Tajik Banks: Boosting or Hindering Growth?

Tajik efforts at financial reform may have won recent plaudits from the International Monetary Fund, IMF, but critics argue the country’s tough monetary policy is actually hurting economic development.



The IMF in February commended Tajikistan’s “robust economic performance”, saying the government’s macroeconomic policies, coupled with progress on structural reforms, have contributed to high economic growth, relatively low inflation and a reduction in poverty.



However, some Tajik business people are less impressed and argue that such strict monetary policy is destructive in such a fragile transitional economy.



Safar Saidov, who heads a farm in the south, says the government has taken fiscal prudence too far. He can’t borrow the funds he needs to buy raw materials or hire new workers and says the situation is the same for hundreds of small and medium-sized factories around the country whose machines are sitting idle. “Banks refuse to give us loans, saying there are not enough resources,” he said.



Saidov’s experience appears to be typical, with recent analysis showing that Tajikistan’s banks are in a position to meet less than ten per cent of the actual demand for loans.



Those who do manage to borrow money face hefty penalties. “High interest rates … make it virtually impossible to ensure effective functioning of factories and organisations,” said economist Zebo Zarifova.



The result of the too-stringent loan policy, according to academic Rashid Rahimov, has been “economic growth without investment”.



Economist and professor Khojimuhammad Umarov added, “Despite the evident financial stability in Tajikistan, economic balance… has not been reached.”



At the heart of the problem is that despite the swift development of the banking system, many people have yet to regain their trust in banks.



The result, according to academic Nuriddin Kayaumov, is that banks are forced to rely on funds provided by the National Bank of Tajikistan, NBT, rather than from individual depositors, meaning capital remains tight.



The attitude of one Tajik businessman who spoke on the condition of anonymity is typical. Though he lives and works in Tajikistan, he told IWPR that he keeps his money in foreign banks, afraid his money isn’t safe at home.



“I’m not sure that there won’t be another confiscatory money reform here soon like there was in 1995, when enterprises were deprived of their funds and started closing down one after another, and individuals’ savings in banks were reduced to zero,” he said. “Additionally, I’m not happy with the low interest rates of our banks.



“Even our ruling families keep their assets in the West.”



Mahmadamin Mahmadaminov, the chairman of the state savings bank Amonatbank, admits that economic reforms have caused general mistrust in the banking system, lowering the level of deposits.



Although state guarantees on deposits have been introduced, entrepreneur Said Abbosov is unconvinced his money is in good hands in a Tajik bank. “In my opinion, this problem needs to be solved, otherwise banks will not be able to use deposits, and will have problems with profitability and issuing loans,” he said.



That view was echoed by economist Rustam Jabbarov. “Depositors do not have complete certainty that their money [will] be returned 100 per cent,” he said.



However, NBT head Murotali Alimardonov insists the banking system is “developing successfully” and says tough monetary policies are necessary to reform the system.



He points to NBT figures showing that total bank assets have doubled over the last five years, while capital has increased by five times and deposits by four. Last year, the volume of deposits by individuals rose by 50 per cent, while interest rates on loans fell from 25 to 23 per cent.



“A two-tier banking system has formed, where the NBT is the top level. The second tier consists of 11 commercial banks, a branch of the Iranian bank Tijorat and 18 non-banking financial organisations,” said Alimardonov.



As the country’s central banker, Alimardonov says he will revoke the licence of any bank that lacks sufficient capital.



One banking employee interviewed by IWPR points out that some of the companies’ problems are of their own making, saying banks cannot give loans to enterprises whose workings are not transparent and which have not moved over to international accounting standards.



Banking expert Jamed Yusupov supports the current economic policies, and says the critics of the reforms are wrong, “For development of the banking sector, maintaining a positive macroeconomic situation is the main thing. And as we know, that is improving here every year. Additionally, there is no runaway inflation.”



Pairav Chorshanbiev is an independent journalist in Tajikistan.