## 1uzbea2019002 — Fiscal Transparency Evaluation (Uzbekistan) ## Source details **Canonical URL:** [1uzbea2019002 — Fiscal Transparency Evaluation (Uzbekistan)](https://www.imf.org/-/media/files/publications/cr/2019/1uzbea2019002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1uzbea2019002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1uzbea2019002.pdf.json) --- ### Mission, timing, and scope - IMF staff team visited Tashkent from June 11–25, 2018 to conduct a Fiscal Transparency Evaluation based on the IMF’s Fiscal Transparency Code. - Preliminary visit: May 16–18, 2018. - Mission composition: Amanda Sayegh (head), Fazeer Rahim, Viera Karolova, John Zohrab, and Matt Crooke. - Evaluation based on information available at the time of the visit in May 2018. - Findings and recommendations represent the views and advice of the IMF team; unless otherwise specified, data presented are IMF team estimates and not official estimates of the government of Uzbekistan. ### Executive-summary key findings (high level) - Uzbekistan is undertaking comprehensive public financial management and fiscal transparency reforms; concept notes prepared for PFM strengthening, fiscal reporting, and introduction of a medium-term budget framework. - Tangible 2017–2018 gains: draft budget and detailed budget estimates made public for the first time; detailed reports on execution and audit published; government external debt and guaranteed debt statistics disclosed; government finance statistics publication now reports around 90 percent of general government activity. - Assessment against the Fiscal Transparency Code: meets at least the basic standard of practice on 16 of 36 principles. - Major remaining gaps and weaknesses: - Not all extrabudgetary funds captured; large share of fiscal activity channeled through off-budget accounts of budgetary organizations; general government expenditure understated by around 3 percent of GDP in 2016. - Significant asset holdings and non-debt liabilities not published in consolidated fiscal reports. - Revenue foregone from tax expenditures is significant, estimated but not disclosed. - Presentation differences across reports remain; for 2017, revenues and expenditures for the state budget sector differed by 9 percent of GDP between the end-year report and government finance statistics. - Budget lacks forward-looking policy focus—forecasts presented for the budget year only without clear fiscal objectives; investment planning only partially incorporated. - Limited analysis and disclosure of the main sources of fiscal risks despite these being sizeable—explicit and implicit sources of fiscal risks are in the order of 60 percent of GDP. ### Public sector overview (IMF team estimates, based on 2016 data) - Public sector revenues: 41.7 percent of GDP. - Public sector expenditures: 39.6 percent of GDP. - Public sector assets: estimated at 406 percent of GDP. - Public sector liabilities: 72 percent of GDP. - Public sector net worth: estimated at around 334 percent of GDP. - Public sector net financial worth: estimated at around 50 percent of GDP. - Overall assessment: public sector net worth and net financial worth compare favorably with other countries (with caveats on asset valuation and liability coverage). ### Coverage of institutions, stocks, and flows — findings and quantified impacts - Public sector comprises at least 2,400 separate units. - Subcomponents (Table 1.2, percent of GDP): - Public Sector: Number of entities 2,413; Revenue 41.7; Expenditure 39.6; Balance 2.2; Net expenditure 39.6; Share 100.0. - General government: Number of entities 294; Revenue 33.5; Expenditure 31.7; Balance 1.8; Net expenditure 31.1; Share 78.6. - Central government: Number of entities 40; Revenue 17.8; Expenditure 16.5; Balance 1.3; Net expenditure 13.0; Share 32.8. - Budgetary Central government: Number of entities 29; Revenue 15.0; Expenditure 14.5; Balance 0.5; Net expenditure 10.3; Share 26.0. - EBFs: Number of entities 9; Revenue 3.5; Expenditure 2.7; Balance 0.8; Net expenditure 2.7; Share 6.8. - Social Security Funds: Number of entities 2; Revenue 7.4; Expenditure 7.3; Balance 0.1; Net expenditure 7.3; Share 18.5. - Local governments: Number of entities 214; Revenue 11.1; Expenditure 10.8; Balance 0.3; Net expenditure 10.8; Share 27.3. - Nonfinancial public corporations: Number of entities 2,107; Revenue 6.2; Expenditure 6.2; Balance 0.0; Net expenditure 6.1; Share 15.5. - Financial public corporations, incl. CB: Number of entities 12; Revenue 2.7; Expenditure 2.3; Balance 0.4; Net expenditure 0.0; Share 5.9. - Coverage assessment: - General government GFS reports cover budgetary central government, subnational governments, social security funds, and central government extrabudgetary funds, combined covering 90 percent of general government activity. - Material gaps: three EBFs (Book Fund, Children Fund, Aral Sea Fund), the Deposit Insurance Fund (DIF), and certain public corporations not captured; central budgetary organizations’ off-budget accounts not covered. Combined net expenditures of excluded units accounted for 3 percent of GDP. - No consolidated public sector reporting; public corporations represent the largest reporting gap. - Impact of expanding institutional coverage (2016 scenarios): - Including and consolidating missing extrabudgetary organizations under government control and off-budget accounts: - Adds around 2.9 percent of GDP to consolidated revenue. - Adds 3 percent of GDP to consolidated expenditure. - Effect on consolidated general government surplus: reported surplus for consolidated general government sector of -0.1 percent of GDP, reducing it to 1.8 percent of GDP. - Expanding coverage to include public corporations: - Adds a further 9 percent of GDP to revenue. - Adds 8.6 percent of GDP to expenditure. - Increases the public sector surplus by 0.4 percent of GDP, to 2.2 percent of GDP. - Coverage of stocks (selected exact figures, IMF staff estimates, end-2016 unless noted): - Cash and deposits (compiled by CBU but not published in fiscal reports): 29.9 percent of GDP at end-2016. - External debt contracted by state budget: 7.2 percent of GDP at end-2016; on-lent to public corporations 5.2 percent of GDP at end-2016. - Reported external debt at end-2017: 8.8 percent of GDP; on-lent to PCs 6.6 percent of GDP. - Other accounts receivable/payable for general government at end-2016: 0.5 and 2.5 percent of GDP respectively (compiled in budgetary organizations’ balance sheets but not published). - Nonfinancial assets in budgetary organizations’ balance sheets: 9.9 percent of GDP at end-2016 (does not include state-owned infrastructure assets). - Estimated value of subsoil assets: around 258 percent of GDP (significant uncertainty). - Public corporations’ assets (available sample): 110 percent of GDP; outstanding liabilities (other than equity) 91.9 percent of GDP at end-2016. - Consolidated public sector balance sheet estimates (end-2016, IMF staff estimates): - Consolidated public sector asset holdings: 406.3 percent of GDP. - Consolidated public sector liabilities: 72 percent of GDP. - Public sector net worth: 334.3 percent of GDP. - Public sector net financial worth: 50.4 percent of GDP. - Nonfinancial assets: 283.9 percent of GDP. - Financial assets: 122.4 percent of GDP. - Composition of financial assets: monetary gold and foreign reserves and related items account for 40 percent of total financial assets; loans and securities account for 35 percent of total financial assets. - Liabilities other than equity: 69 percent of GDP. - Coverage of flows assessment: principle rated "Not Met" — no report provides a complete picture of public sector activity; flows of unreported units (EBFs, DIF, certain PCs, off-budget accounts) are not consolidated. ### Off-budget accounts, EBFs, tax expenditures, and accrual information - Off-budget accounts: - Budgetary organizations hold around 200 off-budget accounts not captured in published fiscal reports. - Off-budget account flows (selected years): - 2016: revenues and expenditures passing through off-budget accounts accounted for 2.6 percent of GDP, with no impact on the general government balance. - 2017: revenues accounted for 5.4 percent of GDP and expenditures for 4.6 percent of GDP (passing through off-budget accounts). - Donor grants and related expenditure estimated by government to be around 2 percent of GDP in 2018 and are not included in fiscal and statistical reports. - Including Children’s Sport Fund, Aral Sea Fund, and DIF would increase government revenue and expenditure by 0.4 and 0.3 percent of GDP respectively. - Taxes retained by corporations: - Taxes retained by corporations (PCs) are not included in fiscal reports; amount was not available at time of evaluation. - International standards: retained taxes should be rerouted through government accounts and recorded as government revenue and then as subsidy/capital transfer/other expenditure. - Accrual information: - Cash-based published fiscal reports do not capture accrued information available in budgetary organizations’ balance sheets. - 2016 accrual indicators: estimated increase in other accounts receivable and other accounts payable of budgetary organizations accounted for 0.2 and 0.6 percent of GDP respectively — implying revenue higher by 0.2 percent of GDP and expenditure higher by 0.6 percent of GDP on an accrual basis, reducing the surplus by 0.4 percent of GDP. - Misclassification example: - 2016 revenue from “exchange profit” on reserves in foreign currency recorded by two EBFs — GFSM 2014 treats revaluation gains as revaluation, not revenue. Exclusion of the exchange profit decreased the government surplus by 3 percent of GDP in 2016. - Net effect of addressing reported gaps (2016): - Increase reported general government expenditure by 3.0 percent of GDP. - Reduce reported revenues by 0.1 percent of GDP. - Reduce the reported budget balance by 3.1 percent of GDP, to 1.8 percent of GDP in 2016. - Considering flows in other accounts receivable/payable may potentially worsen the surplus by an additional 0.4 percent of GDP. - Coverage of tax expenditures (principle assessed "Not Met"): - Government does not publish estimates of revenue loss from tax expenditures but expects to do so; May 2018 presidential resolution requires MoF to include estimated revenue loss in 2019 state budget documentation. - Authorities’ preliminary estimates of revenue losses from tax expenditures are in the order of 18 percent of GDP (acknowledged likely an overstatement due to methodological issues). ### Frequency, timeliness, quality, and integrity of fiscal reports - Frequency and timeliness: - Preliminary in-year reports on state budget execution published within 25 days of quarter end; final reports within 45 days. - Quarterly GFS reports: Coverage GG; Basis Cash; Frequency Qtrly; Lag 3m. - Final Annual execution report on State Budget and STFs: Frequency Annual; Lag 6m. - Audited annual budget execution report for the state budget for 2017 was published before end-June 2018. - Quality and consistency: - Classification: "Not Met" — reports present spending by economic and functional classification but not by administrative unit; economic and functional classifications need further alignment with international standards; program classification not yet in place. - Internal consistency: "Basic" — one of three internal consistency checks published; no reconciliation between net financing and change in stock of debt (stock-flow adjustment). - Historical revisions: "Not Met" — fiscal statistics are not revised; annual submissions to IMF commenced in 2011 and historical fiscal data published by authorities not revised. - Integrity and audit: - Statistical integrity: "Basic" — MoF compiles and publishes fiscal statistics on GFSM 2014 basis; no standalone fiscal statistics unit within MoF. - External audit: "Basic" — Chamber of Accounts (COA) publishes report on annual execution (2017 report was first published); COA’s audit is mainly compliance-based, expresses opinion on reliability of annual report, and does not yet audit disaggregated entities’ financial statements prepared under legacy accrual framework. COA independence constrained by presidential directives and resource limitations; authorities considering new audit law to apply ISAs and strengthen independence. ### Comparability and reconciliation issues - Large differences in presentation across reports: - In 2017, revenues and expenditures of the State Budget excluding target funds were approximately 9 percent of GDP higher and the surplus lower by 0.1 percent of GDP than data in GFSM 2014 statistical report. - Drivers include treatment of financing operations and carryover surplus recorded differently between budget execution reports and GFS. ### Fiscal forecasting and budgeting — framework, performance, and reform status - Recent legal/procedural reforms: - Budget Code enacted in 2014; Law on Public Procurement enacted in 2018. - Draft budget (Budget Message) and detailed budget estimates published for first time during 2018 process. - 2019 budget will be first to contain medium-term fiscal aggregate projections and a statement of fiscal strategy. - Government planned first citizen’s budget for July 2018. - Budget unity and omissions (selected figures): - Off-budget accounts (2018 estimate): revenues retained in off-budget accounts and related expenditures around 1.5 percent of GDP. - Off-budget accounts (2017): revenues and expenditures accounted for 5.4 and 4.6 percent of GDP respectively. - Donor grants (2018 estimate): around 2 percent of GDP. - Tax revenues allocated to EBFs: example 3.5 percent tax levied on corporate entities estimated to collect around 1.8 percent of GDP in 2018 to some STFs. - Tax revenues retained by PCs: example Uzbekneftgaz retains excise share equivalent to about 0.2 percent of GDP (2018 Budget Message). - Aggregate impact of coverage gaps: - State budget expenditures and revenues underestimated by at least 3.5 percent of GDP, or around 16 percent of reported state budget expenditure. - Including revenues and expenditures of EBFs (other than UFRD) would add a further 10 percent of GDP to consolidated budget expenditures. - For 2018, consolidated expenditure of budgetary organizations and EBFs would be 13.5 percent of GDP higher than reported state budget expenditure. - Financing treatment and transparency: - Financing activities not separately presented in the budget; loans for policy purposes included in expenditure aggregates; drawdowns of cash balances recorded as revenue. - Recommendation: separately identify financing transactions for policy purposes and report both GFSM 2014-consistent budget balance and overall budget balance including lending for policy purposes; account for drawdowns of cash balances as below-the-line financing. - Macroeconomic forecast performance (historical errors): - Nominal GDP overestimated on average by 2.6 percent over past decade. - Absolute forecast error for nominal GDP averaged 5.7 percent over same period. - Real GDP forecasts: average absolute forecast error less than 0.4 percent over ten years; real GDP under-estimated by 0.2 percent on average; forecast errors ranged -2.5 to 1 percent. - For last year, authorities overestimated real GDP growth by 2.5 percent. - Revenue historically underestimated in each of past 10 years with average forecast error of 1.3 percent of GDP (6.6 per cent of forecast revenue). - Actual expenditure exceeded forecasts by average 0.6 percent of GDP over past decade (3.6 per cent of forecast expenditure). - State budget balance stronger than forecast on average by 0.7 percent of GDP over past decade; mean absolute forecast error of budget balance 1.6 percent of GDP. - Medium-Term Budget Framework (principle assessed "Not Met"): - Budget presents forecasts for budget year only; no presentation of budget allocations by Ministry or administrative unit, or by economic category; planned introduction of 3-year fiscal aggregate projections in 