Fiscal policy

Over the last few years the Government achieved growth in all revenues. The budget revenue to GDP ratio remains low (16.7 % in 2002). The budget expenditure to GDP ratio continued to decline to 15.6 % following cutbacks and rationalization of expenditure. While the Government has been supporting the principle of non-inflationary financing since 1995, it did rely on bank financing of the deficit until 1999 following external shocks and various natural disasters. The continuing reduction in export taxes for cotton and aluminum together with the downturn in world prices of these commodities, result n decreased revenues. Since 1999 this has been compensated by some improvement in tax collection, as well as grants from international agencies. With regard to VAT payments among CIS countries’ shift to the destination principle was made in 2000.

Recent budget reforms include preparation of a year forward-looking budget. The Government takes measures to deepen financial sector reform with the view to strengthen tax administration and improve effectiveness of tax collection system, efficiency of government spending, monitoring system of commitments and external tax management.

In 2002, budget expenditure was associated mainly with public administration (17, 3%), education (17.3 %), social security and welfare (13.2%), transport and communication (6.7%), health (6.1%), and utilities (5.9%). Tax accounted for 93.4% of budget revenues or 15.3% of GDP. In government finance, the treasury is better executing the national budget resources. The National Audit Agency was created with the view to insure accountability and transparency. The Ministry of finance is improving the management of the external public debt. It is regulating all external borrowing and limiting all non-concessionary borrowing. The large external debt liabilities increase the on private sector financing or financing without state guarantee.

In 2002, with view to foster leasing operation the Government has drafted the Law “On financial rent” which cane into force in 2003. With the view to develop financial sector and simulate micro-crediting small and medium enterprises, the National Bank of Tajikistan (NBT) has drafted the Law “On micro-financing entities in the RT”, adoption of which is expected.

Monetary policy

Despite commitments to adhere to a tight monetary policy, the Government at times had to depart from established monetary targets because of the fact that financial instruments to absorb redundant liquidity were not well developed. Given an expected in net of foreign financing, the Government will pursue a tight fiscal policy and balance budget by 2004. A deficit will be financed from the sale of treasury bills and from privatization proceeds. To compensate for the loss in revenue caused by phasing out reduction of sales tax, cotton and aluminum, the Government will introduce measures to expand the base and increase rate of excise taxes, extend VAT on domestic cotton production, experiment with the introduction of a unified agriculture tax I several regions, and reduce the number of tax exemptions. The Government will continue strengthening tax administration and tax collection system. Concrete measures include completion of VAT reform, strengthening of the Large Taxpayers’ Inspectorate, further work on registration of taxpayers to expand the tax base, take action on liquidation of tax arrears, move to modern self-accrual system, and introduce a system a tax withholding at source. In order to improve performance of a recently established Ministry of revenue and duties, the Government intends to allocate incentive amounts to its budget regarding revenue collection and over-fulfillments of plans. Tax administration reform has been started with the support of technical assistance from the International Monetary Found and Asian Development Bank. All these measures will lead to sustained growth of tax revenue to GDP.

Active measures to collect overdue loans, as well as strict limitations on new loans will reduce net claims of the NBT on the private sector. NBT will not extend directed loans. Containing internal credit emission will strengthen international reserves position. The NBT will broaden the sale of NBT deposit certificates and treasury bills and conduct further work on making its open market operations more effective. To strengthen independence and financial position of the NBT, its annual financial reports will be prepared in full compliance with international accounting standards.

The Government of Tajikistan intends to increase expenditures on social sector, though this will be constrained by the large share of expenditures on wages, pension and debt service, which are all expected to rise substantially. Civil service pay has risen by an average of 40 % in 2002. Social sector expenditures in the following three years will comprise of two components. The first component consists basic expenditures on healthcare, education, pension and the revised system of cash compensations. The second component consists of special allocation for poverty reduction programs. The funds will mainly be used fro health and education and for counterpart funds of project in the Public Investment Program with external financing. State-guaranteed foreign borrowing in 2003 will be limited to 3 % of GDP.

The Government will continue to improve effectiveness of the treasure system. In this connection, control over expenditure commitments will be strengthened, a manual on treasury operations will be issued and disseminated and banking accounts of separate ministries will be consolidated. Quasi-fiscal deficits will be eliminated to increase transparency of financial management in the public sector.


From independence until the end of 1999, inflation was high, due mainly to inflation budget financing and the granting of direct credits to state-owned enterprises and farmers. However, the trend has been downward since 1996. Prices grew up again toward the end of 2000 after a new national currency –Somoni (TDS) was introduced in October. The experience in arranging a similar reform in the past, uncertainly, and excessive liquidity during the second half of the year resulted in inflation rates of 12.4% and 7.7% in October and November 2000 respectably and an annual rate of over 60%. A tight monetary policy in 2001-2002 and growing confidence in the new national currency subsequently reduced inflation to 14.5% in 2002. As a result, the nominal exchange rate has remained relatively stable since and 2000.

Reform process.

