Uzbekistan: Staff Concluding Statement of the 2018 Article IV Mission

March 14, 2018

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.


Uzbekistan has embarked—with great determination—on reforms to address the country’s most pressing challenges, foremost the lack of jobs. The country’s working-age population has increased rapidly over the last two decades, and about 500,000 new job seekers continue to enter the labor market each year. Moreover, Uzbekistan’s share of working-age population in total population will remain unusually high for a few more decades, offering the country a unique demographic window of opportunity to realize its aspiration of achieving upper middle-income status within a generation. At the same time, the authorities are keenly aware that if job creation does not catch up with the country’s bulging labor supply, this would entail continued high unemployment and labor migration, especially in rural areas, and rising dissatisfaction.

The authorities jump-started economic reforms by liberalizing the foreign exchange (FX) market. Uzbekistan’s past policies emphasized state intervention, import substitution, and FX restrictions, while de-emphasizing regional trade and cooperation. Nontransparent official statistics on growth and inflation indicated that these policies worked well, but the need for millions of Uzbek migrants to seek—sometimes precarious—jobs abroad and undisputable signs of high de facto inflation pointed to a different economic and social reality. Starting in 2014, in response to a battery of adverse external shocks—which lowered exports, commodity prices, and migrant remittances—the black-market FX rate surged by more than 100 percent above the official rate, laying bare the economy’s underlying extensive distortions. In September 2017, the authorities liberalized the foreign exchange market, and the official exchange rate depreciated by 50 percent. A first wave of transition reforms followed this first courageous step, including initiating price liberalization, reforming state-owned enterprises (SOEs), granting the Central Bank of Uzbekistan (CBU) more independence, and improving statistics.

A reformist Uzbekistan could also be a catalyst for change and prosperity in the region. Given its large population and geographic location, Uzbekistan has historically been Central Asia’s economic lynchpin. Sustained reforms could help boost inter-regional trade, build regional supply chains, reconnect regional energy and transportation networks, and resolve the region’s age-old disputes about water rights.


Robust growth is expected to continue, but jobs may remain scarce in the short run. During 2018-19, GDP is projected to continue to expand steadily at about 5 percent, supported by favorable external demand and commodity prices, a pickup in agriculture due to reform measures and the expected normalization of harvests, and a humming construction sector building houses and public infrastructure. As in previous years, however, the pace of domestic employment growth is likely to remain well below one percent, and job creation will remain concentrated in family businesses and other very small-scale businesses; the number of Uzbek labor migrants working abroad will likely continue trending upward.

The external surplus is projected to decline. The current account is expected to shift from surplus to a small deficit by 2019. Exports should increase at a healthy pace, but could still surprise on the upside. Imports are expected to expand significantly as well, reflecting statistical capturing of previously unreported imports, more cross-border trade, the end of fuel rationing, and higher imports of machinery and intermediate inputs, which are foremost needed to implement the government’s ambitious housing and infrastructure programs. As imports promote growth and lower prices by enhancing competition, administrative measures to limit imports should be avoided.

Inflation is projected to remain elevated, which is normal during the early phase of liberalizing a distorted economy. Consumer price inflation has picked up in recent months, mainly reflecting the pass-through effects of FX and price liberalization to prices. Of note, present inflation rates are only somewhat higher than—properly measured—inflation during the last decade. In fact, high inflation is typical for countries during the early transition reforms. Thus, notwithstanding the assumption of tighter fiscal, credit, and monetary policies during 2018-19, inflation is expected to decline only gradually over the next two years.

Monetary and Exchange Rate Policies

A tighter monetary stance will help contain inflation pressures. During the first half of 2017, the CBU significantly loosened monetary and credit policies; the stance was subsequently tightened prior to the run-up to FX liberalization in September, including by hiking the refinancing rate from 9 to 14 percent. After the FX liberalization, the CBU maintained stable nominal exchange and refinancing rates. With price liberalization likely to put continued upward pressures on prices, a tight monetary stance is warranted, including by increasing the refinancing rate and reducing the pace of accumulation of FX reserves. The latter could be achieved by introducing a regular, announced program of FX sales from the CBU’s gold purchases.

The move to inflation targeting over the medium term should be underpinned by further increasing the central bank’s de facto independence . Earlier transition experiences have demonstrated that greater degrees of central bank independence were associated with better inflation outcomes, but only after the initial price liberalization shocks had passed through the price system. Other preconditions for adopting inflation targeting include: creating a strong transmission mechanism for monetary policy; building the central bank’s analytical capacity; and communicating policies clearly.

