Tajikistan - Country assistance strategy

International Development Association FOR OFFICIAL USE ONLY 155'48 IDA/R96-74/2 FROM: Vice President and Secretary May 24,1996 TAT1WSTAN: Country Assistance Strategy Revised As agreed at the meeting of the Executive Directors held on Thursday. May 16,1996, attached is a revised Country Assistance Strategy document for the Republic of TajidastanL Paragraphs 1, 2,32,37,42 and 43 of the attached paper has been revised. Questions on this document should be referred to Mr. Yurukoglu (X33770). Distribution: Executive Directors and Alternates President's Executive Committee Senior Management, Bank, IFC and MIGA 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.  MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR R]ECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORILD BANK GROUP FOR THE REPUBLIC OF TAJIKISTAN This is the first CAS for Tajikistan. Its coverage is limited, reflecting our limited knowledge of the country and the incipient nature of our assisiance activities. Tajikistan stands out among the FSU countries because of its narrow economic base, reliance on agriculture, and widespread poverty. Since the break-up of the FSU, the country has suffered political instability, civil war, a severe macroeconomic crisis, a large debt overhang, and a deterioration of institutional capacity. Income has fallen by 60 percent in the pastfour years andforeign exchange reserves are virtually nil. While acknowledging the country's urgent neetds, especially for balance of payments support, it is also clear that there are substantial risks of continued political and economic instability, and erratic implementation of reform. In this environment, the Bank Group's initial assistance strategy is intended to provide supportfor meeting the country's most immediate needs while allowingflexibility to adjust the nature and level of engagement as circumstances warrant. Our program will begin in FY96-97 with three operations that are intended to: (a) strengthen institutional capacity to plan and implement a medium-term program of structural reform; (b) support the Government's efforts to stabilize the economy; and (c) moderate the impact of the economic collapse on vulnerable groups. The development of this program will be linked to the security situation and paced to Government's progress with the reform process. In this way, at the end of FY97 we will be well-positioned -- depending on the response of the economy and the speed of reform -- to increase or scale-back our support. With strong performance, we would expect to respond in FY98 by establishing a Resident Mission and presenting an adjustment ovcr-; ion, along with a CAS, to the' Board. Alternatively, if political stability or economic performance deteriorates, we would scale-back our involvement. By adjusting our program in this fashion, we hope to minimize the risks associated with the country's political and economic uncertainties. A. Recent Econonmic and Social Performance Background 1. From the time of its formation by the Soviets in the 1920s through the present day, Tajikistan has faced numerous development challenges, including a lack of skilled labor, minimal natural resources, and ethnic tensions. In the late 1950s and early 1960s, the enormous potential of Tajikistan's water resources was recognized and lead to investment in the development of irrigated agriculture and hydropower. During the last years of the Soviet period, these investments transformed the largely poor, rural, subsistence economy into a cotton and aluaminum producing enclave -- importing inputs for these sectors and exporting outputs mainly to be exchanged for wheat and fuel. At their pre-independence peaks, cotton fiber and aluminum together accounted for roughly 90 percent of exports and 50 percent of GDP.  - 2 - 2. Independence was declared in September 1991 and was almost immediately followed by an outburst of political and ethnic strife. Although elections were held shortly after independence and again in 1992, political and ethnic rivalries erupted into a civil war that lasted from mid-1992 through early 1993. Gradually, however, the Government has been able to reestablish its control over most of the country. A new constitution was adopted by referendum in late 1994 and presidential elections were held. In February 1995, elections for a new parliament (Majles Oli) vvere held. 3. Peace talks have been underway intermittently since May 1995 and although the talks are currently stalled, both sides have agreed to their resumption. Further, the cease fire agreement has been extended through May 26, 1996. Nonetheless, sporadic fighting continues particularly in the Eastern and Southeastern part of the country and along the border with Afghanistan. The main obstacle to peace appears to be disagreement over proposed constitutional changes and restructuring of some government agencies. The ongoing struggle with the opposition was complicated in late January 1996 by unrest among some of the Government's military supporters. As a consequence, both the Prime Minister and the Deputy Prime Minister, along with several other officials, resigned. Although the outcome is widely seen as strengthening the President's political power, it serves as a reminder of the country's fragile poliltical condition. 4. Although Tajikistan joined the Bank in June 1993, our operational activities have been limited due to the country's fragile security situation.1 These problems, along with associated political instability, have made it extremely difficult for the Government -- prior to early 1995 -- to focus on economic issues and to engage the Bank Group in the preparation of a country assistance program. Since early last year, however, Government has sought to design and implement its own reform program with support from the IMF and the Bank. The present Country Assistance Strategy is the first for Tajikistan and is the result of a collaborative effort by the Government and the Bank. Given the uncertainty surrounding the near term in the country and our lack of experience, this CAS is limited in several key areas; it will be updated and expanded as we deepen our understanding of the Tajik economy. Recent Economic Performance 5. The economic and human cost of the transition from the Soviet era has been very high for Tajikistan. In addition to the disintegration of trade and payments relations within the FSU, the civil war resulted in the death of about 50,000 people, the displacement of 850,000, and extensive damage to the country's infrastructure -- especially in the southern and eastern parts of the country which historically is the poorest area. Further, severe flooding in 1992 and 1993 caused major damage to infrastructure and productive assets and, therefore, additional disruption of economic activity. These events contributed to the emigration of an estimated 500,000 non-Tajiks, who comprised a significant share of the skilled labor force. 6. Tajikistan's recent economic performance reflects the impact of these events. Production fell by an estimated 60 percent during the period 1991-95 with agriculture and industry affected the most. Most industrial firms are currently operating at less than one-third of their capacity, and agricultural procluction -- which accounted in 1991 for about one-third of GDP and about 50 percent of employment - - is only about 30 percent of its 1991 level. These output declines are among the largest experienced by The Bank Group prepared a Country Economic Memorandum and a proposed Emergency Reconstruction Project. Processing of these activities, however, had to be suspended largely because of political and security uncertainties as well as lack of adequate cofinancing.  - 3 - FSU economies during this period. The financial sector also deteriorated rapidly -- largely because of the poor performance of state-owned enterprises -- with no prospect for most loans being repaid. 7. Heavily dependent on transfers from Moscow during the Soviet era, both the state budget and current account deficits have been unsustainably large. Budget deficits, on a cash basis, averaged over 22 percent of GDP during the period 1992-94. For 1995, the deficit on a cash basis is estimated to have declined to about 11 percent of GDP. This decline was due largely to a large reduction in cash outlays and was financed through accumulation of arrears (including unpaid wages) and through expansion of domestic bank credit. 