Singapore, June 10, 2021 -- Moody's Investors Service ("Moody's") has today
changed the Government of Tajikistan's rating outlook to stable
from negative. Concurrently, Moody's has affirmed the
B3 long-term foreign and local currency issuer ratings, as
well as the B3 long-term senior unsecured foreign currency rating.
The outlook change to stable from negative reflects progress made by Tajikistan
in stabilizing its external payments position over the past year,
as indicated in a material increase in foreign currency reserves,
which Moody's expects to remain around the current level.
As a result, the likelihood of significant pressure on Tajikistan's
credit profile from mounting external and liquidity risks has diminished.
The affirmation of the rating reflects Moody's view that Tajikistan's
credit profile remains consistent with a B3 rating. Notwithstanding
its relative resilience to the global pandemic shock, Tajikistan's
structural weaknesses remain, including very low income levels,
very low competitiveness, weak institutions and governance strength,
contingent liability risks from state-owned enterprises (SOEs)
and event risks related to political, liquidity and external vulnerability
risks, as well as banking sector risks.
Tajikistan's local and foreign currency country ceiling remain unchanged
at B2 and B3, respectively. The one-notch gap between
the local currency ceiling and the sovereign rating reflects the government's
relatively large footprint in the economy, the limited predictability
and reliability of institutions and material —but easing—external
vulnerability risks. The one-notch gap between the foreign
currency ceiling and the local currency ceiling incorporates a relatively
closed capital account that points to potential transfer and convertibility
restrictions, as well as a limited track record of policy effectiveness.
These ceilings typically act as a cap on the ratings that can be assigned
to the obligations of other entities domiciled in the country.
RATINGS RATIONALE
RATIONALE FOR THE CHANGE IN OUTLOOK TO STABLE FROM NEGATIVE
HIGHER FOREIGN CURRENCY RESERVES REDUCE EXTERNAL VULNERABILITY AND LIQUIDITY
RISKS
Tajikistan's external payments position has stabilized over the
past year, resulting in foreign currency reserves surpassing previous
highs and bolstering resources to meet forthcoming external payment obligations.
Moody's expects Tajikistan to maintain that higher level of reserves,
reducing external vulnerability risks and the related liquidity risks.
The export of domestically produced gold and the compression of imports,
have more than offset the pressures from lower non-gold exports
and a relatively mild decline in overseas remittances, leading to
the reversion of the current account to a surplus of around 4%
of GDP in 2020 from a deficit of around 2.5% the previous
year. Moreover, net inflows in the financial account were
sustained by a large rise in official bilateral and multilateral funding
for the government as gross disbursements amounted to around $380
million, while the monetization of gold reserves further added to
the stock of more freely convertible foreign currency reserve assets.
Consequently, Moody's estimates that Tajikistan's external
vulnerability indicator, which measures short-term debt and
currently maturing long-term debt against foreign currency reserves,
has fallen to under 100% from over 300% in 2020 and a peak
of over 4,000% in 2016.
Going forward, the resumption of growth in remittances, the
commencement of electricity exports on the back of progress on key infrastructure
projects and continued financial assistance from development partners
supports the view of ongoing stabilization of the external position,
even as the current account surplus returns to a moderate deficit as domestic
demand recovers from the pandemic shock. In particular, Moody's
assumes that Tajikistan's continued commitment to policy reform
and medium-term fiscal consolidation will assure that concessional
sources of funding will meet the bulk of projected external and fiscal
funding gaps.
RATIONALE FOR THE AFFIRMATION OF THE B3 RATING
The decision to affirm the rating reflects Moody's view that Tajikistan's
credit profile remains consistent with a B3 rating.
Notwithstanding its relative resilience to the pandemic shock—as
evidenced by the 4.5% expansion in real GDP in 2020 as reported
by the government—and relatively robust medium-term growth
outlook, Tajikistan's structural economic constraints remain,
including very low per capita incomes and limited economic diversification.
It also continues to be exposed to economic developments in Russia as
a result of its reliance on remittance inflows, while its competitiveness
faces challenges from deficiencies in infrastructure and low productivity.
Also, governance remains weak, but has shown some signs of
improved policy effectiveness. The global coronavirus pandemic
shock has catalyzed Tajikistan's engagement with development partners,
fostering further improvements in the policy framework and sustaining
reform momentum.
