Outlook for 2011-12

The Economist Intelligence Unit expects Tajikistan to face an ongoing threat of instability in 2011-12. Regional Islamist groups show an increasing capability of staging attacks within Tajikistan. High levels of poverty and unemployment will provide a source of popular grievance. The goal of structural reform will have to be balanced against preventing a rise in social unrest. Real GDP is forecast to grow by 7% in 2011, following growth of 6.5% in 2010, as global economic trends boost demand for Tajikistan's main exports. Growth will slow slightly in 2012 as commodity prices trend down. Inflation will also be dictated by global price trends in 2011-12, and we forecast average annual inflation of around 8%, compared with 6.4% in 2010. Higher food and fuel import prices in 2011 will be offset by robust export revenue stemming from high global aluminium and cotton prices. We therefore forecast that the current-account surplus will increase in 2011, before falling in 2012 as commodity prices decline.

The political scene

The president, Imomali Rahmon, appears unconcerned by the wave of popular protest against authoritarian and nepotistic regimes in the Middle East and North Africa (MENA), and has continued to appoint family members to senior official posts. Nevertheless, new laws are being introduced to boost the powers of the security services, and the authorities continue to clamp down on what they perceive as radical Islamist activity. These moves highlight the continued uncertainty of the security situation.

Economic policy

The state budget recorded a surplus of 0.9% of GDP in the first 11 months of 2010, although end-of-year spending is likely to have pushed it into deficit over the year as a whole. The budget for 2011 again targets a deficit of 1% of GDP, with one-fifth of total spending allocated to the Roghun hydropower project.

The domestic economy

Real GDP expanded by 6.5% in 2010, and industrial output rose by 9.7%. Industry was helped by higher coal output and by a 5% increase in the raw cotton harvest, which boosted production of cotton fibre. Consumer price inflation averaged 6.4% over 2010 as a whole, although it accelerated to 9.8% year on year in December, pushed up by higher global food and fuel prices.

Foreign trade and payments

Goods exports rose by 18.3% in 2010, to US$1.2bn, whereas imports rose by only 3.5%, to US$2.7bn. The trade deficit, of US$1.5bn, was therefore 6.2% smaller than in 2009. Exports were pushed up by high global prices for Tajikistan's main commodity products of aluminium and cotton.

Total area

143,100 sq km

Population

7.37m (end-2008)

Main towns

Population in '000 (2002)

Dushanbe (capital): 562

Khujand: 149

Kulob: 78

Qurghonteppa: 60

Istaravshan: 51

Khorog: 28

Climate

Continental high mountain

Languages

Tajik, a variant of Persian, is the official language and the one most widely used. Russian is also used, especially in urban areas, and Uzbek is the main language for about 25% of the population. The majority of people in the mountainous Badakhshan province speak distant variants of Tajik, which could be categorised as separate languages. Other languages-such as Kyrgyz, Tatar, Turkmen, Uighur and Korean-are also spoken by their respective minority groups

Weights and measures

Metric system

Currency

The Tajik rouble, introduced in May 1995, was replaced in October 2000 by the somoni (S), at a rate of S1:TR1,000

Time

Five hours ahead of GMT

Fiscal year

Calendar year

Public holidays

January 1st (New Year's Day); February 23rd (Army Day); March 8th (International Women's Day); May 1st (International Labour Day); May 9th (Victory Day); September 9th (Independence Day)

Official name

Republic of Tajikistan

Constitution

On August 31st 1991 the Soviet Socialist Republic of Tajikistan was renamed the Republic of Tajikistan. On September 9th 1991 it declared itself independent from the Soviet Union. The president's term of office was increased from five to seven years through a constitutional amendment passed in a referendum held on September 26th 1999

National legislature

A bicameral parliament consisting of a 63-seat lower house, the Council of Representatives, and a 33-seat upper chamber, the National Council

Electoral system

Universal suffrage over the age of 18

National elections

November 6th 2006 (presidential); February 28th 2010 (legislative; lower house of parliament). Next presidential election due in 2013; next legislative election due in February 2015

Head of state

The president, Imomali Rahmon (formerly Rahmonov), first elected on November 5th 1994 and re-elected for a third term on November 6th 2006

National government

The prime minister is appointed by the president, who is formally head of the executive branch

Main political parties/factions

People's Democratic Party (PDP; pro-president); Islamic Renaissance Party (IRP); Democratic Party (DP); Communist Party; Socialist Party; Social Democratic Party (SDP); Agrarian Party; Party of Economic Reforms (PER)

Leading members of the Council of Ministers

Prime minister: Aqil Aqilov

Deputy prime ministers:

