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Report and Recommendation of the President to the Board of Directors

Project Number: 47099-004 December 2016

Proposed Policy-Based Loan and Grant for Subprogram 2 Republic of Tajikistan: Investment Climate Reforms Program Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Public Communications Policy 2011 after excluding information that is subject to exceptions to disclosure set forth in the policy.

CURRENCY EQUIVALENTS (as of 21 November 2016)

Currency unit – somoni (TJS)

TJS1.00 = $0.127 $1.00 = TJS7.8765

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund ESF – Entrepreneurship Support Fund GDP – gross domestic product IMF – International Monetary Fund PFM – public financial management RIA – regulatory impact analysis SCISPM – State Committee on Investments and State Property Management SDR – special drawing right

NOTE

In this report, “$” refers to US dollars.

Vice-President W. Zhang, Operations 1 Director General S. O’Sullivan, Central and West Asia Department (CWRD) Director R. Hartel, Public Management, Financial Sector, and Trade, CWRD Team leader R. Barreto, Financial Sector Specialist, CWRD Team members M. Boboev, Economics Officer, Tajikistan Resident Mission (TJRM),

CWRD B. Chansavat, Portfolio Management Specialist, TJRM, CWRD F. Dodomirzoeva, Project Assistant, TJRM, CWRD M. Etrata, Associate Project Analyst, CWRD

C. Godoy, Operations Assistant, CWRD A. Julian, Young Professional, CWRD L. Mtchedlishvili, Senior Energy Specialist, CWRD A. Mukhamedyarova, Financial Sector Specialist, CWRD H. Mukhopadhyay, Principal Public Management Specialist, CWRD L. Nazarbekova, Principal Counsel, Office of the General Counsel P. Wyatt, Principal Private Sector Development Specialist, CWRD M.C. Yabut, Operations Assistant, CWRD Peer reviewer A. Haydarov, Infrastructure Economist, Southeast Asia Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

PROGRAM AT A GLANCE

I. THE PROPOSAL 1

II. The PROGRAM 1

A. Rationale 1

B. Impact and Outcome 4

C. Outputs 4

D. Development Financing Needs 6

E. Implementation Arrangements 7

III. DUE DILIGENCE 7

A. Economic and Financial 7

B. Governance 8

C. Poverty and Social 9

D. Safeguards 9

E. Risks and Mitigating Measures 9

IV. ASSURANCES AND CONDITIONS 10

V. RECOMMENDATION 10

APPENDIXES

1. Design and Monitoring Framework 11

2. List of Linked Documents 14

3. Development Policy Letter 15

4. Policy Matrix 20

Project Classification Information Status: Complete

PROGRAM AT A GLANCE

Source: Asian Development BankThis document must only be generated in eOps. 27102016155723346915 Generated Date: 16-Nov-2016 15:47:09 PM

1. Basic Data Project Number: 47099-004Project Name Investment Climate Reforms Program -

Subprogram 2Department/Division

CWRD/CWPF

Country Tajikistan Executing Agency State Committee on Investments and State Property Management

Borrower Ministry of Finance

2. Sector Subsector(s) ADB Financing ($ million)Public sector management Economic affairs management 0.25

Law and judiciary 0.25

Public administration 0.25

Energy Energy sector development and institutional reform 16.00

Industry and trade Small and medium enterprise development 33.25

Total 50.00

3. Strategic Agenda Subcomponents Climate Change Information Inclusive economic growth (IEG)

Pillar 2: Access to economic opportunities, including jobs, made more inclusive

Regional integration (RCI) Pillar 2: Trade and investment

Climate Change impact on the Project

Low

4. Drivers of Change Components Gender Equity and MainstreamingGovernance and capacity development (GCD)

AnticorruptionClient relations, network, and partnership development to partnership driver of changeCivil society participationInstitutional developmentInstitutional systems and political economyOrganizational developmentPublic financial governance

Knowledge solutions (KNS)

Pilot-testing innovation and learning

Private sector development (PSD)

Conducive policy and institutional environment

Effective gender mainstreaming (EGM)

5. Poverty and SDG Targeting Location ImpactGeographic TargetingHousehold TargetingSDG Targeting

NoNoYes

Nation-wide High

SDG Goals SDG8, SDG9, SDG16

6. Risk Categorization: Low .

7. Safeguard Categorization Environment: C Involuntary Resettlement: C Indigenous Peoples: C.

8. Financing

Modality and Sources Amount ($ million)

ADB 50.00 Sovereign Programmatic Approach Policy-Based Lending (Loan): Asian Development Fund

30.76

Sovereign Project grant: Asian Development Fund 19.24

Cofinancing 0.00 None 0.00

Counterpart 0.00 None 0.00

Total 50.00

9. Effective Development CooperationUse of country procurement systems YesUse of country public financial management systems Yes

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on (i) a proposed policy-based loan, and (ii) a proposed policy-based grant, both to the Republic of Tajikistan for subprogram 2 of the Investment Climate Reforms Program.1 2. The subprogram provides budget support for the expansion of economic opportunities and development of the private sector. It includes policy actions to (i) reduce the cost of doing business, (ii) strengthen protection for businesses, and (iii) increase business innovation and productivity. 2 The Asian Development Bank (ADB) Board of Directors approved the programmatic approach and subprogram 1 on 4 December 2015.3

II. THE PROGRAM A. Rationale4 3. Tajikistan faces economic challenges and a tight fiscal situation. Although Tajikistan’s real gross domestic product (GDP) grew at an annual average of 6.8% from 2005 to 2015, the economy remains vulnerable to external shocks because of its narrow export base and its extremely high dependence on remittance inflows, which represented an average of 46% of GDP in 2010–2013. With the onset of the recession in the Russian Federation, and lowering export demand from its main trading partners, GDP growth moderated from 6.7% in 2014 to 6.0% in 2015 and is expected to drop to 4.3% in 2016. Plummeting remittance inflows, which in 2015 declined in dollar terms by 33% prompted a 35% depreciation of the somoni against the dollar since November 2014. Declining import tax revenues and increases in capital expenditures, wages, and pensions resulted in a surging budget deficit (including the public investment program) that the International Monetary Fund (IMF) estimates at 4.3% of GDP in 2016 from 2.3% in 2015. The public debt–GDP ratio increased from 27.8% in 2015 to 35.9% in mid-2016 and is expected to further increase as the fiscal cost of banking system restructuring materializes and in the absence of future full-grant assistance from multilateral development banks. The construction of the $3.9 billion Rogun hydroelectric project (almost 50% of GDP) will add further pressure on external debt. As a result, the government recognized that strong fiscal consolidation is necessary in the medium term emphasizing strict expenditure prioritization and better management of scarce resources. 4. The banking system’s solvency deteriorated significantly since 2014. The currency depreciation had a severe impact on the quality of the highly dollarized bank loan portfolio, which represented 63% of total loans in August 2016. In addition, systemically important banks carry nonperforming legacy assets originating from government-directed credit programs. Nonperforming loans (past due loans exceeding 30 days) deteriorated from 16% of total loans in December 2013 to 55% in September 2016, adversely affecting the profitability and solvency of the banking system. The reported average capital adequacy is now substantially short of the regulatory minimum requirement. In addition, banks are facing liquidity shortages, which have

