Press Release No. 03/119

Press Release: IMF Completes First Review of the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Approves Request for Modification and Waivers of Performance Criteria for the Republic of Tajikistan

July 21, 2003

The Executive Board of the International Monetary Fund (IMF) has completed the first review of the Tajik Republic's economic performance under the three-year Poverty Reduction and Growth Facility Arrangement (PRGF) and approved a request for program modification to reflect recent economic developments and waivers for the nonobservance of two continuous performance criteria - on the non-issuance of directed credits and the non-accumulation of new external payments arrears - and a structural performance criterion on unification of gas tariffs. The decision enables the Tajik Republic to draw an amount equivalent to SDR 8 million (about US$11 million) under the arrangement.

The IMF's Executive Board approved the three-year arrangement effective on December 11, 2002 (see Press Release No. 02/54) for amount equivalent to SDR 65 million (about US$90 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

Following the discussion of the Executive Board on July 18, 2003, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:

"Tajikistan's performance under the Fund-supported Poverty Reduction and Growth Facility (PRGF) arrangement has generally been satisfactory, and its economic growth remains strong. The authorities are to be commended for maintaining a prudent fiscal stance through expenditure discipline and better tax administration. During 2002, the government was able to reduce its deficit. The authorities are encouraged to allocate more resources toward poverty reducing social spending, consistent with their Poverty Reduction Strategy Paper.

"Recent episodes of weak coordination of monetary policy tools and unsterilized intervention in the foreign exchange market by the National Bank of Tajikistan (NBT) have contributed to inflationary pressures. The authorities are therefore taking needed steps to rationalize and strengthen their monetary policy framework. The institutional capacity of the NBT will be strengthened by restructuring its operations and by giving the task of designing and overseeing the implementation of monetary policy to the newly-created monetary policy committee.

"Structural reforms will need to be pursued vigorously to enhance prospects for achieving sustainable growth and reducing poverty, and in that light, the structural improvements and reforms in the banking sector are welcome. The authorities have also taken steps to raise energy and utility tariffs toward cost-recovery levels, while setting in place a mechanism to protect low-income households.

"Given the importance of agriculture as a potential source of growth and poverty reduction, reinvigorating the farm privatization process is an important objective. In that connection, the authorities are moving to resolve the problem of the large debts of the state-owned farms that are discouraging farm privatization.

"The authorities are increasingly aware that strengthening governance will be crucial to support private sector development, broaden the economic base, and sustain growth. Measures taken so far to promote compliance with the law, such as the publication of a list of the largest delinquent taxpayers, are promising. The authorities are encouraged to build on these efforts.

"It is regrettable that misreporting has again occurred, relating to nonobservance of a prior action on the clearance of external arrears. However, as the arrears were minor, attributable to technical problems, and have now been cleared, the Fund grants a waiver of the nonobservance. The authorities are urged to strengthen their debt management capabilities. The Fund completes the first review under the program, and also grants the program-related waivers for the non-observance of three performance criteria," Mr. Sugisaki stated.