ATTACHMENT 14c_TJ NDS strategy.pdf

DRAFT

REPUBLIC OF TAJIKISTAN

NATIONAL DEVELOPMENT STRATEGY

OF THE REPUBLIC OF TAJIKISTAN

FOR THE PERIOD TO 2015

Regional Conference on MDG based NDS and PRSP, 15-17 March, 2007, Dushanbe, Tajikistan

1. INTRODUCTION

2. PHASES AND PRINCIPAL CHALLENGES OF TAJIKISTAN’S ECONOMIC DEVELOPMENT

3. THE NDS IN THE NATIONAL DEVELOPMENT SYSTEM

4. GOALS, PRIORITIES AND PRINCIPLES

5. CREATION OF THE INSTITUTIONAL ENVIRONMENT FOR DEVELOPMENT (FUNCTIONAL

BLOCK)

6. PROMOTION OF ECONOMIC GROWTH

(PRODUCTION BLOCK)

7. SOCIAL BLOCK

7.1. DEVELOPMENT OF THE EDUCATION SYSTEM

7.2. DEVELOPMENT OF SCIENCE

7.3. DEVELOPMENT OF THE HEALTH CARE SYSTEM

7.4. IMPROVEMENT OF SOCIAL WELFARE

7.5. EXPANSION OF ACCESS TO WATER SUPPLY, SANITATION AND HOUSING AND MUNICIPAL SERVICES

7.6. PROMOTION OF ENVIRONMENTAL SUSTAINABILITY

7.7. PROMOTION OF GENDER EQUALITY

8. MONITORING AND ASSESSMENT

9. NDS FINANCING MECHANISMS

APPENDIX 1

APPENDIX 2

Table of Acronyms

CSIP Centralized State Investment Programme FDI Foreign direct investment GBAO Gorno-Badakhshan Autonomous Region GDP Gross Domestic Product HIV Human Immunodeficiency Virus HPP Hydropower plant MTBF Medium-Term Budget Framework MDGs Millennium Development Goals NDS National Development Strategy NGO Non-governmental organization PHC Primary health care PIP Public Investment Programme PRS Poverty Reduction Strategy PRSP Poverty Reduction Strategy Paper RRS Region of republican subordination SMEs Small and medium-sized enterprises WTO World Trade Organization

1. INTRODUCTION

Tajikistan has entered a new phase in its development. With a view to establishing a platform for the country’s further development, in 2005 the President of the Republic of Tajikistan initiated the drafting of this National Development Strategy (NDS), which is intended to provide for an orderly long-term development process in accordance with the Millennium Development Goals (MDGs).

As Tajikistan’s principal strategic document, the National Development Strategy defines the priorities and general thrust of government policy, which is focused on achieving sustainable economic growth, expanding the public’s access to basic social services and reducing poverty.

The NDS represents a fundamentally new approach to promoting development, which takes into account experience gained elsewhere in the world in the drafting and implementation of similar strategic documents, lessons learned and conclusions drawn from the country’s earlier phases of development, as well as the realities and prospects for development on the ground.

All of the state, sectoral and regional conceptual frameworks, strategies, programmes and plans for the country’s development currently in place and under development, as well as the activities of all government agencies, are based on the National Development Strategy.

The National Development Strategy serves as a tool for engaging in a dialogue with the business community and non-governmental organizations.

It is envisaged that the development of technical and financial assistance programmes for Tajikistan will be based on the National Development Strategy.

2. PHASES AND PRINCIPAL CHALLENGES OF TAJIKISTAN’S ECONOMIC

DEVELOPMENT

The country faced serious economic difficulties in the early 1990s arising from the collapse of the USSR and the transitional period: the end of budget subsidies from the Soviet Union; aggravation of the socio-political situation and civil war, which cost the country’s economy more than 7 billion USD; a steep decline in production; macroeconomic instability;

and rapid impoverishment of the population, among other things.

The focus of the initial phase of post-Soviet development covering the years 1992- 1997 was to achieve political stability and create basic market mechanisms. In 1992-1996 Tajikistan’s gross domestic product (GDP) shrunk by a factor of more than 3, performance indicators of sectors in the real economy fell by a factor of 2-10 and inflation rose to several thousand percent. Even essential items were unavailable and poverty assumed threatening proportions.

In spite of the difficulties, a targeted economic policy was pursued which consisted primarily of the development of new market-based economic relations. The main emphasis was on large-scale multi-vector economic reforms.

As a result, the downward spiral of the country’s economic crisis was halted, the foundations were laid for development of the economy, and in 1997 economic growth, albeit slight, was achieved for the first time.

