Uzbekistan: Officials hastily adjusting economy for rapid transformation

Uzbekistan: Officials hastily adjusting economy for rapid transformation

Uzbekistan's Economy: A Gamble on Growth

It seems that Uzbekistan's government is taking a bold approach to sail their economy through troubled waters. President Shavkat Mirziyoyev's administration is putting big money on infrastructure projects in emerging industries, and they're looking far and wide to secure new trading partners and investments.

The drive behind this strategy appears more out of necessity than a grand vision. Pillars of the existing Uzbek economy - cotton, natural gas, and migrant remittances - are all facing uncertain futures. Gas exports have taken a huge hit in recent years, draining the state's finances. Meanwhile, water-intensive cotton production is under threat due to climate change and other factors, questioning its sustainability. Migrant remittances, another major source of revenue, are in a state of flux, mainly due to the Russia-Ukraine conflict driving many workers to seek opportunities abroad.

To offset the financial risks, Tashkent is reaching out to every corner of the geopolitical map. Economic indicators show that the government is splurging millions as it tries to adapt to the changing circumstances. The 2023 budget deficit topped over $5 billion, and this year could see a staggering $6 billion deficit. Government reserves have dropped significantly, from $31.4 billion in 2022 to a meager $4.9 billion in 2023. To make matters worse, the government has guaranteed over $400 million in foreign loans in the first quarter of 2024, more than double the amount from the same period the previous year.

Mirziyoyev laid out his strategy to transform the economy by 2030, focusing on developing new industries like electric vehicle production, green energy exports, and mining. "By 2030, our goal is to double the people's income and join the ranks of the upper-middle-income countries," he stated at the third annual Tashkent International Investors' Forum. "We will continue with deep transformation processes in the economy, creating favorable investment and business environments, and increasing value-added production in industry."

This ambitious plan requires "systemic reforms with big aims" and, of course, considerable foreign investment. "We understand perfectly well that today there is an unparalleled struggle for investors in the world," he added. "However, one immutable fact is becoming ever more clear: no country can solve such problems alone."

While the political landscape in Uzbekistan remains tightly controlled, Mirziyoyev is keen on attracting business partners from countries like Saudi Arabia, Russia, and China, whose democratic track record leaves much to be desired. On the other hand, the United States and European Union have encouraged Uzbekistan to explore trade opportunities in the West.

As it stands, Mirziyoyev seems to be treading a fine line between maintaining good relations with both the East and the West. Uzbekistan is banking on China to develop its electric auto and solar power industries, on Saudi Arabia for energy infrastructure investments, and the EU as a market for green energy exports.

Despite being preoccupied with its ongoing war in Ukraine, Russia also remains an essential player in Uzbekistan's economic restructuring. During a recent visit from May 26-28, Russian leader Vladimir Putin and Mirziyoyev signed deals potentially worth $20 billion. Mirziyoyev is counting on $10 billion in Russian investments by 2025.

However, Russia's ability to deliver on such investments remains questionable. For instance, a deal announced during Putin's visit for the construction of a nuclear power station in Uzbekistan represents a significant downgrade from a 2018 agreement, slashing the proposed investment from $11 billion to less than a third of the original amount.

In May, an International Monetary Fund (IMF) mission approved of Uzbekistan's economic strategy, praising the government for reducing poverty, keeping inflation in check, and fostering income growth. "An expansionary fiscal stance, a surge in fixed investment, and buoyant private consumption propelled real GDP growth to 6 percent in 2023," the IMF report stated. "Growth remained high at 6.2 percent year-over-year in the first quarter of 2024."

The report, however, acknowledged that Uzbekistan is vulnerable to external shocks without much of a fiscal cushion to protect against potential economic blows. It urged the government to keep a close eye on reducing the budget deficit and remaining vigilant against rising risks. "Given a highly uncertain external environment, risks are elevated," the report concluded. "External risks include geoeconomic spillovers from an intensification of Russia's war in Ukraine, commodity price volatility, and an abrupt global slowdown."

Uzbekistan's economic strategy, as outlined in the Uzbekistan 2030 Strategy, focuses on several key sectors to drive growth, including energy, transport, telecommunications, agriculture, and tourism. The main objectives are to increase the share of green energy, modernize the mining industry, and create PPPs in the electricity generation sector. Partnerships with international entities like the European Union are expected to boost Uzbekistan's standing in regional and global trade. While electric vehicle production is not explicitly mentioned, the strategy's emphasis on green energy and technological advancements could lay the groundwork for future diversification into related industries. It remains to be seen if Uzbekistan's gamble on growth will pay off, but one thing is certain: the next few years will be exciting times for the Central Asian nation.

1. Uzbekistan's administration is investing heavily in infrastructure projects within emerging industries, seeking new trading partners and investments to offset financial risks.
2. The political landscape remains controlled, with President Mirziyoyev actively courting business partners from countries like Saudi Arabia, Russia, China, the United States, and EU members.
3. Mirziyoyev's strategy aims to double people's income and join the ranks of upper-middle-income countries by 2030, focusing on developing new industries like electric vehicle production, green energy exports, and mining.
4. The Asian Development Bank (ADB) has launched a $500 million investment program in Uzbekistan's environment sector, focusing on renewable energy sources and supporting the government's transition towards a greener economy.
5. The Uzbekistan 2030 Strategy highlights the importance of technology and innovation in driving the nation's growth, with an emphasis on developing digital infrastructure, attracting foreign investment in technology-related sectors, and nurturing entrepreneurship.

Read also: