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 2005-2006: Tajikistan

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II. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

11. The poverty partnership agreement signed in December 2002 is consistent with the PRSP that was prepared with assistance from ADB and approved by Parliament in June 2002. The PRSP sets out the short-term (2002-2005), medium-term (2002-2007), and long-term (2002-2015) goals for poverty reduction in Tajikistan. The Government set up in May 2003 the PRSP Monitoring Department under the Office of the President to lead the monitoring and evaluation of PRSP implementation. With ADB assistance, the State Statistics Commission has also established the capacity to conduct periodic reviews of poverty for public dissemination. The PRSP Progress Report for the First Year presented by the Government in February 2004 at the follow-up session of the CGM noted the decline of poverty incidence. However, to a certain extent this stems from remittances from migrant workers rather than from inclusive economic growth inside the country. Both the Government and the international funding community fully recognize that it is a long-term endeavor to assist Tajikistan to achieve the goals set in the PRSP. The establishment of an institutional framework to conduct periodic assessments of the poverty situation and monitor the implementation of the PRSP in its first year of implementation has represented the first, yet concrete and essential, step toward the final success of the PRSP. To help the Government better address the gender concerns in poverty reduction, ADB is providing a regional TA for Mainstreaming Gender Into Poverty Reduction Strategies in the Four Central Asian republics.⁵

B. Progress in the Country Strategy and Program Focus Areas

12. The CSP has identified rural development and regional cooperation as the strategic operational focuses of ADB in Tajikistan. Implementation of the CSP in both focus areas has been proceeding smoothly. The processing schedule and proposed loan or TA amount for the individual projects listed in the CSP have changed due to changes in ADB perception of the resource availability and project processing readiness (para. 23). New developments in these two focus areas, since the finalization of the CSP, are briefly discussed in the following paragraphs.

13. Tajikistan's rural economy is dominated by cotton and cereal production. Cotton, the only commercial crop in Tajikistan, contributes about 15% of the country's exports, 39% of tax revenue, and 22% of GDP. Cotton provides employment for about 50% of the labor force across the country. Despite their strategic importance to the economy, cotton farms have accumulated enormous debts, amounting to about $240 million (equivalent to about 20.1% of GDP) as of 1 January 2004, of which external debt is estimated at $180 million. Findings of the ongoing TA for Farm Debt Resolution and Policy Reforms (TA 4052)⁶ demonstrate that cotton farm debt is not limited to the issues of cotton production and cotton farm management, nor is the debt a matter that can be resolved by settling the accumulated debt. Sustainable cotton production requires developing a sustainable and responsible mechanism for cotton financing, restructuring cotton-producing farms in the context of land reform, improving farm management and the cotton processing industry, and revising the current systems for input supply and marketing/pricing for cotton products. The cotton debt problem needs to be addressed through a well-designed restructuring program in phases. This is a task that needs to be supported by collaborative efforts of the Government, the private sector, and the international funding community as a whole. The findings and recommendations of TA 4052 were presented at a roundtable meeting held in Dushanbe in April 2004, and discussed by major stakeholders (including the Government and the major external funding agencies) in detail. The Government has expressed its determination during the roundtable meeting to resolve the cotton debt problem. Subject to the Government's further review and endorsement of the recommendations proposed under TA 4502, ADB is prepared to provide continued TA support to help the Government implement the initial phase of farm debt resolution. A new TA on support for cotton sector reforms has, therefore been included in the TA program for 2005.

14. Development of noncotton cropping (e.g., cereals, potatoes and other vegetables, and fruits) has become increasingly important as a source of income for the poor. Unlike the cotton sector, with its historic access to trader-based credit and established international markets, the noncotton sector is severely constrained by lack of access to credit and by limited market opportunities, as well as by poor rural infrastructure, inadequate extension services, and weak institutional capacity at both local government and community levels. Accordingly, a thorough and systematic analysis of the issues and challenges related to rural development in Tajikistan will be undertaken in the context of the proposed loan for rural development. The resource allocation for the project preparatory TA (PPTA) for the loan has been increased and the proposed loan is scheduled for 2006. Furthermore, special assistance has been arranged to help Tajikistan develop a pipeline of suitable rural development candidate projects for consideration, and possible support, by the Japan Fund for Poverty Reduction.

15. Support by the Government and following participatory consultation with other stakeholders, the country governance assessment for Tajikistan is expected to be finalized in 2004. Its findings highlight certain important follow-up steps for promoting good governance. Consistent with the CSP, initially these are on strengthening local governance to ensure more effective interventions for rural development through application of best practice at both project design and operation. In addition, a new TA, with a special focus on facilitating public consultation at the local government level, has been included in the 2005 TA program. This will form part of the coherent effort to support rural development in parallel to the proposed PPTA and loan discussed (para. 14).

