IMF Staff Concludes Visit to Uzbekistan

IMF News, December 10, 2021

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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.
End-of-Mission press releases convey preliminary findings after a visit to a country. The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

Uzbekistan has weathered the pandemic relatively well, and a strong economic recovery is underway.
Activity started to recover in the second half of 2020 and has continued in 2021, driven by 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; an intensification of the pandemic, as new variants of the virus emerge, poses a large downside risk.
The mission 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.

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, fiscal consolidation should be delayed, albeit with more selective and better targeted support measures.
Uzbekistan remains at low risk of debt distress and has fiscal space to delay consolidation if needed.

The authorities plan to adopt a new debt law that will limit public and publicly guaranteed debt to 60 percent of GDP.
The mission recommends complementing 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 development goals while tightening fiscal policy will require:
- Further improving the effectiveness of public spending.
- Increasing revenue mobilization, notably by eliminating tax privileges and exemptions.
- Further improving public investment management.

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.
The CBU should continue to allow exchange rate flexibility.

Authorities are 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.
Required measures include:
- Creating a level playing field for businesses governed by the rule of law.
- Opening up markets, enhancing competition, and facilitating trade integration.
- Eliminating monopolies and privileges for state-owned enterprises, improving their corporate governance, and continuing divestiture.
- Adoption of new laws on state asset management, privatization, and insolvency to strengthen the legal framework.
Successful privatization of both smaller assets and larger entities in 2021 is noted as a good start.
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 predictability and consistency in government policies would help attract private investment.

Financial reforms are underway, with 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; however, the full effects of the pandemic, and of high credit growth in prior years, on the quality of loans may yet emerge.

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.
Authorities have initiated a shift to renewable energy resources while improving the efficiency of gas-powered energy generation.
Policy priorities include:
- Bringing energy tariffs to market levels and creating a competitive energy market, while protecting vulnerable households.
- Improving energy efficiency and resource allocation.
- More efficient water management as water becomes an increasingly scarce resource.

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 Staff Concludes Visit to Uzbekistan — Press Release No. 21/369 (December 10, 2021).