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Country Report Uzbekistan

Country Report


Uzbekistan flag

Economic growth in Uzbekistan is expected to remain strong in coming years. Diversification of energy resources is a high priority on the government agenda. Political tensions have increased over the lingering uncertainty concerning the succession of President Karimov.

Strengths and weaknesses


Strong economic growth prospects

Growth prospects for Uzbekistan are strong due to sustained, strong inflows of foreign capital, a major push of public-infrastructure construction, and still-strong commodity exports.  

Strong external position

FX-reserves are substantial and cover ten months of imports and exceed the external debt, which stands at 17% of GDP in 2013. However, the convertibility of the currency is low.


Weak institutions and dictatorial government

Institutional quality is weak and corruption is widespread. The government rules in an authoritarian fashion and tries to further increase its control over business decisions.

Succession risks heighten political tensions

Considerable uncertainty will remain over who might succeed the 75-year-old Islam Karimov as president, which increases political tensions. 

Key developments

1. Short-term growth prospects are strong

Growth prospects for Uzbekistan are strong due to sustained, strong inflows of foreign capital, a major push of public-infrastructure construction, and still-strong commodity exports. Also, greater government protection of foreign investor rights has helped spur increased capital inflows, although  these inflows remain far below potential, as foreign investors remain careful given the tight control of the government over the economy. Over two-thirds over capital inflows are targeted towards projects in the energy-sector. The rest of the capital is used in projects to boost Uzbekistan’s technological capabilities and manufacturing efficiency. Eventually, these inflows should boost the production and export capacity of the economy. The source of foreign capital inflows ranges from multilateral lenders to private foreign energy companies. However, the success of these investments remains to be seen, and delays are likely to result in weaker economic growth. Foreign capital is not only crucial for providing a short-term growth impetus, but also to develop sustainable longer-term growth prospects. Labor remittances continue to flow into the country, adding an additional inflow of foreign currency. Meanwhile, the government has launched a number of infrastructure development projects, aimed at the development of the energy sector. Finally, although global prices for Uzbek cotton, gold, and natural gas, Uzbekistan’s main export products, are all expected to soften, they are likely to remain elevated enough to ensure further economic expansion in the short term. In the short term, growth prospects remain therefore strong.

2. Energy diversification efforts increase

Recent loans from the Islamic Development Bank (IDB) and the Asian Development Bank (ADB) of USD 270m and USD 90m respectively underscore that diversification and modernization of energy generation is high on the political agenda. The IDB loan will finance the modernization of hydroelectric power stations and the ADB loan is geared towards the development of a 100 mw solar power plant. The government is seeking to boost investment in renewable and alternative power generation to reduce domestic gas consumption. The new multilateral credit lines represent a significant proportion of Uzbekistan's current total international borrowing. The country's foreign debt will increase in 2013 but this is only a slight increase from 16% to 17% of GDP, and no cause for concern. And given that both the IDB and the ADB are multilateral development banks, the loans are likely to have been made on concessional terms. Energy diversification is very necessary; in May Shokir Fayzullayev—the head of the state energy company, Uzbekneftegaz, acknowledged that the country had encountered severe domestic gas shortages in recent years. The gas output of Uzbekneftegaz, which chiefly operates mature fields established in the Soviet period, is falling. At the same time, Uzbekistan's export commitments continue to rise. Following the expansion in 2012 of the Central Asia-China gas pipeline, Uzbekistan has committed to supply at least 10bn cu meters of gas a year to China. A small reduction in exports to Russia is unlikely to offset this rise in demand, given stable domestic consumption. Uzbekistan is increasingly reliant on foreign companies to develop new gas fields and maintain production levels, which is a concern for the longer term if the government’s dictatorial rule and widespread corruption continue to keep foreign investment below potential.

Figure 1: Short-term growth strong
Figure 1: Short-term growth strongSource: EIU
Figure 2: Foreign debt increases
Figure 2: Foreign debt increasesSource: EIU

3. Succession risks increase political tensions

Gulnara Karimova, the eldest daughter of the president, Islam Karimov, recently lost her position as ambassador to the United Nations in Geneva. Her removal is likely to be linked to the intensifying battle over who will succeed the 75-year-old Mr. Karimov, whose presidential term expires in January 2015. He has been at the helm for the past 21 years. He has not indicated whether he plans to stand for re-election, but his advancing age suggests that he may be preparing to hand power to a successor. There have been indications that Ms. Karimova has sought to position herself for this role, but she is a controversial figure in Uzbekistan and has powerful enemies who may have moved against her. She has publicly feuded with Rustam Azimov, the first deputy prime minister, who is another possible presidential successor. Ms. Karimova has played down her removal , saying that she had wanted to step down for some time, since it was difficult to combine her diplomatic duties with her political duties in Uzbekistan. However, she also hinted that her removal had been provoked by hostile forces and named a Russian telecommunications company, MTS, which was forced out of Uzbekistan last year amid a dispute with the government. The removal could have been orchestrated by her political opponents to put her under pressure. Overall, we expect considerable uncertainty to remain over who might succeed the 75-year-old Islam Karimov as president. But even so, economic policy under a new regime is unlikely to change substantially in the near term.

Factsheet of Uzbekistan
National facts of UzbekistanSource: EIU, CIA World Factbook, UN, World Economic Forum, Transparency International, Reporters Without Borders, World Bank. Due to limited data availability, the figures presented in this report should be treated as indicative.

Background information

Uzbekistan is a land-locked country located in Central Asia with a very low level of development. With a per capita income of USD 3,522 (PPP), Uzbekistan is among the poorest countries in the CIS region. Following independence from Russia in September 1991, the government continued its Soviet-style command economy with subsidies and tight controls on production and prices. While aware of the need to improve the investment climate, the government still takes measures that often further increase, not decrease, its tight control over business decisions. The economy predominantly relies on the export of labor (remittances), gold, gas and cotton. The country seeks to gradually lessen its dependence on the cotton monoculture by diversifying agricultural production, while developing its mineral and petroleum reserves and increasing its manufacturing base. Most ordinary Uzbek’s make a living from agriculture or live on remittances. Uzbekistan’s population is growing by more than 1% per year. With 40% of the population below the age of 16, creating enough employment will be a long-term challenge for the government, which tightly controls the economy. Uzbekistan’s president, Islam Karimov, has been ruling the country in an authoritarian fashion since its independence in 1991. Power is highly centralized within the executive, and more specifically in the person of Mr. Karimov himself. Elections are held regularly, but are a farce, as they are manipulated by the government, while any real opposition is absent. Economic, religious and press freedom are strictly limited, the legal system is not independent, forced labor is a problem and corruption continues to be endemic. 

Economic indicators of Uzbekistan
Economic indicators of UzbekistanSource: EIU

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