Economic Growth
From January to July of the current year, the production of industrial goods reached a value of 345 trillion soums, representing a real growth rate of 5.7% compared to the same period in the previous year (Figure 1). It is worth noting that the growth rate of industrial goods production in the corresponding period of the previous year was 5.5%.
In the construction sector, construction works worth of 80.5 trillion soums were carried out during the seven-month period. The growth rate of the sector stood at 4.8%, indicating a slight decrease in activity compared to the corresponding period of 2022, where the growth rate was 6.4%.
The turnover of retail trade in the period from January to July of this year amounted to 156.4 trillion soums, showing a growth rate of 7.1% compared to the same period last year. Although the retail trade turnover is experiencing healthy growth, there has been a slowdown in comparison to the corresponding period of 2022, where the growth rate was 11.2% from January to July.
The volume of market services provided during the seven-month period of this year reached 250.1 trillion soums, indicating a growth of 12.4% compared to the corresponding period of the previous year. Among these market services, the largest shares belong to financial, transport, and trade services, with respective volumes of 58.2 trillion soums, 57.6 trillion soums, and 59.2 trillion soums.
Figure 1: Sectorial Growth January-July
Source: own elaboration based on https://stat.uz/images/uploads/reliz-2023/2_-infographic-rus_21082023.pdf
Inflation and Monetary Policy
In August of the current year, the monthly consumer price index experienced a 0.5% increase, showing a growth of 0.7 percentage points compared to July (Figure 2). This can be attributed to the ending effects of seasonal decline. It is worth noting that in August 2022, the monthly inflation rate was the same at 0.5%.
Analyzing the price increase in August, the inflation rate for food products was 0.6%, services experienced a 0.7% increase, and non-food products saw a 0.4% price growth. When comparing these figures to July, the price growth rates for food products, services, and non-food products accelerated by 1.5%, 0.2%, and 0.1%, respectively.
Since the beginning of the year, the overall price level has increased by 3.8%. To provide a comparison, the consumer price index stood at 7% during the period of January to August 2022.
Figure 2: Monthly Headline and Food Products’ Inflation
Source: own elaboration based on https://stat.uz/images/uploads/reliz-2023/press-reliz-za-avgust-2023-rus_narx.pdf
In August, the annual inflation rate experienced a 9% increase, showing a 0.1% acceleration compared to the previous month (Figure 3). It is noteworthy that since March of this year, the annual inflation rate has been steadily decelerating. Specifically, after reaching 12.2% in February, the annual inflation rate decreased to 0.5% in March, 0.7% in April, 0.6% in May, and 1.4% in June.
Figure 3: Annual Consumer Price Index (CPI)
Source: own elaboration based on https://stat.uz/images/uploads/reliz-2023/press-reliz-za-avgust-2023-rus_narx.pdf
During 2022, there was a notable surge in the prices of imported goods due to heightened geopolitical tensions and disruptions in the supply chain. However, by 2023, the prices of imported goods have somewhat stabilized, leading to a significant slowdown in annual inflation since March of this year.
The decrease in the inflation rate has resulted in an increase in the difference between the main interest rate and the inflation rate. Presently, this positive spread stands at 5%. Since the Central bank reduced the key rate by 1 percentage point in March, there have been no further changes to the key rate.
The decision of the central bank to maintain the key rate unchanged can be attributed to several factors. Firstly, from October 2023, the government plans to adjust electricity and natural gas tariffs for legal entities. This measure is likely to exert upward pressure on the prices of other goods in the economy.
Secondly, there is an upward trend in global agricultural product prices, leading some countries to impose export restrictions on certain agricultural goods. Notably, India has implemented restrictions on rice exports. Such actions can negatively impact price stability in the domestic market by fueling import-related inflation.
Thirdly, the geopolitical situation in the region remains tense, resulting in considerable fluctuations in the national currencies of Uzbekistan’s primary trading partners, including Russia and Kazakhstan. These currency fluctuations place pressure on the exchange rate of our national currency. Specifically, in August of this year, the average exchange rate of the local currency depreciated by 3%.
Given these circumstances, which provide room for the central bank to maintain the key rate at its current level, it has decided to keep the key rate unchanged despite the decreasing inflation rate.
