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Annual Report 2001

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Uzbekistan

Economic performance

Uzbekistan’s economy continued to grow in 2001, expanding at 4.5%, compared with 4.0% in 2000. While growth in the industry sector remained strong, it was hampered by a lack of investment owing to the restrictive trade and foreign exchange regime. Despite the severe drought, agriculture rebounded in 2001. An unfavorable global environment and a slump in cotton prices partly offset the positive impact of the improved crop. Falling import demand in the Commonwealth of Independent States, the absence of wide-ranging restructuring in Uzbekistan, continued reliance on the cotton crop, and the worsening environmental conditions in the region, have led to lower-than-expected GDP growth. The 2001 budget target assumed a deficit of 57.5 billion sum (1.5% of GDP). The overall budget deficit was about 1.0% of GDP in 2001. The shortfall was financed by central bank credits and proceeds from the sale of state-owned enterprises. A slump in commodity prices in 2001 reduced export revenue and forced the Government to continue its policy of import compression and import substitution to prevent a rise in financing requirements. A massive devaluation of the sum also depressed imports. However, these policies did not cancel out the current account deficit at 0.5% of GDP in 2001 from a surplus equivalent to 0.8% of GDP in 2000. External debt was estimated at $4.6 billion. Consumer price inflation was 26.6% in 2001, according to official statistics, but the actual level could be even higher. The partial unification of foreign exchange rates and the rise in fuel prices and public sector wages became the main drivers of inflation over the last quarter of 2001. Registered unemployment in 2001 was at the same level as at the end of 1999—0.4% of the workforce. Actual unemployment was higher because of underreporting. Considerable hidden underemployment also existed.

ADB operations

Operational strategy: The central goal of ADB’s assistance to Uzbekistan is managing a smooth transition to a market economy, while providing for sustainable poverty reduction and raising living standards. The strategy has two operational objectives: to manage transition by supporting basic reforms and minimizing the social costs of transition; and to enhance growth potential by promoting regional cooperation, investment in the rural sector, and direct support to the private sector.

Policy dialogue: Policy dialogue with the Government centered on reforms in education, agriculture, and urban infrastructure, and small and medium enterprise (SME) development. In the education sector, policy dialogue covered modernizing the structure, content, and processes of education; improving sector sustainability and efficiency; reforming education governance; and protecting the poor and vulnerable population groups. In agriculture, the dialogue focused on farm debt restructuring, abolishing joint responsibility, promoting producer incentives, and encouraging private farming. In urban infrastructure, dialogue was on institutional reforms and decentralizing implementation, cost recovery, capacity building, and raising the standards of urban infrastructure service delivery and maintenance. As a result of ADB policy dialogue, SMEs will benefit from easier foreign exchange availability.

Loans and technical assistance: ADB approved two loans totaling $72 million in 2001 for the agricultural development of Ak Altin and urban water supply projects. ADB approved five advisory technical assistance grants totaling $2.3 million in 2001 for pilot testing rural savings and credit unions, institutional support for sustainable agricultural development, building research and analytical capability for structural reforms, capacity building for urban water supply, and comprehensive medium-term strategy for improving the living standards of the people of Uzbekistan. ADB also approved a $2.5 million grant-financed project for supporting innovative poverty reduction activities in Karakalpakstan, financed by the Japan Fund for Poverty Reduction.

Project implementation: Since joining ADB in 1995, Uzbekistan has received 10 loans, all of which were active at the end of 2001. Contract awards totaled $32.6 million, bringing the cumulative figure to $133.2 million. The contract award ratio was 5.6%, lower than the ADB-wide average of 14.8%. Disbursements during the year totaled $40.1 million, bringing cumulative disbursements to $119.0 million. The disbursement ratio was 13.1%, lower than the ADB-wide average of 20.5%.

A country portfolio review was held in June. The 2000 action plan was discussed with the Government and further measures were agreed upon to expedite project start-up and improve the overall portfolio performance. To facilitate portfolio performance, several projects were delegated to the Uzbekistan Resident Mission for supervision.

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