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UNCLAS DUSHANBE 001641 
 
SIPDIS 
 
SIPDIS 
STATE FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EAID PGOV TI
SUBJECT: IMF TO TAJIKISTAN: LOOKING A BIT DEBT-HEAVY, AREN'T WE? 
 
 
¶1.  (U)  SUMMARY: The International Monetary Fund (IMF) has 
concerns over Tajikistan's accepting $637 million in debt from 
China, but feels confident the Tajik government still supports 
economic reforms.  During a donor briefing the IMF reported 
inflation in Tajikistan exceeded expectations due to increased 
energy prices and export of agricultural products.  Foreign 
remittances, mainly from Russia, reached $1 billion.  The IMF 
mission will return in October to continue negotiations on a new 
round of financing.  END SUMMARY. 
 
¶2.  (U)  Washington-based Carlos Pinerua, Chief, IMF Mission to 
Tajikistan, briefed donors August 31 on the mission's discussion 
with government over Tajikistan's 2007 budget, macroeconomic 
situation and reforms.  During a week-long visit, the IMF 
mission discussed its concerns surrounding the $637 million in 
new Chinese debt signed in Beijing in June (septel) and its fear 
this might start a new cycle of debt-taking.  The low-interest 
concessional loans represent close to one quarter of 
Tajikistan's GDP, and do not sit well with many IMF 
shareholders.  The IMF postponed its decision on initiating a 
new Poverty Reduction and Growth Facilitation Program, and will 
return in October to continue discussing the three-year program. 
 
 
¶3.  (U)  The IMF views the government's new draft budget as 
reasonable, given the country's current needs.  The draft 
budget, not yet introduced to Parliament, contains three new 
objectives: increased public sector wages from 4.5% to 5% of 
GDP; increased investments in the road and electricity sectors 
from 4% to 12% of GDP through the Chinese loans; and subsidies 
to offset increased energy costs for the general population. 
 
¶4.  (U)  The rate of inflation reached 12% over the last year, 
due to a 30% increase in energy prices from Uzbekistan, and an 
increase in the price of staple products such as rice, carrots, 
and onions.  Increased demand from Russia and Kazakhstan 
combined with a weak harvest led farmers to sell to the 
higher-priced export markets, rather than domestically. 
Uzbekistan may continue to push Tajikistan gas prices higher, as 
the current $55 per 1,000 cubic meters of gas is still 
relatively cheap.  The National Bank also expanded monetary 
policy over the summer, contributing to inflationary pressures. 
 
¶5.  (U)  The IMF estimates that remittances from migrant workers 
increased 60% this year, to $1 billion; however, they gave no 
indication whether this reflected more workers in Russia, or 
higher wages sent home.  Much of this cash now flows through the 
banking sector, and mostly goes for local consumption needs. 
 
¶6.  (U)  COMMENT:  The IMF briefing left a number of lingering 
questions about the fiscal stability of Tajikistan.  Will 
Tajikistan ask for debt relief again in five years when they are 
due to start paying back the Chinese?  The IMF estimates the 
government should be able to sustain this debt, but the question 
remains how the government can increase social sector payments 
as it wishes to, as well as pay off debt interest?  The answers 
will depend on government policies.  END COMMENT. 
 
JACOBSON