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I. Development Situation
>>II. Implementation of the Country Strategy and Program
III. Portfolio Management Issues
IV. Country Performance and Lending Levels
Country Strategy and Program Update 2002-2004: Uzbekistan

II. Implementation of the Country Strategy and Program2

A. Poverty Reduction

10. One of the key issues in implementing the CSP is how to assure a sharper focus and greater impact on poverty reduction in the lending pipeline for 2002-2004. In the previous interim country operational strategy (COS) (1996-1999), the loan projects aimed mainly to achieve economic growth and human development objectives and were not direct poverty interventions. The current COS reflects the thrust of ADB’s poverty reduction strategy and the Government’s commitment to improving the living standards of the vulnerable, low-income, and socially excluded segments of its society. In line with the emphasis on poverty reduction, a technical assistance (TA) for Preparing a National Strategy to Improve the Living Standards of the People of Uzbekistan is being processed in 2001, in close consultation with major development partners. With assistance from this TA, a poverty analysis will be undertaken and a high-level forum will be organized. The activities are expected to culminate in a poverty partnership agreement3 in the first half of 2002.

11. ADB assistance emphasizes agriculture and rural development, as most of the country’s poor reside in rural areas. The Ak Altin Agricultural Development Project, Rural Savings and Credit Union Development Project, and Grain Productivity Improvement Project will address rural poverty issues through a combination of policy reform, institutional development, and investments. The poverty focus is likewise integrated into ADB’s support to education and urban infrastructure. Urban poverty issues are being addressed in the Urban Infrastructure Project, being processed in 2001.

12. To jump-start poverty reduction measures, the Government has expressed high-level commitment to a Japan Fund for Poverty Reduction (JFPR) project earmarked in Karakalpakstan, one of the poorest regions in the country. The project is being processed in 2001. It will create jobs and provide income to low-income households as well as address the water-based problems resulting from the environmentally strained and drought-induced situation in Karakalpakstan. The JFPR project is designed to pilot test innovative approaches for sustainable poverty reduction in selected sectors, possibly for ADB’s future country portfolio.

B. Thematic Priorities

1. Economic Growth

13. ADB support for key macroeconomic and structural reforms is critical to help achieve sustainable economic growth. For instance, ADB assistance in the transport and agriculture sectors will continue to promote pro-poor economic growth, and address key institutional and policy reforms to facilitate the implementation of ongoing projects. Assistance will be extended to the second and third phases of the rehabilitation of the strategic road and railways linkages, respectively, with sound sector policy to enable market-oriented transport management and operations to facilitate sustainable economic development.

2. Human Development

14. The Government continues to place high priority on human development through implementation of the National Program for Personnel Training. Support of human development has featured prominently in ADB assistance to Uzbekistan. Two loan projects (Basic Education Textbook Development Project4 , and Senior Secondary Education Project5) to support basic and senior secondary education reforms are under implementation. ADB will continue to support the Government’s efforts by processing an Education Sector Development Program. This sector program loan will further support education reform and address major sector issues: (i) reforming the structure, contents, and processes of education; (ii) improving sector sustainability and efficiency; (iii) improving governance in the education sector; and (iv) providing protection for the poor. The Urban Infrastructure Project, which will rehabilitate basic urban infrastructure services, will meet the basic human needs of the population. In addition, substantial capacity building components to support human development will be included in the programmed loan and TA projects. Social indicators are given in Appendix 2.

3. Gender and Development

15. A domestic gender consultant6 has substantially enhanced cooperation with civil society, particularly women’s nongovernmental organizations (NGOs) in implementing ADB-financed projects addressing gender concerns. The consultant also helps facilitate training rural women and women entrepreneurs under the two RETAs (footnote 6). ADB’s lending and TA program will continue to pay close attention to gender and development, particularly in education7 , and early childhood development. A regional JFPR project8 will particularly target poor mothers and children to improve their nutrition status.

