## MAKING FISCAL CONSOLIDATION MORE GROWTH FRIENDLY: LESSONS FROM THE INTERNATIONAL EXPERIENCE

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### A. Key channels and timing of impact
- Main channels affecting short- and medium-term growth:
  - Aggregate demand compression: reducing government expenditures or increasing taxes has a negative short-term impact on growth.
  - Confidence effect: credible consolidation can boost private consumption and investment; lack of credibility can compound negative demand compression.
  - Interest rate effect: consolidation reduces public borrowing requirements, which can lower interest rates and stimulate private investment and consumption.
  - Real exchange rate effect: in a small open economy, consolidation can induce real exchange rate depreciation, increasing external demand.
  - Economic efficiency effect: medium-term growth gains arise from measures that eliminate distortions and encourage competition.
- Key findings:
  - A credible fiscal consolidation typically has a negative impact on growth in the short term but a positive one over the medium term.
  - Short-term impact depends on consolidation size and the short-term fiscal multiplier, which depend on structural and cyclical characteristics and the design of adjustment (timing, pace, composition, duration).
  - Medium-term impact depends on whether measures improve economic efficiency.
  - Trade-offs: measures minimizing short-term impact (e.g., increasing labor taxes) may worsen medium-term efficiency.

### B. How to make consolidation more growth friendly — lessons and practices
- Timing:
  - Consolidations when cyclical conditions are favorable or when external conditions offset weaker domestic demand tend to have smaller negative short-term growth impacts.
- Pace:
  - Gradual consolidation mitigates short-term negative impact and allows high-quality measures, but may be infeasible where high debt/financing pressures require front-loaded adjustment.
- Quality and composition of measures:
  - Revenue-side high-quality measures: shift to more efficient taxes (VAT, excise duties, sin taxes, environmental taxes, property taxes); make PIT more progressive; eliminate distortions like tax exemptions and incentives; avoid reduced rates in presumptive regimes that incentivize smaller firm size.
  - Expenditure-side high-quality measures: rationalize compensation (eliminate unnecessary allowances and non-wage benefits); eliminate distortive subsidies (fuel and energy subsidies, subsidies to loss-making SOEs); reduce procurement costs (procurement reform); improve social benefits design to minimize adverse labor market incentives and strengthen targeting.
  - Composition depends on country circumstances; no universally best mix. Revenue-based consolidation tends to be more durable where revenue-to-GDP ratios are low; large consolidations generally require a combination of revenue and expenditure measures.
- Protect social spending:
  - Safeguard well targeted safety net expenditure; protect basic education and health to avoid adverse productivity effects on medium-term growth.
- Shift expenditure toward productive public investment:
  - Protect productive infrastructure investment within the expenditure envelope to create jobs, stimulate demand short-term, and enhance productivity long-term; assess financing costs and risks.
- Institutional and policy complementarities:
  - Strengthen fiscal institutions (credible medium-term budget framework, efficient revenue administration, sound public financial management, fiscal transparency).
  - Fiscal rules can help but depend on implementation capacity and commitment.
  - Combine consolidation with structural reforms (labor market, competition, innovation).
  - Coordinate with monetary and exchange rate policies; accommodative monetary/exchange rate policies can cushion short-term contraction when inflation allows.

