Reformed Uzbekistan

The Republic of Uzbekistan has been initiating various diversified but integrated reforms in the country since 2016. H.E. Shavkat Mirziyoyev President of Uzbekistan introduced many result oriented reforms in every sector of macro-economy, exports, investments, foreign trade, currency management and tourism which has now stabilized its current status of one of the leading economies in the region as well as brightened its future economic prospects.

Uzbekistan, the land of human intellects and natural wonders has now become the land of unlimited opportunities, economic integration, energy collaboration/ security and tourism in the Central Asian Region (CAR). Its strategic location has provided it a comparative advantage over other regional countries.

Uzbekistan’s exports/ trading location has revolutionized revival of the ancient Silk Road and its massive investments in infrastructural projects is a value-addition to achieve greater connectivity between Asia and Europe. It has largest population i.e. 32.7 million in the CARs, having largest working force of 14.3 million with 100 percent literacy rate. It has abundant and diversified natural resources (gas, gold, copper, uranium) which are positive contributors to its macro-economy and rapid growth in the country. It has massive potential for solar energy having 320 Sunshine per annum. Its diversified reforms has stimulated its national economy and its automobile sector is outperformed other sectors of its national economy. Moreover, constant financial supports from the World Bank, IMF, and ADB have geared its economy in the right direction. We’ve ranked the best real money online casino sites to join based on their bonuses, game selection, and overall reputation and reliability.

Main Reforms

A. Government’s & Legal Reforms

B. Macro-Economy’s Reforms

C. Development of Social Sector

D. Security/Religious, Tolerance & Interfaith Harmony/Foreign Policy

Uzbekistan has now successfully implemented a first phase of economic reforms. President Mirziyoyev initiated these vast reforms in 2016 which aimed to revive an economy that was hobbled by distorting policies, including foreign exchange and trade restrictions, a punishing tax burden and directed credit policies. Foreign exchange liberalization, tax reform, and a major upgrade in the quality and availability of economic statistics are the main reforms in Uzbekistan since 2016. Uzbekistan has also taken the lead on regional cooperation, key for promoting regional trade and reconnecting the region’s energy and transportation networks.

Development of Entrepreneurship

Private sector is the backbone of modern economy in the world which generates necessary business activities as well as new job creation. To accelerate this vital sector of the economy, on October 5, 2016, Uzbekistan’s President Mirziyoyev signed the decree “On Additional Measures to Ensure the Accelerated Development of Entrepreneurship, the Full Protection of Private Property, and the Qualitative Improvement of the Business Environment.” It highlighted the importance of private sector in the national economy which would increase economic growth and job generation in the country.

National Development Strategy (2017-2021)

In February 2017 Uzbekistan adopted a 2017-2021 National Development Strategy, which identified five priority areas which are given below as:-

a. Reform of public administration

b. Reform of the judiciary, strengthening the rule of law and parliamentary reform

c. Reforms in economic development and liberalization, focusing on modernization of Uzbek agriculture and industry and oriented towards greater competitiveness of the products and services

d. Social reforms, based on higher incomes and better jobs, oriented on higher quality health care, education, housing etc.

e. Reforms in the security area, focusing on improvements to ensure domestic stability and balanced and constructive foreign policy with the ultimate goal of strengthening the independence and sovereignty of state Social reforms, based on higher incomes and better jobs, oriented on higher quality health care, education, housing etc.

Foreign Exchange Management (2017)

We live in a globalized world where easy and smooth flows of funds and commodities along with conversion of international currencies enhance the international system of payments and trades. Free floating of national currency is vital for greater exports, joint ventures and investments.  

The Central Bank of Uzbekistan reunified Uzbekistan’s exchange rates, and President Mirziyoyev promised freely floating market-determined rates for the future in 2017. Simultaneously, restrictions were lifted for legal entities and individuals to convert currency. The currency reform was followed by increased activity in foreign financial markets. It included substantial deals totaling over $1 billion with, among others, Deutsche Bank, Commerzbank, and the EBRD.

