EDB Macroreview, April 2019. Republic of Tajikistan: trends and forecasts

2018 saw the highest economic growth rate since 2014. GDP increased by 7.3% after 7.1% in 2017. As a result, the economy continued along its steady growth acceleration path, somewhat above the potential level. Investment and consumer activity was the key factor behind the growth acceleration in 2018. The State infrastructural development programs continue to support investment demand and lay the basis of economic growth. The revival of domestic demand in 2018 was partially the effect of households’ deferred demand as inflation reached a record low. In the 2nd half of 2018, inflation reached the target range of 7% (±2 pp); it was 5.4% at the end of the year. The inflation trends were shaped by the world food market, the base effect in the fruit and vegetables sector, and transport and electricity tariff policy. The current account deficit expanded as the negative goods and services balance widened, partially due to growing imports of machines and equipment for the implementation of large-scale infrastructural projects. The expansion of the State budget deficit in 2018 also resulted from growing public investment. The State budget’s expenditures on the development of energy sector infrastructure grew 2.2 fold compared to 2017. Public debt stabilized in 2018, largely because most of the external funding was raised in the form of grants. In early 2018, the NBT reduced its refinancing rate from 16.0% to 14.0%. However, due to unforeseen external shocks that increased the volatility of EDB member countries’ currencies, inflationary risks increased again, and the monetary authorities suspended their rate reduction round. The banking system is moving in the direction of recovery, but the indicators remain weak. In 2018 the credit portfolio stopped shrinking and increased by 2.0%. In the projection period, the economic growth rate is expected to stabilize near 7%. The investment drive will continue to support the economy. Consumer demand expansion will slow down somewhat as remittance inflow decelerates and the low inflation background’s favorable effect on household income peters out. Inflation will depend on the situation prevailing in the world food markets. World food prices are expected to start recovering in the 1st half of 2019, and by the beginning of 2020 their trend will stabilize, which in turn will impact the trajectory of consumer price growth in the RT.