## STATE OWNED ENTERPRISES IN UZBEKISTAN: ISSUES AND REFORM OPTIONS

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### A. Introduction
- SOEs operate across a wide range of sectors—including key network industries such as utilities, transportation—and the financial system, providing critical inputs to businesses and implementing public investment projects.
- SOEs receive substantial government support (subsidies, favorable loan conditions, guarantees), creating direct fiscal costs and sizable fiscal risks through contingent liabilities.
- Deepening SOE reforms is essential to reduce the large state footprint, accelerate privatization (particularly of large non-financial and financial SOEs), restructure retained SOEs, improve resource allocation and SOE financial performance, reduce reliance on government support, mitigate fiscal risks, and foster private sector development by leveling the playing field.
- Paper objective: characterize Uzbekistan’s SOE landscape, assess progress and remaining challenges in SOE reform, and discuss policy options to deepen reforms. Focus is primarily on non-financial SOEs; financial SOEs (including state banks) are discussed in the financial section of the staff report and related annexes.

### B. Uzbek SOE Landscape — Size, structure, and employment
- Key aggregate figures (end-2024):
  - Total SOE assets: 101 percent of GDP.
  - Financial SOE (FSOE) assets: 52 percent of GDP.
  - Non-financial SOE (NFSOE) assets: 49 percent of GDP.
- NFSOE sector composition (share of total NFSOE assets):
  - Mining sector SOEs: 31 percent.
  - Oil and gas sector SOEs: 19 percent.
  - Electricity sector SOEs: 19 percent.
  - Remaining NFSOEs across other sectors: 31 percent (including road and transport infrastructure and chemical sectors).
- Revenue, profits, and dividends concentration (NFSOEs):
  - Mining SOEs: 29 percent of NFSOE revenue, 69 percent of NFSOE profits, 87 percent of NFSOE dividends.
- Financial SOE composition:
  - 9 state-owned commercial banks (SOCBs) account for 96 percent of total FSOE assets.
- Market competitiveness and sectoral presence:
  - About 84 percent of SOEs operate in competitive markets (SAMA database mapping).
  - Many SOEs operate in market and shopping complexes: 31 percent.
  - Agriculture and agriculture product processing: 10 percent.
  - Sales and services: 10 percent.
  - Social sector, tourism, and pharmaceuticals: 10 percent.
- Employment:
  - SOE employment represented 4 percent of total employment, 8 percent of formal employment, and about 19 percent of central government employment in 2024.
  - Total SOE employees: 566,351.
    - Mining sector: 18 percent of SOE employment.
    - Road and transport sector: 16 percent.
    - Oil and gas sector: 14 percent.
    - Electricity, banking and finance, and chemical industry: about 8 percent each.
    - All other sectors: 27 percent of SOE employment.
- Data and caveats:
  - Data source: State Asset Management Agency (SAMA) database covering all SOEs in Uzbekistan.
  - Caveats: SOE definition in the database not clearly specified and uniform; financial data follow national accounting practices instead of IFRS. Despite drawbacks, SAMA database is the most comprehensive available.

### Legal, institutional, and ownership architecture
- Governance and reporting rules:
  - Corporate governance specified in founding acts or government decisions; Laws on Joint Stock Companies and Limited Liability Companies also apply.
  - SOEs subject to legality, transparency, accountability, and separation of ownership and regulatory functions.
  - Supervisory boards (SBs) must include independent members.
  - SOEs required to submit annual financial and operational reports to SAMA and relevant line ministries.
  - LMSP, presidential and Cabinet decrees/resolutions govern SOE management.
- Privatization framework:
  - Governed by the Law on Privatization of State Property (LPSP) and related decrees/resolutions.
  - Privatization programs developed by SAMA with ministry/local input, approved by the Cabinet, then the President.
  - Methods: auction, competitive bidding, public invitation to negotiations, sale of shares on stock exchange, contribution of assets to company capital (per LPSP).
  - Legislation requires publication of privatization processes and results; buyers may face obligations (environment, continued operation, investment commitments).
- Ownership and oversight roles:
  - President: highest policy authority; Cabinet of Ministers formulates development and privatization programs and makes key SOE decisions.
  - SAMA: single state agency for implementing SOE policy, administering state assets, carrying out privatizations, maintaining state property register, and publishing aggregate SOE performance reports.
  - Competition Promotion and Consumer Protection Committee reviews establishment, restructuring, or privatization of SOEs.
  - Overlapping ownership roles:
    - MOEF is shareholder for the largest 31 SOEs (22 NFSOEs and 9 FSOEs undergoing restructuring); UzAssets Investment Company (overseen by MOEF) manages these shares.
    - SAMA is shareholder for remaining medium and small SOEs; accountable to President and Prime Minister.
    - Line ministries and local authorities act as shareholders for their portfolios and local SOEs, appoint SBs and management, creating overlaps with SAMA.
  - Objectives, KPIs, and oversight:
    - Objectives established in founding acts or government decisions and by shareholders; shareholders develop KPIs; SAMA monitors and publishes KPIs and targets for each SOE on its website.
    - SBs appointed by shareholders are responsible for strategic direction, operational and financial oversight, reporting; must include independent members.
    - Parliament reviews reports and influences policy via legislation and recommendations but does not manage or appoint SBs.
  - Regulators: sectoral regulators oversee SOEs in regulated industries (energy, transport, banking, capital markets) on pricing, service quality, consumer protection.