### C. Implications for Uzbekistan’s planned fiscal consolidation
- Growth-friendly elements in the plan:
  - Timing: planned when the economy is strong and can assist monetary policy in reducing inflation.
  - Size, pace, duration: size "2.5 percent of GDP"; pace "1.5 percentage point the first year and 1 percent the second year"; duration "2 years"—aligned with typical consolidations that adjust 1 to 2 percentage points per year over a 3 to 4 years horizon.
  - Quality of measures: significant share implemented with efficiency-enhancing measures—reducing energy subsidies, improving targeting of social spending, curbing policy lending.
  - Protection of the vulnerable: introduction of an energy consumption norm subject to lower price increases; a one-off benefit to compensate safety net benefit recipients for additional heating costs in winter; improvement in coverage of safety net programs.
  - Combining adjustment with structural reforms.
- Additional recommended actions to increase growth-friendliness:
  - Revenue measures:
    - After VAT and mining taxation reforms, focus on excise taxes, CIT, and PIT.
    - Gradual increase in excise rates for "alcohol, tobacco, nicotine, fossil fuels, vehicles and sugar".
    - Expand CIT tax base by phasing out tax incentives (investment deductions and exemptions) while reducing turnover tax burden for small businesses.
    - Reform PIT by replacing the current flat rate with progressive design and adjust exemption threshold.
    - Broaden tax base by eliminating non-statutory exemptions from customs duties.
    - Strengthen tax administration per TADAT recommendations: perform a taxpayer register audit, prepare a compliance improvement plan across all taxes and taxpayer segments, and achieve "100 percent on-time payments by large taxpayers."
  - Avoid across-the-board spending cuts:
    - Example: goods and services were cut across the board in the 2024 budget by "10 percent"; such cuts can disrupt essential services and have adverse medium-term growth consequences.
  - Health and education efficiency:
    - World Bank PER notes non-wage spending in health and education is low and crowded out by high wage bills.
    - Review adequacy of non-wage spending and undertake wage bill rationalization.
    - For health: strengthen primary care, introduce task-shifting; consolidate a centralized purchasing agency for pharmaceuticals to deliver savings and reduce out-of-pocket health expenditures.
  - Social protection optimization:
    - Integration under the National Agency for Social Protection (July 2023) offers opportunity to eliminate overlaps, improve targeting, minimize labor-supply disincentives, and reduce delivery costs.
  - SOE support phase-out and reform:
    - Intensify phase-out of budget support, subsidized/directed bank lending, and other SOE privileges combined with privatization or liquidation of SOEs without a clear public policy rationale.
  - Pension reform:
    - Reduction in social contributions in 2019 without parameter adjustment is burdening the budget with transfers to the pension system "1.3 percent of GDP in 2023".
    - Rapid aging expected over the next 20–30 years; parametric reforms needed (retirement ages, expand reference wage history, make pension parameters rule based) and should be implemented gradually.
  - Strengthen fiscal institutions (based on IMF CD advice):
    - PFM Strategy: prepare a new PFM Strategy for "2025-2030" prioritizing core budget processes, budget credibility, and fiscal discipline.
    - Medium Term Budget Framework: incorporate medium-term macro-fiscal projections early; prepare and publish the Fiscal Strategy paper (FSP) timely; align public investment and recurrent budget preparation; determine and communicate indicative expenditure ceilings per institution; organize authorization process for within-year budget changes.
    - Public Investment Management: unify public investment process irrespective of financing source; create unified appraisal/selection; establish a single project pipeline; improve project monitoring and evaluation.
    - Fiscal transparency: restart reporting fiscal statistics using GFS as soon as feasible and improve frequency and timeliness of fiscal statistics publication to meet SDDS.
    - Fiscal risk management: construct and publish an annual Fiscal Risk Statement; strengthen analysis of SOE-related fiscal risk; introduce a ceiling on PPP guarantees as authorized in the public debt law, considering results of the ongoing stock-taking exercise.

### Governance, rule of law, anti‑corruption and judicial integrity — headline findings and recommendations
- Headline findings:
  - Progress made, but additional measures needed across central bank governance, business environment and market regulation, SOE restructuring/privatization, rule of law, and corruption.
  - Central bank: 2019 Central Bank Law enhanced governance; further steps needed for independent oversight, collegial decision-making, internal controls, and staff safeguards.
  - Business environment: government target to increase private sector share to 85 percent by 2030; steps taken to streamline investment facilitation and create independent market regulators; WTO accession negotiations ongoing (as of May 2024, negotiations concluded with 11 members).
  - SOEs: dominant across key sectors; 2019–2023 reforms set frameworks for privatization and IFRS adoption; privatizations of several medium-sized enterprises and a bank sale occurred.
  - Rule of law and corruption: notable index improvements (WJP, TI CPI) but persistent vulnerabilities in key sectors (health, education, tax, extractives, procurement, construction, telecommunications).
- Rule of Law and Judicial Performance (selected metrics):
  - Impartial administration of the criminal justice system: 0.44 vs. global average 0.47.
  - Protection of property rights against undue expropriation: 0.29 vs. 0.56.
  - Corruption in civil justice: 0.46 vs. 0.56.
  - Improper government influence on civil justice: 0.27 vs. 0.52.
  - BTI score on independence of the judiciary: 4 out of 10.
- Procurement, transparency and information access:
  - 2021 Law on Public Procurement mandates procurement via a public portal and recording beneficial owners; procurement data entered into a unified register and made publicly available.
  - Remaining needs: strengthen ACA tools to ensure compliance with openness and access to information; information on state agencies and SOEs should be available by default; citizens’ right to seek and disseminate information should be ensured.
- Institutional and legal reforms:
  - Recommended legal actions: present and enact draft Law on Asset Declarations; establish an efficient income declaration system; adopt Law on Conflicts of Interest; enact whistleblower protection bill; strengthen independence of prosecutors and judges.
  - Digital and institutional measures: strengthen judge selection criteria, consider specialized anticorruption courts, improve Chamber of Accounts’ independence and resources, expand risk‑based audits for SOEs.
- Whistleblowers, defamation and remedies:
  - Expedite approval of the Whistleblower Protection Bill; consider decriminalizing defamation to boost public oversight; strengthen protections against retaliation.
- Enforcement and prosecution:
  - Progress in detecting and punishing petty corruption; prosecution of higher‑level corruption less common; notable prosecutions include more than 20 corrupt judges.
  - Role of civil society: anticorruption law grants NGOs and media powers; additional safeguards against retaliation would enhance effectiveness.
- Actionable policy recommendations (selected):
  - Enact the asset declaration regime, establish income declaration system, and launch digital platform for publication of asset declarations (IMF staff supports piloting with tax administration officials).
  - Train anticorruption officials on conflict of interest rules and educate public officials on reporting/seeking advice.
  - Enact comprehensive whistleblower protection law consistent with international best practice to ensure anonymity and protection.
  - Create a right to appeal denials of information requests; grant ACA powers to ensure accountability and sanction non‑compliance.
  - Revise disclosure rules for conflicts of interest and beneficial ownership in privatization; ACA to design plan to detect risks from privatization.
  - Adopt measures to increase independence of prosecutors and judges handling corruption cases; improve recruitment processes.
  - Develop a risk‑based strategic plan to improve fiscal oversight and audits of public spending in corruption‑vulnerable areas; adopt legal amendments to boost independence of the head of the Chamber of Accounts.

