Despite continuing external challenges,economic output rose strongly in 2016 according to officialestimates. Driven mainly by foreign-financed public andprivate investment, real gross domestic product (GDP)expanded by a robust 6.9 percent. At the same time, aprotracted decline in real remittances and exchange ratedepreciation in the context of an improving but stillcomplex external environment led to a significant adjustmentin the current account balance. The authorities pursuedexpansionary fiscal policies in 2016, including through aconsiderable increase in foreign-financed capital investmentin the energy sector, road infrastructure, and projectsrelated to the country’s 25th anniversary of independence.The government also stimulated domestic demand by raisingpublic sector wages and social transfers. Monetary policywas accommodative, supporting a heightened demand for localcurrency as the exchange rate stabilized and wholesaletransactions that were previously conducted in foreigncurrency switched to local currency. Materialized risk inthe financial sector and the subsequent bailout ofTajikistan’s two largest banks at end-2016 resulted in adeterioration of fiscal and debt sustainability indicators.Lingering challenges in the financial sector, highstate-owned enterprise (SOE) contingent liability risk, andan unconducive business climate weigh on economic growthprospects. A weaker-than-expected recovery in regionaleconomies or delays in the expansion of the targeted socialassistance (TSA) program can derail poverty reductionefforts. Continuing challenges in accessing credit bypro-poor sectors of the economy will diminish the pace ofboth poverty reduction and job creation in low-skilledsectors like construction and agriculture.
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