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Uzbekistan Economy
 
 
 

General

Together with many Commonwealth of Independent States (CIS) economies, Uzbekistan's economy declined during the first years of transition and then recovered after 1995, as the cumulative effect of policy reforms began to be felt. It has shown robust growth, rising by 4% per year between 1998 and 2003 and accelerating thereafter to 7%-8% per year. According to IMF estimates, the GDP in 2008 will be almost double its value in 1995 (in constant prices). Since 2003 annual inflation rates averaged less than 10%.

Uzbekistan has a very low GNI per capita (US$610 in current dollars in 2006, giving a PPP equivalent of US$2,250). By GNI per capita in PPP equivalents Uzbekistan ranks 169 among 209 countries; among the 12 CIS countries, only Kyrgyzstan and Tajikistan had lower GNI per capita in 2006. Economic production is concentrated in commodities; Uzbekistan is now the world's sixth-largest producer and second-largest exporter of cotton, as well as the seventh largest world producer of gold. It is also a regionally significant producer of natural gas, coal, copper, oil, silver and uranium. Agriculture employs 28% of Uzbekistan's labour force and contributes 24% of its GDP (2006). While official unemployment is very low, underemployment, especially in rural areas, is estimated to be at least 20%. Still, at cotton-harvest time, all students and teachers are mobilized as unpaid labour to help in the fields. The use of child labour in Uzbekistan has led several companies, including Tesco, C&A, Marks & Spencer, Gap, and H&M, to boycott Uzbek cotton.

Facing a multitude of economic challenges upon acquiring independence, the government adopted an evolutionary reform strategy, with an emphasis on state control, reduction of imports and self-sufficiency in energy. Since 1994, the state-controlled media have repeatedly proclaimed the success of this "Uzbekistan Economic Model" and suggested that it is a unique example of a smooth transition to the market economy while avoiding shock, pauperisation and stagnation.

The gradualist reform strategy has involved postponing significant macroeconomic and structural reforms. The state in the hands of the bureaucracy has remained a dominant influence in the economy. Corruption permeates the society and grows more rampant over time; Uzbekistan's 2005 Corruption Perception Index was 137 out of 159 countries, whereas in 2007 Uzbekistan is at the very bottom of the ranking, 175 out of 179. A February 2006 report on the country by the International Crisis Group suggests that revenues earned from key exports, especially cotton, gold, corn and increasingly gas, are distributed among a very small circle of the ruling elite, with little or no benefit for the populace at large.

The economic policies have repelled foreign investment, which is the lowest per capita in the CIS. For years, the largest barrier to foreign companies entering the Uzbekistani market has been the difficulty of converting currency. In 2003, the government accepted the obligations of Article VIII under the International Monetary Fund, providing for full currency convertibility. However, strict currency controls and the tightening of borders have lessened the effect of this measure.

Uzbekistan experienced galloping inflation of around 1000% per year immediately after independence (1992-1994). Stabilisation efforts implemented with active guidance from the IMF rapidly paid off, as inflation rates were brought down to 50% in 1997 and then to 22% in 2002. Since 2003 annual inflation rates averaged less than 10%. Tight economic policies in 2004 resulted in a drastic reduction of inflation to 3.8% (although alternative estimates based on the price of a true market basket, put it at 15%). The inflation rates moved up to 6.9% in 2006 and 7.6% in 2007 but have remained in the single-digit range.


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