tot e prsnt wodd prce of 310531k The silter uses impoted raw matral. It pys 7.7 mbls a Kwhr and uses 16.000 Kwhrtn Al 2.0O rbls to dte USS. this anIatD t49ohon compa-- toI cavege S3S30 for uinir pcus ahe West, atanave consampton Of 11,000 Kwhrto If eklciciy ire ar raised so iantionl levels. die onry way for dte smer to surmvive is though re goenam subsid - k s conceiabk dtat w te pvison of Shc necesry tbilogy nd capit ipovem to ary ou the rqued 8°wadmg of oIons and etrofittig die smeter c-n be mae viable. The atcs maintai dtat te maJor quaity. polltion and enegyreated problm can be raced back o anode mamuWft . Completion of the fourth anode li, gther with certi minor unprovement to the existng anode line is estimated to inces anode capacy frm dte 260.000 tos t 320.000 tot resting od applpy wold epotedly significudy alle _k conmiao problems in te daectolyc cels and result iln mjor quaity DnDve ts. Uwold aso reduce the amonetof cryolite used, which woud n= florie emisor_ A majoroverhaul of the 1,100 lectrolyti ces is also overdue (5 of tese at presnly down due to pans pmblems). Refuishing is expectd to reduce power p s lakge caned by fuqum neventios and to ipovesteal quaiy. Itis estimatedtt ese and other reofitg (gcray believed tobe req d a most C[S pl) il costarcd $50Wwnofcapaciy. liis implies the need to Fid an invesune pmtie prpard to imvest upwards of USS200 milieu to resour e plat Thefunrorthe alumnum sneltersholibe decide by the endof l994. Ifasategic m t pamercan not be fand to prvide tde necssry technoloy and capitl to ca outr o e requred restuucusinof th unit, dt World Biak reconinds thtat the audris should consider dtc pton of shutngdown he smeler. Th eanig fm mnt expos of cicity and the saving on import of aw materials could competa for the oss of aluminum expors. in tt case. tbe social cost of possil dosing down of the unit in wms of unemployment of worke and hardship on de families need to be adequaely addressed. Myjor Minerals and M g Activities 8.36 The country's major deposits and mining activities presently certer around silver, coal and gold. Tumgsten, antimony, bismuth and mercury are also mined. While many of fte existing deposits of silver, gold and. to some extet, coal are in part depleted, there are large additional undeveloped deposits. Industry and Mining 121 Box 8.4: Regional M ina Profe Tajilcisn can beboadly divided into fwr regions 0) The Panir region. i the sota (n) fte Southwst regio (iii) mhe Cetal region; anid (iv) th North region. L P- ir Regioa This rgion isnoun ous. with an aveage ekvation of about 1200 feet above .MSL a svere cimat. wirtier islation amd gmenely poor accesbility. The main geologic deposis incud large boron deposits. precious and semi preous stones (iding rumbis) whb bave been recentl disco d but not dcveod. and mrbl in rich and-vir unlimied quanntics. -I 71. .soaw Resig. This region iswani, hily and mainly agilculal. kis iey largedeposi of sat iedo iwe30 to 50bIllion ons. Hwvr. about R0 kilonizters of raiylines will be needd bdeo these deposits can be in-ed. T io also has some oil Jand gasdeposits. The mo easly aesble hv aady be delope ad depleted. litreare r eportedly large deposi of oil and --gas, cocenta ardqes of 7 Co 8 kilo wich havenaben pperly inmv d F i repors have beenpepued ad stps e to explit lagc deposites of S-o-tumn In add iti. the region has large amount,fcontuctoe-amterias in tI form of aimestone,g cly, d6oie g-u - .3 -. etc.-- - - 13. he Caual Rgion gvty mv T;.-ihis region, tDO. IS mountuin. withmiereg atdon abouot 6.000faet aboviMSL E pt tori lleie capim,Dudbnbe,is locatl, ae is fidiy isoated, wish access fiiostof thecouny oy*by toid aind air.The Cenal .-hase oftelarscoaldepositsin'CenalAsia,;aswelasanotherlargdqep a*ftghtprotbe ofgra poenti ree g go, deposits -an bofibund Borgiaoc owev r, sef dt goldeposits Consi: :h - of e wl ruir -nvroannm enology forp-cperrecovery. Therarea alaso has de ungsmobadpitoth ceatm e enr c _ -e-:- -th t is sthippedas ra K yz Repbi : -r--:.in- --.th Th orhr Rgo Ky = a ~~~~~~~~~~~~~~~~~- f---- - s - - --. quantitiesoflead. There ae severIl use deposits n buttheselbebeemosty depleed.: There-are so dqeosits - :..:.Ore wish hi onenations of bYffuh-Y Silver, Lead, and Zinc 8.37 The total estinated Table US: Elm llrMl & Deposit deposits of silver in Tajidstan, pren Inkrred Concenrati Remark could be as high as 60,000 tons. The Reservs Cm Tons) of Mea largest is Bolshoi Kacrnansur, with (in Tons) an estinated reserve of over 38,000 FASnMN ANDSN tons. Many of the existing mines, Lad 292,000 - 1.17% 3Th.TYr Mine however, are nearly depleted and silver 2 - iOOTgr 18 T/Yr Mines have been running at levels well BOI5HOAlANSl below capacty. Most of the silver Silver 1,700 S8,00D 592% CUP Undeveloped is mined at the Eastern Kanemansur Lead 12 Mil. 3.2 Mill. 027% O/P Undeveloped Lead and Zinc enterprise in the ZinCe 1.2 Mil. 2.7 Mil. 0.31% 0/P Undeveloped Eastern Knmansur region. This so MInfU hdflay enterprise used to produce 35 tons of silver, 3,200 tons of lead and zinc, and 31.2 tons of bismuth amnually. Due a mnuber of technical reasons, anmual production levels have come down to 18 tons of silver and 2,400 tons of lead. 122 Chapter 8 Table 3.6: Cal Depiit Shumb Faniagob Nazamiok Odters Provon RcscOves(MI T) 23 290 30 30 Expected Reseres (MB T) 23 2,00 212 300 Ash % 2S-30 1S-25% 1.54% 15-25% Heat Value 27M431g 25W/K5 SOOKCaU 8UOKCIKg Sulpher 1 0.71 0.343 0.2-0.8 Mine Capacity (fT.T/Yr) 600 SO 25 10-15 Presen Output (Th.TlYr) 200 40 25 N/A Mining Medtod UI/G 10% 0/P 100% O/P O? Source: Minisny of Ind.suy. 8.38 There is great potental to improve mining methods. The in situ grade of the silver at Adresoman is 100 gms/ton, with a delivered grade at the minehiad of 60 gms/ton. The ore is concenaed at a conversion ratio of about 40, resulting in a concentrate grade of about 2,400 gms/ton. In die past, the concentrate was generally delivered to Kazakdsan, where it was refined. In the last year, however, only 20 percent of the concentrate has been shipped to the PSU. Some concenrrate had been exported to Switzerland, but the rest is now stockpiled.6 8.39 An additional 1.4 tons/yr of silver is obtained at the Kairakum plant, in the northern region, from tailings left over fron processing gold ore. The content of silver in these tailings is 40-70 gmis/ton. which is almost as rich as the available silver ores. coal 8.40 There are 12 deposits of coal in Tajikisan, with proven reserves of over 400 million tons. These deposits represent coal of all known grades and sorts (Table 8.7). Only the Shurab deposit has been developed for industial mining in significant amounts. Some limited industial scale mining is undertaken at the large Faniagnob site. The rest of the production is small scale, mostly manual, ini by the local population. As a result, the annual requirements for coal in the republic, estimated at 1.2 million tons a year, are satisfied primarily through imports from neighboring Uzbekistan and Kazakhstan, which amount to around 700 thousand tons a year. 8.41 It is more economical to inport coal than to increase the production at the Shurab mines, which have been in operation for over 90 years. There are two operat mines at Shurab. One has been almost entirely shut down due to depletion and flooding. The other has only about 23 million tons left. The mine pits are deep and dangerous. Frequet flooding, collapses, and explosive coal dust result in high operating costs. The high incremental costs of increasing production at Shurab renders it uncompetitive when compared with low cost coal extracted by open pit methods from deposits in Uzbekistan and Kazakhstan. 8.42 Li.nited underground mining is caking place at Faniagnob. Large scale exploitation of this deposit is not presently viable due to lack of adequate railway and roads through 3,400 meter high 6. During the mission's visit, the mine and the concentratr were bodh fbund to be cosed due to lack of fMd. Idustry and Mining 123 mountains. 'The area is inaccessible in winter. The 2 billion ton deposit is the largest in Central Asia. It has low ash, low sulpher and a very high carbon content - high grade coal that lends itself to being used directly with coke for the production of steel, electrolytic alumi=n, phenols avd other chemicals. However, the terrain and requirements for most underground mining impose high costs. Large amounts of foreign technology and capital will be needed to evaluate and develop this deposit. 8.43 The deposit at Nazarailok is exceptionally low in ash and high in carbon, making it very suitable for the production of a variety of industrial products. It is also a very large deposit. There is only one other deposit of its kind in the world. That deposit is in Vietnan. However, like Faniagob, this deposit is virtually inaccessible due to its mountainous location. Any development would require large investments in infrastmcture. Gold 8.44 There are more than thirty known deposits of gold in TajikistaL Of hese, about 150 tons have been prospected. Around 25 tons of the prospected reserve is easily processable alluvial gold found in Darwaz. Previously, all extracted gold was processed in refining plants in Russia and then retuned to Tajildstan. Up to 1992, anmnal mining output was about 2 tons of gold equivalent, including small amounts (0.3-.5 tons) extracted in certain other mines in the Notrn regions including the Kairakum mines. The Kairalkm mines are small fields, some of which are almost depleted. The Jalal mine, with a capacity of 1.2 tons of gold equivalent, is in its first year of operation (see Table 8.8). The Taror mine, with a design capacity of 2 to 2.5 tons of gold equivalent, is in the process of being developed. The Choreduob deposit is as yet undeveloped. Since 1993, the Tajik Gold processing plant has been operational. TaMe M.7: GoM Mime and Depul Tutor Choadrob jawal DUa Owdeu ProevmResezes(TM 56 40 24 25 5 Inftened (T) 76 44 43 30 : Grade (gml) 5.7 4.3 2S4 0.62.2 (Sand) 4.3 Miig Capacity (Yr) 2-2.5 UAD 1.2* 3 1 Plent OW (KgIYr) 30W UAD UD 3000 200 - Desigp capacity forJaIa Sour: Minby of Industy. 8.45 The mineral resources at Choreduob, Taror. and Khojand, which have the lat and richest deposits, contain high amounts of arsenic. Sice tere is no economic and nmentally benip extaction and rdining technology, these large deposits camot presently be extractedI Research related to this problem is presendy underway in cooperation with Russian counterparts at the mining research institute in the northen region of Khojand. However, extrnal technical assistance could be beneficial in this process. 7. Some of this ore has aleady been mid and sockpiled undl the appropriate technology bcomes avabbte. 124 Chapter 8 8.46 The present mining operations are running below capacity due to lack of fuel, spare parts and essential reagents. Payment problems and the introduction of Russian rubles currently prevent these items from being procured from its original source, Russia. Some access to hard currency is needed to update the mining technologies and improve output at Darwaz and Kairalum. 8.47 A new gold refining plant is being set up at the Hydrometallurgical plant in Leninabad. This plant was previously engaged En nrocessing uranium; it now is being converted to gold refining and other uses. Since the new gold refinery was previously used for uranium processing, there is likely uranium contaminaton of the ground and therefore remediation would be necessary. The gold refinery, said to be 90 percent complete, will be able to produce 10 tons of gold a year (3 tons at Darwaz; 1 ton Kairakum and other small deposits in the north; 3-4 tons in Jalal). The refinery will also produce silver, tungsten, and certain rare metals. Other Deposits and Mines 8.48 There are some deposits of antimony and mercury in the central region. The ore is processed at the Anzob dressing facility, which has a capacity to handle 4,500 tlyr of antimony and 40 tcyr of mercury from the Jijicrude deposit. The concentrate then is shipped to Kyrgyz Republic for processing. The Jijicrnde deposit has approximrately 5.7 million tons of ore left contining 3 percent antimony and 0.04 percent mercury. Another deposit at Skalnaya has approximately 35,000 tons of proven antimony and an estimated 108,500 tons of unproven antimony at 3.07 percent grade of ore. The ore also contains gold (1 .2gmrt), silver (10.3gm/t), mercury (0.006 percent), sulphur (10.27 percent) and arsenic (0.27 percent). 8.49 The Maikdurin mineral deposit contains 23,200 tons of tungsten in the form of tungsten trioxide. This deposit also contairr 21,500 tons of zin, plus copper, silver, cadmiwn and bismuth. There is a deposit of an estimated 18k700 tons of Wolfram, as well as some tungsten in the Mihoury region. This deposit also contains 21,000 tons of zinc. The ore also contains Cobalt, silver, cadmium, Bismuth, etc. Deposits, such as Flourspar. at the Takob processing plant (capacity 6,400 tons/yr), are practically exhausted. 8.50 Aluminum deposits exist in the fonn of nepheline siemites. Althouzh there are an estimated 400 million tons of pesheline siemites, with 21.58 percent alumimnm contem, it is not a very common source of alumiinum and due to technical reasons, it is difficult to develop this deposit. 8.51 Strontium is concentrated mainly in the Chaltash deposit in the central region near Kulyab. Proven deposits of strontium oxide total about 300,000 tons with an average g rade of 6.9 to 8. 13 percent. This ore can be processed at the hydrometallurgical plant in Isfara. 8.52 There also are large deposits of boric ores in the Pamir region. Proven reserves are 8 million tons of boric trioxide, with an average grade of 7.89 percent to 9.02 percent trioxide. Unproven reserves are over 25 million tons. Poor access and high energy processing requirements make the inimediate viability of this deposit questionable. Industry Orgnizon 8.53 Tajikistan's mining industry is organized into 7 major enterprises: Adresoman in the north, processes lead, zinc, silver, and bismuth. The Anzob ore dressing company, about 60 kan from Idustry and Mining 125 Dushanbe, processes mercury and antimony ore. Leninabad Coal operates the major developed deposits. T'jik Gold enterprise, in Dushanbe, operates the gold mining operations. The Tacob flourspar combine, also near Dushanbe processes imported ore and ships it to Russia, where it is converted to cryolite and returned for use in the aluminum industry. Pamir Quartz works produces precious and semi piCCiOUS stones; and the Adersoman mining machinery and construction company handles production of machinery. 8.54 The enterprises report to the mining section of the Ministry of Industry; many are being converted to joint stock companies with employee ownership. The enterprises in the north are fairly autonomous and report to the local branch of the Ministry of Industy. Even so, they appear to be continuing under dte subordination of the branch ministry and subject to the state order quotas system. As in the industry sector, there ale no outside boards of directors, and the existing boards are composed primarily of the enterprise employees. Status and Future of the Sector 8.55 In spite of Tajikistan's rich diversity of deposits, some of the exstng mines are depleted and production rates are far below previous levels. But production is low due to other fRaors, such as lack of maintenance, war damage, flooding and shortages of material supplies, including spare parts and fuel. Also a steady reduction in investment over the past three years has reduced the sector's ability to maintain capacity and operafting levels. 8.56 Remaining deposits, particularly of gold, silver, coal and other materials described above. are as yet undeveloped. Many of these deposits are reportedly large, rich, and possibly suitable for open pit mimng, which makes them potentially very attractve for low cost production. However, this attracdveness is offset by poor accessibility. The majority of undeveloped deposits are in mountainous areas where access is extremely difficult due to the lack of roads and other infrastructr and to extreme weather conditions, which close large portions of the region during certain witer months. Development of these deposits would therefor requir relatively larger amounts of capital. 8.57 The mining sector's future contnbunton to the Tajik economy will be demined in large measure by the amount of investment that can be moblized for this sector. Ive stment will be required, not only to reconstruct and rehabilite war damaged and run-down mining operations, but also to develop some of the potentially valuable but extemely difficult-to-exploit deposits. Certain fundar tal isWes must be addressed, however, before TaJikistan can attract thhi investment for the se- First, the country needs to have an attractive policy framework for mineal development. Seco' : must be adequate inerationaly acceptable evidence of the economic attractiveness of the e ally, for investments in existing mining opaations, issues of viabilit, ownership and the mal impact of existing miing and related metallurgical operations must be resolved. Policy Framework for Mineral Development 8.58 Tajikistan faces significant. competition from neighborig and other resource-rich developing countries for what is likely to be a limited global pool of mining investment funds. Given the significant size of investment requirments in the mining industry, a large portion of aggregate funds will have to come from private or corporate sources. To amact even a small share of these finds. Tajildstan must have a sound policy framework for minerl development, including an adequate mining law, a clear tax and royalty regim and an enabling overall foreign investment climate. 126 Chapter 8 8.59 While the mining law presently being drafted is a step in the right direction, several aspects of the draft law need careu reconsideration. First, the law should aim more to serve as a competitive tool with which to attract investment. Second, the law should be more objective and less open to Government or Ministerial discretion. Transparency and predictability are needed not only to satisfy consttuencies within the country but also to satisfy foreign investors - particularly those whose domestic statutes providing for such transparency. Third, the t= and royalry regime must be clear and objective - not subject to case by case negotiation and frequent changes. Surveys of potenial foreign investors have shown that clarity and stability in the tax and royalty regime is more important than a good regime per se. Technical assistance in these areas will be of great help to the country. The issues pemining to foreign investment, dealt widt elsewhere in this report, also are applicable to the minin sector. Attactiveness of New Deposits 8.60 Prior to the dissolution of the FSU, the geological surveys and studies were conducted by all union subordinated organizations. With independence, the geological activities were relegated to the Tajik Geological Enterprise. However, many of the inmportant records and the seniorprofessional staff of the region remained with the regional office in Tashkent. While many of the records pertining to regions in Tajikistan are said to have been transferred to Dushanbe, it is not clear how much of this data is actually available in the formats and with the technical detail required by foreign investors. 8.61 To attract potendal investors, additional information on the size grade and viability of the deposits might be needed. While the geological methodology and the information presently available is likely to be comprebhensive.' existing geological information mnay need to be recalibrated and reiterpted using iionally acceptable economic parameters- This would alow foreign investors to more easily assess the viabiLity of the deposits. 8.62 Related development strategies for the sector also need to be formulated. These should include a least cost development strategy that takes into account size, mining methods, access, ease of recovery, end use and markets. A case in point is the relatively large but remote anthracite deposits, which reportedly are the richest (less than 5 percent ash and over 8.000 kCallk) in the world, after Vietnam. Development of this deposit must address accessibility, end use, and, since this coal lends itself better to industrial uses than as fuel, the selection of products and markets. 8.63 External technical assistance till probably be needed to formulate development strategies. This assistance should be provided on promotional activities and on preparation of pre-feasibility studies and prospectuses for presentation to intemational investors. Most investors do their own feasibility studies in the exercise of due diligence. However. to initially attract them and induce them to invest time and resources in a serious initial appraisal, a certain level of detiled minimum data is required. This can often be finished by a pre-feaibility study, supported by teehnical assistance to the country or the enterprise. 8. A sunimry of the major deposits and esenres is provided in te Sadstcal Appendix. Inlustry and Mining 127 Eidsti Opertions 8.64 Even though many of the exitg mining operations are significantIy depleted, there is an urgent need to icrease utilization. However, any investment for the reconstruction or rehabilitation of existing mining operations to optimize operating levels must be fully justified in terms of viability, ownership limitations and the environmental status of these enterprises. 8.65 The decision to invest in existing operations should not only take into account the Wiability of contiuing these operations, but also the rates of return on such investments. If the viability of the enterprise is in question because of its cost structure. market situation or level of depietion, alternate courses of action should be assessed and appropriate action taken. If the mine can be viably restructured, this should be done. If the present cost stmrctre does not justify continued operations under present market prices and conditions, the option of temporary closure and of putting the mine under care and maintenance should be given serious consideration. If the mine is not viable, the option of perm-anent closure should not be ruled out. It should be recognized, however, that the present distortions caused by problems in the inrerrepublican payment systems and other disruptions (e.g. of supplies fihm the FSU) might render an accurte assessment of curmt viability difficult. 8.66 Ownership structure often becomes an important issue in atacting foreign investment. Equity and control are often included in the critena upon which major corporate investment decisions are based. Thus, the Government should formulate clear policies and make them known to potential foreign investors to encourage adequate interest Ownership issues, such as privatization through divesiture. mnonty versus majority foreign ownership in the mining sector, etc. should be resolved in order to provide the appropriate basis for atacwing investment. 8.67 The environmental status of the existing mining operations, including the potential environmental liability. are critical issues in thc foreign imvestment decision-making process. Surveys have shown that corporations generally are not averse to supportng some clean up or other environmenl-related costs in potential foreign acquisition or mvestment situations. What they will not accept is an open-ended situation. Statutory limits and clear policies on indemnification by the state for environmental liability are often prerequisites for invemrents in mining and metallurgical sectors. Thus, a clear and unambiguous law on environmental liability would be of great benefit in attracting investments to the mining sector. Detailed investigations of environmentl issues will be needed before any further investmen in these enterpises can be mobilized. Extenmal technical assistance will likely be needed to complete most of these studies. 8.68 Potentidal parners for the m_in projects must be looked for. This will require matchmaing aactivities, as well as assistance in the formn of financial advisory services to help Government and local enterprises formulate clear rules-of-the-game and sectoral frames of reference with which to negotiate specaic transactions with potenti parnrs. Summ_ry of Recommendatins Industry 8.69 Due to severe trade shock, payment system paralysis and other advesities, industrial output fell by over 50 prcent (85 perceut in certain subsectors) betwee 1990 and June, 1993. Contols 128 Chapter 8 over the industry sector and the economy in generl have been tightened to promote stability and secure minimum levels of supplies. While, initially, these measures wiU provide temporary stability and security of supplies, they will very soon have the opposite effect by postponing necessary adjustment to the new terms of trade realities fiiced by the country. This will delay the direct foreign investment needed to dose resource gaps. Box 1.5: Techia Asstac Requrm s in the Indusl Secr The objective of technical asmce programr in the idustry ad minmg sectors sbould be to: * PrPpare asnady of the enviromnetal probans caused by the operation of t Anumium pl and evaluat optons to rduce ongoing environmct impaL * AssiztheConnimeofFood tummy and Enterpris prvide t and tlogy to upgrade qualityhealt andsafety stanards at food pocssing cnteprises and to establisb instia ons. sandards and ptocols fora God ManfCtuing Pructice? framework wnbin wch privat and pnvarid feod processing can emerge. * Assist te dMinistry of Light lndustry lo assess comparative advantage under open maret condo and devise a sector strat for remauning the exisg til industry through privatzato. fomgn direct iuvesuenad pnv sor developue wih bigb export or.=.ientati hProvide assisance t heMnistry of Industry Mad ebe Sut Gold Minig Comrnitee on eanvin.r y benign proc teebmalogies for refing god ftloL oe dtat conain arsmiC and prepare and prvidt pie-feaslit sudies for any process inveset red to accomplish dais goaLf Prepa enviromental sandards spcifi to minng and industry. complianqirments and praIies with a timeable for implementtion. * Asathe Ministy ofIndsy to pepar a miuinmg code in coordioutionwuidh the Miisy oJstice.Depaenaf Geology, PariSnnnarycornmesandotirgovermeoragees. In coodationwithMinrs ofIndusty. Finane. P m y coimmmei and otr Govenment bodie design a fiscal regime (royaltis ad oder levies and aowances) forth n secor. to be incorporated in mthe ning law. * Assess the investm needs for the meconstruc and rebabilition of exisig mining opraons. * Tramstaffto gemte intionallyacceptwblcevidc onthe attacdv of deposis intrsof si grd and bity. 8.70 There is an urgent need to reverse this control regime and reorient the industry sector to a market basis. Such a program should include: a. Elimination of the state order system. b. Procurement for clearing agreements tirough price and bids rather than administrative means. c. Discontinuation of export licensing. d. Comnercialization of wholesale enterprises that allows them to change and choose their product lines. Industry and Mining 129 8.71 The liberaliztion of the pt and distribution regime should be accompanied by crtain key eaeprise reforms. These should include: a. Corporatizing all enterprs rresective of ownership plans. b. Providing the required autonomy and govemance through: - independent boards of directors - management contracts and related compensation plans c. Using independent audits to safeguard assets. d. Transforming accounting systems to internationally accepted methods. e. Accelerating the privatiation programL f Eliminating discrimination between state and private enterprises. O. Makng subsidies explicit, and acknowledging fiscal costs for relaxing the hard budget constraints of comm lizon 8.72 At the subsector level, particular attention should be given to certain industries. Specifically: o Aoniwwn: It is urgent that the Government should decide on the options available to the aluminum smetr by the end of 1994. If a partner can not be found for its restruing, the authorities should consider closing down the unit * Food Industq: There is an urgent need to set product and process qualt and safety standards and protocols to allow for privation. * Light Industry: This subsector is best helped by accelerating the privatiation of textiles. 8.73 Existing mines are depleted in some cases. The rmaining deposits are in difficult terrain and undeveloPed. New inveme is key to this sector's contnibution to the economy. To get this investment, the country needs: a. A mining law, taxation and royalty regime and an atrctive overall foreip investment climat Mining law must balance preservation of patrmony with Xcompetivencss. b. Inernationaly acctptable evidence of the atractiveness of the mining sector in terms of the size, grade and viabiblity of the deposits should be developed. 130 Chapter 8 c. Rutic and rhabilitaio of existing mines, with the choice of mmes based on viabilit. arvailble ownership options and the enSronmental stus of eistig oeation. CHAPTER 9 TIE ENERGY SECTOR 9.1 Tajilistases energy sector has a amber of fatur that it from other FSU countries. First, Tajils has a low per capita ener use and its engy conmpion is among the lowest of the FSU. Second, the energy secor is dominated by hydro.lectricity, with le production of other fuels. As do many oer FSU countries, however, Tajikdstan ries on imports for nealy all of its oil and gas needs. 9.2 Under the Soviet Union, Tajiistan receved substatial net resource transfer through subsidized impots of oil and gas. The tranion to economic pricing for these fuels will be difficulL This problem is compounded by the effects of the recen civil confict, which damaged much of the energy insuc and caused the loss of skilled pesonl trgh emigraton. Fnally, Tajtitas relative poverty will make the burden of unsubsidized, market-riced er ipos particularly hard to bear. Energy Supply-Demand Balnce 9.3 Tajildstas energy balance is dominatd by hydroelbectricity, which supplied 36 perce of total primary energy in 1990, compared with an average of 4 percen in due FSU as a whok. The alumium smelter is a key enrgy consumer, takig 40 patent of total power outt in 1990. Apart from hydro-electricity, Tajikistan consumes significant pamtites of il, nau gas ad coal. Since domestic productEon of these fuels falls well short of demand, overall enery f-suffi cy was only 47 percent in 1990, with self-suffiency in oil and gas only 6 prcnt. 9.4 To some xn, energy supply and demand in Tajikistan reflects its T_e 9.1: Eimwr sa position as th least economically developed (S.. - atd hd eads) of the FSU countries. The growth of energy 1i7s isis is. 19s demand in Tajikistan was relatively rapid - - UV - - over fte two decades to I990, as the dto G°°a tos3 41,3 1,19 SAD country caught up with other So bHwho 4e1 4.1 4,6 31 5,041 republics in its pattrn of enry use Tol sueu. 7,504 11,756 13,60 15,170 Pimay energy demand grew by 5.4 pa. & E t.6cs 4.1W 6316 8.033 percunt per year between 1970 ald 1990. DicIU..&Lo 3,20 3,657 4,193 4,515 compared with 3.4 percent in Russia. Expos 1,301 3,42 2823 2.10 Tajikstas fiuel supply and use pattern is s chrp -3 -13 94 4 also iifluenced by the highly rural cs u 44 61% I9 4a5 charater of its population and by its mountainous aterai. These factors make Sun &haisis c a coal the fuel of choice for dmestc heatg and LPG for domestic cooking. As in many low iwome developing countries, fuel shortages have drin the ural populabo to use firewood for heating and cooking. Agriculture uses substantial diesel fel and deecrity (for irigti). 9.5 Another important feature of Tajikstas ner stor is th almost complet separadon of en systems in the North (Khojand region) frm those in the South (Dushnbe, Klyab, etc.). Both 132 Chapter 9 regions are substantial energy consumers, with the North accounting for about 30 percent of national energy demand. There are no direc power or pipeline conections between the two regions through Tajiistan. Road and rail links take a long route through Uzbekistan Power can also be 'wheeled" dtrough the Central Asian grid from South to Nog. In pracdce, the trading relationships and supply patters of the two parts of the country are largely separate. This complicates energy investment and trading policy decisions for the country as a whole, since it is difficult to develop an integrated national investment strategy. Energy Trade 9.6 Tajiita is a large net Table :92f EMU Trak importer of all forms of energy, particularly 19m5 1990 am oil and natural gas. The country's only significant cnergy export is eilicit to IDnM Uzbekdstan Historically, all ner imports O O) 268 2613 6D9 have come from the nearby major energy Nal Gm (mm* 1389 1729 1154 producing Republics: Utbekistan, Coal (r. Tom) 6S7 927 422 kahstan, Turkmenistan and Russia Since EwdCcy (nkwh) 5500 6906 6412 1990, energy trade has been gready disrupted - by the combined effects of the break up of the Soviet Union and Tajikistan's internal Oil (g) 356 141 64 NaturulGas (maci) 214 0 0 turmoil. Trade statistics duing this period Nd Tom) 256 230 186 show avery large fall in toal energy imports, Eleidcy (mkwh) S92 5322 5596 amonting to around 46 percent between 1990 and 1992, due largely to a 75 pecn fall in kz ShICS Go oil imports. These stafistics may not be reliable. however, since nmch of the oil trade has been conducted by individual importing enterprises and organizations and is probably unrecorded. Energy Sector Institutions 9.7 Supreme authoity on Tajikistan's energy policy matters lies with the Council of Ministers. Three Deputy Chairmen of the Council of Ministers are direcly responsible for different branches of the energy sector. No single Ministry or Department is responsible for coordinating overall energy policy. 9.8 The Department of Fuel and Energy, reporting to one of the three Deputy Chairmen, covers all matters relating to power, heat and gas distribution. While this department maintains some strategic overview of the energy sector, it has no exective powers outside its defined areas of responsibility. Matters relating to oil and gas production and coal mining are formally handled under the Department of Heavy industry, which reports to a different Deputy Chairman. Responsibility for import and distribution of oil products is under the Department of Trade and Material Resources, which reports to a third Deputy Chairman. 9.9 Tajildstan's energy sector consists of different institutional structmus that evolved from the Soviet sysem: Energy 133 * The Power sub-sector is conducted by Barghi-Tajik, a single enterprise that controls all power generation transmission and distribution; and also provides heat in Dushanbe and Yavan. * Oil and Gas Production and Exploration is under Tajikuaft, which evolved from the local Soviet Production Association, which had previously incorporated the Tajik branch of the Ministry of Geology, which had been responsible for all oil and gas exploration in the Republic. * Gas transmission along the main pipies is handled by Uztransgaz. the Uzbelistan gas transmission company. The arrangement that existed under the Soviet Union has been continued because the main lines are tranit portions of Uzbek gas lines. Natural gas and LPG distribution along branch Lines throughout Tajikistan is handled by Tajikgas, a nationwide gas distnbution company. * Imports and distnrbton of oil products is undetake by Nafiresan, the state oil distribution company, which is a direct successor of the Committee for Fuel Distribution that existed under the Soviet system. In the last two years, however, a large proportion of the oil trade has been informaly lberalized and now takes place through indivdual enterprises (although these still make use of Naftran's infrastructure on a fee basis). * The coal sector is relatively fragmented. It consists of hee larger state-owned mines, that operate independently of each other under the Department of Industry, and a number of smaller mines locally owned by public and private sector bodies and loosely grouped under an association, Tajlkangisht. 9.10 In general, the energy sector's governance is weak, because the Council of Ministers does not provide a single forum and focus for making energy policy. The various Departments dealing with energy are lightly staffed and unable to take on the necessary policy and supervisory duties. Given the need for Tajikistan to develop an integrated energy supply stategy that addresses the growing import deficit and the patten of fuel use within the country, it would be more appropriate to centalize energy decision malkng in the Government within a single Department, probably the exist Departnent of Fuel and Energy, which has the broadest jurisdiction at present. 