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Uzbekistan to Reform its Financial Sector, with World Bank Support

WASHINGTON, May 31, 2022 — The World Bank’s Board of Executive Directors approved on May 24th a $15 million concessional credit for Uzbekistan, which will finance a five-year project to support the Government’s efforts to reform the financial sector. These reforms include restructuring and privatizing state-owned commercial banks, strengthening financial preparedness for natural disasters, establishing a development bank, and improving export and trade financing instruments for local enterprises.

The International Development Association (IDA), part of the World Bank Group, will provide the concessional financing to the Government of Uzbekistan at a low-interest rate, with a repayment period of 30 years, including a five-year grace period.

As Uzbekistan transitions to a market economy, its banking and insurance sectors face a range of acute and interconnected issues. The banking sector consists of 33 banks and is dominated by 12 state-owned commercial banks (SOCBs), which accounted for 86 percent of total credit to the economy by the end of 2021. Traditionally, SOCBs intermediated funds from the Government to priority sectors and state-owned enterprises at below-market rates, lacking strong governance and risk management, with a heavy dependence on state funding and capital support.   

Uzbekistan is prone to climate-induced disasters, such as more frequent and extreme droughts, lower precipitation levels and changes in weather patterns. Climate change is expected to increase their frequency and severity. The current capacity of the authorities, businesses and citizens to cope with the costs of disasters is limited because of the low penetration of disaster risk insurance.

After 2018, the private sector benefited from improved access to finance, thanks to rapid credit growth. However, small and medium enterprises still lack an appropriate range and quality of financial products, due to limited product innovation by banks. The authorities have decided to establish a development bank which, among other priorities, will provide financing, guarantees, and insurance support to local exporting firms and companies.

The new World Bank-funded project will help the Government respond to the afore-mentioned challenges. It will be implemented by the Ministry of Finance (MOF) of Uzbekistan, which is tasked with leading SOCBs’ restructuring and privatization. The project will finance activities that support SOCBs’ modernization, commercialization, and privatization; strengthen financial preparedness for disasters and boost the efficiency of the insurance sector; and support the improvement of export and trade financing instruments.

“The reforms of banking, insurance, and export and disaster risk financing create synergies that will improve the efficiency of financial services, contribute to productivity, and boost sustainable growth driven by the private sector,” said Marco Mantovanelli, World Bank Country Manager for Uzbekistan. “The new project will contribute to the implementation of the Banking Sector Reform Strategy for 2020-2025, prepared with the World Bank’s assistance. It will help reduce the state’s direct participation in SOCBs and build a more effective, inclusive, and competitive banking system led by private sector banks.”



Mirzo Ibragimov
Sona Panajyan


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