;Murodali Alimardon

;Asadullo Ghulomov

;Khayrinisso Mavlonova

Key ministers

Agriculture: Qosim Qosimov

Communications: Bek Zuhurov

Culture: Mirzoshohrukh Asrori

Defence: Sherali Khayrulloyev

Economic development & trade: Ghulomjon Bobozoda

Education: Abdujabbor Rahmonov

Energy & industry: Sherali Gul

Finance: Safarali Najmuddinov

Foreign affairs: Hamrokhon Zarifi

Health: Nusratullo Salimov

Internal affairs: Abdurahim Qahhorov

Justice: Bahktiyor Khudoyorov

Labour & social security: Shukurjon Zuhurov

Land reclamation & water resources: Said Yoqubzod

Transport: Nizom Khakimov

Chairmen of state committees

Investment: Ismat Eshmirzoyev

National security: Saymumin Yatimov

Central bank governor

Sharif Rahimzoda

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In view of external and internal factors, the Economist Intelligence Unit expects Tajikistan to face a threat of instability in 2011-12. Although the president, Imomali Rahmon, has been credited with restoring peace and stability following the civil war in 1992-97, and memories of the war remain a force for restraint among older people, popular discontent has been rising. There is also a risk that insurgent activity in Afghanistan, or the ethnic unrest in the Kyrgyz Republic in June 2010, could spread to Tajikistan. Tajikistan is less ethnically mixed than the Kyrgyz Republic and Uzbekistan, but has a sizeable ethnic Uzbek minority. Although outright inter-ethnic conflict in the Kyrgyz Republic has receded, the situation remains unstable, and a possibility of ethnic conflict spreading to neighbouring countries with mixed populations remains. The recent spread of unrest in the Middle East and North Africa (MENA) is unlikely to have any direct contagion effect on Tajikistan. However, given rising instability within the country, any popular uprising in another member of the Commonwealth of Independent States (CIS) would increase the possibility of unrest, as it would be more likely to have a demonstration effect on the population.

Mr Rahmon has intensified official harassment of those perceived to pose a threat to stability. However, public dissatisfaction has been rising because of the government's failure to resolve pressing social and economic problems. Public disaffection with the authorities will continue to increase, and widespread economic hardship, in a context of high unemployment and lower remittance inflows than in 2007-08, will exacerbate social tensions. More Tajiks will seek work abroad as economic prospects in Russia and Kazakhstan pick up, and the departure of these workers-overwhelmingly young men-will go some way towards removing a potential source of social unrest. However, Tajikistan will increasingly have to rely on international financial assistance, and the authorities' management of the situation will be crucial in maintaining stability.

In view of Mr Rahmon's crackdown on opposition voices, the lack of political and other public channels for the expression of dissent further undermines long-term prospects for stability. Although some opposition parties are allowed to operate, they have been increasingly constrained by harassment of opposition figures and by state interference in media outlets. In addition, the often heavy-handed methods of the authorities in strengthening state control over religious practice and cracking down on signs of Islamist extremism risk boosting support for radical Islamist movements such as Hizb ut-Tahrir (Party of Freedom) and the banned Islamic Movement of Uzbekistan (IMU). There are signs that radical Islamist activity is increasing-although the authorities are prone to cracking down on any opposition under the guise of quelling terrorism. A suicide bomb attack on a police station in September 2010 and attacks on troop convoys in October are likely to be linked to Islamist extremists, highlighting the threat of instability and the possibility of a spillover of insurgent activity from Afghanistan.

Despite the heightened risks, our baseline scenario is that Mr Rahmon will remain in power in 2011-12. Sporadic clashes with regional groups hostile to the regime will probably continue, and the opposition could succeed in mounting limited protests against the regime. However, the authorities are likely to deal harshly with any extensive social unrest. A repeat of the unrest seen in the Kyrgyz Republic is also unlikely, as the response of the security forces to any public discontent would be much harsher. The West and Russia are keen to see stability preserved in Tajikistan, in view of the situation in neighbouring Afghanistan. The West is therefore unlikely to be outspoken in its criticism of the regime, and Russia would offer military assistance to Mr Rahmon if necessary.

Mr Rahmon was last elected in November 2006; the next presidential election is due in 2013. We therefore expect that he will remain in power for the rest of the forecast period. Although in theory Mr Rahmon is ineligible to stand for another term, the constitutional legitimacy of his current term is questionable, and constitutional term limits are likely to be amended, or ignored, to allow his continuing rule. He is likely to stand for, and win, re-election in 2013. There appear to be no significant threats to his rule from within the elite, and opposition voices are sidelined. Nor does he appear to have any significant health issues, and his relative youth (he is 58) tells in his favour. The one significant threat would be a deterioration in the security situation to such an extent that members of the elite-probably from the security services-deemed that he could no longer control the polity. This might lead to a "palace coup", resulting in his ouster. A rise in social unrest could also provoke such a scenario. However, we view both outcomes as unlikely.

A parliamentary election is not due until 2015, but we expect it to follow the trend of recent elections, whereby the success of opposition parties will be limited by administrative control over the election campaign, a lack of media freedoms, and irregularities in the vote-count. We do not expect any moves towards democratisation over the medium term.

Foreign policy in the immediate term will focus on events in the Kyrgyz Republic and Uzbekistan. The authorities will be keen to prevent any spread of violence from the Kyrgyz Republic into Tajikistan. Relations with Uzbekistan will centre on disputes over Tajikistan's plans to expand its hydropower sector, which Uzbekistan fears will affect irrigation for its cotton crop. There have been increasingly frequent, albeit small, demonstrations in Tajikistan and Uzbekistan recently, with Uzbeks protesting over pollution from the aluminium smelter in Tajikistan, and Tajiks angry at what they see as a deliberate economic blockade, with freight trains destined for Tajikistan being held up at the Uzbek border (although this now appears to have largely ended). These disputes risk flaring up into open ethnic conflict, particularly in view of the outbreak of ethnic violence in the Kyrgyz Republic. Tajikistan has a minority ethnic Uzbek population numbering around 15% of the total population.

