Summary
Overall, the Uzbek economy proved stable during July 2023 although the slow depreciation of the Soum against the US dollar continued. During the second quarter of 2023, inflation decreased. GDP, GDP per capita, exports, and imports all increased during the first half of 2023.
Economic Growth
GDP reached 470 trillion soums in the first half of 2023. It grew by 5.6% (real growth accounting for inflation). This growth rate is very similar to the ones observed before the start of the COVID-19 pandemic in 2020. The fastest-growing sectors were information and communication (grew by 22%), and financial and insurance activities (13%). However, the healthcare and social service sector experienced a degrowth (-4%). Other slow-growing sectors are mining and quarrying (grew by 0.2%), public administration and defense (2%), and professional, scientific, and technical activities (3%). Agricultural production grew by 4%.
GDP per capita was 13 million soums (about $1139) in the first half of 2023. This represents a real increase by 3.4% compared to the same period in 2022 and by 11.7% compared to the same period in 2019.
The total income of the population of Uzbekistan was 338.4 trillion soums in the first half of 2023. It increased by 6.5% in real terms compared to the same period last year. Per capita income amounted to 9.3 million soums and grew by 4.3% in real terms.
The poverty rate was 14.1% in 2022 according to recently published data by the Statistics Agency. This represents a 2.9 percentage point decrease compared to 2021. However, the coefficient of differentiation of the population according to the 10% percentiles of the household income distribution slightly increased to 7.0 in 2022 from 6.8 in 2021, indicating increasing income inequality.
The IMF updated its growth predictions for the world economy slightly upward. It now estimates a global growth of 3.5% for 2022 and projects a growth of 3.0% for both 2023 and 2024. Thus, global growth remains weak by historical standards. Further shocks might occur according to the IMF, citing a potential intensification of the war in Ukraine, a slowdown of China’s recovery, spreading of sovereign debt distress to a wider group of economies, extreme weather-related events, and financial sector turbulence due to market adjustments to further policy tightening by central banks.
Wages and Employment
The average nominal wage in Uzbekistan (excluding agricultural and small business entities) was 4.3 million soums in the second quarter of 2023. Real wages grew by 4.5% compared to the first quarter of 2023 and by 11.9% compared to the second quarter of 2022. This is a quite substantial growth in real wages. Real wages also grew faster than the population’s total real income, i.e., income from other income sources.
The volume of remittances (money transfers from abroad) to Uzbekistan amounted to $5.2 billion in the first half of 2023. This is 21.2% less than during the same period last year. In the second quarter of 2023, the volume of transfers from abroad even almost halved compared to the previous year. This is probably because the immigration of Russians has reduced after the surge in 2022 with the invasion of Ukraine and increased military conscription in Russia. However, remittances still are higher than in 2020 and 2021. Russia remains the main source of remittances with about 80% of revenues.
In 2022, 67.2% of the working-age population of Uzbekistan was employed according to recently published data by the Statistics Agency. 74% of the working-age population was economically active. Conversely, the unemployment rate was 8.9%. The public sector employs 19% of the whole employed population. This rate is average in international comparison and similar to the values in Kazakhstan and the Kyrgyz Republic.
Inflation and Monetary Policy
In July, the monthly CPI stood at -0.2% -a slight increase compared to the previous month (-0.3%) (Figure 1). In the corresponding period of 2022, the monthly inflation rate was slightly higher at –0.1%. Compared to the beginning of the year, the general price index increased by 3.3%, which represents a significant slowdown compared to the corresponding period of 2022 (6.4%). The average monthly inflation over the first seven months of 2023 was 0.7%.
Figure 1: Monthly Headline and Food Products’ Inflation
Source: https://stat.uz/images/uploads/reliz-2023/narx_-2023_-yanvar-iyul-5.pdf
In July, the annual inflation rate continued to slow down albeit at a smaller pace than previously (Figure 2). It amounted to 8.9%. For comparison, the annual inflation was 9.0% in June, 10.4 % in May, and 12.2% in January.
Figure 2: Annual Consumer Price Index (CPI)
Source: https://stat.uz/images/uploads/reliz-2023/narx_-2023_-yanvar-iyul-5.pdf
On the 27th of July, the Central Bank of Uzbekistan decided to leave the key rate unchanged at 14% p.a. The Central Bank motivated this decision by persisting inflationary pressures from demand fundamentals, no significant decline in services inflation over the past 6 months, slower than expected decline of core inflation (11.3% in June compared to 12.4% in May), and high inflation expectations by both the population and entrepreneurs. Recall that the central bank targets annual inflation in the range of 8.5-9.5% for the end of this year. This indicator was already reached in both June and July 2023. This slowdown of annual inflation creates a foundation for lowering the key rate in the upcoming meetings of the central bank, the next being scheduled for September.