Credit Policies

Uzbekistan’s credit market is highly segmented, with SOEs enjoying preferential access to credit. The FX segment of the credit market is dominated by SOEs, which receive FX credit either directly from state banks or through on-lending operations by government entities, foremost the Fund for Reconstruction and Development (FRD). These directed FX credits are often granted at highly preferential terms, depressing banks’ profitability. By contrast, the private sector is largely confined to the domestic currency segment of the credit market, where loan mark-ups may in part reflect banks’ attempt to recoup low margins on concessional lending.

As a first step, modifying the FRD’s credit practices could help mitigate market segmentation. First, stricter limits should be put on the FRD’s on-lending activities through banks. Second, FRD funding to banks for on-lending could be provided in domestic currency. The latter would make the cost of credit more transparent and reduce loan dollarization, thus strengthening as a by-product the transmission channel of monetary policy.

Fiscal Policies

Fiscal policy in 2018 is projected to return to a more prudent stance. In 2017, the approved budget envisaged a balanced position for the year. In the event, despite revenue windfalls from FX and price liberalization, large additional on-lending and bank recapitalization transactions, the latter effected mainly through the FRD, resulted in a relaxed fiscal stance. The augmented fiscal deficit (consolidated fiscal balance plus FRD balance) reached 3¼ percent of GDP. For 2018, the authorities plan to restrain additional on-lending operations, while the FRD will aim to balance its budget. Moreover, the authorities plan to save about half of the expected additional revenue from improved tax administration and higher commodity prices in 2018. As foreseen in the approved budget, social safety net spending and public wages will be adjusted for actual inflation in mid-year. These measures, if firmly implemented, would reduce the augmented fiscal deficit in 2018 to only 1¼ percent of GDP, helping contain inflation.

Improving fiscal transparency will be key to enhance the effectiveness of fiscal policy. In the past, the use of off-budget transactions was routine, and there was little information available about the size and nature of these transactions. This made it difficult to assess both the fiscal stance and the overall size of fiscal operations and their economic impact. The authorities have already made significant efforts to consolidate on- and off-budget transactions in the presentation of the fiscal data. This progress should be locked in by including all existing off-budget transactions in the approved budget from 2019 onward.

Comprehensive tax reform is essential for job creation, but reforms should be revenue neutral and introduced gradually. The present tax system is highly complex and riddled with exemptions. But it also segments firms, depending on number of employees, into a standard and a simplified tax regime. This segmentation seems to have severely adverse consequences for job creation. First, larger firms exceeding the employee threshold carry an oversized, stifling tax burden. Second, smaller firms have strong incentives to stay small or try to migrate from the standard to the simplified regime by downsizing or splitting themselves. As a result, as confirmed by the available employment statistics, the little job creation that has been taking place at all is concentrated in family businesses and other small business operations. As already decreed by the president, a comprehensive tax reform will be needed to encourage firms to expand and create jobs. But tax reforms will need to move in tandem—and therefore gradually—with increasing the tax administration’s capacity to process a much larger universe of tax payers and with improving tax payers’ capacity to implement more demanding accounting standards.

Tax reform is also needed to forestall the fiscal risk of a sharp decline in future revenue collections from SOEs. A large share of taxes is presently collected from SOEs, which also greatly simplifies tax administration. In the past, SOEs received a wide range of privileges, from preferential access to credit to subsidized intermediate inputs, enabling them to carry their elevated tax burden with relative ease. But their ability to do so could diminish sharply as the shift to a marked-based economy erodes SOE privileges, putting revenue collections from SOEs under pressure. Tax reform, by widening the tax net, would forestall the risk that future revenues may be crimped just at a time when public spending needs to be stepped up.

Coordination of Stabilization Policies

At times, coordination of fiscal, credit, and monetary policies could have been better. Policy makers should see stabilization of the economy during the transition as a cooperative undertaking, yielding best results if policies are closely coordinated.

Financial Sector Policies

Several promising financial sector reforms have already been put in place. First, banks are no longer required to keep records unrelated to banking on behalf of the authorities, reducing significantly administrative costs. Second, a presidential decree instructs all public officials to refrain from pressuring banks to provide credit at preferential terms to selected borrowers. And third, the CBU has addressed potential supervisory conflicts by divesting from two banks and withdrawing its officials from the supervisory boards of banks.

Additional reforms are needed to promote financial development and help safeguard financial stability. For example, the reform of banks’ reserve requirements should include reserve averaging, allowing the banks to more efficiently manage their liquidity and fostering the development of an interbank market. The CBU should also enhance its emergency liquidity assistance function, including by expanding the range of acceptable collateral; the government’s plan to restart issuing T-bills could aid this effort and also jumpstart money market development. The CBU intends to continue to upgrade its supervisory capacity and tools, including stress testing, and promote financial education.