16. Progress has been made in the major areas that have regional cooperation potential, as discussed in the CSP and the Regional Cooperation Strategy and Program (RCSP)⁷ for 2004-2007 for the Central Asian Republics, People's Republic of China, and Mongolia. Smooth implementation of the customs reform supported by the loan for Regional Trade Facilitation and Customs Cooperation Program (Loan 1927)⁸ has provided a solid ground for processing the proposed loan for the Regional Customs Modernization and Infrastructure Development Project. The loan agreement for the Regional Power Transmission Modernization Project (Loan 1977)⁹ was signed on 15 March 2004, in parallel to the signing by the Government of Uzbekistan of the corresponding loan for the facilities under the regional project in Uzbekistan. The effectiveness of the two loans is linked to signing the Power Trade Relations Agreement between Tajikistan and Uzbekistan. In February 2004, Uzbekistan further reviewed the draft agreement in relation to the water sharing regime and transboundary pollution. Following discussion between the two countries in August 2004, a slightly modified agreement is expected to be signed shortly. Tajikistan and Uzbekistan have also agreed to undertake an environmental impact assessment of industrial activities having significant impacts in border regions and take measures for their mitigation.¹⁰ In addition, a regional TA for the Regional Power Transmission Modernization Project, Phase II, is included in the RCSP for 2005. The objective of the TA is to develop a lending project to enhance the power trade among the Central Asian republics. The Tajik component of the ensuing loan will be defined during implementation of the TA.

17. Following approval of the loan for the Dushanbe-Kyrgyz Border Road Rehabilitation, Phase I (Loan 2062)¹¹ in December 2003, processing of the PPTA for the Dushanbe-Kyrgyz Border Road Rehabilitation, Phase II has started, as envisaged in the CSP. The Dushanbe-Kyrgyz border road is one of the most important transport corridors linking Tajikistan to the Kyrgyz Republic and on to the road system in the People's Republic of China.¹² It is one strategic thrust of ADB to help Tajikistan break out of its landlocked geographic isolation through rehabilitation of this important corridor in a carefully programmed and phased approach in accordance with the country's borrowing and absorptive capacity. Although the portion of the road to be rehabilitated under phase II is inside Tajikistan, the project is an integral part of a clearly defined regional road framework that needs also to be supported by resources allocated for regional cooperation initiatives. The project area of the Dushanbe-Kyrgyz Border Road Rehabilitation, Phase II is an area with a poverty incidence estimated at 90%. Including feeder roads in the project to link the surrounding rural areas to the road corridor will not only allow the proposed project to promote economic growth through strengthening regional cooperation, but also provide the rural poor in the project area with the means and infrastructure to access production inputs and markets to escape from poverty.

18. Under ongoing TA 6023-REG: Regional Gas Transmission Improvement Project in the Central Asian Republics,¹³ one regional cooperation project to promote the trade of gas from Uzbekistan and improve the efficiency of gas supply within Tajikistan has been prepared in cooperation with the governments of the two countries, and has been included in the lending program for 2005. (Table A2.2) The CSP also included one lending project for regional tourism development for 2005, but since the findings from preliminary ADB analysis have noted that policies, operational modalities, and the scope of the proposed regional tourism development need to be carefully examined (through the regional TA included in the RCSP for regional tourism development) before such a lending project is proposed, this project has been dropped from the lending program for 2005. RCSP includes a regional railway improvement project that aims to modernize and improve the railway connection between Uzbekistan and Tajikistan in northern Tajikistan. Although project preparation was initiated in 2000, it is noted that commencement of loan processing depends on the progress of bilateral consultations between the two countries. This regional railway project is included as a standby loan for 2006.

C. Highlights in Coordination of External Funding and Partnership Arrangements

19. The Tajikistan Resident Mission was officially inaugurated in November 2003, and now provides a permanent focal point for ADB to strengthen coordination with other development partners and external funding agencies in the country. Lack of prioritization of the public investment program and of effective coordination by the Government has been a common concern among external funding agencies in Tajikistan. With assistance provided by ADB through TA for Aid Coordination and External Management (footnote 4), a planning framework for formulation of the public investment program has been developed. The planning framework was presented at the follow-up sessions of the CGM in November 2003 and February 2004, and was well received by the development partners. In addition, in early 2004, ADB and the World Bank undertook their first joint portfolio review exercise in Tajikistan. The Government has adopted the action plans developed through this joint portfolio review, which has laid the groundwork for the two institutions to cooperate on a broader basis for improving portfolio performance, and for introducing greater aid coordination and harmonization in the country.

20. Kreditanstalt für Wiederaufbau (KfW) has indicated its willingness to provide about €18 million as cofinancing for the Power Rehabilitation, Phase II Project included in the CSP, the total costs of which are estimated at about $50 million. Participation of KfW in the project has made it possible to implement the project through a two-stage approach under one comprehensive rehabilitation plan to be jointly developed by ADB and KfW. Based on the current projection of lending resources available for Tajikistan, ADB financing for the project should be focused on the second stage, which is included as a standby loan for 2006. In conjunction with its lending, ADB will continue to actively pursue cofinancing from official sources to address the important thematic priorities for ADB operations in Tajikistan. ADB will maintain its dialogue with the Government to identify appropriate financing for the projects that it will support during 2005-2006.

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