1 The design and monitoring framework is in Appendix 1.

2 The Asian Development Bank (ADB) provided policy and advisory technical assistance for investment climate

reforms (TA 8557-TAJ, approved on 13 December 2013). 3 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic

Approach and Policy-Based Loan and Grant for Subprogram 1 to the Republic of Tajikistan for the Investment Climate Reforms Program. Manila.

4 Sector Assessment (Summary): Public Sector Management (accessible from the list of linked documents in

Appendix 2).

2

prevented clients to withdraw their deposits.5 The government recognized that decisive actions are needed to restore liquidity and solvency in the banking system, including a new strong bank resolution framework, independent reviews of the financial position of the five systemically important banks, and a clear fiscal strategy for responsible bank restructuring to mitigate the associated large fiscal risks. 5. Substantial improvements in poverty, yet high rural poverty prevails and job opportunities are limited. Tajikistan remains the poorest country in the Commonwealth of Independent States, with the lowest per capita gross national income ($1,240 in 2015, following the Atlas method). The majority of people still live in rural districts. Rural poverty incidence remains high with the rural poor representing more than two thirds of total poor, or 40% of the rural population. Limited job opportunities forced about 40% of the working population to seek seasonal jobs abroad, mostly in the Russian Federation. The government estimates that in 2015, 135,000 of the 1 million migrant workers in the Russian Federation returned to Tajikistan because of stricter immigration requirements and the downturn in the Russian economy. In 2015 it is estimated that more than 330,000 migrants were given 3–5 years re-entry bans by the Russian Federation, further increasing pressure to absorb returning migrants into the economy. 6. Tajikistan’s economy remains poorly diversified, and has not achieved the level of structural transformation that has taken place in other Commonwealth of Independent States countries. The economy has remained largely agrarian, with the agriculture sector absorbing 66% of the labor force.6 Until 2014, strong remittance inflows supported the appreciation of the real effective exchange rate, reducing export competitiveness. The number of products exported with comparative advantage declined from an average of 158 in 2011–2014 to 131 in 2015. Tajikistan’s economy is highly reliant on external factors, such as the Russian economy and international markets for key export commodities: aluminum, several ores, and cotton. 7. Development problem. Many of the structural shortcomings in Tajikistan’s economy—low competitiveness of products in particular—reflect the limited progress in expanding its productive capabilities and in tapping economic opportunities that create more wealth. This is reflected in low levels of private investment, which were 5% of GDP during 2005–2013, one of the lowest levels in the world.7 This limits future economic growth and job creation. 8. Binding constraints to private investment include an unfavorable business environment, unreliable access to electricity (particularly during the winter), poor transport connectivity with external markets, and limited integration with global sources of knowledge. Since 2016, access to finance has particularly emerged as a binding constraint, given the credit crunch associated with the deteriorating solvency and liquidity in the banking sector (para. 12). 9. Private investment remains constrained by an unfavorable business environment that imposes high uncertainty for businesses. Arbitrary taxation and inspections reduce the prospects of fair competition and return on investments. Attempts since 2006to introduce risk-based inspections have failed. Tax authorities increased the share of businesses inspected from 51% in 2012 to 58% in 2014, and from 57% to 73% for individual entrepreneurs. Strong perceptions of expropriation risks and corruption discourage businesses and investors from investing in Tajikistan. The judiciary’s ability to enforce contracts and protect investor rights is

5 The affected banks are insolvent and include Agroinvestbank, Tajprombank, and Tojiksodirotbank.

6 ADB. 2016. Tajikistan: Promoting Export Diversification and Growth–Country Diagnostic Study. Manila.

7 Total investment (gross fixed capital formation) is also relatively low, averaging 16% of GDP during 2005–2013.

Investment is largely funded by the government and development partners.

3

uncertain. Laws and regulations are often inaccessible, creating uncertainty among businesses and investors and providing the basis for extortion by inspectors. Overall, Tajikistan’s country risk is very high, resulting in very low foreign direct investment, which dropped from 9% of GDP during 2004–2008 to 1% of GDP during 2009–2014.8 10. Poor infrastructure. Tajikistan’s landlocked location, poor transport and logistics infrastructure, and restrictive regional transit arrangements limit businesses in accessing external markets. Energy supply is unreliable and large parts of the country lack stable electricity supply during the winter. In 2016, Tajikistan ranked 173rd out of 190 economies on the ease of getting electricity.9 Firms are reluctant to invest in new equipment and automated production if they cannot access a stable and affordable supply of electricity. Existing indirect (tariff-based) cross-customer energy subsidies distort both the pricing structure and market competition to the disadvantage of businesses. 11. Limited integration with global sources of knowledge. In 2015, only 13.8% of firms report having an internationally recognized quality certification. Tajikistan ranks 118th out of 138 countries in cluster development.10 This mostly reflects low levels of human capital and investment, but is also related to institutional constraints: the same government agency—Tajikstandard—sets technical regulations and certifies product quality, which is prone to conflicts of interest and can undermine efforts to improve product quality. 12. The banking crisis has exacerbated limited access to finance, reducing investors’ capacity to expand and compete internationally. The rapid expansion of credit to the private sector in 2013–2015 was brought to a sudden stop by the somoni depreciation observed since end-2014. Deposit flight, particularly in local currency, has forced a decline of 6.4% of credit to the economy in the first 8 months of 2016. The lack of affordable local currency financing remains a problem. Bank lending rates are high, at 25% per annum on average, but can reach more than 40% per annum. 13. Institutional constraints. The governance and capacity of institutions have improved over the last decade (scored 4.4 in 2016 on a 1.0–7.0 scale, up from 3.4 in 2006), but remain weak. The performance of institutions and markets is undermined by corruption, bureaucracy, related party transactions, poor performance of boards, and lack of qualified staff. Tajikistan scored 26 out of 100 in Transparency International’s corruption perception index, where 0 is highly corrupt and 100 very clean. Most policy decisions, including on some public investments, are made without comprehensive public scrutiny and analysis of their economic and social impacts. Executive bodies often lack in-depth understanding of policy concepts and implementation methods, limiting the effectiveness of policy decisions. 14. The program is aligned with the government’s national development strategy for 2016–2030.11 The strategy prioritizes the creation of jobs through increased private investment, economic diversification, and competitiveness. The program is aligned with ADB’s country partnership strategy for 2016–2020, which supports reforms to achieve economic stability, improve the investment climate, diversify the economy, and increase competitiveness.12