8. Exacerbated by terms of trade shocks associated with the rising relative cost of energy and grain imports. Current account deficits averaged 23 piercent of GDP during 1992-94, financed primarily by external borrowing from FSU trading partners arid, more recently, external payments arrears. In 1995, the current account registered a small surplus. Most of the debt was contracted on commercial terms between 1992 and 1994. About one-fourth of the debt accumulated during this period was accounted for by medium-and long-term official credits, ten percent by a loan from Russia used to finance the currency reform, and the balance through settlement of FSU correspondent accounts and accumulation of arrears. At present, the country's external debt amounts to about US$810 million, over 80 percent of which is owed to the CIS countries, specifically Russia, LUzbekistan, and Kazakstan. Other creditors include the European Union, Turkey and the United States. 9. Inflation has been rampant -- reaching 2,200 percent in 1993 , 350 percent in 1994, and about 600 percent in 1995 -- and is linked to inflation and monetary developments in Russia (whose currency Tajikistan continued to use until May 1995) and to excessive monetary expansion in Tajikistan after the launch of the Tajik ruble. 10. Although Tajikistan initiated a programt of economic reforms soon after independence, the program was quickly put on hold due to the political instability of the early 1990s. During 1995, Government resumed the reform effort, which has been monitored and supported (with technical assistance) by the IMF. The program emphasizes stabilization (with an attempt to control the fiscal deficit and the expansion of money and credit) as well as basic structural reform. Interest rates and many prices were liberalized, following the introduction of the national currency in May 1995. In addition, the elimination of export quotas was announced for most of the items subject to these controls. As the main export commodities, cotton and aluminum remain subject to export quotas. 11. After this promising start, however, implementation of economic reforms during the remainder of 1995 was uneven. Expansion of money and credit (largely to agriculture) exceeded the Government's plan by a substantial margin, particularly during the summer months. The broad money supply increased three to fourfold between May and November, inflation accelerated, and the Tajik ruble depreciated sharply (from TR50/US$ in May to about TR300/US$ in December). Progress was also mixed on structural reform. The foreign exchange auction, which was introduced in July 1995, has operated for only a few months since opening. On a more positive note, bread and flour prices were raised several times (most recently in March) in order to eliminate production subsidies. Additionally, Government increased targeted cash benefits for the most vulnerable groups, limited the state's procurement of cotton to 70 percent of the 1995 crop, doubled the cotto]1 procurement price in dollar terms, and announced the elimination of state procurement of cotton for the 1996 crop. 12. Performance during the first quarter of 1996 has been somewhat improved. Monetary growth targets agreed with the IMF have been met and efforts have been made to strengthen the tax system and  -4 - improve revenue collection. The foreign exchange auction has been resumed and the Tajik ruble, after sharp nominal depreciation during the last half of 1995, has stabilized against the US dollar at approximately TR285 per dollar. 13. This mixed record of policy performance reflects two realities facing the reform process. First, the Ciovemment's capacity to design and implement reforms is very limited. Some of the slippage during mid-to-late 1995 appears to have been due to "overload" -- the inability of the Government to deal simultaneously with all of the problems it faces. The improved performance during early 1996, despite the uprising in the armed forces, reflects in part an intensified effort on the part of the IMF to provide continuous, on-site monitoring and technical assistance. Second, although the Government's core economic team understands that Tajikistan ultimately has no options other than reform and has taken pains to build a consensus for a reform program, there are still powerful political pressures to mainltain public expenditures, extend credit, and to delay structural reforms that would hurt some powerful interest groups. Thus far, Government has found it particularly difficult to deny credit to farms and enterprises, to give up control of the processing and marketing of cotton and aluminum, to flatten pension benefits to the seeming detriment of high income/high benefit pensioners, and to cede control of land t.o private individuals. Recent Social Performance 14. Tajikistan was, at independence, the poorest of the FSU republics. Roughly 30 percent of the population were classified as poor on the basis of the All Union minimum consumption basket. Its social indicators were among the lowest for Central Asia countries: infant mortality (47 versus 40 per thousand); under 5 mortality (83 versus 65 per thousand); female advantage with respect to life expectancy (5.6 versus 7.4 years); and total fertility (4.8 versus 3.4 births per female). 15. The steep economic decline and social dislocation since independence have intensified the prevalence (some rough estimates put the head count ratio as high as 90%) and depth of poverty and social deprivation, and have overwhelmed Tajikistan's social safety net. Although the system has been supplemented during the recent crisis years by humanitarian assistance targeted primarily to groups hard hit by the civil war, the overall capacity of the system to protect those at risk is severely limited. In 1994, about 18 percent of GDP was spent on subsidies and allowances (excluding extra-budgetary funds). During the first half of 1995, however, the share had fallen to about 15 percent. Since the end of 1993, hyperinflation and the downward spiral of output has led to enterprises being unable or unwilling to pay the wage bill tax. Consequently, there were eight months during 1994 when pensions were not paid at all. The situation worsened in 1995 and the Pension Fund is expected to have a shortfall of receipts over pension obligations of about three percent of GDP. 16. The Government has taken steps during the last year to shore up elements of a "core" safety net. A universal subsidy to bread production was eliminated and targeting of a bread allowance was sharpened to bring down the cost of bread subsidies from about 6 percent of GDP in 1994 to an estimated 1.2 percent in the last eight months of 1995. Child allowances, previously universal, have also been targeted to families with per capita incomes less than the minimum wage. The 1996 budget recently approved by the Parliament provides for an increase in targeted cashi compensation to protect the most vulnerable groups of the population from 1.1 percent of GDP in the period May-December 1995 to 3.1 percent of GDP in 1996. B. Economic Outlook  17. Given the major risks and uncertainl;ies facing Tajikistan today and the distortions and imbalances that currently afflict its economy, our medium term projections are unavoidably subject to a substantially larger than "normal" margin of error. There is, nonetheless, one feature of the medium term economic outlook that is clear: any plausible policy reform scenario for stabilization and structural adjustment of the economy must be underpinned by substantial balance of payments support. The economy, which has been living on transfers, unsustainable levels of borrowing and, recently, accumulation of arrears, is on the verge of foreign exchange strangulation. Import volumes, already depressed, declined during 1995 by 20 percent versus an estimated decline in real GDP of slightly over 13 percent. Shortages of inputs such as fertilizer and other agricultural chemicals are sharply reducing yields and production of cotton and other key crops. Foreign exchange reserves, at the end of 1995, were less than one week's worth of non-alumina, non-grant imports. 18. Absent substantial balance of payments support, it will be impossible to achieve a viable balance of payments position without further severe cornpression of the economy. External debt service due in 1995-96 amounts to roughly $470 million. Even under very optimistic assumptions, there is no prospect that Tajikistan could meet extant debt service schedules. Debt relief alone would not be sufficient, however. Increased donor support is essential to achieving balance of payments viability consistent with reasonable burden sharing among the institutions and governments providing support to Tajikistan. Table 1: Medium-Term Economic Projections (Annual average rates) Prelliminary Estimate Projection 1994 1995 1996-2000 Growth Rates Gross Domestic Product -21.4 -13.2 2.0 Exports -9.6 -8.0 5.0 Imports 18.3 -20.0 6.0 GDP Deflator 246.0 387.0 65.0 Other Indicators Fiscal Deficit/GDP (on a cash basis) -10.2 -11.2 -6.0 Current Account/GDP -21.0 0.4 -8.0 Debt Service/Exports 12.2 24.6 23.0 DOD/GDP 115.8 142.6 93.0 Source: World Bank staff projections 19. With decisive financial stabilization and structural reform, generous debt relief and additional external balance of payments financing on concessional terms, there are reasonable prospects that overall economic activity would stabilize over the next two to four years as suggested by the experience of other reforming countries (See Table 1). Such stabilization will require continuing recovery in those sectors where production appears to have bottomed out. In agriculture, improved access to imported inputs combined with land reform could lead to an early supply response and contribute to the recovery of the sector. In industry, easier access to fuel, imported raw materials and spare parts for machines would lead to increased capacity utilization. Privatization and improvements in the enabling environment for private sector development can be expected to lead to increases in small-scale enterprise activities, most notably in the service sector. Significant growth potential exists for exports of fruits and vegetables to neighboring countries, increased efficiency and exports of cotton and aluminum, and for the development of new minerals-based export sectors. Fairly rapid growth of imports would also be envisaged as import compression measures are relaxed and increased input supplies are imported.  -6 - 20. Any stabilization cum gradual recovery scenario is contingent on rescheduling debt due in 1996 on concessional terms (15 year maturity with a five year grace period at an interest rate consistent with annual interest payments of US$ 13 million -- or less than 3%) and, thereafter, on some combination of additional debt relief and continuing balance of payments support. The 1996 debt rescheduling element of the financing package is in place. The EU will refinance maturing debt while Kazakstan, Russia, Turkey, and Uzbekistan have indicated their willingness to reschedule payments falling due in 1995 and 1996 on terms consistent with a proposed financial program worked out by the IMF. The remaining finance for the 1996 program would be provided by a first tranche stand-by arrangement with the IMF and a proposed IDA-financed Agricultural Recovery and Social Protection Credit (see para 28). 21. Balance of payments viability also requires substantial financing continue beyond 1996. Additional financing on concessional terms averaging US$85 million (6-7 percent of GDP) per year over the period 1997-2000 would need to be provided through some combination of additional debt relief and additional concessional balance of payments financing. 22. In consequence, it is clear that the balance of payments will be exceedingly fragile and the env,ironment for reform exceptionally uncertain for an extended period of time. Reserve margins, while substantially greater than at present, would remain thin relative to those maintained by other reforming countries in the region. The financial feasibility of the reform is contingent on the continuing availability, albeit on a gradually declining scale, of support. Macroeconomic management will thus have to be exceedingly careful. Events, internal or external, that would jeopardize Tajikistan's access to concessional external finance would pose a serious threat to the reform program and the recovery. Clearly, resurgence of war or intensification of political instability would almost certainly sharply limit available financing and doom the medium term prospects for economic and social recovery. Unfavorable terms of trade shocks could also easily be disruptive.2 C. Tajikistan's Development Objectives and Policies 23. The Tajik Government understands, at the highest level, that it has no option but to undertake extensive economic reform. The Government understands that its reform performance must improve if the economy is to recover and Tajikistan is to attract and maintain donor support for technical assistance, investment, and adjustment that is needed to: (a) reform and reorient the economy toward a market-based system; and (b) reconstruct and modernize infrastructure damaged by flooding and war. Government, with some assistance from NGOs, has been able to repair essential roads and elements of the irrigation network and plans to continue this process in connection with the proposed IDA-financed Pilot Poverty Alleviation Project (see paras 30 and 31). The remaining needs, however, are thought to be substantial. 24. The Government's reform program, which is to be implemented during 1995-2000, was approved by Parliament in November 1995. The program was widely discussed and has the support of numerous influential groups in the country, however, there is some opposition to the reforms coming largely from those few who benefit from Government's control structures. Preparation of the proposed IMF stand-by arrangement, the proposed IDA-financed Agricultural Recovery and Social Protection Credit, and the proposed Institution Building and Technical Assistance Credit have underpinned the initial stage of this program. This program emphasizes stabilization of the economy and structural 2 2Recent international price projections suggest that Tajikistan may face generally favorable changes in its terms of trade.  - 7 - changes that would halt the economic decline and increase foreign exchange earnings as well as budget revenues. The key elements of this program are as follows. Macroeconomic Stabilization. The 1996 program will emphasize containment of the deficit (reduction from about 11 percent of GDP on a cash basis in 1995 to about five percent in 1996 through a combination of further expenditure compression and revenue mobilization), reduction of inflation (from about 60 percent monthly at present to around four percent per month after September 1996), and rebuilding foreign exchange reserves to about one month equivalent of imports. To this end, key monetary and credit measures introduced first in mid-1995 will be strengthened, including bank-by-bank credit ceilings, positive real interest rates, and an interbank foreign exchange auction system. Pricing and Trade Policies. Government will complete liberalization of prices, further reduce subsidies and eliminate trade restrictions. At present, prices are controlled only on three agricultural commodities (cotton, grains and silk cocoons) electricity, fuel, telecommunications, and transportation. In July 1995, Government took the politically difficult action of abolishing the subsidy on bread production. All state orders have been eliminated, except for cotton and aluminum which will be eliminated in 1996. Legal Framework. In order to serve as the basis for a market economy there needs to be enhanced protection of private property rights. In November 1995, Parliament amended the existing law on privatization and plans to amend other laws on property rights, commercial activities, and securities. The amended privatization law will empower the State Property Committee to select enterprises to be privatized and introduce broad public participation in the privatization process. Agriculture. The dominance of the agricultural sector in the economy and the need for reform and investment is well recognized by the Government. The Government has begun implementing reforms in several areas of the sector. First, it has drafted guidelines for a farm restructuring program. Second, Government plans to begin implementing an irrigation water pricing scheme that will achieve full cost recovery over the program period. Third, in order to liberalize public sector marketing and processing monopolies, Government has already eliminated state orders on all commodities except cotton which Government has announced will be eliminated beginning in September 1996. Further, Government is preparing plans for the privatization of state processing and marketing monopsonies for cotton. Finally, Government plans to seek donor support for investment to modem and repair irrigation systems. The starting point for this investment program is reforming the pricing system for irrigation water as part of the proposed Agricultural Recovery and Social Protection Credit. Banking. The banking sector is still organized along the traditional Soviet model of sectoral banks. The credit culture within the banks is weak at best and the danger of moral hazard in lending decisions is acute. Recognizing these problems, the Government intends -- with support from IDA -- to: (a) keep real interest raLtes positive; and (b) rehabilitate the banking system in order to cope with non-performing assets (roughly estimated at about 25 percent) and to create a true banking culture. Privatization and Enterprise Restructuring. Government's plans to implement a privatization program aimed at both small and large firms in order to promote efficiency and growth. There is a broad consensus in Government that the speed and process of privatization have not been  -8 - satisfactory and need to be improved. In this respect, Government has set a goal to privatize the majority of small-scale enterprises (less than 10 employees), ginneries and the state cotton marketing agency (Glavchlopkoprom) over the next two years. The blueprint for privatization will be developed with IDA-financed technical assistance. Social Protection and Reduction of Poverty. Although growth lies at the heart of the Government's poverty reduction program, it recognizes that supplemental targeted interventions are essential. These include addressing a range of structural and policy issues in the social services sectors. Additionally, Government has begun implementing targeted interventions consisting of additional social support to the most vulnerable groups of the society in the form of cash transfers (bread and child allowances). Steps are also to be taken to stem the erosion of the Pension Fund, to increase the reliability of payment of minimum pension levels, and to strengthen payroll tax administration. Further, as part of the proposed IDA-financed Pilot Poverty Alleviation Project (FY97), Government plans to implement employment intensive works programs that would include reconstruction of minor infrastructure damaged during the floods and civil war. 25. As noted above, implementation of the program has been on track during the first quarter of 1996. To improve day to day implementation and coordination, Government set up a Committee on Reform, which is chaired by the Prime Minister and includes key reform actors. Financial performance criteria have been met, and a large number of actions with respect to structural reform have been taken. The challenge during the balance of the year will be to maintain and strengthen this performance -- which will require very tight fiscal discipline -- and begin lengthening the Government's policy focus to the miedium term. D. Bank Group's Country Assistance Strategy 26. The situation in Tajikistan confronts the Bank Group with difficult choices. On the one hand, the depth of the present economic crisis combined with the widespread poverty, reconstruction needs, and the favorable dialogue with Government argue for aggressive Bank Group involvement. Carefully crafted involvement developed in active collaboration with other donors, could -- in the near term -- yield significant -nvironment improvements in both economic performance and Tajikistanfaces a number of serious envirownental and resource management enhanced implementation capacity. On the other hand, the problems. The threemost notable types of country's continuing political uncertainty, uneven record degradation are soil erosion, deforestation, and of implementation of policy reform, weak institutional soil damage associated'with irrigation, e.g., water capacity, and our limited knowledge all contribute to a loggedsoilandsoilsalinization. Itwas:agreed that tackling these problems via a full scale very risky environment and argue for gradual engagement. National Environmental:Action Plan would be On balance, the obvious need and the strong desire of appropriate once the stabilization of-theeconomy Government to work with the Bank and the Fund are is underway and some progress has been in compelling. The Bank's FY96-98 program (Table 2) reducing distortions in the incentive framework. In. the meantime, however, the highest priorities allows considerable flexibility in responding to the pace will be addrssed in the ext othe Aral Sea of political stabilization and economic reform as a Basin Program while will be a vehicle for means of minimizing risks. To this end, our planning addressing a limited number of environmental horizon for this Country Assistance Strategy is issues,jincluding pilot irrigation and watershed intentionally being kept short -- covering only the next 12 management projects, and preparation of a water to 15 months and three operations. This will allow esources.rnagement strategy. flexibility in allocating resources in response to either an improvement or deterioration in the political and economic environment.  -9- 27. The FY96-97 Bank Group program airns at arresting the intensification of poverty through measures designed to foster a supply response based on employment intensive growth combined with direct steps to protect the most vulnerable groups. Our broad strategy for achieving these objectives is to focus our operations on improving the incentive environment, increasing the efficiency of tax collection and public expenditures, strengthening the trade environment and mechanisms, privatizing productive capacity, and enhancing institutional capacity. To this end, Bank support over the next fifteen months will focus on a small number of activities that we and the Government believe will make the greatest contribution to achievement of these objectives: (a) Institutional Building and Technical Assistance Credit; (b) Agricultural Recovery and Social Recovery Credit; and (c) Pilot Poverty Alleviation Project. Additionally, an adjustment operation -- the Economic Reform Support Credit -- may be prepared, but will depend on conditions itn the country over the next year. 28. Supply Response. The IDA assistance program emphasizes key structural reforms that would complement the demand-management and macroeconomic policy reforms Tajikistan is implementing with IMF assistance. These reforms would be supported by a single-tranche rehabilitation operation, the Agricultural Recovery and Social Protection (ARSP) Credit, with prior actions that are heavily front loaded and which would provide rapid balance of payments support. The ARSP would concentrate on: (a) liberalizing price and trade controls, particularly in agriculture; (b) rationalizing and increasing government revenues from the cotton sector; (c) improving the allocation of resources to priority areas, chiefly the social safety net and imports of agricultural inputs; (d) implementing land reform and farm restructuring that will transfer land to small-scale farmers; and (e) increasing the role of the private sector especially in agriculture. The ARSP, in addition to supporting these reforms, would give the Government the space it needs to design and molbilize support for the next phase of its reform program. The Institution Building and Technical Assistance (IBTA) Credit would support the development of Government's program by enhancing institutional capacity in a few critical areas and laying the foundation for continued reform by supporting the: (a) State Property Committee to design and implement the privatization program; (b) Ministry of Agriculture to design and implement the farm restructuring program and demonopolize cotton marketing; and (c) National Bank of Tajikistan to canry out diagnostic studies of sector banks and strengthen the accounting and supervision systems. 29. The IFC has a particularly important role to play in the area of increased private sector activity by facilitating and participating in joint investment ventures (Zeravashan Gold Company in FY96) that would have the potential for generating employment, income and exports. Another area of potential involvement of the WFC is the cotton processing (spinning) industry. Finally, the experience of the IFC with its joint venture will be critical to the preparation of any future adjustment operations. 30. An issue related both to enhancing the economy's supply response and social protection is the need for reconstruction of infrastructure damaged by flooding and the civil war. Earlier estimates indicated that reconstruction needs, which included a substantial component of the cost of modernization, were in excess of $100 million. Government, with the assistance of NGOs, has managed over the past two to three years to repair some of the damage to essential infrastructure, e.g., houses, roads, bridges, and irrigation systems. While it is evident that there are significant remaining reconstruction needs, current requirements have not been assessed. In the near term (FY96-97), we plan to assess and begin addressing reconstruction needs directly related to poverty and social deprivation through the Poverty Assessment (para 33) and the proposed Pilot Poverty Alleviation Project (para 31).  - 10- 31. Social Protection. Political stability and poverty reduction require that the most vulnerable groups of the population be protected from some aspects of policy reforms such as price liberalization, reduction in government subsidies, and privatization of state-owned enterprises. Specifically this will require that Bank Group operations focus on: (a) increasing the efficiency of welfare transfer mechanisms; and (b) achieving greater transfers to low income groups. In the near-term, the Bank Group would address these concerns via two operations. The above-cited ARSP Credit (FY97) would help the Government develop an effective social safety net whose two main ingredients are targeted cash payments (bread compensation and child allowances). The Pilot Poverty Alleviation Project (FY97) would build on the present NGO-run assistance projects and would seek to provide targeted income transfers to low-income households via a public works program organized around infrastructure reconstruction in rural areas. A possible focus of this reconstruction will be houses, irrigation systems, ancl rural roads that were damaged by flooding and the war, however, this would need to be handled carefully in deference to the needs of the country as a whole and the ongoing ethnic tensions. Recognizing the limited capacity in Government and the experience of NGOs in working with cornmunities, this project would rely on NGOs for implementation. Additionally, the Pilot Poverty Alleviation Project will serve as a vehicle for mobilizing increasedi donor support and co-financing for the social sectors. 32. Provided that sufficient progress is being made on reformrs and in designing a medium ternn framework, preparation of an adjustment operation -- the Economic Reform Support Credit (FY98) -- would be undertaken during FY97. Preparation would be undertaken in parallel with the IMF's work on an ESAF and would focus on the structural changes needed to complement the ESAF. Although these operations are currently being planned, assigning precise quantitative lending figures to this start-up program is difficult. This reflects our need for flexibility in the face of the political and economic uncertainties. Tentatively, however, we anticipate that the ARSP Credit would be for $50 million, the Pilot Poverty Alleviation Credit for $10 million, and the Economic Reform Support Credit would be about $40-$60 million. Table 2: Proposed World Bank Group Program for FY96-FY98 ............................. ......... '"''"'" ."''""''''"'" '" ""''" ' ''"$ " .... .... ...... ESW,:Policy Dialogue, and Donor CotGrdinatzon FY96 * Limited CAS *Economic Update FY7 F CG * Poverty Assessment * Policy Notes _FY98_ Policy Notes _ _ __ _ . E . - - - ~~Lending --- ----. FY96 1* Institution Building and Technical Assistance Credit (IBTA) L___ Gold Mining Venture (IFC)____________ FY97 . Pilot Poverty Alleviation Project (PPAP) L Agricultural Recovery and Social Protection (AR.SP) Credit. FY98 *e Economic Reform Support Credit 33. The ESW component would complement the lending program and is, therefore, correspondingly limited in scope. An Economic Update is being prepared in connection with the ARSP Credit and will  - 11 - be available this fiscal year (FY96) and will serve as a document for the Consultative Group Meeting (currently planned for late 1996). The Poverty Assessment will be prepared in conjunction with the Pilot Poverty Alleviation Project and would include an assessment of reconstruction needs. The P'FP would be prepared in collaboration with the IMF and as part of the Economic Reform Support Credit. In addition, a series of policy briefing notes would be prepared in FY97 and FY98 as vehicles for strengthening our policy dialogue with Government and in order to develop a link between the near and medium term strategies. Triggers for the Lending Program 34. As noted above, in order to maintain flexibility our planning horizon is limited to the next 12-15 months and would include three operations and the possible preparation of an adjustment operation. If circumstances and performance improve during the near-term, we would plan to accelerate processing of the adjustment credit -- Economic Reform Support Credit -- which would be accompanied by a more comprehensive Country Assistance Strategy that would include an assessment of broader needs. Specifically, an improved security situation would permit a more complete assessment of reconstruction needs and possible operations for inclusion in the next CAS. In this way, our proposed flexible and cautious approach could serve as a bridge to a more active program that could also include investment operations. If, however, conditions deteriorate, we would be able to postpone one or all of our activities in the country as appropriate. 35. As of today, the security situation -- which is an essential pre-condition for processing our operations -- is satisfactory and allows staff to operate safely in Tajikistan. Our presentation of the IBTA Credit to the Board reflects our assessment of this situation. Preparation of the Pilot Poverty Alleviation Project for presentation to the Board would require a similar condition. The ARSP Credit is contingent on having an IMF program in place as well as satisfactory progress with debt relief. Additionally, the prior actions for the ARSP are front-loaded (stressing agricultural reform and social protection) and will need to be completed before appraisal. 36. Preparation of the Economic Reform Support Credit is contingent on sustained progress with stabilization and structural reforns. In addition, substantial progress on structural reform would need to have been made. This would include: (a) implementation of the Government's privatization program such that legislation is in place establishing a more conducive environment for private sector development; (b) finalization of the privatization of cotton ginneries and the state cotton marketing agency (Glavchlopkoprom) begun under the AR{SP; (c) progress on the privatization of small-scale enterprises by completing privatization of 50 percent of enterprises with less than 10 employees; and (d) progress in the area of land reform and farm restructuring by legally confirming guidelines for restructuring of collective and state farms, exit mechanisms, and the unrestricted right to transfer land access rights to third parties. Enhancing the Field Presence 37. Because of the critical need to conduct continuous policy dialogue in Tajikistan and the difficulties in communicating with the country. establishing greater field presence in Dushanbe is essential. The Government's institutional capacity to support policy reforms and project preparations is exceptionally weak. However, high risks and uncertainties surrounding the delivery of the Bank Group's services require that we move cautiously before committing to a permanent field presence. As an interim measure, in December 1995, we established a liaison office that employs a local representative largely to facilitate missions and communications. We plan to further enhance our presence by ensuring that  - 12 - headiquarters staff are present in the country in the form of long duration missions that will work closely with the IMF's Resident Representative in Dushanbe. We see this as an essential ingredient in keeping the 13ank's assistance efforts on track. Partnerships and Aid Coordination 38. Recognizing the magnitude of the changes necessary to restructure this enclave economy combined with its reconstruction needs, it is evident that balance of payment and investment support will need to be spread over several years and will require the participation of numerous donors. Assuming that progress with the reform program continues, we -- in partnership with the IMF -- plan to be pro- active in encouraging other donors involved in the transition process in Central Asia to initiate or increase their support to Tajikistan. 39. The IMF is currently taking a strong leadership role. It has been active in supporting Tajikistan's stab ilization efforts through technical assistance and a stand-by arrangement. Provided that Govemment is able to stabilize the economy and implement a viable financing plan (including debt relief), it is expected that the Fund would support Government's economic program, initially with a first credit tranche stand-by and subsequently with an ESAF. 40. Other donors involved in Tajikistan and with whom the Bank has been coordinating closely include: EBRD, EU, UNDP, UNHCR, UNICEF, Aga Khan Foundation, and USAID. Up to now, most of these donors have been involved in providing technical support and/or humanitarian assistance. Little support has been given to development projects, although some NGOs have assisted with small-scale reconstruction needs. If there is an improvement in the political stability, the Bank will encourage a shift in the composition of donor assistance from a humanitarian focus to investment activities that include post-conflict reconstruction. As a first step toward enhancing donor activities, Tajikistan would need to join the ADB. It is hoped that the ADB would complement the Bank Group's assistance program with balance-of-payments support and investment projects in infrastructure and education. 41. In order to galvanize more donor support for Tajikistan it would be necessary to: (a) prepare for a Consultative Group meeting in late 1996; (b) enhance our field presence as a means of intensifying contacts and collaboration with other donors; and (c) work with Government to strengthen its interaction with donors and NGOs. Risks and Uncertainties 42. As stated throughout this document, the risks and uncertainties surrounding Bank Group assistance to Tajikistan are high. They relate to the fragile political and security situation, the country's limited implementation capacity, the strong vested interests that -- in the absence of some tangible progress might be able to tip the political balance against the reform process -- and the limited number of external partners. Any Bank Group program in Tajikistan would face more risks and be more time and staff intensive than has been the case in other FSU countries. The principal form of this risk is that Bank's assistance efforts will be accompanied by little or no immediate progress in terms of continuing stabilization efforts and policy reform. Nevertheless, the Bank recognizes that its involvement, together with the IMF, at this early stage is critical for Tajikistan to embark on a successful transition. 43. The best means of dealing with these risks is to ensure frequent and good-quality com munication with Government and to keep our program as flexible as possible. Several steps have been taken to further our dialogue. As noted above, a field presence was established to facilitate  - 13 - communication with Government, local donors, and NGOs. This presence will be expanded during the coming months by increasing the frequency of ad[visory and supervisory missions in the country. At the same time, we have avoided making long-term commitments that would be difficult and expensive to change. Nonetheless, if the Government accelerates its reform program, we will be poised to respond. E. Agenda for Board Consideration 44. During FY96, the Bank Group's strategy gives highest priority to restoring macroeconomic stability and protecting vulnerable groups. In subsequent years, there is continued emphasis on growth- promoting structural reform complemented by increased concentration on employment creation as a means of enhancing social protection. However, both the size and the composition of the program will depend upon the Government's ability to achieve economic stabilization and implement structural reforms. 45. The Board may wish to address the followting points in the course of its discussion: * the relatively high level of risk in the country and the strategy for dealing with it, especially in light of Tajikistan's post-conflict reconstruction needs; * the scope of the Group's proposed program in relation to the country's extensive needs and the prospects for increasing the involvement of other donors; and o the appropriateness of the proposed linkages between performance and the size and composition of the Group's proposed program. James D. Wolfensohn President Washington D.C. April 19, 1996  Annex Al Page 1 of 2 Poverty and Social Development Indicators Tajikistan Mfost Same regionlincomme grou Next L4ttest single yea mrecent Zuropt ,igh; Unit of - estimate & central Low. inom Indicator measure 1970.75 198045 1988-93 Asia income Priority Poverty Indicators POVERTY Upper poverty line local curr. Headcount index % of pop. .. .. 19 Lower poverty line local curr. .. .. Headcount index % of pop. .. GNP per capita USS .. 470 2.450 380 1.590 SHORT TERM INCOME INDICATORS Unskilled urban wages local curr. .. Unskilled ru-Al wages Rural terms of trade .. .. Consumer price index 1987= 1 00 .. .. Lower income Food" ". .. .. Urban Rural SOCIAL INDICATORS Public expenditure on basic social services % of GDP .. 8.0 Gross enrollment ratios Primary % school age pop. ,. .. 78 .. 108 104 Male .. .. .. .. 116 Female .. .. .. .. 101 Mortality Infant mortality per thou. live births 74.0 62.0 47.0 24.8 63.1 39.0 Under 5 mortity .. .. 83.0 36.4 101.4 61.5 Immunization Measles % age group .. .. .. ;. 87.3 77.6 DPT .. .. .. .. 89.9 82.2 Child malnutrition (under-5) .. .. .. .. 40.3 Life expectancy Total years 63 66 70 69 62 67 Female advantage 5.1 5.1 5.6 8.8 2.1 5.9 Total fertility rate births per woman 6.8 5.5 4.8 2.1 3.6 2.9 Matermal mortality rte per 100,000 live binhs .. 94 39 Supplementary Poverty Indicators Expenditures on social security % of total gov't exp. .. .. Social security coverage % econ. active pop. .. .. Access to safe water: total % of pop. .. .. .. .. 67.0 Urban .. .. .. .. 78.7 Rural .. .. .. .. 62.0 Access to heath cam r .._.._.._.. _.. _ .. Population growth rate GNP per capita growth rate Development diamondb 6+ (annual average. percent) (annual average, percent) Lfe expeancy 4 -5 - . 2 - tf 0 -__ _ pOGNP Grss per prnmmy capitn \ 02.1 1970-7S 1980-85 1988-93 1970-75 1980-85 1988-93 Access to safe water a Tajikistan _ Tajikistan - Low-income - Low-inoome a. See the technical noes. p.387. b. The development diarnond, basec on four key indicators, shows the average level of deveopment in the country compared with its income group. See the introduction.  Annex Al Poverty and Social Development Indicators Page 2 of 2 Tajikistan Most Same reg.oAicome gr-op Next LaS est single year recent &Saveroe higher Unit of estimtate & central Low- luicaer J."di"cao" measure 1970.75 1980.85 1988.93 Asia income grIOUP _j~~N REOURCES ~Resources and Expenditures population (mre=1993) thousands 3.442 4,558 5.767 494.619 3,091.764 1.096,665 Age dependency rato ratio 1.00 0.87 0.89 0.57 0.67 0.69 Urban % of pop. 35.5 33.2 32.2 64.8 27.6 54.7 population gowth rate annual % 3.2 2.8 3.0 0.6 1.9 1.6 Urban -2.4 2.2 3.0 1.5 3.9 2.9 Labor force: (15.64) thousands .. 1.675 1.912 237.897 1,442.452 459,196 Agriculture % of labor force ..43 45 jndustry .2 1 21 Female 46 4 31 Females per I100 males Urban number . .. Rural NATURAL RESOURCES AMeA thou. sq. km 143.10 143.10 143.10 24,320.56 39,091.96 40,682.67 Density pop. per sq. km 24.05 31.85 39.12 20.20 77.60 26.52 Agricultural land % of land area . . 30.81 .. 52.82 39.61 Change in agricultural land annual % .. 0.23 0.6S -1.28 0.03 -0.13 Agricultural -land underirrigation % 13.16 14.84 14.75 7.15 18.02 12.66 Forests and woodland thou. sq. km ... . 0.80 7.15 5.95 Defomestation (net) annual %'. .. INCOME Household inconme Share of top 20% of households % of incomen.... Sharm of bottom 40% of households . .. Shar of bottom 20% of households . .. EXPENDIURE Food %ofGDP . .. Staples . .. Meat, fish. rmilk, cheese, eggs . .. Cerea imports thou. mnetuic tonnes - . 450 34.452 34.420 66.281 Food aid in cereals . .72 4.392 8,334 5,477 Food production per capita 1987 W 100 . .. 113 101 Fertilizer consumption kg/h . . 30.9 41.7 59.9 48.0 Share of agriculture in CDP % of GDP .. 28.5 33.3 13.5 26.3 15.7 Housing % of GDP . .4.7 6.0 Average household size persons per household . 6.1 Urban S. .. Fixed investmrent. housing % of GDP . 4.9 5.2 Fuel and powyer % of GDP . .1.0 1.2 Energy consumption per capita kg of oil equiv. . . 634 2.959 364 1.595 Households with clectricity Urban % of households . .. Rural Transport ari4i commnunication % of GDP . .. Fixed investment transport equipment . Toia mad length thou. km 17 1'9 30 INVESTMENT IN HUMAN CAPITAL Health Population pe:r physician perons 478 368 434 362 .. 3.277 Population per nurse 162 137 142 249 Population per hospita bed *103 94 97 136 1,016 604 Oral rehydyration therapy (under-5) % of cases 3...... Education Gross enrolmrnt ratio Secondary % of school-age pop. . ....41 53 Female -. ... 34 Pupil-teacher r-atio: primary pupils per teachr . 21 . 39 Pupil-teacher ratio: secondary . ...20 Pupils meaching grade 4 % of cohort . .. Repeater rate: primary % of towa enroll. .. Illitracy % of pop. (age 15+) . .2 5 41 1 Female %of fern. (Age I5+) . ... 53 Nesae cruao Mr thou. op ... .. 74 'WOWEE Blkht_M_auota0 Economics DepaMrtmnt Apnil 19995  4n24/96 Annex A2 5:23 PM TAJIKISTAN - KEY ECONOMIC INDICATORS 1/ Estim. Prelim. Proj. 1992 1993 1994 1995 1996 GDP Growth Rate -28.9 -11.1 -21.4 -13.0 -7.0 Consumption/Capita Growth Rate .. .. -34.9 -18.3 -3.7 Private Consumption/GDP 52.7 68.2 67.3 58.4 87.4 Gross InvestmenttGDP 14.7 23.1 22.3 17.4 17.3 Domestic Savings/GDP - .. .. 5.0 18.1 7.5 National Savings1GDP .. .. 5.8 17.5 2.7 Government Revenues/GDP 26.3 27.0 44.5 15.2 13.9 Government Expenditures/GDP 57.3 51.7 54.7 26.4 19.3 Deficit (-) or Surplus (+)/GDP (cash basis)_2/ -30.3 -24.8 -10.2 -11.2 -5.4 Deficit (-) or Surplus (+)/GDP (accrual basis) j/ -30.3 -24.8 -24.8 -21.5 -6.8 Export Volume Growth Rate .. -6.4 13.2 1.7 -3.4 hnport Volume Growth Rate .. 5.4 -5.9 -10.3 3.1 CurrentAccountBalance/GDP_4/ -18.0 -31.0 -21.0 0.4 -13.3 Total DOD 51 (mill. US$) .. .. 788.5 817.0 967.0 DOD/EXPGS_6/ .. .. 148.5 124.3 162.3 DOD/GDP 7/ .. .. 115.8 142.6 112.3 Debt Service Scheduled (mill. US$) .. .. 65.0 130.0 243.0 Debt Service/EXPGS 6/ .. .. 12.2 19.8 40.8 Debt Service/GDP .. .. 9.5 22.7 28.2 Conswner Price Index (% change) Average .. 2,194.8 350.4 635.0 729.0 End of Period .. 7,344.0 1.1 2,223.0 183.0 Exchange Rate 8/ Average .. 932.0 2,192.0 95.3 300.0 End of Period .. 1,240.0 3,550.0 300.0 340.0 _1/ Data should be viewed as highly tentative given the statistical weaknesses. _2/ On a cash basis (in 1996 after new revenue measures). _3/ On an accrual basis (in 1996 after new revenue measures). _4/ Grants are included in the Current Account. _5/ Debt Outstanding and Disbursed (incl. IMF and Short-Term). _6/ Exports of Goods and Services. _7i Drop in the 1996 DOD/GDP ratio is explained by lhe high differential between GDP deflator and the depreciation of the exchange rate. _8/ 1993 and 1994: Russian rubles per US dollar; 1995 and 1996: Tajik rubles per US dollar.  