Regions and Countries

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p. 2 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2003-2005: Tajikistan

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II. Implementation of the Country Strategy and Program

A. Progress in Preparing the Poverty Partnership Agreement

1. ADB provided assistance to develop the NPRS using participatory processes in coordination with the World Bank (WB), IMF, United Nations Development Programme (UNDP), and other development partners.⁶ This culminated in a high level forum in April 2002 to discuss the draft NPRS with various stakeholders. The NPRS was approved by Parliament in June 2002. ADB plans to finalize a poverty partnership agreement in 2002 in parallel with the preparation of the new CSP. ADB also supports monitoring of the progress of poverty reduction through a TA.⁷

B. Progress in the Country Strategy and Program Focus Areas

12. The objectives of the current IOS are to (i) facilitate the country's transition to a market economy, (ii) assist in the postconflict rehabilitation and reconstruction, and (iii) support natural disaster rehabilitation. The IOS focuses on three priority areas: (i) agriculture; (ii) infrastructure rehabilitation, especially roads and power; and (iii) the social sector. Changes in the scope of ADB interventions, reflecting newly emerging situations in the country, are summarized here.

1. Support for Pro-Poor Economic Growth

13. ADB needs to increase its support for pro-poor economic policies through investments and reforms, which are necessary to develop a market economy. Following the completion of the Postconflict Rehabilitation Program loan in 2000, which supported the restructuring of the energy and transport sectors, subsequent ADB investment loans have deepened market-oriented sectoral reforms and have supported rehabilitation. In the power sector, the tariff scheme was revised, collection was strengthened, and the accounting system is being improved. Also, ADB will support the Government in preparing a realistic energy sector development strategy in 2002 and conduct a transport sector development study in 2005, which will provide the basis for future external assistance in these sectors. In the transport sector, following the ongoing Road Rehabilitation Project, the rehabilitation of the Dushanbe-Kyrgyz border road (first phase) is planned for 2003.

14. In the agriculture sector, based on the Agriculture Sector Study completed in 2000, an agriculture rehabilitation project loan is being processed in 2002. The project will increase agricultural productivity, rehabilitate and improve irrigation and water supply systems in the project areas, and strengthen rural services activities. The Rural Poverty Reduction Project financed by the Japan Fund for Poverty Reduction that started in early 2002, focuses particularly on increasing the earning capacity of vulnerable households.

2. Human Development

15. Continued international support is critical to prevent further deterioration of living standards as the Government's capacity and available resources are limited. ADB's first investment loan, the Social Sector Rehabilitation Project, is being implemented to support the recovery of social infrastructure devastated by the civil war and natural disasters. ADB plans to support sector reform through a social sector development project in 2003 to ensure that gains from economic growth address social needs. As a part of the project preparation, a social sector study is being conducted in coordination with the UN and WB to assess the current status and identify the areas for future ADB assistance in the sector in a coordinated manner. The agriculture rehabilitation project under processing will improve water supply of rural communities in the project areas. ADB's support in the urban water sector will be considered during a full CSP process in coordination with other funders.

16. ADB also actively seeks to improve women's social and economic status. Tajikistan's legal and administrative systems protect women from discrimination. However, the deteriorated social situation due to the civil war and transition has made it more difficult for women to balance their public and private roles. The Social Sector Rehabilitation Project, which is being implemented, includes components that specifically benefit women, including the Women's Development Fund designed to support women's initiatives to improve community infrastructure. A microfinance systems development program (Sector Development Program [SDP]) loan, currently being processed, and the ongoing Rural Poverty Reduction Project also support women's access to microcredit facilities.

3. Governance Reform

17. The Government has initiated several important reforms ranging from professionalizing the public service, streamlining government structure, strengthening budget and financial management, improving revenue collection, privatizing state-owned enterprises, advancing legal reform, and regularizing public procurement activity. The Anti-Monopoly Agency was established in 2001, and in 2002, the Ministries of Industry and of State Revenue and Duties were established. Following Presidential decrees in 2002 to fight corruption and drug trafficking, the fight against economic crime, including corruption and drug smuggling across the Afghan border, has become a priority for the Government.

18. A governance assessment, which will serve as part of the basis for the new CSP, is being undertaken to assist the Government to take stock of its governance requirements and to accelerate reforms. Based on the findings of the assessment, a TA for supporting governance reform is planned for 2002. Most ADB loans and TAs incorporate significant governance work and contribute to reforms in the focused sectors. With ADB assistance, the Government established the Law Reform Commission in April 1999 to review the laws and other legislation for consistency and to publish them. A database of 5,000 legal documents will be available on a website this year. Also, under the ongoing TA for Building a Poverty Monitoring Mechanism, a website is being created to disseminate socioeconomic information at the State Statistical Agency. TA for Aid Coordination and External Debt Management approved in 2000, and the trade facilitation and customs reform program loan planned for 2002 also aim to improve governance.

