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COUNTRY PROFILE

UzbekistanOur quarterly Country Report on Uzbekistan analysescurrent trends. This annual Country Profile providesbackground political and economic information.

1997-98The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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Copyright© 1997 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited.

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Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK

ISSN 1366-4271

September 15, 1997 Contents

2 Basic data

3 Political background3 Historical background5 Constitution and institutions6 Political forces7 International relations and defence

9 The economy9 Economic structure

10 Economic policy14 Economic performance16 Regional trends

17 Resources17 Population19 Education19 Health20 Natural resources and the environment

21 Economic infrastructure21 Transport and communications21 Energy provision22 Financial services

23 Production23 Industry26 Mining and semi-processing27 Agriculture and forestry28 Construction

29 The external sector29 Merchandise trade33 Invisibles and the current account34 Capital flows and foreign debt35 Foreign reserves and the exchange rate

37 Appendices37 Sources of information39 Reference tables

1

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997

Uzbekistan

Basic data

Land area 450,000 sq km, of which 20% arable

Population 23.8 million (mid-1997 EIU estimate)

Main towns Population in ’000, 1990

Tashkent 2,094Samarkand 370Namangan 312Andizhan 297Bukhara 228

Climate Continental desert

Languages Uzbek is the state language; some Russian is spoken in towns

Weights and measures Metric system

Currency The som-coupon was introduced as a successor to the rouble on November 29,1993. It was replaced by the som on July 1, 1994, at a rate of Som7:$1. Theofficial rate in August 1997 was Som67:$1; the black-market (bazaar) rate wasSom152:$1.

Public holidays January 1; New Year, March (movable); Nowruz (Persian new year), May 9;Victory Day, September 1; Independence Day, December 8; Constitution Day,December 8

Time 6 hours ahead of GMT

2 Uzbekistan: Basic data


Political background

Historical background

Uzbekistan, its borders, nationality and name, were created by the Soviet Union.The Uzbek Soviet Socialist Republic (SSR) was set up in 1924 on the ruins ofkhanates (states) which had been nominally independent but in practice Russianprotectorates for over half a century. The Basmachi resisted the annexation ofthe region into the Soviet Union, but were defeated. The creation of the UzbekSSR was traumatic. Under the khanates system, society had not been dividedalong ethnic lines, but according to whether the population was sedentary ornomadic. The main social group was the Sart, town dwellers who were oftenbilingual in Persian and Turkic. The Turkic-speaking Sart were labelled“Uzbeks”, the name of medieval Turkic khans, while Persian-speaking Sartbecame “Tajiks”, a label for sedentary Persian speakers. Many Persian-speakingSart seem to have opted to become “Uzbeks”. The boundaries of the Uzbek SSRinitially included all of what is now Tajikistan in the form of the Tajik auto-nomous republic. In 1929 this republic was split off and became the Tajik SSR.The Khojand region of the Uzbek SSR was then transferred to the Tajik SSR, eventhough most of its inhabitants were classified as Uzbeks. Sunni Islam, which hadbeen widely practised, was ruthlessly crushed along with all other religions.Thousands of mosques were closed or destroyed, until only a handful remained.

Thousands of people died during the 1930s as a result of policies of collectivi-sation and purges. During the Second World War the capital, Tashkent, wasflooded with refugees, in part because of a Stalinist propaganda book, Tashkent:City of Bread. In fact, there was a severe food shortage in rural areas, as a resultof which thousands died. Increasing numbers of Russians and Ukrainiansmigrated to the Uzbek SSR during and immediately after the Second WorldWar. Politically, non-Uzbeks dominated the Uzbek SSR until the 1960s, whenLeonid Brezhnev’s ally, Sharaf Rashidov, rose to power.

Under Mr Rashidov a deal was struck with Mr Brezhnev whereby the Uzbek SSRwould faithfully follow the party line in return for considerable internal auton-omy. As a result, Mr Rashidov was effectively permitted to manipulate therepublic’s political and economic system to his own ends. Moscow wantednon-Russians to learn Russian; so Mr Rashidov responded in 1979 with a cen-sus declaring that 49% of Uzbeks were fluent in Russian. In 1989 it was admit-ted that the true figure was around 20%. Moscow had long encouraged thecultivation of cotton in the Uzbek SSR. Mr Rashidov complied, but at a price.The Uzbek SSR was paid for growing 5m tons of cotton per year, but in factonly grew 4m tons, and payment for the remaining 1m tons went straight toMr Rashidov himself. Mr Rashidov created a personality cult around himselfwhich sought to portray him as the Otakhan, a benevolent despot. It was hisyears in power (1961-82) that created the political machine out of which thecurrent president, Islam Karimov, was to emerge. One Rashidov acolyte,Akhmadzhan Adylov, effectively owned the Papskii cotton combine and its30,000 inhabitants. Mr Adylov operated his own private prisons and was ableto remove the usually compulsory statues of Lenin.

Uzbekistan: Historical background 3


This regime was threatened in 1985 when Mikhail Gorbachev became theSoviet leader and launched his reform programmes of glasnost (openness) andperestroika (restructuring). The Uzbek SSR opposed Mr Gorbachev’s reforms,which it viewed as dangerously liberal, but the Soviet leader’s anti-corruptiondrive claimed several casualties. The leadership of the Uzbek SSR proved unableto spot rising domestic discontent. In June 1989 Uzbeks in the Fergana Valleymassacred Meshketian Turks, fellow Sunni Muslims who had been deported tothe area on Stalin’s orders. In the aftermath of the killings, Mr Karimov, aRashidov protégé and orthodox Brezhnevite, was appointed party leader. Hispolicy was simple: to resist liberalisation.

The next event to threaten Uzbekistan’s regime occurred in 1991, when a failedcoup in August led to the break-up of the Soviet Union. Mr Karimov hadensured that the March 1991 referendum on the future of the Soviet Unionreturned a 99% vote in favour of preserving it, because he knew the Uzbek SSRwas economically dependent on Russia. Despite his probable links with theanti-Gorbachev coup, Mr Karimov changed tack soon after it occurred anddeclared Uzbekistan’s independence. In rigged presidential elections, the mainopposition figure, Abdurahim Pulatov, was not allowed to stand. Mr Karimovwon with a comfortable 86% of the vote, beating the dissident MukhamedSolikh, who was allowed to stand but not to win. In January 1992 price liberal-isation caused student riots in Tashkent in which at least two people were shotdead by the police. The opposition was then ferociously attacked. All oppositionleaders are now in exile, many of them after stints in prison and public beatings,and a few have disappeared. The secret police have been known to follow dissidentsto Moscow to beat them, and have kidnapped them from Turkmenistan andthe Kyrgyz Republic. Mosques were allowed to reopen in their thousands butonly on condition they remained under government control. Muslim clergywho refuse to comply suffer beatings, torture, and imprisonment, and manydisappear. Even Mr Karimov’s vice-president was ousted from office, convictedof corruption and publicly beaten.

By 1994 Mr Karimov was unquestionably in control and began to consolidatehis grip on power. However, Uzbekistan’s image abroad was rather tarnishedand was not helped when its ambassador to the USA asked for political asylum.Those Western journalists considered unfriendly were pushed out, and foreigncompanies in the country discouraged from criticising the government. AfterRussia cut economic ties in the wake of the collapse of the rouble zone in late1993, Mr Karimov launched an autarchic economic policy and a highly nat-ionalist political policy. Apart from telling Uzbeks that: “Uzbekistan is a futuregreat country”, he aggressively intervened in the civil wars in Afghanistan andTajikistan through proxies. Mr Karimov also launched a “Turkestan” cam-paign, which aims to unite all of Central Asia under Uzbek political domi-nance. As a sop to Western criticisms of a one-party state, Mr Karimov createda façade opposition party, the Progress of the Fatherland Party (PFP), and heldrigged parliamentary elections in December 1994. Two further “opposition”parties, which also support the president, were set up in 1995. Mr Karimovthen cancelled the 1996 presidential elections. A rigged referendum was held inMarch 1995—on a 99.3% turnout, 99.6% voted to keep Mr Karimov in officeuntil 2000.

4 Uzbekistan: Historical background


Since the end of 1995, however, Mr Karimov’s anti-reformist economic policieshave caught up with him. The 1995 grain harvest failed and the prime minister,Abdulhashim Mutalov, was sacked. Mr Karimov showed his sense of humour bydemoting Mr Mutalov to head of the state grain company, Uzdonmakhsulot,before appointing him head of the state bakeries firm, Uzkhlebprodukt. Encour-aged by the EU and the USA, there was a very slight easing of political repressionin early 1996. The massive balance-of-payments crisis that year, however, meantthat all hints of liberalisation were dropped and a severe human rights crack-down began. By mid-1997 Uzbekistan had reversed many of its tepid economicreforms and was politically little different from the Brezhnev era. In 1997Mr Karimov’s foreign policies turned sour: in May his client in Afghanistan,General Abdul Rashid Dostum, was defeated, and his allies in Tajikistan wereforced to come to terms with an Islamist-led opposition.

Constitution and institutions

Uzbekistan is an autocracy. The country is formally ruled by the PopularDemocratic Party (PDP), the direct successor to the Communist Party. In prac-tice the PDP plays little role in political life, which is instead centred aroundthe president, Mr Karimov, who has near-dictatorial powers. Formerly head ofthe local Communist Party, Mr Karimov was elected president of Uzbekistanfor five years in a rigged election in 1991. Mr Karimov then did away with hisneed for re-election by holding a second referendum—also fraudulent—in1996. He will now hold power until at least 2000.

On paper, the Uzbek constitution of December 8, 1992, enshrines the prin-ciples of democracy, a free press, freedom of conscience and religion, socialjustice, legality, and due process. In reality, Uzbekistan is a police state wherethe authorities even tap the phones and intercept the e-mails of foreign eco-nomic advisers.

The three most important state institutions in Uzbekistan are the presidency,the National Security Service (NSS) and, with agriculture employing 40.8% ofthe workforce, the Ministry of Agriculture and Water. The president takes allmajor, and many minor, decisions. No business deal of any significance and noexport of more than 50,000 tons of cotton can take place without his personalapproval. The NSS is the highly effective successor to the KGB, and reportsdirectly to the president. There are no curbs on the NSS, which ruthlessly stampsout dissent, harasses Muslim clergy and keeps the small expatriate populationunder surveillance. The Ministry of Agriculture and Water controls the cottonsector, which brings in around half of export earnings. Water is a scarce resourcein Uzbekistan, mainly because of gross mismanagement, but its continued con-trol makes the ministry powerful, and its officials are frequently bribed.

All other ministries are effectively departments of the presidential apparat. Theprime minister and his vast array of deputy prime ministers, ministers anddeputy ministers are largely powerless, as all decisions come from the pres-ident’s office. The first deputy prime minister, Ismail Dzhurabekov, is a power-ful figure with considerable patronage, and is a potential rival to Mr Karimov.The minister of foreign affairs, Abdulaziz Komilov, a son-in-law of the late

Uzbekistan: Constitution and institutions 5


Mr Rashidov, has a high profile by Uzbek ministerial standards, but his role issimply to present presidential decisions. The parliament, the Ali Majlis (Uzbekfor Supreme Soviet), is constitutionally “the highest state representative” butplays little political role. On paper, the Ali Majlis has to ratify most of thepresident’s decisions. For example, the annual ratification of the budget(whose provisions are secret) involves presenting one page to the Ali Majliswhich then approves it without debate. The judiciary is entirely subservient tothe government and does not hesitate to incarcerate dissidents. Judicial pro-cedures fall far short of international standards. The post of parliamentaryhuman rights ombudsman was created purely in order to qualify for a tradedeal with the EU; in practice it is ineffective and held by Mr Rashidov’s daugh-ter. The police tend to be not very corrupt but very brutal, and torture andbeatings are commonplace.

Political forces

The ruling PDP is simply the Communist Party by another name. However,unlike the Communist Party, it is not an important political force and does nottry to mobilise the population. Preferment in Uzbekistan comes throughpersonal connections to the Rashidov family, rather than party membership.

Main political figures

Islam Karimov: As president of the Uzbekistan republic,Mr Karimov wields the most power in the country. He rose toprominence through the regional structures of the UzbekistanCommunist Party and occupied positions of influence duringthe years of corruption and economic stagnation thatcharacterised Leonid Brezhnev’s tenure as general secretary ofthe Communist Party of the Soviet Union. His career washelped by the patronage of the leader of the Soviet Republic ofUzbekistan from 1961 to 1982, Sharif Rashidov. In 1989Mr Karimov became the leader of the Uzbek Communist Party,the most powerful position under the Soviet system. Followingthe break-up of the Soviet Union, Mr Karimov became thepresident of the new republic of Uzbekistan, throughcontrolling the presidential elections, a post he has continuedto hold. Although Mr Karimov did preside over a number ofimportant economic reforms in the early years afterindependence in 1991, he has also presided over a number ofretrograde steps. He seems to be motivated by a desire forpersonal power and short-term convenience in the Brezhnevmould, rather than by a consistent adherence to any clearlydefined set of political or economic beliefs.

Utkir Sultanov: Mr Sultanov has held the post of primeminister since early 1996, when the previous incumbent,Abdulhashim Mutalov, was made a scapegoat for thedisappointing grain harvest in 1995 and demoted. The postof prime minister has traditionally held very little power, and

Mr Mutalov’s profile was very low. Mr Sultanov, however, is amore powerful prime minister than his predecessor and is morewidely known. Previously the minister for foreign economicrelations, Mr Sultanov is respected by Western observers as acompetent administrator, and was identified with theeconomic reforms that were instigated prior to thecurrent-account crisis in late 1996.

Ismail Dzhurabekov: One of the old survivors of Uzbekpolitics, Mr Dzhurabekov holds the position of first deputyprime minister and is regarded as the second most seniorpolitician in Uzbekistan, after the president. Mr Dzhurabekovis an éminence grise having spent many years ingovernment, and hails from Samarkand, the same region ofUzbekistan as the president. In previous years, he was usedby the president as a trouble-shooter, and his responsibilitieschanged as circumstances dictated. It is likely that thepresident sees him as a threat to his own position, thuscasting doubt over his future.