*Source: REPUBLIC OF UZBEKISTAN — MAKING FISCAL CONSOLIDATION MORE GROWTH FRIENDLY: LESSONS FROM THE INTERNATIONAL EXPERIENCE (May 28, 2024).*

### References ______________________________________________________________________________ 9

### MAKING FISCAL CONSOLIDATION MORE GROWTH FRIENDLY: LESSONS FROM THE INTERNATIONAL EXPERIENCE

### A. Key Channels of Impact of Fiscal Consolidation on Short- and Medium-Term Growth
- Main channels:
  - Aggregate demand compression: reducing government expenditures or increasing taxes has a negative short-term impact on growth.
  - Confidence effect: a credible fiscal consolidation that is deemed likely to meet its goals can boost private consumption and investment, partially offsetting negative demand compression; if not credible, confidence effects can compound negative demand compression.
  - Interest rate effect: fiscal consolidation reduces public borrowing requirements, which can lower interest rates and stimulate private investment and consumption, partially offsetting negative demand compression.
  - Real exchange rate effect: in a small open economy, fiscal consolidation can induce real exchange rate depreciation (fall in relative price of non-tradable goods), incentivizing higher external demand and offsetting some demand compression.
  - Economic efficiency effect: medium-term growth enhancements from measures that eliminate distortions and encourage stronger competition.
- Key points:
  - A credible fiscal consolidation will typically have a negative impact on growth in the short term but a positive one over the medium term.
  - Short-term impact depends on the size of consolidation and the short-term fiscal multiplier, which in turn depends on the structural and cyclical characteristics of the economy and the design of the fiscal adjustment (timing, pace, composition, duration).
  - Medium-term impact depends on whether adjustment measures improve economic efficiency.
  - Trade-offs can arise: measures that minimize short-term negative impacts may not be as efficiency-enhancing in the medium term (example: increasing labor taxes may have smaller short-term multipliers but worsen medium-term efficiency).

### B. How to Make Fiscal Consolidation More Growth Friendly (Lessons and Practices)
- Timing:
  - Consolidations when cyclical conditions are favorable or when external conditions offset weaker domestic demand tend to have smaller negative short-term growth impacts.
- Pace:
  - Seek gradual consolidation to mitigate short-term negative impact; gradual consolidation allows implementation of high-quality measures but may face resistance or be infeasible where high debt/financing pressures require front-loaded adjustment.
- Quality of measures:
  - High-quality measures: permanent consolidation effects that improve efficiency and equity.
  - Revenue-side examples: shift composition to more efficient taxes (VAT, excise duties, sin taxes, environmental taxes, property taxes); make PIT more progressive; eliminate distortions such as tax exemptions and incentives; avoid reduced rates in presumptive regimes that incentivize smaller firm size.
  - Expenditure-side examples: rationalize compensation (eliminate unnecessary allowances and non-wage benefits); eliminate distortive subsidies (fuel and energy subsidies, subsidies to loss-making SOEs); reduce procurement costs (procurement reform); improve social benefits design to minimize adverse labor market incentives and strengthen targeting.
  - Composition choice depends on country-specific circumstances; no consensus on a universally best mix.
  - Revenue-based consolidation tends to contribute to more durable adjustment where revenue-to-GDP ratios are low; large consolidations generally require a combination of revenue and expenditure measures.
- Protect social spending:
  - Safeguard well targeted safety net expenditure to maintain social cohesion and support domestic demand; protect critical outlays for basic education and health to avoid adverse productivity effects on medium-term growth.
- Shift expenditure toward productive public investment:
  - Protect productive infrastructure investment within the expenditure envelope to create jobs and stimulate demand short-term and enhance productivity long-term; assess financing costs and risks.
- Strengthen fiscal institutions:
  - Importance of credible medium-term budget framework, efficient revenue administration, sound public financial management, fiscal transparency.
  - Fiscal rules can help but depend on implementation capacity and commitment.
  - Capacity development is critical and should focus first on basic PFM and IT functions before moving to performance budgeting.
- Combine with structural reforms:
  - Reforms (labor market flexibility, competition, innovation) can boost productivity and long-term growth potential.
- Coordinate with monetary and exchange rate policies:
  - When inflation developments allow, accommodative monetary and exchange rate policies can help cushion short-term contractionary effects.