9.11 Tajikistn's energy enterprises have only just begun to evolve from their format under the FSU toward structures more compatible with the needs of an independent country moving towards a market economy. The legal stus of the different enterprises, their precise spheres of responsibility and thir internal management structures and operational capabilities leave much to be desired. All the enterprises suffer from a lack of corporate direction and management and a drain of skilled manpower due to staff emigaion. These problems are compounded by a severe shortage of funds necessary to finance repairs, replace essental infratructure damaged in the cirvil conflict and address even the most basic maintenance needs. Energy Pricing 9.12 Most energy prices in Tajikistan continue to be highly subsidized. Certain prices have effectively been liberalized, however, and most oil products are freely imported. Coal has only Ilnited 134 Chapter 9 price controls, with most local production freely marketed and Table 9.3: Eaer Pis (Octobr, 13 imports (which largely ceased in Pncc Waedd of 1993) also liberalized. It is not clear (Rb.) price Word to what exten reduced state control (Ebl.) Pric over oil and coal prices stemmed on from delierat Goernment policy, Proucer Price (too) 30,190 343,200 Lg as opposed to the difficulty of Gasorie (liter) 1,000 936 106l controlling fuel marke.ts In any case, Diesd e) 1.000 037 119.4 FucIOil(Ctnn) m esimated prices for oil products in Tajikistan reflect the internional Natural Gas pricing policies adopted by the FSU Producer Pric (man) 5,000 249,600 2.0 IndifAgr. (mcan) SOXO countries that supply Tajistan. Ho .(wcm) 20,000 These prices are close to international levels. In contrast, coal prices are LJf only some 50 percent of inaenadonal Cylids (kg) 75 46S 16-D levels, which nonetheless rprese a substantal reduction in implicit C£1 subsidies provided under the Soviet An users (ton) 65,000 124,300 52.1 s ystem. Enectdw Indusy (kwh) 5.33-7.00 93.60 5.7-7.5 9.13 In the case of naural Agcltr (Owh) 2.90 3.1 HwXolts Wh) 1.00 1.1 gas, LPG and power prices remain Houeholds (kw)1 state controlled and are substantially e Lachag Rat: R3.12WUSS1 below economic levels. For example, prices for gas to industry and heat 50b andLu. and power plants were only about 30 percent of the import parity for tlzbekistan gas in October 1993, while household prices were about 10 percent of this level LPG prices, which are an important item in household fuel costs, are only a fraction of international bulk costs, with no conibution for the large fixed and operating costs involved in LPG cylinder distribution. It is difficult to estimate the long run marginal economic cost of power in Tajikistan. given the uncertainties over future supply sources and costs. However, Uzbekistan's internal prices are also well below the price at which electricity is taded in Central Asia, including the price at which Tajikistan imports clectricity from Uzbekistn (US$0.03/kwh). 9-14 The prices Tajiknaft receives for oil and gas production remain very low compared to both world prices and those in most other FSU oil producing countries. These price levels do not cover the cost of Tajiknaft's continuing operations or support new exploration and production. In general. Tajikistans energy pricing gives highly distorted signals to producers and consumers. It also places a significant subsidy burden on the Government's budget. To address these problems, there should be energy price reform in Tajikistan, based on two major principles: First, since the country is highly dependcnt on oiL gas and coal imports, domestic price targets should be based on international import costs. Second, prices should be carefully ret to reflect the full long run marginal economic costs of hydro-electric supply, as well as the opportunity costs of power traded in the region. Energy 135 9.15 Tramnsition to economic pricing levels will impose a large economic burden TAble9: [mpsi of 0i Wt Tfs r. Toas) on the population, as well as on certain 1985 1990 192 energy intensive industries. These shocks should be mitigated by phasing price increases Pdrelcum Coke 270 210 na for certain key products (e.g., domestic Fed oil 774 651 162 Diesel 614 705 204 naural gas and LPG), as well as by direct Gasoline 761 726 228 finaial transfers as part of the social safeyt Kemsine 145 1S1 na net. Apprpriate economic signals from the O°hUt 82 104 69 price mehanism, together with the results of *NM= gd udcz LPG. energy conversion and infrastructure investments, will eventually lead to a more Soor: Stafis Conmiln. rational patten of energy use within the county. This will include a measue of interfuel substitution (e.g., replacing LPG cooking with electric cooin in certain cases) and improved efficiency of energy use. Subsector Structures and Issues Oil Products 9.16 Nafirsn which is responsible for oll product distribution in Tajikistan, has four main divisions, corresponding to its major depots in the North and South of the country. These divisions have a significant degree of independence. The company has 160,000 tons of product storage capacity (mainly for gasoline, diesel and fuel oil). All products arive by rail through Uzbekistan and ae internally tansported, mainly by road tankers. Naftresan also opertes the retail gasoline and diesel stations in the country. 9.17 While Naftresan controls the distriution inastr re, in 1993 (when petroleum product imports were hberalized) its share of product imports was only around 50 percent. Local government entities, and state and private enterprises and traders import significant amounts of petroleum products. Unfortunately, these imports have not been properly recorded over the past two years and there are thus no comprehensive statistics for fuel imports. Recent moves to require registration of all imports may improve this simion. 9.18 Most of Tajikistan's oil product requirements are for transport fuels, gasoline and diesel. There is also significant demand for fuel oil to complement the use of gas inl dual-fired heat and power boilers. In 1990 (the last year forwhich reliable statistics are available), imports of oil products totalled 2.6 million tons (excluding LPG). Inports showed little growth between 1985 and 1990, due to the slow down of economic activity in the late 1980's and the resulting drop in fuel use. In addition to gasoline, diesel and fuel oil, Tajildstan imported significant quantities of petroleum coke (for aluminum smelting) and jet kerosene. These imports came in about equal proportion (25 percent each) from Uzbelistan, Turkmenistan, Kazakhstan and Russia 9.19 Official statistics show about a 75 percent decline in oil imports between 1990 and 1992. However, while there was doubtless a large fall in demand due to the economic decline and the civil 136 Chapter 9 conflict, a large proportion of imports by agencies odter than Naftresan were not recorded during this period. W-hile still major, the actual decline in imports may have been considerably less than SO percent 9.20 The break up of the Soviet Union trading syster, difficulties with the inter-country payments systems and a lack of policy direction led to a critical fuel shortg during the second half of 1993. Naftresan was able to contract only 30 percent of estimated national requirements through inter- governmental trade and barter agreements. Although the balance of demand could theoretically have been met by other agencies under the liberzed import regime, this did not occur, partly because of difficulties with the payment systems and a shortage of funds within the economy. 9.21 The Govemment was slow to respond to the fuel shortage. Tabe 9-.: Getaon Facilites in Tajbdst(as of Janay 1,1993) No early moves were made to secure Plan ed Avaabk Actual Energy emergency imports or effctively paci capaty capacity generated allocateavaiable supplies to priority Om ) W) in I9 sectors, such as essential industry, (GWh) tasport and agriculal activities. HBd-O In the future, it is vital that the Govnment take prompt stmps to Nurek 3.000 2.330 2,146 11.541 .~~~~~~~~te .yr 1.05t O3 57 aw9 4.207 secure the minimum resources necessary to prevent economic i colapse and ensure distribudon of these resources to essential users. Yavan 120 30 43.4 193 Fuel shortge rma the most sever Dieael 27.6 22.4 17.3 87 shortterm problem facing Tajikistan's energy sector. Tajikstan imports a Tt 4395.0 3071.0 2932.0 16.708 of its oil products from surronding sou:c GWCDMta counties. Liberalizd wading should be retained to supplement an essential supply base, which the Government must continue to guarantee until the economic sitation stabilizes. Power 9.22 As indicated in para 9.5 above, the Tajik power system consists of two separate networks, the northern system and the southern system, connected only through Uzbekistan and several isolated systems in the Pamir region. The state-owned joint-stock power company, Barghi Tajik, is responsible for the electricity system throughout the Tajik territory. It also supplies heat, in the form of steam and hot water, to households and industries in the cities of Dushanbe and Yavan. As of January 1, 1993, Barghi Tajik's installed capacity was about 4,400 MW. of which 4,052 MW was hydro, 321 MW thermal, and 27 MW in diesel units (in the Pamirs). In 1992. Tajikistan generated 16.9 Terawatt-hours CTWh), while consumption was 17.7 TWh. Trade with Uzbekistan consisted of 5.6 TWh exports, and 6.4 TWh imports, giving a deficit of about 800 million kWh. The aluminum smelter accounts for about 40 percent of total consumption (8 Twh), and has a major effect on system operation. 9.23 High voltage transmission is provided through an extensive network of 226 km of 500 kilovolt OMV) lines; 4,042 km of 220 kV and 110 kV lines, 23,550 km of 35, 10, and 6 kV lines; and 25.821 km of low voltage (0.4 kV) lines all over the Tajik territory. Total installed transformer capacity Energy 137 is 12,466 MVA in 10,085 substations. The Tajik power system is part of the regional system of Centrl Asia and South Kazakhstan. which is connected at 500 kV and coordinated by a dispatching center in Tashkent. Tajikistan's system is instrumal in providing peak capacity hydro and spinning reserve to regulate frequency for the regional systemn The system also regulates water flow for irrigation use in downstream countries. 9.24 After the collapse of the Soviet Union, Tajikistan was left with the large, uncompleted Rogun and Sangtudin hydroelectric projecs, which were started in the mid-1980s. Since funding from Moscow was cut off (see Box 9.1) construction progress has been slow. Although Rogun is a nmltipurpose project that provides irrigation benefits for downstream countries, only Tajikistan is funding the project. The World Bank recommends that construction on all this project should be deferred, pending completion of a least-cost analysis and arrangement of financing. 9.25 The breakdown of the payment system within the FSU has made it difficult for Barghi Tajik to obtain fuel and spare parts to operate the power system. The problem has been exacerbated by a cash flow crisis caused by rising accounts receivable, increasing theft, and tarifs that do not cover the cost of imports. Further, since 1991 more than 2.000 of the original staff of 9,000 have left Bargbi Tajik, most of whom were highly skilled. Shortage of skilled staff, combined with a lack of spare parts, is the main cause of equipment unavailability. Out of 4,400 MW installed capacity, only 3,071 MW were available in 1992. Losses in the transmission and distribution networks, due mainly to overloaded components in the distnbution systm, are also high by western standards. While the quality of the power supply is crrently satisfactory because of adequate reserve capacity, this may not be the case in the future as more electricity is substituted for imported fossil fuels. 9.26 The power sector's problems have been compounded by the destruction of assets by the civil war and recent floods. Most parts of the system in the south of the country were damaged, including the Dushanbe thermal station and the Rogun and Sangtudin construction sites. Large parts of the transmission and distribution system, hicluding many substations and several hundred km of medium and low voltage lines, were destroyed. Barghi Tajik also suffered damage to its support equipment - including communications systems (radios, etc) and transport (trucks and vehicles) - due to looting or other damage arising out of the civil conflict 9.27 Most of the time, Barghi Tajik has managed to restore supply on a temporary basis. Howeer, implemetation of these temporary measures has been hampered by the lack of basic equipment and tools, and more recently by shortages of diesel and gasoline. Barghi Tajik will also have to train newly recruited staff to partially compensate for the huge loss of skilled staff. 138 Chapter 9 Box 9.1t TajiRlai Enag 1. Tajildtah cU dowedwitabuadanawe mnfowingfromthe 'laSheand Pa^uirmomiwihpebov7.000.. Rve maonr ive (Pnj. Vtbls, Am Dya, Zutadns ad Kalrga* flow l ate southr pan of he ecuay. One major river, the Syr Deys flows it theoarr pent. selngestriver,Pthe a 1g, 1. 921k log adflw slang te hardrwiAfghIa ThbrgeitthVtb, 52Sbklong ad wmapus entonly the la ivet InCents! Asia, betwyrivetluteFlU, sm theVog.lnisandAng U. Inits uptream Ucowe near th TaLus pa In the esme pa of Alaaya Vaey, the Vakb ei vas the Xyzylnu river a fodws sua Zade of 3.600 aL 2. Hydroacnr iatemnoshpoamtlgenoia c gy m mcuTe hsT*aL TJt 'ashydiolceulc potnitlbs bout32,000 MW and300biInW.ofwhich 19,00 Waid144 bIl W wtar coredcmd kafyfeail. Explo o of bb npoTn m rsce hdbeen high prIoritn lhue FSU snce early 1960's. whe conauctom began ask sveral dam oute lwe Vaksl rive Inclding ibe Nurdc dam The frst 300 MW unik ws commIso at the Nurct dmn In 1972; dte 9h uIt, hi 1979. In 1986. the usio were redcgned and tbhir s capi uppaded rmu 300 to 335 MW. ln spit ofIts b peabl she (10.5 bMint m3). the l4urek eetoir dos totprovle dequ lw rgula, incscapcty only about baVOannulb inlw. To prvide mul-r d sasonl stge for Igadon de_m in Uzbe gT, Tu enistanid aldut, lw d lu ibe erwly 19W. to cossua e edven bigcr Rog dun upsem of the Nurk ste. Deelooment of due Vkldh river - Nurek mnd Rogmn dams 3. lThe Nurkthdr-pl(3.100 MW) isth rge power deeopment ICc Asia ls puteaf*ade orbydupl caarus edo tbch Vakir.e oinlud sBaipz (600 MW). Goona (210 MW) and Ppadnyat29.6 MW) which were ready inoperti C_ttim ofdthydro.plasaRngo(3.6DDMW).Suuuuu-k(67011W),fidSagmdbsk-2(2202MW) we reduderteFU.butalowed atrthecollpse of he FSU dsc to sek of Mi d mss remlt non of thse projec a tbeen completd. 4. The Vkh rivcris fuetby thconfene fthcSubasAd Oblin-gotrivend dhges into uAnuDatys. The eauetres 6s30.700ka stud thcaveaemoffmete Hurtsite s2S b mn3. The of te Ntedun hmsa o canyon 300 mdeep wh a cbel wkidh oabout40 u e cnyombo and ades acoposedofhard seuteneayrock, ione dnddsc. Quetuay depositofpebble b adrift beds se 2er th. Mmhe dause is laced In so cartquake-prone mon, wit an expected mnitude of 1 on the Rtr scale. S. Mlm Nurek dam as aroet dmn wh a caal eath cown faunded an atue concrete addic. Wihs e ight of 300 m *d a teut volume *5f5 iionnm3. itlfate wodd's lrgman.nu _roetihl A groutacwvayungindeph fmm4to 130 m.Ubenaugcedithebesvliy jointd rock of fte dan foundado. lbe power nouceae deic iow nsm ie of ibe dam h cquipped wit nne bveticalat Frncs aubbm of 335 MW ch, mid nine gecotse of 390 MVA capacity. Thc pbls connct to the rcgionl grid at 00 kV and 220 kV. 6. Thc ain dciactriucs of the NH k hydro plnt arc Instuld capity (9 unI): 3,000 MW Avaeagc 1us euagy 11.2 billion kWh Maximun heat 275 m Aveg obseoved flowu 645 ni/a M eaxiumm flow: 3,730 uels Mirn fow: 120 st/a AvaW sedirnm crover 1ag millionl rmmyea 7. lTe Roten dm I lboctdb70 km upsucar Nream. 1a whlt h Roge dun bcampeted, it would huldhc rcd for th worlds highcatmcandmckro dmatn33S me nd have ac* rervirwit a cpacityofl3.Sbiinn3. TI powerhouse idigued for3.600 MW (6sW of 600DMW). CstructionofteCRogun dam snted in 1P9M sai schedulCd forcoftion i 1997-402. Howevcr, progre ha bee slow became Tajtibtan cotId not finance thi u projean Its own. F_nbtenrc in May 1993 flOOd wan overtop dt coffeCr dan ad wiped otA moat of the two milion m3 of rockfill alredy In place. destroying wuch of the S. The main characterits of thc Rogue dun arm given belw: stalled cWacitr 3.600 MW AvageC amnrl Cenry 13.3 bilLion kWh MaX_an head: 320 m Probabk MaiXmum flow (10.000 year. 5.710 ml/s VolutD of irockfil fort in1 71.1 million not 9. Becuw ofris sizc and coL tbc Rogun dam could bCjus;riued only by irrigation bcnefits (provided by theAe Drya river) and pewCrcxpoutL The cnoue justiCU cadnad its finaning source should be established after. st of its econonic benefis a a muli purpose power plnt ad ue of posble power export for te region. Einrgy 139 Natural Gas and LPG 9.28 Tajikistan imports about 95 percent of its natural gas requiranents from Uzbekistan. All imported gas originates at Uzbckistan's large Mubarak processing plant, which serves the giant Shurtan gas field. Imports to the North .nd South of Tajikistan are delivered separately through different branches of the main Uzbek pipeline. There is no national Tajik gas grid. Imported gas is transported to all major towns in Tajikistan, with the exception of Kulyab, which is served by associated gas from a local oil field. Although most major industries in Tajikistan, as well as the heat and power boilers, have dual firing capacity, they rely mainly on naural gas for fuel. Sixty-seven percent of total natural gas use (1.83 bcm in 1990) was used in power and heat; 17 percent in industry; and 16 percent in local distribution. As in the rest of the FSU, only larger power/heat and industrial users are metered. Lack of meters for most commercial/municipal and all residential users constrains measures to reduce cost and promote efficient gas use. A meter installation program is a clear priority. 9.29 Despite substantial gas use in industry and heat and power, only about tO to 15 percent of households receive natural gas, compared with up to 80 percent in other Republics. This reflects Tajikistanes remoteness from the main Soviet gas system and the overwhelmingly rural character of the population. Distribution of natural gas to rural areas is usually uneconomical, most households rely on LPG for cooldng. Of 670,000 households using gas, only 190,000 (28 percent) use natural gas, with the remainder (i.e. 72 percent) dependent on LPG. Being concentrated in the rural areas, LPG users tend to represent the less well-off segments of the population. For rural households, LPG generally represents the best opikdn for cooking fuel. Households in urban areas generally rely on natral gas for cooking. There are, however, a significant number of 'collecfive' LPG users in the towns, and in apartment blocks and compleces. 9.30 Distribution of both LPG and natural gas in Tajikistan is carried out by Tajikgas, the state gas utility. All LPG supplies are imported, mostly from Russia. In 1990, imports reached 104,000 tons, having risen by 6 percent per year in the previous 20 years. In 1992, imports fell to 69,000 tons due to the civil conflict and the breakdown of inter-republican trade. Imports in 1993 were even lower due to the shortage of finance in Tajikdstan and problems with inter-republican payments. There were almost no imports between August and October 1993. In the absence of LPG, many households have been using electric hot-plates for cookig. In rural areas, firewood is also used. The substitution of electricity for LPG in cooking would strain the power system, since the peak nature of the usage would require investment to reinforce transmission and distribution networks. Costly replacement of consumer equipment would also create difficulties. In the long run, however, construction of additional high cost peak generation capacity may be required. It should be noted that the use of firewood is generally detrimental to the environment, and is not desirable in the long run as it contributes to deforestation which leads to erosion and loss of biodiversity. 9.31 Alter oil products, natural gas is Tajikistan7s most costly energy import. Total gas imports were 1.9 ban in 1992, and were scheduled to reach around 1.5 bcm in 1993. The price Tajikistan pays Uzbekistan is based on the gas price set by Turkmenistan, which is the main Central Asian exporter and producer of naural gas. In 1993, Turkmenistan announced that it intented to move prices to a 'world level' of USS80/mcm. During 1993, Tajikistan was able to purchase gas at a transitional" price of 60 percent of the 'world" price, i.e. $48/mriL However, even at this price, Tajikistan built up substantial arrears with Uzbekistan, which resulted in curtailed gas supplies during the latter part of 1993. 140 Chapter 9 Table 9i. E.u SuplD-maf and TnWle Oudook 1990 1993 1995 1995 toductaion Oil (T.tonu) 143 42 75 100 Ga (am) ILI 49 80 100 Coal (LTons) 475 927 300 400 Elect. (mkwbh) 15,146 17,741 16.000 16,000 01 c(Ion.) 2,613 439 1,11S 1,815 Gu (mar) 1,729 1.374 1250 1,250 Coa (ltows) 927 33 300 800 Eledr. (mkwb) 6,906 5,4210 6,400 Oil (.w,t.) 141 41 75 100 Gas (man) 0 0 0 0 Coal (Itons) 230 80 150 200 Elatr. (mkwh) 5,663 6,387 6,400 6,400 Auarent Use Oail (T.rns) 2,425 9.99 1,115 1,815 Gas (mmn) I.U4 1,350 1,330 !.50 Coal (tIons) 1,1845 190 950 1,' A) Elecr. (mkwh) 19381 16,6561 16.000 16,000 Net Tradc (USS Million) Oil -371 -162 -240 -300 Gas -138 -120 -110 -120 coal -22 0 -20 -18 HIcar. -43 -25 0 -2S Total -535 -307 -370 -463 Somre. Wodd Dank csimatss. 9.32 Afghanistan offers an altemative potential source of natural gas for Tajikistan. A pipeline constructed during the period of close economic relations between the Soviet Union and Afghanista links large gas fields in Northeem Afghanistan to the Uzbek pipeline that serves Tajikistan. In 1988, Afghanistan sold 1.6 bcm of gas to the Soviet Union. Afghani supplies were halted in 1990 due to the break up of the Soviet Union and the civil war in Afghanistan. Coal 9.33 Tajikin has significant coal resources. Most coal production is concentrated in the North, where soft brown cDal is produced at the Shurab minte In the center. South and East of the country, smaller mines produce higher quality hard coal. Shurab's production has been falling due to depletion of shallow reserves, while production generally has been held back by lack of financing, the difficulty of developing reserv in remote mountain locations, and the effects of the civil conflict. In 1990, total production was 475,000 tons, but dropped in 1992 to only 214.000 tons. Tajikistan trades various grades of coal with its neighbors to meet a supply deficit and to balance regional output (see Table 9.6). Net imports in 1990 were 550,000 tons. In Tajikistan, coal is mostly used for space heating Eney 141 by households and municipalcommunal entities and is therefore a vital commodity for a large part of the population, especially in rural areas. In 1993, coal imports fell sharply, leading to shortages and to the use of electricity for heating. 9.34 Tajikistan's two largest mincs, Shurab and Faniagnob, report directly to the Ministry of Heavy Industry. About ten small open pit mines operat independently with mixed publiclpivat investor participation. TajiklAngisht. a commercial organization with mixed pubLiclprivate participation, has been set up by the Goverment as a coordinating agency for the smaLer mines. The smaller mines play an important role in meetg the energy demands of their surrounding populations, especially in the isolated mountain regions of the south and easL Further development of such mines would be possible by expanding existing mines and developing new fields. 9.35 Two of Tajikistans coal mines have significant potential, but have not been fully developed due to their remoteness and lack of finance. The Faniagnob field, located in the mountains about 50 km north of Dushanbe, has over 400 millon tons of resrves and the potenial to produce several hundred thowand tons of coal. However, it is currendy producing less than 50,000 tons for the local area The main problem is transport links fom th mine, since ther are no usable road or rail finks in the area. The Nazarailok field in the Garm region inl the Nortwestern Pmrs is one of the largest deposits of very hign quality anthracite in the world, with reserves of about 300 million tons. Although the mine lies some 70 km from the nearest main road, tranwsportation links could in principle be developed. The anthracite could be used both for thermal purposes and as a high qualit source of carbon (e.g. for electrodes). Development of this mine has boen held back by politcal unrest in the region as well as lack of finance. 9.36 TaJikistan probably has sufficicnt coal resouces to become self-sufficient in this fueeL However, the remoteness of its mines means that development and transport costs will tend to be high. A careful economic evaluation of coal supply options will be required, including an analysis of competitiveness of locally mined coal compared to imports, and of coal use compared to other fuel (LPG, natral gas, oil products, etc.). Oil and Gas Production 9.37 Tajikistan is part of two oil and gas provinces - the Fergana Basin and Tae 9.7: OD, Ga ad Cod rsdncdm the Afghan-Tajik Depression. Since tie 197S Iz 19mo :s990 1992 1960s, a munber of reladvely small oil and gas fields have been activated. Oil Oil Cr.Tau) 274 391 357 144 61 production peaked in 1979 at arowud Gs (==) 419 222 303 111 72 420,000 tons, while gas productioa reached Coal (rT) 375 U32 516 475 214 its annual maximum of about 300 million Ser Suatc Camun cubic mets (mcm) in 1982. As noted in para 9.9, oil and gas exploration and production activities are carried out by "Tajijkaft", a state enteprise under the Minisay of Industry. Proven recoverable reserves are estimated at 4.2 million tons of oil and 5.5 bcm of gas. Most crude oil is exported for refining in Uzbekistan, although previously a small amount was processed into bimen in Southern Tajikstan. 142 Chapter 9 9.38 In 1985. oil amd gas production started a rapid decline; since 1987, production has practically collapsed. Output fll from the 1985 level of 387,000 tons of oil and 268 mmcm of gas to 61,000 tons and 72 mmcm, respectively, in 1992, accountng for only around 5 percent of Tajikistan's requirements. This drop is due to the combined effect of: (J) the natural production decline of mature fields; (ii) a dramatc drop in investment since 1986; (iii likely damage to reservoirs due to poor reservoir management; (iv) frequent interruptions of operations as a result of political instability in the southern regions and associated weakening of technical and labor discipline; and, (v) the dismantling of the established system of eqaipment procurement during the last years of the Soviet Union's existence and after its breakup. 9.39 The civil conflict of 1992-1993 caused fiuther production losses, destroyed facilities, and damaged equipment Production on the Beshtentyak Field, the largest producing field in the Republic (2,600 tons of oil and 17 mmcm of gas in 1991) fell sharply as operations halted and equipment and materials were looted. A similar impact was felt by the Kichikbel and Akbashadyr fields, located in a border region where intensive fighting took place. Heavy crude produced there was used as fedstock for a bitumen plant of regional importance. The extensive damage to this industry put an additional burden on the country's economy by increasing oil and gas import requirements. 9.40 The geological features that give rise to Tajildstan's present oil and gas output have been relatvely well explored, and probably have limited remaining potential. However deeper and more complex deposits in several parts of the country are believed to have significant potential. In the north, discoveries in the deep horizons of Uzbekistanis Fegana basin Cm particula, the large Mingbulak oil discovery) suggest that similar potential may exist in the same geological formation in Tajikistan. In the southwest, there is believed to be considerable gas and liquids potential in deeper horizons, although this has not yet been tested by drilling. If either of these geological formations fulfills its hypothetical potential, it wuld eliminate Tajiikistan's oil and gas deficiL The key issue for Tajikistan is to atract interest and financing from foreign petroleum companies to undertake the necessary exploration work This will require greater political stability, as well as a legal, contractual and fiscal framework that is acceptable to the international oil industry. Outlook for the Energy Sector 9.41 The outlook for Tajikistan's energy sector while dependent upon economic and political stabilization, is also closely linked to the increased cost of energy imports as prices rise to world levels. Price rises began to have an impact during 1993. Given the current structure of production and demand, Tajikistan will experience a large systemic energy deficit, which can only be changed in the long run through development of substantial additional domestc fuel production. Such production, however, must be cost competitive with imports if it is to provide the country with real economic benefits. 9.42 Energy demand has been greatly depressed by the economic collapse and the civil conflict. Statistics suggest that total energy demand fell by around 36 percent between 1990 and 1992. In practice, because the decElne in oil imports is probably not as great as suggested by the official statistics, the actual decline may have been in the range 25 to 30 percent. Future energy demand is likely to reflect the overall trend in economic activity. Oil demand is likely to recover, though transport fuel demand is not expected to exceed 1990 levels before 1998. This is due to projected improvements in vehicle efficiency as the old vehicle stock is replaced, to the response to higher prices, and to the delay in reaching previous levels of economic activity. Fuel oil demand is unlikely to ever reach previous levels, since it is unlikely to be competitive with gas supplies at international price levels. Demand for Energy 143 natural gas is also likely to remain below the 1990 level, due to a likely decline in use in energy intensive industries as prices rise to economic levels, as well as to the general response to higher prices among other industrial, commercial and residential users. Dox 93 Tecna Asistac k the Eergy Sector Thc objeciv of tehnicl assistan progrm in the cmpg sector should be to: * SAsss the curma condition. of the Dushanbe Combined eat and Power Sytem, in ims of the generating pla and .th. disinbeo sytem role of the plant in theoveral power supply system duM be cosidered. Loses of a hot twfiom the pipduicsyte will bsseused, as wil optoa for the s s fitue, dudiginvCsmn tsD t bat power efficincy (e.g. conversion to mbined cycle opeation) and heat efficiency (g. imprvemts in pipr o The long tes compedivens of hea ve epaded usc of ndtr gS ad a ldccity f space .a wafter beat usat also be examined. o FEstabLih a sml cnrg cliciccy cnter in Tajiksn to introd energ OUnAnes to mods of improving eergyr effidency. Tbe progr wi lld a number of eer eRiccy nacqS of industies and pbc sewtr institions (e.g. scolbbhospilsc.). todemnstaehowtoewnomizeon ag. Conrseslbrmagesof enerysentepreand intitWins willIbeoranied. Publiciy mateiasoa nac ' nvhaforthegeneralpublc wilbe prepared and'distributed. * taacOrgniztrning cane tsff fom ene sctonterisesiaapctsof caws operatins in.market-basal eavironmet, indtdili basic ap eomics =ew ricgng prcil, prjectvauat teiques, g m t anlysis, mntoalew madets. corpote p inmg enegy cmpanim and finDa aspects of eaegy MPmpan Operations. * Assescurrent daa fm the st oicopanyand reted sonrcesoTarlistan prlmi. be inepreted acordin to intrmions stnads, ad infoemain pacags for fore wmpanieswl b - pe Elish Seminas to attrainduty inrest will be developed. A lepl and coana frameoktfor foreign investmeti in oil and gs exploration and production will be ppard nd pmesed to the Govenmen hr conidwem and apprIoVal Local staff wil be tained in intraional pracices is exploration daft presention and commerci agremnts. 9.43 The outlook for electricity demand depends critically upon the future of the large aluminum smelter, which accounts for 40 percent of demand. Demand in other industries or from the population at large is unlikely to recover to previous peaks in the medium term, due to the combined effects of higher prices and the failure of economic actvity to revive to its former levels. The Govermnent will decide on the future of the aluminun sector by the end of 1994. If a partner is not found to assist the Government in the restructring plan, the unit should be closed down Assuming that the aluminum smelter continues to operate at around 60 percent of capacity (as in 1993), power demand is unlikely to rise above the 1992 level before 1998. Demand for LPG and coal, which is largely determined by the basic cooking and heating needs of non-urban households, is likely to recover to close to its former level, though some reduction in demand in response to higher prices can be expected. 9.44 Domestic production of erergy is unlikely to recover substantially within the next five years. It should be possible to partially revive oil and gas production in existing fields by rehabilitating and replacing damaged equipment, and by improving recovery mechanisms in new wells. However, Tajikistan's existing oil fields are mature, and declines in the production of natural gas will prevent a substantial increase in total production. Natural gas production could be sustained by developing the Khodzha-Sartis gas field near Kulyab. Coal output is also unlikely to increase in the medium term, since the decline of production in the mature Shurab field can at best be arrested, while development of major 144 Chapter 9 new mmes will take may years of preparaion and investment. Electicity output is likely to stay at 1993 levels, since none of the new hydro schemes is likely to be completed beforc 1998 and output from thermal stations may well be reduced as the cost of gas and fuel oil rises. 9.45 As oil and gas demand recover from the depressed level of the early 1990's, thc ost of energy imports is likely to incee. At international prices, the cost of oil imports would be around US$280 million in the mid-1990's, while natural gas imports would cost around US$100 million. Some offset is likely to come from eliminatng the deficit on electricity trade, due to an expected lower level of domestic demand and a slihtly lower net cost with raspect to coal imports. Nonetheless, the outlook is for an overall energy trade deficit of around US$400 million per year from 1994 to 1998. This will place a very large burden on the economy as the country seeks to recover from the setbacks of the last few years. Key Issues and Recommendations 9.46 Improvig energy efficiency and ensuring the econonic use and exploitation of all resorces wilL be essential pars of the economic recovery process in Tajikistan. A number of key energy policy issues must be addressed in the context of economic reform and the move towards a market conomy. Key short term energy issues are described below. 9.47 Ensuring adequate imported fuel supplies, particularly oil products and natral gas, is essental if further economic damage is to be averted. While in principle the liberalization of oil imports is a move in the right direction, state and private enterprises cdearly do not have the means to import all their requirments in fte short tm, nor is there any guarantee that supplies will be available to critical economic sectors at critical times. The Goverment must develop a coherent stratey for ensuring adequate imports of oil during a trsitional period (which will last at least until 1995) using Naftresan as its agent to carry out this policy. The strategy should ensure that key sectors, srch as agriculure and essential industries and services, are not firther disrupted through fuei shortages. It is important, howev, that Naftresan's actvities be made more transparent so as to allow full oversight of this key economic activity. 9.48 To ensure that energy use is as efficient as possible, a rapid transition to economic pricing of energy should be planned. Substantal progress has been made: prices of tansport fuels and oil and gas for industry are alrady dose to economic levels. However, prices for electricity and fuels to households will also have to be raised. While it may not be practical to ask households to pay the full economic cost of fuels immediately, prices should be raised substantially and some compensation through the social safety net mechanism should be considered. Where subsidies persist, it is important tiat they be made explicit in the government's budget, and not be carried by enterprises as losses or funded through ad-hoc credits to energy enterrs. A study of energy pricing to determine target levels of ecomic pricing for the various fuels is recommended. 9.49 With respect to oil and gas production, it is important that the sector be able to continue to maintain and improve its current modest fields. At present, Tajikmaft is close to collapse in terms of its infrastructur and manpower base, and urgently requires additional funding and staffing. 