Viktor Chzhen: One of the most capable of Uzbekistan’sdeputy prime ministers, Mr Chzhen’s ethnic background isfrom Uzbekistan’s large Korean minority. His image is of atechnocrat rather than a politician, which may be part of thereason why he has not been seen as a threat by Mr Karimov.He has been prepared to push the economic reform processforward and is seen by Western observers as a pragmatist.

6 Uzbekistan: Political forces


There are two sorts of opposition party in Uzbekistan: those set up by thegovernment, which are legal, and those set up by dissidents, which are banned.The main government-sponsored opposition party is the PFP, which was allo-cated some seats in the Ali Majlis in the 1994 elections. The other officiallysponsored opposition parties are the Adolat; the Social Democratic Party ofUzbekistan, set up on February 18, 1995; and the Milliy Tiklanish (NationalRevival Democratic Party) and Khalq Birligi (People’s Unity Movement), bothset up on May 25, 1995. None of these parties plays any political role.

The main dissident movements are Birlik (Unity) and its splinter group, Erk(Will). Birlik is headed by Abdurahim Pulatov, Erk by Mukhamed Salikh—bothare in exile. The Islamic Renaissance Party, a moderate Islamist group, wasbanned in 1990; a few splinters may still exist. The main Islamist movement inthe Fergana valley, Adolat (Justice), was closed down between 1990 and 1992and its members are now mostly in prison. Forthcoming legislation will pre-vent political movements from sharing names, with the pro-governmentparties and publications taking precedence. Khalq Birligi published a news-paper called Birlik (Unity), and there is a pro-government Adolat party.

Ali Majlis election results, Dec 25, 1994a

% of vote No of seats

Popular Democratic Party (PDP) 90.2 189 Directly elected nominees 30.6 69 Indirectly elected local candidates & “independents” 59.6 120

Adolat Social Democratic Party of Uzbekistan (pro-government) 0.0 47

Progress of the Fatherland Party (pro-government) 9.8 14

Total 100.0 250 Directly elected seats – 83 Indirectly elected seats – 167

Memorandum itemTurnout (%) 93.6 –

a Further rounds of voting held on January 8 and 22, 1995.

Sources: EIU; Reuters.

March 1995 referenduma

(% of vote unless otherwise indicated)

Yes 99.6

No & spoilt 0.4

Turnout (%) 99.3

a To cancel 1996 presidential elections.

Sources: EIU; Reuters.

International relations and defence

Officially, Uzbekistan’s foreign policy is based on the principles of inde-pendence and regional leadership; Uzbekistan claims to be one of the mostimportant countries in the world because of its strategic position. However,despite public anti-Russian rhetoric, it maintains close defence ties withMoscow. Uzbekistan’s former Soviet neighbours in Kazakhstan, the Kyrgyz

Uzbekistan: International relations and defence 7


Republic and Turkmenistan are suspicious of Mr Karimov’s regional ambitionsand there has been little real regional cooperation. Around 80% of Uzbeks livingoutside Uzbekistan live in parts of Tajikistan, the Kyrgyz Republic andTurkmenistan adjacent to Uzbekistan, and these countries fear that Uzbekistanmay at some point seek to unite all Uzbeks in one country. Relations with thefactions controlling Afghanistan are poor because Uzbekistan armed andsupported the former Afghan communist general, General Dostum, who wasdefeated in May 1997. Mr Karimov’s anti-Islamic stance, his desire to please theUSA, and Uzbekistan’s ties with Israel meant that relations with Iran were verybad until late 1996. At that point anti-Islamic Uzbekistan’s relations with Shi’aMuslim Iran improved, with both countries fearing the success of the SunniMuslim traditionalist Taliban in Afghanistan. Relations with Turkey have beenmixed. Uzbekistan dislikes what it regards as Turkey’s patronising attitude to-wards Central Asia, but both countries helped prop up General Dostum inAfghanistan.

Relations with the USA were poor until a new US ambassador changed thepolicy in late 1994, arguing that Uzbekistan’s anti-Islamic and anti-Iranianrhetoric, and its large armed forces, made the country a potentially vital ally.Until 1994 Uzbek-USA relations were soured by Uzbekistan’s broken promiseson democratisation, respect for human rights and economic reform. The im-provement in relations coincided with the purchase by Uzbekistan of a numberof Boeing aircraft. The EU has attempted to imitate the US policy shift. In 1996,conscious that Uzbekistan Airways was buying Boeing rather than Airbus air-craft, the EU signed a Partnership and Cooperation Agreement (PCA) withUzbekistan, although the EU representative in Uzbekistan opposed it. Ratific-ation of the PCA has been held up by the European Parliament, as Uzbekistanfails to meet the key conditions of respect for democracy, respect for humanrights and current-account convertibility.

Security forces

Personnel Equipment

Army 25,000 404 tanks, 516 armoured fighting vehicles,armoured personnel carriers, reconnaissance 397 artillery mortars, multiple-rocket launchers

Air force 4,000 126 combat aircraft43 attack helicopters

Armed forces 30,000 –

OMON 15,000 Unknown

In storage 2,000 tanks– 1,200 armoured fighting vehicles

750 artillery piecesSource: International Institute for Strategic Studies, The Military Balance, 1997-98.

Uzbekistan’s armed forces are well-equipped but are only 30,000-strong andhave few adequately experienced officers. Most Russian and Ukrainian officershave been pushed out. There were very few Uzbek officers in combat commandsin the Soviet armed forces, and most Uzbeks served in unarmed constructionbattalions. The most important parts of the security apparatus are the NSS, the16,000-strong interior ministry troops and the 700-strong National Guard,which guards the president. The army includes one tank brigade, four motor

8 Uzbekistan: International relations and defence


rifle brigades, one light mountain brigade, one motorised brigade, one airbornebrigade and one special forces brigade. Defence spending in 1997 is set at 1.7%of GDP, although this probably does not include spending on the NSS, theOMON paramilitary troops, or subsidies to the Tajik government and variousAfghan factions.

The economy

Economic structure

Main economic indicators, 1996

Real GDP growth (%) 1.6a

Consumer price inflation (%) 64.5a

Current-account balance ($ m) –1,556b

Official exchange rate (Som:$) 40.2

Commercial exchange rate (Som:$) 45.8c

Black-market exchange rate (Som:$) 64.2c

Population (m) 23.1

a Official estimate. b EIU estimate. c Average, February-December.

Sources: IMF; Goskomprognozstat; Business Information Service for the Newly Independent States (BISNIS); EIU.

The largest sector in Uzbekistan is agriculture, which generated 22.5% of GDP in1996, employed 40.8% of the workforce and generated around 50% of exportreceipts. Most agricultural output and much light industrial output is related tocotton production. Cotton is produced throughout the country, with the largestproduction areas in Dzhizak (Sharaf Rashidov’s home district), Surkhandarya,Fergana, Bukhara, Syrdarya, Karakalpakstan and Kashkadarya provinces. Cottonproduction has declined steadily in recent years to under 4m tons/year (t/y).Gold production is the country’s second largest export earner, accounting foraround 15% of export earnings. Most gold is mined at the giant Muruntau goldmine in Navoi province. Gold production is also falling steadily and in 1996 was60 tons, compared with 70 tons in the Soviet era. The mining industry alsoproduces significant amounts of silver and copper. Overall industry accountedfor 17.4% of GDP in 1996 and 12.8% of the workforce. Most industry is lowvalue-added. A car factory assembles South Korean cars, while an aircraft factoryassembles Russian and Ukrainian aircraft. There is a growing and inefficientenergy sector, stimulated by the policy of import substitution. The rest ofindustry is largely concerned with making agricultural machinery and someagricultural processing. Only 15% of cotton-fibre production in 1995 was proc-essed locally into fabric.

The government claims, implausibly, that 38.3% of GDP is generated by serv-ices and that the non-state sector accounts for 68.9% of national income. Noneof Uzbekistan’s lenders and donors believe these figures, which mask large stateholdings in nominally non-state firms, and state control of credit allocation,price formation and exports.

Uzbekistan: Economic structure 9


Comparative economic indicators, 1996

KyrgyzUzbekistan Kazakhstan Republic Russia Turkey Pakistan

GDP ($ bn) 13.9 20.9 1.6 440.6 175.8 64.2

GDP per head ($) 599.0 1,261.0 338.0 2,980.0 2,810.0 480.0

Consumer price inflation (%) 64.5 39.1 34.5 48.0 80.4 10.4

Current-account balance ($ bn) –1.6 –0.8 –0.3 14.0 –7.0 –4.2

Exports of goods ($ bn) 3.6 5.6 0.5 71.0 22.7 8.2

Imports of goods ($ bn) –4.8 –6.0 –0.9 –44.4 –42.4 –11.9

Foreign trade (% of GDP)a 60.6 55.6 87.3 26.2 37.1 31.4

a Merchandise exports plus imports.

Source: EIU.

Economic policy

Uzbekistan has faced an array of problems since the Communist system col-lapsed. It has had to cope without Russian subsidies and face up to its over-dependence on a single agricultural crop. It needs to reform the economicstructure left behind by Communism and stabilise its economy. The response ofthe president, Islam Karimov, has been an ineffective policy mix based on thenotion of statist gradual reform with a so-called social orientation. Uzbek policy-makers proceed on the assumption that economic reform is politically andsocially destabilising, that market forces are dangerous, and that Uzbekistan iscapable of formulating a unique indigenous reform programme. The govern-ment has been grudging in its willingness to meet the strictures of the IMF, theWorld Bank and foreign investors.

There is no economic policy debate in Uzbekistan. Not only are the main goalsof policy not up for discussion—these are set by Mr Karimov—but officials donot dare to dissent even from the minutiae of economic policy. Foreign advis-ers and businesses are regarded with considerable suspicion and are rarely givenaccess to data. As a result, most foreign advice tendered to the Uzbek author-ities goes unheeded. The attempt to curb debate on economic policy extends toforeigners. Television interviews with foreign delegations are heavily editedand, when the IMF suspended Uzbekistan’s stand-by loan in December 1996,security officials prevented journalists from entering the resident IMF repre-sentative’s office, where he was holding a press conference.

Fiscal and monetary policy On paper, Uzbekistan committed itself to tight monetary and fiscal policies aspart of its December 1994 IMF-backed stabilisation programme. However,monetary policy has been loose, and the development of monetary policy in-struments neglected. The moment the government’s commitment to a tightmonetary policy was tested in August 1996, it failed. The authorities indulged ina dramatic loosening to create an inflationary surge with which to bail out thecotton sector. The Uzbekistan State Bank (the central bank) is not independentand avoids positive real interest rates. The government prefers inflationaryfinancing to a government debt market. Treasury-bill yields are sharply negative

10 Uzbekistan: Economic policy


in real terms, and bills are of a maximum six-months maturity, with over 90%of the domestic debt stock maturing within 90 days.

State budget(% of GDP)

1992 1993 1994 1995 1996a

Total revenue 31.3 36.0 29.2 30.1 37.1 of which: grants 0.0 0.0 0.0 0.0 0.0

Net lending 0.0 –14.8 0.0 –0.5 n/a

Total expenditure –43.4 –38.8 –33.3 –33.1 –40.6

Balance –12.1 –17.5 –4.1 –3.5 –3.5b

Consolidated balance –18.4 –10.4 –6.1 –4.1 n/a

a Budgeted. b Budgeted and claimed outturn.

Sources: IMF, Uzbekistan—Selected Issues and Statistical Appendix; World Bank, Statistical Handbook: States of the Former USSR,

1994-96; World Bank, STARS; EIU calculations.

Fiscal policy has been tight on paper. The consolidated fiscal deficit, whichincludes net lending and off-budget accounts, shrank from 18.4% of GDP in1992, the year after Soviet subsidies worth 19.5% of GDP were lost, to 4.1% ofGDP in 1995. The government claimed that the fiscal deficit in 1996 was 3.5%of GDP, the exact figure demanded by the IMF. Doubts have been expressed asto the reliability of this figure, given the extent of the balance-of-paymentscrisis encountered that year. By former Soviet standards, the state swallows upa large part of the economy, with tax/GDP and spending/GDP ratios of nearly40%. (For historical data on government finances, see Reference table 1.)

Economic policy in Uzbekistan

1992: Uzbekistan, cut adrift by the collapse of the Soviet Union, refuses to introducereforms.1993: Uzbekistan is expelled from the rouble zone. The government announces thata joint currency will be introduced with Kazakhstan. In fact Uzbekistan is forced tointroduce its own currency, the som-coupon. 1994: The som replaces the inflationary som-coupon. Uzbekistan is one of lastformer Communist bloc states to agree an IMF-backed stabilisation programme.1995: In line with the IMF agreement, trade liberalisation begins.1996: Uzbekistan promises the IMF and the EU that it will make the somcurrent-account convertible by year-end. Instead, the minimal convertibility availableis cancelled and massive trade controls are reimposed. The IMF suspendsUzbekistan’s stand-by loan. World Bank and European Bank for Reconstruction andDevelopment (EBRD) lending is also suspended, pending a new IMF agreement.

Policy has alwaysfavoured a strong role for

the state—

Uzbekistan’s economic policies are defined by the president in a series of ram-bling books and speeches. Government propagandists claim there is an“Uzbek” model of economic reform. The policies are a disjointed collection ofstatist measures primarily intended to keep Mr Karimov in power by prevent-ing any potential political rival from building up an economic power base, andallowing him to indulge his taste for strong state control. As befits a regime thatidolises the Brezhnev era, economic policy is hostile to the market-reform

Uzbekistan: Economic policy 11


model pursued in eastern Europe, Russia, Kazakhstan and the Kyrgyz Republic.Uzbekistan’s lack of funding has forced it to move closer to the reforms de-manded by the IMF and the World Bank in word, but not in deed.

