S&P Global Ratings upgraded Tajikistan’s long-term foreign and local currency ratings to 'B' from 'B-' on August 16, affirmed the short-term rating at 'B', and raised the transfer and convertibility assessment to 'B', with a stable outlook.
The stable outlook reflects expectations that Tajikistan will maintain moderate debt-service needs over the next year. The government's debt is anticipated to remain highly concessional, mitigating risks associated with the country's volatile external position.
A downgrade could occur if Tajikistan's external or fiscal performance significantly weakens from current expectations. Similarly, a negative rating action could result if the government's debt-servicing capacity is strained, possibly due to reduced access to concessional funding. Conversely, a positive rating action might follow a sustained improvement in governance, transparency, and data disclosure standards.
The rating upgrade is attributed to Tajikistan's resilient economic growth and narrowing fiscal deficits, which support its highly concessional government debt levels. The new IMF policy coordination arrangement is expected to manage fiscal risks related to the country's large and financially weak state-owned enterprises (SOEs).
Increased foreign exchange reserves, which have doubled since pre-pandemic levels, and continued access to multilateral financing will help meet fiscal and external financing needs, including for the ongoing Rogun Hydropower Project (HPP).
Tajikistan's economy has been bolstered by strong labor remittances, an appreciating exchange rate, and capital inflows from Russia. These factors, along with modest fiscal deficits and high nominal GDP growth, have improved the government’s net debt-to-GDP ratio.
Government debt-service obligations are expected to remain moderate, with 65% of the debt stock comprising concessional borrowing. The first of six semi-annual principal payments on the 2027 Eurobond will begin in March 2025.
Despite improvements, Tajikistan's ratings are constrained by weak institutional effectiveness, low GDP per capita, a narrow export base, high reliance on remittances, fiscal risks from weak SOEs, and limited monetary policy effectiveness.
Tajikistan’s GDP per capita, estimated at $1,300 in 2024, is among the lowest globally. Ongoing infrastructure projects, such as the Rogun HPP, could enhance long-term growth prospects. The Rogun HPP, under construction since 2016, is already generating electricity and is expected to contribute to revenue and energy capacity by 2035.
Tajikistan's economy grew by 8.3% in 2023, driven by strong performance in agriculture, construction, and mining. Growth is projected to stabilize at around 6% in the medium term. The government is also working on regional projects like CASA-1000 to export hydroelectric power to Pakistan.
Tajikistan's fiscal and external balance sheets have improved despite structural vulnerabilities. The country has achieved current account surpluses in recent years and is expected to maintain a surplus in 2024 and 2025. However, a small deficit is anticipated in 2026-2027.
Recent tax reforms have increased revenue, and capital outlays have risen, particularly for energy and transport projects. The general government deficit is projected to average 2.2% of GDP over 2024-2027.
High levels of concessional borrowing and a significant portion of government debt in foreign currency expose the balance sheet to exchange rate volatility. The government is negotiating financing for the Rogun HPP and other infrastructure projects, aiming to complete them by 2035.
Tajikistan's monetary policy is constrained by a small banking sector and shallow capital markets. Inflation has decreased, and the National Bank of Tajikistan has reduced its policy rate. While the financial sector's credit risk remains high, efforts to tighten banking regulations are underway.
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