Indexes of Tajik government’s external borrowings and guarantees have deteriorated considerably and the risk of debt burden is high, a survey by the World Bank, “Findings of the Second Programmatic Public Expenditure Review ,” said.

The indicators have deteriorated as a result of large Chinese loans totaling $600 million, borrowed by Tajikistan for implementation of infrastructure projects.

The situation has also deteriorated in connection with Tajik central bank’s guarantees in an amount of $328 million, which are liabilities on the government-guaranteed commercial credits received by the private sector, in particular the company Kreditinvest.

An external loan of $328 million guaranteed by the National Bank of Tajikistan (NBT) has been provided to funders of the cotton sector, mainly Kreditinvest (Credit Invest). $245 million of this amount are the NBT reserves in foreign currency in various lender banks. These reserves have already been spent, according to World Bank report. Tajik central bank’s reserves amount to only $352 million, while only $107 million remain “untouched,” which is enough to pay only two-week imports into the country. Of those “untouched” funds of the NBT in foreign currency, some $87 million are necessary to pay other loan guarantees and only $20 million remain, which is equal to payment of three-day imports into the country.

Besides, in addition to guarantees on external loans, the NBT in 2006 sent 885 million somonis, which is equal to 8 percent of GDP, to Kreditinvest. Thereby, growth in reserve funds was to be observed much higher than official monetary statistics showed.

Analysis of sustainability of Tajikistan’s external debt conducted in early 2007 showed that the risk of instability of Tajikistan’s external debt is quite high. It is to be noted that the analysis was conducted before it became known that the NBT guaranteed Kreditinvest’s debts.

The World Bank experts consider that Tajikistan’s economy may be faced with crisis of balance of payments if the NBT is not able to make payments on external loan guarantees and the private sector loses confidence in the national currency that will lead to rise in the currency exchange rate.

Rise in the exchange rate is expected because the private sector may have excess volume of the Somoni, exceeding the demand for money, resulting from money emissions conducted by the NBT over the past two years. In the event of increase in the exchange rate, the NBT will not have reserves for protecting the somoni exchange rate.

According to the Programmatic Public Expenditure Review (PPER), prevention of the possible crisis of balance of payments requires, first of all, restoration of NBT’s reserves in foreign currency. To restore its foreign currency reserves Tajik central bank has to purchase more foreign currency on the market. To compensate impact of foreign currency purchases on monetary aggregates it is necessary to reduce state loans to local banks that means more state savings and, in turn, requires fiscal reductions.

Besides, to prevent the crisis of balance of payments in Tajikistan it would be expedient to transfer earnings of Tajikistan Aluminum Company (TALCO) that are currently kept abroad to the reserve fund of the National Bank in foreign currency. According to the Word Bank, these earnings amount to some $600 million.

At the same time, it is necessary to control growth of monetary aggregates in the country.