Tough times ahead for Tajikistan

Tough times ahead for Tajikistan

Tajikistan’s year ahead is fraught with political and economic risk, even as the nation hopes to join the Eurasian Union, which launches in 2015.

Border disputes with the neighboring post-Soviet state of Kyrgyzstan have marked the beginning of 2014 for Tajikistan. They highlight the continuing political risks that the impoverished Central Asian nation faces as President Emomalii Rahmon enters his fourth term as Tajikistan’s head of state.

A major indicator of the former Soviet state’s economic fragility is its dependence on remittances from Tajik nationals working abroad, particularly in Russia, where almost 1 million Tajik guest workers were officially registered in December 2013.

Remittances make up a massive component of the Tajik economy, constituting 48 percent of its GDP in 2014, according to World Bank figures. Tajik guest workers abroad have sent back $19 billion to their homeland over the past 10 years, setting a new record with $3.6 billion in remittances in 2012. The trend continued into 2013, with $1.7 billion being transferred in the first half.

In the months leading up to the election in November 2013, the Tajik government mysteriously stopped posting information on the remittances in the economy, leading to speculation that the government was afraid of demonstrating the true extent of the impoverished Central Asian states dependence on remittances from guest workers.

Despite the massive volume of remittances that flows into the country, Tajikistan’s banking system suffers from a number of problems, including a high level of non-performing loans, estimated at 16.4 percent in 2012. Return on assets only averaged 1.56 percent. Even more damaging is the banking sector’s reputation for being liable for manipulation by the Tajik powers-that-be. President Rahmon’s daughter tied up $500 million of the bank’s assets in shadowy futures trading schemes, which resulted in the government being forced to nationalize the bank to prevent bankruptcy.

In addition to remittances, Tajikistan is heavily dependent on Russia for foreign direct investment. Russia alone supplies $1.2 billion in such investments to the Tajik economy, half of the total. This dependence constitutes an even greater risk in 2014, given that the Russian Federation’s economy is facing dramatically dwindling growth projections and potential stagflation.

As a result of this heavy dependence on the Russian Federation, Tajikistan’s government hopes to be integrated into the Eurasian Union, a free trade bloc being formed in 2015 between Russia, Kazakhstan, Belarus, Armenia, and Kyrgyzstan, which includes a common labor market. Formal talks on Tajikistan’s accession have not yet begun, however, and the adaptation of the Eurasian Union’s high import tariffs would drive thousands of small Tajik entrepreneurs out of business and likely provoke serious unrest.

The country’s poor business climate was further highlighted by the sentencing of Tajik businessman Zayd Saidov to 26 years in prison on Christmas Day for corruption, fraud, polygamy, and pedophilia. Saidov maintained healthy relationships with the ruling elite as he constructed a business empire that made him the wealthiest man in the impoverished Central Asian state. His fortunes changed after announcing the formation of an opposition party “New Tajikistan” in the spring of 2013. He was arrested soon thereafter, and the rest of the party’s leadership faced state-directed oppression.

Regional security challenges also loom large over Tajikistan’s upcoming year. The withdrawal of NATO forces from Afghanistan in the middle of 2014 have raised fears that violence could spill over into Tajikistan, as was the case during the Soviet withdrawal at the end of the 1980s. A recent meeting of the Collective Security Treaty Organization (CSTO), a post-Soviet security block, discussed plans for jointly constructing a security parameter along Tajikistan’s Afghan border.

Moscow will certainly be required to provide additional support to Tajikistan to modernize and strengthen its border security, a necessity for joining the Eurasian Union, just as Russia is doing in Kyrgyzstan, which hopes to join the trade bloc as it launches in 2015. Overall, 2014 will continue to be marked by political risk for Tajikistan, even as it attempts to better its situation by joining the free trade bloc.

About Author

Luke Rodeheffer

Luke Rodeheffer is a cyberthreat researcher at Flashpoint in New York City. He holds an MA from Stanford University, where he was a FLAS Fellow for Turkish. Luke was previously a Fulbright Fellow in Ukraine and a research assistant at Koç University in Istanbul. You can follow him on Twitter @LukeRodeheffer