|Project Rationale and Linkage to Country/Regional Strategy
In 2004, ADB completed a comprehensive study of cotton farm debt. It documented $240 million in estimated unpaid debt (principal and accumulated interest) as of January 2004. Of this amount, approximately $180 million is due to formal creditors, rather than overdue payments for electricity, water, and salaries. About 108 of the large cotton farms account for 70% of the debt. The unpaid cotton debts are closely associated with low productivity and poor profitability. The TA workshop in 2004 spurred engagement of other funding agencies. The World Bank, the United States Agency for International Development (USAID), and the Department for International Development (DFID) studies, all involving detailed consultation processes at the farm level, deepened the ADB finding that for the agriculture sector, particularly cotton, to be more productive and profitable and reduce poverty, an integrated approach is required that includes reforms in policy, institutions, and structures at the farm level. While the National Bank of Tajikistan (NBT) and the Government had started addressing cotton debt default, the ad hoc nature of the process provided insufficient results. A unified approach was clearly demanded, one that required a four-way arrangement between farmers, creditors, the Government, and funding agencies.
The Government has responded to this significant challenge. On 4 March 2005, the President of Tajikistan approved the Cotton Farm Debt Resolution Strategy. It has a two-part approach to facilitating debt workouts between private lenders and private borrowers. One part focuses on short-term measures to ensure fair and equitable resolution of the debt on a farm-by farm basis. The second part focuses on the medium-term policy, legal, and institutional measures to enable a properly functioning cotton market. These reforms include such complex areas as land reform and farm privatization. The strategy calls for the establishment of the IC to oversee implementation.
The IC was established in May 2005, including senior ministers, representatives of two nongovernment organizations (NGOs), and the World Bank and ADB resident representatives. Commissioners developed the terms of reference, action plan, and guiding principles during an ADB-led, multidonor-funded retreat. The first priority of the action plan is the startup of the debt analysis and workout strategy for each farm. The most crucial step now is to commence farm debt reviews on an initial subset of heavily indebted farms, as they hold more than two thirds of the farm debt and employ a large proportion of the impoverished cotton workforce. Based on the initial farm debt reviews, standardized farm debt review and restructuring protocols can be established for use on all other farms. A database can also be established, using data generated in the farm reviews and incorporating information from a variety of sources, to track progress and provide a starting point for the farm-by-farm reviews. The TA will provide technical support in these important initial tasks. A loan-cum-grant, Sustainable Cotton Subsector Project, is being designed to provide significant additional assistance to the subsector (see 38603-TAJ Farm Productivity Improvement) and a proposed Japan Fund for Poverty Reduction project is expected to provide substantial assistance to cotton farm workers to increase and diversify their income sources.