Mehmood Ul Hassan Khan
The Republic of Uzbekistan, land of light, human wisdom and custodian of ancient civilization has successfully surpassed all the hardships and achieved high standards of economic growth, social development, political participation and above all democratization process in the country. Its voyage journey has now reached to the shores of stability and sustainability and now skies is the limit.
Within short span of time Uzbekistan has transformed its macro-economy from a raw-material based economy to knowledge-based economy. Initially it was inflicted with a destructive monopoly of cotton production and gradually revolutionized into a dynamically growing country with a massive industrialization. Uzbekistan’s economy has grown 4.1 times, and in per capita terms it multiplied at least threefold. The public external debt of the country never reached beyond to 16 percent of the GDP, while the internal debt has a zero valuation, amid the mounting volumes of exports and gold and currency reserves. It attracted more than US$ 56 billion of FDIs. The volume of capital investments in 2013 is to make up US$14 billion, which is 23 percent of the GDP.
Now more than 300 investment projects/programs of worth US$55.4 billion are being carried. According to its official figures the government plans to direct US$15.3 billion to the oil and gas sector and US$12.1 billion to oil and gas chemistry, US$7.2 billion to transport, US$5.8 billion to the energy sector and US$4.4 billion to the mining and metallurgy industry, among other investments.
According to many statistical reports of Asian Development Bank (ADB) and International Monetary Fund (IMF), Uzbekistan has achieved miraculous socio-economic development since its independence. It enjoyed robust gross domestic product (GDP) growth since the mid-2000s averaging 8 percent annually due mainly to three factors are given below as:
Sustained Marco-Economic Growth
According to ADB (2013-2014), Uzbekistan’s GDP remained healthy at 8.0 percent in 2013, largely led by wage and pension increases, high public investment spending, and large remittances. Recovery in external demand raised the current account surplus to 3.7 percent of GDP. Continued high public spending, strong private consumption, and an improving external environment are projected to keep growth near 8.0 percent in 2014 and 2015.
Comparative study of different research papers and reports of the ADB and IMF suggested that Uzbekistan’s GDP grew by 8.0 percent, down slightly from 8.2 percent in 2012 but making 2013 the seventh consecutive year of growth at 8.0 percent or better. On the supply side, the main contributors to constant economic growth were industry including construction, which expanded by 9.0 percent up from 8.0 percent in 2012 and services at 8.8 percent.
Rapid Industrialization
In industry, the ongoing modernization program, backed by substantial public investment and recovering external demand, substantially boosted the production of machinery, textiles, construction materials, and foodstuffs in the country. Now Uzbekistan is one of the advanced industrialized countries in the CIS.
Services Sector
Services posted healthy growth as retail trade, telecommunications, finance, and catering all recorded double-digit increases. The continuing housing boom raised construction growth to 16.6 percent from 11.5 percent in 2012. Agriculture grew by 6.8 percent supported by favorable weather and record harvests of the key cereal and vegetable crops.
Economic Prosperity all the way
On the demand side, wage and pension increases and substantial remittance inflows boosted private consumption, while net exports also increased. The government raised public sector wages and pensions by 21 percent in 2013 and maintained large-scale public investment in industry and housing. State investment spending grew by 11.0 percent to $11.3 billion, enabling gross fixed capital formation to rise by 19.8 percent following 11.1 percent growth in 2012. The government reported that inflation in 2013 was 6.8 percent below the 7 percent-9 percent target range set by the Central Bank of Uzbekistan.
Economic Prospects
a. Higher government spending and private consumption
Higher government spending and private consumption are projected to support growth at 8.0 percent in 2014 and 7.8 percent in 2015. Improvement in the external environment should raise demand for exports. On the supply side, investment-led industry and consumption-led services will remain the key drivers of growth. Planned wage and pension increases exceeding the inflation rate should, combined with remittances, boost private consumption and promote services. Agriculture is projected to grow by 6.5 percent each year, reflecting stable production in cotton and wheat.
b. Government’s large-scale investment
It is hoped that the government will continue its large-scale investment program, which is set to conclude by 2015. Its aim is to increase industry’s share of GDP to 28 percent in 2015 from 24 percent in 2013. The state investment program for 2014 envisages an investment package of $14.3 billion equal to 23 percent of GDP, of which $3.9 billion is to be financed externally. Gross fixed capital formation is forecast to rise by 10 percent in 2014 and 13 percent in 2015.
c. Budget Surplus
The government reported a budget surplus of 0.3 percent of GDP in 2013, though the surplus in the augmented budget. The current account surplus grew to 3.7 percent of GDP, reflecting a larger trade surplus, as external demand started to recover and destinations for key exports diversified. Despite lower international prices, export earnings grew by 14.7 percent mainly on higher gas exports.
Resilient Banking Industry
The government of Uzbekistan recognizes the importance of financial sector reforms and supports financial activities through a variety of legal and regulatory frameworks, the most important being Presidential Resolution No. 1438 of November 2010:
“On Priority Areas for Further Reforms and Sustainability Improvement of
Country’s Finance and Banking System in 2011–2015 and Achieving High
International Ratings. This resolution elaborates priorities for further reform
including comprehensive programs for banks, nonbank institutions, and microfinance,
and covering the extension of nonbank credit networks and their range of services”.
The government’s reform agenda is to maintain the sector using state support, credit infrastructure, risk management, and banking supervision. Additional reforms are needed to prioritize private sector access to finance through competition, diversification, and market driven allocation and distribution of resources. These additional reforms would strengthen the ability of banks to provide efficient intermediation, thereby supporting government targets for growth and improved well-being.
Moody’s International Rating Agency (April, 2014)
Moody’s international rating agency published a report with forecasts on the development of the Uzbek banking system whereby the agency has confirmed the system’s progress as “stable” for the fifth year in a row.
According to Moody’s, the stable forecast is provided by the high rates of economic growth in Uzbekistan accompanied by considerable volumes of investments. It cited as positively influencing the forecast include the steadfast incomes of Uzbek banks that ensure the capital for funding the growth in loans.
It is estimated that Uzbekistan’s economy would remain productive for the longer term too which showed elements of diversification, industrialization, knowledge based economy, human resource development and the last but not the least, export oriented policies in its macro-economy.
According to the Moody’s recent report the quality of assets of Uzbek banks would be steady and stable because of encouraging trends in capital investments. In 2013, the total sum of assets of Uzbekistan’s commercial banks grew by 30 percent, while for the last five years this indicator has multiplied 3.6 times.
Furthermore, targeted measures geared to boost the capitalization of the banking system have helped secure a 3.5 times growth in the aggregate capital of banks within the last five years, and in the year 2013 alone the aggregate capital increased by 25.1 percent. In the meantime, the level of capital adequacy in the banking system is three times as high as the universal international standards. It anticipated that the liquidity indicators and profitability of Uzbek banks would remain stable within the forecast period.
Uzbekistan’s banking sector has promoted industrial development by channeling public investment to strategic industries and increasing total bank lending, while keeping banks sound. At the end of 2013, the sector’s capital adequacy ratio reached 24.3 percent. Aggregate capital in the banking sector rose by 25 percent, helping expand total credit by 31 percent. Moody’s Investors Service (August, 2013), issued a stable outlook for the country’s banking sector, citing healthy bank profits, improvements in asset quality, stable liquidity, limited reliance on wholesale funding.
Concluding Remarks
The Republic of Uzbekistan is the role model of socio-economic prosperity. It has already achieved remarkable goals which has made it one of the more stable, strong and sustainable economy in the world. Now a sky is the limit.