Estudos Económicos
Uzbekistan

Uzbekistan

Population 33.9 million
GDP 1,767 US$
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 5.6 1.6 5.2 5.5
Inflation (yearly average, %) 14.5 12.9 10.0 9.0
Budget balance (% GDP)* -3.9 -4.4 -4.8 -3.0
Current account balance (% GDP) -5.6 -5.4 -6.0 -5.5
Public debt (% GDP) 29.3 36.4 40.1 41.0

(e): Estimate (f): Forecast  *Balance including off-budgeted public expenditures financed by borrowing

STRENGTHS

  • More resilient economy than the rest of Central Asia (more diversified, less sensitive to external shocks)
  • Abundant natural resources (gas, gold, copper, hydroelectric potential)
  • Youthful population (50% under 30)
  • International financial support; state enjoys net creditor position
  • Economic reforms (liberalisation, privatisation, diversification), credit development (42% of GDP, 37% to private sector) and public investment (electricity, transport, health) encouraging FDI
  • Increasingly dynamic bilateral relations and negotiations for preferential trade agreements with key partners (Turkey, Singapore, South Korea, etc.) and an enhanced Partnership and Cooperation Agreement with the European Union (EU)
  • Negotiation process to join the World Trade Organization (WTO) and observer member of the Eurasian Economic Union (EAEU) since 2020
  • Improved relations with neighbouring countries and good diplomatic relations with Europe, Russia and China, which value its strategic position

WEAKNESSES

  • High dependence on Russia and China (recipients of 80% of gas exports)
  • Dependence on commodities, weather conditions for agriculture (25% of GDP) and expatriate remittances (15% of GDP)
  • Limited manufacturing activity (16% of GDP)
  • Weakly competitive markets (high concentration in key sectors) and, low share of the private sector in the economy (50% of GDP)
  • High unemployment, lack of jobs leading to migration, low standard of living, large rural population and informal economy (58% of employment)
  • Low financial intermediation, high dollarisation, mostly directed credit, low bank deposits
  • Slow institutional progress (corruption, bureaucracy, weak parliament, lack of effective opposition)

Risk Assessment 

Pre-pandemic economic growth rate restored

Uzbekistan is one of the few economies in the world that did not contract in 2020 because of the pandemic, although growth slowed sharply. Real GDP returned to its previous rate of increase in 2021 and will continue on this strong growth trend in 2022. Investments (42% of GDP) in infrastructure development (construction of the Uzbekistan-Kyrgyzstan-China railway line, implementation of “Smart City” technologies) and modernisation of industrial machinery and equipment, as well as exports (28% of GDP) of gold, oil, gas, copper and cotton, will be the main drivers of growth. Industry (33% of GDP) will be boosted by the manufacturing, mining and quarrying sectors. Growth in services (32% of GDP) will also accelerate thanks to gains in trade, transportation and warehousing. In 2022, government reforms should allow the construction (10% of GDP) and agricultural (25%) sectors to benefit from growth, unlike in the previous year. Private consumption (54% of GDP) will also support the economy as the government continues its policy of increasing social spending and reducing poverty. The trade balance (-12% of GDP) will again contribute negatively to growth in 2022, despite an increase in gas exports to Russia and China, which will be partially offset by a probable decline in gold prices (37% of exports). Rising domestic demand will contribute to an increase in imports of machinery and equipment, which will outpace export growth.

 
The Central Bank of Uzbekistan (CBU) maintains a highly controlled floating exchange rate. The CBU will continue this policy to prevent the resurgence of an unofficial exchange rate and to guard against excessive volatility. Inflation slowed somewhat in 2021 as the effects of the massive 2017 devaluation faded. In 2022, the main driver of inflation will continue to be high global food prices, which will offset declining inflation in non-food and service prices.

 
The pandemic remains a significant downside risk to growth. The government launched a mass vaccination program in April 2021 and has since made vaccination mandatory for some groups. However, as of start of 2022, less than 5% of the population had been fully vaccinated.

 

Further fiscal and debt reforms  

 

After increasing further in 2021, the budget deficit is expected to decrease in 2022. The state budget includes a 3%-of-GDP ceiling for the deficit. The authorities are prioritising investment spending on health (11% of spending in 2022) and education (45%). Public debt, 96% of which is denominated in foreign currencies, is expected to increase only marginally, while the government has a high level of liquid assets (25% of GDP) and plans to increase the share of local currency financing by issuing more domestic debt. In addition, the government plans to propose a public debt bill that will include some measures that were already in the 2021 budget, such as the introduction of a debt ceiling of 60% of GDP (for government and government-guaranteed bonds), annual borrowing limits, and the obligation to take corrective measures if debt exceeds 50% of GDP. The authorities are also working with multilateral partners to develop a fiscal rule to improve policy predictability.

 
The authorities will push on with their privatisation programme (natural gas producer Uzbekneftegaz, mining and metallurgy conglomerate Navoi, Uzbekistan Airways, Uzbekistan Railways) and restructuring of state-owned enterprises (sale of a stake in the Uzbek subsidiary of Coca-Cola, sale of shares in the national telecommunications company Ucell).

The current account deficit will remain large in 2022 as supply chains are re-established and imports of goods increase due to higher domestic demand. In addition, the balances of services and foreign investment income are expected to show persistent deficits. However, multilateral (World Bank, ADB) and bilateral (Eximbank of China, JICA) loans, FDI inflows and bond issues will help to finance the deficit and avoid the need to draw on reserves, which are 62% made up of gold and estimated at 12 months of imports in 2022.

 

Presidential elections keep Mirziyoyev in power

 

President Shavkat Mirziyoyev was for 13 years prime minister to President Islam Karimov, who had ruled the country since 1991. After being elected president in September 2016 after Karimov's death, Mirziyoyev now dominates the political scene. The last presidential elections on 24 October 2021 unsurprisingly handed him a second term in office, as he defeated a non-existent opposition. Power remains concentrated in the hands of the president, and the parliament is composed of parties that support him. Cosmetic political reforms contrast with numerous economic reforms aimed at attracting investors, such as the reform adopted in mid-2020, which created a panel of judges within the Supreme Court to review disputes with major investors and provide them with greater legal certainty.

 
Following the Taliban takeover of Afghanistan, the risks to stability in terms of a resurgence in terrorist movements and large waves of refugees have increased. Uzbekistan has requested military assistance from Russia to preserve its security.

 

Last updated: February 2022

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