2019. - Public investment transparency: - Reported general government investment: 3.3 percent of GDP (2016) reported but likely under-stated. - IMF staff estimate total public investment around 6.7 percent of GDP in 2016. - Project appraisal and procurement: new guidelines (Presidential Decree No 3550 of 2018) require financial viability studies and cost-benefit analysis; procurement law No. 472 of 2018 requires competitiveness and transparency; centralized procurement portal established May 2018 (www.xarid.uz). - Fiscal legislation and timeliness (selected dates): - Budget Code requires draft budget submission to parliament no later than October 15 and approval no later than December 15; met in past five years except 2018 (approved December 20, 2017). - Table of dates (reported): - Submission to parliament: 3 Oct 2013; 8 Oct 2014; 5 Oct 2015; 3 Oct 2016; 15 Sept 2017. - Draft released: np; np; np; np; 21 Sept 2017. - Approval by parliament: 12 Dec 2013; 13 Nov 2014; 03 Dec 2015; 13 Dec 2016; 20 Dec 2017. - Approval by President: 25 Dec 2013; 22 Dec 2014; 22 Dec 2015; 27 Dec 2016; 29 Dec 2017. - Budget released: 28 Dec 2013*; 24 Dec 2014*; 25 Dec 2015*; 29 Dec 2016*; 30 Dec 2017. - Note: np denotes not published. - Policy orientation and fiscal objectives: "Not Met" — government lacks precise, time-bound numerical objectives for main fiscal aggregates; Budget Code requires public debt limit to be determined annually but not yet done. ### Credibility, performance information, public participation, and reform plans - Medium-term fiscal policy statement: - Government will prepare and submit to parliament a medium-term fiscal policy statement and fiscal aggregate projections as part of 2019–21 budget process. - Aggregates to cover revenue, expenditure, fiscal balance and public debt. - Performance information (Assessment: Not Met): - No program classification; published budget documentation lacks systematic objectives and results for each major policy area. - Government intent: introduce program budgeting and pilot before staged implementation. - Box 2.2 features to adopt (exact bullets preserved in source): each program logical grouping; sufficient levels; homogeneity; consistency with administrative structure; performance indicators aligned and reflective; concise and accessible budget documentation with more detail online. - Public participation (Assessment: Not Met): - No prior citizen’s budget published; limited public participation in past budget deliberations. - First citizen’s budget prepared for July 2018; plan to release citizen’s budget when draft budget presented to parliament. - Independent evaluation and forecast reconciliation (both assessed "Not Met"): - No comparison of government forecasts with independent forecasters; COA opinion on draft budget not published and does not provide complete evaluation of forecasts. - No regular mid-year forecast updates or decomposition of forecast changes. - Supplementary budget and within-year changes (Assessment: Basic): - Supplementary budget used once in past five years (December 20, 2017) authorizing aggregate expenditure increase of 4.6 percent; public investment increase of 27 percent; state administration increase of 21 percent; Cabinet reserve fund increase of 118 percent. - Budget Code requires parliamentary approval for variations to total state budget expenditure or EBF expenditure of more than 10 percent. - MoF authorizes lower-order variations; budgetary organizations may reallocate within their budgets up to four times per year without limit on size. ### Fiscal risks — disclosure, quantified exposures, and management - Macroeconomic risks: - Economy and revenue base volatile; general government revenue volatility "more than double that of nominal GDP". - Key risks: exchange rate liberalization, controlled price liberalization, commodity export dependence (gold, copper, gas), remittances from Russia. - No public disclosure of how macroeconomic risks impact public finances; recommendation to include sensitivity analysis and scenario quantification in budget documentation. - Specific fiscal risks — quantified exposures (selected figures, percent of GDP, Table 3.1 gross exposure): - Explicit guarantees on debt of public corporations: 2016 = 3 ; 2017 = 7 - Guaranteed Bank Deposits (net of DIF assets): 2016 = 18 ; 2017 = 23 - Non-deposit bank liabilities: 2016 = 20 ; 2017 = 36 - Of which: non-deposit liabilities of state-owned banks: 2016 = 13 ; 2017 = 23 - Unguaranteed non-equity liabilities of non-financial PCs: 2016 = 17 ; 2017 = na - Natural disasters (average annual loss): 2016 = 0.5 ; 2017 = 0.5 - Pension costs (expected increase, 2015 to 2050): 2016 = 8 ; 2017 = 8 - Health care costs (expected increase, 2015 to 2050): 2016 = 3 ; 2017 = 3 - Combined maximum fiscal exposure from summarized risks: 58 percent of GDP (noted as an upper limit). - Long-term sustainability: - Old age dependency ratio expected to increase threefold over next 30 years, from around 7 percent today to 21 percent by 2050. - Under unchanged policies, spending on pensions and health care expected to more than double by 2050, rising to 20 percent of GDP; pension spending projected at 15 percent of GDP in 2050. - Budgetary contingencies and reserves: - Budget Code (Article 73) requires unallocated budgetary reserves and does not impose a limit on their size; 2017 Presidential Decree mandates regional reserve allocation at least one percent of their spending. - Around 1,200 recourses to reserve funds in a typical year; criteria for access unclear; limited in-year disclosure — only aggregate amounts published. - Recommendation: establish transparent criteria for drawing on reserves and require detailed reporting of purposes. - Assets, liabilities, and debt characteristics: - All general government borrowings are in foreign currency, primarily US dollars. - About half external debt portfolio variable rate loans. - Debt portfolio effective interest rate "around 2 percent." - Debt portfolio average maturity 20 years. - General government financial assets at end-2016 estimated at 69 percent of GDP, mainly: - Currency and deposits including UFRD foreign currency deposits: 21.7 percent of GDP - Loans to PCs: 17 percent of GDP - Equity in public corporations: 21 percent of GDP - Recommendation: prepare and publish financial balance sheet to identify net exposures and support risk management. - Guarantees and PPPs: - Outstanding external loan guarantees 6.8 percent of GDP at end-2017 (published in aggregate but not by beneficiary). - Around 300 guarantees granted; 27 pay a fee. - Domestic loan guarantees stock: 0.004 percent of GDP in 2017. - PPPs: low but growing fiscal risk; exposures not quantified due to lack of data; draft PPP law expected to be submitted to Parliament. - Financial sector exposures (selected figures and indicators): - All bank deposits fully guaranteed; blanket guarantee to Xalq Bank deposits; DIF covers deposits at other 27 banks. - Eleven banks state-owned; combined liabilities 34 percent of GDP. - Net exposure of government (blanket guarantee and DIF) amounted to 23 percent of GDP in 2017. - Table 3.2 (selected values, UZS and percent of GDP): - 2016: Total bank liabilities 75,094 UZS, percent of GDP 38 - 2017: Total bank liabilities 145,956 UZS, percent of GDP 59 - 2016: Insured Bank deposits 36,341 UZS, percent of GDP 18 - 2017: Insured Bank deposits 58,668 UZS, percent of GDP 24 - 2016: Assets of Deposit Insurance Fund 469 UZS, percent of GDP 0.24 - 2017: Assets of Deposit Insurance Fund 591 UZS, percent of GDP 0.24 - 2016: Net exposure 35,872 UZS, percent of GDP 18 - 2017: Net exposure 58,077 UZS, percent of GDP 23 - Financial soundness indicators (Uzbekistan, March 2018): - Regulatory Capital to Risk-Weighted Assets 19.6; Non-performing Loans to Total Gross Loans 1.2; Return on Assets 2.0; Return on Equity 15.6; Liquid Assets to Short Term Liabilities 53.2; Net Open Position in Foreign Exchange to Capital 13.4. - Natural resources: - Proven reserves of oil, gas and minerals represent close to 260 percent of GDP (aggregate 258 percent as presented). - Oil: 34%; Gas: 129%; Minerals: 92%; Other: 2% (aggregate 258%). - Gold extraction: estimated reserve close to 2,000 tons; gold exports represent around 7 percent of GDP. - Government publishes proven reserves volumes but not estimates of value; proven gold reserve estimates treated as confidential. - Government publishes tax revenues on extraction of gold and copper amounting to 1.4 percent of GDP in 2017. ### Principal recommendations (summarized and prioritized) - Improve comprehensiveness, quality, comparability, and integrity of fiscal reports: - Expand coverage of statistical reports to include all institutional units that should be classified as part of general government, including all extrabudgetary funds and off-budget accounts of budgetary organizations. - Publish more detailed information on government liabilities and assets, initially developing a financial balance sheet for the general government. - Publish an annual statement on revenue forgone from tax expenditures. - Provide more detailed spending breakdowns, improve budget classifications to align with international guidelines, and explain main differences across reports. - Improve comprehensiveness, quality, and forward-looking orientation of the budget: - Bring off-budget accounts of budgetary organizations on budget and present consolidated fiscal aggregates for state budget and extra-budgetary funds combined. - Publish and clearly explain medium-term macroeconomic and fiscal forecasts underpinning the budget; present budget-year spending allocations by ministry and fiscal obligations of major publicly funded infrastructure projects. - Strengthen legislative oversight to reduce extent to which in-year changes can be made to aggregate expenditures without prior parliamentary approval. - Improve analysis and disclosure of fiscal risks: - Publish an annual statement on fiscal risks, including qualitative and progressively quantitative analysis of macroeconomic and specific fiscal risks. - Restrict criteria for drawing on budget reserves and ensure transparent reporting of reserve use. - Enhance financial oversight of public corporations by conducting regular assessments of potential risks and developing mitigation strategies; establish a central database of core financial information and require PCs to report quasi-fiscal activities. ### Government Fiscal Transparency Action Plan (2018–21) — selected measures and timelines - 1.1 Expand coverage and comprehensiveness of fiscal reports: report all revenues, expenditures and financing of general government units including off-budget accounts and externally-financed activities; review classification of entities reported as PCs; publish comprehensive lists of general government units and PCs. - 1.2 Publish balance sheet information for general government: statistical report on financial assets, liabilities, and non-financial assets; report on cash deposits, loans granted and debt liabilities of central and local budgetary units; work plan to improve valuation of assets/liabilities in line with IPSASs. - 1.3 Publish annual statement on tax expenditures: publish aggregate revenue forgone by main tax category and descriptions of policy objectives and beneficiary groups. - 1.4 Enhance quality, comparability and integrity of fiscal reporting: present GFSM 2014 economic classifications in budget execution reports; include revenues and spending by administrative unit in 2019 reports; publish explanatory reconciliation of differences between GFS and budget execution reports. - 2.1 Improve budget comprehensiveness: disclose expenses and financing transactions for policy purposes in 2019 annex; include consolidated fiscal aggregates in 2020 annex; bring off-budget accounts into state budget. - 2.2 Adopt transparent principles for MTBF: include forecasts for main macro variables in Annex 1 of 2019 Budget; present medium-term projections for aggregates; disclose investment project costs and financing in 2020 Budget annex. - 2.3 Strengthen budget integrity: amend Budget Code to reduce in-year expenditure flexibility and increase legislative scrutiny. - 3.1 Improve analysis and disclosure of fiscal risks: legislate publication of an annual fiscal risk statement; develop methodology and compile information; expand statement over time to include sensitivity analysis and ten-year DSA. - 3.2 Tighten criteria for drawing on budget contingency provisions: develop guidelines, amend legislation to set limits and report reserve use. - 3.3 Enhance financial oversight of public corporations: compile central database of financial information and state support; establish methodology for PC fiscal risk assessment; require PCs to report public service obligations. *Source: IMF staff assessment of Uzbekistan fiscal reporting, forecasting, budgeting and fiscal risk management practices (content unit 1uzbea2019002).* ### PREFACE _________________________________________________________________________________________ 6 ### PREFACE ### Mission, timing, and scope - An International Monetary Fund (IMF) staff team visited Tashkent from June 11–25, 2018 to conduct a Fiscal Transparency Evaluation based on the IMF’s Fiscal Transparency Code. - A preliminary visit to prepare for the evaluation was conducted by Amanda Sayegh during May 16-18, 2018. - Mission composition: Amanda Sayegh (head), Fazeer Rahim, Viera Karolova, John Zohrab, and Matt Crooke. - The evaluation is based on information available at the time of the visit in May 2018. - The findings and recommendations represent the views and advice of the IMF team and do not necessarily reflect those of the authorities. - Unless otherwise specified, the data presented in text, figures and tables in the report are estimates made by the IMF team and not official estimates of the government of Uzbekistan. ### Authorities and stakeholders consulted - Meetings with senior officials including: - First Deputy Minister of Finance Mr. Akhadbek Khaydarov; Head of the Main State Budget Department, Mr. Dilshod Sultanov; First Deputy Head of the Budget Department, Mr. Jamshid Abruev; Head of the Methodology Department, Mr. Ismonjon Mamadjanov; Chief Accountant, Mr. Ulugbek Rustamov; and other senior officials from the Budget Department, Department on Foreign Currency Assets and Liabilities; Department of Revenue Policy; Main Department for Finance and Tariff Regulation of Basic Industrial Sectors; and Main Department for Transportation and Communication Services. - First Deputy Minister of Economy, Mr. Mubin Mirzaev and senior officials from the Ministry of Economy. - Senior officials from the Central Bank of the Republic of Uzbekistan; Chamber of Accounts; State Tax Committee; State Customs Committee; National Agency for Project Management Under the President of Uzbekistan; State Statistics Committee; State Committee for Investments; State Committee for the Promotion of Privatized Enterprises and Development of Competition and Center for Management of State Assets; State Committee on Mineral Resources and Geology; State Committee on Ecology and Environmental Protection; Uzbekistan Fund for Reconstruction and Development; Pension Fund; and Tashkent City Administration. - Representatives from Uzbekneftagaz, O’zsanaotqurilishbank, United Nations Development Program (UNDP) and Asia Development Bank. - The IMF team thanks the authorities and other officials for collaboration, in particular Mr. Dilshod Sultanov; and acknowledges Ms. Galina Kostina, Mr. Alexander Bogdanov, Mr. Sherzod Adbinabiev, and Ms. Gulrukh Rakhmatullaeva for support and interpretation/translation services. ### Key findings from the Executive Summary - Uzbekistan is embarking on a comprehensive reform program to strengthen public financial management and fiscal transparency; concept notes have been prepared to strengthen public financial management, fiscal reporting and to support the introduction of a medium-term budget framework. - Tangible