Uzbekistan: Slower Growth Forecast As Currency Hits New Low

In a signal not all is well, Uzbekistan has posted a slightly below-average economic growth forecast for 2016.

And on the black market — typically a more reliable barometer of economic well-being than the generously massaged government statistics — the national currency, the sum, sank to new lows of 6,000 against the dollar on November 12.

Government figures on predicted gross domestic product (GDP) growth for next year, as reported by the UzA state news agency, suggest the authorities are gradually acknowledging Uzbekistan is not immune from the economic shocks roiling Central Asia.

According to a national budget for 2016 passed by Uzbekistan’s parliament on November 11, GDP will grow by 7.8 percent.

The number ostensibly looks healthy for a region suffering the consequences of low commodity prices and from the repercussions of slowdowns in Russia and China, both major trading partners and investors. To make matters worse, remittances from migrant laborers abroad have been falling steadily, by 14 percent in 2014 and 45 percent in the first quarter of 2015, compared to the same period the previous years, according to the International Monetary Fund (IMF).

But Tashkent has for years stubbornly predicted 8 percent growth and then proceeded to meet its targets precisely. Admission of anything even a whisker below is striking and shows the government is facing up to some of the economic challenges that will translate into slower growth.

Uzbekistan is also forecasting a budget deficit — of 1 percent — for the first time in years. It generally posts a surplus.

The government is sticking to its guns for this year at least and has reported 8 percent growth in the economy over the first three quarters.

There are economists that question the perenially upbeat figures produced by Tashkent, which are difficult to substantiate independently.

Ironically enough, where Uzbekistan expects a slowdown, the IMF sees a slight recovery.

The IMF forecasts 6.8 percent GDP growth this year and 7 percent next year.

The crisis with the currency tells its own story. Since the start of the year the Uzbek sum has lost around half of its value on the black market, which many are forced to use because of restrictions on the circulation of currency. The official rate has held steadier, but it has still depreciated by 10 percent since January. It nows stands at 2,706 to the dollar on November 12.

Economists believe that a substantial spread between official and unofficial currency exchange rates are a sign of grave inefficiencies in government policy, so the fact Uzbekistan’s spread is growing consistently is ominous.

The gap between the black market and official sum-to-dollar rate has traditionally been around one-third, but it has now widened to around 55 percent.

The government is now performing the ungainly balancing act of appearing insouciantly confident about its prospects while also desperately trying drum up foreign investor interest.

Uzbekistan’s finance minister and first deputy prime minister, Rustam Azimov, told an investment forum in Tashkent last week that the economy was on track to grow by an annual 8 percent on average up to 2021.

He also reminded his guests that the government is putting up stakes for sale in a whopping 1,247 enterprises.

While most countries in the former Soviet Union pursued hasty and often-botched privatization programs in the early years of independence, Uzbekistan’s government to this day retains a very tight grip over most major industry. 

The government proposed to embark on a wave of major reform, with assistance from the IMF and other major international financial institutions in the years of relative openness to the West, following the 9/11 terrorist attacks, but little was achieved.

Corruption remains pervasive and the most profitable assets will, only with the greatest of difficulty, be wrested from the hands of figures in or near the political elite. The closed nature of the country is clearest to see in the bureaucracy required for outsiders wishing to visit the country and the unchecked intimidation of foreigners and Uzbeks alike at the borders.

Uzbekistan: Slower Growth Forecast As Currency Hits New Low

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