### C. Implications for Uzbekistan’s Planned Fiscal Consolidation
- Elements contributing to growth-friendliness:
  - Timing: consolidation planned when the economy is strong and can assist monetary policy in reducing inflation.
  - Size, pace, duration: size "2.5 percent of GDP", pace "1.5 percentage point the first year and 1 percent the second year", duration "2 years"—aligned with consolidations that typically adjust 1 to 2 percentage points per year over a 3 to 4 years horizon.
  - Quality of measures: significant share implemented with high-quality efficiency-enhancing measures—reducing energy subsidies, improving targeting of social spending, curbing policy lending.
  - Protection of the vulnerable: introduction of an energy consumption norm subject to lower price increases; a one-off benefit to compensate safety net benefit recipients for additional heating costs in winter; improvement in coverage of safety net programs.
  - Combining adjustment with structural reforms.
- Additional actions recommended to make the adjustment more growth-friendly:
  - Introduce efficiency- and equity-enhancing revenue-raising measures:
    - After VAT and mining taxation reforms, focus on excise taxes, CIT, and PIT.
    - Gradual increase in excise rates for "alcohol, tobacco, nicotine, fossil fuels, vehicles and sugar" to address externalities and provide revenue.
    - Expand CIT tax base by phasing out tax incentives (investment deductions and exemptions) while reducing the burden of the turnover tax for small businesses.
    - Reform PIT by replacing the current flat rate with progressive design and adjust exemption threshold to improve equity.
    - Broaden tax base by eliminating non-statutory exemptions from customs duties and strengthen tax administration per TADAT recommendations: perform a taxpayer register audit, prepare a compliance improvement plan across all taxes and taxpayer segments, and achieve "100 percent on-time payments by large taxpayers."
  - Avoid across-the-board spending cuts:
    - Example: goods and services were cut across the board in the 2024 budget by "10 percent"; such cuts can disrupt essential services and have adverse medium-term growth consequences.
  - Improve efficiency of health and education spending:
    - World Bank PER notes non-wage spending in health and education is low and crowded out by high wage bills.
    - Review adequacy of non-wage spending and undertake wage bill rationalization.
    - For health: strengthen primary care and introduce task-shifting; consolidate a centralized purchasing agency for pharmaceuticals to deliver savings and reduce out-of-pocket health expenditures.
  - Deepen optimization of social protection programs:
    - Integration under the National Agency for Social Protection (July 2023) offers opportunity to eliminate overlaps, improve targeting, minimize labor-supply disincentives, and reduce delivery costs.
  - Intensify phase-out of SOE support combined with SOE reform:
    - Reduce budget support, subsidized/directed bank lending, and other SOE privileges combined with privatization or liquidation of SOEs without a clear public policy rationale.
  - Advance pension reform:
    - Reduction in social contributions in 2019 without parameter adjustment is burdening the budget with transfers to the pension system "1.3 percent of GDP in 2023".
    - Aging is expected to be rapid over the next 20–30 years; parametric reforms needed to bring retirement ages in line with international best practice, expand reference wage history for pension calculations, and make pension parameters rule based.
    - Reforms should be implemented gradually to allow adaptation and fair distribution of impacts across generations.
  - Prioritize strengthening of key fiscal institutions based on IMF CD advice:
    - PFM Strategy: prepare a new PFM Strategy for "2025-2030" prioritizing core budget processes, budget credibility, and fiscal discipline; ensure budget negotiation addresses whole spending envelopes.
    - Medium Term Budget Framework: incorporate medium-term macro-fiscal projections at early stages; prepare and publish the Fiscal Strategy paper (FSP) timely; align public investment and recurrent budget preparation; determine and communicate indicative expenditure ceilings per institution; organize authorization process for within-year budget changes.
    - Public Investment Management: unify the public investment process irrespective of financing source; create unified appraisal and selection; establish a single project pipeline; improve project monitoring and evaluation.
    - Fiscal transparency: restart reporting fiscal statistics using GFS as soon as feasible and improve frequency and timeliness of fiscal statistics publication to meet Special Data Dissemination Standards (SDDS).
    - Management of fiscal risks: construct and publish an annual Fiscal Risk Statement covering macro-fiscal risks and material contingent liabilities; strengthen analysis of SOE-related fiscal risk; introduce a ceiling on PPP guarantees as authorized in the public debt law, taking into account the results of the ongoing stock-taking exercise.

*Source: REPUBLIC OF UZBEKISTAN — MAKING FISCAL CONSOLIDATION MORE GROWTH FRIENDLY: LESSONS FROM THE INTERNATIONAL EXPERIENCE (May 28, 2024).*

### References

### References

### References list
- Alessina, A. and Ardagna, S. (2010)” Large Changes in Fiscal Policy: Taxes versus Spending,” NBER Vol.24, pp. 35-68, National Bureau of Economic Research (Cambridge: Massachusetts).
- Baunsgaard, T and others, 2012,” Fiscal Multipliers.” In Post-Crisis Fiscal Policy, ed. By C. Cottarelli, P.Gerson, and A. Senhadji, (Washington, International Monetary Fund).
- DeLong, J.B, Summers, L.H., 2012, “Fiscal policy in a Depressed Economy,” Brooking Papers, Spring 2012.
- International Monetary Fund, 2023, Balasundharam, V and others, “Fiscal Consolidation: Taking Stock of Success Factors, Impact, and Design,” IMF Working Paper No. 63, (Washington: International Monetary Fund).
- ———, 2021, Independent Evaluation Office, “Growth and Adjustment in IMF Supported Programs,” (Washington: International Monetary Fund).
- ———, 2014, Battini and others, “Fiscal Multipliers: Size, Determinants, and Use in Macroeconomic Projections.” Fiscal Affairs Department, (Washington: International Monetary Fund).
- ———, 2006, Daniel, J and others (2006), “Fiscal Adjustment for Stability and Growth,” (Washington: International Monetary Fund.
- World Bank (2022), “Uzbekistan Public Expenditure Review: Better Value for Money in Human Capital and Water Infrastructure,” (Washington: The World Bank).
- ———,1995, “Bureaucrats in Business: The Economics and Politics of Government Ownership,” (Washington: The World Bank).

### Enhancing Governance and Combating Corruption — Executive findings and context
- The 2024 Article IV consultation with Uzbekistan included a comprehensive assessment of governance issues guided by the IMF’s 2018 Framework.
- The paper focuses on central bank governance and operations, the business environment and market regulation, restructuring and privatizing state enterprises, the rule of law, and corruption.
- The assessment draws on IMF technical experts, reports from other international organizations, and interviews with the authorities, stakeholders from the public and private sectors, development partners, and non-government organizations.

### Overall assessment — headline findings
- Progress has been made in several areas, but additional measures are needed across multiple domains:
  - Central bank governance: enhanced since the 2019 Central Bank Law, but needs stronger independent oversight, collegial decision-making, internal controls, and safeguards for CBU staff.
  - Market regulation and business environment: Anti-Monopoly Committee strengthened, Law on Competition enacted, investment process streamlined, WTO accession discussions stepped up; further opening of markets and competition improvements recommended.
  - SOE restructuring and privatization: new regime introduced, timelines and IFRS adoption set; continued restructuring, privatization, and integrity safeguards needed.
  - Rule of law and corruption: sustained improvements and notable index gains, but sizable scope for further progress given initially low scores; pending legislation includes a draft Law on Asset Declarations, Law on Conflicts of Interest, and whistleblower protection bill.

### A. Enhancing Central Bank Governance — developments and actions
- Developments:
  - 2019: new Central Bank Law (CBL) enacted, mandating the CBU to pursue inflation targeting and prohibiting CBU financing of the government.
  - 2022: CBU completed a safeguards assessment carried out by the IMF following Uzbekistan’s use of the IMF’s Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) in 2020.
  - Recent measures: establishment of an investment committee with charter and guidelines; road map to implement risk-based internal audits; reputable international audit firms conducted audits; transition to International Financial Reporting Standards (IFRS) is ongoing, with the first publication of the audited IFRS-compliant financial statements expected this year; procedures established for prudent oversight of foreign exchange reserves and stronger compliance culture.
- Areas for action (outstanding safeguards assessment recommendations):
  - Naming a majority of independent members to the CBU Board.
  - Ensuring the Audit Committee consists exclusively of independent members.
  - Introducing collegial decision-making for executive management of the CBU.
  - Improving financial personal autonomy safeguards for CBU staff.
  - Aligning CBU functions with international best practice.