gains were made over 2017 and 2018: for the first time, the draft budget and detailed budget estimates were made available to the public, along with detailed reports on its execution and audit; government external debt and guaranteed debt statistics were disclosed; publication of government finance statistics now means that around 90 percent of general government activity is reported. - Assessed against the IMF’s Fiscal Transparency Code, Uzbekistan meets at least the basic standard of practice on 16 of 36 principles. - Remaining gaps and weaknesses: - Not all extra-budgetary funds are captured and a large share of fiscal activity is channeled through off-budget accounts of budgetary organizations; as a result, general government expenditure was understated by around 3 percent of GDP in 2016. - Sizeable asset holdings and non-debt liabilities, some reflected in financial statements compiled by budgetary organizations, are not published in consolidated fiscal reports. - Revenue foregone from tax expenditures is significant, is estimated but not disclosed. - Differences in presentation across various reports remain; for 2017, revenues and expenditures for the state budget sector differed by 9 percent of GDP between the end-year report and government finance statistics. - The budget lacks a forward-looking policy focus—forecasts are presented for the budget year only and are not guided by clear and precise fiscal objectives; investment planning is only partially incorporated. - Limited analysis and disclosure of the main sources of fiscal risks despite these being sizeable—explicit and implicit sources of fiscal risks are in the order of 60 percent of GDP. - Public sector overview (based on 2016 data, IMF team estimates): - Public sector revenues: 41.7 percent of GDP. - Public sector expenditures: 39.6 percent of GDP. - Public sector assets: estimated at 406 percent of GDP (reflecting large mineral reserves and financial assets holdings). - Public sector liabilities: 72 percent of GDP. - Public sector net worth: estimated at around 334 percent of GDP. - Public sector net financial worth: estimated at around 50 percent of GDP. - Overall, Uzbekistan’s public sector net worth and net financial worth compares favorably to other countries. ### Principal recommendations (summarized) - Improve comprehensiveness, quality, comparability, and integrity of fiscal reports: - Expand coverage of statistical reports to include all institutional units that should be classified as part of the general government, including all extrabudgetary funds and the off-budget accounts of budgetary organizations. - Publish more detailed information on government liabilities and assets, focusing initially on development of a financial balance sheet for the general government. - Publish an annual statement on the revenues foregone from tax expenditures. - Provide more detailed breakdowns of spending in fiscal reports, improve budget classifications to align more closely with international guidelines, and explain main differences in fiscal aggregates across statistical and fiscal reports. - Improve comprehensiveness, quality, and forward-looking orientation of the budget: - Bring off-budget accounts of budgetary organizations on budget and present, as part of the budget documentation, consolidated fiscal aggregates for the state budget and extra-budgetary funds combined. - Publish and clearly explain the medium-term macroeconomic and fiscal forecasts underpinning the budget and present budget year spending allocations by ministry as well as fiscal obligations of publicly funded major infrastructure projects. - Strengthen legislative oversight of the state budget to reduce the extent to which in-year changes can be made to aggregate expenditures without prior parliamentary approval. - Improve analysis and disclosure of fiscal risks: - Publish an annual statement on fiscal risks. - Restrict criteria for drawing on budget reserves and ensure more transparent reporting on the purposes for which reserves are used. - Enhance financial oversight of public corporations by conducting regular assessments of potential risks stemming from this sector and developing strategies to mitigate them. ### Report structure (remainder of the document) - Chapter I: coverage, timeliness, quality, and integrity of fiscal reporting. - Chapter II: comprehensiveness, orderliness, policy orientation, and credibility of fiscal forecasting and budgeting. - Chapter III: arrangements for disclosure and management of fiscal risks, and coordination across the public sector. *Source: https://www.imf.org/-/media/files/publications/cr/2019/1uzbea2019002.pdf* ### 1. Fiscal reports should provide a comprehensive, timely, reliable, comparable, and ### 1. Fiscal reports should provide a comprehensive, timely, reliable, comparable, and ### Overview - Purpose: Assess Uzbekistan’s fiscal reporting practices against the IMF’s Fiscal Transparency Code across: coverage of public sector institutions, stocks, and flows; frequency and timeliness; quality, accessibility, and comparability; and reliability and integrity. - Recent progress: In 2018, several reports were published for the first time, including detailed quarterly Government Finance Statistics (GFS) reports, information on external debt and external debt guarantees, and the audit conclusion and report on the execution of the state budget for 2017. ### Fiscal reports published and their characteristics - Main summary fiscal reports include: - Quarterly statistical reports on central and general government operations, showing cash revenues and expenditures by economic classification, financing for central government, and cash revenues by tax type and expenditures by national functional classification for general government; general government report shows aggregate revenues and expenditures of State Targeted Funds (STFs) and the Uzbekistan Fund for Reconstruction and Development (UFRD). - Detailed quarterly GFS reports for general government covering cash revenues, expenditures and financing for budgetary central and subnational governments, social security funds (SSFs), and some EBFs with breakdowns by economic classification and by spending function. - Preliminary quarterly and annual state budget execution reports (revenues by tax type, expenditure by function for state budget). - Final quarterly and annual state budget execution reports (additional information including discussion of substantive developments and STF execution). - Annual Audit report on Execution of the State Budget (Chamber of Accounts conclusion on reliability, revenues by tax type, aggregate and detailed social expenditures, STF execution). - Report on external debt (stocks, disbursements, repayments, debt servicing costs of multilateral and bilateral loans, and government guaranteed debt). - Publication characteristics (selected entries from Table 1.1): - Preliminary quarterly report on the execution of the State Budget: Coverage BCG; Accounts R, E, Fin*; Basis Cash; Classification Nat.; Frequency Qtrly; Lag 25d. - Final report on the execution of the State Budget: Coverage BCG; Accounts R, E, Fin*; Basis Cash; Classification Nat.; Frequency Qtrly; Lag 45d. - Quarterly Government Financial Statistics (GFS): Coverage GG; Accounts R, E, Fin; Basis Cash; Classification Nat.; Frequency Qtrly; Lag 3m. - Final Annual execution report on the State Budget and State Targeted Funds: Coverage BGG, STFs; Accounts R, E, Fin*; Basis Cash; Classification Nat.; Frequency Annual; Lag 6m. - Report on External Debt of the Republic of Uzbekistan: Coverage GG; Accounts na; Basis Debt Cash; Classification Nat.; Frequency Annual; Lag 5m. - Note: MoF: Ministry of Finance; COA: BCG: Budgetary Central Government; BGG: Budgetary General Government; GG: General Government; STF: State Targeted Funds; R: Revenue; E: Expenditure; Fin: Financing; np: not published. ### Coverage of institutions (findings) - Public sector size and composition: - Uzbekistan’s public sector comprises at least 2,400 separate units. - Budgetary central government: 40 central government units, including central administration and ministries, and nine extra-budgetary funds (EBFs). - Social security funds: Pension Fund and Employment Promotion Fund. - Subnational government: 214 units (Autonomous Republic of Karakalpakstan, 12 provinces, and 201 districts and towns). - Public nonfinancial corporations: 2,107 corporations (1,500 unitary enterprises, 107 joint stock companies, and 500 limited liability companies controlled by central and subnational government units). - Public financial corporations: Central Bank of Uzbekistan (CBU), 11 state-owned banks, the Cumulative Pension Fund administered by the state-owned People’s Bank, and a number of state-owned insurance companies. - Fiscal aggregates and subsector shares (Table 1.2, percent of GDP): - Public Sector: Number of entities 2,413; Revenue 41.7; Expenditure 39.6; Balance 2.2; Net expenditure 39.6; Share 100.0. - General government: Number of entities 294; Revenue 33.5; Expenditure 31.7; Balance 1.8; Net expenditure 31.1; Share 78.6. - Central government: Number of entities 40; Revenue 17.8; Expenditure 16.5; Balance 1.3; Net expenditure 13.0; Share 32.8. - Budgetary Central government: Number of entities 29; Revenue 15.0; Expenditure 14.5; Balance 0.5; Net expenditure 10.3; Share 26.0. - EBFs: Number of entities 9; Revenue 3.5; Expenditure 2.7; Balance 0.8; Net expenditure 2.7; Share 6.8. - Social Security Funds: Number of entities 2; Revenue 7.4; Expenditure 7.3; Balance 0.1; Net expenditure 7.3; Share 18.5. - Local governments: Number of entities 214; Revenue 11.1; Expenditure 10.8; Balance 0.3; Net expenditure 10.8; Share 27.3. - Nonfinancial public corporations: Number of entities 2,107; Revenue 6.2; Expenditure 6.2; Balance 0.0; Net expenditure 6.1; Share 15.5. - Financial public corporations, incl. CB: Number of entities 12; Revenue 2.7; Expenditure 2.3; Balance 0.4; Net expenditure 0.0; Share 5.9. - Coverage assessment: - General government GFS reports cover budgetary central government, subnational governments, social security funds, and central government extrabudgetary funds, combined covering 90 percent of general government activity. - Material gaps: three EBFs (Book Fund, Children Fund, Aral Sea Fund), the Deposit Insurance Fund (DIF), and public corporations that should be classified as extrabudgetary funds are not captured; central budgetary organizations’ off-budget accounts are not covered. Combined net expenditures of these excluded units accounted for 3 percent of GDP. - No consolidated public sector reporting; public corporations represent the largest reporting gap. ### Impact of expanding institutional coverage (exact quantified scenarios) - Including and consolidating missing extrabudgetary organizations under government control and off-budget accounts (2016 impact): - Adds around 2.9 percent of GDP to consolidated revenue. - Adds 3 percent of GDP to consolidated expenditure. - Effect on consolidated general government surplus: slight; reported surplus for consolidated general government sector of -0.1 percent of GDP reducing to 1.8 percent of GDP. (Text: "have only a slight effect on the reported surplus for the consolidated general government sector of -0.1 percent of GDP, reducing it to 1.8 percent of GDP.") - Expanding coverage to include public corporations (2016 impact): - Adds a further 9 percent of GDP to revenue. - Adds 8.6 percent of GDP to expenditure. - Increases the public sector surplus by 0.4 percent of GDP, to 2.2 percent of GDP. ### Coverage of stocks (findings and stock-level statistics) - Current reporting gaps: - State budget debt reported (external debt report), but no disclosure of government deposits, other financial assets, non-debt liabilities, or nonfinancial assets in fiscal reports. - Cash and deposits are not published in fiscal reports but were compiled by the CBU: cash and deposits amounted to 29.9 percent of GDP at end-2016 (bulk are foreign currency deposits of the UFRD managed by the CBU). - At end-2016, external debt contracted by the state budget amounted to 7.2 percent of GDP, of which 5.2 percent of GDP was on-lent to public corporations. - At end-2017, reported external debt was 8.8 percent of GDP, of which 6.6 percent was on-lent to PCs. - Other accounts receivable and payable for general government at end-2016: 0.5 and 2.5 percent of GDP respectively (data not published but compiled in budgetary organizations’ balance sheets submitted to MoF). - Pension liabilities for special groups of government employees were not reported and information was unavailable. - Nonfinancial assets in budgetary organizations’ balance sheets amounted to 9.9 percent of GDP at end-2016 (does not include state-owned infrastructure assets). - Estimated value of subsoil assets (resources in oil, gas and minerals) around 258 percent of GDP (significant uncertainty surrounds these estimates). - Public corporations’ assets (available financial statements for eight large JSCs and twelve financial corporations) accounted for 110 percent of GDP and outstanding liabilities (other than equity) for 91.9 percent of GDP at end-2016. - Majority of financial assets and liabilities are held by public financial corporations and the CBU, which accounted for 80.1 and 80.7 percent of GDP respectively. - Consolidated public sector balance sheet estimates (end-2016, IMF staff estimates): - Consolidated public sector asset holdings: 406.3 percent of GDP. - Consolidated public sector liabilities: 72 percent of GDP. - Public sector net worth: 334.3 percent of GDP. - Public sector net financial worth: 50.4 percent of GDP. - Nonfinancial assets: 283.9 percent of GDP (primarily mineral resources). - Financial assets: 122.4 percent of GDP (mainly assets of public financial corporations including the CBU, UFRD deposits and loans, government on-lending and other loans for infrastructure projects, and holdings of equities). - Composition of financial assets: monetary gold and foreign reserves and related items account for 40 percent of total financial assets; loans and securities account for 35 percent of total financial assets. - Liabilities other than equity: 69 percent of GDP (primarily debt of public financial corporations including the CBU in the form of deposits and loans). ### Coverage of flows (assessment) - Overall assessment: Coverage of flows is "Not Met" for the principle (section heading indicates "1.1.3. Coverage of Flows (Not Met)"). - Identified gap: No report provides complete picture of public sector activity; flows of unreported units (EBFs, DIF, certain PCs, off-budget accounts) are not consolidated in summary fiscal reports. ### Comparative perspective and caveats - Uzbekistan’s net worth and net financial worth compare favorably with selected countries due to low gross financial liabilities and large estimated mineral resources. - Important caveats: - Gross liabilities are underestimated because explicit pension liabilities for special categories of government employees are unavailable. - Significant uncertainty surrounds the valuation of subsoil assets (estimated at 258 percent of GDP). - Classification issues: the Cumulative Pension Fund’s classification as a public financial corporation or general government unit is unclear and may affect sectoral statistics; many state-owned unitary enterprises may be general government units under GFSM 2014 but data were not available to assess classification. ### Key numeric findings (extracted verbatim) - Public sector entities: at least 2,400 separate units. - Public sector expenditures: 39.6 percent of GDP in 2016. - General government expenditure: 31 percent of GDP in 2016. - Shares of general government expenditure: central government ~42 percent, SSFs ~23 percent, local governments ~35 percent (of general government expenditure). - Public corporation expenditures: 8.5 percent of GDP in 2016; 70 percent of that by nonfinancial corporations. - Net expenditures of excluded extrabudgetary/funds/off-budget accounts: 3 percent of GDP. - Impact of including missing extrabudgetary organizations: adds 2.9 percent of GDP to revenue and 3 percent of GDP to expenditure (2016). - Impact of adding public corporations: adds 9 percent of GDP to revenue and 8.6 percent of GDP to expenditure. - Cash and deposits: 29.9 percent of GDP at end-2016. - External debt contracted by state budget: 7.2 percent of GDP at end-2016; on-lent to PCs 5.2 percent of GDP at end-2016. - Reported external debt at end-2017: 8.8 percent of GDP; on-lent to PCs 6.6 percent of GDP. - Nonfinancial assets in budgetary organizations’ balance sheets: 9.9 percent of GDP at end-2016. - Estimated value of subsoil assets: around 258 percent of GDP. - Public corporations’ assets (sample): 110 percent of GDP; outstanding liabilities (other than equity) 91.9 percent of GDP at end-2016. - Consolidated public sector assets: 406.3 percent of GDP (end-2016 IMF staff estimates). - Consolidated public sector liabilities: 72 percent of GDP (end-2016 IMF staff estimates). - Public sector net worth: 334.3 percent of GDP (end-2016 IMF staff estimates). - Public sector net financial worth: 50.4 percent of GDP (end-2016 IMF staff estimates). - Majority of financial assets and liabilities held by public financial corporations and the CBU: 80.1 and 80.7 percent of GDP respectively (components referenced in text). *Source: IMF staff assessment of Uzbekistan fiscal reporting practices, as presented in the supplied chapter content.