VZCZCXRO4794
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #1456/01 3580552
ZNR UUUUU ZZH
R 240552Z DEC 09
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 1082
INFO RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 0352
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHDBU/AMEMBASSY DUSHANBE 2292

UNCLAS SECTION 01 OF 03 DUSHANBE 001456 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV PGOV TI
SUBJECT: NEW TAJIK BUDGET PRIORITIZES ENERGY 
 
DUSHANBE 00001456  001.2 OF 003 
 
 
¶1. (U) Summary:  President Rahmon signed the 2010 "anti-crisis" 
budget on November 14, three days after it was approved by the 
Parliament and a month earlier than previous practice.  Despite 
the financial crisis, the new budget is Tajikistan's biggest 
ever, totaling over 6.5 billion somoni (about $1.5 billion), 9% 
higher than the original 2009 budget, and 18% higher than the 
final version of the 2009 budget that was reduced to deal with 
the crisis.  The new budget increases social sector spending 
while addressing Tajikistan's perennial energy difficulties by 
stepping up funding for the Roghun Hydropower Station to 650 
million somoni, 117 million more than the previous year.  Budget 
numbers are in the final paragraph.  End summary. 
 
 
 
Budget Snapshot 
 
 
 
¶2. (U) President Rahmon signed the 2010 "anti-crisis" budget on 
November 14, three days after it was approved by the Parliament 
and a month earlier than previous practice.  Expenditures in 
2010 are calculated at 6.782 billion somoni, while revenue is 
anticipated at 6.537 billion somoni, leaving a deficit of 245 
million somoni, or 1% of expected gross domestic product (GDP). 
This is an increase over 2009's expected deficit of 0.5% of GDP, 
but in the overall guidelines set by the International Monetary 
Fund (IMF).  GDP for 2010 is predicted to be 24.5 billion 
somoni, up from 20.1 billion somoni in 2009.  The government 
expects to fill the budget deficit by loans from multilateral 
donors (totaling 215 million somoni), proceeds from 
privatization of state enterprises (15 million somoni), and new 
treasury bonds (15 million somoni).  Debt service is estimated 
at 162 million somoni, or under 0.7% of GDP, and will be 
financed with loans from the Asian Development Bank (ADB) and 
World Bank as well as Finance Ministry deposits in the National 
Bank. 
 
 
 
¶3. (U) Expenditures in the 2010 budget have increased in all 
categories except one.  Overall social sector spending next year 
is expected to be 2.75 billion somoni, 16.2% higher than the 
revised 2009 budget (and 12.7% higher than the original). 
Government operations and defense have increased by 7.6% over 
the revised 2009 budget, although they are down 6.7% compared to 
the original.  The biggest increases in 2010, however, have come 
in economic sector expenditures, which are up 29.2%, or 22.1% 
compared to the original budget.  The only expenditure to 
register a decline is education, which will drop from 1.11 
billion somoni to 1.07 billion somoni.  This drop follows an 
earlier reduction from 1.14 billion somoni in the original 2009 
budget. 
 
 
 
Social Sector Registers Modest Increases, but Education Falls 
 
 
 
¶4. (U) The biggest increase over last year's budget is for 
social protections, including pensions, slated to receive 1.07 
billion somoni in 2010, 348 million somoni more than last year. 
Social protections comprise 45% of all social sector spending in 
the 2010 budget.  Pensions are estimated at 770 million somoni 
-- a 15% increase over last year.  On average, statutory budget 
items will receive a 24% increase against the revised 2009 
budget with about 82% comprising wages and pensions.  Overall 
spending on social protections increases as a percentage of the 
overall budget, from 12.6% last year to 15.7% in 2010. 
Eliminating wage and pension arrears in 2010, however, will be a 
real challenge in the context of tight fiscal constraints, 
according to a World Bank expert.  The Ministry of Finance 
envisages nominal wage increases of 15% in the health sector by 
July 1, 10% in education by September 1, and 10% for public 
employees in all other sectors by July 1. 
 
 
 
¶5. (SBU) Not all of the press about the budget appears to match 
the figures as released.  For example, Minister of Finance 
Safarali Najmiddinov reported that education expenditures would 
rise in 2010 by 126 million somoni, but according to official 
figures they dropped by 42 million somoni (or by 71 million, if 
one compares to the original 2009 budget).  As a share of the 
overall budget, expenditures in education drop from 19.6% last 
year to 15.8%, roughly the same level as 2007 and 2008. 
Relative health expenditures decline somewhat as well, from 6.8% 
of last year's revised budget to 6.0%.  (A World Bank consultant 
 
DUSHANBE 00001456  002.2 OF 003 
 
 
has calculated education's overall share of the budget as 17.9% 
and that of health at 6.5%; it is not clear where these figures 
come from.)  To a certain extent, the reduction in expenditures 
on health and education reflects the fact that 2009 figures were 
relatively high, because donors insisted the government maintain 
social sector spending in its revised budget as a condition for 
receiving assistance to cope with the financial crisis.  While 
absolute numbers, with the exception of education, have 
increased in 2010, the reduction in health and education 
spending as an overall percentage of the budget indicates the 
government plans to concentrate most anticipated 2010 revenue 
increases in other areas. 
 