8 Tajikistan has the highest country risk classification under the Organisation for Economic Co-operation and

Development’s Arrangement on Officially Supported Export Credits (7 out of 7). 9 World Bank. 2016. Doing Business 2017: Equal Opportunity for All. http//www.doingbusiness.org/reports/global-

reports/doing-business-2017 10

World Economic Forum. 2016. The Global Competitiveness Report 2016–2017. Geneva. 11

Government of Tajikistan. National Development Strategy of the Republic of Tajikistan, 2016–2030. Unpublished. 12

ADB. 2016. Country Partnership Strategy: Tajikistan, 2016–2020. Manila.

4

15. The ADB policy-based loan provides incentives for government reforms that otherwise would be delayed or not implemented. In addition, ADB technical assistance is advising the government on the design and implementation of policies and solutions to improve the investment climate (footnote 2). Such support is important because vested interests resist policy changes. ADB is investing in energy and transport infrastructure through other projects. Subprogram 2 benefited from the collaboration with development partners, particularly the World Bank Group and German development cooperation through KfW.13 The government is discussing a possible IMF program that includes reforms to address the banking system risks, strengthen the financial sector, and ensure debt sustainability in the medium-term through an appropriate fiscal framework. The European Bank for Reconstruction and Development is also discussing possible assistance to the banking system. The conditions for effectiveness of ADB financing support the improvement of the macroeconomic framework and were designed in coordination with these partners—particularly the IMF—and the government. B. Impact and Outcome 16. The impact is aligned with increased private investment, economic diversification, and competitiveness. The outcome will be increased capabilities and opportunities of businesses to set up and expand higher value-added production. C. Outputs 17. Subprogram 2 includes 13 policy actions (instead of 10 originally planned indicative policy actions) that further deliver three outputs approved under the program: (i) reduced cost of doing business, (ii) strengthened protection for businesses, and (iii) increased business innovation and productivity. Subprogram 3 has 12 indicative policy actions. 18. Output 1: Reduced cost of doing business. The objective is to reduce the cost of regulatory compliance for businesses operating in Tajikistan. In subprogram 1, the government enacted the Law on Inspections of Business Activities, 2016 that approved a new mechanism for coordination and reporting of annual inspection plans for agencies conducting inspections. In subprogram 2, the government will eliminate business inspection powers from eight government bodies and this reduction will continue under subprogram 3. 19. Under subprogram 2, the government modified the rules for calculation of profit tax to lower the tax burden on businesses. The government and the Tax Committee also introduced disciplinary measures and conducted a nationwide awareness campaign on taxpayers’ rights to limit predatory practices of tax officers and unlawful advance tax payments. A tax filing system introduced under subprogram 1 helped increase the number of taxpayers filing electronically to more than 33,000 (compared with 6,500 taxpayers at the end of 2014), exceeding expectations. The government has raised the goal for the end of the program to 50,000 taxpayers using electronic filing (about 11% of registered taxpayers). 20. To fulfill Tajikistan’s commitment under the World Trade Organization, the government has eliminated outdated technical regulations that impose unnecessary costs to businesses. Under subprogram 1, the government disclosed the full list of existing provisional technical regulations and removed 103 outdated regulations. During subprogram 2, the government will remove an additional 363 outdated technical regulations. Subprogram 3 will eliminate redundant

13

ADB interventions and other development partner activities are listed in Development Coordination (accessible from the list of linked documents in Appendix 2).

5

documentation that imposes unnecessary costs to key exports. 21. Under subprogram 1, the government approved an improved regulatory impact analysis (RIA) system for newly proposed legal acts. Under subprogram 2, two pilot RIAs were completed: on improving access to finance and improving food safety through technical regulations. In addition, the government will submit to the Parliament the amendments to the law on normative acts to introduce RIA in the rule-making process under the oversight of the National Legislation Center. Under subprogram 3, the government will roll out the new RIA system and publish RIA results on a new government web portal. The National Legislation Center will be responsible for quality review of the RIA system. 22. Output 2: Strengthened protection for businesses. The objective is to increase transparency and reduce expropriation risks for businesses. Under subprogram 1, the Tax Committee introduced public disclosure of information related to legal entities (including ownership, management, economic activity, capital, and contacts). Under subprogram 2, the government completed the preparation of a web portal that will provide universal and free access to the official database of normative legal documents. The government also disclosed gender-disaggregated statistics of business ownership to help identify and address the needs of businesswomen. Subprogram 3 will improve disclosure further to remove regulatory uncertainty. 23. Under subprogram 1, the government enacted the Law on Investment, 2016 to ensure more transparent and consistent treatment of incentives to investors and to signal the government’s interest in promoting private investment. The law establishes the right to appropriate compensation in case of indirect expropriation. 14 The State Committee on Investments and State Property Management (SCISPM) is now in charge of coordinating incentives to investors. Under subprogram 2, the SCISPM publicly disclosed the list of investors that signed investment agreements with the government in 2014 and 2015. Under subprogram 3, the SCISPM will approve a blueprint for its investment promotion team, including a clear long-term results framework, stronger governance, internal control, and appropriate funding from the state budget. The government will also approve clear rules for determining compensation in case of expropriation. 24. Output 3: Increased business innovation and productivity. The objective is to improve the productivity of businesses operating in Tajikistan. On 1 January 2017, the new cost-based tariff policy for electricity that gradually eliminates indirect cross customer subsidies will become effective, together with an initial increase in tariffs for highly subsidized customer segments including water pumps, irrigation pumping stations, and government institutions. To ensure affordability of tariff increases for low-income customers, the 2017 state budget increases the allocation for subsidies under the Targeted Social Assistance Program. Subprogram 3 includes measures for improved collection of payments for electricity to improve the sector’s sustainability. 25. Under subprogram 1, with ADB assistance, the government revised the structure of Tajikstandard in line with its commitments under accession to the World Trade Organization, and transferred its accreditation functions to the new National Accreditation Center. The center has an appropriate governance structure, with a supervisory board that includes some independent members, and will become fully independent of Tajikstandard on 1 January 2017.

