For Tajikistan, improving financial inclusion to accelerate inclusive economic growth is a priority, said Cassandra Colbert, IFC Senior Manager for Central Asia, Avesta reports.
Over the past decades, Tajikistan has made great strides in reducing poverty and stimulating economic growth. Between 2000 and 2021 the poverty rate, measured by the national poverty line, fell from 83% to 26.5%, while economic growth averaged 7% per year, the report said.
However, Tajikistan has limited economic diversification, like all Central Asian countries. The country’s heavy dependence on mining exports and remittances has made it vulnerable to external shocks. In the past two years alone, the country has experienced the effects of the COVID-19 pandemic, the conflict in Afghanistan, and the war in Ukraine.
All this led to a significant decrease in economic activity, fluctuations in exchange rates and instability in the financial sector. The labor market remains weak and food insecurity is lower than before the pandemic.
These external shocks affected both households and micro and small businesses. At home, many have experienced a double whammy – increased spending due to higher prices for everyday goods and reduced income due to reduced employment and reduced remittances. At the enterprise level, Tajik companies report rising production costs and increasing difficulty in obtaining loans due to high interest rates or lack of collateral and guarantees.
The current situation has highlighted the need for a strong and inclusive financial system – one that can enable individuals and small businesses alike to invest in growth and wealth, capitalize on business opportunities and withstand such economic shocks, the agency wote.
While Tajikistan has made significant progress in expanding the population’s access to financial services, much remains to be done. For example, the number of account holders increased from 3% in 2011 to 47% in 2017, but in 2021 this figure dropped to 39%. The number of credit card holders is still small at 2%, down 6% from 2017. The number of debit card holders is slightly higher at 15 percent, according to Findex 2021 data.
The use of digital payments, meanwhile, has declined from 44% in 2017 to 33% in 2021, despite the fact that more than 80% of the non-bank population owns mobile phones. This presents a huge opportunity for the public and private sectors to close the gap, for example by transferring wages and pension payments to accounts or using mobile wallets to provide loans.
The good news is that Tajikistan is taking steps towards building an inclusive society, most recently the National Financial Inclusion Strategy 2022-2026 was launched. This multilateral effort, led by the National Bank of Tajikistan and supported by IFC, is a roadmap to remove long-standing barriers, from insufficient financial infrastructure, weak legal and regulatory frameworks, to insufficient support for digital financial services and the development of financial institutions.
The document outlines steps that the government can take to create an inclusive financial system: building the necessary infrastructure, providing an enabling regulatory framework, stimulating private sector development, reducing gender inequalities, and improving financial literacy.
While investing in digitalization and fintech is vital to boosting entrepreneurship and building the resilience of households and small businesses, building trust by protecting consumers and optimizing their experience to ensure financial services are accessible, efficient and secure is also essential.
Given the challenges Tajikistan is currently facing, the implementation of the strategy comes at a critical juncture and is an important milestone towards achieving the goal of financial inclusion for all. The implementation of the strategy’s action plan will ensure a more resilient economy and even more progress for the country in the coming years.
Population of Tajikistan is growing fast. Their total number is 10 mln.
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Oct. 23, 2022