—and import substitutionhas come first—

The key government policy is an alternative statist model to Communism,Import Substituting Industrialisation (ISI). The policy involves the governmentfunnelling credit to priority industrial sectors in order to build up domesticproduction and thereby reduce the cost of imports. The firms that benefit fromISI are invariably wholly or partially state-owned. Because credit and hard cur-rency reserves are allocated administratively, the process is costly, inefficientand potentially corrupt. ISI has resulted in local production which is not inter-nationally competitive and encourages investment in non-tradables.

—accompanied by a dualexchange rate policy—

To complement ISI, the government has avoided exchange rate convertibility,operated a dual exchange rate system, rationed hard currency and maintainedan artificially strong official exchange rate for the som. The official logic behindthe strong official exchange rate is to subsidise imports of capital goods forstate-owned enterprises. These capital goods will then be used as part of theimport-substitution programme. In practice, the policy has caused a surge inconsumer goods imports by making them artificially cheap, thereby pricingsome of the local production encouraged by ISI out of the market. In mid-1997the government hinted that it might tone down ISI in favour of developing oiland gas exports in order to fuel growth. However, Uzbekistan has a relativelymodest oil and gas endowment by Central Asian standards, and building exportpipelines to hard currency markets will be politically difficult and extremelycostly.

—and a disdain for theprivate sector and the

market—

Privatisation and encouragement of the private sector have been limited bygovernment control over credit allocation and price formation. As a result,those with the best government contacts have ended up acquiring the beststate assets. The most profitable firms in the new private sector are staffed byassociates of the government and their families. There are no effective controlson monopolies, and the government has avoided encouraging what it views aspernicious market forces.

—with state control offinance—

The vast majority of the banking sector is in state hands. The banks allocatecredit to priority sectors identified by the government. In 1996 total capitalinvestment in Uzbekistan was Som166.5bn, or 29.7% of GDP, which would beimpressive in a mature Western economy. Of total capital investment, 59.3%was pushed into priority sectors. Fuel and energy received 18% of total capitalinvestment, with transport and communications taking a further 17.1%. Amere 3.9% of total capital investment went into the food sector. Of total capitalinvestment, 25.7% came straight from the government budget, 1.5% fromprovincial government, 7.4% from banks and 35.5% from enterprises. Total netforeign direct investment (FDI) in 1996 was $84m, or 0.6% of GDP, accordingto IMF figures.

—and state control overagriculture

Agriculture is an extremely sensitive sector in Uzbekistan as it employs around40% of the workforce and accounts for around 50% of export earnings. The IMF

12 Uzbekistan: Economic policy


has estimated that 1 million of the 3.5 million people employed in the sector areunderemployed. The government’s policy is to maintain large-scale employ-ment in agriculture and attract investment into agricultural processing.Officially, the government wants to wean Uzbekistan off its dependence oncotton exports. However, as a result of ISI, loans taken out for industrial projectsthat produce for domestic consumption have to be repaid with proceeds fromthe cotton crop, making Uzbekistan more, rather than less, cotton-dependent.State intervention at all levels in the agricultural sector remains pervasive andthe privatisation process in the sector has stalled. The state purchasing prices forcotton are advantageous for the government but not for cotton farmers. Thegovernment also maintains extensive control over the pricing of inputs andagricultural production, while the centralised state order system, goszakaz,remains in place. Similarly, the government retains full control over cottonexports, with the president’s personal approval required for exports of over50,000 tons.

The government is also aiming to make Uzbekistan wholly self-sufficient ingrain production by taking acreage away from cotton, but the policy has failedto reach its production target of 4m-4.5m tons of grain. In 1995-96 Uzbekistanspent $1.6bn trying to save $700m in grain imports (see Agriculture andforestry).

Even tepid liberalisationwas reversed in 1996

The government failed the first test of its commitment to economic reform in1996. In August that year it became clear that the cotton crop had failed andthat cotton prices had fallen, squeezing hard currency receipts, while at thesame time, a lower than expected grain harvest led to an unexpected call onreserves to finance grain imports. The failure of the 1995 grain harvest hadalready drained hard currency reserves and the government opted simply toclose off the economy to save money on imports. Access to bank accounts wasdenied, savings were confiscated, the foreign exchange departments of allbanks were closed and hard currency licences for enterprises were cancelled.The IMF-approved policy of trade liberalisation was swiftly dropped, and thespread between the official rate and the bazaar rate trebled in size.

The next five years willhave to make up for the

last five

The authorities believe that Uzbekistan can become a developed country in thenear future. In practice, Uzbekistan has lagged far behind most other formerCommunist bloc states and some of its immediate neighbours. For example, bymid-1997 Kazakhstan had begun issuing two-year government bonds whichwere attracting foreign buyers, yet the Uzbek government debt market re-mained closed to foreigners and had only just started issuing six-month paper,which had negative real yields. To cope with rapid population growth of 2.5%per year and the need to create jobs, Uzbekistan’s economy needs substantialrestructuring in order to attract investment and grow in the medium term.Investors are waiting for the government to agree a new one-year stabilisationpackage with the IMF and follow it up with a three-year programme. Privatis-ation will have to be made more transparent and the state will have to relin-quish some controls over the economy. The incentive structure will need to bechanged in the agricultural sector to enable it to grow, for example by allowingthe private ownership of land, which could prove difficult to justify politically.To attract foreign investment, the government will have to unify the exchange

Uzbekistan: Economic policy 13


rate and move rapidly towards current-account convertibility. On top of that,following its spectacular policy U-turn in 1996, the government will need todemonstrate that its commitment to reform is credible.

Economic performance

Uzbekistan appears tohave escaped the Central

Asian meltdown—

Opinions differ as to the actual extent of Uzbekistan’s economic growth in re-cent years. Like all former Communist bloc states in eastern Europe, Uzbekistanexperienced a steep recession after the Communist system collapsed. However,the government boasts that in 1991-95 the economy underwent one of theshallowest recessions in the entire former Communist bloc. Official data indi-cate that between 1991 and 1995 real GDP fell by just 18%, less than the 18.3%contractions experienced by Poland and Hungary, and a fraction of the 55.9%cumulative fall in Kazakhstan or the 54.5% fall in the Kyrgyz Republic in thesame period. Given that Uzbekistan lost Soviet subsidies worth 19.5% of GDPin 1991, and that export reorientation away from the former Soviet Uniontowards hard currency markets was slow, such a shallow drop in real GDPappears unlikely. Even using the government’s figures, Uzbekistan’s fast popul-ation growth rate means that real GDP per head fell by 26.8% between 1991and 1995.

—through anti-reformistpolicies such as import

substitution—

However, favourable prices for its two main exports, gold and cotton, andanti-reformist policies such as ISI, may have given a temporary boost to un-competitive domestic production, thereby partly making up for the loss offormer Soviet markets. Oil and gas production has risen dramatically since1991: oil production rose by 173% from 2.8m tons, or 56,000 barrels/day (b/d),in 1991 to 7.66m tons (154,000 b/d) in 1996; gas production rose by 17% from41.9bn cu metres in 1991 to 49bn cu metres in 1996. (For historical data onenergy production, see Reference table 10.)

—but the claimedrecovery of 1996 is more

myth than reality

The government claims that the economy grew by 1.6% in 1996 but, given theextent of the economic crisis that year, this figure is also unlikely to be accurate.The economy may have been recovering slowly in the first half of 1996. But inthe second half of the year there was a massive drop in the bazaar value of thesom and the country was closed to imports. Inflation shot up and all availablecredit was channelled via an interest-free loan to the cotton sector. The govern-ment claims that the recovery is continuing into 1997, but anecdotal evidencesuggests that output is falling in a number of sectors. (Historical data on GDP aregiven in Reference tables 4, 5 and 6.)

Consumption is ratherbasic—

Official data on GDP on an expenditure basis are not available for recent yearsbecause of the government’s policy of secrecy. The data available indicateprivate consumption of around 58% of GDP, very high public consumption at29% of GDP, and investment (overwhelmingly by the state) of 31% of GDP,implying large negative net exports and dwindling stocks. (Reference table 5shows the share of GDP by expenditure.)

Broadly speaking, consumption patterns in rural areas, where many ethnicUzbeks still live, are rather basic. Urban consumers have more purchasing

14 Uzbekistan: Economic performance


power, but only those with the good government connections necessary toobtain hard currency have access to high-value consumer goods. Loans atnegative real interest rates operate as subsidies enabling a lucky minority ofindividuals to buy their own flats and Daewoo cars assembled in the Ferganavalley. There is a growing unofficial economy. In rural areas it tends to besmall, but in the cities the government’s strict currency controls are making thebazaar an important source of foreign exchange and smuggled imports. Thepolice attempt to discourage these chelnoki (suitcase traders) and spekulatny(speculators) with little success.

Gross domestic product(% of total)

Jan-Jun1992 1993 1994 1995 1996

Private consumption 45.3 57.5 64.3 53.7 58.5

Government consumption 20.1 24.6 21.2 20.9 29.0

Gross fixed investment 26.5 25.2 26.2 33.2 30.8

Change in stocks 17.4 –10.5 –8.0 –3.6 n/a

Net exports of goods & non-factor services –9.3 3.2 –3.8 –4.2 n/aSources: World Bank, Statistical Handbook: States of the Former USSR, 1996; Main Computer Centre of the Goskomprognozstat, The

Basic Results of Social and Economic Development of the Republic of Uzbekistan, January-June, 1996: Brief Statistical Digest.

—because inflation hasbeen so high

A key factor eroding living standards has been high inflation. The governmenthas made stabilisation a low priority, claiming it would excessively depressoutput and hit living standards. However, high inflation has wiped out savings.Household savings fell from 14.9% of GDP in 1991 to 0.8% of GDP in 1994 (themost recent data available), according to the IMF. Many Uzbeks do not havebank accounts, making them vulnerable to inflation. Those that do have ac-counts are not well served or protected by the banks, most of which are state-owned. Savings have been confiscated three times since independence in 1991and interest rates are negative in real terms. Government measures to protectwages and benefits from inflation have failed because they are often paid late,with no back-indexation. The official inflation data on which wage and bene-fits rises are calculated tend to understate the true level of inflation. Officialfigures provided to the IMF imply a 15.8% cumulative real drop in householdincomes between 1992 and 1995. In real terms wages fell by 60.3% between1991 and 1995, according to IMF data. (For historical data on wage and priceinflation, see Reference table 7; for data on interest rates, see Reference table 3.)

High inflation and a shortage of skilled staff mean that, although Uzbekistan ispoor, it is an expensive place to do business. In addition, since there is virtuallyno value added in the country’s main exports, there is no incentive to improveefficiency and thus boost international competitiveness. If the governmentcontinues with its present economic strategy, Uzbekistan will find that itssmall low-value-added sectors, such as textiles, are unable to export, and itsreliance on the export of raw materials will therefore increase. In the textilessector, the overvaluation of the exchange rate makes exports uncompetitive,and the sector is hindered by the high fixed cotton price that the state chargesdomestic industries. Wholesale prices rose 12.7 times faster than consumer

Uzbekistan: Economic performance 15


prices in 1991-95, squeezing the profitability of Uzbekistan firms and increas-ing cost-push inflation.

Inflation(%; annual averages)

Annual average 1995 1996 1992-96

Consumer prices 304.6 64.5 454.5

Wholesale prices 499.1 n/a 1255.9a

Average wages 288.8 104.8b 492.1

a 1992-95. b OECD data from Uzbek authorities.

Sources: IMF; EIU calculations for averages.

Regional trends

Provinces have little power Given the country’s highly centralised form of decision-making, Uzbekistan’s12 provinces, the city of Tashkent and the republic of Karakalpakstan havelittle clout. The 12 provinces and Karakalpakstan are divided into 163 regionsand 18 municipalities. Within the 163 regions there are 1,421 rural areascontaining 12,391 settlements known as kishlak. The main sub-unit in themunicipalities is the mahallah, or quarter. The mahallah tend to be tightly knitand help to enforce the prevailing authoritarianism. Karakalpakstan is intheory a sovereign republic and, according to Article 74 of the constitution, hasthe right to secede following a referendum. Since all votes in Uzbekistan arerigged, however, Karakalpakstan’s prospects for secession are about as realisticas those granted to Uzbekistan by Stalin in 1936. All decisions are takencentrally. The president appoints a hakim for each province, a prefect withconsiderable powers. Karakalpakstan has its own president, who is subordinateto Mr Karimov. Any hakim who fails tends to be publicly sacked by Mr Karimovin a televised session of the provincial puppet legislature. The centralisation ofpolitical and economic power is neatly illustrated by a government statisticshowing that in 1996, 46.2% of imports were purchased by the city ofTashkent. In practice, state control of imports means that ministries inTashkent did the buying before distributing the goods to the provinces.

Industrial production by province

Som bn % of total

Andizhan 30.3 6.8

Bukhara 17.1 3.9

Dzizhak 4.8 1.1

Fergana 64.0 14.4

Kashkadarya 40.4 9.1

Karakalpakstan 10.8 2.4

Khorezm 16.2 3.6

Navoi 40.9 9.2

Namangan 14.4 3.2

Samarkand 16.2 3.6

continued

16 Uzbekistan: Regional trends


Som bn % of total

Surkhandarya 10.4 2.3

Syrdarya 5.4 1.2

Tashkent 54.3 12.2

Tashkent (city) 63.8 14.4

Uzbekistan total 444.1 100.0

Note. Table does not sum to Uzbekistan total.

Source: Main Computer Centre of the Goskomprognozstat, The Basic Results of Social and Economic Development of the Republic of

Uzbekistan, January-June, 1996: Brief Statistical Digest.

The most economically sensitive provinces are Navoi, where most gold prod-uction takes place, Dzhizak, Surkhandarya, Fergana, Bukhara, Syrdarya,Karakalpakstan, and Kashkadarya, where most cotton is produced. Politically,the government keeps an especially tight grip on Tashkent; the city was rebuiltafter an earthquake to a design which allows the centre to be isolated in caseof unrest. Political activity is also closely monitored in Fergana, where there is asmall independent Islamic movement, and in Bukhara and Samarkand whichboth have large Tajik minorities, the latter being the president’s home province.