Greater Regional Economic Integration

Uzbekistan’s President accelerated regional economic integration through a balanced foreign policy based on articulated commercial diplomacy since 2016. He succeeded in establishing friendly ties/relations with leaders of neighboring states and great economic powers. His outreach to Uzbekistan’s neighbors signaled a shift in policies and priorities, and the meetings with Turkmen, Kazakh and Tajik leaders in particular highlighted connectivity, and hence Uzbekistan’s reintegration into a regional economic circle. It has begun to deliver results, including new direct air connections linking Tashkent to Dushanbe and Kabul, greatly facilitating travel as well as growing trade figures. Uzbekistan is making progress in reforming governance and public services, taking steps that are having an impact on the lives of ordinary citizens and makes it easier for businesses to operate. As a result of those reforms, the country has moved up to 74^th place in the World Bank’s “Doing Business” ranking, from 87th in 2015.

Ban on Child Labor

Uzbekistan’s President announced ban on child labor in cotton picking which broadened to include education and health workers too, and in September 2017, the government ordered all forced labor to be sent home. It has actually enhanced Uzbekistan’s soft image in the region as well as in the world. It was the beginning of “economy of humanity” in Uzbekistan which further enhanced the real value of its human capital in the eyes of international monetary agencies/organizations and potential investors. 

Continental Trade

Centrally located in the heart of Asia, Uzbekistan could serve as a transit hub for cargo coming from China, India, Pakistan, Afghanistan, and even Southeast Asian countries. China’s Belt and Road Initiative is providing a major impetus to develop infrastructure in the region. Other regional initiatives also work in Uzbekistan’s favor, including the launching of the Baku-Tbilisi-Kars railway, Turkmenistan’s interest in this project, and the Lapis Lazuli corridor linking Central Asia with Afghanistan. With Uzbekistan an engaged participant in these processes, the prospects for the development of continental trade are greatly improved.

Accession to the World Trade Organization (WTO)

The government of Uzbekistan is now negotiating with WTO for accession to the World Trade Organization (WTO). On March 13, 2018, the Government of Uzbekistan hosted representatives of the World Bank, Asian Development Bank, USAID and other donor organizations and discussed a detailed 34 point accession plan “Road Map” for Uzbekistan’s entry into WTO, thus demonstrating a clear determination to join the rules based international trade system.

It is hoped that if Tashkent stays on course and liberalizes all prices, improves governance, encourages foreign direct investments, opens trade, and invests in greater connectivity with neighbors, the pay-off from this shift could be large, directly reflecting on job creation and greater prosperity for citizens of Uzbekistan.

Economic Reforms (2017)

Uzbekistan has liberalized the currency markets (2017), significantly lifted trade restrictions (2017-2018), started liberalizing administrative prices (from 2018), improved the quality of statistics (joined e-GDDS in 2017) and strengthened Central Bank’s independence. Series of meaningful reforms has put Uzbekistan on the path of greater socio-economic prosperity, export oriented policies and high inflows of FDIs.

Uzbekistan has also managed to improve the business climate. The World Bank’s Doing Business ranking improved to 76 in 2018 from 166 in 2012 increased the foreign trade turnover (by 40 percent within 2 years) while retaining macro-economic stability. Uzbekistan has also recently received good international credit ratings (BB- with stable outlook by S&P and Fitch) and joined the club of emerging nations active in global capital markets $1bn of 5-year and 10-year Eurobonds were issued in February 2019 creating a transparent benchmark to price the sovereign credit rating.

The priority reform agenda for 2019-2020 includes adoption of a new tax code and further price liberalisation which go hand in hand with reforming the State Owned Enterprises (SOEs). Uzbekistan has created an attractive eco-system for businesses (including SOEs) to operate efficiently and profitably. It has drastically improved corporate governance and commercialisation of the SOEs to prepare them for successful privatisation (including IPOs in global markets).

Sustained Economic Indicators

Average GDP growth constituted 5.3 percent during 2016-2018 outpacing the world average while the IMF forecasts real GDP growth will accelerate from 5.5 percent to 6.0 percent during 2019-2021. Low external debt provides a margin of safety for the economy as both Uzbekistan’s private and public sectors have largely avoided debt financing for growth. As of 2018, total external debt amounted to 33.7 percent of GDP, of which 19.8 percent of GDP is external public debt. Solid economic and fiscal management has kept its national budget in surplus, and the fiscal stance remains prudent as the government undertakes public spending initiatives. Moreover, the tax reforms are aimed at reducing the tax burden while bringing more small businesses into the formal economic system.