International Reserves
By the 1st of July, Uzbekistan’s international reserves amounted to $33.72 billion according to the Central Bank. The tendency of decreasing reserves from the previous months continued in June 2023. The decrease to the previous month amounts to almost $650 million, i.e., 2 %. The foreign currency assets account for most of this reduction. They decreased by 5%. The value of the gold reserves declined slightly by 0.6 % in June but their physical stock increased by 2% compared to the previous month. The reserves declined by 6% compared to the beginning of the year: foreign currency assets by 18%, gold value remained virtually unchanged while gold volume decreased by 5%.
The current level of international reserves in Uzbekistan is well above the levels recommended by international organizations, such as the IMF. The reserves are sufficient to cover at least 16 months of imports, which is significantly higher than the level of reserves on average in the world and neighboring countries. The same applies to the reserves to GDP ratio which amounts to 44% in Uzbekistan. The ratio of international reserves to broad money (M2) was 204% as of July 1, 2023. This level is 10 times more than the recommendation of holding at least 20%. Available international reserves 5.1 times cover the short-term (to be repaid in 2023) external debt of Uzbekistan – again exceeding the IMF recommendation. A clear long-term tendency of declining reserves is not yet discernable.
UZS Exchange Rates Evolution
The UZS continuously depreciated by about 1% against the US dollar during July 2023 (Figure 3). It depreciated against the Euro by more than 2% with a particularly stark depreciation by 4% at the middle of the month and only partially recovering from it by its end. It also depreciated against the Kazakh Tenge by 2%, particularly at the beginning of the month. Furthermore, the UZS depreciated by less than 1% against the Kyrgyz Som and the Tajik Somoni which stopped moving in complete unison with the US dollar in July.[1]
At the beginning of July, the UZS appreciated by more than 8% against the Russian Ruble following the rebellion by the Wagner group and reduced Russian exports. The UZS then stabilized at a distinctively higher level and finished the month at an appreciation of still more than 6%. The UZS continued its appreciation against the Turkish Lira in July due to the continuously high inflation in Turkey. The appreciation was particularly marked during the second half of the month, so that the UZS appreciated by 3% over the course of July. However, this constitutes a slowdown compared to the evolution in June.
Figure 3: Main Currencies Evolution against the UZS January-July 2023 (Nominal Exchange Rates)
30th of December 2022 normalized to 100; increases = depreciation of the UZS; Source: own elaboration based on Central Bank data
When considering the broader picture of the first seven months of 2023, the UZS depreciated against the US dollar (by 3.5%), the Euro (7.2%), the Kazakh Tenge (7.1%), and the Kyrgyz Som (1.2%). It appreciated distinctively against the Russian Ruble (by 18.9%), and the Turkish Lira (28.2%) due to the aforementioned issues in these countries. It also appreciated against the Tajik Somoni (3.7%), mainly during February 2023, when the Russian Ruble started to depreciate.
International Trade
Figure 4: Export and Import Growth Compared to the Same Month of the Previous Year
Source: https://stat.uz/images/uploads/docs/tashqi_savdo_ru_2023_yanvar-iyun.pdf
In June, the monthly export of goods and services amounted to $1.6 billion, an increase by 12% compared to June 2022 (Figure 4). No gold was exported during June – probably due to the slightly falling gold price during this month after very high prices during April and May (Figure 5). The non-existence of gold exports could explain the drop in exports and their growth rate. Monthly imports amounted to $1.7 billion, showing a 29% decrease compared to June of last year. This evolution might be some compensation effect due to the stark increase in imports in May 2023.
During the first half of 2023, Uzbekistan’s external trade turnover amounted to $29.2 billion, an increase by 19.4% compared to the first half of 2022. The export value reached $12.1 billion while the import value stood at $17.0 billion. Export and import growth rates were 23.0% and 17.0% respectively compared to the same period of 2022. The negative trade balance amounted to $4.9 billion in the first half of 2023. In the first half of 2022, the trade deficit was $4.7 billion. The overall trade-to-GDP ratio is 72% in Uzbekistan in the first half of 2023. This is a typical ratio for a commodity-exporting lower-middle-income country open to trade. Exports amount to 30% of GDP and imports to 42%. Uzbekistan’s major export items in the first half of 2023 were precious metals and stones (37%), services (19%), and cotton (6%). Uzbekistan’s major import items were boilers and mechanical devices (16%), means of land transportation, other than railway (11%), mineral fuels, petroleum and products of their distillation (8%), electrical machinery and equipment (6%), and services (6%).