The government's fiscal position continues to be characterized by
relatively high debt for a country at these income levels, a heavy
reliance on foreign currency-denominated—albeit largely concessional—sources
of financing, and contingent liability risks from weak state-owned
enterprises. The government's debt burden was to a significant
extent driven by previous borrowing to finance the Rogun hydropower project.
Despite some delays, the project remains broadly on track to provide
a stream of foreign-currency revenue expected to support the government's
debt service.
Susceptibility to event risks remain prominent constraints to the rating.
Political risks relate to concerns related to leadership succession,
as well as periodic tensions with bordering countries. Against
the backdrop of the manageable impact of the global pandemic shock on
Tajikistan's relatively small domestic financial system, Moody's
assessment of banking sector risk continues to reflect contingent liability
risks associated with the incomplete resolution of two of the country's
largest lenders following asset and liquidity stress in 2016.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Tajikistan's ESG Credit Impact Score is highly negative (CIS-4),
reflecting its weak governance profile, moderately negative exposure
to environmental risks and highly negative exposure to social risks.
The country's low income levels and weak institutions constrain
its ability to respond to ESG shocks.
Tajikistan's exposure to environmental risk is moderately negative
(E-3 issuer profile score), driven by its vulnerability to
the depletion of water resources over the long run -- especially
in the context of the importance of hydropower generation to its economy;
at the same time, carbon transition is not a risk given rising hydropower
output. Moderately negative environmental risks include physical
climate risks -- mainly from periodic instances of drought --
and the degradation of the country's natural capital, including
soil erosion afflicting the country's relatively small endowment
of arable land.
Exposure to social risks is highly negative (S-4 issuer profile
score). While the country's Soviet legacy left most of the
population with access to social infrastructure such as education,
housing, healthcare and other basic provisions, the quality
of service delivery is generally very low and has limited the development
of human capital. This is reflected in the country's weak
social metrics, such as its relatively low life expectancy,
high rates of undernourishment and constrained access to clean drinking
water. Tajikistan's demographic profile is benign,
allowing for the export of labour and the inflow of remittances --
a significant source of foreign exchange earnings; however,
this also reflects the relative dearth of domestic economic opportunities.
The influence of governance on Tajikistan's credit profile is highly
negative (G-4 issuer profile score), reflecting weak policy
effectiveness and control of corruption, consistent with cross-country
surveys such as the Worldwide Governance Indicators. Governance
considerations weigh heavily on the country's business environment,
serving as a key impediment to foreign direct investment and, ultimately,
on economic development.
GDP per capita (PPP basis, US$): 3,676 (2020
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 4.5% (2020 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 9.4%
(2020 Actual)
Gen. Gov. Financial Balance/GDP: -6%
(2020 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 4.2% (2020 Actual) (also
known as External Balance)
External debt/GDP: 80.8% (2020 Actual)
Economic resiliency: b2
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 07 June 2021, 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 materially
increased. The issuer's governance and/or management, have
materially increased. The issuer's fiscal or financial strength,
including its debt profile, has not materially changed. The
issuer has become less susceptible to event risks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FACTORS THAT COULD LEAD TO AN UPGRADE
Upward pressure on the rating would likely emanate from material progress
on fiscal and debt consolidation, likely related to significant
improvements in institutions and governance strength, with progress
on structural reform and addressing contingent liability risks from the
SOE sector and banking system.
FACTORS THAT COULD LEAD TO A DOWNGRADE
Downward pressure on the rating could come from an emergence of constraints
to the government's access to external concessional financing,
which could result from a deviation from the current commitment to policy
reform and medium-term fiscal consolidation. Also,
a material deterioration in the external payments position—including
a reversal of the recent build-up in foreign currency reserves—that
raises repayment risks on external debt obligations would weigh on Tajikistan's
credit profile.
A materialisation of contingent liabilities posed by SOEs or banks with
large fiscal costs would weigh on fiscal strength and likely prompt Moody's
to downgrade the rating.
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
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
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
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
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
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for
Designating and Assigning Unsolicited Credit Ratings available on its
website www.moodys.com.
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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
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.
Further information on the EU endorsement status and on the Moody's office
that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed by
Moody's Investors Service Limited, One Canada Square, Canary
Wharf, London E14 5FA under the law applicable to credit rating
agencies in the UK. Further information on the UK endorsement status
and on the Moody's office that issued the credit rating is available on
www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
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 Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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