Amex B1 Table 1 Tajikistan: Framework for Country Program COUN,,, , ,,.'Th : "':""'":'::" ....... ... .. _ .. .. i -iE R-E i:: iR ,# E, i ........... E,., i . ,.- 5.- -,5 E ...... - .. - E , E - E -~~.. .... ..... . . . . . . . . . . . . Mananmacro stability Reduce inflation to a single Policy advice Economic Update (FY96) digit level per month Policy Framework Paper (FY97, FY98) Relief from existing debt Policy Notes (FY97, FY98) Establish a f6nctionning BOIP financing Agr. Rehabilitation & Social Protection (FY97) foreign exchange auction BCIP/project financing Alleviate poverty & Alocate adequate budgetary Project financing Pilot Poverty Alleviation (FY97) strengtben social resources for food and protection child allowances BOP financing Agr. Rehabilitation & Social Protection (FY96) Alocate adequate budgetary Economic Update (FY96) resources for basic health and Policy advice Poverty Assessment (FY97) primary education Introduce a flat pension rate Strengthen institutional Revise law on privatization Project financing Technical Assistance (IBTA) (FY96) capacity Prepare legal framework for Supervision IDF banking system Strengthen Aid Coordination Unit Training EDI Rcform agriculture Eliminate price and trade BC'P Agr. Rehabilitation & Social Protection (FY97) restrictions Alocate adequate foreign BC'P financing Institution Building & Technical Assistance (FY96) exchange to imported agr. inputs Alow full transferability of Policy advice Agriculture Sector Note (FY96) land access rights Support private sector Privatize cotton marketing and BCP financing and Agr. Rehabilitation & Social Protection (FY97) tdevelopment ginning services Pol icy advice Technical Assistance (IBTA) (FY96) Privatize 50% of small scale Gold Mining (IFC) (FY96) eniterprises Aid coordination, strategy and Coantry strategy CAS (FY96, FY98) overhead Aid coordination . CG (FY97, FY98) General aid coordiantion/cofinancinlg Economic work General economic work Managem ent & overhead Liaison office/R. mission l ~~~~~~~~~~~~~~~~~~Ied missionj * To avoid double counting, the total cost of a given task is shown only against the single most important country objective of the task Total cost includes financing from Trust Funds a/ ESW and aid coordination during the start up phase b/ Lending and supervision during the start up phase c/ ESW and aid coordination during the reform phase d/ Lending and supervision during the reform phase c/ Field office f/ Management and overheads  Annex B2 Description of the Lending Program, FY96-98 The Institution Building and Technical Assistance Credit (FY96) will support the detailed design of the Govermnent's medium term reform program. The Government has requested the Bank Group to finance technical assistance in order to complete detailed preparation of various components of the reform program, namely in the areas of privatization, banking and agriculture. * The Agricultural Rehabilitation and Social Protection Credit (ARSP, FY97), which is contingent on having a macroeconomic stabilization program in place, supports structural policy reforms that will stimulate agricultural production, particularly cotton production, and strengthen a core social safety net. This operation is along the lines of Rehabilitation operations that were provided to other FSU republics. It is planned to be a one-tranche credit. With regard to the social safety net, the ARSP will support measures to ensure that the budget resources are used for efficient transfers to low income households and analysis of constraints that could be addressed under a proposed Pilot Poverty Alleviation project. In agriculture, ARSP will support the restructuring of state and collective farms including the right of transferability of access rights to land, removing processing and trade barriers especially for cotton, and improving the incentives for greater private sector activity. There will, however, be a need for additional investment from a combination of public and private sources in order to support the farm restructuring process. This operation is heavily front-loaded, with 3 out of 4 actions to be implemented prior to Appraisal and the remainder by Negotiations. The key prior actions are: ( Decontrol prices on all agricultural commodities (implemented) < Eliminate the state orders system for all agricultural commodities (implemented) O Eliminate external trade restrictions on all agricultural commodities (implemented) O Eliminate the surrender requirement for foreign exchange (implemented) O Eliminate export taxes and duties on all agricultural commodities, except for cotton. For cotton, rationalize the tax system (implemented) O Adopt guidelines and mechanisms for the transferring of land access rights (ongoing) O Formulate a farm restructuring program (ongoing) O Privatize the Cotton Marketing Authority and the ginning services (ongoing) ? Target social welfare payments to the poor and allocate adequate resources in the 1996 budget (implemented) O Allocate at least six percent of the 1996 budget to health and 14 percent to education (implemented) O Pay all pensioners at the minimum pension rate. If the Pension Fund is in surplus at the end of the year, the surplus should be distributed to pensioners with higher entitlements (ongoing) * The Pilot Poverty Alleviation Project (FY97) would build on the ongoing NGO-run assistance projects. At present, most of these projects are essentially relief projects. The precise nature of the Pilot Poverty Alleviation project remains to be defined, but would seek to provide targeted income transfers to low-income households possibly via a public works program organized around infrastructure rehabilitation. Recognizing the limited implementation capacity in Government and urgent need for employment opportunities, this project would rely extensively on NGOs for implementation. * The IFC in partnership with a foreign firm and the Government is planning a gold mining venture (Zeravashan Gold Company) in FY96 that would, along with other possible ventures in the mining sector, have the potential for generating employment, income and exports.  * The Economic Reform Support Credit (FY98) which is contingent on progress with both macroeconomic stability and structural reform focus support on privatization of larger state owned enterprises and/or deepening reforms in the agricultural sector.  16-Feb-96 Tajikistan TAJIKISTAN - NATIONAL ACCOUNTS-a/ Annex Cl (Page 1 of 3) Part A: Shares of Gross Domestic Product (percentages calculated using constant price data) Base (Muddlle Through) Case Scenario Projection Atlas GNP Per Capita: USS 350 (1994) M4id-1994 Population (millions): 5.S Estimated P:ojected 1994 1995 1996 1997 1998 1999 2000 Gross Domestic Product m.p. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Net Indirect Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Agriculture 23.0 2!;.2 26.6 27.1 27.6 28.1 28.S Industry, of which 46.0 4B.6 49.3 49.3 49.3 49.3 49.4 Manufacturing .. .. .. .. Services 31.0 26.2 24.0 23.5 23.0 22.6 22.1 Resource Balance -17.3 -,?.5 -14.0 -14.3 -12.9 -12.9 -15.1 Exports (GNFS)_b/ 61.3 72.0 77.1 77.8 78.4 78.9 79.1 Imports (GNFS) 78.7 79.5 91.1 92.1 91.4 91.8 94.2 Total Expenditures 117.3 107.5 114.0 114.3 112.9 112.9 115.1 Consumption Expenditures 95.0 89.6 96.7 96.3 93.9 92.9 94.1 Government 27.8 9.9 10.6 10.6 10.6 10.6 10.6 Private 67.3 79.7 86.1 85.7 83.3 82.3 93.5 Gross Domestic Investment 22.3 17.8 17.3 18.0 19.0 20.0 21.0 Fixed Investment 22.3 17.a 17.3 18.0 19.0 20.0 21.0 Changes in Stocks 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Gross Domestic Saving 5.0 19.3 8.2 7.3 10.6 12.7 12.6 Net Factor Income -2.1 -3l.5 -9.7 -7.6 -6.6 -5.3 -3.7 Net Current Transfers 2.9 4.3 5.6 5.7 5.1 4.5 3.9 Gross National Saving 5.8 20.1 4.1 5.3 9.0 11.9 12.8 Gross National Product 97.9 96.5 90.3 92.4 93.4 94.7 96.3 _a/ Note: Data for 1994 on Government Expenditures (including Consumption and Investment) cannot be compared with projected years because the 1994 Public Expenditure data are largely in "non-cash rubles" while GDP is measured in 'cash rublesx. For the projected years, however, all figures are in 'cash rubles' Because Private Sector share of Consumption is arrived at as a residual, it is also not possible to compare the share in 1994 with the values for projected years. _b/ 'GNPS' denotes Goods and Nonfactor Services". Base Case ftjrfebl2.wkl) Closed Gap  16-Feb-36 Tajikistan TAJIKISTAJ - NATIOBAL ACCOUNTS (continued) Annex Cl (Page 2 of 3) Part B: Constant Price Data (millions of LCUs at 1994 Prices) Base lMuddle Through) Case Scenario Projection Estimated Projected 1994 199S 1996 1997 1998 1999 2000 GDP at Market Prices 19089 16576 15839 15363 14904 14456 