9.50 The energy sector's institutional framework must evolve fiuther in order to better develop and implement energy policy and strengthen energy enterprises. At the government level. responsibiity for energy policy and aversight of energy enterprises should be centralized within a single Ministry or Energy 145 Deparment. This entity need not be large, but should be staffed by an adequate number of high quality personnel, reflecting the sector's importance to the economy. 9.51 In die medium-term, once the fuel supply situadon has been stabilized, the policy focus should be on strategic investment planning and restructuring. An assessment of fuel use priorities will be important A key consideration will be the best use of Tajikdstan's large installed hydro-power base. At present, about 40 percent of output goes to the alumumm smelter. As part of a review of both the energy situation and the smelter's future, it will be important to take full account of the economic cost of this enterprise's large use of fuel. Reduced demand from the smelter could allow greater use of electricity in domestic heating and cooking, for example, which would save high cost imports of LPG and natural gas. It also is possible that power saved by reducing the aluminum smelter's use could be exported to neighboring countries to help offset the costs of oil and gas imports. The Govremment should decide on the future of this unit by 1994 and if a strategic partner can not be found to assist the Govermment in the restrucring, the unit should be closed down. A review of the price Tajikistan receives for the electricity it exports will be important, though this will have to take into account Tajilkstan's role in regional power trade and balancing. 9.52 The future development of Tajikistan's large hydro potential is a key issue. In view of the high costs involved in constructing the Rogun and Sangtudin projects, and given the uncertainty of demand from both domestic and export markets, it is recommended that further work on these projects await the outcome of the following special studies: (i) an analysis of the export demand for power fom the Rogun project (from such countries as Pakistan, Afghanistan and other Central Asian countries); (ii) development of a least cost power expansion plan for Tajikistan, using input from the regional demand analysis. It also will be important to analyze the role of Rogan and the other projects i-r regional water management for irrigation. Since the Rogun project in particular will serve the electricitv and water needs of other countries in the region, it is recommended that these countries participatc tn financing this projecL Envirommental and social impact of the construction of these projects should be evaluated before fiuther work on these projecs. 9.53 In the coal sub-sector, there is a need to assess investment neods. Tajikitan's coal resources could probably make a significant contribution to reducing fuel import costs, but various projecs need to be ranked according to their economic attractiveness, which will require a detailed technical and economical analysis of all actual and potential min. 9.54 Once Tajiknaft's situation has been stabilized, attention should turn to attacting intrational investors to explore promising new geological formations in the country. For this purpose, it is important that an exploration promotion program be developed, along with a legal and contractual framework that will attract foreign investment. Increased political stability will probably be required before foreign oil companies make a significant commitment to the country. 9.55 As the economy moves towards a market oriented one, the vranous energy enteprises will have to continue to restructure. This will involve spinning off and privatizing many non-core activities, as well as progressive corporatization and comnmercialization of enterprises and their various subsidiaries. Early privatization of specific areas of activity, particularly of retail distribution (gasoline/diesel stations, LPG distribution, and coal sales), should be considered. A comprehensive program of staff training in all enterprises should be a priority to compensate for the large loss of skilled manpower in recent years. CHAFrER 10 INFRASTRUCTURE Transport Sector 10.1 Tajikistan's transport system is relatively well developed for its level of income. However, there are serious issues in the transport sector. First, the needs for rehabilitation and replacement of assets are large. Second, tranwsport demand is likely to change substantially in the near future, which will require a deep restructuring of the sector if it is to meet new demands efficiently. Third, considerable ineficiencies in the sector presendy result from inadequate incetives and reguations, as well as problems in sector organization. Addressing these issues will require Govenment action in the following areas: (i) improving the incentive structre for transport operations and for the provision Of itructure; (ii) developing institutions involved in the sector and (iii) focusing public expendiures on maintenance and high priority rehabilitation or replacement of assets. After a brief presentation of the sector these key reforms are discussed below. Main Featres of the Transport Sector Transport Demand 10.2 Tajilistan's economy is unusually transport intensive. There were approximately 1.2 tons x km of freight transport for each USS of GNP in 1991, about 1.5 times more than in Eastern Europe and five times more than in Weste Europe. This is mosdy the result of low transport prices and extreme specialition of the economy, both of which are features inherited frm the FSU. However, TaJiltstmn's economy is less tasport intensive than most other FSU countries, mainly beause its umnsual geography promotes the concentration of population and economic activities ito two relatively small areas close to the borders in the north and southwest of the country, with a vast expanse of sparsely inhabited mountinous areas in between. In 1991, there were about 30 percent and 100 percent more freigh tansport per US dollar of GNP in Kyrgyz Republic and Uzbekistan. respectively, than in Tajikdstan. 10.3 The taic shares of the various transport modes are also quite different from those in most FSU countries. Road tansport is by far the most important mode. In 1991 within Tajikistan, it carried about 4.9 billion ton x kmn of freight and 3.6 billion passenger x kan (including urban public tansport but excluding private cars), compared to about 1.2 billion ton x km and 120 million passenger x kn for the railway.' Considering the per capita income, ai transport of passengers (mostly to and from other parts of the FSU) was extremely imporant with about 4.9 billion passen x kmn in 1991 (including the interno trip comqponent). 10.4 Transport traffic, however, has decread drastically m the past two years. Road freight and passnger tansport decreased abowu 60 percet in 1992, and a fiurer decline of 50 percent in 1993, so that traffic in 1993 would likely be only 20 percent of that in 1991. Similarly, rail freight traffic in 1993 would likely be 33 percent of that in 1991, and air passenger taffic in 1993 only 16 percent of that 1. These stistics do not inclue uafc orespoding to the small nonbern nrway line. which ian iragml pat of the Fergan branch of the Cental Asian haways. 148 Chapter 10 in 1991. Only rail passenger traffic has remained stable, but at a very low level. The decline in NMP and in external trade are the main reasons for this drastic change. The reduction in investment and construction activities that followed the decline in NMP has led, in particular, to a considerable decrease in the transport of construction materials. These effects have been compounded, especially in 1993, by the critical shortages of petroleum products and the impossibility, at times, of operating part of the transport fleet. 10.5 Even if current economic decline is arrested, in the medium to long-term, transport demand is likely to change substantially, both in total quantity and in modal shares. Total demand wil' probably remain well below the peak registered in 1989-1990 because transport prices (which are dependent on the prices of oil products and imported equipment and spare parts) are likely to increase substandially in relative terms, and because the economy will restructure, becoming less specialized and monopolistic, and based more on local resources which will make for shorter distances between suppliers and purchasers. In addition, the types of demands placed on the transport sector should be expected to change considerabiy. For example, increased local grain production will lead to substantial changes in transport demand, reducing grain import (by rail), increasing fertilizer import (by rail and truck), and creating a completely different pattern of domestic grain distribution (by truck). Another case is that of subsidized goods (especially oil products). As subsidies are removed, their consumption will decrease and the demand for transport of these goods also will decrease which is likely to result in increased demand for other goods (coal and fuelwood, for example). Changes of this nature have occurred in Eastern Europe, where the fall in transport demand has been faster than that of output and the railway, once the dominant transport mode, has lost on average about 50 percent of its traffic. In Tajildstan, the transport system will need to adapt quicldy to changes in demand. In general, a more efficient economy will require transport operators to change their operational practices. Long term plans will no longer be possible. Operators will need to be more flexible and respond rapidly to specific customer demands. Operators will also have to offer more specialized services. These changes can best be achieved by a market based transport sector. In general, and on the basis of the experience of Eastern Furope, it is likely that international and domestic road tnsport and use of containers will greatly increase. Conversely, the modal share of rail transport may be expected to decrease. Air transport is also likely to remain at much lower levels than in the past. Trsport Supply 10.6 Given its level of per capita income, Tajikistan has well developed facilities and equipment for road, rail and air transport. These do not need to be extended in the foreseeable future. However, as explained below. most of the sector's capital stock is poor quality. There are about 9,500 kn of paved roads and about 16,000 km of urban and "private" roads (servicing mostly cities, villages, state farms and industries). The road network reaches most inhabited parts of the country and is dense in the populated areas. Overall, there are about 0.2 kan of road per square kilometers and 5.3 kn per thousand people, which is about tei same as in Kyrgyz Republic and Uzbekistan and in general compares well with mnarket economies with similar per capita income. Tajikistan has somewhat fewer roads than Turkey, but many more dtan Pakistan and Indonesia. The railway network, on the other hand. is of very limited size. It includes mostly two single-track main lines totalling 418 Iam that connect Dushabe and the rich agricultural Southwest corner of Tajikistan with the south of Uzbedsan and fiurher, via Turkmenistan, with the FSU railway network. There are also two small narrow gauge rail lines, which today are rarely used. The highly trafficed rail line between Tashkent and the Fergana valley crosses the northem part of Tajildstan and serves the Rhojand area. Tajikistan's southern railway has about 47 locomotives. 1400 freight wagons and 215 passenger cars - sufficient to handle foreseeable ral tiansport Infrastructure 149 demand. Finally, air transport is also relatively well developed. The country has four main airports. The two largest, Dushanbe and Khojand, have runmways of 3,100 m and 2,600 m, respectively, and can accommodate most intemnational traffic, except large jumbo jets, under appropriate safety conditions. Tajik Airline has inherited a relatively extensive fleet of aircraft from the former Aeroflot, including 14 TU 154 (comparable in size to a B727). 10.7 The poor condition and relative inefficiency of many of Tajikistan's tansport assets is a major problem. For example, 25 percent of the paved roads are in poor condition and require reconstruction. An additional 50 percent of paved roads are only in fair condition and requi some rehabilitation. Mountain roads are cut into landslide-prone slopes and are under permanent risk of destruction during the rain and flood season. This even applies to such major highway as the worg- Kulyab, Dushanbe-Garm, and Dushanbe-Aini. The high seismicity of the region provokes rockfalls, landslides and mudflws that impact the tranportation systen. Duc to the rapid population growth and the retrn-migration to mountain areas, a network of secondary unpaved roads connecting kshlaks and rural production facilities is developing spontaneously to meet local demands. The mountain slopes undercut by networks of rural roads are subject to intensive erosion. There is absolutely no protection of slopes by engineering techniques or by afforestation, and is undermining rngeland and cropland 10.8 At international prices, ft would cost about USSS00 million to bring the entire paved road network up to satsfactory condition. About 50 percent of the trudcs of the Ministry of Road Trnsport and over 60 percent of its buses are seven or more years old and wfll soon have exceeded dtir service life. Similarly, k is estmated that about 40 percent of the locomotves and the freight cars should be retred. Most transport equipment uses tecologies dating back to the 195s and 1960s, gencrally resuldng in high fuel consumption and poor performance. In pardular, large dieel trucks, necessary for modem road tansport operations, are in very short supply. Furthermore, the equipment is used with varying degrees of efficiency. Railway operaions, for example, appar to bave been performed satisfactorily when transport demand was high. The use of trucks and buses, on the other hand, was poor. Tucks and buses covered only about 38,000 lam and 48,O0 kIn, respectively, per year, due to te predice of short hauls and the reduced munbers of hours worked per day. In many parts of the world, a truck fleet is used more than twice as much as in Tajikistan. General Sector Ornzation 10.9 Seeral large, relativelyautonomous publicorganitions haveoperational responsibilities for the various transport modes and for public roads. Road fight and inter city passenger tamsport services are the responsibility of the Ministry of Road Transport (MORT). However, other ministries, agencies and enterprises also have vast truck and bus fleets to satisfy most of their own tansport needs. Air transport services (domestic and intemational) and airports, as well as air transport reguations, are the reponsibility of Tajik Airline, an offspring of the former Soviet Aeroflot. Railway services are the responsibility of the Central Asian Railways (CAR), one of thirty-two autonomous units of the former Soviet Railway. The CAR is a traunlational entrprise based in Tashkent that serves Uzbekistan, Kyrgyz Republic, Kmakhstan and Tajilstan The General Director of the CAR reports to the Councils of Ministrs of all four countries, although his reporting reationship to the Uzbek Council is apparently more authoritaive than his relationship to the otler three. One of CAR's branches, which controls the railway in the south of Tajidstan, is based in Dushanbe. Finally, the administration of the public inter- urban road network and the carrying out of all road maintenance and constuction activities are the responsibility of the Ministry of Highways (MOH). Municipalities are responsible for city streets and 150 Chapter 10 urban public transport in the main cities. Some other organizations play roles in the sector, such as road safety (the police) and environmental controls (the Ministry of Environment). 10.10 General coordination of these organizations, ws well as formulation and follow up of Government policies, is the responsibility of the Department of Transport and Communal Services (DTCS) of the Council of Ministers. Unfortunately, though DTCS has obvious authority over the operating organizations, it is understaffed and its scope of activities includes much more than the tranport sector. In addition. the operating organizations report to different Deputy Prime Ministers (threc in total) all of whom have transport as only a minor part of their responsibilities. As a result, it is almost impossible for the Government to have a well coordinated sector strategy. Inteational Transport 10.11 Its landlocked and remote location is a major problem for Tajilistan, especially because its economy is integrated with that of the FSU and foreign trade is crucial for its economic recovery. Distances to many current and potential exportlimport markets are very long (e.g., about 3,700 mn from Dushanbe to the Black Sea; 4,200 km to Moscow; and over 6,000 kan to the main populated parts of China). Thus, transport adds substantially to the cost of traded goods (about US$175, for example, to the cost of one ton of coton received in Western Europe, where its value is about USS1,100 CE:). Because all international land transport routes include transit through several countries, Tajildstan's economy is also highly dependent on the polidical situation and perfornce of the transport syems of these countries. In addition, temporary or permanent botdenecks, like those that currendy exinst at the junction between the Kazakhstan and Chinese railways, may affect the avalability of certain routes. The Government therefore is rightly concerned with international transport and should be interested in participatng in various international initiatives such as the European Community sponsored "Transport Corridor Europe Central Asia' (TRACECA) conference and study program. 10.12 Currently, however, international transport appears to be fiulfilled satisfactorily and at a reasonable cost by the existing rail (and ih a few cases, road) systems of other FSU countries. This is likely to remain the case in the short to medium term. However, FSU railways provide only a limited range and quality of services to their customers, which is likely to constrain the development of Tajikistan's exports. For exmple, exports of perishable products, such as fruits and vegetables, to FSU markets and further will be hampered by the unavailability of refrigerated containers. Lack of consistency between the custom regulations and the documentary requirements of the various transit countries could also be a major limiting factor. These issues need to be addressed in an international context, as indeed, they have begun to be. In the meantime, Tajikistan should formally adopt the main existing international agreements on road and rail tanwport. Main Issues and Recommendations Improving the Incentive Strocture 10.13 Competitive Environment. One of the transport sector's current major weaknses is the lack of competition, particularly for road transport and for executing road -works. Although there do not appear to be any regulations preventing competition, the MORT road transport enterprises do not compete among themselves, and instead share the market mostly on a territorial or product basis. This appears to be a strategic choice of MORT, based on its desire to have consistency between regional transport Infrastructure 151 capabilities and regional transport demand, and to maintain permanen tics between the transport enterprises and their clients. The road transport branches of other Ministnes (Agriculumre, in particular), which have extensive truck and, to a lesser extent, bus fleets, do not compete with the MORT enterprises. This is an unsatisfatory situation, and probably the main reason why trucks and buses are poorly used in Tajildstan (as they were even before the recent economic decline). Lack of competition could also seriously constrain developing many economic activities in the future, since road transport entprises lack incentive to reduce costs and, most importantly, to adjust the type of service provided (including speed, regularity and safety) to customers' needs. 10.14 Most of the countries that once regulated the trucking industry, including the USA, have now opened up it to competition with very successful results in terms of reduced costs and improved service quality. Many countries also have competition to provide inter-cty and city road tramsport with good results. Tajikistan should create the same competitive environment. A pro-competition policy should be made explicit. The many quasi-independent enterprises that already exist in MORT should compete freely among themselves. All regulations or practices that impede competition (such as the need for MORT to approve contracts signed by its entexprises and for MORT's monopoly freight bureau to issue licenses for freight movements and control back hauls) should be removed Instead, the Government should adopt general commerci and labor regulatons that are suitable for road feight and passenger tansport, as well as appropriate rules regulating road traffic and technical and environmental sandards for vehicles. To this end, regulations on emission standards and vehicle safety, held over from the FSU, should be reviewed and adapted for Tajikistan Regulations on vehicle weight and dimensions, which are critical to safety and avoid excessive deterioration of the road paveme, need to be introduced. The Government should also establish some simple rules regarding passenger transport to ensure proper business practices and safeguard the interest of passengers. In addition, terminal operations should be organized so as not to discrminate between enterprises.2 As shown by intenational experience, simple and weUl focussed rules and regulations are usually sufficient for an orderly and efficient development of a competitive road transport system. 10.15 Currently, there is no compettion in the execution of roadworks. Road maintenance and rehabilitation is carried out by force account brigades that bave assigned territories. Road and bridge improvement and construcdon are carried out by specialized national and regional road enterprises. This or on does not provide any incentive to reduce cost, improve quality or introduce new technologies. The World Bank's experience with its many borrowers has been that force account operations are not generally efficien, even for simple road maintenance activities. As most countries are now doing, the Government should transform its force account brigades and road enterprses into independent constmction companies and promote competition among them. To do tis, the Government would need to put in place: (i) adequate procedures for selecting the best company for each particular piece of roadwork in the budget; (ii) standard bidding and contract documents for civil works, including detailed technical specifications; and (iii) adequate quality control and contract adminis on procedures. MOH would need to be reorganized to fulfill its duties on a contract basis, and its staff, as well as the staff of the constuction companies, would need to be tained. The Russian Federation currently is beginiing to transform its road operations along these lines, which could provide a model for Tajilistan to follow. 2. For urban public canspon, the Govenunenm could also adopt procedures. such as ibe -couedive edering of bus routes, which have proven successful in otber counties. 152 Chapter 10 10.16 Plidng Policies. In practice, the price of all transport services is controlled. There appears to be great pressure to keep prices at the lowest possible level which, in most cases, does not allow for proper maintenance of assets nor take into account the depreciation on the basis of replacement cost. These pricing policies have a fundamentally negative effect on the transport sector. First, because enterprises have a minmum, or even negative cash flow, a rapid decapitalization of the transport sector is now taking place, which eventualy will create acute problems of capacity. In most ransport enterprises, in particular, there has been very little replacement of assets in the past three to four years, and, because of lack of funds, much of the damage due to the civil war has been only very partially repaired. Second, sinue sound management canot happen without financial independence and a predictable income stream, most transport enterprises have become inefficient. Third, during a period of rapid structual change in transport demand, higher profits are the best way to encourage innovation, and investment in innovation is the best possible use of existing assets. 10.17 In principle, the price of services that can be competitive should not be controlled. This policy should be introduced gradually for road freight, passenger transport and air transport. As these services become competitive, market pressure will maintain the prices at an efficient level. On the other hand, the price of monopoly services (railway, airports, and, until competition develops, aviation and urban public transport) should be controiled. Monopoly prices should be based on acmal costs (including all social costS, depreciation tied to asset replacement value, and a reasonable return on assets) and adjusted to account for expected productivity inprovements. Enterprises should be encouraged to improve iheir cost accounting systems to help establish the actual costs of specific services. The Government should make frequent price changes possible, so that enterprises are not penalized during the economic adjustenet period by the large variations that will continue to occur in the prices of ansport inputs (especially labor, fuel, and imported spare parts) in absolute, as well as relative tms. Indeed, the effects of poor cash flow on transport enterprises may be more severe in the short term than the economic distortions that may result from some transport prices being temporarily too high. The Govermnm should also ensure that when subsidies rmain (possibly for urban passenger transport), they continue to come from the budget through arrangements that are unsparent and provide an incentive for efficient management and sound investment decisions. For exanple, subsidies could be based on soundly prpared operating and capital budgets and agreed productivity gt"%s. 10.18 Road User Tzxation. A modem system of road user taxation should he introduced in Tajikistan. For the road infrastructre to be used efficiently, road users (truck and bus companies and individual car users) must be charged for the margiral costs that they impose on society (road deterioraion and environmental costs) when they use the road. Most countries use an annual vehicle registration tax and a diesel and gasoline tax for this purpose. The diesel and gasoline tax is the most efficient, because it directly relates to he extent of road use. No such taxes exist in Tajikistan; the only curremnt road tax is a tax on company tunover, which is said to generate very little revenue. Moreover, though diesel and gawline prices have increased, they do not yet fully reflect opportunity costs. This is equivalent to a negative tax and is another reason road users do not compensate society adequately for road use. A new reguladon is apparenly being prepared to revise road user taxation and introduce a road fimd. as most FSU countries have already done. This regulation should establish an annual vehicle registation tax and a fuel tax. The latter should establish a percentage (at least 30 to 40 percent) of the price of diesel fuel and gasoline. This will improve efficiency in the transport sector, and generate funds badly needed for road maintenance. 10.19 Privaization. As in other FSU countries, there are strong reasons in Tajikistan for privatization and private sector development in the tramport sector, particularly in road transport and in Infrastructure 153 the road maintenance and construction industry. First, privatization would help make the best possible use of existing assets which, given the scarcity of foreign resources, has become more essential tan ever. Indeed, to achieve efficiency in road transport and roadworks, the sector must adapt to many different market demands and special circumstances, react rapidly to change, and be highly flexible in organization and personnel. In most cases, private companies foster these chaaeristics much more an state-owned enterprises. Seccmd, as discussed above, a competitive business enviromnent, appropriate for private sector operations, could be developed relatively rapidly for road transport and roadworks. Third, these two subsectors aleady have many operational units that function quasi-independently and do not need to be linked to any association or concern; these units could be p:'atized easily. r s Government should thus give priority to privatizing the road tranwsport and roadworks subsectors. T . successful trucking privatization program in Russia (which includes auctioning off part of state-owned truck fleets to private individuals), Kazakhstan, and the East European countries, such as Hungary and Poland, could be models for privadzing their road maintenance and constuction industries. 10.20 Privaization of Tajic Airline should also be an objective - though a long-tern one. Before the airline goes private, competition and efficiency in the air transport subsector should be encouraged by minimifng regulatory constraints to the airlines of other countries and the private sector. Developing Sector Institutions 10.21 Organizaion and Pejormance of Government Fwzctions. In Tajikistan, as in other FSU countries, there is some confusion between die policy making and regulatory funcions of goverment; the provision of infrastructure; and the operation of transport services. Until the recent creaion of the Civil Aviation Committee, Tajik Airline was responsible for rgulating air transport (which it shared with DTCS), providing airports, and operating air transport services. Similarly. MORT responsibilities incude isswng road tansport permits, controlling vehicle safety, providing terminals for roadpassengers, and opeaing road freight and passenger services. This organization is not sound. The Govermnent's mterest as a provider of transport services and owner of enterprises is likely to have a derimental influence on setting and admiig regulations and developing and opeaing the infrastu. These different functions should be unequivocally separated and given to different Govemment departments or agencies. 10.22 Currently, the Government has limited capability to formulate and monitor sector stategies and policies. The main reasons for this are: (i) the undesafing of DTCS (where lest than two people's time is devoted to Transport); (ii) the fragmentation of responsibilities at the Deputy Prime Minister level; and Cii) the inadequacy of information systems and the lack of systematic in-depth analyses of sector issues, making it very difficult for DTCS to follow up trends and identify merging problems in the sector. In addition. the GovermatW has not yet fully grasped the role of regulator that it eventually will play in a market based transport sector. For example, there is no tansport law yet, and no regulations or enforcement procedures regarding vehicle weight and dimensions. Such regulations are necessary in a market environment, where truck overloading may be in the private interest, but have considerable negative impact on road conditions and road safety. 10.23 All these deficiencies in organization and te performance of Govamment fimuctions need to be remedied. The short-term priority should be to strngte DTCS and focus its role on formuladng and monitoring policies and regulations. Responsibility for the transport sector should also be concentra as soon as possible under a single Deputy Prime Minister. In addition, Tajik Airlines and MORT should no longer be involved in regulating transport. To promote efficient competition in air and 154 Chapter 10 road passenger transport, the responsibility for airports and bus terminals should be given to separate companies that have no responsibilities for providing transport services. Furdhermore, the Government should consider creating a single Ministry of Transport, as Kazakhstan and the Russian Federation have done, that would not have any operational responsibility and would concentrate its activities on sector policies, regulations, institutional development, and possibly, the administration of the road network. 10.24 Corporatizadion mid Supervsion of State-Owned Enterprises. Relations between the Government and its transport enterprises must be rationalized. Govermnent control of enterprises is either too strict (for example, tariffs are maintained at unrealistic levels, and the Government may interfere in detailed operational and private matters pertaining to individual workers) or too loose (no clear mechanisms hold the enterprises' management accountable for their results). As a consequence, there are no incentives for the enterprises to perform as efficientiy as they should, and controls are arbitrary and unsystematic. The system needs to be improved in the following ways: first, all transport enterprises that can perform on a self financing basis (i.e., practically all of them except MOH) should be transformed into autonomous corporations with private enterprise status even if the State remains sole owner. Second, the Govermnnt shou!d establish special supervision mechanisms for enterprises that will remain monopolies. Clear operational and financial objectives should be defined, and agrecemnts reached on the means to achieve them (e.g., tariff increases, personnel adjustments and explicit subsidies for loss maling activities that the Government wants to maintain, if any). The means should be well justified and encourage enterprise managers to improve productivity. Progress should be reviewed in detail at specific time intervals, possibly with the managers' salary system tied to their degree of success. Such mechanisms are used with varying levels of complexity and transparency in many countries and have proven essential to setting correct incentives and fostering the efficiency of state-owned transport enterprises. 10.25 Development ofMOH's Capabilities. Although MOH has achieved relatively good results in the past with its force account operations, it will need to undergo considerable changes. Since available resources for road maintenance and constrdction are likely to remain much below those of the past, due mainly to the elimination of budget transfers from the rest of the FSU, resources will need to be used much more efficiently. It is also likely that the current system of force account, which appears to have performed better in Tajilstn than in other Central Asian countries of the FSU, will not remain efficient as the business and social environment undergoes major transformations. Following the example of East European countries, the Government should contract out road works to independent construction companies through competitive bidding. 10.26 The organizational implications for MOH will be major. In particular, MOH will need to concentrate its activities on planning and budgeting, setting norms and standards, promoting new technologies, controlling the execution of roadworks, and monitoring the implementation of annual road expendiMtre programs. The execution of road works (except possibly for some routine maintenance activities) should be left entirely to the construction companies. Road design and field supervision should also be left to independent road consulting firms. This implies not only a change in organization, but also a change of philosophy, as MOH's primary responsibility would become that of a manager of the road network, conceiving programs and controlling their execution. The experience of other countries shows that a change of this magnitude takes time and effort. Much staff training will be required and many detailed organizational issues will need to be addressed, including the level of decentralization, the controls the central department should exercise over the regional and local units, the possible organization of a central equipmem pool and the creation of regional laboratories. Infrastucture 155 10.27 Since the collapse of the FSU, MOH has been left with inadequate planning capacity, both in terms of qualified personnel and modem methods and technologies, to satisfartoMiy carry out its previously highly centralized fimction. Modern management information systems tGc. monitoring the performance of road pavemrents, maintenance operations, stores, and equipmnent do not exist. Traffic statistics are scarce and road safety aspects are not given due consideration. No proper technical and economic feasibility studies are carried out in advance of new projects. There are no mechanisms to assess priorities among competing demands for Government funding or to prepare optimum budgets. These are important deficiencies to be remedied by training staff and transferring to Tajikistan the systems and procedures used in many countries for proper road planning. Telecommunications Sector Background and Summary 10.28 Tajikistan's telecommunications system is the least developed among the FSU republics, and it is at the verge of collapse. This condition results from a long decline, compounded by recent calamities. Technology dates mainly from the 1940s and 1950s. With the breakdown of trade arrangements within the FSU and with Eastem Europe, Tajikistan was cut off from its fonner suppliers of spare parts and materials. Civil unrest has led to numerous sldlled staff leaving Tajiklstan begiming in 1989. A succession of natural disasters (earthquakes, storms and floods) caused destruction of some plants and damaged much of the cable network beyond repair. The 1992 war resulted in further damage to telecommunications plants, theft of vehicles and office equipment, loss of skilled staff and loss of operating revenues. 10.29 Major overhaul of the telecom fnications system, including replacement of at least one- half of all plants at a cost of about US$120 million, will be needed to support the Govermment's economic reform program. Despite the relatively low present level of economic activity, poor telecommnications services are causing serious damage to business and Government. The Govenmen's economic reforms will require information processing and trnsission capabilities far in excess of what prevailed under central planning. The existing telecommunications system is unabls to provide the necessary infrastructe for these much larger infonnation flows. Scarce investment capital, lIack of convertible currencies, an acute and growing shortage of slled pesomnnel and long isolation from technological advances severely limit the Goverment's capability to address these problems. 10.30 A three-pronged telecommunications development strategy is recommended i) urgent reconstruction in Dushanbe and the southern region to restore functional capability to the level before the war and floods, at a cost of about US$4 million; ii) medium-tem rehabUitation by stages, the first of which would target business and government users in Dushanbe, with limited extensions to Khoiand and Kurgan-Tyube, at a cost of US$15 million; and iii) policy and institutional adjustments in line with the econonic reform program. 10.31 Opening the teecommunications sector to private capital and management, as well as facilitating new entry, would go a long way toward overoming sector development consUaints. Tajikistan, however, currently lacks the general legal and institutional frmework needed to atract substantial private participation. A phased plan which includes: (i) initial stages of rehabilitation; and (ii) setting up a legal and institutional ramework would be appropnate. The first stage of rehabilitaton would depend on improving the operating entity's self-financing capability and on scuring international 156 Chapter 10 financial support. Tam ¶f reform and the beginnings of a core communications policy and regulatory capability would be tne next steps to create an environment for private participation in the telecommunications business. Sector Organiztion 10.32 The Ministry of Communications (MOC) is responsible for providing all public telecommunications,3 postal, and TV and line broadcasting services.4 The Minister of Communications is accountable to a Vice-Chairman of the Council of Ministers. MOC is authorized to adjust tariffs without Government approval, subject to guidelines and certain limitations favoring social services and stte enterprises. MOC is comprised of: i) a small headquarters organization in Dushanbe; ii) three regional branches responsible for all local teleconununications services in the oblasts of Leninabad, Khatlon, and Badakhshan, respectively; and another branch of similar rank coordinating the 15 independent administrative regions in central Tajikistan; iii) five enterprises directly accountable to headquarters and responsible for the Dushanbe telephone exchanges, the domestic/FSU trunk exchange, long distance transmission systems, computer services (mcluding billing) and posts; and iv) one enterprise responsile for TV and line broadcasfing. Human Resources 10.33 A shortage of skilled telecommunications personnel is likrly to be the main constraint on telecommunication development. Since 1989, the number of telecommunications staff has been dwindling rapidly. In 1992 alone. MOC lost 751 telecomnmunications staff, including 280 engineers and 152 technicians - about 20 percent of all technical personnel. During the first half of 1993, 313 more departed, including 70 engineers and 43 technicians, with stiU more expected to leave. MOC estimates that in the period 1993-2000, it should aim to anmually recrit about 100 highly qualified teleconmuni- cations staff, most engineers and techicians. These skills are not available outside MOC, however. Moreover, any telecommunications developmnent program will be based on electronics and computer technologies in which MOC, and Tajikistan generally, have scant education and training capabilities. 10.34 MOC's acutc shortages of specialized staff coexist with general overstaffing. As of September 1, 1993. MOC had 9.977 employees, about half of whom worked on telecommunications 3. This includes local, domestic tong distance. FSU and international telephone service: telegrams; and some tex 4. MOC operates all television broadcasting stations and a microwave network dtat links these to the studios in Dusbanbe. At present, there are four TV channels. two from Moscow in Russian language, one from Tashkent in Uzbek. and one from Dushanbe in Tajik. Line broadcasting. by which users attach their own speakers to open wire lines, distribues up to three programs (voice, music. and public announcements) to homes and offices throughout a city. town. cooperative or state fann. Many homes reportedly are connected to this systetn,whereas only a snail fraction havc receivers for radio broadcastig. 5. 'Enterprises' are organizational units of MOC. each of which operates a relatively homogeneous set of facilities. Reportedly. they are separate -egal entities'. that are rsponsible for their finncial restn. mnainmin separate accounts and produce their own fitancial swatements. However. these enterises re iterdependent mo a large degree. In particdar, tie long distnce enterprise carries traffic to and from the trunk switching enmrprise and. in turn. is connected to telephone customers in Dushanbe through the Dushanbe exchanges enerprise and to customers esewhere through de regional MOC branches. The computer center does billing for all operations A system is in place whereby the MOC allcates profits among die entwrises. lnfastructure 157 (including TV and radio broadcasting)' The. rado of about 20 tel cations staff pe 1,000 telephone lines is better than in many Asian developing countries, but compares poorly with the better a Latin American counties, where the ratio is 10 staff per 1000 lines, and the US and Sweden, which have a ratio of 5 staff per 1000 lines. 10.35 MOC's own training facilities and programs seek to bring the level of skills of individual employees up to the best available within MOC. A national training center in Dushanbe has class rooms and laboratories with equipment in common use throughout Tajikistan, and offers residenial accommodation for up to 40 students from outside Dushanbe but has no permanent instructors or ongoing development of courscs and course material. Instead, experienced MOC staff are asked to teach courses in their areas of comptence from time to time. There are no workshops for stilled labor, sucb as cable splicing; such taining is found mainy in the cities and rayon centers. Courses to upgrade skldls are occasionally offered in the Dushanbe center, but instructors must bring their own mateials, tools and test equipment for trainees to usc. 10.36 Despite the acute and growing shorage of experienced personnel, the Dusbanbe training center provided only 640 hours of instuction to 156 teecom ications and postal staff in 1992. This low level of udlization is reportedly due tr, the high cost of bringing staff in fr=m other cities, especially given fuel shorages and poor roads. P.aiyig on MOC staff as insuctors, this leaves the center witho means to train personnel in new technology or lead the way to improved operaton, mainteac accounting, or management. 10.37 It is true that the Telecommunications Trann Insue in Tashk (Uzbekista) offers specialization in telecommunications engineering for all Centrd Asian republics. At present however, only a handful of MOC staff are at present being trined there, however, reportedly due to the cost of the course (equivalent to only about US$200 per anum, but payable in scarce convertible currency) and other expenses. It shouid not be difficult for MOC to atact and retain Tajik engineers and technicians for tainig in new technologies. Though telecomnmications salaries are reportedly only about half of those prevailing in the power, tramsport, and industry sectors, MOC appears to have some flexibility to increase the pay. Prosuemn 10.38 With the breadown of trade following the demise of the USSR and of the Economic Council for Easten Europe, MOC has been cut off from all its former suppliers, which were located mainly in Russia, Uzbekistan, Yugoslavia and Czechoslovakia. Lack of convertible currency preven MOC from importing even the most urgently needed goods. No telecommunications equipment or cables are n in Tajikistan. The meager stocks of spare parts, cables, hardware and other goods required for rouine maintenance have been depleted. Damage from civil war and natura disasters have made dtings worse. The sintadon is especay serious in the step-by-step exchanges, which are very maintenane intensive. 6. The bance are mainly mplbyed in the post sector. 158 Chapter 10 Service Acess and Quality 10.39 As in other CIS republics. Table 10.1: Telephone Sevice Q qaly - Tajikistan has a substantial teleconnunications Seectd Idcator system relative to population size. However, PmeM Benchmak much of the system has been allocated to customers that barely use it, while major capacity Fpaus pcumombr 10-25 <2 shortages constan business and government customers. Service quality overall is very poor. Faults deared in24hours.% < SO > s0 Access to Service Lcu ca;l comnpledon ate. % < SO > 70 10.40 MOC bas about 276,000 main telephone lines in service, all connected to dWIed a automatic exchaes. Domestic long distance pteway, S C 20 >60 calls can be dialed direcdy among the cities of Dushanbe. Khojand, Kurgan-Tyube. Kulyab, and % subsribia 0 > so Khorog, accoundtg for 52 percent of all customers. Dushanbe customers have direct-dial soure: Prst service qualty figures arc bad on da access to other FSU republics. Operator assistance obtinedfomalmitednwmbeofexchangesvisited inDusbanbe and oher cies. MOC does not cundy maiain service is required for other customers to place domestic quaty stadsd.Bcwmak figuesaredrawnfromWorldBank ad FSU long distnce calls. experiene and ar typical of good networks in developing countries such as Chile or Malaysia. 10.41 There is no inemational direct distance dialing to countries outside the FSU. Nor are there facilities for data mnsmission, electronic mail or other modem business services. Some telephone customers have recently installed facsimile machines, but the number is unknown. A mininal telex service is available in Dushanbe and Khojand. It has only 60 customers, who are expected to purchase terminal equipment7 in the local marketplac. Very few telephones and no facsimile machines, data modemns, or private automatic branch exchanges (PABXs) are available in the market. Although in the past, MOC provided basic telephone sets and PABXs, they have none to offer at present. Unmet Demand 10.42 It is unclear whether there would be substantial umnet demand for telephone connections if prices reflected the full cost of providing service. MOC's demand figures are very uncertain, since key determinants, especially incomes, tariffs, and the level and structure of econoniic activity are fluctuating widely. Notwithstanding the poor quality of domestic and international services, the average density of about 5 telephone lines per 100 inhabitants is relatively high for developing countries and well above the average for those in Asia. It is, however, the lowest among FSU republics. Also, there is a large imbalance between urban areas, which avenge 14 lines per hundred inhabitants. and the rest of the country, which average only one line per hundred. 7. This indudes telephone sets, private automatic branch exchanges to cornect intenal business users to die public network through smaller trunk lines. facsimile machines. telex machines. and modems to transit data trough tie public telephone network (e.g.. beween computers). Infrstructure 159 10.43 Residential customers account for about two-thirds of all Table 102: Sommary or Telepbone Tariffs connected lines, but only a small fraction of revenmes. A considerable part of the investment and Tajikistan Reference' maintenance effort is therefore DusiIIS Resideta directed to customers that make little -c -- is 5 so use of the services. There are about Mondlly rental' S 0.7 IS 77,000 outstanding applications for Local ils 0 0 0.0o new telephone connections. Many of Log diusance cwsmm these, however, are residential and may vanish in the wale of price domestic (200 Km) 0.015 0.007 0.10 imxsa-F5U (2.000 Km) 0.04 0.02 040 reforms. Nonetheless, MOC ,cS (4.000 ) 0.60 0.60 1-00 estimates a total unmet demand of some 300,000 lines. Some 3,000 aI Ilcludesgovemmemofficesaeds prsexpis, butstate ecmapnses pay rural localities have no service at aUl. on-half ihe monhly ent. bl Includes unlmited nmnber of local calls. Cl Tariffs are typical of those pwvail im counS whr trffs ar 10.44 Givenuncertainties as rlatively dose o costs. s as the US. No difference was made bctween to the size of the gap between supply lde2 aI md othcr oCsCS. and demand, the rest of this chapter Note: As of Octobcr 1.1993, Tajikistan mdfft are conved a the rat of USSI assumes that the mix between - 2.000 mbles categories of customers is likely to vary considerably in the future, but Sou: MOC ai s d World s da. that the total number of customers will remain roughly at the current level. Qualty of Sevice 10.45 Tajildstan's telephone service is of very poor quality, rankdng at the low end among FSU Tepublics and developing Asian countries. Table 10.1 compares selected indicators of sevice quality in Tajildstan with benchmark of well-run systems in developing countries. For Tajikistan. telephone system faults occur about 10 times more frequently than in a good system, and they take up to several months to be cleared. Many calls cannot be completed due to capacity shortages and malfunctioning or damaged equipment. It is almost impossible to place direct-dial calls to other CIS republics from the capital city. All calls to interational destinations outside the FSU are booked thrugh the operator, with long delays, usually of several hours. Substandard noise and signal levels result in poor voice comnication, and would make it virtually impossible to use the telephone network for facsimile or data transmission. Tarffs and Filancial Perfom.ance 10.46 Telecommunications tariffs are below those in Western and developing countries. As illustated in Table 10.2, domestic and FSU long distance call charges to business and government customers are about one-tenth of comparable charges elsewhere, connection fees and monthly rentals are about one-third, and international calls about one-half. Except for international calls, residential customers are charged even lower tariffs, typically about one-third to one-half the respective business rates. 160 Chapter 10 10.47 MOC prepares quarterly and amnual accounting reports. These reports follow Table 10k Summary of Ft nda Results stndard practice in the FSU and are designed to MOC - All Services an mliou of rubes) keep track of actual incomes and expenditures in 1992 1W3 relation to budgetary allocations. They do not (2nd qir) include asset and long term liability revaluation, a T 674 1.596 despite very hlgh nflauon and currency Opeuting expenses 534 1.165 devaluation. They also do not separate Grss pmritla 140 431 telecommunications from posts and other services, Tristers to ureasuy .b 165 644 and cannot be readily interpreted in terns of Net prft loss) IC (213) intemationally accepted accounting standards. Operting rao (%) Id X9 73 Receivables (months) Ic 2.2 3.3 10.48 Table 10.3 summarizes tentative : revenue ls openng expen. conclusions from an initial examination of MOC bw Sales ax. profit mx, comrtibuons to various fimds. oder. reports for 1992 and the second quarter of 1993. cl Gross prfuS Icss ansfars. Opemting revenues suffce tocovervopaating df Optmg expnss as pere of operatg ven Operating~~~~~ reeussfiet cvroeaig e Receivable as numbr of months of op_tn revenue. expenses. The operating ratio' of 70 to 80 percent is at the high range for developing countries, and Sour: MOC. ann wpon for 1992 and rport for second much worse than typical for a w211 established or 1993 utility (about 50 to 60 percent). Although receivables are gmwing, at about three months' revenue, they still are within an acceptable range.9 Transfers to thfe Ministy of Finance,'0 however, exceed gross opeating profit, so overall MOC makes a net loss. As a proportion of gross revenue, this loss is rising quicldy, as tariff increases (300 percent) lag behind general price inflation. The Tlecommunications System 10.49 The telecommunications system uses mainly obsolete technology from the 1940s and 1950s that requires continuous, labor-intensive maintenance, is unable to support new services and modem network management and call charging practices, and fimctions poorly because of hadequate muaintenance and spare parts - especially in recent years. Local Telephone Network 10;50 The total instled local telephone exchange capacity is 315,400 lines, distnrbuted in 81 urban exchanges (265.000 lines) and many small rural exchanges (51,000 lines). Step-by-step electromechanical technology from the 1940's installed in the 1960's and 1970's accounts for 105,000 lines (40 percent of urban and 33 percent of total local exchange capacity). Since the step-by-step exchanges were installed first, they generaly serve the most important centers of the cities, including 8. Operating expens as a proportion of opeating revenue.. 9. Reponedly. MOC is having icreasing difficulty coliecuing telephone bills from government offices and st erpses. 10. Various ts and contriutons. Infrastructure 161 downtown Dushanbe, where most customers are businesses and Government offices. There is an urgent need to replace these exchanges. Crossbar electromechanical exchanges of 1950's design instled in the 1970's and 1980's account for some 160,000 lines (60 percent of urban and 66 percent of total local exchange capacity). Although this technology is obsolete, it 'n be kept working for another 10 years or so with appropriate maintenance. 10.51 The local telephone cable network utilizes mairdy polyethylene-insulated cables. There is also a small percentage of older, lead-sheath paper-insulated cables. Most cable is faulty due to many open joints and lack of pressurization. A large part of the pressurization equipment does not work, and cables installed before 1980 do not have pressurization systems. As a result, water has entered many cables during rainy seasons and floods, especially in recent years, when maintenance slipped further due to staffing and materials shortages. Based on samples, it is assumed that 50 percent of all cable is damaged beyond repair. Long DIstance Telephone Network 10.52 The only automatic long distance exchange in Dushanbe is a semi-electronic Metaconta 1140 of 1960's design installed in 1982. It has 4,000 trunks, 1,920 of which are used for domestic and FSU routes, with the rest connecing the Dushanbc exchanges. In 1992, a tean from the manfactuing factory, Iskra, in Yugoslavia, had began to expand the processors and install a new software release, they left because of the war without completing the work. As a result, the exchange malfunctions and is very congested. It is obsolete and should be replaced, not repaired or exanded. The new exchange will have to be significantly larger (at least to 6,000 trunks initially) to handle even the existing traffic. 10.53 The long distance transmission network consists mainly of cables, microwave radio relay links, and satellite liuks. Sixty-channel analog carrier systems use symietrical pair cables to transport the signals. Analog frequency division multiplex systems over microwave radio relay systems are used mainly for back up, since their main purpose is to carry television signals. Satellite links (using the Itersputnik system) connect Dushanbe to Moscow and to Khorog. The rural areas use mainly analog carrier systems of small capacity over open wire lines. These systems are unreliable and frequently damaged, especially by winter weather. The war and floods of 1992 destroyed many of these cables and lines, cutting off small towns from the main network. Air conditioning systers for the cental offices where the transmissions system is instlled were either destroyed during the war or do not work properly so that, the equipment fails due to excessive hpat in the summer. 10.54 A 60-channel satelite earth station and stae-of-the-art digital exchange to connect 2,500 local customers are being instled in Dushanbe, financed by a grant from the Turkish Government. Similar stations have already been built by Turkey in several other FSU republics. A master station in Ankara allows the stations to communicate among hemselves and worldwide. To the extnt that MOC is able to connect local users through quality lines or radio links, this facility will provide urgendy needed diret accerss to international destinations. At a price of about US$3 per minute, service would cost more than similar calls using conventional neworks in Westen Europe or the US (about US$1 per minute), but less than is currently paid (about USS7 per mimnte) to independent international operators by users of portable VSAT stations in the region. Tariff and revenue-sharing arngements are being worked out between MOC and the Turkish state telecommunications company on the basis of prevailing international practice and norms. 162 Chapter 10 Dedicated Networks 10.55 The armed forces, electric power utility. railways, and air tansport ministries operate their own telecommunications networks to meet their specialized needs. These networks have a total of about 22,400 telephone lines, and are partly interconnected with the MOC's public network. A Government exchange in Dushanbe connects about 1,000 offices. A planned mobile radio system for Government use has not been completed. Sector Development StraeA 10.56 The xsting telecommunicatons infrastructure cannot effectively support Tajikistan's transition to a market economy. A three-pronged sector strategy is recommended: (i) emergency reconstuction (in Dushanbe and the southern part of the country) to recover producfive capacity to levels that prevailed before the recent war and natLral disasters; (ii) medium-term rehabilitation of the telecommunications infrastucure to achieve service standards that are about average for well-run sysm in developing countsries; and (iii) policy and instiutional adjusmnts dat are in line with market-oriented reform and emphasize tariffs and private participation. Emerg Recnction 10.57 To restore the telecomnications network to pre-war conditions, it is necessary to: (i) replace exchange and ancillary equipment and cables damaged or looted during the war; (ii) complete works interpted by the war that affect overall service performance; (iii) replace or repair cables damaged by water and malfinctioning pr ion systems; (tv) restore a minimum level of spare pars, materials, and vehicles needed to maintain exisdng facilities; and (v) train skilled workers, tecnicians. engineers, and accountants to fill key vacancies in maance and operation. Medium-Ten Rehabilitation 10.58 Since reconstuction will sdll leave Tajikistan with antiquated and run-down telecomunmications facilities, it is essental to prepare a medim-term program to rehabilitae the system to modem standards. This should aim at substantially improving domestic, FSU, and intemational telephone service, as wel as introducing new services (e.g., facsimile and low-speed data transmission) likely to be increasingly needed for business purposes. The refrence standards shown in Table 10.1 ilustr service quality targets for the rehabilitation program. 10.59 To reach these service objectives for the 276,000 existing custm , most existing facilities will need to be replaced with a new system using modern clectonic digital techology at a CoDSt of about US300 rnillion. For full cost recovery, real tariffs should be increased to international levels - - on average about 15 times present tariffs. A large number of technicias and engineers nee" to be hired and trained in tecdologies with which the contry has no expertise, and several thousand less slflled workers should be retired. None of dtese conditions are likely to be met in Tajiistn in the foreseeable fNre. Infrastrucur 163 10.60 A scaled-down solution would involve replacing only the worst parts of the system - about 40 percent of local switching capacity," about 50 percent of the local cable network, dw domesticlFSU trunk exchange, and selected transmission facilities. This option would achieve the suggested service standards for about 100,000 customers, and a more modest but useable standard for the rest. The cost would be around US$120 million; the average tariff and human resource development requiemes could be scaled down more or less proportionally. However, even these reduced requirement are deemed not feasible in the immediate fiture. 10.61 The preferred practical option is to rehabilitate service countrywide by steps that focus first on pockets of high-value customers prepared to pay international-level prices for quality telephone service among themselves and with the FSU and international destinations. The new facilities would also be used for facsimile and data transmission up to 9,600 bauds. Customers not willing to pay for the new services would continue to receive service from the existing facilities at lower prices.' First Stage of Rhilitation 10.62 Rehabiitaion woud start in downtown Dushanbe, whee some 20,000 customes (mainly business and goverment offices) are connected to some of the country's most mn-down facilities. Subject to fiuther technical analysis, the solution would be roughly as foliows. A single 20,000line electronic digital exchange would be installed to: (i) serve up to about 10,.00 downtown customers connected to the old step-by-step local telephone exchanges. ATS-23 and ATS-27, which cannot be repaired cost-effectively; (ii) serve some 10,000 customers and public telephones in selected ote locations in Dushanbe, Khojand, and Kurgan-Tyube; Ciii) replac the malfunctioning single domesdcfFSU trunk exchange and pwvide substantially higher traffic-handling capacity; and (iv) give al 20.000 customers direct-dial access to intenational destinations through anew medium-size satellite earth stion. 10.63 Downtown customers would be connected to the new acility by replacing or repairing all primary and distnrbution cables now feeding ATS-23 and ATS-24. A limited number of oth Dushanbe ustomers would be connected to remote line units tied into the digital exchange using optical fiber cables?13 Customers in the other cities would be connected to remote line units or concentrators linked to the new Dushanbe exchange through upgraded dedicated trunk lines. All customers connected to the two old Dushanbe exchanges would be given the option to move over to the new facility at the new prices. Those preferring to remain on the less expensive old system would be regrouped for continued service using part of the old exchange capacity. The rest of the old equipment would be scrapped for spare parts use elsewhere. 10.64 The estimated cost of this first stage of rehabilitation would be about US$15 millioL Given the limited prospects for private investment in the near future, initial rehabilitation would depend on finding sources of multilateral and bilateral financing, and on the MOC being able to genrte significant opeating surpluses. The cost of the switching component could be reduced by expending and 11. Al the step-by-step exchanges and associated equipment 12. Service perfomance between de new and old parts of the system would be lagdy dermied by te condidon oftlc old system and wowd rmain generally poor. 13. Funher tchical analysis will indicate whetber rdio uchnologies (eg.. fixed versions of celular radio systems) are cost effective aenativ to wired urban connections. 164 Chapter 10 complementing the international satellite facility currently being installed in Dushanbe on a grant basis by the Turkish govenment. Initial discussions with specialists in the field suggest that it would be cost- effective to expand to 20,000 local lines and 6,000 trunks, taking over the local and trunk switching functions of the proposed new Dushanbe exchange. Further analysis and cost estimates by the supplier would be needed before a more definitive conclusion can be reached. Boz 101 Technial Assne Needs in the Infraructre Sector Mhe objectves of t ehnical assistance in ct Telcomnusnican sectr will be to; * Prepare a detailed feasibiliy study of fi rhbliaion of Tajikistan's tlecomnanicatns netwoM * Impovec de policy making capacity of ht Ministy orConmnications. by creat a policy cll in the Ministry. responsible for formulatig sector policies. including the design of a taiff policy and monitoing sector performaunce. * Incrca privae sector paripation in tbe provision of ecnnn s services Tajisan. prparig sector egulationm for bask elecommuicaion services and by liberaizig vale added services, providing terminl equipmentandprivate branch exchanges. celular telephones and darn transiion. uA other busins services though appropriate intrconnecot arangements. * Train the Ministy of Com_mnicatons staff in digital tcbnlogy, fiber-optic cables, and commercialition. inclig biig and accountig, customer servic improvenent, and mketing. In she Tansport Sector. the tchnical assistance program should: * Fornullat and implement study tours andi saeminas abroad for key ranspout staff focusing n subjects such as prices. subsidies.competidon, government orgnization, and enteprise manageaent * Assist in developing the legal and regulatry frmework for the transport secor, as well as itb Goverunmes capablity to enftrce and monitor regulatons. * Develop a basic infonnanon system on sector perfornance. * Establish methods and procedures within the Ministy of Highways to better plan, design, supervise and monitor radwork and bet mange equipment. * Formulate recomnendations fordeveloping the road consruction industry inTajikisn, including: (r) crating sndard bidding documents and contacting procedures; and (ii) reorganization of force account units. Lter Stages of Rehabilitation 10.65 Sinmilar islands of rehabilitated plants would be developed later in other cities, beginning with Khojand and Kurgan-Tyube, with extensions to important rayon centers. All islands would be con- nected among themselves using digital trunks, as well as to the old system at selected points to enable interworking. Gradually, the new facilities would become dominant, and eventually the old network would vanish. Subject to progress at the national level in developing legal and institutional conditions for private investment, these later stages of rehabilitation could create opportunities to attract foreign investment. By that time, the first stage of rehabilitation could be generatng significant operating surpluses for reinvestment. nfrastructure 165 Sector Policy and Institutonal Development 10.66 The proposed rehabilitation strategy must 'x accompanied by developing a policy and institutional framework suited to a modern, market-oriented telecommunications business. Tariff policy and the role of the private sector are two areas that require early consideration. Tariff Policy 10.67 Changes in teleconmunications tariffs are necessary to ensure the sustained financial viability of the sector, as well as to increase economic efficiency in the use of facilities. Although MOC makes a gross operating profit, very low tariff levels and substantial transfes to the Ministry of Finance result in only minimal amounts being left for maintenance and investment. Moreover, important tariff distortions are likely to result in economic efficiency losses. Basic Principles 10.68 The teleco ications sector should become financially self-sustaining. Use of all new jicilities should be priced for fill cost recovery, including the cost of capital valued at applicable commercial rates, irrespective of whether investments are partly financed from grants. Use of the old faclities should be priced to meet all operating and maintenance expenses. Additionally, the telecommunications sector as a whole should generate cash to finance at least 30 percent - preferably over 50 percent - of future investments. A simple mechanism, such as indexation or denomination in a foreign currency, is needed to help MOC maintain the real value of tariffs in a context of high inflation. Financial transfers from telecommunications to the posts should be phased out; any subsidies required to offset postal losses should come from direct government budget allocations. Pricing the Use of New Facilities 10.69 Since most costs associated with the facilities will be comparable to those in countries outside the FSU, tariff levels for use of these facilities are likely to be in the range of those prevailing abroad. This means very large increases with respect to present tariffs, as illustrated in Table 10.2. The bulk of revenues, however, is likely to come from calls, not connection fees and monthly rentals," so emphasis should be on correctly pricing calls. Local calls, currently free, should be charged on a per- minute basis. Domestic and FSU long-distance tariffs should be increased very substantially; internaional calls more moderately. Peak and off-peak rates should be introduced for all calls. In contrast, monthly rentals could be increased more gradually. Public sensitivity to telecommunications tarif increases is likely to relate mainly to fixed charges (rental and connection fees for new customers), not variable (call) charges. Increasing rentals slowly may go a long way toward making the pricing package politically more acceptable, and will have only limited impact on revenues and economic efficiency. Even so, it may be necessary to increase real call charges by steps over a few years. 14. This is already th case for the existing system. where about 90 percent of operating revenue comes from cal. 166 Chapter 10 Pricing of Existing Services 10.70 From a policy development pe -spective, it is not particularly important to overhaul tariffs to use the old facilities, except to keep them running. Telecommunications tariff reform will be driven by charging the right prices for new facilities, which will gradually dominate and eventually take over entirely. Moreover, since existing service is so dismal, increases over and above the bare niinimum necessary to keep the old systems miming can only be justified in terms of major service imprcremments. There is little opportunity for improved services to customers who remain comected to the old facilities. A few meaningful improvements are possible with existing equipment, and would modesdy contribute to both improved service and revenues. For example, a priority operator-assisted call service to the FSU and international destinations could be offered at a premium price, either on a per-call basis or by paying a higher rental.A To help reduce congestion, higher rates could be charged for domestic as well as FSU and international operator-assisted calls during peak traffic hours. Conversely, charging for local calls is not cost effective with the old equipment, because it would require adding meters to exchange that will themselves have to scrapped during rehabilitation. Differentiation Among Customer Categonies 10.71 Raising tariffs to international levels for users of new facilities would be justified by providing clearly superior service. Within technical limits, existing users would be offered the choice of being connected to the new system or remaining in the old one, which would allocate new capacity efficiently and protect users who cannot afford the new prices.", This two-tier approach is likely to be politically more acceptable than large across-the-board increases, yet it effectively initiates a process of tariff reform that eventually would encompass the whole sector. In contrast, the current differentiation of tariffs between residential and non-residential customers has no cost-based justification and should be abolished. As the telecommnications sector becomes self-financing, lower rental and call charges for residences (about 66 percent of current subscribers) would result in businesses being charged higher prices than would otherwise be necessary. These would bc passed on to the rest of the economy as higher production costs. When new facilities are offered, all customers in a given area should be treated equally. The main factor in allocating new facilities should be customer willingness to pay much higher prices, irrespective of whether the customers 2re classified as residential or non-residential.'7 The emphasis on serious business and Government users can be achieved by first modernizing those areas where these types of customers predominate. 