Stabilisation of the socio-political situation created a conducive environment for post-conflict recovery, expansion of economic reforms, full-scale implementation of economic programmes and the performance of ambitious measures as part of the second phase of development. The country’s economic development followed an upward trajectory in 1997- 1999.

The steady deepening of economic reforms, the involvement of new spheres of the economy in these reforms, the achievement of strategic and programme goals and the implementation of measures to promote macroeconomic stability enabled the country to post strong economic growth indicators starting in 2000: annual growth in GDP was 9.3% in 2000-2005; inflation fell to 6-7%; and external debt, which was equal to 108% of GDP in 2000, dropped to 38.9% of GDP.

The strong growth and macroeconomic stabilisation over the past five years also contributed to a drop in the country’s poverty rate, from 81% in 1999 to 64% in 2003. The size of interregional differences in the poverty rate also declined, since the poorest regions reported the most significant reductions in poverty. The difference in poverty rates among the regions remains high, however, with a figure of 84% in Gorno-Badakhshan Autonomous Region (GBAO) and 45% in regions of republican subordination (RRS).

All of this has laid a solid foundation for further economic growth, for increasing the quantity and quality of basic social services and reducing poverty in the new phase of development. Tajikistan has a strong commitment to achieve further market development and the MDGs.

Many of the problems of the transitional period were dealt with in the previous development phases, although there are still quite a few tasks associated with Tajikistan’s market transformation that need to be addressed. These involve, above all, the creation of an institutional and functional environment for national development, as well as a physical environment for economic development and expanded access to basic social services.

Achievement of the MDGs is another key task. Further development of the rule of law and the formation of a modern civil society have an important role to play in the new phase of the country’s development. This means that these tasks can and must be addressed by taking a comprehensive (block-based) approach to the current phase of development.

Tajikistan has at its disposal real opportunities to accomplish this, and taking advantage of these opportunities in an effective way can lay a solid foundation for economic and social development. It has: (1) large potentials of hydropower resources and fresh water;

(2) diverse mineral resources; (3) Strong potential for the development of tourism; (4) availability of agricultural raw materials for industrial processing; (5) relatively large areas of undeveloped land suitable for agricultural use; (6) favourable conditions for the cultivation of environmentally sound food products; (7) advantageous strategic geographical position to leverage potentials as a transit country in future regional transport and communication; and

(8) availability of a comparatively inexpensive labour force.

It should be noted that the country’s economic development is influenced by a number of objective factors: (1) it is landlocked; (2) it is far away from developed world economic centres; (3) it has a shortage of accessible oil and gas deposits; (4) it is fragmented into regions because of its natural and geographical features; (5) it has a small domestic market; (6) there is political instability in the surrounding region; and (7) there are high transaction costs associated with natural disaster recovery efforts and combating drug trafficking and terrorism.

In addition, there are some serious challenges to stable and long-term economic growth and to poverty reduction efforts in Tajikistan. The country will have to come up with responses to these challenges over the long term.

Ineffective public administration. The most important institutions – the government administration and the judicial and law enforcement systems – are not performing effectively enough. There is still too much interference by government authorities at all levels, including law enforcement agencies, in the operations of economic entities. The decision-making mechanism employed by government authorities remains complicated and is not transparent as far as the public is concerned. Effective mechanisms for civil monitoring of government agencies have not been developed and the low wages earned by employees in the public sector encourage corruption.

Weak investment climate. Tajikistan’s inability to obtain large levels of investment can be explained to some extent by unfavourable economic conditions and its geographical location. At the same time, the main reasons for this situation are excessive administrative barriers, corruption, insufficient development of the public and private infrastructure and weaknesses in addressing key economic problems (low labour productivity, insufficient competition, low investment and underdevelopment of the private sector).

Inadequate competition. In certain regions artificial restrictions are often imposed on competition, which has a serious impact on the motivation of economic entities and decision-making. The majority of sectors of the economy are characterised by a low level of competition and there is still poor transparency in most enterprises which operate, in essence, as monopolies. State-owned enterprises operating in the market environment often receive overt or hidden privileges. Restructured agricultural enterprises are de jure considered independent market entities, however de facto they are hindered by interference on the part of government authorities.

Infrastructure limits on growth. Economic development is complicated by problems related to development of both the public infrastructure (transportation, power, telecommunications and other communication facilities, water supply and sanitation) and the private infrastructure (banking and insurance, the securities market, leasing, information technology). The measures that are being undertaken to draw investment into these sectors are insufficient. This is the result, to some extent, of deficiencies in the institutional environment. What is needed is an environment that will ensure transparent decision-making about the targeting of investments. There also needs to be close monitoring of spending outcomes and support for the development of public-private partnerships.

