Country Risk Profile – Tajikistan
Overview
Tajikistan is a landlocked country in Central Asia. It covers an area of 142,326 km² and has a population of 9.9 million. It is bordered by Afghanistan, Uzbekistan, Kyrgyzstan, and China. Dushanbe is the country’s capital and largest city. The main population centres are in the valleys in the south and north of the country. Mountains cover more than 90% of Tajikistan, with more than half of the country at an altitude of 3,000 metres.
Tajikistan, a former Soviet republic, declared itself an independent sovereign on 9 September 1991. A civil war broke out in May 1992, ending in June 1997. Since the end of the war, political stability and foreign aid have enabled the country’s economy to develop, but Tajikistan’s economy and infrastructure remain in a poor state. The country has been ruled in an authoritative way since 1992 by President Emomali Rahmon. Corruption is widespread, as are human rights violations, including torture, arbitrary imprisonment, worsening political repression, and a lack of religious freedom and other civil liberties. Tajikistan is categorised as a consolidated authoritarian regime by Freedom House, with a score of 1/100.
Tajikistan is one of the poorest nations in Central Asia. It is a developing country with a transitional economy heavily dependent on remittances, aluminium, and cotton production. The country has significant natural resources such as water, coal, mercury, gold, silver, salt, limestone, marble, and clay.
Political Risk
Domestic politics
President Emomali Rahmon’s authoritarian regime severely restricts political rights and civil liberties. The political opposition has been crushed by a sustained campaign of repression in recent years, and the government exerts tight control over religious expression and activity. In 2015, Rahmon took advantage of an attacked planned by a sacked deputy defence minister to ban Tajikistan’s last major opposition political party. In December 2015, he further strengthened his position by having himself declared ‘Founder of Peace and National Unity, Leader of the Nation’, with unlimited mandates and lifelong immunity, thanks to constitutional amendments ratified in a referendum in 2016.
Nepotism
Wealth and authority are increasingly concentrated in the hands of the President and his family. Rahmon’s family holds significant control over the economy and its key public and private assets, including the state-owned Tajikistan Aluminium Company (TALCO) and the country’s main airline, Somon Air. While low-level corruption is sometimes punished, high-level corruption remains pervasive within the government. The 2022 Corruption Perception Index ranked Tajikistan 150th out of 180 countries.
Freedom of speech and civil society
With the aim of suppressing independent institutions, the regime criminalised the dissemination of false information about the armed forces in 2022. This came in a year in which the Tajik military was used, within the framework of the Collective Security Treaty Organisation (CSTO), to curtail the January unrest in Kazakhstan, violently suppress the May protests in the Gorno-Badakhshan Autonomous Oblast (GBAO), and engage in an armed conflict with Kyrgyzstan in September. These events, along with the government’s continued refusal to recognise the Taliban government in Afghanistan, have been used by Rahmon to portray himself and his family as the guarantors of peace and stability in Tajikistan, and to justify tightening restrictions on civil rights as necessary to maintain national unity.
Rahmon’s regime also exerts pressure on the independent media and continues to monopolise the country’s information space. Journalists, dissidents, and activists are arrested or imprisoned on charges of extremism, links with banned opposition parties, or connections with the GBAO, while those based outside Tajikistan risk abduction and forcible extradition. Even relatives of opposition leaders and journalists in exile face harassment.
NGOs operations
NGOs must register with the Ministry of Justice and can be closed down for minor technical violations. NGOs must disclose funding from foreign sources. Foreign funds must be registered in a state registry before organisations can access them, and the government oversees operations supported by these funds. Under legislation implemented in 2019, NGOs must maintain their own websites and publish reports that comply with vaguely worded financial reports to prove they have no links to “terrorist financing” or “money laundering”.
Economic Risk
World Bank data shows that despite regional instability and global inflation, Tajikistan experienced strong economic growth and record-low inflation in 2022. Economic activity was supported by remittances flows and the expansion of services and industrial production. Real GDP grew by 8% in 2022.
Tajikistan’s prudent monetary policy and appreciation of the exchange rate have enabled the country to achieve the lowest inflation rate in Central Asia. By the end of 2022, consumer price inflation had fallen to just 4.2%, and the trend continued into the first half of 2023. Despite the rise in imports of consumer goods, the external position remained strong thanks to migrant remittances and foreign investments.
However, according to the World Bank, challenges remain. The financial sector is struggling with bad loans, over-reliance on the US dollar, and risky investments in state-owned enterprises. Small businesses struggle to obtain financing due to limited options and tight collateral requirements. While external subsidies have helped offset revenue loss due to the adoption of the new tax code, authorities have maintained fiscal discipline by limiting capital spending. In 2022, vulnerable households largely relied on labour migration as an important source of income, contributing to a decline in the poverty rate to 13.4% below the international poverty line of $3.65. Furthermore, unemployment has been steadily rising since 2016, reaching 7.8% in 2022.
The World Bank predicts that Tajikistan’s growth prospects will not be as strong as its recent performance record. It is expected to be at 6.5% in 2023 and 4.5-5% in the medium term.
Business climate
The US State Department reports that Tajikistan is a difficult place to do business. It presents potential high-risk, high-reward opportunities for foreign investors with experience in the region, a long-term investment horizon, and the patience and resources to conduct significant research and due diligence.
Authoritarian policies, bureaucratic and financial hurdles, widespread corruption (Tajikistan ranked 150th in the 2022 Corruption Perceptions Index), a flawed banking sector, and countless business and tax inspections greatly hamper investors. Furthermore, as the World Bank points out, while private sector participation in Tajikistan’s economy is relatively high, its dynamism is quite low, notably due to low entry rate, low productivity, limited integration to trade, low incidence of innovation, and limited capabilities. These obstacles are reinforced by three sets of barriers: barriers to competition, barriers to foreign direct investment, and barriers to trade.
Despite these challenges and risks for potential investors, Tajikistan is seeking to strengthen its trade and investment links and has made modest progress on trade facilitation and tax reform to improve its investment climate in recent years. President Emomali Rahmon seeks to encourage private sector-led growth, and national development strategies give priority to attracting investment.
Nevertheless, the business climate presents a high risk for investors.
Security Risk
Organised crime
The country’s main concern is the spread of organised crime networks from Afghanistan, particularly in the heroin and opium markets, as well as the infiltration of radicalised Islamist groups from Afghanistan, Uzbekistan, and Pakistan.
Corruption is widespread within the State apparatus, and State-embedded actors are directly or indirectly involved in criminal markets. Control of illicit activities extends to the highest levels of government. The political elite is known to facilitate criminal markets such as drug trafficking. In general, companies close to the political leadership enjoy privileged access to key sectors as well as government contracts with the police, judiciary, and security services.
Tajikistan has several mafia-style groups, each with regional chapters, operating within and outside its borders. These groups originate from former guerrilla opposition organisations and overlap with radical Islamist groups with ties to international terrorism. They exert substantial control along the borders, and in criminal enclaves. Most groups are primarily involved in drug trafficking and have been integrated into the state administration.
Inter-state conflict
Tensions with neighbouring Uzbekistan periodically result in border skirmishes, while the Tajik-Afghan border zone is largely porous and populated by militants.
Tensions have been high along the border between Tajikistan and Kyrgyzstan for many years. Around a third of their border is undelimited, and disputes over land and water rights in these border areas have fuelled local disputes that eventually escalated into clashes between the two countries’ armies in late April 2021, killing over 50 people, and in mid-September 2022, killing around 100. Since the September war, the two sides have accused each other of bringing additional troops and weapons to the border area. The risk of another war between Tajikistan and Kyrgyzstan is high.
Border security
Due to a lack of resources and equipment, Tajikistan’ military’s border force tends to rely on the Russian military, which maintains a presence in Tajikistan.
The Fergana Valley, where the borders of Tajikistan, Uzbekistan, and Kyrgyzstan meet, is fertile ground for conflict, as the borders drawn during the Soviet era ignored the ethnic structure and culture of the valley’s inhabitants.
The border between Tajikistan and Kyrgyzstan presents a particular risk of conflict.
Geopolitical Risk
China
Tajikistan’s geography makes it important to China in terms of regional security, transit routes, and hosting its military base. Tajikistan officially joined the Belt and Road Initiative in 2018. By 2022, China was Tajikistan’s largest lender, holding around 70% ($2 billion) of Tajikistan’s external debt ($3.3 billion). In 2020, China opened a military base in Tajikistan’s autonomous GBAO region, transforming the country’s regional and domestic security architecture, which had previously relied exclusively on Russian security assistance and military deployment in southern Tajikistan. China’s economic and political role in the country is set to expand further.
Russia
As a former Soviet republic, Tajikistan enjoys a special relationship with Russia. Moscow is Dushanbe’s main trading partner, with Russia investing in the energy, manufacturing, metals, mining and construction, air and rail transportation, high technology, and agriculture. The fact that Tajikistan relies heavily on remittances from migrants workers in Russia and that its security depends on the presence of a Russian military base of 7,000 troops in the country, gives Moscow significant power over the Tajik government. As a result, Dushanbe’s relations with the West and its security policies are still, to some extent, dictated by its relations with Moscow, even if they may evolve in a different direction due to challenges posed by the war in Ukraine.
Conclusion and forecast
Political change is highly unlikely in the coming months. President Emomali Rahmon has ruled the country in an authoritarian manner since 1992 and further tightened his grip on power in 2015, banning the last opposition party and declaring himself ‘Founder of Peace and National Unity, Leader of the Nation’. Corruption and nepotism remain endemic. The harsh repression of independent media and dissent will remain, leaving no space for opposition or the development of civil society.
On the economic front, growth is expected to be 6.5% in 2023 and 4.5-5% in the medium term. However, the outlook for 2023 and the medium term is largely influenced by the uncertain regional geopolitical environment, the tightening of global financial conditions and persistent weaknesses in accelerating structural reforms.
Organised crime will remain the main concern in the months ahead, facilitated by the political elite. Relations with Uzbekistan and Kyrgyzstan need to be closely monitored, as tensions with these two countries can lead to deadly border skirmishes and even war. As long as Tajikistan does not increase its defence budget, the country will continue to depend on the Russian army to protect its borders.
Russia and China will remain extremely involved in Tajikistan over the coming month, both economically in the case of China and economically and in terms of security in the case of Russia. However, with Moscow's attention and resources focused on Ukraine, Tajikistan may be tempted to develop new partnerships.