Speeches & Transcripts

The macro-economic impact of global financial and economic crisis in the Central Asian countries, and forecast of their economies for 2010-2012

April 12, 2010

Loup J. Brefort International Scientific-Practical Conference Tashkent, Uzbekistan


International Scientific-Practical Conference
“The Effectiveness of the Anti-Crisis Program and Priorities of Post-Crisis Development”
(in the case of Uzbekistan)
Tashkent, April 12, 2010

“The macro-economic impact of global financial and economic crisis in the Central Asian countries, and forecast of their economies for 2010-2012”
Loup J. Brefort
Country Manager
World Bank Uzbekistan


Good morning !

Before sharing a few thoughts on the above, let me thank our host the Government of Uzbekistan and in particular First Deputy Prime Minister Azimov for inviting the World Bank to this event, and all the participants who have traveled to Tashkent to share their experience and ideas on how to learn from the Global Crisis.

Now that the worst of the crisis is allegedly past us, the entire world seems to be reflecting back on the crisis, how it could have been avoided, whether the anti-crisis measures were adequate, what can be done to prevent such a crisis in the future and what implications for public policies in the post-crisis world.

Recently, I briefly heard Alan Greenspan, the ex-Federal Reserve Chairman, who was asked to reflect back on his policies by the US Congress, tell them: "I was right 70 percent of the time, but I was wrong 30 percent of the time" . In my high school, I think that would have been just one point above an F.

Certainly, the economic team in the Uzbek Government clearly deserves a much higher grade for its management of the economy prior and during the crisis !

I believe that it is very commendable for Uzbekistan to take the time to reflect on these world events too, even though it did weather the crisis so much better than most countries.

In my remarks this morning, I would like to:

  • Briefly offer some estimates of important aspects of the regional economic prospects beyond 2011
  • and highlight implications of the post-crisis world on sources of growth and thoughts about possible necessary future adjustments


  • “Europe and Central Asia” (i.e. Eastern and Southern Europe and the countries of the Former Soviet Union) was the region in the whole world that was hardest hit by the Crisis
  • Uzbekistan suffered the least. This is due to the fact that it entered the crisis with a diversified economy, the fact that two commodities – gas and gold - that bring it the majority of its export revenue were little affected by price and demand shock, and that it implemented a large fiscal stimulus early;
  • The acute phase of the global financial crisis seems to be over, but stabilization is uneven and the recovery is expected to be sluggish;
  • Global rebound will be led by emerging Asia, not by the highly developed economies (US, Europe, Japan);
  • A slowing of growth in 2011 remains a possibility, as there are questions about response of economies when fiscal stimulus wanes. The banking sector does not yet seem ready to resume its role as the financial engine of real sector development, as evidenced by the fact that bank credits to the economy remain at level much lower than were in the past decades ;
  • The “drivers” of growth: capital flows, high commodity prices, and strong growth in export markets in the pre-crisis years are unlikely to return quickly and continued fiscal stimulus of the magnitude seen during crisis is simply not an option.


Of course, like other countries, Uzbekistan suffered some ill effects from the Great Recession of 2008, as it is now referred to, but its diversified exports and a smart stimulus package – rendered possible by years of prudent macro policies - somewhat sheltered its economy.

Generally its exports of value-added manufactured goods declined, sometimes sharply: automobile, copper products, cotton goods, and chemicals.

Others benefited from continued strong demand and/or continued high prices: foodstuffs and, particularly gas and gold, two commodities that now account for between half and two-third of export revenue.

There was a element of luck, since not all countries in the region have gas and gold to export, but clearly the policy pursued for decades by the Government of diversification of the export base paid off !

Further, thanks to a well-crafted stimulus package combining measures designed to boost public investment and measures to sustain domestic consumption, the worst effects of the crisis on the economy and the population were largely mitigated.

As a result, Uzbekistan managed to maintain its impressive GDP growth pace, scoring – by far - the highest rate for all countries of the ECA region in 2009. However, while policies have been rather successful overall, the re-emergence of the dual exchange rate since the onset of the crisis is an area of great concern.