Military and economic relations with Russia will continue to strengthen. A dispute with Rusal, a Russian company, over an important hydroelectricity project at Roghun revealed some tensions in the bilateral relationship. However, Russia has a permanent military base in Tajikistan and is likely to remain keen to increase its investment in the country's energy sector, although investment plans may suffer delays as a consequence of the international financial crisis. Russia will also maintain substantial political leverage over Tajikistan, as an estimated 1m-1.5m Tajik citizens work in Russia. The forcible return of even a small proportion to Tajikistan could entail serious political and economic difficulties for Tajikistan, and thus for Mr Rahmon's regime. The influence of China, which has become a significant lender to Tajikistan, is also likely to grow. Chinese credit and firms are increasingly involved in infrastructure schemes in the country. Tajikistan will simultaneously pursue close ties with the US, particularly with regard to securing financial and security assistance. However, relations with Tajikistan's immediate neighbours, particularly Uzbekistan, will remain tense, owing to disagreements over border issues, and access to electricity and water resources.

In recent years the government has broadly followed the reform prescriptions of the international financial institutions (IFIs), enabling Tajikistan to record robust economic growth and stabilise its currency. In the medium term, however, government policy is likely to be dominated by periodic bouts of crisis management, with Tajikistan reliant on the support of international aid agencies as it attempts to avoid a repeat of the energy and food crises seen in the winter of 2007/08. Tajikistan remains dependent on international aid to tackle issues of food supplies, infrastructure repair and capacity-building.

Following advice from the IFIs-central among them the IMF-for several years Tajikistan has been pursuing a policy of keeping the fiscal stance tight to help to contain external debt. In April 2009 it reached agreement with the IMF for a US$116m loan under a three-year poverty reduction and growth facility (PRGF), which has since been replaced by an extended credit facility (ECF) and increased to US$161m. However, in view of the economic hardship caused by the global economic downturn, the long-term goal of structural reform will need to be balanced against preventing a rise in social and political instability. The effects on the population of structural reforms, such as raising electricity tariffs closer to cost-recovery levels, will need to be offset by significant increases in spending on social security, education and healthcare. The authorities are likely to keep increasing state-sector wages, pensions and other benefits, as they did in 2010.

Because of the energy crisis, which continued throughout 2008 and into early 2009, the authorities place greater emphasis than before on plans to develop energy resources and infrastructure, under which the government is pursuing a debt-based strategy, including large-scale borrowing on concessional terms from China. However, progress on the country's largest project, the construction of a hydroelectric plant at Roghun, is likely to remain slow until a foreign investor is found, despite government efforts to finance the construction domestically.

The tax base remains narrow, with a large share of revenue still linked to the performance of the aluminium and cotton sectors, which presents an ongoing risk to the government's fiscal targets. The 2010 budget targeted a deficit of 1% of GDP, compared with 0.5% in 2009. Data for January-November 2010 show a surplus of 0.9% of GDP, but we estimate that higher spending in December, as government institutions rushed to use up their spending quotas, will have pushed the budget into a small deficit over 2010 as a whole. The 2011 budget approved by parliament in October 2010 targets a deficit of 1% of GDP. High levels of social spending will put pressure on the budget in 2011-12, but we expect the deficit to remain small, as a pick-up in household consumption-owing to higher inflows of remittances-pushes up receipts from value-added tax (VAT). International aid will continue to meet some of the government's spending requirements in 2011-12.

In 2009 the National Bank of Tajikistan (NBT, the central bank) made four cuts in the refinancing rate, from 13.5% at end-2008 to 8% in July. This was partly to reduce the cost of government-backed loans to state enterprises, but was also an attempt to encourage bank lending to sustain domestic demand. In October 2010 the NBT raised the rate to 8.25%, in view of an acceleration in consumer price inflation, and raised it again in February 2011, to 9%. However, in the light of the undeveloped nature of the financial sector, movements in the refinancing rate have little impact on the real economy, so external factors such as global trends in energy and food prices are the main influences on inflation. Weak institutional capacity and the NBT's low capitalisation will continue to constrain its conduct of monetary policy throughout 2011-12. Modest improvements can nevertheless be expected by end-2012, as banking sector reforms should gradually lead to greater operational efficiency of the country's banks and increased public confidence in the sector.

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Rising inflows of remittances, as the Russian and Kazakh economies posted a more robust performance, helped to boost growth in 2010, as did higher export revenue, owing to high global prices for Tajikistan's main exports, aluminium and cotton. Real GDP growth was 6.5% in 2010, following growth of 3.4% in 2009. Rising remittances will boost household consumption in 2011-12, although remittances will remain lower than in 2008. Industry performed poorly in 2009, with output contracting by 6.3%. Rising prices for aluminium and cotton exports on global markets reversed this trend in 2010, and commodity export prices will remain at historically high levels in 2011-12, despite an expected fall in 2012. Industry will continue to be susceptible to problems in the power sector, with Tajikistan facing periodic blackouts. Tajikistan is struggling to secure foreign investment for its most significant hydropower project, but some limited financing will come from government sources and the domestic private sector. This will help to boost construction, as will foreign financing for smaller infrastructure projects. We expect that growth will pick up in 2011, to 7%, as faster growth in Russia and Kazakhstan boosts inflows of remittances. Growth is expected to slow in 2012, to 6%, as lower commodity export prices hamper investment.

