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 2006-2008: Tajikistan

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II. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

10. The main objectives of the poverty partnership agreement, signed in 2002 after the poverty reduction strategy paper (PRSP) was finalized, are to accelerate growth to increase jobs, economic activity, and incomes, and to improve overall well-being. The PRSP's mediumterm focus is to improve productivity in economic and social sectors, solve governance issues that hinder private sector development and delivery of social services to the poor, and rationalize public expenditure allocations for equitable distribution of essential social services.

11. Continued strong growth, policy reforms, and a favorable economic environment led to sustained reduction of poverty from 82% in 1999 to 64% in 2003, based on a $2.15 purchasing power parity per capita per day poverty line. But regional inequality, pockets of poverty, and lack of jobs persist. Agricultural reforms have been slow, as seen in the increase in cotton farm debt from $180 million at the end of 2003 to $214 million at the end of 2004. The cotton debt has significantly reduced the incomes of cotton farmers, keeping them systematically poorer than other farmers, and brought down overall agricultural production.

12. Most recent assessments of poverty reduction mask emerging gender imbalances. The gender-related development index (a composite of average achievement in a long and healthy life, knowledge, and a decent standard of living) is the lowest among the Central Asian republics, at 0.668.³ Since the early 1990s, school enrolment and attendance among girls has declined noticeably after 9 years of compulsory education, especially in rural areas. The disparities between boys and girls are wider at the secondary (0.84) and tertiary (0.33) levels.

13. Although the PRSP cites factors contributing to falling educational achievements of girls, Tajikistan faces considerable obstacles in achieving the MDG target of providing basic education to all girls and boys. However, significant progress in reducing child and maternal mortality is underway to meet MDG health targets. The Government is implementing primary health care programs through health financing that will increase access to, and the quality of, cost-effective service, reducing infant and child mortality. The country also faces significant challenges in achieving other health-related goals. HIV/AIDS⁴ is worsening and prevalence of other diseases (malaria, tuberculosis and waterborne diseases) remains high. Poor access to safe drinking water and a lack of sanitation (also MDG targets) contribute to the worsening morbidity indicators. Sustained policy reform supported by substantially more financial resources could move the country toward achieving its MDG targets, but it may not suffice.⁵

14. While poverty has significantly declined in Tajikistan, it is still the highest among the Central Asian republics. The country remains one of the poorest in the world. High growth and rising per capita income hide the fact of rising inequality, while provision of adequate social services remains a challenge. Meeting this challenge requires the Government to pursue reforms to improve the efficiency and effectiveness of and access to essential services. The PRSP strategic focus on the labor market, agriculture, education, health, social protection, and governance is important for direct poverty impact. The impact could be enhanced through institutional development; deregulation of markets; and greater focus on transport, communication and energy infrastructure, and private sector development, which, in particular, requires legal reform to give confidence to local small and medium-sized enterprises.

B. Progress in the Country Strategy and Program Focus Areas

15. The lending and nonlending programs are designed in consultation with the Government and based on the Asian Development Fund (ADF) allocation for Tajikistan. This section discusses the progress made in the focus areas of the country strategy and presents the forward-looking assistance program. Also described below is the CSP’s proposed assistance program to strengthen rural development and regional cooperation while rehabilitating basic infrastructure, and the new Asian Development Bank (ADB) initiatives to solve governance problems and contribute to the Government’s social sector program.

1. Agriculture and Natural Resources

16. The agriculture sector sustained a growth of about 10% since 2003 with diversification from traditionally grown cotton to wheat and other crops. Cotton contributes about 20% of exports, occupies more than 75% of irrigated farmland, supports 75% of farm households, and is the dominant income source for 75% of poor and extremely poor households. To strengthen the sector, in early 2005 the Government adopted a cotton farm debt resolution strategy with support from a consortium of funding agencies led by ADB. The strategy includes abolition of cotton forecasts and local government interference in farm production decisions along with faster land privatization. ADB is providing specific assistance to implement the strategy. A technical assistance (TA) on Farm Analysis and Awareness-Raising for Debt Resolution in 2005 will address factors internal to farms, particularly to support farm restructuring, create awareness of the Government’s debt resolution strategy, and strengthen farm management to enable the restructured farms to reduce their cotton debt. The proposed Farm Productivity Improvement project will (i) help implement the Government’s farm debt work-out strategy, especially the operations of an independent commission; (ii) accelerate policy, legal, and institutional reforms; and (iii) provide investment.