Sharp decline in human capital. Delays in legislating minimum state social standards, the slow pace of reform in social sectors and the low rate of return on funds that are spent mean that people are being denied access to education and medical and social services and that the quality of these services is poor. Coupled with a decline in personal income, this is contributing to a drop in the level of human development in the country, inadequate receptivity of the public to the latest progressive management techniques and entrepreneurial experience, and relatively low income among labour migrants. This complicates progress in the area of human rights, legislation and social justice.

Problems in the management of external migration. The high rate of population growth (2.2% per year), in spite of continued family planning efforts, is aggravating the problem of a labour surplus in Tajikistan. The acute nature of external labour migration problems caused by high unemployment within the country means that the creation of new jobs and the upgrading of existing jobs, the preparation of migrants for work abroad and providing protection for the rights and interests of labour migrants in other countries have top priority.

Inadequate implementation of reforms at the local level. The centralisation of government revenues and insufficient clarity with regard to the rights, powers and accountability of local governments and local self-government authorities mean that they are not actively involved in the implementation of reforms at the local level. This leads to the continuation of existing problems and it reduces incentives for regions to seek out effective ways to enhance their own competitiveness, improve their attractiveness from an investment standpoint and define their place in the division of labour within the country.

Limited results from international cooperation. Tajikistan’s participation in the international economy is characterised by a low level of diversification of production and exports and poor use of competitive advantages in the export market. The limited extent of cross-border cooperation reduces opportunities for transit, technology exchange, and dynamic development of the country’s own production facilities, and it exposes the economy to external shocks caused by fluctuations in demand and prices in international markets.

Inefficient structure of the national economy. Consequences of the inefficient structure of the national economy can be seen in the declining contribution of the real sector to GDP and the country’s limited export opportunities. Other telltale signs include the vulnerability of key macroeconomic indicators to changes in external trade conditions, poor results from privatisation, the negligible contribution made by small- and medium-sized enterprises to the country’s economy and the scarcity of innovation activity. A large proportion of small business remains “in the shadows”, without being registered and without paying taxes.

Inadequate enforcement of laws, protection of human rights and development of civil society. The country’s development cannot be achieved without ensuring the supremacy of laws and human rights and freedoms that have been enshrined in law, without harmonisation of the country’s legislation with international laws, and also without a developed civil society. The majority of problems in this sphere arise from the weakness of the judicial system and poor development of legislation, which has inadequate enforcement mechanisms.

All of these challenges create a set of risks, and the extent to which they are addressed through the deepening of the appropriate reforms will determine the country’s further development. To this end, all measures that are being planned and undertaken should meet the following criteria:

One. They should stimulate economic growth in accordance with the following conditions: 1) medium- and long-term economic growth will proceed at a rapid pace and will be sustainable; 2) growth will be accompanied by progressive structural shifts and broader participation by the private sector, it will provide for diversification and enhance the country’s competitiveness.

Two. Reforms that go beyond the economic sphere will be of key importance for economic growth. The creation of an effective management system, both at the central government level and at the local level, will ensure stable functioning of the economy. A fair judiciary and a law enforcement system that operates with integrity are vital components as well.

Three. The reform of sectors associated with the development of human potential, in particular education, health care and social welfare, is a long-term priority, along with the development of social partnerships based on this process and the promotion of human rights.

Four. The implementation of any measures for the country’s social and economic development should not undermine the level of macroeconomic stability that has been achieved. The key factors in ensuring macroeconomic stability at this time are the Government’s commitment to a balanced fiscal policy, maintaining the stability of the exchange rate of the national currency and a steady decline in inflation.

Five. Fundamental improvement of the institutional system is a realistic way to achieve the goals that have been set. The development of clearly defined and comprehensible “rules of the game” and the consistent orientation of national legislation toward common goals and its harmonisation with international standards provide a common foundation for achieving socio-economic development goals based on democratic principles and the requirements of a market economy. The creation of public-private and social partnerships and the promotion of basic democratic human rights are also vital steps in this process.

3. THE NDS IN THE NATIONAL DEVELOPMENT SYSTEM

The National Development System and the NDS. The administrative system currently in place does not comply with the standard requirements for management of the national development process. The country’s goals, tasks, programme documents and plans are not interconnected or vertically integrated. Potential partners in the management of development (the private sector and civil society) are not sufficiently involved in this process.

