Uzbekistan: Staff Concluding Statement of the 2026 IMF Article IV Mission

Recent Developments, Outlook, and Risks

Uzbekistan’s economy demonstrated remarkable strength in 2025. Driven by robust consumption and investment, real GDP growth reached 7.7 percent, while the unemployment rate declined by 0.7 percentage points to 4.8 percent. Growth was broad‑based, with services and construction expanding the fastest. Despite strong domestic demand, headline CPI inflation declined to 7.3 percent year‑on‑year (y/y) at end‑2025, from 9.8 percent a year earlier, reflecting fading effects of the May 2024 energy price increases, a 6.9 percent appreciation of the sum against the U.S. dollar, and an appropriately tight monetary policy stance. Core inflation also fell over the same period, by 1.5 percentage points. The current account deficit narrowed to 3.9 percent of GDP, as strong commodity and non‑commodity exports and remittance inflows outpaced imports. International reserves remained ample, at around 13 months of imports. Buoyant economic activity and high commodity prices contributed to a decline in the fiscal deficit to 2.1 percent of GDP, well below the 3 percent target.

The economic outlook remains favorable, although clouds are increasing over the global economy from the impact of the war in the Middle East. High-frequency indicators suggest that economic activity has continued to be strong in the first quarter of 2026. Supported by ongoing reforms, sustained investment, buoyant remittances, and higher gold prices, real GDP growth is projected to remain resilient at 6.8 percent in 2026. As domestic demand gradually eases, growth is expected to moderate to around 6 percent in 2027. The current account deficit is forecast to narrow further in 2026, before widening modestly in 2027 as remittance inflows decelerate and gold price increases moderate. Inflation is projected to remain above the CBU’s 5 percent target in 2026, reflecting in part high global oil prices associated with the Middle East war, with the impact expected to be mitigated by slower increases in administered prices and temporary transport subsidies. Inflation is expected to reach the CBU’s target in 2027, supported by a tight monetary policy stance, continued structural reforms, and easing oil prices.

Uncertainty remains elevated, with downside risks and reduced scope for upside surprises. The impact of the war in the Middle East will depend on its duration and intensity. While the direct effect on Uzbekistan is likely to be modest, given relatively limited trade and remittance linkages with countries affected by the war, indirect channels could be more notable if worsening global conditions were to affect key trading partners. Against this backdrop, external risks primarily stem from heightened geopolitical tensions, trade disruptions, commodity price volatility, and an uncertain global outlook. Domestic risks include pressures to boost demand through procyclical spending and/or directed and preferential lending programs, as well as potential weakening of bank balance sheets and contingent liabilities from state-owned enterprises (SOEs), state-owned commercial banks (SOCBs), and public-private partnerships (PPPs). On the upside, faster implementation of structural reforms could further support the outlook. The scope for gains from stronger capital and remittance inflows or higher gold prices appears more limited given their current favorable levels.

Fiscal Policy

Staff welcomes the better‑than‑budgeted fiscal deficit in 2025 and recommends minimizing within‑year spending increases in 2026 to help contain inflationary pressures. Given the budget’s prudent revenue assumptions—particularly for gold prices—limiting expenditure increases beyond budgeted levels amid likely revenue overperformance is important to avoid exacerbating inflationary pressures from already elevated domestic demand, high oil prices, and trade route disruptions. Any Middle East war-related spending measures should avoid generalized subsidies and price controls, as these are costly, distortive, and difficult to unwind. Instead, any measures need to be temporary and targeted to affected vulnerable groups. At the same time, ongoing efficiency‑enhancing expenditure reforms—including rationalization of the wage bill, gradual phasing‑out of budgetary support to SOEs, procurement reforms, and consolidation of social assistance programs, while protecting the most vulnerable—should continue. Beginning with the 2027 budget, staff recommends the adoption of a ceiling on the nominal non‑mineral primary deficit to strengthen the management of volatile mineral revenues, complementing the 3-percent overall deficit target.

Further progress in advancing a medium‑term revenue strategy is critical to financing the health, education, and infrastructure needs of a rapidly growing population. The strategy needs to address the decline in the tax‑to‑GDP ratio since 2020 through a balanced mix of tax policy and revenue administration measures. On the policy side, this includes increasing specific excise tax rates, phasing out and not granting new income‑based tax incentives—tax holidays and reduced corporate income tax (CIT) rates—and eliminating CIT and non‑statutory customs duty exemptions. These measures are to be complemented by stronger revenue administration, including approval and implementation of the Tax Administration Reform Strategy 2025–30 and a customs reform strategy prepared with IMF capacity development support. Revenue gains ought to be pursued in a manner that prevents the accumulation of VAT refund arrears and resolves the existing stock, notably by rolling out the welcome new VAT invoice risk assessment system which will facilitate the prompt and automatic payment of validated claims.

Strengthening fiscal institutions remains essential to improving expenditure efficiency, fiscal‑risk management, and debt management. Staff welcomes the recent publication of the debt management strategy and annual borrowing plan, progress toward publishing fiscal statistics based on the Government Finance Statistics international standard, strengthened risk‑based oversight of SOEs, and the containment of PPP commitments well below the ceiling in 2025. At the same time, there is scope for further progress. Advancing the automation of treasury processes would enable more timely validation and compilation of budget execution reports, facilitating their use in assessing spending efficiency. Publishing tax expenditures alongside the budget would enhance transparency around their fiscal cost and support their rationalization. Further steps to reduce fiscal risks include tightening the annual cap on PPP commitments to better align it with existing assessment capacity, standardizing PPP contract provisions, strengthening the information base and enforcement authority of the Ministry of Economy and Finance over PPPs, and enhancing SOE risk disclosure in budget documents.

