Country briefing note <download pdf file>
Strong growth momentum is maintained amid weak external conditions
- The economic growth remained strong at 8.1% in 2012 after the 8.3% growth rate recorded in 2011.
- Growth was driven by the double-digit rate growth of the services sector and rising investment through the Government's ongoing industrial modernization and infrastructure development programme for the period 2011-2015.
- Unlike in other economies in the subregion, favourable weather conditions and abundant availability of water lifted the agricultural outputs.
- The recent increases in public sector wages and social payments also helped to sustain private consumption.
- Despite these positive trends, GDP growth is expected to ease to 7% in 2013, owing to continued uncertainty in the external economic environment.
Inflationary pressures persist
- Consumer price inflation was 13.2% in 2012, compared with 12.8% in 2011, and remained above the Government's target band of 7-9%.
- This high level of inflation is partly explained by public sector wage hikes and increases in welfare benefits.
- The poor grain harvest in Kazakhstan, owing to a drought, pushed up food prices, as Kazakhstan is one of the main suppliers of grain to Uzbekistan. This led to an increase in inflationary pressures in late 2012.
- Large inflows of gas-related foreign exchange and a continuation of expansionary fiscal policy also exerted upward pressure on prices.
- Slower growth in domestic demand will help to curb inflationary pressures in 2013.
Fiscal policy remains supportive of economic growth
- The Government continued to spend on social, defence and internal security measures and support infrastructure development and investment in basic services.
- The budget balance is estimated to have fallen into deficit in 2012, although the target of having the budget deficit not exceed 1% of GDP was met.
Current account balance deteriorates but remains in surplus
- Uzbekistan maintained its current account in surplus in 2012, equivalent to 4.7% of GDP, but it was slightly lower than the 5.8% level in 2011, as global prices for Uzbek commodity exports, such as gold and cotton, declined.
- Although a fall in global food prices in early 2012 reduced import costs, demand rose for consumer goods and imported inputs for the country's infrastructure development and housing construction programme.
Development of transport infrastructure and improved trade logistics could further boost growth
- Uzbekistan faces high costs for transportation and the storage of goods due to its landlocked location. However, this geographic feature, which is located midway between East Asia and Europe, could afford an opportunity for it to serve as a transit zone and platform for trade between those two large consumer markets. Thus, development of infrastructure is important to further accelerate.
- The importance of being further connected to their neighbours has been recognized in the North and Central Asian subregion, and a number of initiatives have been embarked in this regard. For example, the Central Asia-China gas pipeline, the first pipeline to bring natural gas from the subregion to China, was jointly developed by Kazakhstan, Turkmenistan and Uzbekistan together with China.
- Cooperation among the economies of the subregion could lead to the creation of transnational transport infrastructure, and the elimination of barriers and obstacles to the movement of goods and services could further accelerate development of these countries.
High dependence on commodity exports: need to further diversify the economy
- Despite the recent efforts of the Governments in the North and Central Asian subregion to diversify their economies away from heavy commodity dependence, the subregion as a whole has become more exposed to commodity-related risks as compared with 10 years ago. Consequently, a sharp fall in external demand or commodity prices would lead to a severe decline in economic activities and, in turn, have a strong adverse impact on economic growth. Furthermore, ample revenue from commodity exports would limit the incentive for undertaking far-reaching economic reforms. Therefore, further diversification of the economy is important for achieving higher and sustainable growth as well as greater socio-economic stability.
- Countries with heavy commodity dependence must design and, more importantly, implement effectively those policies aimed at reducing their dependency on a few commodity exports, especially during the boom years when fiscal and external positions are still healthy relative to resource-poor economies.