Uzbekistan needs to ensure macro-financial stability and continue structural reforms to sustain strong economic growth, rebuild buffers and guard against external shocks, the International Monetary Fund mission said after completing its visit to Uzbekistan on 16−24 September.
Economic performance remains strong. Real GDP grew by 6.4% year-over-year (y/y) in the first half of 2024. Reflecting needed increases in administered energy prices in early May, headline CPI (consumer price index) inflation rose from 8% y/y at end-April to about 10.5% in recent months. Core CPI inflation has remained more contained and has increased by about 1 percentage point since June to 7% in August, the mission said.
Remittances grew significantly by 32% 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, the IMF staff said. Real GDP growth is expected to remain strong at above 5.5% 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 6.25% of GDP in 2024 and 6.1% 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 geo-economic challenges, commodity price volatility, an unexpected global slowdown, along with contingent liabilities from state-owned enterprises or public-private partnerships (PPPs).
Opportunities could arise from stronger financial and remittance flows and higher gold prices, the mission noted.
Fiscal consolidation remains on track. The 2024 and 2025 consolidated fiscal deficit targets (4% and 3% 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,” the statement said.
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.
IMF mission welcomed 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. 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, the IMF 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 1 January 2025.
Monetary policy should remain focused on bringing inflation down to the 5% target of the Central Bank (CBU), the IMF representatives stated. Uncertain second-round effects of the May energy price increases and wage increases in September-October pose upside risks to inflation.
The mission advised the CBU to maintain tight monetary policy until data clearly suggested 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.
The IMF mission 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.
The IMF staff welcomed 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.
The authorities are also advised to continue to restructure and enhance governance of state banks and enterprises, as well as to enhance competition by leveling the playing field for private and public enterprises and eliminating barriers to entry.
In this regard, the IMF mission welcomed 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.
The IFM mission commended progress on governance reform, including passage of the conflict-of-interest law and training for its implementation in December. The whistleblower protection law is advancing, and work on the asset declaration law continues, the mission added.