Monetary and Exchange Rate Policy

Monetary policy should remain firmly focused on reducing inflation to the Central Bank of Uzbekistan’s (CBU’s) 5 percent target. The CBU has appropriately held the policy rate at 14 percent since March 2025, maintaining strongly positive real interest rates. Keeping the policy stance sufficiently tight is critical given ongoing inflationary pressures from strong domestic demand and rising oil, food, and logistics costs stemming from the war in the Middle East. In fact, the pace of disinflation appears to have slowed in recent months, with core inflation edging up to 6.3 percent y/y at end‑February. Monetary policy calibration therefore needs to remain data‑dependent, with further tightening warranted if core inflation and inflation expectations fail to resume a downward trend. Strengthening monetary transmission—through an appropriate mix of an expanded set of liquidity management instruments, enhanced liquidity forecasting, and clearer communication—would help the CBU better achieve its monetary policy objectives. Maintaining the welcome increase in exchange rate flexibility introduced in April 2025 will strengthen the economy’s shock‑absorption capacity, safeguard international reserves, encourage FX hedging, and facilitate the transition toward inflation targeting.

Financial Sector Policy

Accelerating reform and privatization of state‑owned commercial banks is essential to safeguarding financial stability and improving the efficiency of resource allocation. Privatization efforts need to adhere to international best practices, with preparatory steps focused on accurate asset quality reporting and strengthening corporate governance and risk‑management frameworks. Transparent procedures and competitive bidding are essential to attract qualified strategic investors. Clear key performance indicators, robust performance monitoring, and a full accounting and risk‑based separation of commercial and non‑commercial lending are needed to strengthen accountability. Staff welcomes the authorities’ decision to broaden asset quality reviews to all SOCBs, irrespective of privatization status, and to align the measurement of non‑performing loans with international standards. Persistent underperformance by SOCBs calls for timely corrective actions, including management changes where appropriate, while non‑viable banks should be restructured or resolved. Plans to retain systemic SOCBs as policy banks could increase financial stability risks and budgetary costs and thus merit reconsideration.

Timely implementation of the 2025 Financial Sector Assessment Program (FSAP) recommendations would further support these objectives and foster a more competitive banking sector. In addition to accelerating SOCB privatization, key priorities include phasing out—and improving the transparency of—directed and preferential lending programs; safeguarding the CBU’s operational independence; ensuring accurate asset classification; and strengthening solvency stress testing. Government adoption of the FSAP Roadmap would help advance implementation of these recommendations. Staff welcomes the introduction of bank capital buffers but stresses the importance of having credible restructuring plans before any potential capital support is given to SOCBs. Staff also welcomes the macroprudential measures adopted to date to contain risks, including from microlending, and advise phasing out exemptions from borrower-based measures (currently covering about 15 percent of loans) and extending such measures to loans issued under government programs. Addressing risks from foreign‑exchange lending to unhedged borrowers is also critical, particularly in light of the recent increase in exchange rate flexibility.

Financial inclusion needs to be pursued in ways that do not compromise financial stability. Government lending programs with quantitative lending targets result in credit misallocation toward unviable borrowers. Interest rate ceilings should continue to be avoided as they would restrict access to finance—particularly for riskier and underserved borrowers—and encourage informality. Financial inclusion can be advanced more sustainably by strengthening banking sector competition, expanding access to credit information, improving banks’ credit screening models and tools, modernizing payment systems and digital infrastructure, fostering economies of scale, and enhancing financial literacy and consumer protection. Alongside macroeconomic stability and the broader banking sector reforms recommended under the FSAP, these measures would help durably reduce borrowing costs over time.

Structural and Governance Reforms

Accelerating reform of the state‑owned enterprise sector is critical to raising total factor productivity and investment, thereby supporting growth and private sector development. As most SOEs operate in competitive sectors, and given the well‑documented efficiency advantages of private firms in such markets, profitable SOEs in competitive sectors should be privatized, while non‑viable ones liquidated with appropriate support for affected workers. For SOEs that remain in strategic or non‑competitive sectors, priority needs to be given to addressing remaining corporate governance weaknesses and soft budget constraints stemming from government influence and multiple forms of support. Key reforms include clarifying ownership policies with explicit requirements for market‑based rates of return, ensuring transparent appointment and evaluation of supervisory boards, prohibiting non‑commercial activities unless fully compensated through the budget, and increasing private sector participation. Compliance with international auditing and financial reporting standards is essential for all SOEs. The success of the newly established National Investment Fund in attracting institutional investors and accelerating SOE reform will depend on a clear mandate, operational autonomy, and adequate capacity to restructure SOEs.

Continued advancement of governance, labor, and climate reforms remains paramount. While governance indicators have improved since 2017, enactment and effective implementation of critical legislation—particularly on whistleblower protection and asset declaration—remain needed to strengthen public administration, spending efficiency, and investor confidence. Labor market reforms should focus on addressing key structural challenges, including low female labor force participation, high informality, and skill mismatches. Climate objectives need to be further integrated into public investment management to enhance energy efficiency and advance decarbonization and climate adaptation. Further strengthening market regulation and competition is essential to raise efficiency and support private sector development. Activating sector regulators, eliminating exclusive rights in key sectors, and completing WTO‑related reforms would help boost private investment and strengthen competition.

Uzbekistan: Selected Economic Indicators, 2023-2027

Sources: Country authorities; and IMF staff estimates and projections.

1/ IMF staff adjusts budget revenues and expenditures for financing operations, such as equity injections and policy lending.

2/ The coverage of government social loan programs was expanded in the 2026 budget resulting in larger adjustments to consolidated revenue and expenditure and higher policy-based lending.

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