4. Good Governance

16. Enhancing effective governance is a key feature of ADB assistance. ADB operations will continue to assist the Government through loan and TA projects (e.g., Education Sector Development Program, Corporate Governance Reform Program, and agriculture and urban infrastructure development projects) in (i) reducing overall macroeconomic distortions and supporting basic reforms (e.g., liberalizing the foreign exchange and trade regimes, improving corporate governance); (ii) supporting state procurement system reforms, and sector restructuring, and improving land and water resources management in agriculture; (iii) addressing governance issues of promoting decentralization, improving urban planning and management, and supporting tariff reforms and community participation in the urban infrastructure sector; and (iv) further improving efficiency, relevance, and financial management of the education sector at the local and community level. Further improving accountability and transparency in the political and economic system will also reduce opportunities for rent-seeking and corruption. ADB will continue to support the Government’s efforts and action plans to fight corruption particularly by improving the public financial management, introducing competitive and more transparent procurement and contracting procedures, and supporting public administration reforms. ADB’s future support for good governance will be explored following a governance assessment planned for 2001.

5. Private Sector Development

17. While ADB has initially identified a couple of private sector projects in close collaboration with European Bank for Reconstruction and Development (EBRD) and International Finance Cooperation (IFC), the current investment climate has limited ADB’s private sector development program due to the restrictions and distortions related to currency convertibility and multiple exchange rates practice. There is concern about lack of Government commitment to guarantee automatic conversion of the local currency on a regular basis for private sector projects. The liberalization of the foreign exchange system, current account convertibility, and the issue of trade restrictions need to be addressed to attract private sector investment. In the absence of meaningful steps forward by Uzbek policy makers in these key areas, there appears little prospect of ADB having substantial private sector development impact.

6. Environmental Protection

18. ADB assistance will continue to address environmental issues with special focus on agriculture and JFPR projects. Agriculture projects-Ak Altin Agricultural Development Project, and Water Resources Management Project-will include components addressing environmental issues such as reducing water pollution, improving land and water resources management (e.g., encouraging water conservation, and protecting soil resources). The JFPR project in Karakalpakstan will address the issues of safe drinking water supply and environment-induced poverty.

7. Regional Cooperation

19. Projects in the transport sector will facilitate regional cooperation by developing an efficient and safe transport linkage to stimulate trade and development. A high-level conference on Central Asian regional economic cooperation is being planned. In addition, several ongoing or proposed regional TAs aim to promote cooperation among Central Asian countries in the areas of energy, education, and environmental protection. The severe environmental problems in the region and regional disputes on water have emerged as a serious concern. The issue of effective water management will be also addressed in the context of regional cooperation.

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  1. The country operational strategy (COS) for Uzbekistan was endorsed by the Board in March 2000. The central goal of ADB’s assistance is the management of a smooth transition to market economy, while providing for a sustainable reduction in poverty and increases in standards of living. The COS sets two operational objectives. The first is the management of the transition, including (i) supporting basic reforms, and (ii) minimizing the social costs of transition. The second involves enhancing the potential for growth through (i) regional cooperation, (ii) investment in the rural sector, and (iii) direct support to the private sector.
  2. The poverty partnership agreement will be built on the national strategy, which aims at sustainable poverty reduction with special focus on sustainable economic growth, inclusive social development, and effective governance.
  3. Loan 1594- and 1595-UZB: Basic Education Textbook Development Project, for $40 million, approved on 17 December 1997.
  4. Loan 1737-UZB: Senior Secondary Education Project, for $57 million, approved on 8 February 2000.
  5. A consultant stationed at the Uzbekistan Resident Mission (URM) is working under TA 5835-REG: Enhancing Gender and Development Capacity in DMCs, for $1,000,000, approved on 26 February 1999, and TA 5889-REG : Gender and Development Initiatives, for $850,000, approved on 23 December 1999.
  6. The Education Sector Development Program will address the issues on employment conditions and training needs for teachers. These are particularly important for women as 80 percent of teachers in the basic and secondary education are women.
  7. A Grant Assistance to Asian Countries in Transition for Improving Nutrition for Poor Mothers and Children for $6 million financed from JFPR, approved on 26 April 2001. The project aims to improve the nutrition status and physical and mental capacity of the poor, by piloting an umbrella regional program for delivering micronutrient-fortified salt and wheat flour to the population.

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