15. This is already established practice in somnc pas of the country. For example. in exchangc for immediate operalor service. a small number of customers in the town of Vakhsh pay a monthly rental of 12,000 rubles (instead of the regular 900 rubles per month for a business or government customer) plus long distance chargcs that are five times higher than normal. 16. An alternative approach would be to connect aUlcurent customers of the covered area to the new feilities irrespective of their willingness to pay higher prices. Rcntals would be the same for all customers. and would include a small number of local call minutes (e.g.. SO per month). Customers using the new facilities would pay high charges for all excess local calls and all long distance calls. Thus, customers connected to the new faciities, but not willing to pay the new call charges. would still be connected to the network at a comparably low price but would refrain from making calls in excess of the allowance. This option has the merit of technical simpicity: all current customers from downtown Dushanbe exchanges, for instance, would movc over to the new cxchange. It has the important drawback, howevcr. of allocaLing scarce high-quality connections to customers that will use them very little. This is not appropriate in terms of revenue generation as well as economic efficiency. 17. In a changing cconomy, a considerable volume of economic activity may well originae in households rather thun busiesses set up under the previous economic regime. Infrastructure 167 Prospects for Private Participation 10.72 Given the acute shortage of capital and skilled labor in Tajikistan, it is important to open opportunities for private sector participation in telecommunications as soon as possible. The "island" approach to rehabilitation suggested above, coupled with tariffs that yield a competitive return on capital, could be used to create such opportunities. For example, foreign investors (possibly consortia including equipment suppliers and medium-size operating conpanies) could be invited to bid for a franchise to rehabilitate and operate a particular part of the system. Bidding documents would specify service objectives and end-user tariffs (possibly foreign-currency-denominated), and the franchise would be awarded to the bidder that offers MOC the it ghest percentage of operating revenues. 10.73 This would be a medium-term objective however. At present, the minimum legal and institutional framework needed to attract foreign investors is not in place. For example, property rights are not well defuied, there is no foreign investment law, and the judiciary lacks the independence necessary to enforce contractual obligations of Govenunent agencies. Under these conditions, it may only be possible to attract small investments (e.g., less than USS1 million) with very short capital recovery time (probably one year or less) and offering a high risk premimn Ci.e., very high prices for services). Offers of this nature should be examined in terms of: i) potential for overcoming urgent service shortages; i) effects on the sector's capability to generate and retain surplus finds for reinvestment; and iii) any restrictions the agreements may impose on future sector development options, such as market entry and traffic routing. For example, under appropriate terms and conditions, a small private cellular operation could be considered. Toward a New Sectoral Framework - Initial Steps 10.74 Initial efforts to develop an appropriate sectoral framework should: i) set in motion a process of tariff reform; to improve service as proposed above; and ii) develop MOC's capability to formulate policy and monitor sector performance. Once good progress has been made in developing the country's overall legal and institutional framework, a telecommunications law and basic teleconmunica- tions regulations should be prepared, accompanied by a simple regulatory arrangemen sufficient to attract private investors. For example, with the help of intrnational auditors, a unit within MOC could monitor the private operator's compliance with service objectives and taiffs, mediate customer complaints not resolved by the operator, negotiate with the operator any changes in the agreed tariffs and other terms of the franchise, and represent the Government in any arbitration needed to resolve conflicts involving the operator, the Government, and/or customers. MOC's initial policy and monitoring capabilities would provide a staing point for building up its regulatory skills. CHAPTER 11 INVESTEhT IN HUMAN CAPITAL 11.1 Government decisions regarding investments in humn capital (i.e., in health, education, and training) take place in 2 context of reduced revenues and political instability. Issues of access, quality, efficiency, planning, and management should be paramount in any discussion of investments in human capital. In addidon, existing human capital should be preserved. 11.2 Access: Under the Soviet system, the expansion of both education and health serices networks assured virualaly every citizen access to at least nine years of education and health care which yielded welfare indicators that compared favorably with those of middle income countries. The physical infrastrucue in both the education and health sectors in Tajilistan is quite extensive and remains in relatively good shape. 11.3 Quality: In rpite of near universal access, indicators in health and education have been declning since 1989. Iu health, both maternal and infadt mortality rates have been increasing over the last two years. In education, there have been declines in cnrollment and in the number of textbooks available for distnbution. The declines can be linked to expenditana reductions, increased inefficiencies in the system and the growing share of expendiures going to salaries and benefits to mitigate high rates of inflation (sMe Table 11.7). Non-salary recurrent expendires in both education and health show a marked decrease. Expenditures in inputs, such as drugs, pharmaceutical supplies, textbooks, and teacher skill-upgrading are fa . In spite of nominal increases, salaries of skilled workers in these sectors have declined in real terms, resulting in low morale, a continuing brain drain from the country, and a decline in the quality of health care and education services. 11.4 Effideny: Efficiency - are one of the few tools that the Government has at its disposal to halt the erosion in the quality of health and education semces without increasing oudays to either sector. Efficiency would be increased by: reducing the work force and instituting incentives to provide good lhealth care and education; ensuring that inputs are not disproportionately affected by budget cuts; and reducing the cost of health care and education in ways that have minal impact on quality. Although these are difficult changes to implement, not introducing them wiU result in further - and more drastic - declines. 11.5 Planning and Management Capacity: Both the Ministry of Education (MOE) and the Ministry of Health (MOH) dlarly lack planning and management capacity. The current budgets of both Ministries are not linked to targets or to objectives in either sector, and appear to be primarily updates of budgets and expenditdres from the previous year. There is little indication that the ministries are taldng into account Tajikistan's changed circumstances to set new priorities. Nor does it appear that Government decision-makers, particularly in the Ministry of Economy and the Ministry of Fmance, are promoting and strengthening policy-maing capacity within their ministries or in Govenmnent in general. This problem has far reaching implications, not only at the Ministries of Health and Education, but at all levels of Goverment. Moreover, since most policy implenenmation is done at the local level (i.e. by executive committee in municipalities and Rayon), it is important to strengthen the manageent and planming capacities of these entities. 11.6 Data collection and analysis are important tools for effective planning and management. MOH, MOE, and the State Committee for Statistics (Goskomstat) have impressive capacities to analyze 170 Chapter 11 data, but the data is flawed for a variety of reasons. First, it is collected according to procedures that may have been relevant under the Soviet system but are obsolete now. Second, data collection is seriously nampered by the lack of computers; high level statisticians often use desk calculators and abacuses. Third, personnel are not sufficiently trained in data analysis as a tool for policy-maldng. Health Care 11.7 Tajikistan's Government inherited a health system put into place under the Soviet Union, that has had little improvement or modification over the last five years. The physical infrastructure has remained largely intact, and provides a widespread regional network of health facilities, that deliver a quality of care often above that in middl-income countries but below Western standards. Many health indicators have stagnated, and some have even declined in recent years, as will be discussed below. In large part, this is due to the use of old fashioned procedures, therapies and drugs. Inappropriate drug use is common (polyp'hrmacy, injections, dmgs for self-limiting diseases, etc.). Heavy emphasis is placed on examinatir-:. and repeat visits, and many hospital admissions are for minor illnesses. The system is biased in favor of curative and insftiional care, with much less attention paid to health education, preventative care, and disease control. Tajikistan is rich in plant species used for Table 11.1: nftant Mortalty medicinal purposes. It possesses about 400 medicinal plants. Rat8s (per 1,000 live births) Tajik Phamacia enterprise produces medicines almost entirely from local herbs. However, out-dated equipment is being used R RATE and there are shortages of raw materials and packaging. 1985 46.8 11.8 The populatious health profile is a mixture of 1988 48.9 developed and developing countries. Ifant and child mortality 1959 43.2 and morbidity are caused mostly by infrcious diseases, while Uban 39.4 chronic disase is responsible for most adult mortality. High 1990 40.7 incidence of diarrheal diseases, hepatitis A, and other gastro- 3Un 3 intestinal diseases especially among children, indicates poor- Rural 41.4 quality drinlking water and sanitation, andfor deficiencies in 1991 40.6 personal hygiene. According to the Ministry of Health, up to 33 Urban 37.9 perent of the population has no access to nmning water. The Run 45.0 hiFth system is not suited to handle the primary health care needs Urban 50.4 of its predominantly young population, and can no longer afford Runl 44.5 the care required to treat the adult diseases. Sourcc: Goskomsa. 11.9 !rFant and Child Health: In the past, ImmuiatiWon coverage has been excellent and childhood and epidemic diseases had been under good cuzmaol. Nevertheless, infnt and child mortality figures, though lower than many middle-income countries, remain higher than those in other countries in Central Asia. Recent outbruks of measles, polio, diphtheria, and cholera should be viewed as early waming signs of a bradown in health care delivery. In fact, the figures given for 1992 (Table 11.1) are believed to be under-estinuted because of reporting problems during the civil war. 11.10 UNiCEF/Medicines Sans Frontiers (MSF) figures in August/September 1993 show child malnutriton at aWroximately 8 percent, of which 6 percent is moderate and 2 percent is severe. These numbers, which are not by themselves necessarily alaming, are expected to grow over the near future. Inveshnent in Human Capital 171 since there are large numbers of children among the oountry's refugees and intenally displaced Tabl 11.2: Caue of Infant Mortalt (w 10,000 persons, and inflation and locl food scarcity are Lve fr) beginning to cmpromise household food intake. Infant milk kitchens have been closed, and this, is85 i9P8 1989 1990 together with the absence of a program to promote breastfeeding, puts infants at increased Cause: 467.6 489.4 432.1 407.3 risk during the transition period. Inbctis 148.7 126.7 130.3 119.2 Respiraory 177.3 178.1 1562 152.6 11.11 Maternal and Reproductive Compikadm 63.3 73.8 7335 753 Health: Tajikistan's maternal mortality and Congeniwl 13.1 12.8 1OA !6.1 morbidity rates are higher than those of other Accidems/ Central Asian countries. The maternal mortality Tumas 7.3 7.0 7.8 5.2 ratte (MMR) has been increasing since 1990 (see Gk- Table 11.3).' The Ministry of Health expects the &IC GOSL 1993 MMR to be even higher, due to: i) increased malnutrion as a result of economic hadships; ii) scarcity of drugs and phamactical supplies; and iii) the large number of women currndy living in temporary or inadequate shelter in the wake of the civil war and floods. Increased mortality among high-risk women has been caused by a lack of adequate resources, including inadequate blood suWpies, limited drugs to hardle conditions such as eclampsia, and lack of transportation to tanfer patients to referral facilities. Considerable differnce exists between the MMR data supplied by the MOH and that provided by Goskomstat, the two major sources of such data. The Goskomstat data, which are more acurate, are lower than MOH numbers, but show more dramatic increases since 1990 (see Table 11.3); both measures show that mortalfty rates are increasing. 11.12 Tajik women, especially pregnant women, have a high prevalence of nutritional anaemia. High inflation and the removal of many food subsidies make it difficult for many fimilies to have balan-ed diets. 11.13 Fertility is very high in Tajikdstan, with an annual population growth rate of approximately 3 percent, and a total fertility rate of 5.2.2 The contraceptive prevalence rate is low - at 12 percent of women of reproductive age - with some reports indicating that only 3 percen use modern contraceptives.3 Tajik women have basically two choices of contraceptives: oral conraceptives and IUDs, the latter being more popular. There are no legal barriers to using other forms of acepton, but few or no information-education-communication services are provided to women of reproductive age, and there is little access to other contraceptatve methods. hIded, Tajik women do not have access to most major types of oral conaceptives available on the world market, but must use the few ldnds that can be had in Tajikistan. 1. Laer convesaions with MOH officials vealed a discrpncy in the MM mnmbers (see also Table). The MOH nmbers appar to indude alt nuenal deaths and are not confind to deaths during or within 42 days alter trmimstion of pregnancy. The kler methodology is used by GoskoustaL 2. Weinstein. Tidith, Wonmas Reproductive Helh in the Centrl Asian Republics. August 1993. p. 3. 3. Weinstein. Judith eal., p. 11. 172 Chapter 11 11.14 Statistics show a high incidence of diseases related to frequent pregnancies and Table IL3: 1990-93 Maternal Mortality Rates deliveries, including abortions, which are often used as the sole method of fertility regulationL MOH FIGURES: MOH professionals indicate that many women YM MMR % INCREASE who have sought farily planning services have not been able to find them, primarily due to the 1990 97.0 limited and inconsistent supplies available. What 1991 100.7 3.8 few contraceptives existed in the past were 1992 119.8 19.0 supplied by Moscow, and those supplies have dried up. Currently, the only supplies are GoSKoMSTAT GuREs: brought in by donors. User fees have been YEAR MM %INCREASE imposed on a limited mmiber of services, and relatively high rates are being charged to provide 1990 41.8 ontraceptives, treat venereal diseases, and for 11 69.6 30.8 other reproductive services, including infertility counseling and abortions. Most of these services should be provided at little or no cost to the patient, both to encourage more people to take advantage of them and to ensure that poor people will have unrestricted access. The social costs of leaving sexually tansmitted diseases untreated, for example, are much higher than the cost of andbiotics. 11.15 Budget and Financing: In general, it is clear that the health sector is deteriorating rapidly and health indicators are gefting worse when over the last three years the share of health in the overall budget has been declining. Betwe 1990 and 1991, health sector spending fell in real terms by 34 percent and an additional 52 percent between 1991 and 1992. 11.16 More than 60 percent of the approved budget will go to salaries and various benefits (see Table 11.7). This crowds out expenditures for (re)training staff and for dmgs and pharmaceutical supplies, both of which arc important in providing health care. Aid agencies and bilateral donors are furnishing some assistance to the country, but by October 1993, only about 35 percent of the annual vaccine, and 10 percent of drug needs had been met. As mentioned above, fees for some services have been introduced. but have generated minimial revenue -35 million rubles, approxnimately 0.15 percent of the MOH budget. Although a law proposing a health insurance scheme has been drafted, it is unlikely that to be implemented in the near future. The Govnment has indicated ftat the country's needs could be met if it can mobilize further external assistance. However, unless comprehensive reforms are introduced in the health sector, external assistance will most likely be limited to emergency relief. 11.17 DrugsandPharmaceuica[Supples: Dru expendituesandpharmacetical supplieshave been declining over the past throe years. In 1991, planmnd drug and pharnaceutical expenditures were 10.3 percent of the health budget; acual expenditues were only 7.3 percent. In 1992. the equivalent values were 8.4 and 5.9. respectively. In 1993, tie plan is to spend 11.6 percent of the budget on these items, but if past trends continue this will also be reduced - this at a time when the demand for health care services is growing. 1993 drug expenditure allocations indicate a bias towards tertiary care institutions. In 199! and 1992 budgets, more than 77 percent of the ; iamaceutical allocation was made to the local budget, which supplies health centers, and polycinics. In contrast, in 1993, the allocation to the local budget was only 40 percent, with the rest going to the republican budget, which provides for the central hospitals. This most likely reflects the haphazard narwrt of setting priorities in tne health sector, where shifts in expenditres from one year to the next seem to be due to arbitrary decisions, Investcent in Human Capital 173 rather than policy changes. MOH's strategic pl capacityr needs to be strengthened. Table 11.4: Social Secto Spending a Prcent of Budget 11.18 Once the local budget allocation for drugs or pharmaceuticals is increased, the efficient use YER/ of those drugs wiUl need to be addressed. SECTOR PLAN Administering inappropriate dosages, especially of ACTUAL vaccines, is a serious problem, since most medicines -9- are kept well beyond their rcomm shelf-lives, Edu199 on 19.8 24.4 medical personnel have become accustomed to over- Healht 10.8 12.1 prescribing dosages to ensure effectiveness. 1992 Education 14.4 20.7 Education and TrIijg Healdh 7.8 9.7 1993' 11.19 the Education System: Grades 14 EducatiD 36.5 193 constitute the equivalent of primary education; Grades Health 16.1 11.8 5-9 incomplete secondary; and Grades 5-11 complete secondary (Grade 12 has been introduced selectively i t AcIdS! for 1993 are for p-riod some schools). Approximately 82 percent of the JahSp stuents who complete Grade 9 go on to Grade 10. In Source: MOP. 1992, there were 3,320 primary and secondary schools in the country, with a total of 1,272,700 pupils. There were 9 tertiary level institutions, and 13 schools for the metlay and physically disabled. Correspondence and evenng courses emst, the former growing popularity with the imposition of curfews and the lack of adequate evening portation Although education is compulsory for all children aged 6-18, many leave school to join the labor force at age 16, and it is not uncommon to drop- out after Grade 4. There was litde inforniation about the dramatic drop in Grade 4 enrollments this year. but from anecdotal evidence, it appears that most of the unenrolled are girls, especialy from rural areas. whose parents need them to work at home and are reluctant to send them to distant schools. 1 t.20 Tajikistan has at least 56 higher edacational and secondary technical vocational schools. The Ministry of Labor. which is responsible for technial education and vocional training indicated that there is a clear gender distribution by subject: women are involved only in the domestic scienxs courses (home economics, hygiene, and sometimes baking), not in any of the technical disciplines. There are 55 ext-cumricular facilities (such as Pioneer Palaces) and six retraining isttes for teachers. The education system has a total of 125,000 employees from pre-school staffs to univer.ity professors. Most- primary and secondary school teachers in urban areas are women, while most in rural areas are men. 174 Chapter 11 Figure 11.1. TAJIKISTAN EDUCDkZON SYSTEM. 01101/93 inogo 1480100 12M 1 2 3 * 5 s 7 8 S 10 n1 12 Quality of Edulcation 11.21 In Tajikistan, indicators such as enrollment, number of instructional hours, student-to- textbook ratio, class size, teacher training, and unit eenditues indicate that education quality has declined considerably. 11.22 School enrollment data is cllected each year. Reports are sent from the school, through the rayon and oblast education committees, to the Ministry of Education, which in turn passes the informadon on to the State Committee for Statistics (Goskomstat). Private education or cost-recovery efforts do not exist in any substantive way, but initial steps are beinr; taken. Families now must pay a nominal fee for children to attend pre-school. but the fee is reduced or waived altogether for large faniilies. A Tajik/Turkish lycee that would charge stdent fees was scheduled to open in late Otober 1993, and similar offers from other countries are under consideration. 11.23 EnroUlment: The gross enrollment ratio for primary and secondary Table 11.5: Student-Teacher Ratio schools is approximately 89 percent. Since STUDENTS PER TEACHER 1991, enrollment has dropped, going down to TOTALS Gr. 1-3(4) Gr. 5-lI 6.8 percent in urban schools and 2.6 in rural schools between the 1991/92 and 1992193 1985186 16.1 23.2 18.5 academnic years. The largest reductions were in 1989190 14.3 21.4 16.5 Grades 9-11(12), which went down by 20.3 1990191 14A 21.3 16.5 percent. and in schools for the disabled, which 1991/92 13.7 21.7 15.4 declined by 16.7 percent. Most likely, the 19923 12.2 20.8 14. civil war explains these decreases affecting * TOTAL figun include teachems of music, physical both reporting and attendance over that period. cultum, et. as well as heads of schools so these The number of teachers, however, increased at ratios are smaUer. a rate of 1-3 percent over the same period. source: MOE. 11.24 Average class size has also decreased over the past few years (see Table 11.6) as economic hardships deepened. Little ivsument in Human Capital 175 analysis has been done to trace the causes of these declines, and it is important that the Government do so in the near fure. 11.25 Unfortunately, the expenditure figures are not adequately disaggrgated to assess unit expenditure by level of education. However, the aggregate figures do show that amnuns paid fir textbooks and other inputs have remained small and declined over the past three years, while the amounts paid out for salaries and benefits increased. 11.26 Burdget and Fman&g: The planned education budget has been fluctuating over the past three years. The 1991 plan figures were 19.8 percent of the Government budget, going down to 14.4 percent in 1992, and up again, to 37 percent in 1993. Actual expenditmres in 1993 show a different picure, however. Altdough the Govemment allocated 36.5 billion rubles to education for 1993, it had spent only half by the end of the third quarter (see Table 11.4). 11.27 Although the largest share of social sector expitures continues to go to education, this share has been declining since 1991. Table 11.6: Average Cm Whereas 24 percent of the budget went to education in 1991, this fell Sie to 21 percent in 1992, and will probably be no higher dan that in 1993. ASS SG In real terms, the education budget has seen steep declines, falling 34 peret between 1990 and 1991, with an additional drop of 52 perct 190 2Z.4 between 1991-92, and an estimated decline of at least 73 percent RuRn 21.2 between 1992 and 1993. Urban 25.8 1991/92 21.9 11.28 The education and health wage bill has become large RUFal 20.8 and unsustainable, in spite of the dramatic declnes in individual wages. Urba 253 The salary of the aveage education employee is in real tems, 4.7 percent his/her 1990 salary. In health, thc figure is equaly dismal at 1992/93 22.1 4.5 pecent. Understanably, morale, is very low as professionals arc Rural 20.1 srving to cope with daly prsures. Any possibility of emlomet Urba 24.4 abroad is increasingly atrcve. To keep its sldlled education and SO=Ce MOE. health workers in the sector without increasing the wage bill, the Government will have to reduce dr number of personnel before it increases salaries. However, it is dii.icult to imagine how any wage increase will be able to make up for the declines siwe 1989. the harshest of which have ocaurred over the last three years. 11.29 Pesonnel: As the above tables show, class size and teacher-to-stent ratio is shrinking in most schools. The umber of hours of hsruction that each tcher is rquired to provide hs fallen. In Grades 1-4, teachen must give a minimm of 16 hours of istrction a week- in Grades 5-11, they must teach 14 hours. These numbers were reduced last year from a minimum 20 and 18 hours per week, respectively, as a way of raising teacher compensation, since teachers who teach more than the minium arm paid on a pro-rated basis. On avenage, each teacher teaches 1.3 times the minimm (approx. 18 and 21 hours, respectively); the average for neighboring republics is 27 hours. Lowering the required mimum hours to increase teacher salaries, instead of just raising wages, has an adverse effect on education quality and should be reconsidered. Efficiey gains could be made by increasing the number of hours each teacher teaches, and increasing class size from 21-24 to approximately 25-28. This wold cut spending without seriously reducing quality. 176 Chapter 11 11.30 Hours of contaac. Recent changes in prmary and seowndary sdhool cumrricala have reduced the number of hours of contact each student has with the teacher(s). For Grades 1-5, the number of hours a student is required to be in class has been cut 2 hours a week. In Grade 6, it was cut by one hour . The intention is to reduce instruction in each grade by 1-2 hours, introducing the policy one grade at a dme. Thus, Grade 7 hours will be reduced by one hour in 1993, Grade 8 by one hour in 1994, etc. While there appears to be litle justification for these reductions; however, they will cause significant dedines in education quality. If the aim is to reduce per teacher working hours as a way of cutting costs, then ratonalizing the teaching force should have a more direct impact. If the curriculm is overloaded, improving the contets would yield beter results than reducing the number of hours of conta. 11.31 Texboks and odthr educaton makrials: The 1978 decree on textbooks declared that al textbooks were to be provided free by the Goverment, that ecrh book was to be kept for 4 years, and tat larger print-mns were to make up for wastage. In recent years, the textbook expendihtres bave been faling, due to the oveall reduction in educaton expenditurs and to a shift in the education budget trward salaries and benefits. Although the policy is to have a suden-to-texbook ratio of 1:1, only 60 percent of the textbooks ordered last year were delivered. In July 1993, for example, none of the alphabet readers for Grade I were received (old texts were revived from libraries, colected from families, etc. to meet the need); 103,000 f.rade 4 students had no mathematics textboks; and 102,000 Grade 8 stdents had n economic or geography tex. 11.32 Several bottlenecks exist in the publication and distrbution of textbooks. First, there are irisufficient fimds for the initial print-runs. Since 1990, paper and other inputs, most of which are imported, have been scarce. Second, the growing population necessitates a larger print-nm each year, and local publisers are increasingly unable to meet these needs (from 1987 to 1992, MOE emates that the need for textbooks grew by am additional 3.0 million). Third, the cost of distribution is borne by the rayon and less rayws cannot fully meet the needs of ther students. Fmally, there is little opporunity to involve private sector opatrs in providing textbooks, though a few texs are available in the markets. Tngq I1 33 With the transition to a market-orientd economy, the demands on th taining sub-sector are changing. Market-onted skldls and Wester language proficiency are growmg in importance. Retrenched workers and new entants into the labor market face declming employment oppomries in thepublicandprivasectors. Unemploynt andunder-emloyment areacceleratingithepublicsector as enterprises respod to the contraction of the economy. Private sector acivity has not grown af a pace ihat would cmte a large number of jobs. Political intbiity and economic unceminty have made foreign investors leery of involvement, and investment opportunities have not been attractive eough to keep local investors' funds in the counuy. Though not adequately documented, small-scale nterprise and informal sector activities zre areas that prvide the greatest oppounity forjob creation in the short- tM. 11.34 Publcsectr mng: Curre;ly, the public sector provides almost all training, managed by the Minisy of Labor and targeted at retenched workers. Even among retenched workers, however, th number of eligible trainees is limited. This is due to the policy of training only those far whom jobs have already been identified; to lack of capacity at training centers; and to limited funds available to provide stipends to trainees (equivalent to the minimm wage in October 1093). For example, out of 54,786 applicants to the Employment Fund in the first 9 months of 1993, (re)training was provided only to 2,537 persons. Investment in Human Capital 177 11.35 With the number of hidden unemployed and underemployed growing Table 11.7: Salary nd Beneftls as Share of Seetor Budges rapidly, the demand for the training p,cuent) programs has led to public sector institutions to accept fee-paying tainees, Plan al but only in small programs concentrated in the large cities of Dushanbe and Khojand. 1991 The most popular courses are marketing, Education* 69A 75.7 computer skills (although only one Educaton" 66. 713 institution in the country provides these), Heah" 512 67.1 and other business skills, such as i199 accounting and bookkeeping. Although Educaion* 53.8 722 several technical schools and the Educaton" 48.7 66.4 Pedagogical University in Dushanbe have Halt** 48.8 66.9 beg to provide foreign language classes to 1993 their regular student, such courses are not Educafion 67.0- available to trainees who are not enrolled as Education" 62.2** regular students. Healtb*h 63.1'' 11.36 Private sector o'ainiug e Includes sares' lax (37%). travel aPowauces, sudent programs: Very few non-Government mn so mlismns and pada paymets to trining courses are available, and all of alleviaze on. these were provided by foreign NGOs or * Include all ims under ( above but excludes meals. hrmugh bileral arangements. Several potentialprivatetrainingprovidersfindicated 3Our:: MOF reluctance to inrest in setting up such courses, since it is still unconstitutional to accept fees for providing any kind of education. The Govemment will have to address the lack of incentives for private sector involvement. Many courses currently provided by the public sector, such as marketing and business practices, computer skills, and foreign languages are traditionally provided by the private sector m most countries and could attract private sector participation in Tajikistan. 11.37 Unfortunately, a large and growing number of the unemployed have little or no access to the kind of training they need to seek employment in the public sector, or to work in the formal or informal private sector. The largest such group are new entrants into the labor market, who have been effectively excluded from any of the training opportunities available to retrenched workers. Recommendations 11.38 The following recommendadons are important steps that the Government should take within the next three years to imnprove (or at least maintain) curent levels of investment in human capital. Health 11.39 The Government shoud place more emphasis on basic services as a fundamental aspect of the social safety net. In general, an emphasis on health education, preventative care and disease contro' is recommended. Improved access is not a high priority, with the exception of extending services 178 Chapter 11 to the refuge and displaced population. The most needed iovements are in the quality of caue and in system efficiency. 11.40 In the short-term, the Government needs to address problems in the health sector that stem from the civil war and natural diss , as well as the structural problems facing the sector. There is a need for strict prioritization. First, gains can be made by addressing the imbalance in the distribution of health professional levels. Population-to-doctor atios in Tajilisan are genero by mniddle-income developing country stndards, though below other FSU countries. However, shortages remain in some specialties while others are oversupplied. MOH must identify which medical professional levels are needed and ensure that training programs address those needs. Entry to training courses for oversupplied levels of specialties should be limited. The MOH should detemiine how many professionals are needed in the system and trim accordingly. 14Al Second, outdated nrocedures have adverse health effects and/or increase health care costs. These include: treating with Lkuge doses of medicines; prescnbing multiple medicines for reltively simple ailments; and using elaborate and largely unnecessary diagnostic procedures. In-patient stays at hospitals are longer ta in most other countries. For example, in 1990, the average hospital stay for the flu was 9 days; a rest stay in a sanatorium or healdt resort, 6 days. Correcing these problems would inprove the health status of the population while cctting costs. 11.42 Third, private sector involvnent could relieve some of the pressure on the system. The Govemment must: i) have transparent procedures for the licensing of private practitioners; ii) have a clear policy on opportunities for public servants' setfing up private practice; and iii) provide an adequate regulatory enviromnent to protect the popuion from malpractice. 11.43 Materna and Child Health: To reduce matemal and inft mortlity and morbidity, autentio needs to be paid to improving nutrition, providing adequate and accessible family planning services, and promoting preive care. Trining health care professionals in modem medical technologies and procedures, including methods of family planning, is as important as increasing dLe resource allocation to qualitative inputs in the sector. Existing programs to provide iron supplements to pregnant women should be strengtheted.4 A universal food item should be identified and fortified with iron. (One possibility woud be to forify flour at central mills before it is distributed to households.) Hard-hit areas should be frequently surveyed to: i) monitor malnutrition and ensure adequate measures are implemented to counter it; ii that the Govenment undertaks an active breastfeeding prototion program; and iii) that micro-nutrient deficiencies in the population are addressed through supplementation and fortification piograms. Concerted efforts should be made to educate the public on the benefits of limiting family size, particularly as a way of improving matemal and child health. MOH should also include traing in providing family plannng services and counselling m all pre- and in-service courses for health staff. 