Trends in global food and energy prices will continue to influence inflation in Tajikistan, as the country is forced to import much of its food and fuel needs. Global raw materials prices also affect inflation, as infrastructure construction necessitates capital goods imports. Trends in global commodity prices had an inflationary impact in 2010, and rising global prices, particularly for fuel and foodstuffs, will also push up inflation in 2011. We forecast average annual inflation of 9% in 2011, compared with 6.4% in 2010. Inflation will fall slightly in 2012, to 7%, as global inflationary pressures abate. Together with external influences on its prices, Tajikistan regularly experiences adverse weather conditions, which puts upward pressure on prices; such an eventuality therefore poses an upside risk to our inflation forecast.

A rise in remittances from Tajiks working abroad in 2011-12 will strengthen the support base for the local currency, the somoni. However, this will be offset by a strengthening of the US dollar. The somoni will therefore weaken in 2011-12. However, it will be more stable than in 2009, when it depreciated sharply, particularly in January-June. We forecast that the somoni will be around 0.9% weaker in annual average terms in 2011 than in 2010. By end-2012 we expect that it will be trading at S4.46:US$1, compared with S4.39:US$1 at end-2010, a weakening of around 1.5%.

Tajikistan remains dependent on sales of aluminium, cotton and electricity for most of its export revenue. Aluminium exports rose in 2010, following a sharp fall in 2009 that partly reflected a cut in output because of power supply problems and lower external demand. Revenue from aluminium exports will rise in 2011, owing to a further increase in global prices. Higher output of raw cotton, and higher global prices, will boost revenue from sales of cotton fibre. Export revenue is therefore forecast to continue rising in 2011, before falling in 2012 as global commodity prices trend downwards. Although foreign investment into Tajikistan has increased in recent years, it is concentrated in infrastructure and energy, and these projects are not expected to boost export revenue significantly until towards the end of the forecast period, or even later.

Higher global prices for fuel and food, combined with higher domestic demand, will push up import costs in 2011, although a more stable somoni will limit pressure on import costs. Higher inflows of remittances from migrant workers in Russia and Kazakhstan will also boost import volumes, by raising households' purchasing power for imported food and consumer goods. These trends will be offset by higher export revenue. We therefore forecast an overall current-account surplus of US$765m (11.6% of GDP) in 2011, compared with US$400m (7.1% of GDP) in 2010. We expect the surplus to fall in 2012, to 5.5% of GDP, as import costs remain high but cotton and aluminium prices fall, lowering export revenue.

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Apparently unconcerned by recent unrest in the Middle East and North Africa (MENA), with authoritarian and nepotistic regimes facing popular protest, in February the Tajik president, Imomali Rahmon, appointed his eldest son, Rustam Emomali (aged 23), to the position of head of the anti-drug-trafficking division of the Customs Committee. The office is viewed as important, as a significant portion of the government budget is generated from the Customs Committee. Mr Emomali already holds the positions of deputy chief of the Youth, Sports and Tourism Committee; deputy to the Tajikistan Football Federation; and a seat on the city council of the capital, Dushanbe, in addition to being player-manager for the Istiqlol Dushanbe football team. Before his appointment to the Customs Committee, Mr Emomali was removed from his position of head of the Trade Office of Investment and State Properties of Tajikistan. Mr Rahmon has nine children. His eldest, Ozoda Emomali, is the deputy foreign minister, and her husband is the deputy finance minister. Rumours that Mr Rahmon is grooming his son to succeed him have circulated for several years.

In February a number of deputies from the Council of Representatives (the lower house of parliament) proposed a new draft law on national security. According to a former deputy defence minister, Abdullo Habibov, the number of insufficiently trained staff in the security services has been rising in recent years, which he says has led to a weakening of the ability of security services to counter terrorism and led to unnecessary loss of life. The new law is expected both to strengthen co-ordination among the security agencies and to increase the influence of the security sector in government.

Critics point out that the security services enjoy excessive influence over court decisions, and over the fate and treatment of detainees. According to a deputy from the Council of Representatives, Abdusattor Kholov (who is the deputy head of the Parliamentary Committee on National Security and Defence), the draft law is intended to prevent terrorism and extremism. In March the Council of Representatives also proposed another security bill, a new law on emergency procedures and monitoring of telephone conversations. According to the head of the Parliamentary Committee on Legislation and Human Rights, under the new law, the monitoring of individuals' telephone conversations and mail can only take place on court orders and when an individual is suspected of a serious crime.

In February a Dushanbe appeals court released from prison Abdusamad Ziyoev and Muhsiddin Muhiddinov, respectively the brother and associate of Mirzo Ziyoev, a former commander of the United Tajik Opposition (UTO) and a former emergency situations minister, who was killed in mysterious circumstances in July 2009 (September 2009, The political scene). Another 27 relatives and associates of Mr Ziyoev saw their prison terms reduced by up to eight years, although the sentences of another 21 were upheld. The 50 individuals had originally received prison sentences from the Supreme Court of 10-30 years, including two who received life imprisonment, on a variety of charges including conspiracy to overthrow the constitutional order, trafficking in drugs and membership of the Islamic Movement of Uzbekistan (IMU). Two other former opposition commanders, Fathullo Khayriddinov (also known as Eshoni Daroz) and Nazar Youmuhammadov, were also released from prison and given lighter sentences of community service.

In addition, in March the southern provincial prosecutor's office in Qurghonteppa announced that four women accused of belonging to the banned Islamic movement Jamoati Tabligh, who had been in prison since 2010, were given amnesty and released. A US embassy cable from February 2010 released in December referred to the Jamoati Tabligh members as "harmless missionaries". Given the ubiquitous corruption within the Tajik judicial system, there has been wide speculation that the amnesties and lighter sentences were issued in exchange for bribes.

