Country brief 2006 Updated September 2006
Uzbekistan is a low-income country with a Gross National Income per capita of $520 in 2005. The country is rich in gold, copper, natural gas, oil, and uranium.
During the Soviet period, Uzbekistan was developed as a center for cotton production. Agriculture is still the dominant sector of the economy, accounting in 2005 for 28 percent of GDP at factor prices and around 30 percent of employment.
The country has a young and rapidly-growing population and thus faces the challenge to create jobs, especially in the rural areas where two-thirds of Uzbekistan’s population live.
Uzbekistan joined the World Bank and the International Development Association (IDA) in September 1992. Since the inception of the World Bank’s program in the country, 14 projects for a total amount of $639 million have been approved by the Board of Executive Directors.
Back to Top
Economy
Developments since independence
Since independence, the government has adopted a “gradual” approach to transition, aimed at import-substituting industrialization and energy and food self-sufficiency. The approach relies heavily on the use of state controls and planning, foreign exchange and trade restrictions, and large public investments.
An evaluation of Uzbekistan’s economic performance is complicated by the fact that official economic statistics are sometimes unreliable. According to official data, Uzbekistan recorded one of the smallest recessions at the start of the transition, and since the mid-1990s has been growing at around 5 percent on average, with growth accelerating to around 7 percent in 2004 and 2005. However, at times there have been questions over the reliability of official growth estimates and underlying source data. Private sector activity remains subdued or hidden in the large informal sector. Moreover, growth in recent years was driven by net exports, while domestic consumption has lagged.
As a result, economic growth has not led to a significant improvement in living standards. Household survey data reveal that around a quarter of the population is poor (defined as consuming less than the minimum amount of calories needed per day), and around 46 percent of the population live on less than $2.15 per day.
Formal employment generation has also been disappointing, and a growing number of Uzbeks have sought employment abroad, particularly in neighboring Kazakhstan or in Russia. However, compared to other low income countries, Uzbekistan’s non-monetary social indicators such as levels of literacy and school enrollment tend to be favorable, reflecting the legacy of Soviet investment in social infrastructure, but also post-independence efforts, particularly in education.
Uzbekistan’s external position has been strong since 2003. Thanks in part to the recovery of world market prices of gold and cotton, the country’s key export commodities; expanded natural gas and some manufacturing exports; and increasing labor migrant transfers; the current account turned into a large surplus - of between 9 and 11 percent of GDP in 2003-2005 - and foreign exchange reserves, including gold, more than doubled to around $3 billion.
After heavy external borrowing to finance large-scale public investment in the late 1990s, the government has since pursued a zero net external borrowing policy since 2001. As a result, the broad public sector deficit declined significantly, the external public and publicly-guaranteed debt stock has stabilized, and the debt-to-GDP ratio declined from around 50 percent in 1999-2001 to 33 percent in 2005. Despite an increase in 2004-2005 to around $200 million, foreign direct investment remains one of the lowest among the transition economies relative to the size of the economy.
Reflecting the government’s “gradual” approach to reform, the pace of transition to a market economy in Uzbekistan has remained slow and uneven. Among the structural reform measures adopted in recent years have been price increases and strengthened payment discipline in the energy sector; conversion of agricultural cooperatives into family leasehold farms; tax and expenditure cuts; easing of the registration, inspection, penalty, and licensing regimes for businesses; and steps towards introducing a mandatory and fully-funded second pillar of the pension system.
Extensive state controls over the economy continue to hinder the functioning of markets and the development of the private sector. Privatization, particularly large scale, has been limited. State interventions into business operations through para-state industrial associations, a variety of state plans, and other administrative tools are widespread. Private property rights suffer from repeated violations by state enforcement organs, and the overall business climate remains unfriendly.
The financial sector is hampered by the dominance of a few large state banks and the use of commercial banks as enforcers of tax discipline and collectors of commercial information, and financial sector stability is impaired by the legacy of directed lending. In agriculture, farmers remain subject to a state order under which they are required to grow crops chosen by the government and must surrender the harvest of the key crops - cotton and wheat - at below-market prices to the state. The trade regime, both domestic and external, remains restrictive, and cross-border shuttle trade and domestic trade have been suppressed by administrative measures.
Governance is undermined by lack of government accountability, restrictions on access to information and development of civil society, few possibilities for citizens to comment and participate in policy making, and - as elsewhere in the region - significant corruption.
