Press Release No. 24/2740

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

June 26, 2024

Washington, DC: On June 13, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Uzbekistan^[1] 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.

[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.