Singapore, May 26, 2020 -- Moody's Investors Service ("Moody's") has today
affirmed the Government of Tajikistan's long-term local and
foreign currency issuer and the foreign currency senior unsecured B3 ratings
and maintained the negative outlook.
The negative outlook reflects Moody's assessment that the coronavirus
shock increases Tajikistan's external liquidity risks as remittances
fall sharply and the government's spending needs rise. While
in the near term, significant financial support from the international
community will likely cover Tajikistan's external financing needs,
beyond 2020, the government will be challenged to sustain its fiscal
consolidation objective in order to preserve macroeconomic stability.
Very weak governance points to the policy challenge for the government
in responding to and mitigating the impact of the shock.
The coronavirus outbreak and the deteriorating global economic outlook,
falling oil prices, and asset price volatility are creating a severe
and extensive credit shock across many sectors, regions and markets.
The combined credit effects of these developments are unprecedented.
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety. For Tajikistan, the main channels of exposure
are lower remittance inflows and consequently wider fiscal and external
funding gaps and slower growth.
The affirmation of the B3 rating reflects progress made by Tajikistan
in stabilizing its external payments position over the past year,
alleviating some of the pressures on its foreign exchange reserves that
led to the initial change in the rating outlook to negative in December
2018.
Tajikistan's long-term foreign currency bond ceiling remains
unchanged at B3. The foreign currency deposit ceiling remains at
Caa1, while the local currency bond and deposit ceilings remain
at B1. In addition, the short-term foreign currency
bond and deposit ceilings are unchanged at "Not Prime."
RATINGS RATIONALE
RATIONALE FOR MAINTAINING THE NEGATIVE OUTLOOK
CORONAVIRUS SHOCK RENEWS RISE IN EXTERNAL AND LIQUIDITY RISKS
The coronavirus shock has interrupted some signs of stabilization in Tajikistan's
external liquidity position and raises renewed risks to the sovereign's
credit profile. Lower oil prices leading to substantially weaker
economic growth in Russia (Baa3 stable)—the most important destination
for Tajikistan's overseas workers— are likely to weigh significantly
on remittances in Tajikistan, a major source of foreign currency
and income. Combined with higher spending for the government,
Tajikistan's external financing needs have increased markedly.
Weak institutions and governance point to risks to the government's
capacity to manage the shock in a way that preserves macroeconomic stability.
Moody's expects that the current account deficit will widen to around
$600 million in 2020 (6.8% of GDP) from less than
$200 million in 2019 (2.3% of GDP) as a result of
the coronavirus shock. Imminent liquidity pressures appear contained
as Tajikistan's external financing gap is likely to be in large
part covered by financing from International Financial Institutions,
including the IMF's rapid credit facility (RCF) line that was approved
in early May.
Moody's does not currently expect Tajikistan to participate in any debt
relief initiative that would require the participation of private sector
creditors. A decision to do so could carry negative implications
for the country's rating.
Moody's estimates that some of the current account shortfall will
be met by a drawdown on Tajikistan's international reserves,
pushing the External Vulnerability Indicator, the ratio of external
debt payments due in the course of the year to foreign exchange reserves
(excluding gold) to over 500% in 2021 from around 300% this
year. The negative outlook captures the risks related to a possible
more significant and longer shock to foreign currency receipts in the
economy at a time when the government's spending needs increase.
Beside the negative effect of lower remittances on household incomes,
disruptions to trade and cross-border travel, as well as
the imposition of containment measures weigh on domestic activity.
Slower economic growth, around 3% this year from an average
of almost 7% in the preceding five years, will weigh on government
revenue. Moreover, in response to the coronavirus outbreak,
the government will also increase spending to bolster public health initiatives
and help to contain the economic fallout on households and businesses,
contributing to substantially wider fiscal deficits.
Financing of the wider fiscal shortfall, estimated by Moody's
at around 7% of GDP in 2020, mirrors the financing of the
external funding gap. Moody's baseline scenario projects
Tajikistan's government debt will be contained to less than 50%
of GDP in 2020 from around 45% of GDP in 2019. While the
associated borrowing needs for the government are not particularly large
compared to other B3-rated sovereigns, Tajikistan has not
previously demonstrated strong access to funding at moderate costs in
times of urgent needs, pointing to some liquidity risks.
Moody's baseline projections assume traction on Tajikistan's
non-binding commitments to international development partners regarding
fiscal consolidation and the avoidance of non-concessional borrowing
until the debt position has stabilised. However, given the
government's limited track record of fiscal discipline, the
negative outlook also reflects the potential for a deviation from the
fiscal consolidation path, which could in turn threaten Tajikistan's
access to external sources of financing.
