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Economy

China extends Tajikistan $500 million swap line to keep currency afloat

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Tajikistan's soldiers march during China's military parade marking the 70th anniversary of the end of World War II in Beijing on Sept. 3.   © Reuters

ALMATY, Kazakhstan -- China signed a $500 million currency swap agreement with Tajikistan on Sept. 3 that will provide its Central Asian neighbor with much-needed cash to keep its currency afloat, a spokesperson from the National Bank of Tajikistan confirmed to the Nikkei Asian Review.

   While the agreement will come as a relief to Tajikistan, it also allows Beijing to further increase its leverage over the Tajik economy -- China is already the country's largest creditor and foreign investor -- and to deepen its footprint in Central Asia after the swap agreements signed with Kazakhstan and Mongolia in 2011 and renewed in 2014.

   Tajikistan is struggling to weather the economic storm blowing from Russia, where a recession is badly hitting the flow of remittances sent back home by the thousands of Tajik migrants working there. Remittances were equivalent to almost half of gross domestic product in 2014, confirming Tajikistan is the world's most dependent country on remittances.

    The World Bank now expects this huge inflow of hard currency to plummet by 40% in 2015 as Tajik migrant workers lose their jobs or see the real value of their salaries plummet in the currency market as a consequence of a weakening Russian ruble.

   As the country's main source of hard currency weakens, the Tajik somoni is inevitably paying a toll. The currency depreciated by 19.5% against the U.S. dollar in the year to date and by another 11.1% in 2014. Foreign reserves of the National Bank were flat at the end of June at around $441.3 million, not even enough to cover two months of imports.

    Tajik authorities will now be able to rely on the 3.1 billion yuan lifeline made available by the People's Bank of China over the next three years, the National Bank's spokesperson confirmed. It will provide further support to the somoni, finance the country's recurring balance of payments deficits and even back the development of local small and medium enterprises, which give jobs to about half of the Tajik workforce.

    Largely ignored by Western countries and also somewhat by Russia, Tajikistan has quickly fallen under the Chinese sphere of influence, with Beijing seeing the country as the shortest route to resource-rich Central Asian and Middle Eastern countries and therefore a key square on its Asian chessboard.

    Chinese state and private investors have already pledged to invest around $6 billion into Tajikistan over the next three years, a game changing figure for a country whose GDP did not reach beyond $8.5 billion in 2014.

    Line D of the Central Asia-China gas pipeline -- which connects western China with Turkmenistan's huge gas fields via Uzbekistan, Tajikistan and Kyrgyzstan -- stands out as the main single Chinese project under development, with China National Petroleum Company investing $3.2 billion in the Tajik stretch of the pipeline. Other major Chinese investments concern road development and cement production facilities.

    While the investment likely comes as a blessing to the local elite, headed by long-time strongman Emomali Rahmon, local observers view the increasing Chinese influence more warily.

    "As it loses its economic independence [through growing Chinese debt], Tajikistan will be allowing unhindered access to mineral and other resources, and offering controlling stakes in strategic enterprises as forms of payment... And it can be assumed that the expansion of the Chinese in Tajikistan can cause resistance in the population," Saodat Olimova, a former associate in the al-Farabi Carnegie Program on Central Asia and head of SHARQ (ORIENS), a Tajik independent research center, noted in an interview in 2014.

    Olimova added that the scale of China's expansion into and lending to Tajikistan reminded her of the unhappy experiences of China's other satellite countries such as Myanmar, which fell under Beijing's sphere of influence when China invested billions of dollars into developing its vast natural resources and transport infrastructure leading to the Indian ocean. 

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