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Uzbekistan: On the Path to High-Middle-Income Status by 2030

April 13, 2016


Natalia Davidovich, Shutterstock

Despite the worsening external environment, Uzbekistan’s growth has remained at about 8 percent in recent years. Poverty declined from 27.5 percent in 2001 to 14.5 percent in 2013. Inequality also declined, and the official Gini coefficient fell from 0.39 to 0.29. Since reengaging in 2008, the World Bank Group (WBG) has become Uzbekistan’s development partner of choice for investments in social services, agriculture, transport, energy, and private sector development.

Challenge

Uzbekistan is Central Asia’s largest and most populous country, whose 31 million citizens (34 percent under age 14) comprise nearly half the region’s total population. Since independence in 1991, Uzbekistan has had a highly centralized government, public accountability is weak, and citizen participation in economic and social policy dialogue remains limited.

Since 2004, Uzbekistan has experienced stable growth of roughly 8 percent, driven mainly by domestic demand (especially public investment), but reforms to address economic inefficiencies and diversification have lagged behind. Growth has been reliant on capital and resource-intensive industries such as copper, cotton, gold, and gas that fluctuate in tandem with global commodity prices. The business climate remains a critical issue, and restrictions on foreign exchange allocation and local currency circulation are key impediments to foreign direct investment.

Economic growth led to a reduction in the nationally defined poverty rate to 14.5 percent in 2013, which is on track to continue falling to 13.7 percent in 2015. Although the country remains on course to achieve its goal of cutting poverty in half, related challenges such as inequality and rural-urban and regional disparities persist.  

Approach

The WBG supports Uzbekistan’s vision of becoming an industrialized, high-middle-income country by 2030. Critical elements for this transformation include: (a) increasing economic efficiency and competitiveness and reducing dependence on a few commodity exports; (b) strengthening the financial sector to support private entrepreneurial activity; (c) diversifying production toward tower value-added activities that demonstrate comparative advantage; (d) creating jobs for the rapidly growing young population; and (e) improving governance, including access to information on government policies and their outcomes.

For eight years, the WBG has maintained a two-track approach. Under the first tier, the Bank has provided support for improving infrastructure efficiency and access to social services through lending and advisory services. Under the second tier, support for the Government’s competitiveness and economic diversification agenda has focused on policy dialogue and technical assistance. On both tracks, the WBG program has delivered results by scaling up lending programs for the first tier and deepening policy discussions in the second.

During the Country Partnership Strategy (CPS) period (2012–15), the Bank delivered 12 operations for US$1,467.59 million, of which US$862.5 million was International Development Association (IDA) and US$542.5 million International Bank for Reconstruction and Development (IBRD). The International Finance Corporation (IFC) invested US$9.1 million, US$8 million in finance and insurance and US$1.1 million in agriculture. 


Results

The CPS program was designed to support the Government’s effort to maintain high economic growth via interventions to improve energy and water sector efficiency, strengthen the business environment, and promote access to social services. CPS interventions can be linked to private sector growth, better living conditions, and human capital improvements. Overall, CPS activities have contributed to sustaining economic growth across various sectors, improving labor market opportunities and raising household income.

Energy Efficiency and Infrastructure

  • Between 2011 and 2015, outages decreased from 92 to 48 hours in southwest Uzbekistan (more than 4 million people) from the construction of 218 kilometers of a 500kV transmission line connecting Talimarjan Power Plant with the Sogdiana substation and Guzar-Karakul transmission line.
  • Between 2010 and 2018, energy efficiency in the largest industrial enterprises improved through the introduction of energy-efficiency measures. Over US$50 million was provided to 30 industrial enterprises to implement 28 energy-efficiency subprojects that improved their overall performance and competitiveness. As a result, more than 126,000 MWh of electricity and 50 million cubic meters in natural gas is freed annually and available for other consumers.

