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TBC Capital insights: What comprises the backbone of Uzbekistan's economy?

Uzbekistan Materials 18 November 2021 14:33 (UTC +04:00)
TBC Capital insights: What comprises the backbone of Uzbekistan's economy?

BAKU, Azerbaijan, Nov 18

By Natavan Rzayeva - Trend:

Georgia's TBC Capital has published a report on Uzbekistan's economy, evaluating how it will develop in the near future, Trend reports referring to the report.

According to TBC, in recent years Uzbekistan has actively positioned itself as a reformer with liberalizing economy and putting more emphasis on foreign investments, further strengthening the growth outlook.

"While going forward the continuation of liberal reforms and increasing role of private sector is expected, the government will likely play an important role in development through addressing innovation and coordination market failures," said the report.

TBC Capital also noted that 'Uzbekistan has a strong track record of discovering new industries and therefore the success likelihood is considerable, further strengthening the outlook.'

The report outlines three key factors (diversification, liberal reforms and foreign savings, industrial policy) that will serve as driver for the Uzbek economy.

Diversification

During the pandemic, among only few countries Uzbekistan demonstrated the resilience with 1.7 percent positive growth in 2020 and a strong recovery in 2021. This strong performance is remarkable as according to the stringency index the negative impact on growth was substantial and furthermore, the fiscal stimulus was marginal with the deficit to GDP ratio increasing by only 0.5 percentage points in 2020.

The main reason behind such resilience is the diversification of the economy. In particular, Uzbek exports are dominated by gold, industrial metals with mainly copper, gas, cotton, textiles and fruits & vegetables, out of which the demand on the cyclical metals and energy increases during the strong global growth.

Liberal reforms and foreign savings

Recently, Uzbekistan has debuted on the international markets with reasonable yields, with the current public debt to GDP ratio lower than 40 percent and increased presence of international financial institutions. The country is recently increasingly focusing on external savings to fund its very strong investment to GDP ratio.

The whole gamut of the Uzbekistan’s economy and institutions are under reforms, including but not limited to privatization, new transparent and digitalized tax code, trade liberalization, and central bank reform. The results are already evident in World of Bank’s business report, Uzbekistan improving its ranking from 141 in 2015 to 69 in 2020.

Industrial policy

The government of Uzbekistan will likely play an important role in strengthening growth and development of economy through addressing cost discovery and coordination market failures.

Indeed, Uzbekistan has a strong track record of discovering new industries. In particular, while cotton production industry had dominated the exports together with commodities, new higher-value added industries such as textiles, cars, fertilizers and chemicals were developed. Though some of the sectors have not proliferated in exports, they still dominate the local markets, for example the car industry.

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