4. Private Sector Development

19. Private sector development is hampered by (i) an underdeveloped banking system, (ii) lack of knowledge of the taxation system, (iii) insufficient institutional and legal base, and (iv) limited domestic and external markets. Private domestic investment and foreign direct investment have remained extremely low despite the existence of a liberal trade regime. Private sector activities are so far limited mainly to the service, trade, and craft sectors. The microfinance systems development program (SDP) loan planned for 2002 will support private sector initiatives in rural areas. It will also increase the outreach and sustainability of microfinance services to the poor and the access of entrepreneurs to formal sector loans, as the banking sector has almost come to a standstill. A private sector assessment is ongoing and possible areas of assistance for developing the private sector will be explored through the CSP process.

5. Environmental Protection and Natural Disaster Management

20. ADB has supported the Government's initiatives on environmental protection, focusing on environmental legislation and institutional strengthening, and improved management of water, land, energy, and other natural resources by integrating environmental considerations into projects. To help implement the Government's National Ecological Program, TA for Capacity Building for Environmental Assessment and Monitoring has been implemented since 2000 and a follow-up TA for strengthening environmental monitoring system is planned in 2004. Based on the findings of the agriculture sector assessment and the TA for improved flood management in 2001, a loan for water resources development and rehabilitation is being prepared.

21. Given its fragile ecological system and underdeveloped infrastructure, Tajikistan is unusually prone to natural disasters. ADB has provided two emergency rehabilitation loans in 1999 and 2001, and an emergency assistance loan to mitigate the impact of landslides near the Baipaza power station is being processed this year.

6. Regional Cooperation

22. Tajikistan has been an active partner in promoting subregional cooperation in Central Asia. Reconstruction of Afghanistan will present new opportunities to explore trade and subregional economic cooperation. Through 2001-2002, ADB organized high-level conferences on trade, transport, power, environment, and subregional development policy, and the initiatives were firmly supported by the Central Asian republics, Azerbaijan, People's Republic of China, and Mongolia.

23. As a land-locked country, with many districts extremely isolated in inaccessible mountain regions and with a limited market and narrow production base, developing regional trade and transport links is crucial to improving economic prospects. In support of this, a program loan for trade facilitation and customs cooperation for Tajikistan is being processed in 2002. The follow-up investment loan for customs modernization in 2003 will strengthen and modernize customs procedures and institutions, and improve regulations to facilitate cross-border transportation. Such initiatives, particularly such as creating more effective border management, will foster trade while containing illicit trafficking activity that transits through Tajikistan. It will also help minimize security threats, both neighboring country incursions and from other external sources. To secure a reliable subregional transportation route, a loan project to rehabilitate the road between Dushanbe and Kyrgyz border is planned for 2003. In addition to these loans for Tajikistan, subregional projects involving more than two countries have been planned under the subregional cooperation program with separate funds for the East and Central Asia regions. For 2002, a regional power transmission modernization project that aims to facilitate regional power trade and rehabilitate regional power transmission lines between Tajikistan and Uzbekistan is being processed, and for 2004, a Central Asia gas transmission system improvement project (Phase I) loan is planned. Aside from loans, regional TAs in the areas of education, nutrition improvement, and environmental protection are ongoing.

C. Highlights in Coordination of External Funding and Partnership Arrangements

24. The borrowing capacity of the country in the coming years will be severely limited due to its high external debt burden. Since most public investments are funded by external resources, coordination with other funding agencies is critical to maximize the impact of external assistance. The three Consultative Group (CG) meetings in 1996, 1998, and 2001 played a key role in unifying the efforts of the international community for the reconstruction of the country. The next CG meeting is being considered for 2003 or 2004. Excellent relations have been established during 2000-2002 amongst IMF, WB, UNDP, and ADB, and all major funders supported the Government in its effort to finalize the NPRS. The UN has played a lead role in securing the safety of the international community and in the area of emergency humanitarian assistance. Specific cooperation with other agencies includes (i) ADB's inclusion in the UN system's security umbrella; (ii) ADB staff participation in IMF review missions since 2000, and (iii) participation in WB's portfolio review mission in 2002. With the recent improvement of the security status, funding agencies have enhanced their aid activities for Tajikistan. Careful coordination is needed particularly in governance and social sectors interventions as most funding agencies are interested in supporting these areas. To strengthen the Government's role in aid coordination, ADB has provided support in establishing and strengthening the Aid Coordination Unit under the Office of the President through the TA for Aid Coordination and External Debt Management. ADB is making efforts to raise concessional and grant funds jointly with the Government, particularly with the Islamic Development Bank; Organization of Petroleum Exporting Countries (OPEC) Fund; and aid agencies of Germany, Japan, Spain, Switzerland, United Kingdom, and United States. Major activities of external funders are summarized in Appendix 1, Table A1.5.

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