Tajikistan: Investing in People to Reduce Poverty and Raise Living Standards

Challenge
Tajikistan is a small landlocked country vulnerable to natural disasters and the influence of external economic conditions. Shortly after its independence in 1991, the country descended into a civil war that brought widespread physical damage and loss of life. It is regularly affected by floods, landslides, earthquakes, and droughts, and only 7 percent of its total land area is arable. It is also subject to frequent disruptions in trade and transport and severe winter energy deficits, partly due to regional political instability. These factors make Tajikistan one of the world’s poorest countries, with a gross national income per capita of US$870 in 2011.

Development challenges stem directly from the postconflict context. Fluctuations in remittances inflow, chronically low agricultural productivity, and a weak social protection system left those living in or near poverty with few means to cope with shocks during the global financial crisis. Limited employment opportunities have led up to 40 percent of the working-age population to seek jobs abroad, largely in Russia. Tajikistan is the most remittance-dependent nation in the world, with 47 percent of GDP coming from migrant labor in 2012. Female-headed households are particularly dependent on remittances and thus more vulnerable to shocks. Other persistent challenges constraining development include an unreliable energy supply, administrative barriers to private sector growth (e.g., tax administration), and inadequate access for the poor to good quality education and health care. Improving the business environment and managing relations with neighboring countries will be important to stimulating private and foreign direct investment to sustain economic growth over the long term.

Solution
Looking forward, the main goal will be to help stimulate private investment through structural reforms and financial sector development. Concerted efforts are needed to reduce costs and raise the profitability of private investments and exports, especially in agriculture and agro-processing. Once dominated by cotton, crop and land use reforms are boosting non-cotton agricultural exports, suggesting significant room for future growth. Agribusiness potential will depend on more competitive conditions inside Tajikistan and the easier cross-border movement of goods to regional markets. It will also require enhanced regional cooperation and priority public investments in infrastructure and energy. To complement private sector development, the WBG is improving public administration and governance, human capital development, and energy security. Four multi-donor mechanisms address these core challenges: the US$3.8 million Governance Partnership Facility grant, the Climate Investment Fund for implementation of a US$50 million Pilot Program for Climate Resilience, the US$28 million Global Food Security grant, and a forthcoming US$20 million Communal Services Development Fund.

Results
Results achieved during FY2010–12 include:

Reducing the negative impact of the crisis

• by 2012, the Programmatic Development Policy Grant series protected social expenditures, liberalized land use rights, allowed farmers to farm crops other than cotton, tripled air flights to improve connectivity, introduced competitive civil service recruitment, and standardized civil service wages;
• in 2011, over 10,500 people were involved in public works in the most food insecure districts, earning an average income of US$250/person compared to US$50 (the average monthly wage in agriculture);
• between 2009 and 2011, International Development Agency (IDA) emergency funds helped ensure a sustained energy supply to Dushanbe in critical winter months, increasing the availability of power by 730 gigawatt hours and heat energy by 14,755 gigacalories;
• from early 2011 to end-2012, 46,000 children under the age of five in Khatlon received micro-nutrient supplements, and 18,000 pregnant and breast-feeding women received vitamin A and micro-nutrient supplements.

Paving the way for post-crisis development

• rehabilitated and equipped 63 primary health care facilities in Khatlon and Sogd regions between 2005 and 2012;
• per capita financing rolled out countrywide since 2010, resulting in US$1.5 million in savings for improving schools and learning environments;
• almost 7 million copies of textbooks for 80 key subjects for grades 1–11 delivered between 2005 and 2011, reducing shortages by about 30 percent;
• approximately 130,000 schoolchildren benefited from rehabilitation of 2,400 classrooms in 310 schools and provision of school equipment;
• almost 38,000 land-use certificates issued to individual and family farms from 2006 to 2012, increasing incentives for investment in land;
• improved access to irrigation for over 54,000 hectares of land through rehabilitation of canals, pump stations, and drainage wells, with 74 percent of farmers reporting an increase in crop yields in 2011;
• starting in 2010, over 1,100 farmer groups established with 12,000 people, using community seed funds that reduced quality seed shortage;
• IDA funds helped Barki Tojik install 165,000 electric power meters in Dushanbe;
• energy billing revenues increased by about 50 percent in two years.

Improving the environment for private investment

• improved Doing Business rankings, twice earning distinction as a global top 10 reformer
• acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2012;
• amended Law on Permits to reduce red tape and reduced number of procedures to start a business in 2011;
• adopted new tax code in 2012 and new law on public-private partnership (PPP) in 2013;
• Credit Information Bureau (CIB) Tajikistan became the first in Tajikistan with International Finance Corporation (IFC) support.