### B. Improving the Business Environment and Market Regulation — developments, assessment, and actions
- Developments:
  - Government target: increase the private sector share of the economy to 85 percent by 2030.
  - 2023: establishment of an investment center; MIIT tasked with assisting investors to obtain permits, land, and access to infrastructure.
  - 2023: mandate to establish independent market regulators in aviation, electricity, natural gas, railways, and telecommunications to set prices and manage natural monopolies more effectively.
  - 2023: enactment of a Law on Competition defining dominant market power and superior bargaining power, setting penalties for abuse, and clarifying when preliminary consent is needed from the Anti-Monopoly Committee (reorganized as the State Competition Promotion and Consumers Protection Committee (SCPCPC) in 2022).
  - WTO accession: negotiations restarted in July 2020; meetings in June 2022, March 2023, and November 2023; extensive information submitted; decrees in 2023 to align laws with WTO rules; special department in the Ministry of Justice and WTO divisions in 20 ministries and agencies established; bilateral negotiations with 31 members under way; as of May 2024, negotiations had been concluded with 11 members.
- Assessment:
  - 2022 EBRD survey: firms reported improvements in licensing, investment facilitation, the tax system, and infrastructure; less progress reported on access to finance, rule of law, and competition policy.
  - WTO members in November 2023 commended Uzbekistan’s alignment efforts and institution-building for accession.
- Areas for action:
  - Continue to open markets, reduce monopoly power, and promote a friendly and predictable investment environment.
  - Continue efforts to join the WTO to reduce trade barriers and improve access to foreign markets.

### C. Restructuring and Privatizing State Enterprises — context, measures, and recommendations
- Context:
  - SOE dominance: economy dominated by SOEs in banking, chemicals, energy, mining, manufacturing, telecommunications, and transportation.
  - 2020 ADB estimate: 73 percent of joint stock companies had some degree of government ownership and control.
  - Government officials often served on SOE Boards and intervened in management or price-setting.
- Measures implemented:
  - 2019: Decree on Attracting Foreign Direct Investment designating state assets to be sold and companies to offer shares; established the Tashkent Investors Forum.
  - 2020: Decree on Accelerating the Reform of State Enterprises and Privatization of State Assets designating which enterprises would be restructured, prepared for privatization, privatized, or sold at public auction; largest SOEs assigned to the Ministry of Finance; others assigned to the State Asset Management Agency (SAMA); mandate that all large corporate taxpayers produce financial statements according to IFRS.
  - 2022: timeline set for privatization of state banks and state enterprises; action plan to eliminate monopolies’ exclusive rights and further promote the private sector.
  - 2023: Law on State Property Management gave SAMA sole authority for policies on state property, mandated separation of ownership and regulation functions, and established evaluation of executives based on performance.
- Privatization progress and examples:
  - Several medium-sized enterprises privatized: a Coca Cola bottling plant, a fertilizer company, an oil refinery, a cement plant, and several smaller SOEs.
  - 2023: the 5th largest bank was sold to Hungary’s OTP; efforts to privatize two large state banks are ongoing.
- Recommendations:
  - Sustain efforts to restructure and privatize SOEs and attract private shareholders.
  - Establish independent regulators so SOEs focus on commercial objectives.
  - Adopt further procedures to ensure integrity in SOE privatization, including measures to prevent conflicts of interest and abuse of power.

### D. Rule of Law and Anti-Corruption — actions, indicators, and vulnerabilities
- Developments and institutional measures:
  - 2017: Law on Combatting Corruption enacted specifying roles of ministries and agencies, government openness and accountability measures, and public education on corruption.
  - 2020: Presidential Decree established the Anti-Corruption Agency (ACA) with a broad mandate to analyze corruption, formulate prevention policies, coordinate ministries and agencies, lead internal control/compliance systems for government agencies and SOEs (including banks), implement and monitor integrity measures and conflicts of interest regimes, monitor the National Corruption Perception Index, lead openness initiatives, and conduct administrative investigations of corruption offences; ACA expected to monitor compliance with asset declaration and conflicts of interest regimes once relevant legislation is enacted.
  - 2021: Law on Public Procurement enacted requiring procurement bids through a public procurement portal and recording identities of beneficial owners in a unified register available to the public free of charge.
  - 2023: ACA established regulations on conditions for receiving and reporting gifts to public officials.
  - Recent draft Presidential Decree would improve the anti-corruption framework, expand enforcement mechanisms, and approve a National Anti-Corruption Strategy through 2030 with a Roadmap for 2024-2025.
- Indicator improvements:
  - World Justice Project Rule of Law Index (WJP RLI): overall score improved from 0.46 in 2016 to 0.50 in 2023; the largest improvement of any country in the world over that period; largest improvement on the absence of corruption sub-index.
  - Sub-index comparisons: order and security 0.90 vs. global average 0.72; speed of civil justice 0.77 vs. 0.44.
  - Transparency International Corruption Perceptions Index (TI CPI): Uzbekistan improved 12 points from 2016 to 2023 and was tied for the 3rd greatest improvement.
- Areas for action:
  - Present the draft Law on Asset Declarations to Parliament and enact it.
  - Establish an efficient income declaration system and approve the Law on Conflicts of Interest.
  - Adopt measures to step up enforcement of access to information laws, including giving citizens the right to appeal.
  - Enact the whistleblower protection bill.
  - Adopt additional measures to enhance the independence of prosecutors and judges.

