Tajikistan’s potential accession to the EAEU to have a significant positive effect on the country’s economy
The Eurasian Development Bank’s analysts assessed the economic effects of Tajikistan’s possible accession to the EAEU. The main advantages of the country’s possible joining the EAEU are expected to materialise in three areas: realisation of the advantages of the common labour market; the EAEU; and development of the country’s trade and investment potential. The authors estimate that the annual growth rate of the nation’s economy may increase by up to 3 percentage points.
Moscow, 23 November 2020
The Eurasian Development Bank (EDB) has published an analytical report titled Economic Effects of Tajikistan's Accession to the Eurasian Economic Union.
The high level of current trade integration with EAEU countries is one of the key prerequisites for Tajikistan’s accession to the Union. The share of mutual trade was 39% in 2019, which is higher than in many current EAEU member states.
For example, Armenia’s experience (Chart 1) suggests that possible joining the Union should help it boost exports of agricultural and light industry products.
Chart 1. Armenia’s exports to the EAEU, US $ million
Source: Trademap, Central Bank of Russia, EDB’s calculations
However, EDB experts emphasise that the key driver for Tajikistan’s development in the event of its possible integration with the EAEU will be the advantages associated with the single labour market. A striking example of the effectiveness of the Eurasian single labour market is Kyrgyzstan (Chart 2). Accession to the Union in 2015 allowed to increase the number of Kyrgyz migrant workers due to the most favourable treatment despite the crisis that occurred that year and to considerably boost the remittances over the last five years. Tajikistan, on the other hand, has so far been unable to recover to the level of 2014. Should the country join the Eurasian Economic Union, the EDB estimates that not only remittances can be expected to grow, but also the wages of migrants – by an average of 10-30%. All these changes may stimulate additional accumulated remittances of US $1.3-1.5 billion within five years of the country’s joining the Union.
Chart 2. Remittances from Russia, 2007=100
Source: Trademap, Central Bank of Russia, EDB’s calculations
Tajikistan’s accession to the Eurasian Economic Union may also be conducive in the medium term to simplifying the rules of doing business, and to creating more favourable conditions for attracting direct investments.
Institutional improvements are a priority that can offset the costs of Tajikistan’s accession to the EAEU and ensure the realisation of the trade and investment potential of cooperation. “The effects of Tajikistan’s possible accession to the Eurasian Economic Union will be achieved as fully as it is possible to remove or reduce structural constraints. These include a favourable institutional regime, transport routes, secured access to markets, and development of the water and energy sector,” says Evgeny Vinokurov, Chief Economist at the EDB and the EFSD. “In addition, Tajikistan’s possible integration with EAEU countries might need to be considered in the wider context of developing the economic potential of cooperation throughout the Central Asian region.” A comprehensive approach to water use and transport connectivity across the region can significantly enhance the economic impact of cooperation.
In spite of the mentioned significant benefits, the Tajikistan’s possible accession to the EAEU is also associated with some short-term costs. Potential disadvantages include a possible reduction in trade turnover with third countries, the risk of losing sources of financing for economic development, as well as challenges associated with bringing the national legal framework in line with Union requirements.
A comprehensive analysis of the benefits and costs of Tajikistan’s possible accession to the Eurasian Economic Union, as presented in the EDB’s report, suggests that this may have a significant positive effect on the country’s long-term development. The increase in the annual growth rate of Tajikistan’s economy may reach up to 3 percentage points, boosted by enhanced investment, job creation, and involvement in the production of new labour resources, as well as improved productivity as a result of technology transfer and the positive impact of accession on the institutional environment. In addition to economic growth, Tajikistan’s accession to the Union will contribute to macroeconomic stability – inflation is expected to stabilise at 5% and the debt-to-GDP ratio to decrease by 5-8 percentage points (Chart 3). In addition, the country’s joining the EAEU may result in an improvement of its sovereign rating.
|
Chart 3. Tajikistan’s economic development in the event it joins the EAEU (medium- and long-term outlook)
|
The paper will be represented and disseminated at the First Eurasian Congress to be hosted by the EDB on 4 December 2020.
Other reports and papers by the EDB and the EFSD are available in the Research section on the Bank’s website and the Publications and Research section on the Fund’s website.
Additional Information:
The Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.
The Eurasian Fund for Stabilization and Development (EFSD) amounting to US$8.513 billion was formed on 9 June 2009 by the governments of the same six countries. The EFSD assists its member states in overcoming the consequences of the global financial crisis, ensuring their economic and financial stability, and fostering integration in the region. The EFSD member countries signed the Fund Management Agreement with Eurasian Development Bank giving it the role of the EFSD Resources Manager.
The EDB Media Centre:
Alexander Savelyev +7 (985) 765 23 59 (Moscow)
Azima Sapargaliyeva +7 (777) 750 00 08 (Almaty)
Sergey Gorbachev +7 (916) 727 22 00 (Moscow)