### SOE financial performance and fiscal risk
- Aggregate profitability (2024, SAMA database):
  - Total SOEs covered: 2,148.
  - Profitable SOEs: 982 (46 percent).
  - Remaining SOEs: unprofitable, inactive, in process of liquidation, or not reporting profitability.
  - Profits concentrated in mining; largest losses in electricity and housing, communal services, and water management (partly due to PSOs and incomplete cost recovery).
  - 2024 dividend payments to the budget: about 80 percent from the mining sector, 9.5 percent from the oil and gas sector, and 10.5 percent from all other profitable sectors.
  - Return on Assets indicates low return for government shareholder in a large share of portfolio.
- SOE Health Check (IFRS-based) for largest NFSOEs:
  - Sample: 21 nonfinancial SOEs with combined assets ~48 percent of GDP using annual financial statements 2021–2024 (no IFRS data for Uzbekistan Railways).
  - Scoring approach: profitability, liquidity, solvency indicators scored 1 to 5; composite score where 3 = moderate risk.
  - Findings 2021–2023:
    - 4 of 21 companies: composite score consistently in below-moderate risk range; mostly mining companies; driven by profitability and solvency.
    - 7 of 21 companies: composite score consistently above-moderate risk; mostly electricity and gas and chemicals sectors; weaknesses driven by liquidity and solvency indicators.
    - 10 of 21 companies: scores consistently in moderate risk range; weaknesses in liquidity and indebtedness ratios.
  - 2024 data (16 of 21 companies): improvement in risk scores compared to 2023, primarily because May 2024 administered tariff increases improved risk scores for 3 electricity and gas companies.
  - Comparison 2021 vs 2024 (15 companies with full data): modest improvement in risk scores; 6 companies improved, 3 deteriorated; of the 6 that improved, 5 were in electricity and gas sector.
- Government support mechanisms to NFSOEs:
  - Financial support:
    - Budget provides energy and transportation subsidies.
    - Subsidies increased until 2023 as a share of GDP due to electricity and gas tariffs being out of line with cost recovery.
    - Subsidies reduced in 2024 after tariff increases that started in 2023 for firms and May 2024 for firms and households.
    - Government facilitates lending to NFSOEs at better-than-market conditions via on-lending of external loans from official sources, outright lending from the Fund of Reconstruction and Development (FRD) and domestic banking system, and provision of lending guarantees.
    - Stock of such support as a share of GDP has been declining as authorities tightened provision conditions; new borrowing and guarantees grew slower than GDP.
  - Non-financial support and preferential treatment:
    - Exemptions from laws that encourage market discipline (e.g., insolvency law), licensing requirements based on legal status, de-facto or de-jure preferential access to land and procurement.
- Fiscal risk assessment:
  - Health check suggests largest NFSOEs as a group pose moderate fiscal risks, with sectoral differences (mining strong; electricity/gas and chemicals higher risk driven by liquidity/solvency).
- Banking sector state ownership:
  - State ownership of commercial banks: Uzbekistan currently at 63 percent compared to about 23 percent for middle income economies in Panizza (2024).
  - Elevated government ownership of commercial banks identified as potential source of financial sector fragility and contingent fiscal liabilities (literature cited).