The system of government agencies and the human resources within this system do not meet the demands of a market economy. Furthermore, the allocation of limited financial resources frequently is not consistent with the priorities set forth in national strategic documents, and this makes what is already a complicated system even more problematic.

In connection with this, there are plans to create a National Development System within the framework of the NDS. It will have a clearly defined and vertically organised superstructure of strategic documents, programmes and plans (programme goals and tasks, planning and plan implementation, quality oversight and performance monitoring) on the one hand, and corresponding administrative structures for the management of this process – both vertically and horizontally, on the other hand.

With a view to providing for a systematic national development process and ensuring that this process is comprehensive and consistent, all national, sectoral and regional strategies and programmes need to be reviewed and brought into conformity with the requirements of the National Development System and the NDS priorities.

The organisational system for management of the development process, which consists of administrative bodies, their functions and tasks, need to be revised. The principal approaches to the establishment of this system are outlined in the Government Reform Strategy, which was approved by Decree No. 1713 of the President of the Republic of Tajikistan of 15 March 2006. Implementation of this Strategy will be an important step toward improving the administration of the development process and ensuring that the proper systematic approach is taken to the organization of management.

The NDS is a strategic and basic document of the state that defines the country’s long-range development goals and tasks. All of Tajikistan’s development partners (the business community, civil society, donor countries and international organizations) should focus their programmes and plans on these priorities within the context of effective public-private and social partnerships. (The process for participation in drafting the NDS is outlined in Appendix 1.)

All tactical documents should also proceed from the priorities and key elements of the NDS. This means that the goals and tasks set forth in the NDS should serve as the basis for other documents dealing with development issues as well. These documents’ programmes, plans, goals and priorities need to be aligned with the NDS by 2009, or will be considered void.

Successful implementation of the NDS requires the identification of measures aimed at achieving specific goals and carrying out assigned tasks. It also depends on the consistent performance of these measures, and the powers and effective operation of those structures responsible for its implementation.

Interconnection between the NDS and the Poverty Reduction Strategy. Measures to implement the NDS over the medium term should be reflected in various programmes and plans, such as the Government’s medium-term programme, the Poverty Reduction Strategy (PRS), which is integrated with the Medium-Term Budget Framework (MTBF), the Public Investment Programme (PIP) and medium-term foreign aid programmes of donor organizations.

The NDS and PRS comprise a single package of documents for the country’s development. The NDS is intended to define the priorities and directions for the long-range strategic outlook within this framework, while the PRS is an action plan that outlines the implementation of the NDS over a three-year period.

A list of current Government actions is approved annually by the Government in accordance with the PRS and sectoral and regional programmes and plans.

NDS blocks. The structure of the National Development Strategy is determined by the content of its sectoral sections. The sectoral sections of the NDS are organised into three blocks, which in turn are defined by their role and place in the achievement of strategic goals:

(a) the Functional Block, which provides for the appropriate institutional and functional environment for development and encompasses the following sectors: public administration reform; macroeconomic development; improvement of the investment climate;

development of the private sector and entrepreneurship; regional cooperation and integration into the global economy;

(b) the Production Block, which is responsible for the physical environment to support economic growth and brings together the following sectors: food security and development of the agro-industrial complex, and the development of infrastructure, communications, energy, and industry;

(c) the Social Block, which provides for expansion of access to basic social services and the resolution of social development issues. It is comprised of the following sectors:

development of the health care system; development of the education system and science;

expansion of access to water supply, sanitation and housing and municipal services;

improvement of social welfare; promotion of gender equality; and environmental sustainability.

4. GOALS, PRIORITIES AND PRINCIPLES

Proceeding from the country’s development phases, the challenges and conditions of economic growth, as well as the experience of post-Soviet reform, a vision, national goals, principles and priorities of Tajikistan’s development have been elaborated.

Vision statement. The people of Tajikistan seek to create a prosperous state in which all members of society will have equal opportunity to enjoy the fruits of political, social and economic development. This entails a comprehensive approach to the renewal and development of political institutions, social benefits and economic potential. Public administration will be reformed to ensure that it operates efficiently based on the supremacy of democratic principles and the rule of law.

At the same time, the aim of public policy will be to improve the quality of life for the country’s people, reduce poverty, provide social protection for vulnerable segments of the population and ensure the healthy development and education of children. Young people need to be given the opportunity to develop their potential. All able-bodied women and men should have the ability to realise their goals in life, provided that they are not in conflict with the law. These efforts will be based on all-round social and economic development that has the capacity to satisfy the material and spiritual needs of the people for the sake of the country’s future development. Tajikistan will take its proper place in the global community.

