Growth performance and medium-term prospects

The economy of Uzbekistan was expected to grow at a healthy pace in 2008. GDP growth in the first nine months of 2008 was 9.4%. Industrial output and retail trade grew by 12.4% and 15.0%, respectively, in that period. Gross fixed investment grew more than 20%, and foreign trade turnover benefited from an expansion in exports in the first nine months of the year. Key commodities such as cotton, gas and gold received a boost from strong commodity prices.

Uzbekistan has significantly accelerated its economic growth and strengthened its fiscal position over the past five years. GDP is expected to grow 7.0% in 2009. Benefiting from sound fiscal and monetary policies, Uzbekistan is expected to continue its tax and banking reforms, liberalize its trade and payments systems and adopt a more flexible exchange rate policy. The country’s 2009 budget is expansionary, envisaging a further increase in public-sector wages, benefits, pensions and student grants.

Fiscal policy developments

The Government of Uzbekistan maintained a relatively prudent fiscal stance to keep the State budget in balance in 2008. Fiscal performance has improved in recent years, owing to strong economic growth, high commodity prices and tax reforms. Favourable trends in export revenue could help the Government meet additional social spending on public sector wages and pensions.

Monetary policy

Inflation in Uzbekistan was expected to exceed 10% in 2008 due to rising food and fuel prices. To reduce inflationary pressures, monetary policy was tightened in late 2007. But strong export-related inflows and large increases in public-sector wages maintained inflationary pressure in 2008. A moderate nominal appreciation of the national currency, the som, was expected to control inflation in 2009 and reduce reliance on indirect tools of monetary policy.

Current account and trade performance

The current account of Uzbekistan was expected to have a surplus of 21.7% of GDP because of a large trade surplus and increased remittances from citizens working abroad. Rising global prices on the country’s principal export commodities - gold, gas and cotton - were expected to increase export revenues by more than 24% in 2008, and hydrocarbons became a more important source of income than in the past. Growing remittances were expected to ensure a surplus of current transfers.