Friday, 24 October 2008
Central bank believes economy largely immune from international financial turbulence, but economists warn of multiple knock-on effects.
By Ravshan Abdullaev in Dushanbe (RCA No. 552, 15-Oct-08)
The international financial crisis may not have been felt in Tajikistan yet, but some analysts fear the shockwaves could wreak havoc on the weakest of Central Asia's economies.
As share prices around the world crash and banks face the threat of collapse, Tajikistan would appear at first sight to be relatively immune, as it has no stock market to speak of.
The National Bank of Tajikistan circulated a statement saying the country was unlikely to be seriously affected. The principal risk, it said, was fluctuations in the value of the foreign currencies in which many people prefer to hold their savings. Since the summer, the national currency, the somoni, has actually strengthened against both the US dollar and the euro, although some economists are predicting that it will depreciate over coming months as the effects of the crisis kick in in the Tajik economy.
The central bank statement recalled previous crises on world markets, in 1998 and 2002, which Tajikistan got through largely unscathed, even bucking the trend by posting respectable rates of economic growth.
However, economists interviewed by IWPR are concerned that the effects of this year's economic turbulence will be different.
First, the country is much more dependent than it used to be on foreign banks, many of which are now operating within tighter margins. As well as Russian and Kazak banks, Tajik financial institutions are now partnered with commercial lenders such as the American CitiBank, Germany's Kommerzbank, and the Bank of China, as well as with development banks such as the World Bank, the European Bank for Reconstruction and Development, the Asian Development Bank, and the Islamic Development Bank.
As a result, Tajik banks are going to find it much more expensive to borrow from these institutions to finance domestic lending, which could in turn curb economic activity.
Other, perhaps more serious risks, say economists, come from indirect factors.
For instance, the growing economies of Russia and Kazakstan have in recent years attracted hundreds of thousands of migrant workers from Tajikistan. The money these people send home is of immense importance given Tajikistan's ailing economy and crumbling social support system. In 2007, labour migrants transferred an estimated two billion dollars to the country ΤΗτ equivalent to 60 per cent of gross domestic product, GDP, for the year.
Economists are already predicting economic slowdowns in both Russia and Kazakstan, implying a contraction in labour markets that would hit those at the bottom of the heap, including Tajiks employed on building sites and in other manual jobs.
Parviz Mullojanov, a leading analyst in Tajikistan, sums up the risks in alarming terms, "A substantial fall in migrant remittances creates the threat of financial catastrophe for the republic."
At the moment, migrant remittances help maintain stability in the current account ΤΗτ the overall balance of trade, services and financial transfers flowing in and out of the country. The trade balance, taken by itself, is currently severely in deficit. In the period January-June this year, the value of imports exceeded export revenues by more than a billion dollars, an imbalance which would be unsustainable without the money being sent back from Russia and elsewhere.
Another risk comes from the prospect of rising prices in Russia, a major supplier of goods to Tajikistan. Higher import costs will inevitably spur inflation.
Shifts in international commodity prices are likely to affect Tajikistan ΤΗτ for better and for worse.
A public servant working for the Tajik government, who spoke on condition of anonymity, explained how the global slowdown had already led to falling demand and therefore lower prices for aluminium, which together with cotton is one of the country's key export items. He said major consultancy firms were forecasting that the slump in aluminium prices would last till mid-2009 at the very least.
At the same time, Professor Hojimahmad Umarov, a leading Tajik economist, believes the economy will find some relief as falling world oil prices translate into cheaper fuel imports.
Mullojanov notes that Tajikistan remains highly dependent on foreign assistance, in the shape of grants and loans, which account for the equivalent to about half its annual budget.
There is now a risk that foreign donors and lenders will reduce funding levels as part of their overall belt-tightening strategies.
"Western countries and organisations may cut assistance levels for Tajikistan, and this would have very serious consequences," said Mullojanov.
Umarov sees the possible reduction in western largesse as a major risk to the economy. As both the United States and Russian governments set aside billions of dollars to rescue their financial systems, developing countries like Tajikistan are bound to lose out, he says.
Another economist, Georgy Koshlakov, is less pessimistic, saying that while he agrees with the predictions others are making about falling capital inflows, the effects will not be devastating.
He argues that the foreign exposure of Tajik banks and the external financial support the country gets are both "negligible" in global terms. "No one is going to make economies on [capital] volumes like that," he said.
Koshlakov believes Tajikistan will ride the crisis out without its population being hit too hard.
"We don't have large debt obligations, nor do we have a securities market," said Koshlakov. "We've swum with the flow so far, and we'll go on doing so."
The government civil servant claims to have seen unpublished reports from the International Monetary Fund, IMF, warning that Tajikistan might default on its foreign debt repayments by the end of this year.
He said that despite this prediction, he was certain that the global financial crisis would not result in default.
Other economists polled by IWPR agreed that ΤΗτ barring some unforeseen unexpected turn of events ΤΗτ Tajikistan was not going to default on its debt, currently equivalent to around 30 per cent of annual GDP, according to IMF figures.
Many agreed that life would get tougher for the average Tajik citizen, as the somoni suffer depreciation, food and other costs go up and living standards fall.
The government insider warned that a "food crisis" was now more likely.
"Amid the banking crisis, food prices continue to rise on world markets," he said. "The circumstances of Tajikistan's impoverished population may worsen."
An employee at a major Tajik commercial bank, who also asked not to be named, told IWPR it was still too early to assess the real scale of the economic threat caused by external economic conditions.
The Tajik banking world was still uncertain about how things would play out, he said, adding, "We understand perfectly well how serious all this is. But right now it's impossible to say whether it will all go to the bad or it will all be OK."
Ravshan Abdullaev is an independent journalist in Tajikistan.
October 24, 2008
