Tajikistan - A Country in Transition : An Economic Update

Document of The World Bank FOR OFFICIAL USE ONLY CONFIDENTIAL Report No. 15421 TJ TAJIKISTAN A COUNTRY IN TRANSITION: An Economic Update May 22, 1996 FILE COPY Country Deparment III Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Russian Ruble (Until May 10, 1995) Currency Unit = Tajik Ruble (After May 10, 1995) Period Average Period Average (Russian Rubles per US$) (Tajik Rubles per US$) 1993 December 1,240 1995 May 50 1994 December 3,388 August 58 1995 January 3,858 September 103 February 4,259 December 300 March 4,749 April 5,030 WEIGHTS AND MEASURES Metric System TAJIKISTAN - FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CIS Commonwealth of Independent States EBRD European Bank for Reconstruction and Development EU European Union FSU Former Soviet Union GDP Gross Domestic Product IMF International Monetary Fund MOF Ministry of Finance MSTS Main State Tax Service NBT National Bank of Tajikistan NGO Non-governmental Organization NMP Net Material Product RR Russian Ruble SOE State Owned Enterprise SPC State Property Committee TR Tajik Ruble Acknowledgements This report is based on background work done for the Agricultural Recovery and Social Protection Credit for Tajikistan, carried out during several missions between July 1995 and February 1996. The Task Manager and principal author for this report was Mustapha Rouis. Major contributions, in the form of chapters and/or comments, were made by Stuart Bell (private sector development); Loup Brefort (privatization); Robert E. Christiansen (agriculture); Michael Fuchs (financial sector); Mohammad Reza Ghasimi (industry); Alasdair McBean (trade); Michael Mills (poverty); Andrew Newell (social safety net); Barbara Ossowicka (data analysis); Elaine Patterson (social sectors); and Steve Tabor (macroeconomics). Robert J. Anderson, Farrukh lqbal, Costas Michalopoulos and Marcelo Selowsky provided valuable comments. Genoveva Berin and Michel van Beneden processed the report. The work was carried out under the general supervision of Kadir Tanju Yurukoglu, Division Chief, and Yukon Huang, Director. Tajikistan A Country in Transition Page No. H igh ligh ts ...................................................................................................i E xecutive Sum m ary ......................................................................................i The Main Features of the Tajik Economy....................................................i The Challenges Facing the Country ..........................................................i The Deepening Crisis and the Need for Macroeconomic Reform ..................... iii The Agricultural Transition ................................................................... vi Privatization and Private Sector Development........................................... viii Rebuilding the Social Safety Net.............................................................. x Medium-term Prospects...................................................................... xiii I. Recent Economic Developments: The Deepening C ...................................... A. The Downward Spiral of Production, Employment and Income.................... 2 Output and Expenditures..............................................................2 Rising Under-Employment and Falling Cash Incomes..........................5 B. Macroeconomic Imbalances................................................................6 Public Finance and Fiscal Policy.................................................... 6 M onetary Policy ........................................................................9 Foreign Trade and Public Debt.................................................... 12 C . C onclusion ................................................................................... 15 II. Policy Options and Medium Term Outloo 17 A. Stabilization and Rehabilitation.......................................................... 17 Adopting Sound Fiscal Policy ..................................................... 17 Financial Sector and Monetary Policy ........................................... 19 Structural Trade Deficit and Exchange Rate Management ................... 20 Restoring External Debt to a Sustainable Level................................ 21 B. Medium Term Economic Outlook ...................................................... 22 Growth Determinants................................................................ 22 Illustrative Scenarios ................................................................ 24 External Financing Requirements................................................. 26 C . C onclusions ................................................................................. 26 III. Agriculture: A Cotton Enclave................................................................. 29 A. Recent Trends in Agricultural Production............................................. 30 B. Farm Sector Restructuring and Reform................................................ 32 C. Reforming Agricultural Incentives: Pricing, Marketing and Trade............... 37 D. Environmental Issues...................................................................... 41 E. Steps for Transforming Agriculture .................................................... 43 F . C onclusions.................................................................................. 44 IV. Privatization and Private Sector Development............................................. 46 A. Accelerating the Privatization Process ................................................. 46 Progress and Constraints ........................................................... 46 Needed Changes...................................................................... 50 B. Building an Enabling Environment for Private Sector Development ............. 52 The Business and Regulatory Environment ..................................... 54 Role of the Banking Sector......................................................... 57 C . C onclusions ................................................................................. 58 V. Rebuilding the Social Safety Net................................................................ 60 A. Living Standards and the Effects of the War ......................................... 60 Living Standards ..................................................................... 60 The Aftermath of the Civil War................................................... 62 B. Protecting Health and Education Services ............................................. 63 E ducation .............................................................................. 63 H ealth C are ........................................................................... 64 Need for Reform ..................................................................... 65 C. Targeting Cash Transfers................................................................. 65 Allowances and Subsidies .......................................................... 66 Pension, Social Insurance and Employment Benefits.......................... 67 D. Supplementary Job Creation ............................................................. 71 E. Poverty Assessment........................................................................ 72 F . C onclusions.................................................................................. 72 Annexes 1.Tajikistan: Stabilization, Fiscal Balance and the Borrowing Constraint..................... 74 2.The Aluminum Smelter Plant ....................................................................... 77 3. Energy and Mining in Tajikistan .................................................................. 80 R eferences ................................................................................................ 82 Statistical T ables ....................................................................................... 83 Boxes 1.1. Tajikistan - A Country Profile ................................................................... 1 1.2. The Tajik Currency Conversion ............................................................... 10 1.3 The Interbank Credit Auction.................................................................. 11 3.1. Fertilizers and Agro-Chemicals................................................................ 32 3.2. Growth and Small Farmers: Some International Experience............................. 34 3.3. Experience with Land Reform in the FSU................................................... 36 3.4 Administrative Structures in Agriculture..................................................... 38 3.5 Explicit and Implicit Taxes on Cotton in Tajikistan........................................ 39 4.1. Privatization Progress in Transforming Economies........................................ 47 4.2. Broad-Based Privatization Schemes........................................................... 52 5.1. Extra-Budgetary Social Funds.................................................................. 68 Figures 1. Cumulative Decline in GDP in Central Asian Countries................................... iii 1.1. Trends in Real Wages ............................................................................. 6 1.2. Budgetary Subsidies..................................................................-ie........- 8 1.3. Trade Structure, 1995 (Imports and Exports) ............................................... 12 1.4 Progress in Reform in Central Asia........................................................... 16 3.1 Trends in Agricultural Production and Yields .............................................. 30 4.1. Employment in Small State Enterprises, Cooperatives and Private Enterprises ...... 53 4.2. Evolving Structure of Private Sector Activities ............................................. 55 Tables 1. Tajikistan--Policy Stance as of March 1996...................................................ii 2. Tajikistan--Selected Economic Indicators..................................................... iv 1.1. Real Growth in Gross Domestic Product, 1990-95 .......................................... 3 1.2. Output of Major Commodities, 1990-95 ....................................................... 4 1.3. Tajikistan: Public Expenditures, 1992-95...................................................... 8 1.4. Tajikistan: Balance of Payments, 1992-95................................................... 14 2.1 Liberalization and Economic Performance, 1993/1994 ................................... 23 2.2. Tajikistan: Medium-Term Economic Projections........................................... 25 2.3. Tajikistan-Policy Stance as of March 1996................................................. 28 3.1. Tajikistan: Farm Structures, 1991-1994...................................................... 34 3.2. Cost Structure for Cotton ....................................................................... 41 4.1. Privatized Enterprises As a Share in the Sector ............................................ 48 4.2. Privatized Enterprises by Method of Privatization 1991-95 .............................. 50 4.3. Number of Joint Ventures by Country ....................................................... 53 4.4. Characteristics of the Banking Sector......................................................... 57 5.1. Comparative Social Indicators ................................................................. 61 5.2. Real Monthly Wages............................................................................. 62 5.3. Selected Indicators for Agricultural and Non-Agricultural Households................ 62 5.4 Pre-school and School Enrollment ............................................................ 64 5.5. Planned Employment Fund Expenditures for 1995 ........................................ 71 HIGHLIGHTS * After four years of civil strife and natural disasters, Tajikistan has re-embarked on the reform of its economy. Good progress has been made since late 1994 with respect to price and trade liberalization, the introduction of a national currency, and export deregulation. However, little progress has been made in structural reform, particularly in the areas of privatization, agricultural marketing, and land reform. * Achieving political and macroeconomic stability is a prerequisite for a resumption of investment, growth and the development of the private sector. The recent tightening of the money supply and the reduction in the budget deficit are steps in the right direction. Raising government revenues (as a share to GDP) remains a critical area of the macro policy agenda. This can be achieved through the elimination of tax exemptions, broadening of the excise tax base and increase in user charges. * In recent years, there has been widespread disintermediation in the domestic financial market. In reforming the financial sector, priority should be given to appropriate interest rate and credit policies in the short-term, to 'restructuring' the sectoral banks, and implementing a market-based accounting framework. * The combination of a high degree of crop specialization, marketing restrictions and government- owned land has saddled Tajikistan with a large and non-productive agriculture sector. A high degree of reliance on overseas markets for inputs, processing, and output sale has made agriculture extremely vulnerable to the collapse of the inter-republic trade and financial system that accompanied the breakup of the Soviet Union. The civil war also contributed to the disruption and decline of agricultural production and trade. At this juncture, key domestic policies such as agricultural pricing, marketing arrangements and farm restructuring will play a prominent role in determining the future performance of the sector. * Apart from political and macroeconomic stability, further development of the private sector would depend on the effectiveness of privatization and the depth of agricultural reform. The privatization process has been slow in Tajikistan by comparison to other FSU republics. One reason is the lack of a clear and well-defined approach. But Government is in the process of redefining the privatization framework by following a top-down rather than a bottom up approach, and by addressing key constraints, particularly in the legal environment. * Poverty is widespread and has been aggravated by the civil war and the collapse of output. Still, human development indicators rank Tajikistan among the middle income countries, a feature common to FSU republics. Education, health and social services have been severely disrupted in recent years, and there is little evidence that the country will recover sufficiently to be able to support the comprehensive social sector inherited from the Soviet period. Therefore, income support and social services will need to be better targeted to the most vulnerable groups of the population. * Tajikistan's prospects depend essentially on three key factors: political stability at home, vigorous implementation of an adequately-financed economic reform program, and debt relief. External financing requirements will be quite large, given the expected high level of imports needed to meet rehabilitation requirements, the high level of debt service, and the need to rebuild official reserves. Comprehensive debt rescheduling and/or reduction are crucial for the success of Tajikistan's reform program. Tajikistan: A Country in Transition Executive Summary Introduction 1. This report provides an update of the economic situation and outlook from the 1994 Country Economic Memorandum. Much has changed since that time and, given the growing seriousness of Tajikistan's economic crises, the report puts a special emphasis on future macroeconomic and sectoral reform options. The report also briefly covers the period prior to 1994 to reflect important changes that have been made in the country's historical data base. 2. The break-up of the Soviet Union and subsequent deterioration in trade and payment arrangements among FSU republics triggered a precipitous decline in economic output. The subsequent civil war in 1992 and major flooding in 1992-93 cost many lives and contributed to a further dramatic fall in output and income; a loss of control over public finances; widening trade deficits; large build-up of external debt and galloping inflation. These events, which took place in the space of a few years (1991-95), crippled the economy and led to an enormous increase in poverty. At present, the vast majority of the population is believed to be below the poverty line. 3. Tajikistan's real challenge is how to adjust to these profound shocks without further aggravating poverty and jeopardizing the already fragile political situation. As this report demonstrates, the answer lies in a strategy that emphasizes macroeconomic stability, employment- intensive growth and adequate social protection. The Challenges Facing the Country 4. After an abortive start in 1991, and under perhaps the most difficult conditions of any former Soviet Republic, Tajikistan is again embarking on reforming its economy. Some progress has been made since late 1994 in liberalizing prices and trade and in introducing a national currency. At the same time, little progress has occurred in structural reform and practically all agriculture and the industrial sector remain under Government ownership and control. The Government is in the process of undertaking important fiscal, monetary, trade and structural reforms, but there are many areas still outstanding where concerted effort is required (see Table 1). Government's policy reform program is ambitious. But by the same token, major changes in public policy will be needed to foster economic recovery and to continue the process of transition to a market economy. 5. Tajikistan faces four major development challenges. The firs is to sustain the progress made toward peace and political stability. The civil war vividly illustrates the grave human and economic cost associated with the unchecked rise of ethnic hostility. The dramatic events which took place in January/February 1996 when dissident factions in the armed forces brought the country once again to the brink of civil war are a reminder of the fragility of the security situation in Tajikistan. Efforts to reconcile the interests of opposing political factions, to forge national unity and to inspire stable political development are an essential complement to economic reform initiatives. 6. Second, is the need to restore macroeconomic stability. High inflation rates, large fiscal deficits, severe trade imbalances, large external debt and the collapse of the banking system discourage private investment and distort market incentives. Expansionary fiscal and monetary policies were pursued for much of 1991-1995 in an attempt to maintain living standards despite the FSU's collapse, the civil war and the floods. The result was to exacerbate macroeconomic imbalances, dampen the impetus for structural reform and raise the cost of future adjustments. Although attempts were made to improve fiscal and monetary policy, high rates of inflation in the second half of 1995 contributed to demonetization and loss of confidence in the new currency. Macroeconomic imbalances in 1996 were so extensive that a concerted and comprehensive effort will be needed to stabilize the economy. Table 1: Tajikistan - Policy Stance as of March 1996 Policy and Structural Reforms inoutstanding Iplmened Conuous Ousadn Fiscal Policy improve tax administration Introduce VAT / Rationalize cotton taxation / Reduce public enterprise subsidy improve debt management Contain the fiscal deficit Monetary and financial policies Adopt positive interest rate Establish bank-by-bank credit ceilings / Shift to indirect instruments of monetary control Restructure the banking sector Exchange rate policy Establish a foreign exchange auction system / Eliminate foreign exchange surrender requirements / Adhere to a flexible exchange rate policy Domestic prices and trade liberalization Decontrol prices / Eliminate bread subsidies / Eliminate state orders / Liberalize cotton marketing External trade liberalization Eliminate non-tariff restrictions / Privatization program Develop a divestiture program Privatize cotton marketing Privatize ginning services Privatize the rest of the PE sector Enabling environment reform Adopt pro-market legal framework I Improve investment incentives Other structural reforms Adopt social safety net measures I Reform education sector Reform health sector Allow full transferability of land access rights Restucture state and collective farms 7. Ibird, to unleash the economy's productive potential, Tajikistan must make major structural and policy adjustments in response to the collapse of communism and the Republic's emergence as an independent nation state. The single most urgent priority is to establish an incentives system that inspires efficient use of scarce resources. Land reform, agricultural marketing reform, privatization and creation of a legal framework to facilitate private sector activity will contribute to meeting this objective. In the case of Tajikistan the gap between potential and actual economic output is big. Heavy investments made during the Soviet era in irrigation, roads and social services can pay rich dividends, especially if a market-based incentives system is put in place. ii 8. Although only seven percent of the country is arable land, the agriculture sector is well positioned to lead the recovery process. The sector is well-endowed with natural resources, has a solid infrastructural base and an educated work force. The potential exists to raise agricultural productivity, diversify output and expand down-stream linkages between agriculture, light industry and the services sector. An agriculture-led recovery could have a significant impact on alleviating poverty, since a large proportion of the rural population are poor and many low-income urban residents receive some support from agricultural households. 9. Eoulh, the collapse of the nation's social safety net and more generally, the severe deterioration of all forms of social services require urgent action. Rebuilding the social safety net, albeit at a level and structure that Tajikistan can afford, will help ease movement of resources between sectors and activities. Restoring essential social services in general will help forge a greater sense of national identity and prepare future generations to meet the challenges of a market-based economic system. The Deepening Crisis and the Need for Macroeconomic Reform 10. Table 2 shows the recent trend for key economic indicators. Notwithstanding data weaknesses, it is estimated that by end 1995, aggregate output will have fallen to about 40 percent of the level reported in 1991-- worse than most countries in Central Asia (see Figure 1). Output collapsed first in agriculture, then spread to the other sectors. Adverse conditions mentioned above, together with acute shortages of fertilizers, pesticides and improved planting varieties contributed to a steady decline in agricultural output and exports, and to growing dependence on food imports. Plagued by shortages of energy supplies, spare parts and raw materials, the industrial sector has been in continuous decline since 1991. At present, the great majority of industrial enterprises operate a total of only a few months a year. Aluminum, the single largest industrial enterprise, operates at below half of installed capacity and generates negative value added (in international prices.) . Figure 1 Cumulative Decline in GDP in Central Asian Countries 70- AZI 60 ja TAJ KYR 40-* TRK 30 ,* UZB 20 , luuza 1991 1992 1993 1994 1995 Source: World Bank daLa iii 11. Production, Employment and Income. As output collapsed, Government increasingly resorted to imports to sustain consumption levels. The trade deficit soared to as high as 31 percent of GDP in 1993, a reflection of trade structural rigidities and overvalued exchange rate. Even so, growing dependence on external supply sources could not halt the downward spiral of private consumption and investment. In real terms, investment has come to a near halt in 1995. 12. Despite the collapse in output, official employment held steady, with recorded unemployment rates of less than 2 percent of the total labor force. Many workers, while nominally employed, have been placed on involuntary leave for extended periods. In addition, underemployment grew rapidly. In 1995, approximately a quarter of the labor force was classified as underemployed. Real wages have fallen dramatically since 1991, which in turn inspired skilled workers to leave the country. The ranks of engineers, medical doctors, teachers and public administrators have been severely depleted as skilled workers have sought employment in other Republics. Table 2: Tajikistan - Selected Economic Indicators (in percent) Actual Preliminary 1992 1993 1994 1995 Real GDP [or NMP] Growth [-33.7] -11.1 -21.9 -13.4 Budget Deficit/GDP -30.3 -24.8 -10.2 -11.2 Current Account Deficit/GDP -18 -31 -23 0 Foreign Debt/GDP 16 75 104 143 Inflation (period average) 1,156 2,194 350 558 Source: See Statistical Annex Tables. 13. Fiscal and Monetary Policies. Growing fiscal imbalances characterized the post-1992 period. The outbreak of civil war and a "catch-up" wage increase caused public expenditures to turn sharply expansionary and resulted in a fiscal deficit of 25-30 percent of GDP in 1992-93. In 1994, an effort was made to restore fiscal balance. In particular, monthly expenditure ceilings were set at the equivalent of incoming revenues. As a result, the budget deficit dropped to 10 percent of GDP. After the national currency was introduced in mid-May, and Government stopped accepting non-cash payments, the 1995 budget went through a series of major revisions to adjust to the continued sharp decline in revenues. Public expenditures were slashed in half compared to 1994, to reach their lowest level in two decades (26 percent of GDP). But this had only a modest effect on budgetary balance as revenues fell to 15 percent of GDP due to weak aggregate demand and difficulties in tax collection. The budget deficit for 1995 is estimated at 11 percent of GDP - about the same level as recorded in the previous year. Comparisons of the 1995 fiscal situation and those in previous years are complicated, however, by the elimination of non-cash balances following the launch of the Tajik ruble. 14. The main near-term imperative is to overcome the collapse in public revenues. The newly introduced presumptive tax on cotton and aluminum should make a strong contribution to 1996 revenues. At the same time, restoring financial intermediation, at a level that allows enterprises to meet their liquidity and tax obligations, is a key part of the solution to increase government revenues. Measures should also be taken to broaden the tax base from its high degree of dependence on enterprise profits and export duties. The excise base should be broadened, tax exemptions phased-out and utility tariffs and other user charges adjusted to reflect the actual cost of supplying such services. iv 15. Public sector expenditures in Tajikistan are heavily weighted toward wages, subsidies and other transfer payments. Once revenues have been restored, an important challenge will be to raise the development impact of public spending. This can be achieved by structuring expenditures to give greater weight to the social sectors and to rehabilitating Qf economic infrastructure. Budgetary savings can be achieved by reducing non-productive outlays - most notably, direct and indirect subsidies to enterprises. Although subsidies have sharply been curtailed in recent months, they remained at 10 percent of GDP in 1995. 16. In the face of deteriorating economic conditions and rising inflation, enterprises rapidly expanded domestic borrowing during 1991-1993. In the last two months of 1993, the domestic banking system was flooded with deposits of old-Russian ruble notes as neighboring countries introduced their own currency. The excess liquidity led to a rapid increase in deposits and a run-up in prices. When the new Russian ruble was introduced in January 1994, the Government suspended circulation of old Rubles and froze the exchange for cash of pre-1993 bank balances. This triggered a severe currency shortage and a retreat to non-cash activity. As economic conditions deteriorated further, firms found it increasingly difficult to settle payments to each other which led to a spiraling web of inter-enterprise and enterprise-to-bank arrears. Efforts to stabilize financial markets began in earnest in 1994, with restrictions placed on NBT financing of the budget deficit and lending to enterprises. 17. In May 1995, Tajikistan introduced its own currency, the Tajik ruble, at a cash rate of 100 Russian rubles to the Tajik ruble. The currency conversion was used as an opportunity to reduce the build-up of "non-cash" balances in the banks by converting financial assets from Russian to Tajik rubles at different rates. Wage, pension and other household benefit arrears were to be converted into privatization certificates, and thus remained frozen after the launch. As the currency was introduced, a foreign exchange auction for dollars was established, but proved short-lived because of scarce foreign exchange resources. By end-1995, the exchange rate had depreciated to about 300 Tajik rubles to the dollar, compared to 50 when first introduced. Interest rates were also raised after the currency launch, but remained significantly negative in real terms. These were symptoms of incomplete stabilization. Bank-by-bank credit ceilings were introduced but were not strictly observed, undermining the thrust of monetary policy. A non-cash system of enterprise transactions re-emerged and inter-enterprise arrears began to mount. Despite an NBT clearing operation, inter-enterprise arrears were almost twice the total money supply at end-1995. The growth in inter-enterprise arrears can be reversed in part by: improving the payments system by reducing the time required to effect a transaction so that enterprises reduce incentives to engage in non-cash transactions; and carefully supervising the borrowing practices of public enterprises with weak balance sheets. At the same time, to contain growth in the money supply, credit ceilings will need to stay in effect until indirect monetary instruments can be used. 18. The Government should focus on enhancing financial discipline in the enterprise and banking sectors, while also introducing market-based instruments of monetary policy. It also need to develop a coherent and comprehensive monetary and exchange rate policy. In the near term, the current practice of issuing directed credits to certain state-owned enterprises should be discontinued and credit ceilings should be maintained. Directed credits at below market interest rates undermine transparency in monetary policy and hinder private sector development. Interest rate policy must be used to help restore confidence in the banking system and to signal the need for financial discipline in the enterprise sector. Over time, the banking system will need to be thoroughly rehabilitated, to cope with the problem of non-performing assets (estimated at over 25 percent) and to create a true banking culture. Diagnostic studies of the sectoral and savings banks should be undertaken to prepare for the banking reform program. Simultaneously, the NBT should revise accounting standards, to be applied to all commercial banks. Government needs to adhere to a flexible exchange rate policy. This can be v achieved through the elimination of mandatory foreign exchange surrenders and the establishment of the auction market. 19. External Trade and Debt. Since 1991, Tajikistan's external trade has been characterized by a diversion of exports from FSU markets to other nations; persistent shortages of critical imports and rising current account deficits. Mounting -difficulties in settling payments among FSU states have contributed to a diversification of Tajikistan's exports to non-FSU markets. In 1991, about 80-85 percent of Tajikistan's exports and imports were with FSU states. By 1995, nearly half of total imports originated in the FSU, but just over one-fifth of total exports went to FSU markets. The negative trade balance with the FSU states reflects Tajikistan's growing inability to honor its multi-year trade commitments. This has prompted Uzbekistan and Kazakstan to periodically suspend natural gas and grain shipments and to demand above-market prices for their exports to Tajikistan. In 1994 and 1995, favorable export prices for aluminum and cotton helped improve export earnings and the current account to a balanced position in 1995. However, Tajikistan was accumulating arrears on interest- owed during 1993-1995. 20. Between 1992 and end-1995, Tajikistan accumulated US$817 million of external debt, most of which was assumed on commercial terms. Over 80 percent of the debt stock is to former Soviet Union states, most notably, Russia, Uzbekistan and Kazakstan. Actual debt service payments have been marginal and even under the most optimistic assumptions, the prospects for servicing the debt are not encouraging. Tajikistan must obtain substantial debt relief (a combination of rescheduling, debt-equity swaps and debt reduction) from its creditors, and also significant additional financial resources to meet the external financing requirements associated with the reform program. The recent one-year debt rescheduling agreements concluded with its major creditors represents a step in the right direction. To restore creditworthiness, new institutional mechanisms will need to be established (at the very highest levels of Government), to frame and implement an "active" external debt management strategy. The Agricultural Transition 21. About half of Tajikistan's population is engaged directly in agriculture, the vast majority of whom are poor. Low agricultural productivity, along with limited availability of arable land, are the main reasons for rural poverty. There are other reasons as well. Eist, despite a large land mass, the suitable resource base for agriculture is quite limited. The average farmer cultivates just 0.8 hectares of arable land. Scond, under the Soviet system, the sector was designed to operate primarily as a cotton growing enclave, with few links to other parts of the domestic economy. Fully 70 percent of all arable land was administratively allocated to cotton. Through a system combining state marketing controls and heavy reliance on imported inputs, the productive surplus was extracted from the farm sector. Third, collectivization created a perverse incentives system resulting in over-investment in rural capital goods and under-investment in protecting the rural environment. EDurth, the combination of a high degree of crop specialization and reliance on external sources for inputs, processing and output markets made the agricultural sector extremely vulnerable to the collapse of the inter-republic trade and financial system that accompanied the break-up of the Soviet Union. Since 1988, virtually all agricultural commodities have suffered steady declines in production as inputs have become increasingly difficult to obtain. 22. Although agriculture's recent performance has been distressing, the sector does have potential for rapid, sustained growth. Almost all of Tajikistan's arable land is irrigated. The rural economic infrastructure is reasonably well developed and literacy rates in rural areas are relatively high. In the past, Tajikistan could not capitalize on these investments in physical and human capital because vi agriculture was dominated by large-scale state and collective farms operating in a context of output targets, fixed output prices, state-owned marketing monopolies and heavily subsidized or free inputs. The sector's future performance will depend in large measure on changing the incentives structure for agricultural enterprises and on the ability of these enterprises to respond to new opportunities. 23. Agricultural Marketing, Pricing and Procurement. Liberalization of agricultural marketing and trade will raise agricultural incomes and provide producers with an incentives environment conducive to more efficient use of scarce land and water resources. In the past, collective and state farms were ordered to plant cotton (and other crops) and then supplied agricultural products to the Government on the basis of state marketing orders. The state order system has been largely abandoned for many commodities. But since this procurement system is inefficient and open-to-abuse, high priority should be attached to phasing out state orders entirely. Although state orders for cotton are being phased out, there is little public awareness of this. In addition, local level Government officials continue to exert considerable influence over the crops that are produced. As a result, practically all of the cotton crop is marketed through Glavchlopkoprom, the state-owned cotton marketing and ginning company. The combination of a high effective tax rate, reservations about the integrity of the grading system and generally non-competitive output markets have created a powerful disincentive to cotton production. The effective tax on cotton producers is difficult to calculate, but was estimated to be at least 70 percent of the world price because of cascading VAT, excise tax, sales tax, special tax and export taxes and payment delays in 1995. In early 1996, Government replaced these taxes with a single presumptive sales tax of about 25 percent. In addition, Government should reduce the influence of local authorities in planting decisions and ensure that the general public is properly informed about the liberalization of the cotton market. 24. Almost all cotton is marketed by Glavchlopkoprom, the Cotton Marketing Authority. To encourage competition in exporting, the Government has, as of early 1996, abolished all state marketing orders, export proceed surrender requirements and cotton export licensing requirements. A raw materials commodities exchange is being established to provide a mechanism to set prices and collect sales taxes. Present guidelines mandate that all cotton must be sold through the exchange and give Glavchlopkoprom the right to approve all export contracts. To provide a competitive environment for exporting, Glavchlopkoprom's authority to supervise transactions on the commodity exchange should be withdrawn and participation in the exchange should be put on a voluntary basis. 25. Prior to 1995, the marketing of fertilizers and chemicals was restricted to a state enterprise -- Tadjikselkhozkhimiya. As of July 1995, all farms were allowed to purchase inputs from any source, which as a practical matter means importation. However, the collapse of the trading regime, along with the shortage of foreign exchange has nearly halted the import of agricultural inputs. With agricultural trade and price liberalization, as well as the elimination of foreign exchange surrender requirements, imports of fertilizer, pesticides and other agro-chemicals should register a significant increase. 26. Farm restructuring. In 1991, approximately 600 state and collective farms cultivated nearly all the arable land in Tajikistan. Less than ten percent of the arable land (about 75,000 hectares) was allocated to private household plots on the state and collective farms. Despite their small share, private household plots accounted for nearly 30 percent of the value of agricultural production in 1991, while state and collective farms accounted for 70 percent. The Government is in the early stages of implementing a farm restructuring program that will eliminate most state farms by converting them into collective farms and transforming collective farms into small scale-farms operated by individuals or groups. vii 27. The farm restructuring program is expected to have a far-reaching effect on agricultural incentives. It is a controversial program, not least because the amount of high-quality arable land is in short supply. For the land reform program to succeed, the Government must be politically committed to it. This is not yet fully the case and suggests the need for an information campaign to explain the reform program's anticipated benefits. In terms of the program itself, the current process of selecting beneficiaries, whereby local officials screen applications on the basis of farming skills, is arbitrary and subject to abuse. It should also be recognized that there is not enough land to satisfy the claims of all collective members. Some form of compensation should be paid to members who do not receive land. Changes in the land code will also be required, since the present code does not allow for transferability of access rights to land. Meanwhile, mechanisms to permit the transfer of leases need to be devised. In the medium-term, a proper land cadastre system will be needed to facilitate registration of the transfer of land use rights. 28. Water Use and Natural Resource Management. Although water is generally abundant, the provision of irrigation water as a "free good" has had a pernicious effect on both agricultural production and on natural resource use. Soil salinization is also a problem over large parts of Tajikistan's irrigated area. Official estimates suggest that about 100,000 ha. of irrigated area are adversely affected by soil salinity; about a third of the existing drainage facilities are not working properly, mostly due to poor quality construction and inadequate maintenance. To address water management problems, efforts are being made at a regional level through the Aral Sea program. A combination of user charges and a public investment effort aimed at overdue irrigation system maintenance and repairs will be needed to address these problems. 29. Mountainous terrain, deforestation and over-grazing on the hillsides have contributed to a soil erosion problem of alarming proportions. According to official estimates, 4.4 million ha. (about 30 percent of the country) of Tajikistan's land is eroded and about 97 percent of all land is subject to soil erosion processes. An erosion control program was initiated in the past, involving a combination of reforestation, construction of small water engineering structures and other measures. Program implementation was plagued by funding shortfalls; as of 1995, practically no erosion control measures are being undertaken. High priority should be given to mobilizing and deploying additional resources for erosion control. Privatization and Private Sector Development 30. Despite political instability, uncertainty in the legal environment and a decline in economic activity, the private sector has grown, albeit at a slow rate. Private sector farm plot productivity is higher than the productivity of collective farm enterprises, which in turn is higher than state farm enterprises productivity. Still, the private sector is very small and is primarily involved in informal- sector activity. As of mid-1995, Tajikistan had only about 1,600 registered private enterprises and cooperatives, employing about 16,000 workers. One of the main reasons for the private sector's small size is that Tajikistan trails other transforming economies in actual achievements in privatization. Between 7 and 17 percent of the total number of separate legal public entities have been privatized. 31. Speeding up the Privatization Process. Apart from social and political unrest, there are several reasons why the privatization program has made so little progress. So far, the decision to privatize a public asset has been in the hands of enterprise managers, line ministry and local government officials, who have the least incentive to relinquish control over the enterprises they supervise. The valuation process is excessively complicated and those charged with doing the valuation have few resources with which to work. Profile restrictions (i.e., restrictions on the level of employment and activities of viii privatized entities) have been used to ensure that Government retains control of firms, even after they are privatized. Furthermore, the general public has not yet been provided an opportunity to participate in privatization, as most sales have been closed-transactions. 32. The Government recognizes these deficiencies and is in the process of redefining the privatization framework by following a top-down, rather than a bottom up approach and by addressing key constraints, particularly in the legal environment. Government can move quickly on privatization of small scale enterprises. The new regulations should significantly speed-up the privatization effort, especially for small and medium scale enterprises. In defining a new privatization framework, the following areas merit special attention: * The State Privatization Committee (SPC) should have direct and final responsibility to decide which entities will be included in the privatization program and to schedule and implement the privatization program. SPC should receive a small transaction fee from the privatization proceeds. Technical assistance is urgently required by SPC to design and implement a mass privatization program. This will be provided under the IBTA project. * Valuation of small-scale enterprises' assets should only serve as a reference price at auction. It is essential that the property be sold to the highest bidder, even if the proposed bid falls below the reference price. * Mass privatization efforts should be used to broaden ownership and bolster demand for privatization. All single-employee entities should be transferred to the present worker, at fair market value (instead of relying on competitive auctions) to speed-up small-scale enterprise privatization. * In principle, "profile" restrictions should be completely abolished. If they are retained in some cases, they should be a temporary measure only. The legal framework should clearly identify the goods subject to a profile (possibly, only a few essential items); the territory for the profile (possibly, those isolated rural communities supplied by a single shop); and the time-limit for the restriction. 33. Providing an Enabling Environment for Private Sector Development. In addition to the slow pace of privatization, other factors impede private sector development, including: (a) an uncertain legal environment; (b) barriers to entry; (c) limited access to office, retail and warehouse premises; (d) lack of competition; (e) lack of access to land and inability to transfer land leases; and (f) lack of access to credit and inefficiencies in the financial markets. 34. A promising start has been made in improving the legal framework for private sector development. A number of laws have been promulgated in recent years, but need to be updated to conform to the norms and standards found in most market economies. Priority should be accorded to: * Reviewing the Law on Property Rights. While this law affords considerable protection to collective property holders, it offers little or no protection to owners of private property. * Adopting regulations that provide for simple, speedy and low-cost registration in establishing new private firms. Currently, the administrative process for establishing an enterprise with foreign participation is cumbersome and time consuming. The process of registering and approving joint ventures and wholly-owned foreign companies operating in Tajikistan should be made transparent, ix simple and timely. Consideration should be given to consolidating all review and approval functions into a single Foreign Investment Promotion Unit that would undertake registration and licensing, provide legal information and promote foreign investment. Tajikistan could derive considerable benefit from inward investment, particularly in the areas of textiles, agro-business, mining and energy production. As of early 1995, about 200 enterprises were registered as joint ventures with foreign participation, of which only half were actually operational. * Improving private sector access to factory and office space. The Real Estate Exchange Resolution should be amended to include existing office, retail and warehouse premises and the transfer of land leases between consenting parties should be allowed to stimulate efficient exit and entry of new private businesses. * Breaking-up state-enterprise monopolies. Like most FSU states, Tajikistan inherited an economy characterized by a high degree of concentration, with often only one domestic state-owned supplier or buyer in specific markets. At present, about 140 enterprises are registered as monopolies. These will need to be exposed to competition over time. * Improving private sector access to credit. Recently, there have been encouraging signs that banks are allocating their limited capital more carefully and that this is improving credit access for the private sector. A survey of two major banks revealed that private sector customers, on average, accounted for 30 percent of outstanding credit as of July 1995. By contrast, in October 1993, only five percent of all outstanding credit in the economy was channeled to the private sector. Crowding out of the private sector from financial markets can be further reduced by creating financial discipline in the public enterprise sector, reducing reliance on subsidies and instilling incentives for bank restructuring and improved resource allocation. Rebuilding the Social Safety Net 35. Tajikistan, which has an estimated 1995 per capita income of US$370 (computed using the World Bank Atlas methodology) has long been the poorest of the FSU countries and ranks among the 20 poorest countries in the world. Population growth is high, averaging about 3.0 percent before the civil war. The fertility rate is also high; consequently, the population is very young. Forty seven percent of the population is under 16 years of age; only 31 percent are of working age. Despite low incomes and rapid population growth, Tajikistan's social indicators are more typical of those in upper- middle income countries. These patterns are common to most FSU countries and provide grounds for optimism with respect to future economic development. 36. Reducing Poverty. Although precise data are hard to come by, it is clear that poverty in Tajikistan is widespread and deep, given the low level of income, the sharp economic decline and the recent social unrest that adversely affected the lives of hundreds of thousands of people. Falling real wages and job losses (nearly one-third of the labor force are either openly unemployed or under- employed) have contributed to a rise in poverty levels, as indicated by a dramatic increase in the share of food in household expenditures. The displacement of many households during the war also added to the poverty. The Government estimates that over 50,000 persons were killed in the civil war and that 850,000 persons became refugees. The vast majority of refugees have been resettled, but most have no savings to fall back on. The extent and nature of poverty varies significantly by geographic area. The North is somewhat better off than the rest of the country, the Southeast and the peri-urban areas, especially Dushanbe, are the poorest. x 37. Poverty can be reduced through a three-tier strategy that emphasizes growth, investment in human capital and targeted interventions. After a decade of falling output, there is little question that overall economic growth is a necessary condition for poverty reduction. The Government's reform program, which is being supported by the Bank and the IMF, provides the basis for renewed growth through both macroeconomic stabilization and structural reforms intended to increase output and employment. In particular, the agricultural reform measures are designed to benefit large numbers of rural poor. However, given the extremely low level of income, coupled with the collapse of inherited social programs and the potential transitional social cost of the reform measures, even relatively fast economic growth will have only a limited impact on the extent of poverty in the short term. 38. Targeted interventions provide additional social support to society's most vulnerable groups through such mechanisms as cash transfers -- particularly for pensions and bread price compensations, nutritional programs and public works programs. In view of the existing level of hidden and open unemployment, and also because enterprise and farm restructuring may be expected to increase open unemployment, additional job creation measures will be necessary. Given the scarce financial resources and widespread poverty in Tajikistan, specific criteria must be developed in the short term to narrow the focus of public sector support to the most vulnerable targeted groups. Also, consideration should be given to enlarging the scope of existing NGO programs, in view of the Government's limited implementation capacity. 