Bank Group Contribution
The IDA portfolio currently includes 15 projects for a total of US$281 million. In FY2010–12, IDA commitments of US$140.5 million exceeded the plan in the Country Partnership Strategy (CPS) by US$21.1 million. Programs aimed at budget support totaling US$35.4 million (25 percent of the total) protected social spending while the country recovered from the financial, food, and fuel crises. Tajikistan’s trust fund (TF) portfolio—one of the largest in Europe and Central Asia—was a critical complement to IDA resources, accounting for about 30 percent of total combined commitments in 2010–12.      

The portfolio includes 47 active TFs, with US$87 million in commitments. TF activities complement the Bank assistance program by cofinancing ongoing IDA operations in education, agriculture, food security, migration, and demand-side governance.

IFC’s program includes annual technical assistance of approximately US$3 million in: improving the investment climate, promoting corporate governance, reforming tax administration, supporting the development of credit bureaus, supporting the microfinance transformation processes, improving the business environment for agribusiness, and unlocking Tajikistan’s mining potential through advising the government on the tender for the Konimansuri Kalon project.

IFC has invested more than US$50 million in Tajikistan, with 10 clients. The current portfolio is split, with 50 percent in financial markets; 29 percent in manufacturing, agribusiness, and services; and 21 percent in infrastructure.

To date in FY2012–13, the World Bank has approved three grants of US$84 million: the Tax Administration Reform Project, Programmatic Development Policy Grant (PDPG6), and the Second Public Employment for Sustainable Agriculture and Water Management Project (PAMP2). IFC has completed two investment projects: IFC’s first Tajik Somoni loan to the microfinance organization “IMON International,” and support for a local firm to launch a new chocolate production line.

Partners
The Tajikistan Development Coordination Council, which brings together 26 development partners and is currently chaired by the World Bank, has played a key role in strengthening country ownership and mutual accountability through sector and thematic working groups, in line with the 2005 Paris Declaration on Aid Effectiveness. At the 2012 Development Forum, the development partners (bilateral and multilateral agencies, donors, UN agencies, international financial institutions) agreed on a number of joint initiatives designed to achieve measurable results by 2015 in line with the government’s new medium-term Living Standards Improvement Strategy. The initiatives aim to improve the living standards of the population by: (i) improving the quality of and access to education, health care, and safe drinking water, (ii) planning and preparing for economic and climatic shocks, including by increased fiscal savings, (iii) using scarce public resources wisely and increasing the transparency of public financial management, and (iv) enlarging the role of the private sector in the economy to create jobs, increase the incomes of vulnerable and middle-class groups, and raise budget revenues. Development partners committed to work closely with the government on several priorities, including initiatives on public administration and governance, private sector-led growth, development of human potential, energy and food security, and increasing communication links between Tajikistan and the region.

Moving Forward

The WBG CPS for 2010–13 was extended to 2014 by the Bank’s Board of Executive Directors. The revised CPS shifts focus from crisis mitigation to structural reforms aimed at sustainable growth and development. The most important objective will be to help stimulate private investment through overall private sector development. Other key priorities include: (i) ensuring macroeconomic stability and sound public financial management, (ii) further increasing productivity in agriculture and efficiency in water use, (iii) strengthening the power sector for reliable domestic supply and larger hydropower exports, and (iv) increasing access to higher quality social services.

Improving core governance will be mainstreamed across the CPS program in the context of the Country Governance and Anticorruption (GAC) strategy. Recognizing the important contribution that gender equality can make to economic growth and poverty reduction, gender-related support will be included explicitly in relevant programs, and results will be measured through the collection and use of gender-disaggregated data where appropriate. The extended CPS aligns the drafting of the next CPS with the government’s timetable for preparation of its second long-term National Development Strategy (NDS), 2016–25.

Beneficiaries
Food insecurity and staggering unemployment levels have become significant concerns in rural Tajikistan. The Public Employment for Sustainable Agriculture and Water Management Project, financed through the European Union Food Crisis Rapid Response Facility Trust Fund, hired 10,590 rural residents and farmers (more than the 6,950 projected) and rehabilitated over 1,861 kilometers of irrigation and 312 kilometers of drainage systems. According to Rahimjon Abdunazarov, a farmer from the southern Khatlon region who participated in the irrigation rehabilitation works: “Due to improved irrigation we can now grow diversified produce several times a season, and use the income earned from the rehabilitation work to purchase more seeds as necessary. I also used some of the income I earned to buy a calf for my family.”

Another resident of Khatlon used his earnings to take care of his extended family of 15 people. Despite his age, Grandpa Khol takes pride in having participated in the hard repair work alongside his grandsons. “It has almost been a year since the rehabilitation work started. We earned money and were able to pay for my grandson’s wedding, and improve his and our livelihoods. Now, we do not need to buy produce from the stores as much, since we have enough for ourselves and to sell,” he says.