Speech by Xiaoyu Zhao, ADB Vice President, at the International Anti-Crisis Conference, Tashkent, Uzbekistan
First Deputy Prime Minister and Minister of Finance, Mr Rustam Azimov, Honorable Ministers, Excellencies, Distinguished Guests, Ladies and Gentlemen.
Let me start by thanking the authorities of Uzbekistan for organizing this special event, and of course for inviting the Asian Development Bank to take part in it. I am delighted to be here again in this beautiful city of Tashkent.
As many of you know, during the first week of May this year, ADB will hold its General Annual Meeting in Tashkent. This is the first time we will hold such a meeting in Central Asia. We are especially grateful to Uzbekistan for hosting us and for the impeccable organizational arrangements. We expect close to 3,000 visitors and I am confident that this meeting will be a great success. We hope you can all come.
Today, I would like to share with you some views on the global economic crisis and Asia's policy responses. I appreciate that First Deputy Prime Minister Rustam Azimov set the scene for me to focus the main body of my speech on Uzbekistan. First, however, I will share some highlights from Asia and the Pacific, and the assistance extended by ADB over the period.
We all know that the crisis hit Asia hard in 2009. Many countries were badly affected, including Central Asia, with the exception of Uzbekistan. All other countries experienced a very sharp economic downturn. The smaller economies were much more heavily affected than the larger ones - largely because of an unprecedented drop in remittances, a major source of income and gross domestic product, and lower commodity prices. The macroeconomic stance went out of synch and poverty levels rose. In several places countries called on the IMF for standby assistance. The social and financial dimension of the crisis has been severe.
The response to the crisis by countries in Asia and the Pacific has, however, been swift and successful. Anti-crisis programs were put in place throughout the region, including in Central Asia and the Caucuses. These focused on public investment and social safety nets. As a result, a turnaround has taken place, although it is still fair to say that we are not out of the woods yet. The smaller countries of Central Asia and the Caucasus are growing again, but not at the rate they were before the crisis. Recovery will take a little longer in these countries.
ADB responded fast and we think well to the crisis. We put in place several programs, including a substantial countercyclical facility of $3 billion to ensure short-term budget finance. The Board of Directors of ADB also approved a $400 million liquidity facility targeting the lower income member countries. With global trade shrinking, and access to capital markets made more difficult, ADB expanded its trade finance facility to over $1 billion, which helped sustain jobs and industries in the most challenging markets. ADB also raised exposure limits on nonsovereign and private sector lending and increased the number of budget operations underpinned by IMF programs. All in all, our assistance has helped our client countries maintain essential expenditures and keep in place much needed social safety net programs.
Let me now turn to Uzbekistan.
It is our view, and I am sure this is shared by others gathered here today, that the Government of Uzbekistan has had its own unique response to the crisis. This response is structured into three parts. The first part relates to the policy approach before the crisis. The second relates to Government actions during the first few months of the crisis. The third deals with the medium to long term - the so-called after crisis response to ensure high and sustainable economic growth and inclusiveness.
In all these areas, I believe Uzbekistan has done extremely well. I congratulate the country's Leadership, His Excellency President Karimov, and his very capable economic team.
The Government's actions before the crisis hold the key to its success. Its cautious policy stance over the past few years cushioned the economy against the global downfall. This ensured economic growth during 2009 and 2010 and provides a platform for faster growth in years to come. Let me say in this context that the approach taken reminds me a conversation I once had with an old friend when talking about the difference between an astute person and an intelligent one. He said that an astute person is some one who gets into trouble but knows how to get out of it, whereas an intelligent person is someone who does not get into trouble in the first place.
For years, Uzbekistan has handled its economic policy and economic program well. Its gradualist approach has yielded positive results. Although lower commodity prices have meant lower revenues and growth rates than would otherwise have been the case, the economy has continued to grow steadily at more than 8%. This is not a small feat. Indeed, it is remarkable. You will see in another presentation later that most other countries in the region witnessed unprecedented GDP downfalls. While some are just now turning the corner, Uzbekistan has continued to create jobs and exports.
What does this gradualist and coherent approach really mean? First it means macroeconomic stability, fed by a sound fiscal and monetary stance, and very measured and well-phased sector reforms.
One of the various byproducts of this is a healthy and sound banking sector, with a strong and effective supervisor. I am happy to note that this policy approach did not stifle innovation in the sector. Instead, it has stopped bad borrowing and bad lending, certainly good habits if one wants to avoid big bad performing loans.
The other feature of the gradualist approach is that the reform agenda has come with sensible public spending, good public financial resource management, strong governance and high cost recovery rates. All this has called for much greater institutional effectiveness, better institutional organizational arrangements, much better management, a stronger skills base, better monitoring and better reporting. Cost recovery itself has been underpinned by smarter tariff regimes and discipline when it comes to invoicing and fee collection, especially in the case of basic public service utilities. This sensible approach on cost recovery created the base for supporting new investments and the correct maintenance of existing and new assets. In the case of ADB financed projects in Uzbekistan, we are on course to meeting all targets, meaning that we are building things on time and within budget.
Reforms create the right conditions for investment, high operational performance and results. Reforms also mean, and will continue to mean, private sector engagement. In particular, I want to highlight a vibrant and rapidly growing small- and medium-sized enterprise sector. These are now operating across many industries and services in all provinces. I see this SME sector growth as an irreversible trend, a development supported by the country's leadership. SMEs create jobs and generate income and exports, and are part of the solution to long term prosperity.
I must add that a reform program and the private sector alone cannot deliver results. Public investment must also be part of the agenda. In this area Uzbekistan has been a top performer. Investment priorities include basic infrastructure and services, critical to delivering higher productivity and competitiveness. Specifically, the public sector investment program has targeted improvements in connectivity, through the expansion of the roads, rail and airport networks. It also targets energy security, energy efficiency and energy trade, through high priority investments in power generation, transmission and distribution. And it improves the quality of life in urban centers and rural areas through investments and institutional changes in the water sector, urban transport and housing. I must also emphasize here that in Uzbekistan we cannot forget about the enormous strides made in education and health. A huge share of the development budget has been directed at these two areas. This develops the skills base and human capital for the future.
The Government has provided the right analytical and strategic underpinning, and incentives, to ensure that certain industries and services come into being. The special efforts to develop the Navoi free economic zone as a major industrial and logistics hub are an example of leading from the front, of thinking and doing. I would also note the special efforts being put in place to increase value addition across industries, especially in agriculture and, very soon, in the gas sector. The idea of remaining a commodity exporter is not an option for Uzbekistan. This is why its transformation strategy is rooted in commonsense. It is based on an understanding of existing capabilities, not on unrealistic assumptions. We certainly agree that there is no better way to create jobs and prosperity than to diversify and industrialize.
Let me close on this gradualist approach by highlighting the regional perspective. Uzbekistan sees itself as a transit country but also as a major user of new regional transport corridors and energy networks. A double land-locked country cannot afford to operate in any other way. Uzbekistan cannot afford poor connectivity or limited access to markets and international ports. Major investments are underway in the country to expand connectivity between cities and towns and between the country and its neighbors. This investment covers hard and soft infrastructure, including better customs procedures and facilities, which will aid local industry as well as foreign investment. The approach has immediate and visible benefits on the local economy. But it also has a huge spillover effects on regional economies. Let me mention here the special actions taken by Uzbekistan regarding electricity supplies to Afghanistan, still today the only supplies reaching the country and its capital city of Kabul. Ten months ago Kabul had 2 hours of electricity a day. Today, because of supplies from Uzbekistan, it has 24 hours. Another special regional project is the construction of the Hairatan to Mazar-e-Sharif railway line. This will unlock huge bottlenecks at Hairatan and speed up cargo deliveries from and to Central Asia. The line will connect to the airport at Mazar and the national ring road, thereby expanding the multimode transport system in the country. Uzbekistan is building this railway, the first ever in Afghanistan.
Let me now turn to the response made during the global financial crisis. Although the gradualist approach cushioned the economy from the worst effects of the crisis, Uzbekistan did take additional and immediate actions to protect growth and inclusiveness. These actions have been sound and timely. We can highlight in particular the expanded public sector investment program. This created fast stimulus to local industry, albeit contained within the financing capabilities of the country. Other actions focused on small- and medium-sized enterprises. The main feature here was expanding access to credit and creating conditions for buying more raw materials and finished products locally. The actions also targeted exports and restricted non essential imports. This agenda counterbalanced the lower revenues arising from lower cotton, gas and gold prices. The 8% growth in 2009 has been done without overspending. And it has been done in a sober manner.
Looking to the future, the main theme is to stay the course, replicating in the medium to long term the commonsense policies of the past. There are several things we believe the Government intends to do and that we see as very positive. I will highlight just three.
First, we expect a continuation of the balanced macroeconomic stance. Key features should include staying within budget, raising tax revenues without increasing necessarily tax rates but broadening the tax base, improving governance, raising the accountability of institutions, and ensuring efficiency and effectiveness. In particular, we expect, and agree with, a gradualist approach that combines reform and investment.
Second, we expect a continuation of policy induced development. This approach focuses on transformation, diversification, and sophistication of exports and value added industries, backed by the right public infrastructure facilities, service utilities and incentives, stronger private sector participation and the right sunset clauses. We see the continuation of actions to eliminate market failures. In particular, we see great potential to transform the agriculture, textiles and gas industries.
Third, we expect investments with high national and regional content, with a special emphasis on transport, energy and trade facilitation.
In conclusion, we see Uzbekistan on the move, on the path to high growth and inclusiveness. This has been the trend for several years now. I expect the leadership to pursue the same model in future, a model followed by many successful countries in Asia and the Pacific. We foresee good times ahead. But one of the most exciting prospects is that high, inclusive and sustainable economic growth over the next couple of decades will transform forever the country rich in history and potential into a champion economy in the region. We congratulate Uzbekistan for the work done so far and wish the leadership and the economic team well in the future.
I thank you all for listening and look forward to further exchanges with you during the ADB Annual General Meeting here in Tashkent in May.