International Reserves
By the 1st of September, Uzbekistan’s international reserves amounted to $32.69 billion according to the Central Bank. The tendency of decreasing reserves from the previous months continued, especially in August: less than 0.5% decrease during July but almost 3% decrease in August. The foreign currency assets continue to account for most of this reduction. They decreased by 9% over July and August. The value of the gold reserves declined by 1.5 % over these two months but their physical stock decreased by only 0.7%.
The current level of international reserves in Uzbekistan remains well above the levels recommended by international organizations, such as the IMF. The reserves are sufficient to cover at least 11 months of imports, which is still significantly higher than the level of reserves on average in the world and neighboring countries.
UZS Exchange Rates Evolution
Figure 4: Main Currencies Evolution against the UZS August 2023 (Nominal Exchange Rates)
31st of July 2023 normalized to 100; increases = depreciation of the UZS; Source: own elaboration based on Central Bank data
The UZS depreciated by 3.5% against the US dollar on the 11th of August 2023 (Figure 4). On this day, the Central Bank of Uzbekistan stopped using its reserves to limit the depreciation pressures against the UZS. The latter existed at least since the beginning of 2023 and were mainly due to the continuously increasing trade deficit, especially the increasing imports. This also led to depreciations of at least 3.5% against the Euro, the Kazakh Tenge, the Kyrgyz Som, the Tajik Somoni, and the Turkish Lira[1]. Afterward, the US dollar, the Kyrgyz Som, and the Tajik Somoni stabilized at their new level. The euro depreciated slightly against the UZS in the second half of August amid worsening economic outlooks in the eurozone but still finished August with an overall appreciation against the UZS of over 3%. The Kazakh Tenge afterward displayed some significant fluctuations but never fell below the exchange rate from the beginning of the month. It still finished August with an appreciation of 1.5% against the UZS. The Turkish Lira further appreciated against the UZS at the end of August due to the now stricter monetary policy of the Turkish Central Bank. By the end of August, the Lira had appreciated by over 5% against the UZS. However, one needs to take into account its continuous and steep depreciation against the UZS for more than a year. Thus, the new exchange rate corresponds to the one observed in June 2023.
The UZS also depreciated by 3.2% against the Russian Ruble on the 11th of August. However, it has continuously appreciated against the Ruble since the beginning of 2023. The genuine appreciation of the Ruble against the UZS only began on the 16th of August after the Central Bank of Russia increased its policy rate to 12%. By the 18th of August, it had surpassed its value from the beginning of the month. However, this appreciation was short-lived and the Ruble started depreciating against the UZS again, although less strongly. It finished August with a depreciation by 2.5% compared to its value at the beginning of the month.
International Trade
In January-July of this year, the Republic of Uzbekistan’s international trade turnover was $35 billion, a 23.3% rise over the previous year’s corresponding period. During the first seven months of this year, the volume of exports was $15 billion, while imports were $20 billion. Exports and imports increased by 31 % and 18.1%, respectively, and the international trade deficit was $5 billion in the first 7 months of this year. In comparison, the foreign trade deficit at the same time in 2022 was $5.5 billion.
The monthly foreign trade data showed some volatility (Figure 5). In particular, the import volume decreased in June but increased again in July at a higher level. The import volume increased by 25% in July, compared to a 29% decrease in June.
Figure 5: Export and Import Growth Compared to the Same Month of the Previous Year
Source: own elaboration based on https://stat.uz/images/uploads/reliz-2023/tashqisavdo_21_08_2023_rus1112222.pdf
The export volume also showed a high growth rate in July, which was driven by gold exports. The export volume increased by 83% in July, compared to the same period last year. This is due to $1.3 billion worth of gold exported in July. However, the export volume without gold unchanged in July. In particular, non-gold exports increased by 16% in June, but the growth rate was only 1% in July.
In July, exports to China (62%) and Turkey (19%) grew robustly, while exports to Kazakhstan declined consecutively for the second month (Figure 6). Exports to Russia increased by 3% point from the June indicator and reached 5% compared to the same period last year.