RATIONALE FOR THE B3 RATING AFFIRMATION
RECENT, PRE-SHOCK, PROGRESS TOWARDS EXTERNAL STABILIZATION
While Tajikistan's credit metrics at the onset of the coronavirus
shock are weak, signs of macroeconomic stabilization in the recent
years support the B3 rating.
In 2019, Tajikistan's current account deficit more than halved
as compared to 2018, reflecting a recovery in remittance inflows
and better export performance given improved bilateral relations with
Uzbekistan (B1 stable) and the completion of the second of six planned
turbines in the Rogun Hydropower Project (HPP). Relatedly,
foreign currency reserves climbed through much of 2019 and reached a near-record
high of almost $640 million in January 2020. Once the global
impact of the coronavirus epidemic eases, Tajikistan's improved
export potential should support foreign currency revenue. Over
the medium term, strengthened exports and revenue will be essential
to meet the repayments of debt related to the Rogun HPP project.
In 2019, Tajikistan also recorded a third consecutive year of narrower
fiscal deficits, largely driven by expenditure restraint.
As a result, its government debt burden has consolidated to around
45% of GDP in 2019 from over 50% in 2017. Although
susceptibility to exchange rate depreciation remains given the ongoing
reliance on external funding, the largely concessional nature of
much of Tajikistan's foreign-currency government debt also
continues to support debt affordability. However, Tajikistan's
fiscal strength is undermined by material contingent liabilities related
to state-owned enterprises (SOEs) and banks.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental considerations are material to Tajikistan's credit
profile. The country lies within the collision zone between the
Indian Plate and the Eurasian Plate, making it especially vulnerable
to earthquakes. Furthermore, as the economy is heavily dependent
on agriculture, it is vulnerable to climate change risks,
the potential impacts of which are compounded by the economy's small
size and low incomes. Given the government's already high
debt burden, an earthquake or climate-change related shock
that caused widespread damage could materially impact Tajikistan's
rating.
Social considerations are material to Tajikistan's economic strength
given interrelated issues concerning poverty and low human capital.
Despite robust economic growth and significant progress on poverty reduction
over the past decade, Tajikistan continues to have one of the lowest
per capita incomes among rated sovereigns. Limited economic and
employment opportunities have also led to significant emigration,
although remittances from overseas Tajik workers have generally been supportive
of the external payments position. Comparatively weak levels of
human capital development also constrain diversification of the economy.
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the potential implications for public health
and safety. For Tajikistan, the shock mainly translates into
rising external liquidity risks given a significant fall in remittances
and higher financing needs.
Governance considerations are material to Tajikistan's credit profile,
and are reflected in a "caa1" assessment of its institutions
and governance strength. Tajikistan scores poorly on governance
assessments as measured by the Worldwide Governance Indicators,
reflecting weak regulatory quality, rule of law and control of corruption.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING UP
The negative outlook indicates that an upgrade is unlikely in the near
term.
Moody's would consider changing the outlook to stable upon evidence
that increasing non-debt creating inflows are contributing to a
durable build-up in foreign exchange reserves. Effective
implementation of reforms in the banking sector and SOEs, which
significantly reduce contingent liability risks to the government,
would also support a stable outlook at B3.
WHAT COULD CHANGE THE RATING DOWN
Moody's would likely downgrade the rating if risks to macroeconomic
stability increased materially through a more marked and longer erosion
of foreign exchange reserves than Moody's currently expects.
This could result from only partial coverage of the country's external
financing needs by concessional lines of external financing, which
in turn may depend on a sustained commitment to policy reform and medium-term
fiscal consolidation.
A materialisation of significant contingent liabilities posed by banks
or SOEs with large fiscal costs would weigh on fiscal strength and likely
prompt Moody's to downgrade the rating.
While not Moody's current expectation, indications that the government
was likely to participate in debt relief initiatives which Moody's concluded
were likely to entail losses for private sector creditors would be negative
for the rating.
GDP per capita (PPP basis, US$): 3,427 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 7.3% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 5.4%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: -2.8%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -5% (2018 Actual) (also
known as External Balance)
External debt/GDP: 79.44% (2018 Actual, includes
private and public sector)
Economic resiliency: b2
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 20 May 2020, a rating committee was called to discuss the rating
of the Tajikistan, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's institutions and governance strength have not materially
changed. The issuer's fiscal or financial strength,
including its debt profile, has not materially changed. The
issuer has become increasingly susceptible to event risks.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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for additional regulatory disclosures for each credit rating.
Christian de Guzman
Senior Vice President
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Marie Diron
MD - Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