Economic Competitiveness (joint WBG/IFC)

Specific technical assistance focused on Doing Business reforms and competitiveness and led to the adoption of a new Law on Permit Procedures, improving several Doing Business indicators since 2012:

  • Starting a business: number of procedures reduced from six to five, number of days to register a business reduced from 14 to 6.5
  • Registering property: number of procedures reduced from 14 to 13; number of days to register property reduced from 77 to 55
  • Getting credit: private bureau coverage increased from 3.6 to 17.8 percent (adults).

Economic Competitiveness

  • Between 2012 and 2016, 560 farms and agribusinesses have benefited from the credit line through six participating financial institutions. Investments financed include agricultural machinery, livestock, poultry businesses, agro-processing, orchards and vineyards, fish farming, greenhouses, and vegetable farming. 938 on-farm management-training seminars have been conducted for 61,426 farmers/agribusiness owners, including 7,530 women.

Governance

  • Completed the Country Strategy and Action Plan for Enhancing Financial Reporting in the Banking Sector in Uzbekistan by the Centre for Financial Reporting Reform (CFFR)
  • During 2013–14, developed and piloted a Risk-Based Audit System (RBA) module for a taxpayer risk assessment in a simplified tax regime
  • Finalizing a Public Procurement Strategy with the Government and preparing a Draft Public Procurement Law in close collaboration with the United Nations Development Programme (UNDP)
  • Completed a Public Expenditure and Financial Accountability (PEFA) report in FY13.

Improving Access to Social Services

  • National standardized student assessments were carried out in 2008 and 2013. Learning achievements in project schools improved by 3 percent.
  • 2,195 project schools (10 percent of total schools) have received learning materials.
  • 157 Regional Medical Units (RMUs) and 15 City Medical Unions have received modern medical equipment.
  • 7,756 doctors and 21,557 nurses have received training under continuous professional education.
  • 3,500 households in Bukhara and 11,000 in Samarkand were connected to public sewer systems.

Improving Water Resource Management

  • Area of irrigated land with adequate water supply was increased to 74,000 hectares. The irrigated area in South Karakalpakstan increased by 9 percent and yields by 20 percent.
  • Water salinity dropped between 2005 and 2012 by 130mg/l (0.13g/l). Ground water levels dropped throughout the area and high salinity areas were reduced by 55 percent.
  • 65 Water Consumer Associations (WCAs) in seven project districts were reestablished from administrative boundaries to hydraulic canal-level boundaries and received technical and financial support.  

Diversification

  • 560 farms and agribusinesses benefited from a credit line through six participating financial institutions. Investments financed include agricultural machinery such as tractors and grain harvesters, livestock, poultry businesses, agro-processing, orchards and vineyards, fish farming, greenhouses, and vegetable farming.
  • 938 on-farm management-training seminars were conducted for 61,426 farmers/agribusiness owners, including 7,530 women.

Bank Group Contribution

Total IDA commitments by the end of the CPS period amounted to US$1,257 million for projects supporting the Government’s strategy to improve economic efficiency, competitiveness, and social equity: Rural Enterprise Support Project (Phase 2 with Additional Financing), Drainage, Irrigation and Wetlands Improvement Project (closed), South Karakalpakstan Water Resource Management Improvement Project, Ferghana Water Resources Management Project, Bukhara Water Supply and Sanitation Project (closed), Bukhara and Samarkand Sewerage Project with Additional Financing, Syrdarya Water Supply Project, Alat and Karakul Water Supply Project, Energy Efficiency Facility for Industrial Enterprises Project, Health System Improvement Project– Health 3, and Basic Education Project.

IBRD financing became available again for Uzbekistan in 2011. Total IBRD commitments by the end of the CPS period were US$653.3 million, mainly to improve infrastructure efficiency: South Karakalpakstan Water Resource Management Improvement Project (IDA/IBRD), Horticulture Development Project (IBRD), Talimarjan Transmission Project (IBRD), Advanced Electricity Metering Project (IBRD), Pap-Angren Railway Project (IBRD), and Regional Roads Development Project (IBRD/IDA).

The Trust Fund portfolio expanded from US$1 million/year to around US$63 million (from a Global Partnership for Education (GPE) Improving Pre-School and Secondary School Education Project (US$49.9 million) and a Global Environment Facility (GEF) Sustainable Agriculture and Climate Change Mitigation Project (US$12.7 million, ECAPDEV trust funds) committed during the CPS 2012–14 period.

IFC has committed investments of about US$32 million (including trade finance), mostly in the financial sector and agribusiness.

Partners

The WBG has established partnerships with the Asian Development Bank (ADB), Islamic Development Bank (IsDB), Japanese International Cooperation Agency (JICA), Swiss Agency for Development and Cooperation (SDC), and other development partners through the cofinancing and parallel financing of investment operations in the energy, transport, water supply and sanitation, and water resource management sectors. Other bilateral and donor organizations are mainly engaged through technical assistance programs. In addition, the WBG closely collaborates with the European Union (EU) and the U.S. and Swiss Governments through the Multi-Donor Trust Fund to support activities related to the prevention of child and forced labor in Uzbekistan.

Moving Forward

Since reengagement in 2008, the WBG program in Uzbekistan has been increasing in level of financing and areas of engagement, making the WBG the Government’s partner of choice for infrastructure interventions and selected areas of policy dialogue and reform. The WBG’s comparative advantage and the Government’s preferences have guided the program expansion, including current plans to engage in new sectors such as finance and markets, trade and competitiveness, the private sector, privatization, and state-owned enterprise (SOE) governance.

The new FY16–20 Country Partnership Framework’s (CPF) strategic goal is to support Uzbekistan in creating new, productive, and sustainable jobs. Priorities identified in the Systematic Country Diagnostics (SCD) have been grouped into three CPF focus areas: (a) private sector growth, (b) agricultural competitiveness and cotton sector modernization, and (c) public service delivery. An improved investment climate and business environment would enable financial and real sector businesses to generate the jobs needed to employ Uzbekistan’s growing labor force. The agriculture sector merits special focus because it employs many of the poor and women, offers substantial opportunities for productivity improvements, and embodies many of Uzbekistan’s most pressing environmental sustainability issues. Finally, significantly improved public services will be essential to address the SCD-identified priorities of modernizing infrastructure and reducing spatial inequity in service delivery and thus building human capital and providing the infrastructure services needed for growth and job creation. The WBG has extensive knowledge of and implementation experience in each focus area and an ongoing portfolio of projects and analytic work.


Beneficiaries

Water Supply in Bukhara and Samarkand Cities Project helped rehabilitate the water supply and sanitation (WSS) systems:


" Tourists in other countries may use water, 7 days a week, 24 hours a day. In Bukhara, water was a big problem, although it is clear that the water for the touristic center is especially important. The more visitors, the more employment, more trade and more developed services. The tourism business needs a constant water supply. These days, a steady supply of services like wastewater and electricity is the best advertisement for Bukhara, and tourism is climbing, steadily, by about 5 percent a year. "
Kamil Niyazov

Kamil Niyazov

Owner of Omar Khayyam hotel, Bukhara

Health-II Project assisted in equipping rayon polyclinics across the country:


" We obtained the facilities for electrocardiogram diagnostics and a biochemical laboratory. We have modern sterilizing equipment and a binocular microscope; we equipped a vaccination room. Moreover, all the general practitioners have been trained to use the newly obtained equipment. Under the new system, we are funded based on the number of residents. The money stays with us. We now are able to fund additional activities for women and the elderly. "
Munira Shakhabova Chief Doctor of Polyclinic #23 in Tashkent

Munira Shakhabova

Chief Doctor of Polyclinic #23 in Tashkent

The World Bank “Energy Efficiency Facility for Industrial Enterprises” provides financing for modernizing industrial enterprises to become more energy efficient:


" The difference between the efficiency of our old and new boilers is significant. The old equipment was obsolete and worn-out. As for the new boilers, presently in operation, one of them can produce 20 tons of heat per hour, and the other one 15 tons of heat per hour, totaling 25 tons. Monthly savings of gas and electricity are enough to supply 1,200 families with electricity. "
Valijon Saidov Chief Engineer of Kattakurgan Oil and Fat Factory

Valijon Saidov

Chief Engineer of Kattakurgan Oil and Fat Factory