Uzbekistan’s Global Ranking

According to Uzbekistan state’s statistics (2018-19) it has strong external indicators reflecting in remaining in a significant net lender position for several consecutive years and holding robust foreign exchange reserves equivalent to 16 months of imports. The government is keen to implement large scale reforms in a sequenced and transparent manner in close cooperation with international organizations such as the World Bank, IMF, Asian Development Bank, EBRD and UNDP to adopt the best international practices.

High Levels of Transparency & Public Involvement

Uzbekistan has taken many steps to ensure high level of transparency and public involvement due to which Uzbekistan has achieved overwhelming public support on reforms. Uzbekistan is also tracking the reform progress based on 24 international ratings and indices, among which are sovereign credit ratings, Doing Business ranking, Global Competitiveness Index, Economic Freedom Index, Global Innovation Index, Worldwide Governance Indicators and OECD country risk classification (Uzbekistan was upgraded to 5th classification in February 2019). These together with investor perception in capital markets will serve as barometer of reform success ensuring irreversibility of its strategic course. Price liberalization and subsidies program would be two key challenges in the days to come. Uzbekistan through the SOE reforms and privatisation intends to increase the efficiency of its companies which will thrive at home and abroad.

Restructuring Export-Import Regulations

Uzbekistan’s exports grew by 15 percent in 2017 and it had signed export contracts worth US $11 billion during meetings with representatives of over 60 states and international organization. The “Concept for the Development of Exports for 2018-2022,” committed Uzbekistan to increasing the volume of exports by 2022 to US$30 billion, double the 2017 target. Uzbekistan also committed to restart the long-stalled negotiations for membership in the World Trade Organization membership in 2018.

The government has cut back regulated pricing, most notably that of gasoline. However, the initial steps in this sensitive area have not created free pricing and competition in fuel because the centralize system of pricing and management remains in place.

Foreign Investments

Foreign investments in Uzbekistan have reached more than double during 2017. The Chairman of the Committee for Investments stated that year to date foreign investment had reached $4.2 billion, of which $3.7 billion consisted of foreign direct investment in 2017.

In 1994, Uzbekistan was the first Central Asian country to apply for WTO membership. Uzbekistan presented its Memorandum on the country’s foreign trade regime to the WTO Secretariat in 1998. A Working Party was set up in 2002 and held several meetings thereafter, but these ceased in 2005. The government could revive the accession process fairly quickly, as Kazakhstan did before its WTO accession was completed in 2015, although some of the ensuing negotiations will have to be pursued with great care. On March 13, 2018, the Government of Uzbekistan hosted representatives of the World Bank, Asian Development Bank, USAID and other donor organizations and discussed a detailed 34-point accession plan “Road Map” for Uzbekistan’s entry into WTO, thus demonstrating clear determination to join rules-based international trade system.

Proposed steps to reduce customs duties and excise taxes will reduce the high cost of doing business with Uzbekistan and hence better position Uzbekistan to benefit from improved Eurasian connectivity. Specific measures that will have to be instituted include regular risk assessments, the introduction of single windows and green channels for rapid border crossing, and the removal of petty red tape and regulation. Such changes are entirely compatible with the protection of national security, and will facilitate all forms of international trade, whether by rail, road or air.

Concluding Remarks

Central Asia is changing rapidly and the “Republic of Uzbekistan” has already been transformed by virtue of series of reforms in every sector of the economy. The Republic of Uzbekistan has become an economic power house in the region because of its liberalized national economy since 2016. High ratios of FDIs, active commercial diplomacy, greater socio-economic connectivity, strong banking sector, stable financial sector and last but not least robust service sector has transformed Uzbekistan into a hub of investments and businesses in the region.

Uzbekistan launched an ambitious and unprecedented reform program aimed at building a private sector-driven market-based economy. Its government is making strong progress in implementing these challenging economic reforms to promote growth and create new opportunities for all citizens.

Uzbekistan outperformed all the regional economies in terms of GDPs, GNPs, FDIs, poverty reduction, social budgets and above all reforms. Outcome of initiated reforms are positive, productive to which Uzbekistan is on the path of greater economic prosperity. Its exports have increased 15-20 percent since 2016. Its inflows of foreign direct investments have increased substantially. Its regional connectivity is now above skies. Its regional trade is one the rise. It has become hottest attraction for regional as well as international tourists.