Challenges ahead
Uzbekistan’s economic potential remains significantly underutilized. The pace, quality, and sustainability of economic growth must be improved to generate employment for the country’s growing population, raise per capita incomes, and alleviate social tensions. While its landlocked location and long distance to major markets impose constraints on Uzbekistan’s economic development, the main obstacles to growth in Uzbekistan are policy-related. Key policy challenges include:
- Liberalizing Uzbekistan's economy. The role of the state in Uzbekistan’s economy must be changed from that of an active producer and distributor of resources to that of an arbiter and facilitator of private economic initiative. Areas for reform include liberalization of trade and commodity markets and elimination of interference in enterprise decision making, among other things.
- Sustaining macroeconomic stability. Strengthening macroeconomic policy to prevent the reemergence of inflation and dual exchange rates remains a challenge. In particular, all restrictions on current account convertibility must be eliminated, and monetary policy must be tightened.
- Boosting agricultural productivity and improving the business climate. Given the country’s predominantly rural population, agricultural reforms are essential to reducing poverty. The abolition of state-dictated cropping patterns, the liberalization of input and output markets, and the completion of the transformation of agricultural cooperatives into private farms would boost agricultural productivity.
- Improving transparency and accountability. Openness, transparency, and accountability (e.g., in government operations, public expenditure management, policy making, data and legislation) are essential to the credibility of economic policies and for creating an effective and stable environment for the private sector. Allowing civil society to develop could improve policy effectiveness and thus help to tackle the country’s development challenges.
Back to Top World Bank Program
Program to date
- Landmark Projects
- More projects
Since Uzbekistan joined the World Bank in 1992, Bank assistance has helped the country improve primary health care facilities for some 4 million people in rural areas—or about 15 percent of the total population. World Bank assistance has also helped people in the rural western part of the country gain access to safe and reliable drinking water. Assistance to improve water supply in the historic cities of Bukhara and Samarkand is ongoing. In addition, the sanitation system in Tashkent has improved as a result of better waste collection.
The World Bank has also helped the country restore the biodiversity of the wetlands near Lake Sudochie. The wetlands were flushed with over 800 million cubic meters of fresh water from the Amu Darya River, thereby raising the water levels and increasing the incomes of the people living in its vicinity. A project to improve drainage in the downstream part of the Amu Darya with significant expected benefits for land quality, the environment, and rural incomes is under implementation.
World Bank assistance has also contributed to raising the quality and price of cotton, Uzbekistan’s main export crop, and is helping cotton farmers in 5 pilot rayons pilot a new marketing system that allows them to sell their crop outside the dominant state-order system.
Going forward
On July 27, 2006, the Board of Directors of the World Bank endorsed a new Interim Strategy Note (ISN) for Uzbekistan. The new strategy, which covers a 12- to 15-month period, combines technical assistance and analytical and advisory services with lending focused on global public goods and basic social services.
More than 600 family doctors and nurses have been trained and 673 rural medical offices are being equipped with the latest medical equipment.
Read moreAs a transitional assistance framework, the interim strategy reflects the need to strengthen the poverty orientation of public policy, deepen structural reforms, and ensure broader civil society participation to achieve real development results on the ground. A review at the end of the ISN period will gauge progress made in these areas and will provide the basis for a determination of the World Bank’s future assistance to Uzbekistan.
The strategy seeks to engage the Uzbek authorities along two parallel tracks. First, the Bank will use technical and advisory assistance, including a governance assessment and a review at the end of the ISN period, to engage the authorities on the need for greater openness and accountability and faster market-oriented reforms. Second, limited new lending for global public goods and basic social services will allow the Bank to develop and test implementation arrangements that expand stakeholder involvement.
The lending envisaged during the ISN period will support global public goods, including an operation to fight avian influenza, as well as funding for a project to reform basic education. In addition, the International Finance Corporation, the private sector affiliate of the World Bank Group, will support selected private sector investments.
NB: Lending is per fiscal year, July 1-June 30
Active Portfolio by Sector as of June 2006
(US$ millions)
The Country Aggregate Report provides more lending data for Uzbekistan
Back to Top
World Bank Country Office in Uzbekistan
The World Bank (IBRD)
Business Center
107B Amir Temur Street
Block C, 15th floor
Tashkent, Uzbekistan 700084
Tel: (998-71) 138 5950
Fax: (998-71) 138 5951, 138 5952
Email: itsoy@worldbank.org
URL: http://www.worldbank.org.uz
Back to Top
RSS