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IMF encourages Uzbekistan to contain credit growth

Business Materials 10 May 2019 14:42 (UTC +04:00)

Baku, Azerbaijan, May 10

By Fakhri Vakilov – Trend:

Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Uzbekistan, Trend reports on May 10 with reference to IMF.

Country surveillance is an ongoing process that culminates in regular (usually annual) comprehensive consultations with individual member countries, with discussions in between as needed. The consultations are known as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement.

During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials. IMF staff missions also often meet with parliamentarians and representatives of business, labor unions, and civil society.

In 2018, growth of Uzbek GDP picked up moderately to 5 percent as adverse weather impacted agriculture and bottlenecks in energy and water slowed economic growth, despite strong investment growth.

The fiscal stance remained prudent in 2018 with the overall fiscal deficit, which includes policy lending, staying around two percent of GDP and public debt remaining at 20 percent of GDP.

The central bank tightened monetary policy in 2018, raising the refinancing rate from 14 to 16 percent and using foreign exchange sales to sterilize liquidity generated by substantial purchases of domestic gold.

Progress continued on structural and institutional reforms, but the reform agenda remains large.

Currently, Uzbek government is accelerating state enterprise reforms by creating an asset management agency, unbundling responsibilities in the energy and transportation sectors, and identifying enterprises for restructuring or privatization

Executive Directors of IMF welcomed the implementation of a first wave of economic reforms, including foreign exchange liberalization and tax reform, which has supported robust growth and helped transition towards a more open and market-based economy.

Looking ahead, the directors encouraged the authorities to sustain and prioritize the reform momentum to maintain macroeconomic stability, boost inclusive growth, and spur private sector job creation.

Directors encouraged the authorities to continue their tight monetary policy to contain inflation, while bringing credit growth in line with external and internal stability requirements. Containing credit growth and phasing out directed credit would help limit inflationary pressures, avoid excessive external deficits, and prevent a potentially costly boom-bust cycle.

Directors welcomed the authorities’ prudent fiscal policy, which has kept the overall fiscal deficit and public debt at moderate levels. They supported the authorities’ intention to reduce policy lending in 2019 and welcomed the commitment to include all off-budget fiscal operations in the 2020 budget.

While reported bank soundness indicators are strong, the directors considered that state-owned banks need to address lingering balance sheet issues and improve governance.

The directors welcomed the authorities’ agenda for inclusive growth anchored by the Sustainable Development Goals, including plans to help vulnerable groups by improving skills training, boosting funding for active labor market programs, providing greater support for migrants, and reforms to the labor market

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