Economic reforms are generally painful but in case of Uzbekistan it turns counterproductive and has pushed economic growth upward. Liberalization of economy and especially its national currency has opened new window of opportunity and joint ventures among the CIS. Fortunately, series of economic reforms has ensured macroeconomic stability and will facilitate growth and job creation while avoiding excessive inflation and external imbalances, in line with the Presidential Decree No. 4141 dated January 31, 2019. Moreover, a rationale system of credit allocation would be supportive to Uzbekistan’s national economy. Now Uzbekistan has strong monetary and fiscal policies due to which additional revenue from foreign exchange liberalization, favorable commodity price developments, and improvements in tax collections, especially at the local government level, partly saved, providing counter-cyclical support to the economy.

Since becoming president in September 2016, Mirziyoyev has relaxed economic restrictions and initiated various economic reforms intended to shift the economy from an isolationist, command economy to a privatized, outward-looking one; liberalized the currency; overhauled the bureaucracy; and strengthened ties with neighboring states. Since 2016, Uzbekistan’s government has undertaken a series of policies to liberalize the economy. The most significant economic reform to date came in September 2017 when the Central Bank introduced the convertibility of the som into foreign currencies, removing the main obstacle to privatization and foreign investment. Two further reforms are particularly noteworthy. To further boost trade, Mirziyoyev signed a decree, “On Measures to Further Streamline the Foreign Economic Activity of the Republic of Uzbekistan,” in 2017, reducing tariffs on over 8,000 categories of products to an average of 6.45 percent. Second, Mirziyoyev’s government has further embarked on tax reform, with the goal of reducing corporate income tax from 14 to 12 percent.

Since 2013, Uzbekistan has risen from 146^th to 74^th place in the World Bank’s “Doing Business” ranking. Foreign investment increased from $1.9 billion in 2016 to $4.2 billion in 2017.14 Mirziyoyev returned from the inaugural Belt and Road Forum in Beijing in May 2017 with 100 investment deals worth over $20 billion, although only $1.3 billion of projects are listed on the Ministry of Investment and Foreign Trade’s website.15 According to the president, 456 projects involving foreign participation, worth $23 billion, are currently being implemented in

The government’s budget balance is projected to shift to a deficit of ¾ percent of GDP, reflecting the cost of the 2019 tax reform. With a planned decline in policy lending, the corresponding overall fiscal deficit is projected to tighten to 2 percent of GDP, in line with the need to curb credit growth. If revenue over-performs again in 2019, the government should avoid pro-cyclical spending increases. Also, as external financing is more than sufficient to cover the overall fiscal deficit in 2019, the government should resist pressures to expand expenditures.

It is predicted that overall fiscal deficits of about 2 percent of GDP would stabilize the public debt at moderate levels (about 30 percent of GDP). If revenues remain constant as a share of GDP, reducing policy lending would open up space for higher spending, including priorities linked to the UN’s Sustainable Development Goals (SDGs).

The government is committed to include all fiscal operations, including off-budget spending of budgetary organizations in the budget by the end of this year. It also plans to conduct a comprehensive assessment of fiscal risks, particularly risks related to SOEs, and establish a strong legal framework for Public Private Partnerships (PPPs). The mission welcomes the envisaged publication of the audited balance sheet of the Fund for Reconstruction and Development (FRD).

The government of Uzbekistan has focused on simplifying taxes, reducing labor taxes, and broadening the VAT in 2019. But with the standard tax regime expanding from 7,000 to 35,000 firms tax administration is daunting. The next reforms should prune tax preferences, equalize labor taxes across firms, and provide efficient incentives for foreign investment. Regarding tax administration, measures are taken to reorganize the headquarter, establish a large tax payer office, and, in the medium term, the governance of field offices should be strengthened.

In Uzbekistan state banks presently dominate the banking system. Their major function is to implement the government’s investment plan by extending credit to SOEs, with government providing funding, bank capital, and guarantees. Foreign exchange liberalization and large un-hedged SOEs suspended service on some credits extended by the FRD has improved banking industry.

Currently, banks intermediate less than 10 percent of non-government savings. As the government gradually reduces funding of banks, they will need alternative funding sources to support an expanding economy. It will require ensuring macroeconomic stability, especially low and stable inflation; assuring depositors that property rights are protected; and building trust in bank governance. The proposed new banking law provides an opportunity to support these requirements.

The government of Uzbekistan must carry out structural reforms which may include improving the availability of energy, skilled labor, and credit, the latter by reducing credit market segmentation to level the playing field across borrowers and by increasing the trust in the banking system to help it expand its funding base; reducing business costs through lowering the cost of complying with tax obligations, better enforcing competition and contracts, and, again, by reducing credit market segmentation but also increasing competition across banks; and strengthening governance by combating corruption, improving statistics, and making policies more predictable.