The National Development Strategy of the Republic of Tajikistan for the period up to 2015 is intended to bring this vision to life.

National goals and priorities. The following national goal has been set on the basis of the vision statement for the country’s long-term development: to strengthen social and political stability and to achieve the economic prosperity and social well-being of the people of Tajikistan in an environment shaped by the supremacy of the principles of a market economy, freedom, human dignity and equal opportunities for each person to realise his or her potential.

Effective and transparent government, a just society that provides for protection and human development, and sustainable economic growth are key components of the overall goal.

The following national priorities have been identified as part of the NDS for successful achievement of the overarching goal:

1. Reform of public administration with a view to creating a national development system in the country, the principal features of which are transparency, accountability and a focus on combating corruption;

2. Development of the private sector and attraction of investments, based on the expansion of economic freedoms, strengthening property rights and the rule of law, and development of public-private partnerships;

3. Development of human potential aimed primarily at increasing the quantity and quality of social services for the poor and achieving the MDGs, expanding public participation in the development process and strengthening social partnerships.

Principles. It takes time to bring about the reform and development of a country’s economy, as a rule, and the individual characteristics of the given country need to be taken into account: the level of its economic development; the specific features of its political system; its history and traditions; its geography, including the peculiar aspects of its administrative-territorial divisions; and the pace and consistency of reforms during the transitional period.

In light of this, the following general NDS principles have been established:

• utilisation of the goals, priorities and key directions of NDS activities as a basis for other social and economic policy documents, and also as benchmarks for the country’s aid programmes;

• alignment of sectoral and regional policies, and all programmes and plans that have been adopted and are under development, with the NDS;

• improvement of the status, functions and potential of central and local government authorities and civil society institutions with a view to creating a national development system;

• promotion of human rights and human development; support for transparency and openness in government institutions; involvement of civil society in the policy development process and in the assessment of policy results at the national and local levels;

establishment of democratic control over government administration;

• the pursuit of a predominantly intensive path of economic development and effective utilisation of available resources, including foreign aid;

• coordination of the activities of all the development partners.

Target indicators. Quantitative economic and social target indicators have been selected to measure progress in the implementation of the NDS. The target indicators for the social sector are based on the MDGs. (Both sets of indicators are provided in Appendix 2.)

Three different scenarios served as the basis for the target macroeconomic indicators.

Varying assumptions regarding the effectiveness of the reform process, external market conditions, the political situation in the region, the volume of foreign and domestic investment and the type and amount of foreign aid provided to Tajikistan define the three scenarios. Section 5.5 of this document contains a description of the development scenarios.

5. CREATION OF THE INSTITUTIONAL ENVIRONMENT FOR DEVELOPMENT

(FUNCTIONAL BLOCK)

The role of the functional block of NDS sectoral sections (public administration reform, macroeconomic development, improvement of the investment climate, development of the private sector and entrepreneurship, regional cooperation and integration into the global economy) is to create an institutional and functional environment that will promote the country’s development.

Joint planning of sectoral priorities and actions within the context of a unified block makes it possible to raise the level of collaboration among various agencies and to strengthen the effectiveness, coordination and targeting of planned actions.

5.1. Core Problems

In spite of the gains that have been made and the immense efforts undertaken by the state in the area of institutional and economic reforms, these reforms are still not keeping pace with the rapidly changing economic situation. Because fundamental social reforms are lagging behind, the quantity and quality of social services remain low. There has been negligible improvement in the estimated real unemployment rate and the private sector and entrepreneurship are not playing a significant role in providing employment for the redundant population. In the macroeconomic sphere this is linked to deficiencies in public administration, macroeconomic policy, the entrepreneurial and investment climate and foreign economic policy.

The system of public administration currently in place still retains features of the previous directive-based system. It is cumbersome and ineffective and it shows signs of redundancy and excessive administrative control. The state continues to play too large a role in economic activity. Its regulatory functions are not suited to the developing market relations and indirect regulation is being introduced too slowly, which is leading to increased corruption.

The civil service system is faced with the problem of finding qualified personnel to fill its ranks because it is not viewed as an attractive employer in the labour market.

Government agencies do not have clearly defined criteria for the hiring and placement of personnel and there is no human resources management system in place.

The distribution of functions and authorities among central and local governments and local self-government bodies is not adequately defined. This impairs the effectiveness of work done by government authorities at the local level. The absence of a clearly defined assignment of functions related to providing services to the public contributes to a dissipation of limited resources and their inefficient use. Local governments do not have sufficient authorities to address local problems and as a result these problems are dealt with by central government bodies or they are not dealt with at all.

