The economy of Uzbekistan has been resilient in an increasingly difficult external environment, characterized by weak economic activity in Europe and Russia and low oil prices. Following solid growth performance – 8.1% – in 2014, growth remained robust and GDP increased by 7.5% in the first quarter of 2015. Strong public investment and a strategic re-orientation of gas exports from Russia toward China have shielded the economy, so far, from the slowdown experienced by other countries in the region. The external position continues to be strong, but the current account surplus has narrowed. Annual inflation, based on an alternative consumer price index (CPI) measurement by IMF staff, [1] declined to a single-digit around 9% through March 2015.

Fiscal policy remains prudent. Following a small fiscal surplus on a consolidated basis in 2014, the budget execution in the first quarter of 2015 registered a balanced outturn, owing to lower-than-budgeted spending. Investment remains an important component of public spending.

Monetary policy remains accommodative. The Central Bank of Uzbekistan has cut its policy rate, the refinance rate, from 12 to 9% since January 2014. The growth of credit to the economy remains strong. The depreciation rate of the official exchange rate of the Uzbek sum has been slower than currencies of the trading partners.

The banking sector remains stable, well capitalized and highly liquid. A centralized collateral registry system was launched in 2014, which contributed to broadening access to finance.

Looking ahead, economic growth is expected to remain strong in 2015, supported by newly adopted modernization programs for industry and infrastructure and programs for privatization and corporate governance which would contribute to structural reform and reduce the state’s role in economy. However, near-term risks are tilted to the downside, related to a larger-than-expected slowdown in major trading partners. These vulnerabilities are likely to be limited by large buffers: ample foreign reserves, fiscal buffers, and a low level of public debt. An appropriate policy mix including a moderate loosening of fiscal policy, tighter monetary policy and a more flexible exchange rate would also help mitigate negative shocks to the economy in the short term.

Sustained and inclusive growth hinges on the promotion of a dynamic private sector. Improving the business environment and strengthening governance and transparency remain critical. The authorities recognize the importance of accelerating private sector development. They have indicated that they will implement additional pragmatic measures to stimulate private sector expansion by easing foreign exchange control, improving access to key infrastructure and raw material resources, ensuring protection of private owners’ rights, reducing the number, time and cost of licenses and permits, and supporting private exporters. Decisive measures in these areas could help provide new momentum to support private sector development. In this context, the mission welcomes the authorities’ strategy to improve energy efficiency and reduce implicit energy subsides by gradually raising administered prices, and the authorities’ recent resolution to strengthen corporate governance and privatize more than 1,500 state-owned assets.

The authorities’ move to improve transparency by publishing fiscal statistics is commendable. Further improvements in the availability and quality of key economic and social data would strengthen evidence-based policy making. To this end, the mission welcomes the authorities’ plan to engage in technical assistance on national accounts statistics.

The mission would like to thank the authorities and other counterparts for their hospitality and constructive dialogue.