*Source: 1uzbea2024002-print-pdf - References*

### 15. Nonetheless, scores improved from a low base and have only recently reached the

### 15–33: Governance, Anti‑Corruption, Judicial Independence, and Transparency

### Rule of Law and Judicial Performance
- Scores have improved from a low base and recently reached the Caucasus and Central Asia (CCA) and Emerging Markets and Developing Economies (EMDC) averages.
- Select World Justice Project (WJP) Rule of Law Index sub‑scores:
  - Impartial administration of the criminal justice system: 0.44 vs. a global average of 0.47.
  - Protection of property rights against undue expropriation: 0.29 vs. 0.56.
  - Corruption in civil justice: 0.46 vs. 0.56.
  - Improper government influence on civil justice: 0.27 vs. 0.52.
- Bertelsmann Transformation Index (BTI) score on independence of the judiciary: 4 out of 10.
- Implication: Courts’ ability to protect property rights, enforce contracts, and ensure evenhandedness in civil justice should be further improved.

### Corruption Vulnerabilities and Key Sectors
- Persistent corruption vulnerabilities across key state functions despite improvements in governance and rule of law indicators.
- Anti‑Corruption Agency (ACA) 2022 poll: 39 percent of young people surveyed do not consider giving bribes to be corruption.
- Sectors perceived as most corrupt: health, education, tax, extractive industries, procurement, construction, and telecommunications.
- Special concerns:
  - Prevalence of corruption in education and health affects sustainable economic development, vulnerable communities, and women.
  - Access to information and monitoring of concession agreements for land and infrastructure projects is limited, posing risks related to licensing and concessions.

### Links between Public and Private Sectors; Checks and Balances
- Risks arise from links between private and public sectors across government levels and economic areas.
- Checks and balances affected by insufficient prosecutorial and judicial independence and insufficient civic participation.
- Recent positive reforms:
  - Creation of a Supreme Board for the Selection of Judges.
  - Improved norms regulating recruitment of law enforcement and judges.
  - Requirement that new judges complete studies at the newly established Judicial Academy.

### Procurement, Access to Information, and Transparency
- Procurement reforms:
  - Decree No. PP-4544 (December 2019) to improve public procurement and involve business entities.
  - 2021 Law on Public Procurement: mandated procurement via a public procurement portal and required bidders to provide information on beneficial owners.
  - Procurement data entered into a unified register and made available on the internet, improving detection, reporting, and prevention of conflicts of interest and influence peddling.
- Remaining needs:
  - ACA would benefit from additional tools to ensure compliance with openness and access to information legal requirements.
  - Information on state agencies and state-owned enterprises should be available by default; citizens’ right to seek and disseminate that information should be ensured.
- Freedom of the Press Index movement: Uzbekistan rose from 166 to 133 out of 180 countries between 2016 and 2022, although it has dropped somewhat recently.
- ACA initiatives: created a department to promote openness and access to public information; designed and implemented a National Corruption Perception Index to measure openness and corruption risks of government agencies.
- WJP scores on transparency: publication of laws and government data: 0.26; right to information: 0.35.
- IMF staff welcomes the government’s electronic procurement portal established in 2021.

### Institutional Frameworks and Recent Reforms
- Steps taken:
  - Creation of the Law Enforcement Academy in 2018.
  - Creation of the Anti‑Corruption Agency in 2020.
  - Strengthening the Prosecutor General’s Office.
  - Increasing independence of the Chamber of Accounts and the judiciary as part of the 2023 Constitutional reform.
- ACA’s mandate consistent with UN Convention against Corruption (UNCAC); catalyzed reforms and improved inter‑agency coordination.
- Prosecutor General coordinates with the National Council for Combatting Corruption, overseeing biannual programs (latest: 2023-2024 Program to Fight Corruption).
- Recommended institutional reforms:
  - Additional safeguards to ensure independence of the Prosecutor General’s Office, especially for prosecutors handling corruption cases.
  - Clear and enhanced procedures for selection of prosecutors to ensure integrity, independence, and competence.
  - Safeguards to prevent unjustified removals of prosecutors from sensitive cases or from office; issuance of clear guidelines on removal norms.