39. Allowances and Subsidies. Household allowances and public enterprise subsidies were quite large (18 percent of GDP in 1994 and 10 percent of GDP in 1995), unsustainable and inefficiently provided. Under its current reform program, the Government has begun to reduce both allowances and subsidies and target them better. Subsidies to public enterprises, which represented about 13 percent of GDP in 1994, were a large part of overall social protection in Tajikistan, compensating enterprises for losses on account of output prices that were kept artificially low for social considerations. The bulk of the subsidies were for bread production, transportation and irrigation. 40. The most important element in Tajikistan's social safety net is the bread allowance. Tajikistan's households consume a relatively high level of bread products. Until mid-May 1995, the Government provided a universal bread allowance for each citizen (representing nearly 5 percent of GDP in 1994). Moreover, bread production used to be heavily subsidized (over 8 percent of GDP in 1994) -- an expensive universal subsidy that did little to target the poor, except to the extent that the share of bread in household expenditure was inversely related to income. Both bread consumption allowances and production subsidies were replaced by a more targeted bread allowance in August 1995, when bread prices were raised four to five times, to near-cost recovery levels. In March 1996, the bread allowance and the child allowance were combined into a social safety net allowance, which is to be targeted to 1.4 million recipients, of whom 1.2 million are children in low-income families. This marks an important step toward better targeting social protection to the poorest groups. With limited resources, the Government still needs to explore ways to improve the targeting of cash payents. Efforts must also be made to avoid the problem of income reversal that occurs when total benefits exceed the minimum wage. 41. Pension, Social Insurance and Employment Benefits. Of these three funds, the Pension Fund is the largest, taking just over 32 percent of the wage bill tax. The wage bill tax is levied at too high a rate and will significantly lower the demand for labor as Tajikistan passes through transition to a market economy. Since the end of 1993, hyper-inflation and the downward spiral of output has led enterprises to be unable or unwilling to pay the wage bill tax. All three funds face serious financing problems. As a result, there were months when pensions were not paid at all. In 1996, these three xi funds were amalgamated into the Government budget. Despite this, the current economic situation gives no grounds for optimism that payments will regularize. The most practical approach is to exclude working pensioners from support and to limit the value of pensions in order to ensure greater regularity in payments. 42. A flat rate pension is suggested, even if it would appear inequitable, since it avoids extreme poverty. Although the basic pension amount is very low, it is the only source of cash income for many of the nation's poorest households. Additional measures would include: improving social insurance administration; enhancing revenue collection; and reducing the annual sick leave entitlement. In the long run, Government should establish regulatory guidelines for occupational benefits and leave administration to the concerned enterprises. Occupational sickness and maternity leave benefits should be provided by concerned enterprises and the tax rate should be lowered to enable enterprises to cover these benefits. 43. Supplementary Job-Creation. The key issue concerns the future need for job creation -- particularly, the balance between different kinds of activities. At present much of the external assistance effort is essentially relief in nature, but there is a growing move toward more developmental projects. While a food deficit continues, there will probably remain a need for some food-for-work programs; and plenty of rehabilitation work remains to be done. There is also a need to develop small- scale enterprise development programs, but such programs will require training suitable local staff. Other possibilities include developing "labor-intensive public works programs" with the focus on repairs to roads, bridges, schools and clinics. 44. Protecting Education and Health Services. Protecting basic health care and primary education expenditures -- two social services that affect the poor the most is the third instrument for reducing poverty. Compared to many countries with similar per capita income levels, Tajikistan is in many ways already favored by having a good stock of well-qualified personnel, able to assist in development. However, existing systems of schooling and health care are now in serious jeopardy. Since 1992, education and health budgets have been severely affected, both in absolute and relative terms. As tax revenues collapsed, so have social expenditures. The combined share of public expenditures in these two sectors in GDP was 17 percent in 1992 and just below 7 percent of a much smaller GDP in 1995. While user-payments have helped to offset some of the decline in public spending, real social sector financing is less than a quarter of what was provided at the start of decade. As a consequence, materials are mostly non-existent and wage payments have been severely interrupted. Highly qualified staff continue to leave both sectors. Enrollment rates for pre-school children have fallen by 24 percent since 1990 and an estimated half of all primary school children do not attend school on a regular basis. In terms of health care, the acute shortage of drugs has triggered an increase in maternal mortality rates and an alarming rise in the incidence of contagious disease, especially in rural areas. 45. A comprehensive rehabilitation strategy is clearly needed for these sectors. In the short run, the main objective must be to halt the further collapse of the health and education systems. To this end, the shares of GDP devoted to education and health should be stabilized at the planned 1995 levels. Within public expenditures, near-term priorities should be to improve the supply of pharmaceuticals and textbooks, and to restore war and flood-damaged facilities. In the medium term, more fundamental reform will be required. Both systems provide a service level that is well beyond what can be afforded at Tajikistan's income levels. While a start has been made in cost recovery, Government still needs to gradually increase charges for curative healthcare services, and secondary and post-secondary schooling. Finally, both services need to be restructured to respond to the changing economic setting. In the health sector, this implies providing a greater emphasis on preventative care and family planning. xii In the education sector, it implies a need to develop curriculum appropriate to the needs of the labor force in a market economy. Medium-Term Prospects 46. The Tajikistan economy stands at the precipice of total collapse. A number of difficult policy and structural reforms will be needed to stabilize the financial system and rehabilitate the economy. Unless these measures are put in place, living standards will continue to deteriorate and both the economic means and the political will to transform the economy will be lost. Present circumstances call for 2-3 years of a sustained stabilization efforts. Further economic decline, though at a slower rate than before, might still take place during this period as experienced in other economies in transition. But the foundation for future growth will be established as a result of the reform effort. 47. Current policies are simply unsustainable. Should current trends and policies continue, chronic import shortages would be aggravated by import rationing and mounting external debt. The budget deficit would give rise to even more explosive inflation and production would continue to plummet. Employment opportunities would become scarce and poverty would intensify. Tajikistan's external creditors would no longer be willing to extend new lines of credit, and arrears on outstanding official debt would lead to a high debt stock level. Neither private investors nor official development assistance agencies would likely provide much resources to the nation under such circumstances. As economic activity declined and poverty intensified, the ability of the nation's leaders to maintain political stability would dissolve. 48. By contrast, a vigorous program of economic reform could slow the decline in economic output and provide the nation with the breathing space needed to mount a vigorous economic restructuring effort. A "reform" stance would include, inter alia, slower growth in the money supply, reversing the growth in inter-enterprise arrears, a rebound in government revenues, debt and debt service reduction, restoration of fiscal balance, implementation of an aggressive privatization program, acceleration of farm restructuring and agricultural market liberalization. If Government addresses outstanding policy and structural reforms, domestic inflation would be brought under control, access to imports would ease and the cotton subsector could begin to expand again. The economy as a whole would grow by about 3 percent per annum. Initially cotton would be the main source of higher export growth. 49. If economic reforms proceed as outlined above, Tajikistan's external financing requirements would range between 21 and 24 percent of GDP per year during 1996-2000. About half of gross external financing are attributable to debt service obligations, and debt relief will therefore have to represent a large share of the solution. Over and above debt relief, additional financing on the order of 8 to 9 percent of GDP per year (US$100 - US$110 million) would be required to ease the immediate import constraint. A desirable burden sharing arrangement between CIS countries and Western donors is for the former to provide debt relief and for the latter to provide new concessional sources of financing, 50. A combination of Government commitment to reform, adequate external assistance, relief from commercial creditors and the enlargement of private sector activity are necessary to restore Tajikistan to a path of sustained growth and economic development. XIii CHAPTER 1 RECENT ECONOMIC DEVELOPMENTS: THE DEEPENING CRISIS 1.1. During the Soviet period, Tajikistan was developed as a supply source for a narrow range of products -- most notably cotton, aluminum, and fruits and vegetables, of which very little was consumed domestically. The nation relied heavily on imports of consumer and capital goods, petroleum and grain, financed partly by union transfers. Geographic isolation, a narrow economic base, high degree of trade exposure and its past dependence on union transfers to finance essential imports make Tajikistan's economy vulnerable to changing trade arrangements and economic conditions within the FSU and complicate the task of economic management and transition to a market- based economy (see Box 1.1 for a profile of the country.) Box 1.1: Tajikistan - A Country Profile Geogranhy. Tajikistan has an area of about 143,000 km2 divided byphysical features into three regions -- the Pamir mountains in the southeastern part of the country; the area north of the Hissar-Ali mountains that run through the central part of the country (Leninabad Province) and the area south of the Hissar-Ali mountains (Khation Province and the capital city of Dushanbe). Population. The country's:population is about 5.7 million people -- 70-percent:of whom reside in rural areas - and has a 3 percent growth rate. About 45 percent of the population is age .16 or less. Ethnically. The population is divided among several ethnic groups, including: Tajiks (62 percent); Uzbeks (23 percent); Russians (8 percent); Tatars (1.4 percent) and Kyrgyz (1.3 percent). The population is large relative-to the amount of arableland. There were only about 0.14 hectares per capita in 1995. Social Indicators. In early 1990s, Tajikistan's social indicators were comparable to those in other FSU countries but have deteriorated in recent years because of the Government's fiscal crisis. The most recent figures (1993) show: adult literacy 96 percent, average life expectancy 67 years, and infant -mortality 40 per thousand live births. Resource Endowment. Although only 7% of the land is suitable for agricultural purposes, this land is well-endowed with water resources (85 percent is irrigated) and fertile. A system of glacier-fed rivers provides 3,900 megawatts of hydroelectric power and .about five times the country's domestic water requirements, with the remainder exported to neighboring countries undertheterms:ofan agreement negotiated during the'Soviet era. In addition, there are significant gold and silver deposits. Government. The country became independent in September 1991. Civil war erupted in May 1992, followed by political turmoil and social unrest that resulted in the killing, displacement, and migration of tens of thousands of people. In the last part of 1994, a constitution -was adopted by referendum and the first presidential election was held. Parliamentary elections were held on February 26, 1995. A series of peace talks were held under the auspices of the UN and resulted in several cease fire agreements. The fifth round of peace talks, which began on November 30, 1995, in Ashkabad, ended in a deadlock. In February 1996, civil unrest led to the resignation of key Government officials, including the Prime Minister. Efforts are underway to restore UN mediated peace talks. 1.2. The break-up of the Soviet Union and the subsequent deterioration in trade and payment arrangements among FSU republics triggered a precipitous decline in Tajikistan's economic output. Tajikistan attempted to offset these adverse effects by maintaining monetary links to Russia. As a result, it suffered from overvaluation of the Russian Ruble and spiraling Russian inflation. Civil war, floods and mudslides cost many lives and contributed to an unprecedented fall in output and incomes, loss of control over public finances, widening trade deficits, explosive build-up of external debt and galloping inflation. Relatively little progress has occurred in structural reform and practically all of agriculture and the industrial sector remain under firm Government ownership and control. 1.3. This report provides an update of economic conditions in Tajikistan since the publication of the Country Economic Memorandum in 1994. Given the growing seriousness of Tajikistan's economic distress, considerable attention has been paid to future macroeconomic and sectoral reform options. Because of changes in the historical database, the report also briefly discusses macroeconomic developments prior to 1994. A. The Downward Spiral of Production, Employment and Income 1.4. Weaknesses in the statistical reporting system make it difficult to assess accurately the macroeconomic situation. Production, trade and monetary data are incomplete and inconsistent. The informal economy is significant but is not captured by official reporting systems. Price series are not fully consistent over time. Estimates of consumption, savings and investment are not recorded in a national accounting framework and national income and expenditure estimates are subject to a wide margin of error. Prior to 1991, economic statistics were collected and presented in accordance with the accounting conventions of the Soviet Union. Enterprises had a powerful incentive to report production in line with Plan targets, inspiring a tradition of inaccurate reporting. Since then, efforts have been made to conform the statistical reporting system to internationally recognized national accounting norms, but these have been hampered by civil war, exodus of skilled personnel and acute shortages of office supplies, computer facilities and operating resources in the State Statistical Committee'. Output and Expenditures 1.5. Despite weaknesses in the statistical reporting system, available indicators point to a severe collapse in output beginning in 1989. Following the break-up of the Soviet Union, trade relations among the FSU states deteriorated and Tajikistan began to suffer the effects of import shortages and the loss of Soviet budget transfers. In response, Net Material Product (NMP) fell by an estimated 12.5 percent in 1991 (Table 1.1). In 1992-93, the civil war further disrupted economic activity and prompted a fall in GDP of 29 percent in 1992 and 11 percent in 1993. After the war, normal trading conditions resumed, but the combination of war-time destruction and acute shortages of imported fuel, food and spare parts sent the economy into a downward spiral, with GDP declining by 21 percent in 1994 and by an estimated 13 percent in 1995. By 1995, Tajikistan was producing only about one-third of what it had produced in 1989.2 Very little of this decline can be attributed to restructuring the economy. 1.6. Agriculture. During the first half of the 1990s, all sectors contracted, although the decline in agriculture preceded that of the other sectors because of its more immediate dependence on imported inputs. The adverse conditions mentioned earlier, along with acute shortages of fertilizers, pesticides and improved planting varieties, contributed to a steady decline in agricultural output and exports and to growing dependence on food imports. Agricultural output fell by an average of 27 percent per -2- annum between 1992 and 1995. Beginning in 1994, wheat imports surged to meet more than 70 percent of domestic consumption requirements. In 1995, Tajikistan imported close to 600,000 tons of wheat at a cost of US$80 million. However, acute shortages of fertilizers and agro-chemicals, combined with sporadic locust infestation, triggered a further fall in cotton output by 22 percent in 1995. Table 1.1: Tajikistan: Real Growth in Gross Domestic Product, 1990-95 (in percent) Actual Preliminary Estimate 1990 1991 1992 1993 1994 1995 Agriculture -9.1 -9.9 -27.7 -23.2 -36.2 -23.4 Industry 1.3 -7.3 -39.2 -6.9 -22.8 -6.2 Other 2.2 -56.5 -64.7 -5.9 -7.1 -12.2 GDP or [NMP] [-1.6] [-12.61 [-33.71 -11.1 -21.4 -13.2 a/ Pre- and post-1992 growth rates refer to NMP values and are not strictly comparable because of classification differences between the NMP and SNA frameworks. 1992 to 1994 GDP growth rates are in constant 1991 terms. 1993 sectoral growth estimates refer to NMP. Sectoral GDP deflators are unavailable for 1992-1994. 1993 and 1994 sectoral growth estimates derived by applying the GDP deflator to sectoral product. 1995 figures are Ministry of Economy preliminary estimates for GDP in agriculture and industry and staff estimates for aggregate GDP. The growth rate of other GDP is calculated at constant sectoral output shares for 1994. Source: Annex Table 2-4 and Staff Estimates. 1.7. Industry. The availability of hydroelectric power has significantly influenced the structure and pattern of industrialization in Tajikistan. Aluminum, chemicals and other energy-intensive industries are the mainstay of the industrial sector. In 1994, industry accounted for 34 percent of net material product, 16 percent of employment, 55 percent of exports, and 60 percent of imports. Light industry (largely textiles) was the largest subsector in terms of output and employment. 1.8. Plagued by shortages of energy, spare parts and raw materials, the industrial sector has been in continuous decline since 1991. A marked drop in cotton production, horticulture products and livestock, combined with electricity shortages, has forced many industries to operate far below installed capacity. While the figures are subject to a wide margin of error, recorded industrial output fell by over 60 percent between 1991 and 1995. Construction was the subsector most severely affected, as investment ground to a halt. War and natural disasters have significantly reduced power generation capacity. In 1992, the Dushanbe Thermal Station control building was destroyed. The Rogun construction site was severely damaged by the 1993 flood and by looting during the civil war. The Sangtudin Project's construction sites also were flooded, causing extensive damage to access roads, canals and slope protection. Electrical transmission and distribution facilities were heavily damaged in the war zone areas. 1.9. In 1994 and 1995, the great majority of industrial enterprises operated for a total of only a few months a year, due to shortages of domestic raw materials and electricity, fuel and other imported inputs. As shown in Table 1.2, aluminum, the single largest industrial enterprise, did better than other industrial enterprises, but still operated at below 50 percent of installed capacity. Of the other major industries, fertilizer production fell by 90 percent during 1990-95; cotton lint by 60 percent; fabric by 79 percent and cement by 88 percent. In 1995, only 4 of 80 industrial product lines saw some increase in production: fertilizer, silk textiles, high voltage electrical appliances and textile industry equipment. -3- Service sector activity followed the decline in agriculture and industry, but the contraction was not as severe because of the heavy presence of government services in the sector . In 1994 and 1995, service sector activity in public administration continued to fall but retail activity, particularly in the informal sector, showed some signs of recovery4 1.10. Aggregate Demand. Starting in 1991, the authorities attempted to moderate the impact of falling output on consumption levels by increasing reliance on imports. The trade deficit ranged from 18 to 31 percent of GDP during 1992-1994, as Tajikistan became increasingly dependent on imports of petroleum, gas and foodstuffs from neighboring countries, particularly, Uzbekistan and Kazakstan. Relative to the size of the economy, external resource transfers during 1992-1995 were as great as those prevailing prior to the break-up of the Soviet Union. Table 1.2: Tajikistan: Output of Major Commodities, 1990-95 Item Unit 1990 1993 1994 1995 Agriculture Grain '000 mt 303 253 212 346 Seed Cotton '000 mt 842 524 529 417 Potatoes '000 mt 207 147 134 42 Vegetables '000 mt 528 485 495 396 Fruit '000 mt 220 149 145 116 Milk '000 mt 575 475 467 64 b/ Industry Electric Power billion Kwh 18.2 18.0 17.0 14.7 Fertilizer '000 mt 81.5 19.7 7.9 12.6 Aluminum '000 mt 450 252 237 236 Cement '000 mt 1,067 261 178 na Cotton Fabric million sq.meter 122 57 39 26 Cotton Lint '000 mt 283 180 166 145 Silks million sq. meter 76 54 24 26 Rail Freight Volume million mt 1.6a' 1.5 1.5 0.9 a/ 1992 value. b/ refers only to milk sold through state organizations. Milk marketing was liberalized in 1995 and most sales took place outside officials organizations. Source: Annex Tables 6-2, 6-3 and 7-3. 1.11. Despite growing. reliance on imports, there are indications that private consumption declined significantly during the first half of the 1990s. The sharp rise in the share of household income used to purchase essential foodstuffs is one of these indicators. Another indicator is the involuntary increase in domestic savings in 1993-94, as wages, pensions and other government transfers were paid into frozen savings accounts. 1.12. In 1993-94, public investment increased to 12 percent of GDP and total investment to 22 percent of GDP, as foreign-savings were directed to meet security and rehabilitation requirements. Apart from a minor amount of post-war rehabilitation investment, and the construction of a yarn factory, very little investment took place in 1995. Excluding post-war rehabilitation, there has been practically no new investment in the productive sectors in the first half of the 1990s. -4- Rising Under-Employment and Falling Cash Incomes 1.13. Employment and Skill Shortages. Soviet style enterprises kept employment levels up while contributing to mounting underemployment, hidden unemployment and a fall in real wages. Total employment peaked at just under 2 million in 1991, stayed stable in 1992 and fell in subsequent years, dropping to 1.8 million persons in 1994 and 1995. The fall in total employment was due mainly to the war-related exodus of refugees, emigration of Russian-ethnic citizens, out-migration of young job- seekers and the economy's decline. 1.14. During the first half of the 1990s, agricultural employment has increased, while that in industry and the services sector has fallen. Growing numbers of urban dwellers have moved to the countryside to join family members in semi-subsistence agricultural activity. As a result, agriculture's share of total employment increased from 42 percent in 1989 to 53 percent in 1994. 1.15. Recorded unemployment remains very small, but this is more an artifact of the statistiscal reporting system than a reflection of actual labor market conditions. Official figures show that the number registered as unemployed rose from 7,000 in 1992 to 34,000 in 1995, equivalent to only 2 percent of the total labor force. Unemployment statistics dramatically underestimate the extent of actual unemployment because workers registered as employees in dormant enterprises are not eligible to register as unemployed. Moreover, since only a small share of unemployment allowances were paid since 1992, those seeking new jobs have had little incentive to register as unemployed with the Ministry of Labor. The Ministry of Labor estimates actual unemployment at the end of 1994 to be as high as 141,000 persons, or about 10 percent of the labor force, due to about 55 industrial operations closing that year. 1.16. As most enterprises work only a few months of the year, under-employment has emerged as a particularly severe problem. In the industrial sector alone, an estimated 106,000 workers were placed on involuntary leave in 1993. This increased to 240,000 workers in 1994; by mid-1995, no less than a quarter of the total work force was reported to be under-employed . 1.17. Serious skill shortages have emerged alongside growing unemployment and under-employment. Skill shortages are the result of the out-migration of ethnic-Russians and a sharp rise in the number of highly skilled individuals who have left public service for the private sector. During 1990-1994, approximately 320,000 citizens officially emigrated, depleting the ranks of engineers, medical doctors, teachers and skilled public administrators. 1.18. Wages and Cash Incomes. Real wages and cash incomes have declined, albeit at an erratic pace, ever since 1990. The Government adjusted wage rates in May and November 1993, April 1994 and June 1995, but wage rates lagged far behind growth in consumer prices. In real terms, wages fell by 61 percent in 1993, and 38 percent in 1994. In the face of mounting inflation in 1995, real wages fell by an estimated 64 percent despite an 80 percent average wage increase in June 1995.' In 1996, Government announced a package of catch-up wage increases which included a doubling of minimum wages and an increase in all salaries of 60 percent in March and a further 40 percent in July. Average wages continued to vary among the sectors, with the industrial, construction and banking sectors paying two to three times the average wage, and agriculture and education sector workers receiving less than half the average wage (Figure 1.1). 1.19. The dramatic fall in real wages underestimates the actual drop in purchasing power because of mounting wage and benefit arrears and the emergence of a "non-cash" consumer market operating at a -5- deep discount to cash wages. As a result of a currency shortage in 1994 and early 1995, workers were paid only the minimum wage (Russian Ruble 144, equivalent to US$2/month) for the last half of 1994 and the first four months of 1995. The excess of wages, allowances, pensions and other benefits over and above that paid by the Government was deposited into frozen savings accounts. Enterprises and government agencies were authorized to pay part of their wage bill in non-cash back deposits, while some paid their wage bills in kind. Non-cash deposits could be used to pay fuel bills and purchase goods at Government retail outlets. A secondary market developed for the exchange of "non-cash" for cash, with a rate of exchange equivalent to 15 to 20:1 by the first quarter of 1995. After the May 1995 currency conversion, all payments (wages and allowances) were made on a cash basis. Starting in June 1995, however, payment arrears began to accumulate. Government wage payments resumed in January 1996 and wage arrears were partly paid but with no adjustment for inflation. 1.20. Living Standards. GNP per capita in 1995 was estimated at Figure 1.1: Trends in Real Wages US$370, placing Tajikistan towards Percent (Average for 1990 = 100) the bottom end of the income spectrum of least-developed nations. 1807 More than 90 percent of the 160 Baning population was classified as poor in 140 Industy 1994, using a poverty line equivalent 2 to a household income three multiples of the minimum wage (see 1 Chapter 5). While this clearly over- estimates poverty levels, there is no 60 doubt that poverty is widespread in 40-T Average Tajikistan. Furthermore, the 1990- 20 Agricultur 1995 decline in living standards has o0"__ been compounded by growing 199 1991 im 1993 1994 1995 shortages of essential imports. Consumption of medicines in early 1995 was less than half the 1990 level. In sub-zero temperatures, a majority of homes went without heat during the winters of 1994 and 1995. B. Macroeconomic Imbalances Public Finance and Fiscal Policy 1.21. Fiscal Policy. Prior to Independence, almost all expenditures were channelled through Government and Union transfers used to meet budgetary shortfalls. Public expenditures were in the range of 60-70 percent of NMP through 1989; Union transfers averaged 17 percent of NMP. With Independence, the loss of Union transfers prompted major changes in public finance. In 1991, Government imposed strict expenditure controls, restrained capital spending and allowed wages to lag behind inflation. Public expenditures were contained at 37 percent of GDP and a small budget surplus was obtained. 1.22. The outbreak of civil war caused public expenditures to turn sharply expansionary. In 1992 and 1993, revenue collection declined while public expenditures soared to more than 50 percent of -6- GDP. Defense spending and other security outlays rose sharply. Bread subsidies were also increased in an attempt to combat war-related food shortages. 1.23. As a result, the budget deficit reached an unprecedented 30 percent of GDP in 1992 and 25 percent of GDP in 1993. Sharp cuts were made in budgetary transfers to enterprises and state and collectives farms, but dwindling revenues meant that this had little effect on the overall budgetary balance. In the absence of other sources of financing, the Government borrowed 20 billion old Russian Rubles in 1992 and 156 billion new Russian Rubles in 1993 from the National Bank of Tajikistan to finance the budget deficit. 1.24. Fiscal policy in 1994 had to adjust to an almost complete lack of cash balances in the domestic economy. Delays in finalizing terms for a monetary union with Russia resulted in the country facing an acute shortage of new Russian Ruble notes. In January, the use of old Ruble notes was discontinued, except for small denominations. Enterprises and households resorted to barter transactions and "non- cash" (inter-bank account) transactions as a means of payment, including domestic tax payments. While a large share of Government spending was in the form of non-cash payments (for wages, pensions and transfers to blocked bank accounts) or growing budgetary arrears, total expenditures still exceeded 50 percent of GDP. Expenditures on capital investment and subsidies for transport, energy and non-essential foodstuffs were reduced, but the budget deficit remained large. Measured on a cash basis, the budget deficit equaled 10 percent of GDP. Taking into account accrued outstanding expenditure obligations, the budget deficit was equivalent to 28 percent of GDP. 1.25. In 1994, the authorities attempted to reign in the budget deficit, but with little success. In mid- 1994, monthly cash ceilings for expenditures were set at the equivalent of incoming revenues. Expenditure commitments beyond the cash ceiling were not allowed to accrue and non-essential capital spending was eliminated. A special effort was made to increase revenues by raising licensing fees and introducing new revenue measures, such as land lease charges. While total revenues increased from 27 percent of GDP in 1993 to 44 percent of GDP in 1994, most revenue was in the form of non-cash payments heavily discounted in the curb market. 1.26. Changes in the country's monetary system, including introducing the Tajik ruble in May 1995, together with weaknesses in revenue administration, triggered a collapse in Government revenues in 1995. Total revenues, estimated at 15 percent of GDP, compared unfavorably by international standards (for instance, Kazakhstan 16.4 percent, Azerbaijan 24.5 percent, Uzbekistan 44 percent, and Sub-Saharan Africa 21 percent) and by historical trends. While comparison with the figures for 1994 and, to some extent, 1993 is misleading as Government revenues were highly inflated during those two years because of the practice of collecting revenues in non-cash form, the 1992 ratio (27 percent) provides a good benchmark for comparison with the revenue performance in 1995. 1.27. In the wake of dwindling revenues, and with "non-cash" balances eliminated from the banking system, the 1995 budget went through several major revisions, first when the new currency was introduced in mid-May 1995 and later in October 1995. Expenditures were slashed from 55 percent of GDP in 1994 to 26 percent of GDP in 1995, the lowest level in two decades. Nominal wages were held constant in the second half of the year despite high inflation rates; operations and maintenance expenditures were halted and capital spending was suspended (Table 1.3). Spending arrears were allowed to accumulate and the Government routinely delayed all but essential payments. However, expenditure compression had only a modest effect on budgetary balance, which, in cash terms, was estimated at 11 percent of GDP in 1995 and nearly double that on an accrual basis. -7- 1.28. Subsidies. Since independence, the Government has attempted to brake the fall in living standards by subsidizing bread, transport, heating and other essential goods (Figure 1.2). Subsidy payments grew steadily, reaching 18 percent of GDP in 1994. The single largest subsidy is provided to both consumers and millers to maintain low bread prices. In 1994, the bread subsidy reached 13 percent of GDP, more than total Government outlays for education and health. Although subsidies were sharply curtailed in the first half of 1995, total subsidy outlays for 1995 remained at 10 percent of GDP (compared to 15 percent budgeted). For 1996, subsidies payments are forecast to fall to 5 percent of GDP with the benefits targeted more to low-income families. Reflecting the phase-down of subsidies, official bread prices have been increased several times. As discussed in more detail in Chapter 5, a new bread allowance system was introduced in July 1995, and bread prices are to be fully decontrolled in March of 1996. Table 1.3: Tajikistan: Public Expenditures, 1992-95 (in percent of GDP) 1992 1993 1994 1995 Total Revenues 26.9 27.0 44.5 15.2 Value Added Tax 6.6 10.4 13.6 3.4 Excise Duties and Sales Tax 3.6 2.1 5.6 2.9 Enterprise profits tax 8.3 7.0 11.6 3.2 Other Revenues 8.4 7.5 13.7 5.7 Total Expenditures 57.3 51.7 54.7 26.5 National Economy 28.0 18.5 23.5 -- Social and Culture 21.2 16.4 16.7 -- Education 11.6 8.8 8.7 -- Health 5.6 5.4 6.4 -- State Management and courts 0.9 2.8 6.4 -- Defense and Police 3.6 4.0 2.0 -- Debt Service 0.7 0.0 0.0 -- Others (including. refugee relief) 1.7 9.4 3.5 -- Budget deficits (excl. arrears) -30.3 -24.8 -10.2 -11.2 Source: Annex Tables 4-la, 4-lb and 4-2. Figure 1.2: Budgetary Subsidies (in % of GDP) 1 8 - ---- - - - - 16 14 12 10 8- 6- 7 4 2 1994 1995 (budget) IlBread DWater for Irrigation MEnergy 3Transport 1Others -8- Monetary Policy 1.29. Prior to 1991, credit was allocated according to Plan targets and interest rates were held far below the inflation rate. Banks were assigned to lend resources to specific sectors and a national savings bank (Sberbank) performed the role of collecting private savings. Foreign exchange was rationed to priority imports and an administrative exchange rate was set for official foreign transactions. 1.30. In 1991, initial steps were taken to reform the financial sector. The National Bank of Tajikistan was founded and authorized to conduct monetary policy and to regulate banking and financial market activity. During 1991-1993, the NBT operated with only a limited degree of autonomy. Faced with deteriorating economic conditions and rising inflation, enterprises rapidly expanded domestic borrowing. The money supply grew six-fold in 1992 and seventeen-fold in 1993 as the banking system accommodated a 100-fold credit increase to the enterprise sector. 1.31. In November and December of 1993, the domestic banking system was flooded with deposits of "old" Russian Ruble notes as neighboring countries introduced their own currencies. The excess liquidity led to a rapid increase in deposits and a run-up in prices associated with the monetary overhang in the banking system. When the new Russian Ruble was introduced in January 1994, the Government suspended circulation of old Rubles and froze the exchange for cash of pre-1993 Bank balances. In 1994, the Government attempted to enter into a monetary union with Russia and obtained a Rr. 120 billion loan to issue new Ruble notes. Actual delivery of the first tranche, of Rr.90 billion, was delayed until toward the end of the year and even then was far from sufficient to meet domestic demand. Throughout 1994, the financial system suffered an acute shortage of currency-in-circulation. This was aggravated by the breakdown in payment arrangements for trade among FSU nations, which gave rise to the need to physically transfer cash to settle external trade transactions. 1.32. The cash shortage created an active secondary market in "non-cash" interbank transfers. As economic conditions deteriorated, firms found it increasingly difficult to settle payments to each other. This led to a spiraling web of inter-enterprise and enterprise-to-bank arrears. From January to December 1994, loan arrears to banks increased from 2 to 78 billion Rubles, while inter-enterprise arrears increased from 93 billion to 199 billion Rubles. Monetary growth remained strong in 1994, mainly because the domestic banking system increased in net lending (for non-cash) to the Government to finance the budget deficit. 1.33. Efforts to stabilize financial markets began in earnest in 1995. Restrictions were placed on NBT financing of the budget deficit, the Pension Fund and enterprises. Government accounts and the legal authority over (but not management of) international reserves were transferred to the NBT. NBT lending to enterprises was phased-down. Reserve requirements (at 20 percent) were unified across all banks, except for the Sberbank. Since February 1995, the NBT has issued bank-by-bank credit ceilings on commercial bank loans, but these credit ceilings have not been adhered to. From September 1994 to June 1995, domestic credit in the banking system showed no significant increase, despite an inflation rate of several hundred percent, since enterprises increasingly resorted to inter-firm credit transactions. Widespread disintermediation in the domestic financial market took place. 1.34. The Currency Launch. On May 10, 1995, Tajikistan introduced its own currency, the Tajik Ruble, at a rate of 100 Russian Rubles to the Tajik Ruble for cash. The exchange rate was unified as different administrative exchange rates (official, market, commercial, tourist) on foreign exchange -9- transactions were eliminated. The currency conversion was used as an opportunity to reduce the build- up of "non-cash" balances in the banks by converting financial assets from Russian Rubles to Tajik Rubles at different rates (see box 1.2). Wage, pension and other household benefit arrears, which totaled Rr.760 billion prior to the currency launch, were to be converted into privatization certificates, and hence remained frozen after the launch. Enterprise accounts became convertible, while household accounts were fully unblocked by September 1995. Other restrictions on enterprise cash balances and household withdrawals from the banking system were eliminated. 1.35. A weekly foreign exchange auction for dollars was established in May 1995. In the first four auctions, less than one million dollars were traded, at rates ranging from 50 to 53 Tajik Rubles to the dollar. By end-July, the auction system ceased to operate for lack of foreign exchange and the exchange rate began to depreciate rapidly, reaching over 300 Tajik Rubles to the dollar in December 1995. The auction resumed in September 1995 and was discontinued again in November 1995. Since 70 percent of export proceeds of cotton were surrendered to the Government, and since trade is almost a complete state monopoly, few economic agents possess foreign exchange to participate in the foreign exchange market, and the auction has had only a relatively limited impact on exchange rate determination. In February of 1996, the foreign exchange auction resumed, and despite modest sales in the first week of trading, the exchange rate appreciated to TR280. Box 1.2: The Tajik Currency Conversion. On May 10th'1995, the Tajik Ruble was introduced according to a matrix of conversion factors. One Tajik Ruble was exchanged for: 100 Russian Rubles -- for cash, wage payments and transfers accruing after May 10th 1995, and fixed enterprise assets. 1,000 Russian Rubles --:for bank deposit liabilities:made before the conversion of the Russian Ruble on January 1st 1993, enterprise loans, own capital, inventory and.inputs. 1,200 Russian Rubles -- for bank deposit liabilities made since January 1st 1993, and frozen wage arrears accumulated since January 1994. Alternatively, at a later date (still to be:announced), the wage arrears would be converted into privatization vouchers at the rate of 1 Tajik Ruble for 100 Russian Rubles. 1.36. In 1995, all foreign exchange income was made subject to a 100 percent surrender requirement. However, only a very small fraction of these proceeds are actually surrendered on a regular basis. Exporters were obliged to surrender 100 percent of cotton and aluminum export proceeds, 70 percent of other raw material export proceeds, and 30 percent of the export proceeds for other goods and services to a national bank. In the case of cotton and aluminum, the Government temporarily reinstituted measures under which a portion of these export proceeds would be maintained as an extra-budgetary fund to finance official imports. For the other commodities, the surrender requirements have been skirted through barter trade and other means. In early 1996, Government significantly eased foreign exchange controls. It eliminated the surrender requirements for aluminum and cotton export proceeds, but under existing cotton marketing guidelines, exporters are now obliged to trade through newly-established commodity exchanges. 1.37. Interest rates were also raised after the currency launch. The NBT on-lending rate to the commercial banks was raised to 100 percent in July 1995 and 250 percent in September 1995. The refinance rate was increased to 40 percent per month in October 1995. Due to very rapid expansion of the money supply, these interest rate increases were not sufficient to contain credit growth or inflation. -10- Interest rates remained negative in real terms through 1995 by a margin of over 300 percent per annum. 1.38. As of June 30, 1995, the money supply was estimated at approximately 2.4 billion Tajik Rubles, of which 1.2 billion was in the form of cash outside the banking system. Despite rapid growth of the money supply, by mid-July 1995, the stock of broad money had reached only 4 percent of annually adjusted GDP. Many enterprises had insufficient cash balances to meet working capital requirements and were unable to borrow to meet short-term financing requirements, due to the credit ceilings in the banks. The enterprises' unwillingness to adjust prices downward after the conversion and the use of cash reserves for other purposes aggravated the tight liquidity situation. By December 1995, after four months averaging 52 percent growth in the money supply, the stock of broad money reached an estimated 24 percent of GDP. .:Box 1.3: The Interbank Credit Auction The recent tightening of interest rate policy and bank-by-bank credit limits have encouraged banks to trade unused liquidity bilaterally. Since May 1995,: the Dushanbe Stock Exchange has held a weekly credit auction. The Stock Exchange sees.the auction not only.as a means of using the market mechanism to allocate credit resources among banks, but also as a method for encouraging re-intermediation -- attracting funds from the parallel informal market back to the official system. .. The Stock Exchange, established according to the Law on Securities and the Stock Exchange of 1992, was founded in October 1994. At present, the only activity on the Exchange is the. credit auction. Only 4 banks are members of the auction (Orion, Tajikbusiness, Sberbank and Agroprombank), but several other banks have submitted requests :to the MOF to become members. The NBT, participates only as an observer. Each member contributes share capital of:one million TR. The auction is conducted by sellers submitting lists of -lots for sale. Similarly, buyers submit written notification of their interest. The submitted bids. and offers can.be changed up to ten minutes`before the auction. At the auction, a system of differentiated-pricing is used, allowing the offer with the lowest interest rate to be:satisfied first. The next offer to be. satisfied will be the one with the lowest interest rate among the remaining offers. At the first 10 weekly auctions, credits amounting to 21 million TR were: traded. Only 25: percent of submitted offers have :beent satisfied. Interest rates have been in the region of .150:percent to 190 percent. For three month credits, this :is equivalent to annual effective yields of between. 260 percent.and 370 percent. Since :August 1995, no deals were made, due mainly to a lack of funds in the banking system and the availability of.credit-on more favorable terms from the NBT. Since credit:to the banks continues to be provided. predoniinantly.by the:NBT, creating greater depth in the interbank market will be difficult. The interbank market will only become more active when NBT adopts indirect means of credit control, relying on the credit auction for its own operations. 1.39. Inter-enterprise Arrears. Although the currency launch eliminated non-cash balances in the banking system, both Government and private enterprises have increasingly resorted to inter-firm borrowing to finance operations. As budgetary arrears began to accumulate in 1995, state enterprises accumulated arrears with their suppliers. This, in addition to difficulties in clearing payments, led to rapid growth in enterprise arrears. Despite an NBT arrears clearing operation in December, inter- enterprise arrears increased by close to 40 percent per month in the second half of 1995, reaching TR23 billion, equivalent to 180 percent of total money supply, by year end. 1.40. Prices. Prior to 1990, prices remained relatively stable as a result of FSU-wide price controls. With Independence, Tajikistan began to experience high rates of inflation. Initially, this was caused by high rates of Russian inflation and currency depreciation. Thereafter, the easing of Tajikistan's domestic price controls and the expansionary monetary and fiscal stance contributed to inflationary -ll- pressures. In 1992, after Russian prices were increased, inflation (measured by average retail prices) in Tajikistan soared to about 1150 percent. The inflation rate nearly doubled in 1993, compared to the previous year. The sharp increase took place toward the end of the year and was largely due to the influx of old Rubles from neighboring republics. In 1994, inflation dropped to 350 percent, but wholesale prices increased more than 600 percent. This increase was in line with inflation in Russia and reflected growing (non-cash) monetary expansion to finance the budget deficit, as well as the cost- push effects of growing inter-enterprise arrears. Retail prices held steady, largely because of weak domestic demand. 1.41. Retail prices began to rise again in the first half of 1995, due to improved availability of cash- balances in the early part of the year and mounting uncertainty regarding the timing and impact of the currency launch. The authorities had anticipated that prices would fall when the new currency was introduced in mid-May. This happened in the first two months when monthly price inflation was sustained at single-digit levels. Thereafter, growth in the money supply accelerated, confidence in the currency diminished, inter-enterprise arrears began to mount, velocity increased and the currency underwent a six-fold devaluation. Domestic financing of the deficit (from a very small monetary base), rapidly rising import prices, flight from domestic financial balances and excessive monetary growth caused inflation to soar to 78 percent in August 1995, before tapering off at a monthly average of about 40 percent in the last quarter of the year. Annual inflation for 1995 was estimated at just about 600 percent. In the first two months of 1996, inflation has fallen to an estimated 20 percent per month, due to rigorous enforcement of credit ceilings, improved revenue collection and a modest appreciation of the exchange rate. Foreign Trade and Public Debt 1.42. Foreign Trade. Tajikistan produces a narrow range of goods for export and imports a large part of its energy needs, consumer goods, capital goods and foodstuffs. In 1995, aluminum and cotton constituted 90 percent of exports, while fuel, foodstuffs and alumina constituted 75 percent of total import requirements (see Figure 1.3). Figure 1.3 Trade structure, 1995 (percent of total) Total imports $628M Total exports = 5650M Petrolewn Other & Fuel 5.0% Other 24.0% Cotton 32.0% Wheat & . . Aluminum Gra60.0% 12.0% Fabrics & Alumina Carpets 29.0% 3.0% Imports Exports -12- 1.43. Between 1990 and 1994, trading patterns shifted significantly from the FSU states to other foreign countries. Although Tajikistan's state trading corporations continue to enter into barter trade agreements with FSU importers, these agreements tend to be honored in the breach. Exports have increasingly diversified to non-FSU markets. In 1991, 84 percent of Tajikistan's imports and 79 percent of its exports were to FSU states. By 1995, 42 percent of total imports were sourced in the FSU while 29 percent of total exports went to FSU markets. Export diversification away from FSU states, together with continued dependence on FSU imports, has resulted in widening the Tajikistan- FSU trade deficit, from US$3 million in 1992 to US$195 million in 1994 -- or close to a quarter of GDP in that year. 1.44. The civil war (which necessitated an increase in defense related imports) and the decline in output have triggered a reduction in export volumes and has caused Tajikistan to depend increasingly on imports. Tajikistan has been unable to honor its multi-year barter trade commitments with Russia, Uzbekistan and Kazakstan. This has led Uzbekistan and Kazakstan to periodically suspend shipments of natural gas and grain and to demand above-market prices for selling these goods to Tajikistan. Increasing dependence on imported energy and food supplies has come at the expense of imports of capital goods and raw materials, leading to critical shortages of fuel, productive inputs and spare parts in agriculture and industry. Partly as a result, between 1991 and 1994, cotton exports fell by nearly half in real terms; aluminum exports fell by one-third; and energy imports were reduced by four-fifths. 