Promoted by Uzbekistan Embassy In Brussels
Consequently, crises are not inherently destructive, and they can lead to positive outcomes by rectifying imbalances in the existing system. Often, crises serve as pivotal moments for policy redirection. Crises might have beneficial effects on future development through various channels:
- Systemic Changes: Global crises that disrupt established social and economic systems pave the way for new designs, cultures, and values to emerge and develop.
- Increased Resilience: During crises, measures can fortify a country's economy against future challenges.
- Rapid Problem Solving and Innovation: Crises often catalyze swift innovations, leading to rapid advancements in technology, policy, and procedures. Technological disasters, for instance, can expedite the adoption and spread of new technologies.
- Enhanced Collaboration: Large-scale crises challenging multiple countries necessitate collaborative efforts for mitigation and prevention.
This article attempts to show that Uzbekistan's social and economic landscape continuously formed its shape through various crises. Each crisis brought unexpected disturbances and forced the governing institutions to enhance their resilience. Initial reforms to develop the market economy in the early 90's were difficult but opened new developmental horizons. These reforms taught us that slow-changing informal institutions needed to catch up with the speed of formal institutions. A free society with market principles can be built only by changing people's minds and mentality.
Uzbekistan was the first among post-Soviet countries to stop production decline and transition to economic growth. The country managed to navigate its systemic crisis more successfully than other post-Soviet nations. Uzbekistan has taken steps towards establishing a market economy, but unfortunately, it has not successfully implemented some crucial market reforms. The economic crisis of 2008-2009 brought to light the limitations of an economy that relies heavily on natural resources. It is crucial to enhance the efficiency of the industrial sector and diversify the economy to overcome potential difficulties. By the mid-2010's, the development of the Uzbek economy began to stagnate due to stringent administrative regulations and insularity, preventing the full utilization of market incentives.
In 2017, newly elected President Shavkat Mirziyoev inherited a struggling economy hindered by weak international support, which made it challenging to implement swift reforms that met the population's expectations. This moment in Uzbek's history was a significant crisis where entrenched institutional legacies hindered the implementation of new reforms. Recognizing severe imbalances required significant change, there was a pressing need for a comprehensive overhaul of the country's operational directions. Consequently, 2017 marked the commencement of profound transformations across all facets of life.
The FX market reform, which ensured free convertibility, was among the most globally resonant economic reforms. Another pivotal economic reform was tax reforms. Taxes on labour were reduced, the gap between standard and simplified tax regimes was bridged, and the tax administration system was redefined.
Pandemic Crisis Risks: Like the rest of the world, Uzbekistan faced significant challenges in 2020 due to the pandemic. The country's economy was particularly impacted by global market instability, reduced foreign currency inflows due to substantial foreign trade partners' currency devaluations, and a decline in foreign tourism. After detecting "Patient Zero", a Presidential Decree immediately created the Republican Anticrisis Commission and an Anticrisis Fund worth $1 billion. Further guidelines were issued to address the pandemic and its aftermath. The government offered significant business concessions and boosted social support spending.
Pandemic's Impact: While the COVID-19 pandemic adversely affected Uzbekistan, swift measures ensured the economic impact was less severe than in many other countries. Positive growth rates persisted, by the Q1 2021, the GDP had increased by 3%.
Anticipating Future Risks: If we compare the economic development of Uzbekistan from 2017 to 2022, the country's per capita income increased from $1.7 thousand to $2.2 thousand. Uzbekistan's last six years policy successfully transformed resources from less productive to more productive sectors.
These trends need to be revised to get the country from lower to upper middle income in the near future. To enter upper-middle-income countries, per capita income should be doubled. This situation demands immediate action to liberalize the economy, develop the private sector, and improve competitiveness. The forthcoming reforms may pose more incredible intricacy and challenge, potentially resulting in divergent viewpoints among the involved parties.
Obid Khakimov, Director of the Center for Economic Research and Reforms
The energy supply industry is currently experiencing several challenges. Electricity and natural gas prices have been kept low and subsidized to support households and businesses. However, due to these measures, energy companies face a capital shortfall. A comprehensive liberalization policy for energy prices would catalyze increased investment in this sector but could also have negative consequences.
It is crucial to scrutinize specific indicators closely to assess the possibility of impending economic difficulties. Among these indicators, one of the most significant is the occurrence of a dual deficit in both the budget and current account. Prolonged operation of the economy with both of these deficits can significantly amplify the risk of economic challenges, leading to severe consequences. Therefore, it is of utmost importance to carefully monitor and address these indicators to ensure a stable and secure financial future.
Each year, the countries in Central Asia face daunting water scarcity and environmental shifts that endanger the food security of more than 70 million individuals residing in the area. One of the most critical ecological concerns for Uzbekistan is the nearly 3 million hectares of desertification that surround the Aral Sea, which impacts its environmental balance in a significant way. Furthermore, the construction of the Qosh Tepa Canal in Afghanistan is now adding to the existing challenges, as it is predicted to decrease the water supply by one-third in the long term.
To tackle the ongoing challenge, Uzbekistan must comprehensively analyze all relevant societal, economic, and political factors. The President's newly proposed Strategy 2030 underscores the critical and intricate reforms already mentioned. The execution of this ambitious plan in the next 7 years will enhance the economy's ability to adjust and withstand potential crises and hazards.
It's important to note that Uzbekistan has consistently shown its resilience and adaptability throughout its years of independence. As democracy in civil liberties and societies intensifies, further liberalization reforms will be challenged by various groups. Implementing the approved Strategy 2030 is crucial to maintain the competitiveness of our economy. Deviating from it due to populist impulses could lead to hasty and ill-informed reforms, which, as history has shown, can hinder the progress of developing nations.
Obid Khakimov, Director of the Center for Economic Research and Reforms
