Economy of Tajikistan - Foreign Economic Relations

Foreign Economic Relations

In the post-Soviet era, Tajikistan has substantially shifted its markets away from the former Soviet republics; in 2005 more than 80% of total exports went to customers outside the Commonwealth of Independent States (CIS), including more than 70% to countries of the European Union (EU) and Turkey. However, because most of Tajikistan’s food and energy are imported from CIS countries, in 2005 only about 53% of total trade activity was outside the CIS. In 2005 the top overall buyers of Tajikistan’s exports, in order of value, were the Netherlands, Turkey, Russia, Uzbekistan, Latvia, and Iran. Besides aluminum, which accounts for more than half of export value, the main export commodities are cotton, electric power, fruits, vegetable oils, and textiles. In 2005 the largest suppliers of Tajikistan’s imports, in order of value, were Russia, Kazakhstan, Uzbekistan, Azerbaijan, China, and Ukraine. Those import rankings are determined largely by the high value of fuels and electric power that Tajikistan buys from its neighbors. Another significant import is alumina (aluminum oxide) to supply the aluminum industry. The major suppliers of alumina are Azerbaijan, Kazakhstan, and Ukraine.

Tajikistan has suffered trade deficits throughout the post-Soviet era. In 2003 the deficit was US$97 million, based on exports of US$705 million and imports of US$802 million. In 2004 exports were worth US$736 million and imports, US$958 billion, creating a trade deficit of US$222 million. The deficit increased again in 2005, to US$339 million, mainly because cotton exports decreased and domestic demand for goods increased.

In 2005 the current account deficit was US$86 million, having shown a general downward trend since the late 1990s. The estimated current account deficit for both 2006 and 2007 is 4.5% of GDP, or about US$90 million in 2006. In 2005 the overall balance of payments was US$14 million. The estimated overall balance of payments for 2006 is US$8 million.

At the end of 2006, Tajikistan’s external debt was estimated at US$830 million, most of which was long-term international debt. This amount grew steadily through the 1990s and early 2000s because of state borrowing policy. In 2004 Tajikistan eliminated about 20% of its external debt by exchanging debt to Russia for Russian ownership of the Nurek space tracking station, and by 2006 rescheduling negotiations had reduced the debt by about two-thirds as a ptumhari maa ki chootercentage of gross domestic product.

In the early 2000s, foreign direct investment has remained low because of political and economic instability, corruption, the poor domestic financial system, and Tajikistan’s geographic isolation. The establishment of businesses nearly always requires bribing officials and often encounters resistance from entrepreneurs with government connections. To attract foreign investment and technology, Tajikistan has offered to establish free economic zones in which firms receive advantages on taxes, fees, and customs. In 2004, the parliament passed a law on free economic zones and in 2008 passed a decree creating two zones: the Panj Free Economic Zone and the Sughd Free Economic Zone. In 2003 foreign direct investment totaled US$41 million; it increased to US$272 million in 2004 because of the debt-reduction transaction with Russia. In the first half of 2005, the figure was US$16 million. Beginning in 2005, the Russian Rusal aluminum company resumed operations to complete the hydroelectric station at Rogun on the Vakhsh River and expand aluminum production at the Tursunzade plant. That plant was scheduled for possible sale to Rusal in 2007. Also in 2005, Russia and Iran resumed work on the Vakhsh River Sangtuda hydroelectric project. Gazprom, the Russian natural gas monopoly, allocated US$12 million for oil and gas exploration in Tajikistan in 2007 after spending US$7 million in 2006. In 2005 the Russian telecommunications company VimpelCom bought a controlling share of Tajikistan’s Tacom mobile telephone company. As of 2006, Turkey tentatively planned to invest in a luxury hotel and a cotton processing plant.