* ### 12. Fiscal reports, which are compiled on a cash basis, include the majority of cash ### 12. Fiscal reports, which are compiled on a cash basis, include the majority of cash ### Coverage of fiscal reports, off-budget accounts, and EBFs - Fiscal reports, compiled on a cash basis, include the majority of cash revenues, expenditures, and financing for the general government, but omit operations passing through off-budget accounts and some EBFs (Box 1.1). - Budgetary organizations hold around 200 off-budget accounts which are not captured in published fiscal reports. - Off-budget accounts serve purposes such as collecting tax arrears and retaining shares of certain fines, fees, and compulsory payments. - Flows through off-budget accounts are significant and vary across years: - In 2016, revenues and expenditures passing through off-budget accounts accounted for 2.6 percent of GDP, with no impact on the general government balance. - In 2017, revenues accounted for 5.4 percent of GDP and expenditures for 4.6 percent of GDP (passing through off-budget accounts). - Donor grants and related expenditure were estimated by the government to be around 2 percent of GDP in 2018 and are not included in the fiscal and statistical reports. - Including Children’s Sport Fund, Aral Sea Fund, and Deposit Insurance Fund would increase government revenue and expenditure by 0.4 and 0.3 percent of GDP respectively. - Box 1.1 definitions (as presented in the source): - Off-budget accounts: special purpose bank or treasury account used by budgetary units to perform activities outside the ordinary budget; economic owners are the budgetary organizations; operations should ultimately be considered government operations and included in fiscal reports and consolidated within state or local budgetary organizations. - Extra-budgetary funds (EBFs): separate legal entities, institutional units controlled by government but with autonomy; financed by grants/transfers and own revenues; units established and controlled by government which operate on a non-market basis should be consolidated with the general government sector as EBFs (per international statistical standards). ### Taxes retained by corporations and accrual information - Taxes retained by corporations (PCs) are not included in fiscal reports. Some PCs retain a portion of compulsory payments and taxes and use them for public investment, policy-oriented expenditure, or debt servicing. - International standards: retained taxes should be rerouted through government accounts—recorded as government revenue and subsequently as a subsidy, capital transfer, or other expenditure to the benefiting entity. - The amount of taxes retained by PCs was not available at the time of the evaluation. - Cash-based published fiscal reports do not capture available information on accrued revenues and expenditures: - In 2016, estimated increase in other accounts receivable and other accounts payable of budgetary organizations accounted for 0.2 and 0.6 percent of GDP respectively. - This indicates revenue is higher by 0.2 percent of GDP and expenditure higher by 0.6 percent of GDP on an accrual basis, thus reducing the surplus, as measured on an accrual basis, by 0.4 percent of GDP. ### Misclassification of EBF revenues and impact on surplus - Revenues of EBFs have not been recorded in line with international standards, resulting in overestimation of the government surplus. - Example: In 2016, revenue from “exchange profit” on reserves in foreign currency was recorded by two EBFs. According to GFSM 2014, gains from devaluation of the national currency are revaluation of reserves—not revenue. - Exclusion of the exchange profit from revenue decreased the government surplus by 3 percent of GDP in 2016. ### Net effect of addressing reported gaps (2016) - The net effect of including unreported off-budget accounts and EBFs and eliminating the misclassified revenue will: - Increase reported general government expenditure by 3.0 percent of GDP. - Reduce reported revenues by 0.1 percent of GDP (reflecting offsetting impacts). - Reduce the reported budget balance by 3.1 percent of GDP, to 1.8 percent of GDP in 2016. - Considering flows in other accounts receivable/payable may potentially worsen the surplus by an additional 0.4 percent of GDP. - Note: This does not account for inclusion of donor financed grants and related expenditure, for which data was not available. ### Coverage of tax expenditures (Not Met) - The government does not publish estimates of the revenue loss from tax expenditures, but expects to do so in the near future. - A presidential resolution of May 2018 requires the MoF to include, as a separate line in the forecast of the main macroeconomic indicators and parameters of the 2019 state budget, the estimated revenue loss from tax and customs privileges and preferences. This has not yet been reported. - The MoF, and tax and customs committee compile estimates on tax privileges and exemptions by type and sector; publication after quality assurance would be relatively straightforward. - If authorities published, on a regular basis, estimated revenue loss by sector together with descriptions of policy objectives and beneficiary groups, Uzbekistan’s fiscal transparency practice would meet the good level of practice set out by the Code. - Tax expenditures are significant: - Authorities’ preliminary estimates of the revenue losses from tax expenditures are in the order of 18 percent of GDP (Figure 1.6). - The 18 percent of GDP estimate is likely an overstatement because it includes estimates of revenue losses internal to government and incorrectly assesses revenue losses for certain items; methodological issues need resolution. - Sources and types of tax expenditures: - Arise from provisions of the Tax and Customs Code, international agreements, and presidential resolutions. - Granted by 26 provisions of the Tax Code and 362 presidential resolutions. - Most tax expenditures aim to attract foreign investment, economic development, or meet social objectives: tax holidays for large FDI, exemptions in Free Economic Zones, tax reductions for investment in new technological equipment. - Tax Code provides 37 categories of goods and services exempt from VAT, including various education, medical, and recreational goods and services. - Some tax expenditures are sector- or region-specific (e.g., textiles, foodstuffs, software, leather, rural services, and around 100 district industrial zones). ### Frequency and timeliness of fiscal reporting - In-year fiscal reporting (Good): - Preliminary in-year reports on state budget execution are published within 25 days of the end of each quarter; present tables on state budget execution by tax type and expenditure function. - Final reports are published within 45 days of the end of the quarter, produced following discussions in parliament and reconciliation between treasury and budget organization accounting records. - Quarterly reports include high-level breakdowns of revenue types and social expenditures, and changes in outturns compared with the previous year; final reports include execution of four of the five STFs and substantial commentary. - Quarterly statistical tables report central government activities by economic classification, and general government activities by tax type and spending by function. - Improvements suggested: - Produce timely budget execution reports on a monthly basis for entities covered by the treasury system. - Enhance content and format of in-year reports to present more detailed breakdowns of expenditure and improve functional classifications toward international standards. - Ensure in-year and annual budget execution reports are aligned in presentation and consistent with the annual state budget. - Timeliness of annual financial statements (Advanced): - The audited annual budget execution report for the state budget for 2017 was published, for the first time, before the end of June 2018. - The report provides a succinct summary of execution, high-level breakdowns of revenue types and social expenditures for the state budget, information on revenues and expenditures of four of the five STFs, and commentary. - Authorities expect to expand information presented in the audited annual state budget execution report and are advised to: - Present ex-post information corresponding in substance and format with ex-ante budget documentation for easy comparison. - Apply leading examples from other countries regarding content and format. - Once legacy accrual accounting is brought in line with IPSASs and the COA applies ISAs, producing audited annual financial statements within 6 months of year-end will be more difficult due to additional information and auditing requirements. ### Quality of fiscal reports - Classification (Not Met): - Fiscal reports present spending by economic and functional classification, but not by administrative unit; no breakdown by administrative unit is provided—this is required to meet the basic level of practice. - A program classification is not yet in place but is planned over the medium-term per the draft Concept on the Strategy to Reform the Public Finances of the Republic of Uzbekistan. - Economic and functional classifications need further alignment with international standards: - National budgetary classification is based on GFSM 2001, but presentation in budget execution report is not aligned with this standard. - Revenues and expenditures in the budget include financing operations that should be treated as ‘below-the-line’ financing transactions. - Economic classification of revenues should be expanded to show, in addition to taxes, other economic categories; expenditures should be presented by economic classification. - Functional breakdown of expenditures could be brought more in line with international standards. - Internal consistency (Basic): - Uzbekistan publishes one of the three internal consistency checks of fiscal data required under the Code: statistical reports provide full reconciliation between the above-the-line fiscal balance and the below-the-line financing, detailing acquisition/drawdown of financial assets and incurrence/repayment of liabilities, provided in gross terms and netting to match net financing needs with the fiscal balance. - No reporting on holders of government debt that can be compared with debt owed; since almost all debt is loans from multilateral or bilateral lenders, publication of debts by lender would be relatively straightforward. - No reconciliation published between net financing and the change in the stock of debt—the stock-flow adjustment. - Relevance of stock-flow reconciliation increased with currency liberalization and substantial borrowing for policy investments. - Developments in 2017 (stock-flow reconciliation): - Depreciation of the exchange rate accounts for the bulk of the increase in debt: 10.5 percent of 2017 GDP. - Net financing—essentially loans to PCs—accounts for 1.2 percent of 2017 GDP. - The state budget surplus of 0.28 percent of GDP contributed to reduce the debt slightly. - The residual includes unidentified factors or possible errors: 0.29 percent of GDP. - Given substantial asset holdings in foreign currency, debt valuation changes due to exchange rate depreciation will be offset by increases in asset values, and overall may have positive implications for the balance sheet. - Historical revisions (Not Met): - Fiscal statistics are not revised. Annual submissions of GFS data to the IMF commenced in 2011 and historical fiscal data published by the authorities is not revised. - Recommendations of this fiscal transparency evaluation would result in meaningful revisions to the GFS data; inclusion of off-budget accounts and missing EBFs (including DIF) should be implemented across the time series and the impact disclosed with supporting data. ### Integrity of fiscal reports - Statistical integrity (Basic): - Fiscal statistics are compiled and published by the MoF on a GFSM 2014 basis and reported to the IMF for inclusion in the annual GFS database. - Reports are compiled by staff within the Budget Department; there is currently no standalone fiscal statistics unit within the MoF. - Good practice suggestion: provide a more transparent delineation between producers of source data and statistical compilers and provide some operational independence for the compiler of fiscal statistics. - External audit (Basic): - The Chamber of Accounts (COA) publishes a report on the annual execution of the state budget and the STF budgets; the COA’s report for 2017 was the first published. - The COA’s report is mainly on compliance with relevant budget legislation and reviews the extent to which revenue that should be collected under relevant legislation is being collected. - The COA expresses an explicit opinion on the reliability of financial data in the annual reports on the execution of the state and STF budgets. - The COA does not yet review separate budget execution reports of individual budgetary organizations and line ministries, nor their financial statements prepared according to the legacy accrual accounting framework. - The COA is independent of the government, is responsible to the President, and also reports to parliament. *Source: IMF fiscal transparency evaluation text (content unit 1uzbea2019002).