Tashkent, Uzbekistan, Sept. 16
By Demir Azizov- Trend:
The International Monetary Fund (IMF) welcomed the Uzbek authorities' commitment to structural reform and the progress they have made thus far, said the message of the IMF published following the annual consultation with Uzbekistan, which ended in late August 2015.
Uzbekistan's economy has been resilient in a difficult external environment, characterized by weak economic activity in the euro area and Russia and low energy prices, said the experts of the fund.
Following solid growth performance of Uzbekistan - 8.1 percent in 2014, real GDP increased by 7.5 percent in the first quarter of 2015. Strong public investment has shielded the Uzbek economy, so far, from the slowdown experienced by other countries in the region. The external position of the country continues to be strong, and inflation has softened to around 9 percent through April 2015, owing to lower-than-anticipated administered price increases.
However, the difficult external environment, in particular, the drop in oil and gas prices and spillovers from economic slowdown in major trading partners are taking a toll on the external sector. Notably, gas and machinery exports were negatively affected.
Remittances fell by 14 percent in 2014 and 45 percent for the first quarter in 2015, compared to the corresponding periods of the previous year, said the message.
The authorities of Uzbekistan have continued their policy of gradual nominal depreciation of the sum, which has been slower than that of most major trading partners.
Fiscal policy remains prudent while the monetary policy stance is accommodative, according to the message. The fiscal outturn in 2014 registered a surplus (0.3 percent of GDP) on account of higher-than-projected excise taxes and efforts to streamline recurrent spending.
By contrast, the augmented fiscal surplus, which includes the Fund for Reconstruction and Development, narrowed (1.6 percent of GDP) on account of weaker commodity revenue.
The 2015 budget foresees a deficit of 1 percent of GDP, while the budget execution through the first quarter of 2015 registered a balanced outturn, owing to lower-than-budgeted spending.
On the monetary policy front, the Central Bank of Uzbekistan cut its policy rate, the refinance rate, to 9 percent in January 2015. Through end-March 2015, both reserve money and broad money increased, slightly above the annual target rates.
The IMF experts mention the risks posed by a weak external environment and low international energy and commodity prices, which require vigilance and appropriate macroeconomic policies.
The experts of the fund supported a looser fiscal stance in the near term, while ensuring medium-term sustainability. In this regard, executing planned expenditures and reallocating revenue over-performance to social safety nets and pro-poor spending would support growth, said the message.
Looking further ahead, the IMF welcomed the Uzbek authorities' newly adopted industrial modernization program. The IMF also recommended establishing a credible medium-term budgetary framework to better manage resource revenue and the public investment program.
The fund also urged the authorities of Uzbekistan to stand ready to tighten monetary policy if needed to contain inflationary pressures. To reduce inflation to sustainable single digits in the medium term, the IMF considered it important to upgrade the monetary policy framework and better align it with monetary aggregates targeting, as well as manage excess liquidity in the system.
The IMF also emphasized the importance of greater exchange rate flexibility to address rising pressures on the current account, and encouraged the authorities to move gradually toward foreign exchange liberalization and eliminate exchange restrictions as appropriate.
The experts of the fund said that the banking system remains stable and well capitalized, and urged the authorities to continue to strengthen the regulatory and supervisory framework. They noted the need to relieve banks of noncore functions and to phase out directed lending in order to deepen financial intermediation.
They welcomed the authorities' recently announced strategy to strengthen corporate governance and accelerate privatization, and looked forward to its effective implementation.
Uzbekistan became a member of IMF in 1992. IMF's representative office started operating in Uzbekistan from 1993.
It was previously reported that in 2014, the GDP of Uzbekistan increased by 8.1 percent compared to 2013, industrial production - by 8.3 percent, agriculture - 6.9 percent, capital construction - by 10.9 percent.
The Uzbek government plans to ensure GDP growth by 8 percent, industrial production - by 8.3 percent, agriculture - 6 percent, as well as to increase the volume of capital investments by 9.6 percent in 2015. The inflation is planned to be kept within 5.5 to 6.5 percent.