IMF commends economic reforms in Uzbekistan

TASHKENT (TCA) — The Executive Board of the International Monetary Fund (IMF) has concluded consultations with the government of Uzbekistan and welcomed that Uzbekistan has initiated a comprehensive reform program to open and liberalize the economy, stimulate job creation, and promote inclusive growth.

External shocks which began in 2014, lowered exports, commodity prices, and remittances and contributed to a decline in growth from about 8 to 5 percent in 2017. At the same time, growth of domestic employment remained below one percent. A loosening of fiscal and monetary policies, along with price and foreign exchange liberalization, caused inflation to pick up in late 2017 and was close to 20 percent in early 2018. Uzbekistan’s external position remains strong. International reserves were equivalent to 19 months of imports of goods and services at end-2017 and debt is low. Public and total external debt were 24½ and 41 percent of GDP, respectively, at end-2017, the IMF said.

Reported financial indicators suggest the Uzbek banking system is sound. Banks capital adequacy ratio stood at 19 percent and non-performing loan ratio was 1.2 percent at end-2017. However, credit markets are segmented with state enterprises having preferential access to credit, including foreign exchange loans, at concessional rates.

In 2017, Uzbekistan embarked on a series of reforms to boost its economy. These included liberalizing prices, cutting tariffs, initiating structural reforms of state enterprises, granting the central bank greater independence, expanding the social safety net, and improving the quality and availability of economic statistics. Particularly significant was liberalization of access to foreign exchange and depreciation and unification of exchange rates in September 2017. The authorities are considering additional actions in 2018 including steps to restructure state enterprises and reform the tax system, the IMF said.

IMF directors encouraged the Uzbek authorities to maintain prudent macroeconomic policies and the momentum of structural reforms. In this regard, they underscored the need for tighter fiscal and monetary policies to gradually bring inflation to single digits.

Directors noted that reported financial sector indicators are strong, but the concentration of credit in state enterprises is a vulnerability.

Directors welcomed the significant structural reforms underway. They emphasized that priorities ahead should focus on restructuring state enterprises and further trade and price liberalization, especially by raising energy prices to cost recovery levels, and promoting competition. Directors also welcomed the recent governance reforms and encouraged continued efforts to fight corruption and enhance the rule of law. They underscored that economic diversification, especially into sectors with higher human capital content would support the country’s fast paced demographic transition.

Sergey Kwan