This paper discusses 2012 Article IV Consultation of Republic of Uzbekistan. Uzbekistan has been experiencing strong momentum in economic growth supported by sustained public investment and increased prices for commodity exports. The IMF report suggests that it is important to ease the restrictiveness of the foreign exchange and trade regimes, as it impedes the development of the financial and private sectors and distorts resource allocation. Improvement economic data quality and transparency should also be a high- priority item in the action list.

Abstract

This paper discusses 2012 Article IV Consultation of Republic of Uzbekistan. Uzbekistan has been experiencing strong momentum in economic growth supported by sustained public investment and increased prices for commodity exports. The IMF report suggests that it is important to ease the restrictiveness of the foreign exchange and trade regimes, as it impedes the development of the financial and private sectors and distorts resource allocation. Improvement economic data quality and transparency should also be a high- priority item in the action list.

Relations with The Fund

(As of November 30, 2012)

Membership Status

Date of membership: September 21, 1992

Status: Article VIII

General Resources Account

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SDR Department

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Outstanding Purchases and Loans

None

Latest Financial Arrangements

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Projected Obligations to the Fund

None

Implementation of HIPC Initiative

Not Applicable

Implementation of Multilateral Debt Relief Initiative

Not Applicable

Exchange Rate Arrangements

The de jure and de facto exchange rate regimes are managed float and crawling peg respectively. The exchange rate of the dollar is determined on the basis of interbank trading sessions (ITS). Effective March 13, 2008, ITS also include euro operations. The sum has gradually depreciated against the dollar. The official exchange rate of the Central Bank of Uzbekistan (CBU) is determined once a week as the average ITS rate for the previous week, and it remains in effect for one week. The official exchange rate of the CBU is used for accounting purposes, statistical and other reporting on foreign exchange operations, and for the calculation of customs and other mandatory payments in the territory of Uzbekistan.

Although Uzbekistan accepted the obligations of Article VIII Sections 2(a), 3, and 4 of the Fund’s Articles of Agreement with effect on October 15, 2003, it maintains at least two exchange restrictions and one MCP subject to Fund jurisdiction. First, undue delays (of up to and exceeding 12 months) in the availability of foreign exchange for payments and transfers for current international transactions gives rise to an exchange restriction. Second, the CBU’s practice of providing only limited foreign exchange for payments and transfers for current international transactions is considered direct rationing and gives rise to an exchange restriction. Third, the practice that no interest is paid on “blocked accounts” for conversion of sum to foreign exchange and that these transactions are delayed beyond the normal 5–7 business days, gives rise to an MCP, since the lack of interest payments directly increases the cost of the exchange transaction. The Executive Board did not approve the above exchange restrictions and multiple currency practice.

Article IV Consultation

Uzbekistan is on the standard 12-month consultation cycle. The 2011 Article IV consultation was completed by the Executive Board on a lapse of time basis on January 9, 2011.

Staff Visits and Policy Discussions (since January 1, 2005)

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Safeguards Assessment

The CBU is currently not subject to safeguards assessment policy since Uzbekistan is not expected to have a financial arrangement with the Fund in the near future.

IMF Technical Assistance

The Fund provided technical assistance and training to Uzbekistan in a number of areas. Technical assistance is currently being provided on budget and treasury reforms, on banking and financial supervision, national income accounts, and balance of payments statistics through assistance of resident advisors.

Technical Assistance missions since January 1, 2005:

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Resident Representative

The Fund’s first Resident Representative, Istvan Szalkai, was in Tashkent from September 1993 to September 1995. His successor, Mark O’Brien, served from November 1995 to December 1997. He was replaced by Christoph Rosenberg who served from January 1998 to April 2001. Currently, the Fund does not have a resident representative in Uzbekistan, but maintains a locally staffed office in Tashkent.

Resident Advisors

Richard Grzebinski served as an advisor on computerization to the State Tax Committee from January 1994 to January 1995. His successor, Mr. Emmanuel Sigler, served from April to June 1995.

Alexander Agafonoff served as an advisor on monetary policy at the CBU from November 1994 to December 1995.

Jim Stevenson began his service as an advisor on treasury operations at the ministry of finance in September 1996. His assignment was prematurely terminated in July 1998 because of a lack of cooperation by the ministry of finance.

John Zohrab began his service in January 2003 as an advisor to the ministry of finance. He assisted the authorities with the Public Financial Management (PFM) project, including treasury modernization, while visiting Tashkent from Georgia. In November 2006, he was relocated to Tashkent to assist with PFM project implementation, continuation of treasury reform, and PFM legal framework strengthening.

Nataliya Ivanyk, a regional resident advisor in external sector statistics started her assistance to the Uzbek authorities in November 2007. The objective of her assignment was to improve the quality of balance of payments statistics (in particular address the persistently negative errors and omissions item), assist the authorities with compilation of the international investment position statistics, and facilitate reporting of these data to the Fund on a regular basis for publication. Her assignment ended in November 2008.