Few natural-resources rich countries managed to develop other areas of their economy as successfully as Uzbekistan did. Diversification certainly helped Uzbekistan resist the crisis much better than countries whose exports continue to be dominated by a single commodity.

Uzbekistan should also be commended for its prudent macroeconomic and fiscal policy which allowed accumulation of ample public savings during the boom years which in turn supported a very significant stimulus package, without endangering public finance or macroeconomic stability.

Yet, if it was not for the fiscal stimulus that boosted domestic investment and consumption as the second driver of GDP growth in Uzbekistan's economy, Uzbekistan’s growth may have slowed down by maybe as much as 4 points in 2009.

Indeed, one of the main lessons of the crisis is that an export-led growth strategy creates vulnerability, although the degree varies.

Diversification of export products and export market helps reduce vulnerability, but ultimately the diversification in the sources of growth - adding domestic investment and domestic consumption to the “equation” - produces a much more balanced and less- crisis-prone growth strategy.

However, while fiscal stimulus packages to boost domestic demand and investment are appropriate response at time of crisis, they cannot be - nor should be - permanent features to achieve high level of growth.


Some answers to address the vulnerability of an export-led growth strategy could be found looking East. Particularly at these East Asian “miracle” countries whose export-led model, like Uzbekistan’s, had been vindicated by extraordinarily high growth through export promotion. They too came to the realization that their growth had reinforced their dependency on the developed world, thus making them vulnerable to slowdowns in the latter’s markets (e.g., as in the slowdown of the semiconductor world market in 1996–1997).

That is why, a number of the countries that – starting from very low base – achieved middle-income status in only a couple of decades (such as Korea, Malaysia, Thailand) - ended up gradually adopting a strategy of promoting both domestic demand and net export as the two “drivers” of their economic growth. Their policies led to the development of a strong middle-class and eventually of a strong and sustained internal demand.

More recently, China too has been taking steps to re-balance its economy towards domestic demand-led growth and increasing the share of consumption relative to GDP.

As a percentage of GDP, Uzbekistan's private domestic consumption and non-state investment is low, hovering at levels much below that of Brazil, Thailand or even Vietnam for instance.
In terms of domestic investment, Uzbekistan suffers from what I would call the “missing middle” compared to the domestic industrial and service structure of the above countries. Uzbekistan has indeed a very significant number of large, capital intensive and generally export-oriented firms and also a large number of very small and individual enterprises, including in the informal economy, but it has a much smaller share of formal small and medium-sized firms than the above economies. This may indicate a need to do further work on the business environment.

Finally, official statistics indicate that after almost a decade of very high growth, still 20 percent of Uzbek citizens are classified as belonging to the lowest income category. Contrary to many countries in the region and in the world where the crisis had a devastating poverty impact, the anti-crisis policies in Uzbekistan sheltered them from the worst impact of the crisis. Nevertheless, resumption of high growth rates, and improvement in the multiplication effect of the model of growth will be critical to continue – and possibly accelerate – rise in living standards of the lowest income.


Export-led growth will remain very important but the markets may be significantly changing. Indeed, growth is likely to remain sluggish in many upper middle income countries, including possibly Russia the main trading partner of Uzbekistan, and demand from the “Western and Northern economies” is likely to remain depressed for some while.

Accordingly, there will be a need to look for markets - and sources of export-led growth - East & South East, while in the past they were mostly North and West.

However, for developing countries including Uzbekistan, this gradual shift from “South-North” to “South-South” trade and export-led growth comes with its own set of challenges, particularly if the goal is to avoid falling back to almost exclusively trade in raw materials and sustain - or better continue to increase - the share of exports of value-added industrial goods and services in total export revenue:

  • Exporters from less developed countries (LDCs) may well find it much more difficult to penetrate growth market in other LDCs - where domestic producers offers same types of low-tech goods at the “bottom of the market” - than they did finding a “low tech / low cost” niche in the market of highly industrialized countries during the pre-crisis “boom” years of world trade growth.
  • Protection rates in the LDCs are generally high compared with those in the high-income economies of the OECD countries. For instance, low-income countries face an overall level of protection of nearly 15 percent when they export to middle-income countries, compared with 9 percent in high-income markets. (South-South preferential tariff schemes— if fully implemented — would only be one part of the solution.)
  • Non-tariff measures account for nearly two thirds of the protection rate faced by low-income exporters to middle-income markets. And, in general, trade, logistics and bureaucratic barriers are much more difficult to “navigate” – if only because of their complexity, often lack of clarity if not lack of transparency and unpredictability - than for exports to the high income countries.

