IMF Executive Board Concludes 2011 Article IV Consultation with the Republic of Uzbekistan

Public Information Notice (PIN) No. 12/32
March 30, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On January, 9, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Uzbekistan on a lapse of time basis. Under the IMF’s lapse of time procedures, the Executive Board completes Article IV consultations without convening formal discussions.1


Uzbekistan’s economy has withstood the global crisis well. Following a strong performance in 2010, high economic growth continued in 2011. GDP growth was reported at 8½ percent in 2010 and at 8.2 percent through September 2011. High commodity prices boosted Uzbekistan’s exports, while the government’s continued industrialization program and consumption-boosting measures supported strong domestic demand. Inflation increased to 13.7 percent in October 2011, up from about 12 percent in 2010.

The external position has strengthened on account of higher exports, a slowdown in imports financed by FDI, and rebounding remittances. The current account surplus exceeded 6½ percent of GDP in 2010, and official reserves (including the external assets of the Fund for Reconstruction and Development of Uzbekistan (FRD)) continue to exceed one year of import cover (about 40 percent of GDP).

Fiscal policy was prudent in 2010, and the fiscal outcome was better than budgeted in the first nine months of 2011. The consolidated fiscal surplus (including the FRD, where most natural resource revenues are saved) reached 4.9 percent of GDP in 2010, up from 2.8 percent of GDP in 2009, benefiting from higher commodity prices. Lower tax revenues, reflecting cuts in
corporate and income taxes and the reduction of the unified tax rate for small businesses, were more than offset by wide-ranging cuts in nonpriority spending. Public and publicly guaranteed debt continues to be low.

Driven by continued purchases of foreign exchange by the Central Bank of Uzbekistan (CBU) and strong credit growth, broad money growth was considerable in 2010, but slowed in 2011. Aiming at improving competitiveness of the export sector, the authorities have continued their policy of a steady depreciation of the sum.

Growth prospects remain favorable, but risks are tilted to the downside as a result of global uncertainties. Provided these risks do not materialize, staff expects strong GDP growth to continue over the near and medium term. Economic activity will be supported by policies to boost domestic consumption and investment, as well as by the elevated commodity prices for the Uzbek exports.

Executive Board Assessment

In concluding the 2011 Article IV consultation with the Republic of Uzbekistan, Executive Directors endorsed staff’s appraisal, as follows:

Uzbekistan’s high growth of recent years is the result of adherence to prudent macroeconomic policies that have shielded the country from global turbulence. These include low exposure to global financial markets, accumulation of considerable fiscal and external buffers, sustained public investment under state-led programs, and consumption-boosting measures. However, the low growth of income per capita in part reflects a reliance on currency depreciation to maintain competitiveness, rather than deep reforms to boost productivity.

The baseline growth outlook is positive. High economic growth is projected to continue in the near term, but inflation is a concern. While growth will continue to be driven by demand-boosting policies and high commodity prices for Uzbek exports, priority should be given to lowering inflation through a combination of macroeconomic policies supportive of this objective. Moreover, the uncertain external outlook warrants continued implementation of prudent macroeconomic policies. Uzbekistan appears well prepared to withstand another wave of global crisis as the considerable buffers could be deployed to support growth if necessary.

Monetary policy should be tightened by withdrawing excess liquidity and reducing CBU foreign exchange purchases as further accumulation of official reserves for precautionary purposes is costly. Staff welcomes the monetary tightening in the first nine months of 2011. Going forward, the CBU should primarily focus on a lower inflation objective and subordinate the exchange rate policy to this goal by allowing more flexibility and slowing the pace of depreciation to mitigate inflationary pressures. By making the CBU refinance rate positive in real terms and narrowing the corridor for the interbank rates, the role of the refinancing rate as the main policy rate would be strengthened. This would also facilitate market pricing of financial assets. Over the medium term, these measures would help improve the monetary policy transmission mechanism. In addition, the CBU should improve communication and enhance transparency of its policy actions.

The CBU should also stand ready to adjust its policy to the changing global environment. Should the global situation deteriorate sharply, there might be less need to tighten the currently accommodative policy, provided inflation is clearly on a downward path.

