SUSTAINABLE ECONOMIC GROWTH
A general definition o f sustainability is that something that lasts. However, what do we understand by macroeconomic sustainability? Is Uzbekistan an economically sustainable country? Is sustainable development possible for developing countries? Is it possible to trade-off one type o f sustainability such as ecological against another economic? Based on the aforementioned questions it is undoubtedly true to say that there might be so many definitions o f sustainability.
However, probably the most appropriate definition of sustainable macroeconomic development is development which meets the needs and wants of the present without sacrificing the capability o f future generations to meet their own needs. It is also a common stereotype that macroeconomic sustainability is when real output increases over time. Sometimes, such economic growth may create a number of significant problems such as depletion o f oil, global warming or excessive level of public debt, and the like. In other words, sustainable economic growth means a rate of growth which can be maintained without creating other significant economic problems, especially for future generations and having inclusive growth.
It is important to note, that the state budget sustainability plays an important role in ensuring macroeconomic sustainability, which is why starting from 2019, Uzbekistan has been establishing the numerical limits on budget deficit and public debt in its law for the next year’s budget.
Over the last years, the Republic of Uzbekistan has been conducting a number of ambitious market-oriented economic reforms to achieve macroeconomic stability with sustainable growth. The main target o f these reforms is curbing the inflation level to a one-digit number, achieving economic growth this year at the level of not less than 5%, keeping the budget deficit no more than 5,4% o f GDP in 2021 with its subsequent reduction in the medium term. Regarding the foreign exchange market, the main objective is de-dollarization of the economy, particularly, decreasing the proportion o f the foreign currency loans while raising the share of international bonds issued in national currency. Additionally, these reforms include diversification of the economy, reorganization and privatization of state-owned companies, improvement o f the business climate, the promotion of the export of
Uzbek enterprises, currency liberalisation, trade and prices liberalisation, reduction in the tax burden and a simplification of the tax system and integration of Uzbekistan’s economy into the global trading market.
It is true to say that macroeconomic stability is an essential factor o f a country's successful sustainable economic growth. Reaching aforementioned objectives such as curbing excessive inflation, safe public debt level and controlling excessive dollarization of the economy tend to stimulate economic entities to grow and create stable expectations for business entities and investors, which is truly crucial for doing business.
The last but not the least important sector o f the economy is ensuring food security. Ensuring the supply o f the domestic market with all the necessary food products, mitigating sharp fluctuations in food prices and preventing food products shortages. In 2020, as a measure to address the challenges of the COVID-19 pandemic, some economies imposed restrictions on food exports. Uzbekistan imports such important food products for the population as wheat, flour, vegetable oil and raw materials for its production, raw materials for the production o f sugar.
Consequently, trade barriers imposed by other economies have created additional pressure in providing the nation with the necessary food. As a result o f measures taken on time, the government managed to minimize the domestic market from shortages of necessary food products. In 2021, the measures aimed at achieving food security will be broadened. For instance, an extension o f the whole year exemptions for customs duties on some imported foods results in prevention from a possible shortage o f food and the sharp market fluctuations which will also stabilize the inflation.
1. Real sector
Up until 2020, Uzbekistan had a stable economic growth o f above 5 per cent (excluding 201 7. when the cost o f imports increased and fined consumption expenditures declined due to the currency liberalization) with services making up the largest share o f GDP (36,1% in 2019). However, due to the impact o f the COVID-19 pandemic, namely, the economic crisis due to disruption o f the supply chain, manufacturing activities, and suppressed demand, as well as the quarantine measures and a decline in tourism, Uzbekistan’s GDP growth slowed down but remained positive at 1,6 percent and is
expected to accelerate in 2021 up to 5 percent along with the global economic recovery.
During 1991-2020, the structure o f the economy has changed dramatically with the size o f the agriculture in the gross value added reducing from 37 per cent to 28,2 percent. In 2020, the gross value-added o f services amounted to 36,3 percent, industry - 28,5 percent and construction - 7 percent. As o f 2020, Uzbekistan has a workforce o f 14,8 million people, o f which 13,2 million people are employed (81% in the private sector, 19% in the public sector).
Agriculture
Agriculture plays a major role in the economy by employing 26,9 percent o f the total employed population. The most important agricultural products o f Uzbekistan, apart from cotton are fruits, vegetables and grains (wheat, rice and corn). Poland, Russia, and the Netherlands have strengthened agricultural relations with Uzbekistan. According to data provided by the State Statistics Committee o f the Republic of Uzbekistan, the country's agriculture sector was the least affected by the COVID-19 pandemic, along with both the forestry and the fishing industries with a growth rate 3 percent (in 2019, the agriculture sector grew by 3.1%) and its value added amounted to 151,3 trillion soums.
Industry
The industry accounts for 28,5 percent o f the value-added and employs 13,5 percent of the total employed population. The main manufacturing products include metallurgy, mining, textiles, food processing, machine building, chemicals and etc. The country is also rich in gold, coal, zinc, copper, tungsten, uranium, and silver. As part o f the implementation o f the Development Strategy for 2017-2021, the process of reducing the level o f state participation in the industry is being carried out, new production facilities are being put into operation, and the process o f updating and technological re-equipment o f industrial enterprises is underway. There are qualitative changes in the main indicators o f industrial development. The share of industry in GDP from 2016 to 2019 increased from 20,6 percent to 29,3 percent. The industry sector, right after the services, has been affected the most by the COVID-19 pandemic and the quarantine measures with the real declined down to 0,7 per cent.