Resources

Population

Uzbekistan’s population is grew at around 2.3% per year in 1990-96, slowerthan the 2.5% annual average growth recorded in the 1980s. (Reference table 8gives population data for 1992-96.) This slowing of the population growth rateis mostly due to large-scale emigration by ethnic minorities. Between 1989 and1995 there was a net emigration from Uzbekistan of 565,000 people, most ofwhom were Russians, Ukrainians, Belarusians, Germans, Tatars, Greeks andJews. The birth rate, however, has also fallen, from 33.3 per 1,000 populationin 1989 to 29.3 per 1,000 in 1994.

The population is increasingly young and increasingly rural. In 1995, 43% of thepopulation was under the age of 16 (the most recent data available). As befits amainly agricultural economy, in 1996, 61.8% of the population lived in ruralareas, compared with 59.4% in 1980. Since then, rural population growth hasbeen 10.3% higher than urban population growth because ethnic Uzbeks, whoare mostly rural, tend to have larger families. The fast pace of population growthmeans that nearly four times as many ethnic Uzbeks are entering the workforceas are leaving it, and there is therefore considerable pressure to create newlabour-intensive industries. (Historical data on the labour force and on un-employment are given in Reference table 9.) The growing rural population isalso putting pressure on the country’s already strained land and water resources.

Although no recent data are available, it is likely that up to 70% of ethnicUzbeks live in rural areas. Most of the country’s non-Muslims live in cities,particularly Tashkent. Most Tajiks live in the Samarkand and Bukhara provinces.Data on the ethnic breakdown in Uzbekistan are not easily available. Uzbeks

Uzbekistan: Population 17


dominate, making up three-quarters of the population in 1993. However, Tajikactivists claim that large numbers of Tajiks are wrongly classified as Uzbeks.Many of Uzbekistan’s Tajiks registered as Uzbek to avoid discrimination after thedelimitation of the Central Asian republics in 1924. The size of the Russianminority is dwindling, with unofficial policies in existence that aim gradually toforce Russians out.

Population by age and location(% of population unless otherwise indicated)

1990 1991 1992 1993 1994 1995

Total (’000) 20,227 20,613 21,112 21,608 22,098 22,467

By age 0-15 42.9 43.1 43.2 43.1 43.1 43.016-59 49.2 49.1 49.1 49.1 49.2 49.360+ 7.9 7.8 7.7 7.7 7.7 7.7

By locationUrban 40.6 40.1 39.9 39.3 38.8 38.6Rural 59.4 59.9 60.1 60.7 61.2 61.4Source: World Bank, Statistical Handbook: States of the Former USSR, 1996.

Ethnic composition of population(% of total; year-end)

1989 1993

Uzbek 71.1 74.5

Russian 8.3 6.9

Tajik 4.7 4.8

Kazakh 4.1 4.1

Tatar 3.3 2.6

Kyrgyz 0.9 0.9

Jewish 0.5 0.1

German 0.2 0.1

Other 6.9 6.0Sources: UNDP, Human Development Report, 1995; EIU, Business Reports.

Population by province, 1996

Total (’000) Urban (%) Rural (%)

Andizhan 2,063.6 30.0 70.0

Bukhara 1,350.5 32.3 67.7

Dzizhak 900.7 31.7 68.3

Fergana 2,522.7 29.3 70.7

Kashkadarya 2,004.0 26.0 74.0

Karakalpakstan 1,428.9 48.3 51.7

Khorezm 1,238.2 24.6 75.4

Navoi 755.5 40.2 59.8

Namangan 1,809.6 37.9 62.1

Samarkand 2,518.4 28.3 71.7

Surkhandarya 1,606.4 20.4 79.6

Syrdarya 637.2 30.7 69.3

Tashkent 2,276.3 41.2 58.8

Tashkent (city) 2,114.3 100.0 0.0

Uzbekistan total 23,226.3 38.2 61.8Source: Main Computer Centre of the Goskomprognozstat, The Basic Results of Social and Economic Development of the Republic of

Uzbekistan, January-June 1996: Brief Statistical Digest.

18 Uzbekistan: Population


Education

A deteriorating system— Uzbekistan’s education system is not geared towards the demands of a moderneconomy. Set up in the Soviet era, the system is poorly organised and unable tocope with rapid population growth. Nevertheless, for a country of its incomelevel, Uzbekistan is well-educated, with an illiteracy rate of just 3%. EthnicUzbeks were among the most poorly educated of any ethnic group in the formerSoviet Union, however, and educational standards are now falling. Scientificand technical education was of a reasonable standard, but both students andteachers in the specialist schools and institutes that catered for these disciplinescame mainly from the ethnic minorities, and many have since emigrated.Ethnic Uzbeks, by contrast, preferred the humanities, where standards were low.Most of these degrees, such as law, journalism or economics at Tashkent StateUniversity, are of little value.

—unable to cope withchange

The government has tried to maintain spending on education despite thecountry’s economic problems; reportedly one-quarter of the budget is spent oneducation. But as the economy has shrunk and the population has grown, sospending per pupil has fallen. Pre-school and primary-school education hassuffered more than secondary and tertiary education. The gross primary-schoolenrolment rate in 1990-94 was 79% for girls and 80% for boys, similar to thatin Bangladesh. Meanwhile, the gross secondary-school enrolment rate was 92%for girls and 96% for boys. Although the number of students in tertiary educ-ation fell by one-fifth in 1990-93, between one-third and half of educationalexpenditure is allocated to student subsidies—the government is worried aboutpotential student unrest.

Health

Healthcare is in decline— The standard of healthcare in Uzbekistan has been adversely affected by theemigration of doctors from ethnic minorities, who tended to dominate amongspecialists, and by a drop in funding. The government claims that in 1989-94there were on average 106 people per hospital bed and 282 per doctor. Whatwas a reasonable, if inefficient, Soviet service has become a poor but slightlymore efficient service since independence. According to the InternationalLabour Office (ILO) and the UN, the number of medical students fell from4,800 in 1991 to just 1,500 in 1995, a drop of 69%. Data on healthcare expend-iture are unreliable, but it is estimated that spending fell from 5.9% of GDP in1991 to 4% of GDP in 1996. Hospital bed numbers are estimated to havedropped by 16% between 1990 and 1994.

—but there is a shift awayfrom expensive in-patient,

hospital intensive care

As with other former Soviet republics, Uzbekistan is trying to reduce healthcareinefficiencies and costs by reducing in-patient care. Primary healthcare, partic-ularly in rural areas, is now receiving more attention as less emphasis is put onhospital medicine. Infant mortality is falling, from 47 per 1,000 live births in1971-80 to 28.2 per 1,000 in 1994. Contraception is now more widely used,which has helped reduce maternal deaths by giving mothers more time be-tween pregnancies. Life expectancy is also rising. The best way to improve

Uzbekistan: Education 19


health in rural areas would be to increase rural incomes, but this would requireeconomic reform which the government wants to avoid.

Natural resources and the environment

Uzbekistan has a modestnatural resource

endowment—

The extent of Uzbekistan’s natural resources is difficult to assess because thegovernment consistently overestimates the country’s endowments. Oil and gasreserves are sufficient for domestic demand but will require massive investmentbefore large-scale exports can be contemplated. In 1995 the state-owned oilcompany, Uzbekneftegaz, put oil reserves at 240m-700m tons (1.8bn-5.1bnbarrels). Despite little recent exploration, the government claimed at theTashkent International Oil and Gas Exhibition in May 1997 that Uzbekistanhad oil reserves of 4.4bn tons (32bn barrels), and 629m tons of gas condensate(4.6bn barrels). The amount of gas reserves is also prone to exaggeration. In1996 a specialist journal, Petroleum Economist, estimated Uzbekistan’s gas re-serves at 1.55trn cu metres, and even the government claimed only 1.94trn cumetres in proven and probable reserves. But by May 1997 the government wasclaiming gas reserves nearly three times as large, at 5.43trn cu metres.

Uzbekistan has significant gold deposits, although again reliable data are notavailable. There are also workable deposits of silver, copper, lead, zinc, tung-sten, uranium and coal.

—but the Aral Sea is ahuge environmental

problem

Uzbekistan’s geography also has its disadvantages. Around three-fifths of thecountry is desert or semi-desert. Virtually all cultivated land has to be irrigated.In the Soviet era rising cotton production was fed by expanding the acreage ofirrigated land by taking water from the Syr Darya and Amu Darya rivers. Theinefficient and massive use of the two rivers for irrigation, together with exces-sive use of fertilisers and pesticides, has caused the Aral Sea to shrink and hasled to severe health problems in the surrounding regions. This major inlandbody of water is expected to disappear within 30 years. The average net volumeof the Aral Sea decreased by 15.8% between 1961 and 1974, and by 36.4%between 1974 and 1985. The actual average area of the sea between 1974 and1985 was only 51,110 sq km, compared with 61,836 sq km between 1961 and1974. Life expectancy in the areas of Karakalpakstan near the Aral Sea is as lowas 50 years because of respiratory illness—the former seabed is a pesticide-richdustbowl—and poor drinking water. There has been virtually no official action.In September 1995 the UN organised a “Save the Aral Sea” conference in thecapital of Karakalpakstan, Nukus. The president, Islam Karimov, surprised dele-gates by calling for two Siberian rivers to be diverted to replenish the Aral Sea.A similar river-diversion scheme had been abandoned by the Soviet authoritiesin 1986 as it was judged to be expensive, environmentally damaging andover-ambitious.

20 Uzbekistan: Natural resources and the environment


Economic infrastructure

Transport and communications

Being landlocked is themain handicap—

Uzbekistan is so radically landlocked that goods often have to cross three otherformer Soviet republics before they reach the sea. The Russian Black Sea ports are3,000 km from Uzbekistan. The president, Islam Karimov, is cooperating withone of the EU’s more ambitious ventures to create a transport corridor forCentral Asia through the war-ravaged Transcaucasus to reduce dependence onRussia. In 1989 Uzbekistan had 3,406 km of railways (only 270 km of whichwere electrified), equivalent to 7.7 km per 1,000 sq km. In 1989 there were42,000 km of main roads, of which 96% were paved, with a further 90,000 kmof local roads, equivalent to a road density of 0.3km per sq km. Most infrastruc-ture is badly maintained. The national airline, Uzbek Khavo Yullari (UzbekistanAirways), flies within the former Soviet Union and earns hard currency onlong-distance routes to India. Car ownership is low, but is increasing as a resultof selective government subsidies to officials and personal contacts to buyDaewoo cars assembled in Uzbekistan.

—and bad telephones donot help

Uzbekistan’s telecommunications system is infamous. There are only seventelephone lines per 100 inhabitants, and reportedly only 10% of calls succeed.Some switching stations are of German 1930s vintage and came to Uzbekistanafter the Second World War. The government is wary of allowing in foreigninvestment, but has gradually moved from buying foreign equipment to allow-ing joint ventures with foreign companies in limited areas. Foreign firms areexpected to operate without export-credit guarantees in an unreformed pricingstructure, and to take on all the project risk. The government has signed anumber of exclusive deals on which it has subsequently reneged. It has drawnup an upgrade programme for 1994-2010, with the ambitious goal of installingdigital connections throughout the country, and achieving a telephone densityof 13 lines per 100 inhabitants by 2010.

Energy provision

The country isself-sufficient—

The government’s policy of import substitution has made Uzbekistan largelyself-sufficient in energy. Since independence oil production has grown by173%, from 2.8m tons, or 56,000 barrels/day (b/d), in 1991 to 7.7m tons(154,000 b/d) in 1996. Oil imports have been eliminated, but exports remaininsignificant. As this has been achieved without foreign investment andthrough compulsory allocation of credit, the oil industry is far from being amodel of competitiveness. Gas production rose from 41.9bn cu metres in 1991to 49bn cu metres in 1996, a rise of 17%. Oil and gas production is insufficientto justify export pipelines. Most gas is exported to former Soviet markets,which tend to pay late, if at all. (For energy statistics, see Reference table 10.)

—but highly inefficient The Uzbek energy sector has not improved in efficiency since the Soviet era. In1992 Uzbekistan consumed more energy per head than Italy. Total primaryenergy supply per head was 3.11 tons of oil equivalent (toe) in 1992, compared

Uzbekistan: Transport and communications 21


with 2.75 toe in Italy. Meanwhile, energy usage stood at 3.7 toe per $1,000 ofGDP, compared with 0.32 toe in Italy, 0.41 toe in Germany and 0.43 toe in theUSA. The inherently wasteful nature of import substitution is illustrated by theFergana oil refinery upgrade, funded with $179m of loans from the EuropeanBank for Reconstruction and Development (EBRD) and the Export-Import Bankof Japan. The refinery was built to process Russian crude, but the policy ofImport Substituting Industrialisation (ISI) will force it to take local crude witha high sulphur content, which is unsuitable for the plant. In order to repay theloans, the refinery needs to obtain hard currency by exporting its output.Instead, product from the refinery will be sold locally, and part of the country’scotton and gold export proceeds will be allocated to repaying the loan.

Energy balance, 1995(m tons of oil equivalent)

Elec-Oil Gas tricity Coal Total

Primary production 7.6 39.1 1.6 1.0 49.3

Imports 0.3 1.1 3.3 0.0 4.7

Exports –0.9 –4.5 –3.6 –0.1 –9.1

Primary supply 7.0 35.7 1.3 0.9 44.9

Net transformation –2.2 –15.9 8.3 –0.6 –10.4

Final consumption 4.8 19.8 9.6 0.3 34.5

Note. This data is inconsistent with IMF data.

Source: World Bank, Statistical Handbook: States of the Former USSR, 1996.

Financial services

Uzbekistan does not have any industry that can be called “financial services” asmost banks are state-owned and work to nationally determined priorities. Thestate administratively defines which sectors should have credit allocated tothem and the banks then lend to these sectors. In 1996 Uzbekistan pushed59.3% of total capital investment into priority sectors. The Uzbekistan StateBank (the central bank), is not independent of government and has acted inthe past as a printing press for the Ministry of Finance.