1.45. Since 1990, Tajikistan has become highly dependent on imports of essential foodstuffs, with relief aid playing an important role in meeting the domestic wheat shortfall. In 1994 and 1995, food aid supplies from the European Union, the United States and non-governmental organizations were estimated at US$30 million. In 1995, food aid shipments fell off sharply, to 80,000 tons of flour, as refugee resettlement operations were wound down. Neither food aid nor other concessional sources of foreign aid are captured in official trade statistics. In 1994, the combination of humanitarian and food- aid assistance was estimated at approximately US$42 million, or about 6 percent of total imports. 1.46. Sustained merchandise trade imbalances contributed to widening the current account deficit from 18 percent of GDP in 1992 to 31 percent in 1993 (Table 1.4). In 1994, favorable export prices for aluminum and cotton helped improve the terms of trade by 63 percent and increase export earnings by 18 percent.8 Due to shortages of raw materials and imported inputs, export volumes fell by about 9 percent, and the current account deficit remained at 23 percent of GDP. The trade deficit has been financed by external debt accumulation, primarily from Russia, Kazakstan and Uzbekistan. In 1995, the terms-of-trade continued to improve, increasing on an annual basis by 38 percent, as both cotton and aluminum prices hit multi-year highs on global markets. Export earnings soared by 18 percent, to $657 million, although volumes continued to fall. By 1995, recourse to external sources of finance was exhausted. Despite mounting shortages of fuel, spare parts and other capital goods, imports had to be compressed. For the year as a whole, imports were reduced by 11 percent and the trade balance moved into surplus for the first time in over two decades. 1.47. Public Sector Debt. By end 1995, Tajikistan had accumulated nearly US$817 million of external debt, most of which was assumed on commercial terms between 1992 and 1994. The ratio of total debt to GDP increased from 16 percent in 1992 to about 143 percent in 1995. The debt service ratio (measured in debt service payable) increased from 4 percent of export earnings in 1993 to 20 percent in 1995. Actual debt service payments remained relatively low, ranging between 2 to 6 percent of export earnings during 1992-1994, as Tajikistan accumulated growing arrears, equivalent to US$17 -13- million in 1993, US$37 million in 1994 and US$118 million in 1995. Over 80 percent of official debt is to the CIS countries, namely, Russia, Uzbekistan and Kazakstan. Other creditors include the European Union, Turkey, China, Pakistan and the United States. Most of the debt is the result of unrequited trade balances and overdue debt payments to FSU states. Ten percent is the result of a currency loan from Russia. Only one-third of the external debt is in the form of medium- and long- term official credits. Two-thirds is short-term and at punitive commercial terms. Out of the total external debt, 62 percent arises from official borrowing, and the balance from the settlement of public enterprise trade accounts with other FSU republics and unsecured overseas borrowing by Government ministries and public enterprises. Debt arrears have been a source of continuing friction with neighboring Uzbekistan. To encourage repayment, Uzbekistan periodically suspended delivery of gas supplies during 1994 and the first half of 1995. Table 1.4: Tajikistan: Balance of Payments, 1992-95 (US$ millions) 1992 1993 1994 1995"v Exports of goods 185 456 559 657 Imports of goods -240 -660 -707 -628 Net nonfactor services 0 -26 -28 -25 Resource balance -55 -230 -176 4 Net factor income 2 -4 -19 -28 Net interest 0 -4 -19 -28 Net current transfers (Grants) 0 25 25 25 Current account balance -53 -209 -170 1 Long term capital inflow 52 65 37 -70 Direct investment 8 9 12 13 Net long term borrowing 44 56 25 -83 Disbursements 44 71 44 19 Repayments 0 15 19 102 Other long term inflow (rescheduling) .. Change in arrears 21 -140 239 221 135 Total other items (net) 3' 140 -95 -88 -64 Changes in net reserves ("-" increase) 0 0 0 -2 Memorandum Items Current Account/GDP (%) -18 -31 -23 0 Foreign Debt/GDP (%) 16 75 104 143 I/ Estimates. 2/ Includes past conversions of arrears and correspondent account balances into debt and change in arrears. 3/ Includes errors and omissions. Source: Annex Table 3-2. 1.48. A more comprehensive approach to securing debt relief was mounted in 1995. With support from the IMF, the Government has requested that its major creditors (Russia, Uzbekistan, Kazakstan, EU and Turkey) reschedule their debts. The EU has accepted a stand-still on overdue debt service obligations, while Kazakstan, Turkey and Uzbekistan have indicated their willingness to reschedule their debt. The terms requested by Government include an interest rate of 2.8 percent or less, a grace -14- period of at least five years and a repayment period of at least 10 years. To signal its intentions to meet its official obligations in a timely manner, the Government plans to establish an overseas bank account in Switzerland for debt repayment. 1.49. Central Government domestic debt rose significantly during 1992-1994, as increasing recourse was made to NBT overdraft facilities to finance the budget deficit. The Government's domestic debt was converted at a rate of 1000 to I during the currency launch, significantly reducing the stock of outstanding domestic debt by the Government to the banking system. As of June 1, 1995, total domestic debt outstanding by the Ministry of Finance to NBT was equivalent to just under 1 percent of forecast GDP. The Government continued to borrow heavily to finance the budget deficit in the second half of 1995. This, together with an extraordinary loan of 1.2 billion Tajik rubles to the Ministry of Bread in November 1995, increased the Government's domestic debt to just under 10 percent of GDP. C. Conclusion 1.50. The break-up of the Soviet Union, the civil war, and a series of natural disasters have triggered a vicious downward spiral of output, incomes and employment in Tajikistan. To finance war-related expenditures and to try to stave off economic collapse, the Government has allowed fiscal policy to turn sharply expansionary. This in turn has added domestic pressure to high rates of imported inflation, triggering large trade deficits and contributing to unsustainable accumulation of official external debt. Inflation has accelerated and confidence in the currency has eroded. The combination of macroeconomic instability and political uncertainty has severely handicapped any meaningful efforts to transform the economy. At the same time, mounting difficulties in public finance, external trade and enterprise performance have exposed an urgent need to restore political stability and begin the process of economic transformation. Figure 1.4, based on two independent studies, suggests that Tajikistan's s reform stance as of mid-1995 does not compare favorably with other Central Asian countries. -15- Figure 1.4 Progress in Reform in Central Asian Countries 3 0 0 0 2 O 0 0 * * * * * * 0 TRK TAJ AZE KAZ UZB KYR .0 Source: EBRD (1995) Table 2.1. Average policy scores out of a maximum of 4. A total of 9 indicators are captured here: price liberalization, the trade and foreign exchange system, large-scale privatization, small-scale privatization, enterprise restructuring, competition policy, banking reform, securities markets and non-bank financial institutions and investment-related legal reform. The scoring system is as follows: 1- little progress; 2- moderate progress; 3- good progress: and, 4- substantial progress. * Source: M. de Melo, C. Denizer, A. Gelb (1996). Liberalization index for 1993/94. The index ranges from zero to one, where zero represents an unreformed, and one represents a basically reformed country. The index is the weighted average of reform in three areas: (I) internal markets; (ii) external markets and (iii) the private sector. 1.51. Without macroeconomic stability, it will be difficult to carry-through the many measures needed to transform the economy. In an unstable financial environment, those enterprises exposed to the market will be forced to operate at a severe disadvantage. The next chapter discusses options for achieving macroeconomic stabilization and adjustment. Thereafter, the discussion shifts to matters of transformation, growth and social welfare. Chapter 3 examines options for transforming the agriculture sector and Chapter 4 reviews issues relating to privatization and private sector development. The report then concludes with a discussion of social welfare and social sector development issues in Chapter 5. NOTES: l/ As of February 1996, the State Statistical Committee reported it had lost all but eight trained statisticians, 60 percent of its professional posts were vacant, its paper supply was exhausted, its 1996 budget had been reduced to TRI6 million (US$53,000) and that the majority of state enterprises were no longer providing it with timely reports. 2/ While output has undoubtedly fallen by a tremendous amount, real GDP figures underestimate actual output and overestimate the magnitude of the decline in aggregate supply. GDP estimates are biased downward because of: -16- CHAPTER 2 POLICY OPTIONS AND MEDIUM TERM OUTLOOK 2.1. Output, incomes and expenditures have all fallen to unprecedented lows in Tajikistan. In the absence of growth, confidence in Government, the new currency and in the credibility of policy reform will be undermined. Restoring economic growth is constrained by a series of inter-related macroeconomic imbalances and structural deficiencies in public policy and economic organization. Both macroeconomic and structural policy reforms will be required to address these imbalances. 2.2. Fiscal policy must be substantially revised to overcome the collapse in revenues, reduce inflationary pressures and increase the development impact of public spending. The top near-term priority must be to reverse the collapse in government revenues. This will require a combination of vigorous enforcement of the presumptive sales taxes levied on cotton and aluminium; an enhanced tax collection effort; introduction of low import duties; upward adjustment of utility tariffs; expansion of the excise tax base and elimination of tax exemptions. As revenues increase, the Government must restrain inflationary spending impulses. Preliminary calculations suggest that a fiscal primary deficit of about 4 percent of GDP would be consistent with a near-term slowdown in inflation. In the medium term, better returns on public spending can be achieved by giving greater weight to the social sectors and to rehabilitation of physical infrastructure at the expense of non-productive outlays. 2.3. Financial policies should be designed to reinforce the restoration of macroeconomic stability and growth. Bank-by-bank credit ceilings should be retained until such time as the rate of liquidity expansion is reduced. Efforts will be needed to improve the payments system and restore confidence in the financial market so as to bring non-cash enterprise activity into the banking sector. Interest rates will need to be raised to become positive in real terms. This will help halt the currency depreciation and provide meaningful incentives for private savings. Over time, the banking system will need to be thoroughly rehabilitated to cope with the problem of non-performing assets and to instill a true banking culture. On the external front, Tajikistan must overcome its long-standing structural trade deficit. Eliminating exchange restrictions will help improve external balance. Agriculture remains the most competitive sector, but output and exports are constrained by shortages of critical imported inputs. Urgent measures are also required to reduce Tajikistan's unsustainable external debt. A combination of rescheduling, debt-equity swaps and debt relief will be needed to bring the debt stock back to a manageable level. Future public sector borrowing will need to be managed in a more responsible fashion. A. Stabilization and Rehabilitation Adopting Sound Fiscal Policy 2.4. The main fiscal stabilization challenge is to reverse the collapse in revenues while containing the budget deficit. The tax service must vigorously enforce the collection of tax payment obligations, particularly with respect to the major taxes'. In terms of the 1996 revenue effort, the presumptive sales tax on cotton and aluminum output is anticipated to contribute close to half of total revenues. As cotton trade becomes deregulated, exporters will be obliged to pay a 25 percent presumptive sales tax at the raw materials commodities exchange before receiving permission to export. While it is important to ensure that sales taxes are paid, there is little reason to link tax payments to trading on the commodities -17- exchange. A better arrangement would be for all cotton exporters to obtain proof of tax clearance directly from the Tax Committee prior to exporting and independent of the commodities exchange. 2.5. Mounting tax arrears, with the carryover of outstanding 1995 tax arrears in excess of TR 1.2 billion, present a serious problem. Establishing a large taxpayer monitoring unit within the Main State Tax Service (MSTS) could focus collection efforts on clearing arrears and verifying the payments of the largest economic entities. Applying a positive real interest rate to outstanding tax arrears would also help encourage compliance. Increasing excise rates and expanding the lists of goods subject to excise would help raise revenue. Gasoline, other energy supplies, automobiles and soft drinks are products for which new excises could be applied. Eliminating tax holidays, reduced tax rates for new enterprises and exemptions granted under the enterprise property tax, together with careful monitoring of tax exemptions on imports by humanitarian organizations and charities could also add to revenues while improving the efficiency and equity of the tax system. 2.6. At this juncture, additional public sector borrowing is both unlikely and undesirable. To contain inflation, the Government can ill afford to increase its net borrowing from the domestic banking system. To begin to restore creditworthiness, Government has little scope to increase its external indebtedness. Accordingly, the fiscal policy stance will have to accommodate a strict public sector borrowing constraint. Preliminary calculations suggest that, for 1996-2000, a primary fiscal deficit on the order of 4 percent of GDP would be consistent with a severe external debt constraint, reducing inflation and moderating the decline in economic output (see Annex 1). 2.7. Progress in reducing the fiscal deficit can also be made by eliminating low-priority expenditures. The single most important source of savings would come from reducing subsidy outlays, which accounted for an estimated 23 percent of revised 1995 expenditures and 17 percent of the 1996 Budget. Such outlays must be described in a transparent manner in the budget--at present, they are subsumed under the different Ministerial headings. The largest of the 1996 subsidies is for social compensation payments. Better targeting of income support could provide a more effective social safety net cushion to the truly needy (see Chapter 5). Other subsidies, for public transport and household utilities, can also be reduced by increasing charges and fees for these items. 2.8. Spending cutbacks in recent years have caused the quality of public expenditures to deteriorate. It is a matter of some urgency that the spending priority for education and healthcare be restored, particularly in the areas of primary and secondary education and basic health care. Also, Tajikistan faces a backlog of overdue repairs, due to several years of neglect of maintenance and repairs. Major new public investments should be deferred until the utilization of existing publicly-supported services and infrastructure is improved. 2.9. The institutional framework for managing public expenditures must be reformed to tackle the budget deficit in a more comprehensive fashion. In the second half of 1995, the Ministry of Finance managed the domestic currency budget and the President's Office managed foreign exchange expenditures. In the future, all expenditures need to be consolidated under a single budget. Part of the reason for the diffusion of public expenditure management responsibilities is that the Ministry of Finance operates under outmoded legislation. Revised legislation that describes the Finance Ministry's authorities and responsibilities has been submitted for Parliamentary approval. High priority should be assigned to the passage of such legislation if the Finance Ministry is to have the authority and instruments it needs to implement a well-focused public expenditure program. 2.10. Improving the aid mobilization effort could also help reduce the budget deficit. Stabilizing the financial system, addressing the external debt overhang and accelerating the process of economic transformation will improve the country's prospects of attracting concessionary foreign aid. Preparing -18- a public sector investment program could be used to set spending priorities and channel what external assistance can be mobilized in an efficient manner. External assistance is not consolidated in the budget but should be, both to ensure that resources are effectively and efficiently utilized and to convey an accurate picture of public sector resources and requirements. Financial Sector and Monetary Policy 2.11. Re-intermediation of the domestic economy. The loss of savings during the currency conversion, very high inflation, restrictions on access to "frozen" deposits with the banks and rapid depreciation of the new currency's value have drained confidence in the banking system and the local currency and encouraged a flight to dollars and physical assets. Demonetization, in turn, has triggered a collapse in government revenues. Non-cash transactions now predominate in the enterprise sector. At the start of 1996, inter-enterprise arrears are close to two times the money supply. The authorities should encourage the re-intermediation of financial flows by creating a stable macroeconomic policy framework. Efforts should be made to improve the commercial bank's payments systems in order to induce enterprises to settle non-cash transactions through the banking system. A firm-by-firm supervision will be required to arrest the growth in inter-enterprise arrears. Establishing a practical mechanism for enforcing collateral and bankruptcy legislation (see Chapter 4) will also help provide enterprises with an alternative to rolling-over doubtful debts. 2.12. Liquidity Management. In the area of monetary and credit policy, the authority's focus should be on enhancing financial discipline in the enterprise and banking sectors while introducing market- based instruments of monetary policy. At a later stage, reforming the sectoral banks will be necessary. Credit ceilings are the main tool used by the Monetary Authorities for managing overall liquidity. These ceilings should restrain banks from aggravating their solvency problems and can be administered to provide economic incentives for bank managers to reduce their exposure to insolvent enterprises. Flexibility should be introduced into the bank-by-bank ceilings by rewarding banks that are able to reduce/contain the growth of their arrears to enterprises. Sberbank's lending to enterprises should be severely constrained because of the explicit government guarantee on Sberbank deposits, Sberbank's monopoly access to household deposits and Sberbank's lack of experience in assessing credit risks in the enterprise sector. 2.13. Since the currency launch, commercial banks have been plagued by a lack of loanable funds. Despite this they have continued to rollover loans to problem borrowers and charge interest rates that lag far behind inflation. While demand for medium-term NBT refinancing credit has evaporated, commercial banks have turned to NBT overdrafts to meet their financing requirements. Access to NBT overdrafts should be halted and commercial banks should rely instead on Sberbank deposit mobilization and on-lending, their own-deposit mobilization efforts, and as a last resort, on NBT rediscount credits at punitive rates. 2.14. The current practice of issuing directed credits to certain state-owned enterprises should be discontinued. As well as being a hindrance to private sector development, directed credits supplied at below market interest rates undermine transparency in monetary policy. With the abolition of directed credits, it is important that the last vestiges of margin restrictions on bank lending (now applied to directed credits) be removed. 2.15. Interest Rate Policy. In a competitive financial market, the interest rate should reflect the opportunity cost of capital, which is presumably relatively high in a low income nation. In the near- term, interest rate policy must be used to "help" restore confidence in the banking system and to signal the need for financial discipline in the enterprise sector. Within the banking sector, it is too early to speak of market-determined interest rates. Several banks admit that they still give preferential treatment -19- to depositors and shareholders. The large banks are still sectoral banks and their markets are essentially segregated. Over the medium-term, central bank rediscount rates and liquidity management policies should be designed to maintain positive real interest rates. To help bring rates into an appropriate zone, the NBT discount rate should be regularly adjusted on the basis of past and targeted inflation. 2.16. Bank Solvency. Without reliable data on the classification of bank loan portfolios, it is difficult to assess the level of bank solvency. Since overdue loans are often extended rather than classified as being in arrears, data on bank arrears provide only a partial picture of the solvency problem. A rough assessment points to at least 25 percent of the sectoral banks' loan books as no longer current, suggesting widespread insolvency. To some extent, the banks' current solvency problems can be attributed to restrictions imposed by the state in former periods, when directed credits were more widespread and margin restrictions were imposed. In preparing to restructure the banking sector, diagnostic studies of the sectoral and savings banks should be undertaken according to international accounting standards and the NBT should revise and implement accounting standards to be applied to all commercial banks, based on market accounting principles. 2.17. Prudential norms and supervision. The NBT's prudential bank supervision is inadequate. The supervision department is understaffed and has only very limited capacity to undertake on-site supervision, carrying out only about one on-site visit per month. The following ratios are applied at present: (i) a capital/asset ratio of 4 percent; (ii) an own resources/liabilities ratio of 5 percent for commercial banks and 8 percent for cooperative banks; (iii) a liquid assets/total assets ratio of at least 30 percent; and (iv) a loan maximum to any one borrower not to exceed 50 percent of the bank's capital. Banks violate these ratios frequently. Several banks have special difficulty meeting the norm constraining lending to any one borrower. In case of non-compliance, the NBT can make representations to the bank's board, raise bank reserve requirements (from the standard 20 percent to 30 percent) and suspend the bank's access to its correspondent account with the NBT. Under the current accounting environment, compliance with the norms may well give misleading information on the bank's economic status. The norms may appear to be fulfilled due only to insufficient provisioning and accounting for doubtful and bad debtors. First priority should therefore be given to introducing market-based accounting techniques in the banking system as a whole. In addition, the capacity of the NBT supervision department needs to be increased and sanctions should be imposed for non- compliance with these norms and bank reserve requirements. Structural Trade Deficit and Exchange Rate Management 2.18. Overcoming the structural trade deficit will take time. In the near-term, balance of payments support, debt relief and an increase in concessionary foreign assistance could provide the foreign exchange cushion necessary to rebuild official reserves and supply critical energy supplies and raw materials to the productive sectors. The effects of easing the import constraint are likely to be both immediate and powerful, in terms of increasing capacity utilization and raising factor productivity. In the long-term, export promotion and efficient import substitution will be needed to produce sustained improvement in the external balance. Structural reforms, including privatization of commercial enterprises, land reform and establishing an enabling environment for private sector development will be necessary to carry this process forward. 2.19. Given the difficulty in determining an equilibrium exchange rate under the current uncertain economic environment and given the fact that NBT lacks the foreign exchange to defend a pegged exchange rate policy, the exchange rate should continue to float freely. As the economy stabilizes, economic reforms take hold and foreign exchange reserves increase, the question of optimal exchange rate policy may need to be reconsidered. Despite the fact most foreign exchange earnings are -20- effectively controlled by a small number of state-owned enterprises, the exchange rate is expected to continue to appreciate in the near future as a result of the elimination of foreign exchange surrender requirements, the renewal of the foreign exchange auction system and the containment of monetary expansion. Developments since the renewal of the auctions indicate that the exchange rate may have been over-depreciated in late 1995, reflecting policy distortions and uncertainties. 2.20. Confidence in the domestic currency must be restored. Reducing the pace of money supply growth and containing the fiscal deficit will help ease demand pressures and contribute to maintaining stable exchange rates. Confidence in the domestic currency can be enhanced by allowing market forces to have a greater influence over setting the exchange rate. Measures that would contribute to a more market-determined exchange rate would include: * establishing agreements (particularly with the main FSU trading partners) on inter-country payments arrangements; * phasing-out foreign trade contract approval requirements; * eliminating all foreign exchange surrender requirements; * broadening access to foreign exchange conversion licenses to other banks and currency dealers; * phasing-out pre-submission-of-bid requirements in the foreign exchange auction; * delinking presentation of "approved" import contracts to participation in the foreign exchange auction; and * broadening participation in the auction, initially to all registered dealers of foreign exchange and thereafter to any qualified participant. 2.21. Trade Restrictions. Export growth will be required to enable a recovery in imports and, over the medium term, to address Tajikistan's inherited structural trade deficit. Promoting exports implies a realistic exchange rate and a trade policy that does not discriminate against exports or inhibit competition in exporting. In the face of domestic shortages, export bans have been placed on staple foodstuffs, vegetable oil, spirits and a number of minor items. These bans discourage production for export, introduce administrative discretion into the trading process and establish a precedent for banning exports of other items deemed in short supply. As an instrument of trade policy, export bans should be abolished (with the exception of hazardous items and objects of national cultural heritage). In the area of export promotion, the abolition of cotton state orders, export licensing requirements and export surrender requirements is a step in the right direction. However, forcing all cotton sales through the (yet to be established) raw materials commodity exchange and providing the cotton marketing company with the authority to certify and supervise all such sales may inhibit effective liberalization of cotton exports. To promote a more competitive cotton export market, participation in the raw materials commodity exchange should be made voluntary and the role of the cotton marketing company in supervising the exchange should be vastly reduced. Restoring External Debt to a Sustainable Level 2.22. External debt service obligations are forecast to increase rapidly because of the short-term, commercial nature of Tajikistan's public debt2. There is little prospect that Tajikistan will be able simultaneously to meet its external debt obligations and finance essential imports. Accumulation of involuntary arrears is not a viable solution to the problem because of the snowballing effect of cumulative arrears on the debt-stock. The 1995 stand-still on EU debt and the agreement by -21- Tajikistan's major creditors to reschedule the arrears and the debt service falling due in 1996 provide some relief, but much more will be required for Tajikistan to restore creditworthiness. 2.23. Short-term debt relief will convey few lasting benefits unless a more sustainable external borrowing policy is put in place. The Government must exercise considerable caution with regard to external borrowing because the nation has only a limited resource base to repay foreign debts, depends on a narrow range of exports and essential imports and because a large debt overhang creates disincentives to both domestic and foreign investment. Official external borrowing should be limited to concessionary sources of finance and to trade credits that the nation can repay on a timely basis. The government should actively manage its debt by incorporating external borrowing requirements in the process of annual macroeconomic forecasting and by reporting debt service requirements explicitly in the Government budget. Improvements in debt recording and debt-service statistics will also be required to inform policy making and ease control of external obligations. Serious consideration should be given to establishing a high-level, inter-ministerial external debt management committee as a forum to actively manage the nation's external obligations. B. Medium Term Economic Outlook 2.24. In the near term, prospects for reversing the economic decline hinge on (i) political stability and improved security; (ii) macroeconomic stability, (iii) the market outlook and production prospects for cotton and aluminum, and (iv) external assistance. The reform program's scope makes future economic developments and performance uncertain, and any medium-and long-term projections, even when they remain largely qualitative, can therefore be only indicative and must necessarily remain subject to a wide margin of error. Added to this is the uncertain political situation, which, combined with weaknesses in the statistical reporting system, makes it very difficult to envision the future trajectory of Tajikistan's economy. However, it is clear that the political and security situation must improve, for without that, it will be difficult to make significant progress in economic reform. Growth Determinants 2.25. Macroeconomic Policies Boost Growth. Macroeconomic stability must be restored before recovery can take place. The fiscal, monetary and external policy reform recommendations discussed in this chapter are designed to restore macroeconomic stability. In so doing, they will contribute to nurturing the political consensus necessary to carry forward economic transformation and thereafter restore investment and growth. 2.26. Experience elsewhere in FSU republics shows a strong correlation between macroeconomic stability and growth. Table 2.1, which provides key economic indicators for FSU and Central and Eastern European countries grouped by stage of reform, provides support for this hypothesis. In other FSU nations, macroeconomic stabilization has helped stem the fall in output that typically occurs in the early years of the transformation process. If progress is made on macroeconomic stabilization and reform, Tajikistan could hope to reverse the collapse in economic output, which has ranged from 11 to 30 percent per annum in recent years, to positive rates of growth as early as 1997. -22- Table 2.1 Liberalization and Economic Performance, 1993/1994 (Unweighted averages) Cumulative Real Interest Liberalization Fixed Current Budget Rate Group Index-a/ Real Growth Inflation Investment Account Balance (Discount) (%) (M) (% of GDP) (% of GDP) (% of GDP) (%) Advanced Reformers_b/ 3.9 1. 23 18.4 -0.2 -2.4 0 High Intermediate Reformers_c/ 2.5 0.0 124 17.9 -3.7 -5.9 1 Low Intermediate Reformers_d/ 1.7 -15.6 933 18.3 -9.1 -7.6 3 Slow Reformers_e/ 0.9 -13.2 1,968 15.0 -6.7 -3.4 -26 Affected by War_f/ 2.1 -14.5 3,102 15.0 -27.8 -8.6 -18 East Asia_g/ 3.3 10.1 11 30.5 0.0 -1.2 -2 a/ Cumulative Liberalization Index (CLI) is based on annual Liberalization Index (LI) calculated for each country for each year over the 1989-94 period. LI ranges from 0 to 1, where 0 represents an unreformed, and I represents a basically-reformed country. The LI is the weighted average of 0 to I rankings of reform in three areas: internal and external markets and private sector. These LIs are then added to develop CLI (sum of country's LIs). CLI is defined to represent the duration, as well as intensity, of reforms from 1989 onward. The rationale for using the CLI is that at any given moment economic performance will not be determined by the degree of liberalization in that moment alone. It will also be shaped by institutional and other changes stimulated by prior policy reforms. bY Group includes: Slovenia, Poland, Hungary, Czech Rep., Slovakia. c/ Group includes: Bulgaria, Estonia, Lithuania, Latvia, Romania, Albania, Mongolia. d/ Group includes: Russia, Kyrgyz Rep., Moldova, Kazakstan. e/ Group includes: Uzbekistan, Belarus, Ukraine. Turkmenistan. fl Group includes: Croatia, FYR Macedonia, Armenia, Georgia, Azerbaijan, Tajikistan. g/ Group includes: Viet Nam, China. Source: de Melo. Martha, Cevdet Denizer and Alan Gelb (1996). "From Plan to Market," Working Paper No. 1564, Policy Research Department, World Bank. 2.27. Terms of Trade and External Transfers. While macroeconomic and political stability provide the overarching preconditions for recovery, external factors, most notably the terms of trade and volume of external transfers, will also play an important role. In recent years, Tajikistan has witnessed large and sudden changes in the availability of external resources. Experience in adjusting economies shows that a one percentage point GDP increase in external income raises growth by about 0.4 percentage points of GDP (Easterly, 1995). For Tajikistan, improvements in the external environment can complement the transition to a market economy by reducing adjustment costs and providing more foreign exchange to purchase imports. The latter will make it possible for firms to buy raw materials and capital goods to expand production capacity. 2.28. Tajikistan's external debt overhang is the single largest constraint to improving the external environment. Traditional creditors have been reluctant to extend new credit to Tajikistan and, under existing agreements, debt and debt service requirements are forecast to average $150 million per annum during 1996 to 2000. Tajikistan cannot service its debts and simultaneously meet import requirements of food, fuel, essential capital goods and agricultural inputs. Debt relief and new flows of concessionary external assistance will be needed if the economy is to break out of the viscious cycle of import shortages, falling exports and snowballing external debt. 2.29. Cotton. Cotton production is highly sensitive to the progress made in agricultural policy---most notably, to the degree of progress in land privatization, price liberalization and export market deregulation (see Chapter 3). At present, global cotton markets are strong and although the market -23- outlook suggests that prices may moderate in coming years, Tajikistan should make every effort to exploit booming world market prices . In the near term, cotton production is highly sensitive to the availability of foreign exchange to purchase key inputs (mainly fertilizer and pesticides). If import constraints ease and significant progress is made on the policy front, cotton production could grow annually by at least 5 percent by the latter part of the 1990s. 2.30. Aluminum. Aluminum is the other major industry. While international market conditions are favorable for aluminum, the industry's growth prospects depend very much on whether or not the plant is rehabilitated (see Annex 2)4. Value-added in aluminum production is negative (in international prices) and the plant will need to be either closed down or significantly rehabilitated if profitability is to be restored and capacity utilization is to increase. But prior to any major investment in the rehabilitation of the plant, the government needs to carry out a detailed financial and technical audit of the plant as well as an assessment of the environmental impact. Since it is very uncertain whether such rehabilitation is economically viable or outside investors can be identified to finance it, growth prospects in the industrial sector are not promising. 2.31. Outlook for the rest of the economy. While selected (small-scale) investments are underway in yarn manufacture and gold mining, prospects in the other sectors are not nearly as favorable because of weak domestic demand, the probable output losses associated with restructuring the state enterprises and the likely downsizing of central government. Heavy industry, public utilities and government- owned transport and trading concerns are likely to experience output losses as access to the budget is withdrawn. As the Government's role in the productive sectors is scaled back, public sector employment will decline. A possible rise in small-scale trade and other "informal" sector activity offsets this to a limited extent but is unlikely to significantly affect growth because of highly depressed consumer demand, inadequate access to urban facilities and lack of private savings to finance such undertakings. Illustrative Scenarios 2.32. Two indicative medium-term growth scenarios are developed and presented in Table 2.2, for illustrative purpose only. These scenarios are based on simple projections of growth (in real terms) and trade prospects for cotton and aluminum, output in the other sectors and a set of assumptions regarding access to external finance sources. -24- Table 2.2: Tajikistan: Medium-Term Economic Projections (in percent) 1994 1995 1996-2000 Preliminary Estimate Reform Scenario Muddle through scenario Real Growth Rates Gross Domestic Product -21.4 -13.2 -1 to 3 -7 to -4 Exports -10.0 -9.0 4 to 6 -4 to I Imports -33.0 -20.0 1 to 4 -10 to -5 Ratios to GDP Government Expenditure 54.7 26.5 22 to 18 30 to 25 Fiscal Deficit (on a cash basis) -10.2 -11.2 -7 to -5 -20 to -15 Current Account Deficit -23.0 0.0 -7 to -5 -3 to 0 Total Financing Requirements 31.7 35.6 24 to 21 24 to 20 Debt service payable 7.0 20.0 12 to 10 19 to 17 Accumulation of arrears 9.4 31.8 -4 to -3 22 to 18 Needed rescheduling ----- 13 to 11 --------- Debt Stock 104 143 90 to 85 130 to 115 Source: World Bank staff projections 2.33. In the "muddle-through" scenario, macroeconomic instability continues and Tajikistan makes little progress in economic reform. Under these conditions, real GDP would continue to plummet by 4- 7 percent per annum, falling output would trigger a decline in exports and with little access to trade credits and mounting demands to repay existing external debts, the authorities would be forced to compress imports. Failure to reform the tax system would keep Government revenues at less than 10 percent of a rapidly shrinking GDP. This, in combination with rising expenditures and transfer payments would push the fiscal deficit back to 15 to 20 percent of GDP. Domestic financing of the budget deficit would fuel hyperinflation and crowd out the enterprise sector from access to much needed credits. With little reform, external creditors will insist on prompt repayment of existing credits and are unlikely to provide fresh credits. Even if Tajikistan accumulates involuntary arrears, it would be forced to import no more than what it exported. In such circumstances, Tajikistan would accumulate over US$150 million in external debt arrears every year, and the debt stock would remain high at about the current level. 2.34. A Reform Scenario is predicated on vigorous implementation of macroeconomic stabilization measures and structural policy reforms. In this case, it is still likely that GDP would continue to fall in 1996, and then increase by 3 percent per yaer thereafter. Cotton production growth would boost export earnings (by 4 to 6 percent of GDP) and would provide the resources necessary to expand imports (by up to 4 percent of GDP annually). Privatization and improvements in the enabling environment for private sector development would create opportunities for private sector investment, particularly in retail and wholesale trade, and would likely inspire a modest rebound in investment. On the fiscal front, stabilization, together with tax reform, would cause public revenues to recover to 13-16 percent of GDP. Expenditures would continue to outrun revenues, but the authorities would be able to contain the deficit between 5 and 7 percent of GDP. -25- External Financing Requirements 2.35. If the Government vigorously pursues macroeconomic and structural reforms, external creditors would regain confidence and would likely participate in external debt rescheduling initiatives. As debt service constraints ease, the nation would be better able to honor its trade commitments with neighboring FSU republics and would be provided balance-of-payments support and development finance by international financial institutions and non-FSU bilateral donors. Under the reform case scenario, total external financing requirements during 1996-2000 are estimated to range between 21 and 24 percent of GDP per annum, half of which is for interest payments and amortization. In addition to the debt burden, there would be a negative trade balance of 5 to 7 percent of GDP per annum that would require external finance. Just over half of the external financing requirement during 1996-2000 would need to be provided by deep-rescheduling on concessionary terms of the nation's external debt. It is difficult to predict the amount that would be forgiven or rescheduled at any particular time because of the uncertainties involved in negotiating debt relief. If we assume that the nation would incur no further arrears after 1995 and that interest payments would continue to be paid, the amount that would need to be rescheduled or forgiven would average about US$150 million per annum during the period under review. 2.36. Additional financing, over and above debt relief, would be required to ease the import constraint and facilitate recovery in capacity utilization. Between US$100 and US$110 million per annum (8 to 9 percent of GDP) would be required to help the country restore access to essential imports and meet its short-term debt service commitments. About one-quarter of this amount could be financed through humanitarian assistance and, to a more limited extent, foreign direct investment. The balance would need to be mobilized from a combination of multilateral and bilateral sources. A desirable burden sharing arrangement between CIS countries and Western donors is for the former to provide debt relief and for the latter to provide new concessional finance. C. Conclusions 2.37. Achieving political and macroeconomic stability is a prerequisite for resuming investment and growth and developing of the private sector. On the macroeconomic front, conditions are precarious: the economy is experiencing near hyper-inflation; the domestic currency devalues at a rapid clip; output continues to plummet; and government revenues have collapsed. Tajikistan cannot meet it's existing debt service commitments and traditional trading partners no longer extend trade credit. 2.38. Financial policies must be designed to reign in excessive growth in the money supply and restore confidence in the domestic currency. Fiscal policy will need to focus on restoring revenues to a level consistent with the core demands placed on the public sector, both during and after economic transformation. With a small monetary base, deficit spending pressures will need to be carefully restrained to claw back inflation. Bank-by-bank credit controls should be retained until the economy has been remonetized and expansionary pressures reduced. Positive real interest rates will be needed to help inspire confidence in the banking system and to introduce a measure of financial discipline in the enterprises. The exchange rate will need to be actively managed until Tajikistan can address its long- standing structural trade deficit. External borrowing, both in the near and medium term, will need to be restrained and debt relief will be necessary to provide the breathing space necessary to mount the policy and institutional reforms essential to economic transformation. 2.39. The Government is in the process of undertaking important fiscal, monetary, trade and structural reforms, but there are many areas still outstanding were concerted effort is required (see -26- Table 2.3). Government's policy reform program is ambitious. But by the same token, major changes in public policy will be needed restore macroeconomic stability, foster economic recovery and continue the process of transition to a market economy. 2.40. The Tajikistan economy stands poised at the precipice of total collapse. A number of difficult policy and structural reforms will be needed to rehabilitate the economy and stabilize the financial system. Unless these measures are put in place, living standards will continue to deteriorate and both the economic means and the political will to transform the economy will undoubtedly be lost. Present circumstances call for bold actions. In this regard, Tajikistan has much to learn from the experience of other reforming FSU economies: the policy framework and institutional arrangements of a market economy must be firmly established for economic performance to improve. -27- Table 2.3 Tajikistan - Policy Stance as of March 1996 Policy and Structural Reforms Implemented Continuous Outstanding Fiscal Policy Improve tax administration Introduce VAT / Rationalize cotton taxation I Rationalize cotton taxation 1 Reduce public enterprise subsidies Improve debt management Contain fiscal deficit Monetary and financial policies Adopt positive interest rate Establish bank-by-bank credit ceilings / Shift to indirect instruments of monetary control Restructure the banking sector Exchange rate policy Establish a foreign exchange auction system / Eliminate foreign exchange surrender requirements / Adhere to a flexible exchange rate policy Domestic prices and trade liberalization Decontrol prices Eliminate state orders / Liberalize cotton marketing Eliminate bread subsidies 1 External trade liberalization Eliminate non-tariff restrictions I Privatization program Develop a divestiture program Privatize cotton marketing Privatize ginning services Privatize the rest of the PE sector Enabling environment reform Adopt pro-market legal framework I Improve investment incentives Other structural reforms Adopt social safety net measures / Reform education sector Reform health sector Allow full transferability of land access rights Restucture state and collective farms NOTES: / Tax arrears from the second half of 1995 alone are estimated to be in excess of 2 billion Tajik rubles, the value of which is rapidly being eroded by triple-digit inflation. 2/ In 1996, Tajikistan's external debt service obligations are estimated at US$260 million. Total debt service to export is forecast to rise to 40 percent in 1996. 3/ After two years of flagging production, falling stocks and rising prices, world cotton production is forecast to rise to 89.5 million bales in 1995/96, up 4 percent from 1994/1995. Global cotton stocks at the end of 1995 were estimated at 29.2 million bales. 10 percent above the historic lows in stock levels in 1993/1994 that triggered rapid price growth. As the US and Brazilian cotton crop recover and as major producers respond to the higher prices in 1994 and 1995, supply is expected to again outstrip production and prices will ease. Current forecasts call for cotton prices, in constant terms, to fall by 20 percent over the next two years (World Bank and USDA). 4/ World market aluminum prices rose by 24 percent in 1995, to an average of US$1840 per metric ton. Falling stock levels and sluggish global production growth have boosted prices, although sales of London Metals Exchange stocks contributed to weakening prices in the second half of the year. Near-term prospects are for aluminum prices to moderate in 1996 and 1997 as energy constraints on Chinese production ease and other Asian producers increase capacity. The prospect of economic recovery in east Asian aluminum demand, together with historically low stock levels, may result in considerable near-term price volatility. -28- CHAPTER 3 AGRICULTURE: A COTTON ENCLAVE 3.1. Agriculture lies at the heart of Tajikistan's economy. The sector accounts for about 25 percent of GDP, half of employment and 40 percent of exports. Within agriculture, cotton production is the primary source of value added and employment. Fully 70 percent of the country's arable land is allocated to cotton production. Under the Soviet system, agriculture was transformed into a cotton growing enclave -- relying on other parts of the FSU for both inputs and output markets. Although the country could have a comparative advantage in cotton milling, and other areas of agro-processing, the agricultural sector_has relatively few direct links to the domestic economy. The salient features that have shaped the sector and that will dictate the future of the agricultural economy can be summarized as follows: * Only seven percent of land area (one million hectares) is suitable for agricultural use and only about six percent (854,000 hectares) can be used for crop production. With a population of nearly six million, the availability of arable land per person is one of the lowest in the world -- 0.14 hectares per capita. * The primary reason for Tajikistan's development as a cotton economy is the country's ample water resources, which furnish inexpensive hydroelectric power and irrigation water. Tajikistan's glacier rivers generated a total flow of 51 km3 of water, of which only 17 percent is needed to meet domestic requirements in a normal year. * The cotton subsector's heavy dependence on imported inputs and external markets for cotton fiber (lint) results in comparatively few links with other sectors and little value added beyond the production of cotton fiber. Only 10-15% of the cotton fiber is used in local manufacturing. Despite abundant agricultural raw materials, only 13% of industrial production was accounted for by agricultural and food processing. * Agricultural production is dominated by large-scale state and collective farms. In 1991, approximately 600 state and collective farms cultivated nearly all Tajikistan's arable land. As in most FSU countries, these farms are inefficiently operated, with scant attention paid to appropriate input use or output quality. * Marketing agricultural inputs and outputs has been the exclusive domain of the state. The price received by the producer reflects a relatively high level of taxation. In recent years, this has served as a major disincentive to cotton production. Additionally, years of reliance on the FSU's crop marketing structures have left Tajikistan with little expertise in marketing cotton to the country's greatest advantage. * Three-quarters of the nation's wheat supply -- the staple food -- is imported, making the country especially vulnerable to changes in international grain prices and foreign exchange availability. - 29- 3.2. While the importance of agricultural production in the Tajik economy makes it clear that agriculture must play a central role in fostering growth and reducing poverty, this role will be difficult to fulfill. The extreme population pressure on arable land means that output gains will be achieved largely through intensification, rather than extensification of land use. While certainly possible, this will require a complete restructuring of the state and collective farms, far greater reliance on market prices than in the past, creation of an effective extension system and reform and reconstruction of the commodity marketing system. In addition to the technical challenges posed by such wide-ranging changes, it is important to recognize that powerful political interests have a strong interest in maintaining the status quo. Success with agricultural reform will require strong political leadership, commitment to a major restructuring of the sector and a willingness to confront adverse political interests. Whether or not these ingredients are available is an open question. 