14

Indirect expropriation occurs when the state interferes with the use of the investor’s property or its benefits, even if the property is not seized and the title not affected (e.g., if government actions force an investor to flee the country, deny an investor access to funds or profits, or compel the investor to sell or transfer at an unfairly low price).

6

Under subprogram 3, the government will continue the restructuring of Tajikstandard. 26. To provide employment opportunities for the increasing number of returning migrant workers, under subprogram 2 the government will transfer TJS210 million ($26.7 million equivalent) to a professionally managed microcredit refinancing fund that provides affordable local currency financing to businesses and farmers via qualified financial institutions, selected in accordance with commercial due diligence. The fund will help restore confidence in the rural economy, which has been hit hard in the recent crisis. The fund’s charter provides for a professionally qualified five-member board of trustees, of which three are independent. International financial institutions will nominate two members of the board of trustees and the government will nominate the other two members (that may not be related parties). The government and the international financial institutions will select the independent chairperson of the board of trustees. 27. The government also allocated additional grants for cofinancing of investments of businesses owned by women. Under subprogram 2 the Entrepreneurship Support Fund (ESF) introduced a long-term business plan with relevant performance indicators and further strengthened its accountability by disclosing its audited financial statements. The ESF will also appoint three independent members qualified in credit underwriting for the supervisory board. 28. Changes to subprogram 2. This subprogram includes three new actions compared with its original indicative scope: (i) reduction of unnecessary inspection bodies; (ii) reduction of advance tax payments; and (iii) a new TJS210 million ($26.7 million equivalent) refinancing credit fund for rural businesses and farmers, which replaced the indicative action on establishing a credit guarantee scheme for businesses owing to the government’s low creditworthiness. These additional actions address binding constraints that have become more prominent during 2016, and bring additional adjustment costs (para. 31) that justify an increased size for subprogram 2 from the original size of $20 million. In addition, the government has expedited the completion of the policy action on electronic filing that was included in subprogram 3. Other modifications include (i) deferring the publishing of the first RIA results to subprogram 3 since the RIA system is not yet fully in place and the new web portal for disclosure of normative acts is still being deployed and tested; (ii) deferring to subprogram 3 the strengthening of the investment promotion function, since priority has been given to more critical areas for the investment climate; (iii) deferring to subprogram 3 the appointment of an independent auditor to the ESF, since time is required from introduction of proper accounting standards; and (iv) deferring the establishment of a new national standardization body to focus the reform efforts in the new accreditation system. D. Development Financing Needs15 29. Development financing needs are substantial, particularly for social welfare expenditures (predominantly pensions) and capital expenditures. Social expenditures increased from 36.1% of the state budget in 2011 to 44.7% in 2015. ADB budget support under subprogram 1 helped to avoid cuts in social and capital expenditures in 2015 and 2016. 30. In 2016, growth is projected to remain below potential because of the continued recession in the Russian economy and weaker performance in other main trading partners. In June 2016, the government cut the 2016 budget in $57 million because of lower-than-expected revenues. Still, revenues in the first 9 months of 2016 were TJS390 million ($50 million) below

15

Economic Analysis (accessible from the list of linked documents in Appendix 2).

7

the target. Fiscal support is needed to prevent the reduction of critical social expenditures; address demographic challenges (i.e., increased pension demand and the return of migrants); and finance subprogram 2. The 2017 budget allocates 41.5% of available resources (or 13.7% of GDP) to social expenditures. 31. The government is expected to incur adjustment costs and revenue losses from the implementation of policy reforms under subprogram 2. Most of the costs will be incurred from increases in state budget allocations to (i) the refinancing credit fund for financing rural businesses and farmers; (ii) government institutions, to pay for higher electricity tariffs arising from the reduction of implicit subsidies in the tariffs; (iii) the low-income population to compensate for higher electricity costs (through the Utility Subsidy and the Targeted Social Assistance Program) arising from the new tariff policy; 16 and (iv) the ESF for financing of businesses. The government will also incur foregone revenue costs from reduced advance tax payments and from strengthening of the investment incentives regime. 32. The government has requested (i) a grant not exceeding $19.24 million from ADB’s Special Funds resources (Asian Development Fund [ADF]); 17 and (ii) a loan in various currencies equivalent to SDR22.43 million from ADB’s Special Funds resources (ADF), both to help finance its development program, in particular subprogram 2. The loan will have a 24-year term, including a grace period of 8 years, an interest rate of 1.0% per annum during the grace period and 1.5% per annum thereafter, and such other terms and conditions set forth in the draft financing agreement. The government does not have access to international sovereign debt markets and is closing the remaining financing gap by reducing less critical expenditures and using cash reserves. E. Implementation Arrangements 33. The SCISPM is the executing agency. The implementing agencies are the Ministry of Economic Development and Trade, the Ministry of Energy and Water Resources, the Ministry of Finance, the Ministry of Justice, the National Bank of Tajikistan, the SCISPM, the ESF, Tajikstandard, the Tax Committee, and the Committee for Women and Family Affairs. The Executive Office of the President is overseeing program implementation. 34. Financing proceeds for subprogram 2 will be disbursed in a single tranche to the Government of Tajikistan in accordance with ADB’s Loan Disbursement Handbook (2015, as amended from time to time) upon compliance with all policy actions for subprogram 2 and with ADB’s satisfaction with all conditions precedent to loan and grant effectiveness. The expected implementation period for subprogram 2 is January 2016–June 2017. The expected closing date is 31 December 2017.

III. DUE DILIGENCE A. Economic and Financial 35. The program supports economic growth through reforms that increase investment opportunities and improve the capabilities of firms to set up and improve value addition. The

16

The Targeted Social Assistance Program provides an unconditional cash benefit to eligible low-income households selected using a centrally administered proxy means test.

17 A country’s eligibility for ADF grants under the revised grant framework is determined by its risk of debt distress. The latest debt sustainability analysis determined that Tajikistan had a moderate risk of debt distress and was, therefore, eligible to receive 50% of its ADF allocation as grants.