The banking sector is heavily concentrated in Tashkent. The largest bank is thestate-owned National Bank of Uzbekistan (NBU), which holds 45% of all com-mercial bank assets. The NBU is the former Uzbek branch of the Soviet foreigntrade bank, the Vneshekonombank. Although it is supposed to be a foreigntrade and foreign exchange bank, the NBU poaches most of the quality loansin Uzbekistan. The EBRD has unwittingly encouraged the dominant position ofthe NBU, as all of its first Uzbek small and medium-sized enterprises credit lineoperates through the NBU, as will half of its second credit line.

The second largest bank is the state-owned construction bank, Promstroibank,which holds 24% of commercial banks’ assets. The third largest is thestate-owned agricultural bank, Pahta Bank, with 17% of commercial banks’assets. Asaka Bank, which is also state-owned, has 3% of all commercialbanks assets; it was created to subsidise the sale of new Daewoo cars, and chargesonly 4-7% interest per year to fund 65% of the cost of a new car. There are

22 Uzbekistan: Financial services


two further privately owned banks and 22 joint-stock banks which are effec-tively state-controlled.

There has been very little banking-sector reform. In 1996 the authorities closedthree banks, all supposedly for breaching lending limits set by the central bank,although their competition with state-owned banks was probably also a factor.

The main foreign bank in the country is ABN-AMRO of the Netherlands, whichoperates in a joint venture with the NBU. The Tashkent Stock Exchange issmall and illiquid. Most of the firms listed on the stock exchange are owned byemployees and other insiders, while the state retains a 26% stake.

Production

Industry

A Soviet-era inheritance— Uzbekistan’s industrial base is a product of the Soviet era and is rather narrow.Most industry had been linked to processing Uzbekistan’s agricultural output,such as the Tashkent tractor factory. To supply the processing sector, someprocessing equipment was made in Uzbekistan, but there was little value addedin this output. Tashkent also hosts a factory which assembles aircraft of mainlyRussian and Ukrainian origin. Relative to its level of development, Uzbekistanis considered over-industrialised. In the Soviet era most industrial and miningactivities were controlled from Moscow.

Following the collapse of the Soviet Union, industry experienced a sharp declinein demand from former Soviet markets. The government has, however, beenunwilling to engage in large-scale restructuring and does not want to privatiseplants. The following are “strategic sectors” and are therefore not subject toprivatisation: the mining of precious metals and gems, oil and gas productionand processing, defence, aerospace, and communications. (For details of indus-trial production by sector, see Reference table 11.)

Industrial production1991 1992 1993 1994 1995 1996

Industrial production (at current prices)Som bn – – – 51.8 234.0 444.0Rb bn 63 516 5,239 13,015 – –

Production of consumer goods (at sale prices)Som bn – – – 25.9 77.4 147.0Rb bn 24.7 178 1,883 6,508 – –Source: CIS Goskomstat.

The government is generally unwilling to give foreign firms a majority holdingin most joint ventures, and the legal regime for investors lacks transparency.There has also been a large-scale loss of skills as non-Uzbeks, who held the bulkof the high-skill and managerial jobs in industry, have emigrated.

Uzbekistan: Industry 23


Comparative economic indicators, 1996

0 20 40 60 80 100 120 140 160 180

RussiaPoland

UkraineRomania

Czech RepublicHungary

UzbekistanKazakhstan

SlovakiaBelarus

BulgariaSerbia-Montenegro

CroatiaSlovenia

LithuaniaArmenia

LatviaAzerbaijan

AlbaniaMoldova

TurkmenistanEstonia

Kyrgyz RepublicGeorgia

MacedoniaTajikistan

Gross domestic product (a)$ bn

(a) At purchasing power parities.Sources: EIU estimates; national sources.

600.2600.2600.2600.2600.2600.2600.2600.2600.2600.2600.2231.4231.4231.4231.4

0 2,000 4,000 6,000 8,000 10,000 12,000

SloveniaCzech Republic

SlovakiaHungary

PolandCroatia

RomaniaEstonia

BulgariaRussia

LithuaniaBelarus

LatviaSerbia-Montenegro

KazakhstanMacedonia

ArmeniaAlbaniaUkraine

UzbekistanMoldova

TurkmenistanKyrgyz Republic

GeorgiaAzerbaijanTajikistan

Gross domestic product per head (a)$

(a) At purchasing power parities.Sources: EIU estimates; national sources.

0 10 20 30 40 50 60 70 80 90 100

TurkmenistanTajikistanBulgaria

Serbia-MontenegroUkraine

UzbekistanBelarusRussia

GeorgiaKazakhstan

RomaniaKyrgyz Republic

MoldovaLithuaniaHungary

EstoniaPoland

AzerbaijanArmenia

LatviaAlbania

SloveniaCzech Republic

SlovakiaCroatia

Macedonia

Consumer prices% change, year on year

Sources: EIU estimates; national sources.

992.0992.0992.0992.0992.0992.0992.0992.0992.0992.0992.0443.0443.0443.0992.0443.0992.0992.0443.0123.0

-20 -15 -10 -5 0 5 10 15

GeorgiaAlbaniaSlovakiaPoland

ArmeniaSerbia-Montenegro

Kyrgyz RepublicCzech Republic

RomaniaEstoniaCroatia

SloveniaLatvia

BelarusMacedoniaUzbekistanAzerbaijan

KazakhstanHungaryLithuania

TurkmenistanRussia

MoldovaUkraineBulgaria

Tajikistan

Gross domestic product% change, year on year

Sources: EIU estimates; national sources.

24


—which the governmentwishes to build on

through ISI—

The government puts great store by the need to industrialise and is funnellingcredit towards traditional heavy industry, such as steel, rather than towards thelabour-intensive agro-industry. The Import Substituting Industrialisation (ISI)policy means that most industrial development in Uzbekistan is geared towardssupplying the domestic market and has no export orientation. According to thepresident, Islam Karimov, ISI saved Uzbekistan $70m in import expenditure in1996, which does not compare favourably with the $2.5bn the governmentploughed into priority sectors that year.

—and foreign investmentwhich has little local

value added

The newest industry in Uzbekistan is automotive assembly. Daewoo Corporationof South Korea has founded Uzdaemotors, a joint venture with the govern-ment, which assembles Daewoo cars at Asaka in the Fergana valley. Productionstarted in 1996 and total investment is slated to be $658m in the long term,with an annual capacity of 18,000 units. Content is sourced from Russia andSouth Korea, with Uzbekistan supplying labour. Another Daewoo jointventure, Algo-Daewoo, produces domestic appliances in Tashkent.

British American Tobacco (BAT) of the UK is to invest $233m over five years ina joint venture called UZBAT. BAT started with a 51% stake in the venture,which has now risen to 97%. The capacity of cigarette manufacturing will risefrom 7 billion cigarettes per year to 25 billion per year by 1999. BAT has beengranted a five-year tax holiday and a five-year local production monopoly. Likemany other emerging markets, Uzbekistan has few of the restrictions on to-bacco advertising that exist in developed countries.

Despite their relatively large investments, both BAT and Daewoo have com-plained about the bureaucratic hold-ups imposed by the authorities. Smallerinvestors have fared worse. There have been a few small-scale joint ventures inlight industry, but most foreign firms complain about slow decision-making,bureaucratic interference and persistent government surveillance, includingphone-tapping.

Mining and semi-processing

A world class gold mine atMuruntau—

Uzbekistan has an open-cast gold mine at Muruntau in Navoi province. Themine was a secret site in the Soviet era and produced most of the 60 tons ofgold mined in 1996. The mine is owned by the Navoi Mining and MetallurgicalKombinat (NGMK), a Soviet-era state-owned mining firm which the govern-ment has no intention of privatising. Uzbekistan is the world’s ninth largestproducer of gold. The retention of gold production in Uzbekistan after thebreak-up of the Soviet Union was a crucial factor in keeping the economyafloat. However, the steep drop in the price of gold in 1997, to $326/oz at theend of July, has hit gold exports and discouraged foreign firms from investingin a sector where cost overruns are commonplace.

Gold production

1992 1993 1994 1995 1996

Tons 64.5 66.6 64.4 63.6 60.0 % change, year on year n/a 3.3 –3.3 –1.2 –5.7Sources: Reuters; Gold Fields Mineral Services; Foreign Broadcasting Information Service.

26 Uzbekistan: Mining and semi-processing


—backed by an innovativejoint venture—

Newmont Mining (USA) has a joint venture with NGMK to extract goldfrom the massive 242m-ton pile of tailings left beside the mine from the Sovietera. Over 17 years the project, which has European Bank for Reconstruction andDevelopment (EBRD) funding, should produce 5m oz of gold. However,the $130m Amantaytau Goldfields joint venture between Lonhro, NGMK, theUzbekistan State Committee for Geology and Mineral Resources, and theInternational Finance Corporation was shelved in 1997 due to excessive costs.

—but foreign investmentis generally not welcome

The terms offered to foreign firms have discouraged many companies frominvesting. The government is unwilling to grant foreigners a majority share injoint ventures, and 100% foreign-owned ventures (of which there are two inKazakhstan) are unacceptable. An exception to the majority foreign-ownershiprule was made for a joint venture between Uzbekistan and Newmont (USA) andMitsui (Japan), in which the foreign partners will have 60% of the equity. Thegovernment will not allow foreign firms to undertake projects that NGMK orother state-owned firms could do—competition with state-owned mining com-panies is not welcome. The government wants foreign firms to bring in tech-nology and processes that Uzbekistan does not currently have.

The government’s funding problems have forced it to consider selling a minor-ity share in the Chirchik Spetssplav (special alloy) refractory and heatproofalloy plant, which processes molybdenum and tungsten, and in the AlmalykMining and Metallurgical Kombinat, which produces most of Uzbekistan’scopper and silver, and one-fifth of its gold.

Agriculture and forestry

Cotton dominates thesector and the economy to

their detriment—

The entire Uzbek economy is driven by the cotton crop. Uzbekistan ranks asthe world’s fourth largest producer, and cotton can make up 50% of all exportearnings and 75% of hard currency export earnings. Massive overcultivation ofcotton was encouraged in the Soviet era. Those with political power in theUzbek Soviet Socialist Republic obtained funds for their personal use by over-reporting the extent of the cotton crop to Moscow and pocketing the extrapayment received. Overcultivation of cotton was accompanied by wasteful useof water, for which the authorities still do not charge, which resulted in thedrying up of the Aral Sea (see Natural resources and the environment).

—which the state isperpetuating through

minimal reforms—

Official policy is to privatise the agricultural sector, reduce dependence oncotton and achieve self-sufficiency in food. The government boasts that 98% ofoutput in the agricultural sector is now from outside the state sector. In prac-tice, however, cotton output is purchased by state-owned monopsonies whichset their own prices, with farmers having no market power. There is widespreadofficial intervention by all levels of government, with particularly strong inter-vention to set prices. As a result, there is not a single genuine market price inthe sector. Attempts to increase cotton yields have failed as there is no incen-tive for farmers to produce more. The sector is also weighed down by shortagesof machinery and fuel, with the government conscripting students to pick thecotton crop by hand. Cotton exports all go through state-owned export firms.Exports of volumes greater than 50,000 tons must be personally approved by

Uzbekistan: Agriculture and forestry 27


Mr Karimov. (Reference table 12 gives details of agricultural production bycrop; Reference table 13 gives data on crop yields.)

Uzbekistan still operates the Soviet system of compulsory state purchasing,goszakaz. The total taken by the goszakaz fell from 75% of production in 1994,to 60% in 1995 and 50% in 1996, with the prices at which output is purchasedset administratively by the authorities. The government-guaranteed price fornon-goszakaz purchases is well below the world price, although the govern-ment claims it will pay the world price for cotton by 1998.

—and no genuine landreform—

The main problem undermining agricultural-sector reforms is the prohibitionon the private ownership of land. There is no land market, and those rightsthat do exist are limited and unclear. Local government officials have consider-able discretion over the rights of private farmers and in the past have termi-nated their leases if they believe the farmers are seeking to make quick profits.

—while attempts atself-sufficiency in grain

have failed

As part of the government’s policy of import substitution, Uzbekistan aimed tobecome self-sufficient in grain by 1996. The area sown rose by 67.6% from974,000 ha in 1990 to 1.69m ha in 1996, with a corresponding fall in the areagiven over to cotton, in an attempt to produce the 4.5m tons of grain neededto eliminate imports. The policy was a major contributory factor in the 1996economic crisis. In 1995 and 1996 the target was not reached, necessitatinglarge, expensive and unforeseen grain imports. In 1995-96 Uzbekistan effec-tively spent $1.6bn, taking opportunity costs into account, trying to save$700m in grain import costs. In 1995 the prime minister was sacked becausethe grain harvest failed to live up to initial, exaggerated reports. Mr Karimovhas ordered that the policy be continued and hopes to eliminate grain importsonce and for all by 1998. Grain production data tend to be unreliable as thegovernment has tried to revise the figures upwards in the aftermath of badharvests.

Major crop production

1990 1991 1992 1993 1994 1995 1996

CottonProduction (’000 tons) 5,058 4,646 4,128 4,264 3,938 3,934 3,450Area sown (’000 ha) 1,833 1,721 1,665 1,706 1,537 1,496 1,547Yield (tons/ha) 2.76 2.70 2.48 2.50 2.56 2.64 2.23

GrainProduction (’000 tons) 1,899 1,908 2,257 2,142 2,466 2,000a 2,743Area sown (’000 ha) 974 1,109 1,201 1,200 1,529 1,330 1,690Yield (tons/ha) 1.95 1.72 1.87 1.79 1.61 1.50 1.62

a Sources differ on the 1995 harvest: the finance minister has put it at 2m tons; other government officials at 2.7m tons; Reuters at 2.38m tons;and Goskomprognozstat at 3.215m.

Sources: World Bank, Statistical Handbook: States of the Former USSR, 1996; Uzbek authorities; Reuters.