In the medium term, bank credit could be constrained by significant funding and capital gaps. For the next few years, the financing of the economy will likely continue to rely on banks. To increase growth and job creation, the banking system will need to fund sufficient credit and raise sufficient capital. In the past, the public sector effectively closed banks’ funding and capital gaps, mainly through mobilizing FRD funds. Using more market-based solutions, banks will need to attract more deposits from households and more foreign funding. To close potential capital gaps, banks could raise their profitability by better managing their credit resources and by reducing their administrative cost, including by mergers that consolidate costly branch networks. Attracting more foreign banks to operate in Uzbekistan is another option. However, all these solutions point to similar policy requirements: creating a more stable macroeconomic environment; building the public’s trust in the banking system’s stability; allowing banks to operate in line with best business practices; and improving the country’s investment climate.

Structural Policies

Addressing SOEs balance sheet strains and restructuring SOEs early in the transition should be key priorities. While most sectors, including banks, benefited from revaluing their FX assets and liabilities, some of these gains may prove to be notional as they mirrored valuation losses in the SOEs, which had large FX exposures to banks and external lenders. Effectively dealing with SOE balance sheet losses has been postponed for now, but these losses should be dealt with sooner rather than later. In this context, the recommendations of the consulting group on SOE governance should be ready in July, providing the first best opportunity to draw up a comprehensive plan to deal with SOE legacy issues.

There are three other immediate structural reform priorities:

  • Price liberalization : After reforming operations and expanding the range of goods for sale on the commodity exchanges, the authorities rightly plan to continue adjusting key prices, including electricity and natural gas, to bring them closer toward cost-recovery levels.
  • Trade liberalization : The agenda should include further simplifying customs tariffs, preparing WTO accession, and streamlining customs clearance procedures.
  • Competition policy : Monopolistic practices are widespread throughout the economy, especially in sectors dominated by SOEs. The State Committee on Competition does not yet have effective tools to counteract these monopolistic practices. More competition would help prices to react more symmetrically to currency depreciations and appreciations, enhancing the policy effectiveness of a flexible exchange rate.

The authorities have enthusiastically embraced the UN’s Sustainable Development Goals (SDGs). As key SDGs focus on promoting the accumulation of human capital (education, health) and real capital (public infrastructure), the SDG goals match well Uzbekistan’s need to create jobs for an unusually high share of the population during its current demographic transition. The authorities are working with the UN and the World Bank to identify overall funding requirements to achieve the SDGs by 2030 in these critical development areas, and to design public and private sector approaches to close funding gaps.


The authorities have already significantly improved statistics, an important step toward building more social trust in government policies. A 1990s decree restricting the public dissemination of key economic statistics has been abolished, replaced by a September 2017 presidential decree mandating the dissemination of economic and financial data. Moreover, the authorities have decided to join the IMF’s enhanced General Data Dissemination System (e-GDDS), and they expect to post on a National Summary Data Page all the key economic, financial, and social statistics by May 1, 2018. Compilation of the CPI has been aligned with international standards, and public debt data will be published quarterly. The CBU will compile balance of payments data from 2018 onward and, for the first time, the country’s International Investment Position. The Ministry of Economy, as the previous compiler of the balance of payment, should cooperate closely with the CBU to smooth the handover between the two organizations.

The authorities plan to continue to improve the quality and availability of statistics . The road maps for the improvement of statistics that the CBU, the Ministry of Finance, and the Statistics Committee plan to prepare before November 2018 will be key tests of their technical capacity, ability to cooperate, and determination to reform. Improving the quality and breadth of national accounts will be the next important task of the Statistics Committee. Labor market statistics could also be significantly upgraded, including by concentrating the collection of labor survey data at the Statistics Committee. We encourage the authorities to publish data in accordance with their advance release calendar that they will publish shortly and to accelerate the technical work required to assemble an Uzbekistan country page in the IMF’s International Finance Statistics (IFS).

The team would like to thank the authorities for their warm hospitality and constructive discussions.

Uzbekistan: Selected Economic Indicators, 2015-19









National income

Real GDP growth (percent change)






GDP per capita (in U.S. dollars)






Population (in millions)







(percent change)

Consumer price inflation (eop)






GDP deflator






External sector

Current account balance (percent of GDP)






Gross official reserves (in billions of U.S. dollars)






External debt (in billions of U.S. dollars)






Exchange rate (in Sums per U.S. dollar; eop)




Real effective exchange rate






(in levels, - = depreciation)

Government finance

(percent of GDP)

Consolidated budget balance






Fund for Reconstruction & Development balance






Augmented fiscal balance






Augmented revenues & grants






Augmented expenditures & net lending






Public debt






Money and credit

(percent change)

Reserve money






Broad money






Credit to the economy






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

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