3.3. This chapter reviews the main trends in agricultural production and addresses key issues relating to farm restructuring, market liberalization and environmental management. The chapter focuses on cotton and cash crop production in general. Food policy and livestock development are also major concerns, but there is insufficient information on these matters at this point in time. A. Recent Trends in Agricultural Production 3.4. The combination of a high degree of specialization in a non-food crop, dependence on imports for basic cereals and heavy reliance on external input and output markets made the agricultural sector extremely vulnerable to the collapse of the inter-republic trade and financial system that accompanied the breakup of the Soviet Union. Since 1988, virtually all agricultural commodities have suffered steady production declines (Figure 3.1) as inputs and financing have become increasingly difficult to obtain. Figure 3.1a: Trends in Agricultura Prodution Figure 3.1b: Trends in Agricultural Yields (1988=100) (1988= 100) 120- loo 1100 90- 60 Source Annex Table 6.2 3.5. Cotton. Cotton is the major cash crop, accounting for 39 percent of total agricultural production (including livestock) in 1988 and 28 percent in 1994. During the past five years an average of 40 percent (288,000 hectares) of irrigated land was planted to cotton. Historically, collectives and* state farms had no choice but to plant cotton in order to meet state order obligations. Restrictions on land allocation seem to persist, and impede both the restructuring of the cotton industry and the shift of resources into more productive agricultural activities. - 30- 3.6. Cotton's importance to the Tajik economy, however, was and remains limited to actual on- farm production, with little value added taking place beyond the farmgate and ginnery. Although cotton grown in Tajikistan is ginned locally, only 10-15 percent of the cotton fiber produced is spun into thread and no local garment manufacturers exist. That Tajikistan processes so little of its cotton has less to do with comparative advantage in agro-processing, than with the legacy of Soviet central planning. 3.7. Cotton production has dropped chiefly due to the decline in fertilizer and chemicals application, which has hurt yields. In addition, low producer prices for cotton have caused many farms to shift production to wheat, fruits and vegetables. Historically, Tajikistan has recorded the highest cotton yields in Central Asia. However, yields have decreased from 3,010 kg/ha in 1988 to 1,870 kg/ha in 1994. As a result, total cotton fiber production declined by 51 percent between 1988 and 1995. 3.8. Fruits and Vegetables. This subsector accounted for 20 percent of crop production and 13 percent of total agricultural production in 1994. Between 1988 and 1994, fruit production decreased by 32 percent, while yields declined by 40 percent. Over the same period, vegetable production decreased by 11 percent and yields decreased by 26 percent. Production decline rests largely on drop in yields resulting from lack of necessary agro-chemicals. During 1988-94, the area under fruits and vegetables cultivation increased but was more than offset by declining yields. In 1995, only 30 percent of fruits and vegetables crops were sprayed for disease and pests; areas not sprayed suffered severe crop losses. Marketed output has also declined because of a shortage of packaging materials, and, for some crops (e.g., potatoes) a shortage of improved seeds. 3.9. Grains. Grain production accounts for only about a fifth of agricultural production and meets only a quarter of domestic demand. In the 1980s, close to half of grain supply was provided by imports. The collapse in production in the 1990s has increased the nation's reliance on foodgrain imports. In 1988, the country produced 365,000 tons of grain and imported about 400,000 tons; for 1994, the comparable figures are 212,000 tons and 650,000 tons, respectively. The 1995 preliminary data indicate that imports were 336,000 tons of wheat and 98,000 tons of flour, or 14 percent of total imports by value. Although the total area under grain has remained stable in recent years, declining yields have led to a drop in production of 42 percent since 1988. Between 1988 and 1994, wheat yields declined by 40 percent, rice yields by 47 percent, and corn yields by 58 percent. 3.10. Livestock. Livestock production accounts for about 30 percent of total agriculture production. A disproportionately large share of livestock offtake (63 percent) comes from private plots; the state and collective farm sector accounted for only 37 percent offtake in 1994. Since 1988, livestock offtake has recorded a 35 percent decline, most heavily concentrated in the state and collective farm sector. In fact, livestock production on private plots increased modestly (by 4.5 percent) over the same period. The main reasons for the production decline are: deterioration of grazing land, insufficient supplies of medicines, fodder crops, minerals and vitamins and weaknesses in animal husbandry management. 3.11. Fertilizer. The decline in input use -- the key short-term constraint to restoring agricultural growth -- can be directly attributed to the current economic crisis and the accompanying foreign exchange shortage (Box 3.1). Total fertilizer use in 1994 was only 25 percent of that in 1988. Similarly, pesticide use in 1994 was only 10 percent of that in 1988. In 1988, only 17 percent of total fertilizer used was produced in the country and the balance was imported. In 1995, fertilizer imports were only 17 percent of the 1988 level. During the same period, domestic fertilizer production declined from 38,000 tons to 8,000 tons. -31- B. Farm Sector Restructuring and Reform 3.12. Structure. As in other FSU countries, agriculture has been dominated by large-scale state and collective farms operating in a context of output targets, heavily subsidized or free inputs, state operated marketing agencies and fixed output prices. In 1991, approximately 600 state and collective farms cultivated nearly all arable land in Tajikistan (Table 3.1). Less than 10 percent of arable land (about 75,000 hectares) was allocated to private household plots on the state and collective farms. Despite the small share of land, private household plots accounted for 27 percent of the value of agricultural production in 1991, while the state and collective farms accounted for 70 percent. 3.13. Although there are no data available on production costs, it is generally believed that the level of efficiency on state and collective farms is quite low. Indirect evidence supports this view. While cotton yields in the 1980s were comparable to those found among the world's more efficient producers, input use was much higher. In addition, the rural sector faces serious environmental problems, many a direct result of inefficient and/or inappropriate activities associated with farming -- e.g., water-logged soil, excessively saline soils, on-farm soil erosion and excessive run-off of chemical fertilizers into rivers and streams. Additionally, employment on state and collective farms has consistently increased during the past several years despite the decline in production. This suggests that the farms are being used as a mechanism for absorbing surplus labor without regard to efficiency. Box 3.1 Fertilizers and Agro-Cheaficals Prior to 1995, the marketing of fertilizers and chemicals was restricted to a state enterprise-- Tadjikselkhozkhimiya. As of July 1995, however, all farms were allowed to purchase inputs from any source, which as a practical matter means importation. The:collapse of the trading:regime, along with the shortage of foreign exchange, has meant a near halt to:the import of agricultural inputs, however. The high cost of the inability to import fertilizers and agro-chemicals was vividly demonstrated in early 1995, when several areas of the country - totaling approximately 148,500 hectares of arable land -- were infested with locusts. Tadjikselkhozkhimiya estimates that locust-infestation could rise to as much as 350,000 hectares in 1996. At present, there are no plans to treat vulnerable areas because ofsa lack of pesticides. This could result in lost export revenues of over $100 million. By comparison, the estimated cost of the imports needed to treat the areas likely to suffer from infestations is:about $5 million. With the elimination of foreign exchange surrender requirements and agricultural marketing controls, access to imported fertilizer and pesticide is expected to improve in 1996. Box table 3.1: Tajikistan: Fertilizer Production and Use, 1988-94 ('000 tons) 1988 1991 1992 1993 1994 Fertilizer Use 221.8 168.1 22.2 120.0 55.4 Fertilizer Imports 206.1 147.7 102.8 45.1 37.4 Domestic Production 38.0 24.0 21.9 24.2 12.7 Fertilizer Use Per Hectare (kg) 263.0 210.0 151.0 150.0 73.0 Note: Because data on fertilizer use are for crop years and values for domestic production are for the calendar year, the values do not add up by year. Source: Tadjikselkhozkhimiya 3.14. Reform. Based largely on the experience of other countries (see Box 3.2) and its experience with private household plots located on the state and collective farms, the Government has decided to implement a farm restructuring (or land reform) program. Although still in its early stages, the pace and scope of the land reform effort has been modest. The program's immediate objectives are to: (a) eliminate most state farms by converting them into collective farms; and (b) transform collective farms - 32- into small scale farms operated by individuals or groups. In contrast to farm restructuring or land reform programs in other countries, which have increased distributional equity as the main objective, the focus of the program in Tajikistan is to increase farm productivity. Given the shortage of arable land in Tajikistan, this is an understandable objective. 3.15. The first step in the land reform process took place in 1992, when some low potential, non- irrigated land (usually on mountainsides adjacent to state or collective farms) was allocated to members of the collective/state farms who expressed interest in acquiring additional land outside the farm. The plots were intended to provide households with supplemental food supplies and were in addition to the 75,000 hectares allocated to private household plots on the state and collective farms. Approximately 40,000 family plots were created in this way, covering a total area of about 50,000 hectares. 3.16. A second step of the land reform process occurred in late 1994 and early 1995, when members of poorly performing collectives were given the opportunity to lease land from the collective farm. Between January and December 1995, the number of individual farms created in this fashion increased from 670 to about 2500, covering an area in excess of 15,000 hectares. The individual farms are typically operated by groups of households linked through family relations. The leases are open-term and provide for rights of inheritance. In addition, the land can be sublet, but as of the end of 1995, there was no provision for a leaseholder to permanently transfer land use rights to a non-heir. To date, no collective farm has been completely subdivided into individual farming units. 3.17. The Government currently envisions that the next, or third step, which will expand the land leases to include most land currently under the collective farm control, may begin in mid 1996. During this phase, the majority of state farms are to be converted into collective farms. The Government will continue to operate only state farms associated with agricultural research, seed multiplication or breeding activities. In addition, if a collective farm is operating at a loss, it will be required to restructure itself, in the form of family units or other groups acquiring leases. If the collective is profitable, its members will be allowed to vote on the farm's future structure. Any member of a collective farm is eligible to apply to the manager of collective farm for a lease of land held by the collective. Current guidelines require that the application be considered by a committee of local officials within two months. Although the selection criteria are vague, membership in the collective farm and an adequate level of farming skills seem to be the salient requirements. Once the application is approved and the land is allocated, it must be cultivated within one year, or the collective land can be reclaimed. There is no time frame for reallocating land during this phase, and no goal for the amount of land to be redistributed. * Although the Government still formally states that its objective is to restructure all but a few of the large-scale farms, as of early 1996, its commitment to this goal appears uneven. This seems to be the result of a lack of strong political leadership on this issue. * In November 1995, a Presidential decree was issued that required the Government to allocate 50,000 hectares of land from state and collective farms to households in the farm community. Neither clear criteria for selecting beneficiaries, nor the redistribution's objectives, were specified. A committee of senior Government officials was formed to develop distribution guidelines, but none were issued. Eventually, the farm managers distributed land on the basis of "demand and need." Households that received land tended to have more than three families living together and either had no access to land or access to only very small plots. The average size of holdings distributed under this decree was - 33- 0.15 hectares. Households that received land under this decree are obliged to grow winter wheat on the holding. Failure to do so will result in forfeiture of land access rights. Table 3.1: Tajikistan: Farm Structures, 1991-1994 19 .191 .1294 Number Output Number Output Number Output a/ Collective Farms 206 902. 206 565.5 na 565.4 State Farms 391 673. 438 349.7 na 350.7 Private Plots na 600. na 621.1 na 618.3 ' Output is expressed in millions of 1983 rubles. Source: State Statistical Committee of Tajikistan Box 3.2: Growth and Small Farmers: Some International Experience The transition from large-scale agricultural production to small-scale farms often gives rise to fears that the volume of marketed production will decrease because small farms are associated with subsistence production. To counter these fears, it is useful to review some of the international evidence on the relative productivity of large and small-scale farms and the economies of scale in agricultural production. The world-wide evidence does not substantiate the: fear of small producers and lower production in land redistribution programs. In Kenya, for example, the significant increase in agricultural output which occurred following subdivision of the large white-owned estates has been led by small producers, mostly on small units. This increase occurred with both food and cash crops. Furthermore, both large and small-scale farmers continue to coexist in a mutually beneficial synergy. In Zimbabwe, the remarkable increase in cotton output since 1980 (almost trebled) is due almost entirely to expansion of small- farm output. Similarly, for maize, while national productionhas declined since Independence, the proportion derived from the small producers has increased, from less than .10 percent to nearly 60 percent in a normal year. A critical factor in both countries was the. provision of a- package of support services (extension, marketing, infrastructure, social) that small farmers had previously been largely denied. Perhaps the most dramatic results have been in China where, following the dismantling of the huge communes and the allocation of what are mostly very small units to individual families (less than 2 hectares in most cases), agricultural output has expanded at unprecedented rates. More than simply redistributing the land was involved. Other factors, such as improved pricing and marketing, were also present. Many are not aware that the remarkable economic growth in China has been agriculturally led and that the agriculture is based on small holdings operated, in most cases, by part-time family farmers. The resulting dramatic increases in rural incomes led to equally dramatic transformation of the rural economy in many areas. Also, the remarkable increases in agricultural incomes and production in Taiwan and Korea was based on land reform and redistribution. International research. reveals that there are actually few economies of scale to be had in the agricultural production process beyond the amount of land that one family is able to manage, given any one type of technology (e.g., one 60 hp tractor or one span of oxen). Exceptions are some plantation crops, but even here, large operations are not thought to be as essential as was previously believed. The South African experience with cane sugar and the increase in the number of out- growers on small, part-time operated farms is an example. Many confuse the scale economies of processing and marketing agricultural commodities with the actual farm production process and also tend to confuse the high personal incomes of many large-scale operations with scale economies. Furthermore, farm size is not a barrier to achieving high yields. One does not need a large farm to be able to achieve biologically optimum yields. Small farmers the world over have demonstrated this point beyond refute. The reason why yields are often lower on small farms is due to other factors, such as land quality, labor and capital. But lower yields do not necessarily mean economic inefficiency. Studies in Zimbabwe have confirmed that despite the comparatively low yields achieved by the communal sector farmers, these producers are actually no less economically efficient than their large-scale counterparts. The reasons lie in-the technologies used. One is capital intensive, using modem technology such as high inputs and mechanization, the other is low input, low cost, using labor and ox power. - 34- 3.18. The legal framework for the farm restructuring program is to be provided by a land code that has yet to be approved by the Majlisi Oli. Early drafts of the code contain articles that reflect some confusion about the state's future role in governing the use of agricultural land, in particular, how to manage the Government's concern that all land be fully and appropriately utilized. While these articles are still being reviewed, they do provide insight into the Government's proposed methodology for influencing land use. * Article 17 states that holders of lifelong inheritable leases are allowed to lease their land for up to 20 years and that rental payments should not exceed the land rent charged the primary landuser by the state. * Article 69 provides the Land Code's only guidelines for selecting farmers to receive lifelong inheritable land leases by stating that those with "the necessary knowledge, qualifications, and agricultural experience..." are eligible to apply for such leases. * Article 70 states that "land shall be assigned to prospective small holders by the rayon/town executive bodies on the basis of submitted applications and in agreement with the current landholder." * Article 71 declares that any member of a collective farm wishing to secede and start his/her own farming operations must gain the approval of the collective farm's directorate. * Article 73 states that if a farmer "loses his ability to work or thinks of retiring on pension, he is entitled to transfer land access rights to one of the family members working with him on the farm. If such a person is not available, the landholder can transfer the tenant right to other family members or to other persons who have the necessary qualifications, agricultural experience and are willing to operate a farm." 3.19. The importance of a farm restructuring program to Tajikistan's economy cannot be over- emphasized. The more land that is operated by the private sector, the greater will be the response to reforms in agricultural pricing and marketing. The greater the degree to which the farm sector is free to choose what to plant and what technology to utilize, the more likely it is that farm incomes will rise and technical efficiency will improve. Restructuring will no doubt imply a change in agrarian tenure toward smaller, private farms. Although there are concerns that scale economies may be lost, international experience demonstrates that small, privately operated farms are likely to be far more efficient than large, state-operated farms (see Box 3.2), especially given Tajikistan's plentiful labor supply. 3.20. The management of Tajikistan's land reform program poses crucial challenges for Government. In this respect, much can be learned from the experience of other FSU economies (see Box 3.3). Ultimately, however, the land reform program in Tajikistan will have to be molded to meet local conditions and opportunities. - 35- Box 3.3: Experience With Land Reform in the FSU Several FSJ countries are at various stages of implementing land reform programs. The resulting experience provides some interesting lessons. First, the process is often top-down and guided by those, particularly at the local level, who are interested in maintaining the status quo. Second, the land reform program is typically implemented on a tight timetable with inadequate staff training and insufficient explanation of options available to the new land owners. Third, the distribution of entitlements to a piece of land and/or shares of non-land assets is often not realized in practice. Fourth, land reform is begun prior to macroeconomic stabilization and-before agricultural policy reforms are implemented, with the result that beneficiaries are asked to make decisions in a -highly uncertain environment. Avoiding such mistakes is essential to a successful land reform program in transition economies. (Source: Azerbaijan Agricultural Sector Review, June 1995) 3.21. Outstanding Issues. Although the Government's farm restructuring program contains numerous positive elements (e.g., smaller farm size and greater autonomy for farmers in production decisions), the pace at which the program has been implemented is far too slow to have a meaningful effect on agricultural output. There is a danger that the slow pace of land reform will lead to a downward spiral of falling output of cash crops, greater reliance on food crops for own consumption, resource degradation and eventual loss of arable land. In addition, it is unlikely that the program as currently constituted will successfully restructure the state and collective farms. Not only is the extent of political commitment to the objectives of farm restructuring uncertain, but the mechanisms for implementing the restructuring program are too vague and in some instances, clearly flawed. Key deficiencies in the restructuring program include: * Political Commitment. Most senior Government officials are unfamiliar with the details of the proposed land reform program and thus are unable to be fully committed to it. This, combined with the resistance to land reform that will be encountered from many state and collective farm managers, indicates that the land reform program may not have the widespread support needed for successful implementation. To counter the interests that are opposed to land reform, it is necessary that a strong and highly visible coalition lead the process. Such a coalition is missing at this time in Tajikistan. * Mechanisms for Implementation: Selection Criteria. The problem of selecting who will receive benefits from a land reform program, either in the form of land or compensation for giving up land rights, is one of the biggest hurdles facing land reform efforts around the world. The current process, whereby local officials screen applications on the basis of farming skills, is arbitrary and subject to abuse. Additionally, the selection process must be clearly understood by all participants. Field reports during 1995 give reason to believe that the allocation process is not well understood and is perceived as arbitrary. * The dearth of arable land makes it inescapable that the farm restructuring process will create a landless class with the potential for increasing poverty. Government officials acknowledge this and suggest that the only solution is to find industrial sector employment for the displaced group. Clearly, this approach is unsatisfactory and will hinder successful implementation of the land reform program. A better approach would be to modify the land reform program so that compensation is provided to all collective members, but in a variety of forms, e.g., land rights or rights to physical or financial assets. - 36- * Exit Mechanisms. It is inevitable that some farming enterprises established on leased land will fail or that private farmers may wish to shift into other occupations. Therefore, it is important that the land allocated to these farms be quickly reallocated to individuals or groups that will be able to use it efficiently. At present, the Government is opposed to private ownership of agricultural land, which means that a land market, at least in the usual sense, will not provide the desired exit mechanism. Nonetheless, a market in land access rights (as opposed to ownership rights) can be developed, if leasees have the right to transfer these rights. The Government's present plans for an exit mechanism would require land access rights to revert to the state for reallocation to a new leaseholder. This is not consistent with market principles based on private property rights and will hinder investment in land. If transferability of land use rights is to be pursued, a cadastre system will be needed to register land access rights. 3.22. Failure to implement a well-designed land reform program could have disastrous consequences for agricultural growth, employment generation and poverty alleviation. With few other sources of growth, Tajikistan can ill afford to abandon producers to an agrarian structure that will eliminate individual incentive and initiative. The Government is currently committed to correct these shortcomings. Translating these commitments into timely and effective reform is the most important challenge in transforming agriculture from a command to a market economy. C. Reforming Agricultural Incentives: Pricing, Marketing and Trade 3.23. The State Order System Determination of input and output prices and the availability of marketing channels have historically been integral parts of the state order system. State orders in agriculture require state and collective farms to sell a specified percentage of their production to state owned enterprises. The nominal share of a farm's output sold on state order is based on a planned output target. If actual output is less than the plan, the quantity target must be met by the farm -- meaning that the state order can range from the nominal share to 100 percent. Historically, in addition to purchasing the farm's output at a fixed price, the state also supplied inputs at no direct charge to the farm. Prior to June 1993, all state orders were set at 100 percent and the purchase price was fixed by Government. In June 1993, the Government issued a decree that began liberalization by reducing the size or share of state orders to 90 or 70 percent, depending on the commodity. As a practical matter, most state and collective farms continued to sell the remaining 10 or 30 percent through state marketing channels. 3.24. Although the Government has not formally announced additional reductions in the size of state orders, many state and collective farms operate as if the state order system is no longer in operation. In addition, the Government has gradually liberalized the prices at which most commodities are procured on state order. At present, only cotton, silk cocoons and grain are procured at fixed prices. Even for these commodities, there have been efforts to make the producer price more attractive. The main effect of price liberalization and market deregulation has been to reduce the implicit taxation, through non-competitive markets, of the farm sector. Although the liberalization of the state order system means that Government purchases of agricultural commodities is more on a contractual basis than via forced procurement, there is a reluctance to eliminate state orders completely because of the widely held view that the Government has an obligation to supply certain commodities directly to vulnerable groups, e.g., pensioners, schools and the military. - 37- 3.25. Cotton Marketing. Virtually all cotton is grown on state and collective farms. While six collective farms operate their own ginning facilities, the majority of cotton is sold directly to Glavchlopkoprom, the state processing and marketing agency, and processed at its gins. (See Box 3.4 for a discussion of the administrative structure in agriculture). Prior to 1991, all cotton was marketed through Glavchlopkoprom. As of mid-1995, the terms of the state order system required that 90 percent of the state order be sold to the state cotton marketing authority. In August 1995, a Presidential decree reduced this figure to 70 percent, beginning with the 1995 harvest, with 30 percent of actual production to be retained by the producer for sale either to Glavchlopkoprom or through private channels. However, the interpretation of this decree was modified in November 1995, so that the amount of cotton that could be retained by the producer was limited to 30 percent of production above the quota set for the state order. For 1995, the state order was set at 750,000 tons, almost double the level of actual production. Consequently, only a small number of farms were able to exceed their state-order quota and as a result, practically all cotton was marketed through Glavchlopkoprom. For 1996, the Government has announced that state orders will be abolished, but that cotton exports must be sold through a commodity exchange (that, as of March 1996, had yet to be established) and the foreign exchange proceeds must be sold on the NBT foreign-exchange auction. It does not appear that the public is generally aware that state orders for cotton have been officially abolished. This underscores the need for Government to widely disseminate the agricultural reform program. 3.26. Glavchlopkoprom operates 20 of the country's 26 ginneries in the country and is responsible for marketing cotton abroad. Raw cotton is sold directly to the gin. Prior to October 1995, Glavchlopkoprom had an effective monopsony on cotton marketing because there was no provision for producers to retain ownership of cotton after the ginning process. At the same time that the state order share was decreased, the Government provided for all ginneries to gin on contract. While it is not clear to what extent producers have taken advantage of this change, it is clear that the concentration of ginning capacity under Glavchlopkoprom control constitutes an unacceptable amount of market control. The Government plans to privatize cotton gins, but this will be resisted by Glavchlopkoprom, which is a powerful interest in the domestic economy, and the outcome is far from assured. Box 3.4: Administrative Structures in Agriculture Responsibilities for managing the agricultural sector in Tajikistan are divided among three state Agencies -- Ministry of Agriculture, Ministry of Water Resource Management and Glavchlopkoprom (cotton marketing). The Ministry of Agriculture is responsible for most agricultural activities and is divided into six offices: (a) First Deputy Minister; (b) Economy; (c) Livestock and Veterinary Inspection; (d) Crops; (e) Land Use; and (f) Assistant to the Minister. In addition, the two state agencies responsible for. inputs supplies are also under the jurisdiction of the Ministry of Agriculture. Tadjikselkhozkhimiya is the sole distributor of fertilizers and chemicals, while Concern Magdad is responsible for importing and distributing farm implements and machinery. The Ministry of Water Resource Management is responsible for managing and operating the water delivery systems to the State and Collective Farms. Operation of the on-farm irrigation systems (85 percent of arable land) is the responsibility of the collective, state, and individual farms. Glavchlopkoprom operates most of the country's cotton gins and is responsible for marketing cotton abroad. 3.27. Cotton Taxation. Cotton has been subject to high rates of direct and indirect taxation, nullifying incentives at the farm level. Box 3.5 describes the cost structure and taxation regime for cotton in 1995. The main direct taxes levied on cotton suppliers have been an excise tax (30.5 percent), a VAT (20 percent) and a special tax (3 percent.) In addition, Glavchlopkoprom pays producers in two installments and in recent years, the second installment has not been made. While the Government provides some inputs to producers at little or no cost, the net effective rate of taxation on - 38- cotton production is estimated to be equivalent to 80 percent of final output value. In an attempt to improve producer incentives and ease revenue collection, the Government announced that starting in 1996, cotton exports would be subject to a 25 percent presumptive sales tax but would be exempt from the VAT, excise and special taxes. * The increased producer share for raw cotton that took effect for the 1995 harvest was to have raised the average price from TRI 1,500 to TR34,000/ton, doubling the real producer price. However, the calculation of the producer price is linked to the exchange rate between the Tajik ruble and the US dollar. Because the ruble depreciated rapidly during this period (from TR51/$ in May 1995, to TR280/$ in February 1996), the real producer price for raw cotton increased less than the intended doubling. Box 3.5. Explicit and Implicit Taxes on Cotton in Tajikistan The cost structure for cotton is shown below. The average producer price for-raw cotton at the beginning of the 1995 harvest was TR1I,400, which translates into an average price for-cotton fiber of TR36,480/mt (US$228). In addition, producers are paid a 10% premium upon delivery of the raw cotton to the ginneries. Ginning fees, which average 17% of the value of a ton of cotton fiber, are assessed at this point (line 4). The-profit allowed ginneries (10%) is calculated on the basis of the net cost (line 5). The commodity value of cotton fiber:(line*7).is defined as net cost plus ginnery profits and serves as the basis for computing the excise tax. Although the nominal rate:of the excise tax is 30.5%, it is calculated in such a way that it is 43.88%:of the commodity value (line 8). The VAT and special taxes (line.10) are levied on the sum of the commodity value and the excise tax, thereby resulting in double taxation of cotton.exports. The remaining element in the domestic cost of cotton fiber :is the "development":fee paid to Glavchlopkoprom, which is 10% of net revenue received from the sale of cotton. This:fee is paid to:Glavchlopkoprom in foreign exchange, while the remaining 90% of the foreign exchange earned is remitted to Government's Foreign Exchange Fund. The approximate FOB price for cotton fiber.from Tajikistan in-late 1995 was US$1800/mt. The difference between the net revenue derived'from cotton exports (line 16) and the domestic cost (line 12) is intended to serve as the basis for calculating the second payment to cotton producers. In recent years, however, the Government's extreme fiscal difficulties have resulted in a decision-to delay-the second payment for an unspecified period of time. As of January 1996, farmers had not received the second payment for the 1994:or the 1995 harvest. As a practical matter, the failure to make the second payment can be regarded as an implicit tax on cotton producers. The relatively low producer price in effect at the beginning of the 1995 harvest resulted in a residual amounting to 50% of the estimated FOB price (line 13). Recently, however, the Government has announced its intention to increase. the producer price for raw cotton threefold, which will significantly reduce the size of this surplus. The level of effective taxation on cotton producers is difficult to estimate for two reasons. First, the Government makes several types of payments.to the state and collective farms.(e.g., subsidized inputs, compensation for some salaries paid by the farms) that are difficult to quantify. In recent years,:however, a combination of budget.and foreign exchange constraints has meant that only very small quantities of inputs have been supplied. Second, the shares of the residual (line 17 in Table 3.2) that can be treated as tax and as costs is unclear. Initially, it appears that the entire amount of the residual should be regarded as tax. However, some Government officials indicated that a portion of the residual is used to finance costs the Government incurs that are associated with cotton production. Nonetheless, if the second payment is not made, the sum of the residual and explicit taxes expressed as a ratio of the sum of the producer price and taxes is a plausible proxy for the level of taxation. For 1995, this calculation suggests an effective rate of taxation of cotton producers of 80% at original prices. - 39- 3.28. Outstanding Issues for Cotton. The high effective tax rate on producers, combined with a monopsonistic marketing system (that gives rise to reservations about the integrity of the grading system), has created a powerful disincentive to cotton production. Consequently, there is an urgent need to liberalize the cotton marketing system. It must be recognized, however, that the public sector will continue to play a role in the cotton sub-sector for the foreseeable future. It is improbable that competitive markets and competent institutions will emerge without support, or at least guidance, from the public sector. Therefore, the liberalization of cotton will need to be carefully planned. Key elements of liberalization include: (a) liberalization of prices; (b) eliminating Glavchlopkoprom's processing and marketing monopsonies and making this widely known to the general public; (c) creating a competitive and privately operated market for ginning services; (d) a privately financed cotton research facility; and (e) an independent marketing facility. 3.29. Fruits and Vegetables. The liberalization of the fruit and vegetable marketing subsector provides important lessons about the way agricultural marketing arrangements can be reformed. Prior to 1991, the Tajik Fruit and Vegetable Cooperative was responsible for marketing all fruits and vegetables produced on state and collective farms. This system has been gradually eliminated. As of July 1995, state orders accounted for only 10-20 percent of output and producers were free to sell all fruits and vegetables at market prices through whichever channels are available. 3.30. Different marketing channels emerged during the process of horticulture market liberalization. Presently, four marketing channels are available to producers of fruits and vegetables: * Tajik Fruit and Vegetable Cooperative. About 15-20 percent of marketed production is sold to the Cooperative through its district level organizations, which in turn supply various public institutions (e.g., schools) with produce. Sales to the Cooperative typically occur only when the farm is unable to sell the produce elsewhere. Farmers selling to the Cooperative are eligible for a 50 percent prepayment on produce to be delivered to the Cooperative. * Trading Points. Prior to 1995, an extensive system of trading points or local markets (up to 300 during the summer) was operated by the Cooperative and accounted for 30-45 percent of marketed production. Beginning in early 1995, the Cooperative began leasing out some trading points in Dushanbe. These private trading points have flourished and may now account for some 10-20 percent of marketed output. * Agro-Processing Industry. About 20-30 percent of fruits and vegetables are sold directly to the canning industry. * Bazaars/Private Markets. About 20 percent of production is sold through this channel. Prices tend to be about 20-30 percent higher because the produce is of better quality. There is also a small export trade in fruits and vegetables through private markets. 3.31. The process of liberalizing fruit and vegetable marketing has been gradual, with the state. retaining some control over the liberalized marketing channels (e.g., rent, provision of transport facilities to leasees and restrictions on profit margins). Leasing out other Tajik Fruit and Vegetable Cooperative trading points is envisioned, with the Government monitoring market conditions closely to ensure sufficient supplies of fresh produce for the main urban areas. - 40- Table 3.2 Cost Structure for Cotton Item Value in 1995 Value in 1995 Prior to PP With PP Increase Increase Calculation of the Domestic Cost for Exported Cotton Fiber (Note 1) 1. Producer price (MT of raw 71 213 cotton) 2. Producer price (MT of cotton 228 680 fiber) 3. Premium (10%) to producer 23 68 4. Ginning fee (Note 2) 39 116 5. Net cost 290 864 6. Profit for ginnery (Note 3) 29 86 7. Commodity value (line 5+6) 319 950 8. Excise tax (Note 4) 140 417 9. Sub-total 459 1367 10. Taxes -- 23% (Note 5) 74 218 11. Glavchlopkoprom's 166 166 "development" fees (10% of line 16) 12. Domestic cost of cotton fiber 699 1751 Calculation of Net Revenue 13. Estimated average FOB price 1800 1800 14. Transport costs 140 140 15. Customs/handling fees (0.15% 4 4 of line 13) 16. Net revenue 1658 1658 Calculation of Residual 17. Net revenue less domestic cost 957 -95 Notes: (1) This assumes an exchange rate of 160 Tajik rubles per dollar. (2) The ginning fee is based on costs incurred by Glavchlopkoprom, but is not to exceed 20% of the value of raw cotton and averages 17%. (3) The profit margin of the ginnery that is allowed by the state is 10%. (4) The nominal rate for the excise tax is 30.5%, but it is calculated in such a way that the effective rate on the commodity value of a ton on cotton fiber is 43.88%. (5) The remaining taxes on exported cotton are a value added tax of 20% and special tax of 3%. D. Environmental Issues 3.32. efficient use of inputs. Not Tajikistan's system of production has emphasized maximizing output with little regard to the surprisingly, this approach has resulted in the exploitation of natural resources, as well as overuse of more traditional inputs (e.g., fertilizer). Most of the natural resource degradation associated with the "output maximization" model employed in Tajikistan is connected to water use. 3.33. Water. Tajikistan has abundant water resources that are part of the Aral Sea Basin. On average, 65 km3 of water flow through the country, including 51.2 kI3 originating in Tajikistan (of which 50.5 km is in the Amu Darya Basin). The Ministry of Water Resource Management is responsible for managing the country's water resources and delivering water to the state and collective -41- farms for irrigation purposes. About 93 percent of total water use is for irrigation. Under the terms of a water agreement with the four other central Asian countries, Tajikistan exports about 83 percent of its water, retaining the balance for domestic use. Tajikistan would like to revise the water allocation principles inherited from the FSU. First, it would like to substantially increase its irrigation area to reach the Uzbek level of about 0.2 ha of irrigated land per capita. Second, instead of releasing water for irrigation downstream during the vegetable season, Tajikistan would prefer to store this water and release it in the winter season to produce electricity. These issues are being addressed under the auspices of the Aral Sea Program. 3.34. Prior to 1991, the Soviet government paid the capital and operating costs associated with supplying water under this agreement. At present, however, Tajikistan is not receiving any payment for water supplied to neighboring countries. In addition, water is supplied free of charge to the collective and state farms. Current plans call for levying fees on farms that exceed their assigned water consumption quota, of three to five times the cost (TR5.6/cubic meter) of supplying a cubic meter of water. The main deterrent to implementing this cost-recovery scheme is lack of metering capacity and farmer awareness. 3.35. Providing irrigation water as a free good has had a pernicious effect on both natural resources use and agricultural production. Since irrigation is free, farmers have no incentives to conserve water and use it wisely. Moreover, the absence of water-use charges contributes to lack of sufficient resources for normal maintenance and repair of the irrigation network. Poor design and low-quality construction of irrigation facilities has caused approximately 27,000 ha of previously irrigated area to be diverted to less efficient rainfed agriculture. Another 287,000 ha of irrigated area are estimated to be in urgent need of repair. The current effort to impose fees on water use is a move in the right direction, but the model chosen -- penalty fees for consumption that exceeds a quota -- is unlikely to inspire farmers to use water more efficiently. In addition, establishing quotas on the basis of land quality, crops, and climate will likely be both impractical and arbitrary. The ultimate objective should be a water pricing model that charges water users (domestic and foreign) the economic cost of actual water use. 3.36. Salinization. Soil salinization is a problem over large parts of Tajikistan's irrigated area. Official estimates suggest that about 100,00 ha of irrigated area are adversely affected by soil salinity. The principal reason for this is that about 30 percent of the existing drainage facilities do not work properly, due mostly to poor quality construction and inadequate maintenance. Since most drainage water is returned to the rivers, salt levels in the irrigation supply sources have increased. In one area, the Vakhsh river, salt levels have increased by as much as 40-50 percent. 3.37. Soil Erosion. Mountainous terrain, deforestation and over-grazing on hillsides have contributed to a soil erosion problem of alarming proportions. According to official estimates, there are 4.4 million ha of eroded land in Tajikistan. About 97 percent of all land is subject to soil erosion processes. In 1968, an erosion control program was initiated, involving a combination of reforestation, construction of small water engineering structures and other measures. Implementation of that program was plagued by funding shortfalls, at present, practically no erosion control measures are undertaken. The siltation of the Nurek reservoir on the Vakhsh River illustrates just how serious the soil erosion problem can become. During the past 24 years, the reservoir's usable capacity has been reduced from 4.5 km to 3.0 km,3 while agricultural top soil was estimated to have been lost at close to 50 million tons, or the nutrient equivalent of about 100,000 tons of nitrogen. - 42- 3.38. Forests occupy about 3 percent of Tajikistan's total land area. Degradation of forest resources is due mostly to the uncontrolled harvesting of trees for firewood. The Ministry of Environmental Protection's reforestation program was aimed at increasing the total forest area to about 3.4 percent by the year 2010, but little progress has been made due to fiscal constraints. E. Steps for Transforming Agriculture 3.39. Tajikistan is still in the early stages of the agricultural reform process. Even though significant reforms have occurred, the future policy environment and structure of the sector remain unclear. The sector's future performance will depend in large measure on changes in the incentives structure facing agricultural enterprises and the enterprises' ability to respond to new opportunities. A strategy for agriculture in Tajikistan needs to concentrate on three broad elements: (a) policy change, in particular, policies regarding price controls, marketing controls and procurement.; (b) institutional reform, including public sector institutions and enterprises that emerge from the reform process; and (c) investment in sustainable sources of growth. 3.40. Policy Change. The main policy reforms required in the agricultural sector are land reform, liberalization of cotton marketing and processing arrangements, a reduction in the effective tax rate on cotton, abolition of foreign exchange surrender schemes for agricultural exports and the complete liberalization of wheat pricing arrangements. With the World Bank's support, the Government has identified several immediate measures that would enhance prospects for successfully implementing the agriculture reform program. These include: (a) eliminating remaining price controls on agricultural commodities, including wheat and flour; (b) eliminating state orders on cotton; (c) ensuring that cotton ginning services are made available to producers; (d) allowing cotton producers to retain 100 percent of the foreign exchange earned from sales through private sector channels; (e) establishing at least an additional 5000 leasehold farms by the end of 1995; and (f) preparing a detailed land reform program. These actions are designed to support the Government's reform initiatives and point the way towards a more market-based agricultural economy. 3.41. Institutional Reform. Apart from eliminating distortions in the policy environment, the public sector's role in agriculture must change. To avoid crowding out private initiative, the public sector must reduce its involvement in commercial undertakings and focus its efforts on services (such as research and extension) that confer widespread benefits and are unlikely to be provided privately. In light of serious revenue shortfalls, public expenditures will contract. As they do, budget constraints will limit the scope of public sector activities. Within agriculture, efforts should be made to concentrate what limited resources are available on core support services. 