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IMF Country Report No. 18/117
REPUBLIC OF UZBEKISTAN
2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF UZBEKISTAN
May 2018
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2018 Article IV consultation with the Republic of Uzbekistan, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its May 4, 2018 consideration of the staff report that concluded the Article IV consultation with the Republic of Uzbekistan.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on May 4, 2018, following discussions that ended on March 13, 2018, with the officials of the Republic of Uzbekistan on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on April 19, 2018.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association (IDA).
A Statement by the Executive Director for the Republic of Uzbekistan.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2018 International Monetary Fund
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REPUBLIC OF UZBEKISTAN
STAFF REPORT FOR 2018 ARTICLE IV CONSULTATION
April 23, 2018
Key Issues
Context. Uzbekistan has initiated far-reaching reforms to tackle the country’s most pressing economic and social challenges, foremost the lack of jobs. The reforms aim at opening and liberalizing Uzbekistan’s segmented economy, where state sector and connected businesses have enjoyed preferential access to real and financial resources while being sheltered from domestic and external competition.
Outlook and Risks. GDP is projected to expand by about 5 percent in 2018–19, but domestic job creation will continue to lag. At about 20 percent, inflation is high, in part due to price and exchange rate liberalization, but should decline gradually if constrained by tighter fiscal and monetary policies during 2018–19. The external position was strong in 2017 but is projected to shift from surpluses to deficits following the regime change in policies. Risks to the baseline are mostly medium term, including backsliding on reforms, weaknesses in banks constraining credit growth, and a sharp decline in revenues presently collected from state enterprises.
Fiscal Policy. Following a fiscal deficit of 3¼ percent of GDP in 2017, reducing on-lending operations should curb the deficit to 1¼ percent of GDP in 2018. Public debt is low and sustainable. The government plans to improve transparency by bringing all its operations on-budget in 2019. Tax reform is needed, foremost to stimulate job creation, but it should be revenue-neutral and gradual.
Monetary and Exchange Rate Policy. A tighter monetary stance is needed to lower inflation, including by raising the refinancing rate and reducing the pace of accumulating official reserves. The envisaged medium-term shift to inflation targeting will need to be underpinned by increasing the central bank’s de facto independence. In the interim, the central bank should base its assessments of the appropriate monetary stance on multiple indicators, including interest and exchange rates.
Financial Stability. Reported financial soundness indicators are strong, but, given the concentration of loans in state enterprises, asset quality could deteriorate quickly. In the medium term, with growth expected to be powered by private firms dependent on bank financing, funding and capital gaps could emerge in banks.
Structural Issues. Restructuring state enterprises early in the transition should be a key priority. Plans to continue price and trade liberalization while taking measures to strengthen domestic competition are welcome.
Statistics. The authorities have already made significant steps toward improving the quality and availability of statistics, but more remains to be done.
Approved By
Adnan Mazarei Zeine Zeidane
Discussions took place in Tashkent from February 27 to March 13, 2018. The team included Messrs. Dwight, Ghilardi, Jaeger (head), and Rozenov (all MCD). Mr. Kim (OED) attended selected meetings. Mr. Blair (LEG) and Ms. Popova (MCM) assessed compliance with Article VIII obligations. The mission held discussions with Deputy Prime Minister and Minister of Finance Kuchkarov, Central Bank Chair Nurmuratov, Minister of Economy Khodjaev, and other senior officials, and it liaised with representatives of international financial institutions (IFIs), embassies, universities, and the business sector.
Contents
CONTEXT
OUTLOOK, RISKS, AND REGIONAL SPILLOVERS
A. Economic Developments and Outlook
B. External Assessment
C. Risks to the Outlook
D. Regional Spillovers
POLICY DISCUSSIONS
A. Maintaining Prudent Fiscal Policy, Improving Fiscal Transparency, and Tackling Tax Reform
B. Tightening Monetary Policy, Moving to Inflation Targeting, and Reducing Segmentation in the Credit Market
C. Safeguarding Financial Stability and Building a Growth-Promoting Financial Sector
D. Promoting Structural Reform and Sustainable Development
E. Improving Economic Statistics
STAFF APPRAISAL
BOXES
1. Risk Assessment Matrix
2. Seven Lessons from Earlier Transitions
FIGURES
1. Demographics and Living Standards
2. Foreign Exchange Reserves and Exchange Rates
3. Inflation and Monetary Policy
4. External Sector
5. Interest Rates and Credit Market Segmentation
6. Energy Prices
TABLES
1. Selected Economic Indicators, 2015–19
2. National Accounts, 2015–19
3. Balance of Payments, 2015–19
4. General Government Budget, 2015–19 (billions of sum)
5. General Government Budget, 2015–19 (in percent of GDP)
6. Summary Accounts of the Central Bank, 2015–19
7. Monetary Survey, 2015–19
8. Medium-Term Outlook, 2015–23
9. Financial Soundness Indicators for the Banking Sector, 2015–2017 Q4
10. Sustainable Development Goals, 2000-Latest
ANNEXES
I. External Assessment
II. Recommendations of the 2015 Article IV Consultation
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REPUBLIC OF UZBEKISTAN
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
April 23, 2018
Prepared By
The Middle East and Central Asia Department (In consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH SELECTED INTERNATIONAL FINANCIAL INSTITUTIONS
STATISTICAL ISSUES
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REPUBLIC OF UZBEKISTAN
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
April 19, 2018
Approved By
Adnan Mazarei and Zeine Zeidane (IMF) and John Panzer (IDA)
Prepared by the staffs of the International Monetary Fund and the International Development Association.
Uzbekistan Joint Bank-Fund Debt Sustainability Analysis
Uzbekistan Joint Bank-Fund Debt Sustainability Analysis
| Risk of external debt distress | Low |
| Augmented by significant risks stemming from domestic public and/or private debt? | No |
Uzbekistan Joint Bank-Fund Debt Sustainability Analysis
| Risk of external debt distress | Low |
| Augmented by significant risks stemming from domestic public and/or private debt? | No |
Based on the Joint Bank-Fund Low-Income Country Debt Sustainability Analysis (LIC-DSA), Uzbekistan has maintained a low risk of external debt distress rating, with debt indicators remaining below relevant thresholds in both the baseline and stress scenarios1. The analysis suggests that most shocks applied to baseline indicators would have only a moderate impact on debt ratios. However, an exchange rate depreciation would have a significant impact on the debt-to-exports ratio, but still leave it well below its indicative threshold. Large international reserves also mitigate concerns regarding the impact of external shocks on external sustainability. The analysis assumes modest government deficits and external borrowing over the medium term.
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Press Release No. 18/168
FOR IMMEDIATE RELEASE
May 9, 2018
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202–623–7100
Fax 202–623–6772
