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Economic slump in Russia lowers Uzbekistan’s economic growth

1 April 2015 15:41 (UTC+04:00)
Economic slump in Russia lowers Uzbekistan’s economic growth

By Sara Rajabova

Uzbekistan’s economy has also been negatively affected by the economic recession in Russia along with the other Central Asian countries.

The Asian Development Bank predicted low economic growth in Uzbekistan due to the economic slump in Russia caused by the international sanctions on the country over Ukraine crisis.

GDP growth in Uzbekistan has been forecasted at 7 percent in 2015 and 7.2 percent in 2016, reflecting a projected contraction of at least 3 percent in Russia and historically low international commodity prices, according to a new ADB report, Asian Development Outlook 2015.

The report said the inflation is projected to reach 9.5 percent in 2015 and 10 percent in 2016.

The Uzbek government reported growth at 8.1 percent in 2014, slightly above 8 percent in the previous year. Lower growth was expected because of the economic slowdown in Russia, Uzbekistan’s largest trade partner and its major source of remittances, the report said.

“To limit the growth slowdown, the Uzbek government is expected to boost spending further, particularly for public investment. Gradual recovery in external demand should begin in 2016, but industry will remain the key supply-side driver of growth, with output supported by higher lending. Large industrial enterprises in strategic sectors—mining, oil and gas, and manufacturing— are expected to receive the bulk of additional lending from both the government and commercial banks. Planned wage and pension increases that exceed the inflation rate should support private consumption and demand for services. Agriculture is projected to grow by 6.0 percent in line with stable production of the key agricultural crops: cotton and wheat,” the report said.

It went on to add that the government is expected to complete its large modernization investment program in 2015.

“Public investment should increase substantially to achieve the goal of raising industry’s share of GDP to 28 percent, with most investment financed by the Uzbekistan Fund for Reconstruction and Development. Gross fixed capital formation is forecast to increase by 11.0 percent in 2015 and 12.0 percent in 2016,” the report noted.

It added that in response to growing external risks and global uncertainties, the government announced in January 2015 reforms to be implemented over 2015–2019 for economic diversification, private sector development, a smaller state presence in the economy, and better corporate governance.

In early March 2015, the Uzbek government adopted a comprehensive structural transformation, modernization, and diversification program for 2015–2019. The program envisages a $19.6 billion investment package to be financed through foreign investments and loans, the Uzbekistan Fund for

Reconstruction and Development, and commercial bank lending, the report said.

As in 2013 and 2014, the government will continue to stimulate domestic consumption in 2015 and 2016, most likely by raising public sector wages, welfare payments, and pensions, according to ADB.

“Also weakening the outlook is the announcement by Gazprom in February 2015 that slashes Russian procurement of Uzbek natural gas from an estimated 4.5 billion cubic meters in 2014 to 1.0 billion in 2015. However, plans by Uzbekistan’s national oil and gas conglomerate to raise natural gas exports to China to 10 billion cubic meters in 2015 may offset most of this loss,” the ADB report said.

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Sara Rajabova is AzerNews’ staff journalist, follow her on Twitter: @SaraRajabova

Follow us on Twitter @AzerNewsAz

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