Uzbekistan's Reforms: A New Equation for Inclusive Growth and Cooperation

IMF News, May 17, 2019

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Uzbekistan is changing its growth equation and aspiring to become a place of integration and innovation.
Speech framed around an "inclusive growth equation" drawing on Uzbekistan’s historical role as a hub of trade and innovation (Silk Road cities, Mohammed Al-Khwarizmi).
Three key variables for inclusive growth identified: scaling up quality investments, maintaining economic and financial stability, and tackling corruption.
A fourth factor: Uzbekistan’s potential to accelerate growth across the entire Central Asia region.

Problem statement:
- Over the last three decades the working-age population has surged.
- Today, half of the population is under the age of 30 and over 600,000 people are joining the workforce annually.
- The number of formal sector jobs has hardly increased over the past several years.
- Those lacking education and skills, especially young people and women, are more likely to be unemployed.
Government actions and reforms:
- Creating a national center to assess the quality of education across the country.
- New plans to improve apprentice programs and build job training centers.
- Additional support for families for child-care and pre-school education.
- Micro-credit projects for female entrepreneurs leveraging financial technology.
- Embraced the United Nation’s 2030 Sustainable Development Goals (SDGs).
Expected outcomes:
- Higher-skill workforce, improved company performance, and inflows of foreign direct investment (FDI) — conditional: "Yes — if the price is right."
Price liberalization measures taken in the second half of 2018:
- Liberalized bread prices, removed subsidies while offsetting effects for vulnerable families, and adjusted energy prices closer to production costs.
- Long-term expectation: higher growth, better wages, and improved living standards.

Inflation and monetary policy:
- High inflation has been a persistent threat; the Central Bank aims to bring inflation back into the single digits.
- Historical context: Uzbekistan’s largest banknote is 100,000 while only a few years ago it was 5,000.
Credit growth and risks:
- In 2018, the economy experienced a credit boom, with credit growth reaching 50 percent.
- Some credit financed education and infrastructure; excessive credit growth risks a credit bust.
- Government committed to bringing credit growth back down to a more sustainable range; IMF engagement to help meet targets.
Banking sector structure and reforms:
- The government manages over 85 percent of the system’s total assets.
- Central Bank has begun actions: reevaluating household loan practices and upgrading intervention tools.
- Next step: design a new strategy to restructure the banking system to enable a better balance between public and private investments and transition from state-led to more market-based growth.

Rationale:
- Corruption, when institutionalized, deters investors and undermines job creation; youth identify corruption as a top concern.
Government measures:
- Enacted the Law on Combatting Corruption early in the reform process.
- Implementing changes to improve public administration, modernize procurement, and help courts run more efficiently.
- Foreign exchange liberalization helped reduce corruption; exchange rate changes cited as the single most popular reform.
- Publication of the first citizen’s budget and improved detail on public spending and fiscal risks over the past nine months.
Transparency and digital engagement:
- President’s online town hall site received over 2,000,000 questions, demonstrating demand for digital government accountability.
- Digital tools highlighted as means to restore trust in government.
Expected impact:
- Greater transparency and anti-corruption measures are necessary for investments to succeed and to build public trust.

Strategic position and potential:
- Uzbekistan is the most populous country in Central Asia and borders each of the four other Central Asian nations.
Trade and mobility indicators:
- Between 2017 and 2018, trade in external goods with neighboring countries jumped by approximately 50 percent.
- In 2018, the number of foreign citizens entering Uzbekistan doubled.
- Announcement of a new “Silk Visa” for Central Asia expected to increase cooperation.
Infrastructure and connectivity developments:
- New roads and a railway soon to connect China, Kazakhstan, Turkmenistan, and Uzbekistan.
- Electricity connections restored between Tajikistan and Uzbekistan; energy is being traded daily.
- Better connections can help outer regions prosper and become regional economic centers.
Gender inclusion and economic gains:
- Uzbekistan’s female labor force participation rate is just above 50 percent.
- IMF research indicates that matching the gender equality levels of emerging market European peers would boost GDP significantly and reduce economic and legal barriers for women.
Regional multiplier effect:
- Uzbekistan’s reforms can act as a force multiplier for progress across Central Asia by fostering trade, connectivity, and inclusive policies.

Continue scaling quality investments into education, apprenticeships, and job training to absorb a rapidly growing working-age population.
Advance price liberalization where appropriate, with protective measures for vulnerable groups, to attract quality FDI.
Maintain macroeconomic stability by:
- Reining in excessive credit growth (credit growth reached 50 percent in 2018).
- Targeting single-digit inflation and strengthening Central Bank tools.
Reform the banking sector toward greater private ownership (government currently manages over 85 percent of assets) and design a clear banking restructuring strategy.
Intensify anti-corruption measures: implement the Law on Combatting Corruption, modernize procurement, improve court efficiency, publish fiscal information (citizen’s budget), and leverage digital tools to increase transparency and trust.
Deepen regional integration: expand trade links, mobility (e.g., “Silk Visa”), transport and energy connectivity to generate jobs and raise living standards, including for women.
Promote gender equality to capture significant GDP gains and empower women across education, health, and labor markets.

Uzbekistan stands at a crossroads between historical openness and recent isolation; current reforms present an opportunity to restore Uzbekistan as a hub of growth, innovation, and regional integration.
Success depends on solving the inclusive growth equation: scaling quality investments, maintaining economic and financial stability, and tackling corruption — combined with regional engagement and gender-inclusive policies.
If reforms continue, Uzbekistan can realize a vibrant, peaceful, and prosperous future.

Christine Lagarde, IMF Managing Director — Central Bank of Uzbekistan —Tashkent, Uzbekistan — May 17, 2019 (As prepared for delivery).