Uzbekistan’s Transition to Market Economy to Accelerate

Uzbekistan’s Transition to Market Economy to Accelerate

The World Bank’s Board of Executive Directors on December 8th approved a Development Policy Operation to financially support the Government of Uzbekistan in implementing a new generation of economic, social, and climate reforms. The objective of these reforms is to expedite the country’s transition to a market economy, ensuring that economic opportunities are accessible to all citizens and creating a strong foundation for sustained growth.

In Uzbekistan, despite significant progress in the transition to a market economy, there is a need to complete this process and to shift urgently towards a greener and more equitable economic model which would help the country achieve its development and environmental goals.

The government aims to halve the poverty rate by 2026, and elevate the country to the status of an upper-middle-income economy by 2030. Achieving these objectives requires much faster growth, which is possible through reducing state control over the economy and empowering the private sector to become the primary driver of economic development.

“The World Bank’s new operation supports key government priorities, including reducing state dominance in crucial sectors such as agriculture, railway, chemicals, and energy,” said Marco Mantovanelli, World Bank Country Manager for Uzbekistan. “This will allow for greater private sector participation in the given areas. The operation also aims to strengthen social and legal protection for vulnerable groups, and address pressing issues of climate change and environmental protection.”

The World Bank will provide financial support to the government through a combination of highly concessional and low-cost loans totaling $800 million. The financing will offer the government a low-cost, long-term repayment option compared to what would be available in international financial markets, resulting in a significantly lower loan repayment cost. This, in turn, will free up more resources for the country’s urgent development priorities.

“The Government has a strong commitment to reforms that will transform Uzbekistan into a more open and competitive market economy. The World Bank is supporting the country in achieving this goal by providing the necessary expertise, international experience, and financing,” said Jasur Karshibaev, Deputy Minister of the Economy and Finance of Uzbekistan.

The financing from the World Bank operation will support the government’s reforms and actions in a number of critical areas, including:

  1. Energy sector: Establishing an independent energy regulator and implementing energy tariff reform to improve the energy sector’s performance, enhance the efficient use of energy resources, attract private investment in modernizing energy infrastructure, and promoting competition and private sector participation in the industry.
  2. Railway sector: Undertaking institutional reforms in the railway sector to modernize price setting for passenger and freight transportation and strengthen competition and the institutional environment in the industry.
  3. Chemical sector: Establishing a framework for institutional reforms in the chemicals sector and privatizing FerganAzot JSC, a large state-owned chemical plant, to liberalize the sector, attract private investments for its modernization, and enhance competition and efficiency in the industry.
  4. Agriculture sector: Abolishing the crop placement system for all crops to promote greater diversity and productivity in crop production and help address climate vulnerabilities faced by farmers.
  5. Fiscal risk management: Developing the capacity of the Ministry of Economy and Finance to evaluate, monitor and report on fiscal risks associated with the implementation of public-private partnership projects, aiming to strengthen fiscal risk management.
  6. Social Protection: Establishing the National Agency for Social Protection under the President of Uzbekistan to improve the integration, coverage, performance, and quality of social protection services delivered to vulnerable groups.
  7. Protection of women against violence: Criminalizing domestic violence and strengthening mechanisms for protecting women against physical, sexual, economic, and psychological violence.
  8. Free legal aid for vulnerable groups: Expanding eligibility for state-sponsored legal representation to low-income persons, including survivors of violence against women in civil and criminal cases, and providing more effective access to justice.
  9. Climate adaptation and environmental protection: Setting more ambitious climate and environmental targets and programs, strengthening the capacity and mandate of the Ministry of Ecology, Environmental Protection and Climate Change of Uzbekistan, and improving mechanisms for air pollution control and enforcement.
  10. Green transition: Establishing a national green taxonomy, a system used to identify economic activities and investments based on their environmental sustainability. This initiative aims to scale up action on climate change adaptation and mitigation, strengthen air pollution and emissions control, and attract investments in green projects.