Tajikistan Finance Profile 2012

Market-based competition The institutional framework for a market economy exists and in large measure replicates those of other CIS countries, with some modification. The framework is in no way indicative of action but, rather, is a justification for decisions made through informal channels.

Agriculture is the backbone of the national economy. It employs 60% of the working population, according to a World Bank estimate, and generates 20% of GDP. Cotton is the main cash crop and a major source of government revenue, over which it keeps tight controls. Cotton-producing areas are required to fulfill targets in cotton cultivation and harvesting. Farmers have to dedicate up to 90% of their land to cultivating cotton, which is bought at fixed price, while inputs (e.g., fuel and fertilizer) are provided on non-market terms for which farmers with no alternatives. The cotton sector has accumulated a large debt (now estimated at $450 million), which prevents individual farmers from investing in business development. In cotton-growing areas, only production from the remaining land can enter into the market economy. In non-cotton areas, farmers have more freedom, such as with pricing, but market access is problematic due to poor road infrastructure and closed borders.

Tajikistan’s currency, the somoni (TJS), is fully convertible. However, due to the extreme underdevelopment of the banking sector, getting profits out of the country is difficult, which was confirmed by murky transactions through off-shore accounts to and from the Tajik Aluminium Company (TALCO), the country’s main industrial asset to survive past the Soviet era.

Anti-monopoly policy Rudimentary anti-monopoly regulations formally exist in law. However, monopolies have already been formed in the key sectors, such as cotton production, while other lucrative assets, such as an aluminum plant and uranium mining, are under the direct control of the state. The monopoly of Tajik Air, Tajikistan’s national airline, over most profitable routes was gradually eroded as Russian and Turkish carriers were allowed to schedule flights and the state allowed Somon Air, a Tajik private airline, to operate.

Liberalization of foreign trade In principle, foreign trade is liberalized, but it is undermined by hostile interstate relations with Uzbekistan that have resulted in the erection of trade and transit barriers. Since import and export duties are heavy and license duties severe, corruption paves the way for lax attitudes among customs and border guards, who permit informal trade to flourish. There are special rules for state-controlled commodities, such as cotton and aluminum. The retail trade is subject to heavy duties, mainly in order to protect the domestic market from an influx of imports from China. In general, apart from aluminum and cotton, the Tajik economy remains isolated from world markets.

The banking sector is underdeveloped and state-controlled. There is virtually no capital market. There are three main banks. The two state-controlled banks are left over from the Soviet era: Vnesheconombank, a state commercial bank for foreign economic affairs, and Sberbank, which administers state payments, such as salaries, pensions and benefits, and which is also the savings bank for most people. The main commercial bank is Orienbank, which is headed by the president’s brother-in-law, Hassan Sadulloyev. Two foreign-owned banks are present: Aviabank, from Russia, and the Tujorat bank, from Iran. By 2009, there were 121 credit institutions operating in the country, including 12 banks, seven credit societies, one non-banking financial institution and 101 micro-financing institutions.