### C. SOE reform progress and implementation
- Institutional consolidation and ownership roles:
  - 2019: SAMA established as the single state agency for state assets management, SOE privatization and transformation, corporate governance implementation, and financial and economic performance monitoring.
  - October 2020: MOEF assigned and maintains shareholder functions for large and strategic SOEs.
- Governance and reporting improvements:
  - 2020: SOEs required to adopt IFRS and elaborate Key Performance Indicators (KPIs).
  - UzAssets created to manage shares of the largest SOEs with MOEF as shareholder.
  - 2021: SOE Reform Strategy (SRS) for 2021-2025 introduced, targeting significant reduction in state presence and setting a roadmap for corporate governance reforms.
    - SRS target: reduction of state presence in competitive sectors by 75 percent.
  - 2023: LMSP promulgated to address fragmented SOE legislation and establish strict criteria to justify state ownership (Article 10).
  - February 2024: LPSP adopted to establish principles and procedures for privatization.
- Asset management and privatization vehicles:
  - 2024: UzNIF established; managed by Franklin Templeton; allocated 25-40 percent shares from 12 large NFSOEs and 1 large FSOE.
  - Reform plans for the largest 31 SOEs in UzAssets’ portfolio; IFRS financial statements recently available for most of these entities.
  - Independent board members now a majority in the SBs of 3 financial institutions.
  - “Sell or explain” principle implemented with annual reviews and asset lists.
  - SAMA preparing regular reports since 2023 on SOE financial performance and privatization.
- Privatization outcomes and quantitative results:
  - Seven privatization programmes launched since 2020.
  - Number of SOEs declined from nearly 3,000 at adoption of SRS in 2020 to around 2,000 by late 2025.
  - SAMA database change (initial 2020 portfolio of 2,965 SOEs): 2,845 SOEs were removed and 1,797 were added through February 2026, leaving number of SOEs at end February 2026 at 1,917.
  - Reasons for removal: privatization (515), liquidation (1,313), reorganization (757), transfer to charter funds or public-private partnerships (260).
  - 2021-2024 cumulative privatization proceeds collected: about $2.5 billion dollars (driven mainly by sale of state shares in smaller SOEs, non-agricultural land, and real estate sold mostly to domestic buyers).
  - Privatization activity concentrated in energy, banking, chemicals, construction materials, and hospitality sectors.
  - Examples of larger privatized SOEs attracting foreign investors: Coca-Cola Bottlers Uzbekistan, Ferghana Oil Refinery, Ipoteka Bank.

### C. Remaining reform challenges and constraints
- Shortfall against SRS targets:
  - Limited reduction of large state footprint; number of large privatized SOEs remains limited.
  - Many enterprises remain under 100 percent state control due to transformation issues (e.g., unbundling and restructuring of UZ Railways, UZ Airways, UZ Airports), legacy challenges (delays in price liberalization in electricity and gas), strategic importance, and external environment factors.
  - Diversity of investor base, especially foreign participation, remains limited.
- Incentive and governance weaknesses:
  - Soft budget constraints: preferential access to finance via subsidies, concessional and semi-concessional on-lending, non-market loans from state-owned banks and the FRD, government guarantees, and other non-financial support undermining SBs’ and managers’ incentives to restructure.
  - Regulatory, corporate governance, and disclosure gaps:
    - Lack of separation between commercial activities and PSOs; no requirement for SOEs to earn market-consistent rates of return.
    - Exemptions from laws that confer advantages to SOEs; overlaps in ownership function between SAMA, line ministries, and local authorities.
    - LMSP strict criteria to justify state ownership not implemented.
    - SBs lack autonomy, insufficient qualified independent members, uneven application of corporate governance principles.
    - SAMA SOE registry inconsistently structured, unclear SOE definition, and no centralized monitoring of privatization programs.
    - Audited IFRS financial statements for all SOEs remain a goal yet to be achieved.
  - Unlevel playing field: soft budget constraints plus de-jure or de-facto preferential treatment discourage private entry and investor interest in privatizations.
- Fiscal risks and profitability:
  - SOE Health Check indicates above-moderate fiscal risks from several large SOEs in certain sectors due to liquidity and solvency concerns.
  - Less than 50 percent of SOEs covered in the SAMA database are profitable; many profitable SOEs have low return on assets.

### D. International lessons for SOE reform (summarized)
- Reform success depends on changing incentives and addressing principal-agent problems. Key elements include:
  - Supportive political economy context: politically desirable reform, coordinated leadership, credible announcements to investors and stakeholders.
  - Market environment and competitive neutrality: liberalize trade, remove barriers to entry, level playing field by removing SOE advantages, unbundle large SOEs where appropriate.
  - Increased private-sector participation: privatize or use management contracts; adapt approach by sector and SOE characteristics; retain minority shareholding or sell all shares as appropriate.
  - Hardened budget constraints: reduce/eliminate subsidies/transfers/bailouts; commercial borrowing terms; tighten guarantee frameworks; clarify and compensate PSOs.
  - Strengthened market regulation: use auctions/competitive processes for monopoly rights, split monopolies regionally, set regulatory incentives and penalties, introduce safeguards for private producers.
  - Well-defined ownership rationale and stronger ownership entities: clear ownership policies, periodic review, centralize ownership functions, separate ownership from regulatory roles.
  - Strengthened corporate governance: professionalize and protect SBs from political interference; increase managerial autonomy; align performance evaluation with rewards and penalties; consider market listing and retain financial controls on borrowing and guarantees.