* ### 33. The COA’s opinion states that it is based on checks of aggregate data. In due course, ### 1uzbea2019002 - 33. The COA’s opinion states that it is based on checks of aggregate data. In due course, ### External audit, COA practices, and audit law reform - The COA’s opinion is based on checks of aggregate data; the COA should in due course check disaggregated data according to ISAs for financial audits. - Authorities are considering a new audit law that would provide, inter alia, for the COA to apply ISAs. - Rationale: auditing IPSAS-based financial statements according to ISAs is desirable to present a true and fair view; this value would be diminished if audits are not ISA-based. - A new audit law should also strengthen the COA’s independence. Current constraints: - Much of the COA’s activity is directed by presidential decrees. - The COA has insufficient resources to conduct financial audits according to ISAs of the annual budget execution reports and IPSAS-based financial statements, in addition to other responsibilities. - Recommendation: the new audit law should reflect INTOSAI principles of supreme audit institution independence, and the COA should desirably join INTOSAI. ### Comparability of fiscal data (basic assessment) - Preliminary quarterly state budget execution reports are produced on the same basis as the state budget but do not compare outturns for EBFs. - Statistical reports on general government operations (recently posted on the National Summary Data Page in the context of the e-GDDS initiative) present fiscal allocations approved in the annual budget (for the state budget and EBFs) in a format comparable to the quarterly statistical report on government operations. - Large differences exist between budget execution reports and GFSM 2014 reports: - In 2017, revenues and expenditures of the State Budget of the Republic of Uzbekistan excluding target funds were approximately 9 percent of GDP higher and the surplus lower by 0.1 percent of GDP than the state budget data presented in the GFSM 2014 based statistical report. - Drivers of these differences include: - Treatment of financing operations: included in revenues and expenditures in the budget execution report but treated ‘below-the-line’ as financing in GFS. - Inclusion in the budget execution report of a surplus carried on from previous years that is not treated as an operation in GFS. ### Key findings on fiscal reporting coverage and gaps - Some EBFs are not covered in fiscal and statistical reports; not all activities of state off-budget accounts are recorded. - No information on government assets is disseminated; gaps exist in the coverage of liabilities. - Sizable revenues forgone from tax expenditures are not reported. - Differences in revenues and expenditures reported across different reports are not explained. - Much of the information required to address these gaps is already compiled by the MoF for internal management purposes; consolidation and publication combined with planned reforms (modified-accrual based financial statements over the medium-term) would substantially improve assessment against the Code. ### Priorities and recommendations for improving fiscal transparency (explicit recommendations) - Recommendation 1.1: Expand the coverage and comprehensiveness of fiscal reports. - a. Expand the coverage of published consolidated general government GFS reports to include central government and sub-national government EBFs that are currently not reported, off-budget accounts, and non-market entities currently treated by the government as public corporations. - b. Ensure that all tax revenues currently retained by STFs and PCs are appropriately reported in fiscal and statistical reports. - Recommendation 1.2: Publish balance sheet information for the general government. - Publish a consolidated statistical report of financial assets and liabilities for the general government and its sub-component sectors, and over time expand this to include information on non-financial assets. - Recommendation 1.3: Publish an annual statement on tax expenditures. - Publish, on an annual basis, estimates of the revenue forgone from tax exemptions and privileges by sector or policy area, including a description of the main policy objectives and beneficiary groups. - Recommendation 1.4: Enhance the quality, comparability and integrity of fiscal reporting. - a. Expand presentation of fiscal information in fiscal reports by: - Presenting information by administrative unit in fiscal reports; - Improving the economic classifications presented in quarterly statistical reports to bring them more into line with GFSM 2014; and - Improving the information presented on functional classification, by bringing them into full compliance with international standards. - b. Explain and reconcile differences in the main fiscal aggregates across fiscal and statistical reports, and to the extent possible align budget execution and statistical reports. ### Summary evaluation highlights (selected assessments and numerical indicators) - Coverage of institutions: Basic. Expenditures of unreported EBFs were 0.4 percent of GDP in 2016; activities of the largest PCs are significant at around 8 percent of GDP. - Coverage of stocks: Not Met. Unreported public sector liabilities of around 62 percent of GDP and assets of 443 percent of GDP. - Coverage of flows: Not Met. Central government expenditure was understated by 3 percent of GDP in 2016, resulting in an overestimate of the budget surplus. - Coverage of tax expenditures: Not Met. Preliminary estimates suggest revenue losses in the order of 18 percent of GDP. - Frequency of in-year reporting: Good. Preliminary quarterly reports on state budget execution are published 25 days after the end of the quarter; expenditure outturns have differed by around 0.6 percent of GDP, on average, from budget allocations. - Timeliness of annual financial statements: Advanced. Audited cash based annual budget execution reports are published within 6 months of the end of the year; strengthening audit requirements may lengthen the timeframe but potentially enhance quality. - Internal consistency: Basic. Difference between changes in the debt stock and budget financing were 10.8 percent of GDP in 2017. - External audit: Basic. The COA publishes an opinion on the reliability of the data in the annual budget execution report, but the audit is largely compliance based. A new law to bring external audit more into line with international standards is being considered. - Comparability of fiscal data: Basic. State budget execution reports are prepared on the same basis as the budget, but differences between fiscal reports and GFS are not explained. High: Revenues and expenditures in fiscal and statistical reports differ by 9 percent, but differences in the deficit are low. ### Fiscal forecasting and budgeting: framework changes and coverage issues - Recent legal and procedural reforms: - Budget Code enacted in 2014 and Law on Public Procurement enacted in 2018. - The draft budget (the ‘Budget Message’) and detailed budget estimates were published for the first time during the 2018 budget process. - The 2019 budget will be the first to contain medium-term fiscal aggregate projections and a statement of the government’s fiscal strategy. - The government planned to publish its first citizen’s budget in July 2018 and release this annually when the draft budget is presented to parliament. - Budget unity and omissions (Not Met): - Off-budget accounts of budgetary organizations: For 2018, revenues retained in off-budget accounts and their related expenditures were estimated by the government to be around 1.5 percent of GDP. For 2017, revenues and expenditures in off-budget accounts accounted for 5.4 and 4.6 percent of GDP, respectively. - Donor grants and related expenditures: For 2018, the government estimated donor-financed activities were in the order of 2 percent of GDP. - Tax revenues allocated to EBFs: Example—3.5 percent tax levied on corporate entities estimated to collect around 1.8 percent of GDP in 2018 to some STFs. - Tax revenues retained by PCs: Example—Uzbekneftgaz will retain a share of the excise it collects on petroleum and gas sales, equivalent to about 0.2 percent of GDP (2018 Budget Message). - Incomplete EBF coverage in the budget: - Several EBFs (Children’s Sports Fund, Book Fund, Clean Drinking Water Fund, Aral Sea Fund) are not included in the budget documentation. The Children’s Sports Fund and Aral Sea Fund recorded expenditure of around 0.3 percent of GDP in 2016. - Some EBF activities are presented but not consolidated in fiscal aggregates; UFRD gross financing activities were estimated to be 3 percent of GDP in the 2018 budget. - Aggregate impact of coverage gaps: - Based on available information, state budget expenditures and revenues are underestimated by at least 3.5 percent of GDP, or around 16 percent of reported state budget expenditure. - Including revenues and expenditures of EBFs (other than the UFRD) would add a further 10 percent of GDP to consolidated budget expenditures. - For 2018, consolidated expenditure of budgetary organizations and EBFs would be 13.5 percent of GDP higher than reported state budget expenditure. *Source: Excerpted content from the provided IMF chapter/section.* ### 47. Financing activities are not separately presented in the budget. Loans for policy ### 1uzbea2019002 - 47. Financing activities are not separately presented in the budget. Loans for policy ### Financing treatment and transparency - Financing activities are not separately presented in the budget; loans for policy purposes are included in expenditure aggregates, and drawdowns of cash balances are effectively recorded as a source of revenue. - This treatment reduces transparency about how funds are raised and their purposes. - Recommendation: separately identify financing transactions for policy purposes from traditional expenditure, and report both a measure of the budget balance in line with GFSM 2014 and the overall budget balance (which includes lending for policy purposes). - Recommendation: account for drawdowns of cash balances as below the line financing transactions. ### Off-budget activities and consolidation - The government is developing a more comprehensive picture of government activity and plans to bring more activities on budget. - A Draft Concept on Reform of the Public Finances of the Republic of Uzbekistan sets out plans to conduct a review of off-budget accounts of state budget organizations and present estimates of their income and expenditures to Parliament. - Principle recommended: all activities of budgetary organizations, compulsory taxes levied, and expenditures (regardless of their source of funding) should be reported in the state budget. - The government already captures significant information on off-budget activities through the treasury single account, but further work is required to determine appropriate classification and to consolidate potential intra-government transactions. ### Macroeconomic forecasts (Basic) - The budget includes one-year ahead forecasts for real GDP and some components (e.g., industrial and agricultural production) and for the fiscal position, but does not include discussion of underlying assumptions and drivers. - Forecasts do not present all relevant indicators (e.g., employment), components (e.g., exchange rates or interest rates), or discussions explaining the outlook. Forecasts beyond the budget year have not been prepared or published in previous years. - Historical forecast performance: - Nominal GDP has been overestimated, on average, by 2.6 percent over the past decade. - In absolute terms, the forecast error for nominal GDP averaged 5.7 percent over the same period. - Real GDP forecasts: average absolute forecast error of less than 0.4 percent over the past ten years; real GDP was under-estimated by 0.2 percent, on average, over the past ten years, with forecast errors in the range of -2.5 to 1 percent. - Forecast errors for nominal GDP ranged from -16.4 (overestimate) to 14.2 percent (underestimate) during the past ten years. - For last year, the authorities overestimated real GDP growth by 2.5 percent. - The government has committed to publishing medium-term projections in the 2019 State Budget. The Ministry of Economy (MoE) is coordinating forecasts with the MoF and CBU. - The State Statistics Committee is reviewing GDP compilation methodology and expanding survey coverage. - Recommendation: budget documentation should present a clear picture of economic forecasts, explanations of main drivers, and assumptions to increase external credibility. ### Medium-Term Budget Framework (Not Met) - The budget presents forecasts of revenue, expenditure and the state budget balance for the budget year only; Annex 2 contains revenue estimates in aggregate and by detailed revenue category, and expenditure estimates in aggregate and at functional and sub-functional levels. - There is no presentation of budget allocations by Ministry or administrative unit, or by economic category. Outturns for the previous year and updated estimates for the current year are not presented. - Historical biases in budget-year forecasts (2008–17): - Revenue has been underestimated in each of the past 10 years, with an average forecast error of 1.3 percent of GDP, or 6.6 per cent of forecast revenue. - The government is permitted to spend revenue in excess of the forecast, and budget year expenditure forecasts have been revised upwards as a result. - Actual expenditure has exceeded forecasts by an average of 0.6 percent of GDP over the past decade, or 3.6 per cent of forecast expenditure, with substantially higher errors in several years. - Total expenditure exceeded the budget forecast by 10 percent or more on three occasions: 2008, 2009, and 2010. Aggregate expenditure has been less than forecast in each year since 2011, other than 2017 when a supplementary budget request was approved. - State budget balance performance: - The state budget balance has been in surplus in each of the past ten years and has exceeded forecasts in each year since 2011. - On average, over the past decade the reported budget balance has been 0.7 percent of GDP stronger than forecast. - The mean absolute forecast error of the budget balance is 1.6 percent of GDP. - The government plans to present three-year fiscal aggregate projections for the first time in the 2019 budget; a Concept Note on Medium-Term Budget Framework has been published. - From 2019, agency multi-year expenditure projections will be used to estimate a budget base for future years, but only aggregates will be reported to parliament. The government also plans to prepare and release a medium-term fiscal policy statement. ### Public investment transparency and processes (Basic) - Uzbekistan meets one of three elements of transparency of public investment projects: most major projects are now subject to competitive and transparent procurement, but up-to-date estimates of total costs and cost-benefit and financial viability analyses are not disclosed. - The value of government commitments under multi-annual investment projects is not disclosed in the budget. The budget contains an estimate of state budget allocation to the State Development Plan, investment expenditures of the main EBFs, and financing activities of the UFRD, but reported for the budget year only and not by major projects. - The State Development Plan contains information on total cost of multi-annual projects financed by the UFRD and government-guaranteed external loans, but not budget-funded or EBF-funded projects. The latest plan approved in 2018 has not been made available to the public. - Project appraisal and procurement: - New project evaluation guidelines (Presidential Decree No 3550 of 2018) require detailed financial viability studies and cost-benefit analysis; endorsement by the National Project Management Agency is required before Cabinet and Presidential approval. - Analyses are not published, limiting transparency. - New procurement law (Law on State Purchases, No. 472 of 2018) requires competitiveness and transparency for major projects with limited exceptions (list of entities approved by the President is unpublished; exceptions for defense, national security, internal order, and state secrets; law does not apply where donor procedures are inconsistent). - A centralized public procurement portal was established in May 2018 (www.xarid.uz). - Expert Procurement Commissions are being established; a separate Complaints Commission is proposed. - Reforms include a specialized Center for Due Diligence in Project Management and Procurement and a new anti-corruption law (Law No. 419 of 2017). - Reported general government investment: - Reported at 3.3 percent of GDP (2016), but likely under-stated due to omission of investments financed from budget organizations’ off-budget accounts. - Estimates of total public investment are around 6.7 percent of GDP in 2016 (IMF staff estimates based on GFS reporting, financial statements of eight large joint stock companies, loans financed by UFRD, and information in the 2016 Public Investment Program on projected value of loans