Front Matter
Author:
International Monetary Fund. Middle East and Central Asia Dept.
Search for other papers by International Monetary Fund. Middle East and Central Asia Dept. in
Current site
Google Scholar
Close

IMF Country Report No. 24/210

Copyright Page

IMF Country Report No. 24/210

REPUBLIC OF UZBEKISTAN

2024 ARTICLE IV CONSULTATION—PRESS RELEASE; AND STAFF REPORT

July 2024

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 2024 Article IV consultation with the Republic of Uzbekistan, the following documents have been released and are included in this package:

  • A Press Release

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on lapse of time basis, following discussions that ended on May 7, 2024, 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 May 28, 2024.

  • An Informational Annex prepared by the IMF staff.

  • A Debt Sustainability Analysis prepared by the staff of the IMF.

The documents listed below will be separately released.

  • Selected Issues

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

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623–7430 • Fax: (202) 623–7201

E-mail: publications@imf.org Web:http://www.imf.org

International Monetary Fund

Washington, D.C.

© 2024 International Monetary Fund

Press Release

PR 24/2740

IMF Executive Board Concludes 2024 Article IV Consultation with the Republic of Uzbekistan

FOR IMMEDIATE RELEASE

Washington, DC – June 26, 2024: On June 13, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Uzbekistan1 and considered and endorsed the Staff Appraisal on a lapse-of-time basis without a meeting.2

Uzbekistan’s growth has remained strong. While remittances fell to the pre-2022 trend, expansionary fiscal policy, buoyant private consumption, and a surge in fixed investment boosted real GDP growth to 6 percent in 2023. In the first quarter of 2024, growth remained robust at 6.2 percent year-over-year (yoy). With a relatively high real policy rate and falling international food and energy prices, consumer price inflation fell from 12.3 percent (yoy) at the end of 2022 to 8.1 percent in April 2024. In 2023, Uzbekistan’s current account deficit widened to 8.6 percent of GDP compared to 3.5 percent of GDP in 2022. An increase in imports of machinery and equipment (some of which is temporary), declining remittances, higher interest payments on foreign debt, and repatriation of earnings by foreign-owned enterprises more than offset buoyant gold exports. International reserves fell by $1.2 billion in 2023 but remained high at close to 9 months’ worth of imports at end-April 2024.

The outlook is broadly positive. The authorities’ strong reform efforts, most notably the energy price reform and privatization of state enterprises, have improved economic prospects. Supported by strong domestic demand, real GDP growth is projected to remain robust at 5.4 percent in 2024 and rise slightly to 5.5 percent in 2025. Continued efforts to reduce the fiscal deficit, ongoing moderation in bank lending growth, and a slowdown in import growth will reduce the current account deficit this year and next. Inflation is projected to temporarily rise by end-2024 as administered energy prices increase, but continuing tight macroeconomic, macroprudential, and structural policies will reduce the inflation rate towards the Central Bank of Uzbekistan’s (CBU) target over the medium term.

Given the uncertain global environment, external risks include geoeconomic spillovers, commodity price volatility, and an abrupt global slowdown. Domestic risks include slower-than-planned fiscal consolidation, weaker bank balance sheets, or materialization of contingent liabilities—from state banks, state-owned enterprises (SOEs), and public-private partnerships (PPPs). On the upside, an acceleration of structural reforms, greater inflows of income and capital, or higher export prices could improve the outlook.

Executive Board Assessment

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

Uzbekistan continues its steadfast progress toward transforming its economy. The economy has experienced rapid growth and declines in poverty in recent years despite headwinds and uncertainty from the pandemic and Russia’s war in Ukraine. Growth is expected to remain robust this year— despite a deceleration in trading partner growth and the withdrawal of the 2023 fiscal stimulus—and over the medium term, supported by the completion of fiscal consolidation, ongoing structural reforms, and continuing capital inflows. These achievements are a testament to the authorities’ efforts to advance Uzbekistan’s economic development through market-oriented reforms. However, challenges still remain from a large state footprint in the economy and last year’s expansionary fiscal policy, and the authorities are determined to persevere in their reform efforts to address them and advance sustainable and inclusive growth. The positive economic outlook provides a unique opportunity for the implementation of reforms to deepen the foundations for a dynamic, open, and private sector-led economy.