In a speech to the National Security Committee (NSC) in February, Mr Rahmon urged increased measures against the remaining 1,250 mosques (out of a total of nearly 5,000) that are unregistered. The number of mosques in Tajikistan exceeds the 3,800 schools in the country. According to Mr Rahmon, it is in the unregistered mosques and their unchecked sermons and imams (Muslim clergy) that radicalism can take root. He even referred to the "events in Rasht"-when a large number of government troops were killed in an ambush (December 2010, The political scene)-as having been the result of lax government control over mosques. The government's Committee on Religious Affairs has instructed mosques on the topics of legitimate discussion in sermons, having compiled a list of 52 topics related to morality and "conventional" Islamic values, in an effort to ensure that sermons do not stray into "radical" or political matters. Among other things, the committee has instructed that sermons after Friday prayers cannot exceed 15 minutes.

The most influential imam in Tajikistan, Ishoni Nurridin, is thought to have been forced to resign in January through pressure from the security services, under the threat of arrest if he continued with his critical and popular Friday sermons. The draft of a new law on parental responsibilities prohibits the attending of mosques and churches by children under the age of 18. Furthermore, the government is promoting its version of Hanafi Sunni Islam in the country's schools, including in regions dominated by non-Hanafis, such as the Pamirs, where nearly 100% of the population are members of the Shia Ismaili branch of Islam. However, the government's heavy-handed tactics to control radicalism, including the imposition of severe limitations on ordinary religious practice, and the arrest and imprisonment of alleged Islamists, carries a risk that it will prompt a backlash and serve only to increase the appeal of radical Islam.

Uzbekistan, which has been unhappy with Tajik plans for the construction of the Roghun hydroelectric plant, has continued to claim that the project will cause environmental problems. In reality (and, it could be argued, legitimately), Uzbekistan is concerned about the future provision of irrigation water for its cotton industry. In an attempt to dissuade Tajikistan from pursuing the Roghun project, in 2010 Uzbekistan temporarily blocked all rail traffic of goods bound for Tajikistan, periodically blocked strategic checkpoints on the Tajik border and regularly threatened to stop the delivery of natural gas if Tajikistan did not settle the arrears in its payment for Uzbek gas. Despite these obstacles, in recent months Tajikistan appears to have had the upper hand in the propaganda war with Uzbekistan on the Roghun project. A report in February by the US Senate Committee on Foreign Relations on water use and security in Central Asia, a recent response of the World Bank to a communiqué by Uzbekistan on the issue, and comments by a UK member of the European Parliament (MEP), Struan Stevenson, on Central Asian water use (see Economic policy) all appeared to support the Tajik rather than the Uzbek position. However, whether the project goes ahead is likely to depend on the findings of a World Bank feasibility study into the environmental and social impact of the project.

In January the long-standing issue of delimitation of the Tajik-Chinese border was resolved when the Tajik parliament agreed on a delimitation document from April 2010 between the two states. Tajikistan will concede a total of 1,112 sq km of territory to China from its eastern Badakhshan region. Although the government lauded the agreement as an important step in Chinese-Tajik relations, with the foreign minister, Hamrokhon Zarifi, calling it a diplomatic victory, leaders of some opposition parties viewed the agreement as unconstitutional. According to the head of the opposition Islamic Renaissance Party (IRP), Muhiddin Kabiri, Article 7 of the constitution states that the territory of Tajikistan is indivisible, and thus the cession of land to China is illegal. The leader of the Communist Party, Shodi Shobdolov, complained of the opaque nature of the deal. China's persistence in claiming land under Tajik control dates back to the Soviet era, when various mineral deposit sites were known to have been discovered in eastern Tajikistan. The Tajik-Chinese border delimitation treaty is the only agreement on borders that Tajikistan has with its four neighbours. Border discussions with Uzbekistan and the Kyrgyz Republic are stagnant, and discussions with Afghanistan have yet to take place.

The Economist Intelligence Unit's 2010 democracy index ranks Tajikistan 149th out of 167 countries, putting it among the 55 countries considered to be authoritarian regimes. This designation includes three other former Soviet states in Central Asia-Kazakhstan, Uzbekistan and Turkmenistan-as well as Tajikistan's neighbours to the south and east, Afghanistan and China. Tajikistan ranks above Afghanistan, Uzbekistan and Turkmenistan, but below Kazakhstan and China. It also fares badly compared with its northern neighbour, the Kyrgyz Republic, which alone in Central Asia is classed as a hybrid regime.

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The authoritarian state and corruption bring down the overall score

Tajikistan scores particularly poorly in the government functioning and civil liberties categories. Pervasive corruption, public mistrust of the government and state officials, and the rubber-stamp nature of the legislature contribute to the poor score in the government functioning category. Civil liberties are constrained by a lack of media freedoms, a poorly functioning court system and state interference in religious life. The picture is slightly improved by the high score in the political culture category, which attempts to capture popular attitudes as to the desirability of democratic institutions and practices. Here, Tajikistan scores higher than the other four Central Asian states and higher than some Latin American countries that have much higher overall scores and are classed as flawed democracies.

