Despite continuing external challenges, economic output rose strongly in 2016 according to official estimates. Driven mainly by foreign-financed public and private investment, real gross domestic product (GDP) expanded by a robust 6.9 percent. At the same time, a protracted decline in real remittances and exchange rate depreciation in the context of an improving but still complex external environment led to a significant adjustment in the current account balance. The authorities pursued expansionary fiscal policies in 2016, including through a considerable increase in foreign-financed capital investment in the energy sector, road infrastructure, and projects related to the country's 25th anniversary of independence. The government also stimulated domestic demand by raising public sector wages and social transfers. Monetary policy was accommodative, supporting a heightened demand for local currency as the exchange rate stabilized and wholesale transactions that were previously conducted in foreign currency switched to local currency. Materialized risk in the financial sector and the subsequent bailout of Tajikistan's two largest banks at end-2016 resulted in a deterioration of fiscal and debt sustainability indicators. Lingering challenges in the financial sector, high state-owned enterprise (SOE) contingent liability risk, and an unconducive business climate weigh on economic growth prospects. A weaker-than-expected recovery in regional economies or delays in the expansion of the targeted social assistance (TSA) program can derail poverty reduction efforts. Continuing challenges in accessing credit by pro-poor sectors of the economy will diminish the pace of both poverty reduction and job creation in low-skilled sectors like construction and agriculture.