OECD: Uzbekistan Needs Deep Public Sector Reform and an End to Manual Economic Management

Tashkent, Uzbekistan (UzDaily.com) — The OECD is calling for a “reset” in Uzbekistan, stating that achieving an economic breakthrough will require abandoning manual management practices and undertaking a profound reform of the public sector.

Uzbekistan stands at a pivotal stage of its economic transformation. Having demonstrated notable resilience to global shocks and averaging GDP growth of 6.4% over the past two decades, the country is reaching the limits of a growth model driven by commodity exports and state investment.

To meet its ambitious goal of joining the group of upper middle-income countries by 2030, Tashkent must pursue deep structural reforms, shifting from a focus on the quantity of adopted laws to the quality of institutions. These conclusions are outlined in the extensive report “Sustainable Investment Policy Reform Roadmap for Uzbekistan,” published by the Organisation for Economic Co-operation and Development (OECD).

Investment Landscape: Oil, Gas and Structural Imbalance

Despite the openness course announced in 2017, the structure of foreign investment in the Uzbek economy remains conservative.

According to the report, accumulated foreign direct investment stands at 14.6% of GDP, below levels in many peer economies, while capital inflows in 2024 are estimated at 2.1% of GDP. OECD analysts point to a worrying concentration of capital: the lion’s share continues to flow into mining, energy, and manufacturing, leaving services and high-tech industries on the periphery of investor interest.

Geographical imbalance is another concern. Investments are concentrated mainly in Tashkent and resource-rich regions, deepening internal regional disparities. The document stresses that avoiding the “middle-income trap” will require diversifying Uzbekistan’s portfolio of partners. While China and Russia currently dominate, attracting capital from OECD countries could bring not only financing but also advanced technologies and internationally recognized standards of responsible business conduct.

Legislative “Inflation” and Institutional Confusion

One of the key issues cited by investors is the unpredictability of the legal environment amid what the OECD calls “legislative overproduction.” Since 2017, around 23,000 regulatory acts have been adopted in the country.

Frequent amendments—often implemented through secondary legislation—undermine the strength of fundamental laws and create inconsistency in enforcement.

As a solution, the OECD recommends introducing a “negative list” approach for foreign investors, where the government clearly identifies closed sectors such as defense, while all others remain open by default, thereby reducing bureaucratic burden.

The current investment management structure also comes under criticism. Experts highlight overlapping functions and conflicts of interest between the Uzbekistan Investment Promotion Agency (UzIPA) and the Ministry of Investments, Industry and Trade.

While the ministry is expanding, the agency suffers from limited funding and staffing, creating uncertainty for investors. The OECD’s recommendation is clear: roles must be separated, with the ministry responsible for strategy and the agency transformed into a full-fledged “one-stop shop” for country marketing and project facilitation.

Tax Policy: The End of the Era of Generous Incentives

Uzbekistan has historically relied on tax holidays and profit tax exemptions as its key tools for attracting business. However, with the introduction of the global minimum tax, this strategy has become ineffective and leads to revenue losses without ensuring results.

The report’s authors call for a shift in approach—from profit-based incentives to expenditure-based ones. This means providing tax deductions for specific investments in construction, equipment purchases, R&D, or workforce training.

The OECD also insists on abolishing incentives available exclusively to foreign companies to ensure a level playing field for domestic businesses.

Green Transition and Energy-Sector Risks

Uzbekistan remains one of the most energy-intensive economies in the world. Despite progress in attracting private capital to solar and wind energy projects through public-private partnerships, the energy sector faces serious challenges. The aging power grid may struggle to accommodate new renewable capacity, requiring large-scale infrastructure modernization.

Moreover, the OECD calls for a gradual but firm phase-out of fossil fuel subsidies. Current low prices for gas and electricity distort the market and make energy-efficiency projects unprofitable. The report also highlights the need to strengthen monitoring of fiscal risks arising from numerous PPP projects backed by state guarantees.

The State’s Role in the Economy and the Digital Divide

The public sector still dominates the economy, creating unequal conditions for private business through privileged access of state enterprises to land, loans, and procurement. Experts recommend accelerating the privatization of non-strategic assets and introducing OECD corporate governance principles—including independent boards of directors and strict ESG reporting—into remaining state-owned enterprises.

In the digital sphere, despite the success of IT Park and growth in service exports, a significant digital divide persists between the capital and the regions. The OECD also recommends revising strict personal data localization requirements, which may deter international cloud providers and tech companies, slowing innovation.

The report concludes that Uzbekistan’s period of “easy wins” achieved through currency liberalization and border openness has ended.

The next stage of growth will require complex and painstaking institution-building, ensuring the rule of law, and creating equal conditions for all market participants, including accession to the World Trade Organization to help reduce transport costs for this landlocked country.