IMF strings on Tajikistan aid

The Executive Board of the International Monetary Fund (IMF) has approved a three year, SDR 65 million (about US$87 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) for the Republic of Tajikistan to support that country's government's economic program until September 2005. The Republic of Tajikistan will be able to draw up an amount equivalent to SDR 8 million (about US$11 million) from the IMF in December 2002.

But the IMF is not lending the money cheaply: there are a wide range of conditions.

Amongst a number of comments by the IMF were

- "Tajikistan experienced strong economic growth and reduced inflation during the last 18 months. Macroeconomic policies have generally been appropriate, but implementation has been uneven and will need to improve to achieve the objectives of the government's new three-year economic program. Particular attention will need to be paid to monetary policy and structural reform. "

- "Fiscal performance has been strong over the past two years. Further improvements in tax administration and the tax system will help ensure that adequate resources are available for poverty alleviation. Efforts to raise civil service wages will need to be linked to civil service reform to make the increases sustainable. "

- "The central bank will need to pursue a more disciplined monetary policy to bring inflation down further. In particular, it should adhere to the commitment to refrain from issuing directed credits. Also the planned restructuring of the central bank to enhance the implementation of monetary policy and improve operational efficiency should be completed as quickly as possible."

- To improve the prospects for sustaining economic growth, the programme will implement key structural reforms aimed at eliminating weaknesses in the banking sector, distortions in the energy sector, government interference in the agricultural sector; and weak governance. The Central Bank will be prohibited from issuing directed credit and making expenditures not related to its core business activities or paying dividends while it has negative net worth. The remaining state-owned farms will be restructured and privatised by the end of 2005 through the issuance of land use and land share certificates. As well, economic governance will be improved by reducing excessive government intervention in economic affairs, enhancing transparency, accountability and economic management.

- "The programme expects implementation of restrictive fiscal and monetary policies. During the current year the overall budget deficit is expected to be ¼ percent of GDP (excluding the foreign-financed public investment program). For the period 2002-2005, only a modest increase in current expenditures to 15 percent of GDP is envisaged in accordance with the program target to maintain tight fiscal control."

- "One of the programme priorities will be to improve debt management and fiscal sustainability. The programme will pursue further fiscal consolidation and limit all foreign borrowing. The authorities will not draw on any outstanding non-concessional credit facilities. The program will aim at limiting the size of the foreign-financed public investment program to no more than 3 percent of GDP and to reduce the quasi-fiscal deficit in the energy sector. "

The limitation of foreign borrowing is a significant issue: the IMF does not want the government to change the economy by finding money elsewhere. But more importantly, perhaps, is the implication of exchange control. If enterprises cannot raise foreign capital, then they will either struggle or find it on the black market. And that means an increased risk of fraud and / or money laundering to meet the capital gap.