### E. Reform options and policy recommendations
- Ownership policy and portfolio reduction:
  - Adopt a clear and transparent ownership policy subject to periodic review defining entities to remain in state ownership, privatize, or liquidate.
  - Substantially reduce the role of SOEs in the economy: more than 80 percent operate in competitive sectors and should be privatized if profitable or liquidated otherwise.
  - Support privatization with targeted social protection and compensation for retrenched workers as needed.
- For retained SOEs (strategic or non-competitive sectors):
  - Address corporate governance weaknesses and soft budget constraints.
  - Establish well-defined commercial objectives requiring market rates of return supplemented by non-financial KPIs.
  - Clearly define and quantify public service obligations with full budget compensation.
  - Eliminate overlaps in ownership responsibilities between SAMA, line ministries, and local governments; favor further centralization of ownership function.
  - Ensure merit-based and transparent SB appointments; conduct regular SB performance evaluations; safeguard SB autonomy.
  - Prohibit non-commercial activities without full budget compensation.
  - Condition government support on credible restructuring plans, with phased reduction tied to reform progress to ensure competitive neutrality.
  - Increase private sector participation to raise efficiency.
- Compliance, disclosure, and monitoring:
  - Require all SOEs to comply with international standards on auditing, financial reporting, and disclosure, including timely publication of audited IFRS financial statements.
  - Strengthen SAMA SOE registry and privatization monitoring:
    - Use IMF Government Finance Statistics public corporation definition for the registry and draw on MOEF sectorization work.
    - Use international standardized industry classifications.
    - SAMA should enforce governance, disclosure, and transparency requirements and facilitate compliance, including timely reporting of audited IFRS financial statements.
    - Centralize monitoring of privatization to improve outcomes and address challenges.
- UzNIF role:
  - UzNIF is not a substitute for broader reforms; its success depends on a clear mandate, managerial autonomy, and sufficient capacity to restructure SOEs consistent with good practices.

### Annex I — Selected largest state-owned enterprises (selected entries)
- Mining and metals: JSC NMMC; Navoiyuran State Enterprise; Almalyk KMK JSC; JSC Uzmetkombinat; JSC Uzbekkomir.
- Electricity and Gas: JSC Uzbekneftegaz; JSC Uztransgaz; JSC Hududgaztaminot; “UzGasTrade” JSC; National Electric Grids of Uzbekistan JSC; JSC Thermal Power Plants; JSC Regional Electric Networks; JSC Uzbekhydroenergo.
- Chemicals: JSC Uzkimyosanoat; JSC Navoiyazot.
- Transportation: JSC Uzbekistan Railways; Uzbekistan Airways JSC; Uzbekistan Airports JSC; JSC Tashshahartranskhizmat; JSC Uzbekistan Post.
- Automotive: JSC Uzavtosanoat.
- Communication: Uzbektelecom JSC.
- Commercial banks (state-owned): Agrobank JSCB; JSCB Asakabank; Uzsanoatkurilishbank JSC; JSC Xalq Bank; JSCB Turonbank; “Qishloqqurilishbank” JSCB; Aloqabank JSCB; Uzmilliy Bank JSCB; JSCB Microcreditbank.

*Source: "STATE OWNED ENTERPRISES IN UZBEKISTAN: ISSUES AND REFORM OPTIONS" (Selected Issues Paper, May 28, 2026).*

### References _____________________________________________________________________________ 17

### STATE OWNED ENTERPRISES IN UZBEKISTAN: ISSUES AND REFORM OPTIONS

### A. Introduction
- SOEs operate across a wide range of sectors—including key network industries such as utilities, transportation—and the financial system, providing critical inputs to businesses and implementing public investment projects.
- SOEs receive substantial government support (subsidies, favorable loan conditions, guarantees), creating direct fiscal costs and sizable fiscal risks through contingent liabilities.
- Deepening SOE reforms is essential to reduce the large state footprint, accelerate privatization (particularly of large non-financial and financial SOEs), restructure retained SOEs, improve resource allocation and SOE financial performance, reduce reliance on government support, mitigate fiscal risks, and foster private sector development by leveling the playing field.
- Paper objective: characterize Uzbekistan’s SOE landscape, assess progress and remaining challenges in SOE reform, and discuss policy options to deepen reforms. Focus is primarily on non-financial SOEs; financial SOEs (including state banks) are discussed in the financial section of the staff report and related annexes.

