2009 Index of Economic Freedom

Quick Facts

Population:

• 6.6 million

GDP (PPP):

• $10.7 billion
• 7.0% growth
• 8.8% 5-year compound annual growth
• $1610 per capita

Unemployment:

• 2.4%

Inflation (CPI):

• 13.2%

FDI Inflow:

• $385.2 million

Tajikistan’s economic freedom score is 54.6, making its economy the 122nd freest in the 2009 Index. Its score is 0.2 point better than last year. Tajikistan is ranked 24th out of 41 countries in the Asia–Pacific region, and its overall score is lower than the world average.

The government of Tajikistan has pursued economic reforms to foster sound macroeconomic management and improvement of the business climate to generate more broad-based development, but progress has been marginal, leaving the economy vulnerable in a rapidly changing economic and political environment. Tajikistan scores relatively well in government size, fiscal freedom, and trade freedom. Government spending is moderate. Despite progress in privatizing small and medium-size public enterprises, the private sector is developing slowly. The government imposes low tax rates, including a 13 percent personal income tax rate.

Tajikistan is substantially weaker than the world average in business freedom, monetary freedom, investment freedom, financial freedom, property rights, and freedom from corruption. Regulation hinders business operations, and laws are restrictive and inconsistent. Foreign investment is deterred by poor infrastructure, burdensome bureaucratic regulations, and inconsistent administration. Tajikistan is rated one of the world's most corrupt nations, and corruption corrodes most aspects of civil life, from the courts to customs.

Background Back to the top

Tajikistan was wracked by civil war from 1992 to 1997, and clan loyalties and regional alliances have made the transition to a multi-party democracy problematic. Parliamentary elections in February 2005 failed to meet international standards, as did President Imomali Rahmonov's November 2006 re-election to a third seven-year term. Rahmonov is consolidating his power by limiting political activity and tightening controls on civil society. Poverty remains pervasive, and remittances and drug production and trafficking remain important sources of income. Mountainous and landlocked, Tajikistan is the poorest country in the Commonwealth of Independent States. Major exports are aluminum, cotton, and electricity from significant hydropower installations.

Business Freedom 45.1 Back to the top

The overall freedom to start, operate, and close a business is restricted by Tajikistan's regulatory environment. Starting a business takes an average of 49 days, compared to the world average of 38 days. Obtaining a business license requires more than the world average of 18 procedures, and costs are high. Closing a business is a protracted process.

Trade Freedom 82.6 Back to the top

Tajikistan's weighted average tariff rate was 3.7 percent in 2006. Some quotas, import bans and restrictions, non-transparent and poorly administered standards and other regulations, inefficient and corrupt customs implementation, and weak enforcement of intellectual property rights add to the cost of trade. Ten points were deducted from Tajikistan's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 89.3 Back to the top

Tajikistan has competitive tax rates. The top income tax rate is 13 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a tax on immovable property. In the most recent year, overall tax revenue as a percentage of GDP was 16.5 percent. Tax collection has improved, but the tax base remains narrow.

Government Size 85.9 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 21.7 percent of GDP. The government is trying to improve spending management. Weak infrastructure continues to constrain private-sector growth.

Monetary Freedom63.2 Back to the top

Inflation is very high, averaging 11.9 percent between 2005 and 2007. The government influences prices through regulation, subsidies, and numerous state-owned enterprises and utilities. Farmers are subject to state control of production and harvesting decisions, particularly in the cotton sector. Fifteen points were deducted from Tajikistan's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom30.0 Back to the top

Both foreign and domestic investors face numerous barriers to investing in Tajikistan. All private investment is screened and requires government approval. Investment laws are inconsistently implemented and non-transparent, and the bureaucracy is burdensome and prone to corruption. Contracts are weakly enforced, and infrastructure remains inadequate. Investors face ownership restrictions and cumbersome procedures with regard to tax and business registration. Remittance of profits abroad is allowed. Residents and non-residents may hold foreign exchange accounts. Foreign exchange and capital payments and transfers are subject to documentary requirements and the availability of foreign exchange. All land is owned by the state, but land use rights may be leased.

Financial Freedom40.0 Back to the top

Tajikistan's financial sector has undergone a gradual transformation that has led to increased transparency and improved supervision and regulation. Banking has been strengthened in recent years by regulatory reform as well as by active enforcement of prudential requirements by the central bank. However, the banking sector's limited capacity to provide financial intermediation impedes the development of a more vibrant private sector. The four largest banks, including one state-owned bank, control 80 percent of deposits. All banks except one are privately owned. Non-performing loans have been decreasing. The opening of the banking sector to foreign competition has induced more foreign banks to enter the market since 2006. The small non-banking financial sector includes several small insurance companies and one pension fund. Capital markets are rudimentary.

Property Rights30.0 Back to the top

Protection of private property is weak. Judicial corruption is widespread, and the courts are sensitive to pressure from the government and paramilitary groups. Lack of transparency in the legislative process and significant concerns regarding due process demonstrate the weakness of civil society in the country. Tajikistan's weak enforcement regime lacks criminal penalties for violations of intellectual property rights.

Freedom From Corruption21.0 Back to the top

Corruption is perceived as pervasive. Tajikistan ranks 150th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Tajikistan is one of the world's poorest countries, and corruption, particularly bribery and nepotism, is endemic. Numerous observers have noted that power has become consolidated in the hands of a relatively small number of individuals.

Labor Freedom58.7 Back to the top

Tajikistan's inflexible labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is high, and the difficulty of firing a worker discourages additional hiring. Regulations related to the number of work hours are not flexible.