guaranteed by general government). ### Fiscal legislation and timeliness - The Budget Code (Law 360 of 2013) and related laws define timeframes and required contents of the draft budget and budget message and budget classification standards. - The budget proposal is presented by the executive to parliament along with the opinion of the COA; the COA opinion on the draft budget is not published (Decree No. 4147 of October 8, 2017 sets out main functions of the COA). - Parliamentary amendment rules: while the Budget Code contemplates parliamentary amendments, there are no formal limits on their nature. - Timeliness: - The Budget Code requires draft budget submission to parliament no later than October 15 and approval no later than December 15; this has been met in each of the past five years except the 2018 Budget (approved December 20, 2017). - Prior to the 2018 Budget, only limited extracts were published despite details being presented to parliament. The full budget documentation (Budget Message and Annexes 1–6) was published for the first time for the 2018 Budget. - Table of dates (as reported): - Submission to parliament: 3 Oct 2013; 8 Oct 2014; 5 Oct 2015; 3 Oct 2016; 15 Sept 2017. - Draft released: np; np; np; np; 21 Sept 2017. - Approval by parliament: 12 Dec 2013; 13 Nov 2014; 03 Dec 2015; 13 Dec 2016; 20 Dec 2017. - Approval by President: 25 Dec 2013; 22 Dec 2014; 22 Dec 2015; 27 Dec 2016; 29 Dec 2017. - Budget released: 28 Dec 2013*; 24 Dec 2014*; 25 Dec 2015*; 29 Dec 2016*; 30 Dec 2017. - Note: np denotes not published. Prior to the 2018 Budget, only extracts of the approved budget were published. ### Policy orientation and fiscal objectives (Not Met) - The government does not have numerical objectives for the main fiscal aggregates that are precise or time bound. - The Republic of Uzbekistan’s National Action Strategy 2017–21 includes objectives: preserving balance of the state budget (basis for measurement not defined); ensuring a social orientation in expenditure; and strengthening revenue sources and autonomy of local authorities. - The Budget Code (Articles 96 and 152) requires a limit on public debt to be determined in the annual budget, but this has not yet been done. - EBFs are required to maintain balanced budgets on average (taking into account their accumulated cash reserves which can be drawn upon), and sub-national governments must also present balanced budgets (with ability to access surplus accumulated cash balances). *Source: IMF staff report content from 1uzbea2019002.* ### 65. Under planned reforms the government will prepare and submit to the parliament ### 65. Under planned reforms the government will prepare and submit to the parliament ### Medium-term fiscal policy statement and projections - The government will prepare and submit to the parliament a medium-term fiscal policy statement and fiscal aggregate projections as part of the 2019–21 budget process. - Aggregates to be covered: revenue, expenditure, fiscal balance and public debt. - Government’s medium-term fiscal objectives should be well-specified and take account of related changes to budget coverage and presentation recommended by this evaluation. - Good-practice guidance: fiscal policy objectives should be comprehensive with a clear delineation of the boundaries of fiscal operations that they seek to cover. - Recommendation: conduct a more detailed review ahead of determining objectives to consider basis of coverage, assessment, and incorporation of performance and compliance reports in budget documentation. ### 2.3.2 Performance Information (Assessment: Not Met) - Current state: - Published budget documentation does not include significant information on the objectives and results of each major policy area. - Substantial performance information exists for some individual projects and programs (notably on ministry websites and donor-supported projects) but is published independently of the budget process. - There is no program classification. - Output and outcome indicators used for some projects/programs are not governed by a methodology applied systematically to government expenditure as a whole. - Budget documentation presents input costs on a highly aggregated basis with some references to functional groups and administrative entities, but no systematic disaggregation by the economic or administrative classification. - Fiscal reports provide some disaggregation (see principle 1.3.1). - Government intent: - Introduce program budgeting comprehensively, expected to lead to systematic publication of expenditure by programs with associated output and outcome indicators (compliance with good and advanced practices of the Code). - Suggested approach: initially introduce program budgeting for budget presentation and reporting only (not for control); pilot the program classification, relationships with administrative structure, and system of indicators extensively before staged implementation across administrative units. - Box 2.2: Key features of effective performance information (preserve exact bullets) - Each program is a logical grouping of activities directed to a common purpose - The program classification has a sufficient number of levels for clear definition - The program classification is homogeneous so that none of its elements is a proxy for other classifications e.g. economic, fund, administrative - The program classification is consistent with the administrative structure - Performance indicators are aligned with programs - Performance indicators reflect the essence of programs - Performance information in budget documentation is concise and accessible, with more detailed information published on line ministry websites. ### 2.3.3 Public participation (Assessment: Not Met) - Current state: - The government has not previously published a citizen’s budget. - Public has had limited opportunity to participate in past budget deliberations. - The Budget Code does not specify when, or if, the budget must be published (see Table 2.2). - In previous years only extracts of the budget with few details were published, after parliamentary approval, limiting public understanding and participation. - The public currently has no formal voice in budget deliberations; parliamentary hearings on the budget are open. - Government actions and plans: - Preparation of a citizen’s budget is a top priority; the first citizen’s budget, due for release in July 2018, was prepared as an ex post guide to the 2018 budget and consulted civil society groups in its structure and content. - The prepared citizens budget provides: a summary of the macroeconomic backdrop, breakdown of revenue and expenses, implications of measures for citizens (e.g., tax rates), and a summary of the budget process. - Future plan: release a citizen’s budget when the budget is presented to parliament (would improve public participation evaluation to basic). - Related initiatives that would achieve advanced level practice: create an open budget web portal for all budget information; establish citizen’s surveys on the budget and its execution; involve citizens more closely in budget preparation and decision-making. ### 2.4 Credibility - Theme: enhancing credibility through independent evaluation, limits on within-year changes, and forecast reconciliation. #### 2.4.1 Independent Evaluation (Assessment: Not Met) - Current state: - Budget does not include comparison between government’s economic and fiscal forecasts and those of independent forecasters. - No independent evaluation of economic and fiscal forecasts. - The COA (attached to the President’s Administration) provides opinion on the draft budget but does not appear to provide a complete evaluation of macroeconomic and fiscal forecasts; its opinion is not published. - COA does not prepare its own forecasts; negotiations usually resolve differences before presentation to parliament. - COA’s audit of the government’s annual report on budget execution (published for first time in 2018 for the 2017 budget) contains no significant ex post analysis of the forecasts. - Good practice: publishing external forecasts as part of the budget and establishing independent entities to evaluate or prepare independent forecasts can enhance credibility. #### 2.4.2 Supplementary budget (Assessment: Basic) - Recent use: - Supplementary budgets have been used ex post to regularize spending in excess of initial allocations. - Supplementary budget process used only once in the past five years: on December 20, 2017 parliament authorized an increase in aggregate expenditure of 4.6 percent covering increases in public investment (27 percent), state administration (21 percent) and the Cabinet reserve fund (118 percent). - Budget Code features and flexibility: - Revenue in excess of forecast can be spent without further parliamentary approval, subject to approved budget balance and minimum cash reserve requirements. - Budget Code (Chapter 21) requires parliamentary approval for variations to total state budget expenditure or EBF expenditure of more than 10 percent. - Smaller increases in total spending (less than 10 percent) and reallocations between categories or Ministries can be approved by the Cabinet without referral to parliament. - MoF authorizes lower-order budget variations, including reallocations between budgetary organizations under one Ministry. - Budgetary organizations can seek MoF authority to reallocate within their own budgets up to four times per year, without any limit on the size of reallocations. - Execution patterns: - Analysis shows the budget has tended to be under-executed with significant compositional changes. - Figure 2.6 (Within-Year Changes in Composition of the Budget) indicates total spending was less than budgeted from 2013 to 2016. - Regular pattern: under-execution on wages and salaries and other expenses; social benefits typically higher than budgeted; in some years under-execution allowed increased allocation to capital expenditure. - Recommendation: strengthen credibility by limiting within-year flexibility and requiring parliamentary approval at a more detailed level; consider lowering threshold for parliamentary approval and constraining ability to change composition without approval (e.g., explicit threshold); consider parliamentary approval by administrative level or economic classification over time. #### 2.4.3 Forecast Reconciliation (Assessment: Not Met) - Current state: - 2018 budget documentation does not explain changes between successive fiscal forecasts. - No medium-term fiscal forecasts prepared to date. - No regular mid-year update of the year-ahead forecasts. - Quarterly reports on budget execution do not contain updates for expected full-year outcome, only year-to-date actuals, and lack direct comparison to the budget or budget year-to-date forecast. - Budget Code (Article 96) requires the Budget Message to contain an updated forecast of budget execution for the current year, but this was not prepared in the latest budget. - Recommendation: clearly present changes in forecasts and decompose variations into policy-related, economic and other factors; this will be more important when medium-term forecasts are presented. ### 2.5 Recommendations (Priorities to improve transparency of fiscal forecasts and budgets) - Overall finding: significant scope to enhance transparency; a significant share of general government activity is not reported in budget aggregates; no medium-term framework; little explanation of macroeconomic forecasts. Government announced intentions to address gaps including introducing a medium-term budget framework. - Recommendation 2.1: Improve the comprehensiveness and quality of the budget. Expand coverage of the state budget by: - a. Separately presenting expenditure and financing transactions and reporting aggregates for both the budget balance and overall budget balance (balance including financing transactions for policy purposes); - b. Presenting fiscal aggregates (for revenue, expenditure, budget balance, financing transactions for policy purposes, and the overall budget balance) for the consolidated budget (i.e. the State Budget and EBFs); - c. Including in the approved State Budget, off-budget accounts and donor-financed expenditures of budgetary organizations and tax revenues retained by EBFs and PCs. - Recommendation 2.2: Adopt transparent principles for planned introduction of a medium-term budget framework. - a. Present medium-term forecasts of key macroeconomic variables underpinning the budget, along with a discussion of main drivers and data quality issues. - b. Publish medium-term projections of the main fiscal aggregates for the state budget and more detailed information on expenditure allocations. - c. More clearly define broad fiscal objectives for the medium-term, their basis of measurement and coverage. - d. Disclose information on publicly-funded investment projects, including their expected total lifetime costs, source of financing, and budget funding allocations over the medium-term forecast horizon. - Recommendation 2.3: Strengthen the integrity of the budget. - a. Include comparison of fiscal forecasts (revenues, expenditures, deficit and debt) with those of independent forecasters. - b. Strengthen the scrutiny of the legislature in approving the annual budget and subsequent amendments to it. ### Key statistics and numerical findings (preserve original values) - Planned budget process period: 2019–21. - Supplementary budget authorized on December 20, 2017: aggregate expenditure increase of 4.6 percent; public investment increase of 27 percent; state administration increase of 21 percent; Cabinet reserve fund increase of 118 percent. - Budget Code parliamentary approval threshold: variations to total state budget expenditure or EBF expenditure of more than 10 percent require parliamentary approval. - Budgetary organizations may reallocate within their own budgets up to four times per year. - Historical execution issues: - Unreported spending of budgetary units: at least 3.5 percent of GDP (Table 2.3, Principle 2.1.1). - Activities of EBFs would add a further 10 percent of GDP to consolidated expenditure (Table 2.3, Principle 2.1.1). - Nominal GDP forecasts underpinning the budget have been overestimated by an average 2.6 percent over the past decade (Table 2.3, Principle 2.1.2). - Budget year revenues have been underestimated by 1.3 percent of GDP, on average (Table 2.3, Principle 2.1.3). - Public sector investment estimated at 6.7 percent of GDP for 2016 (Table 2.3, Principle 2.1.4). - Revisions to budget year spending have averaged 3.6 percent of the original budget over the past decade (Table 2.3, Principle 2.4.3). - Only one supplementary budget required in past five years (Table 2.3, Principle 2.4.2). _Source: Excerpt from IMF evaluation chapter on Fiscal Forecasting and Budgeting (content unit: 1uzbea2019002)._ ### 80. Fiscal risk disclosure and management is limited in Uzbekistan, but there is scope ### Fiscal risk disclosure and management is limited in Uzbekistan, but there is scope for rapid progress ### Disclosure and analysis — macroeconomic risks - Uzbekistan has a fairly volatile economy and an even more volatile revenue base; volatility of inflation, the exchange rate, commodity exports and remittances are key sources of fiscal risks. - General government revenue volatility is "more than double that of nominal GDP", lower than in CIS peers but higher than the average of SEE countries. - Several future contributors to higher volatility are identified: the full impact of recent liberalization of the exchange rate and several previously controlled prices is unknown; provision of additional resources to PCs and public banks has helped mitigate output effects but inflation is on the rise; external dependence on commodity exports (gold, copper, gas) and remittances from Russia creates vulnerability to adverse shocks. - The relatively low level of public debt provides some room to absorb shocks in the medium term. - Current disclosure gaps: - No public disclosure of how macroeconomic risks impact public finances. - Annual forecasts for GDP and inflation are published in the budget, but there is no discussion of macroeconomic risks or analysis of fiscal implications of deviations from central forecasts. - Suggested disclosure improvements: - Include qualitative discussion in budget documentation of sensitivity of fiscal forecasts to GDP growth, inflation, the exchange rate, and commodity prices. - More advanced analysis: quantify impacts of changes in key macro variables (example: a one percent decline in real GDP, or a depreciation of the currency representing one standard deviation of past changes) on revenue, expenditure, fiscal balance and government debt. ### Disclosure and analysis — specific fiscal risks - The government does not publish a summary report on the main specific risks to public finances. - In 2018 the stock of public and publicly guaranteed debt was published for the first time, but other sources of fiscal risks are generally not assessed or disclosed. - Identified explicit and implicit fiscal risks: - Explicit risks: government guarantees on borrowing of PCs, bank deposits, and a minimum return guarantee on savings placed in the Cumulative Pension Fund. - Implicit risks: largest relate to non-guaranteed liabilities of banks and PCs. - Combined maximum fiscal exposure from summarized risks: 58 percent of GDP (noted as an upper limit; several risks assessed to be low and fiscal impact could be partial). - Selected specific fiscal risk figures (Table 3.1, gross exposure, percent of GDP): - Explicit guarantees on debt of public corporations: 2016 = 3 ; 2017 = 7 - Guaranteed Bank Deposits (net of DIF assets): 2016 = 18 ; 2017 = 23 - Non-deposit bank liabilities: 2016 = 20 ; 2017 = 36 - Of which: non-deposit liabilities of state-owned banks: 2016 = 13 ; 2017 = 23 - Unguaranteed non-equity liabilities of non-financial PCs: 2016 = 17 ; 2017 = na - Natural disasters (average annual loss): 2016 = 0.5 ; 2017 = 0.5 - Pension costs (expected increase, 2015 to 2050): 2016 = 8 ; 2017 = 8 - Health care costs (expected increase, 2015 to 2050): 2016 = 3 ; 2017 = 3 - Recommendation: publish a summary report discussing and, where feasible, quantifying main risks to public finances to raise awareness and prompt mitigation strategies. ### Disclosure and analysis — long-term sustainability - No regular assessment of long-term fiscal sustainability is published. - Demographic pressures: - Old age dependency ratio expected to increase threefold over the next 30 years, from around 7 percent today to 21 percent by 2050. - Under unchanged policies, spending on pensions and health care is expected to more than double between now and 2050, rising to 20 percent of GDP. - Pension spending projected at 15 percent of GDP in 2050, described as among the highest in the region. ### Fiscal risk management — budgetary contingencies - The Budget Code (Article 73) requires unallocated budgetary reserves for the Republican budget and the regions and does not impose a limit on their size. - A 2017 Presidential Decree mandates that the reserve allocation for regions be at least one percent of their spending. - Reserves have generally been modest but have increased in recent years. - Weaknesses in practice: - The Budget Code does not define clear and transparent criteria for accessing reserve funds. - Limited in-year public disclosure of reserve use; execution reports disclose only aggregate amounts. - Around 1,200 recourses to reserve funds in a typical year; each approved by government resolution but only aggregate spending published. - Recommendation: establish transparent criteria governing access to reserves and more detailed reporting on their general purposes. - Box 3.1 best-practice examples summarized: - Australia: reserve used only for unexpected variations in forecast parameters, not for new policies. - United Kingdom and South Africa: reserves used for events meeting three U’s — unforeseeable, unavoidable, unabsorbable. - Finland: two types of reserves — unexpected spending and for ongoing long-term initiatives not well foreseen at budget preparation. ### Fiscal risk management — assets and liabilities - Legal and disclosure framework: - Government borrowing authorized by law (Law on External Debt, 1996); Budget Code empowers parliament to set an annual state debt limit but this has not been done in practice. - Stock of debt is published, but currency composition, maturity profile, and interest rate instrument are not disclosed; regular risk analysis is not conducted. - A one-off external debt sustainability analysis by UFRD in 2017 assessed currency liberalization impact but results were not made public. - Key debt and asset characteristics: - All general government borrowings are in foreign currency, primarily US dollars. - About half the external debt portfolio is in variable rate loans. - Debt portfolio effective interest rate is "around 2 percent." - Debt portfolio average maturity is 20 years. - General government financial assets at end-2016 estimated at 69 percent of GDP, mainly: - Currency and deposits, including foreign currency deposits of the UFRD: 21.7 percent of GDP - Loans to PCs, including those provided by the UFRD: 17 percent of GDP - Equity in public corporations: 21 percent of GDP - Disclosure gaps and risks: - No published information on assets or analysis of asset-related risks. - Equity in public corporations: government reviews PC business plans and receives financial performance reports, and CMSA compiles an efficiency indicator, but public reports do not discuss risks to government capital or implications for public finances. - Government on-lending: included in public external debt report but related risks (PC debt-servicing inability) are not discussed. - UFRD assets: include foreign exchange deposits managed by the CBU, loans to PCs (placed through state-owned banks), and equity in banks; UFRD has begun extending credit lines to banks that are on-lent — exposing UFRD to bank credit risk. UFRD undertakes credit risk analysis and prepares annual financial statements, but these are not published. - Large subsoil assets: value is highly uncertain and neither disclosed nor assessed; volatility of natural resource prices warrants analysis under different price scenarios. - Recommendation: prepare and publish a financial balance sheet to identify net exposures and support an appropriate risk management strategy. ### Fiscal risk management — guarantees - Information on outstanding stock of external loan guarantees (6.8 percent of GDP at end-2017) is published, but not by individual beneficiary. - In 2018 the government published total stock of guarantees on external loans of PCs by broad lender type (multilateral, bilateral, commercial). - There are around 300 guarantees granted to various entities; 27 pay a fee. - The government has started providing guarantees on domestic loans but does not report these publicly; stock of domestic loan guarantees was 0.004 percent of GDP in 2017. - All guarantees require MoF approval and President Resolution. Cabinet of Ministers Resolution No. 543 of 2003 requires guarantees be included in external debt limit set annually by parliament, but no such limit is set in practice. - Guarantees are high relative to other countries, but none have been called to date. ### Fiscal risk management — public-private partnerships (PPPs) - PPPs are currently a low but growing fiscal risk. - Recent policy emphasis (Uzbekistan Development Strategy 2017–21 and Presidential decrees) encourages private sector involvement in public infrastructure. - Examples and plans: - Private pre-schools operating as PPPs with state-provided concessional arrangements (land, co-payment of fees). - Planned PPP for a solar plant with Uzbekenergo and a foreign company. - Health sector plans to develop diagnostic and outpatient centers targeting 300,000 people a year. - Exposures to PPPs were not quantified due to lack of data. *Source: IMF staff country report chapter content as provided.* ### 98. Work is currently underway to put in place a framework for managing PPPs. The ### 1uzbea2019002 - 98. Work is currently underway to put in place a framework for managing PPPs. ### Public-Private Partnerships (PPPs) - Government has prepared a draft PPP law, expected to be submitted to Parliament later this year. - Key risks and good-practice elements noted: - PPPs can entail considerable risks that should be analyzed, monitored, and disclosed. - Complexity of PPP arrangements can mask future obligations and encourage recourse to PPPs to circumvent traditional budget constraints. - Successful PPP frameworks should: - Embed a role for the MoF to assess budget affordability and fiscal risks prior to approval. - Require all projects be subject to cost-benefit analysis and value for money assessments. - Require disclosure of PPP obligations (both explicit and contingent) through publication of a PPP registry. ### Financial Sector (Not Met) - Government explicit exposure and guarantees: - All bank deposits are fully guaranteed. - Blanket guarantee to deposits placed at the Xalq (People’s) Bank. - Deposit insurance fund (DIF), financed by mandatory contribution from deposit-taking banks, covers all deposits at the other 27 banks. - Government guaranteed a minimum return on savings placed with the Cumulative Pension Fund, at the rate of inflation. - Eleven banks are state-owned, with combined liabilities of 34 percent of GDP. - Net exposure of the government (blanket guarantee and the DIF) amounted to 23 percent of GDP in 2017 (Table 3.2). - Table 3.2. Uzbekistan: Financial Sector Exposure, 2016 and 2017 - 2016: Total bank liabilities 75,094 UZS, percent of GDP 38 - 2017: Total bank liabilities 145,956 UZS, percent of GDP 59 - 2016: Insured Bank deposits 36,341 UZS, percent of GDP 18 - 2017: Insured Bank deposits 58,668 UZS, percent of GDP 24 - 2016: Assets of Deposit Insurance Fund 469 UZS, percent of GDP 0.24 - 2017: Assets of Deposit Insurance Fund 591 UZS, percent of GDP 0.24 - 2016: Net exposure 35,872 UZS, percent of GDP 18 - 2017: Net exposure 58,077 UZS, percent of GDP 23 - Source: Central Bank of Uzbekistan. - Financial soundness indicators and risks (Table 3.3): - Uzbekistan: Regulatory Capital to Risk-Weighted Assets 19.6; Non-performing Loans to Total Gross Loans 1.2; Return on Assets 2.0; Return on Equity 15.6; Liquid Assets to Short Term Liabilities 53.2; Net Open Position in Foreign Exchange to Capital 13.4. - Comparative indicators for Armenia, Belarus, Georgia, Kazakhstan, Kyrgyz Rep., Moldova, Russian Fed., Tajikistan, Turkey, Ukraine are reported in the table with the exact values as listed in the source. - FSI indicators for Uzbekistan are from March 2018 published by the Central Bank of Uzbekistan; other countries: IMF FSI Database April 2018. - Additional observations: - Banks remain well-capitalized and profitable; capital adequacy ratio more than double regulatory minimum; non-performing loans have remained low. - Government equity injections through the UFRD in 2017 amounted to around 2.5 percent of GDP. - Concentration risks: three largest banks (all state owned) provide around 60 percent of loans in the economy (Figure 3.9). - CBU publishes financial soundness indicators quarterly and an annual report but does not assess banking sector stability yet; CBU is developing a stress-testing methodology and intends to publish regular financial stability reports. ### Natural Resources (Not Met) - Endowments and revenue: - Proven reserves of oil, gas and minerals represent close to 260 percent of GDP (Figure 3.10). - Oil: 34%; Gas: 129%; Minerals: 92%; Other: 2% — aggregate 258% (as presented in source figures). - Gold extraction: estimated reserve close to 2,000 tons; gold exports now represent around 7 percent of GDP (Figure 3.11). - Composition of exports (2017 and 2012 figures provided in figures; gold 6.8, energy 3.9, metals 1.9, export goods 22.5, cotton 1.0, machinery 0.7, others 8.2 for one of the years; 2012 composition listed similarly). - Disclosure and fiscal flows: - State Committee on Mineral Resources and Geology publishes annual information on proven reserves for oil, gas and coal, but not estimates of their value. - Estimates of proven gold reserves are not disclosed (considered confidential). - Uzbekneftegaz publishes its contribution to government taxes and dividends in its annual financial statement. - Government publishes tax revenues collected on extraction of gold and copper, which amounted to 1.4 percent of GDP in 2017. - Main source of revenue to government in extractive industries arises from difference between world prices and a set (lower) cut off price on gold and copper paid to producers; this income is primarily allocated to the UFRD, which reports total revenues only in aggregate. - Fiscal risks from resource reliance: - Challenges: volatility, size relative to domestic absorption, finite nature—leading to boom-bust fiscal cycles, Dutch disease, and long-run unsustainability. - UFRD design has traditionally shielded state budget from price fluctuations and used revenue for investment. - Publishing information on stocks and flows could encourage public deliberation on long-run sustainability and intergenerational equity. ### Environmental Risks (Basic) - Disaster preparedness and disclosure: - Main fiscal risks from natural disasters are disclosed in government resolutions and state programs. - Ministry of Emergency Situations and the State Committee on Ecology and Environmental Protection coordinate national and regional responses. - Earthquake risks and mitigation addressed in 2006 State Program on Earthquake Risk Reduction and 2011 Program on Preparedness of the Population to Respond Emergency Situations Caused by Earthquakes. - No quantification and publication of fiscal costs of natural disasters. - Loss estimates: - Landslides, floods, and mudflows estimated to cost, on average, 0.5 of GDP a year (Figure 3.12). - Since 1955, Uzbekistan experienced 11 earthquakes above six in magnitude. - More than half of the population lives in areas of high seismic risk. ### Fiscal Coordination - Sub-National Governments (Good): - Aggregate and regional financial performance published: GFS data on E-GDDS portal includes aggregate revenue and expenditure of sub-national governments. - Budget allocations for Republic of Karakalpakstan and twelve oblasts published in 2018 by the MoF, including in-year revenue collections and spending by broad category. - Regions publish quarterly and annual budget execution reports after regional parliament approval. - Budget Code requires sub-national governments to balance budgets; they may use excess cash balances accrued from prior year surpluses. - Borrowing by sub-national governments generally prohibited, but they can borrow from the MoF for temporary within-year liquidity gaps. - Strong central oversight: sub-national financial activities included in the treasury single account; MoF prepares, approves and executes their budgets. - Subnational expenditure around 10 percent of GDP, about one third of general government expenditure; more than three-quarters of their revenue comprise internally generated revenues or automatic transfers of state-collected revenues. - Public Corporations (Basic): - Around 2,100 PCs: 107 JSCs with majority state participation, around 500 LLCs, and 1,500 unitary enterprises. - Output of fully-owned PCs account for 55 percent of GDP. - Major nonfinancial PCs dominate mineral extraction, electricity, oil and gas, telecommunication and transportation. - State-owned banks provide more than 80 percent of loans in the economy. - PCs undertake quasi-fiscal activities; non-financial PCs provide goods and services at controlled prices; state-owned banks provide concessional loans to strategic sectors. - PC liabilities and guarantees: - Non-equity liabilities of the eight largest non-financial and state-owned banks (excluding the CBU) totaled 17 and 31 percent of GDP respectively at end-2016 (Figure 3.14). - At end-2016, PC liabilities of around 5 percent of GDP is borrowing on-lent from the central government; a further 3 percent of GDP is loans guaranteed by government. - At end-2017, central government on-lending to PCs had increased to 13 percent of GDP, while government guarantees on PC borrowing had increased to 7 percent of GDP. - Direct transfers between government and PCs are published (subsidies and dividends) and are less than 0.1 percent of GDP. - Gaps in disclosure: - Guarantees to PCs disclosed in aggregate but not by individual PC. - Recapitalizations provided to financial and nonfinancial corporations in the past are not disclosed. - No published ownership policy listing enterprises with state participation, extent and rationale for participation, or their economic and social objectives. - Reporting and monitoring: - JSCs are required to publish financial statements on an open data portal, but some major JSCs (e.g., Uzbekistan Airways, and Navoi) do not. - CMSA monitors all JSCs (except eight largest monitored by NAPU), major LLCs and UEs; they submit 13 mandatory KPIs annually to CMSA. - All PCs submit quarterly reports on performance to the MoF, State Tax Committee, and State Committee on Statistics. - Availability of information suggests potential to compile aggregated information and undertake regular assessments of PC sector performance and risks. ### Recommendations and Overall Assessment - There is significant scope to enhance analysis, reporting and management of fiscal risks. - Several important sources of fiscal risk are neither assessed nor disclosed despite strong controls on local government borrowing and disclosure of aggregate information on guarantees provided by the government (further detail referenced as Table 3.4 in the source). *Source: 1uzbea2019002 - Excerpt from IMF PDF chapter/section.