3.42. Research and Extension. Public sector support services designed to serve the needs of large collectives and state farms are poorly suited to the needs of small farm communities. Agricultural support services will need to be reoriented in terms of their focus and financing to serve the needs of a changing farm community. It will be necessary to invest in upgrading these institutions by a mixture of staff retraining, developing a small farmer oriented extension services, and redesigning the agricultural research service to compensate for the loss of state farm research activities. Any reorientation program which will almost certainly include some downsizing, must be well-conceived and there must be political commitment to their autonomous operation. While the public sector must play a crucial role in the agricultural sector's growth, it must be recognized that serious revenue shortfalls and consequent contraction in expenditures will sharply limit public sector activities. Consequently, new models of delivering these services to farmers must be developed. - 43- 3.43. Investing in Agricultural Growth. Assuming that the Government's policy reform and farm restructuring programs move forward as planned, the primary source of growth in the rural economy will be small-scale agriculture. New investments will be required if small-scale producers are to realize gains in productivity, output and incomes. Different forms of investment will be required, including: * Direct Investment in New Farms. Direct investment will be necessary to provide the newly established farms with equipment and on-farm infrastructure - e.g., irrigation pumps, replacement parts, storage facilities and on-farm roads. While targeted credit programs>are best avoided, in the transition to a market-based system, the small farm sector will need some form of transitional investment financing. One model that could be employed is a variant of the social action funds used elsewhere. The underlying principle is that clearly identifiable and exclusive groups are eligible for grants that can be used for specific purposes. The groups must be able to demonstrate an ability to operate democratically and to manage financial resources responsibly. Other factors to be considered include: (a) the share of own resources, either in-kind or cash, that the groups should contribute; (b) grant size; (c) scope for combining grants with loans from commercial intermediaries; (d) types of eligible investments; (e) administrative structures for awarding and auditing the grants; and (f) frequency of grants. * Environmental Rehabilitation. Special efforts will need to be made to reverse the degradation of Tajikistan's natural resources. Levying water charges will be a first step in inducing the farm community to use water more efficiently, but must be complemented by measures aimed at addressing the backlog of overdue irrigation system repairs and maintenance requirements. Rehabilitation investments will also be needed to reverse the problems associated with high rates of soil erosion and salinization. Community-based reforestation will need to figure prominently in efforts to rehabilitate eroded production areas. * Social Sector Investment. Growth will affect various groups differentially. In the rural areas, the groups most likely to be at risk will be households that have been denied access to land or that have been granted a land lease but are unable to farm profitably. These groups will need to seek employment as farm labor. Although small-scale agriculture will be employment intensive, there appears to be considerable excess labor on state and collective farms. Consequently, it is unclear how much of the labor released by eliminating the state and collective farms will be absorbed by small-scale farms. This suggests the need for two types of complimentary social sector investment, in addition to what is currently financed through Government employment creation programs (see Chapter 5). First, there is a need for continued investment in education to enable redundant workers to seek employment in other sectors. Second, there may also be merit in developing public works programs to provide a minimum level of income to the rural unemployed. F. Conclusions 3.44. Because of the civil war, Tajikistan is one of the last FSU countries to begin the agricultural reform process. The economy's desperate condition and the opportunity to learn from the experience of other FSU countries have spawned a proposed reform program for the agricultural sector that is very ambitious but undoubtedly necessary for restoring growth to the sector. - 44- 3.45. . Three points need to be stressed when formulating an assistance strategy for Tajikistan's rural economy. First, despite the Government's recognition of the obvious need for reform, the process is likely to be characterized by uneven progress -- a step back for every few forward steps. This erratic progress reflects the delicate political balance between reformers in Government and those groups that will inevitably lose under the reform scenario. This situation will necessitate persistence and patience on the part of the country's development partners. Second, while all dimensions of the reform program are important, land reform stands out as the most important component of the program. It is also the most difficult component because of its political risks and complexity. Third, external assistance to agiculture is essential to the overall process of economic reform and rehabilitation. NOTES: I/ In addition to state and collective farms, a small number of farms are operated by other state enterprises. The value of output from these other farms is quite small, typically amounting to about three percent of that produced by the state and collective farm sector. 2/ State orders have never been applied to private household plots, the output of which is sold through bazaars or private markets. - 45- CHAPTER 4 PRIVATIZATION AND PRIVATE SECTOR DEVELOPMENT 4.1. A thriving, dynamic urban economy is essential to complement transformation of the rural economy. A private sector, poised to respond to emerging market opportunities, is needed to ensure that resources are deployed in the most efficient manner possible. Despite political instability, uncertainty in the legal environment, and a decline in economic activity the private sector has already grown, albeit at a slow rate. Private sector productivity is higher than the productivity of collective enterprises, which in turn is higher than the productivity of state enterprises. The informal sector, particularly in trade and services, has picked up in recent months. Apart from political and macro stability, private sector development will depend on the speed of privatization and the depth of agricultural reform. The privatization process has been slow in Tajikistan, compared to other FSU republics, largely due to war-related disruption and an ineffective legal and institutional framework. The Government is in the process of redefining the privatization framework, adapting a top down rather than a bottom up approach and addressing key constraints, particularly in the legal environment. 4.2. While privatization is essential, other measures would also facilitate private sector development. The legal framework needs to be revised to protect private property and establish the basic rules for commercial transactions. Private sector registration procedures should be simplified. Access to urban real estate, factory and commercial property should be eased and restrictions on leasehold transfer should be lifted. Similarly, foreign investment approval procedures should be streamlined and vested in a single promotional authority. The banking system will require extensive reform to improve prudential lending standards and ensure that the nascent private sector has sufficient access to credit. A. Accelerating the Privatization Process 4.3. After a promising start in late 1991, the privatization process was largely halted in 1993 by the civil war. It regained momentum in late 1994, following the restoration of political stability, only to be interrupted again in 1995, due in part to uncertainties created by the lack of a national currency. Implementation has been further hampered by the legal framework, which gives the collectives responsibility to initiate privatization and line ministries and local governments the authority to approve the privatization program. As a result, the scope and pace of privatization has been set by managers and government administrators who have shown the least interest in relinquishing control over the assets. With 7-17 percent of state-owned entities privatized, Tajikistan's progress has been insignificant compared to other FSU republics. Progress and Constraints 4.4. Tajikistan trails other transforming economies in actual achievement of privatization (see Box 4.1). As of the end of 1995, approximately 1600 out of 9,000 registered entities had been privatized, almost all of which were small retail facilities. Progress has been uneven across sectors, with the lowest progress achieved precisely in those sectors -- trade and distribution - that constitute the cornerstone of a market economy (see Table 4.1). While data on various local government privatization programs is unavailable, there is evidence that implementation has been much below expectations. For instance, in Dushanbe, out of 972 mostly small-scale entities belonging to the -46- municipality, only 154 enterprises in trade and 69 in the consumer service sector had been privatized before the process came to a complete standstill in late 1994. Box 4.1: Privatization Progress in Transforming Economies In Belarus, privatization of SOEs began in 1991 on the basis of legislation passed by the former Soviet Union. In 1993, new laws were adopted with the objective of privatizing two-thirds of state assets by 1997, with half being privatized by the distribution of vouchers to the general population. In Hungary, large-scale privatization has been gradual but steady and about 25 percent of SOEs have been liquidated. Almost all small-scale entities have been:transferred into private hands. In the Kyrgyz Republic, the initial method of privatization was to transform SOEs into joint-stock companies and transfer share property to the labor collective, with.the state usually retaining significant ownership. The privatization approach changed radically in 1994, with the implementation of competitive cash bidding by individual investors for up to 70 percent of the equity, voucher auctions open to individuals and investment funds for no less than 25 percent, and 5 percent distributed free to the workers. Privatization of small trade outlets, retail and service establishments is largely complete. In Latvia, large-scale privatization is lagging behind other.areas of reform. However, privatization, mostly through auctions, of 4,000 municipality-owned small enterprises is well advanced. In the Czech republic, a comprehensive sell-off of state-assets in about 4,000 medium and large-scale enterprises has been implemented through a voucher-based mass privatizationscheme. The sale of 22,000 small-scale SOEs was largely completed as early as 1993. In Estonia, large-scale privatization through vouchers, cash sales, :partial sell-off and installment payments for domestic buyers is accelerating after a relatively slow start following independence. By 1994, more than 85 percent of small enterprises had been privatized-through employee buy-outs and auctions. In Poland, the 1990 Privatization Law introduced a multi-track approach to divestiture. Enterprises can be liquidated and their assets sold, leased or transferred to:a new private company; or they can be commercialized and then privatized through share sales, privately-managed restructuring operations, or by being included in the recently introduced mass privatization program. Approximately 20,000 small-scale establishments were privatized by local governments early in the reform process. In Romania, the National Agency for Privatization has designed .a scheme that establishes five private ownership funds and one state ownership fund, with vouchers representing shares in the private funds distributed to all eligible citizens. However, privatization of small-scale entities has remained slow and the funds have so far managed to acquire shares in only a relatively limited number of.medium and large enterprises. In Russia, about 15,000 medium and large-scale enterprises employing more than 70 percent of the industrial workforce, have been privatized through a combination of management/employee buy-out and sale to the general public using a voucher-based mass privatization scheme. By mid-1994, about one-third of the estimated total of 250,000 small- scale businesses, including more than 70 percent of those in retail trade, public catering and consumer services had been privatized. 4.5. Takijistan's Potential Private Sector. Although cotton and aluminum production hold a prominent place in Tajikistan's economy, the potential number of private enterprises extends well beyond those firms involved in these two commodities. Since the State Property Committee (SPC) does not maintain a detailed data base of state-owned enterprises in Tajikistan, the universe of privatization is not easily assessed. The total number of state-owned "objects" varies by a factor of 3 -47- to 4, depending upon whether only separate legal entities, or constituent units of larger entities, are counted. Despite these methodological difficulties, the universe of separate legal entities can be estimated at around 9,000, of which between 6,500 and 7,500 are small-scale.1 The estimated figure of total state-owned entities varies from 70 to 350 in the industrial sector; from 4,700 to 16,000 in the wholesale and retail trade sector; from 150 to 4,500 in the transport sector and from 590 to 1,700 in the agriculture sector. Even under the "lower-case" estimates, a well-founded privatization program could significantly expand the number of private enterprises in Tajikistan. 4.6. While privatization of a separate legal entity can be relatively straightforward, privatization of its constituent units, in the form of separate entities, involves a significantly more complicated and time-consuming process. A determination must first be made as to whether it makes economic sense to break up the larger entity into various separate units and if so, the most appropriate method of privatization. Table 4.1: Tajikistan: Privatized Enterprises As a Share in the Sector (As of December 1995) Industry 16.8 Construction 5.9 Transport 0.3 Retail Trade 10.6 Consumer services 26.0 Procurement & Wholesale trade 0.4 Agriculture 1.2 Source: State Property Committee. 4.7. Valuation Process. The process of valuing state property targeted for privatization is slow, lacks transparency and discriminates heavily against outside buyers. The Center for Valuation of State Property (CVSP), a self-financed unit organized within the SPC, is the only organization mandated to value Republican property prior to privatization. The CVSP charges enterprises applying for privatization a negotiated fee of up to 2 percent of the value of the fixed assets for its services. However, since most enterprises are in a dire financial straights, this fee is rarely paid in full, if at all. As a result, the CVSP lacks the technical and human resources necessary to conduct more than a handful of valuations per month. While it has an authorized staff of 25, only about half the positions are filled, all in Dushanbe. Preparing all the valuation documents required can take from 3 to 5 weeks for a large-scale enterprise and 2 to 5 days for a small-scale entity. 4.8. The valuation process starts with the appointment of a Valuation Commission of 5 to 6 members, comprised of representatives of the enterprise applying for privatization, the CVSP and from the Trade Union. A physical inventory of the buildings, major equipment and vehicles of the enterprise is completed to ensure the reliability of the enterprise's books, and to evaluate the degree of the assets' "wear and tear." Based on this assessment, the depreciated book value is calculated. This value is further adjusted by a "usage coefficient" based on very detailed norms issued by the Ministry of Construction for buildings and other ministries for the equipment and vehicles. All calculations are done manually and, as the revaluation coefficients tend to change at intervals, a delay in the review and approval of the necessary documents may require significant additional work, further slowing the privatization process. -48- 4.9. The report of the Valuation Commission is then forwarded to a Republican Commission that includes representatives of the Ministry of Finance, the Trade Unions, the National Bank of Tajikistan, line ministries and outside experts. Only this Republican Commission is authorized to set the price at which the SPC may sell the property. If the buyer is a labor collective, the social assets are usually transferred free of charge. The final price decided by the Republican Commission is calculated from the value after revaluation of the assets, times a multiplier that is supposed to reflect the true "market value" of the property. However, the Commission appears to have wide discretion in making this final decision. For instance, the ability of the Collective to pay the "market price" is taken into consideration. On average, this "market price" has averaged twice the book value in case of sale to a collective, and 5 to 6 times in case of sale to a private individual. 4.10. Privatization Methods. The Privatization Law, adopted in early 1991, requires that the labor collective initiate the privatization process. Not surprisingly, non-competitive transfer to the collective has so far been the main method of privatization for all classes of enterprises (see Table 4.2). Although the data on privatization shows a large number of transfers in the form of individual ownership, these figures cover the sale of very small entities to existing workers, rather than sale to third parties through a competitive process. Similarly, the shares of the medium and large-scale enterprises transformed into joint stock companies have been sold almost exclusively to the collective, rather than through the stock exchange or through some form of mass privatization. Auctions have so far been limited to the sale of a handful of unfinished buildings. Medium and large-scale enterprises have been privatized on a case-by- case basis, upon review of the purchase proposal developed by the collective. In general, the collective has acquired 40 percent of the shares of the newly created joint stock companies at a significant discount and the SPC has retained 60 percent, part of which is for the state and part for private sale at a later stage. However, there is no policy regarding the maximum shareholding, if any, that the State intends to keep in enterprises of various sectors. The collective's 40 percent shareholding is usually divided so that 30 percent is for the present managers and workers and 10 percent of non-voting shares is reserved for former workers, pensioners and invalids. In most cases, collectives have been organized in a closed form, with employees required to sell their shares back to the collective upon leaving the enterprise. Data on the privatization methods used by local governments for their property is generally unavailable. However, if the methods used by the municipality of Dushanbe are any indication, privatization of municipal property also has mainly taken place by transfer to the collective, or to the workers in the case of small businesses, either through straight sale or through leases with an option to purchase after about 5 years. Only a few retail shops were sold through auctions early in the process. 4.11. "Profile" Restrictions. Restrictions on the level of employment and activities of privatized entities are systematically maintained as a condition of sale at both the Republican and municipal levels. In Dushanbe, they appear to be rigidly enforced by the "Department of Supervision, Coordination and Control of New Private Structures," established in the city council. The decision to sell is largely conditioned on a commitment to maintain or increase the existing level of employment. While in principle, up to 50 percent of the business space can be used by the new private owners to add new lines of business, the small size of the premises and other regulations, such as those enforced by the health department usually prevent the new owner from introducing any significant change to the activity of the privatized enterprise. Sub-leasing is limited and generally frowned upon by the authorities. -49- Table 4.2: Tajikistan: Privatized Enterprises by Method of Privatization, 1991-95 (Number of enterprises) 1991 1992 1993 1994 1995 Total Straight Leases: 2 22 0 7 1 32 Republican property 2 20 0 2 1 25 Municipal property 0 2 0 5 0 7 Leases with option to purchase: 0 6 1 0 0 7 Republican property 0 4 1 0 0 5 Municipal property 0 2 0 0 0 2 Individual ownership: 13 336 42 182 113 686 Republican property 1 2 1 0 4 8 Municipal property 12 334 41 182 109 678 Ownership by the Collective: 16 403 26 130 242 817 Republican property 4 62 6 10 42 124 Municipal property 12 341 20 120 200 693 Joint stock company: 2 19 15 24 24 84 Republican property 2 17 11 6 17 53 Municipal property 0 2 4 18 7 31 Total Privatized: 33 786 84 343 380 1,626 Source: State Property Committee. Needed Changes 4.12. A number of significant problems need to be addressed concerning the scope, approach, timing and institutional arrangements of the privatization process: * The Privatization Law has been very restrictive regarding the enterprises and sectors targeted for privatization; * Government must appreciate the urgency of moving quickly to privatize small and medium- scale enterprises, both to reduce the budgetary burden and to stimulate a rebound in economic activity; * The scope and pace of implementation has been driven by those actors - enterprise managers, line ministries and local government officials - that have shown the least incentive to relinquish control over the enterprises they supervise. The methods used have not been conducive to real privatization of the medium and large-scale enterprises, as shown by the fact that up to 60 percent of the shareholding of joint stock companies remain in state-ownership; and * The lack of a reliable data base on the universe of state-owned enterprises and the decentralization of the implementation process for a significant number of small-scale entities make it extremely difficult to measure the real progress achieved. 4.13. As in other FSU countries, the scope for privatization in Tajikistan has been limited by the paucity of private and enterprise savings. In other countries, the lack of "effective demand" for privatization has been addressed through a mass privatization scheme (see Box 4.2). The proposed legal framework opens -50- the way for such a scheme in Tajikistan. As of mid-1995, several options were being evaluated, including payment of wage arrears and frozen savings in "privatization checks" and a voucher scheme. To speed up the small-scale enterprise privatization effort, the proposed privatization scheme should provide for all single-employee entities to be transferred to the present worker, instead of relying on competitive auctions. 4.14. To overcome the problems experienced in the first phase of privatization, on November 4, 1995, the Parliament adopted a set of new legislative acts that will significantly improve the scope and implementation of the program. The most important change is that the selection of enterprises to be privatized will be decided by the Government. Valuation procedures will be simplified and strict deadlines will be set for completing the various stages required to bring an enterprise to the point of sale. A portion of the privatization proceeds will be earmarked to defray the costs of the privatization. Standard methods for privatization are prescribed as follows: * For small-scale enterprises in all sectors with less than 30 employees - through auctions or tenders; * For all remaining enterprises - through transformation into open joint stock companies and sale of these shares to foreign investors, on the stock exchange, or through a mass privatization program, within one year of transformation; * For unfinished construction projects and non-profitable enterprises - through tenders; and * For the assets of liquidated enterprises - through sale in the Real Estate Exchange. It is further recommended that the valuation of the assets of small-scale enterprises serve only as a reference price at the auctions. It is essential that the property be sold to the highest bidder, even if the proposed bid falls below the reference price. Technical assistance to SPC will be required, both in the planning and implementation of a mass privatization program. This support will be provided under the IDA-financed IBTA project. 4.15. "Profile restrictions" impede an efficient market-economy, since they inhibit the reallocation of labor and capital, impair the new owner's legal property rights and encourage discretionary administrative interference in legitimate private activities. In principle, "profile restrictions" should be completely abolished. If they are retained in some cases, they should be temporary only. The legal framework should clearly identify the goods subject to a profile restriction (possibly only a few essential items, such as bread and meat), the territory for the profile (possibly isolated rural communities supplied by a single shop), and the time-limit for the restriction. 4.16. This new legislation, with the modifications suggested above, should provide the Government with the legal basis necessary to accelerate evolution toward private ownership. However, implementation promises to be difficult and will hinge on allocating of the necessary financial and human resources to: (i) bring a large number of enterprises to the point of sale; (ii) conduct the sales; (iii) establish the necessary market intermediaries (stock exchange, share depositary, investment funds); (iv) mobilize foreign investor interest; (v) create effective demand through a mass privatization scheme; and (vi) develop and carry out an effective information campaign. -51- Box 4.2: Broad-Based Privatization Schemes The three basic approaches for achieving broad-based ownership share certain social and political objectives. First, they aim at spreading the ownership and benefits of privatization to-the population at large or to specific sub-groups for which affirmative action policies are deemed appropriate. Second,they seek to develop and deepen weak or non-existent capital markets and establish a "savings and investment culture." Third, they serve to build popular support for reform through greater public participation in the privatization process. Voucher schemes, adopted in the Czech Republic, Mongolia, Lithuania, Poland, the Kyrgyz Republic and Russia, among others, have proven attractive to policy makers primarily because they provide a means to simplify and accelerate the process of privatizing of large numbers of SOEs unattractive to strategic investors, and because they are useful vehicles for equitably distributing wealth er ante. The use of vouchers is most appropriate where (i) there is a relatively high degree of literacy; (ii) most of the-population will have easy access to voucher distribution and trading centers, and (iii) there is a highly centralized and well organized administration. Collective investment schemes used in countries as diverse as Malaysia, Zambia and Bolivia take the form of trust funds endowed with government-held equity, pension schemes funded from the earnings of SOE shares, and in a few instances, non voucher-based unit trusts. Collective investment schemes are often the choice of policy makers where there are severe constraints to capital market development, little or no understanding of share ownership, cultural barriers to individual accumulation of wealth, low degree of literacy and logistical constraints, such as a highly dispersed and difficult to reach population. Such schemes can prove useful institutional vehicles for moving many SOEs immediately out of government ownership and under the supervision of- profit minded trustees until they can be successfully privatized. Public offerings of SOE shares, often at a deep discount, have been used by a broad range of developing countries, such as Jamaica, Korea, Sri Lanka and Morocco, as a means of widely spreading ownership. To be successful, however, public offerings require a well functioning domestic capital market with sufficient absorptive capacity, and the SOEs targeted under the scheme should.not have any potential financial weaknesses. 4.17. Implementation of the accelerated privatization program envisaged by the Government, particularly with respect to small-scale entities, requires a centralized approach. Within the framework of the new Law, the SPC should have direct and final responsibility to decide which individual entities will be included in the privatization program and to schedule and implement the privatization program. Privatization proceeds should continue to accrue to the local governments, minus a small transaction fee. To accomplish its task, the SPC must be transformed into a self-financed entity that directly receives a share of privatization proceeds. 4.18. It is inevitable that privatization will create some loss of employment. The sprectre of rising unemployment has generated opposition to privatization, particularly of medium- and large-scale enterprises, in other FSU republics. Improvements in the social safety net (see Chapter 5) will be necessary to mobilize the popular support required to sustain a broad-based privatization effort and to facilitate the post-privatization restructuring of major enterprises. B. Building an Enabling Environment for Private Sector Development 4.19. Tajikistan's private sector is very small and is primarily involved in informal-sector activity. As of July 1995, Tajikistan had 1,043 registered private enterprises and 545 cooperatives, that employed about 16,000 persons (see Figures 4.1 and 4.2).2 In addition, there are currently 19 enterprises wholly- owned by foreign investors and 198 registered joint ventures with foreign participation, of which 92 are actually operational (see Table 4.3.). By contrast, the former Yugoslav republic of Macedonia, which initiated reforms at roughly the same time as Tajikistan and is similar in size, population, and output, has -52- 30,000 operating private enterprises. Although no reliable data exists on the size of the informal sector, it is apparently significant. Figure 4.1: Employment in Small State Enterprises, Cooperatives and Private Enterprises 24558 25000 20866 20000 0 Jul-93 U Jul-95 ( 15000 E 10940 9641 10000 E 4789 5310 5000 0 Small State Enterprises Cooperatives Private Enterprises Source: Statistics Committee Table 4.3: Tajikistan: Number of Joint Ventures by Country Total Wholly Foreign-Owned Afghanistan 65 1 United States 15 5 China 10 9 Bulgaria 9 - Iran 9 - Turkey 8 1 Austria 7 - Germany 7 1 Israel 7 - England 6 - Others 55 2 Total 198 19 Includes: Belgium, Canada, Cyprus, Czechoslovakia, Finland, France, Hungary, India, Ireland, Italy, Kazakstan, Korea, Lebanon, Lithuania. Luxembourg, Macedonia, Malaysia, Pakistan, Romania, Russia, Saudi Arabia, Slovakia, Spain, Sri Lanka, Sweden, Switzerland, Syria, UAE, Vietnam and Yugoslavia. -53- 4.20. Despite the constraints mentioned above, the formal private sector grew from about 1,200 enterprises in July 1993, to nearly 1,600 in July 1995, a one-third increase. Although small in numbers, the existing private enterprises generate substantially larger revenues per employee than either the state enterprises or the cooperatives. While revenues are TR 0.85 million per employee in state enterprises and TR 0.91 million per employee in cooperatives, they reach TR 2.27 million per employee in private enterprises - over 2.5 times the level registered by the cooperatives. The majority of private enterprises are engaged in trade activities (26 percent), followed by construction (19 percent) and consumer goods production (12 percent) (see figure 4.2). This is typical for emerging private sectors, since little long-term financing is required for trading and capital reserves can be rapidly built up to expand into other operations, such as manufacturing. The Business and Regulatory Environment 4.21. The private sector in Tajikistan faces an array of constraints, including: (i) inadequate access to physical assets due to the slow pace of privatization; (ii) uncertainty in the legal environment; (iii) barriers to entry; (iv) limited access to office, retail and warehouse premises; (v) lack of competition; (vi) lack of access to land and inability to transfer land leases; and (vi) lack of access to credit and inefficiencies in the financial markets. In the short term, the country simply does not have the institutional capacity to address all these constraints. The Government will need to focus on a few priority areas where actions can be taken in a relatively short time and where such actions will have an immediate positive impact on private sector development. 4.22. Inadequate Access to Physical Assets. The most important immediate action the Government could take to spur private sector development is to accelerate implementation of the privatization program. As discussed above, the state currently owns and controls more than 90 percent of all physical assets in the country. In the agriculture sector, the land lease program is the first step toward agrarian reform and restructuring the farm sector (see Chapter 3). In the other sectors, the absence of an accelerated privatization program means that entrepreneurs must purchase new physical assets and essentially establish enterprises from scratch. This is prohibitively expensive and also represents an inefficient use of scarce investment resources, given that most existing enterprise assets are badly under-utilized. 4.23. Legal Framework. Some progress has been made in establishing the basic legal framework for a market economy. Laws on Property Rights, Entrepreneurship, Privatization, Enterprise Registration, Enterprises, Joint Stock Companies, Leasing, Bankruptcy, Foreign Investment, Collateral and Labor Contracts have been promulgated. In addition, private property rights have been guaranteed in the Constitution passed in 1994. However, despite a promising start, the existing legislation provides only weak protection of private property rights and continues to leave considerable latitude for state intervention in what would normally be regarded as private commercial activity. The Government recognizes the inadequacy of the existing commercial legislation and has prepared an agenda for amending the commercial laws for Parliament to adopt to conform to the requirements of a market economy. In the short term, top priority should be accorded to revising the Law on Property Rights. The current law, passed in 1990, affords considerable protection to the property rights of collectives, but guarantees little or no protection to owners of private property. In the medium term, the objective should be to modify existing legislation to conform to international standards, to introduce contract and securities laws and finally, to introduce a new commercial code. -54- Figure 4.2: Evolving Structure of Private Sector Activities 25%/6 0 Jul-93 M Apr-95 S15%- 100/0c 0%6 Consunw Trade Cons=metion Agiculture Everyday Goods Services Note: Does not add to 100 percent, as "Other" category not represented. Source: Statistics Committee. 4.24. Entry Rules. Private enterprises continue to face an array of entry constraints. First is the lack of a formal registration mechanism for new private firms. For the six months prior to April 1995, there was no system for registering of private enterprises, as the prior registration system was disbanded. Growing complaints from entrepreneurs prompted the Ministry of Justice to prepare a draft resolution on registration of private enterprises. Agreement was reached with the Government that the regulations under this resolution would be implemented in advance of the resolution's formal adoption by the Cabinet. The new regulations represent a substantial improvement over the old registration system: procedures have been simplified, costs to applicants have been reduced and most importantly, the process now takes no more than 10 days. This resolution, and the accompanying regulations, need to be adopted as soon as possible, which will require amendments to the Law on Registration and the Law on Notary. 4.25. Access to Commercial Real Estate. Inadequate access to office, retail and warehouse facilities is another major impediment to private sector activity. At present, state-owned enterprises (SOEs) exercise control over the vast majority of these assets. There is no financial incentive for SOEs to relinquish access to excess facilities, since all proceeds from such sales or leases go to the Republican budget. To address this problem, a "Resolution for the Establishment of a Republican Real Estate Exchange" was recently adopted and the State Property Committee has drafted regulations for operating of the Exchange. However, these regulations limit the assets that can be sold through the Exchange to equipment, used vehicles, housing and unfinished construction. To improve private sector access to factory and office space, this Resolution should be amended to include existing office, retail and warehouse premises and should specify both Republican and communal assets, in addition to assets held by state-owned enterprises. -55- 4.26. Lack of Competition. Tajikistan inherited an economy characterized by a high degree of concentration, with often only one domestic state-owned. supplier or buyer in specific markets. The private sector has little or no access to state supply networks, including most transport facilities and wholesale outlets. A competitive network of distributors, agents and brokers is necessary for a commercial market to emerge. The breakup of these monopolies into smaller units and their subsequent privatization is essential to ensure greater competition in domestic markets. 4.27. The legal framework does recognize the need to promote competition. Tajikistan has had a Antimonopoly Law since 1993. Enforcement is supervised by the Antimonopoly Department in the Ministry of Economy. Enterprises with more than a 40 percent share of a given market are subject to the law, listed in the Register of Monopoly Enterprises, and required to submit price and output information (both actual and planned) and applications for price changes to the Antimonopoly Department. Currently, about 140 enterprises are registered as monopolies. The following products are subject to the price regulation: electricity; chemicals; non-ferrous metals; machine tools; construction materials; timber; food products; alcohol, tobacco and beer; and social services. The fact that these industries - none of which, except possibly electricity transmission, could be considered a "natural monopoly" -- are subject to price regulation testifies to the pervasiveness of monopoly activity in virtually all sectors of the economy. The conscious breakup of these monopolies should be an integral part of the privatization effort. 4.28. Transferability of Land Leases. Not all private enterprises will survive. When they fail, they must be able to shed assets, including land leases. Land leases, whether on urban or rural land, cannot be transferred under the current Law on Leasing. While this is not a major barrier to private sector activity at present, it is likely to emerge as one over the medium term, as bankruptcies and liquidations grow. Thus, it will be necessary for the Government to address this constraint by allowing for transferability of - - at a minimum - urban land leases. Lease transferability of rural land is equally important and will need to be addressed under the Government's comprehensive land reform program (see Chapter 3). 4.29. Foreign Investment. Tajikistan has the potential for attracting foreign investment, due to its natural resource endowments, low wage rates and proximity to large consumer markets in Central and South Asia, as well as China. However, a number of factors act to discourage foreign investment, including political instability, the large decline in economic activity, volatile macroeconomic conditions and weaknesses in the regulatory framework for private investment. Currently, the administrative process for establishing an enterprise with foreign participation is cumbersome and time consuming. Registration and approval of a joint venture involves a number of different agencies and departments, including the Ministry of Finance, the Statistics Committee, a public notary, and (depending on the nature of the particular investment) the Ministries of Justice and Economy. The process of registering and approving joint ventures and wholly-owned foreign companies for operation in Tajikistan should be transparent, simple and timely. To accomplish this, the Government should consolidate all review and approval functions into a single Foreign Investment Promotion Unit that would undertake registration, licensing, provision of legal information and foreign investment promotion. 4.30. The Law on Foreign Investment, passed in 1993, delineated rules for establishing joint ventures and wholly-owned foreign companies that are no less favorable than those applied to domestic investors. The Government guarantees that the provisions of the law are valid for 10 years and that foreign property will not be nationalized or requisitioned. Foreign investors are also reportedly given the right to freely transfer their investments and profits out of the country, although currency transfer restrictions are in -56- Role of the Banking Sector 4.31. Well-functioning financial markets are essential to private sector development. In a market- based environment, the banking system is responsible for mobilizing and allocating financial resources to the enterprise sector. The Tajik banking sector, however, is still organized along the traditional Soviet model of sectoral banks (see Table 4.4). The big sectoral banks continue to be predominantly owned by their borrowers and are not conversant with Western credit risk assessment techniques. Credit culture within the banks is weak at best and loan extensions are provided to cover overdue interest, as well as principle on previous loans. The danger of moral hazard in lending decisions is already acute and will intensify as inflation falls and the real value of debt obligations rises (or falls less rapidly). In initiating banking sector reform, priority should be given to preparing diagnostic studies of the sectoral banks and to implementing a market-based accounting framework. In both these areas, there is an urgent need for considerable technical assistance. Table 4.4: TEjikistan: Characteristics of the Banking Sector (Millions of Tajik rubles, as of June 1, 1995) Orienbank Agroprom- Tajikbank- Vnesheco- Sberbank All other bank business nombank banks d] Structure of the Banking Sector Authorized share capital 13 37 28 100 cl 39 Paid-in capital . 59 35 61 105 c] 50 Total Credit b) 253 1,220 194 67 7 228 (of which LT credit) 15 247 43 6 2 61 Growth of Credit (%) 186 260 154 282 396 193 (June 1994-June 1995) Directed Credit from NBT As of June 1, 1994 199 130 0 0 3 77 AsofJune 1,1995 0 321 0 0 3 82 Credit Ceiling 350 1,700 200 35 20 217 Source: NBT. a] Paid-in capital includes retained earnings. b] Differences between total credit and the sum of short- and long-term credit are due to factoring. c) At the time of transformation into a commercial bank, Sberbank was capitalized with the equivalent of a 5.5 million Tajik Ruble interest free loan from the Government. d] 12 remaining banks. 4.32. Credit Culture within the Banking Sector. Some steps have been taken toward establishing a dual banking system, but the vestiges of state intervention are still strong. Enterprises are restricted to having only one banking connection and competition for deposits is constrained, as the large banks serve a selected group of depositors who are also the bank's main owners and borrowers. 3 Despite mounting arrears problems, none of the banks reported having charged any debts against their reserves. 4.33. The failure to collect on debts may be partly explained by reported difficulties in using collateral. Though banks use collateral, in only one instance did a bank actually take recourse to claiming ownership in the event of non-payment. This is because the legal foundation for using collateral is uncertain and enforcement mechanisms are cumbersome and expensive. Instead, loan guarantees are popular with the banks as security for lending. According to such guarantees, a third party, either a bank or an enterprise, acts as guarantor, allowing funds to be drawn from the third party's bank account in the event of a claim. In some instances, claims have been made against such guarantees. If the banks were to become more prudent regarding their doubtful and bad debts, wider use of such guarantees would result in serious systemic risks. Since the banks are predominantly -57- directly or indirectly state-owned, this kind of risk does not seem to have affected their lending policies. 4.34. Monitoring of doubtful and bad debtors is weak, with no clear policy about extending doubtful loans. If a borrower defaults, the bank may still extend the loan, while applying a stiff interest rate penalty -- despite the fact that the prospect for repayment is dim. Since all banks are faced with mounting arrears problems, moral hazard is a serious danger in lending decisions. , and will intensify as inflation falls. 4.35. Access to Credit. Access to credit remains a significant obstacle to developing the private sector. Since February 1, 1995, the main constraint on bank lending has been tight bank-by-bank credit ceilings (see Table 4.4), combined with the Authorities' decision not to allow state enterprises to show realized (revaluation) profits on their balance sheets after the currency launch. Thus, most enterprises either became insolvent or severely short of working capital just as credit ceilings came into effect. Commercial bank managers then had to choose between rolling-over credits to their largest borrowers, in the hope that these would somehow be repaid in better times, or declaring these debts uncollectible and placing the bank into receivership. Given the economy-wide level of inter-enterprise arrears and the lack of liquidity in the enterprise sector, credit ceilings may have only a limited effect on the efficiency of financial intermediation. However, as noted in Chapter 2, they will be necessary to restrain monetary growth to a level consistent with economic growth and financial stability. 4.36. There are some signs that the banks are allocating their limited capital more carefully and that this is improving credit access for the private sector. A survey of two banks (Tajik Business Bank and Oriyon Bank) revealed that on average, private sector customers accounted for 30 percent of outstanding credit as of July 1995. By contrast, in October 1993, only five percent of all outstanding credit in the economy was channeled to the private sector. Of these loans, approximately 80 percent are short term, primarily for trade financing. Interest rates for private firms in mid-1995 were in the range of 150-180 percent per annum, while the interest rates for state-owned enterprises were around 110 percent. 4.37. To ease the financing constraint on the private sector, the Government is currently considering a proposal from SPC to channel a significant portion of privatization proceeds in the form of low interest loans, to privatized enterprises. Caution should be exercised with regard to the design and administration of this program so as not to distort the efficient allocation of financial resources. If this program is approved, its design and administration should be guided by the following principles: (i) it should be administered by the banks; (ii) eligibility should be extended to all private entities to ensure a level playing field; and (iii) it should be based upon sound commercial principles (i.e., commercial interest rates, commercial viability of projects). C. Conclusions 4.38. Private ownership and operation of productive assets is the institutional essence of a market economy. While some progress has been made in providing the enabling regulatory environment for the private sector, there has been relatively little change in the ownership structure or the financing of commercial undertakings. Privatization, articulation of a regulatory environment conducive to private sector activity and the rehabilitation of domestic financial markets are needed to enhance competition and, in so doing, to inspire efficient use of Tajikistan's limited resources. Tajikistan has much to learn from the privatization and private sector development experiences of other FSU republics. Most importantly, policy makers must be aware that the costs of delay and indecision are very high indeed. -58- Notes: I/ Counting the various components of a legal entity as separate units significantly increases the universe of state- owned "enterprises" to be included in the privatization program, but might present a distorted picture of the potential for speedy privatization. For instance, a state farm might be recorded as one separate legal entity or as ten or more "objects," since it may include an irrigation construction and maintenance unit (recorded in the construction sector), some trucking units used to bring the workers to work, transport its inputs and ship its products (recorded in the transport sector), and several retail shops for its employees and residents of the nearby communities (recorded in the retail trade sector). Similarly, large industrial enterprises often incorporate specialized engineering and civil work units transportation units, and social services (recorded in individual consumer services). 2/ While cooperatives are legally "private" entities, they are in effect quasi-state enterprises insofar as they receive subsidized inputs, preferential access to credit and other forms of preferential treatment from the state. For purposes of this report, the private sector includes new start ups ("private enterprises") and cooperatives. It is not known from Statistics Committee data bow many privatized enterprises are included under the category of "private enterprises," it depends entirely on whether they have registered as such. 3/ Several reasons are used to justify this restriction. The first is that in the CIS, banks traditionally carried out accounting and funds management operations on behalf of their enterprise customers and rescinding this role to the enterprises would require up-grading the payments system. The second reason is that restricting enterprises to having only one bank relationship simplifies tax collection. -.59- CHAPTER 5 REBUILDING THE SOCIAL SAFETY NET 5.1. Although the incidence of poverty in Tajikistan is hard to ascertain, it is clear that it is widespread and deep, given the low level of income, the sharp economic decline and the recent social unrest that adversely affected the lives of hundreds of thousands of people. Tajikistan is the poorest country among the FSU republics and was so even before the breakup of the Soviet system. * Using the latest Family Budget Survey conducted in 1993 and the official poverty line, the Government estimates that 90 percent of the population falls below the poverty line. * Of the estimated 900,000 workers (nearly one-third of the labor force) who are either openly unemployed or under-employed, only about 2 percent are eligible for receive assistance from the Government. * About 450,000 people (pensioners, single parents and invalids) are presently provided with food assistance through a variety of programs and from several organizations. * Real wages have fallen dramatically, reaching less than 5 percent of their 1991 level. * The extent and nature of poverty has important geographical variations. The North is somewhat better off than the rest of the country. The Southeast and the peri-urban areas, especially Dushanbe, are the poorest. 