“Economic performance remains strong. Real GDP grew by 6.4 percent year-over-year (y/y) in the first half of 2024. Reflecting needed increases in administered energy prices in early May, headline CPI inflation rose from 8 percent y/y at end-April to about 10.5 percent in recent months.
Core CPI inflation has remained more contained and has increased by about one percentage point since June 2024 to 7 percent in August. Remittances grew significantly by 32 percent y/y in the first seven months of 2024, and international reserves remain ample and stood at 9.5 months of next year’s imports by end-August.
“The outlook remains positive, with both risks and opportunities. Real GDP growth is expected to remain strong at above 5.5 percent this year and next, supported by continued robust investment and structural reforms.
CPI inflation is projected to start gradually declining, reflecting needed tight monetary and fiscal policies and the fading effects of energy price increases. The current account deficit is forecast to narrow to about 6¼ percent of GDP in 2024 and 6.1 percent in 2025, helped by strong exports and remittances, the reversal of large one-off machinery and equipment imports in 2023, and fiscal consolidation. Risks to the outlook include regional geoeconomic challenges, commodity price volatility, an unexpected global slowdown, and contingent liabilities from state-owned enterprises or public-private partnerships (PPPs). Opportunities could arise from stronger financial and remittance flows and higher gold prices.
“Staff welcomes Uzbekistan’s continued efforts to safeguard macro-financial stability and build policy buffers to boost resilience and inclusive growth.
Fiscal consolidation remains on track. The 2024 and 2025 consolidated fiscal deficit targets (4.0 and 3 percent of GDP, respectively) are expected to be achieved as the authorities rationalize expenditure—particularly energy subsidies while protecting the vulnerable—improve the targeting of social spending and reduce policy lending. However, despite high gold prices and rapid economic growth, the revenue-to-GDP ratio is projected to decline due to lackluster performance of VAT and non-gold corporate tax revenue. Tax incentives and weakening tax compliance are limiting the broadening of the tax base, especially in the rapidly expanding services sector. Tax incentives to attract investment should be revisited to reduce their adverse impact on the tax base over time. At the same time, the powers of the tax administration to enforce the tax code (especially to conduct effective on-site tax audits) should be strengthened, with appropriate safeguards to protect taxpayer rights.
Staff welcomes the authorities’ efforts to improve public financial management (PFM) and fiscal risk management. The government resumed publication of a fiscal strategy statement and drafted an ambitious PFM reform strategy for 2025-2030, expected to be approved by November 2024. The PFM strategy aims to strengthen medium-term budget planning and strategic prioritization, improve spending efficiency and public investment management, and enhance budget execution and the quality of fiscal reports. The government has also published a comprehensive statement of fiscal risks and made progress towards defining a cap on PPPs. To allow time for this work to be finalized and contain fiscal risks from a growing PPP pipeline, staff advises introducing a legally binding annual cap on the investment value of all projects signed under the PPP and Investment laws in appropriate legislation to be effective January 1, 2025.
Monetary policy should remain focused on bringing inflation down to the 5 percent target of the Central Bank of Uzbekistan (CBU). Uncertain second-round effects of the May 2024 energy price increases and wage increases in September-October 2024 pose upside risks to inflation. Staff advises the CBU to maintain tight monetary policy until data clearly suggest a lasting decline in inflation towards the target. The CBU should also stand ready to raise the policy rate if inflation surprises to the upside.
Financial sector reforms should focus on bringing bank supervision in line with international standards. Staff welcomes the authorities’ decision to undergo a comprehensive IMF-World Bank Financial Sector Assessment Program (FSAP) in 2025, which will help identify measures to strengthen banking supervision, among others. Staff also recommends that the authorities continue to phase out policy lending, which would make credit allocation more efficient while increasing credit availability to the private sector.
Staff welcomes the authorities’ efforts to maintain the momentum on structural reforms. Following the privatization of Ipoteka Bank in 2023, the authorities are on track towards privatizing two large state banks, SQB and Asakabank. They are advised to continue to restructure and enhance governance of state banks and enterprises, and to enhance competition by leveling the playing field for private and public enterprises and eliminating barriers to entry. In this regard, staff welcomes progress towards accession to the World Trade Organization (WTO), which would also boost domestic competition. The government has completed bilateral market accession negotiations with 18 out of 33 members and is aligning regulations with WTO standards. Staff commends progress on governance reform, including passage of the conflict-of-interest law and training for its implementation in December this year. The whistleblower protection law is advancing, and work on the asset declaration law continues.