11.44 Adult Hea .: The most importnt intervention in adult health is to reduce the population's consumption of fats, alcohol and cigarettes. This is obviously a long-term issue, and education campaigns are needed to reinforce the message. In the short-term, modern procedures for the handling of cardio-vascular diseases must be introduced and staff trained. 4. Ideally, tex supplmenuts should be combined in an iron folate capsule and should be provided witouL urgeting to an prga women. Investment in Human Capital 179 11.45 Budget and Financng: A system of health care financing must be developed that wil assure both equity and access, as well as generate some revenue. Any revenue generation effort should be viewed as a way of infiuencing the demand for services, not as a substantial short-run cost reduction mechanism. The current cost recovery policy should be examined and critical services removed from fee-charging. 11.46 Drugs and Pharmaceutcal Supplies: Drug expenditures should be carefilly monitored. A drug policy should be implemented dtat will, among otber tiings, address issues of expired medicines, appropriate doses, and updating procedures; training of medical and pharmacy staff; and adequate quality control measures, including regulatg storage facilities and the cold chai. An imrportant first step would be to improve MOH's intenational procurement procedures to enure that the most essential dmgs are purchased at the lowest prices. Local phnnic production should remain limited to simple genenc capsules and IV fluids. 11.47 Cqpacy Eulding and Institutonal Development- Inplementation plans should be developed to improve the health system's efficiency and quality of care. Private clinics and homes must be allowed to operate under license. The role of medical research and teachg instutes must be clearly defined. Reducing the ratio of health staff to population through attrition and barriers to entry will be an importam prerequisite to increasing wages in real ms for health professionals. Medical and paramecal curricula mna be revised, and admission to training programs should be linked to the country's neds. 11.48 Cross-sectoral efforts: mpvns in water, water disution and sanitation will play a pivotal role in imroving the popuation's health, especialy of cbildreI The Government should adopt a plan to inprove water and sanitation services, particularly in rural areas and in regions most affected by the war and floods. In addition, MOH should educate the populaton on manXt of basic hygiene in the home, possibly through the -ms media. Education 11.49 Acces to education should be expanded for refugees returning from neighbong couties a intermaUy displaoed persons. Efforts should be made to produe systematic school surveys to determine how much the quality of education has changed in the last three years, and to track any changes that occur in the ftur. 12.50 Qualiy of Education: Declines in instructional hours and in teacher-to-studt contact, teacher (re)training. and in provision of textbooks are expected to have a direct impact on the quality of education in the country. Govement should imediately change those policies tbat have eroded these indicators, and protet expendiures allocated to textbooks. If the necessary efficiency measures are taken, the bdetary implications of these Ci ton: do not have to be enormous. 11.51 Decrasing enrollment is a cause for concern if it continues. Through the surveys mentioned above, the Govermnent shou' idenmify areas of the country with the sharpest drops and the reasons for them. Of particular importance should be the gender of students who are either not entering school or who have left schools in rural areas, since anecdotal evidence suggests that girls are disp roportionatly represented. 180 Chapter 11 11.52 Budget and Financng: Streamlining the teaching force will be an important cost-cutting and efficiency measure in the sector, but must be preceded by a study of the sector's needs in the next three to five years so that there will not be a shortage of trained teachers, especially teachers with specific skills. Reducing the number of teachers will free resources needed to provide teachers with an adequate wage. The sharp real declines in wages in education may have provided an incentive to reduce the oversupply of teachers, but has also caused exodus of the most highly trained, and will result in a shortage in the coming years. 11.53 Eduction Materials: The removal of bottlenecks in publishing and distributing textbooks and other education materials is an important step maintaining education quality. Recent Govermnent discussions regarding curriculum changes should be encouraged, and technical assistance should be provided to enable the Government to take advantage of international expertise in this area. A book policy should be put into place including, among other things, the possibility of instituting a rental scheme. Such a policy should encourage private sector involvement in both publication and distribution. 11.54 Training: To meet the demands of the rnarket-oriented economy, flexible and innovative training approaches should be adopted. Close coordination between the Ministry of Labor, which has many of the responsibilities of the technical schools, and the Ministry of Education and various line ministries, including Industry and Agriculture, will be required for effective training programs. 11.55 Government should encourage private sector involvement in setting up training courses. While private initiatives are being developed, continued Government involvement will be needed to maintin onoing training courses for those who are: (i) unable to pay for the training they need; and (ii) for those who seek skills that are in demand but do not attract private sector providers. 11.56 Training should be de-linked from guarantees of employment. Although the current policy yields impressive placement figures for the labor exchange offices, it introduces an unnecessary barrier to training and limits the potential to train persons who want to go into the private sector. 11.57 Trining programs should strengthen their links with enterprises. Until private sector initiatives offer bettcr courses and better employment opportnities, public entses will remain the main user of trained personnel. Strengthening their links with public enterprises and maldng increased efforts to have them participate in practical trainng of workers will enhance the relevance of the trining provided. In many instances, enterprises are willing to share in the costs of training their fiuture staff, and tiis should be explored further. 11-58 The Govermnent can play a crucial role in developing appropriate curricula and materials to meet the above-mentioned needs, and could spearhead the initiative to upgrade trainers' skills. Since there are many donor initiatives to do this in the FSU and in Eastern and Central Europe, Tajikistan could benefit from their experiences and may be able to attract their assistance. 11.59 The Ministry of Labor is beginning to consider the active export of labor to countries in Europe and the Middle East. If this initiative takes off, the trainig sub-sector should be p't.ared both to provide the kdnd of training required abroad. and to establish procedures for cost-recovery, either from the hiring firm, or from students seeking the employment opportunities abroad. This idea, -however. is still in its ascent stages. Investment m Human Capital 181 11.60 Data colctdon: kt is i yportant to pay atention to improving data collection and methodology as the Government beg;ns to put proposed policy changes into place. This efbrt should be cetered around Goskomstat, but it is equally important to ensure that the collected data is available and usefu to the line ministries. CHAPTER 12 ENVIRONMNT Overall Assessment 12.1 The rich natural resources of Tajikdstan have the potential to support sustainable development. However, to xally achieve this kind of development, environmental considerations must not be made secondary to future investment choices. Water resources, fertile soils, and biodiversity (flora and fauna) are primary national assets. These assets, as well as clean air, ar being threned by lack of environmental considerations in agricultural practices, industrial development, and waste management. Given the wealth of its resources and the considerable vulnerability imposed on them by topographic and climatic conditions, it is all the more imporant for Tajildstan to establish well functioning environental institutions capable of accurate monitoring and impact assessment. 12.2 The inappropriate use of pesticides and fertilizer in the major cotton producing areas of the country has contminated tie soil, as well as surface and ground water. While irrigation has substantially contnbuted to agricultural productivity. it has caused significant soil salinization and erosion. The loss of plant and tree cover due to deforestation and ovegrazing also contnIbtes considerably to salinization (from sand winds) and erosion, as well as loss of biodiversity. The hydropower industry has mixed impact on the eavironment and society at-large. Dams provide flood control and have the potetial to help avoid air polution problems associated with energy production baed on fossil fuels. On the other hand, the construction of large dams and reservoirs reduces biodiversity and scarce arable land and displaces populatons. Air poilution is caused by inefficient technologies in the industrial sector and traffic congestion. In the past, the level of air pollution in the urban cemers exceeded health standards by many times. Since 1992, however, air pollution levels have dropped dramatically. This is because economic contraction has led to a decrease in automotive transportaton and industrial production. The aluminum smelter is the major source of air pollution and is a threat to public health. Many drinng water sources are deemed unfit for human consumption because of inadequate distution systems and agricultural and industrial contamination. Lack of adequate waste water treatment ficilities and poor solid and hazardous waste management practices also constiute high nsks to huan healti and the eaviraonert. Climatic and Topographic Sources of Concern 12.3 Ninety-three percent of Tajildstan is mountainous and 80 percent of its land area is prone to earthquakes. The combination of mouninos topography and high seismicity, together with severe weather conditions, contnbute to natral calamities which exacerbate many environental problems and inflict serious damage on the national economy. Approximately 60 percent of the republic is subject to avalanches, landslides and mudslides, the frequency and intensity of which are further increased by human activity. Since the beginning of the twentieth century, over 500 earthquakes with magnitudes grer dtan five on the Richter scale were registered in Tajikistan, three of them resulted in massive loss of life- the Wait. the Sarez, and the Karatag. In 1949, Khait eardzquake triggered a landslide of gigantic blocks of rock that quicldy covered the regional center of Khait, which bad a population of over 24,000. 12.4 The 1911 Sarez earthquak also triggered a landslide, creating a 850 meter high natural dam (later named the Usoi Dam after the village it engulfed) that led to the natral creation of Sarez Lake 184 Cnapter 12 which currently covers 88.0 km2. According to hydrological observations, the lake is in a quasi- equilibrium state, causing considerable concern over a potentially devastating outpouring of water. To protect the population from such a d,saster, an automatic satellite communications-based warning system, 'Usoit. was installed, but needs additional financial support for operations and maintenance. Flora and Fauna 12.5 Over the recent decades, populations of many species of plants and animals have become endangered and some even extinct. More an 200 species of plants have been listed in the "Red Book' of Tajikistan, some of which are also listed in the International Red Book. 12.6 Tajikistan is home to 365 bird species, 49 species of reptiles, over 10,000 invertebrates and insects, and more than 80 species of mamals. Some of the rarer mammals include Snow Leopard (Panthera uncia), Bukbara Deer, Asiatic Bear (Ursus arcros isabellinus), Marco Polo Sheep (Ovis ammon polE), Long-tailed Marnot (Marmot caudaa), Asiatic Mouflon (Ovis orientalis), Markhor (Capra falconen). and Mediterranean Gazelle. Some attempts have been made to restore the dwindling populations of Bukhara Deer and Mediterranen Gazelle. The Marco Polo Sheep, long held sacred in Tajikistan, are threatened due to the loss of winter and sununer range from livestock encroachunent, as well as poaching. The Ministry of Natural Protection reported that the last Tiger was killed only recently. 12.7 Tajikistan has a large variety of soils that sustain a diversity of piant life. The indigenous plant gene pool is a very important resource for the world. It is especially rich in species with economic value used for medicinal and manufacturing purposes, including about 400 medicinal herbs, over 115 dye plas and 40 fruit bearing plants. Tajikistan is the place of origin for several crops and fruit-bearing tree species. The wild relatives of such species as lentils, chickpeas, walnuts, apples, wheat, pulses, almonds, and pistachios can still be found. The area provides unique opporunities for selection of new drought and disease resistant varieties, and a living laboratory for studying insect-plant relationships to advance biological control techniques. Tajikistan also provides fertile ground for prospecting natural sources of pharmaceutical products. Currently, Tajikistan's only pharmaceutical enterprise produces its medicines almost entirely from indigenous herbs. Water Resources 12.8 Water is Tajikisran's most abundant natural resource. There are 8,500 glaciers in the country, covering six percent of Tajikistan's total land area. These glaciers store 455.9 kIm3 of water and, together with winter rain and snow, feed the valleys by flowing into the 947 streams and rivers which total 28,500 kIn in length. The total water runoff from the mountains equals approximately 61.8 km3 amnually. Some twenty of these glaciers are "pulsating glaciers" which are characterized by periodic movements. The most famous of these, the Medvezhe glacier, located at the head of the Vaksh River in the Western Pamirs. poses the greatest danger and caused catastrophe in 1963 and 1973. There is some evidence of glacial contamination from atmospheric dust, air-borne pesticides and other chemicals from the Aral region; lack of specific information on this is a concern. 12.9 Tajikistan's rivers constitute the two major river systems of Central Asia, the Amu Darya and the Syr Darya, which feed the Aral Sea. The majority of Tajikistan's rivers belong to the Amu Darya River Basin. including the Pianj, the Vakhsh, and the Kafirnigan Rivers. The Syr Darya River has only a small catchment area in the north. There are 1,300 lakes which make up about one percent Enviromnent 185 of the territory, and underground aquifers which contribute almost nine percent of the country's total water use. 12.10 One of the most serious policy dilemmas facing the countries in Central Asia concerns environmental problems of the Aral Sea basin. In addition, Tajikistan has the lowest per capita annual water consumption and land irrigation, 1,300 nin and 0.13 hectares, respectively - 1.5 times lower than neighboring republics. At the same time, water utilization efficiency is much higher than the average for the region. Nevertheless, a significant degree of cooperation among the republics will be crucial in reaching a solution to the Aral Sea crisis. Although Tajikistan covers only 5.7 percent of the total basin area, it would be instrunental in any regional solution as 44 percent of the average annual runoff of the basin is formed within its borders. Of Tajikistan's 54.8 km3 of runoff, only 20 percent is used for the needs of the republic. Industry 12.11 Industrialization has been one of the factors responsible for degrading Tajikistan's water resources. For instance, the Yavan Chemical plant's direct discharge to surface waters has to some extent polluted the Naryn-Sy River to the extent that it is now unsuitable for drinking or irrigation. In 1989, the Vakhsh Nitrogen Fertilizer plant' polluted the only large aquifer in southern Tajikistan, destroying the water supply of several villages and endangering the cities of Kurgan-Tyube and Kalininabad. 12.12 The Leninabad Chemical Plant which was orginally engaged in uranium mining has now been converted to a refinery for processing gold, silver, tungsten, and certain other rare metals. It appears that no remediation is planned, although significant soil and water contamination has been implicated at this site. Mining activities, which had been started in some 400 sites for over 36 useful constituents, are also likely to cause water contamination, as well as soil erosion. It is important that the environmental impacts of these mines be assessed and remedial action taken before production levels are resumed. 12.13 Tajikistan's hydropower production is third in the world, after the United States and Russia. The most intensive development of these resources has been in the Vakhsh Valley, where the two highest dams, the Nurek and the Rogun (still under construction), are located. While large-scale development of hydroelectricity has brought substantial benefits to Tajikistan, it has also resulted in loss of arable land, soil erosion, and reduction in fish populations. It has been estimated that from 1984 to 1989, the fish population decreased by more than 30 percen because of loss of breeding grounds. The construction of the Rogun, which was scheduled to be conpleted in 1997-2002,2 will force 22 and 40 thousand rural people to be relocated from the Komsomolabad and Garm Districts. Agriculture 12.14 Agriculture's impact on the environment stems mainly from reliance on irrigation, which in 1989, consumed 81 percent of the 12.6 kla9 of water used. Presently 86 percent or 698,000 hecres of the arable land is irrigated, primarily for cotton and, to a lesser extent, fodder crops, vegetables, and I This fertilizer plant was destroyed during die war. 2. The construction of dte RogUn Dam has ceased due to the lack of funding. 186 Chapter 12 fruit. The growth rate of irrigated land has been considerably lower than in other states of the Aral Sea Basin, primarily due to the difficulty of building irrigation systems under mountainous conditions. 12.15 Efficiency of water use is the biggest problem associated with the present irrigation system. Water withdrawn for irrigation is used at an efficiency rate of approximately 67 percent. This rate can partly be attributed to the irrigation canals which often lose 60 to 70 percent of their water for lack of concrete jackets. Irrigation also has ind;;ect consequences associated with the increase in demand for hydropower, which has its own sct of environmental and social problems. In 1988, irrigation required two billion kilowatt hours of electricity. 12.16 The second largest problem related to irrigation is the lack of adequate drainage systems and the associated water logging and salinization. In the early 1980s. Tajildstan lost 45,00D tons of cotton per year due to water logging and soil salinization. According to the 1989 FSU Envirownental Survey, 15 percent of Tajikistan's total cropland was salinized, and 15 thousand hectares of irrigated cropland were completely unusable because of high saline concenrations. 12.17 Soil erosion is another by-product of intensive irrigation. According to the 1989 FSU Enviromnent survey, 68 percent of all agricultural land had been eroded to some extent and 28 percent of the total land area. Erosion from irrigation had effected 52.6 percent of all irrigated cropland. The Ministry of Nature Protection has noted that soil erosion from flooding, wind, overgrazing and loss of plant and tree cover are equally important. Currently, little is being done to protect the limited soil resources of the country. 12.18 Indiscriminate use, over-application, and inadequate storage of pesticides and fertilizers have resulted in considerable contamination of soils, ground water, surface water, and food products in Tajikistan. A 1992 document publishedby UNICEF and the World Health Organization (WHO) reported that pesticides have been applied in Tajikistan at a rate of 19 kilograms per hectare on average, as compared with two to three kilograms per hectare for the FSU. The 1989 FSU Enviromnent Survey indicated that Tajikistan had the highest levels of pesticide residues in its soils, and that the quantity of fertilizers used on irrigated lands was 10 to 15 times larger than the mean values for the FSU. For example, the cotton fields of the Hissar and Vakhsh Valleys have residual concentrations of pesticides in soils 3.1 times higher than health standards allow (i.e., 3.1 times above the maximum pollutant concentrations (MPC)). Recently, however, the rate of pesticide and fertilizer utilization has decreased dramatically due to shortages of agricultural chemicals. The use of hazardous defoliants has also been curtailed, and they are no longer applied by aerial methods. 12.19 In 1989, only 50 percent of the farms had storage facilities for agricultural chenicals, and most of these were in poor condition. Chemicals are often stored outside, exposed to the elements, so that leakage of stored pesticides and fertilizers is prevalent. In 1992, UNICEF and WHO found a high incidence of respiratory ailments, neurological and congenital disorders, and iunmunosuppression .9mong children in Tajikistan; healtb problems believed to be linked to agricultural chemical exposure. Agricuitural workers are often exposed to fertilizers, pesticides and other chemicals during application and handling.3 3. Ik should be noted that dhe overwhelming majority of the agricultural workers are currendy women. Enviromnent 187 12.20 Storage space is also a limiting factor in the use of organic manure as fertilizer. Only 30 percent of Central Asia's agricultural facilities have manure depositories. Mismanaged liquid waste from cattle-breeding farms is still another non-point source of water contamination. Water Supply and Sanitation 12.21 The inadequate supply of clean drinking water appears to be the single greatest health hazard in Tajildstan. Even before the civil war, only about 65 percent of the total population had access to piped water, and distribution systems in many towns wer- in poor condition. In rural areas, only 40 percent of the population had piped water, while the remainder obtained water from open sources. The civil war and floods have exacerbated water supply problems, which are especially severe among the approximately 600,000 displaced persons who live in unorganizad settlements. For example, dysentery is common among displaced persons in the Kurgan-Tyube region. Even in areas with piped water supply, high levels of diarrhocal diseases and endemic hepatitis A are common and suggest poor quality of the drinkdng water. 12.22 Diarrhoeal disease is the most common cause of death in infants and accounts for 30 percent of the mortality among children less than five years old. Incidence of hepatitis (primarily type A) increased 50 percent between 1990 and 1991. In the Vakhsh Valley, one of the most densely populated areas, about 40 percent of the citizens get their drinking water from arycls (open canals). This has resulted in incidence of typhoid, viral hepatitis and bacterial dysentery that is 15, 12, and 3 times, respectively, more frequent than the national average. In 1988, drinking water was tested in the Hissar Valley; 21.5 percent of the samples exceeded pesticide health standards and 21.7 percent exceeded bacteriological health standards. 12.23 According to the 1989 FSU Environmental Survey, 49 percent of the waste disposal sites in Tajikistan did not comply with sanitary norms and regulations. In 1985, 72 percent of Tajik homes lacked sewage systems; in 1988, 91 million cubic meters of untreated municipal and industrial waste water were discharged directly into rivers due to a shortage of waste water treatment facilities. It appears that these problems have significandy increased since the beginning of the civil war, and dtat the atnent facilities that do exist are poorly maintained and incapable of adequately treating waste waters. Industrial waste water is either untreated or insufficiently treated before discharge into surface water bodies. Mr Pollution 12.24 Tajikistan's air pollution is not as severe as in other FSU countries due to the relatively low level of industrialization and extensive use of hydropower which minimizes fossil fuel pollution. The capital, Dushanbe, is by far the most polluted city in Tajikistan; automotive emissions and the nearby cement factory account for most of its air pollution. High levels of benzopyrene, a carcinogen, are especially alamning. In 1991, benzopyrene concentrations exceeded maximm permissible concentrations by a factor of seven. Since 1992, however, there has been a dramatic decrease in air pollution levels throughout Tajlkistan due to the cotraction of the economy which has led to a decrease in automotive transportation because of fuel shortages, as well as a decrease in industral production. Air pollution levels are expected to rise again when normal economic activity is resumed. 12.25 The single most significant stationary source of air pollution is the aluminum smelter, located in Tursunzade (Regar). near tie Uzbek border. It is dte third largest aluminum smelter in the 188 Chapter 12 FSU and the only significant manufacturing plant in Tajikistan. The smelter is believed to be equipped with wet scrubbers, which treat only 98 percent of the hydrogen fluoride produced. Actlal air emissions for 1991 were 1. 1 kilograms of fluorine solids per ton (metric) of aluminum produced and 0.5 kilograms of fluorine gas per ton of aluminum produced, totaling 193 tons of fluorides annually. The plant also annually emits 1,306 tons of sulfur dioxide and 28,900 tons of carbon monoxide. The hydrogen fluoride emissions have been the source of significant adverse health effects, both to the residents of Tursunzade and the bordering communities in Uzbekistan. These emissions are also known to cause discernible adverse effects on sensitive plants and grazing animals. Livestock in the area are losing their teeth and dying, and the teeth of local children have been found to be discolored. Insitutional Arrangements 12.26 The Ministry (State Commirtte) for Nature Protection (Goskompriroda) is the organization entrusted with establishing and implementing enviromnental policy, coordinating environmental activities of other public and private entities, and monitoring, and enforcing, compliance with envirornmental laws. It has two separate research divisions: the Tajik Research Center for the Protection of Water Resources and the Research LaboratDry for the Protection of Nature. The Ministry employs fewer than 50 people; its field activities are conducted by local agencies in each of the three oblasts and in each rayon within these oblasts. The Department of Conme.vation and Rational Use of Natural Resources and the Pamir Biological Istitute, both part of the Tajik Academy of Sciences, formulate natural resource management strategies for Tajikistan. The Junior Academy of Sciences, tile Tatik Institute of Economics and the Tajik National Planning Commission also function in this capacity. 12.27 In 1990, the State Commission for Emergency Situations was created to address problems relating to the prevention, occurrence, and elimination of natural disasters, accidents, catastrophes and other emergency situations. This commission operates the system "Usei", designed to prevent a possible breaching of Lake Sarez. It also addresses problems relating to environmental protection and rational use of natural resources. The National Hydrometeorological (Hydromet) Service collects, analyses and disseminates hydrometereological data to forecast floods and efficiently allocate water for irrigation, hydropower production, and other uses. It also monitors the glaciers and coordinates activities with neighboring countries to manage the region's river basins. Presently, Tajikistan has 56 hydrometeorological stations and 78 hydrometeorological posts which is not enough to gather complete information on hyerometeorological regimes and to adequately serve the national economy. 12.28 Although Tajikistan currently uses the environmental laws of the FSU, new environmental legislation is in the process of being formulated. The FSU standards are not selective enough when choosing environmental indicators. As a result, it is virtually impossible to monitor and enforce all the standards in the field. Several agencies monitor the environment, but in general, the process is unreliable, as the laboratories and field equipment are obsolete and spare parts are difficult to come by. In addition, there is a lack of chemical reagents and adequate standards and methodologies. Enviromnental impact assessments (EIAs) and environmental audits are noE effectively used. The economic instruments of envirounental management based on the polluter pays principle is being introduced to generate much needed fnds for environmental activities. Tajikistan has recently created its own environment fund called "Ekhyo" that will eventually be replenished through revenues generated from user fees, taxes, discharge/emission permits, and fines for non-compliance with enviromnental laws, after the economy is restored and restructured. Environment 189 Recommendations 12.29 The investment program for environmental improvements in Tajikistan should be based on institution building, developing opportunities that capitalize on geographical and environmental intrinsic characteristics unique to the republic and on cost-effective programs to reduce public health hazards and natural resource degradacioi. Short-Term 12.30 It is essential 1o improve environmental monitoring and information systems for enforcement, forecasting natural disasters, and planning for water resource allocation. Field monitoring and laboratory equipment need to be upgraded, particularly those used by the National Hydromet Services. A reliable supply of spare parts for proper maintenance must be ensured. New standards and methodologies for collecting and analyzing data should be developed. The number of hydrometeorological stations and posts needs to be increased. 12.31 In the process of reviewing and revising envirownental standards and regulations, more realistic ambient standards for both air and water quality should be adopted, and interim emission standards should be established that will allow existing industy and municipalities to move to the new standards over a reasonable time period. New sources of pollution should be required to meet these standards immediately. 12.32 Training the Ministry of the Nature Protection's staff in environmental management should be a high priority. The program should include training in environmental auditing and impact assessment, risk management techniques and enviromnental and natural resource economics. 12.33 The Ministr of Agriculture's institutional capacity should be strengthened and focused on enviromnental matters. 12.34 Tajildstan's environmental economic instrunments need to become more effective by relying on pollution charges and environmental use fines. Medium-Term 12.35 Restructuring the economy will provide medium-term opportities for addressing environmental objectives that should not be missed. Environmental protection must be treated as an integral part of the entire macroeconomic reform process. Macroeconomic reforms ust be coupled with efforts to develop institutions, regulatory instruments, and economic incentives that discourage environmental abuse. Movement from a centrally-planned to a market-based economy, with the accompanying realignment of prices, changes in ownership, and tighter bu,etary control, will lead to more efficient utilization of natural resources. 12.36 Strict and public environmental impact assessments (EIAs), when applied systematically to all sectors, are a major preventative tool of environmental enforcement. EIA effectiveness could bc increased by: i) greater public participation in their preparation; ii) the dissemination of their results in local and national media; and iii) establishing a specific EIA unit in the Ministry for Nature Protection. 190 Chapter 12 12.37 Once economic restructuring shows which companies will survive in the medium and long tenn, enviromnental auditing of industrial plants and mining facilities will be an essential ingredient in achieving a more efficient, less polluting industrial base in Tajikistan. These audits help identify environmental problems, production inefficiencies, and cost-effective and preventive solutions. While industry should ultimately be responsible for the full cost of the audits, in the early years of transition, they could be made available to industry as a government service. The audit service could be part of a pollution prevention technical assistance program that would assist industry in identifying and implementing low-waste or waste-free manufacturing techniques instead of encouraging the expansion of expensive end-of-pipe treatment capacity. 12.38 Reducing the amount of fluoride emitted from the aluminum smelter in Tursunzade is warranted for public health reasons in Tajikistan and Uzbekistan. This could be accomplished throiah a maintenance program for the existing wet scrubbers which would increase existing removal efficiency or by installating of dry scrubbers which can achieve a higher degree of fluoride treatment. Dry scrubbers have the advantage of closed-cycle operation, where no contaminated water or sludge is produced, and collected materials can be returned directly to the cells. Retuned fluoride and alumina dust are valuable materials that may offset the cost of operating the dry scrubber system. In some instances, the value of recovered material may be large enough to amortize a portion of the capital required to install the system. In addition, improvements in anode manufacturing would reportedly significantly alleviate contamination problems in the electrolytic cells and reduce the amount of cryolite used, which in turn would reduce fluoride emissions. 12.39 The lack of clean drinking water appears to be a result of contamination from pesticides, fertilizers, industrial waste, inadequate sewage treatment systems and open distribution systems. Poor drinking water quality seems to be concentrated in intensive agricultural regions such as the Vakhsh and Hissar Valleys where population density is high, cotton cultivation is extensive, and open canals are comnon. Organic famning practices should be expanded and chemical pesticides and fertilizers replaced by biological pest control methods and organic manure fertilizers. The construction of storage facilities for manure is required if the use of mnanure as a fertilizer is to be expanded. Proper storage facilities are also needed to protect pesticide and fertilizer containers from chemical and physical deterioration, to prevent leakage into the enviroinent. Better management practices for liquid farn animal waste are needed, including (but not limited to) treatnent. Non-point source pollution from agriculture can also be addressed by enhancing self-purification processes, including the construction of artificial wetlands, and plant covers along watercourses and reservoirs. 12.40 The drinking water distribution system should be improved and expanded. The Yavan Chemical enterprise might be a good source of chlorine for disinfecting drinking water since production capabilities are already in place. Existing sewage treatment plants should be upgraded and better maintained. 12.41 Investment in high efficiency irrigation systems and lined water distribution canals would be highly beneficial since it reduces demand for hydropower. A decrease in domestic hydropower demand could have two important consequences: i) greater export of electricity which would generate hard currency, and ii) a decrease in construction of environmentally- and socially-damaging large dams and reservoirs. 12-42 More extensive use of small hydropower plants, which are less environmentally and socially damaging an large hydro projects, should be considered for the remote mountain regions. Environment 191 12.43 There is a need for soil quality intervention. Construction of adequate drainage systems is needed to minimize soil salinization, and livestock grazing must be restricted in the highlands to reduce soil erosion and to protect imporiant indigenous species of flora and fauna. Irrigation practices should also be modified to decrease soil erosion. 