Local self-government bodies cannot ensure public access to effective and high-quality services. The operations of jamoat administrations, the level of government closest to the population, need to be improved to fully comply with the principles of local self-governance.

The institutional and functional structure of judicial and law enforcement authorities do not meet the requirements of a market economy and democratic principles.

The status of human and physical capital is deteriorating rapidly, which in turn is leading to a decline in the country’s potential. The low level of diversification of the economy and undeveloped export potential make the country more vulnerable to exogenous factors. Mechanisms for market-based regulation of the economy are poorly developed, including instruments based on macroeconomic regulation. The sectoral policy that is being pursued gives short shrift to national priorities and actions.

Insufficient potential among entities in the economic block with regard to the development of economic, monetary and fiscal forecasts means that any efforts to improve government macroeconomic policy fall short. This sector is also hampered by insufficient cooperation at the institutional level. The principal mechanisms for the distribution of resources, such as the budget, the PIP and the CSIP, have still not been integrated and consolidated into a single process. Furthermore, they are poorly coordinated with sectoral and regional programmes and plans, development priorities and aid programmes.

There is limited potential for the financial assessment of measures that are being planned, and there are no mechanisms for identifying the most important measures. Little attention is given to the economic acceptability of the public debt burden and its connection to poverty reduction. Not enough consideration is given to the impact of monopolies and monopsonies at the sectoral and intersectoral level in the drafting of the country’s economic policy.

Tax (customs) and monetary policies are poorly coordinated with development priorities. The development of small and medium-sized enterprises is hampered significantly by high lending rates charged by banks. A securities market that provides for the free flow of capital has not yet been created.

Growth in the agricultural sector is being slowed down by a number of problems arising from the fact that the land reform process has not been completed. Unresolved problems involving actual land purchase and sale practices also have a detrimental effect, and are coupled with the inefficiency of the cotton sector, a decline in the motivation for cultivating this crop, continuing government regulation and difficulties in obtaining financial resources. The situation in the sector is aggravated by a significant debt burden among owner-operated cotton farms and low crop yields.

The entrepreneurial and investment climate in the country is limited by the legislative framework, which is spotty, incomplete and overly complicated. There are other problems associated with the execution of contracts, corporate governance, inadequate protection for property rights and excessive administrative barriers.

Monitoring procedures are not transparent and they are too burdensome for businesses. This gives rise to more unwarranted audits and under-the-counter payments. The monitoring procedures do not provide effective protections for the rights of the businesses being regulated. Complicated and costly procedures related to verifying that domestically produced goods and imported products are in compliance with established standards are a significant barrier for entrepreneurs, and the list of products subject to mandatory certification is quite long.

Difficult border-crossing procedures create significant obstacles for importers and exporters in Tajikistan. The import-export process is very complicated, which leads to high costs and corruption. Factors that have an adverse effect on the business climate in the country include excessive and complicated visa requirements and the poor quality of rail and air transport services.

Poor management of state-owned enterprises leads to low labour productivity, underutilisation of available capacities and an inadequate sophistication in the technologies employed.

Entrepreneurial activity is also limited by weaknesses in the public infrastructure (power supply, transportation) and private infrastructure (the credit and insurance system).

Accounting practices do not include depreciation.

Government support for entrepreneurship is not organised in a systematic way and does not take into account budget losses from existing concessions. Not enough support is given to sectors in which the country specialises, such as light industry and the food industry.

Entrepreneurial statistics are incomplete and surveys of this sector are conducted irregularly.

The infrastructure to support small businesses is poorly developed and entrepreneurial and investment risks remain very high.

Poor regional cooperation, in particular in trade and transit, also hinders access to foreign markets. An underdeveloped transportation and transit system and the absence of healthy competition in the transportation services market create additional difficulties for entrepreneurs. Complicated trade procedures and obstacles to border trade and movement of the labour force also have an adverse effect, along with the lack of a common customs system and energy system with neighbouring countries. The agreements that are being signed offer little support for addressing these problems and their resolution depends to a large extent on the policies of neighbouring countries.

Economic policy does not do enough in terms of support for and development of the country’s export potential, including the export of highly processed products and educational, medical and other services. Little attention is given to the political and economic opportunities that could be opened up through cooperation with neighbouring Afghanistan.

The resolution of foreign economic problems is hampered by the lack of a transparent and effective mechanism for border and customs controls on the movement of goods, work, services and capital. Complications associated with the temporary entry and residence of foreign nationals, visa problems, and unresolved issues involving labour migration are other important concerns. Policies pertaining to tourism are inadequate.