### B. The Uzbek SOE Landscape in International Context — General characteristics
- Total SOE assets at end-2024: SOE assets amounted to 101 percent of GDP.
  - Financial SOE (FSOE) assets: 52 percent of GDP.
  - Non-financial SOE (NFSOE) assets: 49 percent of GDP.
- Sector composition of NFSOE assets (share of total NFSOE assets):
  - Mining sector SOEs: 31 percent.
  - Oil and gas sector SOEs: 19 percent.
  - Electricity sector SOEs: 19 percent.
  - Remaining NFSOEs across other sectors: 31 percent (including road and transport infrastructure and chemical sectors).
- NFSOE revenue, profits, and dividends concentration:
  - Mining SOEs: 29 percent of NFSOE revenue, 69 percent of NFSOE profits, 87 percent of NFSOE dividends.
- Financial SOE composition:
  - Majority of FSOE assets are 9 state-owned commercial banks (SOCBs): 96 percent of total FSOE assets.
- Market type distribution (per Dall’Ollio and others (2022) classification):
  - SOE assets are mostly in partially competitive markets (reflecting concentration in utilities, energy, financial), with notable exception of mining sector.
- Number distribution of SOEs by market competitiveness (SAMA database mapping):
  - About 84 percent of SOEs operate in competitive markets.
  - Many SOEs operate in market and shopping complexes: 31 percent.
  - Agriculture and agriculture product processing: 10 percent.
  - Sales and services: 10 percent.
  - Social sector, tourism, and pharmaceuticals: 10 percent.
- Employment:
  - SOE employment represented 4 percent of total employment, 8 percent of formal employment, and about 19 percent of central government employment in 2024.
  - Total SOE employees: 566,351.
    - Mining sector: 18 percent of SOE employment.
    - Road and transport sector: 16 percent.
    - Oil and gas sector: 14 percent.
    - Electricity, banking and finance, and chemical industry: about 8 percent each.
    - All other sectors: 27 percent of SOE employment.
- Data source and caveats:
  - Data in this section is from the State Asset Management Agency (SAMA) database covering all SOEs in Uzbekistan.
  - Definition of SOEs in the database is not clearly specified and uniform; financial data follow national accounting practices instead of IFRS. Despite drawbacks, SAMA database is the most comprehensive available.

### Legal and institutional framework for SOE management and privatization
- Governance and reporting:
  - Corporate governance specified in founding acts or government decisions; Laws on Joint Stock Companies and Limited Liability Companies also apply.
  - SOEs are subject to legality, transparency, accountability, and separation of ownership and regulatory functions.
  - Supervisory boards (SBs) must include independent members.
  - SOEs must submit annual financial and operational reports to SAMA and relevant line ministries.
  - Law on Management of State Property (LMSP), presidential and Cabinet decrees/resolutions govern SOE management.
- Privatization framework:
  - Governed by the Law on Privatization of State Property (LPSP) and related decrees/resolutions.
  - Privatization programs developed by SAMA with ministry/local input, approved by the Cabinet, then the President.
  - Methods: auction, competitive bidding, public invitation to negotiations, sale of shares on stock exchange, contribution of assets to company capital (per LPSP).
  - Legislation requires publication of privatization processes and results; buyers may face obligations (environment, continued operation, investment commitments).
- Ownership and oversight architecture:
  - President is highest policy authority; Cabinet of Ministers (COM) formulates development and privatization programs and makes key decisions on SOEs.
  - SAMA: single state agency responsible for implementing SOE policy, administering state assets, carrying out privatizations, maintaining state property register, and publishing aggregate SOE performance reports.
  - Competition Promotion and Consumer Protection Committee reviews establishment, restructuring, or privatization of SOEs.
  - Overlapping ownership roles:
    - MOEF is shareholder for the largest 31 SOEs (22 NFSOEs and 9 FSOEs undergoing restructuring); UzAssets Investment Company (overseen by MOEF) manages these shares.
    - SAMA is shareholder for remaining medium and small SOEs; accountable to President and Prime Minister.
    - Line ministries and local authorities act as shareholders for their portfolios and local SOEs, appoint SBs and management, creating overlaps with SAMA.
  - SOE objectives and KPIs:
    - Objectives established in founding acts or government decisions and by shareholders.
    - Shareholders develop KPIs; SAMA monitors and publishes KPIs and targets for each SOE on its website.
  - Oversight:
    - SBs (appointed by shareholders) responsible for strategic direction, operational and financial oversight, reporting; must include independent members.
    - MOEF, line ministries, and local governments oversee SOEs operationally and financially in their portfolios.
    - Parliament reviews reports, requests information, influences policy via legislation and recommendations but does not manage or appoint SBs.
  - Regulators:
    - Sectoral regulators oversee SOEs in regulated industries (energy, transport, banking, capital markets) on pricing, service quality, consumer protection.

