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.
