1.1 What is economics? Questionbank

Tajikistan is a mountainous, landlocked country in Central Asia. It faces several development challenges, including a relatively high rate of poverty, a narrow export base (primarily cotton and aluminum), an aging infrastructure, and a heavy reliance on worker remittances sent from abroad—remittances constitute about 28% of the country’s GDP by some estimates. The agricultural sector accounts for about 20% of GDP but employs around 45% of the labour force. While the country has achieved steady growth in recent years, much of the population remains vulnerable to external shocks such as declining global commodity prices, extreme weather events, and reductions in remittances.

The government’s revenue is primarily derived from three main types of taxes: corporate income tax, personal income tax, and a value-added tax (VAT). Despite the relatively low nominal rates, challenges in tax collection remain. Tajikistan’s trade balance has been in persistent deficit for most of the last decade, with imports of consumer and capital goods outstripping exports such as cotton, aluminum, and fresh fruits. The country’s real GDP growth, unemployment rate, and Gini coefficient are presented in Table 1.

Below is a snapshot of key macroeconomic indicators, the country’s tax structure, selected data on income distribution, and information on cotton as a key export.

Table 1: Macroeconomic Indicators in Tajikistan (2017–2021)

Table 2: Tax Structure in Tajikistan

Table 3: Income Distribution by Population Groups (2021)

Figure 1: Market for Cotton in Tajikistan (2021 → 2022)

Assume the price of cotton per bale (in TJS) increased from 10 to 12 between 2021 and 2022. Over the same period, the quantity demanded decreased from 500 000 bales to 470 000 bales, while the quantity supplied increased from 400 000 bales to 420 000 bales.

In 2021, the government introduced a stimulus package injecting TJS 600 million into the economy (for infrastructure projects and social spending). Economists estimate the marginal propensity to consume (MPC) in Tajikistan to be about 0.75.

Tajikistan’s heavy reliance on foreign remittances has raised concerns about macroeconomic vulnerability. A sudden drop in remittance inflows could constrain households’ consumption, reduce revenue from indirect taxes, and undermine the country’s balance of payments.

Economic Challenges and Opportunities in the Maldives

The Maldives, an archipelagic nation in the Indian Ocean, has long been renowned for its pristine beaches and vibrant marine life. Tourism remains the main pillar of the Maldivian economy, contributing more than one-third of its gross domestic product (GDP) and employing a significant portion of the workforce. Real GDP growth averaged 4% between 2018 and 2019, but declined to 1.6% in 2020 due to global economic disruptions. In 2021, it rebounded to 3.5%, supported by a surge in tourist arrivals and partial recovery in global travel demand. However, economic volatility continues to pose challenges, especially as the country relies heavily on imports for food and fuel.

Alongside tourism, the fisheries sector is economically and culturally significant. The government enforces a price floor on tuna purchases from local fishermen to ensure they receive a fair income. While this policy helps sustain small-scale fishers, it can create surplus fish if international demand weakens. In recent years, fish exports to Asia and Europe accounted for nearly 12% of total export earnings in 2021.

Inflation in the Maldives has been modest, averaging around 3% over the past few years. Yet, persistent unemployment in some atolls remains a problem, particularly among young people not employed in tourism or fishing. To address income disparities and develop remote islands, the government subsidizes electricity for households located far from the main grid. These subsidies aim to reduce the social cost of living in isolated regions, but they also place pressure on the public budget, which has recorded deficits above 7% of GDP since 2019.

Foreign direct investment (FDI) plays an important role in funding large-scale resort developments. However, the proportion of FDI directed toward sectors beyond tourism such as manufacturing or technology remains limited. To encourage economic diversification, authorities have started offering tax incentives for investors in renewable energy projects, hoping to reduce heavy reliance on diesel-fueled power generation.

The Maldives is highly vulnerable to climate change and rising sea levels, which threaten its tourism infrastructure and coastal communities. Large infrastructure programs are underway to shore up coastal defenses, particularly around the capital, Malé. Supporters of these projects argue they are crucial for long-term survival, while critics highlight the growing external debt. With the country depending substantially on tourism-related foreign exchange inflows, shocks to global travel can rapidly affect government revenues and reserves.

Although official poverty rates have declined over the past decade, some communities still slip into cycles of low income and limited access to education, known as a “poverty trap.” Government data suggest that around 5% of the population lived below the national poverty line in 2021, with rates higher in outer atolls than in the capital region. To reduce poverty, government initiatives include vocational training, microfinance programs, and short-term public works.

Investment in human capital is on the rise, with increased spending on tertiary education. Policymakers believe that building a skilled workforce can support service-oriented industries beyond tourism, such as financial services and software development. Yet educational disparities persist, as remote island communities struggle to attract qualified teachers. A shift toward high-value tourism models featuring luxury resorts risks exacerbating inequality unless local populations gain easier access to job-training programs.

Improving trade relationships is also a priority. The Maldives primarily imports machinery, fuel, and some staple foods, while exporting tourism services and fish products. Exchange rate stability remains a focus of the central bank, which manages the Maldivian rufiyaa (MVR) within a narrow band. Nonetheless, local businesses frequently use foreign currencies, especially the U.S. dollar, to pay for imports and resort-related transactions.

The long-term trajectory of the Maldives will hinge on its ability to diversify beyond tourism, protect fragile marine ecosystems, and ensure more inclusive development. Structural reforms and targeted government interventions such as subsidies for essential services and price floors in fisheries aim to balance social welfare with fiscal prudence. Whether these measures can create lasting gains in living standards depends on consistent policy implementation, increased resilience to climate risks, and the success of attracting FDI to a broader range of sectors.

Table 1 (Macroeconomic Indicators, 2018–2021)

Table 2 (Selected Development and Trade Indicators, 2019–2021)

The Impact of Subsidies on Agricultural Production in India

India's government introduced a large subsidy program for wheat farmers to ensure food security, stabilize domestic production, and protect farmers' incomes amidst rising global wheat prices. The government allocated funds for direct subsidies to farmers to reduce production costs, thus aiming to encourage more local production. The subsidies were primarily intended to reduce reliance on wheat imports and ensure a steady supply of affordable wheat for domestic consumers.

Despite the intention to improve local agricultural output, some analysts have criticized the policy for causing distortions in the market. The subsidized wheat prices led to a significant increase in production, but experts argue this might lead to overproduction, environmental degradation, and inefficient resource allocation. Additionally, the increase in local wheat production made it difficult for some small-scale farmers to compete.

The following data reflects changes in the wheat market over two years, and the government is considering extending the subsidy for another year to maintain production levels.

Table 1: Wheat Market Data Before and After Subsidy

To further assess the impact of subsidies, the following data shows the government's expenditure on subsidies and changes in farmers' incomes over the two years:

Table 2: Government Subsidy Expenditure and Farmers' Income

"The government’s introduction of subsidies aims to boost wheat production and reduce dependency on imports by lowering farmers' production costs. While the policy has succeeded in increasing production, critics argue that it distorts market prices and increases environmental pressures due to overproduction. Furthermore, the subsidy has resulted in increased wheat exports, which may affect the country’s trade balance. There are concerns that the policy's long-term sustainability could be undermined by the growing costs associated with the subsidies and the risk of creating market inefficiencies."