Tajikistan was the poorest country in Central Asia following a civil war in 1991. With foreign revenue precariously dependent upon exports of cotton and aluminium, the economy is highly vulnerable to external shocks. In fiscal year (FY) 2000, international assistance remained an essential source of support for rehabilitation programs that reintegrated former civil war combatants into the civilian economy, thus helping keep the peace. International assistance also was necessary to address the second year of severe drought that resulted in a continued shortfall of food production. Tajikistan's economy grew substantially after the war. The GDP of Tajikistan expanded at an average rate of 9.6% over the period of 2000-2004 according to the World Bank data. This improved Tajikistan's position among other Central Asian countries (namely Turkmenistan and Uzbekistan), which have degraded economically ever since. As of March 2007 57% of Tajikistan citizens live below the poverty line
The Tajikistani economy has been gravely weakened by six years of civil conflict and by the loss of subsidies from Moscow and of markets for its products. Tajikistan thus depends on aid from Russia and Uzbekistan and on international humanitarian assistance for much of its basic subsistence needs. Even if the peace agreement of June 1997 is honored, the country faces major problems in integrating refugees and former combatants into the economy. The future of Tajikistan's economy and the potential for attracting foreign investment depend upon stability and continued progress in the peace process.
Current GDP per capita of Tajikistan shrank by 67% in the 1990s.
Despite resistance from vested interests, the Government of Tajikistan continued to pursue macroeconomic stabilization and structural reform in FY 2000. In December 1999, the government announced that small-enterprise privatization had been successfully completed, and the privatization of medium-sized and large-owned enterprises (SOEs) continued incrementally. The continued privatization of medium-sized and large SOEs, land reform, and banking reform and restructuring remain top priorities. Shortly after the end of FY 2000, the Board of the International Monetary Fund gave its vote of confidence to the government's recent performance by approving the third annual Poverty Reduction and Growth Facility Loan for Tajikistan. Improved fiscal discipline by the Government of Tajikistan has supported the return to positive economic growth. The government budget was nearly in balance in 2001 and the government’s 2002 budget targets a fiscal deficit of 0.3% of GDP, including recent increases in social sector spending.
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 percent of total exports went to customers outside the Commonwealth of Independent States (CIS), including more than 70 percent 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 percent 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 percent 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 percent 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 percentage 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 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.