5.2. Poverty can be reduced through a three-tier strategy that emphasizes overall growth, investment in human capital and targeted interventions. Worldwide experience suggests that in the long run, economic growth is a necessary condition for poverty alleviation. The Government's reform program provides the basis for renewed growth through both macroeconomics stabilization and structural reforms intended to increase supply. In particular, the agricultural reform measures are designed to benefit large numbers of the rural poor. However, given the extremely low level of income, coupled with a collapse of inherited social programs and potential transitional social cost of the reform measures, even relatively fast economic growth will only have a limited impact on the extent of poverty in the short term. The strategy for reviving growthja was discussed in the previous chapters. After briefly reviewing the living standards and the effects of the civil war, the present chapter will focus on health and education and a program of targeted support-- the two other pillars of the poverty reduction strategy. A. Living Standards and the Effects of the War Living Standards 5.3. Tajikistan has long been the poorest of the FSU countries. Income per capita, using the World Bank Atlas methodology (converting Rubles at purchasing power parity) for 1995 is estimated at US$370, ranking the nation among the 20 poorest countries in the world. Population growth is high, averaging about 3.0 percent before the civil war and 3.6 percent thereafter. The fertility rate is also high; consequently, the population is very young. Forty seven percent of the population is under age 16. Together with low retirement ages--55 years for women and 60 for men -- this has contributed to a very high dependency ratio. Latest estimates suggest that only 31 percent of the total population are of working age. -60- 5.4. Despite low incomes and rapid population growth, social indicators in Tajikistan are more typical of those achieved in upper-middle income countries (see Table 5.1). Tajikistan ranks with the upper-middle income countries in terms of health indicators and has a high proportion of doctors. In terms of education indicators, Tajikistan ranks alongside the high-income countries of the OECD. These patterns are common to most of the FSU countries. Although there are issues of international comparability, the social indicators provide grounds for optimism with respect to future economic development, provided they are maintained. Unfortunately, as detailed below, education and health services are deteriorating rapidly. Table 5.1: Tajikistan: Comparative Social Indicators Life Infant Daily Population Total Adult Tertiary Expectancy Mortality Calorie per Fertility Illiteracy Education at Birth (per Intake Physician Rate Rate (%, Enrollment (Years, thousand, (1989) (1994) (1990) 1990) Rate (%,1989) 1994) 1994) Tajikistan 67 40 2786 438 4.1 3.3 66 Low Income Economies 62 69 2406 5,800 3.8 40 Middle Income 66 48 2860 2,250 3.7 22 17 Economies * Dates for Tajikistan are: Col. 1, 1992, Col. 2, 1990, Col. 3, 1990, Col. 4, 1993, Col. 5, 1994, Col. 6, 1994. Col. 7, 1993. Sources: Tajikistan: Republic of Tajikistan Human Development Report, 1995, Other countries: World Bank, World Tables. 5.5. Falling real wages must necessarily have contributed to a rise in poverty. Table 5.2 reports the trends in real monthly wages since 1991. The fall in real wages is so great that it is tempting to regard the data as exaggerated. Yet even if the fall were half of what is recorded, it would still be among the worst wage collapses in the FSU. 5.6. The minimum wage is an important numeraire in fiscal and social policy. Many items, including pensions and public sector pay are indexed to the minimum wage. In Tajikistan the minimum wage is not linked automatically to a price index. Changes in the minimum wage are usually announced by decree. For example, prior to mid-May 1995, the minimum wage had remained constant since Autumn 1993, during which period consumer prices had increased more than ten-fold. On May 15, 1995, the minimum wage was increased by 80 percent, to TR144, raising pensions and allowances along with it. On March 1, 1996, the minimum wage was increased to TR230 and it was announced that it would be increased again, to TR322 on July 1, 1996. Clearly, this device gives the Government a great deal of flexibility, at least in inflationary times, in the amount of real resources disbursed. On the other hand, these changes create much income uncertainty for households dependent on minimum wage-related payments. 5.7. Table 5.3 shows how average-earning families have responded to the decline in real income. The food share in household expenditures rose dramatically in 1993 and there was a significant drop in calorie intake among rural families. Also, the share of home production in family income rose suddenly in 1993. There is little doubt that since then, these movements have become trends. Officials estimate the share of home production to have risen to well over 40 percent of family income by mid- 1995. -61- Table 5.2 Real Monthly Wages (1991 average for whole economy = 100)al 1991 1992 1993 1994 1995 Whole Economy 100 44.7 16.6 8.1 2.1 Agriculture 92.6 33.4 11.3 4.2 1.6 a] Average monthly wage deflated by RPI/CPI. Source: Goskomstat. Table 5.3 Selected Indicators for Agricultural and Non-Agricultural Households 1980 1991 1992 1993 Share of Food in Total Household Expenditure (%) Agricultural Households 51 52 52 72 Non-Agricultural Households 46 48 52 70 Daily Calorie Intake (per capita) Agricultural Households 2937 2811 2888 2497 Non-agricultural Households 2920 2598 2892 2856 Share of Home Production in Household Income (%) Agricultural Households 23 22 22 42 Non-Agricultural Households 9 9 4 11 Source: Goskomstat. 5.8. Little can be said about income distribution in Tajikistan, other than that war-effected areas are among the poorest parts of the country and that rural incomes tend to be below those in urban areas. The only source of income data, the Family Income and Expenditure Survey, was not designed to be representative of the population, but rather to reflect the cost of living of the average-earning family. This survey has not been carried out since 1993 because of insufficient funding. A new survey, redesigned by Goskomstat in Moscow, is to be introduced when funding allows. The Aftermath of the Civil War 5.9. Severe disruption and poverty were caused by the internal conflict that lasted from May 1992 to early 1993. Over 50,000 people were killed in the civil war and 850,000 became refugees. Between 600,000 and 700,000 people were displaced within Tajikistan. Of the rest, 60,000 went to Afghanistan and approximately 195,000 went to other FSU countries. The heaviest fighting was in Khatlon Province, in the south-west, where there was also the most destruction. Twenty-five thousand women were widowed in the conflict. There are now over 20,000 female-headed households in the Khatlon province, compared to an estimated 4,000 in the rest of the country. 5.10. Infrastructural damage was also extensive. The State Department for Refugees (SDR), a branch of the Ministry of Labor, reports that 35,700 houses were destroyed during the war and 10,000 houses were illegally occupied. Of social sector assets, village schools were used as headquarters by all armed groups, so that the buildings were damaged and most equipment was stolen or destroyed. The Ministry of Education estimates that 300 schools, almost 20 percent of the stock in the war- affected regions, were damaged beyond repair. In the health system, 61 medical establishments were completely destroyed and medicines and equipment were stolen from many establishments. The total -62- damage to the health system was estimated at US$20 million. About US$4 million had been allocated for repairs by July 1995. 5.11. The State Department for Refugees, together with the United Nations High Commission for Refugees (UNHCR), are continuing to facilitate the return of refugees. SDR estimated that about 94 percent of internally displaced people, and nearly two-thirds of the 60,000 who fled to Afghanistan, had returned home by June 1995. Very few of those who fled to other FSU countries have returned. Many returning refugees have found their homes and livelihoods destroyed. SDR estimates that about half the stock of destroyed houses had been repaired by July 1995. 5.12. Under existing legislation, returning refugee families are eligible to receive a cash grant of 800 Tajik rubles. Those who lost their property or livestock can receive a 20-year loan of up to 5,000 Tajik rubles, with repayments starting in the fourth year. Persons who were employed are offered their previous job. UNHCR is helping organize training and job creation schemes for refugees with the Ministry of Labor. B. Protecting Health and Education Services 5.13. Protecting expenditures on basic health care and primary education, two social services that most affect the life of the poor, is the second tier of the poverty reduction approach. Compared to many countries with comparable per capita income levels, Tajikistan is in many ways already favored by having a good stock of well-qualified personnel able to assist in developing the country. However, the existing systems of schooling and health care are now in serious jeopardy. Since 1992, the education and health sectors have been severely affected. As tax revenues collapsed, so have social expenditures. The combined share of these two sectors in GDP was 17 percent in 1992, and is estimated at about 7 percent of a much smaller GDP for 1995. As a consequence, materials are mostly non-existent and wage payments have been frequently interrupted. Education 5.14. Both access to and quality of education have registered a severe decline during the past five years. Many kindergartens and pre-schools have closed, especially in war-affected areas, but also because recession-hit enterprises have closed their facilities. Pre-school enrollment fell by 24 percent between 1990 and 1994, with rural areas particularly hard hit. Table 5.4 shows similar trends at almost all levels of education, except in universities, where an expansion of the university system in 1992 to include new regional universities has led to a rise in the number of students. Nevertheless, attendance is falling. Schools are no longer heated in the winter and this keeps children away. Teachers regularly fail to attend classes because of the need to augment meager salaries. Also, in regions affected by the civil war, ethnic tensions mean that some children are too intimidated to attend schools in neighboring villages. 5.15. War-related destruction of schools has contracted the number of school places available. The Ministry of Education reports that many classes are held in makeshift rooms. There is an ongoing exodus of qualified teachers and under-qualified staff are now used extensively throughout the school system. There are also critical shortages of essential training material. In 1995, the supply of textbooks was between 10 and 15 percent of requirements, partly because of an acute shortage of imported paper. These shortages have virtually halted the revision of curricula necessary to support the educational requirements of a market economy. -63- Table 5.4 Pre-school and School Enrollment (thousands) 1990 1994 % change Pre-school 150.9 114.4 -24 urban 114.6 91.7 -20 rural 36.3 22.6 -38 Primary/Secondary 1293.6 1274.8 -1 Secondary Special 13.8 11.1 -20 Vocational/Technical 26.6 17.9 -33 Universities 9.4 10.2 9 Source: Republic of Tajikistan, Human Development Report 1995. 5.16. As a result, the current generation of schoolchildren are receiving an education far worse than their predecessors. It is estimated that as many as half of the primary school children are not regularly attending school. In Autumn 1995, shift systems were common in schools due to space, staff and materials shortages. In Dushanbe, there are cases where parents are contributing directly to teacher salaries in order to keep them at work, and also where the pupil's school day has been reduced to three hours. Thus, one of the bases for hope for Tajikistan's future prosperity, the educational attainment of its people -- is being undermined. 5.17. Attempts have been made to respond to the funding crisis by introducing fees and charges to recover costs. In primary and secondary education, school meals are no longer subsidized, except for needy children. Although Tajik students have a right to free higher education, the Ministry of Education has been successful in developing contracts with enterprises to sponsor students. Ministry officials estimate that about half of tertiary level students are now sponsored in this way, and fees are set at full cost. Also, some university departments have entered joint ventures with enterprises in computer retailing and in the production of computing courses. Health Care 5.18. Ministry of Health officials reported that in 1995, the health care system received only 30 percent of its budget allocation. Only essential recurrent expenditures, such as those for payroll, food and medicine, are being made. Capital expenditures have been halted and only critical repairs and maintenance are being undertaken. An estimated 1,500 doctors have left the health care system since 1992, resulting in an 11 percent reduction. These were mainly Russian-speakers migrating to other parts of the FSU and were among the most highly-qualified physicians in the health service. 5.19. There has been an increasing shortage of medicines and vaccines since the collapse of the Soviet Union. The medicine supply is now around 30 percent of the pre-1990 level, with antibiotics in particularly short supply. An informal market in medicines has developed, with makeshift medicine stalls a common sight on the streets of Dushanbe. Aid agencies report that only a fraction of their medicine supplies reach patients directly through the healthcare system. It has become common practice for patients to seek their own medicines after consulting a doctor. -64- 5.20. As with education, the introduction of charges for the state health service is limited by public policies that provide a right to free care. In 1995, only 0.5 percent of healthcare funding was derived from paid services. The Ministry of Health is developing plans for joint ventures with enterprises to produce paid medical services. Also, in 1995, a law was passed permitting the development of private health care services. 5.21. The crisis in health care funding has lead to cost-cutting efforts. The old Soviet planning target of numbers of beds has been scrapped, the target number of health professionals per member of the population has been reduced, and recommended hospital stays have been shortened. All of these changes are to be recommended, as the old system was biased toward curative rather than preventative medicine and hospital stays were longer than in most countries. 5.22. Ministry of Health officials are aware of the healthcare systems shortcomings and are working on plans to improve preventative care efforts. One particular focus is on family planning. The Center for Family Planning in the Institute of Gynecologists and Midwives is setting up a campaign to encourage women to increase intervals between births. Need for Reform 5.23. There is clearly a need for a comprehensive rehabilitation strategy for the health and education sectors. In the short term, the priority should be to ensure that these sectors receive a 'reasonable' share of the highly constrained budget. The 1996 Budget envisions a near-tripling of salaries for teachers and nurses. Accordingly, budgetary allocations in 1996 of 19 percent per annum for education and 7 percent for health would be required to cover regular payments of wages and salaries and imports of critical drugs and textbooks. 5.24. In the medium term, fundamental structural changes in the social sectors are needed to increase spending efficiency, tailor the systems to a permanently lower level of resources, and diversify financing. Important progress is already being made by both the Ministry of Health and the Ministry of Education, but the immediate problem of trying to finance and maintain existing services tends (not surprisingly) to dominate the time and attention of officials. Key medium-term issues include: * Re-orienting the health system toward effective primary health care and preventative medicine. Steps include: facility and staff rationalization, reforms in procuring and utilizing pharmaceuticals, changes in training health workers, introducing new public health programs and health education, decompressing salaries and fundamental reforms in managing services. * In the education sector, the State should focus on basic education, since the growth payoffs are highest from this form of investment. Structural issues include: schooling and staff rationalization, curriculum reform, decentralizing school management, diversification of financing, decompressing salaries and expanding private sector involvement, especially in tertiary education. C. Targeting Cash Transfers 5.25. The main cash transfers supplied by the social protection system in Tajikistan are: the bread compensation allowance, child allowances, retirement and invalid pensions. There are also work- related allowances, such as sick and maternity pay and unemployment benefits. In addition, the -65- Government subsidizes certain goods, such as utilities and public transport. Until recently, transfers have been either universal or directed at categorical target populations. The present system is fiscally unsustainable. Given the widespread poverty in Tajikistan, pragmatic criteria must be developed in the short term to narrow the target groups. There is also a pressing need to carry out additional analytical work to obtain a more acute profile of Tajikistan's poor and to further develop appropriate poverty reduction strategies. Allowances and Subsidies 5.26. Household allowances and public enterprise subsidies paid for directly out of the Government budget are large (18 percent of GDP in 1994 and 10 percent in 1995), unsustainable and inefficiently delivered (see chapter 1). Under its current reform program, the Government has begun to reduce allowances and subsidies and target them better. Subsidies to public enterprises represented about 13 percent of GDP in 1994, largely to compensate enterprises for losses on account of artificially low prices to consumers. In 1994, the bulk of the subsidies went for bread production, transportation and irrigation. Viewed as part of overall social protection in Tajikistan, these subsidies are inefficient because they are universal. During 1995, the bread subsidy was abolished in favor of a targeted allowance, discussed in detail below. The irrigation subsidy is dealt with in Chapter 3. 5.27. Public transport subsidization cost 0.6 percent of GDP in 1994. In Dushanbe in 1994, it has been estimated that public transport revenues amounted to less than 10 percent of total costs. Clearly, any plan to reduce these subsidies must include substantial price rises. To protect the poor, the Government will need to explore providing transportation vouchers or concessionary fares to targeted groups as part of its reform strategy. 5.28. The bread compensation allowance is the most important element of Tajikistan's social safety net. Tajik households consume a relatively high level of bread products. At prevailing prices, the bread allowance buys about seven loaves per month. Until mid-May 1995, the Government provided a universal bread allowance of Rr. 1,800 for each citizen (4.5 percent of GDP in 1994). Furthermore, bread production used to be heavily subsidized (8.4 percent of GDP). In July 1995, this subsidy halved the price of a loaf of bread. This was an expensive universal subsidy that did little to target the poor. 5.29. Both the old bread consumption allowance and the production subsidies were replaced by a more targeted bread compensation allowance on August 20, 1995, when bread prices were raised four to five times, to cost recovery levels. This new bread allowance was targeted on the basis of income and was automatically indexed to the minimum wage. As of December 10, 1995, it was provided at the level of two minimum wages (i.e., TR288 per month) to children under 16 years old (for households with per capita income not exceeding TR288) and to non-working pensioners and registered unemployed workers whose income is not greater than TR288. 5.30. The method of income appraisal for the allowance is as follows. First, a potential beneficiary or in the case of a child, the head of household, makes an application. Pensioners apply to their local pension office, the unemployed to their local unemployment office and working people apply at the accounts office of their place of work. Applicants must provide evidence of all household wage, pension and allowance incomes. No attempt is made to impute the value of crops grown on household plots nor to uncover other informal sector income, and no adjustment is made to the benefit with respect to these sources of income. Also, non-payment of wages, pensions and other allowances is not taken into account. Thus, the measure of household income is best described as the potential official income of the household. While this measure suffers from many problems of exclusion and leakage, -66- there are few systems which do not suffer from some of these problems. It would be extremely difficult to take account of informal income, especially since, if it were done in some general way. it could lead to a highly non-transparent and corruptible system. 5.31. Child Allowances were introduced in mid-May 1995, when the universal bread allowance was discontinued. Child allowances were targeted to families with a per capita income below the minimum wage, at a rate of TR72 per child under age 16. 5.32. In 1996, the Government consolidated the child and bread allowances, starting March 1. Child allowances were raised to TR500 per child for families with a per capita income less than twice the minimum wage. In addition, bread compensation allowances of TR500 will be paid to non-working pensioners who have a monthly income less than two times minimum wage; the disabled, secondary and post-secondary students; returning refugees and those registered as unemployed with the Ministry of Labor. Approximately 1.4 million persons will be eligible for this combined bread compensation/child allowance, of which 1.2 million are children from low-income families.' TR 7.8 billion, or 17 percent of the budget, was allocated to finance these expenditures. The Government also announced that wheat, flour and bread prices would be fully liberalized as of March 1. The Ministry of Bread anticipates that bread prices will double as a result of decontrol and will thereafter be adjusted in line with prevailing costs. 5.33. While consolidating the two allowances and increasing child benefits significantly improves targeting support to the poor and vulnerable, the budgetary burden is severe and cannot be indefinitely sustained. If budgetary constraints increase, expenditures can be reduced, either by tightening eligibility requirements and lowering the number of beneficiaries, and/or by reducing the size of the allowance. Given the allowance's already low purchasing power, the latter option must be discarded. As to the first option, the number of beneficiaries could be reduced by capping post-allowance income. Aside from budgetary considerations, an income cap would mitigate the 'income reversal' problem that the benefit as it stands now creates. Those with pre-allowance income slightly higher than TR500 find themselves at a large income disadvantage post-allowance. A cap to post-allowance income, i.e., a sliding scale to the allowance over a range of incomes, is a simple though imperfect way to resolve this inequity. The existing eligibility criteria allow for the possibility of income reversal for households below and above the benefit cutoff point that creates inequities to 3 times the minimum wage. If benefits were capped at that level, this would reduce the cost of the compensation payment by about 15 percent. Over time, Government should explore other ways of targeting cash payments so as to better meet the needs of the poorest social groups. Pension, Social Insurance, and Employment Benefits 5.34. In 1991, the Government set up three extra-budgetary funds to replace the social transfers from Moscow (see Box 5.1). These transfers were large and accounted for 17 percent of GDP. Each of the funds was given a share of what amounts to a 39 percent tax on enterprise wage bills. Of the three funds, the largest is the Pension Fund, which takes just over 32 percent of the tax. The Social Insurance Fund and the Employment Fund take nearly 6 and 1 percent of the payroll tax, respectively. Since the end of 1993, hyper-inflation and the downward spiral of output has led to enterprises being unable or unwilling to pay the wage bill tax. As a result all of these funds face serious financing problems. In the first half of 1995, actual payroll tax collection was about half of what ought to have been collected. Shortfalls have led to pensions going unpaid. The current economic and financial situation gives no grounds for optimism that payments will regularize. -67- 5.35. The Pension Fund is responsible for paying retirement pensions, as well as invalid pensions and some other social benefits. Retirement pensions make up about three-quarters of the Pension Fund's commitments. The retirement pension is designed to provide a generous benefit level. For example, a male worker with 25 years of service is entitled to choose a pension equal to 55 percent of his average monthly pay during either his highest paying consecutive five years of work or his last two years of work. This scheme compares well in terms of generosity with public sector pension schemes in Western Europe. Box 5.1: Extra-Budgetary Social Funds The Pension Fund is an extra-budgetary fund which is responsible for the delivery of most pensions.and allowances. Revenues for the Fund are generated by. a wage bill tax, levied at the rate of 37-percent.from enterprises and 1 percent from employees. The Pension Fund retains 84.5 percent of the revenues levied on enterprises. The Social Insurance Fund, an extra-budgetary fund administered by the Governing Council of trade Unions, responsible for sick and maternity leave payments and also manages various social amenities. The Fund is financed by its 15.5 percent share of the wage bill tax on,enterprises. The Employment Fund, an extra-budgetary fund under the Ministry of Labor, pays unemployment benefits as well as funding training schemes for.the unemployed and services.to refugees. The Employment Fund is financed by a separate 1 percent wage bill tax. 5.36. Pension payment is often ad hoc, in the sense that when funds are insufficient, benefits get paid to some beneficiaries but not to others. The resources available to the Pension Fund fall far short of its commitments. During 1994, there were eight months when pensions were not paid at all. In May and June of 1995, TR8 million were collected in tax revenues by the Pension Fund, compared to a monthly commitment of TR270 million. In July 1995, reduced payments were made, financed by a short-run credit of TR137 million from the NBT and the Ministry of Finance. During Autumn 1995, pension payments were made two months in arrears. The Pension Fund deficit for 1995 is projected to be around TR500 million. 5.37. Three structural problems with the Pension Fund have contributed to the current crisis. * The Pension Fund attempts to provide two services, a social safety net on the one hand, and an occupational pension scheme, which in most Western countries, are performed by distinct institutions. This dual role gives rise to a potential misunderstanding. The system promises workers a pension related to their previous income, as if those workers were paying into a fully funded system, whereas in reality they and their enterprises have only been funding current pensioners. The Pension Fund provides payouts to workers classified as retired, even if they continue to work and earn an income. * The Pension Fund, like the other two extra-budgetary funds, is designed to insulate itself from the central government budgetary process. This is common practice with respect to pension funds around the world, but not for social security systems. In Tajikistan's recent extreme conditions, this insulation created fiscal rigidity, so that when the Pension Fund found itself without resources, Government credits had to be negotiated rather than flowing automatically. In the meantime, the system failed. -68- * The wage bill tax is levied at too high a rate. This is a heavy burden to enterprises and will significantly lower the demand for labor as Tajikistan passes through transition to a market economy. Essentially, such a tax reduces the international competitiveness of Tajik labor in the international market, lowering both after-tax wages and employment. 5.38. Given the above considerations. The system needs to be reformed to create effective and sustainable support for the elderly and infirm. Working pensioners need to be excluded from the pension system and occupational pensions need to be separated from the social safety net. The financial sector in Tajikistan is not yet developed enough to support private sector pension institutions. One radical solution would be to abandon the failing attempt to provide earnings-related pensions and replace pensions with means-tested, or at least carefully targeted, old age and invalid allowances paid from the Government budget under the supervision of the Ministry of Social Protection. This solution would allow the wage bill tax, accruing to the Government budget, to be set at a much lower level. If the tax burden were lightened and the fiscal rigidity removed, it should be feasible to reduce the income uncertainty experienced by Tajikistan's pensioners. 5.39. The Government is actively pursuing the second part of this proposal. The Budget Law for 1996 brings the Pension Fund, as well as the Employment Fund and the Social Insurance Fund, into the Budget as a new combined entity. As yet there have been no proposals to introduce a targeted old age benefit. The methods of means-testing currently available in Tajikistan suffer from a number of problems, as noted above with respect to the bread compensation allowance. 5.40. A less radical approach to reducing the financial burden would be to limit the pensions' value in order to ensure greater payment regularity. There are two simple ways to limit the value of pensions -- a proportional reduction, or a flat rate pension to all. In June 1995, pensions were restricted to 55 percent of entitlement, but a flat rate pension is preferable, since it avoids extreme poverty. If all full pensions were set at some multiple of the minimum pension, it should be feasible to pay pensions on a more regular basis, provided that revenue collection could be enhanced. If the Pension Fund were in surplus at year end, the surplus could be distributed to pensioners with higher entitlements, thus providing a second-tier benefit. 5.41. The Social Insurance Fund. an extra-budgetary fund managed by the Governing Council of Trade Unions, pays sick leave and maternity benefits and also provides various worker amenities. Like the Pension Fund, the Social Insurance Fund has been unable to meet its commitments in recent years. Entitlements are generous by international standards and when in operation, give rise to excessive use of health care services. Sick leave benefits provide up to 100 percent of a worker's salary for up to 4 months; birth grants are provided for up to three children; and maternity benefits are provided for just over 4 months. In addition, 4 out of the 8 existing sanitariums in Tajikistan provide resort and health care facilities, but the demand is very low. 5.42. In the longer term, the need for a separate fund for employment-related benefits is questionable. In the light of the severe financial crisis, the following short-term measures will need to be addressed: enhancing revenue collection, limiting benefits, particularly expenditures for sanitarium services, and reducing maximum sick leave to one month per year. In the longer run, sickness and maternity leave benefits should be provided by individual enterprises and the tax rate should be lowered to enable enterprises to cover these benefits. -69- 5.43. The Employment Fund was set up to finance the Employment Centers, the main institutions through which labor market policies are currently implemented. The Centers deal with job placement, pay unemployment benefits, undertake public works for the unemployed, train and retrain the unemployed, protect disabled and disadvantaged workers, and handle registration and repatriation of refugees from the civil war. 5.44. Despite the massive falls in output, official employment and unemployment figures show relatively small movements. As of December 1995, registered unemployment stood at only 141,000 people. As in all FSU countries, registered unemployment has so far failed to materialize in Tajikistan's urban areas. Ministry of Labor officials estimate that about 500,000 workers are idle, but are still registered as employed. If these are added to the registered unemployed, the unofficial unemployment rate would be about 24 percent of the working age population. A further 600,000 are currently not employed or unemployed. No doubt, this number contains a substantial proportion of discouraged job-seekers. While unemployment on this scale almost surely requires macroeconomic solutions, the geographical and occupational mobility of workers will be vital for both the speed of restructuring and the joblessness level. The Employment Centers have an important role to play in Tajikistan's labor market. Currently few unemployed workers register as unemployed, presumably because the perceived benefits of doing so are small. The unemployment benefit system, like the other social funds, is in financial crisis. Two structural features of the Employment Fund help explain why this is so: * As presently constituted, the unemployment benefit funds are regional, so that in a region where enterprises are not paying the wage bill tax, the unemployment benefit will not be paid. A more centralized fund would allow inter-regional transfers to more distressed areas. * With unemployment benefits set equal to the minimum wage at TR144, an average wage in April 1995 of TR500, and an employment tax of 1 percent, the Employment Fund runs a deficit if more than 4 percent of the labor force claims benefits. Few industrialized market economies in the world exhibit an unemployment rate less then 4 percent on average, especially during periods of rapid structural change. 5.45. If the tax is not to rise, the Employment Fund will have to limit eligibility by targeting vulnerable groups. As Table 5.5 shows, planned expenditures for 1995 are roughly TR190 million. Employment Fund officials state that only TR60 million are collected from employers in 1995, so that the balance will either have to be paid by the budget or, more likely, spending will have to be severely curtailed. The same table also shows how little is currently spent on public works. Given that Tajikistan's social infrastructure is disintegrating, it would be an important positive change for the Employment Fund to concentrate more of its resources in public works and less on wage subsidies and unemployment benefits. -70- Table 5.5 Planned Employment Fund Expenditures for 1995 Millions of Tajik Rubles Percentage Professional Training 24 13 Additional Job Creation 19 10 Organization of Public Works 2 2 Preservation of Jobs for the Disadvantaged 23 12 Preservation of Skilled Labor (1) 19 10 Unemployment Benefit Payments 69 37 Support Services 30 16 Total 186 100 Source: Ministry of Labor Notes: (1) Preservation of Skilled Labor refers to the policy of paying minimum wages to retain highly qualified workers at enterprises unable the pay wages. D. Supplementary Job-creation 5.46. Notwithstanding limited data, the number of new formal sector jobs being created in Tajikistan is negligible (about 5,000 annually), whereas the labor force is growing by at least 100,000 annually. Even if economic growth were as much as five percent per year, and not the projected continuing decline for the next year or two, the number of new jobs would still only be on order of 60,000 (assuming that the elasticity of job creation to economic growth is one). The problem of under- and unemployment is unlikely to be alleviated soon and presents a great challenge. 5.47. Already, there are several supplementary job-creation programs being carried out. However, in the aggregate, these programs are small compared to the problem facing Tajikistan. These programs include: * Save The Children (US), the largest NGO, which is distributing food aid on a food-for- work basis for the reconstruction of houses damaged during the civil war in Kurgan-Tube. In addition, Save The Children has recently started to distribute 6,000 tons of USAID/USDA food for school feeding programs, that involve a variety of work activities. The total number of workers employed under these programs is unknown. * Mercy Corps International (US) is managing a food-for-work program of 1,600 tons of rice in Garm. The target population is about 70,000 individuals in institutions and kindergartens. * The public works program of the Ministry of Labor's Employment Service operates on a very limited scale, with less than 3,000 workers employed in mid-1995. These workers are paid only minimum wage by the Employment Service, but they also receive some additional compensation from the locality where they are working. 5.48. In addition to these programs, some NGOs have started or are about to start pilot small enterprise development programs. For example, Save The Children (US) is operating a Group Guaranteed Lending and Savings Program in Kurgan-Tube, with an initial budget of $50,000, patterned after the ASA program in Bangladesh. The Aga Khan Foundation is operating a relatively large -71- program to improve agricultural productivity through privatization and providing improved seeds (on a credit basis) in Gorno-Badakhshan and is considering establishing a small credit line scheme. Central Asia Development Agency (US) is also about to embark on a revolving loans program for micro enterprises. And Mercy Corps International has also established a nation-wide credit and grant program for agricultural, business and health enterprises. 5.49. Job creation is the key issue, particularly as the focus of aid activity shifts from relief to development. At present, much of the external assistance effort is still essentially relief, but there is a growing move toward more developmental projects. As long as a food deficit continues, the need for some food-for-work programs will remain and there is still considerable rehabilitation work to be done. Also, there is a massive need to develop small-scale credit programs, but such programs will require training suitable local staff. Other possibilities include developing labor-intensive public works and employment creation funds. The UNDP is presently considering the design of such a project. Poverty reduction oriented employment funds might be suitable, especially in light of the need for rehabilitation and reconstruction work (including on roads, bridges, schools and clinics, etc.). E. Poverty Assessment 5.50. This chapter has emphasized the urgent need to reform the social safety net. One real obstacle to this reform is a chronic shortage of information. Goskomstat, the state statistical agency, is in desperate need of skilled personnel, financial support and new technology. The Government requires assistance to prepare a comprehensive poverty reduction strategy, a sizable proportion of which should be technical support in the survey work and analysis required to identify the poor. This work would aim to: (i) develop a profile of poverty in Tajikistan, estimating the incidence and severity of poverty as well as the characteristics of the poor; (ii) develop a strategy to relieve poverty; (iii) build capacity in Tajikistan to measure and analyze poverty and design policies and programs to combat poverty. The proposed study should not be a complex and comprehensive undertaking. A poverty priority survey, consisting of a brief questionnaire that can be applied and analyzed in a few months, would be an 2 appropriate instrument for collecting the information needed to address poverty-related issues. Such a study is a necessary first step in designing effective and efficient poverty relief programs. F. Conclusions 5.51. There is a pressing need for emergency repairs to the safety net and the health and education systems. Nevertheless, this must be designed to be compatible with medium-term reform objectives. There is little reason to believe that the country will recover sufficiently to be able to support the comprehensive social sector support system inherited from the Soviet period. Very few low and low- to-middle income countries manage to spend as much as 20 percent of GDP on public sector health and education systems, as Tajikistan did in the early 1990s. Of course, efficiency gains in health and education may yield sizable cost savings. Indeed, perhaps the only positive outcome of the current crisis is that the Ministries of Health and Education are actively searching out cost-saving reforms and alternative funding sources. 5.52. In the short term, aid delivered by the NGOs is still vital, particularly in the areas most blighted by the Civil War. Also in the short term, the existing systems of education, health care and social protection require reform in order to use much-reduced resources efficiently. These reforms must be consistent with the medium-term strategy of designing an enduring system that effectively relieves poverty and promotes economic growth. -72- 5.53. In 1994, pensions and other social benefits were paid for only four months. In mid-1995. pensions were being paid, but at sharply reduced rates. The situation is similar with respect to other social payments. Restoring an affordable social safety net is a high priority in order to protect the living standards of vulnerable groups and help restructure the productive sectors. The introduction of targeted bread compensation and child allowances in 1995 and the consolidation of these two benefit schemes in March 1996 are important first steps. In the near term, a flat-rate pension should be introduced to replace the earnings-related pension at a rate that permits Pension Fund balance. A post- benefit income cap should be introduced to the compensation allowance. A new unified social insurance fund, with a single tax collection agency, should render cost savings and improve revenue collection. In the medium term, the social welfare system will need to be thoroughly reformed, since the existing system does a poor job of targeting benefits to needy groups. The first step in this direction must be a poverty survey and analysis. 5.54. The education and health systems have been severely disrupted by the war, natural disasters and the economic downturn. Public expenditures on health and education have fallen from 17 percent of GDP in 1992 to about 7 percent of a much smaller GDP in 1995. In both sectors, capital spending programs have come to a halt, shortages of essential materials are common and staff have been paid only on an irregular basis. As a result, highly qualified staff continue to leave both sectors. 5.55. In the near term, the main challenge will be to restore a basic level of social services. Health and education must be accorded a higher priority in public expenditures. Initially, emphasis should be accorded to rebuilding war-damaged facilities, restocking supplies of essential medicines and training materials and regularizing payments to teachers and healthcare providers. In the medium term, the health and education systems will need to become more cost-effective and selective in the services they provide, emphasizing basic medicine and education. To provide more advanced health care and tertiary education, Tajikistan will have to rely increasingly on the private sector. NOTES: I/ It is difficult to predict how many beneficiaries there will be when the system is fully matured. The Ministry of Finance puts the ultimate number at 1.8-2.0 million. 2 / The World Bank has experience with three survey types: (a) an Integrated Survey (LSMS, Household Expenditures Survey) which usually has a small sample but large questionnaire; (b) Priority Survey which is useful for a monitoring and targeting tool of poverty. It consists of a short questionnaire (weak on expenditure data collection) and takes only a few months to complete; and (c) Core Welfare Indicative Questionnaire, a very short and quick survey- -73- Annex 1: Tajikistan: Stabilization, Fiscal Balance and the Borrowing Constraint 1. Severe macroeconomic imbalances arose during 1991-1995 as a result of the civil war, natural disasters and the break-up of trade and assistance relations among the FSU republics. In Tajikistan, these imbalances contributed to macroeconomic instability, hastened the downward spiral of economic output, employment and income, and hampered efforts to transform the economic system. Restoring macroeconomic stability will require the development of a macroeconomic framework that supports growth, while achieving fiscal and external balance. 2. Restoring macroeconomic stability is complicated by Tajikistan's high level of external debt, structural trade deficit, and high rates of domestic inflation. External borrowing during 1991-95 was used to support consumption levels in the face of falling domestic production. Debt assumed during these years made little contribution to growth or to the transformation of the domestic economy. As economic output fell so did Tajikistan's ability to service its external obligations. By 1995, Tajikistan's debt burden had become unsustainable. 3. Impaired creditworthiness constitutes a formidable barrier to macroeconomic stabilization, adjustment and transformation. Domestic savings have been all but depleted by the civil war and economic collapse. Still, the nation faces a desperate need for capital inflows to finance the rehabilitation of economic infrastructure and social services; to support private sector investment in the productive sectors; to meet the costs of institutional reengineering needed to transform the economy; and to provide the resources required to safeguard the poor and the vulnerable from the adverse costs of economic reform. 4. Tajikistan has likely exceeded the limits of the sovereign debt it can sustainably manage, macroeconomic policy will have to contend with an external resource constraint. Viewed from the perspective of external creditors, the limits on a country's sustainable level of external debt (e.g. maximum gross borrowing) may be imposed either by solvency, liquidity or creditworthiness considerations. For a country that is not constrained by external limits on resource availability (e.g. is operating below the external credit ceiling), then the sustainable level of external debt will depend on the tradeoffs between domestic inflation, the budget deficit, the current account deficit, growth and the real interest rate'. The dynamics of the public debt can be described by the following equations for the change in the debt-to-GDP ratio (Hemming and Mackenzie, 1991): db = (r - g) b + p - s (internal balance and debt) (1) db = (r - g) b + nicad + e*b (external balance and debt) (2) and s = (H + g) / v 5. where db is the change in the debt-to-GDP ratio, r is the real interest rate, g is the rate of growth of real GDP, b is the stock of gross external debt relative to GDP, p is the primary (i.e. non- interest) fiscal deficit relative to GDP, nicad is the non-interest current account deficit relative to GDP, e* is the rate of change of the real exchange rate and s is the seignorage revenue available to government. Seignorage is the change in the stock of high-powered money to GDP which is increasing in the rate of inflation (Il) and growth (g) but decreasing in proportion to the velocity of base money. / See Van Wijnbergen et. al. (1992 ) and Morisset (1991) for interesting applications of the debt dynamic equations in dynamic models of financial portfolio choice, fiscal policy, growth and external debt. -74- 6. In the long-run, if the (r-g) term is positive, then a country is borrowing to service its debt and the growth and debt accumulation process will be inherently unstable. In an environment in which growth is less than the real interest rate (i.e. r-g is positive), the primary deficit less seignorage, and the non-interest current account plus the "additional" debt burden resulting from a change in the real effective exchange rate must be negative if the ratio of the external debt to GDP is not to increase. 7. These equations also suggest a number of other factors that can cause a country to enter into a unsustainable upward spiral in the ratio of debt-to-GDP, such as: * a slowdown or reversal in economic growth * a rise in real international interest rates * a widening primary fiscal deficit * a widening of the non-interest current account deficit (due for example to a war, natural disasters, or a sudden decline in external transfers) * a rapid decline in the real exchange rate; and 8. In the case of Tajikistan, the growth term (r-g) has been highly negative throughout 1991-95, averaging close to 18 percent of GDP. During 1991-95, Tajikistan's debt-to-GDP ratio rose spectacularly because of the fall in GDP; the widening current account deficit; and the widening fiscal deficit. 9. The 1995 experience suggests that Tajikistan is rapidly approaching the limits of what external FSU commercial creditors will provide. Presuming that the nation will be unable to repay (e.g. reduce the debt-to-GDP ratio) very much external debt over the next few years, then we can solve equations one and two above for the case in which db equals zero (e.g. debt to GDP is taken as a borrowing ceiling). Under such circumstances, the accounting identities become: p - s = nicad + eb (3) or alternatively: p - ((I + g) / v) = nicad + eb (4) 10. If the Government uses monetary policy to anchor the real exchange rate, then equation (4) can be rewritten as: p - nicad = (1I + g) / v (5) 11. In other words, with no debt accumulation and with the real exchange rate held steady, the difference between the net primary deficit and the non-interest current account deficit is equivalent to seignorage, or inflation plus real growth (both expressed as a share of GDP) divided by the velocity of 2 broad money2 / If interest on the debt is not being paid, then this would reduce to the budget deficit and the current account deficit. -75- 12. In Tajikistan's case, the non-interest current account deficit is projected to range between 3 to 2 percent of GDP in 1996-2000 (under the reform scenario). Growth is targeted to be about -1 to 3 percent per annum during the same period and inflation to be in the range of 8-10 percent. Velocity, had been relatively low during 1990 to 1994 (about 4) reflecting payment restrictions and other inefficiencies in the nation's banking system, has increased rapidly in the last months of 1995 (to about 15). In line with experience in other FSU republics, even if inflationary pressures ease, velocity is expected to remain at 15 to 20 for the next year or two. Under these assumptions and estimates, we can calculate the level of the primary deficit at the mid-point of 1996-2000 that would be consistent with macroeconomic balance (i.e. no further debt accumulation, a single digit inflation rate, no real currency devaluation) as follows: p (1996-2000) - 2.5 = (rI - 3) / v (6) or p (1996-2000) = 4 percent of GDP depending on the rate of inflation and velocity. 