Å·ÃÀÈÕb´óƬ

Country Context

Uzbekistan has implemented bold reforms in recent years, liberalizing its economy and improving prospects for private sector development. Since 2017, with an average GDP growth of 5.3%, the country has become one of the world¡¯s top reformers, outperforming many lower-middle-income economies.

Nevertheless, job creation has lagged with just 1.1% average growth over the last five years. However, the country needs to accelerate this as population growth averaged 2% over the same period, with a projected yearly net increase of 250,000 in the working-age population.

To achieve sustainable, job-rich economic growth, Uzbekistan needs to sustain its reforms focused on reducing state dominance in the economy, liberalizing key sectors, and improving the environment for trade, business, and investment. Building the right skills for the fast-growing economy is also an essential area for public investment.

In 2023, Uzbekistan adopted the National Development Strategy 2030, aiming to become an upper-middle-income country by the end of this decade. The country also plans to make progress in the following priority areas: empowering citizens; ensuring the population¡¯s well-being through sustainable economic growth; protecting the environment and conserving natural resources; and developing public services with a focus on people¡¯s needs.

Å·ÃÀÈÕb´óƬ Group remains committed to its collaboration with the government to assist Uzbekistan in realizing its key development objectives by 2030.

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 group¡¯s financial and analytical support to the Government of Uzbekistan for the next five years in support of the National Development Strategy for 2022¨C26.

The CPF aims to expedite the country's move towards an inclusive and sustainable market economy through three overarching goals: (1) boosting private sector employment, (2) enhancing human capital, and (3) facilitating a transition to greener growth that improves livelihoods and resilience.

Additionally, the CPF seeks to help the Government of Uzbekistan 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 region¡¯s largest allocation.

As of October 1, 2024, the World Bank¡¯s country program in Uzbekistan consisted of 24 projects, with net commitments totaling over $4.7 billion. These projects are funded through highly concessional credits from Å·ÃÀÈÕb´óƬ?for over $3.4 billion (or over 70% of the entire financing that the World Bank has provided to the country) and loans from?the International Bank for Reconstruction and Development (IBRD)?for $1.3 billion.  

World Bank-funded projects, which are implemented by respective government agencies, 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 as well  as sanitation, energy, transport, health, education, and social protection systems. These projects also focus on enhancing both urban and rural infrastructure, investing in institutional capacity building, and developing national innovation, tax administration, statistical, and financial systems.

Moreover, 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, as well as assisting Uzbekistan with acceding to the World Trade Organization (WTO).

Economy

Recent Economic Developments

In Uzbekistan, real GDP grew by 6.4% year-on-year (YoY) in H1 2024 compared to 6.2% in H1 2023, driven by investment and private consumption. 

Real consumption growth accelerated to 6.8% in H1 2024, supported by wage and remittances growth, while real investment increased by 36.6%, with FDI accounting for 29% of this investment. 

Exports (in nominal U.S. dollar value) increased moderately in H1 2024, by 5.5% compared to 24.7% a year earlier, led by services, food, and chemicals exports, while exports of gold, textiles, and machinery decreased moderately. Imports expanded by 11% in H1 2024, led by rising natural gas imports, machinery and equipment, and intermediate industrial goods.

Overall, in H1 2024, Uzbekistan registered a current account surplus of 1% of GDP, as remittance inflows surged to 14% of GDP, compared to 13% of GDP in 2023, offsetting the H1 trade deficit of 13% of GDP.

By August 31, 2024, international reserves reached $39.2bn, rising by $6.5bn from August 2023 and representing nine months of import cover.

In H1 2024, as a share of GDP, budget revenue was 30%, while expenditure was 35.9% resulting in a budget deficit of 5.9%¡ªhigher than 5.7% in H1 2023.

Headline inflation peaked in June 2024 at 10.6%, largely due to energy tariff increases, but has since slowed to 10.5% in July and August, with food inflation decelerating to a record low of 2.9% in July.  

Average real wage growth of 7.2% in 2023 contributed to a reduction in poverty from 17.3% in 2022 to 16.9% in 2023 (applying the upper-middle income (UMIC) poverty line of $6.85/day).

Economic Outlook

In Uzbekistan, growth is projected at 6.0% in 2024, moderating slightly to 5.8% in 2025. Consumption growth in 2024 is expected to remain strong as average real wages increase and remittance inflows remain high.

Import growth should accelerate in 2024 and continue buoyancy in the medium term to support economic modernization. Supported by high remittances, the current account deficit is projected to narrow in 2024 compared to 2023.

The overall fiscal deficit is expected to reduce to 3.7% of GDP in 2024 due to higher-than-expected nominal GDP in 2024 and fiscal consolidation measures, notably reduced energy subsidies and on-lending to state-owned enterprises, and higher revenue collection.

Fiscal consolidation is expected to continue in the medium term, with the budget deficit decreasing to 3.0% of GDP by 2025, as the government reduces tax expenditures and anticipated privatization proceeds support revenues. Headline inflation is expected to decline to 9% in 2025 and gradually approach the inflation target of 5% in 2027.

The government is expected to adhere to its debt limits, with public debt decreasing to 35.9% of GDP in 2024 and 34.6% of GDP in 2025. 

Higher remittances and real growth in private consumption will lead to further poverty reduction, with the upper-middle income (UMIC) poverty line projected to decrease to 15.2% in 2024.

Downside risks to this outlook include a deterioration in Russia¡¯s economic performance, higher external inflationary pressures, and tighter-than-expected global financial conditions. Upside risks include higher global gold and copper prices, and stronger productivity growth and FDI due to ongoing structural reforms.