Devi Manraj began her long-term technical assistance project as a regional resident advisor based in Tashkent in January 2008. Her terms of reference envisaged assisting the authorities with real sector statistics, in particular addressing the shortcomings in the national income accounts and price statistics. Her assignment ended in December 2008.

Todor Todorov began his long-term technical assistance project as a regional resident advisor based in Tashkent in August 2009. His terms of reference envisage assisting the authorities with real sector statistics, in particular addressing the shortcomings in the national income accounts and price statistics. His assignment ended in August 2010.

Relations with Selected International Financial Institutions

The World Bank (As of December 19, 2012)

JMAP Implementation Table

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The European Bank for Reconstruction and Development (EBRD)

(As of November 30, 2012)

Uzbekistan became a member of the EBRD in 1992. The last Country Strategy was approved by the Board in July 2005.

Current Bank’s operating assets stand at EUR 53 million with majority in the form of debt. Overall, EBRD’s portfolio is performing with public sector projects, but several private sector clients experiencing severe delays on conversion.

The Bank’s current operational priorities were an active portfolio management including loan restructuring, exit from equity projects, securing timely repayments, and strengthening monitoring. Annual business volume stood at EUR 1.8 million in 2011 and EUR 2.1 million at the end of November 2012 as a result of restructuring of private sector projects.

The Asian Development Bank (ADB)

(As of January 1, 2013)

Uzbekistan became a member of the ADB in 1995. ADB approved the new Country Partnership Strategy (CPS), 2012–16 for Uzbekistan in September 2012. The CPS aligns with the updated Welfare Improvement Strategy for 2012–15 (WIS II), which is under preparation. The WIS II seeks to support inclusive economic growth by fostering a modernized and diversified economy and creating equitable economic opportunities. Consistent with the WIS II, the main areas of support in the CPS are (i) infrastructure development focused on transport and communications, energy, water resources, water supply, and other municipal infrastructure and services; and (ii) access to financial services. Private sector development and operations, regional cooperation, governance and reforms, knowledge management, gender equity, climate change, and environment are the key thematic drivers of change in the CPS.

ADB approved its Country Operations and Business Plan (COBP), 2012–14 in November 2012. The new COBP 2012–14 is consistent and aligned with the priorities of the new CPS. The COBP includes operational support for transport, energy, municipal services, water, and access to finance, as guided by the development priorities of the government. These focus on industrial modernization and diversification of economy. The planned investment will increase efficiency and competitiveness, and boost connectivity within the Central Asia Regional Economic Cooperation region and beyond.

The COBP envisages about $1.3 billion during 2012–14 for public sector assistance. Of this, $226 million is expected to be sourced annually from the Asian Development Fund (subject to the fund availability). In addition, ADB is considering direct investments in private sector undertakings. Technical assistance grants for project preparatory, policy advisory, and knowledge sharing are estimated at $12.3 million, supporting (i) preparation of an energy efficiency project, (ii) second solar power development (iii) third small and microfinance development, (iv) improving financial sector access, and (v) capacity building, and improving efficiency of public management.

In 2012, ADB provided Uzbekistan with $595 million in loans, $275 million in guarantee, and up to $6 million in equity participation to support electricity transmission, regional highway corridor development, natural gas chemical production, and commercial banking.

The $150 million loan for Namangan 500 KV Power Transmission Project will increase energy security through the diversification and expansion of energy supply routes. The two loans, totaling $320 million, for the CAREC Corridor 2 Road Investment Programs will reconstruct 115 km of CAREC Corridor 2 and help improve road safety and asset management. The Surgil Natural Gas Chemicals Project, with a $125 million direct loan and $275 million guarantee, is the second direct private sector investment project in Uzbekistan for ADB, and aims catalytic effects to expand the gas subsector by encouraging foreign operators to develop similar undertakings.

ADB’s regional cooperation program complements country-level operation. ADB provides targeted regional assistance in trade facilitation, as well as in the energy and transport and communication sectors.

ADB has extended 46 loans to Uzbekistan (including two private sector loans) totaling $3.518 billion, and $50.8 million in technical assistance. The current loan portfolio comprises 33 percent for transport; 23 percent for energy; 11 percent for water supply, sanitation, and municipal services; 10 percent for agriculture and natural resources; 8 percent for education; 6 percent each for multisector and private sector development; and 2 percent for financial sector.

Statistical Issues

I. Assessment of Data Adequacy for Surveillance

General

Data have serious shortcomings that significantly hamper surveillance. Shortcomings are most serious in the national accounts, external sector, and government finance statistics.

