National Library, Dushanbe – 22 November 2019
Jan-Peter Olters, Chair, Development Coordination Council in Tajikistan
At present, Tajikistan is looking at an important window of opportunity—a window much larger than seen in a long time, but also one that will not stay open indefinitely. In fact, by the time that this country will be celebrating its 30th anniversary in 2021, it will become have evident whether or not it has been successful in, or is en route to, (i) financing its potentially transformative public investment program within a stable and consistent macro-fiscal framework; (ii) advancing domestic revenue mobilisation (by increasing the relative reliance on direct taxes, broadening the overall tax base, and limiting tax incentives to only those activities with clear development impacts); (iii) providing enterprises with the space and confidence to invest, innovate, and take full advantage of emerging export opportunities also outside the energy sector; (iv) creating resultant employment opportunities and socio-economic perspectives for the fast growing, mostly rural population; and. This makes 2020 a critically important year with long-term consequences for Tajikistan’s socio-economic development potential.
Courageous steps have already been taken in this direction. The Government of the Republic of Tajikistan has made strategic decisions commensurate with the increased levels of opportunity and risk, with initial reforms having already been recognised also outside the country’s borders. Just a month ago, the World Bank Group’s annual Doing Business report has identified Tajikistan as the world’s top-five most active reformer, by recognising the considerable progress made in adopting a comprehensive, modern legislation for secured transactions, introducing a collateral registry, a social identification number for business registration purposes, and prioritising customs clearance processes for perishable exports. The improvement by 20 ranks has been as impressive as it was deserved.
More importantly, however, the Government has found the courage to address most critical, long-lingering development challenges, including those that have dampened, if not asphyxiated entrepreneurial initiative, productivity-raising investments, and the ability to have Tajikistan’s young talent contribute to the ambitions contained in the overarching development agenda. The country has started a comprehensive tax reform process, in which context it (i) seeks to redefine the tax authorities’ mandate away from the sole reliance on revenue collection targets towards efforts at maximising voluntary tax compliance, thus switching core activities from tax inspections to risk assessments; and (ii) a rational application of currently very generous tax incentives, limiting the use of this policy instrument only for activities with clear and monitorable impacts on investment, innovation, regional development, and/or employment generation.
In addition, the Government has started to work, supported by development partners, on restructuring public utilities, starting in energy, and providing the infrastructure and institutional foundation necessary for developing a successful digital economy and e-Government services. The consistent provision of electricity and digital services, at all times and in all parts of the country, in conjunction with the focus on a modern tax regime and improved business climate, would, in turn, create the foundation for the development of successful rural economies, spanning activities from food storage and processing to textiles and tourism services.
In short, Tajikistan is entering the fourth development phase since independence, from (i) the initial post-conflict reconstruction and emergency responses to food insecurity and natural disasters in the 1990s; (ii) the foundational investment phase for public infrastructure and institutions in the early 2000s; (iii) the economic response in the aftermath of the triple crises of 2008/09, 2014, and 2016; and (iv) the potentially transformative development phase triggered by the ambitious public investment program and geopolitical changes after 2016/17 with the opening of Uzbekistan, the new Silk Road, and increased commercial interests from South Asia. Different from the initial three phases of Tajikistan’s development, this fourth phase—unfolding against the backdrop of considerably increased commercial opportunities but also fiscal risks—is the first one, in which the State cannot stem the corresponding challenges alone. It does require the private sector’s co-contribution and, subsequently, a modernisation in the implementation of economic policies.
The focus on public infrastructure, and the country’s signature project in Rogun, will need to be balanced with complementary reforms aimed at strengthening the business and investment climate and, in so doing, instilling a degree of confidence and trust into stakeholders outside standard lines of instruction. This delicate interplay between economic policies and (potential) investors’ perceptions underlies the millennium-old metaphoric phrase of the horses, which can be brought to the water but have to drink by themselves. In this complex endeavour, Tajikistan is helped by (i) entrepreneurs’ profit motivations and comprehension of business opportunities.; and (ii) the absence of demand constraints in the very large and underserviced markets in the immediate neighbourhood, having expressed serious interest in goods and services “made in Tajikistan”, from energy to food products, construction materials, or minerals. There is pent-up investment demand in key sectors of the economy, which can be unleashed by following through on the courageous decisions taken to address key business climate-related development challenges.
In recognising the potentially enormous benefits that could be derived in terms of (i) generating dynamic rates of sustainable and inclusive growth, with job opportunities in the lagging, often rural and remote regions of the country; (ii) strengthening macro-fiscal fundamentals, from tax revenues, the inflow of foreign currencies, and the State’s general debt-carrying capability; and (iii) the resultant need to a more inclusive approach to the design of economic policies, reinforcing transparency, efficiency, and development impacts (all key components to increased confidence), development partners stand ready to support Tajikistan in this ambitious endeavour of having this fourth development phase place the country onto a track of increased dynamism, as foreseen in the National Development Strategy’s “innovative-industrial scenario”. Expectations, in turn, are those of sincerity, commitment, and a focus on the timely processing of financial and technical support provided.
Exploiting the opportunities from the current window of opportunity would be the greatest gift the country could give itself. By transforming into a regional energy hub, supported by (i) a dynamic, profitable private sector with optimism and courage to invest, innovate; (ii) a young population that, with education and employment opportunities, is contributing actively to the country’s development challenges and is moving increasingly into the middle class; and (iii) a Government that benefits from a rapidly broadening tax base and the resultant ability to strengthen more tangibly and sustainably also the critical human capital foundation of a successful economy, Tajikistan has the chance of tapping into the historic legacy openness and prosperity at the intersection of South, East, and Central Asia.