It is worth noting that exports to Turkey grew positively for the first time in a year. However, exports to Turkey still decreased by 33.3% in January-July due to the decrease in previous months. This situation has been prevalent for the last two years, and the decrease in exports to Turkey is explained by the sharp devaluation of the Turkish lira as a result of the soft monetary policy pursued in Turkey, as well as the decrease in the price of yarn in the world markets, which is one of our main export products to Turkey.
Figure 6: Export Growth Compared to the Same Month of the Previous Year for Main Export Markets
Source: own elaboration based on https://stat.uz/images/uploads/reliz-2023/tashqisavdo_21_08_2023_rus1112222.pdf
The pace of change in the volume of imports from our main partners accelerated slightly in July compared to the previous month (Figure 7). In particular, imports from China increased 2.5-fold compared to the same period last year. In contrast, imports from China decreased by 4% in June.
It is worth noting that despite the slowdown in China’s economic growth, exports from China to our country are growing at a rapid pace. This is explained by the high growth in exports of cars and machinery to Uzbekistan.
On the other hand, the volume of imports from Kazakhstan, as exports, has been decreasing for two months. In particular, our import from Kazakhstan decreased by 38% in June, while in July the monthly import decreased by 28%. imports from Russia decreased by 48% in June, but increased by 8% in July.
Figure 7: Import Growth Compared to the Same Month of the Previous Year for Main Export Markets
Source: own elaboration based on https://stat.uz/images/uploads/reliz-2023/tashqisavdo_21_08_2023_rus1112222.pdf
Comparison to Other Countries
Table 1: Inflation and Trade in Selected Countries in July 2023
| Countries | Inflation | Import | Export | |||
| monthly | annual | nominal (billion dollars) | growth | nominal (billion dollars) | growth | |
| Belarus | 0.30% | 2.7% | 3.5 | 20.5% | 3.2 | 1.9% |
| China | 0.20% | -0.3% | 201.2 | -12.4% | 281.8 | -14.5% |
| Kazakhstan | 0.70% | 13.1% | 29.3* | 32.2%* | 37.9* | -10.3%* |
| Kyrgyz Republic | 0.30% | 10.3% | 5.4* | 30.3%* | 1.3* | 34.6%* |
| Russian Federation | 0.63% | 4.3% | – | – | – | – |
| Turkey | 9.49% | 47.83% | 32.3 | 10.5% | 20.1 | 8.3% |
| Uzbekistan | 0.5% | 9% | 2.9 | 25% | 2.8 | 83% |
*cumulative for January-June Source: Statistical agencies of selected countries
In comparison to other selected countries (Table 1), Uzbekistan’s monthly inflation rate was average in July 2023. The annual inflation rate was average as well, notably lower than in the Kyrgyz Republic (10.3%), Kazakhstan (13.1%), and Turkey (47.83%).
Among the selected countries, Uzbekistan had the largest export growth by far in July 2023 – as already in June. However, this again was mainly driven by gold exports. It is noteworthy that exports declined in China (-14.5%) and Kazakhstan (-10.3%) for the second month in a row compared to their respective levels in 2022. In contrast, Uzbekistan’s import growth rate was average in this sample of countries. Note that imports in China declined again (-12.4%).
Fiscal Policies
14.08.2023. The Ministry of Economy and Finance published the report on the state budget for 2022. State expenditures in 2022 amounted to 236.7 trillion soums, an increase by 26% compared to 2021. 49.7% of the state budget expenditures were social expenditures, including education. State revenues amounted to 201.7 trillion soums, exceeding the forecast by 1.5 trillion soums. Compared to 2021, revenues increased by 22.5%. The deficit of the overall fiscal balance amounted to 35 trillion soums, about 4% of GDP. 47% of the deficit was covered by borrowing from international financial institutions and issuing Eurobonds. Treasury bonds were the second largest source of deficit financing.
Investment Projects
09.08.2023. Cengiz Holding (Turkey) plans to implement projects worth $5 billion in Uzbekistan. These projects include a 500 MW power plant in the Jizzakh region and two smaller power plants in the Tashkent and Syrdarya regions. In addition, Cengiz Holding will modernize and construct roads and tunnels, as well as explore and develop mineral deposits.