Construction

Construction is a relatively low priority for the government compared withindustry or communications. As a result, it has suffered more than other sectorsfrom the economic slowdown. From 10.6% of GDP at factor cost in 1990,

28 Uzbekistan: Construction


construction fell to 8.1% of GDP at factor cost in 1996. Funds are beingploughed into upgrading the country’s airports but, for the most part, there arefew of the high-profile prestige projects seen elsewhere in Central Asia. Aroundhalf a million people are employed in the sector’s slowly shrinking workforce.The World Bank and the IMF put the construction workforce in 1995 at493,000, and the government has claimed it was 529,000-strong in 1996. In1990 construction employed 710,000 people.

There are some inconsistencies in data on the construction sector. The govern-ment, for example, claims that 68,600 houses were completed in 1996, up by15.7% from 59,300 in 1995. Government figures also show, however, that thevolume of cement produced fell by 4.2% from 3.42m tons in 1995 to3.28m tons in 1996.

Housing completions, 1996

’000 sq m % of total

Andizhan 564.6 9.2

Bukhara 422.4 6.9

Dzizhak 207.2 3.4

Fergana 612.2 10.0

Kashkadarya 665.1 10.9

Karakalpakstan 323.9 5.3

Khorezm 476.7 7.8

Navoi 112.5 1.8

Namangan 455.2 7.4

Samarkand 895.8 14.6

Surkhandarya 452.0 7.4

Syrdarya 115.8 1.9

Tashkent 371.6 6.1

Tashkent (city) 442.2 7.2

Uzbekistan total 6,127.0 100.0

Note. Data do not sum in source.

Source: Goskomprognozstat, The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996.

The external sector

Merchandise trade

Unreliable data Data on the external sector are patchy and politically sensitive. Figures varyfrom source to source, with the ultimate source the confused statisticians ofUzbekistan. A key problem is unrecorded imports, which the IMF believesincrease the true cost of imports by 50%. In addition to understating imports,government data occasionally overstate exports.

Uzbekistan: Merchandise trade 29


Foreign trade, 1995($ m unless otherwise indicated)

Exports 3,805 of which: cotton fibre 1,798 gold 611

Imports 3,598 of which: foodstuffs 688 energy products 60

Trade balance 207 % of GDP 2.1

Memorandum itemsExport value (% change, year on year) 29.40Import value (% change, year on year) 31.90Real exchange rate (% change, year on year) –2.10Share of world exports (%) 0.08Exports per head ($) 169.00Sources: IMF; EIU.

A trade surplus followedindependence—

Before independence in 1991 most of Uzbekistan’s trade was with the formerSoviet Union. Only 11.2% of exports and 17.8% of imports in 1991 werewith non-Soviet trading partners, and these were mostly with members of theCommunist bloc’s trading zone, the Council for Mutual Economic Assistance(CMEA or COMECON). Uzbekistan benefited from the skewed terms of tradeon offer under the Communist system and received an implicit trade subsidy.But from a 2% of GDP trade surplus in 1991, Uzbekistan found itself with an11.7% of GDP trade deficit in 1992. The deficit shrank to 6.8% of GDP in 1993before turning into a surplus in 1994 and 1995, due to the initial weakness ofthe som and a brief surge in the world prices of Uzbekistan’s main exports,cotton and gold.

—until a current-accountcrisis in 1996—

The situation was suddenly and substantially reversed at the end of 1995 andthe beginning of 1996. Data from the IMF only run until the first quarter of1996, and the Uzbek authorities have refused to release data for the full year.The problem arose as a result of two factors: the fall in world cotton prices andUzbekistan’s continued dependence on strategic imports. In 1995 the slowingof the recession in Uzbekistan had stimulated import growth of 31.9%; thebeginning of the economic recovery would suck in further imports. In add-ition, the 1995 grain harvest fell well short of target (see Agriculture andforestry). Uzbekistan had to buy large quantities of grain just as world grainprices were reaching a 20-year high. Worse still, world cotton prices beganfalling in 1996, depressing export revenue, and the gold price started toweaken. Reserves, which had been depleted by the unforeseen grain imports,were put under further strain at the end of the summer of 1996, when both thecotton and the grain harvests failed. The overvalued official rate of the sommade matters worse and the trade deficit ballooned out of control.

—which the governmentrefuses to own up to

Estimates for the size of the 1996 trade deficit vary. The government’s own con-fidential figures have changed twice, but claim a deficit of between $229m (1.6%of GDP) and $130m (0.9% of GDP). The OECD, quoting Goskomprognozstat

30 Uzbekistan: Merchandise trade


and Commonwealth of Independent States (CIS) Goskomstat data, putsexports at $4.2bn and imports at $4.7bn, yielding a trade deficit of $501m(3.6% of GDP). The UN Development Programme (UNDP) has put the deficit at$1.75bn (13% of GDP). The EIU’s estimate is $1.2bn (8% of GDP), with exportsof $3.6bn and imports of $4.8bn (including an estimate of the extent ofunrecorded imports).

Cotton is the main exportwith gold increasingly

important—

Uzbekistan’s main export is cotton. In 1991, the year Uzbekistan declaredindependence, cotton accounted for 53.7% of exports. After peaking at 60.1%in 1992, cotton’s share of exports declined to an average of 48.3% in 1992-95.Cotton exports rose by 210% between 1992 and 1995, while overall exportsrose by 270%. Demand among Uzbekistan’s traditional cotton markets fell as aresult of the Communist bloc’s economic crisis. Gold has become a significantexport earner since 1993, rising from 19.4% of exports in 1993 to 29.1% in thefirst quarter of 1996, as the government panicked and off-loaded gold reservesto get its hands on hard currency to pay for grain imports. (For a breakdown ofUzbekistan’s main exports, see Reference table 14.)

—but attempts toeliminate grain imports

have failed—

The government’s import-substitution policy has managed to cut the cost ofimporting energy, but this has been partly offset by the rising cost of importinggrain and foodstuffs. Energy imports, mostly oil from Russia, fell from a peak of$674m (around 20% of imports) in 1994 to just $60m (less than 2% of imports)in 1995. The volumes of imported foodstuffs, particularly grain, have alsofallen, but total costs have risen. In good years, such as 1993 and 1995, whenUzbek agriculture does well and world prices move in the country’s favour, thecost of importing foodstuffs is low, at just 19% of import expenditure. In badyears, such as 1992 and 1996, when the grain harvest is poor and prices high,foodstuffs make up a significantly higher proportion of total import costs:43.2% in 1992 and 32% in the first quarter of 1996. (Reference table 16 gives abreakdown of the country’s major imports.)

—and current policies arecausing more problems

than they solve

The policy mix of Import Substituting Industrialisation (ISI) and a dual ex-change rate system has made matters worse, and made a significant contrib-ution to the 1996 crisis. ISI has taken funds away from export promotion andexport diversification—the government shows little interest in either. By ne-glecting exports and borrowing abroad to fund ISI, Uzbekistan is making itselfeven more dependent on cotton and gold exports in order to repay its growingforeign debt.

The dual exchange rate system has meant that foreign exchange is rationedand allocated administratively rather than by the market. The government’sofficial policy is to have an overvalued official exchange rate in order to makethe import of capital goods for the ISI programme cheap. However, demand forconsumer goods and better quality foreign foodstuffs has not been stifled bygovernment controls, and many of these items have been bought at the over-valued official rate, which makes them attractively cheap, thereby pricingmuch of the local production created by ISI out of the market. A furtherconsequence of the dual exchange rate policy has been to encourage corrup-tion and smuggling. With the spread between the official rate and the bazaarrate at over 100%, there are numerous opportunities to make quick profits.

Uzbekistan: Merchandise trade 31


The direction of trade hasmoved away from the

Soviet Union—

Uzbekistan was slow to shift its trading pattern away from the former SovietUnion. As most recorded trade is controlled by the state, political considera-tions play an important role in deciding trade flows, and data are consequentlyrather sensitive. Russia remains the largest trading partner, although its impor-tance has been substantially reduced. Exports to the rest of Central Asia aremainly gas, which is usually paid for late. The UK, Switzerland and South Koreaare the most important export markets, the first two buying mostly cotton andgold. Turkey, Germany and South Korea are the most important suppliers.Much of the trade with South Korea is connected with Daewoo’s activities inUzbekistan. (For details of Uzbekistan’s major trading partners see Referencetables 15 and 17, for exports and imports respectively.)

—in part because of tradetreaties

Despite being a member of the CIS, Uzbekistan has not signed up to the CISCustoms Union founded by Russia, Kazakhstan and Belarus in January 1995. Asa result, in 1996 Uzbekistan lost the VAT-free protection that its cotton had inRussia. Despite human rights concerns, the USA has given Uzbekistan MostFavoured Nation (MFN) status; some in Washington see the country as a usefulanti-Islamic fundamentalist and anti-Iranian force in Central Asia. The EU hasgranted Uzbekistan a Partnership and Cooperation Agreement (PCA) whichgives Uzbekistan MFN status with the EU. The full ratification of the PCA hasbeen delayed by the European Parliament as Uzbekistan does not meet any ofthe PCA’s basic criteria. Uzbekistan’s restrictive trade arrangements make itineligible for World Trade Organisation (WTO) membership. Uzbekistan is amember of the Economic Cooperation Organisation, which consists of the fiveCentral Asian republics, Azerbaijan, Turkey, Iran, Pakistan and Afghanistan, andsupposedly confers minor trade benefits, although it appears to be better attalking than acting.

Direction of trade(% of total)

Exports to: 1995 1996 Imports from: 1995 1996

CIS 41.2 22.9 CIS 43.5 32.1 of which: of which: Russia 18.8 n/a Russia 24.9 n/a Kazakhstan 7.7 n/a Kazakhstan 7.5 n/a Tajikistan 5.0 n/a Turkmenistan 3.4 n/a Turkmenistan 4.8 n/a Tajikistan 2.5 n/a

Non-CIS 58.8 77.1 Non-CIS 56.5 67.9 of which: of which: Germany 0.9 2.1 Germany 12.9 12.3 UK 5.7 8.0 UK 1.0 2.2 South Korea 3.5 5.9 South Korea 15.1 6.9 USA 0.3 4.7 USA 1.1 9.2 Switzerland 10.2 7.2 Switzerland 4.1 3.9 Turkey 2.6 0.9 Turkey 33.1 7.6 Netherlands 3.8 2.9 Netherlands 0.8 1.4Sources: Goskomprognozstat, The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996; World

Bank, Statistical Handbook: States of the Former USSR, 1996.

32 Uzbekistan: Merchandise trade


Invisibles and the current account

Independence led to an inevitable balance-of-payments shock as former Sovietrepublics tried to extract world market prices from each other. From running acurrent-account surplus equivalent to 20.5% of GDP in 1991, Uzbekistan ran adeficit of 11.8% of GDP in 1992. Economic contraction and growing exports inthe following years all but eliminated the current-account deficit, leading to asurplus in 1994 and a mere 0.5% of GDP deficit in 1995. There was a massiveturnaround in 1996, when the current-account deficit reached 12.8% of GDPin the first quarter, according to the IMF (the most recent data available),driven by growing import expenditure. (IMF balance-of-payments figures for1992-96 are given in Reference table18.)

Transport is a significant invisibles import. The World Bank estimated in 1993that the cost of sending 1 ton of cotton to western Europe was $150-$175, ontop of the cost of the cotton ($1,100 cif). Data are only available for invisibleson a net basis, but net transportation imports rose from $49m in 1993 to$218m in 1995. Interest payments are growing but are not yet significant asUzbekistan is not considered creditworthy.

Income credits and debits are insignificant. There is little official investmentincome, and few foreign firms operate in Uzbekistan on a significant scale. Thefew foreign investments in the country are still in relatively early stages, andsignificant profits and dividends are yet to be remitted.

Invisibles exports are limited. Some pipeline fees are paid to Uzbekistan by otherCentral Asian republics. Uzbekistan’s attempts to increase these fees have metwith resistance, and these republics can retaliate by increasing the price of theirexports to Uzbekistan. Pipeline revenue has also been hit by the falling volumesof gas passing through Uzbekistan because of the region’s economic problems.Tourism was a relatively important source of income in the Soviet era, whenplane loads of Soviet workers flew in to see the magnificent Timurid architectureof Samarkand and Bukhara, and to taste Tashkent’s earthly delights. Since inde-pendence, the cost of travel to Uzbekistan, the poor standard of tourism infra-structure and service, the government’s suspicion of foreigners, and botchedrestoration work have all contributed to a slump in tourism earnings.

Current account($ m)

1994 1995 1996a

Exports fob 2,940 3,805 3,600

Imports fob –2,727 –3,598 –4,800

Trade balance 213 207 –1,200

Services balance –81 –203 –250

Income balance –31 –74 –126

Current transfers balance 13 17 20

Current-account balance 114 –53 –1,556

Note. Some discrepancies with IMF data in Reference table 18, due to EIU series revisions madesince the last IMF publication (August 1996). a EIU estimates.

Source: EIU.

Uzbekistan: Invisibles and the current account 33


Capital flows and foreign debt

From debt-free— Uzbekistan started independence with a 3.3% share of Soviet liabilities, thenworth $67bn, and a small amount of Soviet assets. Just over a year later, onNovember 2, 1992, having paid nothing towards servicing Soviet debt, Uzbekistanrenounced all claims on Soviet assets and liabilities, and was debt-free. Bythe end of 1995, according to the most recent data from the World Bank,Uzbekistan’s debt stock had reached $1.63bn, or 15.4% of GDP. The totalexternal debt stock at end-1995 was 36.5% higher than at the end of 1994,when it was $1.19bn. The debt/exports ratio in 1995 was 38.9%. This is a moremeaningful indicator as it accurately communicates how much of a claim ex-ternal debt has on export earnings. (Debt/exports ratios and other external debtratios for 1992-95 are given in Reference table 20.) In the case of Uzbekistan,93.8% of external debt is denominated in hard currency, while only around40% of exports in 1995 were to hard currency markets, implying a debt/hardcurrency exports ratio of 100%.

