ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
“TOSHKENT” REPUBLICAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
Mr Karimov dominates the political scene, and
there is little prospect of democratisation over
the forecast period. Mr Karimov, who was last
elected for a seven-year term in December
2007, is expected to maintain a firm grip on
power, as there seems to be no co-ordinated
opposition to his rule from within the political
hierarchy. Furthermore, years of repression
have prevented the emergence of an
opposition figure capable of challenging him
successfully. Most of his opponents are living
in exile.
Relations with the US and the EU have
improved from a low in 2005, driven by anti-
terrorist initiatives, the regional security
agenda, the small steps taken by the Uzbek
authorities towards tackling human rights
concerns, and the desire of some EU states to
look for alternative energy sources in Central
Asia in order to reduce their reliance on
Russia. The EU has dropped its sanctions
regime against Uzbekistan, but human rights
organisations will continue to press for a
tougher stance. The West will continue to have
only limited leverage over Uzbekistan in this
area, in part because the country does not rely
on substantial support from Western
multilateral financial institutions, and has
limited trade with the region. Most Western
investors will remain deterred by the difficult
business environment, and Chinese and
Russian firms are likely to provide the bulk of
any foreign investment. The US is set to
become a more prominent partner in anti-
terrorism measures, following an agreement to
allow US non-munitions supplies to
Afghanistan to transit Uzbek territory. Relations
with Russia and with Uzbekistan's immediate
neighbours in Central Asia will be tense,
particularly in view of recent violent incidents
on the border with the Kyrgyz Republic and
because of Uzbek anger over Kyrgyz
agreement to host a second Russian military
base, possibly close to the Uzbek border.
There is also a serious risk that insurgents in
Afghanistan–among them significant numbers
of ethnic Uzbeks–could expand their activities
to include Uzbekistan. Ongoing disputes over
water and energy supplies will also exacerbate
tensions between Uzbekistan and its
neighbours.
Over the forecast period the government will
make greater efforts to support growth in a
context of external shocks, by expanding
public investment into infrastructure and
industry, and by increasing public-sector
wages and social payments. Although
important advances have been made in some
policy areas–notably, Treasury reform, a
reduction in the tax burden and increased
capitalisation of banks–the pace of structural
reform remains slow.
Economic Performance
Although Uzbekistan is relatively immune to
the turmoil on global financial markets, it is
being affected by the global economic
slowdown. The chief external factors affecting
economic performance are trends in
commodity prices. Following an estimated rise
of 10% on average in 2009, gold prices are set
to rise by 9% in 2010, before falling by 6.5% in
2011. In 2010 demand for cotton will rebound,
following the end of the global recession, with
prices expected to rise by 15%. The remittance
inflows on which many Uzbek households rely
will decline, owing to slower economic growth
in Russia and Kazakhstan, the main
destinations for Uzbek migrant labour.
Official data continue to be highly suspect and
internally contradictory, and the authorities'
sanguine view of the economy is undermined
by the continuing policy emphasis on "anti-
crisis measures". officially reported growth
rates will continue to exaggerate the true rate
of economic expansion, and that the
authorities will report headline full-year GDP
growth rates of close to the official target. The
authorities expect real GDP to expand by 7-8%
in 2009, and have reported growth of around
8% in the first half of the year–a slowdown
compared with the year-earlier period. Growth
is forecast to pick up to 8.1% in 2010 and
8.3% in 2011 as export markets recover. The
economy will also be assisted by rising
investment, mainly funded by government
expenditure, as well as by some FDI from
China and Russia. Private consumption will
suffer from a moderate decline in remittances,
but will be sustained by government efforts to
increase wages and social payments.
Key Information Contacts
State Property Committee www.spc.gov.uz
Ministry of Finance www.mf.uz/eng
National Bank of Uzbekistan http://eng.nbu.com/about/history/index.php
State Central Securities Depository www.deponet.uz/english.shtml
Portal of the State Authority www.gov.uz/en
PAGE 156
Based on historical inflation figures from the
IMF, annual average inflation is expected at
8.6% in 2009. The authorities will continue to
attempt to limit inflation by the imposition of
price controls on basic foodstuffs and energy.
Lower global commodity prices brought down
inflation in 2009, but this trend will be reversed
in 2010-11. A continuing depreciation of the
local currency will also boost imported
inflation. Robust money supply growth–as
economic growth picks up, and as the
government increases wages and benefits
further–will also fuel inflation over the forecast
period.
The authorities will continue to target a slow
pace of nominal depreciation in order to
support export competitiveness, particularly in
view of weakening demand for Uzbek exports
as the Russian and Kazakh economies slow
sharply. However, the pace of depreciation will
be faster than in recent years. A global
weakening of emerging-market currencies
against the US dollar since October 2008,
owing to greater risk aversion, resulted in an
acceleration of the trend of som depreciation.
The Uzbek currency was also affected by
contagion from the steep falls in the Russian
rouble and Kazakh tenge. By end-September
2009 the som had depreciated by 12% since
the end of September 2008. Downward
pressure on the currency will remain because
of lower inflows of foreign exchange from
export receipts and remittances.
The current-account surplus is in 2009 at
US$4.6bn, or 15.6% of GDP, smaller than the
surplus of US$6.3bn (22.4% of GDP) recorded
in 2008, owing to a downturn in export
revenue. The State Statistics Committee
reports lower figures for the current account
(for example, it reported a surplus of US$4.1bn
in 2008), but uncertainty surrounds official
figures for the services account and for inflows
on current transfers.*
* The Economist Intelligence Unit Limited, November 2009