Tashkent: An International Monetary Fund staff team,
led by Mr. Yasser Abdih, met with the authorities of Uzbekistan during
December 11–19, 2023 to discuss economic developments and prospects,
and policy priorities. At the end of the mission, Mr. Abdih issued the
following statement:
“Uzbekistan’s economy has demonstrated remarkable resilience to
recent global challenges.
Following geopolitical shocks, the economy saw an influx of migrants
and a large increase in remittances in 2022, boosting domestic demand.
This, coupled with higher external demand, led to real GDP growth of
5.7 percent in 2022. While remittances have fallen this year to the
trend prevailing prior to Russia’s war in Ukraine, a sizable fiscal
expansion, and high wage and export growth are expected to sustain real
GDP growth at 5.7 percent in 2023. Strong imports and declining
remittances will contribute to a higher external current account
deficit this year. International reserves are expected to remain ample
at eight- and one-half months of prospective imports. By end-2023, the
12-month inflation rate is projected to decline by more than 3
percentage points—compared to the same period last year—to 9 percent,
helped by a high real policy rate, a value-added tax rate cut, and
lower international food and energy prices.
“The outlook for 2024 remains positive, but risks remain
.
- Despite needed fiscal consolidation, growth is projected to
remain above 5 percent.
- The external current account deficit will increase modestly
as gold exports decline to trend levels offsetting slower import growth
related to public spending restraint.
- External risks stem from a possible deterioration of growth
in key trading partners (notably China and Russia) and further
tightening of external financial conditions. Domestic risks include
contingent liabilities from state-owned financial and non-financial
enterprises (SOEs) and public-private partnerships (PPPs).
“Preserving macro-financial stability and continuing structural
reforms are key to bolstering resilience and sustaining robust
economic growth amidst the challenging current global context.
-
Fiscal policy needs to return to a consolidation path after the
expansionary stance in 2023
. Staff’s estimate of the consolidated fiscal deficit (national
definition) is expected to reach 5.5 percent of GDP in 2023,
exceeding the 3 percent of GDP budget target due to additional wage
hikes as well as higher social benefits, energy subsidies, and
policy lending. The government appropriately aims to reduce the
consolidated deficit to 4 percent of GDP in 2024 and 3 percent in
2025. This will rebuild fiscal buffers to respond to potential
shocks and help reduce inflation, which particularly benefits the
poor. The consolidation is to be achieved by better targeting of
social benefits, cutting policy lending, and reducing untargeted
energy subsidies while protecting the vulnerable by introducing a
social consumption norm. Removal of tax exemptions and efforts to
reduce the shadow economy will complement the expenditure measures.
- Improving budget planning will facilitate better outcomes with
fewer resources and minimize deviations from fiscal targets.
This includes strictly adhering to the budget calendar, unifying the
investment budget irrespective of the financing source and
preparing it together with the recurrent budget, and limiting the
frequency of within-year changes, as frequent changes complicate
budget execution and are unlikely to improve budget outcomes.
Continued efforts to improve the measurement and management of
fiscal risks, especially from SOEs and PPPs, are needed to ensure
that the planned fiscal consolidation is realized.
- Monetary policy should remain tight to continue to reduce
inflation.
Needed increases in administered energy prices are expected to
raise inflation. However, the effect will be partially offset by
continued tight monetary policy and a sizable fiscal consolidation.
Staff welcomes the commitment of the Central Bank of Uzbekistan
(CBU) to keep monetary policy relatively tight until inflation
decelerates clearly toward the target and to raise the policy rate
if core inflation surprises to the upside. Efforts to strengthen
monetary policy transmission, which remains constrained by a low
level of financial intermediation, high dollarization, and still
sizable policy lending, should continue. Exchange rate flexibility
is important to absorb potential shocks and safeguard reserves.
- Financial sector reforms need to continue to safeguard
stability.
Despite tight monetary policy, credit growth remains high,
particularly for car loans, microcredit, and mortgages. The CBU has
appropriately tightened loan-to-value ratios and introduced
concentration limits for banks. Additional supervisory and
macroprudential measures would help ensure banks assess the
creditworthiness of borrowers and limit the risk of declining asset
quality. The authorities’ continued efforts are needed to bolster
corporate governance and transparency of state banks and further
reduce policy lending. These measures would facilitate bank
privatization, level the playing field, deepen financial
intermediation, and improve access to financial services.
- Continued implementation of structural reforms is key to
sustaining robust growth
. The government has improved the transparency of public
procurement, strengthened reporting and the management of SOEs, and
privatized a large bank and several state enterprises. An increase
in energy prices for businesses was implemented and the Law on
Competition became effective in October 2023. Further reforms were
announced in September and October 2023, including the creation of
an independent energy regulator and the unbundling of the railway
sector, and measures were adopted towards addressing climate
change. Nevertheless, additional measures are needed to increase
energy prices to at least cost recovery levels, enhance governance
and transparency (including for SOEs), further restructure and
privatize state enterprises, and strengthen competition policies to
reduce the state’s role in the economy. Accelerating World Trade
Organization negotiations and cooperating with neighboring
countries to improve transport routes will reduce transportation
costs and open new markets for Uzbekistan’s products.”
The IMF team is grateful to the authorities of Uzbekistan for the
close collaboration and open and constructive discussions, and for
their warm hospitality.
1/ The CPI projection for 2024 incorporates the effect of an expected
increase in energy prices based on estimates as of a December 2023
staff visit. It also accounts for the impact of projected fiscal
consolidation and expected continued tight monetary policy in 2024.
2/ IMF staff adjusts budget revenues and expenditures for financing
operations, such as equity injections, policy lending, and privatization of
state enterprises. The overall fiscal balance is more negative than the
consolidated budget balance as it excludes privatization receipts.
