Zhao Zhai, MPP, Staff Writer, Brief Policy Perspectives

Introduction

The Republic of Tajikistan is one of the poorest countries in Central Asia. Following six years of civil war, in 1997, Tajikistan’s government established political stability and sought international assistance to grow the country’s economy. The Second Public Finance Management Modernization Project is an effort by the World Bank (the Bank) to provide continued assistance to Tajikistan. In this proposal, the Bank established a systematic evaluation of Tajikistan, as well as an overview of how to provide loan and grant assistance (totaling $10 million) to achieve the proposal’s objective of improving Tajikistan’s government effectiveness, control, and accountability. As a result, Tajikistan may achieve economic growth, reduce poverty, and improve people’s living conditions.

The recent economic climate in Tajikistan is favorable: since 1999 the country has had an average economic growth rate of 7.9%, compared to 9.6% in China and 7.1% in India. The inflation rate has declined from 9.8% in 2009 to 7.4% in 2014. However, Tajikistan’s Gross National Income (GNI) per capita, which reflects the average yearly income of a Tajik citizen, is only $990 per annum. For comparison, Pakistan’s GNI per capita is $4840 and Afghanistan’s is $1960.

Tajikistan’s economic strengths show a large inflow of remittances and increased productivity in the last five years. However, a weakness is that the economy is fragile because it heavily depends upon export commodities such as aluminum and cotton to Russia and remittance from migrant workers. In 2014, Russia’s economic volatility had a negative effect on Tajikistan’s export sales.As a result, Tajikistan suffered sluggish export growth and a substantial remittance slowdown. The Bank came up with many solutions to solve this economic difficulty in the long run, the most notable of which includes investing in human capital and developing institutions. The Bank encouraged the Tajik government to make public spending more transparent and effective in order to decrease corruption and create more trust between people and government. The Bank conducted substantial data collection to support its argument, making the proposal persuasive and practical.

Institutional Factors that Affect Policymaking in Tajikistan

Tajikistan’s institutional culture is hierarchical, and policy making is centralized. In its proposal,the Bank used a frictional model, which is conflict of interest analysis, to evaluate who will resist the reform changes. Because of the hierarchical system, civil servants cannot make their own decisions and must follow a daily routine. Because they cannot be creative, many civil servants lose their ability to respond to economic challenges. Civil servants prefer the status quo because they are comfortable with existing procedures and have few incentives to change. In addition, they are poorly paid and there is no clear link between effort, ability, and reward.

Key Elements of the Proposal

The Bank’s proposal consists of five components, each of which has a specific monetary appropriation to fund it. The Bank relied on many economic theories and methodologies to evaluate the program. The economic theories include market economy principles, resource allocation, marginal analysis, and exchange rate. Methodologies in the proposal include strategic planning, audit, cost-effectiveness analysis, budget planning, treasury management, accounting system, and risk assessment. Furthermore, the Bank used many performance indicators and benchmarks such as Public Expenditure and Financial Accountability to evaluate the government transparent and corruption.
The five components are:

1. Public finance management modernization ($8.8 million)

2. Strengthening public procurement ($2.5 million)

3. Strengthening external audit ($2.7 million)

4. Managing public administration reform ($4.9 million)

5. Project management ($2.1 million)

Public finance management modernization

The Bank encouraged the Tajik government to apply the accounting and budgeting package, which records and processes financial transactions within accounting information system, to operate the budget process. The Bank suggested that Tajikistan’s local financial department should develop a more sophisticated and integrated financial information system. As a result, civil servants will have to respect the regulatory framework and corruption will decrease significantly. The budget process, including budget preparation, budget execution, cash management, and budget control will also become more effective and efficient.

Managing public administration reform

The Bank introduced payroll system and human resource management reform. The reforms adopt strategic planning functions to coordinate and monitor each Tajik policy implementation in the future. As a result, the reform will strengthen the roles and accountability for most governmental units and civil servants. The reforms will improve recruitment and selection process for civil servants.

Strengthening public procurement

As reform is a long-term process and requires continuous engagement across multiple projects, the Bank also paid significant attention to agenda setting. The Bank will set up internal management arrangements as well as design and draft internal procedures manuals. The Bank intends to integrate procurement planning, budget process, performance monitoring, and the legal frame-work together to perform procurement reform.

Next Steps

The Bank will initiate its first disbursement ($0.5 million) in 2016, and continue making disbursements until 2021(cumulative $10 million). The Bank will work closely with other development partners such as the International Monetary Fund (IMF), the European Union (EU),the United Nations (UN) and Ernst & Young (EY) to establish an international consortium to carry out the reforms in the proposal. IMF and EY will assist in auditing financial statements of the Tajikistan government in order to judge whether the government meets the disbursement requirements. The Bank also will constantly test the government’s reliability and check whether it is strictly respecting the deadlines. The Tajik government has strong incentives and support systems to adopt the reforms. Due to the negative impacts of external shock in 2014, it will be beneficial for Tajikistan to make civil servants become more competent to deal with economic challenges. As a result, Tajikistan will have a more trustworthy government, achieve economic growth, and see a reduction in poverty.

To read the whole proposal, click here.