Services
The services sector accounted for 36,3 per cent o f the value added and employs 50 percent o f the total employed population. Key services include transportation and tourism. According to the United Nations World Tourism Organization, Uzbekistan was the fourth fastest growing country for tourism in 2019, receiving 6,7 million tourists. However, in 2020, the tourism industry was strongly affected by the COVID-19 pandemic and the closure o f the borders with the real growth declining down to 0,1 percent, particularly the hospitality and the food services sectors were negatively impacted. Nevertheless, tourism is expected to resume growth in 2021 and 2022 along with the vaccine dissemination.
Construction
The construction sector is relatively small, in comparison to the other three sectors and accounts for 7 per cent o f the value-added by employing 9,6 percent o f the total employed population but it has been among the major drivers o f Uzbekistan’s economic growth over the past ten years. In 2020, the total value o f construction- assembly works fulfilled was 87 trillion soums, representing a 9,1 percent increase as compared to 2019. Over the last decade, the country’s construction output surged in real terms. Strong growth in the construction industry in Uzbekistan has provided decisive support for domestic production o f building materials, particularly in terms o f cement.
Inflation
Low and stable inflation supports a healthy demand in the marketplace, while a high inflation creates uncertainty and increases the risk premiums. That’s why Uzbekistan has started the gradual transition o f monetary credit policy to an inflation-targeting regime starting from January 1, 2020, to decrease the inflation level to 10 percent in 2021 and with the long-term goal o f maintaining the inflation level at 5 percent in 2023. The inflation rate in 2020 was formed within the approved forecast parameters and amounted to 11,1 per cent (forecast 12,5-13,0%). At the same time, food prices rose by 15,3 per cent, non-food products - by 8,8 per cent and services - by 7,1 per cent. The foods that contributed the most to overall inflation were meat products (1,8%), bakery products (1,0%), fruits and vegetables (0,9%), milk (0,4%) and eggs (0,3%).
2. External sector
As a result o f measures aimed at the development o f international trade and export potential o f domestic companies, abolishment o f trade barriers and price liberalization, by 2019, the foreign trade turnover reached 41,7 bln. USD, while exports of goods and services amounted to 17,5 bln. USD, imports o f goods and services amounted to 24,3 bln. USD. As a result, the trade balance amounted to 6,8 bln. USD.
In 2020, foreign trade turnover amounted to 36,3 billion USD, a decrease of 13,1 percent compared to 2019. At the same time, exports decreased by 13,4 percent and imports by 12,8 percent. The decline in exports was mainly due to a sharp decline in exports o f energy resources and petroleum products by 73,9 percent.
In the medium term, Uzbekistan intends to reduce the trade deficit by improving customs policy aimed at stimulating the growth o f domestic exports, expanding the export potential o f the economy through the privatization o f export- oriented state-owned enterprises, development o f production based on high-tech processes, increasing the attractiveness o f the economy for foreign direct investment with the creation o f a favorable business environment for investors in order to ensure the growth o f exports and the entry o f the country's economy into global and regional value chains.
The low level o f public debt relative to GDP indicates that the government will be able to flexibly use its tax revenues to meet domestic needs instead of paying foreign creditors. In addition, low public debt allows for a soft fiscal policy during a crisis. However, due to the COVID-19 pandemic, in 2020, the total external debt o f the Republic o f Uzbekistan amounted to 33.8 bln. USD (an increase o f 37.4% or 9.2 bln. USD in comparison to 2019), o f which 21,3 bln. USD to the public sector, 12,5 bln.USD to the private sector.
There are a number o f ratings and indices which capture the broader array of factors that influence on the social, economic, legal and financial sustainability of economies. For example, the World Bank’s Human Development Index, World Government Indicators, Ease o f Doing Business index and others. However, the ratings and indices are not put together in a systematic way in most cases. Improving the position o f the Republic o f Uzbekistan in international economic and political-legal rankings and indices, effective coordination o f relevant ministries and agencies, further enhancing the position o f Uzbekistan in the international arena, systematic cooperation with foreign rating agencies and achieving the effectiveness o f comprehensive reforms is set as a goal.
For example, Uzbekistan in Transparency International’s Corruption Perception Index, Uzbekistan achieved 26 scores (100 is the maximum score) according to the report for 2020. Uzbekistan has ranked 8th in CIS countries, and 146th place improving by 7 positions in world rankings compared to the report of 2019 (153rd places), and increased its score by 1In the World Bank’s Ease o f Doing Business Index Uzbekistan scored 69.9 in the 2020 report (out o f 100) and listed as a top 20 country-reformers, counted 4 reforms: Uzbekistan made it easier to protect minority investors, pay taxes, enforce contracts and trade across borders.
Quantitative economic growth has being considered in many economies as a major prerequisite o f better life standard, job-creation, stimulating trade and others. To every plus, there is a minus. So, economic growth and production expansion might lead to a number o f environmental burdens and can thus reach its natural limits. Thus, Uzbekistan is focusing on inclusive and sustainable growth striving not only quantitative economic growth but also a qualitative one.
Zuxriddin Ibragimov
Head of Department Macroeconomic analysis
Shukhrat Sharipov
Deputy Head of Department Macroeconomic analysis
Saidislom Saidhonov
Head of Division, Department Macroeconomic analysis
Munawar Maxkamova
Leading Specialist, Department Macroeconomic analysis