### Judicial Independence, Digitization, and Integrity Measures
- Improvements:
  - Supreme Board for the Selection of Judges and strengthened Judicial Academy improved judge selection.
  - Information technology and digitization reforms: automated distribution of cases, reinforced cyber security systems, enhanced transparency, access to laws and judicial decisions, and live streamed trials.
  - Integration of dispersed judicial branch databases.
- Additional measures to reduce corruption risks and vested‑interest influence:
  - Further strengthen criteria and selection process for judges and consider creating specialized anticorruption courts.
  - Use independent assessment mechanisms with external experts to evaluate decrees regulating judge selection.
  - Adopt safeguards for selection of auditors and ensure adequate resources for the Chamber of Accounts.
  - Introduce legislation so that the Chair and key members of the Chamber of Accounts can only be removed in compliance with international standards.
  - Consider expanding Chamber of Accounts’ oversight over SOEs, prioritizing higher‑risk entities, and ensure sufficient resources (e.g., IT systems and staff), including staff with expertise in risk‑based audits, accounting, and SOE oversight if activities expand.

### Legal Frameworks and Anti‑Corruption Legislation
- Recent legal steps:
  - ACA drafted a law on asset declarations, expected to be presented to Parliament and enacted in the near term.
  - 2022 Resolution of the President (PP-240, 2022): promotes a risk‑management approach to corruption, accelerates digitization of public administration, fosters identification of conflicts of interest in procurement, and mandates implementation of the E‑Anticorruption Project.
  - Other decrees: rewards for reporting corruption; promote intolerant attitude towards corruption; additional measures for effective organization of anticorruption activities; improve ACA activities; introduce rating system for assessing anticorruption work effectiveness.
  - Legal reforms aim to boost fairness in recruitment and promotion of public officials.
- Needed legal actions:
  - Strengthen comprehensive norms on conflicts of interest and ethical conduct under Articles 19 and 21 of the Law on Anti‑Corruption.
  - Present and enact the draft law on asset declarations; establish an efficient income declaration system.
  - Implement the digital platform for officials’ asset declarations and make declarations accessible to the public.
  - ACA could collaborate with the State Tax Committee to pilot the asset declaration platform.

### Whistleblowers, Defamation, and Remedies
- Current regime:
  - Some whistleblower protections exist in Articles 25 and 28 of the Law on Anti‑Corruption and the Law on Rewards for Whistleblowers.
  - A Whistleblower Protection Bill is under discussion.
- Recommendations:
  - Expedite approval of the Whistleblower Protection Bill.
  - Consider decriminalizing defamation to boost public oversight of public officials.
  - Strengthen whistleblower protections against threats, retaliation, or harassment.

### Transparency, Review of Draft Legislation, and Publication Procedures
- Laws on Anti‑Corruption and Openness establish citizens’ right to access information and a duty of openness in public administration.
- Suggested improvements:
  - Provide clear legal procedures for citizens to appeal denials of information requests.
  - Pay particular attention to transparency in extraction of minerals, public construction projects, and privatization of state enterprises.
  - Clarify when reviews of draft legislation for anticorruption consistency are applicable, how draft laws should be improved, and which ministry or agency is responsible for the review.

### Enforcement, Detection, and Prosecution
- Steps taken to detect and punish petty corruption; enforcement agencies have achieved a significant number of convictions.
- Gaps:
  - Low and mid‑level officials are generally prosecuted for petty corruption; prosecution of public officials involved in more serious corruption cases is less common.
  - Notable prosecutions: more than 20 corrupt judges have been prosecuted, debarred, and convicted.
- Role of civil society:
  - Anticorruption Law grants NGOs and media powers to help fight corruption; additional safeguards against retaliation would enhance their effectiveness.

### Areas for Action (Policy Recommendations)
- Present to parliament, obtain approval, and enact the asset declaration regime drafted by the ACA and other stakeholders; establish an efficient income declaration system; and launch the digital platform for publication of asset declarations. IMF staff supports piloting asset declarations with officials from the tax administration.
- Train anticorruption officials in each state agency on conflict of interest rules and create opportunities to educate public officials on how to report or seek advice on conflict of interest issues.
- Enact a comprehensive whistleblower protection law, consistent with international best practice, that enhances whistleblowers’ protection from retaliation and specifically creates channels to report corruption while ensuring the anonymity of whistleblowers.
- Adopt measures to increase transparency and access to information by creating a right to appeal denials of information requests. Grant the ACA powers that ensure accountability and sanction lack of compliance.
- Revise rules for disclosing conflicts of interest and beneficial ownership for those bidding on state enterprises and assets. The ACA should design a plan to detect and address potential risks arising from privatization.
- Adopt measures to boost the independence of prosecutors and judges with jurisdiction over corruption-related cases in line with international best practice; improve recruitment processes to ensure the highest standards of integrity and competence.
- Continue to develop a risk‑based, strategic plan to improve fiscal oversight and audits of public spending in areas vulnerable to corruption, utilizing databases and information collected by the Chamber of Accounts.
- Adopt legal amendments to boost the independence of the head of the Chamber of Accounts.

*Source: IMF staff report, sections 15–33.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1uzbea2024002-print-pdf.pdf_