### SOE Financial Performance
- Profitability and activity (2024, SAMA database):
  - Total SOEs covered: 2,148.
  - Profitable SOEs: 982 (46 percent).
  - Remaining SOEs: unprofitable, inactive, in process of liquidation, or not reporting profitability.
  - Profits concentrated in mining; largest losses in electricity and housing, communal services, and water management (partly due to PSOs and incomplete cost recovery).
  - 2024 dividend payments to the budget:
    - About 80 percent from the mining sector.
    - 9.5 percent from the oil and gas sector.
    - Remaining 10.5 percent from all other profitable sectors.
  - Return on Assets indicates low return for government shareholder in a large share of portfolio.
- SOE Health Check (IFRS-based) for largest NFSOEs:
  - Method: profitability, liquidity, solvency indicators from audited IFRS financial statements, compared to benchmarks; indicators scored 1 to 5; composite score derived to estimate overall risk. Score of 3 = moderate risk.
  - Sample: 21 nonfinancial SOEs with combined assets ~48 percent of GDP, using annual financial statements 2021–2024 (no IFRS data for Uzbekistan Railways).
  - Key findings:
    - 4 of 21 companies: composite score consistently in below-moderate risk range (2021–2023); mostly mining companies; driven by profitability and solvency.
    - 7 of 21 companies: composite score consistently above-moderate risk (2021–2023); mostly electricity and gas and chemicals sectors; weaknesses driven by liquidity and solvency indicators.
    - 10 of 21 companies: scores consistently in moderate risk range (2021–2023); weaknesses in liquidity and indebtedness ratios.
    - 2024 data (available for 16 of 21 companies) show improvement in risk scores compared to 2023, primarily because May 2024 administered tariff increases improved risk scores for 3 electricity and gas companies.
    - Comparing 2021 and 2024 for 15 companies with full data: modest improvement in risk scores; 6 companies improved, 3 deteriorated; of the 6 that improved, 5 were in electricity and gas sector.
- Government support mechanisms to NFSOEs:
  - Financial support:
    - Budget provides energy and transportation subsidies.
    - Subsidies increased until 2023 as a share of GDP due to electricity and gas tariffs being out of line with cost recovery.
    - Subsidies reduced in 2024 after tariff increases that started in 2023 for firms and May 2024 for firms and households.
    - Government facilitates lending to NFSOEs at better-than-market conditions via on-lending of external loans from official sources, outright lending from the Fund of Reconstruction and Development (FRD) and domestic banking system, and provision of lending guarantees.
    - Stock of such support as a share of GDP has been declining as authorities tightened provision conditions; new borrowing and guarantees grew slower than GDP.
  - Non-financial support and preferential treatment:
    - Exemptions from laws that encourage market discipline (e.g., insolvency law), licensing requirements based on legal status, de-facto or de-jure preferential access to land and procurement.
- Fiscal risk assessment:
  - Health check suggests largest NFSOEs as a group pose moderate fiscal risks, but with important sectoral differences (mining strong; electricity/gas and chemicals higher risk driven by liquidity/solvency).

### Uzbekistan’s SOEs in International Perspective
- Extent and sectoral reach:
  - Large NFSOEs in Uzbekistan extend beyond typical network industries and reach into competitive sectors (mining, automobile, chemical), which is less common internationally where such firms are often private due to higher productivity.
  - Internationally, major SOEs often have mixed public-private ownership; Uzbekistan has many SOEs that are 100 percent government-owned.
  - Example international pattern: 60 percent of utility companies in some emerging markets (e.g., Brazil and China) have mixed public and private-sector owners to improve efficiency incentives.
- Prevalence in competitive sectors:
  - Using World Bank’s business of the state definition (companies with at least 10 percent public ownership), more than 80 percent of SOEs in Uzbekistan operate in competitive commercial sectors versus 70 percent in the World Bank Global Business of the State database.
  - Greater state presence in commercial activities is associated with lower aggregate productivity due to reduced firm entry, higher market concentration, and less labor reallocation.