17. With Tajikistan’s preparation towards accession to the World Trade Organization (WTO), the agriculture sector in the country is diversifying beyond cotton to other crops. The Rural Development Project in 2006 will facilitate private investments in cash crops other than cotton as well as downstream (agroprocessing) and upstream (input development) activities using an integrated area approach focusing on poverty reduction. Given the importance of the rural sector, a project preparatory TA in 2007 will develop a Rural Enterprise Development Project in 2008. It will provide a platform for comprehensive development of rural enterprises, including enhancing opportunities in nonfarm activities. It is expected that the Rural Development Project, will be co-financed by the Global Environment Facility as part of the Central Asia Countries Initiative on Land Management (CACILM). CACILM,⁶ funded by ADB TA 6236 – REG with co- financing from Global Environment Facility and the Global Mechanism, is a partnership among Central Asian Countries and various funding agencies to support the development and implementation of national programming frameworks for more comprehensive and integrated approaches to sustainable land management directed towards the overall goal of combating land degradation and improving rural livelihoods. The National Programming Framework, currently under development, is expected to generate additional investment and technical assistance projects for Tajikistan.

2. Transport and Communications

18. Building transportation facilities is critical to expand Tajikistan’s access to regional markets. To boost trade, several projects are being implemented to upgrade the road network. Among others, a highway to the border with the People's Republic of China and a tunnel through the Anzob pass to link Dushanbe with the northern region are under implementation. The Government views rehabilitation of roads, particularly those that are part of the regional road networks, as key to reducing Tajikistan’s isolation. Phase II of the Dushanbe–Kyrgyz Border Road Rehabilitation Project, which is included in the 2005 lending program, is a vital component of the regional road network connecting Tajikistan with markets of large neighboring countries. Feeder roads will connect neighboring rural areas with 90% poverty incidence to markets. Linked to this project, a TA in 2006 will create awareness of HIV/AIDS and communicable diseases in the project area. To complete the Tajikistan portion of the regional road network, phase III of the Project is proposed as standby in 2007. Another TA is being prepared in 2005 on Community-based Rural Road Maintenance to be funded by the Japan Fund for Poverty Reduction (JFPR).

3. Energy

19. To facilitate a stable supply of power, encourage further investment in the sector, and to promote energy exports, the authorities have taken steps to reduce the quasi-fiscal deficit in the sector estimated at 19% of GDP in 2003, resulting from low domestic energy prices. The steps include installation of gas and electricity meters, which have increased collection rates. An energy compensation mechanism has been implemented to improve the targeting of poor households. In 2006, the proposed phase II of the Power Rehabilitation Project will relocate the 50 kilovolt (kV) and 220 kV switchgears of the Nurek Hydroelectric Power Plant, study the rehabilitation and increase of installed generation capacity of the Vashkh Cascade, and complement the rehabilitation of the transmission and distribution systems in the Khatlon region, which started under phase I of the Project. The Project aims to improve energy efficiency; increase the availability of, and enhance the country's potential for, hydropower export; and strengthen the financial capability of the power utility. With funding from JFPR, a TA is being proposed in 2005 on Community-based Rural Power Supply, focusing on renewable energies (micro hydropower). It will be followed by phase II in 2006. Tajikistan has joined Promotion of Renewable Energy, Energy Efficiency and Greenhouse Gas Abatement Projects,⁷ financed by the Government of the Netherlands, and is actively involved in preparing feasibility studies and building capacity. Two regional projects have been programmed to (i) strengthen power supply between Tajikistan and Afghanistan, and (ii) rehabilitate and modernize the gas transmission pipeline from the border with Uzbekistan to Dushanbe, and the gas distribution network in Dushanbe. The latter proposed project will also improve the policy, institutional, and regulatory environment governing natural gas trade between the two countries.

