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Uzbekistan: First Economic Growth Recorded Last Year Says EBRD

London, 16 April 1997 (RFE/RL) - A report by the European Bank for Reconstruction and Development (EBRD) says Uzbekistan last year recorded its first economic growth since its transition process began.

The report says the gross domestic product (GDP) of the Central Asian country grew by 1.6 percent, because of a strong performance in its energy, mining and services sectors -- and despite big shortfalls in agricultural production.

The report says Uzbek officials are predicting GDP growth of five percent this year with industrial output rising 3.5 percent.

The report says that since starting its transition from central planning to the free market, Uzbekistan has "emphasized gradualism, keeping control of the reform process to maintain political and social stability." However, it has also pursued a controversial policy of import substitution, arguing that, as Central Asia's most densely populated country, with one of its most advanced infrastructures, Uzbekistan can produce goods that currently require the spending of hard currency.

In late 1996, the Government imposed restrictive currency-and-import controls which resulted in criticism from the International Monetary Fund (IMF), and the suspension of $185 million in stand-by credits. Uzbek authorities maintain that the restrictions are temporary and necessary for sustaining industrial growth and structural reform.

Otherwise, the report says, Uzbek authorities have accelerated economic reform. They have largely implemented comprehensive financial stabilization and reform policies; encouraged the development of the private sector; and introduced a fully-fledged national currency.

The report says, compared with other CIS countries, the contraction in Uzbekistan's GDP has been "relatively modest": about 16 percent, against a CIS average of 47 percent over the 1990-95 period. Unemployment remains very low, at below one percent, but it is set to rise significantly when the restructuring of enterprises starts in earnest, and employment in the agricultural sector declines.

Fiscal and monetary tightening since mid-1994 have brought about a sharp drop in inflation: from 1,281 percent in 1994 to 117 percent in 1995. This drop partly reflected both tight monetary policy and the Government's success in reducing the budget deficit. It has fallen from 10.5 percent of GDP in 1993 to four percent in 1995. This is partly due to cuts in subsidies and Government lending.

The inflation target for 1996 was 21-to-25 percent, but looser monetary policy later in the year -- to compensate for a shortage of hard currency -- contributed to a year-end figure of 64 percent.

The 1996 budget deficit, at around 3.5 percent, was "broadly in line with initial government projections."

The government has indicated almost half of budgetary expenditure in 1997 will go toward health, education and welfare, while significant amounts will go towards boosting the country's export sector.

Uzbekistan had made substantial progress in privatising and restructuring its economy and in liberalising its markets and trade.

The EBRD report says the pace of privatisation has quickened considerably, after a slow start, with the Government favoring direct sales, auctions and flotations on the Tashkent stock exchange.

A second phase of privatisation, launched in early 1994, aimed at extending the privatisation of medium- to large-scale enterprises. It provided equal access for both the general public and foreign investors. An investment fund-based, mass-privatization program started in late 1996 involved the sale of 300 specially-selected enterprises, among them some of the most profitable in Uzbekistan.

Substantial progress has been made in price-and-trade liberalisation. However, the decision in November, 1996 to restrict imports, tighten foreign-exchange regulations, and virtually to ban the use of currencies, other than the Sum, has "cast a shadow over earlier achievements."

Price liberalisation was practically completed by early 1995, with the prices of only a few communal services and monopoly products, together with rents, remaining subject to control.

The report says: "As a result, prices are now generally determined by market forces. During 1995, domestic wholesale prices for oil and oil products were increased to world-market levels."

The report says: "The need to diversify the economy and modernise, in particular, Uzbekistan's extractive industries, has made attracting foreign investment one of the Government's key priorities."