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reforms are expected to help firms in Tajikistan reduce the cost of doing business, thus increasing their expected returns. The primary beneficiaries are current and future entrepreneurs (including farmers) and investors who will benefit from an improved business environment; women entrepreneurs are specifically targeted. The reforms are also expected to provide indirect benefits to the working population (employed and unemployed), as investments create jobs and increase wages. Reduced regulatory costs will attract more businesses to the formal sector, increasing the number of formal jobs. The government is expected to incur adjustment costs and revenue losses from the implementation of policy reforms under subprogram 2 (para. 31). 36. The average small and medium-sized firm incurs costs imposed by inspections and certification equivalent to 16.6% of profits.18 Reducing the high number of bodies with inspection functions (more than 30 in 2016) that do not monitor relevant risks will reduce costs for businesses, similar to the elimination of almost 500 outdated technical regulations under subprograms 1 and 2. A reduction of the coefficient for the calculation of profit tax from 1.1 to 1.0 supported under subprogram 2 will help reduce the tax burden for businesses. Further expansion of electronic tax declarations—in July 2016 more than 33,000 taxpayers were using electronic declarations, up from about 6,500 at the end of 2014—improves transparency, reduces opportunities for corruption, and cuts the cost of tax compliance. RIA will improve the quality of decision-making and reduce unnecessary costs to businesses arising from new policy and regulatory proposals. 37. The increased stability in legislation, particularly taxation, provided by the new law on investment as well as the new free electronic official gazette of normative acts will reduce the perceived risk of corruption and expropriation, and give businesses increased confidence to invest in Tajikistan. Public disclosure of gender-disaggregated statistics of business ownership and of incentives provided to investors on government websites increases transparency. 38. Some private businesses pay tariffs that are almost triple those paid by government organizations and state-owned enterprises, which successfully lobby to secure lower tariffs. The new cost-based tariff policy for electricity supported by the program is expected to bring benefits from (i) additional revenues to a system that charges consumers at a rate lower than required to fully recover costs, and thus is not yet self-sufficient; and (ii) fairer competition for private businesses through a more even tariff structure. The reform will improve the reliability of electricity supply and increase the sustainability of the energy sector. 39. Restructuring of Tajikstandard and the creation of the National Accreditation Center will reduce conflicts of interest and improve the institutional framework for firms applying for product quality certification in Tajikistan. Improving product quality is critical to reverse Tajikistan’s decline in international competitiveness (para. 6). 40. The local currency financing facilities supported under subprogram 2 are based on good banking principles and are expected to improve financing for capital investments, thereby helping to increase confidence in the rural economy and secure jobs. B. Governance 41. The government approved the Public Financial Management (PFM) Strategy, 2009–

18

International Finance Corporation. 2009. Business Environment in Tajikistan as Seen by Small and Medium Enterprises. Dushanbe.

9

2018 to increase the credibility and transparency of the state budget. 19 However, budget planning and execution, as well as treasury accounting and financial reporting, are substandard. Development partners continue to assist the government in addressing these weaknesses. PFM reform initiatives include the recent rollout of the Targeted Social Assistance Program to most districts in the country, the planned modernization of the automated financial management system, and the planned strengthening of accounting and reporting capabilities in state-owned enterprises. 42. An ADB procurement risk assessment showed that public procurement procedures and practices in the country are generally in compliance with international best practice, but issues and areas for improvement were identified for the transport, energy, and agriculture sectors (footnote 10). 43. Subprogram 2 continues to promote transparency and reduction of opportunities for corruption through (i) a reduction of unnecessary government inspection of businesses; (ii) a new RIA system that includes mechanisms for disclosure of newly proposed legislation; and (iii) a free, single repository for legal acts. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the SCISPM. C. Poverty and Social 44. Policy reforms are expected to have indirect medium- and long-term impacts on poverty, mainly through more sustainable economic growth and increased employment opportunities. Private investment is expected to increase because of the reduced cost of doing business, a more transparent tax regime, better investor protection, improved access to electricity, and improved availability of local currency funding for businesses. Reduced regulatory costs are expected to attract businesses to the formal sector and increase formal jobs; improved business productivity should increase profits and wages. 45. The program promotes equal opportunities for male and female entrepreneurs by addressing obstacles faced in particular by women entrepreneurs. Under subprogram 2, the government provided additional funds to businesses led by women for cofinancing investments, and disclosed gender-disaggregated data on women entrepreneurship. The program continues to monitor the share of women among entrepreneurs (estimated to be about one third in 2015), the number of women entrepreneurs that receive government financing for investments, and the number of female taxpayers filing electronic declarations. D. Safeguards 46. Subprogram 2 is unlikely to have adverse impacts on the environment, require involuntary resettlement, or affect indigenous peoples. It is categorized C for each of these safeguard areas.20 ADB consulted with private businesses and business associations regarding the program design and implementation. E. Risks and Mitigating Measures 47. Major risks and mitigating measures are described in detail in the risk assessment and

19

President of the Republic of Tajikistan. 2008. Public Finance Management Strategy of the Republic of Tajikistan for 2009–2018. Dushanbe.

20 Matrix of Environmental and Social Impacts (accessible from the list of linked documents in Appendix 2).

10

risk management plan.21 The government is working with international organizations to put in place a comprehensive macroeconomic reform program to address the fiscal and banking system risks (paras. 3 and 4). ADB conditions for loan and grant effectiveness (para. 49) aim to improve an understanding of risks in the banking sector and improving debt sustainability. Nonetheless, private investment will likely remain constrained by lower remittance inflows and by the banking crisis. High corruption and expropriation risks are likely to discourage private investments, although the program includes measures that promote transparency and discourages corrupt practices (para. 43). The PFM systems are weak, although fiduciary risks are being addressed (para. 41). The program’s overall risk is high, but the government has mitigating measures in place. Subprogram 2’s integrated benefits and impacts are expected to outweigh the costs.

IV. ASSURANCES AND CONDITIONS 48. The government and the SCISPM have assured ADB that implementation of subprogram 2 shall conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the financing agreement. 49. To mitigate the fiscal and banking system risks, the ADB financing for subprogram 2 will have the following conditions to effectiveness: (i) the government has completed, to the satisfaction of ADB, asset quality reviews of the five largest banks (Agroinvestbank, Amonatbank, Eskhata, Orien, and Tojiksodirotbank); and (ii) the government has adopted, to the satisfaction of ADB, a fiscal strategy that will credibly reduce the budget deficit, including the public investment program, to 2.5% of GDP in 2017 and assure that the budget deficit in 2018 and 2019 is consistent with debt sustainability.