Priority should be given to foreign exchange market liberalization and unification of exchange rates to eliminate implicit taxation and distortions, including by ensuring unlimited access to foreign exchange and allowing a market-based setting of the exchange rate.

The authorities’ should continue to pursue a prudent fiscal policy by saving revenue overperformance and cutting nonpriority spending. Going forward, further tax cuts in 2012 should be accompanied by measures to broaden the tax base and prevent decline of revenues. Avoiding a fiscal expansion in 2012 is needed to reduce inflationary pressures. On the expenditure side, the authorities should focus on improving social safety nets and targeted support to the low-income population.

The banking sector remains stable, but the CBU should be vigilant to vulnerabilities arising from high credit growth. Capital adequacy will likely remain high due to continued capital injections from the government. However, adequate provisioning should be maintained and the central bank will need to carefully balance the objectives of encouraging greater financial deepening and safeguarding financial stability. To strengthen the role of the banking sector in the economy and enhance trust, banks should be completely freed from noncore functions, including cash controls of their clients and monitoring of clients’ operations for purposes other than prudential.

Public financial management should be improved further. While spending on major public investment projects continues under the government programs, it is important to focus on governance and quality of such spending, including stronger public procurement and project appraisal and monitoring practices. Moreover, expenditure policy needs to be formulated within a comprehensive medium-term fiscal framework, while increasing transparency of the budget process and its implementation. A multi-year fiscal framework would enhance credibility by supporting medium-term fiscal targets and limiting pro-cyclical policies.

Recent initiatives to step up reforms to support small businesses are encouraging. Effective implementation will be critical for the success of the reforms and would help create jobs for the young and growing labor force and unleash the private sector’s potential to drive growth. Staff supports the authorities’ plans to implement priority measures that would help reduce red tape and corruption and widen the tax base, including: streamlining tax collection; introducing electronic tax reporting; introducing a one-stop-shop for customs clearance as planned; and strictly adhering to regulations mandating free access to cash.

Further export promotion should rely more on private sector development in order to promote economic diversification. Despite some progress in diversifying exports, Uzbekistan remains reliant on commodity exports, which comprised about 50 percent of total exports in 2010. Staff believes that further diversification is contingent on development of the private sector, based on effective implementation of reforms to improve the business environment.

Enhancing the quality of statistics, dissemination of data and publication of country reports would increase transparency and improve investors’ perceptions of the official statistics and the underlying economic policies.

Uzbekistan: Selected Economic Indicators
  2006 2007 2008 2009 2010

GDP in millions of U.S. dollars

17,027 22,307 28,605 33,461 38,987
  (Annual percentage change)

Production and prices

  Real GDP

7.5 9.5 9.0 8.1 8.5

  Consumer price index (e.o.p) 1/

11.4 11.9 14.4 10.6 12.1

  GDP deflator 2/

21.3 24.0 22.9 20.2 16.2

  Producer price index (e.o.p) 2/

24.0 10.8 7.7 29.5 16.4
  (In percent of GDP)

General government 3/

  Total revenue and grants

31.4 31.7 33.7 33.1 32.4

  Total expenditure and net lending

30.9 30.1 32.4 33.5 32.0

  Overall balance (-=deficit) 4/

5.2 5.2 10.2 2.8 4.9
  (Annual percentage change)

Monetary Indicators

  Reserve money

36.5 44.9 31.2 30.5 27.1

  Broad money

37.8 46.9 38.7 40.8 52.4

  Velocity of average broad money (level)

6.5 6.0 5.8 5.3 4.4
  (In millions of U.S. dollars, unless otherwise specified)

External sector

  Export of goods and services

6,327 8,851 12,158 11,536 12,163

  Import of goods and services

5,364 8,150 11,393 11,698 11,029

  Current account

1,552 1,632 2,485 735 2,602

    In percent of GDP

9.1 7.3 8.7 2.2 6.7

  Gross international reserves

4,665 7,510 9,534 12,226 14,579

    In months of next year imports

6.9 7.9 9.8 13.3 13.2
Sources: Uzbek authorities, and Fund staff estimates.

1/ Based on authorities’ source data and Fund staff calculations using international methodology.

2/ Official estimates.

3/ Including the Fund for Reconstruction and Development.

4/ Based on below-the-line financing data.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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