Figure 5: Daily Gold Price (USD/t.oz) Evolution in January – July 2023
Source: https://www.gold.org/goldhub/data/gold-prices
Among individual countries, exports to Russia grew by 5% in June 2023 compared to their level in June 2022 (Figure 6). This ends a three-month period of decreases in exports to this country. Exports to China grew by 2%. This small growth rate might be in correction of the high one of 15% observed in May 2023. Exports to Kazakhstan decreased by 9%, continuing the up-and-down pattern of previous months. Exports to Tukey continue to decline. In June, they decreased by 52%. The export to Kyrgyzstan has been decreasing for the fourth month in a row (-62%). Monthly exports to Tajikistan increased by 31% in June.
Imports from almost all of Uzbekistan’s main trading partners decreased in June 2023. Particularly imports from Russia and Kazakhstan decreased – by 48% and 38% respectively. But also imports from China (-4%) and Turkey (-9%) fell.
Figure 6: Export Growth Compared to the Same Month of the Previous Year for Main Export Markets
Source: https://stat.uz/images/uploads/docs/tashqi_savdo_ru_2023_yanvar-iyun.pdf
Comparison to Other Countries
Table 1: Inflation and Trade in Selected Countries in June 2023
| Countries | Inflation | Import | Export | |||
| monthly | annual | nominal (billion dollars) | growth | nominal (billion dollars) | growth | |
| Belarus | 0.30% | 2.90% | 3.6 | 28.5% | 3.3 | 5.8% |
| China | -0.20% | 0% | 214.7 | -6.8% | 285.3 | -12.4% |
| Kazakhstan | 0.50% | 14.60% | 24.2* | 38.8%* | 31.6* | -7.7%* |
| Kyrgyz Republic | 0.70% | 10.50% | 4.3* | 29.2%* | 0.9* | 21.9%* |
| Russian Federation | 0.37% | 3.3% | – | – | – | – |
| Turkey | 3.92% | 38.21% | 26.1 | -17.5% | 20.9 | -10.5% |
| Uzbekistan | -0.30% | 9% | 3.4 | 64% | 2.8 | 127% |
*cumulative for January-May Source: statistical agencies of selected countries
In comparison to other selected countries (Table 1), Uzbekistan’s monthly inflation rate was the lowest in June 2023, even lower than in China. Kazakhstan and the Kyrgyz Republic exhibit higher monthly inflation rates than Uzbekistan at 0.5% and 0.7% respectively. The annual inflation rate was higher than in China (0%), Belarus (2.9%), and the Russian Federation (3.3%) but lower than in the Kyrgyz Republic (10.5%), Kazakhstan (14.6%), and Turkey (38.2%).
Among the selected countries, Uzbekistan had the largest export growth by far in June 2023. However, this was mainly driven by gold exports and hence a particular circumstance. It is noteworthy that exports declined in China, Turkey, and Kazakhstan compared to June 2022. Uzbekistan also had a distinctively higher import growth rate than the other countries in June 2023, even though imports also grew in most other countries. They only decreased in China (-7%), and Turkey (- 18%).
Fiscal Policies
31.07.2023: A draft presidential decree proposes to increase the maximum allowed ratio of the state budget deficit to GDP to 5% in 2023 from the 3% limit stipulated by law. The Chairman of the Central Bank attributed the budget increase to additional spending on natural gas imports to satisfy domestic demand while covering the difference between its market price and the subsidized price paid by Uzbek consumers and producers. In 2022, the goal of 3% could neither be met with a budget-to-GDP ratio of 4%.
28.07.2023. Some types of pensions and benefits are going to increase from the 1st of August. These include:
- benefits for elderly citizens without the necessary work experience (from 535,000 to 568,000 soums per month in accordance with the updated minimum consumer expenditure (MCE) threshold);
- the allowance for a caring legal representative of a disabled child under 18 years of age (568,000 soums per month);
- the allowance for a disabled family member receiving the survivor’s benefit (568,000 soums per month).
From the 1st of August, parents will also be exempt from paying personal income tax (PIT) on spending for the education of their children in educational institutions.
02.08.2023. The government wants to implement tourism projects worth $630 million. The five largest projects by investment amount are a ski complex in Angren, an artificial lake for recreation activities in Khanabad (Andijan region), a hotel and entertainment complex in Termez, a beach recreational area around the Tudakul Lake in the Navoi region, and a 4-star hotel and shopping complex in Samarkand. The package of measures in support of the tourism industry also includes subsidies for tour operators and an extension of payments for the construction of hotels.