Unrest will meet force

High levels of poverty and unemployment may foment unrest and increase popular pressure for greater political and economic freedoms. However, the response of the regime to these demands will be minimal. The authorities will continue to claim that they are increasing democratisation and promoting human rights, but such policies will exist more in rhetoric than in practice. The electoral process will remain deeply flawed, and restrictive laws on religious freedoms will continue to be forcibly applied. The regime will meet any perceived threat of social unrest with force.

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Democracy index 2010: Democracy in retreat, a free white paper containing the full index and detailed methodology, can be downloaded from www.eiu.com/DemocracyIndex2010.

Note on methodology

There is no consensus on how to measure democracy and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy that reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, our index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.

Our index of democracy covers 167 countries and territories. The index, on a 0 to 10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. The five categories are inter-related and form a coherent conceptual whole. Each category has a rating on a 0 to 10 scale, and the overall index of democracy is the simple average of the five category indexes.

The category indexes are based on the sum of the indicator scores in the category, converted to a 0 to 10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:

• whether national elections are free and fair;
• the security of voters;
• the influence of foreign powers on government; and
• the capability of the civil service to implement policies.

The index values are used to place countries within one of four types of regimes:

• full democracies-scores of 8 to 10;
• flawed democracies-score of 6 to 7.9;
• hybrid regimes-scores of 4 to 5.9;
• authoritarian regimes-scores below 4.

According to data from the State Statistics Committee (SSC), in January-November 2010 state budget revenue amounted to S5.4bn (US$1.2bn), an increase of 11.6% compared with the year-earlier period. Expenditure rose by 9.9% year on year, to S5.2bn. This brought the government budget to a surplus of S185.9m (US$42.5m), or 0.9% of January-November GDP. In the year-earlier period the budget surplus was S92.9m, or 0.5% of GDP, although year-end spending pushed it into deficit over the year as a whole.

The state budget for 2011 was approved by parliament in October 2010 with expected revenue of S8.3bn, a nominal increase of S1.8bn, or 27.7%, from 2010. As in 2010, the 2011 budget targets a deficit of 1% of GDP. According to the finance minister, Safarali Najmuddinov, the government has allocated S850m (31% more than in 2010), or nearly one-tenth of total 2011 budget spending, towards the construction of the Roghun hydroelectric power plant. Another S270m has been allocated for other energy projects.

In 2010, the eight mobile telephone operators-using Global System for Mobile Communications (GSM)-active in Tajikistan generated reported total revenue for the state budget of US$409m. Given the tax revenue shortfall brought about by lower than expected collection of value-added tax (VAT) on imports, a result of Uzbekistan's partial trade blockade, the government has plans to legislate a 3% excise tax on mobile telephone use. This could generate around an extra US$7m, which the government hopes to use towards the social sector. Critics have argued that excise taxes are normally imposed on expensive and non-vital items (such as nicotine and alcohol) and should not be used on mobile telephone services, which are a vital component of communications in Tajikistan, given the poor state of the fixed-line infrastructure.

In November the Roghun joint-stock company requested that the stockmarket allow Roghun shares to be publicly traded. According to the Ministry of Finance, Amonatbonk has been designated to co-ordinate the market for Roghun shares, and four other banks (Orienbank, Tojprombank, Bonki Rushdi Tojikiston and Agroinvestbank) will also be allowed to run trading platforms in the shares. Some commentators have suggested that the public have lost faith in the project and, given households' low level of income, many would be willing to sell their shares even if they only generate a small proportion of the original outlay.

As no international partner has yet been found to invest in the Roghun hydroelectric plant project, in early 2010 the government offered shares of the Roghun project totalling S6bn for sale to the general public. Initially the authorities attempted to encourage the population to purchase the shares voluntarily, but soon various government organs used informal coercion tactics to sell shares. Among the coercion methods used were preventing university students from sitting their final exams until they provided proof of Roghun share purchases. Furthermore, most government agencies automatically deducted funds from the monthly salaries of employees in order to purchase shares. International financial institutions such as the IMF were critical of the measures, claiming that the diversion of a relatively large portion of the limited savings of the population could lead to economic stagnation. Most of the purchases took place in the first quarter of 2010, at which point the government's campaign ended in the face of domestic and international criticism. The shares, which were formally only made available to Tajik citizens (although the banks offering the shares did not check the citizenship of purchasers), generated a reported S850m, or less than 10% of the total estimated funds required to build Roghun.

In January Struan Stevenson, a member of the European Parliament (MEP) and a special representative to the Organisation for Security and Co-operation in Europe (OSCE) responsible for the ecology and environment of Central Asia, published a report assessing environmental disasters in the region, including the ongoing desiccation of the Aral Sea and the legacy of Soviet-era nuclear testing in the form of dumps of uranium tailings. The report also looked at the issue of Roghun and came up with resounding support for the project. Mr Stevenson praised the Tajik president, Imomali Rahmon, for "his efforts to maintain Tajikistan as a strategic buffer state, preventing the incursion of drug smugglers and terrorists from Afghanistan and Pakistan"-although it is far from clear that Tajikistan has been successful in this (December 2010, The political scene). Mr Stevenson was also convinced that if Tajikistan went ahead with the construction of Roghun, it would take its responsibilities towards its downstream neighbours seriously, and called Uzbek concerns about its own water supplies premature. Mr Stevenson also suggested that downstream countries introduce drip irrigation systems and avoid the flooding systems that are currently in wide use. The World Bank is carrying out a feasibility study into Roghun and is expected to report later in 2011.