To halt the deterioration and stabilize the economy since independence, the Government of Tajikistan initiated an Economic reform Program for 1995- 2000. IN 1998-2001 financing faculty for post-conflict reconstruction and expansion of restructuring was carried out in accordance with two IMF programs (POST CONFLICT Faculty and Enhanced Structured Adjustment Faculty – EASF). EASF was later renamed as a faculty financing poverty alleviation and economic growth (PRGF). Sinning of the Grate General Agreement of Peace and national accord in 1997 allowed the Government of Tajikistan to concentrate on reforms targeted at macroeconomic stabilization and a series of structural reforms aimed at establishing the basics of a market – oriented economy. Significant progress was achieved in controlling inflation and completing the privatization of small enterprises. The process of restructuring of large-size enterprises has been started in 1999. Deeper reforms were conducted in the agricultural and by early 2001 land entitlements for 50 % of arable lands had commenced its operation. An agreement on restructuring of the largest business banks has been actualized. The result of these reforms and a more stable political climate was a significant growth in GDP, which over the period 1997-2002 reached a cumulative of 42.3%. In 2002, GDP grew by 9.1 %.
The Government has targeted term GDP annual growth rate of 6 % and a rate of inflation not exceeded 7% in order t maintain a stable exchange rate and rise per capita income. To strengthen confidence in the national currency and meet external commitments, the Government intends to increase gross international reserves to the equivalent of three month of imports. Regarding fiscal policy the medium term target of the Government of Tajikistan is to achieve budget balance. The Government will try to increase the share of revenue to GDP ratio of 16.3% by 2004.

Despite natural disasters, dependency on global prices and vulnerable from external shocks, Tajikistan undertakes many reforms. In several sectors reforms were slower that expected to due to lack of institutional capacity. Macroeconomic stability and implementation of wide range of structural reforms will support the growth, especially in agriculture, taking in to account comparative advantages of Tajikistan in agriculture sector and low cost of labor. The latter factor will also support industrial output with substantial potential to improve the productivity. Growth potential exists in other sectors as well as, such a hydropower, mining and metallurgy, construction and infrastructure.

Here is selector economic indicator’s table of Tajikistan from 1997 to 2002.








Nominal GDP (TDS, million)







Real GDP (%,y-o-y)







Inflation (% end of year)







Sectoral distribution


(% of GDP)
















































Consolidated general Government finances (% of GDP)




























Trade (US$,million)





















Net export







Balance of payments







Current account balance (% of GDP)







Gross foreign reserves







Total public debt

(US$, million)







Unemployment rate

(% of labor force)







(Source: Government of Tajikistan)

Currency exchange policy

To carry out a flexible exchange rate policy and improve the functioning of the foreign exchange market, the Government, in July 2000, abandoned the mechanism of the Tajik Interbank Exchange, where the National Bank was the only supplier of foreign exchange, and established an inter-bank currency market. To strengthen the national currency, the Ministry of finance collects all taxes and fees in national currency. The Government will carry out a tight monetary policy to support the balance of payments and restrain inflation and will be guided be the monetary targets set in the framework of the IMF program.

NBT will continue to use a flexible exchange rate regime and will not intervene in the foreign exchange market, except to smooth out temporary fluctuations. NBT will establish an official exchange rate as an average weighted rate of actual weekly operation in the interbank foreign exchange market, and take measures to improve functioning of the market by introducing tight control over observance of limits of foreign exchange exposure of banks.

There is a two-tier banking in the RT. National Bank of Tajikistan (NBT) is the bank of the first tier, which has primary issuer.
There is a double-level bank sector in the republic. The first category bank is the National Bank and 13 commercial banks. Three commercial banks are registered with the foreign capital participation. Authorized capital of the second-tier banks should exceed US$ 1.5 million. There are plans to increase minimum level of authorized capital to US$2.0 million. Three non-banking credit institutions also operate in the RT.

In 2003, weighted average interest rate of shirt-term credits given by the second-tier banks in the national currency was 14, 92%, average interest rate - 21, 95% and maximum – 60%. Weighted average interest rate of short-term credits given by the second-tier in the national currency was 18.04% average interest rate – 19,33%, maximum – 20%, and minimum – 18%.

The second-tier banks give credits mainly in the short terms basis. In 2002, share of short-term and long-term credits in national currency in total credit volume was equal to 25.4% and 1.0% respectively. As of 1 January 2003, share of short-term and long-term credits in the foreign currency in total credit volume was 71.5% and 2.1% respectively.

Strategic objective of the banks of the RT include developments and maintenance of the most competitive and profitable level applying high standards of professionalism and transparency and providing specialized international financial services to businesses.

With a view to develop and deepen the process of bank system reform, increase in confidence of businesses to the banks, the banks widen the range and improve quality of provided services, strengthen the bank’ role in development of private sector through provision of micro credits to entrepreneurs, farmers, and crate conditions for fare competitions in the financial sector. A mechanism of deposit crediting was introduced in 2001 to simulate secondary security market.

The Government will deepen banking reforms through restructuring, professional management, and acceptable business development, which will guarantee compliance with requirements, set forth with respect to reserve and authorized capital, profitable level and private capital participation.


The National Bank of Tajikistan (NBT) is the central emission and reserve Bank of the country. The NBT takes part in the development of the economic policy of the country and reports to the Lower Chamber (Majlisi Nomoyandagon) of the Parliament (Majlisi Oli). By the Decree of the President dated 1997, the National Bank of Tajikistan became independent in order to better fulfill its mandate.

The National Bank of Tajikistan is entrusted to:

Develop and implement monetary policy of the country as well as foreign exchange policy

Act as a state banker and financial agent

License and supervise activities of all other banks and credit organizations

Emit national currency and unsure its circulation

Manage foreign reserves of the country

Act on behalf of the Republic of Tajikistan and performs transaction under the agreements with the international organizations in the banking and monetary area.

Prepare balance of payment reports for the country

The NBT consists of the central administration and regional branches. At present, the central administration of the NBT includes 2 departments and 12 divisions, 5 independent offices and the press-center.

The National Bank of Tajikistan is managed by the Board.

National currency - the Somoni
The new national currency, the Somoni, was introduced on 30 October 2000.

On October 26, 2000 during the announcement of the new currency, the President of Tajikistan, His Excellency Emomali Rahmonov said that the introduction of the new currency is intended to strengthen the national banking system. International organizations have voiced their support for the new currency, which would contribute to the macroeconomic stability and expedite the transition to a market economy.




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