*Source: "STATE OWNED ENTERPRISES IN UZBEKISTAN: ISSUES AND REFORM OPTIONS" (Selected Issues Paper, May 28, 2026).*

### 19.      State ownership of banks assets is significantly larger than internationally. While state

### State ownership of banks assets is significantly larger than internationally. While state

### Overview: state ownership and banks
- State ownership of commercial banks: Uzbekistan currently at 63 percent compared to about 23 percent for middle income economies in Panizza (2024).
- Cross-country and bank-level evidence cited: elevated government ownership of commercial banks can be a source of financial sector fragility and contingent fiscal liabilities (Beck, Kunt, Levine (2003); Millon Cornet and others (2010)).

### C. SOE Reforms: Progress
- Institutional consolidation and ownership roles:
  - 2019: SAMA established as the single state agency for state assets management, SOE privatization and transformation, corporate governance implementation, and financial and economic performance monitoring.
  - October 2020: MOEF assigned and maintains shareholder functions for large and strategic SOEs.
- Governance and reporting framework:
  - 2020: SOEs required to adopt IFRS and elaborate Key Performance Indicators (KPIs).
  - UzAssets created to manage shares of the largest SOEs with MOEF as shareholder.
  - 2021: SOE Reform Strategy (SRS) for 2021-2025 introduced, targeting significant reduction in state presence and setting a roadmap for corporate governance reforms.
  - SRS target: reduction of state presence in competitive sectors by 75 percent.
  - 2023: LMSP promulgated to address fragmented SOE legislation and establish strict criteria to justify state ownership (Article 10).
  - February 2024: LPSP adopted to establish principles and procedures for privatization.
- UzNIF and asset management:
  - 2024: UzNIF established; managed by Franklin Templeton; allocated 25-40 percent shares from 12 large NFSOEs and 1 large FSOE.
- Transparency and governance improvements:
  - Reform plans for the largest 31 SOEs in UzAssets’ portfolio.
  - IFRS financial statements recently available for most of these entities.
  - Independent board members now a majority in the SBs of 3 financial institutions.
  - “Sell or explain” principle implemented with annual reviews and asset lists.
  - SAMA preparing regular reports since 2023 on SOE financial performance and privatization.
- Privatization activity and results:
  - Seven privatization programmes launched since 2020.
  - Number of SOEs declined from nearly 3000 at adoption of SRS in 2020 to around 2,000 by late 2025.
  - SAMA database detailed change: from initial 2020 portfolio of 2965 SOEs, 2845 SOEs were removed and 1797 were added through February 2026 leaving the number of SOEs at end February 2026 at 1917.
  - Reasons for removal: privatization (515), liquidation (1313), reorganization (757), transfer to charter funds or public-private partnerships (260).
  - 2021-2024 cumulative privatization proceeds collected: about $2.5 billion dollars (driven mainly by sale of state shares in smaller SOEs, non-agricultural land, and real estate sold mostly to domestic buyers).
  - Privatization activity concentrated in energy, banking, chemicals, construction materials, and hospitality sectors.
  - Examples of larger privatized SOEs attracting foreign investors: Coca-Cola Bottlers Uzbekistan, Ferghana Oil Refinery, Ipoteka Bank.

### C. SOE Reform Challenges
- Shortfall against SRS targets:
  - Implementation has failed to significantly reduce the large state footprint; number of large privatized SOEs remains limited.
  - Many enterprises remain under 100 percent state control due to transformation issues (e.g., unbundling and restructuring of UZ Railways, UZ Airways, UZ Airports), legacy challenges (delays in price liberalization in electricity and gas), strategic importance, and external environment factors.
  - Diversity of investor base, especially foreign participation, remains limited.
- Incentive and governance problems undermining reform:
  - Soft budget constraints: preferential access to finance via subsidies, concessional and semi-concessional on-lending, non-market loans from state-owned banks and the FRD, government guarantees, and other non-financial support undermining SBs’ and managers’ incentives to restructure.
  - Regulatory, corporate governance, and disclosure gaps:
    - Lack of separation between commercial activities and PSOs; no requirement for SOEs to earn market-consistent rates of return.
    - Exemptions from laws that confer advantages to SOEs; overlaps in ownership function between SAMA, line ministries, and local authorities.
    - LMSP strict criteria to justify state ownership not implemented.
    - SBs lack autonomy, insufficient qualified independent members, uneven application of corporate governance principles.
    - SAMA SOE registry inconsistently structured, unclear SOE definition, and no centralized monitoring of privatization programs.
    - Audited IFRS financial statements for all SOEs remain a goal yet to be achieved.
  - Unlevel playing field: soft budget constraints plus de-jure or de-facto preferential treatment discourage private entry and investor interest in privatizations.
- Fiscal risks:
  - SOE Health Check: above moderate fiscal risks from several large SOEs in certain sectors due to liquidity and solvency concerns.
  - Less than 50 percent of SOEs covered in the SAMA database are profitable; many profitable SOEs have low return on assets.