13. Note that this primary deficit "target" is relatively high by the standards of most economies-in- transition. If confidence in the currency is restored, and velocity falls to the levels prevailing during 1990-1994, then the primary deficit ratio could be 2 to 3 percent higher. If the deficit were held below the levels forecast, then either the non-interest current account deficit could be reduced (e.g. creditors could demand repayments to lower the debt-to-GDP ratio); imports could be compressed; or domestic inflation could be further reduced. -76- Annex 2: The Aluminum Smelter Plant 1. Tajikistan is home to what once was one of the world's largest aluminum smelter, the Tursunzade Aluminum Plant (Tadaz). The plant, which is a state enterprise, was built in the mid- seventies and has an installed capacity of 512,000 tons. At present, it consumes nearly 40 percent of the nation's production of electrical power, and accounts for 45-50 percent of industrial production and exports. It employs about 13,000 people and is the major means of support to a community of about 75,000 people. 2. The smelter produced 236,000 tons of aluminum ingots in 1994 and 234,000 tons in 1995, about 50 percent of capacity utilization (see Table A2. 1). The smelter imports its main raw materials -- alumina -- from Russia, Ukraine and Azerbaijan, but exports 70 percent of its output to non-FSU market. Currently, the smelter uses between 60 to 70 percent of its export earnings to finance its import requirements; and through 1995 the remainder was surrendered to the government. 3. The combination of low-capacity utilization, technical inefficiency and reliance on distant source markets for its main raw materials renders the plant uneconomic. Prior to 1996, the Government levied heavy taxes on the plant while providing it with low-cost electricity subsidies. This was designed to support the plant's operations while channeling foreign exchange to the budget. Taxes levied on the plant have recently been reduced. With downsizing and restructuring, it would be possible to reduce the cost of electricity and in turn the level of subsidies. If the plant is not economically viable without electricity subsidies, then it should be closed, its employees compensated, and the electricity that it now uses exported to neighboring countries. Options for exporting electricity, for downsizing and rehabilitating the plant and for compensating those workers made redundant must be examined to pave the way for a restructuring of this major factory. Table A2. 1. Production, Exports and Imports of Aluminum [To be Verified] 1993 1994 1995 Production (in thousands of tons) 252.3 236.5 234.2 Exports (in thousands of tons) 248.4 241.4 227.1 Exports (US$ million) 230.0 313.0 385.0 Alumina Imports (US$ million) 108.0 146.0 182.7 4. The largest cost items in Aluminum production are imports of alumina, coke, anodes, cathodes, creolite; labor cost; and the cost of electricity and gas. In 1995, imports of alumina totaled US$183 million and other imports to the plant totaled US$72 million (check?). Prior to 1996, the plant pays a negligible amount of enterprise tax, largely because of government's retention of foreign exchange and a deduction of social expenditure items from the profit before tax. The Decree of June 27, 1995 imposed an export tariff of US$500 per metric ton on aluminum and aluminum products, and a tariff of 100 percent on aluminum waste and scrap . In March 1996, the export tariff was abolished (together / Tariffs on aluminum kitchenware and similar products are low, at about 2-6 percent and do not apply to products of this type from the plant. These tariffs discriminate in favor of Tajikistan's aluminum processing industries. If they are industries which are expected to become internationally competitive there is a case for assistance in their early years. but the discrimination could lead to feather-bedding and inefficiency unless it is made clear that preferential duties will be progressively phased-out. -77- with the VAT and excise duty on aluminum) and replaced by a presumptive sales tax of 5 percent on exports. In addition, the Government announced that it would no longer retain the foreign exchange earnings of the aluminum factory. With the international price for aluminum ingots currently near their record peak of US$1,900 per ton, and an fob price from Tajikistan somewhat below that, the aluminum plant is expected to have generated a financial profit. 5. However, the economic viability of the plant hinges very much on the price at which it is supplied electricity. The plant receives highly subsidized energy supplies. In-spite of its high energy consumption per ton, its energy cost is estimated at about one-fourth the average cost of a similar plant in the West, i.e. US$81/ton compared to US$350/ton2. If as a result of economic reform, electricity rates are raised to international levels (about 7 times the current price), the smelter would generate a negative value added in 1995 (see Table A2.2). The energy subsidy is estimated to be roughly equivalent to the wage bill. Notwithstanding the data limitation and given that the world price in 1995 was at its peak, the value added (at international market prices) in 1991-94 could have only been negative. During those years, it would have been more efficient to export electricity that was used by the plant, than to export processed aluminum. It is estimated that the plant could only generate a positive value added if international prices consistently exceeded $1970 per ton. Table 2. The Operating Loss/Gain of the Aluminum Smelter, 1995 (in $ million, unless otherwise indicated) [to be verified] Energy priced at: Domestic Price International Price Alumina imports 183 183 Other imports 72 72 Energy cost a/ 19 132 Sub-total 274 387 Wage bill b/ 60 60 Total cost 334 447 Exports 385 385 Operating loss/gain 51 -62 Memo Items Production ('000' ton) 234.2 234.2 Exports ('000' ton) 227.1 227.1 Export price ($1t) 1695 1695 a/ The cost of energy is based on 18,000 Kwh to produce I ton of aluminum and a domestic price of RR22.4 and an exchange rate of 1$=RR5000. International prices are 7 times domestic prices (see Note 2). b/ The wage bill is assumed to be TR6 b (l$=TRIOO). This figure needs to be verified 6. The plant faces a number of critical challenges, including air pollution, shortages of carbon anodes and old equipment. Many of the plant's pots and cranes require massive repair and replacement. To date, no major steps have been taken to either address the environmental concerns or to undertake the required repairs and replacements. A number of proposals to set-up ring-fenced joint- 2/ In early 1995, the plant paid 22.4 Russian rubles equivalent per Kwhr and used 18,000 Kwhr/ton. At 5,000 rubles to the US$, this amounts to $84/ton. Similar plants in the West consumes an average of 11,000 Kwhr/ton. -78- ventures in one potline or in some small sections of the plant are under consideration. Tadaz estimates the cost of major reconstruction at about US$150 million, of which US$50 million will be needed to reconstruct the corroded anodes subsector in 1995-98. This investment would reduce consumption of anodes, cryolite, and electricity, which in turn would significantly reduce the contamination problems in the electrolytic cells, gas leakage, and fluoride emissions. As a result, there would a major improvement in the quality of the product and in the environment. 7. The required rehabilitation investment is large and the government alone will be unable to undertake it in the current difficult economic context. Although the smelter appears profitable under current conditions, there is little reason to believe that the global aluminum market will remain at such high price levels for an extended period of time. Accordingly, prior to any major investment in the rehabilitation of the plant, the government needs to carry out a detailed financial and technical audit of the plant as well as an assessment of the environmental impact. 8. Although the value added by the aluminum smelter is negative, the plant is the major industry in Tajikistan and contributes somewhat to the country's employment. It is also the major consumer of electricity in Tajikistan. The social cost of closing down the unit, in terms of employment losses, could be large. Furthermore, there is a great deal of uncertainty with respect to the alternative use of electricity. Exports of electricity via the central Asian power system is a possibility, but demand remains low for much of the year for imports of electricity from Tajikistan. Even if such a demand increases, Tajikistan may not receive the full international price of electricity. For all of these reasons, Government should carefully assess the technical and financial options associated with restructuring the aluminum smelter, including the possible closure of the factory. -79- Annex 3: Energy and Mining in Tajikistan Energy Sector 1. Tajikistan relies heavily on imports of oil products. Naftresan, a state oil distribution company, imports and distributes oil products in the country. In 1995, about 60 percent of oil products were imported from Russia, with the remaining coming from Kazakstan, Uzbekistan, Afghanistan and Iran'. About 25 percent of oil imports took place through individual enterprises by using Naftresan's infrastructure on a fee basis. Tajikistan's prices for oil products reflect the international pricing policies adopted by the FSU countries that supply Tajikistan. These prices are close to international prices, and currently Naftresan's operations are not subsidized. 2. Hydro-electric energy remains the most important source of energy in Tajikistan. The country has a potential capacity to produce about 300 billion kilowatt hours (kh) of electricity per year. Current production is 16.5 billion kh. About 90 percent of the electric power is produced by several stations on the Vakhsh river. These include: Nurek with a production of 3000 megawatts (MW); Baioaza (600MW); Golovnya (210 MW); Perepadnya (30MW); and Centralnya (18MW). The other two stations on which construction was started in the mid-1980's are Rogun, with an installed capacity of 3600 (MW) and a planned annual output of 13.1 billion kh, and Sangtuda 1 and 2 projects, with a planned combined capacity of 890 (MW) and an annual output of 1.7 billion kh. 3. With the collapse of the FSU, Tajikistan was left with the construction of the Rogun and Sangtudin projects. Progress has been slow on all three projects because of the country's limited resources. In addition, Rogun is a multipurpose project providing irrigation benefits for downstream countries as well; but aside from Tajikistan, no other country is taking part in the project funding. The flood in 1993 and looting during the civil war severely damaged the Rogun construction site. Before the 1993 flood, overall progress was estimated at about 30 percent, with the dam reaching a height of 30 meters. The estimated cost of completing the Rogun project is between US$500 to US$700 million. The Sangtudin projects' construction sites also were flooded, causing extensive damage to access roads, canals, and slope protection. 4. Barghi Tajik, a state owned company, controls power generation, transmission, distribution of electricity, and also is responsible for supplying steam and hot water to enterprises and households in Dushanbe and Yavan. In 1994, about 20 percent of power production was exported to Uzbekistan during summer and a similar amount was imported in the winter. The share of export in total power production was less during 1995 due to the low level of water in the Vakhsh river. The price of electricity and heat cover the full cost of these products to enterprises and households. Energy pricing for electricity and heating does not impose any subsidy burden on the government budget. Enterprises are charged higher prices in order to compensate consumers, who pay a third of the electricity cost and a small portion of the heating cost. 5. Tajikistan also relies heavily on imports of gas from Uzbekistan. In 1994, sixty percent of natural gas consumption (1.9 bcm) was imported from Uzbekistan. Total natural gas consumption is estimated at 1.7 bcm in 1995, of which about 0.5 bcm has already been imported from Uzbekistan. Gas distribution throughout Tajikistan is handled by Tajikgaz, a nation-wide gas distribution company. About 70 percent of consumption of natural gas is by power and heating stations. The rest is equally Oil and gas imports from Kazakstan and Uzbekistan are conducted through Swiss, American, German and French trading companies. -80- distributed between the enterprises and consumers. Each year, through their branch industries, enterprises submit applications for gas allocation to the Tajikgaz. These applications determine the gas import requirements of the country. Lack of prompt payment to Uzbekistan has been responsible for cut-offs in the supply of gas on many occasions. The price Tajikistan pays Uzbekistan is based on the gas price set by Turkmenistan, the main Central Asian exporter of natural gas. In 1994, the price was $86.33 /mcm. Tajikgaz does not rely on subsidies from the budget. It charges enterprises higher prices in order to cover the difference between the imported price of gas and the monthly payment by consumers of 30 Tajik ruble per person. Many enterprises have accumulated debt to the Tajikgaz, making it difficult for the company to pay for imports of gas from Uzbekistan. On several occasions, delays in payments to Uzbekistan have resulted in supply disruptions from Uzbekistan and output disruptions in many enterprises. At the beginning of June 1995, the outstanding debt of gas consuming enterprises to Tajikgaz was about TR 205 million. Among these enterprises, most of the arrears have been accumulated by the heating stations, aluminum plant, and a number of enterprises in the non- ferrous metallurgy subsector in Khojand. Mining Sector 6. Tajikistan's oil and gas reserves are apparently limited and unprofitable to develop. On the other hand, considerable potential lies in the development of silver, coal, and gold. These account for the Tajikistan's major deposits and mining activities. While the existing deposits of these minerals are partly depleted, there are substantial additional undeveloped deposits. 7. Tajikstan's silver deposits are estimated at about 60,000 tons, more than half of which is situated in Bolshai. Tajikistan, with more than thirty known deposits of gold, is among the top ten potential gold producers in the world. About 150 tons of gold from these deposits have been prospected, 25 tons of which are easily processable gold found in Darwaz. 8. Notwithstanding Tajikistan's rich diversity of mineral deposits, many deposits are as yet undeveloped due to poor accessibility (lack of roads and other infrastructure) and extreme weather conditions. Most of the existing mines are depleted, and in others production is far below full capacity. Several factors are responsible for the low level of mineral production. These include: lack of maintenance, damage due to war and flooding, and shortages of mineral supplies and spare parts. The lack of updated equipment, fuel, and lubricants are other factors contributing to difficulties in the mining sector. -81- References Borish, M., M. Long and M. Noel (1995), "Banking Reform in Transition Economies", Finance and Development, Vol. 32, No. 3. pp. 23-27. Chu, K., G. Schwartz and J. Turner (1995), Tajikistan: Social Protection Reform Options and Budgetary Implications, Fiscal Affairs Department of the IMF, Washington DC. De Melo, M., C. Denizer, A. Gelb (1996), From Plan to Market: Patterns of Transition. Policy Research Working Paper (#1564), The World Bank, Washington D.C. Economist Intelligence Unit (1994 and 1995), EIUCountry Report: Tajikistan, London. European Bank for Reconstruction and Development (1995), Transition Report 1995: Investment and Enterprise Development, London. Koupai, G. (1995), Tajikistan: General Features, Dushanbe. Hemming, R. and G.A. Mackenzie (1991), "Public Expenditure and Sustainable Fiscal Policy", in K. Chu and R. Hemming (eds), Public Expenditure Handbook, IMF, Washington DC. IMF (1994), IMF Economic Reviews: Tajikistan, Washington DC. Jawad, N. and S. Tadjbakhsh (1995), Tajikistan: A Forgotten Civil War, Minority Rights Group, London. Michalopoulos, Costas (1996). Payments and Finance Problems in the Commonwealth of Independent States. Policy Research Working Paper No 1587. The World Bank, Washington Dc. Ministry of Planning and Economy (1994 and 1995), Economic and Social Development Indicators, Dushanbe. Plysheviskii, B. (1995), "Reforming the Economies of the CIS: Kyrgyzstan and Tajikistan", Problems ofEconomic Transition, pp. 25-42. Rana, Pradumna (1995), "Reform Strategies in Transitional Economies: Lessons from Asia", World Development, Vol. 23, No. 7, pp. 1157-1169. Richter, Anthony (1994), "Springtime in Tajikistan", World Policy Journal, Vol. 11, No. 2, pp. 81-86. State Statistical Committee of Tajikistan (various years), Annual Statistical Report, Dushanbe. United Nations Development Program (1995), Republic of Tajikistan: Human Development Report, Istanbul. World Bank (1994), Tajikistan: Country Economic Memorandum, Washington DC. World Bank (November 1995). Commodity Markets and the Developing Countries, Washington DC. -82- Statistical Appendix - Contents 1. Population and Employment 1.1: Population and Employment - Summary Table............................. 85 1.2: Employment by Sector, Annual Average.................................... 86 1.2a: Percentage Distribution of Employment by Sector ........................ 87 1.3: Workers and Employees in State Sector, 1992 ............................. 88 1.4: Labor Force and Participation Rate........................................... 89 1.5: Registered Unemployment...................................................... 90 2. National Accounts 2: Gross Domestic Product at Current Prices...................................91 2.1: Net Material Product at Current Prices ....................................... 92 2.2: Distribution of Net Material Product at Current Prices.................... 93 2.3: Net Material Product at Constant Prices...................................... 94 2.4: Net Material Product at Constant Prices, Growth Rates................... 95 2.5: Net Material, Implicit Price Deflators ........................................ 96 2.6: Net Material, Growth Rates of Implicit Price Deflators ................... 97 2.7: Gross Social Product by Sector at Current Prices .......................... 98 3. International Trade 3.1: Exchange R ates....................................................................99 3.2: Balance of Payments Summary at Current Prices..........................100 3.3: Geographical Distribution of Interrepublic Trade, 1991..................101 3.4: Geographical Distribution of Interrepublic Trade, 1992..................102 3.5: Geographical Distribution of Interrepublic Trade, 1993..................103 3.5a:Geographical Distribution of Interrepublic Trade, 1994 .................104 3.6: Geographical Distribution of Extrarepublic Trade, 1993-94.............105 4. Public Finance 4. 1a: Government Budget Revenues ...............................................106 4. 1b: Government Budget Expenditures...........................................107 4.2: State Budget by Economic Classification of Expenditures ..............108 4.3: Allowances and Subsidies, 1994-95 .........................................109 5. Monetary Survey 5.1: Monetary Survey, December 1992 - March 1995 ........................110 5.1a: Monetary Survey, June 1995 - January 1996 .............................111 5.2: Interest R ates.....................................................................112 -83- 6. Agriculture 6.1: Agricultural Production at Current Prices..................................113 6. 1a:Agricultural Production at Constant Prices .................................114 6.2: Production and Average Yields of Major Agricultural Crops ..........115 6.3: Main Aggregate of Animal Husbandry .....................................116 6.4: Agricultural Production Summary ...........................................117 6.5: Employment in Agriculture ...................................................118 6.6: Main Indicators of Agricultural Farms, 1991..............................119 6.7: Main Indicators of Agricultural Farms, 1992..............................120 6.8: Main Indicators of Agricultural Farms, 1993..............................121 6.9: Main Indicators of Agricultural Farms, 1994..............................122 7. Industry 7.1: Industry Production by Sector at Current Prices ..........................123 7.2: Industry Production by Sector at Constant Prices.........................124 7.2a: Growth of Industrial Production by Sector ................................125 7.3: Electricity Production and Consumption....................................126 7.4: Primary Energy Supply (Natural Units) ....................................127 7.5: Primary Energy Supply (Oil Equivalent) ...................................128 8. Prices and Wages 8.1: Nominal Wages by Industries 1980-94, (Annual).........................129 8.2: Nominal Wages by Industries 1992, (Monthly) ...........................130 8.3: Nominal Wages by Industries 1993, (Monthly) ...........................131 8.4: Nominal Wages by Industries 1994, (Monthly) ...........................132 8.5: Wholesale Prices, Index and Inflation Rate ................................133 8.6: Retail (Consumer) Prices, Index and Inflation Rate ......................134 9. Household Monetary Income and Expenditures 9.1: Money Income and Expenditure of the Population .......................135 10. Investment 10.1: Capital Investment by State Enterprises and Organizations............136 10.2: Work in Progress in Construction..........................................137 -84- TABLE 1.1: TAJIUSTAN- POPULATION AND EMPLOYMENT. SUMMARY TABLE (in thousands) - 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Total Population 3,903 4,485 4,631 4,785 4,938 5,086 5,232 5,342 5,555 5,556 5,704 Males 1,930 2,227 2,301 2,378 2,454 2,527 2,600 2,652 2,764 2,766 2,833 Females 1,973 2,258 2,330 2,407 2,484 2,559 2,632 2,690 2,791 2,790 2,871 Urban 1,336 1,481 1,519 1,567 1,609 1,653 1,676 ..1,668 1,689 1,636 1,638 Rural 2,567 3,004 3,112 3,218 3,329 3,433 3,556 3,674 3,866 3,920 4,066 Below Working Ages 1,775 2,007 2,076 2,151 2,224 2,294 2,364 2,425 2,525 2,543 Working-Age Population a/ 1,828 2,142 2,209 2,276 2,343 2,410 2,470 2,509 2,610 2,601 Above Working Ages 300 336 346 358 371 382 398 408 420 412 Persons Older and Younger Than the Able-Bodied Ages Who Are Working 61 60 60 56 54 54 55 55 111 118 Older '.47 51 51 49 47 47 48 48 83 91 Younger . 14 9 9 7 7 7 7 7 28 27 Total Labor Resources 1,861 2,175 2,240 2,302 2,370 2,429 2,469 2,526 2,669 2,662 Total Employed Population 1,442 1,681 1,714 1,775 1,820 1,879 1,938 1,970 1,908 1,845 State Sector 1,073 998 969 Leased Enterprises 86 83 Joint-Stock Companies .. 2 26 Economic Associations 11 Social Organizations 13 10 9 Joint Ventures 1 1 2 Collective Farms 231 238 242 248 251 253 263 293 285 296 Cooperatives .. 2 7 32 52 52 49 33 lndividual Labor Activities 0 0 2 3 3 3 3 2 2 Private Subsidiary Agriculture 226 270 275 295 313 341 366 373 399 427 Private Agriculture .- Students 202 216 219 230 237 235 231 237 230 220 Religious Workers 0 0 0 0 0' 0 1 1 1 1 Able-Bodied Persons Not Employed ID the National Economy 217 278 307 297 312 315 299 318 530 596 Housewives Military Unemployed 4 16 a/ Working age includes women aged 16-54 and men aged 16-59. Source: State Statistical Committee of Tajikistan. 08-Mar - 85 - TABLE 1-2: TAJIKISTAN - EMPLOYMENT BY SECTOR, ANNUAL AVERAGE (in thousands) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Material Sphere 1,111 1,292 1,311 1,347 1,377 1,423 1,473 1,500 1,459 1,452 Agriculture including forestry 618 724 723 745 765 792 833 881 892 949 Agriculture excluding forestry 616 722 720 743 763 790 831 878 889 946 Forestry 2 2 3 2 2 2 2 3 3 3 Industry, total 311 359 373 382 383 415 422* 404 382 335 271 Industry, other 207 241 247 251 251 254 261 257 250 219 180 Construction 104 118 126 131 132 161 161 148 132 116 91 Other, material sphere 182 209 216 220 229 216 219 215 185 168 134 Transportation of goods 1/ 56 67 70 70 73 55 54 55 48 40 38 Maintenance of roads 7 8 8 8 7 7 7 7 6 6 Communication servicing material production 3 3 3 3 3 3 3 3 2 2 2 Wholesale trade 2/ 59 69 70 73 76 77 79 79 72 69 77 Retail trade and catering .. .. .. .. .. Material supply 17 18 18 19 19 17 16 17 15 9 Procurement 9 10 11 11 10 11 13 12 9 9 Information and computing services 3 3 5 5 5 5 4 3 2 2 1 Other branches of material production 29 32 31 32 36 41 43 40 31 31 16 Nonmaterial Sphere 330 385 401 428 443 454 462 469 449 402 369 Transportation 21 24 24 26 25 21 19 19 18 16 13 CommunIcation 9 10 10 9 9 9 9 9 9 8 8 Housing 3/ 11 14 15 15 16 16 16 16 16 12 24 Public utilities and personal services 21 27 27 32 35 35 35 35 28 25 Health care, social security, physical culture and sports 66 79 83 91 95 101 104 106 110 103 100 Education 128 150 156 164 173 183 189 197 200 188 174 Culture and art 22 24 24 25 26 28 28 25 19 18 17 Science and scientific services 14 14 17 18 17 17 16 15 13 5 7 Credit Insurance 4/ 5 5 5 5 6 6 6 6 6 6 7 General administration and defense 33 39 41 42 41 39 40 41 30 21 21 Private nonprofit institutions serving households Other, material and nonmaterial spheres 513 595 617 648 672 ' 670 680 684 634 570 503 Total Employment 1,442 1,678 1,712 1,775 1,820 1,877 1,934 1,969 1,908 1,854 1/ In 1994 includes maintenance of roads. 2/ Includes retail trade and catering; in 1994 additionaly includes material supply and procurement. 3/ In 1994 includes public utilities and personal services. 4/ Includes credit. Source: State Statistical Committee of Tajikistan. - 86 - TABLE 1-2A: TAJIKISTAN - PERCENTAGE DISTRIBUTION OF EMPLOYMENT BY SECTOR (in percent) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 Material Sphere 77.1 77.0 76.6 75.9 75.7 75.8 76.1 76.2 76.5 78.3 Agriculture including forestry 42.9 43.2 42.2 42.0 42.0 42.2 43.1 44.7 46.8 51.2 Agriculture excluding forestry 42.7 43.0 42.1 41.8 41.9 42.1 43.0 44.6 46.6 51.0 Forestry 0.1 0.1 0.1 0.1 0.1 0.1 '04 0.1 0.2 0.2 Industry, total 21.6 21.4 21.8 21.5 21.1 22.1 21.8 20.5 20.0 18.1 Industry, other 14.4 14.3 14.4 14.2 13.8 13.6 13.5 13.0 13.1 11.8 Construction 7.2 7.0 7.3 7.4 7.2 8.6 8.3 7.5 6.9 6.3 Other. material sphere 12.6 12.5 12.6 12.4 12.6 11.5 11.3 10.9 9.7 9.1 Transportation of goods 1/ 3.9 4.0 4.1 3.9 4.0 2.9 2.8 2.8 2.5 2.2 Maintenance of roads 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 03 Communication servicing material production 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 Wholesale trade 2/ 4.1 4.1 4.1 4.1 4.2 4.1 4.1 4.0 3.8 3.7 Retail trade and catering 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Material supply 1.2 1.1 1.1 1.0 1.0 0.9 0.8 0.9 0.8 0.5 Procurement 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.6 0.5 0.5 Information and computing services 0.2 0.2 0.3 0.3 0.3 0.2 0.2 0.2 0.1 0.1 Other branches of material production 2.0 1.9 1.8 1.8 2.0 2.2 2.2 2.0 1.6 1.7 Nonmaterial Sphere 22.9 23.0 23.4 24.1 24.3 24.2 23.9 23.8 23.5 21.7 Transportation 1.5 1.4 1.4 1.5 1.4 1.1 1.0 1.0 0.9 0.9 Communication 0.7 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.4 Housing 3/ 0.8 0.8 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.6 Public utilities and personal services 1.5 1.6 1.5 1.8 1.9 1.8 1.8 1.8 1.5 1.3 Health care, social security, physical culture and sports 4.5 4.7 4.8 5.1 5.2 5.4 5.4 5.4 5.8 5.6 Education 8.9 8.9 9.1 9.2 9.5 9.7 9.8 10.0 10.5 10.1 Culture and art 1.5 1.4 1.4 1.4 1.4 1.5 1.4 1.3 1.0 1.0 Science and scientific services 1.0 0.8 1.0 1.0 0.9 0.9 0.8 0.8 0.7 03 Credit 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Insurance 4/ 0.3 03 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 General administration and defense 2.3 2.3 2.4 2.3 2.3 2.1 2.1 2.1 1.6 1.1 Private nonprofit institutions serving households 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other, material and nonmaterial spheres 35.6 35.4 36.0 36.5 36.9 35.7 35.2 34.7 33.2 30.7 Total Employment 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Table 1-2. - 87 - TABLE 1-3: TAJIKISTAN - WORKERS AND EMPLOYEES IN STATE SECTOR, 1992 (in thousands) of which: of which: Total Workers Employees Material Sphere 742.6 632.4 110.2 Agriculture including forestry 218.8 199.8 19.0 Agriculture excluding forestry 215.8 197.2 18.6 Forestry 3.0 2.6 0.4 Industry, total 332.5 279.1 53.4 Industry, other 210.2 178.9 31.3 Construction 122.3 100.2 22.1 Other, material sphere 191.3 153.5 37.8 Transportation of goods 68.7 60.0 8.7 Maintenance of roads Communication servicing material production 11.1 8.1 3.0 Wholesale trade 51.8 39.2 12.6 Retail trade and catering 18.8 16.0 2.8 Material supply 7.0 4.6 2.4 Procurement 9.2 8.1 1.1 Information and computing services 2.0 1.1 0.9 Other branches of material production 22.7 16.4 6.3 Nonmaterial Sphere 378.3 134.6 243.7 Transportation Communication Housing 13.8 12.4 1.4 Public utilities and personal services 24.8 19.3 5.5 Health care, social security, physical culture and sports 103.8 35.7 68.1 Education 179.8 53.3 126.5 Culture and art 16.7 5.1 11.6 Science and scientific services 12.8 5.1 7.7 Credit 6.4 0.9 5.5 Insurance 1. General administration and defense 20.2 2.8 17.4 Private nonprofit institutions serving households Other, material and nonmaterial spheres 569.6 288.1 281.5 Total 1,120.9 767.0 353.9 Source: State Statistical Committee of Tajikistan. - 88 - T7A L 1-4: TA.11(ISTAN - LABOR FORCE PARTICIPATION RATE Age Groups Total 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 Population (thous.) 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 (thous.) 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 Labor Force Part.(%) 36.0 0.1 37.4 71.0 81.5 84.6 87.7 88.8 87.3 74.0 54.4 24.4 7.7 Males: Population (thous.) 2530.2 1162.8 207.7 227.5 219.7 162.1 118.2 71.5 79.7 82.0 68.1 55.3 74.2 Employed (thous.) 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 8.1 37.6 12.7 Females: o 0 Population (thous.) 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 (thous.) 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 Source: State Statistical Committee of Tajikistan. TABLE 1-5: TAJIKISTAN - REGISTERED UNEMPLOYMENT (in thousands, end ofmonth) Number Receiving Total Males Females Benefits 1992 January February .. March .. April 0.5 .. .. 0.1 May 1.3 .. .. 0.8 June 3.5 2.7 0.8 1.8 July 3.6 .. .. 2.6 August 5.5 .. .. 3.6 September 7.2 5.8 1.4 4.8 October 8.1 .. .. 5.1 November 8.6 .. .. 5.4 December 6.8 4.2 2.6 4.7 1993 January 8.6 .. .. 4.3 February 8.9 .. .. 4.8 March 9.7 7.0 2.5 4.2 April 11.3 .. .. 4.6 May 12.7 .. .. 5.6 June 11.7 7.6 3.1 5.0 July 12.5 .. .. 4.8 August 13.7 .. .. 5.1 September 16.6 9.9 6.7 5.4 October 18.0 .. .. 5.3 November 20.5 .. .. 5.8 December 21.6 12.4 9.2 4.9 1994 January 22.7 .. .. 4.1 February 25.2 .. .. 4.6 March 26.8 15.2 11.6 4.2 April 27.4 .. .. 4.8 May 27.7 .. .. 6.0 June 28.0 15.3 12.7 2.8 July 27.7 .. .. 4.8 August 27.3 .. .. 4.9 September 29.7 16.3 13.4 4.9 October 30.3 .. .. 5.2 November 30.7 .. .. 5.4 December 32.1 17.5 14.6 3.8 1995 January 34.5 .. .. 5.4 February 37.9 .. .. 7.3 March 30.6 26.2 13.8 5.9 April 29.8 .. .. 5.0 May 32.1 .. .. 6.3 Source: State Statistical Committee of Tajikistan. - 90 - TABLE 2: TAJIKISTAN - GROSS DOMESTIC PRODUCT AT CURRENT PRICES (millons of rubles) ESratt. of ouigin or Expenditre catory 1989 1990 1991 1992 1993 1994 Grous daretic product by sect~r of orugin AgRcultum and fortry .. 18,841 147,556 326,040 Agicul~r . 18,802 . . Forny 39 . Induastry and constratio 31,597 300,156 801,746 ~nduny 25,334 227,765 595,219 Construction 6,262 72,391 206,527 Other 19,114 183,449 59,192 Tranprt 1/ 3.194 10,027 •' 58,393 Road mninance Conunwicaion Wholusalc trade Rai rade and carmg .. 2,238 6,521 23,741 Matrial upply 532 3,087 13,141 Procnwunt. 696 6,486 15,097 lofomnaion and compuing servic. . 136 .. Other ucs of material production 528 8,142 46,834 Hou 483 Public utiis and personal sevice 1,703 Health care, scal sc uty,. andapts 2,048 . Edan 4,468 C~bre and art 169 Science and research 647 Cr~di 2/ 3,141 Insuanc Gera ade raion ad dafn.. . 2,222 Private noprof instit~in sving houschods 75 nawcd srvice charge af fmnialiermiaries . -3,167 Total grus valut addad (GVA) . 69,551 631,161 1,717,978 Taxas on produion and Inports (TOPI) Taes an producta . Other taxa on poduction (OTOP) Tax an ~iports . Subsidie on prod ccon and bnports (SOPI) .. Sub - cn products . Other subsidies on production (OSOP) . Sub - on'iports . Total GDP at facto cost (GVA-OTOP+OSOP) Net Indrect taxes (TOPI - SOPI) . Total GDP at mar~é pices 6,639 7,347 13,407 69,551 631,161 1,717,978 Groas domn~te product by•'r..ame bamoy Conm pti .. Påhlue -ons-ur . Gavr n consmpn .. Gros dam~ie lnve n . Grssf wedw ~im. r'hangeintocks .. .-. . . . Resoures balance (net expota of GNFS) Expzors of goods and nnfaetr services .. . . . . . Impors of goods and nonfactor services v' Inehade . ... o. 2/ ie.ha rmae. S~urec: State Statistical Commirec of Taj 9 . TABLE 2-1: TAJIKISTAN - NET MATERIAL PRODUCT AT CURRENT PRICES (millions of rubles) By Industrial Origin: 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Agriculture Including forestry 1,335 1,628 1,607 1,544 1,798 1,797 2,018 4,628 6,631 147,556 326,040 Agriculture excluding forestry 1,334 1,625 1,603 1,541 1,794 1,793 2,015 4,622 6,626 147,556 326,040 Forestry 2 3 4 3 3 3 3 5 5 Industry, total 1,774 2,099 1,949 2,142 2,219 2,022 2,275 4,581 30,713 300,156 801,746 Industry, other 1,334 1,555 1,340 1,501 1,509 1,284 1,503 3,228 25,848 227,765 595,219 Construction 440 544 609 641 711 738 772 1,353 4,865 72,391 206,527 Other 765 708 739 669 861 999 1,197 1,332 5,761 34,262 157,206 Transportation of goods 1/ 84 142 157 151 172 172 207 250 1,700 9,385 54,422 Maintenance of roads .. Communication servicing material production 6 9 10 10 II 13 14 16 .. 642 3,971 Wholesale trade 2/ 161 186 204 152 229 259 300 656 2,078 6,521 23,741 Retail trade and catering 36 42 42 22 50 55 56 Material supply 47 44 52 59 47 54 52 106 804 3,086 13,141 Procurement 43 50 56 54 55 51 69 160 230 6,486 15,097 Information and computing services 4 8 10 11 16 17 22 219 2,035 11,240 Other branches of material production 389 232 211 211 284 380 483 121 730 6,107 35,594 Net Material Product 3,874 4,435 4,295 4,355 4,878 4,817 5,490 10,540 43,105 481,975 1,284,992 By Expenditure Category: Consumption 3,109 3,903 4,042 4,135 4,355 4,638 5,148 8,783 39,625 281,400 Consumption ofpopulation 2,791. 3,479 3,598 3,663 3,872 4,115 4,591 7,903 36,146 225,400 Social consumption 319 424 444 472 483 523 557 880 3,479 56,000 Investment (accumulation) 1,012 1,312 1,109 1,099 1,282 1,066 879 1,625 6,368 161,600 Fixed capital 527 547 553 769 759 748 502 705 Changes in Inventories and other 485 765 556 330 523 318 377 920 Losses 31 50 76 92 126 118 177 174 4,030 Net exports 4/ (298) (855) (947) (1,005) (877) (1,064) (538) (41) (6,918) I/ Including transportation of goods, maintenance of roads and communication servicing material production. 21Including wholesale trade, retail trade and catering. 31 For 1992, estimated at prices of I October 1992. 4/Net exports are derived as the difference between national Income produced and national Income used except for 1992 In which it Is an actual trade balance. Source: State Statistical Committee of Tajikistan. TABLE 2-2: TAJIKISTAN - DISTRIBLTION OF NET MATERIAL PRODUCT AT CURRENT PRICES (in percent) By Industrial Origin: 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Agriculture including forestry 34.5 36.7 37.4 35.4 36.9 37.3 36.8 43.9 15.4 30.6 25.4 Agriculture excluding forestry 34.4 36.6 37.3 35.4 36.8 37.2 36.7 43.9 15.4 30.6 25.4 Forestry 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 Industry, total 45.8 47.3 45.4 49.2 45.5 42.0 41.4 43.5 71.3 62.3 62.4 Industry, other 34.4 35.0 31.2 34.5 30.9 26.6 27.4 30.6 60.0 47.3 46.3 Construction 11.4 12.3 14.2 14.7 14.6 15.3 14.1 12.8 11.3 15.0 16.1 Other 19.7 16.0 17.2 15.4 17.6 20.7 21.8 12.6 13.4 7.1 12.2 Transportation of goods 2.2 3.2 3.7 3.5 3.5 3.6 3.8 2.4 3.9 1.9 4.2 Maintenance of roads .. .. .. .. .. .. .. Communication servicing material production 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.0 0.1 0.3 Wholesale trade 4.1 4.2 4.7 3.5 4.7 5.4 5.5 6.2 4.8 1.4 1.8 Retail trade and catering 0.9 0.9 1.0 0.5 1.0 1.1 1.0 0.0 0.0 0.0 0.0 Material supply 1.2 1.0 1.2 1.4 1.0 1.1 0.9 1.0 1.9 0.6 1.0 Procurement 1.1 1.1 1.3 1.2 1.1 1.1 1.3 1.5 0.5 1.3 1.2 Information and computing services .. 0.1 0.2 0.2 0.2 0.3 0.3 0.2 0.5 0.4 0.9 Other branches of material production 10.0 5.2 4.9 4.9 5.8 7.9 8.8 1.2 1.7 1.3 2.8 Net Material Product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 By Expenditure Category: Consumption 80.3 88.0 94.1 95.0 89.3 96.3 93.8 83.3 91.9 58.4 Consumption of population 72.0 78.4 83.8 84.1 79.4 85.4 83.6 75.0 83.9 46.8 Social consumption 8.2 9.6 10.3 10.8 9.9 10.9 10.2 8.3 8.1 11.6 Investment (accumulation) 26.1 29.6 25.8 25.2 26.3 22.1 16.0 15.4 14.8 33.5 Fixed capital 13.6 12.3 12.9 17.7 15.6 15.5 9.1 6.7 Changes in inventories and other 12.5 17.2 12.9 7.6 . 10.7 6.6 6.9 8.7 Losses 1.3 1.7 2.1 2.9 2.4 3.7 0.0 1:6 9.3 Net exports -7.7 -19.3 -22.1 * -23.1 -18.0 -22.1 -9.8 -0.4' -16.0 Source: State Statistical Committee of Tajikistan. TABLE 2-3: TAJIKISTAN - NET MATERIAL PRODUCT AT CONSTANT PRICES (millions of 1992 rubles) By Industrial Origin: 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Agriculture including forestry 6,988 11,947 12,416 11,623 12,891 11,207 10,185 9,176 6,631 Agriculture excluding forestry 6,983 11,937 12,404 11,613 12,881 11,197 10.175 9,167 6,626 Forestry 5 10 13 10 10 10 10 9 S Industry, total 37,363 43,051 44,773 45,805 52,590 53,817 54,510 50,508 30,713 Industry, other 25,457 28,333 28,373 29,671 34,288 34,433 35,779 32,280 25,848 Construction 11,907 14,717 16,400 16,134 18,302 19,384 18,731 18,228 4,865 Other 31,517 31,902 33,003 32,613 34,493 36,712 37,514 16,327 5,761 Transportation of goods .. . Maintenance of roads Communication servicing material production .. .. Wholesale trade .. Retail trade and catering .. .. .. .. .* . Materisl supply Procurement .. .. .. .. .. .. Informallon and computing services .. .. .. .. .. .. to Other branches of material production .. .. .. .. .. .. Net Material Product 53,086 68,038 70,390 69,438 77,836 75,571 74,336 65,036 43,105 By Expenditure Category: Consumption 42,605 56,546 60,077 61,333 64,196 66,687 69,130 54,190 39,625 Consumption or population 38,239 50,406 53,476 54,336 57,072 59,170 61,646 48,762 36,146 Social consumption 4,366 6,140 6,601 6,997 7,124 7,518 7,483 5,429 3,479 Investment (accumulation) 13,867 19,009 16,478 16,308 18,904 15,334 11,806 10,025 6,368 Fixed capital 7,225 7,925 8,220 11.407 11,188 10,756 6.741 4,350 Changes In inventories and other Losses and discrepancy Net exports ... Source: State StatIsticI Committee of Tajiklstan. TA BLE 2-4: TA.FIKISIAN - NET MATERIAL PRODUCT AT CONSTANT PRICES - GROWTH RATES (in percent) Ily Indutrial Origin: 1986 1987 1988 1989 1990 1991 1992 1993 1994 Agriculture Including forestry 3.9 -6.4 10.9 -13.1 -9.1 -9.9 -27.7 Agriculture excluding forestry 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 Industry, total 4.0 2.3 14.8 2.3 1.3 -7.3 -39.2 Industry, other 0.1 4.6 15.6 0.4 3.9 -9.8 -19.9 Construction 11.4 -1.6 13.4 ,. 5.9 -3.4 -2.7 -73.3 Other 3.4 -1.2 5.8 6.4 2.2 -56.5 -64.7 Transportation of goods Maintenance of roads Communication servicing material production .. .. .. .. Wholesale trade Retail trade and catering Material supply Procurement Information and computing services Other branches of material production Net Material Product 3.5 -1.4 12.1 -2.9 -1.6 -12.5 -33.7 By Expenditure Category: Consumption 6.2 2.1 4.7 3.9 3.7 -21.6 -26.9 Consumption of population 6.1 1.6 5.0 3.7 4.2 -20.9 -25.9 Social consumption 7.5 6.0 1.8 5.5 -0.5 -27.5 -35.9 Investment (accumulation) -13.3 -1.0 15.9 -18.9 -23.0 -15.1 -36.5 Fixed capital 3.7 38.8 -1.9 -3.9 -37.3 -35.5 Source: State Statistical Committee of Tajikistan. TABI.E 2-5: TAJIKISTAN - NET MATERIAL PRODUCT - IMPLICIT PRICE DEFLATORS (1983= 100) By Indutrial Origin: 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Agriculture Including forestry 128.5 91.6 87.0 89.3 93.7 107.7 133.2 338.9 672.1 Agriculture excluding forestry 128.5 91.6 87.0 89.3 93.7 107.8 133.2 339.3 672.9 Forestry 100.0 100.0 100.0 100.0 100.0 97.1 100.0 180.0 300.0 Industry, total 95.0 98.4 88.7 94.8 85.4 76.4 84.3 183.3 1911.2 Industry, other 93.8 98.2 84.5 90.6 78.8 66.7 75.2 179.0 1790.2 Construction 99.0 99.1 99.6 106.4 104.0 102.0 110.4 198.8 2679.3 Other 111.3 101.8 102.7 94.1 114.4 124.8 146.3 374.1 4585.0 Transportation of goods 86.8 100.0 100.0 100.0 100.0 100.0 126.3 Maintenance of roads .. .. .. .. .. .. Communication servicing materIal production 100.0 100.9 100.0 100.0 95.8 100.0 106.3 Wholesale trade 88.2 75.7 82.8 62.8 86.0 91.8 94.2 Retail trade and catering .. .. .. .. .. .. Material supply 81.4 105.0 83.7 92.4 78.6 89.6 86.7 Procurement 130.9 158.9 157.3 160.2 148.3 124.2 174.9 Information and computing services .. 100.0 100.0 100.0 100.0 100.6 105.7 Other branches of material production 124.5 104.2 104.5 105.6 147.2 175.4 232.1 Net Material Product 107.8 96.3 90.2 92.7 92.6 94.2 109.1 239.4 1477.4 By Expenditure Category: Consumption 107.8 102.0 99.4 99.6 100.2 102.7 110.0 239.4 1477.4 Consumption of population 108.6 102.2 99.3 99.6 100.3 102.9 110.7 239.4 1477.4 Social consumption 101.3 99.9 99.8 99.6 99.6 101.6 104.7 239.4 1477.4 Investment (accumulation) 99.6 99.1 102.4 105.5 108.7 96.8 120.3 239.4 1477.4 Fixed capital 101.7 99.1 102.6 110.2 113.1 102.7 129.5 23.4 1477.4 Source: State Statistical Committee of Tajikistan. TABLE 2-6: TA.IlKJSTAN - NET MATERIAL PRODUCT - GROWTH RATES OF IMPLICrT PRICE DEFLATORS (in percent) Iy Industrilni Origin: 1986 1987 1988 1989 1990 1991 1992 1993 1994 Agriculture including forestry -5.0 2.6 5.0 14.9 23.6 154.5 98.3 Agriculture excluding forestry -5.1 2.6 5.0 15.0 23.6 154.7 98.3 Forestry 0.0 0.0 0.0 -2.9 3.0 80.0 66.7 Industry, total -9.9 6.8 -9.9 -10.6 10.4 117.4 942.5 Industry, other -13.9 7.1 -13.0'. -15.3 12.7 138.1 899.9 Construction 0.5 6.8 .-2.2 -1.9 8.2 80.1 1247.6 Other 0.8 -8.3 21.6 9.1 17.2 155.7 1125.7 Transportation of goods 0.0 0.0 0.0 0.0 26.3 Maintenance of roads Communication servicing material production -0.9 0.0 -4.2 4.4 6.3 Wholesale trade 9.4 -24.2 37.0 6.8 2.6 Retail trade and catering Material supply -20.3 10.4 -14.9 14.0 -3.3 Procurement -1.0 1.9 -7.5 -16.2 40.8 Information and computing services 0.0 0.0 0.0 0.6 5.0 Other branches of material production 0.3 1.0 39.4 19.1 32.4 Net Material Product -6.4 2.8 -0.1 1.7 15.9 119.5 517.0 By Expenditure Category: Consumption -2.5 0.2 0.6 2.5 7.1 117.6 517.0 Consumption of population -2.8 0.3 0.7 2.6 7.6 116.3 517.0 Social consumption -0.1 -0.3 0.1 2.0 3.1 128.6 517.0 Investment (accumulation) 3.4 3.0 3.0 -11.0 24.3 V.1 517.0 Fixed capital 3.5 7.4 2.7 -9.2 26.2 84.k( 517.0 Source: State Statistical Committee of Tajikistan. TABLE 2-7: TAJIKISTAN - GROSS SOCIAL PRODUCT BY SECTOR AT CURRENT PRICES ** 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 (millions of rubles) Agriculture and forestry 1,837 2,306 2,309 2,205 2,503 2,488 2,776 5,801 24.147 206,192 501,606 Agriculture 1.835 2,302 2,303 2,201 2,498 2,483 2.771 5,793 24,087 Forestry 2 5 6 4 5 5 5 7 60 Industry and construction 5,121 6,476 6,491 6,943 7.123 7,016 7,269 15,235 107,091* 882,463 2,335,944 Industry 4,170 5,314 5,194 5.525 5,618 5,499 5.755 12,755 95.183 734,727 1,820,062 Construction 950 1,162 1,297 1,418 1,505 1,517 1,514 2,480 11,908 147,736 515,882 Other 945 985 1,034 970 1,166 1,326 1,332 1,994 10,793 73,775 256.226 Transport of goods 1/ 187 305 338 322 340 342 407 555 3,836 19,661 114,496 Road maintenance .. .. Communication servicing material production 8 12 13 14 16 17 18 24 141 Wholesale trade 2t 198 232 253 209 288 326 367 796 240 12,651 28,953 Retail trade and catering 46 55 56 38 66 72 74 .. 3,248 Material supply 54 53 61 70 61 65 70 203 1,503 10,796 24,794 Procurement 56 74 76 75 72 70 89 204 864 8,791 19,110 Information and computing services 3/ 12 14 17 20 29 23 33 241 10,938 68,873 Other sectors ofmaterial production 396 241 222 225 303 404 284 180 719 10.938 Total gross social product 7,903 9,766 9.834 10.117 10,792 10,830 11,376 23,030 142,030 1,162.430 3,093,776 (percentage shares of gross social product) Agriculture and forestry 23.2 23.6 23.5 21.8 23.2 23.0 24.4 25.2 17.0 17.7 16.2 Agriculture 23.2 23.6 23.4 21.8 23.2 22.9 24.4 25.2 17.0 0.0 0.0 Forestry 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Industry and construction 64.8 66.3 66.0 68.6 66.0 64.8 63.9 66.2 75.4 75.9 75.5 Industry 52.8 54.4 52.8 54.6 52.1 50.8 50.6 55.4 67.0 63.2 58.8 Construction 12.0 11.9 13.2 14.0 13.9 14.0 13.3 10.8 8.4 12.7 16.7 Other 12.0 10.1 10.5 9.6 10.8 12.2 11.7 8.7 7.6 6.3 8.3 Transport of goods 1/ 2.4 3.1 3.4 3.2 3.2 3.2 3.6 2.4 2.7 1.7 3.7 Road maintenance .. .. .. .. .. .. Communication servicing material production 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.1 0.1 0.0 0.0 Wholesale trade 2/ 2.5 2.4 2.6 2.1 2.7 3.0 3.2 3.5 0.2 1.1 0.9 Retail trade and catering 0.6 0.6 0.6 0.4 0.6 0.7 0.7 .. 2.3 0.0 0.0 Material supply 0.7 0.5 0.6 0.7 0.6 0.6 0.6 0.9 1.1 0.9 0.8 Procurement 0.7 0.8 0.8 0.7 0.7 0.6 0.8 0.9 0.6 0.8 0.6 Information and computing services 3/ 0.1 0.1 0.2 0.2 0.3 0.2 0.1 0.2 0.9 2.2 Other sectors of material production 5.0 2.5 2.3 2.2 2.8 3.7 2.5 0.8 0.5 0.9 0.0 Taal gross social product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 **Gross Social Product is one of the measures of output used under the Material Product System. It includes all intennediate levels of production. The second measure is National Income Produced (NIP), also called Net Material Product (NWMP). which excludes intermediate levels of production but still differs from Gross Domestic Product as defined by the United Nations System of National Accouts (SNA) by excluding mainly depreciation and the output of the non-material services. I Includes road maintenance. In 1993-94 additionally includes communication servicing material production. 2/ Includes retail trade and catering. 3/ For 1993-94 includes other sectors of material production. Source: State Statistical Committee of Tajikistan. - 98 - TABLE 3-1: TAJIKISTAN - EXCHANGE RATES (rubles per dollar) Year Month Monthly Average At End of Period 1992 January 110 110 1992 February 103 90 1992 March 93 100 1992 April 100 100 1992 May 94 85 1992 June 89 '100 1992 July 137 161 1992 August 168 205 1992 September 217 254 1992 October 349 398 1992 November 426 450 1992 December 417 415 1993 January 489 572 1993 February 570 593 1993 March 664 684 1993 April 766 823 1993 May 912 1,024 1993 June 1,078 1,060 1993 July 1,020 987 1993 August 986 993 1993 September 1,077 1,169 1993 October 1,188 1,184 1993 November 1,196 1,231 1993 December 1,240 1,247 1994 January 1,444 1994 February 1,583 1994 March 1,719 1994 April 1,794 1994 May 1,881 1994 June 1,958 1994 July 2,026 1994 August 2,122 1994 September 2,347 1994 October 3,044 1994 November 3,151 1994 December 3,388 1995 January 3,858 1995 February 4,259 1995 March 4,749 1995 April 5,030 1995 May (23rd) 5,079 Source: National Bank of Tajikistan. - 99 - TABLE 3-2: TAJIKISTAN - BALANCE OF PAYMENTS SUMMARY AT CURRENT PRICES (millions of L*.S. dollars) Item 1992 1993 1994 1995 1/ Exports of goods and services (including workers' remittances) 185 456 559 657 Exports of goods and nonfactor services Merchandise (FOB) 185 456 559 657 Nonfactor services. Shipment Travel Other Imports of goods and nonfactor services 240 686 735' 653 Merchandise (FOB) 240 660 707 628 Nonfactor sernices (net) 0 26 28 25 Shipment Travel Other Resource balance -55 -230 -176 4 Net factor income 2 -4 -19 -28 Factor receipts 2 0 0 0 Factor payments 0 4 19 28 Total interest 0 4 19 28 Other factor payments and discrepancy 0 0 0 0 Net current transfers 0 25 25 25 Current receipts (Grants) 0 25 25 25 Workers remittances Other current transfers 0 25 25 25 Current payments Current account balance before official grants -53 .209 -170 1 Official capita! gants Current account balance after official grants -53 -209 -170 1 Long Term Capital Inflows 52 65 37 -70 Direct investment 8 9 12 13 Net long term borrowing 44 56 25 -83 Disbursements 44 71 44 19 Repayments 0 15 19 102 Other long-term inflows Adjustment to Scheduled Debt Service -140 239 221 135 Debt service not paid (corres. acc.+debt convers.)2/ -140 222 184 17 Interest not paid Principal not paid Arrears reductions/prepayments(-) 0 17 37 118 Total Other items (net) 140 -95 -88 -64 Net short-term capital .. -2 -8 Capital flows not elsewhere included .. Errors and omissions 140 -95 -86 -56 Changes in net reserves ('-"=increase) 0 0 0 -2 Net credit from IMF 0 0 0 0 Reserve changes not elsewhere included 0 0 0 -2 Escrow account Gross reserves (excluding gold) 1 0 0 7 Gross reserves (including gold) 4/17/96 I/ Estimates. (t3-2new.xls) 2/ Includes conversions of debt service arrears, trade arrears, and correspondent account balances into debt. Source: Tajik authorities and IMF staffestimates. - 100 - TABLE 3-3: TAJIKISTAN - GEOGRAPHICAL DISTRIBUTION OF INTERREPUBLIC TRADE, 1991 Export Import Balance (millions of rubles) Russia 1752.5 1253.0 499.5 Ukraine 248.8 281.3 -32.5 Belarus 108.4 60.6 47.8 Moldova 6.4 32.1 -26.7 Armenia 37.3 27.9 9.4 Azerbaijan 41.7 37.2 4.5 Kazakhstan 412.8 317.6 95.2 Uzbekistan 243.5 361.9 -118.4 Turkmenistan 96.3 1973 -101.0 Kyrgyz Republic 60.6 237.5 -176.9 Georgia 16.4 199.3 -182.9 Lithuania 23.9 23.2 0.7 Latvia 34.9 29.1 5.8 Estonia 33.5 9.1 24.4 Non-FSU Countries 827.6 600.6 227.0 Total 3944.6 3667.7 276.9 (in percent) Russia 44.4 34.2 Ukraine 6-3 7.7 Belarus 2.7 1.7 Moldova 0.2 0.9 Armenia 0.9 0.8 Azerbaijan 1.1 1.0 Kazakhstan 10.5 8.7 Uzbekistan 6.2 9.9 Turkmenistan 2.4 5.4 Kyrgyz Republic 1.5 6.5 Georgia 0.4 5.4 Lithuania 0.6 0.6 Latvia 0.9 0.8 Estonia 0.8 0.2 Non-FSU Countries 21.0 16.4 Total 100.0 100.0 Source: State Statistical Committee of Tajikistan. - 101 - TABLE 3-4: TAJIKISTAN - GEOGRAPHICAL DISTRIBUTION OF INTERREPUBLIC TRADE, 1992 Export Import Balance (millions of rubles) Russia 7813.2 11139.4 -3326.2 Ukraine 1927.1 1730.8 196.3 Belarus 679.5 661.7 17.8 Moldova 69.1 69.2 -0.1 Armenia 65.7 47.8 14.9 Azerbaijan 634.2 262.3 "371.9 Kazakhstan 2410.8 2915.0 -504.2 Uzbekistan 1470.4 2629.5 -1159.1 Turkmenistan 705.3 3467.8 -2762.5 Kyrgyz Republic 381.3 479-3 -98.0 Georgia 23.1 51.4 -28.3 Lithuania 39.3 159.0 -119.7 Latvia 138.7 143.8 -5.1 Estonia 75.3 81.8 -6.5 Non-FSU Countries 20620.7 20132.8 487.9 Total 37053.7 43971.6 -6917.9 (in percent) Russia 21.1 253 Ukraine 5.2 3.9 Belarus 1.8 1.5 Moldova 0.2 0.2 Armenia 0.2 0.1 Azerbaijan 1.7 0.6 Kazakhstan 6.5 6.6 Uzbekistan 4.0 6.0 Turkmenistan 1.9 7.9 Kyrgyz Republic 1.0 .1.1 Georgia 0.1 0.1 Lithuania 0.1 0.4 Latvia 0.4 0.3 Estonia 0.2 0.2 Non-FSU Countries 55.7 45.8 Total 100.0 100.0 Source: State Statistical Committee of Tajikistan. - 102 - TABLE 3-5: TAJIKISTAN - GEOGRAPHICAL DISTRIBUTION OF INTERREPUBLIC TRADE, 1993 Export Import Balance (millions of rubles) Russia 58304.5 78103.6 -19799.1 Ukraine 4606.4 4058.1 5483 Belarus 6233.7 6300.0 -66.3 Moldova 3137.0 417.4 2719.6 Armenia 0.0 91.5 -91.5 Azerbaijan 998.4 1005.7 -7-3 Kazakhstan 15155.5 61050.6 -45895.1 Uzbekistan 18894.7 60982.6 -42087.9 Turkmenistan 3224.0 24279.7 -21055.7 Kyrgyz Republic 3861.7 1946.7 1915.0 Georgia 42.8 308.8 -266.0 Lithuania 4174.4 4046.2 128.2 Latvia 6735.5 1000.8 5734.7 Estonia 135.7 245.0 -1093 Non-FSU Countries 200658.8 252354.1 -51695.3 Total 326163.1 496190.8 -170027.7 (in percent) Russia 17.9 15.7 Ukraine 1.4 0.8 Belarus 1.9 1.3 Moldova 1.0 0.1 Armenia 0.0 0.0 Azerbaijan 0.3 0.2 Kazakhstan 4.6 12.3 Uzbekistan 5.8 12.3 Turkmenistan 1.0 4.9 Kyrgyz Republic 1.2 0.4 Georgia 0.0 0.1 Lithuania 1.3 0.8 Latvia 2.1 0.2 Estonia 0.0 0.0 Non-FSU Countries 61.5 50.9 Total 100.0 100.0 Source: State Statistical Committee of Tajikistan. - 103 - TABLE 3-5A: TAJIKISTAN - GEOGRAPHICAL DISTRIBUTION OF INTERREPUBLIC TRADE, 1994 Ezport Import Balance (millions of rubles) Russia 101,8923 133,742.4 -31,850.1 Ukraine 11,217.6 30,015.5 -18,797.9 Belarus 6,842.4 2,848.8 3,993.6 Moldova 3,129.5 226.3 2,903.2 Armenia 29.4 498.3 -468.9 Azerbaijan 348.1 446.9 * -98.8 Kazakhstan 22,255.3 72,388.4 -50,133.1 Uzbekistan 49,979.1 183,386.8 -133,407.7 Turkmenistan 3,855.8 86,870.1 -83,014.3 Kyrgyz Republic 4,263.3 2,231.9 2,031.4 Georgia 0.0 906.4 -906.4 Lithuania 30,0143 30,051.3 -37.0 Latvia 7,464.1 2,358.0 5,106.1 Estonia 1,282.8 1,784.8 -502.0 Non-FSU Countries 841,458.7 657,668.8 183,789.9 Total 1,084,032.7 1,205,424.7 -121,392.0 (in percent) Russia 9.4 11.1 Ukraine 1.0 2.5 Belarus 0.6 0.2 Moldova 0.3 0.0 Armenia 0.0 0.0 Azerbaijan 0.0 0.0 Kazakhstan 2.1 6.0 Uzbekistan 4.6 15.2 Turkmenistan 0.4 .7.2 Kyrgyz Republic 0.4 0.2 Georgia 0.0 0.1 Lithuania 2.8 2.5 Latvia 0.7 0.2 Estonia 0.1 0.1 Non-FSU Countries 77.6 54.6 Total 100.0 100.0 Source: State Statistical Committee of Tajikistan. - 104 - TABLE 3-6: TAJIKISTAN - GEOGRAPHICAL DISTRIBUTION OF EXTRAREPUBLIC TRADE (millions of curant U.S. dollars) Country or Exports Imports Country poup 1987 1988 1989 1990 1991 1992 1993 1994 1987 1988 1989 1990 1991 1992 1993 1994 Total trade by geographical distributi .. .. .. .. .. .. 