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IMF Country Report No. 19/129
REPUBLIC OF UZBEKISTAN
2019 ARTICLE IV CONSULTATION—PRESS RELEASE AND STAFF REPORT
May 2019
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 2019 Article IV consultation with the Republic of Uzbekistan, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its May 6, 2019 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 6, 2019, following discussions that ended on March 1, 2019, 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, 2019.
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).
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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© 2019 International Monetary Fund
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REPUBLIC OF UZBEKISTAN
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
April 19, 2019
Key Issues
Context. Given its bulging working-age population, creating more and better jobs is the country’s overarching priority. Uzbekistan has already implemented a first wave of important economic reforms, including foreign exchange liberalization, tax reform, and a major upgrade in statistics. Faced with a vast structural reform agenda, the authorities want to prioritize reforms that address the economy’s most damaging distortions first. The main short-term macroeconomic stability challenge is to prevent a credit boom that could generate excessive external deficits and aggravate inflation pressures.
Outlook and Risks. High investment should boost growth and job creation; a weaker-than-projected external environment is the main short-term downside risk to growth. Inflation will likely remain elevated, in part reflecting much-needed relative price adjustments to correct resource misallocation. The current account deficit has increased sharply, mostly reflecting a surge in imports of capital goods, but external stability risks remain low due to high foreign exchange reserves and low external debt. A sustained credit boom is the main downside risk for both inflation and the external position.
Macro Stabilization. A tight monetary stance and moderate fiscal deficits need to be maintained to support macroeconomic stability. Credit growth will need to slow significantly to assure the economy’s external and internal balance.
Financial Sector. Reported bank soundness indicators remain reassuring, but they may underestimate risks given the largely state-owned banking system. Given the state’s dominance in the sector, the scope for using macroprudential policies is limited. The authorities need to restructure banks to create a more level playing field for allocating credit and to build the trust needed to mobilize new funding sources from the private sector.
Structural Reform Priorities. Reforms should focus on: (i) alleviating resource constraints, especially skilled labor, energy, land, and finance; (ii) lowering business costs, especially burdensome taxes and customs procedures; and (iii) addressing public governance weaknesses, especially fighting corruption while improving public administration, courts, and regulations.
Inclusive Growth. The Sustainable Development Goals (SDGs) are anchoring the country’s inclusive growth agenda, especially on education, health, public infrastructure, and financial inclusion. Moreover, the authorities are redesigning labor policies from scratch to help unskilled and other disadvantaged workers find more and better jobs.
Statistics. The authorities have made significant progress. Nonetheless, much remains to be done, especially improving quality and availability of national account and labor statistics.
Approved By
Thanos Arvanitis Maria Gonzalez
Discussions took place in Tashkent from February 19 to March 5, 2019. The team included Messrs. Cabezon, Dwight, and Jaeger (all MCD), Mr. Sheik Rahim (FAD), and Ms. Kostina (local office). Mr. Inderbinen (ED) attended the concluding meeting. The mission held discussions with Deputy Prime Minister and Minister of Finance Kuchkarov, Central Bank Chair Nurmuratov, Minister of Labor Kudbiev, and other senior officials. It also met with representatives of the private sector, other international financial institutions, embassies, and universities.
Contents
CONTEXT
OUTLOOK, RISKS, AND REGIONAL SPILLOVERS
A. Economic Developments
B. External Sector Assessment
C. Outlook and Risks
D. Regional Spillovers
POLICY DISCUSSIONS
A. Maintaining a Prudent Fiscal Policy
B. Continuing a Tight Monetary Policy and Reducing Credit Growth
C. Building a Growth-Promoting Financial Sector
D. Prioritizing Structural Reforms
E. Fostering Inclusive Growth
F. Improving Economic Statistics
STAFF APPRAISAL
BOX
1. Risk Assessment Matrix
FIGURES
1. Demographics, Labor Supply, and Employment
2. Credit and Investment, 2015–18
3. Growth and Labor Market, 2015–18
4. Inflation, 2015–18
5. External Sector
6. Monetary Policy and Exchange Rate
TABLES
1. Selected Economic Indicators, 2016–21
2. National Accounts, 2016–21
3a. Balance of Payments, 2016–21 (millions of U.S. dollars)
3b. Balance of Payments, 2016–21 (percent of GDP)
4a. General Government, 2016–21 (billions of Sum)
4b. General Government, 2016–21 (percent of GDP)
4c. General Government, GFS, 2016–21 (billions of Sum)
4d. General Government, GFS, 2016–21 (percent of GDP)
5. Summary Accounts of the Central Bank, 2016–21
6. Monetary Survey, 2016–21
7. Medium-Term Outlook, 2016–24
8. Financial Soundness Indicators for the Banking Sector, 2014–18
9. Sustainable Development Goals, 2000-Latest
ANNEXES
I. Simulating a Boom-Bust Credit Cycle
II. External Sector Assessment
III. Estimating Spending Needs for Achieving Selected SDGs
IV. Prioritizing Structural Reforms: What Do Investors Want?
V. Reforming the Labor Market to Promote Inclusive Growth
VI. Recommendations of the 2018 Article IV Consultation
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REPUBLIC OF UZBEKISTAN
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
April 19, 2019
Prepared By
The Middle East and Central Asia Department (In consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH OTHER INTERNATIONAL INSTITUTIONS
STATISTICAL ISSUES
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REPUBLIC OF UZBEKISTAN
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
April 18, 2019
Approved By
Thanos Arvanitis and Maria Gonzalez (IMF) and Lalita Moorty (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 |
| Overall Risk of Debt Distress | Low |
| Granularity in the Risk Rating | Not applicable |
| Application of Judgment | The risk ratings were not adjusted |
Uzbekistan: Joint Bank-Fund Debt Sustainability Analysis
| Risk of External Debt Distress | Low |
| Overall Risk of Debt Distress | Low |
| Granularity in the Risk Rating | Not applicable |
| Application of Judgment | The risk ratings were not adjusted |
Based on the Joint Bank-Fund Low-Income Country Debt Sustainability Analysis (LIC-DSA), Uzbekistan has a low risk of debt distress, with debt burden indicators below relevant thresholds in the baseline and all stress scenarios. Over the medium term, the public debt-to-GDP ratio is expected to increase moderately, while the total external debt-to-GDP ratio is expected to decline somewhat. In addition, large foreign exchange reserve buffers mitigate potential distress concerns. The debt sustainability analysis suggests that the most significant risks could result from worse-than-expected external flows (mostly lower remittances) and significantly lower exports. The government should carefully manage external borrowing to maintain Uzbekistan’s strong external position.1
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Press Release No. 19/155
FOR IMMEDIATE RELEASE
May 9, 2019
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