### D. International experience with SOE reforms (lessons)
- Reform success depends on changing incentives to address principal-agent problems. Key contributing reforms include:
  - Supportive political economy context:
    - Reform politically desirable, coordinated leadership, credible announcements to investors and stakeholders.
  - Market environment and competitive neutrality:
    - Liberalize trade, remove barriers to entry, level playing field by removing SOE advantages, unbundle large SOEs where appropriate.
  - Increased private-sector participation:
    - Privatize or use management contracts; adapt approach by sector and SOE characteristics; retain minority shareholding or sell all shares as appropriate.
  - Hardened budget constraints:
    - Reduce/eliminate subsidies/transfers/bailouts; commercial borrowing terms; tighten guarantee frameworks; clarify and compensate PSOs.
  - Strengthened market regulation:
    - Use auctions/competitive processes for monopoly rights, split monopolies regionally, set regulatory incentives and penalties, introduce safeguards for private producers.
  - Well-defined ownership rationale and stronger ownership entities:
    - Clear ownership policies, periodic review, centralize ownership functions, separate ownership from regulatory roles.
  - Strengthened corporate governance:
    - Professionalize and protect SBs from political interference; increase managerial autonomy; align performance evaluation with rewards and penalties; consider market listing and retain financial controls on borrowing and guarantees.

### E. Reform Options and policy recommendations
- Adopt a clear and transparent ownership policy subject to periodic review defining entities to remain in state ownership, privatize, or liquidate.
- Substantially reduce the role of SOEs in the economy:
  - More than 80 percent operate in competitive sectors and should be privatized if profitable or liquidated otherwise.
  - Support privatization with targeted social protection and compensation for retrenched workers as needed.
- For SOEs to remain under state ownership (strategic or non-competitive sectors):
  - Address corporate governance weaknesses and soft budget constraints.
  - Establish well-defined commercial objectives requiring market rates of return supplemented by non-financial KPIs.
  - Clearly define and quantify public service obligations with full budget compensation.
  - Eliminate overlaps in ownership responsibilities between SAMA, line ministries, and local governments; favor further centralization of ownership function.
  - Ensure merit-based and transparent SB appointments; conduct regular SB performance evaluations; safeguard SB autonomy.
  - Prohibit non-commercial activities without full budget compensation.
  - Condition government support on credible restructuring plans, with phased reduction tied to reform progress to ensure competitive neutrality.
  - Increase private sector participation to raise efficiency.
- Compliance and disclosure:
  - Require all SOEs to comply with international standards on auditing, financial reporting, and disclosure, including timely publication of audited IFRS financial statements.
- Role of UzNIF:
  - UzNIF is not a substitute for broader reforms; its success depends on a clear mandate, managerial autonomy, and sufficient capacity to restructure SOEs consistent with good practices.
- Strengthen SAMA SOE registry and privatization monitoring:
  - Use IMF Government Finance Statistics public corporation definition for the registry and draw on MOEF sectorization work.
  - Use international standardized industry classifications.
  - SAMA should enforce governance, disclosure, and transparency requirements and facilitate compliance, including timely reporting of audited IFRS financial statements.
  - Centralize monitoring of privatization to improve outcomes and address challenges.

### Annex I: Largest State-Owned Enterprises of Uzbekistan (selected entries)
- Mining and metals: JSC NMMC; Navoiyuran State Enterprise; Almalyk KMK JSC; JSC Uzmetkombinat; JSC Uzbekkomir.
- Electricity and Gas: JSC Uzbekneftegaz; JSC Uztransgaz; JSC Hududgaztaminot; “UzGasTrade” JSC; National Electric Grids of Uzbekistan JSC; JSC Thermal Power Plants; JSC Regional Electric Networks; JSC Uzbekhydroenergo.
- Chemicals: JSC Uzkimyosanoat; JSC Navoiyazot.
- Transportation: JSC Uzbekistan Railways; Uzbekistan Airways JSC; Uzbekistan Airports JSC; JSC Tashshahartranskhizmat; JSC Uzbekistan Post.
- Automotive: JSC Uzavtosanoat.
- Communication: Uzbektelecom JSC.
- Commercial banks (state-owned): Agrobank JSCB; JSCB Asakabank; Uzsanoatkurilishbank JSC; JSC Xalq Bank; JSCB Turonbank; “Qishloqqurilishbank” JSCB; Aloqabank JSCB; Uzmilliy Bank JSCB; JSCB Microcreditbank.

*Source: IMF staff analysis in the Selected Issues Paper (sipea2026058).*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026058.pdf_