12.44 Clearing of the endemic tugai forests in the Amu Darya and Pianj valleys the southwestern Tajikistan has increased flooding and bank erosion. A reforestation project in this area is reconmnended to minimize annual flooding and erosion damage, and to reduce the problem of soil salinization. 12.45 Conservation of bio-diversity should be given priority. There is a need to identify and establish in-situ conservation areas for the protection of genetic resources of medicinal plants and wild relatives of economically important crops and tree species. A project of this kind would contribute to the broader objective of conserving sustainable farming and forest systems. It would provide an incentive for foreign investment in bio-diversity prospecting by pharmaceutical companies and could be of great benefit to plant breeders in Tajikistan and worldwide given Tajikistan's unique biological diversity, particULl3ly in wild relatives of globally significant species such as wheat. The use of GEF (Global Enviromnenc Facility) funds for this purpose might be particularly relevant. 12.46 The tremendous natural beauty, high recreational value, and limited potential for industrial and agricultural development of Tajikistan's high mountain regions make them an ideal place to develop an ecotourism indusiyr. The first step in developing ecotourism would be full establishment of the Pamir National Park. A high degree of local community involvement would be a key component for the success of the National Park and an ecotourism industry. However, habitat protection is not itself sufficient to guarantee species survival. This is particularly evident in the case of the Marco Polo sheep which, like other game, are being hunted beyond any self-regenerating capacity by the local population. This, in conjunction with pressures on habitat from deforestation, extensive grazing and intensive agriculture, is driving the species toward extinction. While Resolution N-170 passed in 1990 to encourage and fornalize the establishment of protected areas inidicates an intent to preserve the country's natural resources, but the Government currendy lacks the financial ability to orchestrate the social, economic and legal changes required to adequately protect those resources or to secure their sustainable development. 12.47 The Government needs to take measures that facilitate the creation of new parks. First, it should establish and enforce detailed regulations aimed at better protecting natural resources in, and in the proximity to the parks. More importantly, it shiould help increase the incomes of local populations and increase its own resources directed to native species protection. In this regard, controlled hunting and eco-tourism have significant potential. The high conparative advantage of protected areas for eco- tourism, controlled hunting, wildlife research and high mountain recreation would ensure that the protected areas will both preserve biodiversity and have a direct beneficial impact on the national and local economies. 12.48 Pollution fees and fines should be increased to reflect economic costs and to offset the effects of inflation. 192 Chapter 12 Long-Term 12.49 New sewage treatnent plants should be constructed, particularly in areas where functioning waste water collection systems are in place. The coverage of sewerage and drinking water distribution systems needs to be expanded. 12.50 Tajikistan should reduce motor vehicles emissions by coordinating with neighboring states, particularly with respect to lowering the levels of lead and other pollutants in fuels. Expanding public transportation in urban centers could also lower automobile emissions. 12.51 To save scarce administrative resources, Tajikistan should adopt a system whereby major enterpr.ses monitor their own emnissions, subject to government review. Regulations should be established for enterprise self-monitoring and reporting, and reporting of false information should be made a crimiinal offense. 12.52 A general system for solid and hazardous waste management should be established with necessary recycling, treatment, and disposal facilities. Statistical Appendix 193 Statistical Appendix Contents 1. Population and Employment 1.1: Population and Employment - Summary Table 1.2: Employment by Sector, Annual Average 1-2a: Sector Shares of Employment 1-3: Workers and Employees in State Sector 1.3: Labor Force and Participation Rate 1.4: Registered Unemployment 2. National Accounts 2.1: Net Material Product at Current Prces 2.2: Distribution of Net Material Product at Current Prices 2.3: Net Material Product at Constant Prices 2.4: Net Material Product at Constant Prices, Growth Rates 2.5: Net Material Product - Implicit Price Deflators 2.6: Net Material Product - Growth Rates of hnplicit Price Deflators 2.7: Gross Social Product by Sector at Current Prices 3. International Trade 3.1: Exchange Rates 3.2: Trade by Comnodity Groups at Current Prices, 1990 3.3: Geographical Distribution of Interrepublic Trade, 1991 3.4: Gt;ographical Distribution of Interrepublic Trade, 1992 3.5: Geographical Distribution of Interrepublic Trade, 1993 3.6: Geographical Distribution of Extrarepublic Trade, 1993 4. Public Fnance 4.1: Government Budget 5. Moneary Survey 5.1: Monetary Survey 194 Statistical Appendix 6. Agriculture 6.1: Agricultural Production at Constant Prices 6.2: Production and Average Yields of Major Agricultural Crops 6.3: Main Aggregate of Animal Husbandry 6.4: Agricultural Production Sumnary 6.5: Employment in Agriculture 6.6: Main Indicators of Agricultural Farms, 1991 6.7: Main Indicators of Agricultural Fanrs. 1992 6.8: Main Indicators of Agricultural Farms, 1993 7. Industry, 7.1: Industry Production by Sector at Current Prices 7.2: Industry Production by Sector at Constam Prices 7.3: Electricity Production and Consumption 7.4: Primary Energy Supply (ateral units) 7.5: Prim Energy Supply (tom oil equivalent) S. Prices and Wages 8.1: Monthly Wages by Sector (Annually) 8.2: Monthly Wages by Sector, 1992 8.3: Monthly Wages by Sector, 1993 8.4: Wholesale Prices 8.5: Reail Prices of Goods 9. Household Monetary Income md Expeditum 9.1: Money Income and Expenditure of the Population 10. Investment 1o.1: Capital Investment by State Enterprises an Organizations 10.2: Work in Progress in Construction Statitistical Appeadix 195 TABLE 1-1: TAMCISTAN: POPULATION AND EMPOYMEN - SUMMARY TABLE (inih^usmnd) 1910 1935 19M6 1987 IM 1989 1990 1991 1992 1993 Total Populati 3.903 4.485 4,631 4,735 4,938 5,036 5.232 5.342 5,555 5.556 Males 1,930 2,227 2.301 2.378 2.454 2,527 2.600 2.652 2,764 2.766 Franl. 1.973 2.2S5 2.330 2.407 2.434 2.559 2.632 2,690 2,791 2,790 Urba 1,336 1.481 1.19 1.567 1.609 1,653 1.676 1.e 1,689 1.636 Rural 2.567 3.004 3.112 3.218 3.329 3.433 3,556 3.674 3.866 3.920 Bdow Working Age 1,775 2.07 2.076 2,151 2.224 2.294 2.364 2,425 2,525 2,543 WorkgAgo Popul a 1.i23 2.142 2.29 Z.276 2.343 2,410 2,470 2,509 2.610 2.601 Above Working Age 300 336 346 353 371 332 398 408 420 412 Pmns Older an Yoagrn .. .. .. .. .. .. -- -- - die Abl.-Bodied Ag. Wh. Aim . .. .. working 61 60 60 56 S4 54 55 s 111 Odkr 47 51 51 49 47 47 48 48 83 YcOmgc 14 9 9 7 7 7 7 7 23 -iai Labor Ru Co 1.861 2.173 2.340 2.30M 2.370 2.429 2,469 2.526 2.669 Tod EnyaIPPpSSim 1.442 1,681 1.714 1.775 lU.0 1.879 1.938 1,970 1.903 Stesector .. .. .. . .. .. 1,073 998 . Len-.d EA.pia .. .6 83 JoinSckompa... .. .. ... 2 26 Soci.l Organitions . .. .. 13 L0 JointV entre I. .. 1 I Codlctiwe Fm. 231 23t 242 243 251 253 263 293 235 COputn . - . 2 7 32 52 52 49 l.dividuajLaborActivMt -. 0 0 2 3 3 3 3 2 -- Privac Subdi,y uAg ums 226 270 275 295 313 341 366 373 399 PM -. .. Ag . .. t. Swms 202 216 219 230 237 235 231 237 230 Ragm. Work, 0 0 0 0 0 0 1 1 1 . Able-Bodiad Pea... No Efped inths emainS Ral y 217 273 307 297 312 315 299 318 530 Houwwives UaCmplcyd . 4 mf Ww,mking w age ds p 16-54 as - pi 16-9. Loam Ste st=1 c_mmam dTajtwa. 196 Statistical Appendix TABLE 1-2: TAUHKSTAN: ENMIPLOlYENT BY SECTOR, ANNUAL AVERAGE (in thomands) 1930 1935 1936 1997 1933 1959 1990 1991 1992 Maltrial Sphcre 1.098 1.278 1,297 1,334 1,364 1.411 1,462 1,487 1,451 Agriculure includigt forc 618 724 723 745 765 792 333 811 392 Agricultu exluding foncy 616 722 720 743 763 790 331 178 839 Forery 2 2 3 2 2 2 2 3 3 Inducby. tal 311 359 373 382 383 415 422 404 ~.z Induay. other 207 241 247 251 251 254 261 257 250 Contuon 10$ 11 126 131 132 161 161 148 132 othc. maialamphu= 169 195 202 207 216 204 203 202 177 Tlanportaim of oods 56 67 69 70 73 55 54 55 45 Mainaacc of rows 7 3 5 3 7 7 7 7 6 Communaton mervicing ael pmduetha 3 3 3 3 3 3 3 3 2 Whole uade 59 69 70 73 76 77 79 79 72 RamS Trn mad mam"ring Maeril Supply 17 IB I3 19 19 17 16 17 IS Procurement 9 10 11 11 10 11 13 12 9 lnfornusianad computingr nc 3 3 5 5 5 5 4 3 2 Otherbranchesof l.atialpucdan 16 IS I1 19 23 29 32 27 23 Nanmmtnm Sphere 349 401 415 441 456 466 474 430 457 Tr mpnrion 21 24 24 26 25 20 19 19 15 Commaunicaidn 9 10 10 9 9 9 9 9 9 Hawmmg 11 14 15 15 16 16 16 16 16 Publc ulitirs and pczaaal*nr cc 21 27 27 32 35 35 35 35 28 Keith cuae, social macrily. phyaicacuklrc andupot 66 79 33 91 95 101 104 106 110 Educatio 123 IS0 156 164 173 133 189 197 200 Cultrc nda St 22 24 24 25 26 28 23 25 19 Sidenccand ackniflicmrvicm 27 30 31 31 30 30 29 26 21 Cr.dit Isurnce 5 5 5 5 6 6 6 6 6 Gracr.dmidntratiaaanddcfaa1C 39 39 41 42 41 39 40 41 30 Pgivate noa.ort inthitom mervi s hauadhbolds Odscr.ntraludnnutailqbphao 517 596 616 6" 672 670 682 632 634 Tlal EikoM 1.446 1,679 1.712 1,775 1,320 1,577 1.936 1,968 1.903 S :mrs Sltsx mammal ConaSe Of Tajikiam. Saitisical A pcndix 197 TABLE 1-2A: TAJKISTAN: SECTOR SHARES OF EMPLOYMENT (in pri) 1980 1985 1936 1937 1933 1919 1990 1991 1992 Material Sphcrc 75.9 76.1 75.1 75.2 75.0 75.2 75.5 75.6 76.0 Agriculu including forety 42.7 43.1 42.2 42.0 42.0 42.2 43.0 44.8 46.1 Agricultuecxcludiagforsty 42.6 43.0 42.1 41.9 41.9 42.1 42.9 44.6 46.6 Forestry 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 Induty, total 21.5 21.4 21.8 21.5 21.1 22.1 21.3 20.6 20.0 Industry. ohe 14.3 14.3 14.4 14.2 13.8 13.6 13.5 13.0 13.1 Construction 7.2 7.0 7.3 7.4 7.2 8.6 3.3 7.5 6.9 Othcr. matrissphere 11.7 11.6 11.8 11.6 11.9 10.8 10.7 10.3 9.3 TrDAOp1f0la onf gooda 3.9 4.0 4.0 3.9 4.0 2.9 2.3 2.8 2.5 Maintazanc of roads 0.5 0.5 0.5 GA OA OA 0.4 0.3 0.3 Communatio sricing maaria poductio 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 WVloIiatmade 4.1 4.1 4.1 4.1 4.2 4.1 4.1 4.0 3.1 Rail Trae and cat 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Macial Supply 1.2 1.1 1.1 1.0 1.0 0.9 0.3 0.9 0.3 Pro a 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.6 0.5 iaormaion and comp8ng s 0.2 0.2 0.3 0.3 0.3 0.2 0.2 0.2 0.1 Othcrbrmnc.hcsof matcuiapodutka 1.1 1.0 1.1 1.1 1.3 1.5 1.7 1.4 1.2 Nonmatrial Spher 24.1 23.9 24.2 24.3 25.0 24.3 24.5 24.4 24.0 Tanportatiom 1.5 1.4 1.4 1.5 1.4 1.1 1.0 1.0 0.9 communication 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.S Housing 0.8 0.8 0.9 0.9 0.9 0.8 0.8 0.3 0.3 Public nililisand peraonalscviccs 1.5 1.6 1.5 1.: 1.9 1.3 1.3 1.1 1.5 Ha&th cae, cia security, physcal ctltur and qpts 4.5 4.7 4.8 5.1 5.2 S.4 5.4 5.4 5.3 Education 3.8 1.9 9.1 9.2 9.5 9.7 9.1 10.0 10.5 Culturc and art 1.5 1.4 IA 1.4 1.4 1.5 1.4 2.3 1.0 Sciicae andci w ihc scrvi= 1.9 1.8 1.3 1.7 1.6 1.6 1.5 13 1.1 Credit 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 nsrance 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 GC;amlaedninisatianandicfmc 2.7 2.3 2.4 2.3 2.3 2.1 2.1 2.1 1.6 Privatr nonprofit inatihuions exving houseols 0.0 0.0 0.0 0.0 0.0 0.0 0o0 0.0 0.0 Othcr, matcrial ad nonsairial sphere 35.1 35.5 36.0 36.5 36.9 35.7 35.2 34.7 33.2 Tel Employmnt 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Table 1-2. 198 Statistical Appendix TABLE 1-3: TAJIUSTAN: WORKERS AND EMPLOYEES IN STATE SECTOR, 1992 (in thuas) of which: of wich: TOtW Worker Employes Mterial Spherc 742.6 632.4 110.2 Aguiculaur including fory 218.B 199.3 19.0 Agriculur cexcluding forstUy 215.8 197.2 13.6 Forstry 3.0 2.6 OA Ind , toal 332.5 279.1 53.4 Industry, other 210.2 173.9 31.3 Construction 122.3 100.2 22.1 Other, material sphec 191.3 153.5 37.8 Trmnxport of goods 68.7 60.0 8.7 Maintnance of roads CommDunication srvicing matril produdt in 11.1 8.1 3.D WhoClale btadc 51.1 39.2 12.6 Rasil Trade and cateing 18.8 16.0 2.8 Matrial Supply 7.0 4.6 2.4 Procuremai 9.2 3.1 1.1 Inormation and comoputing 2.0 1.1 0.9 Other trancies of matezial prductin 22.7 16A 6.3 Nonmateriu Spher 378.3 134.6 243.7 Transportation Communication Housing 13.8 12.4 1.4 Public utilite and persnal services 24.8 19.3 5.5 Health case, ocial scurity. pbysical culue and spot 103.8 35.7 68.1 Education 179.8 53.3 126.5 Cultue and at 16.7 5.1 11.6 Scien-c and scIcuifac services 12.8 5.1 7.7 Crudit 6.4 0.9 5.5 Lnuranc. Gmnal admminajo .M defcme 20.2 2.8 17.4 Priva aonproiit insitutio srving households Otbhr. matcrial and nonmazra spher= 569.6 28B.1 231.5 ToWl 1.120.9 767.0 353.9 Souce: State Statstcal Commit of Tajikiatn. TABLE 1-4: TAJIIUSTAN: LABOR FORCE PARTICIPATION RATS! Age Groups ToWa 0-15 16-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 over 65 1989 Census Total PopulAtau (thow.) 5092.6 2295.7 416.5 463.9 441.4 326.0 238.9 139.1 151.2 164.9 142.0 119.5 191.9 Employed (ehoua.) 1831.6 1.8 155.7 329.5 359.6 275.7 209.4 123.5 132.7 122.0 77.3 29.1 14.8 Labot Force Pat. ( 36.0 0.1 37.4 71.0 81.5 84.6 87.7 88.8 87.a 74.0 54.4 24.4 7.7 Males: Populaton (thou.) 2530.2 1162.8 207.7 227.5 219.7 162.1 118.2 71.5 79.7 82.0 68.1 55.8 74.2 Employed (tiou..) 1059.2 0.8 74.8 180.5 211.4 159.6 116.2 70.2 77.5 77.4 60.0 21.0 9.4 Labor Force Part. (%) 41.9 0.1 36.0 79.3 96.2 98.5 98.3 98.2 97.2 94.4 as.i 37.6 12.7 Female.: Populato. (thou$.) 2562.4 1132.9 208.8 236.4 221.7 163.9 120.7 67.6 71.5 82.9 73.9 63.7 117.7 Employed (thou.) 772.4 1.0 80.9 149.0 148.2 116.1 93.2 53.3 55.2 44.6 17.3 8.1 5.4 Labor Force Part. (%) 30.1 0.1 38.7 63.0 66.8 70.8 77.2 78.8 77.2 53.8 23.4 12.7 4.6 Sourc: State Stadlilal Co0mit.e of Teiajktan. 8! 200 Satistical Appendix TABLE 1-5: TAJUCISTAN: REGLSTERED UNEMPLOYMNT (mn thouuuns cod of month) Nuimbcr Rswiving TOtal Mal c Femalea BDaciIt 1992 Janu. 2. . Apri 0.5 .. .. 0.1 May 1.3 .. .. 0.8 JUDc 3.5 2.7 0.8 1.8 Jldy 3.6 .. .. 2.6 Augut 5.5 .. .. 3.6 SqtUba 7.2 5.8 IA 4.8 onber S.1 .. .. 5.1 Novcn,bcr 8.6 .. .. 5.4 Dcember 6.8 4.2 2.6 4.7 1993 Jau 86 .. .. 4.3 Fcbnzury 8.9 .. .. 4.8 Match 9.7 7.0 2.5 4.2 April 11.3 .. .. 4.6 May 12.7 .. .. 5.6 Junc 11.7 7.6 3.1 5.0 July 12.5 .. .. 4.8 Augut 13.7 .. .. 5.1 Soptember 16.6 9.9 6.7 5.4 Qabor 18.0 .. -. 5.3 Novecmber 20.5 .. .. 5.8 Docccmber 21.6 12.4 9.2 4.9 Source: Slt Suaritical Comnutie of Tajik . TABIE 2-1; TAJDUSTAN: NET MAT'ERIAL PRODUCT AT CURRENT PRICES (millios of rubles) By 1ndutrnI Origin: 1980 1985 1986 1987 1938 1989 1990 1991 1992 1993 6/ Ag4cultrcYLzaudlngtraty 1,335 1.628 1,607 1,544 1,798 1,797 2,018 4,628 6,631 4,749 Alkcultue exduding forctay 1,334 1.625 1,603 1,541 1,794 1,793 2,015 4,622 6,626 4,749 For"ry 2 3 4 3 3 3 3 5 5 Industry, toal 1,774 2,099 1,949 2,142 2,219 2,022 2,275 4,581 30,713 75,419 lndusy, other 1,334 1,555 1,340 1,501 1,509 1,284 1,503 3,221 25,848 60,534 CoRmuctiON 440 544 609 641 711 738 772 1,353 4,865 148385 other 765 708 739 669 861 999 1,197 1.332 5.761 10,732 Tranaportatoa of goods 4 142 157 151 172 172 207 250 1,700 1/ 3,126 Malolenaace of roads ,. .I .. .. Communication (nmaldaW production) 6 9 10 10 11 13 14 16 Wholeae tmde 161 186 204 152 229 259 300 656 Rdle trde and caLering 36 42 42 22 50 55 56 2.078 21 4,738 Matedal supply 47 44 52 59 47 54 52 106 504 1,118 Procurcwent 43 S0 56 54 55 51 69 160 230 164 WnformaUon and computng services 4 8 10 11 16 17 22 219 Othcrbranche of material poducdoa 389 232 211 211 284 380 483 121 730 1,586 Ndt Mateid Product 3,874 4,435 4,295 4,355 4,878 4,817 5,490 10,540 43,105 90,900 By Expcnditur Category: Coasuspto 3,109 3,903 4,042 4,135 4,355 4,638 5,148 8,783 39,625 3/ Coasuinioaofp pu1stlat 2,791 3,479 3,598 3,663 3,872 4,115 4,591 7,903 36,146 3/ Socal consumptioa 319 424 444 472 483 523 557 38o 3,479 3/ Invesment (accumuion) 1,012 1,312 1,109 1,099 1,282 1,066 879 1,625 6,368 3/ Fhxod capitul 527 547 553 769 759 748 502 705 Chageu In lnvenriad othw 485 765 556 330 523 318 377 920 LAMM 50 76 92 126 128 177 .. 174 4,030 4/ Not papor 51 (298) (855) (947) (1,005) (877) (1,064) (538) (41) (6,913) 1It I1uding trnpitation of goods, mAnLaeunce of roads and eo emunuoe baeiciog materl production. 2J IndudIng wholesale and retall trade. > 31 PrelimLaq. 4/ Estimated at prices of I October 2992. St Net exports ar deriyod s the differeace betwoe oatlnoA income produced *ad natoaul Incam. used except for 1992 In which ft Is an actual trade balance. 6/ The ruzlt 6 wonths of year. Source: Stac Suistical Conmmitte of Tajiitan.^J TABLE 2-2: TANIKISTAN: DISTRIBUTION OF NET MATERIAL PRODUCT AT CURRENT PRICES (in pczit) By Iiugaw Origin: 1910 1985 1986 19t7 1988 1989 1990 1991 1992 Agkrutuwe lacluding foresry 34.S 36.7 37.4 35.4 36.9 37.3 36.8 43.9 15.4 Agiculture excludial foratry 34.4 36.6 37.3 35.4 36.8 37.2 36.7 43.9 15.4 Fore"y 0,0 0.1 0,1 0.1 0.1 0.1 0.1 0.1 0.0 > Indugry, tkl 45.8 47.3 45.4 49.2 45.5 42.0 41.4 43.5 71.3 ldutry, other 34.4 35.0 31.2 34.5 30.9 26.6 27.4 30.6 60.0 Coe¶homAn 11A4 12.3 14,2 14.7 14.6 15.3 14.1 12.8 11.3 Oihu 19.7 16.0 17.2 15.4 17.6 20.7 21.8 12.6 13.4 T r I tst of &oodtz 2.2 3.2 3.7 3.5 3.5 3.6 3.8 2.4 3.9 Matamac of ra .. .. .. .. .. ..... Commum1ic aki (ma±ri prfductloa) 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.0 Whotc.l trmde 4.1 4.2 4.7 3.5 4.7 5.4 5.5 6.2 0.0 Rda trido and caZAd 0,9 0.9 1.0 0.5 1,0 1.1 1.0 0.0 4.8 Mariul spply 1.2 1.0 1.2 1.4 1.0 1.1 0.9 1.0 1.9 Procurmet* 1.1 1.1 1.3 1.2 1.1 1.1 1.3 1.5 0.5 IdOradtoA and OMput1ag icrviceC .. 0.1 0.2 0.2 0.2 0.3 0.3 0.2 0.5 Oher bruaches of (maI. producdto 10.0 5.2 4.9 4.9 5.8 7.9 8.8 1.2 1.7 Nta MriAl Product 100.0 IX.,0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 By BIpad12w Catgory: Couasunpoa 80.3 88.0 94.1 95.0 89.3 96.3 93.8 83.3 91.9 CoaUmption of populaIon 72.0 79.4 83.9 84.1 79.4 85.4 83.6 75.0 83.9 SocIal eoasumptioo 8.2 9.6 10.3 10.8 9.9 10.9 10.2 8.3 8.1 lnvegsmz(a.ccumUtldon) 26.1 29.6 25.8 25.2 26.3 22.1 16.0 15.4 14.8 Fixed caplial 13.6 12.3 12.9 17.7 15.6 15.5 9.1 6.7 Changes in lavcazdmcs &Ad oter 12.5 17.2 12.9 7.6 10.7 6.6 6.9 8.7 LAMM 1.3 1.7 2.1 2.9 2.4 3.7 0.0 1.6 9.3 NAet expoa 7.7 -19.3 -22.1 -23.1 -18.0 -22.1 -9.5 -0.4 -16.0 Sour"c Stal Sta-etidal Committ , oTTjik&a. TABLE 2-3: TAJDKSTAN: NET MATERIAL PRODUCT AT CONSTANT PRICES (milliona of 1992 rubles) By InduitHa orligin 1980 1985 1986 1987 1988 1989 1990 1991 1992 Agrieuture Including for"aby 6,988 11,947 12,416 11,623 12,891 11.207 10,185 9,176 6,631 Agrirtureexduding orcaby 6,983 11,937 12,404 11,613 12,881 11,197 10,175 9,167 6,626 Foretry 5 10 13 10 10 10 10 9 5 Wuduy, tonw 37,363 43,051 44,773 45,805 52,590 53,817 54,510 50,508 30,713 Induay, other 25,457 28,333 28,373 79,671 34,288 34,433 35,779 32,280 5',848 CodiruCtion 11,907 14,717 16,400 16,134 18,302 19.384 18,731 18,228 4,865 OthPe 31,517 31,902 33,003 32,613 34.493 36,712 37,514 16,327 5,761 Tmaspoitation of goods. .. . .. .. . .. Mainawane of roeds .. .. .. .. .. .. .. Communallon (MrI pruucion) .. .. Wbolewe trada ,. .. .. .. . ... Retal trade and calming .. .. .. .. .. .. MAeril supply .. .. .. Prvurcmai .. .. .. . . Informaaka and compuUng wrvica .. *. * . OtChet banache. of catereal producdlo .. .. .. .. .. .. .- Net Mataela Product 53,086 63,038 70,390 69,438 77.836 75,571 74,336 65,036 43,105 By Eapendiure Calegory: Consuqmption 42,605 56,546 60,077 61,333 64,196 66,687 69,130 54,190 39,625 CodeumptioaofpOpUl A4O 38,239 50,406 53,476 54,336 57,072 59,170 61,646 41,762 36,146 Soel consumption 4,366 6,140 6,601 6,997 7,124 7,518 7,483 5,429 3,479 InveamlA (accumulation) 13,867 19,009 16,478 16,308 18,904 15,334 11,806 10.025 6,368 Ficd capIll 7,225 7,925 8,220 11,407 11,188 10,756 6,741 4,350 ,. Change. in lnvcazoriea mand otadr . , . . , , Low,e and VdlacTq0nc. .. .. .. .. .. ,. .. .. 9 LoasUC nd diwnltrK ""p * ""y Nut rxporta .. .. .. . Souje: Stae Statigical Committee of T&JiIU0an, TABLE 2-4: TAIIKISTAN: NET MATERIAL PRODUCT AT CONSTANT PRICES - GROWrIH RATES (in pu'a) pi By lodudril Oigin: 1986 1917 1988 1989 1990 1991 1992 g Agriculture 1cludiag forery 3.9 -6.4 10.9 -13.1 -9.1 -9.9 -27.7 Agrkulture excluding forctry 3.9 -6.4 10.9 -13.1 -9.1 -9.9 -27.7 > Forestry 27.3 -23.8 3.1 3.0 0.0 -11.8 -44.4 Induaz, tKal 4.0 2.3 14.1 2.3 1.3 -7.3 -39.2 1ndu try cht 0.1 4.6 15.6 0.4 3.9 -9.8 -19.9 CodAruceioo 11.4 -1.6 13.4 5.9 -3.4 -2.1 -73.3 Other 3.4 -1.2 5.8 6.4 2.2 -56.5 -64.7 Trmnporatlon or goods Mai*taace of roeds .. .. .. CommuicaUont (materil producioa) Wholeule trd.. Rddtal tade ad catering MuLTe supply Prauremea Iormaloo and compuztLg .ervic.s Other branches of materal production .. .. .. .. Net Matma Product 3.5 -1.4 12.1 -2.9 -1.6 -12.5 -33.7 By EQxp4aure CaIzgozy Cousumptloa 6.2 2.1 4.7 3.9 3.7 -21.6 -26.9 Cosumpto or popualmaom 6.1 1.6 5.0 3.7 4.2 -20.9 -25.9 Socil consumptIa 7.5 6.0 1.5 5.5 -0.5 -27.5 -35.9 lnveamen (accumuls4oa) -13.3 -1.0 15.9 -18.9 -23.0 -15t. -36.5 Fixed capitl 3.7 38.8 -1.9 -3,9 -37.3 -35.5 Source: Sutd Stdslutk Commitee of TaJik1ia. TABLE 2-5: TAJMUSTAN: NET MATERIAL PRODUCT - IMPLICIT PRICE DEFLATORS (1993 = 100) By IDOunha OrIgiH: 19W0 1985 1986 1917 1988 1989 1990 1991 I992 Alkulutrelncludig(forestry 128.5 91.6 87.0 39.3 93.7 107.7 133.2 333.9 672.1 ArIcultumuecludng foresy 128.5 91.6 87.0 89.3 93.7 107.8 133.2 339.3 672.9 Foretry 100.0 100.0 100.0 100.0 100.0 97.1 100.0 180.0 300.0 ndutry, totl 95.0 91.4 88.7 94.8 85.4 76.4 84.3 183.3 1911.2 [nduay, cate 93.1 98.2 34.5 90.6 78.8 66.7 75.2 179.0 1790.2 Couanuctioe 99.0 99.1 99.6 106.4 104.0 102.0 110.4 191.8 2679.3 Olber 511.3 101.8 102.7 94.1 114.4 124.8 146.3 374.1 4515.0 Trupostllon of goods 86.S 100.0 100.0 100.0 100.0 100.0 126.3 M.altane ofr .. .. .. .. .m ..d Comualnado. (aterI productlon) 100.0 100.9 100.0 100.0 9S.8 100.0 106.2 Wholeule trade 88.2 75.7 82.8 62.8 86.0 91.8 94.2 Rtal bd. ad calming .. .. .. .. .. .. Macel supply 81.4 105.0 83.7 92.4 71.6 89.6 36.7 Pmocunem 130.9 151.9 157.3 160.2 148.3 124.2 174.9 Iformatlo and computing aekrc .. 100.0 100.0 100.0 100.0 100.6 105.7 .. Othu brw of m_aI pruducta 124.5 104.2 104.5 10S.6 147.2 175.4 232.1 Nd MaLarida Product 107.3 96.3 90.2 92.7 92.6 94.2 109.1 239.4 1477A By ExpeadMure Category: Coaesumfion 107.8 IO2.0 99.4 99.6 100.2 102.7 110.0 239.4 1477.4 Comamupiaof papudsaon 108.6 102.2 99.3 99.6 100.3 102.9 110.7 239.4 1477.4 Socil couapySSo 101.3 99.9 99.1 99.6 99.6 101.6 104.7 239.4 1477.4 lnvet eYi(accuntultlo.) 99.6 99.1 102.4 2OS.5 108.7 96.8 120.3 239.4 1477.4 Fied capmal 101.7 99.1 102.6 110.2 1;3.1 102.7 129.5 239.4 1477.4 Source: Stae SttLtlcI Comnmum of TaJitan. 0) TABLE 2-6: TAJIWSTAN - NET MATERIAL PRODUCT: GROWTH RtATES OP IMPLICIT PRICE DEFLATORS (in perccnt) By lodubuial Orin: _ 1986 1917 1911 1919 1990 1991 1992 r; Agicultuse lndudlng farcay -5.0 2.6 5,0 14.9 23.6 154.5 98.3 Agrkultumcx cludlng ifotsy -5.1 2.6 5,0 15.0 23.6 154.7 98.3 Fory 0.0 0.0 0.0 -2.9 3,0 10.0 66.7 Indmany, 1ca -9.9 6.8 -9.9 -10.6 10.4 117.4 942.5 Iaduiy, dlhur -13.9 7.1 -13.0 -15.3 12.7 138.1 899.9 Cooudom 0.5 6.1 -2.2 - 1.9 8.2 80.1 2247.6 Otbm 0.! -8.3 21.6 9.1 17.2 155.7 1125.7 TuampoftWik of good 0.0 0.0 0.0 0.0 26.3 M-a1.mco of rows .. .. .. Comaunkas (macrW produdioo) 0.9 0.0 -4.2 4.4 6.2. Wholeule made 9.4 -24.2 37.0 6.8 2.6 R^al b_em Wd cAming .. .. .. Mal wpply -20.3 10.4 -14.9 14.0 -3.3 Pcuetm -1.0 1.9 -7.5 -16.2 40.8 Watorm d oW PIht2fl8 nrvic 0.0 0.0 0.0 0.6 5.0 Otd brwbe to .rot proucta 0.3 1.0 39.4 19.1 32.4 Nd M l*rl Prodwe -6.4 2.8 -0.1 1.7 15.9 119.5 527.0 By Expind*um Catorpy: Coosumpod -2.5 0.2 0.6 2.5 7.1 117.6 517.0 Coampdom of populuion -2.8 0.3 0.7 2.6 7.6 116.3 517.0 social coaumio -0_ I -0.3 0.1 2.0 3.1 128.6 517.0 lnveg* (accumultoc) 3.4 3.0 3.0 -11.0 24.3 99.1 517.0 FLxod cap$l 3.5 7.4 2.7 -9.2 26.2 S4.8 517,0 Source: Slwl SWi-ical Commita. of Tajidtn. Statitistical Appendix 207 TABLE 2-7: TAJCISsTAN: GROSS SOCLAL PRODUCT BY SECTOR AT CURRENT PRICES 1930 1935 1986 1987 1938 1989 1990 1991 1992 (mio of rublm) Agriculturc ad frcstry 1.837 2,306 2,309 2;205 2,503 2,433 2.776 5.801 24.147 Agricultbuc 1.835 2.302 2,303 2,201 2,498 2,483 2.771 5,793 24.087 Facatry 2 5 6 4 5 5 5 - 7 60 Idwaiy and ca.nscda 5.121 6,476 6.491 6,943 7,123 7.016 7.269 15.235 107,091 Indusazy 4,170 5,314 5.194 5,525 5,618 5,499 5.755 12.755 95,113 CouatnuSian 950 1.162 1.297 1,413 1,505 1,517 1,514 2,480 11,903 OhKmr 945 985 1,034 970 1,166 1,326 1.332 1.994 10.793 Tanmport of god 137 305 331 322 340 342 407 555 3,836 Rand vmi . , , , _ _. .. .. -- *. - Comsuunnicainn (mterri producti.n) 3 12 13 14 £6 17 18 24 141 VW2jsulctamd 198 232 253 209 238 326 367 796 240 Rakibtad candcarcing 46 55 56 38 66 72 74 .. 3.248 Marici sapply 54 53 61 70 61 65 70 203 1,503 Procurement 56 74 76 75 72 70 89 204 864 lfD(TUSi. nd dcompuiqg IcZVC .. 12 14 17 20 29 23 33 241 chcrsczan ofn crh1prod.cbon 396 241 222 225 303 404 284 IS0 719 Tel gros sociad product 7,903 9.766 9.,34 10,117 1O.7S. 10.330 11.376 23.030 142,030 (paxCclv ars of gra uacisl prodc) Agricukurca nd forcdry 23.2 23-6 23.5 21.3 23.2 23.0 24-4 25.2 17.0 Agricuklr 23.2 23.6 23.4 21.8 2312 22.9 24-4 25.2 17.0 Faocy 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 Industry and conscsion 64.8 66.3 66.0 63.6 66.0 64.8 63.9 66.2 75.4 ndocty 52.8 54.4 52.8 54.6 52.1 50.8 50.6 55A 67.0 Conauruction 12.0 11.9 13.2 14.0 13.9 14.0 13.3 10.8 8.4 Odier 12.0 10.1 10.5 9.6 10.8 12.2 11.7 8.7 7.6 Transpot of goads 2.4 3.1 3.4 3.2 3.2 3.2 3.6 2.4 2.7 Rad iaiac . . . .. .. .. Ciommunication (nuimialrpoduion) 0.1 0.1 0.1 0.1 0.1 012 0.2 0.1 0.1 VAwlesale tmdc 2.5 2A 2.6 2.1 2.7 3.0 3.2 3.5 0.2 Reta tmdc and camting 0.6 0.6 0.6 0.4 0.6 0.7 0.7 . 2.3 Mari!udcr pply 0.7 0.5 0.6 0.7 0.6 -0.6 0.6 0.9 1.1 Pricunncent 0.7 0.3 0.8 0.7 0.7 0.6 0.8 0.9 0.6 Infornuio and comp"ting wriaxs .. 0.1 0.1 02 0.2 0.3 0.2 0.1 0.2 Othnr wctars of mtscra pwductia 5.0 2.5 2.3 2.2 2.8 3.7 25 0.8 0.5 Tota grow axial product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source Sar Staaisiuld Coininitac of Tajsibua. 208 Statistical Appendix TABLE 3-1: TAJIUSrAN: EXCHANGE RATES (nbls per daUw) Year month Mokthly Aveg At End of Period 1992 Januuzy 110 110 1992 Fcbray 103 90 1992 March 93 100 1992 Api 100 100 1992 May 94 as 1992 Juan S9 100 1992 July 137 161 1992 Augudt 168 205 1992 S _inabe 217 2S4 1992 OCtober 349 398 1992 Naovmber 426 450 1992 DEWcr 417 415 1993 JaUNay 4F9 572 1993 Februay 570 593 1993 Mach 664 6t4 1993 Api 766 523 1993 May 912 1.024 1993 Jwo 1.078 1.060 1993 July 1.020 987 1993 Agu 986 993 1993 S _prmb- 1.077 1.169 1993 Odober 1.18S 1.184 1993 Noveber 1.196 1.231 1993 December 1.240 1.247 Sourc: Naonal Ronk of Tajikisa TABLE 3.2AK TAIIKSTAN: INTERNATIONAL TRADE IN DOMESTIC AND WORLD PRICES IN I990 (milIons of rubles) lnotrepubUc Trade ExtxucpubUc Trade Toua Trade Domesic Prices Woald Prices Domestic Prica World Prices Domestc Priccs World Prices Export Import Export Import Export Import Export Import Export Import Export Import INDUSTRY 2227 3035 -809 1546 2824 -1278 304 687 -382 356 325 31 2531 3722 -1191 1902 3148 -1246 POWER 63 71 -U 94 106 -13 0 0 0 0 0 0 63 71 -8 94 106 -13 OIL AND OAS 10 271 -261 32 610 -579 0 0 0 0 0 0 10 271 -261 32 610 -579 Oi Produds 7 0 7 24 0 24 0 0 0 0 0 0 7 0 7 24 0 24 Refinrica 0 238 -238 0 530 -530 0 0 0 0 0 0 0 238 -238 0 530 -530 a" Prnudus 3 33 -30 7 80 -73 0 0 0 0 0 0 3 33 -30 7 80 -73 COAL 5 8 -3 4 7 -3 0 0 0 0 0 0 5 8 -3 4 7 -3 OTHER FUELS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Comhutiblo Shlo 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Peat 0 0 0 0 0 0 0 0 0 0 0 0 0 a a a a o FERROUS 4 120 -106 4 129 -175 0 7 -7 0 9 -9 4 117 -113 4 138 -133 Fenou Ores 0 0 -0 0 0 -0 0 0 0 0 0 0 0 0 -0 0 0 -0 Fenus Mcid 3 72 -69 4 88 -85 0 7 -7 0 9 -9 3 78 -75 4 97 -93 Cokin Producmd 0 13 -13 0 19 -19 0 0 0 0 0 0 0 13 -13 0 19 -19 Firc Rausnt 0 3 -3 0 5 -5 0 0 0 0 0 0 0 3 -3 0 5 -5 Meal Products 1 23 -22 0 16 -16 0 0 -0 0 0 -0 1 23 -22 0 16 -16 NON-FERR. 298 193 105 496 322 174 168 39 129 281 45 237 466 232 234 777 367 410 Nou-ferrous Or4 15 0 14 23 1 22 0 38 -38 0 44 --4 15 38 -23 23 44 -i 1 Non-fmr. MAIsh 283 193 91 473 322 152 168 2 167 281 1 280 451 194 257 754 323 431 CHEMICALS 119 322 -203 91 258 -168 2 57 -55 2 39 -37 121 379 -258 92 297 -205 M iaral Chemiay 0 1 -J 0 1 -1 0 0 0 0 0 0 0 I -I 0 1 -I Baic Chenicls 78 90 -12 56 65 -9 1 4 -4 1 3 -3 79 95 -16 57 69 -12 CJaakIc PFbm 0 65 -65 0 46 -46 0 3 -3 0 2 -2 0 68 -6S 0 48 -48 SyDhtiC Resins 0 7 -6 0 5 -5 0 3 -3 0 2 -2 0 10 -9 0 8 -7 Plamtic Products 2 13 -10 2 10 -8 0 1 -I 0 0 -0 2 13 -11 2 10 -9 ' P.Jnzs & Lqueru 8 12 -5 6 9 -4 0 2 -2 0 2 -2 8 14 -7 6 11 -5 Synthcic Paints 0 6 -6 0 5 -5 0 1 -1 0 1 -1 0 7 -I 0 6 -6 Synlthi Rubber 0 3 -3 0 2 -2 0 0 -0 0 0 -0 0 3 -3 0 2 -2 Organ Chakelcals 0 5 -5 0 5 -5 0 0 0 0 0 0 0 5 -5 0 5 -4 Tire 0 26 -25 0 25 -25 0 0 -0 0 0 -0 0 26 -26 0 25 -25 SoumeAte edl Dclm System. TABLE 3.2B: TAJOUSTAN: UNERNATIONAL TRADE IN DOMESTIC AND WORLD PRICES IN 1990 (milioe of rublcs) InLerrcpublk Trade Extrarepublic Trade Total Trade Dometic Prices World Prices Domec;c Prkces Wold Pricee DomSic Prices World Prlcca Expost Import Export Import Export tmport Export Import Export Import Export Import RubbreAAdxetas 30 46 -16 25 39 -14 1 17 -16 1 9 -8 30 63 -32 26 48 -22 Other Products I 16 -I5 I 16 -15 0 S -8 0 4 -4 1 24 -23 1 19 -I8 Pbhar..scetls 0 33 -33 0 30 -30 0 Is -t1 0 16 -16 0 51 -51 0 46 -46 MACHINERY 228 796 -567 242 859 -617 3 113 -110 4 84 -81 232 909 -677 246 944 -698 Enugy & power 0 8 -8 0 8 -7 0 0 0 0 0 0 0 8 -S 0 8 -7 Technology 0 6 -6 0 6 -6 0 0 -O 0 0 -0 0 6 -6 0 7 -7 M1l 0 5 -5 0 7 -7 0 0 -0 0 0 -0 0 5 -5 0 B -8 Tranmorta±o 6 11 -5 8 14 -6 0 1 -I 0 1 -1 6 12 -6 8 16 -8 Railway Equlprn 0 4 -4 0 3 -3 0 1 -I 0 1 -1 0 5 -5 0 4 -4 Eled lo-4A" 27 61 -34 25 56 -31 0 1 -I 0 I -1 27 62 -35 25 57 -32 Cables 14 12 2 14 12 2 0 0 0 0 0 0 14 12 2 14 12 2 Puap 32 36 -4 36 41 -5 0 2 -2 0 2 -2 32 35 -6 36 42 -6 Macin, Tools 4 10 -6 5 12 -7 0 8 -8 0 7 -7 4 18 -14 5 19 -14 FoTqng/Prmia* 0 2 -2 0 2 -2 0 0 -O O 0 -0 0 3 -3 0 2 -2 CaIng Equlpmcw 0 2 -2 0 2 -2 0 0 0 0 0 0 0 2 -2 0 2 -2 PtOec1loo, U. 5 4 1 3 3 1 0 0 0 0 0 0 S 4 1 3 3 1 Synthetic Dunoad 0 3 -3 0 3 -3 0 0 0 0 0 0 0 3 -3 0 3 -3 Tocls & DkD 0 54 -54 0 44 -4 0 14 -14 0 13 -13 1 68 -68 1 57 -56 Aus" &Puti 0 150 -150 0 114 -114 0 9 -9 0 9 -9 0 r55 -158 0 123 -123 Bearings 0 3 -3 0 2 -2 0 0 0 0 0 0 0 3 -3 0 2 -2 Traton AAg, E 45 59 -14 60 go -19 0 5 -S 0 S -5 45 64 -20 60 85 -25 Co lam M&E 3 22 -19 4 31 -26 0 1 -I 0 1 -1 3 22 -19 4 31 -27 Co munal M&E 0 4 -4 0 6 -6 0 0 0 0 0 0 0 4 -4 0 6 -6 LlgbtAd. M&E 8 19 -11 10 22 -12 2 20 -18 2 16 -14 10 39 -29 12 37 -26 Fowd M&E 0 14 -14 0 l8 -18 0 10 -10 0 a -S 0 24 -24 0 26 -26 Trado M&E 31 4 27 45 6 39 0 0 0 0 0 0 31 4 27 45 6 39 Prazing M&E 0 1 -I 0 0 -0 0 2 -2 0 2 -2 0 3 -3 0 2 -2 Apoianc 29 20 8 a 11 -3 1 5 -4 0 2 -I 29 25 4 8 13 -4 Sanitry RN. 10 8 2 5 4 1 0 0 0 0 0 0 10 8 2 5 4 1 Sbipbuiding 0 0 0 0 0 0 n 0 0 0 0 0 0 0 0 0 0 0 Sotuc.: 6eeIgm± DocLaon SyAcm. TABLE 3.2C: TAJDUSTAN: INTMR4ATIONAL TRADE IN DOMESTIC ANED WORLD PRICES IN 1990 (milmlo of rubles) IfLcffcpubic Trade Exrmepuble Trade Total Trade Doweado Pine. World Prices Domeaic Price. Woild Prices Do-adc Prices WoIdd Prkce Export Import Export Import Export Import Export Import Export Import Export Import RAdio Electnlca I 110 -109 1 80 -78 0 11 -11 0 6 -6 1 121 -120 1 85 -84 OtherInd. M&E 5 122 -117 10 233 -223 1 1 -0 1 I 0 6 123 -118 10 234 -223 Mal Construcion I 5 -5 I 6 -5 0 0 0 0 0 0 1 5 -5 1 6 -5 Mdal Product 8 26 -18 6 20 -14 0 12 -12 0 3 -3 a 38 -31 6 23 -17 M&E Rep.r 1 3 -2 2 f -4 0 0 0 0 0 0 1 3 -2 2 6 -4 Medical Equipme 0 8 -8 0 8 -8 0 10 -10 0 9 -9 0 18 -18 0 17 -17 WOOD & PAPER 3 124 -122 2 88 -86 0 13 -13 0 7 -7 3 137 -135 2 95 -93 Logging 0 19 -19 0 12 -12 0 0 0 0 0 0 0 19 -19 0 12 -12 Sawmill 1 54 -53 1 41 -40 0 1 -1 0 1 -I 1 55 -54 1 41 -40 Plywood 0 5 -5 0 4 -4 0 0 -0 0 0 -0 0 5 -5 0 4 -4 Furnlture 0 I5 -15 0 7 -7 0 11 -11 0 6 -6 0 27 -27 0 13 -13 Papcr & Pulp 2 31 -29 1 25 -24 0 1 -1 0 1 -1 2 31 -30 1 26 -24 Chem1so Prod. 0 I -1 0 0 -0 0 0 0 0 0 0 0 1 -1 0 0 -0 CONSTR. MAT. 29 54 -25 28 54 -26 0 5 -5 0 2 -2 29 59 -30 28 56 -28 Cemnt 6 2 4 5 2 3 0 1 -I 0 0 -0 6 3 4 5 2 3 Aabeto Product 4 10 -5 6 13 -7 0 0 0 0 0 0 4 10 -5 6 13 -7 Roofng I 5 -4 1 5 -4 0 0 0 0 0 0 1 5 -3 1 5 -4 Pzecd ConcrcdA 0 3 -3 a 3 -3 0 0 0 0 0 0 0 3 -3 0 3 -3 WaulMateral 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Ceramlca 1 2 -I I I -1 0 0 0 0 0 0 1 2 -I I I -1 Constr. ProductA 0 2 -2 0 2 -2 0 0 -0 0 0 -0 0 3 -3 0 2 -2 Other 6 5 1 8 7 2 0 0 0 0 0 0 6 S 1 8 7 2 Oau & PorelaLn 9 23 -14 7 19 -12 0 4 -4 0 1 -1 9 27 -18 7 20 -13 Modical Products 0 3 -3 0 3 -3 0 0 -0 0 0 -0 0 3 -3 a 3 -3 LIGHT INDUSTR 1061 558 503 406 158 248 126 298 -172 68 76 -8 1187 856 331 474 233 240 Codoc Products 525 97 428 264 30 234 117 25 93 63 9 55 643 122 521 327 39 289 FlaxProduct. 0 10 -10 0 4 -4 0 1 -1 0 I -I 0 11 -11 0 5 -5 - Wool Products 216 1i5 101 65 28 37 2 24 -21 2 8 -6 218 139 SO 67 35 31 Silk ProducA 210 173 37 36 32 4 6 35 -29 2 10 -8 216 208 S 39 42 -3 HoCry/llCnitwear 33 34 -2 11 12 -1 0 50 -50 0 9 -9 33 84 -52 It' 20 -9 Source: In±Ugene DaeLiuce Syiem. TABLE 3.2D: TAIUSTAN: INTERNATIONAL TRADE [N DOMESTIC AND WORLD PRICES [N I90 (mkllma of rubles ci l uerreUbtc Trade EXrtepublIC TradO Total Trade Domoic Prnc World PriCe. DomeDi- Pricet World Pricm Dozatic Pric. World Pr c, EXpot ImiPOrt Export Import Export lmport Export Import Export Import Export Import !. Othb Texile. 1 24 -13 7 l3 -6 0 13 -13 0 2 -2 11 36 -26 7 15 -8 > Sei Goods 49 33 166 16 11 5 0 91 -91 0 21 -21 49 124 -75 16 32 -16 LC.icr 19 72 -53 7 29 -21 0 60 -60 0 17 -17 19 132 -113 8 46 -33 FOOD PROD. 405 424 -20 144 170 -26 5 151 -146 2 62 -60 410 576 -166 146 232 -86 Sum. 0 123 -123 0 48 -4 0 0 0 0 0 0 0 123 -123 0 48 -48 Bread Produdt 0 0 0 0 0 0 0 1 -1 0 1 -1 0 I -I 0 I -0 Cofectiona I 8 -18 0 8 -S 0 0 -0 0 0 0 L 19 -18 0 a -8 VegeableOi.s 1I 32 -21 4 12 -8 2 6 -4 0 3 -3 13 37 -25 4 15 -11 Perfue OUS 3 21 -19 2 15 -13 0 26 -26 0 10 -10 3 47 -45 2 25 -24 DL.UUaIei a o -0 0 0 0 0 I -1 0 0 -0 0 I -I 0 0 -0 WinCe 23 1 23 3 0 3 0 2 -2 0 1 -1 23 2 21 3 1 2 FnritNgcgtablcs .64 1 263 104 0 104 0 4 -4 0 2 -2 264 5 259 104 3 101 Tab&Co 85 i8 67 23 6 17 0 10 -10 0 3 -3 85 28 58 23 10 14 Other FOod 1 72 -71 0 17 -17 2 23 -21 1 3 -3 3 94 -91 1 20 -19 Mee Produds IS 56 -41 7 26 -19 1 46 -45 0 24 -24 16 102 -86 7 51- 43 DarY Produds 0 30 -30 0 15 -15 0 26 -26 0 9 -9 0 55 -55 0 24 -24 Flab Praduc±a 0 25 -IS 0 6 -6 0 7 -7 0 S -5 0 22 -22 0 11 -11 FlowutCrerlA 3 40 -37 1 IS -14 0 I -I 0 0 -0 3 41 -38 I 16 -15 OTHERIND. 4 105 -!01 3 62 -59 0 4 -4 0 1 -l 4 109 -105 3 63 -60 MJcrobibo[y 0 9 -9 0 7 -7 0 0 0 0 0 0 0 9 -9 0 7 -7 AnlmalfFced 0 a -8 0 7 -7 0 0 0 0 0 0 0 8 -8 Q 7 -7 OtberProducts 4 a9 -85 3 48 -45 0 4 -4 0 1 -I 4 93 -89 3 49 -46 AGRICULTURE 92 182 -90 32 97 -65 4 81 -76 1 58 -58 96 263 -166 33 ISS -122 Crol 90 163 -74 31 92 -61 0 80 -80 0 SI -58 90 243 -154 31 150 -118 AninAl Huabandry 2 19 -16 I S -4 4 1 4 1 0 0 6 19 -13 5 -4 OT}lER PROD. 59 142 -83 65 161 -96 0 0 -0 0 0 -0 59 142 -83 65 161 -96 lno. Srvica 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Other SerVrice 14 4 10 14 4 10 0 0 -0 0 0 -4 14 4 10 14 4 10 Transport Expeae 45 138 -93 St 157 -106 0 0 0 0 0 0 45 138 -93 51 157 -106 TOTAL 2377 3359 -982 1643 3082 -1439 308 767 -459 356 383 -26 2686 4127 -1441 1999 3464 -1465 Sourcm: ctigGaz Doclion Symta. Suutiristical Appendix 213 TABLE 3-3: TAJDCISTAN: GEOCRAPHICAL DISTRBUTION OF INTERREiPtLIC TRADE. 1991 Eon import a (millimn, of ublcs) Russia 1752.5 1253.0 499.5 Ukrmine 241.8 281.3 -32.5 Bdnus 108A 60.6 47.8 Malduva 6A 32.1 -25.7 Armenia 37-3 27.9 9.4 Azbi.jn 41.7 37.2 4.5 Kazskhatan 412.8 317.6 95.2 Uzbckimn 243.5 361.9 -118.4 Turkannian 96.3 197.3 -101.0 Kyrz Republic 60.6 237.5 -176.9 oria A16.4 199.3 -12.9 itghumni 23.9 232 0.7 Latvia 34.9 29.1 5.8 mcieaff., 33.5 9.1 24A Non-FSU Conk. 827.6 600.6 227.0 Tutl 3944.6 3667.7 276.9 (in purest) Rpnia 44.4 34.2 Ukraine 6.3 7.7 BDarm 2.7 1.7 Moldova D.2 0.9 Armcia 0.9 0.8 Arbaija 1.1 1.0 Kazk_sa 10.5 8.7 U2zbCdxtaI 62 9.9 Tu;kmulan 2.4 5.4 Kwz Republi . 1.5 6.5 Georpia 0.4 5.4 Lithuania 0.6 0.6 Latvia 0.9 0.8 Encia 0.8 0.2 Na-PFSU Counts 21.0 16A Tdotl 100.0 10.0 Sowrec St 5bfiScd Commi_t of Tajikitas. 214 Statistical Appendix TABLE 3-4: TAJDSTAN: GEOGRAPHICAL DISTRUTION OF INTERREPUBUC TRAIDE, 199 Export IM-r Btala (mllions of rubles) Rossi 7813.2 11139.4 -3326.2 Ub'qinc 1927.1 1730.8 196.3 Belarum 679.5 661.7 17.5 Moldova 69.1 69.2 -0.1 Armenia 65.7 47.5 17.9 Azrbaian 634.2 262.3 371.9 Kaukbata 2410.8 2915.0 -504.2 Uzbekistn 1470.4 2629.5 -1159.1 Turkacnrms 705.3 3467.5 -2762.5 Krgyz Republic 311.3 479.3 -9.0 Georgia 23.1 S1.4 -25.3 Lithussia 39.3 159.0 -119.7 Latvia 135.7 143.8 -5.1 Esronia 75.3 11.8 -65 Non-FSU Countks 20620.7 20132.8 487.9 Tutd 37053.7 43971.6 -6917.9 (in PC) Rssia 21.1 25.3 Ukrine 5.2 3.9 Belarus 1.1 1.5 Moldorv 0.2 0.2 Armcnia 0.2 0.1 Azerbaijla 1.7 0.6 Kmzskhzn 6.5 6.6 Uzbekiuar 4.0 6.0 Turkmeniutm 1.9 7.9 Kyrrz Republic 1.0 1.1 Georon 0.1 0.1 Li>tblia 0.1 0.4 Larvia 0.4 0.3 Etoni. 