March 17, 2023
The headline budget indicators has been improving in Tajikistan. The budget deficit is estimated to be less than 1.5% of GDP in both 2021 and 2022, while the debt ratio is expected to have declined more than 10 percentage points of GDP over the same period to slightly below 40%. Furthermore, the government is committed to keep the deficit below 2.5% of GDP in order to reduce the debt ratio, which gives cause for optimism. However, headline budget indicators do not reflect some fundamental budgetary problems. State ownership in the economy is very high in Tajikistan, estimated at 70% in the industrial sector. Tajik State-Owned Enterprises (SOEs) have large and growing liabilities that are not included in the official public debt statistics. The net losses of the largest SOEs have been averaging around 4.5% of GDP per year, and their outstanding gross liabilities are about half of GDP. The completion of large government investment projects (e.g. Rogun dam) being carried out via SOES have been periodically postponed, even though around 40% of the government budget is allocated to capital expenditures. This means that while the government spends a great amount of money on SOEs, they are not expected to generate revenue in the near future.
The largest issue is the electricity company Barki Tojik (BT), which has been under restructuring, but it remains unclear whether the restructuring will bring sizable improvement. BT has generated about 90% of the losses of all SOE in the last few years. BT losses are a result of electricity tariffs set way below the production and investment costs. The authorities increased the tariffs in October 2022 after 3 years, by 17%, but the tariffs are still estimated to be30% below the cost recovery level. The inevitable deregulation of energy prices in the medium run will have a sizable impact on production costs and inflation.
The transparency around the SOEs is low, posing large risks on fiscal policy, as the SOE liabilities do not appear on the budget statistics as contingent liabilities of the government. We believe that the debt of the SOE sector is largely reflected in external debt statistics, and that explains that while the private ownership in economy is about 30% the external debt is about twice as large as the government debt.
To reduce fiscal risks in Tajikistan, comprehensive governance and transparency reforms in the SOE sector are necessary. If the current SOE management model, particularly with Barki Tojik and electricity tariffs, continues, the impact of possible system damage would be substantial.