According to the Ministry of Finance, in December 2010 China expressed its intention to allocate US$187.9m in two loans to Tajikistan for the financing of construction of new roads and electrical transmission lines. A loan of US$151m is to be allocated to rebuild the 115-km Dushanbe-Dangara motorway, and a second loan, for US$36.9m, will be used for the construction of a 220-kv power transmission line linking Khujand with the district of Ayni, where Chinese investors plan the construction of the Nurobad Hydroelectric Station. The Khujand-Ayni transmission line will supply electricity from the planned 200-mw Nurobad hydropower plant and, more critically, will create a unified electricity transmission network inside Tajikistan. Grids in the north and south are currently separate from each other and can only connect via transmission lines in neighbouring Uzbekistan and the Kyrgyz Republic. China Eximbank plans to take part in further infrastructure development projects in Shanghai Co-operation Organisation (SCO) member countries in the coming years, with Tajikistan expecting to receive a further US$700m worth of credits from China.

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According to the State Statistics Committee (SSC), real GDP grew by 6.5% in 2010, compared with 3.4% in 2009. Much of the pick-up in growth was owing to an increase in industrial production and a rise in global market prices for Tajikistan's main export commodities of aluminium and cotton fibre. Industrial output rose by 9.7% in 2010, and output of energy rose by 5.5%. The country generated 16.4bn kwh of electricity in 2010, 2% higher than in 2009. The authorities also reported the mining of 141,700 tonnes of bituminous coal, up by 1%; 58,700 tonnes of lignite, up by 70%; and the extraction of 27,200 tonnes of oil and 21m cu metres of natural gas, up by 3.3% and 5.4% year on year, respectively.

According to the SSC, manufacturing accounted for 41.6% of GDP in 2010 (compared with 40.8% in 2009), services accounted for 47.9% (compared with 48.7% in 2009) and taxes accounted for 10.5% (unchanged from 2009). Retail trade turnover rose by 10.2% year on year in volume terms. The acceleration in GDP growth was also attributable to the resurgence of remittances from migrant workers abroad, which form the economic mainstay of many Tajik households. After a fall of more than 30% in 2009, remittances increased by an estimated 18% in 2010. The forcible sale of shares in the Roghun hydroelectricity power project (see Economic policy), which by end-2010 had generated around US$185m (around 30% of the original sales target), appears not to have significantly dampened consumer demand. The increase in remittance inflows is likely to have compensated for household income lost to Roghun share purchases.

Production at the Tajikistan Aluminium Company (Talco), the country's largest industrial enterprise, was reported at just below 349,000 tonnes in 2010, a year-on-year reduction of 2.9% and falling short of the targeted production of just under 402,000 tonnes. This decline in production at the plant, which has an annual production capacity of 517,000 tonnes, followed a fall of 10% in output in 2009, which was a deliberate measure to conserve energy. Despite the fall in production in 2010, earnings from aluminium exports rose by more than 25%, in view of the significant rise in global prices for aluminium (see Foreign trade and payments). In order to take advantage of high global prices, according to management sources, Talco plans to invest US$100m to upgrade its equipment, train staff and increase production by over 8%, to just below 378,000 tonnes in 2011. Production in January 2011 was reported at just over 30,000 tonnes, a fall of 0.5% year on year.

In order to maintain its profits, Talco has opposed higher electricity tariffs that are expected to be imposed on industrial consumers in 2011. Talco claims that it has been a loyal customer of Barqi Tojik (Tajik Electricity), having paid over US$340m for electricity in the past five years, equivalent to 70% of the state electricity company's total revenue, while consuming around 30% of the country's electricity output. Electricity prices in Tajikistan are S0.09 (2 US cents) per kwh for residential customers and S0.21/kwh for industrial enterprises, except for Talco, which pays S0.082/kwh.

According to a Ministry of Agriculture official, in 2010 the raw cotton harvest reached 301,513 tonnes, a rise of 4.9% year on year. The ministry is hoping to see production of 350,000 tonnes in 2011 and as much as 600,000 tonnes by 2015. The area under cotton production was 162,300 ha in 2010 and is expected to rise by around 30%, to 210,000 ha, in 2011 in an attempt to take advantage of high global cotton prices. These have been hovering around their highest level in a decade, with prices having risen by 67% in 2010. At the same time, the Ministry of Economic Development and Trade has offered to increase the export tax on cotton fibre as a means of boosting domestic supplies for enterprises. No more than an estimated 10% of the total cotton fibre production in 2010 remained in Tajikistan to be used by local textile factories.

According to data from the National Bank of Tajikistan (NBT, the central bank), annual consumer price inflation accelerated to 9.8% in December 2010, from 5.2% at the start of the year. Prices for food goods rose by 13.4% year on year in December, with prices for non-food items rising by 5.5% and services prices rising by 4%. Month-on-month inflation for December was 0.9%, with food prices rising by 1.1%, non-food prices up by 0.8% and services prices up by 0.4%. Over 2010 as a whole inflation averaged 6.4%, according to official statistics.

Around 60% of goods imported into Tajikistan come by rail via Uzbekistan. According to Vladimir Sobkalov, the deputy head of Tajikistan Railways, the rail blockade imposed by Uzbekistan and the 10% increase in transit fees implemented by that country contributed to imported inflationary pressures. In addition, in June 2010 Russia imposed extra duties on oil products exported to Tajikistan. However, the global rise in fuel and food prices is likely to have had the greatest inflationary impact. Prices of imported fuel and lubricants have increased by as much as 45% in recent months. Consumer price inflation has also severely affected more remote areas of the country, such as the mountainous Badakhshan province, where transportation costs have been particularly high.