V. RECOMMENDATION 50. I am satisfied that the proposed policy-based loan and policy-based grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve

(i) the loan in various currencies equivalent to SDR22,433,000 to the Republic of Tajikistan for subprogram 2 of the Investment Climate Reforms Program, from ADB’s Special Funds resources (Asian Development Fund), with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; for a term of 24 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft financing agreement presented to the Board; and

(ii) the grant not exceeding $19,240,000 to the Republic of Tajikistan, from ADB’s Special Funds resources, for the Investment Climate Reforms Program, on terms and conditions that are substantially in accordance with those set forth in the draft financing agreement presented to the Board.

Takehiko Nakao President

1 December 2016

21

Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK Impact the Program is Aligned with

Private investment, economic diversification, and competitiveness increaseda

Results Chain

Performance Indicators with Targets and

Baselines

Data Sources and Reporting

Mechanisms Risks Outcome Capabilities and opportunities of businesses to set up and expand higher value-added production increased Outputs 1. Reduced cost of doing business

a. Share of private investment in GDP increased to 6.0% in 2017 (subprogram 2) and 6.5% on average in 2015–2019 (2009–2013 baseline: average of 3.1%)

a. World Development Indicators database (gross fixed capital formation, private sector)

Private investment growth may be constrained by lower remittance inflows because of the deterioration of the economic situation in major economic partners and problems in the banking sector. Political pressure from vested interests may constrain policy choices during implementation.

b. Proportion of firms in Tajikistan that reports having an internationally recognized quality certification increased to at least 22% by 2017 (subprogram 2) and 25% by 2019 (2013 baseline: 17%; 2015 baseline: 14%) c. Estimate of regulatory quality

b increased to

–0.50 in 2017 (subprogram 2) and –0.25 in 2019 (2014 baseline: –1.00; 2015 baseline: –1.01) d. Share of women as a percentage of entrepreneurs

c increased

to 25.0% in 2017 (subprogram 2) and 30.0% in 2016–2019 (2010–2014 baseline: average of 19.9%) 1a. The number of government bodies with business inspection functions reduced by 40% by 2017 (2016 baseline: 31)

b. World Economic Forum’s Global Competitiveness Report c. World Bank’s Worldwide Governance Indicators (www.govindicators.org) d. Tajikistan National Statistics Committee, gender analysis 1a. Article 10 of the Law on Inspections, 2016

12 Appendix 1

Results Chain

Performance Indicators with Targets and

Baselines

Data Sources and Reporting

Mechanisms Risks 1b. Regulatory impact

analysis results (with gender analysis) published by regulators for new regulatory proposals that impact businesses by 2017 1c. More than 40,000 taxpayers (40% women) submitted electronic declarations through the Tax Committee’s website by 2019

1b. Ministry of Justice’s report and new government web portal 1c. Tax Committee’s report prepared upon ADB’s request

Limited institutional capacity and resistance to change in government agencies may delay implementation.

2. Strengthened protection for businesses

2a. State Statistics Committee disclosed gender-disaggregated statistics by 2016

2a. State Statistics Committee (http://www.stat.tj/en/Gender6/Genderbaz/)

2b. Access to all normative acts are free of charge in new web portal of normative acts by 2017

2b. Ministry of Justice’s report on new government web portal

3. Increased business innovation and productivity

3a. Average electricity tariff for private businesses reduced to the same level as that of public organizations by 2019 (July 2014 baseline: tariff for businesses 2.5 times more expensive)

3a. Tariff structure from the electricity distribution company

3b. Government financial support for local businesses through financial institutions reached 0.30% of GDP in 2017 (2014 baseline: 0.15% of GDP) 3c. Government grants provided to an average of 120 women entrepreneurs per year during 2015–2019 (2013–2014 baseline: average of 60 women entrepreneurs)

3b. Financial statements from government’s funds 3c. Committee on Women and Family Affairs’ annual reports

Appendix 1 13

Inputs

Asian Development Bank: SDR22,433,000 (ADF loan); $19,240,000 (ADF grant)

Assumptions for Partner Financing

Not applicable.

ADB = Asian Development Bank, ADF = Asian Development Fund, GDP = gross domestic product.

a Government of Tajikistan. National Development Strategy of the Republic of Tajikistan, 2016–2030. Unpublished.

b Reflects perceptions of the government’s ability to formulate and implement sound policies and regulations that

permit and promote private sector development. c Share of women among individual entrepreneurs that operate under a license or permit.

Source: Asian Development Bank.

Rainer Hartel Director

Public Management, Financial Sector and Trade Division Central and West Asia Department

Sean O’Sullivan Director General

Central and West Asia Department

14 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=47099-004-3

1. Financing Agreement

2. Sector Assessment (Summary): Public Sector Management

3. Contribution to the ADB Results Framework

4. Development Coordination

5. Economic Analysis

6. Country Economic Indicators

7. International Monetary Fund Assessment Letter

8. Summary Poverty Reduction and Social Strategy

9. Risk Assessment and Risk Management Plan

10. List of Ineligible Items

Supplementary Documents

11. Matrix of Environmental and Social Impacts

12. Matrix of Changes in Policy Matrix

http://www.adb.org/Documents/RRPs/?id=47099-004-3

Appendix 3 15

DEVELOPMENT POLICY LETTER

16 Appendix 3

Appendix 3 17

18 Appendix 3

Appendix 3 19

20 Appendix 4

POLICY MATRIX

Principal Objective

Subprogram 2 Subprogram 3 Indicative Actions

(completion by June 2019) Policy Action

(completion by June 2017) Results and

Status of Implementation

OUTPUT 1: REDUCED COST OF DOING BUSINESS

Reduced cost of business inspections

1. The government reduces and consolidates the number of bodies with inspection powers.

New ex-post conditionality. The law on business inspections entered into force on 1 July 2016. The law recognizes the existence of 31 bodies with inspection functions (in addition to others such as the Tax Committee, the Prosecutor-General, and the Agency for State Financing Control and Combating of Corruption). In November 2016, with ADB support, the government drafted a proposal to reduce and consolidate inspection bodies. The government is expected to approve the immediate removal of the authority to inspect businesses from seven bodies and the consolidation of the pedigree livestock inspectorate into the veterinary inspectorate. The government is expected to approve an action plan that will further reduce the number of bodies with inspection powers in subprogram 3. This action has been coordinated with the World Bank Group.

The government completes the merger of inspection bodies and removal of unnecessary inspection functions.

