By Raphael Minder in Bangkok and Isabel Gorst in Moscow
Financial Times
The central bank of Tajikistan was able to guarantee lending to the country’s troubled cotton sector in part because of a failure by accountants at PwC to spot that such central bank pledging was occurring, the International Monetary Fund has claimed.
Last week, the IMF ordered Tajikistan to repay $47.4m (€30.35m, £23.32m) of loans for breaching its reporting rules, a sanction that could threaten both the financial solidity and reputation of what is already central Asia’s poorest country. Mohsin Khan, director of the IMF’s Middle East and Central Asia Department, told the FT that Tajikistan’s misreporting occurred "over a number of years" but the IMF continued to support the country because "we were totally unaware of this".
He added: "The question is why we didn’t catch it. We were shown the balance sheet of the national bank and it had unqualified reports from PwC in Rotterdam. PwC told us that these accounts were fine so we took them at face value. For several years we were just going by the audits."
However, the problem was identified during separate probes by other lenders including the Asian Development Bank into the sustainability of cotton production, the backbone of the Tajik economy. The sector is suffering from high debt, poor infrastructure and falling revenues. According to the IMF, the accounting flaws also emerged because one of the international banks lending to Tajikistan, Kazkommertsbank, Kazakhstan’s biggest bank, was facing a credit squeeze at home and no longer wanted to extend loans to neighbouring Tajikistan.
Asked to respond to the IMF’s claims regarding Tajikistan, PwC said only a client could comment on its work. "Because of audit rules we aren’t allowed to give comments on audit issues by clients," said Meint Waterlander, PwC spokesman in the Netherlands. The Tajik central bank has promised to make the first of six IMF reimbursements in September. Furthermore, the IMF is awaiting a new audit of the central bank, while other donors are also seeking clarification as to the whereabouts of about $500m in commercial loans to the cotton sector, mainly channelled through a local financial institution called Creditinvest.
Mr Khan said: "It is now going to boil down to this audit. It is only really then that I will be confident that we will have a full picture. Was it fraud, mistakes or some systematic policy?
"The country is going to have to work hard at re-establishing its credibility."