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According to the State Statistics Committee (SSC), total trade turnover during 2010 was valued at US$3.9bn and grew by 7.6% year on year. Total exports reached US$1.2bn, an increase of 18.3% year on year, and imports reached a total of US$2.7bn, a rise of 3.5% from 2009. The trade deficit of US$1.5bn was 6.2% smaller than in 2009. The contraction of the trade deficit was largely owing to a rise in global prices for Tajikistan's key export commodities of cotton and aluminium, which together constituted 80% of total exports for the year. Aluminium exports soared by 25.3% in 2010, to US$756.7m, and imports of alumina (the raw material for the production of aluminium) grew by 9.9%, to US$318.7m. Cotton fibre exports accounted for more than 15% of export revenue and registered a rise of 9.9% in 2010, to US$199.9m. Cotton was mostly shipped to Turkey, Iran and Russia.

According to the first deputy head of the State Customs Service, Nemat Rahmatov, despite the growth in trade in 2010, the overall volume still failed to match the level before the global crisis. Mr Rahmatov attributed the lower level of foreign trade to the negative consequences of the global financial crisis, the temporary blockade of Tajik rail freight imposed by Uzbekistan, and the highly unstable situation in the neighbouring Kyrgyz Republic in 2010.

According to the SSC, with trade between the two countries amounting to US$960m in 2010, Russia was Tajikistan's primary trading partner. Trade with Russia rose by 6.9% year on year and accounted for one-quarter of total trade turnover for the year. Trade with Russia included imports by Tajikistan of fuel, foodstuffs, technical and industrial goods and ferrous metals, with total imports reaching US$857.6m. Exports to Russia were mainly comprised of fruit, vegetables and textiles, amounting to US$102.2m for the year. The next leading trade partners were China (with turnover of US$685.1m, or 17.8% of total trade turnover), Turkey (US$438.6m, or 11.4% of the total) and Kazakhstan (US$312.8m, or 8.1% of the total).

In January 2011 the National Bank of Tajikistan (NBT, the central bank) expressed a desire for trade with Russia to be conducted in Russian roubles-possibly in response to a request from the Russian government. As a result, the NBT began the purchase of roubles from Tajik commercial banks in order to settle future accounts with Russian trading partners. The NBT had already purchased Rb17bn (US$600m) from Tajik commercial banks in 2010, including Rb4bn in cash. The NBT's argument in favour of switching to roubles is the savings that will be generated, as it currently increases transaction costs for Tajik and Russian businesses to convert their national currencies into US dollars or euro in order to settle their bills.

Despite the rise in trade between Tajikistan and Russia, in November the Russian State Duma (the lower house of parliament) imposed a ban on the use of foreign workers in retail trade in Russia. The new rule affects those working in the purchase and sale of such commodities as alcoholic products and medicines, and market traders. According to Muhiddin Kabiri, a Tajik parliamentary deputy and leader of the Islamic Renaissance Party (IRP), who has in the past worked in retail trade in Russia, the new law will deprive many Tajik migrant workers of jobs and could affect the flow of remittances to Tajikistan. According to Mr Kabiri, the number of Tajik workers in the retail trade sector is a fairly low proportion of the estimated 1m-1.5m Tajik migrants working in Russia. However, Mr Kabiri claims that those Tajiks working in the retail trade sector are more independent and better off than others who, for example, work in the construction industry, where earnings are lower. According to the Tajik Presidential Centre for Strategic Research, 25-30% of Tajik migrant workers in Russia are involved in services and trade.

Until recently, Uzbekistan was Tajikistan's second most import trading partner among members of the Commonwealth of Independent States (CIS). However, given the problematic year in 2010, with the ongoing dispute over Tajik plans to build the Roghun hydroelectricity plant, trade between the two countries was significantly reduced. In 2010 Uzbekistan occupied fifth position among Tajikistan's CIS trading partners, after Russia, Kazakhstan, Ukraine and Turkmenistan. According to the SSC, trade with Uzbekistan in January-November 2010 amounted to US$73.4m, a fall of 61.4% compared with the year-earlier period. Natural gas and electricity were the main imports from Uzbekistan, and the chief export to Uzbekistan was electricity (mainly in the summer months).

In February 2011 Uzbekistan imposed a ban on any private transfer of funds from its territory and by its citizens to Tajikistan. Uzbekistan has also regularly interrupted the export of natural gas to Tajikistan, owing to Tajikistan's accumulating gas debt. According to the Tajik Ministry of Finance, the government has earmarked US$4.7m in its state budget for paying off Tajikistan's foreign debt to Uzbekistan in 2011. On January 1st 2011 Tajikistan's debt to Uzbekistan was US$32.4m. Given the deliberate clogging of transportation routes between the two states, which also affects the export of Tajik commodities to other countries through Uzbek territory, Tajikistan is hoping that new corridors (in the way of more and better roads, bridges and eventually railways) for transporting goods through China and Afghanistan will help to alleviate the problem. Among other things, according to the chair of the Tajik Chamber of Commerce and Industry, Sharif Said, Chinese companies are in the process of completing the Dushanbe-Kulob-Khorog-Murghab-Kulma motorway.

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