These can be addressed but will likely make keeping same overall export values more difficult to achieve in coming years, if markets indeed shift from “West” to “South”.


Well first it takes an internal market and entrepreneurship qualities. And the good news is that Uzbekistan has both ! With 26 million inhabitants well spread over its reasonably sized and compact territory, and daily evidence of the latter in all regions.

Domestic demand-led growth also typically rests on four pillars: (1) improved income distribution, (2) good governance, (3) financial stability and space for counter-cyclical stabilization policy, and (4) an adequate, fairly priced supply of development finance. Finally, it is interesting to note that no low income country in the world that has - or is emerging as - middle or high income country could do so without deep structural reform of agriculture sector (Taiwan, Malaysia, Thailand, Vietnam)

  • Deep domestic development requires growing wages and an improved distribution of income. Together, these provide the foundation of a virtuous circle of growth in which rising wages encourage market development, and market development promotes rising wages.
  • Transparency, accountability and good governance help prevent mis-allocation of resources and guard against kleptocratic and rent-seeking behavior by firms and individuals. To a more or less “perfect” degree, these are nevertheless everywhere the hallmarks and standards of middle-income economies.
  • In addition to measures to stabilize inflows and outflows of capital, there is also a need for a competitive financial sector that can increase non-subsidized but nevertheless affordable domestic access to credit to the larger number of private firms and individuals. In the business sector there is a need for increased micro- and meso-finance that can liberate the entrepreneurial potential of small- and medium-scale business. In the household sector there is need, for instance, for the development of mortgage markets that foster widespread home ownership. A proper balance between securing financial sector stability and promoting financial sector intermediation – i. e. between risk aversion and promoting the dynamism of the financial sector as the fuel for the engine of private investment and private consumption-led economic growth - needs to be found.
  • Finally, in countries where the population is still predominantly rural, there is a need to unleash the potential of the agriculture sector to raise productivity, especially that of medium-scale farmers, significantly increase the income of large number of rural residents and thus expand internal demand for intermediate and consumer goods produced by domestic industry.


The crisis of 2007-2008 – like that suffered by East Asian economies in the late 90s – clearly indicates that, like for a portfolio of investment, diversification is key to reduction of vulnerability.

Balancing export revenues through a multiplicity of products and markets is clearly better than being a mono-product exporter or relying too much on a dominant trade partner.

But even successful today’s exporters should be well aware that the sources of export growth after the crisis may be very different from the traditional ones of before the crisis. Sustaining high export revenue from the sale of value-added goods and services in the new higher growth markets of the future will come with its own set of difficult challenges.

But further on, as even a very diversified and successful multi-country exporter such as China has learned and taken from the crisis, growth that rests on two pillars is better than growth that rests too much on one. To the “pull” of export demand, the Chinese authorities are clearly working on significantly raising the growth momentum that would come from the “push” of domestic demand.

During time of the crisis, a publicly-financed stimulus package can substitute to and serve as the second pillar.

But creating the conditions for sustained growth through vibrant private domestic consumption and investment - in parallel and in addition to export-driven growth – is clearly the best and most stable strategy, going forward, for all countries in the globe, including Uzbekistan.

This is not new, but the crisis brought home the message again.

Let me assure you that the World Bank Group stands ready to continue providing knowledge and financial support to the Government and to the Uzbek people to ensure sustained and inclusive economic development, as Uzbekistan continues its journey towards achievement of middle-income GDP per capita levels.

I thank you very much for your time. I very much look forward to our discussions and exchange today.