Tajikistan Update - Government Finances, Economy in Adequate Shape for Now

The Tajik economy has been hit by a drop in remittances and FDI, but we still expect GDP growth of 1.5% this year, supported by industrial production and agriculture. Next year we think growth should bounce back to 5%. As for government finances, we expect the budget deficit to widen this year to 6% of GDP, which should be covered by financing from IFIs already secured by the government. In the longer run, we expect the public debt-to-GDP ratio to stabilize around 50%. On the horizon is a near doubling of debt repayments in 2025 - as the outstanding Eurobond starts to amortize and an IMF loan is due - meaning potential liquidity problems for the government. > Tajik economy suffers from drop in remittances and FDI. Remittances were $2.1 bln last year, or 26% of GDP, but we expect them to drop by as much as 20% this year, while the decline in FDI could be even bigger. However, we still expect the Tajik economy to expand this year (by 1.5%), as agriculture and industrial production - the country's most important sectors - have not been significantly affected by the pandemic. We project that economic growth will rebound to 5% in 2021 as economic activity should start to recover in 2H20.> Rogun Dam first stage nearly complete, but project has been dogged by delays and cost overruns. Spending on the first stage, which involved the construction of two generators, exceeded the initial estimate by $1 bln. The second stage is likely to exceed the $1 bln remaining relative to the initially estimated total project cost, and officials have said this will require external funding. However, the IMF's Rapid Credit Facility (RCF) provided to the country limits non-concessional borrowing until the project has inked electricity supply agreements, so the government has limited financing options.> Budget deficit to widen this year, but financing secured. We expect the slowing economy, drop in remittances and trade, the government's support measures for households and increased healthcare spending to push the budget deficit to 6% of GDP this year. However, the IMF has provided $0.2 bln under its RCF, while additional support has come from other international organizations (i.e. the World Bank and Asian Development Bank), which should be sufficient to cover the government's spending needs and debt repayments this year.> There is scope for spreads to tighten further over near term. We believe there is some potential for the Tajikistan 27 to see some spread tightening over the near term, assuming there is no fresh wave of risk-off sentiment in global markets. Despite the significant challenges facing the economy, we believe that the inflow of external financing and recovery in remittances will support the fiscal and external accounts in 2020. We do not think that Tajikistan will face difficulties servicing its debt in the near term. However, the sovereign will face $160 mln in Eurobond amortization payments each year over 2025-27 (33% of the nominal amount of the bond each year), so we think refinancing risks will grow.