Investment Projects
11.07.2023. The Ministry of Investment, Industry, and Trade will create the position of an “investment manager” who will accompany each new investor and will report directly to the minister. They will be in constant contact with foreign investors and will resolve issues that arise. These investment managers should start working with 437 investors and attract an additional $3 billion in investment this year.
31.07.2023. A special state company “Tashkent Invest” will become a bridge between Tashkent Khokimiyat and business. It will realize projects related to the development of Tashkent’s infrastructure in cooperation with private companies. The company will also manage the Tashkent Development Fund. The authorized capital of the company will gradually amount to 1 trillion soums.
27.07.2023. Ferkensco Management Limited has announced that it will increase its phosphorite ore production by 2-2.5 million tons per year at its NEOFOS mining facility in the Navoi region. The phosphorite is then processed at a new plant which should open at the end of 2023. The latter’s production serves as raw material for fertilizers at their Samarqandkimyo plant, also under construction. The latter’s production shall go to both domestic use and export. The investment volume into the agro-industrial complex by the NEOFOS project exceeds $100 million.
02.07.2023. The Italian textile company Cotonella announced its decision to set up a regional office and plant in the Kashkadarya region. In the initial phase, they plan to produce up to 2 million finished knitwear items annually, providing steady employment for approximately 80 people. In the longer term, the company intends to invest $5 million to produce 8 million units of high-value-added products per year, creating up to 500 permanent job opportunities.
In 2022, investments in fixed capital reached 266 trillion soums according to recently published data by the Statistics Agency. This amount represents 30% of GDP and an increase of 11% compared to 2021. Investments in fixed capital per capita amounted to 7.5 million soums, an increase by 8%. In the first and second quarters of 2023, these investments per capita increased compared to the same periods in 2022 by 2.7% and 14.7% respectively. The share of foreign investments and credits in these investments was 42.8% in 2022 – about the same as in 2020 and 2021.
Announced and Enacted Economic Reforms
24.07.2023. The Ministry of Economy and Finance has published a draft resolution, outlining a Roadmap for diversifying the economic base of specific regions by specializing in “green economy” activities. The document includes a program of practical measures to expand the “Green Guarantee” programs and support “green economy” entrepreneurial activities. This also includes supporting the production of electric and hybrid vehicles. According to the Roadmap, the end of the current year will see the production start of Volkswagen EVs at the Jizzakh Automobile Plant. The production of BYD electric cars in the “Jizzakh” free economic zone is scheduled for April 2024.
24.07.2023. Two free trade zones – “Gagarin” and “Sarmich” – will be established in Jizzakh by the end of the year. In addition, the resident companies of the Namangan IT Park shall receive a special “Cashback” system providing a 3.5% tax refund from the 7.5% tax paid to the local budget.
21.07.2023. Entrepreneurs who hire former prisoners shall receive a one-time subsidy of 990 thousand soums per former convict. To receive the subsidy, the former convict must have worked for at least 3 months at the company.
16.07.2023. A digital platform “Emergency assistance to exporters” (Eksportchiga tez yordam) has been created by the Ministry of Investments, Industry, and Trade to support export-oriented enterprises and wholesalers. It can be accessed at http://export.miit.uz/?parent_category=48 (so far only in Uzbek and Russian).
15.07.2023. A list of hard jobs respectively work in harmful and dangerous conditions has been approved. It bans people under 18 from working in some professions such as baker, butcher, ice cream man, dispenser of medicines, driver-foreman of a passenger train, and some mining-related activities.
International Developments
29.07.2023. Global oil prices have gained more than 16% since late June. This sustained price rise is primarily due to the OPEC+ voluntary production cuts. In addition, the situation of many large economies proves less gloomy than expected, creating a robust demand, and China has announced a government stimulus to boost its economy.
29.07.2023. The European Banking Authority announced the results of its stress test of 70 financial institutions from the European Union and Norway, representing together 75% of the banking market there. Almost all institutions have sufficient capital reserves to withstand a highly severe crisis and would still be able to support the economy. Only three banks slightly failed to meet the capital requirements applicable to them in the simulated crisis case.
17.07.2023. Russia did not renew its participation in the Ukraine grain deal, hence terminating it. It is now much more difficult for Ukraine to export its grain, increasing the world market price substantially. Ukraine accounts for 10% of the world wheat market, 15% of the corn market, and 13% of the barley market. It is also a key global player in the market of sunflower oil.
[1] Turkmenistan continues to have a fixed exchange rate to the US dollar which did not change in July.