14019 Agriculture 4390 4171 4218 4167 4116 4061 4001 Industry 9781 9056 7815 7580 7353 7132 6918 (of which Manufacturing) Services 5917 4349 3806 3615 3435 3263 3100 Resource Balance -3308 -1236 -2210 -2201 -1930 -1862 -2123 Exports (GNFS) _a/ 11709 11941 12211 11946 11687 11409 11086 Imports (GNFS) 15016 13177 14421 14147 13616 13270 13209 Total Expenditures 22396 17813 18048 17564 16834 16317 16142 Conawmption Expenditures 18139 14856 15308 14799 14002 13426 13198 Government 5299 1639 1679 1628 1580 1532 1486 Primate 12839 13217 13629 13170 12422 11894 11712 Gross Domestic Investment 4257 2956 2740 2765 2832 2891 2944 Total Fixed Investment 4257 2956 2740 2765 2832 2891 2944 Total Changes in Stocks 0 0 0 0 0 0 0 Terms-of-Trade ITT) Effect 0 1483 775 550 67S 810 9S1 Gross Domestic Income 19089 1806o 16614 15913 15579 15266 14969 Domestic Saving (TT Adjusted) 950 3204 1305 1114 1577 1839 1771 Net Factor Income -397 -582 -1543 -1162 -989 -767 -524 =SP at Market Prices 18692 15995 14296 14201 13914 13689 13495 _&I IGNFSI denotes Goods and Nonfactor Services". Base Case (tjrfebl2.wkl) Closed Gap  16-Feb-96 T'aj ikia tan TAJIKlSTAN - NATIONAL ACCOQTTS (Continued) Annex Cl MPage 3 of 3) Part C: Annual Groiwth Rates (calculated from data in constant 2994 praces) Base (Muddle Through) Case Scenario Projection Estimated Projected 1994 1995 199S 2997 1998 1999 20o0 GDP at Market Prices -21.4 -13.2 -4.5 -3<0 -3.0 -3.0 -3.0 Agriculture -36.2 -S.0 1.1 -1.2 -1.2 -1.4 -1,5 Industry, of which -22.8 -8.3 -3.0 -3 0 -3.0 -3.0 -3.0 Manufacturing .* Services -7.1 -26.5 -12.5 -5.0 -5.0 -5.0 -5.0 Exports (GNFS) a/ -9.6 2.0 2.3 -2.2 -2.2 -2,4 -2.8 Imports (GNFS) 18.3 -12.2 9.4 -13. -3.8 -2.S -OS Total Expenditures . -20.5 1.3 -2.7 -4.2 -3.1 -211 Consumption -32.6 -18.1 3.0 -3.3 -5.4 -4.1 -1.7 Investment -33.2 -30.6 -7.3 0Qf 2.4 2.1 1.8 Gross Domestic Income -5.4 -8.0 -4.2 -2.1 -2.0 -1.9 Gross Domestic Saving 237.3 -59,3 -l4.6 41.5 16.7 -3.7 Per Capita Growth Rates Per Capita GDP (mp).b/ -lS.8 -7.3 -S.9 -5.9 -5.9 -5.9 Per Capita GNP (mp) -17.0 -13.3 -3.7 -5.0 -4.6 -4.4 Per Capita Total Consumption -34.9 -20.6 -0.1 6 2 -8.2 -7.0 -4.7 Per Capita Private Consumption -0.2 0.0 -6.3 -8.5 -7.1 -4.5 a/ 'GNFSw denotes 'Goods and Nonfactor Services". b>/ lp' denotes 'market prices". Part D: Period Average Indicators Estimated Projected 1994-95 1995-2000 Marginal National Saving Rate Incremental Capital-Output Ratio Import Elasticity 0.93 -Q002 Ma* Cae (tjrfebl2 .wkl) Closed Gap  16-Feb-3S Tajikistan TAJIKISTAN - Exports and Imports Annex C2 Volume, Value and Prices (Page 1 of 1) uase IMuddle Through) Case Scenario Projection Estimated Projected 1994 1995 1996 1997' 1998 1999 2000 Merchandise Exports Volume Index 1994-100 Cottonu (Non-FSU) 100.0 100.2 102.2 100.7 99.2 96.7 91.9 Alumimum (Non-FSU) 100.0 103.0 106.1 102.9 99.8 96.9 93.9 Cotton (PSU) 100.0 100.2 102.2 100.7 99.2 96.7 91.9 Aluminum (FSU) 100.0 103.0 106.1 102.9 99.8 96.9 93.9 Manufactures 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other Exports 100.0 101.5 102.0 101.0 100.0 99.5 100.S Total Merch. Exports FOB 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Merchandise Exports Value-Current Prices (US$ millions) Cotton (Non-FSU) 148 181 166 154 154 153 147 Alumirum (Non-FSU) 259 332 328 308 308 308 307 Cottcn (PFSU) 19 23 21 19 19 19 18 Aluminum (PSU) 8 11 11 10 10 10 10 Manufactures 0 0 0 0 0 0 0 other Exports 12 13 12 12 13 14 14 Total Merch. Exports FOB 531 650 624 591 S95 598 599 MerchandAse Imports Volume Index 1994.100 Food 100.0 82.2 90.4 94.0 88.7 88.7 90.1 Other Consumer Goods 100.0 75.0 76.5 79.6 75.0 71.9 71.9 POL and Other Energy a/ 100.0 97.8 105.6 102.5 99.4 96.4 96.4 Intermediate Goods 0.0 0.0 0.0. 0.0 0.0 0.0 0.0 (of which Primary Goods) 100.0 103.5 105.6 102.4 99.3 96.4 93.5 (of which Manuf. Goods) 100.0 89.4 134.0 130.0 126.1 122.3 118.7 Capital Goods 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Merch. Imports CIF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Merchandise imports Value-Current Prices (US$ millions) Food 98 86 100 90 82 79 78 Other Consumer Goods 218 178 172 174 168 165 170 POL and Other Energy_a/ 152 159 167 167 165 163 166 Intermediate Goods 141 149 167 164 163 162 161 (of which Primary Goods) 113 122 129 128 127 126 126 (of which Mbnuf. Goods) 28 27 38 36 36 36 35 Capital Goods 10 8 25 11 12 12 13 Total Merch. Imports CIF 619 580 630 605 590 582 588 .rice Indices Price Indices 1994-100 Merchandise Exports 100.0 120.0 112.7 109.2 112.3 115.6 119.1 Merchandise Imports 100.0 107.0 105.8 103.8 105.5 107.1 108.7 March. Terms of Trade 100.0 112.2 106.5 105.2 106.5 108.0 109.6 A/ 'POL' denotes 'Crude Oil and Derivatives'. ase CLse (tjrfabl2.wk1) Closed Gap  26-Feb-96 Tajikistan TAJIRISTAN - BALANCE OF PAYMETS Annex C3 (Page 1 of 11 (US$ millions at Current Prices) Base [Mhddle Through) Case Scenario Projection Estimated Projected 1994 1995 1996 1997 1998 1999 2000 Exports of GNFS_a/ 531.0 6550.0 624.0 591.4 595.3 598.1 598.8 Imports of GNPS 681.0 S38.0 693.0 669.6 655.7 649.6 657.1 Resource Balance -150.0 12.0 -68.9 -78.1 -60.4 -51.5 -58.3 Set Factor Income -18.0 -27.0 -71.0 -53.5 -45.5 -35.3 -24.1 Factor Receipts 0.0 0.0 0.0 3.3 2.4 2.2 2.1 Factor Payments 18.0 27.0 71.0 56.8 47.9 37.5 26.2 (interest payments) 18.0 27.0 71.0 55.8 46.9 36.5 25.8 Net Current Transfers 25.0 33.0 41.0 40.0 35.0 30.0 25.0 Current Account Balance -143.0 18.0 -98.9 -91.6 -71.0 -56.8 -57.4 Laong-Term Capital Inflow -3.0 -1.16.0 340.4 -109.1 -131.9 -119.5 -141.3 Direct Investnent 0.0 0.0 0.0 10.0 11.0 l1.0 11.6 Official Capital Grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net LT Loans hb -3.0 -116.0 -107.7 -119.1 -142.9 -130.5 -152.9 Disbursements . 44.0 17.0 63.4 12.S 3.0 3.0 2.4 Repayments 47.0 133.0 171.0 131.6 145.8 133.4 155.2 Other LT Inflows (net) (Reachedul.) 0.0 0.0 448.0 0.0 0.0 0.0 0.0 Total Other Items (net) 145.0 108.0 -226.0 187.0 201.0 187.0 206.0 Net Short Term Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Capital Flows N.E.I. (Arrears)_c/ 233.0 143.0 -226.0 187.0 201.0 187.0 206.0 Errors and Omissions -88.0 -35.0 0.0 0.0 0.0 0.0 0.0 Changes In Net Reserves 1.0 -10.0 -15.4 13.8 1.8 -10.7 -7.3 Net Credit from the INF 0.0 0.0 22.0 0.0 0.0 -13.0 -9.0 Other Reserve Changes 1.0 -10.0 -37.4 13.8 1.8 2.3 1.7 (- indicates increase) Shares of GDP: Resource Balance -22.0 2.7 -8.4 -11.1 -8.8 -7.7 -9.0 Total interest Payments 2.6 6.0 8.7 7.9 6.8 5.5 4.0 Current Account Balance -21.0 4.0 -12.1 -13.0 -10.3 -8.3 -8.9 3T Capital Inflow -0.4 -25.8 41.7 -15.4 -19.2 -18.0 -21.9 Net Credit from the I?W 0.0 0.0 2.7 0.0 0.0 -2.0 -1.4 Memorandum Items: GDP (mill. US$) 681.0 450.0 816.7 707.1 686.0 665.4 64S.3 Gross Reserves incl. Gold 0.0 10.0 47.4 33.6 31.8 29.6 27.8 Gross Res. in Nonths Imports 0.0 0.2 0.7 0.6 0.5 0.3 0.5 averge Exchange Rate (LCU/USS)_d/ 22.0 105.0 333.0 599.4 1138.9 2277.7 4783.2 _a/ Goods and Nonfactor Services. Lb/ T"I? denotes 'Long-Term'. _c 'N.E.!.' denotes Not Elsewhere Included". _dl 'LCU' denotes Local Currency Units'. Base Case (tjrfebl2.wkl) Cloxed Gap  Taj ikistan T7KISTAN - EXTERNAL DEBT STOCKS AND FLOWS Armex C4 (Page 1 of 3) (USs millions at Ourrent Prices) Base JiMuddle Through) Case Scenario Projection Estimated Proj ected 1994 1995 1996 1997 1998 1999 2000 A. Gross Disbursements 1. Public and Publicly Guaranteed 44.0 17.0 63.4 12.5 3.0 3.0 2.4 Official Creditors 44.0 17.0 63.4 12.5 3.0 3.0 2.4 Muhltilateral 0.0 0.0 55.4 1.7 3.0 3.0 2.4 of which IDA 0.0 0.0 55.4 1.7 3.0 3.0 2.4 Bilateral 44.0 17.0 8.0 10.8 0.0 0.0 0.0 n7ivate Creditors 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Suppliers 0.0 0O0 0.0 0.0 0.0 0.0 0.0 Financial Markets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2. Private Non-Guaranteed Q.0 0.0 0.0 0.0 0.0 0.0 0.0 3. Total LT Disbursementsa/ 44.0 17.0 63.4 12.5 3.0 3.0 2.4 4. IMr Purchases 0.0 0.0 22.0 C.0 0.0 0.0 0.0 S. Net, Short-Term Capital 0.0 0.0 0.0 a.0 0.0 0.0 0.0 S. Total inel. IMF and Net ST_a/ 44.0 17.0 85.4 12.5 3.0 3.0 2.4 B . Amoxrtization >. Public and Publicly Guaranteed 47.0 133.0 171.0 131.6 145.8 133.4 153.2 Official Creditors 47.0 133.0 171.0 131.6 145.8 . 133.4 155.2 miultilateral 0.G 0.0 0.0 tl.0 0.0 0.0 0.0 of which IDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 i3ilateral 47.0 133.0 171.0 131.6 145.8 133.4 15S.2 Private Creditors 0.0 0.0 0.0 0l.0 0.0 0.0 0.0 Suppliers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 FTirncial Markets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2. Private Non-Guaranteed C.G 0.0 0.0 0.0 0.0 0.0 0.0 3. Total LT Amortization 47.0 133.0 171.0 131.6 145.8 133.4 155.2 4. %MP Repurchases 0.0 0.0 0.0 0.0 0.0 13.0 9.0 S. Total LT Amort.+IMF Repur. 47.0 133.0 171.0 13:L.6 145.8 146.4 164.2 _m-' 5L5F denotes WLong-Term", "ST denotes 'Short-Teanm. 23ie Case (tjrfebl2.wkl) Closed Gap  16-Feb-96 Tajikistan TAJIKISTAN - EXTERNAL DSBT STOCKS AND FLOWS (continued) Annex C4 (Page'2 of 3) (USS millions at Current Prices)