The World Bank in Uzbekistan

Country Context

Uzbekistan has developed an ambitious set of reforms in recent years, but more are needed to continue to spur private sector-led growth and job creation. Notably, reducing the dominance of state-owned enterprises and opening up key sectors of the economy to competition would strengthen market incentives and sustainability.

On December 20, 2022, President of Uzbekistan Shavkat Mirziyoyev delivered his Annual Address to the Oliy Majlis (Parliament) informing about his government's plans and priorities for 2023. The President identified six priority areas, which included the following: implementing public administration reform; continuing to strengthen a “social state” putting individuals at the core of the government’s actions; ensuring the protection of human rights and freedoms as a constitutional obligation of the state; strengthening the protection of natural resources, including water and subsoil resources; improving the business environment through free market mechanisms, ensuring healthy competition and the inviolability of private property, and supporting entrepreneurship; attracting investments and privatizing the largest state-owned enterprises and state-owned banks.

In December 2022 and January 2023, citizens and businesses experienced unprecedented natural gas and power outages across the country, including in the capital. These developments highlighted the systemic crisis and needs for reforms in Uzbekistan’s energy sector, which are also supported by the World Bank and other development partners.

Strategy

In May 2022, the World Bank Group’s new Country Partnership Framework (CPF) for Uzbekistan was discussed and endorsed by the World Bank’s Board of Executive Directors. The document outlines the Bank’s financial and analytical support to the government for the next five years in support of the National Development Strategy for 2022–26.

The CPF supports three high-level objectives that will help accelerate the country’s transition to an inclusive and sustainable market economy. They included the following: 1) increasing private sector employment; 2) improving human capital; and 3) supporting the shift toward a greener growth model for improved livelihoods and resilience. The CPF also supports the government’s efforts to close gender gaps, as well as strengthen citizen engagement and accountability in public services.

Key Engagement

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 April 1, 2023, the World Bank’s country program in Uzbekistan consisted of 27 projects, with net commitments totaling around US$5.7 billion. They include loans from the International Bank for Reconstruction and Development (IBRD) for US$2.1 billion and concessional credits from the International Development Association (IDA) for US$3.5 billion. Currently, Uzbekistan is the Bank’s third largest client in the Europe and Central Asia region and the country with the largest IDA allocation in the region.

The above-mentioned projects provide support in critical areas, such as macroeconomic reforms and the modernization of agriculture, water resource management, water supply and sanitation, irrigation, energy, transport, health, education, social protection, urban and rural infrastructure, national innovation, tax administration, statistical and financial systems, and more.

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. The current program includes support to implementation of 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 role, the Bank is leading the efforts to improve the work of this planning and coordination mechanism bringing together dozens of Uzbekistan’s development partners to support sectoral reforms and projects implemented by the government.

Economy

Recent Economic Developments

Uzbekistan’s GDP grew by 5.7 percent in 2022, led by strong remittances, consumption, and exports. Non-gold exports grew by 21 percent in 2022 (in US$ value), led by textiles, non-ferrous metals, fertilizers, and food, largely driven by high export growth to Russia (52 percent). 

Services exports, mainly in transport and tourism, increased by 53 percent. This reflects a three-fold increase in tourists or immigrants from Russia, as well as a pick-up in tourism from Kazakhstan, Kyrgyzstan, and Tajikistan.  

Remittance inflows doubled as a share of GDP to 18.9 percent in 2022 due to the RUB appreciation and increased migrant inflows. A part of these financial inflows reflects the increased private money transfers of Russian citizens fleeing Russia and companies relocating to Uzbekistan following Russia’s invasion of Ukraine. 

The fiscal deficit declined from 6.1 percent of GDP in 2021 to 4.2 percent in 2022, supported by higher revenues. By end-2022, international reserves increased slightly to reach US$35.8 billion, or 14 months of import cover.

Higher costs of food, fuel, and logistics drove CPI inflation up to 12.3 percent (yoy) in December. The UZS depreciated by 3.8 percent against the US$ in 2022, and the real effective exchange rate appreciated slightly by 0.4 percent. 

The unemployment rate fell to the pre- COVID-19 level of 8.8 percent, down from 9.6 percent in 2021, although it remains higher for youth and women and in lagging regions. The poverty rate is projected to have declined from 17 percent in 2021 to 14 percent in 2022 (using the national poverty line) supported by higher remittances. 

Economic Outlook

In Uzbekistan, growth is expected to moderate to 5.1 percent in 2023 and accelerate gradually in the medium term. Russia’s protracted war in Ukraine, and increased logistical challenges linked to the sanctions on Russia, are expected to prolong high food and energy prices and reduce private consumption growth. 

Private investment and trade are expected to grow, and the current account deficit to widen, with remittances to Uzbekistan expected to moderate from their peak in 2022. The projected recovery in China may increase demand for Uzbekistan’s textile and food exports.

Higher revenues from gold and copper exports and slower public investment spending will see the fiscal deficit decline to 3.3 percent of GDP in 2023, close to the government’s target of 3 percent. Budget consolidation is expected to continue in future years, supported by both revenue mobilization and spending efficiency.

The government is expected to adhere to its overall debt limits, with public debt and total external debt gradually falling to 32 percent and 55 percent of GDP, respectively, by 2025.

Continued growth and expanded social protection programs are expected to sustain poverty reduction, and the national poverty rate is projected to fall to 12 percent in 2023.

Risks to the outlook are tilted downside, including a possible deeper contraction of Russia’s economy and tighter-than-expected global financial conditions. Positive surprises may potentially include higher global gold, natural gas, and copper prices, as well as stronger productivity growth from ongoing structural reforms.