Impact of the Economic Crisis in Tajikistan

10 02 2009

* Courtesy of the Dilbert Blog

The consequences and impact of the international economic crisis has spread into all corners of the world – and Tajikistan is no exception.

In some ways, the impact of the crisis has not been as felt here as in the West. Most of the people here did not have their life savings in the stock market nor were they taking out 50-year, 0% down, adjustable rate mortgages (in fact, 30 year mortgages are unheard of here).

However, the crisis is here too and the true aftermath may simply be delayed.

How does Tajikistan play a role in the world’s economy?

One of Tajikistan’s biggest exports is its low-cost labor. Although the numbers vary, it’s reported that almost 2 million Tajiks (in a country with a population of 7 million) currently work beyond the country’s borders – primarily in Russia, in the construction field. Most families out here have a brother or a husband or a father that went outside the country to seek employment, as opportunities here are scarce.

Last year, the official numbers showed over $2 billion was sent back to Tajikistan in remittances by migrant workers. That’s just the money transferred through official means – much more was passed through informally.

Thus, when Russia sneezes, Tajikistan catches a cold. As the crisis is beginning to severely impact Russia’s economy which subsequently results in a slowdown of construction projects, massive numbers of Tajik workers risk not being able to find work in the future. The true impact is not entirely clear right now, as workers typically head back home for the Winter anyway. But the question on everybody’s minds is – will they be able to find work again when the Spring rolls around? With the poor economy and Russia instituting lowering quotas on the number of foreign workers, this is questionable.

Strong Dollar & Micro-Finance

The other major issue that’s affecting the people is the currency fluctuation – particularly involving the strengthening dollar. On January 15th, 1 USD cost 3.4 Somoni. Today, on February 11th, you’ll have to pay 3.7 Somoni for the same Dollar – almost 10% more.

You'll find these currency exchanges on every block - sometimes, inside grocery or cell phone stores

You'll find these currency exchanges on every block - sometimes, inside grocery or cell phone stores

Although the national currency is Somoni, most of the business dealings here are tied to the dollar in some way, shape or form. Many of the remittances are sent back in dollars. Whether you’re refilling your cell phone balance or taking out a loan from a bank, even if you’re paying in Somoni, the real price is in dollars. As the dollar has been costing more and more over the last few months, people ultimately have less money to spend.

As a result, this is spilling over intoo the micro-finance sector, as well. Particularly, there are several ways in how this manifests itself.

First of all, borrowers are now more hesitant about taking out loans. When they take out the money in Somoni, their debt is tied to the dollar. So, when the future exchange rate is uncertain, borrowers risk owing a lot more than they originally took out. Instead, they choose to wait it out and forego the loan for the time being.

Secondly, business is slower. It’s a fact that’s not exclusive to the micro-finance sector or Tajikistan, but even this small economy is feeling the impact. As a result, there is an increase in consumer loans, but a decrease in business-related ones. People need money to meet their needs, but are uncertain about investing into their businesses. It’s interesting to see how this will impact the activity on Kiva, as many lenders seem to prefer to fund business-related loans, rather than sponsor a wedding or home repairs.

Thirdly, on a larger scale, many MFIs, including the one that I work for, get the majority of their funding from the U.S. based sources, so they are also subject to the risk. They try to deal with it by passing on the risk to the clients or charging a slightly higher interest rate, but this results in a drop of clients. With fewer clients, the risk within their own portfolio increases.

The next few months will show just how bad the situation is and whether things will get worse.

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2 responses

11 02 2009
S.

Why dollar has such a big impact on country’s economy? What about euro?

11 02 2009
Andrey Milyan

Boria,

Floating exchange rates will always vary from day to day. That’s the whole point.

What are the borrowers saying?

A

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