C&B Notes

Uzbekistan Opens Up

New leadership in Uzbekistan, a historically closed country and economy in Central Asia, is taking up a series of economic reforms, including simplifying the country’s tax codes, liberalizing cross-border trading, and allowing the country’s currency to float.  Given entrenched interests, the path forward will not be easy or consistent, but the direction the country is headed is positive and promises a better future for Uzbekistanis.   

When Ministers from faraway countries tour Western financial centres to tout their plans for economic reform, their presentations are often drearily predictable.  There is typically lots of talk about “fiscal consolidation”, improvements to infrastructure and the soundness of the banking system.  Not Djamshed Kuchkarov, finance minister of Uzbekistan: he is proudest of what his government is not doing.  The most important economic reform since Shavkat Mirziyoyev succeeded Islam Karimov as president in 2016, he says, is a three-year moratorium on inspections of businesses by meddling government officials.  Government could do the businessmen of Uzbekistan no greater favour, he implies, than getting out of their way and letting them get on with things, without fear of extortion.

In a region full of state-dominated, bureaucratic, corruption-riddled economies, it is a revolutionary thought.  Mr. Karimov was already running Uzbekistan when it became independent from the Soviet Union in 1991.  He preserved all sorts of Soviet economic policies, including an inflated official exchange rate, currency controls and an enormous role for the state in industry and farming.  To that he added such standard post-Soviet abuses as the abrupt expropriation of any private business that looked worth seizing.  Few had expected Mr. Mirziyoyev to change much of this.  He had, after all, served as Mr. Karimov’s prime minister for 13 years.  But since coming to power he has methodically set about renovating the economy, as well as initiating more limited political reforms.  Uzbekistan, with 32m people, is the most populous country in Central Asia.  Until recently, it was also one of the region’s most stagnant and repressive—in a competitive field. Overnight, it has become a showcase for reform.

Mr. Mirziyoyev has sharply devalued the currency, the som, bringing the official and black-market rates into alignment.  Exporters are no longer required to sell a quarter of their foreign-currency revenue to the government. This is important not just to cross-border businesses, Mr. Kuchkarov argues, but also to ordinary Uzbeks, since the past shortage of hard currency had led to a shortage of cash, as businesses hoarded notes with which to buy dollars on the black market.  That had left pensioners and salaried workers struggling to cash their monthly bank transfers.  Mr. Kuchkarov also trumpets the government’s decision to allow petty traders to cross the country’s previously closed borders, which he says is spurring cottage industries in areas like the Fergana valley, where Uzbekistan, Kyrgyzstan and Tajikistan intertwine.  The area’s arbitrary Soviet-era borders had separated many families, who are delighted by the new opening.  Yuliy Yusupov, an economist based in Tashkent, Uzbekistan’s capital, likens the effect to the fall of the Berlin Wall.  The authorities have approved the first flights in 25 years between Tashkent and Dushanbe in Tajikistan.  “Connectivity” is a buzzword for the government, which recently hosted a conference on improving regional infrastructure and economic co-operation.  The opening is already yielding benefits: trade with the rest of Central Asia has risen by half since 2017.

Uzbekistan has leapt up the World Bank’s ease of doing business rankings, from 166th in 2012 to 76th this year.  The government has greatly simplified the tax code, to turn it into a mechanism for actually collecting tax, rather than bribes.  It is also restructuring state-owned enterprises, with a view to their eventual privatisation.  The management of airports and the state-owned airline is being separated, for example, as are the generation, transmission and distribution of electricity.  In February Uzbekistan sold its first dollar-denominated bond, partly to set a benchmark for borrowing by local companies.  It yields 5.4% over ten years and was heavily oversubscribed .


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