The World Bank in Uzbekistan

Country Context

Uzbekistan has undertaken extensive reforms in recent years, liberalizing certain economic sectors and enhancing the private sector's prospects.

In 2023, the Government made several key moves, such as (i) establishing an independent energy regulator; (ii) initiating energy tariff reforms, (iii) restructuring the state-owned rail operator; (iv) privatizing a major chemical plant and a bank; and (v) separating the leading chemical state-owned enterprise to foster competition.

Furthermore, the authorities set up the National Agency for Social Protection, enacted new laws to tackle gender-based violence, and broadened the availability of free legal aid to citizens.

Uzbekistan has also embraced a greener development trajectory by setting more ambitious environmental goals, implementing a new pollution control system, and establishing a national green taxonomy. The Government continues to invest in new sources of green energy and takes further measures to enhance efficiency both in the use of electricity and water adapting to climate change.

Given the high rate of population growth and the influx of young people into the job market annually, the country's economic expansion must focus on robust job creation. Continuing the reform agenda is crucial for this, which includes further market liberalization and enhancing competition.

Key strategies involve diminishing the economic influence of state-owned enterprises, fortifying land rights, deregulating the telecommunications sector and the trade of raw materials, and reducing elevated trade costs by improving logistics and connectivity. Additionally, to spur faster job creation and productivity, there is a need for more investment in enhancing the skills of the labor force.

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 of Uzbekistan for the next five years in support of the National Development Strategy for 2022–26.

The CPF aims to expedite the country's move towards an inclusive and sustainable market economy through three overarching goals: boosting private sector employment, enhancing human capital, and facilitating a transition to greener growth that betters livelihoods and resilience.

Additionally, the CPF aids the Government in narrowing gender disparities and in fortifying citizen involvement and accountability within public services.

Since 2017, the World Bank's financial and analytical assistance to Uzbekistan has significantly increased, reinforcing the Government's comprehensive market reform agenda.

Today, the country is the World Bank's third-largest client in the Europe and Central Asia region and has the largest International Development Association (IDA) allocation in this region.

As of April 1, 2024, the World Bank’s country program in Uzbekistan consisted of 27 projects, with net commitments totaling around $6.07 billion, of which about $2.4 billion is yet to be disbursed. These projects include loans from the International Bank for Reconstruction and Development (IBRD) for $2.34 billion and concessional credits from IDA  for $3.68 billion.

The portfolio also 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, which is the World Bank’s first carbon reduction policy crediting operation.

World Bank-funded projects, which are implemented by the Government, are pivotal in driving critical macroeconomic reforms and modernizing a wide array of sectors. These projects target improvements in agriculture, water and land resource management, water supply and sanitation, energy, transport, health, education, and social protection systems. They also focus on enhancing both urban and rural infrastructure, investing in institutional capacity building, and developing national innovation, tax administration, statistical, and financial systems.

Additionally, the World Bank's engagement in Uzbekistan includes a comprehensive suite of technical assistance, advisory, and analytical services provided to the government. These services support the preparation and implementation of national strategies aimed at poverty reduction, health, education, and social protection, as well as sector-specific reforms in energy, aviation, tax administration, and banking.

Economy

Recent Economic Developments

In 2023, Uzbekistan's economy grew by 6%, fueled by investment, private consumption, and exports. Inflation reached a seven-year low. In December 2023, consumer prices dropped to 8.8%, compared to 12.3% in 2022. The Uzbek som saw a 9% depreciation against the US dollar, partly due to the depreciation of the Russian ruble.

The current account deficit worsened, driven by increased imports and reduced remittances in 2023, which were linked to the depreciation of the Russian ruble.

The fiscal deficit widened to 5.8% of GDP in 2023, influenced by emergency energy spending during the cold winter, higher spending on wages, social benefits, energy subsidies, and subsidized lending to state-owned enterprises (SOEs) via state-owned banks.

By December 2023, foreign reserves remained robust at $34.6 billion, equating to over eight months of import coverage.

The poverty rate declined from 5.0% in 2022 to 4.5% in 2023, measured at the lower-middle-income poverty line ($3.65/day, 2017 PPP).

The unemployment rate dropped to 8.1% in 2023, down from 8.9% in 2022. Average real wages in 2023 increased by 7.8%, not only due to growing demand but also because of shortages in skills in the labor market.

Economic Outlook

The country’s GDP growth is projected at 5.3% in 2024 given the expected fiscal consolidation and slower export growth prospects to Russia and China, Uzbekistan’s key trading partners.

Growth will be supported mainly by the continued implementation of structural reforms, notably SOEs’ restructuring and privatization, and high energy sector investment.

Inflation is expected to increase in 2024 due to relatively sharp increases in domestic energy prices because of the energy tariff reforms (accompanied by social protection measures).

Remittances in 2024 are projected to decline mainly due to an expected reduction in the number of labor migrants to Russia.

With decreasing remittances and strong imports, the current account deficit will widen slightly but remain sustainable as Uzbekistan’s transformation process brings in foreign savings to finance the deficit.

This economic outlook is expected to reduce poverty moderately to 4.3% in 2024, measured at the lower-middle income poverty line ($3.65/day, 2017 PPP).

The fiscal deficit is expected to fall to 4.2% of GDP in 2024 and towards 3% of GDP by 2026.

The Government is expected to adhere to its debt limits (60% of GDP for total Public and Publicly Guaranteed debt), with public debt slightly increasing to 36.5% of GDP in 2024 and then gradually declining to 34.4% of GDP by 2026.

Risks to outlook are tilted to the downside. External risks include possible deterioration of growth in key trading partners, notably China and Russia, and further tightening of external financial conditions.

Domestic risks stem from the growing contingent liabilities from SOEs, public-private partnerships, and state-owned banks. Upside risks include higher global gold and copper prices and stronger productivity growth due to ongoing structural reforms.

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