Tashkent, Uzbekistan (UzDaily.uz) — The International Monetary Fund has recommended that Uzbekistan strengthen corporate governance at state-owned enterprises as they increasingly raise financing abroad. IMF Resident Representative in Uzbekistan Koba Gvenetadze said this on 30 September at an event hosted by the American Chamber of Commerce in Uzbekistan (AmCham).
An EBRD representative at the same event drew attention to the growth of quasi-sovereign debt that is not reflected in the state budget.
Debt that could become state debt
The IMF recommends reducing the number of state-owned enterprises, but Gvenetadze acknowledged that this cannot happen overnight.
“State-owned enterprises will continue to exist, but they must be managed efficiently,” he stressed. Requirements for efficiency are also increasing because state-owned companies have become more active in borrowing abroad and issuing bonds.
Their obligations are contingent liabilities for the state: as long as a project is successful, the debt remains on the company’s balance sheet, but if the project fails to meet expectations, the liability may shift to the state and increase public debt.
According to the IMF representative, the government has already introduced a system for comprehensive analysis of such borrowing, which has increased the Fund’s confidence that the authorities understand the obligations they are taking on.
Growth of quasi-sovereign debt
Asel Aitkhozhina, EBRD Lead Regional Policy Specialist for Central Asia and Mongolia, noted that Uzbekistan’s share of government-guaranteed debt is declining, while quasi-sovereign debt is increasing. This includes borrowing by companies with state participation that does not carry a direct government guarantee.
In neighbouring Kazakhstan, the growth of such debt has already raised concerns. According to her, this debt needs to be taken into account even if the government is not formally responsible for it.
Governance recommendations
To reduce risks, the IMF recommends adopting a clear state ownership policy, ensuring transparent operations of supervisory boards and bringing the reporting of state-owned enterprises in line with international standards.
Andi Aranitasi, Director and Head of the EBRD Office in Uzbekistan, also identified reducing the role of the state, strengthening competition and improving governance as conditions for the country’s next stage of development.
ADB Senior Country Economist in Uzbekistan Sherzod Akbarov stressed that state-owned enterprise reform is closely linked to privatisation.
An example of this approach is the National Investment Fund (UzNIF), which, as previously reported by UzDaily, consolidates stakes in 13 strategic state-owned enterprises and was also established to introduce international corporate governance standards. In May, part of the fund’s shares were listed on stock exchanges in London and Tashkent.
Link to the labour market
Gvenetadze identified the pace of reducing the size of the state sector as one of the two main issues for Uzbekistan’s economy.
“Transferring the role of the engine of growth to the private sector is important for making Uzbekistan’s growth sustainable,” he said, noting that with the population growing rapidly, private businesses should be responsible for creating new jobs.
Contingent liabilities are debts that may become the responsibility of the state if certain conditions arise, such as a state-owned company being unable to service a loan. Quasi-sovereign debt, by contrast, does not carry a direct government guarantee, but international institutions also view it as a potential burden on the budget.