 
 
Biggest Increases are in Economic Sphere 
 
 
 
¶6. (U) Government economic sector outlays rise more, in both 
absolute and relative terms, than any other part of the budget. 
In percentage terms, the biggest increase over last year's 
revised budget came in the mining, mineral processing, and 
construction sector, where spending is slated to rise 110%, from 
27.5 million somoni to 57.8 million in 2010.  The next highest 
increase is a 62% boost in housing and public utilities.  In 
absolute terms the biggest economic sector increase (and second 
largest overall increase) comes in the fuel and energy complex, 
which will receive 1.07 billion somoni this year, 180 million 
somoni more than 2009. 
 
 
 
¶7. (U) Subsidies to regional budgets are expected to equal 1.64 
billion somoni.  As in previous years, the President's home 
province of Khatlon receives nearly half of all subventions in 
the 2010 budget.  A number of projects under externally financed 
investment (PIP), which are projected at 1,124 million somoni, 
will affect the broad 7.3% deficit target. According to an 
advisor at the World Bank, 76% of these investment projects are 
in the energy sector, including construction of the Roghun 
hydropower station (650 million somoni), rehabilitation of the 
220 kV and 500 kV transmission lines at the Nurek hydropower 
station (158 million), construction of the new electricity 
transmission line "Tajikistan-Afghanistan" (172 million), and 
others.  Financing for Roghun increased by 117 million somoni, 
22% over nominal previous year expenditures.  Figures for Roghun 
are not included in the published budget and were taken from 
press reports.  The World Bank has reported slightly different 
number:  612 million somoni, representing an increase of 11%. 
Their smaller percentage increase appears to have factored in 
inflation. 
 
 
Optimistic assumptions on the revenue side 
 
 
¶8. (U) The 2010 income target of 6.537 billion somoni is 
optimistic but achievable, according to the World Bank expert. 
The latest figures show that budget outturn for the first nine 
months of 2009 was 76% of projected annual income, indicating 
that revenue models are on track.  Tax and non-tax revenue is 
projected to grow by 14.4% relative to the 2009 amended crisis 
budget and will reach 4.810 billion somoni.  The tax-to-GDP 
ratio is projected to increase slightly from 17.4% in 2009 to 
17.8% in 2010, while the revenue-to-GDP ratio is projected to 
remain at 19.6%.  The share of VAT and income tax in total 
revenue is estimated at 58% and 14%, respectively -- high by 
historic standards.  The share of revenue generated by local 
governments is estimated to increase in 2010 from 8.8% to 17.8%. 
 
 
 
¶9. (SBU) A number of developments are exempt from taxes.  Among 
these are public sector construction projects such as secondary 
schools and the National Library, and private sector 
developments like the Serena Hotel and the Ismoili Somoni Hotel, 
rumored to be connected to one of the President's daughters. 
Also exempt from taxes is the President's lavish new "Palace of 
Nations," which officially cost $100 million to build, but whose 
actual cost, Embassy sources say, is closer to $300 million. 
Imports of public transportation vehicles, agricultural 
machinery, gas, and electricity are also tax-free. 
 
 
 
¶10. (SBU) According to the 2010 budget law, 20% of any excess 
revenue from local governments and 30% percent of excess revenue 
from the republican budget will be transferred to a newly 
 
DUSHANBE 00001456  003.2 OF 003 
 
 
created Stabilization Fund intended to serve as a safety cushion 
throughout the fiscal year.  According to a World Bank 
consultant, roughly 10% of generated revenue normally is 
transferred to the President's Reserve Fund each year, which is 
estimated at 96 million somoni in 2010.  This information, 
however, is not included in the budget.  The government projects 
GDP to grow by about 5% next year, inflation to come in at 9%, 
and the somoni to slide against the dollar, from 4.37 to the 
dollar to about 5 to the dollar. 
 
 
 
¶11. (SBU) Comment: Making a detailed analysis of Tajikistan's 
budget is difficult because the published version includes only 
broad categories, and it is clear that not all funds controlled 
by the government show up in the budget.  The President's 
Reserve Fund is one example; the revenue from the Talco aluminum 
plant is another.  What is clear is that the government is 
throwing most of its new money into energy.  If perhaps 
optimistic projections for GDP and revenue growth bear out, then 
it is reasonable to expect the government to make some inroads 
in Roghun and other projects and still have enough money to fund 
the social sector.  If, however, the crisis continues to depress 
revenue, donors will be watching carefully to see where the 
government reduces its spending.  End comment. 
GROSS