* ### 115. Based on the above assessment of current practices, the evaluation highlights the ### 1uzbea2019002 - 115. Based on the above assessment of current practices, the evaluation highlights the ### Priorities for improving transparency of fiscal reporting - Recommendation 3.1: Improve analysis and disclosure of fiscal risks. Establish a framework for monitoring, analyzing and disclosing fiscal risks and publish an annual statement on fiscal risks, including discussion and analysis of: - The main sources of macroeconomic risks and their implications for public finances, focusing initially on qualitative discussion and expanding disclosure over time to include analysis of the sensitivity of the fiscal forecasts to changes in core variables; - Risks to the public-debt and the main public assets (e.g. natural resource assets, loans and assets of the UFRD), supplemented by publication of UFRD annual reports; - Material explicit fiscal risks (e.g., guarantees, and the deposit insurance scheme), setting out estimates of their magnitude and the government’s strategy for managing them; and - Fiscal risks related to PCs, including an assessment of their financial position and performance, information on their transactions with government, and estimates of the fiscal costs of their quasi-fiscal activities. - Recommendation 3.2: Tighten criteria for drawing on budget contingency provisions. - Establish a clear set of criteria for drawing on budget reserves, by limiting these to expenditures that are demonstrated to be unforeseeable, unavoidable, and unable to be absorbed; - Publish, in quarterly and year-end budget execution reports, information on the purposes for which funds are drawn by broad category; and - Establish limits on their size in the Budget Code. - Recommendation 3.3: Enhance financial oversight of public corporations. - Establish a central database of core financial information, risk indicators and state support for public corporations to facilitate assessment of fiscal risks related to the sector; and - Require public corporations to report their quasi-fiscal activities. ### Key findings from the Summary Evaluation: Fiscal Risks (Table 3.4) - 3.1.1 Macroeconomic Risks - Practice: Not Met: Budget documentation does not discuss the sensitivity of fiscal aggregates to changes in major macroeconomic assumptions. - Importance: High: Relatively volatile economy, with a standard deviation of nominal growth and revenue of 6 and 14 percentage points. - Rec: 3.1 - 3.1.2 Specific Fiscal Risks - Practice: Not Met: A summary report of specific fiscal risks is not published. - Importance: High: Specific fiscal risks carry a maximum exposure of 58 percent of GDP. - Rec: 3.1 - 3.1.3 Long-term Fiscal Sustainability - Practice: Not Met: No analysis of long-term fiscal sustainability is undertaken or published. - Importance: Medium: Age related spending is projected to double between now and 2050. - Rec: 3.1 - 3.2.1 Budgetary Contingencies - Practice: Basic: The budget contains allowances for uncertainties that may arise during the year, but there is no clear access criteria or in-year reporting on its use. - Importance: Medium: Budget contingencies have been relatively modest in the past, but have been growing. - Rec: 3.2 - 3.2.2 Asset and Liability Management - Practice: Not Met: Risk surrounding the government debt portfolio and state assets are not reported. - Importance: Medium: Government debt is relatively modest at 17.5 percent of GDP, but assets are significant. - Rec: 3.1 - 3.2.3 Guarantees - Practice: Not Met: Information on the stock of guarantees is reported, but not their beneficiaries. - Importance: Medium: Debt guarantees are 6.8 percent of GDP in 2017, but so far, none have been called. - Rec: 3.1 - 3.2.4 Public-Private Partnerships - Practice: Not Met: Total rights, obligations, and other exposures under PPP contracts are not reported. - Importance: Low: Large-scale PPPs have rarely been implemented in the past, but activity may ramp up with the development of a PPP framework. - Rec: 3.2 - 3.2.5 Financial Sector Exposure - Practice: Not Met: Explicit support to the financial sector is not disclosed, and financial stability assessments are not published. - Importance: Medium: Net exposure for insured deposits is 23 percent of GDP in 2017, but the banking system is well capitalized and has remained relatively resilient to recent stresses. - Rec: 3.1 - 3.2.6 Natural Resources - Practice: Not Met: The government publishes estimates of the volume of some of its major natural resource assets, but does not report their value. - Importance: Medium: Proven reserves of coal, oil and gas are around 300 percent of GDP, and gold reserves comprise a further 100 percent. - Rec: 3.2 - 3.2.7 Environmental Risks - Practice: Basic: Various documents discuss risks related to natural disasters, but potential fiscal costs are not quantified. - Importance: Low: Average annual loss from natural disasters has averaged 0.5 percent a year. - Rec: 3.2 - 3.3.1 Sub-national Governments - Practice: Good: Information on the financial performance of regions is published quarterly, and there are restrictions on their borrowing. - Importance: Low: Subnational governments are not permitted to borrow, other than from the central government, and their financial performance is closely monitored. - Rec: 3.3 - 3.3.2 Public Corporations - Practice: Basic: Budget transfers to and from PCs are disclosed in GFS reports, but they are not based on a published ownership strategy and there is no consolidated report on the financial performance of the sector. - Importance: High: Liabilities for eight of the largest non-financial PCs were around 30 percent of GDP at end-2016, although some of their liabilities are owed to the government. - Rec: 3.3 ### Evaluation after planned reforms (Table 3.5) — practice after reform / publication - 3.1.1 Macroeconomic Risks - Government reform: Implement proposal to prepare and publish a fiscal risk statement, including an analysis of the sensitivity of budget forecasts to macroeconomic assumptions. - Practice after reform: Basic - 3.1.2 Specific Fiscal Risks - Government reform: Implement proposal to prepare and publish a fiscal risk statement and include quantitative estimates of the main specific fiscal risks. - Practice after reform: Good - 3.2.2 Asset and Liability Management - Government reform: Implement proposal to prepare and publish a fiscal risk statement, including analysis of risks relating to the government’s debt holdings. - Practice after reform: Basic - 3.2.3 Guarantees - Government reform: Publish available information on the stock of guarantees by beneficiary. - Practice after reform: Basic - Government reform: Implement COM resolution 543 (2003) to establish annual limits for the maximum value of new guarantees. - Practice after reform: Good - 3.2.5 Financial Sector Exposure - Government reform: Publish internal information quantifying explicit support to the financial system. - Practice after reform: Basic Note: This alternative evaluation considers prospective reforms contained in published documents and the publication of readily available existing information. The timeframe considered is from 2018 to 2021, in line with the Action Plan detailed in this report. A future evaluation would need to consider the details of how any proposed reforms are implemented. ### Government Fiscal Transparency Action Plan (2018–21) — selected measures and timelines - 1.1 Expand the coverage and comprehensiveness of fiscal reports - Report all revenues, expenditures and financing of general government units, including their off-budget accounts, externally-financed activities, and EBFs in GFS reports. - Initiate review on the classification of entities currently reported as PCs, to classify them in line with internationally accepted criteria (as defined in GFSM 2014 and SNA 2008). - Develop and publish a comprehensive and up-to-date list of general government units and PCs. - Ensure that all the revenues, expenditures and financing of non-market entities currently treated by the government as public corporations are included in fiscal reports including budget execution and GFS. - 1.2 Publish balance sheet information for the general government - Publish a statistical report on financial assets, liabilities, and non-financial assets for the general government on a regular basis. - Publish a statistical report on cash deposits, loans granted and debt liabilities of central and local budgetary units. - Develop a work plan to improve the valuation of assets and liabilities to be reflected at market prices in line with internationally accepted criteria, as part of the broader agenda to develop IPSAS based financial statements. - 1.3 Publish an annual statement on tax expenditures - Publish an annual statement on the revenue forgone from tax expenditures. - Review the quality of information collected on tax exemptions and privileges and agree methodology for reporting tax expenditures. - Publish a summary report of the aggregate revenue forgone from customs and tax expenditures, by main tax category, and expand the report to include a description of the main policy objectives and beneficiary groups. - 1.4 Enhance the quality, comparability and integrity of fiscal reporting - Present GFSM 2014 economic classifications in budget execution reports in line with GFSM 2014. - Include information on revenues and spending by administrative unit in quarterly and the annual state budget execution report for 2019. - Publish an explanatory note on the MoF website explaining the core differences in treatment of revenues, expenditure, financing and the budget deficit between the GFS and budget execution reports. - Include a reconciliation table in the annual state budget execution report reconciling differences in key fiscal aggregate outcomes based on budget classification and the classification in GFS reports. - 2.1 Improve budget comprehensiveness - For the 2019 budget, amend annex 2 of the budget documentation to separately disclose expenses and financing transactions for policy purposes, and report aggregates for both the fiscal balance and overall balance (including financing for policy purposes) for the state budget. - Include, an annex to the 2020 budget showing consolidated fiscal aggregates (revenue, expenditure, budget balance, financing, and overall budget balance) for the consolidated budget (covering the state budget, and EBFs). - Bring off-budget accounts of budgetary organizations into the state budget. - 2.2 Adopt transparent principles for a medium-term budget framework - Include, in Annex 1 of the 2019 Budget, forecasts for the main macroeconomic variables (real and nominal GDP growth, inflation rate, employment or unemployment, wage growth), outturns for the previous year, and updated estimates for the current year and disclose the main economic assumptions underpinning those forecasts. - Present medium-term projections for aggregate revenue, expenditure, budget balance, financing, and the overall budget balance for the state budget, along with outturns for the previous year, and updated estimates for the current year. - Present in an annex to the 2020 Budget, more detailed information on major publicly-funded investment projects, disclosing the expected total lifetime costs, source of financing, and where applicable, budget funding allocated for the budget year and expected allocation over the medium-term budget forecast horizon, on a project basis. - 2.3 Strengthen the integrity of the budget - Amend the budget code to reduce the degree to which the government can increase the level of expenditure and impose a limit on the extent to which the government can utilize greater than expected budget revenues for additional expenditure without prior parliamentary approval. - Undertake a review of the role of the legislature in approving budget revenues and expenditures, with a view to increasing its level of scrutiny and approval of spending allocations. - 3.1 Improve analysis and disclosure of fiscal risks - Prepare the necessary legislative amendments to require publication of an annual fiscal risk statement and assigning responsibilities to relevant agencies and institutes. - Develop methodology for preparing the fiscal risk statement, including clearly defining information requirements, and begin compiling information. - Publish an annual fiscal risk statement including: (i) a qualitative discussion of the main sources of macroeconomic and public debt risks; (ii) the stock of outstanding guarantees by beneficiary or beneficiary group; and (ii) the aggregate financial position of non-financial PCs and their transactions with government. - Expand the statement over time to include sensitivity analysis, ten-year debt sustainability analysis, guarantees to the financial sector and overview of state-owned banks, and discussion of performance and risks related to the largest non-financial PCs on an individual basis and information on their quasi-fiscal activities. - 3.2 Tighten criteria for drawing on budget contingency provisions - Develop clear guidelines for the management of drawdowns from the reserve funds. - Amend legislation to specify clear rules governing drawdowns from the reserve funds and establishing a limit on the size of provisions to be included in the budget. - Report in quarterly and the annual state budget execution report, the main purposes for which the reserves are used by broad category. - 3.3 Enhance financial oversight of public corporations - Compile a central database of key financial information and state support for all PCs, and information compiled by the debt department. - Establish a methodology for assessing fiscal risks related to PCs, building on the indicators for monitoring PC performance set out in decree 207 of 2015. - Require PCs to report and quantify their public service obligations and provision of goods and services at below-market prices. *Fiscal Affairs Department, International Monetary Fund, 700 19th Street NW, Washington, DC 20431, USA* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1uzbea2019002.pdf_