National Accounts

The methodology for compiling the annual GDP estimates should be improved. Appropriate procedures need to be developed for reconciling production and expenditure-based estimates of GDP. Discrete quarterly GDP estimates are not compiled. The collection of primary source data for compiling national accounts statistics relies predominantly on the old Soviet-type system (including complete enumeration of legal entities, collection of cumulative data, use of numerous fragmented survey questionnaires, and classification of economic activities according to the old material product system). The restructuring of the data collection system should start as soon as possible. A long-term resident advisor in real sector statistics was posted in the State Statistics Committee (SSC) during 2008–10 to implement the work program. The currently applied system for data confidentiality slows down the implementation process.

Price Statistics

The official CPI is based on inappropriate techniques that lead to a systematic underestimation of inflationary pressures. In 2005, technical assistance was provided for implementing international standards for treatment of seasonal goods in the CPI; however, implementation is still pending for computing a price index for fruits and vegetables. While continuing reporting the official CPI index, the authorities started reporting a CPI index in November 2011 calculated using Rothwell formula as per earlier Fund advice, and provided historical data from 2004. The authorities’ new estimates have been submitted to the Fund for STA assessment.

Government Finance Statistics

Detailed data on revenue and expenditure of the consolidated government budget are compiled by the ministry of finance on a monthly basis and are available after a processing time of about four weeks. Data for extrabudgetary funds are available quarterly with a longer delay, and include only broad categories of revenue and expenditure of the four largest funds. The authorities occasionally provide fiscal tables that include net lending, foreign-financed investment, and details on the financing of the deficit. A persisting statistical discrepancy between the financing of the budget based on the above-the-line and below-the-line data points to possible coverage and classification issues. The authorities do not reconcile the monetary and fiscal financing data on a regular basis.

Budget expenditure data are organized according to a largely functional classification. An economic classification is available only occasionally, but the quality of these data is inadequate. The ministry of finance occasionally provides data on tax arrears. Information on total proceeds from privatization operations and treasury bills are provided on a quarterly basis, and data on issues and repayments of treasury bills are available monthly on request.

Even though the authorities have started reporting GFSM 2001, compliant format to the Fund, significant deficiencies exist, including absent disaggregated data. Staff Report for the 2012 Article IV Consultation includes an estimated fiscal presentation based on GFSM 2001.

Monetary Statistics

Following the introduction of new charts of accounts for the CBU and for the commercial banks in 1997, several missions have assisted the CBU in compiling monetary statistics using data from the new charts of accounts and in accordance with the IMF recommended methodology. With the implementation of major recommendations of these missions, a prototype IFS page for Uzbekistan was prepared by STA. The introduction of the IFS page will be pending on the agreement by the authorities and establishing a track record of regular reporting to STA. Action by the authorities is still pending.

Balance of Payments

Legal and institutional issues were found to hamper the compilation and dissemination of external sector statistics, as well as the delivery of technical assistance. These include: (i) the balance of payments statistics together with relevant source data are treated as classified data, which impedes not only the pace of statistical development but also interagency data sharing; (ii) the restricted access to data strongly affects the efficiency of technical assistance work; (iii) there is no legal framework clearly defining the responsibility to compile the international investment position (IIP) and gross external debt statistics; and (iv) the institutional capacity to compile the external sector statistics is insufficient. No clear commitment was received from authorities with regard to statistics disclosure. The authorities have not progressed regarding the compilation of the IIP, with human capacity constraints being one of the important reasons behind this deficiency.

Key factors for the persistent errors and omissions include the understatement of debit entries such as imports of goods and services, income payments (including for FDI), and shuttle trade. In addition, undercoverage of outflows (FDI, including disinvestments for the product-sharing agreements, and nonbank assets abroad) was identified. Detailed time series data were not available to the mission to quantify the impact of each of the items identified.

In external trade statistics, exports of cotton, and other bulk exports are valued on a c.i.f. basis rather than f.o.b. Some adjustments are made to capture informal cross-border trade and shuttle trade. Two parallel systems are used for compiling trade data—one based on customs declarations and the other based on enterprise surveys. STA has recommended that the customs data be used for compiling merchandise trade statistics and the enterprise reports to collect data on trade in services only.

Data provision on external debt is broadly satisfactory. Data on external government and government-guaranteed debt, including projections of future debt service obligations, are submitted with quarterly frequency, though often with considerable delay. The authorities do not separately indicate the amount of concessional debt, the amount of private debt owed or debt, intermediated by banks.

II. Data Standards and Quality

Uzbekistan does not participate in the General Data Dissemination System (GDDS). The authorities have conveyed their decision to participate in GDDS, they appointed a national coordinator, and a STA mission is planned for Q1 2013 to prepare the necessary metadata.

No data ROSC is available.

III. Reporting to STA

Uzbekistan has yet to approve publication of a country page in the International Financial Statistics.

Uzbekistan does not report statistics to STA for publication in the Government Finance Statistics and the Balance of Payments Statistics Yearbooks.

Uzbekistan: Table of Common Indicators Required for Surveillance

(As of January 14, 2013)

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Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Currency and maturity composition are not reported regularly.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).