Countries and Regions

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p. 1 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2004-2006: Uzbekistan

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I. Current Development Trends and Issues

A. Recent Political and Social Developments

1. In early May 2003, the Government of Uzbekistan announced that, from the next Parliamentary election scheduled for 2004, the Prime Minister instead of the President will be the head of the Cabinet of Ministers. This is a positive step toward the needed delegation of authority within the central Government. Uzbekistan's domestic political transition process, as well as the centrality of its playing an active partnership role in regional cooperation, received particular emphasis during the European Bank for Reconstruction and Development’s (EBRD) annual meeting was held in Tashkent during 4–5 May 2003. The Government has signed up to key international documents on suppressing human trafficking and an Uzbek bill on combating human trafficking is to be drafted. The World Bank's Living Standards Assessment (LSA)¹ estimates that over a quarter of Uzbekistan’s population is poor, with a large number of individuals clustered around the poverty line.²

B. Economic Assessment and Outlook

2. In 2002, the Government was successful in implementing tight monetary and fiscal policies, containing the buildup of external debt, and controlling inflation. However, economic growth has slowed³ (Table A1.2). Exports and imports fell in 2002 according to official estimates, with import compression outpacing the shrinkage in exports and contributing to a current account surplus. Growth appears to be constrained by the environment for domestic and external trade. The black market premium was reduced from 120% in early 2002 to under 5% by July 2003. Following an International Monetary Fund (IMF) mission in June 2003, the Government has committed to an action plan for liberalization of the foreign exchange market, the successful implementation of which will enable Uzbekistan to formally accept obligations under Article VIII of the IMF Articles of Agreement. The Government also recently announced a number of structural and sectoral reform measures, including divestment of the Government's minority share holdings in enterprises; further liberalization of agriculture, particularly the cotton and wheat subsectors; strengthening regulations for banking supervision; and pursuing further tariff reform and restructuring in the energy sector.

3. Growth for the full year of 2003 is likely to be lower than in 2002. Higher and sustained growth over the near and medium term requires further progress toward commitments to the exchange and trade regime, ground-level implementation of announced reforms in the agriculture sector, accelerated enterprise restructuring in the state sector, an improved business environment and facilitation of the entry of new private businesses. Broad-based growth over the medium and long term will require developing a policy framework that is more conducive to private sector development.

C. Implication for the Country Strategy and Program

4. The effectiveness and sustainability of Asian Development Bank (ADB) assistance to advance Uzbekistan's growth and development depend largely on the Government's delivery of its reform program, both at the macroeconomic and sector levels. Until the reforms are in place, any further prospective program lending would need to be carefully considered. ADB's approach to new investment lending also needs to take into account how much (i) the development impact of the proposed intervention would be overly constrained by the present distortions in the macroeconomic framework; (ii) the Government's sector policies and level of commitment to reform are conducive to achieving the project objectives; and (iii) compliance with ADB loan conditionalities and implementation of ongoing projects in the sector under consideration are satisfactory. ADB has shown a strong continuing commitment to Uzbekistan's development. It looks to the Government to take the steps needed to strengthen the relationship through demonstrable progress in implementing a comprehensive macroeconomic and structural reform program.

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