A great deal of work remains to be done for accession to the World Trade Organization (WTO), which will require a change in trading conditions in Tajikistan.

Domestic producers are not prepared to function under the conditions required by the WTO, and a special package of measures to prepare them for operating in the new environment has not been developed. Not enough is being done to take advantage of the opportunities offered by the global partnership for development called for in Goal 8 of the MDGs.

5.2. Development Priorities

The main priorities with regard to improving the public administration system and macroeconomic development are:

1. Creation of an effective national development system in accordance with the requirements of a market economy:

i. Improvement of the public administration system in accordance with the principles of a market economy;

ii. Creation of a modern, professional civil service;

2. Full-scale development of market regulatory mechanisms, including indirect regulatory methods:

i. More effective management of government finances and improvement of tax administration;

ii. Improvement of the macroeconomic planning, forecasting and statistics system;

iii. Improvement of monetary policy and the financial sector.

3. Development of administrative-territorial governance and formation of a full-fledged local self-government;

4. Reform of the judicial and law enforcement systems in accordance with democratic principles;

5. Diversification of the economy and enhancement of export potential.

The priorities for improvement of the investment climate and development of the private sector and entrepreneurship are:

6. Reinforcement of legislation to improve the investment and entrepreneurial climate;

7. Better organization of procedures for regulating the activities of economic entities under all forms of ownership;

8. Expansion of support for business.

The NDS priorities with regard to regional cooperation and integration into the global economy are:

9. Further development of regional cooperation;

10. Integration into the global partnership system.

5.3. Key Areas of Activity

The key areas of sectoral activities within the framework of the NDS up to 2015 with regard to public administration reform, development of the private sector, integration into the global economy and regional cooperation will be:

1. Creation of an effective national development system in accordance with the requirements of a market economy

i. Improvement of the public administration system in accordance with the principles of a market economy

• Measures will be undertaken to introduce uniform methods for the systematic organization of national development goals and priorities, programmes and plans. National, sectoral and regional plans and programmes will be developed and implemented. The potential for the monitoring of these activities will be reinforced. Expanding the role of civil society in decision-making and in the implementation of decisions will be the focus of special attention.

• Steps will be taken to limit government control over economic activity and to eliminate interference by government agencies in business through the reorganization and reassignment of functions. At the same time, improvements will be made in government regulatory systems, including indirect regulatory, monitoring and supervision systems. The transparency and responsibility of government agencies will be increased.

ii. Creation of a modern, professional civil service

• Measures will be directed at improving the quality of professional training for civil service employees at all levels of government, at upgrading the system of employee compensation for civil service employees, as well as modernising the human resource management system, based on increasing incentives and eliminating corruption. Action will be taken to expand women’s access to and participation in the decision-making process.

2. Full-scale development of market regulatory mechanisms, including indirect regulatory methods

i. More effective management of government finances and improvement of tax administration (fiscal policy)

• Measures will be aimed at further simplification of the tax system and improvements in granting preferences and customs concessions for foreign trade, with a view to promoting development of the private sector. A state-wide taxpayer registration system will be created that provides for the accurate enrolment, registration and ongoing monitoring of taxpayers.

Access will also be provided to an information referral system for tax questions, which will allow for the transition to a computer-based system for the filing of returns and for making tax payments. With a view to modernising customs administration, customs tariffs will be optimised, the proper legal framework will be put into place, customs procedures will be simplified and new information technologies for customs processing and customs control will be introduced. There are plans to build additional customs infrastructure facilities, particularly on the border.

• Special action will be taken to make budget spending more efficient, including improvement of the budget process and a clear definition of the roles of all agencies involved in the process. The MTBF will be introduced in stages, the budget commission will exercise greater authority and the budget will be linked more closely to national priorities. Coupled with the introduction of the MTBF, improvements will be made in macroeconomic forecasting techniques and in the methods for determining the funding package. The PIP and CSIP will be coordinated with the tasks of the PRS and other programmes.

• With a view to improving spending efficiency, measures will be undertaken to increase responsibility and transparency in the management of government finances and to strengthen the potential for the development and execution of the republican and local budgets. An effective government procurement mechanism will be introduced and the government financial control system will be improved. Measures will also be undertaken to reform the salary system for civil service employees and persons employed in the public sector and to improve financing in the social sphere.

ii. Improvement of the macroeconomic planning, forecasting and statistics system

• Macroeconomic forecasting will be improved by boosting the potential of government authorities and by making direct use of forecasts in the preparation of draft state budgets and key budget indicators. The use of contemporary forecasting models and a better statistical base will enhance the quality of sectoral and regional forecasting.

