The pandemic crisis should not delay the reform of state-owned banks and state-owned enterprises, including by improving their governance, as well as the agricultural sector. This is stated in a press release from the IMF mission at the end of the virtual visit to Uzbekistan of a group of experts, which took place from August 24 to September 17.
Despite the fact that economic growth has slowed markedly, experts expect that this year it will be moderately positive, and in 2021 it will accelerate as the crisis eases.
According to IMF experts, the authorities should continue to promote reforms to achieve stronger and more sustainable economic growth and higher living standards.
“The authorities have responded quickly and decisively by taking measures to mitigate the effects of the pandemic. This included both containment measures and measures to protect people’s lives and livelihoods, including through the Anti-Crisis Fund, created at the beginning of the crisis, ”the experts noted.
Uzbekistan’s central bank cut its policy rate from 16% to 14% and provided sufficient liquidity to the banking system, while encouraging banks to allow crisis-affected sectors to delay loan repayments.
Experts predict that, taking into account the fiscal stimulus measures and combined with the loss of tax revenues due to lower activity, the consolidated budget deficit will widen from about 2.5% of GDP in 2019 to almost 6% of GDP this year. International financial support, including from the IMF and the World Bank, will help meet the financing needs arising from the crisis.
“Thanks to these efforts, economic growth, although slowing markedly, will be moderately positive by the end of the year, with significant growth expected in the construction sector,” analysts said.
The mission notes that inflation, while still high at just over 11%, is gradually declining. With a relatively tight monetary policy, its further decline is expected.
“As the restraints eased, economic activity began to pick up. Assuming the pandemic gradually dies down, growth is expected to be around 5% in 2021. However, the uncertainty remains very large, and the possibility of extending the pandemic creates great risks of worsening the situation, ”the IMF representatives said.
In addition, experts believe that in the face of uncertainty and instability of the economic recovery, as well as in view of the fact that public debt remains relatively moderate, in 2021 it will be important to maintain adequate fiscal support, including to support vulnerable households.
Stimulus measures can be phased out as the economy recovers and grows.
The authorities’ clear line in ensuring fiscal sustainability over the medium term suggests that public debt will remain manageable. This will also be facilitated by the gradual return of the consolidated deficit to around 2% of GDP in the coming years.
“At the same time, the efforts of the CBU should remain focused on further reducing inflation and ensuring financial stability. As the crisis subsides, the authorities should continue to reduce the role of the state in the economy, open markets and increase competition, improve the business environment, ”the IMF is confident.
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