The planned fiscal policy adjustment is appropriate to maintain robust public finances and facilitate external adjustment while supporting monetary policy in containing inflation. The size and pace of consolidation are ambitious but achievable, and the main consolidation measures are relatively growth-friendly given their efficiency-enhancing nature combined with protection of the vulnerable. There is scope to broaden the tax base, modernize the tax system, and increase the efficiency of public spending through rationalizing the wage bill, phasing out SOE support, and improving the targeting of social protection programs while eliminating overlaps and reducing administrative costs. Advancing pension reform is important to ensure long-term fiscal sustainability and effective social protection for workers. Efforts should also continue to improve fiscal institutions by strengthening core budget processes, unifying the public investment process, improving the identification and management of fiscal risks, ensuring full transition to GFS standards for fiscal monitoring and reporting, and continuing to develop the domestic debt market in coordination with monetary policy.

Monetary policy has managed to lower inflation and should remain focused on reducing it further to the CBU’s target. Sustaining a high real policy rate, along with tight fiscal and macro-prudential policies and supportive structural reforms, would gradually reduce inflation to the CBU target by end-2027. The CBU should stand ready to increase its policy rate if the energy price reform results in broader price pressures and raises inflation expectations.

Minimizing the state’s involvement in the financial sector while strengthening financial sector supervision will support sustainable financial deepening while protecting financial stability. This involves modernizing the governance of state banks, mandating them to operate commercially, and expediting and expanding privatization efforts to all systemic financial institutions. While higher financial intermediation is welcome, and the recent macroprudential measures were appropriate, the impact of the measures that will come into force in July should be closely monitored to ensure sustainable financial deepening. Enhancing prudential supervision to align it with international standards and conducting AQRs and robust stress tests are also important to facilitate timely interventions and safeguard financial stability. Deposit-taking microbanks, if established, should be subjected to proper governance and capital requirements and adequate supervision.

Capitalizing on progress already achieved, sustained reform efforts will magnify their impact and make growth more sustainable, inclusive, and green. Careful sequencing of reforms would help expedite implementation, while reduced ad-hoc state intervention would enhance resource allocation efficiency. The government should continue efforts to accelerate the restructuring and privatization of state enterprises. It should also eliminate preferences for SOEs and unbundle large enterprises to increase competition and improve the business environment. The authorities are correctly accelerating their efforts for WTO accession and taking measures to bolster external competitiveness and export diversification, opening markets, and reducing monopolies would boost growth and help reduce inflation. Initiatives to increase women’s labor participation and phase out energy subsidies would stimulate growth while supporting decarbonization and climate adaptation efforts.

The momentum on anticorruption efforts should be sustained, building on significant improvements in governance and rule of law indicators. Staff recommends enacting the asset declaration, conflict of interests, and whistleblower protection laws. The government should implement additional measures to improve the independence of prosecutors, judges, and the Chamber of Accounts. Finally, the government should take steps to further enforce access to government information which would improve accountability and trust in public administration.

Uzbekistan: Selected Economic Indicators 2021–2025

article image
Sources: Country authorities and IMF staff estimates.

The consumer price inflation projection incorporates the effect of the announced increases in energy prices in 2024 and 2025.

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 until 2021 is more negative than the consolidated budget balance as the latter includes privatization receipts as revenue. Since 2022, there is no difference as the authorities started including all privatization receipts as financing.

Title page

REPUBLIC OF UZBEKISTAN

STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION

May 28, 2024

KEY ISSUES

Context. Uzbekistan’s growth momentum continues on the back of far-reaching structural reforms to liberalize its economy, favorable commodity prices, and notable increases in financial and income flows. Leveraging the remarkable progress that has been achieved in the last seven years, the authorities remain steadfast in their commitment to continue their policy and reform agenda—as shown by the recent energy price reform—and to address the remaining challenges of reducing the role of the state, accelerating productivity growth, bringing down inflation, and stepping up some key structural reforms that have proceeded at a slower pace than desired.

Outlook and Risks. Growth is expected to remain robust at 5.4 percent in 2024, despite the appropriate withdrawal of fiscal stimulus and slowing trading partner growth. In 2025, growth is projected to pick up to around 5½ percent. Needed increases in administered energy prices would temporarily raise inflation to 11.5 percent by end-2024. Thereafter, inflation is expected to decline gradually to the central bank’s 5 percent target by end-2027 as monetary policy remains tight, fiscal consolidation is completed, and structural reforms advance. Key risks include commodity price volatility, an unexpected global slowdown, and setbacks from state enterprises and public-private partnerships. Upside risks include acceleration of structural reforms, stronger capital and remittance inflows, and higher gold prices.

Policy Advice. The government’s planned fiscal consolidation is appropriate and will help reduce inflation and imports while protecting the vulnerable. Further efforts are needed to broaden the tax base, modernize the tax system, improve the efficiency of public spending, and strengthen public financial management. Monetary policy should remain focused on reducing inflation to the central bank’s target and be tightened if energy price reforms spill over to core inflation and inflation expectations. The authorities should tighten supervision to safeguard financial stability, phase out policy lending, and contain risks from rapid growth in household lending. Structural reforms should focus on reducing the state’s role in the economy, promoting women’s participation in the labor market, advancing decarbonization and climate adaptation initiatives, and enhancing governance and transparency, building on progress already made.

Approved By

Thanos Arvanitis and Jarkko Turunen (SPR)

Discussions for the 2024 Article IV consultation were held in Tashkent during April 23–May 7, 2024. The staff team comprised Yasser Abdih (head), Lawrence Dwight, Etibar Jafarov, Alejandro Simone, Koba Gvenetadze (MCD), Camilo Enciso (LEG), and Sarvar Ahmedov and Galina Kostina (local office). Thanos Arvanitis (MCD) joined the concluding meeting. The mission met with the Minister of Economy and Finance, Central Bank Governor, other Ministers and senior government officials, banks, and representatives from the private sector and civil society. Gonzalo Salinas contributed to the work on external competitiveness and diversification, and Carlos Segura (MCD) provided research assistance. Maria Orihuela-Quintanilla and Svetlana Zolotareva (MCD) provided administrative assistance.

Contents

  • CONTEXT

  • RECENT DEVELOPMENTS, OUTLOOK, AND RISKS

  • A. Recent Developments

  • B. Outlook and Risks

  • BOLSTERING RESILIENCE AND SUSTAINING ROBUST GROWTH

  • A. Fiscal Policy

  • B. Monetary and Exchange Rate Policies

  • C. Financial Sector Policies

  • D. Structural Reforms and Governance

  • STAFF APPRAISAL

  • FIGURES

  • 1. Real Sector

  • 2. Fiscal Sector

  • 3. External Sector

  • 4. Monetary Sector

  • TABLES

  • 1. Selected Economic Indicators, 2020–29

  • 2. National Accounts, 2020–29

  • 3a. General Government, 2020–29 (Billions of sum)

  • 3b. General Government, 2020–29 (Percent of GDP)

  • 4a. Balance of Payments, 2020–29 (Millions of US dollars)

  • 4b. Balance of Payments, 2020–29 (Percent of GDP)

  • 5. Financial Soundness Indicators for the Banking Sector, 2016–23

  • 6. Central Bank Survey, 2020–29

  • 7. Depository Corporations Survey, 2020–29

  • 8. Sustainable Development Goals, 2000–Latest

  • ANNEXES

  • I. External Sector Assessment

  • II. Risk Assessment Matrix

  • III. Lessons from the Privatization of Ipoteka Bank

  • IV. External Competitiveness and Export Diversification

  • V. Implementation of 2022 Article IV Recommendations

  • VI. Uzbekistan’s Climate Challenges

  • VII. Reducing Gender Gaps in Uzbekistan

  • VIII. Capacity Development Strategy

  • IX. Data Issues

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.

2

The Executive Board takes decisions under its lapse-of time procedure when the Board agrees that a proposal can be considered without conveying formal discussions.

  • Collapse
  • Expand
Republic of Uzbekistan: 2024 Article IV Consultation-Press Release; and Staff Report
Author:
International Monetary Fund. Middle East and Central Asia Dept.