Tashkent, Uzbekistan (UzDaily.com) -- Uzbekistan’s GDP growth in 2021 will reach 6.2 percent. This is predicted by experts from the World Bank.

“However, this forecast remains uncertain due to the continuing impact of new waves of the pandemic on the global and national economy. A recovery in domestic investment, international trade and remittances from abroad will help boost economic growth and reduce unemployment and poverty in 2021, ”the World Bank said.

Uzbekistan’s GDP growth is expected to remain strong in 2022, reaching 5.6 percent, as the rate of vaccination of the population accelerates and disruptions to the global economy decrease.

According to the WB forecasts, the current account deficit of the balance of payments will amount to 5.9 percent of GDP in 2021 as imports of machinery, equipment and raw materials for investment projects recover and gold exports decline from the record level in 2020, and taking into account the growth of exports of other goods.

Foreign direct investment is expected to remain low in 2021 and partially recover in 2022. 

The continued expansion of social support for the population, public investment in rural infrastructure development, as well as the costs of the vaccination campaign, will further increase public spending by the end of 2021. This will be partially offset by higher tax revenues to the budget, revenues from mining and privatization of state-owned enterprises, leading to a projected budget deficit of 5.5 percent of GDP in 2021. This deficit will be financed by an increase in public debt, which is projected to reach 40.6 percent of GDP by the end of 2021.

Uncertainty surrounding the COVID-19 pandemic and the announced VAT rate cut in 2023 is likely to contribute to the budget deficit over the medium term. A sustained economic recovery, a gradual elimination of anti-crisis measures and tax administration reforms aimed at broadening the tax base are expected to help reduce the budget deficit and stabilize public debt at around 42 percent of GDP by the end of 2023.

After a slowdown in Uzbekistan’s GDP growth to 1.7 percent in 2020, it increased to 6.2 percent in the first half of 2021. Strong growth in industry and services has offset weak growth in agriculture. An increase in household income and domestic investment, further spending of budgetary funds for the implementation of anti-crisis measures, as well as tax incentives, contributed to robust economic growth in 2021.

The decision to cut gold exports pushed the current account deficit of the balance of payments to 10 percent of GDP in the first half of 2021, up from 7.3 percent of GDP a year earlier. However, exports of other commodities are recovering after declining demand from trading partners in 2020, including copper, textiles, fertilizers, food and engineering products.

The total volume of exports increased by 12.3 percent over the same period of the previous year. Imports grew by 14.3 percent in the first half of 2021 due to increased private consumption and a recovery in demand for machinery, equipment and raw materials. This led to an increase in the trade deficit from 16.2 percent of GDP in the first half of 2020 to 18.8 percent in the first half of 2021. Sustained remittance inflows (8.7 percent of GDP in the first half of 2021) helped offset the negative trade balance.

The budget deficit in the first half of 2021 amounted to 5.4 percent of GDP. Lower volumes of targeted government lending and higher tax revenues from the recovering economy offset the increase in budget spending on social protection of the population, health care and infrastructure.

Although the budget deficit was financed by an increase in public debt, nominal GDP growth contributed to a decrease in the public debt to GDP ratio to 38.5 percent of GDP in the first half of 2021. The government manages to adhere to the restrictions on external borrowing in 2021, set within US$5.5 billion. Official gold and foreign exchange reserves reached US$34.1 billion in July 2021, up US$1.8 billion from a year earlier.

Inflation declined from 14.7 percent in June 2020 to 11 percent in June 2021. However, this figure was still double-digit due to the outpacing growth in food prices. Given the level of uncertainty in inflation expectations, the Central Bank left the base interest rate at 14 percent. It remains unchanged from September 2020.

Year-on-year growth in lending to the economy in June 2021 slowed to 24 percent from 34 percent in June 2020 and 52 percent in 2019.This trend demonstrates a weakening demand for bank loans in 2021 due to higher interest rates on loans in real terms and due to a decline in government-subsidized lending.

The banking sector’s capital adequacy ratio declined to 17.4 percent in June 2021 from 18.5 percent in January 2021 and 20.8 percent in June 2020. COVID-19 from 2.2 percent in June 2020 to 4.6 percent in June 2021.

Nevertheless, the financial system of Uzbekistan has sufficient financial resources to cope with possible credit shocks. From 1 August 2021, in order to further reduce risks in the financial sector and its dollarization, the required reserve ratio for deposits attracted by commercial banks in foreign currency was increased. It grew from 14 percent to 18 percent.

In the process of economic recovery, the unemployment rate fell from 13.2 percent in the first half of 2020 and 10.5 percent at the end of 2020 to 10.2 percent in the first half of 2021. The unemployment rate has not yet reached the pre-pandemic level (about 9 percent) and remains above the average for women and youth.