IMF Staff Concludes Visit to Uzbekistan

December 10, 2021

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. 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. This mission will not result in a Board discussion. 

Tashkent : An International Monetary Fund mission, led by Mr. Ron van Rooden, met with the authorities of Uzbekistan during December 2–10, 2021 to discuss economic developments and prospects, as well as policy priorities. This statement summarizes the mission’s main findings:

Uzbekistan has weathered the pandemic relatively well, and a strong economic recovery is underway. Activity started to recover already in the second half of 2020 and has continued in 2021, thanks to the authorities’ quick and forceful actions to save lives and livelihoods. Growth is projected to reach close to 7 percent this year. Inflation has remained elevated due to food and commodity price pressures, reflecting global trends, and is expected to end the year at about 10 percent.

Provided the pandemic abates, growth is expected to remain strong in 2022, at about 6 percent. Uncertainty remains high, however, and an intensification of the pandemic, as new variants of the virus emerge, poses a large downside risk. This underscores the need to maintain the momentum in vaccine roll-out to ensure that the majority of the population will be vaccinated. Uzbekistan could also be adversely affected by slower growth in its main trading partners, volatility in commodity prices, particularly of gold, or global price increases.

Building on the impressive progress made in recent years, the authorities remain firmly committed to continue sound macro-economic policies and advance structural reforms. This will help to ensure strong and sustainable growth in the years ahead, improve people’s incomes, and reduce poverty. Specifically:

· To ensure fiscal sustainability, the authorities aim to reduce the budget deficit from almost 6 percent of GDP in 2021 to close to 3 percent of GDP in 2022 and beyond. If the pandemic intensifies, however, fiscal consolidation should be delayed, albeit with more selective and better targeted support measures. Uzbekistan has the fiscal space to do so as it remains at low risk of debt distress.

· To further underpin fiscal sustainability, the authorities plan to adopt a new debt law that will limit public and publicly guaranteed debt to 60 percent of GDP. They should complement this with additional fiscal rules, incorporating limits for the annual budget deficit and new guarantees in the budget code, while also capturing public-private partnerships.

· Achieving Uzbekistan’s development goals, while fiscal policy is tightened, will require further improving the effectiveness of public spending and increasing revenue mobilization. Notably, there is a need to further improve public investment management. Revenue collection can be increased by eliminating tax privileges and exemptions.

· The Central Bank of Uzbekistan’s (CBU) relatively tight monetary policy remains appropriate to achieve a gradual reduction in inflation. Inflation is expected to remain elevated in the near term due to food and commodity price pressures. Monetary policy may need to be tightened if inflationary pressures persist, while the CBU should continue to allow exchange rate flexibility.

· The authorities are rightly focusing on facilitating strong private sector-led growth. With a fast-growing labor force, new jobs will need to come especially from small and medium-size private enterprises. This requires creating a level playing field for businesses that is firmly governed by the rule of law, opening up markets, enhancing competition, and facilitating trade integration. The successful privatization of both smaller assets and larger entities in 2021 has been a good start. Working to eliminate monopolies and privileges for state-owned enterprises, while continuing to improve their corporate governance and their divestiture, will be crucial. The adoption of new laws on state asset management, privatization, and insolvency will be important steps to strengthen the legal framework. Ongoing reforms in agriculture, including the liberalization of cotton and wheat prices and the reduction of crop placement requirements, are helping to diversify and boost agricultural production. Essential market institutions need to be established (e.g., an independent energy regulator) or strengthened (e.g., by giving the anti-monopoly agency additional capacity and powers, including allowing it to impose meaningful fines). Greater competition will also mitigate price pressures. While the desire to move ahead with reforms as fast as possible is commendable, greater predictability and consistency in government policies would help attract private investment.

· Financial reforms are underway, with the authorities improving state-owned banks’ governance and starting their privatization. Further efforts are needed to enhance financial intermediation and to reduce the large role of the state-owned banks in the banking system. A healthy and competitive banking system is needed to increase deposit mobilization and help finance private sector growth. Banks were resilient during the pandemic, with only a modest increase in non-performing loans. Still, the full effects of the pandemic, and of high credit growth in prior years, on the quality of loans may yet emerge.

· The authorities are increasingly focusing on regional development to ensure equitable and inclusive growth. Enhanced powers and responsibilities for regional and local authorities will need to be accompanied by greater administrative capacity and stronger accountability and transparency.

· Uzbekistan is feeling the effects of climate change, with changing weather patterns, higher temperatures, and worsening air quality. To mitigate the impact, the authorities have initiated a shift to renewable energy resources, while improving the efficiency of gas-powered energy generation. Bringing energy tariffs to market levels and creating a competitive energy market, while protecting vulnerable households, will be important to improve energy efficiency and resource allocation. Similarly, water is becoming an increasingly scarce resource, requiring more efficient water management.

The mission team thanks the authorities for their hospitality and for the substantive and open policy discussions. The IMF will continue to provide support to Uzbekistan through policy advice and technical assistance.

IMF Communications Department


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