Uzbekistan. Economic Reforms, Developments and Outlook WORLD BANK GROUP. Hideki Mori TOKYO, JAPAN JULY 2018

Transcription

1 Uzbekistan Economic Reforms, Developments and Outlook Hideki Mori TOKYO, JAPAN JULY 218 WORLD BANK GROUP

2 OUTLINE Context: The Old Model and Why Change 217: Economic outcomes in the midst of Reform Outlook for 218 and the Medium Term Towards a Reform Roadmap (Broad Sketch)

3 See it for what it is, not for what you want it to be Anonymous THE OLD MODEL - AND WHY CHANGE

4 A closed, centrally-planned economy that delivered on stable growth Commodity export revenues and external controls helped build buffers that financed an importsubstituting industry 1,4 7 1,2 Real GDP (UZS bn, constant) 6 1, Real GDP per capita (PPP terms, right axis)

5 The benefits of growth *seemed* to be broadly shared, including through bulky public employment and transfers

6 But these drivers dissipated with the end of the Commodity Super-Cycle 6.9 Key Trading Partners Real GDP Growth (%) Source: IMF, World Economic Outlook, Spring Commodity Prices Index (25=1) Commodity Fuel (energy) Index includes Crude oil (petroleum), Natural Gas, and Coal Price Indices Cotton, Cotton Outlook `A Index`, Middling 1-3/32 inch staple, CIF Liverpool, US cents per pound Commodity Metals Price Index includes Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium Price Indices Unmasking Significant Micro-Structural Issues: Low Productivity Insufficient Job Creation Inexistent Price Signals Inefficient Resource Allocation

7 Stress signals intensified over 216/17 Lack of Jobs Low growth response to improving external conditions Migration Rate: 6% (3.1% DEs) 214/16 crisis: migrants back Need 6K net jobs/year Fear of Radicalization (Ferghana Valley) The Exchange Rate Gap spikes without capital outflows or BoP pressure... (hinting at misallocations) Exchange Rates (UZS/US$) Official ER Black market (cash) ER Black Market Gap, Inflation Transaction Costs/Rent- Seeking Pressures Muted Private Sector Activity and FDI 4 Large Relative 3 Price Distortions 2 1 (Exchange Rate) 5 Jan-8 Sep-8 May-9 Jan-1 Sep-1 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16

8 To Sum Up Reforms underpinned by a sustainable macro context Trigger: challenges posed by deep micro imbalances Flagging productivity and growth Faltering job creation.

9 May your choices reflect your hopes, not your fears Nelson Mandela CHANGE AND 217

10 Mixed Performance in 217: better external environment and initial reforms, but adverse legacies weigh in Real GDP (growth, %) Inflation (eop, %) Exports of Goods and Services (growth, %) Imports of Goods and Services (growth, %) Current Account (% GDP) Gross Official Reserves (US billion) Gross Official Reserves (months of imports) Augmented Fiscal Balance (% of GDP) Public Debt (% of GDP) Credit to the Economy (% of GDP) Domestic Employment Growth Source: Uzbek authorities and IMF In Sum: Growth and Job Creation slow despite: (i) improved external environment, (ii) expansionary policies in Q1-Q3 Inflation picks up, due to (i) large credit expansion, (ii) exchange rate adjustment in September, (iii) relative price adjustments External Sector strengthens, while buffers are used to support the transition (and Augmented Fiscal Deficit expands)

11 Key Steps Taken in 217 Timeline: Exchange Rate Convertibility No Surrender Requirements Access to Foreign Exchange Exchange Rate (UZS/$4 to 8) Bank Recapitalization, Framework Upgrading starts 12 Banks, 2 Injections USD 7 mn approximate Stress Testing of 4 Banks New Regulatory Framework (1) Reform Announcement (end-216) Uncertain Timing (3) Summer: Preventive Measures (Banks Recap, Tighter Credit) (2) Expansionary Policies in 217 Q1-Q3 (4) September: Exchange Rate Convertibility Trade Liberalization More than 8 Tariff Lines reduced, 5 to zero Export bans abolished SOE Support/Adjustment Energy, Gas and Chemical Debt restructure to UFRD Tax condonation Tariff adjustment toward cost recovery Financial Recovery Plans Start (5) 217 Q4: Fast Battery of Deep Measures, Macro-Fiscal-Financial Adjusted

12 Timeline 217 (1) Reform Announcement (end-216) Uncertain Timing (2) Expansionary Policies in 217 Q1-Q3 (3) Summer: Preventive Measures (Banks Recap, Tighter Credit) (4) September: Exchange Rate Convertibility (5) 217 Q4: Fast Battery of Deep Measures Macro-Fiscal-Financial Adjusted

13 The journey of a thousand miles begins with one step Lao Tzu OUTLOOK IN 218 AND THE MEDIUM TERM

14 Macroeconomic Stability Growth and Inflation (%) Fiscal Stance and Public Debt (% of GDP) Inflation (%, right axis) Real GDP (growth, %) Public Debt (% of GDP) Augmented Balance (% of GDP, right axis) Key Forecasts Growth robust, but more moderate Inflation peaking in 218 Augmented Fiscal Deficit to narrow After peaking, public debt will moderate, will remain sustainable (% of GDP) External Sector (%) Current Account (% GDP) Export (growth %) Import (growth %) Credit to GDP (%) External sector robust, Current Account will widen as imports support growth (and receives capital and finance inflows) Credit growth will recede to help contain inflation Job creation may remain sluggish Source: IMF, World Economic Outlook, Spring 218

15 Key Aspects of the 218 Agenda Coordination: Economic Council Tax Reform, Tax Administration PFM: Off-Budget Activities, PEFA Risk Management: PPPs, Debt SOE Monitoring and Financial Sustainability Macro- Fiscal and SOEs Financial Financial Stability: Regulatory Framework, Tools (Stress Testing); FSAP Financial Sector Development; access by MiSMEs to credit PPP Framework Competition Code Investment Code Create Markets for Commodities Trade (WTO Accession) Sectoral Policies, including Energy, Agriculture, Aviation, Water, Tourism. Creating Markets Jobs, Social Protection, Human Development Pension Reform Labor Code Social Protection Schemes Education/Human Capital

16 Failing to Plan is Planning to Fail Anonymous SNAPSHOT ROADMAP LOGIC FOR PRIORITIZING

17 Prioritizing Logic Resilience against Risks: Macro-Fiscal Framework Financial Sector: Stress Testing, Key Regulation SOE Risks Social Vulnerabilities Quick Wins Liberalization: Trade, Prices, Targeted Sectors Manage Risks and Secure Quick Wins for Sustainability Develop a Vision while Establishing Solid Frameworks Develop a Vision Economic Council Key Frameworks Sector Strategies/Frameworks Fiscal Institutions Commercial Banking Sector Frameworks (Competition, Investment, PPPs) Social Protection Infrastructure Reform of the State Consolidate Macro Institutions: Fiscal Rules, Inflation Targeting Markets (PMR, Governance) SOE Strategy and Privatization Financial Sector Development Service Delivery/Quality Fully Implement Strategies Innovate and Plan for the Future Human Capital, New Skills New Technologies Consolidate Strong Institutions and Plan Strategically for the Future

18 When you have exhausted all possibilities, remember this. You haven t. Thomas Alva Edison THANK YOU