- Uzbekistan continues to show robust growth. GDP growth remained strong at 8 per cent in 2013, driven by a combination of factors such as diversification of gas export routes and accommodating monetary conditions. Economic growth is slowing down slightly in 2014.
- State interference in the banking system remains strong. While some foreign banks are operating in the country, the state still owns about 70 per cent of the banking sector.
- Tax rates for individuals and corporates are gradually being reduced. The government has been pursuing a strategy to gradually widen the tax base and decrease tax rates, with personal, corporate profit and payroll tax rates in 2014 significantly lower than the levels observed in 2000.
Key priorities for 2015
- Improving the business environment is critical. The high cost of doing business severely constrains foreign investment and competitiveness. In the World Bank Doing Business 2015 report, Uzbekistan moved up 8 places, but the country still has one of the lowest ratings for ease of doing business, ranking 141st out of 189 countries.
- The role of government in the banking system needs to be reduced. Direct lending at preferential rates distorts competition among banks and challenges effective banking supervision. Phasing out interest rate controls and policy-directed lending would help improve the efficiency of credit provision.
- Liberalisation of the foreign exchange rate is a priority. Exchange restrictions impede trade and private investment. These need to be phased out, allowing for an effectively unified exchange rate and current account convertibility.
UZBEKISTAN CONTINUES TO SHOW ROBUST GROWTH
STATE INTERFERENCE IN THE BANKING SYSTEM REMAINS STRONG
TAX RATES FOR INDIVIDUALS AND CORPORATES ARE GRADUALLY BEING REDUCED
Note: FI – Financial institution; ICT – Information and communication technology; Water – Water and wastewater; IAOFS – Insurance and other financial services; PE – Private equity.
Main macroeconomic indicators %
|Current account balance/GDP||6.2||5.8||1.2||0.1||0.1|
|Credit to private sector/GDP||16.6||n.a.||n.a.||n.a.||n.a.|
Economic growth remained strong at 8 per cent in 2013. Growth has been driven mainly by higher government spending in the form of scaled-up public investment. Construction expanded by 16.6 per cent, services by 9 per cent, agriculture by 6.8 per cent and industry by 6 per cent. GDP growth amounted to 8.1 per cent in the first half of 2014 despite the ongoing weaknesses in the external environment. The volume of industrial production increased by 8.1 per cent and construction works by 17.4 per cent during this period.
Inflation remains high, above 10 per cent. This is owing to higher food prices, increases in administrative costs, an expansionary fiscal stance, an accommodating monetary policy and continued depreciation of the currency against the US dollar. The official exchange rate against the dollar depreciated by 11 per cent in 2013. The central bank cut its policy rate to 10 per cent in January 2014 from 12 per cent in 2011-13.
Drilling for shale oil at the Sangruntau field in the northern Navoi district has begun. The US$ 600 million project will ensure the mining of 8 million tonnes of shale oil and production of 1 million tonnes of oil products per year. If successful, the project may help to arrest and reverse the rapid decline in oil output over the last decade.
The current account continues to record a surplus. This may in part be attributed to restrictions on foreign exchange transactions limiting imports. Nonetheless, overall imports increased, reflecting growing capital goods imports under the ongoing government programme for industrial modernisation.
GDP is moderating slightly in 2014. Growth is being negatively affected by the slow-down in Russia, but the effect is moderate. The growth rate in 2015 and in the foreseeable future is expected to remain at the current level.
Major structural reform developments
Uzbekistan’s economy remains at the relatively early stages of transition. The energy sector is largely unreformed and has only recently embarked on a programme of efficiency improvements. Tariff reforms were adopted to ensure cost recovery but proper collection mechanisms are lacking. Problems with reliability of electricity supply in certain areas persist.
The business environment remains weak. External trade and foreign exchange are subject to various restrictions. These include delays in currency conversion for imports, limitations on cash and foreign exchange availability, a restrictive trade policy, and application of state procurement quotas for cotton and wheat. However, there have been some improvements in easing trading across borders by reducing the number of documents required to export and import goods, and by making it possible to submit documents electronically.
There has been limited progress in terms of improving banking regulations and moderating state-directed lending. Banking sector supervision and regulatory frameworks still need to be strengthened, and prudential standards need to be enforced. However, some positive steps have been taken. All banks are currently audited by international agencies under International Financial Reporting Standards.
The tax burden is gradually being reduced. Tax revenues as a share of GDP have been falling, as the government is pursuing a strategy to gradually widen the tax base and decrease tax rates. Personal income tax was reduced from 40 per cent in 2000 to 22 per cent in 2014, corporate profit tax was reduced from 31 per cent in 2000 to 8 per cent in 2014 and payroll tax was reduced from 40 per cent in 2000 to 25 per cent in 2014.
Parliament passed a law on social partnership. Passed in June 2014, the law determines the terms, principles and main areas of social partnership. It specifies the organisational, legal and procedural mechanisms of interaction among state bodies, NGOs and other civil society institutions. It also provides for the forms and methods of their participation in resolving public and social problems, and in improving the socio-political and business activities of citizens. The law will strengthen the role of NGOs and other civil society institutions.
A law on the “openness of activities of government bodies and governance” entered into force in May 2014. The law regulates the openness of activities of state bodies and administration, establishes the legal framework for access to information by individuals and legal entities, and pursues the principles of accessibility, timeliness and reliability of information provided.