The World Bank in Uzbekistan

Country Context

In September 2023, the authorities adopted the National Development Strategy of Uzbekistan (NDS) until 2030. The document outlines the country’s primary development objectives and pivotal reforms across various sectors to be realized by the end of this decade.

This marks the third NDS that has been adopted by the government since 2017, with the preceding two covering the periods of 2017-2021 and 2022-2026 (the latter is being implemented). The World Bank has actively supported the government in executing these strategies.

The NDS until 2030 encapsulates various aspirations of Uzbekistan, including plans to ascend to the ranks of upper-middle-income countries through sustainable economic development, create education, healthcare, and social protection systems that align with international standards, and establish a conducive environmental framework for the well-being of its citizens.

The new strategy outlines a set of 100 priority actions that the government will take to advance progress across five key areas. These areas encompass fostering opportunities for individual self-fulfillment, ensuring the welfare of the population through sustainable economic growth, conserving water resources, protecting the environment, and crafting a public administration system that will focus on citizens’ needs.

The implementation of the NDS has been designated as a key goal for all state agencies. The World Bank remains committed to its collaboration with the government to assist Uzbekistan in realizing its central development objectives by 2030.

Strategy

In May 2022, the World Bank Group’s new Country Partnership Framework for Uzbekistan (CPF) was endorsed by the World Bank’s Board of Executive Directors. The document outlines the World Bank’s financial and analytical support to the government for the next five years in support of the National Development Strategy for 2022–2026.

The CPF supports three high-level objectives helping accelerate the country’s transition to an inclusive and sustainable market economy. They focus on increasing private sector employment, developing human capital, and supporting the shift toward a greener growth model improving livelihoods and resilience.

Also, the CPF supports the government in closing gender gaps, as well as strengthening citizen engagement and accountability in public services.

The World Bank’s financial and analytical support to Uzbekistan has grown substantially since 2017, bolstering the government’s efforts to implement a comprehensive program of market reforms.

As of October 1, 2023, the World Bank’s country program in Uzbekistan consisted of 25 projects, with net commitments totaling around $5.22 billion. They include loans from the International Bank for Reconstruction and Development (IBRD) for $2.04 billion and concessional credits from the International Development Association (IDA) for $3.18 billion. The latter includes a $46.25 million grant from the Transformative Carbon Asset Facility (TCAF) to support the implementation of the Innovative Carbon Resource Application For Energy Transition Project that is the World Bank’s first carbon reduction policy crediting operation.

Currently, Uzbekistan is the World Bank’s third-largest client in the Europe and Central Asia region and the country with the largest IDA allocation in the region.

World Bank-funded projects help implement critical macroeconomic reforms, modernize agriculture, water resource management, water supply and sanitation, irrigation, energy, transport, health, education, and social protection systems, improve urban and rural infrastructure, invest in the development of national innovation, tax administration, statistical and financial systems, and so on.

The World Bank’s project portfolio in Uzbekistan is complemented by a comprehensive program of technical assistance and advisory and analytical services provided to the government. They include support in implementing the national strategies in health, social protection, and agriculture, as well as reforms in energy, aviation, tax administration, banking sectors, trade facilitation, poverty reduction, and so on.

The government asked the World Bank to perform the functions of the Country Platform Secretariat for 2023. In this capacity, the World Bank is leading the efforts to improve the coordination of the activities of development partners supporting sectoral reforms and projects in Uzbekistan.

Economy

Recent Economic Developments

In Uzbekistan, real GDP grew by 5.6% in H1 2023, led by exports, remittances, and consumption.

Total exports and nongold exports increased by 16% and 12.5%, respectively, in H1 2023 (in USD value, led by fruit and vegetables, cars, and ferrous metals), while exports of gas, textiles, and chemicals decreased.

The trade deficit of 18.4% of GDP was partly offset by net remittance inflows of 12.1% of GDP in H1 2023 compared to 16.7% of GDP in H1 2022. Thus, the current account deficit widened to 6.3% of GDP in H1 2023, up from 1.4% of GDP in H1 2022.

On the supply side, higher growth in agriculture (3.8 %) and industry (5.6%) was offset by slower growth in construction (4.8%) and services (6.4%).

Between January and August 2023, the Uzbekistani som (UZS) depreciated by 6.9% against the USD, in part due to the flow-on impact of the depreciation of the RUB.

By the end of June 2023, international reserves decreased by $2 billion to reach $33.7 billion, or nine months of import cover.

The fiscal deficit widened to 5.7% in H1 2023 from 4.1% of GDP in H1 2022 due to increased spending (e.g., emergency spending during the energy crisis in January 2023) and lower-than-expected revenues from excise duties.

The poverty rate fell to 14% in 2022, down from 17% in 2021 (using the national poverty line).

Economic Outlook

In 2023, growth is expected to remain close to 5.5% and accelerate gradually in the medium term. Consumption growth in 2023 is expected to fall as the remittances from Russia continue to decrease.

Import growth is expected to accelerate in 2023 and grow fast in the medium term to support Uzbekistan’s economic modernization, and with decreasing remittances, the current account deficit will widen.

The fiscal deficit is expected to widen to 5% of GDP in 2023 because of high energy tariffs, higher expenditure on education, public sector wages, pension and allowances, and lower revenue collections.

Budget consolidation is expected to begin in the medium term, with the budget deficit falling to 4% of GDP in 2024 and 3.6% in 2025 due to reduced tax benefits and energy subsidies, and increased privatization proceeds.

The government is expected to adhere to its debt limits, with public debt increasing to 36% of GDP in 2023 and peaking at 36.6% in 2024.

Despite expanded social protection programs, slower growth in remittances and private consumption could limit expected progress in poverty reduction. The national poverty rate is projected to fall marginally to 13.9% in 2023.

Downside risks to this outlook include a deterioration in Russia’s economic performance, higher external inflationary pressures, and tighter-than-expected global financial conditions.

Upside risks include higher global gold, natural gas, and copper prices and stronger productivity growth due to ongoing structural reforms.