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Statement at the Conclusion of the IMF Staff Visit to Uzbekistan
An International Monetary Fund (IMF) mission led by Mrs. Veronica Bacalu visited Tashkent from September 25 to October 2, 2013 to discuss recent economic developments, government policies, and prospects for the economy of Uzbekistan. The discussions also focused on preparations for the next Article IV Consultation, tentatively scheduled for spring 2014. At the conclusion of the mission, Mrs. Bacalu issued the following statement:
"Despite the deterioration in the global environment, the economy of Uzbekistan continued to grow rapidly. Strong fiscal and external positions, a stable banking system, and low public debt continue contributing to robust macroeconomic performance. Real GDP growth was maintained at 8 percent in the first half of 2013, supported by the state-led modernization investment program. Exports of goods and services rose by 12 percent. Despite rapid import growth spurred by capital goods, the current account surplus increased marginally and international reserves remained high.
"The consolidated fiscal position was better-than-budgeted, benefitting from higher tax collection and expenditure in line with the state budget in the first half of 2013. Despite a drop in gold and copper prices, the Fund for Reconstruction and Development's revenue exceeded expenditure by 4.3 percent of semi-annual GDP.
"After peaking at 12.8 percent in May 2013, annual inflation, based on an alternative consumer price index (CPI) measurement by Fund staff, declined to 11.3 percent in August 2013.1 Inflation remains driven by regulated tariff increases aimed at cost recovery, exchange rate depreciation, and demand pressures stemming from general government spending.
"Monetary policy has been accommodative. Supported by directed lending and strong domestic activity, the growth of credit to the economy stayed at 30 percent year-on-year. The depreciation of the official exchange rate through September was higher than expected.
"The banking sector remained stable, well capitalized, and highly liquid. Financial deepening is progressing at a modest pace. The authorities continued to engage in IMF and World Bank technical assistance, focused on strengthening prudential regulations, on- and off-site supervision, and stress testing.
"The near-term economic outlook is favorable and the prevailing downside risks remain manageable. Despite deteriorating external environment, economic growth is projected to surpass 7 percent in 2013-2014, supported by the government's large-scale modernization investment program. The authorities are projecting higher GDP growth of 8 percent in 2013. This is based on their assessment of the possible limited impact of the external environment on the Uzbek economy, and planned contingency measures that would mitigate the negative impact. The current account for 2013 is expected to register a surplus of 3 percent of GDP (up from 2.2 percent in 2012). The draft 2014 budget envisages a deficit of 1 percent of GDP to support economic expansion. Under unchanged policies in 2014, inflation is projected to remain at the current level. A deeper-than-expected slowdown in emerging markets and the related lower exports and current account inflows present the main downside risks to the outlook. However, the impact of such developments is deemed to be limited for Uzbekistan given ample fiscal space and high foreign exchange reserves.
"Going forward, reducing inflation remains a key priority of macroeconomic policy. Lowering inflation sustainably to single digits requires coordinated efforts in the conduct of monetary, fiscal, and foreign exchange policy. The authorities should tighten monetary policy, avoid fiscal loosening, and increase the exchange rate flexibility. The materialization of downside risks would warrant less tightening.
"The authorities should take advantage of their current strong position to accelerate reforms aimed at increasing productivity, promoting economic diversification, and enhancing competitiveness, while ensuring sustainable and inclusive growth. The recently adopted set of measures to simplify foreign trade regulations and reduce customs controls, licensing, and permission requirements is welcome. Success in improving the business environment and governance hinges on the authorities' determined implementation of these measures in practice as planned.
"Recent progress with strengthening monetary and fiscal statistics is welcome. The mission encourages the authorities to open a country page in International Financial Statistics, disseminate fiscal data in the Government Financial Statistics Yearbook, and advance their work for participating in the General Data Dissemination System. The authorities are also encouraged to develop further their macroeconomic statistics with emphasis on the real (national account and prices) and external sectors. The Fund stands ready to help the authorities enhance the quality and dissemination of macroeconomic data.
"The mission would like to thank the authorities for their cooperation, productive discussions, and warm hospitality."
1 Fund staff's estimates are based on the authorities' source data and use international methodology. By the authorities' methodology, annual inflation was reported at 7.1 percent in May 2013 and 6.8 percent in August 2013.
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