Reduced cost of tax compliance

2. To reduce the tax burden on businesses, (i) the Parliament approves the reduction of the coefficient for calculation of profit tax from 1.1 to 1.0 of last year’s profits; (ii) the Tax Committee issues an internal order establishing disciplinary measures for staff that request advance tax payments from businesses not permitted in the Tax Code; and (iii) the government implements a nation-wide communication campaign to increase awareness of taxpayers’ rights regarding advance tax payments.

Completed. Businesses pay profit tax in monthly or quarterly instalments based on projected profits for the period. The current Tax Code requires calculation of profit tax based on the previous year’s profits multiplied by a coefficient of 1.1 (article 157). This coefficient value results in excessive profit tax advance payments when compared with actual profits, particularly in the current economic slowdown. On 8 November 2016, the Parliament approved amendments to the Tax Code to reduce the coefficient used to calculate profit tax based on the last year’s profits to 1.0. This will reduce the working capital needs for thousands of businesses. In July 2016, the Tax Committee Chairman issued an internal order establishing disciplinary measures for tax officers that request advance tax payments from businesses in excess of those permitted in the Tax Code. During the summer of 2016, with ADB assistance, the SCISPM and the Tax Committee prepared and disseminated a simple one-page leaflet to taxpayers through media, banks, and

Appendix 4 21

Principal Objective





business associations with (i) basic information about taxpayers’ legal rights regarding advance payments for profit tax, and (ii) contact information for a temporary grievance mechanism managed by an independent party and supported by ADB.

3. The Tax Committee accepts electronic declarations (without asking the corresponding paper declaration) from at least 30,000 taxpayers (of which 30% are women owned businesses) through its website using a login/mobile password authentication system.

Completed. From 1 July 2015, the more than 280,000 taxpayers in the country have the option to apply to the Tax Committee for the login/mobile password authentication system. This new authentication system is free of charge and allows taxpayers to submit their tax declarations through the Tax Committee’s website (www.andoz.tj). The new system reduces costs of electronic submission of tax declarations. More than 33,000 taxpayers are currently electronically registered in the Tax Committee’s system and submitting electronic declarations without asking for the corresponding paper declaration, an increase from 6,500 as of end-2014. Of these taxpayers, about 32% are female, which is in line with the women’s share of entrepreneurs in the economy. The Tax Committee indicated that all of the 300 large taxpayers are filing electronically (which account for 45% of tax collections).

The Tax Committee accepts electronic declarations (without asking the corresponding paper declaration) from at least 50,000 taxpayers (of which 40% are women) through its website using a login/mobile password authentication system.

Reduced cost of product quality certification

4. The government (i) further reduces the number of goods subject to outdated (mandatory) technical regulations by removing those that do not meet international standards, and (ii) discloses the updated list of technical regulations.

Ex-post conditionality. As part of the WTO accession, technical working groups coordinated by Tajikstandard have been reviewing the list of mandatory technical regulations to remove those that are redundant and outdated. On 1 January 2016, there were 1,013 provisional technical regulations. During Subprogram 2 the government deepened the simplification effort and is expected to eliminate (in November 2016) an additional 363 outdated technical regulations. The list of remaining technical regulations (650) has been disclosed in Tajikstandard’s website.

The government eliminates unnecessary requirements for exporters of cotton at customs clearance: (i) certificate of conformity by Tajikstandard, (ii) certificate of origin, (iii) confirmation of deposit of advance payment in a local bank, and (iv) phyto-sanitary certificate.

22 Appendix 4

Principal Objective





Reduced cost of regulatory changes

5. The introduction of mandatory RIA in the rule-making process is submitted to Parliament for approval, including (i) preparation and disclosure of forward regulatory plans and RIA for all normative acts with potential impact on businesses adopted by the Parliament, Government, ministries, National Bank of Tajikistan, and other public bodies at the central government level; (ii) a system of electronic registries of forward regulatory plans, RIAs, and adopted normative acts; (iii) the mandate for a RIA oversight body or unit; and (iv) a single publication source for all normative acts adopted at the central government level that gives legal force to electronic version of normative acts.

Ex-post conditionality. An estimated 1,030 and 1,150 legal acts (laws, parliament resolutions, presidential decrees, and government resolutions) were adopted in Tajikistan during 2013 and 2014. In November 2015 the Government approved the blueprint

1 for the new RIA System

through Resolution no. 673, of 18 November 2015, which is expected to improve the quality of government decision-making and reduce unnecessary costs of doing business. With ADB assistance, the National Legislation Center has drafted RIA guidelines for regulators. The government completed two pilot RIAs: on improving access to finance and improving food safety through technical regulations. The government submitted to the Parliament the draft amendments to the Law on Normative Acts introducing RIA in the rule-making process and the mandate for a RIA oversight unit in the National Legislation Center. The Parliament is expected to approve these amendments in 2016 and the RIA System will become effective in 2017. The government is also expected to submit to Parliament amendments to the law on normative acts introducing (i) mandatory preparation and disclosure of forward regulatory plans for all normative acts with potential impact on businesses adopted by the Parliament, Government, ministries, National Bank of Tajikistan, and other public bodies at the central government level; (ii) a system of electronic registries of forward regulatory plans, RIAs, and adopted normative acts; and (iii) a single publication source for all normative acts adopted at the central government level that gives legal force to electronic version of normative acts.

The government publishes on the universal web portal the RIA results (including gender analysis) for all new legal acts eligible for RIA and proposed within a 1-year period.

OUTPUT 2: STRENGTHENED PROTECTION OF BUSINESSES

Improved disclosure of legislation

6. The government establishes a web portal with universal, free of charge access to the database of normative acts (forward regulatory plans, RIA reports, draft normative acts, and adopted normative acts).

Ex-post conditionality. With ADB assistance, the Ministry of Justice is procuring a software solution for a web portal with universal, free of charge access to the database of normative acts (including forward regulatory plans, RIA reports, draft normative acts, and adopted normative acts). The Ministry of Justice approved the technical and functional

Appendix 4 23

Principal Objective





specifications for the software solution and in December 2016 is expected to approve the selection of the vendor. The web portal is expected to become operational in 2017. The government is expected to approve funding (through a resolution) for maintenance of the database of normative acts for 2017-2020.

More stable regime of investment incentives and promotion

7. The government discloses all incentives provided to investors to the general public.

Completed. On 15 March 2016, the President of Tajikistan enacted the law on investments no. I299. As mandated by the law, in mid-2016 the SCISPM disclosed on its website and media the list of investors that received government incentives approved in 2014 and 2015.

