DUSHANBE, TAJIKISTAN (3 April 2020) — Lower public investment, reduced remittances, and weak foreign direct investments resulting from the COVID-19 outbreak are projected to slow down Tajikistan’s economic growth in 2020 and 2021, says a new Asian Development Bank (ADB) report.
In its Asian Development Outlook (ADO) 2020, ADB forecasts (as of 16 March 2020) Tajikistan’s gross domestic product growth to drop to 5.5% in 2020 and to 5.0% in 2021, from the 7.5% economic growth rate recorded in 2019. ADO is ADB’s flagship annual economic publication.
“The impact of the COVID-19 pandemic on the Tajikistan economy is yet to be fully seen and assessed, which makes forecasts volatile over time,” said ADB Country Director for Tajikistan Pradeep Srivastava. “However, it has already led to trade disruptions, decline in investment projects, revenue shortfalls, weakening of the national currency, rising health care expenditures, limited labor migration, and reduced tourism receipts.”
Inflation, which stood at 8.0% last year, is projected to remain under 10% in 2020. The forecast rests on expected exchange rate flexibility, external currency pressures from ruble depreciation, potential supply shocks, and possibly faster monetary expansion during an election year, along with expected increases in public salaries and higher electricity tariffs. Inflation is expected at 8.0% in 2021 with slower growth in demand.
The report highlights the need to reform the country’s tax policy to spur investments, as the current tax policy has unrealistic revenue collection targets that rely heavily on private firms. Companies shoulder tax rates, pension, and insurance contributions that are more than double the norm for transitional economies in Europe and Central Asia.
To improve the investment climate, Tajikistan should consider how to make its tax policy more business friendly while finding other ways to increase revenue, says the ADB report. Electronic filing of tax returns and online payment of tax liabilities have already been introduced to simplify taxpaying and increase transparency, but further reforms are needed.
The country should review tax exemptions to further broaden the tax base, move from tax inspections to risk-based assessment, and shift more of the tax burden from income and profit to consumption. Tax incentives should be limited to activities with clear and monitorable impacts on investment, innovation, regional development, and employment generation. Administrative and compliance burdens should also be reduced, says the report.
ADB’s first assistance to Tajikistan was in 1998 to support post-conflict reconstruction. Since then, ADB has mobilized over $1.8 billion for the country, including more than $1.3 billion in grants. The assistance has helped improve the country’s transport and energy infrastructure, support social development, expand agricultural production, and strengthen regional cooperation and trade.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.