In Uzbekistan SOEs used to absorb a disproportionate share of the economy’s credit, energy, and skilled labor, while facing weak competition and distorted prices in the past. Since last year, it has clarified its restructuring strategy. First, the new Agency for Management of State Assets has been given a mandate to strengthen corporate governance. Second, the government has started unbundling SOE activities in the energy and transportation sectors and has made progress on separating management, supervision, and regulation. Third, SOEs are being classified into those that will privatized, open for minority stakes, and remain under full state ownership.

After bringing energy prices for businesses closer to cost recovery levels, the government liberalized bread prices. The mission encourages continued price adjustments, especially in the energy sector to reduce SOE losses, save energy, and attract foreign investors. To reduce price uncertainty the adjustments should follow a pre-announced calendar. The government plans to take measures to alleviate the impact on vulnerable households to improve the targeting social assistance. At the same time, the government should strengthen the Anti-Monopoly Agency to more effectively address anti-competitive practices.

Uzbekistan has introduced a new law to combat corruption. Efforts are now focusing on educating citizens and officials on anti-corruption policies, prevention, and enforcement, especially in the socially sensitive areas of education and health.

In order to achieve a balanced growth model in the country the government has created an agency to support migrants and is allowing private employment agencies. Restrictions on Internal labor mobility have been lifted. 2018-2019 budgets significantly increased funding for active labor market programs, including training, public works, and wage subsidies. It would be desirable to complete already started reforms in the labor market, including the revisions of the outdated labor code and employment law.

Being regional exert on Uzbekistan it is strongly recommended the government should further improve economic data and banking and financial system. Since May 2018, key economic, financial, and social statistics can be downloaded from a National Summary Data Page. More work is needed to improve national accounts and labor market statistics, including the revision of past data. Two initiatives could further catalyze reforms. First, the Statistics Committee, the Ministry of Finance, the Ministry of Labor, and the CBU should agree on a roadmap to further improve statistics. Second, subscription to the IMF’s Special Data Dissemination Standard (SDDS) would confirm the authorities’ readiness to adhere to international standards and accountability.

The REPUBLIC OF UZBEKISTAN has been cradle of humanity for centuries which have now become center of “economics of humanity”. Ban on child labor has enhanced its international credit and investment ratings. Increase in wages and pensions have further strengthened its holy social fabrics. Nationwide drive of education and job generation has raised overall literacy rates and subsequently, reduced ratios of poverty in the country.

The government of Uzbekistan should follow a holistic approach to attract more and more inflows of FDIs & FPIs in its country. Further liberalization of economy, commerce, and further strengthening of civil society, rule of the law, complete institutionalization of transparency in public affairs and strong anti-corruption reforms/laws will put Uzbekistan and its people on the path of larger glory and prosperity.

The government of Uzbekistan should take all possible measures to maintain elements of “sustainability” in its macro-economy as well as society. Rise to Islamic banking/ finances is the need of the hour. Further development of SMEs especially in agro-economy sector needs to be pursued in all the regions of the country. Easy and smooth supplies of micro-credit finances must be developed in order to achieve the desired levels of diversification of economy. Diversification of economy, production channels, development of renewables (solar, wind, biomass) is the need of hour. 

The government of Uzbekistan must remove market distortions that undermine allocative efficiency and competition and try to eliminate regulatory barriers to business operations. It should promote the reallocation of land toward more productive uses by mitigating geographic inequities in access to social services. The authorities of Uzbekistan must promote the sustainable use and management of natural resources by making public administration more transparent and accountable; widening access to preprimary and tertiary education and improving the quality of these services; ensuring access to quality health care; and addressing the inefficiencies in social protection programs. 

The Uzbek government should pursue its strategic plans outlined in the 2017-2021 Development Strategy of Uzbekistan. The Government intends to achieve these goals through a comprehensive program of reforms which includes maintaining macroeconomic stability, accelerating the transition to a market economy, strengthening social protection and citizen services, transforming the Government’s role in the market economy and preserving environmental sustainability. 

To achieve this goal the government of Uzbekistan must take all possible measures to strengthen human capital, increase the participation of women in the economy, conserve environmental and natural resources, and improve the effectiveness and efficiency of the social safety net system.