The government approves legislation with clear methods for determining compensation in case of direct and indirect expropriation. The government restructures the investment promotion function, with a clear and long-term results framework and with appropriate funding. The investment promotion agency publishes on its website its annual performance report.

Improved transparency of business ownership

8. The government publishes an electronic report with gender-disaggregated statistics of business ownership for 2011–2015.

Completed. In 2016, the Tax Committee shared the basic data with the State Statistics Committee who disclosed annual gender-disaggregated statistics of entrepreneurship on its website (http://www.stat.tj/en/Gender6/Genderbaz/). In 2015 the proportion of entrepreneurs who are women was estimated to be about one third.

OUTPUT 3: INCREASED BUSINESS INNOVATION AND PRODUCTIVITY

Improved access to electricity by businesses

9. The Government (i) carries out public consultations in the course of development of a new tariff policy for electricity that is in line with good international practice and eliminates cross customer subsidies; (ii) adopts and makes effective this new tariff policy for electricity and

Ex-post conditionality. On 6 October 2015 the President of the Republic of Tajikistan issued the Order no. 594/2015 instructing the government to develop and adopt a new tariff policy for electricity that would become effective on or before 1 January 2017. The new tariff policy is expected to be based on costs of service provision and to gradually eliminate cross customer subsidies. This will allow fair

The government (i) implements a time-bound tariff adjustment plan to reach full cost recovery by 2020 for each end user customer category, and (ii) increases allocation in the 2019 state budget for subsidies to low income consumers to mitigate

24 Appendix 4

Principal Objective





decides on gradual tariff adjustment to cost recovery levels; and (iii) increases allocation in the 2017 state budget for subsidies to low income consumers to mitigate the impact of tariff increases (a total of at least TJS80 million).

competition among businesses and improve sustainability of the power sector which is critical for provision of reliable electricity to businesses. The government increased to TJS80 million the allocation from the 2017 state budget to the TSA program and to help mitigate the impact of tariff increases on low-income consumers. The government is also expanding the coverage of the TSA program to 40 (out of 66) districts in the country. In November 2016 the government submitted the draft policy for public consultations. The government is expected to approve a resolution enacting (i) the new policy for electricity tariffs that gradually removes cross-customer tariff subsidies; (ii) effective from 1 January 2017, an increase of tariffs for certain customer groups whose tariffs were well below the average tariff: budgetary institutions, utility and sporting complexes, electrical transport, water pumps and irrigation pumping stations, repair and production centers of the Irrigation Agency, reclamation vertical wells and pumping stations, and institutions and agencies of administrations financed from the Government budget; and (iii) the state budget allocation for subsidies to low-income consumers for 2017-2020.

the impact of tariff increases. Barqi Tojik publishes on a monthly basis in mainstream media and its website (a) payment performance from 10 worst paying customers (legal entities), and (b) overall collection rate.

Improved product quality infrastructure system

10. The National Accreditation Center becomes fully independent from Tajikstandard and receives funding from the state budget.

Completed. The NAC started operations on 1 January 2016. The governance structure of the NAC includes an accreditation council with members from the private sector, government, and independent stakeholders, without dominance of any single party. The NAC still reports to Tajikstandard until 31 December 2016, after which it will become fully independent. The government allocated funding for NAC’s operating and investment costs in the state budget for 2017. Tajikstandard transferred key resources required for NAC to independently perform its functions. The NAC is mostly funded by accreditation fees. ADB and PTB are providing technical assistance to NAC.

The national metrology body introduces modern equipment to facilitate international quality accreditation and certification to help develop export-oriented value chains benefitting local producers.

Increased financing for investment

11. The government improves the Entrepreneurship Support Fund’s long term results framework and

Ex-post conditionality. The Fund approved a long term results framework and disclosed the

The government increases the annual budget support to the Entrepreneurship Support

Appendix 4 25

Principal Objective





internal control function, including the disclosure of the 2015 audited financial statements and the appointment of independent members of the supervisory board.

2015 audited financial statements through its website (http://fdstj.org). By end of 2016 the Fund is expected to appoint at least three independent members (with experience in credit underwriting) for the supervisory board.

Fund’s credit portfolio. The Entrepreneurship Support Fund (i) introduces international financial reporting standards, (ii) appoints an independent auditor and (iii) publishes on its website its annual performance report and annual audited financial statements.

12. The government transfers at least TJS210 million in assets or cash to a microcredit refinancing fund duly established and operating in accordance with a charter that sets out a governance structure aligned with international good practice, and that has all necessary licenses to operate, including a license from NBT to finance rural development.

New ex-post conditionality. The President of the Republic of Tajikistan is expected to issue an order allocating at least TJS210 million for a fund established on behalf of KfW; these resources are related with the reimbursement of KfW-funded loans which were used under a rural credit project. The objective of the fund is to provide financing in local currency to food production businesses and farmers in rural areas through eligible financial institutions, thereby reducing the real sector exposure to foreign exchange risks. This will help increase confidence in the rural economy and secure jobs. The National Bank of Tajikistan is expected to (i) amend the microfinance regulations or issue a waiver to increase the lending limits applied to the fund’s wholesale lending and (ii) provide a full operating license to the fund. ADB and KfW are assisting with the incorporation, charter, governance, standard operating procedures and policies of the fund, and subsequently with its operations.

13. The government allocates grants to at least 80 businesswomen for co-financing of investments (TJS2 million in 2016).

Completed. Under its 2016 grant program, the Committee for Women and Family Affairs received applications for grants throughout the first half of 2016. The selection was finalized in October 2016. The disbursements are taking place throughout the next few months.

The government facilitates the expansion of (i) business services centers, and (ii) grants to women entrepreneurs, including for medium and long-term business management courses. For 2017–2018, the government is expected to increase the budget for grants

26 Appendix 4

Principal Objective





to TJS3 million (for a total of 120 grants).

ADB = Asian Development Bank; NAC = National Accreditation Center; RIA = regulatory impact analysis; SCISPM = State Committee for Investments and State Property Management; TSA = Targeted Social Assistance; WTO = World Trade Organization. 1 A blueprint is a document that proposes the specifications for a specific system or institution to perform certain functions and meet certain objectives. The

document includes governance arrangements, business objectives and rules required for a target institution to effectively perform its function, with detailed business model and processes, implementation plans, location, cost estimates and financing plans, monitoring and evaluation arrangements.