Uzbekistan’s government appears intent on spending its way out of economic trouble. President Shavkat Mirziyoyev’s administration is making big bets on infrastructure projects in emerging economic sectors. And to hedge against the considerable risks, Tashkent is looking in all geopolitical directions to open new channels of trade and investment.
Mirziyoyev’s approach seems driven more by necessity than a grand vision. Key pillars of the existing Uzbek economy – cotton and natural gas – are facing uncertain futures. Gas exports have experienced a big decline in recent years, crimping the state treasury’s finances. Not too long ago, gas was a big export earner for Tashkent, but the country is now a net importer. Meanwhile, looming water shortages driven by climate change and other factors are raising questions about the sustainability of Uzbekistan’s water-intensive cotton industry.
In addition, another major revenue source for Uzbeks – remittances from labor migrants – is in a state of flux, due mainly to the Russia-Ukraine war. Russia was the primary destination for most Uzbek migrants for decades, but the war is prompting many to look for opportunities in other countries, including the Gulf States. The government recently expanded its External Labor Migration Agency to help accelerate the diversification trend.
Economic indicators confirm the government is spending prodigiously as it tries to adjust to changing circumstances. The budget deficit totaled over $5 billion (59 trillion soums) in 2023, according to official government data. Statistics for the first fourth months of 2024 indicate that the deficit this year could reach $6 billion.
Official data also shows that Uzbekistan has burned through much of its reserves, which dropped from $31.4 billion in 2022 to $4.9 billion in 2023. The government also guaranteed over $400 million in foreign loans during the first quarter of 2024, more than double the amount registered during the same period the previous year. The Finance Minister additionally announced on May 22 that the government had issued $1.5 billion worth of bonds in three currencies, aimed at both domestic and foreign markets.
In a speech to attendees of the third annual Tashkent International Investors’ Forum in early May, Mirziyoyev outlined his strategy to transform the economy by 2030 by developing new industries, including electric vehicle production, green energy exports and expansion of the mining sector.
“By 2030, our goal is to double the people’s income and join the ranks of the upper-middle income countries,” Mirziyoyev said. “We will continue with deep transformation processes in the economy, creating favorable investment and business environments, and increasing value-added production in industry.”
The president added that accomplishing the government’s goals requires “systemic reforms with big aims,” and, of course, lots of foreign investment. “We understand perfectly well that today there is an unparalleled struggle for investors in the world,” he stated. “However, one immutable fact is becoming ever more clear: no country can solve such problems alone.”
As he moves to liberalize the economy, Mirziyoyev is keeping a tight lid on political life in Uzbekistan. Individual rights and political pluralism are afterthoughts for the government as it pursues reforms. Authorities appear to believe that fostering a more stable economic environment will be sufficient to keep citizens content.
Focusing on economics also makes it easier for Mirziyoyev to talk trade and investment with countries such as Saudi Arabia, Russia and China, states with known allergies to democratic practices. At the same time, the United States and European Union have encouraged Uzbekistan to look westward for new trade opportunities.
So far, Mirziyoyev has managed to keep everyone happy with trade and investment diversification efforts. Uzbekistan is leaning heavily on China to develop production capacity of electric autos and solar power, on Saudi Arabia for energy infrastructure investment and on the EU as a market for green energy exports.
Despite its preoccupation with its war effort in Ukraine, Uzbekistan is also looking to Russia for help in retooling its economy. Russian leader Vladimir Putin paid an extended visit to Tashkent from May 26-28, during which the two countries signed deals with a potential total value of $20 billion. Mirziyoyev appears to be hoping for a fast cash injection: he said Uzbekistan expects $10 billion in Russian investments as soon as 2025.
Reality may not match such expectations, as Russia’s ability to follow through on financial commitments remains open to question. For example, one investment announced at the conclusion of Putin’s recent visit was the construction of a small nuclear power station in Uzbekistan capable of generating 330 Megawatts of power. Though touted in Tashkent, this deal actually represents a significant downgrade of a 2018 agreement that outlined plans for an $11 billion investment to build a nuclear power facility in Uzbekistan with a generating capacity of 2.4 Gigawatts.
An International Monetary Fund (IMF) mission to Uzbekistan that wrapped up in May generally approved of the Uzbek government’s economic strategy, offering praise for achieving a significant reduction in poverty, keeping inflation in check and fostering income growth.
“An expansionary fiscal stance, a surge in fixed investment, and buoyant private consumption propelled real GDP growth to 6 percent in 2023,” the IMF report said. “Growth remained high at 6.2 percent year-over-year in the first quarter of 2024.”
The report also emphasized that Uzbekistan in the coming year is vulnerable to external shocks without much of a fiscal cushion to mitigate any potential blows. It urged vigilance in efforts to reduce the budget deficit.
“Given a highly uncertain external environment, risks are elevated,” the report stated. “External risks include geoeconomic spillovers from an intensification of Russia’s war in Ukraine, commodity price volatility, and an abrupt global slowdown.”