263.12 331.33 .. .. .. .. .. .. 373.30 298.43 Industrial countries .. .. .. .. .. .. 252.71 352.89 .. .. .. .. .. .. 359.37 269.62 Australia .. .. .. .. .. .. . .. .. .. .. .. .. .. . .. A mria .. .. .. .. .. .. . . .. .. .. .. .. .. 0.30 9.62 Bia ium .. .. .. .. .. .. 19.07 3.12 .. .. .. .. .. .. 2 0 22.02 Denmark .. .. .. .. .. .. .. .. .. .. .. .. .. .. 0.64 0.76 Finland .. .. .. .. .. .. 9.56 18.12 .. .. .. .. .. .. 7.20 0.00 France .. .. .. .. .. .. ..1..3.. .. .. .. 2.1.54 Gerany .. .. .. .. .. .. 0.87 12.95 7.54 5.39 I eland .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. reland .. .. .. .. .. .. .. 0 . .. .. .. .. .. .. .. 1.90 Italy a.. .. .. .. .. .. 0.01 0.4 .. .. .. .. .. .. 11.18 0.76 Japan.. .. .. .. .. .. 21.71 10.98 .. .. .. .. .. .. 2.02 .. Netherlands .. .. .. .. .. .. 439 147.58 .. .. .. .. .. .. 33.4 16.39 Norway .. .. .. .. .. .. .. 12.14 .. .. .. .. .. .. 6.93 6.56 Spain .. .. .. .. .. .. .. 0.42 .. .. .. .. .. .. .. .. Sweden .. .. .. .. .. .. 18.54 6.63 .. .. .. .. .. .. 2.18 2.48 Switzsrland .. .. .. .. .. .. 1.4 0.73 .. .. .. .. .. .. 0.9 9 .29 United .. .. .. .. .. .. 0.4 1.2 .. .. .. .. .. .. 0.3 67.98 United Ses .. .. .. .. .. .. 24.39 27.11 .. .. .. .. .. .. 33.41 31.92 Others .. .. .. .. .. .. .. .. .. .. .. .. .. .. 1. 3.22 Developing countries .. .. . .. .. .. 10.41 0.31 .. .. .. .. .. .. 169 2.81 Africa .. .. .. .. .. .. 0.31 . .. .. .. .. .. .. 0.29 0.05 AsiaE.... .. .. .. 4.41 6.32 .. .. .. .. .. .. 2.47 9.61 A ga istan .. .. .. .. 1.45 0.78 .. .. .. .. .. .. 0.97 1.25 China ..o.. .. .. .. .. 0.42 4.2 .. .. .. .. .. .. 0.34 4.76 India...... .. .. .. .. 0.09 .. .. .. .. .. .. 0.06 . Korea, Rep.uol. .. .. .. .. . 6 .. .. .. .. ..0.62 Ku-ar, .. .. .. .. 0. 3. ... .. .. . .. .. .. 0.20 Moangol .. .. .. .. 0.64 0.31 .. .. .. .. .. .. 0.16 0.00 ViT a m .. .. .. .. .. .. . 1.22 .. .. .. .. .. .. .. .. Others .. .. . .. .. .. . .. .. .. .. .. ..1.78 Europe .. .. .. .. .. .. 4.41 19.2 .. .. .. .. .. .. 11.47 19.69 BLiAgari .. .. .. .. .. .. . .. .. .. .. .. .. 0.07 0.33 Former Cznchoslovakcia . .. . .. . .. 0.74 4.20 . .. . .. 0.42 2.41 Czech Republic .. . . . . . . 0.78 .. . . . . . . 2.41 Slovak Republic .. . . . . . . 3.42.. . .. . .. . ... Hungary .. .. .. .. .. .. 0.07 3.37 .. .. .. .. .. .. 1.95 0.03 Poland .. .. . . . 0.04 0.789. . . . . . 2.83 0.12 Romania .. . . . . . . 1.54.. . .. . .. .... Turkey . .. . .. . .. 2.51 7.59 .*.. . .. . .. 4.72 16.69 Former Yugoslavia . . - - - . - - - - - - - - -- Others 1/.. .. .. .. .. .. 0.68 1.63 .. .. .. .. .. 1.4 0.11 L.atin America and the Caribbean .. . . . . . . . . . . . . . 0.32 Cuba- .. - ** * ** ***- ** * -- - *--* Otherm. . . . . . . .. . . . . . . 0-32 I/ includes Balima Source: State Statistiza. Commi.1ee of Taj.l..st.. -105 - ТАВ1.Е 4-1Ак 1'А.Г(КГ3РАN - CAVERNMF.NT П[fПСЕТ RI:VF.NUE3 (т1111ом оГ Rиыlвn гоЫп(RR) впд TвJtk гиЫи (TR), and рпеепt оГ CDIh Rercnue впд Смиlв 1992 1993 1994 1995 11 1995 2/ 1992 1993 1990 1995 1/ 1995 2/ (iл millione of RR) (in mi11.o[1R) (in рпсепt o[CDP) 1. Тиrпопг tвк 112 0 0 0 0.0 0.2 0.0 0.0 0.0 .. 2. Vвlnывддед 1вк 4,Э00 63,41Т 2зЭ,826 14Э,7Э4 209.7 б.б 10.4 1з.б 6.0 .. J. ЕксUи 2,145 1Э,401 96,412 48,083 63.З Э.3 2.1 5.6 г.0 .. 4. Твк еп вди (врrсlа� 172 0 14,894 20,838 59.4 0.Э 0.0 0.9 0.9 .. S. Епtмргlве ргоПtв 1вк 3,Э88 43,947 198,335 156,112 22Э.9 8.Э 7.0 11.6 6.3 .. б. Revмnи Ггом prlwtlsвllon 4З4 1,412 3,084 4,761 18.7 0.7 0.2 03 О.г .. 7. Твк ол м11се11vе Гвпn eoopeмltrn дг рnЫ1г огln1:a11ons з03 1,3Т8 9,276 3,369 .. S.1 0.5 О.З 0.5 О.г .. !. Рмrгопд lпеоте tаки 1,бЗ4 13,934 31,748 22,823 129.0 2.5 2.2 З.О l.0 .. 9. sг.ге дигlи ид tогвl евки 2�о г,1о9 з,о96 1,7з9 в.1 о.а о"з о.г о.! .. 10. Rевдивllоп of enterprlвe вtoeks 1,1З 1 9,Е48 26,216 3,669 12.6 2.2 1.6 13 О.г .. l l. Екрогt tи 4З 1,316 0 0.7 O.l 0.2 0.0 0.0 .. 1 12. Гпрогi !вк 4г .. .. 0.1 0.0 0.0 0.0 .. �, 13. Твк оп евкlпо вид вlдм вhот 2 .. 6 970 0.0 0.0 0.0 0.0 о.0 .. rn 14. Твк оп �о1д ввlе 0 .. 0 0.0 0.0 0.0 0.0 .. 1 l5. Motor пhlde 1вк 27 .. бОз 231 2.3 0.0 0.0 0.0 0.0 .. 16.CoetomduUи 0 .. 48,931 Э1,750 41.8 0.0 0.0 2.8 1J .. 17. Costom ртопдипв " 0 .. 3,2Э9 3.1 0.0 0.0 О.З 0.0 .. l!. Wв/м nae Гп (lndustrlal use) 9 .. 787 876 1.6 0.0 0.0 0.0 0.0 .. 19. Твк on fопвtв 0 .. г8 1 В 0.0 0.0 0.0 0.0 0.0 .. 20. Leиlnr гhвгlи д� пеп-fвк пв.,llсепеlnс 604 .. Э8,Э47 21,741 31.7 0.9 0.0 2.2 0.9 .. 21. t.na т.к г1s ., зз,зеt е,sзз 1о.2 о.з о.о 1.9 о.а .. г2.lsyc а: оГтиlпi иаи.ми 1за .. z,e7s 1,1ог з.1 о.г о.о о.г о.о .. :э. Lоtгиlи о .. .. .. о.о о.о о.о о.о .. 24. sг.ге lnsимпег о .. .. .. о.о о.о .. о.о о.о .. 15. Un1on tмnsfeл о о о о о.о о.о '' о.о о.о .. 26. аьег ге�мии (1ne1. (tom.pee. екеь. мге) го7 17,1з1 2,9з9 зеа заs.л о.з г.7 о.г о.о .. Тоtдпвмиn 17,441 170,11Э 772,24з 474,973 1,193.7 26.9 27.0 43.0 19.8 .. U Асtивl Гог Jвпиаг�-Арг11.1995. 2/ Aetud Гог Mq-Aueuef 1995. 8оипе: М1иlкfг� of Flnвnee. TABLE448: TAJIKISTAN- GOVERNMENT BUDGET EXPENDITURES (millions of Russian rubles (RR) and Tajik rubles (TR), and percent orGDP) 17111 .1111;fqlres 1"2 1"3 1"4 1"S 1/1 1 WS 21 1"2 1"3 1994 199 _I/j 'I"S 21 (in millions of RR) (in mill.of TR) (in percent of GDP) 1. National economy 18,142 117,051 404,214 166,791 257.5 29.0 18.5 23.5 6.9 2. Social avid culture 13,744 103,429 296,091 105,626 908.8 21.2 16.4 16.7 4.4 or which 2.1 Education 7,542 55,653 149.007 55,046 544.3 11.6 9.8 8.7 13 2.2 Culture 591 4,310 17,011 5,501 65.6 0.9 0.7 1.0 0.2 2.3 Ilealth 3,611 34,297 110,059 39,385 298.9 5.6 5.4 6.4 1.6 2.4 Sports 19 92 704 740 1.1 0.0 0.0 0.0 0.0 2.5 Allowance to single molhers 25 0.0 0.0 0.0 0.0 2.6 Social protection 1,966 9,086 9,310 4,954 8.9 3.0 1.4 0.5 0.2 3. Science 196 1,704 7,746 2,671 14.7 0.3 0.3 0.3 0.1 4. State management, courts and police 602 17,726 109,655 39,720 361.7 0.9 2.9 6.4 1.7 I Parliament 2,056 638 630 325 4.1 3.2 0.1 0.0 0.0 F and derence 255 24,338 34,744 23,135 115.9 0.4 3.9 2.0 1.0 C) 6. Reserve rund ror council or ministers 0 0 0 0 0.0 0.0 0.0 0.0 7. Gold purchases 544 2,524 6,214 2,662 0.2 0.9 0.4 0.4 0.1 11. CIS budget for rinandng exports 0 0 0 0 0.0 0.0 0.0 0.0 9. Sf ate lotteries IM 0 0 0 0 0.0 0.0 0.0 0.0 10. State lotteries 1"2 0 0 0 9 0.0 0.0 0.0 0.0 11. Stale Internallexternal debt 432 0 0 29,700.- 0.0 0.7 0.0 0.0 1.2 12. Hard currency purchase 0 0 0 igzo 0.0 0.0 0.0 0.0 13. Refugees 0 35,862 810 Soo 1.7 0.0 5.7 0.0 0.0 15. Other 1,123 23,261 95,141 119,975 351.2 1.7 3.7 5.3 5.0 Total expenditures 37,094 326,532 945,245 490.114 2,197.7 57.3 51.7 55.0 20.4 Budget Surplus/Deflcit 0 -19,653 -156,419 -173,002. .15,139 -1,004.1 -30.3 -24.9 -10.1 -0.6 Memo Item: GDP (million of rubles) 64,760 631,162 1,717,900 2,400,000 _I/ Actual for January-April, 1"5. _2/ Actual for May-August 1995. Source: Ministry or Finance. TABLE 4-2: TAJIKISTAN - STATE BUDGET BY ECONOMIC CLASSIFICATION OF EXPENDITURES (millions of Tajik rubles, and percent of GDP) 1995 (millions of TR) (%of GDP) Total revenue 6,977 15.2 Tax revenue 5,849 12.8 Individual income tax 550 1.2 Enterprise profits tax 1,467 3.2 Value-added tax 1,550 3.4 Excise taxes 1,320 2.9 Customs revenue 426 0.9 Other taxes 536 1.2 Non-tax revenue_1/ 1,128 2.5 Expenditures (cash basis)2/ 12,132 26.5 Current 11,019 24.0 o/w arrears settlement - Wages and salaries 3,401 7.4 Goods and services, and other 1/ 1,318 2.9 Subsidies 4,477 9.8 Social safety net 497 1.1 Total interest 1,326 2.9 Capital 1,114 2.4 Surplus/deficit (-) on cash basis -5,156 -11.2 Financing 5,156 11.2 External Domestic 4,931 10.8 Privatization proceeds 225 0.5 Memo items: GDP 45,853 1/ Includes purchases (TR 451 million) and sales (TR 265 million) of bard currebcy and gold in 1995, respectively. 2/ 1995 outcome includes wheat purchases of TR 33 billion. Source: Ministry of Finance and IMF staff estimates. (t4-2new.xls) - 108 - TABLE 4-3: TAJIKISTAN - ALLOWANCES AND SUBSIDIES, 1994-95 (cash basis) n 1994 1995'a 1995a Millions of Percent of Millions of Percent of Millions of Percent of Russian Rubles GDP Russian Rubles GDP Tajik Rubles GDP Allowances (to households) 86,277 5.0 22,571 2.1 939 ... Bread allowance 76,967 4.5 19,885 1.9 131 ... Child allowance 255 - 52 - 638 ... Student stipends 3,618 0.2 2,438 0.2 15 ... Birth grants 372 - 195 - 156 ... Coal for the disabled 172 - - -- Refugee aid - - - - Others 4,893 0.3 2,419 0.2 - Subsidies (to enterprises) 220,175 12.8 136,372 12.9 121 ... Broad production 143,800 8.4 55,172 5.2 24 ... Water for agro-complex 39,729 2.3 32,350 3.1 36 ... Energy 16,900 1.0 13,939 1.3 41 ... Power plants 15,500 0.9 12,000 1.1 ... Communal heating 1,400 0.1 1,939 0.2 ... ... Transport enterprises 10,700 0.6 34,555 3.3 20 ... Communication 34 - 346 - - Cinema 69 - 10 - Milk and dairy products 3,800 0.2 - - Eggs, meat and poultry 3,700 0.2 - - Others 4.893 03 - - Memorandum item: GDP Million of Russian or Tajik Rubles 1,717,974 1,058,180 ... n Includes extrabudgetary funds starting May 11. 1995. 12 January - May 10, 1995. f3 May II - August 31, 1995. Source: Tajik Authorities and IMF Stafl - 109 - TADLE S-1: TAJIKISTAN - MONMTARY SURVEY (milion ofrubles; end of period) DEC 1992 MAR 1993 JUN 993 SEP 1993 DEC 1993 MAR 1994 JUN 1994 SEP 1994 DEC 1994 JAN 1995 FED 1995 MAR 1995 Net foreign assets If 324,814 1,5B5,511 -267.526 -99,419 -155,397 -354,182 -355,104 -1,009,718 -186,327 -168,175 -49145 -115,446 Net domestic assets -41,236 128,861 398,81 433,245 728,118 962,102 1,252,336 2,575,381 1,671,776 1,648.214 1,502,012 1,585,213 Domestic credit 70,964 154,674 377,535 563,090 328,735 886,776 1,127,358 1,424,609 1865,309 1,777,285 1,693,905 1,744,493 Net credit to general government -I,097 37.318 54,644 94,934 138,487 87,447 24,874 -14,645 124,584 73 -50,664 -38,950 Net credit to government 21 103 39,968 58,139 102,252 202,318 118,001 79,905 67,621 231,200 117,699 72,182 90,520 Net credit to extrabudgetary fmds 31 -1,200 -2,650 -3,495 -7,318 -13,831 -30,554 -55,031 -82,266 -106,616 -117,626 .122,846 -129,470 Credit to the rest of the economy 72,061 117,356 322,891 468,156 640,293 799,329 1,102,984 1,439,254 1,740,725 1,777,212 1,744,569 1,733,443 Other Items, nrt -112,250 -25,313 21,346 -129,345 -100,667 75,326 124,978 1,150,772 -193,533 -129,071 -191,893 -I59,230 Broad money 292,564 1,714,372 131,355 333,819 572,722 607,920 397,732 1,565,664 1,435,449 1,430,036 1,452,368 1,469,767 Currency outside banks 15,933 23,739 45,071 103,237 159,384 52,621 35,523 101,987 130,721 150,354 170,842 190,670 Deposits 276,631 1,690,633 36,284 230,582 413,333 555,299 812,209 1,463,677 1,354,728 1,329,182 1,232,026 1,279,097 Ruble deposits 17,401 32,815 76,016 215,956 403,035 542,950 794,665 1,056,598 1,310,503 1,288,667 1,205,081 1,220,478 Foreign currency deposits 41 250,231 1,657,818 10.263 14,626 10,303 12,349 17,544 407,079 44,225 40,5315 76,945 53,619 I I/ Highly unreliahie because of inappropriate residentinonresident distinctions, deficient revaluation and incomplete coverage. I 21 Includes the central and local governments. 031 Includes the Pesion Fund, the Employment Fund and the Social Insurance Fund. I 41 Very preliminary. It b necessary to improve residency distinction and revaluate foreign currencies more accurately. Source: NBT and IMF staffestimates. TABLE 5-IA: TAJIKISTAN - MONETARY SURVEY (millions of Tajik rubles; end of period) JUN 1995 JUL 1995 AUG 1995 SEP 1995 OCT 1995 NOV 1995 DEC 1995 JAN 1996 (prel.) (prel.) (prel.) (est.) Net foreign assets 1,021 954 1,151 5,283 8,968 7,228 8,213 7,734 Net domestic assets 2,043 3,408 4,083 2,788 1,560 3,983 5,185 6,678 Domestic credit 2,760 3,790 3,799 4,186 5,310 6,986 9,093 10,680 Net credit to general government 13 195 -97 297 373 1,407 3,590 5,147 Credit to the rest of the economy 2,747 3,595 3,896 3,889 4,937 5,579 5,503 5,533 Other items, net -717 -382 284 -1,398 -3,750 -3,003 -3,908 -4,002 Broad money 2,493 3,716 4,559 6,169 7,324 7,815 8,884 9,797 Currency outside banks 1,238 2,009 3,009 4,007 4,405 4,947 5,521 6,223 Deposits 1,255 1,707 1,550 2,163 2,919 2,868 3,363 3,575 Foreign currency deposits 571 645 675 1,901 3,204 3,396 4,514 4,614 Source: NBT and IMF staff estimates. 2/7/96 TABLE S-2: TAJIISTAN - INTEREST RATES (end of perod) 1994 1995 March June Septenber Decanber March April May L n Reaf Na~al Bank of Tajidutan To Rank 1/ 25 25 25 25 25 25 25 Pri~riySedLaoan 1/2/ 10-15 10-15 10-15 10-15 10-15 10-15 10-15 Long-Tem Crcdit 1/ 5-10 5-10 5-10 5-10 5-10 5-10 5-10 Budga Financing 0 0 0 0 0 0 0 Counrcial B~nk Dhreced Lans 1/2/ 30 30 30 30 30 30 30 Four Lrg Camnmercal Baks 3/ Shark 4.8 5.0 7.1 5.4 6.7 Oricm .. 10.6 17.8 26.9 32.0 49.6 79.2 Tajikbmnkbusiness 16.5 16.6 13.0 17.9 25.0 23.2 45.0 Vn~hkmoombank 8.5 7.1 11.0 12.3 57.3 48.2 83.0 Deposät Rats C .ae Banks Se Bank Dmnd Dcpsis 8.0 8.0 8.0 8.0 8.0 8.0 8.0 Savi Dpouits (1-year) 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Four larges Commercial Banks 3/ Shark 3.6 3.8 5.5 4.1 9:4 . Orim 5.0 8.1 11.7 26.9 28.9 45.2 52.3 Tajikbankbusiness 6.5 6.6 3.4 8.0 21.1 22.6 65.0 Vocidekonomank 6.9 7.1 7.2 4.8 21.9 22.6 21.0 1/ Set by the Resmlon No. 778 ofthe Parfmi ent 2/ M~=hnm rate. 3/ Amo~rt to about 85 pe~ of~the total baf~ cedt to the megvam~tue r. Sorce: Na~ion Bank of Tajlk~e - 112 - TABLE 6-1: TAJIUSTAN - AGRICULTURAL PRODUCTION (millions of current rubles) Item 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Total gross agricultural production 1,835 2,302 2,303 2,201 2,498 2,483 2,771 5,793 40,838 223,395 501,630 Crops Grains Potatoes Vegetables Fruits (excluding grapes) Grapes Tobacco Cotton . .. .. .. .. Sugarbeets Oilseeds Other Animal husbandry Livestock Canle Pigs Sheep and goats Poultry Other Milk Eggs Wool Other livestock Agricultural services Material inputs 502 677 701 660 704 690 756 1,172 10,209 89,358 175,590 Crops Animal husbandry Agricultural services Net material product, by type of output 1,334 1.625 1,603 1,541 1,794 , 1,793 2,015 4,622 30,629 134,037 326,040 Crops Animal husbandry Agricultural services Note: 1994 data is preliminary. Source: State Statistical Committee of Tajikistan. - 113 - TABLE 6-lA: TAJIKISTAN - AGRICULTURAL PRODUCTION (millos of constant 1983 rubles) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Total gros agricultural production 2,324 2,433 2,523 2.346 2,566 2,790 2,354 2,252 1,650 1.577 1.578 Crop production 1,634 1,642 1,711 1,543 1,744 1,490 1.583 1,533 1,057 1.055 1.046 Grains .. .. 34 48 50 45 43 40 37 37 37 Potatoes . . 38 37 35 42 40 35 32 28 27 Vegetables .. .. 174 174 184 185 176 2b9 187 172 170 Fruits (withot grapes) .. 158 145 153 134 146 123 119 104 103 Grapes .. .. 93 82 83 81 89 87 47 41 41 Tobacco .. 56 36 51 46 53 58 50 60 60 Cotton .. .. 969 847 999 791 844 813 458 451 447 Sugarbeets .. .. .. .. .. .. .. .. Otlseeds .. .. 0 0 1 1 0 1 Other ............ . Lhvestock producdon 690 791 812 802 821 799 772 718 593 522 532 Livestock 434 430 435 427 400 373 301 270 268 Cattle .. .. 246 242 246 240 227 230 168 154 154 Pigs . . 23 22 21 20 15 9 12 4 4 Sheep and goats .. .. 83 84 84 82 76 68 101 100 99 Poultry .. .. 56 50 54 57 55 39 17 10 10 Other .. .. 27 32 30 28 28 26 3 2 1 Milk .. . 121 121 121 123 118 121 202 188 185 Eggs .. .. 28 30 32 32 29 39 28 15 8 Wool .. - 24 24 24 26 21 20 33 28 28 Otherlivestock .. .. 205 199 209 192 204 165 29 21 43 Agricultural services - .. . . . . Material inputs 1,286 659 610 620 651 1,123 463 272 Crop production . .. .. .. ..- Anhal production .. .. .. .. .. .. Agricultural services - .. .. -.. .. Net nterial product, by output: 1,037 1,774 1,913 1,725 1,914 1,667 1,892 1,980 Crop production .. . Animal production .. .. .. . .. .. Agricultural services.. By form of ownership: .. .. .. . .. .. State enterprises .. .. .. .. .. .. Cooperative enterprises .. .. Subsidiary and personal plots of population .. .. .. .. .. .. .. Private enterprises . . .. .. .. Source: State Statistical Committee of Tajfklstan. - 114 - TABLE 6-2: TAJIISTAN - PRODUCTION AND AVERAGE YIELD OF MAJOR AGRICULTURAL CROPS 1930 1985 1986 1987 1938 1989 1990 1991 1992 1993 1994 Preduction-thomsamd tom Grain - Clesweigbt 245 326 238 347 365 293 303 286 257 253 212 Al Wheat 106 143 99 175 191 109 134 141 156 159 141 Whest(wliter) 103 134 91 163 184 101 127 130 133 105 - (spring) 3 9 8 12 7 8 7 11 23 54 Curse grain 104 143 107 137 140 147 136 112 76 67 Rye 1 7 5 7 7 2 2 2 2 1 Core 62 101 73 85 88 109 85 60 32 33 18 Barley (winter) 27 22 17 29 33 24 35 35 27 15 (spring) II 11 10 14 10 10 11 12 12 15 Oats 3 2 2 2 2 2 3 3 3 3 Rice 28 31 27 28 27 28 27 24 19 21 22 Oilseeds 1 0 0 0 0 0 0 0 0 0 0 Sunflowerseed I .. .. .. . Cotton (raw) 1,011 935 992 872 964 921 842 826 513 524 529 (iber) 321 291 293 276 294 250 256 255 165 180 170 Tobacco 13 .. 11 11 10 9 10 11 10 12 Potatoes 153 185 199 192 183 217 207 181 167 147 134 Pubes 6 6 5 6 7 9 7 8 2 5 Vegetables 381 473 505 517 556 567 528 628 543 485 495 Fruit 213 245 245 219 215 197 220 177 183 149 145 Grapes 159 171 199 132 178 174 190 121 100 87 80 Other I. - * - -- .. .1. Corn (slage + greend 916 1,338 1,385 1.293 .302 1,222 1,150 727 599 Hay 1,432 1,658 1,748 1,753 .. 1,548 1,521 1,486 1,212 1,112 Average yield kg/ha Grain 1,200 1,520 1,550 1,490 1,490 1,540 1,310 1,230 970 910 830 Wheat (winter) 970 1,120 1,230 1,260 1,290 L060 930 980 860 850 - (spring) 530 1.030 1,180 1,210 1,210 1,170 1,090 1,040 800 710 Coarse grain 1,210 1,520 1,600 1,550 1,560 1,610 1,310 1,310 1,040 . Rve 1,150 870 1,080 890 .. 810 990 940 670 Corm 4,900 5,710 4,440 4,150 4,470 5,690 4,990 3,920 2,970 2,970 1,880 Barley (winter) 890 1,070 1,340 1,410 1,430 1,230 1,130 1,120 1,000 910 (spring) 540 680 770 1,000 530 990 830 960 790 680 Oats 590 780 760 1,000 790 930 840 720 Millet 490 350 530 500 .. .. .. 860 Rice 4,380 3,920 3,410 3,140 3,290 3,150 2,750 2,530 1,820 1,710 1,740 O.eeds - - - - - - Sunflowerseeif 2,460 ... . . . 1,670 Cotton (raw) 3,280 3,000 2,950 2,690 3,010 2,930 2,770 2770 1,800 1,910 1,870 (fiber) 1,040 930 940 850 920 940 840 .. .. .. Tobacco 293 - - 285 287 279 267 262 205 234 - Potatoes 16,000 18.100 18,500 17,100 16,300 16,500 14,300 14,100 12,800 11,900 10,800 Pulses 780 880 780 840 630 690 640 680 460 460 - Vegetables 20,700 20,900 21,800 20.800 20,900 20,700 19,500 19,300 16,840 17,860 15,560 Fruit 4,180 4,950 5,010 4,330 4,170 3.620 3,980 3,210 3,280 2,500 - Grapes 8,210 7,370 8,480 5,630 7,180 6,750 7,160 4,450 3,500 3,010 Other- - - - - - - - - - Corn(sitage+greeadt 21,800 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 - - - 3,290 3,220 2,890 2,780 Source: State StaUstical Commice of Tajikistan. - 115 - TABLE 6-3: TAJIKISTAN - MAIN AGGREGATES OF ANIMAL HUSBANDRY 1930 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Livestock inventory (thousand heads) 4,355 4,782 4,83 4,897 4,970 4,969 4,879 4,926 4.434 4,258 3,868 Cattle 1,217 1,351 1,367 1,358 1,363 1,349 1,352 1391 1,246 1.250 1,168 of which: Cows 456 505 507 515 530 539 557 586, 544 560 535 Pigs 137 205 243 235 217 210 183 128 56 47 33 Sheep 2.338 2,437 2,471 2,479 2,539 2,544 2,462 2,484 2,237 2,081 1,893 Goats 629 749 759 778 802 815 830 871 846 825 731 Horses 35 42 43 46 50 51 52 53 49 55 55 Other - .. .- .. - ..- --- Animal husbandry products Meat (thousand tom) 161 179 185 190 193 191 185 151 126 113 112 Beef 78 91 92 97 99 100 94 83 71 65 65 Pork 11 14 17 19 19 19 15 9 5 2 1 Lamb 54 54 55 54 56 52 52 43 42 42 42 Pouhry 16 18 20 18 17 18 21 13 7 4 4 Other 3 2 2 2 2 2 2 2 1 0 0 Milk (thousand ton) 499 547 571 567 574 580 575 587 510 475 467 Eggs (mfllon pieces) 322 469 555 579 632 619 592 454 296 160 79 Wool (thoussnd tons) 6 5 5 5 5 5 5 4 4 3 3 Soure. State Statistial Committee of Taildstn. - 116 - TABLE 6-4: TAJIKISTAN - AGRICULTURAL PRODUCTION SUMMARY (millions or 1933 rubies) 1980 1935 1986 1987 1988 1939 1990 1991 1992 1993 1994 Total agricuture 2,324 2,433 2,523 2,346 2.566 2.290 2,354 2.252 1.650 1,578 1.578 Crops 1,634 1,642 1,711 1,543 1.744 1,490 1,583 1,533 1.057 1,056 1,046 Animal husbandry 690 791 812 802 821 799 771 718 593 522 532 Collective rarms (kolboz) 1,067 993 1,015 928 1.051 902 922 902 587 565 565 Crops 922 852 870 780 902 749 772 760 474 479 474 Animalhusbandry 145 141 145 149 150 153 151 142 113 86 91 State farms 687 785 830 793 870 769 809 673 430 350 351 Crops 474 525 548 510 580 490 552 468 283 261 258 Animal husbandry 213 260 281 283 290 279 257 205 147 89 93 Other State Enterprises 21 31 27 25 27 33 49 55 15 30 31 Crops 12 12 15 14 16 17 21 27 7 25 25 Animal usbandry 9 19 12 12 12 16 27 28 8 5 6 Private plots 510 582 614 572 592 562 550 601 609 621 619 Crops 217 237 264 232 238 227 229 271 291 284 282 Animal husbandry 293 345 350 340 354 335 321 330 318 337 337 Private Farms .. .. .. 0 .. - .. .. 0 1 1 Crops .. .. .. .. .. .. .. 0 1 1 Animal husbandry .. - .. .. .. Note: Prelimiary data for 1994. Source: State Statistical Committee of Tajildstan. - 117 - TABLE 6-5: TAJIKISTAN - EMPLOYME.NT IN ACRICULTURE (in thomband) 1990 1985 1986 1997 1988 1999 1990 1991 1992 1993 Total 615.8 721.9 720.0 742.8 762.4 790.1 831.0 878.1 888.7 944.8 Colede fan 230.7 237.6 242.3 248.4 250.9 252.7 263.0 2931 273.0 286.0 State fanns 146.0 174.2 179.2 184.5 180.7 175.3 181.7 186.3 210.0 222.0 Temporary worken .. .. .. -- .· -- - - Labor on private plots 226.4 270.0 274.8 295.0 313.1 340.6 365.7 373.0 398.7 426.8 New Private Cooperaves .. .. .- ·· ·· .. .. .. 3.0 2.0 Private fanns ·· ·· -· .. -. -- • Other .. -- -- -- .. .. . .. 4.0 8.0 Soumce: State St~cia Comuittee of Tajidstan. - 118 - TABLE 6-6: TA.73KSTAN - MAIN INDICATORS OF AGRICULTURAL FARMS (1991) Collective farms State Farms Otber Private Private Total (1oloses) (sovboe) (state farms) Plots Farms Namber of farms .. 206.0 391.0 Gross Output (mlion 1983 rubles) 2,251.5 902.2 673.0 $4.8 600.8 Fized Capital (milion 1983 rubles) 2.218.9 173.4 1,793.4 Profits (million 1983 rubles) 1,474.8 354.7 356.8 Number of los-making farms 65.0 13.0 52.0 Production (thousand tons) Grain 286.3 127.4 129.8 9.9 124 Sugar beets 0.0 .. .. .. . Sunflowers 0.7 .. 0.1 .. 0.6 Flax 1.6 0.5 1.0 .. 0.1 Potatoes 180.6 29.3 67.5 8.9 74.9 Vegetables 626.8 154.3 156.0 11.2 305.3 Meat 150.7 20.2 48.4 7.0 67.3 Milk 587.2 154.6 102.9 9.1 319.6 Eggs (millions) 454.3 4.2 398.4 5.5 46.2 Cattle (thousand heads) 1.390.7 198.7 261.2 24.1 875.7 Cows 585.9 61.1 70.3 6.1 448.0 Pigs 128.2 8.2 100.5 15.9 2.9 Sbeep, goats 3,355.0 526.0 880.4 71.9 1,797.6 Poultry 6,586.0 111.9 5,676.1 76.4 721.6 Sources. State Statistical Committee ofTajikistan. - 119 - TABLE 6-7: TAJIIaSTAN - MAIN INDICATORS OF AGRICULTURAL FARMS (1992) Collective farms State Forms Other Pivate Private Total (kolahes) (sovboses) (state farms) Plots Farms Numberorfarms .. 262.0 393.0 361.0 Gross Output (million 1983 rubles) .. 587.2 430.1 15.2 608.6 Fized Capital (miion 1983 rublaes) .. .. .. Profits (million 1983 rubles) .. 3,368.5 1,569.2 Number of loss-making farms .. 25.0 103.0 Production (thousand tons) Grain 252.5 126.5 109.5 3.2 13.1 0.2 Sugar beets 0.0 - .. Sunflowers 0.5 .. .. .. 0.5 Flax 1.1 0.4 0.7 Potatoes 167.3 17.0 63.9 3.0 83.3 0.1 Vegetables 542.6 134.4 100.0 4.1 303.2 0.3 Meat 126.0 15.9 30.9 3.2 72.2 Milk 509.2 114.0 733 4.7 317.1 Eggs (millions) 296.0 2.0 248.3 2.4 433 Cattle (thousand heads) 1,221.4 155.5 217.8 9.6 819.8 Cows 531.3 51.2 61.3 2.2 416.3 Pigs 55.7 1.5 42.9 8.3 2.6 Sheep, goats 3,012.0 450.2 763.7 23.1 1,711.8 0.1 Poultry 47.8 9.3 10.5 1.0 17.2 Sourcm- State Statistical Committee of Tajidstan. - 120 - TABLE6.8: TAJIKISTAN-MANINDICATORSOF ACRICULTURAL FARMS(1993) Cacthe farma State Farms Other Pr~vte Pr~vte Other Total <alhan) (mowhorm) (state fars) Plkts Farms Nunbeof arms .. 260.0 438.0 325.0 .. 35.0 16.0 cress Oatput <u I 1983 rubes) 1.577.6 565.5 349.7 30.1 621.1 0.7 - Find Caphtal (e~111o 1983 ruble) .. - Pro%ft (m~o 1983 rubles) . 29.167.7 19,918.0 Number of moss-makng farms .. 28.0 86.0 Production (thousand ton) Gra 253.2 125.7 106.5 3.4 13.0 1.1 3.5 Sgarb 0.0 .. - - - Sunfown 0.5 .. - 0.5 Fla 2.0 0.8 1.1 0.1 Potatoes 147.0 13.4 49.1 2.2 82.1 0.2 . Vegetables 484.8 97.6 73.9 3.1 309.1 0.4 0.7 Megt 112.7 12.2 22.6 2.7 72.6 0.0 .. MUik 475.4 76.5 47.6 3.3 347.6 0.2 0.2 EgM (mllions) 159.5 0.2 112.2 3.3 43.3 . . Catte (tho~uand heds) 1.250.2 140.5 191.1 11.3 895.5 0.4 11.4 Cow 559.7 45.6 53.8 2.7 457.2 0.1 0.3 Pip 45.7 0.7 39.1 4.4 2.5 - - Sheep, goats 2.905.7 407.0 674.7 25.0 1.739.5 2.0 57.5 Poultry 54.9 9.5 13.3 1.2 24.2 - - Sources: State Stad~Ue Commtee of Tjki-tan. - 121 - TABLE 6-9: TAJUKSTAN - MAIN INDICATORS OF AGRICULTURAL FARMS (1994) Con~ectve far~ State Faru Other Prvte Pri~ate Other Total (kelbozus) (skvbo~es) (state fara) Plats Farm Numher of fames .. . . .. . Gran Oput (mhon 1983 rubies) 1,578.2 65.4 350.7 31.4 618.3 0.6 11.1 Fzed Capial (mH Hon 1983 rubie) .. . .. .. Profit% (8~nhoc 1983 rube) . .. - - m&-. Nunber of [ mss-aking farms .. ProdacDo (ta toos) Gran 223.9 105.3 101.8 3.2 13.0 1.1 4.5 Swarbeets 0.0 . .. .. Sunflower 0.0 . . . . . . Flat 0.0 - .. Potatoes 132.6 13.1 36.9 2.1 80.2 0.2 0.1 Vegetables 429.8 98.4 70.3 3.4 2-M.3 0.7 0.7 Meat .. 10.6 16.1 .. . '1.3 Milk - 70.7 37.7 . - 0.5 Eg (mions) - 0.4 64.5 .. - .. - Cattle (thousand beads) 1,167.5 122.3 159.7 7.0 860.6 0.4 9.8 Cows 534.6 39.5 45.7 1.9 445.0 0.1 0.5 Pigs 32.7 0.3 27.2 3.0 2.1 .. 0.1 Sheep, goat 2,623.4 419.8 578.9 13.8 1.585.0 1.8 24.1 Pouity 1,199.4 16.5 1,178.8 3.4 - - 0.7 Socrtes: State ta~tsesI Committee of Tajiksa-n. - 122 - TABLE 7-1: TAJIKISAN - INDUSTRIAL PRODUCTION BY SECTOR (millions of current rubles) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 All Industry 3,485 4,589 4,712 4,926 5,175 5,299 5,474 12,341 93,993 781,559 1,920,062 Heavy Industry 1,071 1,533 1,681 1,992 1,944 1,936 2,038 3,992 47,773 345,931 1,227,381 Fuel-Energy Industry 170 217 202 233 258 227 316 540 5,977 74,972 165,039 Electricity 141 177 161 195 224 202 295 509 5,626 70,344 152,318 Fuel Industry 29 40 41 38 34 25 21 31 351 4,628 12,721 Ferrous & Non-Ferrous Metallurgy 160 347 400 438 506 519 524 1,291 26,470 170,999 604,705 Chemicals & Petrochemical Industry 113 185 206 215 243 225 241 471 4,003 23,775 68,892 Machine-Building & Metalworking 336 413 447 477 503 520 521 877 7,018 46,094 77,331 Forestry,Woodworking, Pulp & Paper Industry 61 81 86 92 91 90 84 185 802 6,771 7,412 Construction Materials 179 233 247 260 262 264 248 469 2,523 29,189 66,306 U Light Industry 1,599 2,139 2,113 2,162 2,214 2,289 2,274 5,820 30,003 260,418 528,120 Textiles 1,305 1,767 1,742 1,809 1,846 1,904 1,853 4,829 27,129 235,335 496,481 Clothing 239 295 285 273 275 298 320 772 1,870 16,626 25,593 Leather and Shoe 55 77 78 80 84 87 90 196 939 8,017 6,045 Agriculture/Food Processing 661 717 749 762 774 820 855 1,848 11,090 89,497 163,559 Food Processing 477 485 504 512 524 538 581 1,280 9,424 72,990 121,804 Meat and Dairy Products 181 226 238 243 242 274 265 550 1,627 15,572 40,256 Fish 3 6 7 7 8 8 9 18 40 935 1,499 Source: State Statistical Committee of Tajikistan. TABLE 7-2: TAJIKISTAN - INDUSTRIAL PRODUCTION BY SECTOR (millions or constant rubles of January 1994) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 All Industry 2,461,225 2,503,066 2,628,219 2,772,771 2,822,681 2,856,553 2,753,717 2,084,564 1,921,968 1,330,002 Heavy Industry 1,503,175 1,593,366 1,720,835 1,898,081 1,892,387 1,939,697 1,850,471 1,286,077 1,064,872 782,681 Fuel-Energy Industry 183,184 181,108 185,100 193,975 155,868 161,203 143,107 107,181 102,747 89,163 Electricity 81,647 68,910 79,522 93,359 77,488 90,583 89,224 84,227 89,365 80,518 Fuel Industry 101,537 112,198 105,578 100,616 78,380 70,620 53,883 22,954 13,382 8,645 Ferrous & Non-Ferrous Metallurgy 510,633 588,760 642,337 738,045 762,400 755,538 634,652 512,164 377,465 349,155 Chemicals & Petrochemical Industry 179,763 199,717 216,293 241,383 248,866 266,038 272,423 125,042 72,024 48,976 Machine-Building & Metalworking 138,349 151,907 161,629 173,266 178,291 180,074 179,534 117,056 91,304 56,152 Forestry, Woodworking, rulp & Paper Industry 44,905 48,183 51,604 50,520 51,076 47,347 53,502 33,599 26,577 5,661 Construction Materials 228,486 242.195 256,484 272,386 273,476 257,888 243,446 88,371 71,846 44,832 Light Industry 617,088 610,917 626,801 639,337 661,074 655,785 658,408 580,716 655,628 407,145 Textiles 551,114 546,154 565,269 577,140 590,991 579,762 573,964 517,142 590,576 379,150 Clothing 38,430 37,469 36,345 36,345 40,088 41,972 47,176 33,542 37,534 21,845 Leather and Shoe 53,225 54,236 55,266 58,195 59,126 62,141 59,966 39,098 27,212 6,150 Agriculture/Food Processing 368,281 370,491 370,121 383,075 398,781 408,751 347,030 292,510 199,494 138,848 Food Processing 220,746 217,214 214,825 225,566 235,716 238,545 229,957 160,280 143,771 102,365 Meat and Dairy Products 211,091 222,701 227,600 227,828 236,030 247,831 158,612 86,285 53,324 35,034 Fish 2,122 2,156 2,214 2,486 2,364 2,716 2,854 1,855 2,375 1,449 Note: Data do not add up within all, heavy, light and agriculture/food processing industry. Source: Statistical Committee of Tajikistan. TABLE 7-2A: TAJIKISTAN - GROWTH OF INDUSTRIAL PRODUCTION BY SECTOR (in percent) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 All Industry .. 1.7 5.0 5.5 1.8 1.2 -3.6 -24.3 -7.8 -30.8 Heavy Industry .. 6.0 8.0 10.3 -0.3 2.5 -4.6 -30.5 -17.2 -26.5 Fuel-Energy Industry .. .1.1 2.2 4.8 -19.6 3.4 -11.2 -25.1 -4.1 -13.2 Electricity .. -15.6 15.4 17.4 -17.0 16.9 -1.5 -5.6 6.1 -9.9 Fuel Industry .. 10.5 -5.9 -4.7 -22.1 -9.9 -23.7 -57.4 -41.7 -35.4 Ferrous & Non-Ferrous Metallurgy .. 15.3 9.1 14.9 3.3 -0.9 -16.0 -19.3 -26.3 -7.5 Chemicals & Petrochemical Industry .. 11.1 8.3 11.6 3.1 6.9 2.4 -54.1 42.4 -32.0 Machine-Building & Metalworking .. 9.8 6.4 7.2 2.9 1.0 -0.3 -34.8 -22.0 -38.5 Forestry, Woodworking, Pulp & Paper Industry .. 7.3 7.1 -2.1 1.1 -7.3 13.0 -37.2 -20.9 -78.7 Construction Materials .. 6.0 5.9 6.2 0.4 -5.7 -5.6 -63.7 -18,7 -37.6 Light Industry .. -1.0 2.6 2.0 3.4 -0.8 0.4 -11.8 12.9 -37.9 Textiles .. -0.9 3.5 2.1 2.4 -1.9 -1.0 -9.9 14.2 -35.8 Clothing .. -2.5 -3.0 0.0 10.3 4.7 12.4 -28.9 11.9 -41.8 Leather and Shoe .. 1.9 1.9 5.3 1.6 5.1 -3.5 -34.8 -30.4 -77.4 Agriculture/Food-Processing .. 0.6 -0.1 3.5 4.1 2.5 -15.1 -15.7 -31.8 -30.4 Food Processing .. -1.6 -1.1 5.0 4.5 1.2 -3.6 -30.3 -10.3 -28.8 Meat and Dairy Products .. 5.5 2.2 0.1 3.6 5.0 36.0 -45.6 -38.2 -34.3 Fish .. 1.6 2.7 12.3 -4.9 14.9 5.1 -35.0 28.0 -39.0 Source: Table 7-2. TABLE 7-3: TAJIKSTAN - ELECTRICITY PRODUCTION AND CONSUMPTION (billions of KWII) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Production 13.6 15.7 13.6 15.9 18.8 15.3 18.2 17.6 16.8 18.0 17.0 of which: Thermal 1.0 1.3 1.5 1.3 1.2 1.5 1.3 1.2 0.9 1.0 0.3 Hydro 12.6 14.4 12.1 14.6 17.0 13.8 16.9 16.4 15.9 17.0 16.7 Nuclear .. .. .. Total Imports 4.1 5.5 7.4 6.5 5.5 8.0 6.9 6.9 6.4 5.0 Inter-republic 4.1 5.5 7.4 6.5 5.5 8.0 6.9 6.9 6.4 5.0 Extra-republic .. .. .. . Total supply 17.7 21.2 21.0 22.4 24.3 23.3 25.1 24.5 23.2 23.0 Domestic consumption 9.7 15.3 16.6 16.9 18.3 19.1 19.4 19.1 17.6 17.0 Industry and construction 4.9 9.1 9.8 10.3 11.2 11.6 11.5 11.0 9.8 8.0 Agriculture 2.7 3.5 3.7 3.5 3.8 4.0 4.2 4.5 4.3 5.0 ON Transport 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.1 0.0 Other sectors 0.4 0.5 0.5 0.6 0.6 0.6 0.6 0.5 0.4 0.0 Households 0.7 1.0 1.1 1.1 1.2 1.3 1.3 1.1 1.2 1.0 Losses 0.9 1.1 1.4 1.3 1.4 1.5 1.6 .8 1.8 2.0 Total Exports 8.0 5.9 4.4 5.5 6.0 4.2 5.7 5.4 5.6 6.0 Inter-republic 8.0 5.9 4.4 5.5 6.0 4.2 5.7 5.4 5.6 6.0 Extra-republic .. -- .. .. .. .. .. 0.0 0.0 0.0 Total uses 17.7 21.2 21.0 22.4 24.3 23.3 25.1 24.5 23.2 23.0 Source: State Statistical Committee of Tajikistan. TAI .F. 7-4: TA.J1ISTAN - PitiMAR F.,NrRV SUPPLY (natural units) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 PRIMARY PRODUCTION Coal and Lignite (hard and brown) (Th T) 832 516 660 593 673 515 475 313 214 174 106 Crude Oi (ThT) 330 322 314 282 242 171 136 99 57 39 33 Gas (M M3) 222 303 292 280 235 194 Ill 93 72 49 33 Nuclear Ilydro/Geothermal (M KWIV) 12,630 14,403 12,066 14,596 17,565 13,803 16,885 16,391 15,919 17,119 16,976 Other TOTAL ENERGY TRADE Coal and Lignite Exports 428 256 .. .. .. 230 274 186 80 42 (ThTI) Imports 492 655 .. .. .. .. 781 649 422 33 14 Net Imports .. .. .. .. .. .. .. Oil/Oil Products Exports 343 355 .. .. .. .. 139 109 64 41 10 (Th T) Imports 1,885 2,305 .. .. .. 2,276 1,022 601 402 331 Net Imports .. .. .. .. .. Gas Exports 177 214 .. .. .. .. .. .. (M M3) Imports 1,133 1,389 .. .. .. .. 1,729 1,775 1,154 1,374 762 Net Imports .. .. .. .. .. .. Electricity Exports 8,008 5,922 4,403 5,526 6,066 4,172 5,663 5,390 5,596 6,386 5,167 (M KW) Imports 4,143 5,500 7,463 6,522 5,505 7,969 6,905 6,941 6,428 5,214 4,684 Net Imports .. .. .. .. .. .. Source: State Statistical Committee of Tajikistan. TABLE 7-5: TAJIKISTAN - PRIMARY ENERGY SUPPLY (thousands of tons oil equivalent) Item 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 PRIMARY PRODUCTION Coal and lignite (hard and brown) 461 286 366 329 373 285 263 173 119 96 74 Crude oll 472 460 449 403 346 245 194 142 82 56 34 Gas 255 348 336 322 270 223 128 107 83 56 31 Nuclear Hydro/geothermal 4,104 4,681 3,921 4,744 5,709 4,486 5,488 5,327 5,174 5,564 5,517 Other Total ENERGY TRADE Coal and lignite Exports 237 142 127 152 103 44 29 Imports 276 372 457 375 232 19 10 Net imports Oilloll product Exports 491 508 199 10 Imports 2,721 3,314 3,283 339 Net imports Gas Exports 204 246 . Imports 1,303 1,597 1,988 2,041 1,327 1,580 710 Net imports Electricity Exports 2,603 1,925 1,431 1,796 1,971 1,356 1,841 1,752 1,819 2,075 1,679 Imports 1,347 1,788 2,425 2,120 1,789 2,590 2,244 2,256 2,089 1,695 1,522 Net imports Total net imports . Total stock changes Source: State Statistical Committee ofTajikistan. - 128 - TABLE 8-1: TAJIKISTAN - MONTHLY WAGES BY SECTOR (current rabies) 1/ 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 AVERAGE 146 158 162 166 177 188 207 340 1,909 16,155 34,904 MATERIAL SECTORS Industry 158 175 179 182 194 214 231 394 2,523 25,462 68,460 Electricity 179 187 188 193 210 243 278 779 42,395 Fuels 254 258 262 263 280 276 309 448 35,069 Metallurgy (Ferrous and Non-ferrous) 237 276 295 310 357 394 402 738 65,926 Machine-Building and Metal Working 169 189 143 194 210 224 246 387 Chemicals and Petrochemicals 187 211 218 220 237 262 296 486 26,507 Forestry, Woodworking and Paper-Pulp Industry 161 174 199 176 184 205 206 393 .. 33,287 Construction Materials 174 192 198 204 216 240 258 455 34,994 Light Industry 139 152 151 I51 169 180 193 319 Textile 154 166 169 170 189 203 218 377 Clothing 116 126 122 121 139 147 154 224 Leather and Shoe Industry 137 161 153 I5 175 183 205 325 26,164 Food Industry 141 144 151 I59 I59 174 198 273 27,362 Meat and Dairy 151 163 167 168 171 188 196 273 Fish 137 151 161 156 190 239 254 497 Other Food Processing Construction 380 200 205 212 233 253 276 434 2,616 32,376 76,674 r Agriculture 124 136 142 141 151 160 177 35 3,425 33,097 18,192 0 Transport 170 176 178 182 195 204 223 324 1,611 17,916 47,377 I Communications 127 136 139 144 160 173 191 330 2,083 17,299 46,661 Trade (Retail and Wholesale) 130 135 138 138 143 155 190 295 1,440 14,359 33,478 Other Material Production .. 19,944 NONMATERIAL SECTORS - Municipal Services 112 119 121 122 130 143 160 273 1,814 16,382 38,046 Science, Research and Development 174 184 188 197 230 260 288 435 2,534 16,568 44,508 Education 142 161 167 179 180 180 183 294 1,721 12,072 28,341 Culture 109 112 113 113 117 119 143 234 1,445 10,425 22,532 Arts 129 137 138 143 146 151 173 274 1,428 9,837 22,532 lcalth Care, Social Security, Sports 126 131 132 133 145 145 167 269 1,557 10,384 26.018 Banking, Finance, Credit, Insurance 143 158 164 167 179 192 296 .712 4,665 41,304 113,959 Government 147 152 157 166 179 211 300 430 2,994 22,576 43,106 1/ For workers and employees. Source: State Statistical Committee of Tajlikistan. TABLE 8-2: TAJIISTAN - MONTILY WAGFS BY SECTOR, 1992 (current rubles) January February March April May June July August September October November December AVERAGE 724 732 900 879 1,196 1,780 1,651 1,719 2,150 2,592 2,985 4,336 MATERIAL SECTORS Industry 1,021 1,108 1.440 1,645 1,906 2,200 2,449 2,855 3,246 3,480 3,893 6,347 Agriculture 343 333 430 394 707 1,049 923 967 1,063 1,300 1.543 3,876 Forestry 487 352 920 649 582 1,593 1,246 1,266 2,646 2,342 2.176 3,865 Transport 585 668 859 1,072 1,387 1,694 1,976 2,219 2,294 2,647 3,002 2,806 Communications RIO 994 941 1,379 2.050 1,927 1,942 2,149 3,301 4,093 5,69H Construction 753 962 1,392 1,489 2,075 2,747 2,859 2.774 3,967 4,244 4,771 5,357 Trade (Retail and Wholesale) 509 581 746 634 995 1,265 1,303 1,352 1,458 2,856 3,440 2,221 NONMATERIAL SECTORS Information and Computer Services 439 718 1,200 873 967 2,065 1,933 2,153 2,284 2,702 3,233 3,101 Municipal Services 683 790 854 903 1,680 1,753 1,868 2,016 3,130 2,553 3.601 L Heslth Care, Social Security, Sports 554 661 740 689 1,114 1,858 1,802 2,405 2,393 2,374 2,912 3,059 0 Education 756 734 832 814 1,240 2,769 1,867 1,920 2,286 2,580 3,124 2,836 I Culture and Arts 561 605 679 724 885 1,461 1,380 1,403 1,572 2,202 2,078 2,494 Science, Research and Development 717 733 1,289 1,403 1,347 3,177 2,843 2,682 3,380 4,226 5,614 7,168 Banking, Finance, Credit, Insurance 1,142 1,344 1,703 1,690 2,617 4,538 5,048 5,055 6,426 6,318 6,877 13,182 Government 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 Collective Farmes 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 Joint Ventures 1,340 2,234 2,267 3,686 6,432 3,509 6,701 5,057 3,699 4,746 5,335 Private Enterprises .. 2,510 1,605 5,503 2,564 1,912 3,788 3,645 3,889 6,133 Small Enterprises 3,116 1,524 1,605 5,503 2,564 1,912 3,788 3,645 3,889 6,133 Source: State Statistical Committte of Tajikistan. TABLE 8-3: TAJIKISTAN - MONTHLY WAGES BY SECTOR, 1993 (current rubles) January February March April May June July August September October November December AVERAGE 3,335 4,357 4,960 6,459 8,158 10,612 12,951 14,317 16,160 23,129 26,463 33,680 MATERIAL SECTORS Industry 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 15,772 17,316 Forestry 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 8,313 12,522 15,693 18,368 18,396 22,866 29,475 29,707 Communications 4,123 6,872 7,647 7,738 9,888 17,865 15,062 14,592 17,337 25,934 31,915 39,700 Construction 4,904 6,163 8,762 12,240 15,913 22,207 27,559 30,221 38,486 45,594 55,758 59.939 Trade (Retail and Wholesale) 2,436 2,901 5,779 5,543 7,921 9,502 11,518 12,568 13,533 19,755 23,923 29,691 NONMATERIAL SECTORS Information and Computer Services 3,852 4,994 8,412 8,465 11,214 17,022 24,121 20,168 24,850 25,805 36,207 39,300 Municipal 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 Health Care. Social Security, Sports 2,957 4,109 4,373 4,841 7,157 9,428 10,157 11,353 12,273 17,974 22,387 20,300 - Education 3,030 4,398 4,885 5,228 6,549 11,804 9,111 10,078 9,784 17,522 19,849 21,400 Culture and Arts 2,667 4,017 4,168 5,820 5,791 8,967 10,250 11,044 9,870 17,831 20,506 20,638 Science, Research 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 Banking, Finance, Credit, Insurance 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 ENTIRE STATE ECONOMY 3,807 4,985 5,997 7,442 9,327 12,862 15,044 16,179 17,629 25,375 30,028 35,187 Collective Farmes 1,040 1,543 1,458 2,204 3,486 4,504 6,121 7,862 10,505 15,491 14,832 20,494 Cooperatives 6,619 3,667 6.878 11,358 11,164 11,985 16,233 21,822 21,522 29,778 32,510 62,567 Joint Ventures 5,257 7,434 10,282 3,966 13,144 12,602 29,562 27,597 31,158 44,794 49,177 47,984 Private Enterprises 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 Enterprises 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: State Statistical Committee of Tajikistan. TABLE 8-4: TAJIKISTAN - rIONTHLY WAGIES ny SECrOR, 1994 (current rubles) January February March April May June July August September October November December AVERAGE 30,576 31,004 36,724 35,445 35,904 40,226 35,963 35,373 38,385 38,972 37.805 50,932 MATERIAL SECTORS Industry 59,838 69,440 71,354 71,870 68,319 69,886 66,533 66,334 67,442 66,754 67,093 76,660 Agriculture 13,666 12,298 15,607 16,443 19,054 26,831 19,472 18,384 21,950 24,015 22,949 37,197 Forestry 19,218 20,173 21,806 17,844 22,972 20,804 17,290 19,864 19,725 26,672 19,295 55,534 Transport 34,908 37,390 58,811 44,666 50,929 56,171 44,510 45,942 53,366 52,377 54,750 58,546 Communications 29,664 34,311 42,537 44,226 46,498 46,076 51,046 52,563 57,564 54,265 56,059 62,343 Construction 55,899 61,830 64,682 80,624 70,037 89,907 83,358 84,768 69,009 80,540 80,029 103,088 Trade (Retail and Wholesale) 25,302 25,437 30,773 31,217 28,775 34,568 32,993 32,989 32,581 32,950 31,980 39,477 NONMATERIAL SECTORS Information and Computer Services 37,064 44,073 54,969 53,626 54,236 SS,179 57,220 52,755 57,359 433991 51,668 64,917 Municipal Services 35,433 33,967 43,990 44,204 33,524 40,095 40,680 40,882 40,534 39,280 31,502 41,159 Health Care, Social Security, Sports 19,370 20,745 27,121 29,446 39,304 32,314 32,148 31,011 33,648 30,200 30,455 31,080 Education 18,657 20,472 27,027 2H.213 30,607 33,362 30,476 2R,355 28,927 28,784 27,477 41,566 Culture and Arts 20,737 19,902 22,637 26,152 28,831 35,085 36,470 27,870 29,596 31,068 31,593 29,837 to Science, Research and Development 26,374 34,582 38,850 47,747 47,655 60,870 45,720 83,959 85,079 48,081 58,623 61,713 1 Banking, Finance, Credit, Insurance 59,219 73,685 87,967 75,744 101,480 122,349 111,442 113,956 213,084 133,502 134,931 191,463 Government 36,362 37,563 45,159 42,112 42,989 44,520 47,007 47,993 49,536 55,951 47,111 56,513 Collective Farmes 11,751 10,861 14,423 11,510 14,553 17,874 16,970 15,628 22,284 25,144 22,839 40,514 Cooperatives 50,512 52,476 58,655 37,885 42,319 65,012 47,474 61,241 73,096 56,799 50,858 66,710 Joint Ventures 50,993 48,179 73,561 59,945 59,657 65,876 50,316 66,631 61,131 61,475 67,384 71,860 Private Enterprises 42,354 66,965 83,758 52,494 71,099 85,577 66,627 77,712 87,930 95,309 82,209 84,963 Small Enterprises 55,524 61,266 75,317 48,961 57,460 73,122 44,313 57,208 78,554 66,034 63,730 62,235 Source: State Statistical Committee of Talikistan. TABLE В•3: ТАIIЮSТА� - Ч'HOLESALE PRICES Уаг МовШ lадек >•foatWy loasгim Ratr cv���1 1990 100 1991 lашгегу 136 36.1 FеЪгипу 147 7,$ 1vlatтL 148 0.8 Л{+п7 160 8.I Mry ]84 15.0 7аое 193 4.4 Jпiy 196 1.7 Аиgцсl 206 S.1 Septcmбcr 212 3.1', Ocloбer 246 i6.1 Nmm�bef 239 4.9 Dxembc 284 9.8 1992 Ja�asry 749 163.9 FzЬгивТУ 2,697 2б0.2 МагсЬ 2,900 7.3 Арс1 4,402 31.8 Msy 4,719 7,2 ]тк ' 3,Оц 7.1 7и1у 7,218 42.5 Лugusl 7�83 10.6 Sepaembc 13,379 67.6 Ос1оЬа 14,1% б.1 Novemba 13,133 б.б 1)оог�Ьа I7,1]3 13.1 1993 7топу 42,120 146.1 Fsbгuay 77,164 83.2 N1пгЬ 113,74б 30.0 A1t$ 1б3,780 41.3 Мву' 783,399 13.2 1те 213,063 16.0 3дУ 233,Т74 17.9 юв�г зlзуls . 2зэ SeptwЬc 33S,Oa2 13.1 Ос+оЬс 620,613 74.8 No►eaiбer Тl1,422 243 DеоедЬет 1,О47,391 33.В 1994 Jmuary 1,16I,776 10.9 Fcbruary 1�90,736 11.1 Maeh I,632,781 26.3 Мо1 1.674866 27 Мау 2,О8Т.б98 24.3 lime 2,613,886 233 1и1у 2,981,726 14.1 M+g�s1 3,026,3I2 I.4 Se{Ч�кЬа ЗЭ39,428 11.0 Oetober 3,54i,197 3.3 Navembeт 3,99�{,309 127 D�ba 4,689�19 17.4 199s lтиау а,82а,б� zs Febлury 3,ТЭ6,338 19.0 Л4п� 6,000,419 4.6 Арп7 6108,447 6.8 Мл• 6,iI2,180 6.3 J�me ' 7.334271 10.6 tiovrae: Stau Statbaol Canmhtк of T�1ldstao. - 133 - - *1£Т - 96/L2 vдs^llfв,L�o аа�lттоз ln,ymng а�лТ :aa+noS '»вФоr� /_ 'СЬЬТ т 8�р� (idJ) =ара! иид лтпiооз /1 9'8SS Е'£Е9'( 0'ОЕ Z19'S6L'f 2 u9�Q 1'£Z L8l'8S►'У 2 »4�AOК б'9S C6S'iL9'£ /Z �9°а0 0'£9 OLr80£'Z 2 у9���Т 1'BL 980'91f'I �^У L'9 LO1'S6L �1"Г L'В 081't1L 0°^Г 0'S1 90L'889 ��W б'OZ iC8'86S l!�V б'Cl С1£`СЬ► 4�W б'01 Z/l'OZ► �9ai £'fl 8У8'8СЕ �+�П°�Г S66[ tiOSE Гf L'f 9С£'►££ �а4�°а(I 9'l S9f'б!Е �4�AON 9'9 9£Е'11 £ °4°�0 УЕ 9С8'f6L p9���S б'S 8Cl'C8Z �п8лУ 0'► 06Z'69Z 'С1^f L'i ЕЕЬ'8SZ �f l'S; SZl'itZ 'Г*W l'£ !68'6Ei (�У Z'У� 8L9'Z£Z q�lN ь'f• бС8'Z1L �4а3 Г£L- LSO'/SL '�^иГ /66I 8'46l'Z 8'£ОЕ'L б'9L1 N!8'ОЕ£ �9Q7�'+Q Z'Е9 L9t'ЬП +�9°алOК 1'SZ EOL'£L °4°р0 1'9Е S1S'8S +a9��S 0'£► 006'2У �^У 9'I£ 000'0£ �1^f Е'Cl Z9C'ZZ �Г L'£Е SO►'б! ��N1 б'Е9 1!S'/t 1!�V 9'f£ SS8'8 4�W 1'YZ 6CS'9 �4а3 0'61 88Z'S �Пi°f /! Ебб! £'9S1'i 8'!9£! 9'ft 1ri'f �Ч�Q 8'9 L16'£ �9°°AON 0'8 £99'£ n9°�О 1'01 Z6£'£ +а9'��4aS S'С! LCO'£ �^У 0'Е1 S19'Z �1^f >'£! i1£'г °�^г V'1 010'Z ��YV L'8 Zl0'Z 1�b' s'zl 1 sв' 1 ч°+*w 1'£С S►9'1 �9ад l'f1Z 1S6 �'т+*Г Z66i 0'VOZ 9'9 90Е �9^+аOW 0'0! S8Z у9�A0N 0'9 6SZ �9°и0 9'0 91Z р9��ыS L' l ОЕZ �кn8пд б"Z 0£Z �1^( Ь'9 EZZ а�+Г 8z бог ��и! 9'L9 £OZ 1ii6V Г8 SZ1 4�W S'f S1I �4аЭ УЬ 60l �^�f !бб[ 00[ +а9�(] Обб[ (аlов4а 7.) �о8и� •/.) la7aвQa У.) a2uawy ро!+ад Р°!+ад °!Ч�t,и аца °оцгUоl C1Wu°W кариl 4iaoW �a.l SQOOJ �О S3JRld (�1Э WПSNOJ)'11V13?1' NV1SIЯtCYt �74 3'18У1 TABLE 9-1: TAJMSTAN - MONEY INCOME AND EXPENDITURE OF THE POPULATION (millions of current rubles) Type of income or expenditure 1980 1985 1986 1987 1988 1989 1"0 1991 1992 1993 1994 Income Total Labor Income 2= 2,914 3,021 3,106 3,409 3.946 4Z4 7,219 34,734 356,438 266,401 Regular wages 1,691 2,192 2,288 2,379 2,577 2,792 3,055 4,636 25,227 233,244 233,896 Wages paid by cooperatives 15 132 203 ISO 773 6,214 1,933 Other wages and compensation 64 79 82 85 % 252 137 319 933 11,823 9,325 Income paid by collective farms 343 427 441 433 473 528 535 1,623 6,275 69,483 15,512 Income from sale of farm products 125 216 210 210 263. 294 324 461 1,526 35,674 5,735 Total Transfer receipts 505 740 7% 934 942 1,094 1,346.- 3,290 8,517 106,040 114,758 Pensions and allowances 381 521 562 586 631 672 901 2.046 6,312 53,451 Scholarships 26 29 30 31 32 34 44 103 490 3,230 Income from the financial system (insurance, interest, etc.) 65 124 124 127 151 154 249 320 504 3,182 Other income 33 66 so 90 128 234 252 821 1,211 46,177 Total income 2,728 3,654 3,817 3,940 4,351 4,940 5,600 10,509 43,251 462,478 381,158 Expenditure Total Purchases 2,521 3,228 3,383 3,470 3,754 4,069 4,631 7,461 25,298 250,866 131,806 Retail goods 2,304 2,956 3,086 3.147 3,391 3,664 4,207 6,532 22,033 222,251 Services 217 272 297 323 363 405 424 929 3,264 28,615 Rent and utilities 53 69 79 98 99 103 90 103 487 5,060 Transport and communications 112 140 149 ISO 138 177 193 304 1,594 13,424 Health and other services 11 16 19 22 25 27 34 47 89 1,012 Cooperatives 1 6 12 14 76 52 373 Transfers and savings 332 495 560 587 671 859 963 2,541 3,472 82,352 164,726 Taxes, fees, dues, and other 239 325 342 363 397 443 SIO 601 2,230 19,946 76,437 Savings 86 157 218 224 274 416 453 1,881 934 61,633 88,289 Other 7 3 59 308 773 Total expenditure 2,953 3,713 3,943 4,057 4,425 4,929 5,594 10,002 28,770 333,218 2%,532 1 Income less expenditure -125 -59 -126 -117 -74 12 6 507 14,481 129,260 94,626 I/ Data for 1994 am preliminary. Source: State Statistical Committee of TajBdstan. - 135 TABLE 10-1: TAJIKISTAN - CAPITAL INVESTMENT BY STATE ENTERPRISES AND ORGANIZATIONS (millions of current rubles) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Material Sphere 278 264 194 2,196 3,635 7,157 7,930 7,922 6,846 76,910 196,707 Agriculture including forestry 3 123 71 57 66 1,945 3,097 2,424 1,393 25,622 78,526 Agriculture excluding forestry 3 123 71 57 66 1,945 3,097 2,424 1,392 25.611 78,526 Forestry .. - I Industry, total 0 0 46 2,078 3,241 4,593 4,374 :4$29 4,958 41,626 93,504 Industry, other 46 2,046 3,061 3,850 3,886 3,980 4,796 37,994 85,088 Construction 32 180 744 488 449 163 3,632 8,416 Other, material sphere 275 141 78 62 328 618 458 1,069 495 9,662 24,676 Transportation of goods Maintenance of roads 39 9 78 84 11 258 7,670 21,107 Communication (for material production) 73 55 27 46 91 178 210 42 609 1,792 Wholesale trade .. Retail trade and catering 275 16 5 178 278 275 90 818 860 Material supply 9 9 27 208 34 241 11 524 918 Procurement 5 149 Information and computing services 41 1 41 Other branches of material production .. 34 162 183 92 Nonmaterial Sphere 241 80 192 135 859 1,870 2,819 2,992 3,362 69,270 186,442 Transportation 322 828 942 607 248 5,859 6,229 Communication .. Housing 127 2 84 354 1,042 1,072 1,412 1,552 23,328 63,933 Public utilities and personal services 80 153 2 41 217 296 610 10,396 32,234 Health care, social security, physical culture and sports 18 7 23 94 205 237 259 8,810 19,401 Education 5 23 205 329 450 11,113 27,987 Culture and art .. 21 73 87 41 2,485 6,723 Science and scientific services .. 25 25 21 21 21 353 1,294 Credit 29 5 84 Insurance .. General administration and defense .. Private nonprofit Institutions serving bouseholds 67 3 2 Other 180 6,926 28,641 Other, material and nonmaterial spheres 516 221 269 196 1,187 2,488 3,277 4,060 3,857 78,932 211,118 Total Capital Investment 519 344 385 2,331 4,494 9,027 10,748 10,913 10,208 146,180 383,149 Sources: State Statistical Committee of Tajikistan. - 136 - TABLE 10-2: TAJIKISTAN - WORK IN PROGRESS IN CONSTRUCrION (millions of current rubles) 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Material Sphere 511.8 831.0 951.0 1,035.3 1,184.9 1,260.7 1,484.0 2,015.6 6,555.7 80,770.0 260,602.8 Agriculture including forestry 203.1 337.4 388.8 301.3 319.2 316.3 336.4 429.4 923.7 23,969.0 74,330.4 Agriculture excluding forestry 202.7 337.0 388.4 301.3 319.1 315.9 336.2 429.0 922.9 23,960.0 74,330.4 Forestry 0.4 0.4 0.4 .. 0.1 0.4 0.2 0.4 0.8 9.0 Industry, total 285.3 471.3 527.6 699.3 821.3 887.7 997.9 1,492.0 5,208.6 46,421.0 119,444.8 Industry, other 277.1 445,0 501.1 623.4 741.5 818.2 926.5 1,389.0 5,047.7 42,652.0 108,560.1 Construction 8.2 26.3 26.5 75.9 79.8 69.5 71.4 103.0 160.9 3,769.0 10,884.7 Other, material sphere 23.4 22.3 34.6 34.7 44.4 56.7 149.7 94.2 423.4 10,380.0 66,827.6 Transportation of goods .. .. .. .. .. . .. .. Malntenance of roads 10.3 10.8 20.9 21.9 25.3 35.5 120.2 46.1 175.8 8,560.0 24,981.2 Communication (for material producti 3.2 6.5 5.7 6.2 6.5 6.9 8.8 17.6 41.4 1,322.0 3,113.5 Wholesale trade .. .. .. .. .. .. .. Retail trade and catering 5.1 3.9 5.7 5.9 10.5 9.0 13.9 24.4 87.6 450.0 1,235.8 Material supply 2.8 0.9 1.1 0.6 1.8 4.2 3.6 6.1 0.5 6.0 920.9 Procurement .. .. .. .. .. .. .. .. 17.7 Information and computing services . .. .. .. .. .. .. .. .. 1.1 42.0 Other branches of material production 2.0 0.2 1.2 0.1 0.3 1.1 3.2 .. 99.3 .. 36,576.2 Nonmaterial Sphere 182.9 216.5 198.1 295.6 320.9 463.0 555.1 872.8 2,804.9 51,140.0 190,276.7 Transportation 5.3 6.3 6.3 13.6 24.8 30.8 24.1 47.5 116.9 4,808.0 10,854.0 Commnilcation .. .. .. .. .. .. .. .. Housing 54.6 82.0 98.0 115.4 118.0 163.0 201.6 303.0 1,246.7 16,196.0 62,538.5 Public utilities and personal services 62.7 56.9 .. 62.6 85.9 118.4 148.3 231.9 619.8 9,582.0 38,936.7 Health care, social security, physical culture and sports 13.8 22.5 27.1 30.6 .. 46.5 57.5 87.1 280.5 5,967.0 22,501.8 Education 28.8 34.2 49.0 54.2 62.8 66.5 80.8 136.0 442.0 8,200.0 21,647.8 Culture and art 5.4 2.7 3.2 4.1 8.2 10.0 9.7 14.1 41.9 2,306.0 6,128.8 Science and scientific services 1.2 1.2 4.5 4.5 9.3 12.1 12.1 16.3 32.0 431.0 1,089.8 Credit . . . .. .. .. Insurance .. .. .. .. ., .. .. .. General administration and defense .. .. .. .. .. .. .. . . Private nonprofit institutions serving households plus other 11.1 10.7 10.0 10.6 11.9 15.7 21.0 36.9 25.1 3,650.0 26,579.3 Other, material and nonmaterial spheres 2063 238.8 232.7 330.3 365.3 519.7 704.8 967.0 3,228.3 61,520.0 257,104.3 Total work-in-progress in construction 694.7 1,047.5 1,149.1 1,330.9 1,505.8 1,723.7 2,039.1 2,888.4 9,360.6 131,910.0 450,879.5 Sources: State Statistical Committee of Tajikistan. - 137 - _:� - .. . _. _ _.. .. -- - -- - - с.�. = - - - - --- ---� ------ - --- ------- - ---- --�- ---- КА7_RК•1;1;1��t�1 /л" V�i•.j � г�, 1 1"� � I 1\��) 1/"1 1 V � г i:. г �� �,,A�N РС,А�S г• ` то гп,ь{,,пг ..� / j ь, ид��ип� , _.�__�, , { �• .� �j - anneonns '� � ��"�',, . ; � '� /' .� , ' • SFI.FCTFO GПFS �, fC� `г\ ,{`;� UZBFK. О nиТоюОмОиS Oa1AST {АО1 CEмFR _ rп сиsггпп �� ��� ��•�f�� ro г�иг,оп р овиsТ Сг:иrЕк U Z B E K 1 S TA N { � � Khojand _; .- �• �'.�' • ?� иnrioNAi cAPiTni ' •" +�j�Кппibадпп /`. 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