Press Release: IMF Approves Stand-by Credit and Second STF Drawing for Republic of Uzbekistan

December 18, 1995

The International Monetary Fund (IMF) today approved credits for the Republic of Uzbekistan totaling SDR 174.6 million (about $259 million) to support the Government's 1995/96 economic reform program. Of the total, the equivalent of SDR 124.7 million (about $185 million) is being made available under a 15-month stand-by credit, and SDR 49.9 million (about $74 million) is being disbursed as Uzbekistan's second drawing under the systemic transformation facility (STF).1 The first drawing under the STF, also of SDR 49.9 million, was approved on January 25, 1995 (see Press Release No. 95/7).


Uzbekistan has made significant progress in achieving the objectives of its program of macroeconomic stabilization and reform that was begun in late 1994 and was supported by the first STF drawing. The goals of the program were to limit the decline in real GDP and to reduce inflation, while carrying out structural and institutional reforms to speed up the market-orientation of the economy. Inflation proved, however, to be initially higher than programmed, due to a faster-than-envisaged liberalization of prices and a sharper-than-intended growth in monetary aggregates. The authorities responded by tightening financial policies in early 1995. These brought stability to the foreign exchange market, a development that enabled Uzbekistan to carry out a major liberalization of the foreign exchange system, including the ending of restrictions on the purchase by individuals of foreign exchange. On the structural front, performance was more mixed. In some areas, such as the liberalization of prices and the exchange system, the authorities went further than envisaged under the program. In other areas--such as the adoption of central bank legislation and the auditing of commercial banks--there were delays, although these were due in part to technical reasons.

The Program for 1995/96

The main objectives of the economic program for October 1995-December 1996--supported by the second drawing under the STF and the stand-by credit--are to consolidate the gains made so far in macroeconomic stabilization, and to lay the foundation for economic recovery and improved living standards. These objectives will be achieved by accelerating market-oriented reforms and reducing administrative interventions in the economy. The main macroeconomic objectives of the program are to reduce the decline in real economic activity to 1 1/2 percent in 1996, from about 2 percent in 1995; and to cut the rate of inflation to 21-25 percent in 1996, from more than 100 percent this year. The external current account deficit is expected to double to 5 percent of GDP in 1996, as a result of the liberalization of the foreign exchange and trade systems, as well as higher capital imports associated with investments in infrastructure. Gross official reserves are projected to remain at a relatively high level of 5 1/2 months of imports next year.

To achieve the program objectives, the authorities will maintain tight monetary and credit policies to reduce inflation, and to ensure a strong currency, and will continue their restrained fiscal policy. As a first step towards reducing the role of government in the economy, both revenues and expenditures are expected to decline in relation to GDP by 4 1/2 percentage points in 1996 compared with 1995, while the overall deficit is expected to be unchanged at about 4 percent of GDP. These financial policies will be supported by a tax-based incomes policy.

Structural Reforms

Uzbekistan intends to add momentum to its structural reform efforts, with particular emphasis on the privatization of medium and large-scale enterprises, enterprise reform, continued liberalization of foreign trade, and further disengagement of the Government in economic activity. In the monetary area, structural reforms will include steps to improve policy formation; introduction of new central bank and commercial bank laws; improved bank supervision and measures to deal with nonperforming assets of banks; and measures to improve the functioning of the payments system. In the fiscal area, reforms will include eliminating the foreign exchange budget; reducing state orders and increasing procurement prices for cotton and grain; reducing the Government's demand for credit from the Central Bank and, over the medium-term, from the banking system; and work towards establishing a Treasury. The authorities also plan to introduce a number of measures to liberalize the trade system, including a reduction in the number of goods subject to export licensing; rationalizing the import duty system; and reducing the number of items subject to export duty, as well as cutting the maximum export duty rate.

Addressing Social Costs

The program provides for social safety net measures to protect the most vulnerable segments of the population through a better targeting of social benefits, and the authorities plan to continue reform of the pension system.

The Challenge Ahead

The Uzbek authorities are fully aware that a consolidation of the stabilization gains achieved during 1995 and the creation of conditions for a resumption of economic growth will require perseverance in carrying out macroeconomic policies under the program and a speeding up of structural reforms.

Uzbekistan joined the IMF on September 21, 1992, and its quota2 is SDR 199.5 million (about $296 million); its outstanding use of IMF credit currently totals SDR 50 million (about $74 million).

Uzbekistan: Selected Economic Indicators

  1994 1995* 1996**

(percent change)
Real economic growth –3.5 –2.0 –1.5
Consumer prices
    (end of period)
1,281 110–115 21–25
(percent of GDP)
Consolidated external current account balance
    (deficit –)
2.1 –2.5 –5.0
Consolidated fiscal balance
    (deficit –)
–7.1 –4.0 –4.0
Gross reserves in months of imports 5.9 6.0 5.5

Sources: Uzbek authorities; and IMF staff estimates and projections.

1. The STF is a temporary financing facility to provide assistance to member countries facing balance of payments difficulties arising from severe disruptions of their traditional trade and payments arrangements owing to a shift from significant reliance on trading at nonmarket prices to a multilateral, market-based trading system.

2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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