Recent economic and financial downturn during the period of 2014 – 2015 caused a numerous challenges in the Tajik Economy. Tajik economy is small open economy, landlocked with weak economic fundamentals, high dependency on remittances from Russia, and high level of dollarization with underdeveloped banking sector. The banking sector of Tajikistan dominated by weak commercial banks. There are several small insurance funds with literally tiny share in the financial sector and practically no capital markets.
Banking sector is in its embryonic stage of development, with highly dollarized economy and dependency from remittance inflows. During the recent economic downturn in Russian economy and decrease in the world oil price damaged the overall financial sector. Tajik Government supported 2 systemically important banks (SIBs) – TojikSodirotbank and Agroinvestbank, at the same time several commercial banks and microfinance organizations have gone bankrupt. It raised uncertainty in the overall economy, suddenly decreased public confidence in the banking system and people demanded money from the banks. In line with depreciation of national currency, customers who borrowed money in USD were unable to repay debt, commercial banks faced a serious liquidity issues and it spur up in the whole country, which also depositors were demanding money from commercial banks.

CHALLENGES IN THE BANKING SECTOR

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Like other countries in the Central Asia, Tajikistan also faced a major shocks in 2014 – 2015 mainly due to slowdown in Russian remittances trasfers. Through the exchange rate channel, effected Tajik economy as Tajikistan considered import – oriented economy.
Financial and economic downturn had negatively to the Tajik economy, especially the banking sector. Tajik economy is small open economy with lowest GDP per capita in the region had suffered from exchange rate shock and insolvency of banking sector. Decrease in the world oil price and sanctions of western countries against Russia, and thus economic situations in Russian deteriorated. It is worth noting, that tajik economy is very weak and vulnerable to external shocks, and has a lot remittances inflows from migrants, who are working in Russia. Remittances are the large share of Tajik economy (38% of GDP, as of 2015), and when Russian ruble had been sharply depreciated, which lowered the income of migrants who are working in Russia.
It had a negative on overall economic activity in Tajikistan, especially banking sector suffered from liquidity issues. Inevitably, Government of Tajikistan had bailed out 2 most systemically important bank, and assigned temporary administration from central bank to control and manage the commercial banks, which faced difficulties during this period. Several other commercial banks were announced bankrupt, because of inability of servicing their depositors.
With the underdeveloped financial system in the region, Tajikistan is faced with key challenges in terms of financial development. If we define financial development as a combination of access (ability of individuals to access financial services), depth (size and liquidity of markets), and efficiency (ability of institutions to provide financial services at low cost and with sustainable revenues).
Remittances inflows felt in 2016 and caused, which subsequently depreciated somoni against US dollars. Central banks reserves depleted to manage exchange rate and let the somoni to depreciate. Exchange rate of somoni against USD has been sharply decreased by 50% in nominal terms since the end of 2014. However, the market rate started to depreciate gradually in 2016 and has been continues throughout 2017.