Announced and Enacted Economic Reforms
09.09.2023. Electricity and gas prices for legal entities are going to increase from the 1st of October 2023. The cost of 1 kWh of electricity for consumer groups I and II (Navoi Mining and Metallurgical Combine, Almalyk MMC, Uzbek Metallurgical Combine, and their structural enterprises, as well as pumping stations) will increase from 450 to 1000 soums. For other legal entities, the price will increase from 450 to 900 soums. The cost of 1 m3 of natural gas for consumer groups I and II will increase from 660 to 1800 soums. For other legal entities, the price will increase from 660 to 1500 soums. This rise forms part of a larger strategy to adjust the prices to their market levels and ultimately liberalize them. Prices for households will remain at their current levels (295 soums for 1 kWh of electricity, and 380 soums for 1 m3 of natural gas respectively). Uzbekistan raised gas and electricity tariffs for the last time in August 2019.
19.08.2023. Several measures to support small and medium businesses have been announced:
- Abolishment of the tax gap system on VAT returns from the 1st of October 2023;
- Abolishment of the suspension of the validity of the VAT registration certificate except for cases when the transactions performed do not correspond to the range of goods or services sold;
- Creation of a business development bank (from Qishloq Qurilish Bank) with special business credit lines and centers for small businesses from the 1st of October 2023;
- Submission of all reports from entrepreneurs through a single electronic system and the abolition of their paper form, also reducing the number of duplicated and outdated reports requested, from the 1st of January of 2024;
- Creation of at least 3 new industrial zones in each oblast.
16.08.2023. Several measures have been introduced to harmonize Uzbek customs duties with the WTO terms.
- The customs rates for the import of medicines and other medical goods will be reduced to zero from the 1st of January 2025.
- The procedure for labeling imported goods in the national language will be amended from the 1st of January 2024. For customs clearance into the “free circulation” regime, goods are not required to be marked in the state language. However, some goods listed by the Cabinet of Ministers will not obtain a certificate of conformity and a sanitary-epidemiological report if not marked in the state language (Uzbek alphabet based on Latin script).
- Proposals on the automation and digitization of the licensing process for the import of goods should be elaborated by the 1st of October 2023.
- Proposals to adjust the subsidy system for transport costs in accordance with WTO requirements should be elaborated by the 1st of January 2024.
19.08.2023. Exporters will receive an additional $100 million to compensate for logistics costs and another $25 million will be used to cover the cost of certification abroad and the implementation of international standards. In addition, it was decided to extend the program “New Uzbekistan – a country of competitive products” launched last year. It grants participating exporting enterprises special credit, tax, and customs regimes.
24.08.2023. Currency control has been relaxed for Uzbek exporters. Exporters will no longer have to pay a fine for failure to receive corresponding return payments if the amount does not exceed 5% of the value of delivered products under a single export contract.
04.09.2023. Monthly advance payments on corporate profits will only be paid by companies whose total income will exceed 10 billion soums instead of the current 5 billion soums according to a presidential decree from the 4th of September 2023. Implementation still awaits parliament’s approval to change the tax code accordingly.
In addition, cases involving tax authorities will be heard only in administrative courts, not in economic courts, from the 1st of January 2024.
06.09.2023. The required order of loan repayment in the case of arrears will change. At present, borrowers have to first cover penalties, fines, and interest, and only then the principal amount of the debt. From the 1st of January 2024, priority will be given to the payment of the principal debt.
International Developments
18.08.2023. The Chinese real estate giant Evergrande has declared itself insolvent in the United States. Another major Chinese real estate developer, Country Garden, plunged on the stock market after missing two coupon payments on US dollar bonds. Zhongrong International Trust, one of the leading providers of trust funds widely used in China, has admitted “short-term liquidity difficulties” and suspended repayments on dozens of its products since late July. Thus, the real estate crisis in China is beginning to spill over to other countries and into the international financial sector.
05.09.2023. Global oil prices rose over $90 a barrel for the first time since November 2022 due to Russia and Saudi Arabia extending cuts to supplies.
[1] Turkmenistan continues to have a fixed exchange rate to the US dollar which did not change in July.