0.2 0.2 Non-FSU Courie 55.7 45.8 Thmal 100.0 100.0 Source: Stain Statwsmal Commit. of Tajikiasa. Stauitistical Appendix 215 TABLE 3-5: TAMTAN: GEOGRAHICAL DISTRIBUTION OF in n tEPRUBC TRADE. 1993 Expon kmpan BEanee (sillonsof zuSac) Rusi 53304.5 73103.6 -19799.1 Ukaine 4606.4 405B.1 548.3 Bclarus 6233.7 G300.0 -66.3 Maldwa 3137.0 417.4 7719.6 Arsmeia 0.0 91.5 -91.5 Azbijan 998.4 1005.7 -7.3 Knakhuaufs 15155.5 61050.6 45895.1 Uzbckinn 18194.7 60926 -42087.9 Turkmnin 3224.0 24279.7 -21055.7 KyyzRrpublc 3K61.7 1946.7 1915.0 crgia 42.8 30S8B -266.0 Lithania 4174.4 4046.2 122 Leivi 67355 10001 5734.7 Eds 135.7 245D0 -1093 Ncta-FSU Connics 200658.8 252354.1 -516953 TOW 326163.1 496190.1 -1700.7 (in-P RunEs 17.9 15.7 Ukuinc 14 0.8 Bdarn. 1.9 1.3 Moldova 1.0 0.1 Armcnia 0.0 0.0 Arp,,ijan 0.3 0v KrahstAg 4.6 12.3 Uzbckidst 5.8 12.3 Turkmcit 1.0 4.9 Kyrgyz Rplublic 1.2 0A Oarga 0.0 0.1 I kbagnia 1.3 0.S Laby!. 2.1 02 Fazonia 0.0 0.0 N t-FSU CoUnic 61.5 50.9 Tdal 100.0 100.0 Sourcc: st &atic S l Commi of Tajikida. 216 Statistical Appendix TABLE 3-6: TAJUCISTAN: GEOGRAPHICAL DlSTRM1CIlON OF IEXRAREPUDLIC TRADE. 1993 (thousands of dcubas) Ei4xpt Cna prcmzi) [mupwt (m pcxzcen) Ealance USA 24387.9 9.3 33413.8 8.9 -9025.9 Swednin 1542.7 7-0 33819.8 9.0 -15277.1. Iran 81.0 0.0 41.8 0.0 39.2 Afgmi3an 1447.4 0.5 972.5 0.3 474.9 Nigrnm 311.9 0.1 291.0 0.1 20.9 Tubrky 2506.9 1.0 4724.4 1.3 -2217.5 Anstia 12183.5 4.6 13299.4 3.5 -1115.9 Nethedands 143397.0 54.5 164738.6 43.8 -21341.6 Bulgari 331.8 0.1 74A 0.0 307.4 lndommis 2!7 0.0 .. .. 2.7 Grme=c 62.5 0.0 49.0 0.0 13.5 uawl 15.6 0.0 .. .. 15.6 pifitan 771.0 0.3 35.8 0.0 735.2 Hunguay 69.9 0.0 1950.3 0.5 -1880.4 Polsnd 38.3 0.0 2234.6 0.8 -2796.3 '3crmmzys 873.9 0.3 7539.7 2.0 -6665.8 Acren 2306.4 0.9 484.4 0.1 1822L0 !kv1and 2042.8 0.8 6105.6 1.6 -4062.8 Belgium 19073.0 7.2 2S433.0 7.6 -9360.0 Fmland 9556.0 3.6 4195.7 1.1 5360.3 Czech Rplic and S bkia 740.0 0.3 419.1 0.1 320.9 Sw~land 942.6 0.4 4104.0 1.1 -3161.4 Chins 424.0 0.2 34L1 0.1 81.9 New nd . .. 12262 0.3 -1226.2 Dak .. .. 642.9 0.2 -642.9 MY 6.0 0.0 11380.0 3.0 -11174.0 Japan 21706.0 8.2 2020.2 0.5 19685.8 Mlay . .. 65.3 0.0 -65.3 Singapore .. .. 12.7 0.0 -12.7 Norway 6474.9 1.7 -6474.9 Fac .. .. 42672.7 11.4 -42672.7 Laa .. . 1.5 0.0 -1.5 Cypnru 27.5 0.0 23.6 0.0 -1.1 Mongdlia 639.3 0.2 155.0 0.0 484.3 Li iuami 421.0 0.2 585.0 0.2 -164.0 Eoais 165.0 0.1 208.0 0.0 57.0 Ukmine 168.5 0.1 . .. 168 5 India . . 64.5 0.0 -64.5 Mata . . 692.0 0.2 -692.0 Kazakhgaa .. .. 1842.5 0.5 -1842.5 Total 263292.1 100.0 375741.0 100.0 -112448.9 Somcmx StInb S>aiica;1 Commfteen of Ta iioa. TABLE 4-IA: TAIUXISTAN: GOVERNMENT BUDGET REVENUES (mhIUona of rublc.) Revenue and Granit 1985 1986 1937 1988 1989 I290 1991 1992 1993 2. Tuniover tax 8 702 772 843 11019 1,065 955 112 0 2. Value-added tux 0 0 0 0 0 0 0 4,300 65,417 3. ExcIte 0 0 0 0 0 0 0 2,145 13,401 4, Tmxonsales 0 0 0 0 0 0 219 172 0 5. Enlurprise prorits tax 286 289 331 336 324 369 604 5,388 43,947 6. Revenue, from privatizalan 0 0 0 0 0 0 0 434 1,412 7. Tax on clleawive fams coopefmtve & pubUc orgalzationa 38 40 44 40 59 78 0 305 1,578 8.Pcr.onalincometaxes 110 117 228 248 286 285 333 1,634 13,954 9.SbteduUteaandloceltatx 7 7 8 9 11 25 46 230 2,109 10. Revaluati ofcoacrprie ocka 0 0 0 0 0 0 393 1,431 9,348 11. EApotax 0 0 0 0 0 0 1 43 1,316 12. Importtax 0 0 0 0 0 0 1 42 13. Taxoncasnoandvldeo hows 0 0 0 0 0 0 0 2 14. Tax o gold ale 0 0 0 0 0 0 0 0 15. Motws vchIcI x I I I I 0 0 15 27 16. Costom dutde 0 0 0 0 0 0 0 0 17. Cosomm proceduac 0 0 0 0 0 0 0 0 18. Wa rusa fa(Industrl uae) I I I I 1 3 6 9 19. Tax on fore s 0 0 0 0 0 0 0 0 20. Lainsg cbargce & non-axu avuca 24 27 30 25 18 54 122 604 21. LandTax 6 7 7 7 6 7 7 218 22. 15%uxofminlngindusrtc 0 0 0 0 0 0 a 138 23. Lttees 35 55 55 57 71 85 37 0 cq 24. S lnsurance 130 145 160 177 197 232 0 0 .. 25. Union trb rera 212 489 500 498 576 1,168 2,543 0 0 26. Other reveues 67 BB 86 109 115 165 161 207 17,131 Toa rvenuca 1,805 1,968 2,223 2,351 2,673 3,436 5,457 17,441 170,113 SurpluaLDcflcLt 78 43 113 140 1ll 251 1,180 (29,653) (256,419) Aspcrceo of GDP 1.3 0.7 1.9 2.2 (1.7) 3.4 3.0 (37.0) (25.0) Source: Mintry of Finance. TABLE 4-IB: TAJDUSTAN: GOVERNMENT BUDGET EXPENDITURES (milllon of rublcs) Expaidl±utae 1985 1986 19B7 1988 1989 I990 1991 1992 1993 I. Ecoaomy 750 825 891 691 ,lIII 1,620 1,315 18,142 117,051 2. SociW ad cuJture 896 980 1,069 1,213 1,261 1.416 2,403 13,744 103,428 2.1 Education 509 562 613 692 693 763 1.226 7,542 55,653 2.2 Cultur 0 0 D 0 0 0 77 581 4.310 2.3 4akh 205 217 240 284 309 354 608 3,611 34,297 2.4 Sport 2 2 2 3 4 4 4 19 . 82 2.5 Alowance to ingle mdthei 30 31 32 34 34 34 18 25 2.6 Sw;Lal protection 150 167 182 200 222 261 470 1,966 9,086 3. skwe 0 0 0 0 25 25 la 196 1.704 4. Sw.o maugemnat h couru 29 28 28 29 31 49 12 602 17,726 5. P°OlIC 0 0 0 0 0 4 49 2,056 638 incuding defence 0 0 0 0 0 0 255 24,338 6. Reeme fund for councll ofmLns 0 0 0 0 0 0 0 0 0 7. Gold purcbaic 0 0 0 0 0 0 0 544 2.524 S. CIS budget fof fwAecing exportr 0 0 0 0 12 9 0 0 0 9. S" lottris 1982 0 0 0 0 0 0 0 0 0 10. Stma lotteric. 1992 0 0 0 0 0 0 0 0 0 I 1. Staw lnteru debt 0 0 0 0 0 0 0 432 0 12. HLrd curreocy purchua 0 0 0 0 0 0 0 0 0 13. Refugme 0 0 0 0 0 0 0 0 35,862 15. Ohcr 52 93 123 75 122 64 411 1,123 23.261 Toal expeaditurea 1,727 1,926 2,110 2,211 2,562 3,186 4277.0 37,094 326,532 SurpluDlcflcit 78 43 113 140 III 252 1,180 (19,653) (156.419) An peent of GDP 1.3 0.7 1.9 2.1 1.7 3.4 3.0 (37.0) (25.0) Source: Mlntry of Finace. Statitstical Appendix 219 TAE3LE 5-1I: TAnIXISTAN: MONETARY SURVEY (millions of rubleac 1991 1992 1993 1994 Decmber December December Marcb NATIONAL BANK OF TAMaCISTAN Ndt foreign asset. 12.0 31186.1 -204614.3 -255837.4 Net iatrnaional reserves 0.0 0.0 1719.3 603.2 Net Alai-s on ruble mm 12.0 31156.1 -206333.5 -256440.6 Net domecstc nads 3140.1 -664612 603702.3 575125.5 Net credit to government -1015.3 12797.0 260381.2 214064.2 Net rdit to other govcrnmmt -56.1 -357.0 -5690.9 -10911.0 Credt to banks. rest of ecoommy and other items, net 4211.5 -19036.2 353512.5 371972.3 Crdit to bunk. 755.0 39553.0 203573.1 217922.8 Cxedt to rst of the conomy 0.7 5352.0 29463.1 23433.5 Othcr itrns. nt 3455.8 -67021.2 120176.3 130611.0 Liabies 3152.1 24544.0 404083.5 319287.9 Currency in circulation 2400.0 13145.0 201145.0 64000.0 Required and aceDerves 739.8 5852.0 199524.8 250491.3 Ohdew d-x;it 12.3 547.0 3418.7 4796.7 BANK]NG SYSTEM Net foreigm 16.7 676150.B 935920.9 904842.4 Net inrnial 4.7 644964.7 1192254.5 1161212.9 Net claims on ruble am 12.0 31186.1 -206333.5 -256440.6 Net domestc sect 5187.9 -640546.7 -445569.2 -412480.9 Domestic csndj 5043.3 70943.5 515117.1 341319 Net credit to governmnt -1505.2 706.6 202103.0 1151B5.4 Net crit to odber gov crnt -336.1 -1674.2 -20666.6 -39961.7 Credit to renst of eonomy ad othcr it -Ms. net 7029.2 -639879.1 -627005.6 -487624.6 Credit to rect of the economy 6834.6 71916.2 633680.6 766095.3 Otl:er iems, net 144.6 -711795.3 -1260686.3 -1253719.9 liabitic 5204.6 35339.7 540351.8 492441.3 Currcy outside banks 2114.2 17617.1 1754042 64000.0 Deposit 3090.4 17722.6 364947.6 42841.3 Velocity of broad money 2.57 1.95 3.11 4.38 Vclociy of curreacy outside banks 6.34 3.92 9.5S 33.73 Nomial gap 1340G.0 17257.0 420050.0 539700.0 Soumc NBT and IMF staff etimates 220 Statistical Appedix TABLE 6-1: TAKiASTAN: AGRICULTURAL PRODUCTION (millms of cmnt 1933 rubles) 1980 1985 1986 1987 1938 1989 1990 1991 1992 1993 Total groa agricultural production 2,324 2.433 2.523 2.346 2,566 2,790 2.354 2.252 1,650 2.142 Cropproduction 1,634 1,642 1.711 1,543 1,744 1,490 1.533 1,533 1.057 1.592 rndas .. .. 34 48 SO 45 43 40 37 37 Potatoes . . 3 37 35 42 40 35 32 28 Vcgctablcs 174 174 134 135 176 2D9 187 172 Frui (without crpc*) 153 145 153 134 146 123 119 104 Grapes .. 93 82 53 SI 89 87 47 41 Tobacco .. .. 56 36 51 46 53 53 50 60 Cotton .. .. 969 U47 999 791 844 813 453 451 Sugarbes .. - . . . Olscods .. 0 0 1 1 0 I . Other . . . . .. . . .. Liveadck production 690 791 812 802 821 799 772 718 593 550 Uvozk .. 434 430 435 427 400 373 -- . Carc .. .. 246 242 246 240 227 230 . . Pigs .. .. 23 22 21 20 15 9 .. . Sh ad god .. .. 83 84 4 82 76 6B .. .. Poultry . .. 56 50 54 57 55 39 . Other .. .. 27 32 30 28 23 26 . Milk -. 121 121 121 123 118 121 . .. Eg. -. 28 30 32 32 29 39 wadool -. 24 24 24 26 21 20 . . Othcr livstock . .. 205 199 209 192 204 165 AgridWh services -- -- -. -. Material inputs 1.286 659 610 620 651 1,123 463 272 Crop production .. .. . . Animal production .. . .. .. . Atgriaurnd .. ..... Ns materil producr. by autp 1.037 1,774 1.913 1.725 1.914 1,667 1.892 1.980 Crop production . .. . .. .. .. .. .. Ani-al production .. .. .. .. Agricult s .. .* .. .. i.. By form olawncrship: .. .. .. . . Stc ctrprics . . . . . . . . Cooperatve curwrprise .. .. .. .. .. . . . Subshliary md personal plot of poplation .. .. .. .. .. .. .. .. Private enperpriies . .. . . Sourc: Swe Staistics Coauains of Tajikitan. Statitistical Appendix 221 TABLE 6-2. TAThCISTAN: PRODUCTION AND AVERAGE YIELD OF MAJOR AGRICULTURAL CROPS 1990 1995 1986 1937 1988 1989 1990 1991 192 1993 Prnduc6n-thurand tons GTai - Clcanwight 238 323 238 347 365 293 313 286 257 253 AUl Wheat 106 143 99 175 191 109 143 142 156 159 hmczt(whuer) 103 134 91 163 184 101 136 134 133 105 (spring 3 9 a 12 7 a 7 8 23. 54 Coarsgrain 104 143 107 138 140 147 133 109 78 67 Rye 1 7 5 7 7 2 2 2 2 1 Corn 62 101 73 85 88 109 85 60 32 33 Bauley (-inter) 27 22 17 29 33 24 35 36 42 15 (wpring) I L I1 10 14 10 10 11 11 2 15 oats 3 2 2 2 2 2 .. . . 3 Rice 28 37 27 28 27 28 29 26 20 21 Olbeeds I 0 0 0 0 0 0 0 0 0 Sunloweneed I . . . . - .- Catton(raw) 1.011 935 992 87 964 921 842 826 515 524 (fiber) 321 291 293 276 294 250 256 255 165 1SO Tobacco 13 .. 11 I1I 10 9 10 I1I 10 12 Paine. ~~~~153 185 199 192 183 217 207 181 167 147 Pull=s 6 6 5 6 7 9 a 9 3 Vegflblea 311 473 505 517 556 567 521 628 543 435 Fruit 213 245 245 219 215 197 220 177 183 149 Grape. 159 171 199 132 178 174 190 121 100 87 Corn (silagc,+gcamch 916 1,338 1,385 1.293 .. 1.302 1.222 1.150 727 599 Hay 1.432 1.658 1.741 1.7.53 .. 1.548 1.521 1.436 1.212 1.113 Average ykid kg/h Grnat I.0 1.490 1.550 1,490 1.490 1,540 1,370 1,230 920 910 Whcat (wiatm) 370 1.120 1.230 1.260 1.290 1.060 1.000 1.060 860 850 (srxing 530 1.030 1.180 1.210 1.210 1.170 1.150 1,120 ag0 710 comruegr-aia 1,210 1.520 1.600 1,550 1.560 1,510 1,310 1.310 1,040 Rye 1. 150 870 1.080 890 . .. - .. 990 670 corn 4,900 5,710 4.440 4,150 4.470 5.690 4,990 3,920 2,970 2.970 Barlcy (-inter) 890 1,070 1,340 1,410 1.430 1,230 1,190 1, 120 1.070 910 (spring) 540 680 770 1.000 530 990 270 1.010 890 680 Oats 590D 780 760 1.000 . .. - .. 840 720 mace ~~490 350 530 S0W. . . 860 Rice 4.380 3,520 3,410 3,140 3,290 3,150 3,010 2.74D 1.920 1.710 Ofiseeds -. . - -- - . - Sunfloverseed 2,450 . . . .. - .. 1,670 CatIo (raw) 3.280 3,000 2,950 2.690 3,010 2.980 2.770 2.770 2.050 1.910 (fiber) 1.040 930 940 850 920 940 840 - . Tobacco 293 . .. 285 287 279 267 262 205 234 Potatoes 16,000 13.100 11,500 17,100 16.300 16,500 14,300 14,100 12,800 11.900 Pulses 780 880 780 840 630 690 640 750 .- - Vegetables 20.700 20,900 21,800 20,800 20,900 20,700 19.500 19,300 16.140 17.860 Fruit 4.180 4,950 5,010 4.330 4.170 3,620 3,910 3.210 3.230 2,55 Grapes 8.210 7.370 9.430 5,630 7.180 6.750 7.1W0 4,450 3.500 3.010 Corn(sllge 4gruseb 21,300 25,200 23,000 23,000 22.700 23,400 22,500 21,600 16,250 15.410 Hay 3,390 3,460 3.420 .. - - . - - Sourcec stote Statstca Coseseftec of Tajflkisan 222 Statistical Appendix TABLE 6-3: TAJXKSTAN: MAIN ADORECATES OF ANIAL HUSBANDRY 19:,O 1985 1986 1937 1933 !989 1990 1991 1992 1993 Liesock inaay (thuand beds) 4.355 4.782 4.883 4.397 4,970 4,969 4.879 4,926 4,434 4.258 Cat 1.217 1,351 1.367 1.358 1,363 1,349 1.352 1.391 1.246 1.250 of wbihi Cows 456 S0S 507 515 530 539 SS7 586 544 560 Pig 137 205 243 235 217 210 183 128 56 47 Slsp 2.338 2.437 2.471 2.479 2,539 254 2,462 2.484 2.237 2,0BI cos 629 749 759 778 802 315 830 371 846 825 Hone. 35 42 43 46 S0 51 52 53 49 55 Ot. An^iub - pradn Ma (dhusnd tan) 161 179 185 190 193 191 185 151 126 114 Bee 78 91 92 97 99 100 94 83 71 66 Pork 11 14 17 19 19 19 IS 9 5 3 Lam 54 54 55 54 56 52 52 43 42 39 Poudlty 16 18 20 18 17 18 21 13 7 5 Othcr 3 2 2 2 2 2 2 2 1 1 MlIk (thoand tos) 499 547 571 567 574 580 575 587 509 447 Eggs (milipe) 322 469 555 579 632 619 592 454 296 156 Wodl (tboumdtau) 6 5 5 5 5 5 5 4 4 3 Sour,c Stats staicl Commtte of TajiksL TAIKISTAN: AGRICULTURAL PRODUCTION SUMMARY (milhou of 1983 ruble.) 19S0 1985 1986 1987 19SS 19S9 1990 1°91 1992 1943 Total agriculturo 2,324 2,433 2,523 2,346 2,566 2,290 2,355 2,252 1,650 2,142 Crops 1,634 1,642 1,711 1,543 1,744 1,490 1,533 1.533 1,057 1,592 Animal husbadry 690 791 812 802 821 799 772 718 593 550 CoUfctivC rfaim (uhez) 1,067 993 1.05 928 1,051 902 922 902 5s7 Crops 922 SS2 870 780 902 749 772 760 474 479 Animal huAbandry 145 141 145 149 150 153 I5S 142 113 Stae rams 687 785 830 793 870 769 809 673 430 Crops 474 525 S45 510 580 490 552 468 283 261 Auti-l huabuandy 213 260 281 233 290 279 257 205 147 Other Stac Eaerprwirs 21 31 27 25 27 33 49 55 I5 Crops 12 12 15 14 16 17 21 27 7 25 Anlmal husbandry 9 19 12 12 12 16 27 28 S Priva plots 520 582 614 572 592 S62 550 601 609 2,129 Crops 217 237 264 232 238 227 229 271 291 820 An-ma huabmadry 293 345 350 340 354 335 321 330 318 309 Private Farms 9 Crops .. .. . . .. .. 2 7 Anin-a busbandry 7 Soure: Stae Stalatical Commute of Taikistan. 224 Statistical Appendix TABLE 6-5: TAYDUSTAN: EPNLOYMENT IN AGRICULTURE (inm dtmsands) 19W0 19S5 1986 1987 1988 1999 1990 1991 I192 TOt 615.8 721.9 720.0 742.8 762.8 790.1 831.0 878.1 CoLcctvc Fr=. 230.7 252.0 247.0 248.4 250.9 246.0 259.0 287.0 293.0 State farms 146.0 186.0 183.2 183.5 184.7 173.0 175.5 183.3 192.0 T.mporary workers Labor om privae plots 226.4 270.0 274.8 295.0 313.1 340.6 365.7 373.0 New Private Cooperdtive. PrcSae f Sais Sburer: Stat SLintiic] Comnuimee of Taj&icstan. TABLE 6-6: TAJISTAN: MAIN INDICATORS OP AGRICULTURAL FARMS (1991) Coluctiva fams Stai Farms Odi Private Private TOal (koIha) (wvhbz) (to farms) Plots Farms Nul of (eis 1.206.180.0 206.0 391.0 361.0 1,205,222.0 Grs Output (will 1933 rubie) 2,253.5 902.2 673.0 54.8 600.1 Flixed CapSl CulIlio 1933 rubles) 2.218.9 173.4 1,793.4 Profits (million 1933 ruble.) 1,474.3 .. Nu_s of los-ukln_g fams 65.0 13.0 52.0 Produo (pmund to"s) Gsain 304.4 133.1 141.6 10.4 12.4 Suar bets 0.0 SunDowmn 0.0 .. Fluz 1.5 0.5 1.0 Potatoes 130.6 29.3 67.5 1.9 74.9 VegMable. 626.8 154.3 156.0 11.2 305.3 Meat 5.7 11.2 29.2 4.1 36.8 Milk 587.2 '54.6 102.9 9.1 319.6 Eggs a(ilik) 454.3 4.2 398.4 5,5 46.2 Cac (thousad bmuda) 1,390.7 198.7 261.2 21.1 875.7 * Cows 585.9 61.1 70.3 5.9 448.0 PigU 128.2 8.2 100.5 13.9 2.9 Sheep, gods 3,355.0 526.0 850.4 69.8 1,797.6 ., Poultry 5,864.8 112.2 5,676.1 76.4 .. Soure: Stat Stadial Comfla of Tajkntaa. TABLE 6-7: TAIDUSTAN: MAIN INDICATORS OF AGRICULTURAL FARMS (1992) Coude lu fiRma Seafta Farms Othct privrMa I'do Tudui (bRecamm) (.abom) (MMA 16M) Plow Farm Number of ram . Otou Ouep4a (william 198) rbla) .. .. Fliad Caphi (millica 1983 nuble) .. . Prob (wow 1983 uabk) ,. .. .. .. Number of lo-making r .. ..f.. Ptdin (toud tos) Orasi 275.7 133.6 120.6 3.4 13.1 0.2 Sug, bct4°s 0.0 " Sunflowets 0.5 - * 0.5 Fax 1.2 0.4 0.6 0.1 0.1 P datoes 167.4 17.0 63.9 3.0 83.2 0.1 Vegetables 542.6 134 A 100.1 4.0 303.2 0.3 Mad 70.3 8.8 18.1 1.9 39.2 Milk 509.5 114.0 73.3 4.7 317.1 EW (MiluouS) 296.0 2.0 248.3 2.4 43.3 C&W*e bouaadbeads) 1,246.1 155.5 217.8 8.5 343.6 Cowl S44.3 51.2 61.3 2.0 428.9 Pigs 55.7 1.5 42.9 7.4 2.6 Sheep, goui 3,083.1 450.2 763.7 21.0 1,760.5 0.1 Poultry 2,786.5 20.9 1,997.1 39.5 729.0 SourMeC: Stai Sialllca Co01i3ce TABLE 6-8: TAJIKISTAN: MAIN INDICATORS OF AGRICULTURAL FARMS (1993) Collective farms Stato Frums Other Private Private TOal (kolhozes) (sovhozes) ("ta farm) Plout Farms Number of fums .. . .. Groh Ouqtut (m.lion 1983 rubls) .. .. .. Fixed Capital (million 1983 rubIes) .. Proflu (mIlilon 1983 rublcs) .. . Number of (Io.-m. g farms . .. Produotioa (.how ad to) again 273.0 134.2 114.4 3.7 13.0 1.1 Sugar bo. 0.0 Sunlowas 0.6 .. 0.1 .. 0.5 Flax 0.0 . .. Pdttoes 147.0 3.4 49.1 2.2 S2.0 0.2 Vegotd10 4S4.8 97.6 73.9 3.1 309.1 0.4 Meat 0.0 .. .. .. Milk 0.0 .. .. .. Eggs (tm) 0.0 ,. .. .. Cailo (thou" eads) I 250.2 140.5 191.1 8.2 895.S 0.4 Cows 559.7 45.6 53.8 2.2 457.2 0.1 pip @ 45.6 0.7 38.1 4.3 2.4 . Shebp, 2,906.0 407.0 675.0 19.5 1.739.5 2.0 P&tay 2,181.3 62.3 2,087.2 31.8 .. .. Sowm a 5S adawT-ommb el TSWN Q TABLE 7-1: TAJIDUSTAN: [NDUSTRIAL PRODUCTION BY SECTOR (mtillion of curreal rubles) 1950 1985 1986 1987 1958 1959 3990 1991 3992 1993 AU Lhdudz 3,485 4,589 4,712 4,926 5,175 5,299 5,474 12,341 93,993 734,727 a Heavy Indudiy 1,071 1,533 1,681 1.992 1,944 1,936 2,038 3,992 47,773 349,692 Fud-En.vy Ldui3y 170 217 202 233 258 227 316 540 5,977 . Elmctkity 141 177 161 195 224 202 295 509 5,626 74,951 p Fud Indu*y 29 40 41 38 34 25 21 31 351 Fwerou . Non-Ferrous Moa1ugy 160 247 400 438 506 519 524 1,291 26,470 170,909 Chemicarls&Pdtbxocmica Indusxy 113 38S 206 215 243 225 241 471 4,003 23,472 MwAw-DBuUding A Maidworking 336 413 447 477 503 520 521 877 7,018 35,277 Foresry, Woodworking, Pulp h Paper Idustry 61 81 86 92 91 90 84 185 802 4.914 CoamructiO MaeiriWs 179 233 247 260 262 264 248 469 2,523 20,391 Llight idusy 1,599 2,139 2,113 2,162 2,214 2,289 2,274 5,820 30,003 247,749 Textlea 1,305 1,767 1,742 1.809 1,846 1,904 1,853 4,829 27.129 225,826 Clothling 239 295 285 273 275 298 320 772 1,870 14,765 L1ulm and Shoe S5 77 78 sO U4 87 90 196 939 7,158 Agriculture/Pood Procuuag 661 717 749 762 774 820 855 1,848 113090 69.078 Food Proceuig 477 485 504 512 524 538 551 1,280 9,424 54,309 Meai ao Dlai Producu 181 226 238 243 242 274 265 550 1,627 13,965 Fils 3 6 7 7 8 E 9 18 40 804 Source: Staiz Staitiscal Commi:tte of TTjik.h TABLE 7-2: TAIIKISTAN: INDUSTRIAL PRODUCTION BY SECTOR (millions of constant ruble orlmnuazy 1993) 1985 1986 1981 1988 1989 1990 1991 1992 1993 All Industry 420,051 427,192 445,552 473,222 481,740 487,521 469,970 355,768 256,593 caqvy Industy 237,227 251,461 271,578 299,550 298,652 306,118 292,037 202,965 146,332 Fuel-Energy Industry 55,580 45,945 54,645 62,365 S1,368 55,436 56,356 51,057 53,370 ElectrIcity 47,783 40,329 46,540 54,638 45,349 53,013 52,218 49,294 52,341 Fuel InduAsry 7,797 8,616 8,105 7,727 6,019 5,423 4,138 1,763 1,029 Ferrous & Non-Ferrous Meallurgy 77,835 89,744 97,910 112,499 116,211 115,166 96,739 78,068 56,252 Chemicals & Perochemrcal ladusry 17,514 19,459 21,074 23,518 24,247 25,920 28,542 12,183 6,972 Machlne-Budding & Meaworking 15,930 17,491 18,610 19,950 20,529 20,734 20,672 13,478 12,684 Foresty, Woodworking, Pulp & Piper Industry 6,609 7,092 7,595 7,436 7,517 6,969 7,875 4,945 2,824 Conrtrucdon Materias 16,288 17,265 18,283 19,417 19,495 18,3B3 17,354 6,299 4,129 Light ILdusty 108,454 107,494 110,913 113,257 116,291 114,645 114,079 100,820 96,845 Textilec 100,677 99,771 103,263 105,432 107,962 105,911 104,852 94,471 91,013 ClothIng 4,597 4,452 4,348 4,348 4,796 5,021 5,644 4,013 4,436 Lather nd Shoe 3,180 3,241 3,302 3,477 3,533 3,713 3,583 2,336 1,396 Co Agiculture/Food Procsing 54,470 54,672 54,603 56,555 59,931 60,308 52,445 34,814 27,349 g Food Procesing 39,232 38,604 38,180 40,059 42,893 42,395 40,569 25,486 23,776 Mad and Dairy Pr udus 15,026 15,852 16,201 16,217 16,801 17,641 11,290 6,142 3,354 FM 212 216 222 249 237 272 286 186 219 Source: Stistcal Commit of Taji.kit , TABi.E 7-3; TAI1CISTAN; ELECTRICI`Y PRODUCTION AND CONSUMPTION (billouas of KWII) 3910 1985 1916 1957 1931 199 990 1991 1992 1'J933 ProdviLeoo 13.6 IS.7 13.6 15.9 I1.S 15.3 15.2 17.6 16.1 ;S.0 of which: TbrZmml 1.0 1,3 1.5 1.3 1.2 1.5 1.3 1.2 0.9 I.0 . Ilydro 12.6 14.4 12.1 14.6 17.0 13.8 16.9 16.4 15.9 17.0 Total Iaponu 4.1 5.5 7.4 6.3 5.5 810 6.9 6.9 6.4 5.0 Irf-tepublic 4.1 5.5 7.4 6.5 5.5 3.0 6,9 6.9 6.4 5.0 Extn-ropullc .. .. ...... I... Tol supply 17.7 21.2 21.0 22.4 24.3 23.3 25.1 24.5 23.2 23.0 DoMadomaumsplim 9.7 15.3 16,6 16.9 I8.3 19.1 19.4 19.3 17.6 17.0 lnduy adend cauiwa 4.9 9.1 9.3 10.3 11.2 11.6 11.5 11.0 9.8 3.0 Akcutute 2.7 3.5 3,7 3.S 3.1 4.0 4.2 4.5 4.3 5.0 Transport 0.3 0.1 0.1 0.3 0.1 0.1 0.2 0.2 0.1 0.0 Otim uoors 0A4 0.5 0.5 0.6 0.6 0.6 0.6 0.5 0.4 0.0 Hlonacholda 0.7 1.0 1.1 1.1 1.2 1.3 1.3 1.1 i.2 10 Loam 0.9 1.1 1.4 1.3 1.4 1.5 1.6 1.S I.' 2.0 Tol Expoit 8.0 5.9 4.4 5.5 6.0 4.2 5.7 5.4 S.6 6.0 laler-ftpubIlc 1.0 5.9 4.4 5.5 6.0 4.2 5.7 5.4 5.6 6.0 Exia-rnub1c ,, ,. .. ., ,, .. .. 0.0 0.0 0.0 Totul 17.7 21.2 21.0 22.4 24.3 23.3 25.1 24.5 23.2 23.0 Souna: Staz SwSmd Comueus ol T"jIldJ-an. TABLE 7-4: TAJEUSTAN: PRIMARY ENERGY SUPPLY (et,.d uns) 1950 1915 1986 1937 1928 1939 99 1991 I992 1993 PRIMARY PRODUCTION Coal and Itk (hard sd brown) (T T) 532 516 660 593 673 SIS 475 313 214 174 CnoOi 0l (Tb 1) 330 322 314 252 242 l71 136 99 57 39 a (M M3) 222 303 292 280 23S 194 III 93 72 49 Hydzoashcuaall(M KWH) 12,630 14,403 12,066 14,S96 17,555 13,503 16,655 16,391 15.919 17.119 TO Ft I .. .. .. .. .. .. .. .. ..4. TO0TAL ' """""""" ENERGY TRADE Cod a" LpBo Expors 428 2.56 . .. .. .. 230 274 186 so (Thi) Impo1s 492 655 .. .. .. .. 781 649 422 33 Nd Lmpots .. .. .. .. .. .. ..U OlIOI Products Exports 343 355 .. .. .. .. 139 109 64 41 (rhT) Impods I1155 2,305 .. .. .. .. 2.276 1,022 601 398 Net Imports4 4 4 4 4 C * 4* Gas Exots 177 214 .. .. .. .. .. .. .. (M M3) lospodu 1 133 1 339 (MM)Nc Imprs 1,23 2.3. .. .. .. .. 2,72 1.77 1,25 2,37 Net Imports l 9 * 4 4 4 *4 Elemtit Expot 5,008 5,922 4.403 S,526 6,066 4,172 5,663 5,390 5,595 6,386 U (M KWH) Impots 4,143 5,500 7,463 6,522 S,505 7,969 6,905 6,941 6,425 5,214 Nd Liports Source: Stat SIdical Cosalkta of TuJikbta. 232 Smtistical Appendix TABLE 7-5: TAJIIYSTAN: PRIMAARY ENERGY SUPPLY (thouands of tons oil equivalcnt) lisa 1950 1985 1916 1987 1983 1989 1990 1991 199Z 1993 PRIMARY PRODUCniON CoalandlihgntcQardandbrown) 461 236 366 329 373 235 263 173 119 96 Crudeol 472 460 449 403 346 245 194 142 82 56 Gm 255 343 336 322 270 223 12; 107 83 56 Nucdear . .. .. . . .. .. .. Hydrolgtooihcnnl 4.104 4.681 3,921 4.744 5,709 4,486 5.488 5.327 5,174 5564 Other .. .. .. .. EinaGY TRADE Col and luift Expor 237 142 .. .. .. .. 127 152 103 44 Impmu 276 372 .. .. .. .. 457 375 232 19 Ntipip- .. -- - - Oil/ol produa Expot 491 508 .. .. .. .. 199 ImPo" 2.721 3,314 3 .. .. 3,283 Nctimp .. GUr Expo 204 246 .. .. .. .. . . I-mpos 1.303 1,597 . .. .. 1,951 2,041 1,327 1.580 Ntimpo .. .. Ebicity Expors 2,603 1.925 1.431 1.796 1.971 1.356 1.841 1.752 1.,19 2,075 Impor 1,347 1.788 2.425 2.120 1.789 2.590 2.244 2.256 2.089 1.695 No imponu .. .. .. .. -. Toa nul impom Tour sock chans e . Source: Stat Ststitcal Commitse of Tajikitan. TABLE 8-1: TAJIKISTAN: MONTHLY WAGES BY SECTOR (curcea nzble) 1/ 1980 1935 1986 1987 191J 1989 1990 1991 1992 AVERAGE 146 158 162 166 177 188 207 340 1,909 MATERIAL SECTORS Indugzy 158 175 179 182 194 214 231 394 2,523 Eleoctsrty 179 187 18 193 210 243 278 779 FPca 254 258 262 263 280 276 309 448 McUaurgy (Ferrous ad Nos-feroua) 237 276 295 310 357 394 402 739 Machlie-BuldIng mad Mctal Wo:kInD 169 189 143 194 210 224 246 387 Ckcalaal mod Pcbwbc4nkica 187 211 218 220 237 262 296 486 Foreory, Woodwotkiug sAd PFapr-PWp lndAiry 161 174 199 176 184 205 206 393 CouCJuJdoCa Mlcrialm 174 192 198 204 216 240 258 455 LJ lad wuary 139 152 151 151 169 180 193 319 TcxwiJ 154 166 169 170 189 203 218 377 ClothLIng 116 126 122 121 139 147 154 224 L thr amn Shoeo IduMy 137 161 153 IS8 175 183 205 325 Food LdAwty 141 144 151 159 159 174 198 273 Mee amd Daby 151 163 167 t68 171 188 196 273 Flb 137 251 161 156 190 239 254 497 Other Food Processing Co ucnwUon I80 200 205 212 233 253 276 434 2,616 Apiculture 124 136 142 141 151 160 177 315 1,42S Trtanspat 170 176 178 182 195 204 223 324 1,611 Coammunkad=u 127 136 139 144 160 173 191 330 2,083 Trade(ReaIl*and Wholsue) 130 135 138 138 143 155 190 29S 1,440 Otbs MaerW PWud . .. NONMATERIAL SECrORS MunIdeld Servics4 112 119 121 122 130 143 160 273 1,S14 en Sclncee, Research and Docvlopmoc 174 184 188 197 230 260 285 435 2,534 g Educgloa 142 161 167 179 180 180 183 294 1,721 CT Culturc 109 112 113 113 117 119 143 234 1,445 A41. 129 137 135 143 146 152 173 274 1.428 Hcalth Care, Socal Sbcurky. Sporta 126 131 132 133 145 145 167 269 1.557 > bamnklg, FL nce CrdM.al wsurmee 143 1SS 164 167 179 192 296 712 4,66S Oover-ne, 147 152 157 166 179 211 300 419 2,994 _ ~~~~~~~~~~w I/ For Sorxtcanda Cr oyemmc o S1m1N: StoAt SwtbcA C DmLt of Tajbt. TABLE S-2: TAJOLiSTAN: MONTIILY WAGES BY SECrOR, 1992 (curmn rubics) CA, Jmnuaiy Fcbruu7r March AprI1 May June July Augui Scpt*neber October 4vember Decmber AVERAGE 724 732 900 879 1,196 1,780 1,651 1,719 2,150 2,592 2,985 4,336 MATERIAL SECTORS Iadutty 1.021 1,108 1,440 1,645 1,906 2,200 2,449 2.855 3,246 3,480 3,893 6,347 Agriculthre 343 333 430 394 707 1,049 923 967 1,063 1,300 1,543 3,876 Forc*yr 487 352 920 649 582 1,593 1,246 1,266 2,646 2,342 2,176 3,865 Tranpart 585 668 859 1,072 1,387 1,694 1,976 2,219 2,294 2,647 3,002 2,806 Coamuncatio"a 810 994 941 1,379 2,050 1,927 1,942 2,149 3,301 4,093 5,698 Co1utUcdon 753 962 1,392 1,489 2,075 2,747 2,859 2,774 3,967 4,144 4.771 5,357 TradeU (Rcil sad WhoelaJle) 509 581 746 634 995 1,265 1,303 1,352 1,458 2,S56 3,440 2,221 NONMATERIAL SECT'ORS Informa±iooandComputerServlca 439 718 1,200 873 967 2,065 1,933 2,153 2,284 . 2,702 3,233 3,103 MuSICpel SOMCeM 683 790 854 903 1,680 1,753 1,868 2,016 3,130 2,553 3,601 Hmla camr, Socil Security. Sports 554 661 740 689 1,114 1,858 1,302 2,405 2,393 2,374 2,912 3,059 EducA±on 756 734 832 814 1,240 2,769 1,867 1,920 2,286 2,580 3,124 2,836 CultLrm nd Aits 561 605 679 724 88a 1,461 1,380 1,403 1,572 2,202 2,078 2,494 Sciaene, Recarh Lad Developmet 717 733 1,289 1,403 1,347 3,177 2,843 2,682 3,380 4,226 5,614 7,168 Banking, FIoanc, Crad, Lnuruac 1,142 1,344 1,703 1,690 2,617 4,538 S,048 5,055 6,426 6,318 6,877 13,182 Governiment 656 995 1,281 1,176 1,615 3,070 3,328 3,232 3,647 4,343 4,819 6,320 ENTIRE STATE ECONOMY 942 984 1,334 1,955 1,870 1,978 2,390 2,810 3,288 4,228 CoUecive FPrau 359 503 323 559 756 751 753 1,216 1,605 1,693 4,574 Cooperatives 439 2,562 902 1,163 4,421 2,440 1,770 3,786 3,052 3,532 4,948 JoIt Veatures 1,340 2,234 2,267 3,686 6,432 3,509 6,701 5,057 3,699 4,746 5,335 Private Hncrprm 2,510 ,. 1,605 5,503 2,564 1,912 3,788 3,645 3,889 6,133 Small EnterprLc .. 3,116 1,524 1,605 5,503 2,564 1,912 3,788 3,645 3,889 6,133 Sourco: Sl Stltcal Commimn of TaJIk.Iiaa. TABLE 8-3: TAJIKISTAN: MONTHLY WAGES BY SECTOR, 1993 (currne rublua) lJnuAry February March April May June July August SqAember October November Deccmber AVERAGE 3,335 4,357 4,960 6,459 8,15S 10,612 12,951 14,317 16,160 23,129 26,463 33,680 MATERIAL SECTORS lnduxtry 5,830 8,230 12,822 13,774 15,504 20,890 25,323 26,723 32,075 41,607 51,049 51,715 Agriculture 2,514 1,823 2,661 3,125 4,459 5,805 7,709 8,161 8,504 15,655 15,712 17,316 Forcty 2,024 2.963 4,681 3,412 3,401 5,999 6,419 6,341 8,964 8,152 19,724 27,637 Transport 3,460 4.780 5,105 6,512 5,313 12,522 15,693 18,368 18,396 22,866 29,475 29,707 CommunIcaons 4,123 6,872 7,647 7,738 9,889 17,865 15,062 14,592 17,337 25,934 31,915 39,700 Conrusuon 4,904 6,163 8,762 12,240 15,913 22,207 27,559 30,221 38,486 45,594 55,755 59,939 Trado (Rcad and Wholsule) 2,436 2,901 5,779 5,543 7,921 9,502 11,515 12,568 13,533 19,755 23,923 29,691 NONMATERIAL SECTORS Informaton oknd Computer Servics 3,852 4,994 8,412 8,465 11,214 17,022 24,121 20,168 24,850 25,805 36,207 39,300 Muaicpal Services 4,199 5,282 5,020 7,496 9,153 9,402 14,057 14,551 16,483 24,259 30,821 38,800 Hicluth Caur, Social Security, Sport 2,957 4,109 4,373 4,841 7,157 9,428 10,157 11J353 12,273 17,974 22,357 20,300 Educat.on 3,030 4,398 4,885 5,228 6,549 11,804 9,111 10,075 9,784 17.522 19,849 21,400 Cultuze and Ad. 2,667 4,017 4,168 5,820 5,791 8,967 10,230 11,044 9,870 17,831 20,506 20,638 Scleace, Resarch and Development 4,803 7,008 8,176 8,259 10,939 19,900 16,402 17,019 18,419 30,682 30,457 33,726 BDnking, Finance, Credit, lnauun 9,075 9,882 15,487 17,740 22,724 31,470 32,357 37,702 49,422 43,193 75,286 93,080 Government 5,409 7,849 10,174 9,721 11,615 21,056 21,885 20,977 24,395 30,152 37,030 38,784 ENTIIE STATE ECONOMY 3,807 4,985 5,997 7,442 9,327 12,B62 15,044 16,179 17,629 25,375 30,028 35,117 Collective Frmes 1,040 1,543 1,458 2,204 3,486 4,504 6,121 7,862 10,505 15,491 14,832 20,494 c Cooperaives 6,619 3,667 6,878 11,358 11,164 11,985 1.6,233 21,822 21,522 29,778 32,510 62,567 P JoiLnt Vcalures 5,257 7,434 10,282 8,966 13,144 12,602 29,562 27,597 31,158 44,794 49,177 47,984 PrivakzEnIcrprl.ac 5,000 6,166 4,905 9,485 11,200 18,500 21,177 27,914 29,974 46,477 25,200 37,769 Small Etcrprlru 5,000 6,166 7,948 9,485 11,200 18,500 14,729 18,392 24,753 24,027 37,062 58,842 Source: SLate StatIical Committee of TajWkItan. u, 236 Statistical Appendix TABLE ": TAJIKISTAN: WHOLSSALE PRICES Year Month Index Morhly Inflation Raze (percentage change 1990 IDO 1991 January 136 36.1 Fcbruary 147 7.8 Marci 148 0.8 April 160 8 1 May 184 15.0 Junc 193 4.4 July 196 1.7 August 206 5.1 Septembcr 212 3 ' October 246 16.1 Novcmber 259 4.9 Demcber 234 9.3 1992 January 749 163.9 F6bsUy 2,697 260.2 Marh 2.900 7.5 April 4.402 51.8 May 4,719 7.2 Juno 5.054 7.1 July 7,213 42.3 August 7.983 10.6 Scpmmber 13.379 67.6 October 14,''j 6.1 November 15.133 6.6 December 17.115 13.1 1993 January 42.120 146.1 Fcbruary 77.164 83.2 March 115.746 50.0 April 163.750 41.5 May I35.399 13.2 Juno 215.063 16.0 July 253.774 13.0 August 313,919 23.7 Sepembcr 355,042 13.1 October 620.613 74.5 Novem6cr 771.422 24.3 December 1.047.591 35.8 Souruc Statc Staiaitical Committe of Tjlkiata. Statitistical Appendix 237 TABLE 3-5: TAmKsTAN: RETAIL PRICES OF GOODS Ycer Month Index Monly lflation Ra -(perctage change) 1990 December 100 1991 January 109 9A Febrwary 115 5.5 March 125 8.2 April 203 62.6 May 209 2.8 Junc 223 6.9 July 230 2.9 August 234 1.7 Sctember 244 4.6 ctober 259 6.0 Novembcr 215 10.0 December 304 6.6 1992 3anuay 951 213.1 Febnamy 1.645 73.1 March 1,351 12.5 April 2,012 8 7 MAy 2,040 1A June 2,314 13.4 July 2,615 13.0 Argue 3.072 17.5 September 3,392 10.4 October 3,663 3.0 November 3,912 6.3 December 4,444 13.6 1993 I JanLuary 5,283 19.0 Februay 6,579 24.4 Marh 3,855 34.6 Apr,i 14.514 63.9 May 19,405 33.7 June 22.762 17.3 July 30.000 31.3 Augua 42,900 43.0 September 5,515 36.4 October. 73.203 2S.1 November 119.467 63.2 Deccmber 330.804 176.9 Il Consumer Price 1dx (CPI) in 1993. Source: Stat s l Zommmftae of Tajikia 238 Statistical Appendix TABLE 9-1: TAnISTAN: MONEY INCOME AND EXPENDITURE OF THlE POPULATION (nirhnns of currat rubles) 1980 1935 1986 1987 198J 1989 1990 1991 1992 INCOME LABORINCOMCE 2,223 2.914 3.021 3,106 3.394 3,714 4,254 7.219 34.010 Regula Wages 1,691 2,192 2,288 2,378 2,577 2.782 3.055 4,636 25,277 of wbich- WagcupaidbyCoaperaivc .. .. . . 15 132 203 180 773 Other Wages and Compenations 64 79 82 85 96 120 137 319 933 Ilomm paidby Coective Farmu 343 427 441 433 478 528 535 1.623 6,275 ncomc fiamn Sle of Fam Product 125 216 210 210 243 234 324 461 1,526 TRANSFER RECEIPTS 505 740 796 834 942 1.094 1,346 3.290 8.518 Penxioa and ADowanccs 381 521 S62 586 631 672 801 2.046 6,312 Scholaships 26 29 30 31 32 34 44 103 490 Inoome from the Fincial Sy am 1nanrancc. Intmed ct.) 6S 124 124 127 151 154 249 320 504 Othcr Income 33 66 go 90 123 234 252 321 1.211 TOTAL INCOME 2.728 3,654 3,817 3,940 4,336 4.808 5.600 10,S09 42.S2a EXPENDrrURE PURCHASES 2.S21 3,228 3.383 3.470 3.754 4.069 4.631 7.461 25.298 RdtRl Trade Purchaes. 2.304 2,956 3.086 3.147 3.391 3.664 4.207 6.532 22.033 Ptrchaad Senrvice 217 272 297 323 363 405 424 929 3.264 Reat ndt Ujliti 53 63 79 S8 39 103 90 103 4S7 Tranxport ad Communication 112 140 149 150 138 177 193 304 1.584 aklth and Other Savica * 11 16 19 22 25 27 34 47 89 Cooperativ. . .. 1 6 12 14 76 52 TRANSFERS AND SAVINGS 332 485 560 587 671 859 963 2.541 2.953 Tuxes. Fe DuesandOdzicr 239 325 342 363 397 443 510 601 1.710 Savings 36 157 218 224 274 416 453 1.881 934 Other 7 3 .. . . .. .. 59 310 TOTAL EXPENDITURE 2.853 3.713 3.943 4.057 4.425 4.928 5.594 10,002 28.250 INCOME lca E)(PENDITURE (125) (59) (126) (117) (39) (120) 6 507 14.278 Source: St Sbtilca Cominiti of Taikiata. Statitistical Appcndix 239 TABLE 10-1: TAJUCSTAN: CAPITAL INVESTMENT BY STATE ENTERPRSES AND ORGANIZATIONS (million. of currcut rublcs) 1950 1985 1956 1987 199 1999 199 1991 1992 MacrrW Sphere 278 264 194 2,196 3,635 7,157 7,930 7.922 3,512 Agriculturcincluding forenry 3 123 71 57 66 1.945 3.097 2.424 332 Agriculture excluding forcsty 3 123 71 57 56 1.945 3.097 2.424 332 Famcay.. . .. . .. . Industry. tota 0 0 46 2,079 3.241 4.593 4.374 4.429 3.092 Industry. other . . 46 2.046 3.061 3,850 3.896 3.980 3,059 Cwinsnict -. 32 1SO 744 4895 449 33 Other,.matcridsphcrc 275 141 75 62 32B 619 455 1,069 98 Transponaia Of goods.- -.. - Miaintmeance of roads 39 9 .. 71 84 ii 21 Counmunication(forsatainal productio.) .. 73 55 27 46 9 1 175 210 35 YWolesalc tader.... Rcsalltrade and catcring 275 1 6 5 175 278 -- 275 33 Mazeriasupply .. 9 9 .. 27 208 34 241 Procurement -. 5 .. . . . 149 Information and computizg sevcs. . . .41 Other brnchea of matcrial production --. 34 - - 162 193 - Nonma.zri.I Sphcre 241 s0 192 135 859 1.570 2.919 2,992 1.274 Transortation -. -- 322 528 942 607 25 Communication. . . . Nousing 127 . 2 54 354 1.042 1.072 1,412 gm0 Pubic liitseand penoalmice so 153 2 41 217 296 160 Health earc, social security. physical culturcand sports 18 7 23 94 205 237 63 Education .. . S . 23 .. 205 329 95 Cuiare and art - .. 21 73 87 iS Sciaiccand smcintific mervcc . 25 25 21 21 Credit 29 .. 5 84 116 Insuranc -. GScale admiminiaton ad defEm Private nonprofit institutions serving households 67 ... . . . 3 Otbcr. materialand nonamcrimlsphcm 516 22.1 269 196 1.187 2.485 3,277 4.060 1.362 Total Capital Jneuzbnazt 519 344 355 2,331 4,494 9,027 10.745 10.913 4.785 Souxrce Sbtat Statistied Coanmifeca of Tajikitmn. 240 Statistical Appendix TABLE 10-2: TAMKSTAN: WVORtK IN PROGRESS IN CONSitUCIION (mlionsf crcuri rubles) 1980 1935 1986 1987 19HZ 19B9 1990 1991 1992 MaterialSpbere 511.3 831.0 951.0 1,035.3 1,184.9 1,260.7 1,484.0 2,015.6 *6.555.7 Agriculture iwluding foresty 203.1 337.4 318.3 301.3 319.2 316.3 336.4 429A 923.7 Agriculture Cxluding forcery 202.7 337.0 383A 301.3 319.1 315.9 336.2 429.0 922.9 Foremy OA OA 0.4 .. 0.1 OA 0.2 OA 0.K Jnadsty, towa 285.3 471.3 527.6 699.3 821.3 837.7 997.9 1,492.0 5,208.6 In4dusty, eric 277.1 445.0 501.! 623.4 741.5 311.2 926.5 1,339.0 5,047.7 Cmonructiom 3.2 26.3 26.5 75.9 79.8 69.5 71.4 103.0 160.9 Otter. maerial qphere 23A 22.3 34.6 34.7 44A 56.7 149.7 94.2 423.4 Trausporian of goods .. .. .. .. .-. . ldimtzmncc of roads 10.3 10.3 20.9 21.9 25.3 35.5 120.2 46.1 175.3 Communication (for mctrkAl produtio 3.2 6.5 5.7 6.2 6.5 6.9 8.8 17.6 41A Wholesale trad .. .. .. .. ... Rmltand de and catering 5.1 3.9 5.7 5.9 10.5 9.0 13.9 24.4 57.6 Materia supply 28 0.9 1.1 0.6 1.3 4A2 3.6 6.1 0.5 Procurement .. .. .. .. .. .. .. .. 17.7 lnformo and mpung v .. .. .. .. .. .. .. .. 1.1 Other brsanes of mscril prodatian 2.0 0.2 1.2 0.1 0.3 1.1 3.2 .. 99.3 Nonmatrs Spher 132.9 216.5 193.1 295.6 320.9 463.0 555.1 172.8 2,104.9 Tnaposttio 5.3 6.3 6.3 13.6 24.3 30.8 24.1 47.5 116.9 Con...atio .. .. .. .. ... Housing 54.6 32.0 98.0 115.4 118.0 163.0 201.6 303.0 1246.7 Public si and pesa sGvic 62.7 56.9 .. 62.6 85.9 118.4 149.3 231.9 619.3 Hedlth cue, social secuity, pkyacal cultrmadqn 13.1 22.5 27.1 30.6 .. 46.5 57.5 37.1 280.5 EducAio 28.8 34.2 49.0 54.2 62.8 66.5 30.3 136.0 442.0 Culture sad art 5.4 2.7 3.2 4.1 3.2 10.0 9.7 14.1 41.9 Scimcsmnd sciatfiserviee 1.2 1.2 4.5 4.5 9.3 12.1 12.1 16.3 32.0 Cr. .. ........ General admitratio and defend .. .. .. .. .. . Private norltlfit i oitutins seving houseolds 11.1 10.7 10.0 10.6 11.9 15.7 21.0 36.9 25.1 COher. material ad noinmatcisi sptees 206.3 231.8 237.7 330.3 365.3 519.7 704.8 967.- 3,228.3 Total work-in-prugw in eian n9ac&m 694.7 1,047.5 1,149.1 1,330.9 1,503.3 1,723.7 2,039.1 2,888A 9,360.6 Souue: Sbft Statiitc Commitee of Tajikitn Distributors of World Bank Publications ARCEITINA ECYPTLAAU REPUUUCOF ItENA SAUDI AZAZIQATAL Cars. Hirds SRL Al Ahrnin Aln 3mkSa*k MEA) LidL lutz fhnkSn CalriCos ACILaSm QaSW Bxf319 F7orida 165. 4th FlaosOlc 43/46 Calm PO 3m 4245 4Uyudhb1147I The Middle EA Obmm SINCAPOILETAIWANK Ofidnadal tb.. In1anud 4L ShaU 9mt K*ULRERU C OF MYA AL NE A1bft 40 Cala Fa omm t.kCapmufl Cwm1M rPakfPtL1d. urnmarnosAO.3- rima ISLKwasgwfh colWh.n Saddl-ng FINLAND Sad 41. fillwg Pfadidg 60403 AUSTRALA. PAPUA NEW CUINEA. marmo lJupmauppa Sipwn 2134 F1JI.SOLOMON ISLANDS. P.O. fa 121 XinASrk1ookConte VANUATt. AND WESTERN SAMOA SChmm HIkSod IO PA. 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A *8f ) X ,ICHINA _ 712' OF IRAN *, IAFC * . j The World Bank Headquarters European Office Tokyo Office 1818 H Street, N.W. 66,avenue d'lena Kokusai Building a Washington, D.C. 20433, U.S.A. 75116 Paris, France 1-t, Marunouchi 3-chome Chiyoda-ku, Tokyo 100, Japan Telephone: (202) 477-1234 Telephone: (1) 40.69.30.00 Facsimile: (202) 477-6391 Facsimile: (1) 40.69.30.66 Telephone (3) 3214-5001 Telex: MCi64145WoRLDBANK Telex: 640651 Facsimile: (3) 3214-3657 MC! 248423 wORLDBANK Telex 26838 Cable Address: IYN'AFRAD WASHINCTO.NDC ISBN 04213-3105-1