—to mildly indebted— Uzbek debt data need to be treated with caution. The World Bank, whoseexport figures supposedly include services and are therefore 21% higher indollar terms for 1994 and 1995, puts the debt-service ratio for 1995 at 4.8%.However, the IMF estimates it at 16%, and rising. The difference may arise fromthe World Bank’s focus on official debt flows and its failure to access inform-ation on private debt flows, such as the large amounts of commercial banklending noted by the IMF. The IMF identified a $400m positive flow into thecapital account from commercial banks in the first quarter of 1996 and hasrecorded $243m in 1992-95 in debt repayments to commercial banks. (ForWorld Bank debt figures for 1992-95, see Reference table 19.)

—with very small FDIinflows

Uzbekistan has had one of the lowest ratios of foreign direct investment (FDI)inflows in the former Communist bloc. According to IMF data, based on IMFstaff estimates and confidential Uzbek government figures, total net FDI in1992-96 was a mere $190m, equivalent to $8 per head or 0.5% of GDP. The IMFhas been dismissive of government claims that it has attracted more FDI. TheUzbek authorities have said, without giving further details, that there was $6bnof FDI into Uzbekistan in 1992-96. This is 32 times higher than the IMF figure,and is equivalent to $126 per head or 15.8% of GDP. The UN office in Tashkenthas supported the government’s claims. At a press conference in Tashkent onSeptember 30, 1996, the local UN representative, Khalid Malik, claimed thattotal FDI into Uzbekistan would reach $3bn in 1996, or 21.6% of GDP. In May1997 the IMF put net FDI in 1996 at $84m, or 0.6 % of GDP. (IMF and EBRDFDI figures are given in Reference table 21.)

Portfolio investment is virtually non-existent. The som is not current-accountconvertible and foreigners are barred from the securities markets, which are inany case small and non-transparent. Most lending to Uzbekistan is by officiallenders, such as the European Bank for Reconstruction and Development(EBRD), the World Bank and, increasingly, the Asian Development Bank.Money tends to go into infrastructure and ISI projects. However, most EBRDand World Bank loans are on hold until there is a new IMF agreement.

34 Uzbekistan: Capital flows and foreign debt


Net FDI flows into Central Asia, 1992-96

Cumulative ($ m) Per head ($)

Kazakhstan 2,997 180

Turkmenistan 337 81

Uzbekistan 190 8

Kyrgyz Republic 146 31

Tajikistan 59 10Source: IMF.

Foreign reserves and the exchange rate

Uzbekistan declines to publish data on foreign reserves. Officials regularly tellforeign investors that the country has $2bn in reserves—over six months ofimport cover—and that “reputable” foreign creditors will be paid in full. Thepresident, Islam Karimov, has said that data on reserves cannot be publishedas neighbouring countries will become jealous. According to the IMF, grossreserves consisted of $1.104bn of foreign exchange reserves at the end ofMarch 1996, equivalent to 3.6 months of import cover, with $658.5m of gold,equivalent to 2.2 months of import cover. (IMF data on foreign reserves aregiven in Reference table 22.) Bank for International Settlements (BIS)-reportingbanks’ liabilities to Uzbekistan at the time were $1.11bn (3.6 months of importcover), with a net position of $813m (2.6 months of import cover). The netBIS-reporting banks position slumped to $524m (1.7 months of import cover) atthe end of September 1996, before recovering to $714m (2.4 months of importcover) by the end of December. (For historical data on the external position ofBIS-reporting banks vis-à-vis Uzbekistan, see Reference table 23.)

The Uzbek som is not current-account convertible. There was a minor liberalis-ation in June 1995, when the maximum individuals were allowed to convertwas increased to $200 from $100, and the average waiting time fell from8-12 weeks to around four weeks. The promised current-account convertibilityof the som by the end of 1996 did not materialise and instead greater restrictionswere imposed. The government closed all the licensed foreign exchange bureauxand foreign exchange departments of all banks in October 1996.

The government operates a licensing system for access to foreign exchange.Firms have to apply for access to hard currency, which is allocated adminis-tratively. Favoured firms and high-profile joint ventures can access hard cur-rency at the preferential official rate. Firms without licences have to buy hardcurrency from commercial banks at a rate 10% below the official rate, althoughlittle foreign exchange has been sold by commercial banks since October 1996.

Exchange rates(Som:$; period averages)

1994 1995 1996 Aug 1997

Official rate 10.0 29.8 40.2 67.8

Commercial bank rate n/a n/a 45.8 75.0

Bazaar rate n/a n/a 64.2 152.0Sources: IMF; Business Information Service for the Newly Independent States (BISNIS); OECD; Bloomberg.

Uzbekistan: Foreign reserves and the exchange rate 35


Most foreign exchange in Uzbekistan is bought in the bazaar. The bazaar rate isa genuine market price. In February 1996 the spread between the bazaar rateand the official rate, a good indicator of Uzbekistan’s hard currency shortage,was 25.1%. By March 1997 the spread had widened to 156.9%. The IMF definesa country as having a multiple exchange rate system if a parallel rate of ex-change exists which has a spread against the official rate of more than 5%.(Official exchange rates are given in Reference table 24.)

36 Uzbekistan: Foreign reserves and the exchange rate


Appendices

Sources of information

National statistical sources No regular government statistical publications are available. Economic data areconsidered to be highly sensitive. The occasional figure is cited in officialpronouncements, but data are never publicly available and are never producedin a standard format. Every half-year and end-year the Ministry for Forecastingand Statistics, Goskomprognozstat, circulates a publication entitled The BasicIndicators of Social and Economic Development of the Republic of Uzbekistan inRussian, English and Uzbek, to the IMF, and a limited number of ministers,foreign diplomats and Uzbek embassies abroad. The data are of poor qualityand frequently inconsistent. Uzbek officials are willing to make limitedamounts of information available in return for favourable press coverage. TheInformatsionii Bolletin sent out by some Uzbek embassies to curry favour withforeign journalists contains information on Treasury-bill yields and the smallstock exchange.

International statisticalsources

The authorities’ refusal to release data makes it very difficult for internationalorganisations wishing to publish data on Uzbekistan. Easily the best data avail-able are those produced by the IMF, which tries to make sense of the figures.Unfortunately, however, the suspension of the IMF stand-by agreement at theend of 1996 meant that the Fund stopped publishing detailed statistical in-formation on Uzbekistan. The last IMF publication was produced in August1996, and contains statistical series up to the first quarter of 1996. In descend-ing order of usefulness, World Bank, European Bank for Reconstruction andDevelopment (EBRD) and OECD data tend to rely heavily on governmentfigures, resulting in poorer quality and reliability. It is very common for IMF,OECD, World Bank and EBRD data to be inconsistent, even though they allcome originally from the Goskomprognozstat. The Asian Development Bankalso publishes limited data on Uzbekistan. The least reliable data is from theUN, which presents Uzbek government data without alteration or analysis inorder to avoid conflict with the Uzbek authorities’ political sensibilities. The USgovernment’s Business Information Service for the Newly Independent States(BISNIS) Internet site (http:\\www.iep.doc.gov\bisnis) has useful and quiterecent data, but tends to avoid reporting bad news.

EBRD, Transition Report

IMF, Uzbekistan—Selected Issues and Statistical Appendix, 1996

OECD, Short-term Economic Indicators for the Transition Economies

UNDP, Uzbekistan: Human Development Report 1996

World Bank, Global Development Finance; STARS diskettes; Statistical Handbook:States of the former USSR; Trends in Developing Economies; World Tables

Select bibliography The literature on Uzbekistan is surprisingly poor. It falls into four categories.The first consists of cold-war scholarly analyses lambasting the corrupt andrepressive Soviet regime and looking for chinks in its armour, for example by

Uzbekistan: Sources of information 37


predicting a Soviet Islamic revolution (which never happened). The secondconsists of post-cold-war scholarly analyses praising the wise authoritarianismof the corrupt and repressive post-Soviet regime. The third is the more objec-tive literature produced by Alec Nove and others, which avoids polemicism.The fourth group of books consists of adventure novels that bear no relevanceto modern Central Asia but which are entertaining nonetheless.

Bennigsen, Alexandre, and Marie Broxup, The Islamic Threat to the Soviet Union,Croom Helm, 1983

Ehteshami, A, From the Gulf to Central Asia, Exeter University, 1995

Hopkirk, Peter, The Great Game, Oxford University Press, Oxford 1990

Karimov, Islam, Don’t knock down the old house before you have built the new one,1994

Karimov, Islam, On the Path of Deepening Economic Reform, 1995

Levitin, Leonid, with Donald Carlisle, with an introduction by Franz Vranitsky,Islam Karimov—President of the New Uzbekistan, Agrotech, Vienna, 1995 (available free from Uzbek embassies)

Lewis, Richard (ed.), Geographic Perspectives on Soviet Central Asia, Routledge,London & New York, 1992

Nove, Alec, The Soviet Middle East, Allen & Unwin, London, 1967

Pomfret, Richard, The Economies of Central Asia, Princeton, New Jersey, 1995

Rumer, Boris, Soviet Central Asia: a tragic experiment, Unwin Hyman, 1989

Wat, Aleksander, My Century, translated by Richard Lourie, W W Norton & Co,New York & London, 1988

38 Uzbekistan: Sources of information


Reference tables

Reference table 1

Government finances(Som m unless otherwise indicated)

1992 1993 1994 1995 1996a

Total revenue incl grants 140 1,836 18,936 89,914 142,200 Grants 0 0 0 0 0 Taxes on incomes & profits 35 523 5,629 34,268 n/a Income tax 11 141 1,659 8,459 n/a Corporate tax 24 382 3,971 25,809 n/a Social security contributions 0 73 529 n/a n/a Taxes on domestic goods & services 77 761 7,980 42,360 n/a VAT 38 473 3,219 17,273 n/a Excises 39 289 4,761 25,087 n/a of which: cotton 29 244 3,209 13,023 n/a Land tax 0 0 129 2,257 n/a Property tax 1 11 100 1,984 n/a Export taxes & customs duties 5 78 765 2,808 n/a Mining tax 0 0 0 241 n/a State duties & local taxes 0 7 213 461 n/a Other taxes on goods & services, & non-tax revenue 22 384 3,590 5,235 n/a Profits from the central bank 0 0 0 300 n/a

Total expenditure & net lending 194 2,729 21,620 100,262 155,600 Expenditure 194 1,975 21,620 98,686 n/a of which: subsidies 48 387 1,723 10,240 n/a other 39 178 3,909 12,432 n/a investments n/a 113 2,239 18,600 n/a general public services n/a n/a n/a n/a n/a defence, public order & safety 12 164 n/a n/a 6,900b

socio-cultural projectsc 71 728 9,388 36,385 57,600 other economic affairs & servicesd 21 137 1,585 13,079 n/a Net lending 0 754 0 1,577 n/a

Balance –54 –893 –2,684 –10,349 –13,400 % of GDP –12.1 –17.5 –4.1 –3.5 –3.5e

Extra-budgetary funds& external sector balance –28 364 –1,296 –1,967 n/a

Consolidated balance –82 –528 –3,980 –12,316 n/a % of GDP –18.4 –10.4 –6.1 –4.1 n/a

a Budgeted. b Defence only. c Social spending including education, health and culture. d Nationaleconomy. e Budgeted and claimed outturn.

Sources: IMF, Uzbekistan—Selected Issues and Statistical Appendix, 1996: World Bank, Statistical Handbook: States of the Former USSR,

1994-96; World Bank STARS; EIU calculations.



Reference table 2

Money supply(Som m unless otherwise indicated; end-period)

1992 1993 1994 1995

Net foreign assets 223 1,350 37,067 66,304 Gold 190 542 16,344 37,888 Foreign exchange 32 808 20,723 28,416 of which: central bank 29 731 16,905 22,899

Net domestic assets 86 1,375 –15,806 –12,845 Domestic credit 443 4,228 14,333 22,777 Government (net) –32 477 –3,737 –8,330 of which: extra-budgetary funds 0 –31 –371 –280 Economy 475 3,751 18,070 31,107 Other items (net) –357 –2,853 –30,139 –35,622

Money (M2) 309 2,725 21,262 53,459 Money outside banks 97 587 6,066 20,651 Local currency deposits 147 2,001 10,418 24,537 Foreign currency deposits 65 138 4,777 8,271

Memorandum items (% change, year on year)Money (M2) 468 784 680 151 Money outside banks n/a 505 933 240 Local currency deposits n/a 1,261 421 136 Foreign currency deposits n/a 112 3,362 73CPI 645 534 1,568 305

Note. Totals may not add due to rounding.

Source: IMF, Uzbekistan—Selected Issues and Statistical Appendix, 1996.

Reference table 3

Interest rates(%)

1994 1995 1996

Refinancing rate (year-end) 250.0 125.0 48.0

Consumer price index (year-end) 1,281.4 116.9 89.0

Real refinancing rate (compound annual) –412.6 111.5 –28.9Sources: IMF, Uzbekistan—Selected Issues and Statistical Appendix, 1996; BISNIS; EIU; UNDP.

Reference table 4

Gross domestic product(Som m unless otherwise indicated)

1992 1993 1994 1995 1996

TotalAt current prices 447 5,095 64,878 302,800 560,100Real change (%) –11.1 –2.3 –4.2 –0.9 1.6

Per heada

At current prices 21 236 2,936 13,356 24,102Real change (%) –13.2 –4.5 –6.3 –3.4 –0.9

a Derived from World Bank mid-year population estimates.

Sources: IMF, Economic Review: Uzbekistan; World Bank, Statistical Handbook: States of the Former USSR, 1995-96; EBRD;

Goskomprognozstat, The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996.



Reference table 5

Gross domestic product by expenditure(% of total)

Jan-Jun1992 1993 1994 1995 1996

Private consumption 45.3 57.5 64.3 53.7 58.5

Government consumption 20.1 24.6 21.2 20.9 29.0

Gross fixed investment 26.5 25.2 26.2 33.2 30.8

Change in stocks 17.4 –10.5 –8.0 –3.6 n/a

Net exports of goods & non-factor services –9.3 3.2 –3.8 –4.2 n/a

GDP 100.0 100.0 100.0 100.0 100.0Sources: World Bank, Statistical Handbook: States of the Former USSR, 1996; Main Computer Centre of the Goskomprognozstat, The

Basic Results of Social and Economic Development of the Republic of Uzbekistan, January-June, 1996: Brief Statistical Digest.

