Economic studies
Uzbekistan

Uzbekistan

Population 30.9 million
GDP 2,115 US$
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Country risk assessment
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Synthesis

major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 8.1 8.0 6.0 6.0
Inflation (yearly average) (%) 9.1 8.5 9.2 9.5
Budget balance (% GDP) 2.2 0.4 -1.5 -1.3
Current account balance (% GDP) 1.7 0.0 0.2 0.3
Public debt (% GDP) 7.6 10.7 16.3 17.2

 

(e) Estimate (f) Forecast

STRENGTHS

  • Abundant and diversified natural resources (gas, gold, cotton)
  • Low debt levels and confortable foreign exchange reserves
  • Ambitious public investment programme

WEAKNESSES

  • Poor economic diversification and dependence on commodity prices
  • Slow pace of reforms
  • Under-developed banking sector and practice of directed credit
  • State interventionism and difficult business climate

Risk Assessment 

Growth sustained by public investment

Uzbekistan is expected to continue to be one of the most dynamic economies in the CIS in 2017. The public investment programme, aimed at improving industrial plant and infrastructure, should continue to sustain activity, especially in the construction sector. Industrial output (machines, light industry and agri-food) and services (almost 45% of GDP) are also expected to remain buoyant.

The contribution of exports (almost 20% of GDP) is likely to be weak, given the persistently low prices for most Uzbek export products (gas, cotton, copper). Moreover, external demand is expected to remain moderate (notably from China and Russia). Investment could be stimulated by the steps taken by the new Head of State, specifically the creation of a special economic zone (Urgut district). Meanwhile, the country will continue to benefit from Chinese interest in transport infrastructure on the "New Silk Road".

Household consumption (more than 50% of GDP) is expected to be sustained by higher social spending and wages, as well as a modest recovery in remittances by Uzbek expatriates in Russia (estimated at nearly 2 million), and to thus offset the adverse impact of higher prices on real income.

Inflation is set to remain high, fuelled by the soum's steady depreciation and higher utility prices (water, gas, electricity) announced in October 2016.

 

Enduring slight budget deficit and current account only just in equilibrium

The government is expected to continue its policy of supporting activity in 2017. Increases in wages and social spending are expected to moderate, but public investment is likely to continue to climb. Export income is unlikely to increase by much and tax revenues could fall because of lower tax rates on some businesses under the 2017 budget. Public debt levels will remain low.

Uzbek exports are expected to increase slightly, thanks to a modest recovery of growth in Russia and relatively high activity levels in China, even though these are not expected to accelerate. The price of gold, Uzbekistan's leading export product, and the price for the country's other exports (cotton, gas) is not likely to rise much. Import growth might also be modest. Increased remittances may, nonetheless, help prevent the current account balance from worsening.

The gradual depreciation of the soum against the dollar is set to continue in 2017, notably because of movements in the rouble's exchange rate, which determines the competitiveness gap with Russia. The massive foreign exchange reserves (around 18 months of imports, including gold) shield the country from financial tensions. The central bank can also resort to exchange control measures (obligation to convert export income) which helps reduce foreign exchange risk.

The underdeveloped banking system is tightly controlled by the State, especially its lending policy, which weakens the quality of its portfolios. However, the sector will be supported by the government in the event of any difficulties.

 

A succession which is not expected to fundamentally change the political landscape or to modify the business climate which will remain difficult despite the announced reforms

The death in September 2016 of Islam Karimov, in power since the country became independent, brought Prime Minister Shavkat Mirziyoyev to the position of head of state, contrary to the provisions of the Constitution, which provides for the takeover as temporary head of state by the President of the Senate. Therafter, Mr Mirziyoyev won with a comfortable majority (89% of votes) the presidential election held on 4 December 2016. He is likely  to continue the policies of his predecessor founded on a strong State, ensuring political stability. Meanwhile, he could restart negotiations with neighbouring countries, notably Kirghizstan and Tajikistan, which would help reduce regional tensions.

The risk of a rise in Islamist groups is likely to persist. Meanwhile, poverty, unemployment and restrictions on freedom provide fertile ground for protests by a very young population (almost half are under 25).

The new president, who is more positive about economic reform, could, however, take steps to encourage investors. But restrictions on access to foreign currency, the grip of public bodies on the economy and the high level of corruption (ranked 187th out of 204 by the World Bank), is likely to continue to affect the business climate. 

 

Last update : January 2017
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