Improvements in macroeconomic planning will be achieved by taking into account the country’s national priorities, sectoral measures and priorities, budget capacities and foreign aid.

• As far as improvements in statistics are concerned, there are plans to upgrade the institutional and legislative framework. This will promote the development of the national statistics system based on changes in the relevant legal documents and a revamping of the existing organizational structure. Reconsideration of the role currently assigned to statistics and improvement of technical coordination among compilers, including ministries, will also play a part. Measures will be aimed at improving the system of indicators for forecasting development in various sectors of the economy and the methodology for calculating key macroeconomic indicators. In addition, steps will be taken to upgrade the qualifications of specialists working within economic and statistical agencies to ensure that they are trained in the latest forecasting techniques. A system for statistical monitoring and assessment of the poverty rate will be developed and introduced.

iii. Improvement of monetary policy and the financial sector

• Monetary policy will focus on achieving moderately low inflation, which will encourage the economic growth that the country needs. Regulation of one of the money supply aggregates, changes in which will be adjusted in line with certain production growth rates, will be the basis for implementing monetary policy. Exchange rate policy will be based on a free-floating regime;

• Measures will be undertaken to bolster public confidence in the banking system by encouraging foreign financial institutions to enter Tajikistan’s market and offering incentives for commercial banks to develop financial instruments that will make it easier for customers to take advantage of banking services. Efforts will also be directed at developing micro-financial initiatives, and also at providing support for lower interest rates on long-term credits. Steps will be taken to develop noncash settlements (plastic cards), support will be provided for the foreign exchange market to shore up the methodological and technical framework, and an automated electronic trading system for foreign currency trading and electronic trading in goods, work and services will be introduced.

3. Development of administrative-territorial governance and formation of full-fledged local self-government

• The plan calls for measures to align administrative-territorial divisions with a redistribution of functions and to define the criteria for administrative-territorial divisions and the relationship among different levels of government and local self-government.

• With the aim of enhancing the effectiveness of local government bodies and local self-government, there are plans to reassign the functions and authorities of these bodies.

Property will be allocated to them and they will gain financial autonomy. Local government bodies and local self-government will have greater authority to address issues of local importance.

4. Reform of the judicial and law enforcement systems in accordance with democratic principles

• The functions and tasks assigned to the judicial system, prosecutor’s offices and law enforcement authorities will be aligned with democratic principles and the requirements of a market economy. To this end, a conceptual plan for reform of the judicial system, prosecutor’s offices and law enforcement authorities will be drafted and implemented, among other things.

5. Diversification of the economy and enhancement of export potential

• With the aim of enhancing the country’s export potential, a series of measures will be undertaken to increase the effectiveness of existing production operations focused on the export market. These efforts will be directed, in particular, at raising the profitability of the Tajik Aluminium Plant and the energy sector. Infrastructure, export-oriented and tourism investment projects, as well as projects with an emphasis on import substitution, will also play an important role in this process. Steps will be taken to settle debts in the cotton industry and to promote sustainable development of this sector.

• To meet the goal of diversifying exports, actions will be taken to encourage capital investment in the downstream processing of primary aluminium, in the textile industry and in the development of the mining industry.

6. Reinforcement of legislation to improve the investment and entrepreneurial climate

• With a view to promoting development of the private sector and attracting foreign direct investment (FDI), there are plans to establish a stronger regulatory and legal framework, including better tax and customs legislation. There will be more effective legal protection for the rights of investors and entrepreneurs. Measures will also be aimed at improving the legislation as it applies to investment, property rights and concessions. Other steps will be directed at according equal rights to domestic and foreign investors and establishing a single agency to promote investment. Small- and medium-sized enterprises (SMEs) will be established as proper organizational and legal forms, and this will be combined with a detailed formal definition of their relationships with all government and administrative authorities. Tax policies that encourage legitimate business operations and hiring of employees will be put into place.

7. Better organization of procedures for regulating the activities of economic entities under all forms of ownership

• Steps will be taken to bring about the planned and orderly lifting of administrative barriers, including barriers that hinder access to public services and to the physical and private infrastructure. Equitable “rules of the game” will be established for public and private enterprises, and the introduction a “one-stop shop” business registration process is proposed.

Product certification procedures will be simplified to the maximum extent possible, the mandatory certification list will be shortened and action will be considered to recognize basic international standards and certificates of developed countries and regional partners, including recognition on a unilateral basis;

• Significant improvements will be made in the…