Reference table 6

Gross domestic product by origin(% of total)

1992 1993 1994 1995 1996

Agriculture 35.4 27.9 34.5 28.5 22.5

Industry 26.6 22.4 17.0 16.4 17.4

Construction 9.5 9.0 7.2 7.8 8.1

Transport & communications 5.2 5.5 5.8 8.4 n/a

Trade 5.5 6.2 7.5 5.6 n/a

Services 18.6 19.6 19.8 19.7 38.3a

Net indirect taxes –0.9 9.4 8.2 13.5 13.7

Total GDP at market prices 100.0 100.0 100.0 100.0 100.0

Note. Totals may not add due to rounding. 1990-91 data from World Bank; 1992-95 from the IMF;1996 from the Goskomprognozstat.a Includes transport and communications, and trade.

Sources: IMF, Uzbekistan—Selected Issues and Statistical Appendix, 1996; World Bank, Statistical Handbook: States of the Former USSR,

1996; Goskomprognozstat, The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996.

Reference table 7

Price and earnings(% change, year on year; annual averages)

1992 1993 1994 1995 1996

CPIa 645 534 1,568 305 54

Foodb 570 708 1,315 n/a n/a

Goods other than foodb 628 668 2,138 n/a n/a

All goodsb 604 808 1,576 n/a n/a

Servicesb 720 1,415 2,613 n/a n/a

Wholesale pricesa 1,296c 2,545 1,428 499 n/a

Average wagesa 733 1,116 802 289 105b

a IMF data. b OECD data from the Uzbek authorities. c EBRD gives a figure of 3,275%.

Sources: IMF, Uzbekistan—Selected Issues and Statistical Appendix, 1996; World Economic Outlook, May 1997; EBRD.



Reference table 8

Population(per ’000 population unless otherwise indicated)

1992 1993 1994 1995 1996

Population (m; mid-year) 21.11 21.61 22.10 22.47 23.10

Crude birth rate n/a n/a 29.30 n/a n/a

Crude death rate n/a n/a 6.60 n/a n/a

Fertility rate n/a n/a 3.80 n/a n/aSources: World Bank, Transition, September-October 1995; Statistical Handbook: States of the Former USSR, 1996.

Reference table 9

Labour force(’000 unless otherwise indicated)

1992 1993 1994 1995 1996

Agriculture 3,594.7 3,671.1 3,607.2 3,734.7 3,494.8

Industry 1,147.2 1,166.5 1,067.1 1,010.0 1,097.2

Construction 597.7 561.3 519.5 492.9 529.0

Transport & communications 230.1 348.4 217.6 218.0 348.0

Trade 451.8 456.1 565.2 566.4 700.0

Services 2,249.9 2,055.6 2,173.7 2,135.3 1,874.3

Total employment 8,271.4 8,259.0 8,150.3 8,157.5 8,558.3a

Unemployedb 76.3 376.1 141.4 187.7 33.9 % of workforce 0.9 4.4 1.7 2.2 0.4

Working age population 10,473.7 10,739.1 10,974.7 11,203.2 n/a

a Does not sum in original; possibly includes figures for unregistered unemployed. b 1992-95: IMFdata, including an estimate for the unregistered unemployed; 1996: Goskomprognozstat, regis-tered unemployed only.

Sources: IMF, Economic Review: Uzbekistan; World Bank, Statistical Handbook: States of the Former USSR, 1996; Goskomprognozstat,

The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996.

Reference table 10

National energy statistics

1992 1993 1994 1995 1996

Oil (m tons/year)Domestic oil production 3.3 3.9 5.5 7.6 7.7Domestic oil consumption 7.4 5.9 5.7 5.2 n/aOil exports 0.5 0.5 0.5 0.3 n/aOil imports 6.2 4.8 3.2 0.2 n/a

Gas (bn cu metres)Domestic gas production 42.8 45.0 47.2 48.6 49.0Domestic gas consumption 34.5 38.7 40.4 40.1 n/aGas exports 9.1 7.2 4.6 4.2 n/aGas imports 5.9 5.8 1.8 0.0 n/a

Electricity (m kwh)Domestic production 50,911 49,148 47,755 47,431 45,400Domestic consumption 50,421 48,856 46,395 46,139 n/aExports 5,636 1,080 2,800 2,514 n/aImports 5,146 788 1,440 1,222 n/a

continued



1992 1993 1994 1995 1996

Coal (’000 tons)Domestic coal production 4,680 3,807 3,845 3,054 2,844Domestic coal consumption 6,691 4,344 3,893 2,983 n/aCoal exports 311 137 81 81 n/aGas imports 2,320 674 129 11 n/a

Memorandum itemDomestic oil production (’000 b/d) 66 78 110 152 154Sources: IMF; World Bank; Petroleum Economist; Goskomprognozstat, The Basic Indicators of Social and Economic Development of the

Republic of Uzbekistan in 1996.

Reference table 11

Industrial production by sector(real % change, year on year)

1991 1992 1993 1994 1995

Power engineering –3.4 –6.7 –1.8 –3.6 0.3

Fuel 2.2 –3.0 11.9 2.4 –0.2

Metallurgy –7.1 –14.5 –1.2 –10.7 –0.7

Chemicals & petrochemicals –3.1 –26.1 –11.4 –22.3 12.6

Machinery & metalworking 9.1 0.2 7.9 10.3 19.7

Forestry, woodworking, pulp & paper 8.9 –3.5 13.3 1.5 9.7

Light industry 2.8 5.2 4.2 7.9 –1.9

Food industry –6.9 –12.1 7.4 3.5 1.3

Other n/a n/a n/a –8.9 –12.2

All industry 1.8 –6.2 4.1 1.0 0.2Source: IMF, Uzbekistan—Selected Issues and Statistical Appendix, 1996.

Reference table 12

Agricultural production(’000 tons)

1992 1993 1994 1995 1996

Grain (clean weight) 2,257 2,142 2,466 2,000a 2,743

Corn 367 404 276 186 n/a

Rice 539 545 498 328 n/a

Cotton (raw) 4,128 4,264 3,938 3,934 3,450

Cotton fibre 1,274 1,321 1,259 1,220b 1,070b

Potatoes 365 472 567 440 n/a

Vegetables 3,494 3,039 2,975 2,725 n/a

Fruit 1,141 941 908 1,223 n/a

Grapes 439 381 353 621 n/a

Other 702 560 555 602 n/a

a Sources differ for the 1995 harvest. b EIU estimate.

Sources: World Bank, Statistical Handbook: States of the Former USSR, 1996; Uzbek authorities; Reuters.



Reference table 13

Crop yields (tons/ha)

1992 1993 1994 1995 1996

Grain (clean weight) 1.87 1.79 1.61 1.50 1.62

Corn 3.71 3.84 3.38 3.47 n/a

Rice 2.95 3.01 2.97 1.95 n/a

Cotton (raw) 2.48 2.50 2.56 2.64 2.23

Cotton fibre 0.75 0.78 0.82 0.82a 0.69a

Potatoes 8.30 9.70 10.13 n/a n/a

Vegetables 18.10 18.80 17.96 17.60 n/a

Fruit 9.57 7.87 7.67 10.85 n/a

Grapes 4.64 4.02 3.80 6.51 n/a

a EIU estimate.

Sources: World Bank, Statistical Handbook: States of the Former USSR, 1996; Reuters.

Reference table 14

Exports(% of total)

1995 1996

Cotton fibre 48.4 38.1

Chemicals & related products 2.5 2.4

Metals 4.6 3.5

Machinery 2.0 2.8

Foodstuffs 1.7 4.5

Energy 11.7 6.0Source: Goskomprognozstat, The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996.

Reference table 15

Exports by destination(% of total)

1995 1996

CIS 41.2 22.9

Non-CIS 58.8 77.1 of which: Germany 0.9 2.1 UK 5.7 8.0 South Korea 3.5 5.9 USA 0.3 4.7 Switzerland 10.2 7.2 Turkey 2.6 0.9 Netherlands 3.8 2.9Source: Goskomprognozstat, The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996.



Reference table 16

Imports(% of total)

1995 1996

Foodstuffs 18.2 29.5

Chemicals & related products 9.3 12.5

Metals 5.7 6.7

Machinery 47.9 35.8

Energy 1.9 1.1Source: Goskomprognozstat, The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996.

Reference table 17

Imports by country of origin(% of total)

1995 1996

CIS 43.5 32.1

Non-CIS 56.5 67.9 of which: Germany 12.9 12.3 UK 1.0 2.2 South Korea 15.1 6.9 USA 1.1 9.2 Switzerland 4.1 3.9 Turkey 33.1 7.6 Netherlands 0.8 1.4Source: Goskomprognozstat, The Basic Indicators of Social and Economic Development of the Republic of Uzbekistan in 1996.

Reference table 18

Balance of payments(consolidated balance; $ m)

1 Qtr1992 1993 1994 1995 1996

Exports 1,424 2,877 2,940 3,805 646 of which: cotton fibre 861 1,172 1,508 1,798 300 gold 0 559 375 611 188

Imports –1,660 –3,255 –2,727 –3598 –909 of which: foodstuffs 716 625 861 688 289 energy products 315 658 674 60 4

Trade balance –236 –378 213 207 –262

Transportation 8 –49 –62 –218 –24

Interest –11 –19 –23 –26 –6

Other services (incl travel) –1 5 –23 –33 –6

Services balance –4 –63 –108 –277 –36

Current transfers (net) 2 12 13 17 2

Current-account balance –238 –429 118 –53 –297

continued



1 Qtr1992 1993 1994 1995 1996

Foreign direct investment (net) 9 48 73 –24 12

Loans (net) 115 382 50 269 93

Commercial banks –96 –53 –91 –3 400

Correspondent account credits 357 393 –40 0 0

Other capital flows –161 9 –70 –209 0

Capital-account balance 224 858 –64 32 505

Errors & omissions 543 58 245 447 –158

Overall balance 529 487 298 430a 50 Changes in gross reserves –530 –492 –309 –578 –50 IMF credit 0 0 0 158 0 Arrears 0 5 11 –11 0

Memorandum items (% of GDP)Current-account balance –11.8 –8.0 2.0 –0.5 –12.8Foreign direct investment (net) 0.4 0.9 1.3 –0.2 0.5Exports 71 52 52 37 28Imports –82 –59 –49 –35 –39

a Does not sum in source.

Source: IMF, Economic Review: Uzbekistan; Uzbekistan—Selected Issues and Statistical Appendix, 1996.

Reference table 19

Debt stock and debt flows($ m)

1992 1993 1994 1995

Total debt stock 60 1,032 1,194 1,630 Long-term debt 60 940 903 1,260 Public & publicly guaranteed 60 940 903 1,260 Private non-guaranteed 0 0 0 0 Use of IMF credit 0 0 0 158 Short-term debt 0 92 291 212

Debt service 5 20 122 208 Public & publicly guaranteed 5 20 122 208 Official creditors 5 18 105 171 Multilateral 0 0 0 4 Bilateral 5 18 104 167 Private creditors 0 3 17 37 Bonds 0 0 0 0 Commercial banks 0 0 0 0 Other private 0 3 17 37

Memorandum itemExport credits 0 94 67 359Source: World Bank, Global Development Finance.



Reference table 20

External debt ratios(%)

1992 1993 1994 1995

Debt-service ratio 0.4 0.7 4.1 5.5

Debt/GDP 3.0 18.8 21.2 15.4

Debt/exports 4.2 35.9 40.6 38.9

Memorandum itemDebt-service ratio, IMF estimate n/a n/a 11.0 16.0Sources: World Bank for debt; IMF for GDP and exports; EIU calculations for ratios.

Reference table 21

Foreign direct investment inflows($ m)

1992 1993 1994 1995 1996

Net FDI 9 48 73 –24 84 % of GDP 0.4 0.9 1.3 –0.2 0.6

Gross FDI 9 48 85 120 55a

% of GDP 0.4 0.9 1.5 1.0 0.4

a EBRD estimate.

Sources: Net FDI from IMF; gross FDI from EBRD.

Reference table 22

Foreign reserves($ m; end-period)

Foreign Import coverexchange (months) Gold

1993Deca 104.4 0.4 77.4

1994Mara 201.4 0.9 85.4Juna 684.0 3.0 497.6Sep 800.4 3.5 497.5Dec 676.2 3.0 653.8

1995Mar 678.1 2.3 870.0Jun 776.0 2.6 1,028.8Sep 796.4 2.7 1,060.1Dec 645.0 2.2 1,067.3

1996Mar 1,103.5 3.6 658.5

Note. IMF data is in som. Converted to dollars using end-quarter official exchange rate.

a Converted using the introductory rate of the som on July 1, 1994, of Som7:$1. This overvaluedthe som by 500%.

Source: IMF.



Reference table 23

External position of BIS-reporting banks vis-à-vis Uzbekistan($ m)

1993 1994 1995 1996 Dec Dec Dec Mar Jun Sep Dec

Assets 35 159 329 298 338 351 361

Liabilities –377 –611 –906 –1,111 –997 –875 –1,075

Net position –342 –452 –577 –813 –659 –524 –714Source: Bank for International Settlements.

Reference table 24

Exchange rates(Som per currency unit unless otherwise indicated; official rate; annual averages)

1992a 1993b 1994 1995 1996

$ 220.0 920.0 10.0 29.8 40.2

Rb n/a 0.98 4.50c 6.50c 7.80c

£ 396.0 1,380.0 15.0 44.7 60.3

TL ’000 32.00 84.00 0.34 0.65 0.49

Sfr 153.0 372.0 6.8 21.8 34.1

a Russian rouble. b Som coupon, replaced by the Som on July 1, 1994. c Som per Rb1,000.

Sources: IMF; EIU; OECD.

Editor:All queries:

Kitty Ussher Tel: (44.171) 830 1007 Fax: (44.171) 830 1023



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