4. Law, Economic Management, and Public Policy

20. Successful regional cooperation as identified in the CSP is critical for Tajikistan because of its significant dependence on external factors for economic growth and poverty reduction. In recent years Tajikistan has made significant progress in improving international economic relations with its neighbors particularly with the countries of Iran, Pakistan, People’s Republic of China, and the former Soviet Union. It is actively participating in several regional organizations to facilitate better commercial operations and interactions. ADB plans to implement a Trade Finance Facilitation Program in Tajikistan in close coordination with the European Bank for Reconstruction and Development (EBRD). The Customs Modernization Project is continuing to better facilitate regional trade. In 2007, a project preparatory TA will design phase II of Regional Customs Modernization and Infrastructure Development Project, to be implemented in 2008. While the international trade and operations tax constitutes 3% of GDP, internal taxes on goods and services form close to 8% together adding up to more than 70% of total tax revenue. Reform and modernization of tax administration is an integral part of the Government strategy to promote private sector-led development, reduce the debt burden, and mobilize public resources for poverty reduction and sustained economic growth. Effective, transparent, and efficient tax administration will improve governance In 2005, a TA to prepare a project to modernize tax administration and enhance governance will support the Government's tax modernization strategy and reinforce the ongoing legal and institutional reforms through a standby project in 2006. A more transparent and accountable tax administration would raise more revenues, which could, in turn, be used to increase social sector spending.

21. Following the Article IV consultation and the fourth review of Poverty Reduction and Growth Facility with the IMF, the Government is rationalizing and reorganizing its structure in tandem with the transition to a market economy. The Government will improve local service delivery by strengthening local government skills, starting with building capacity for effective budget preparation and implementation, and links to the national budget. An advisory TA on Local Government Finance is planned in 2005, to enhance local budgeting capacity and public consultation. ADB will continue to tackle governance sector by sector through a strong governance component in each loan as envisaged in the CSP. Another advisory TA in 2006 will support a project to strengthen local government agencies in rural development. Phase II of a microfinance systems development program has been included as a standby project in 2008. Apart from continuing work initiated under phase I, this project could help develop international accounting standards.

5. Education and Health, Nutrition, and Social Protection

22. In line with the Government's stronger focus on the social sector, a 2006 TA will prepare phase II of the Education Sector Reform Project, to be implemented in 2007 for long-term impact. A project to consolidate reformed primary health care is planned as standby in 2008. It will consolidate the reform process and sector institutional building initiated under the Health Sector Reform Project. The project will help the Government renew and accelerate reform of the health sector and expand its benefits nationwide. The 2006 TA on HIV/AIDS prevention is associated with the proposed phase II of the Dushanbe–Kyrgyz Border Road Project. Its comprehensive interventions will target people and geographical areas affected by the road project. Its design will be based on national policy and an assessment of the construction and the road operational settings. It will take into account the level of community capacity and advocate interventions through policy dialogue on the need to fight HIV/AIDS.

C. Highlights in Coordination of External Funding and Partnership Arrangements

23. At the fourth Consultative Group meeting in 2003, donors pledged $900 million for 2004– 2006 to aid Tajikistan. The 2004 meeting stressed the need to improve information sharing and to comprehensively analyze aid coordination. Donors committed to explore ways to improve donor coordination and emphasized harmonization in procurement, financial reporting, and auditing. Sector-wide approaches were stressed as a tool to harmonize donor assistance to the sectors. The importance the Government attaches to coordination with the donor community by establishing stronger ties, sharing experiences, and engaging in coordinated dialogue will help accelerate poverty reduction and economic development. A TA approved in 2004 will improve development impact and overall aid effectiveness by strengthening the Government's capacity for better aid coordination, harmonization, and portfolio management. To implement the farm debt resolution strategy, ADB has formed a strategic alliance of donors and the Government, which also recently prepared, using highly participatory methods, a time-bound and resultsoriented Action Plan.

24. Significant cofinancing will be generated by phase II of the Power Rehabilitation Project from the Japan Bank for International Cooperation (JBIC), Germany (KfW Development Bank [KfW]), and possibly the Organization of Petroleum Exporting Countries (OPEC) Fund. Discussions are underway with Department for International Development of the United Kingdom (DFID) for collocating a DFID-funded consultant in the Tajikistan Resident Mission with the key responsibility of coordinating donors in support of the Action Plan for the farm debt resolution strategy.

25. ADB will explore opportunities to co-invest with the Aga Khan Fund for Economic Development (AKFED), EBRD, or the International Finance Corporation (IFC) in local bank and nonbank financial institutions in the form of equity stakes and provision of subordinated debt, and through partial credit guarantees. These types of interventions will help develop the financial sector and ensure sustainable private sector development.

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