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Uzbekistan: Government Debt Almost Doubled in Two Years

In 9 months of 2020, the joint external debt of Uzbekistan exceeded 29 billion dollars, according to the Central Bank review. According to the agency, the volume of debts increased by 19.7 per cent or 4.8 billion dollars from early 2020.

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The ministry of finance of Uzbekistan explain this significant increase in foreign debt by raising loans to finance additional budget costs in order to overcome negative consequences of the Covid-19 pandemic.

The foreign debt of Uzbekistan is shared by public and private sectors. According to the ministry of finance, in 10 months of 2020, government loans amounted to 2.8 billion dollars. This money was spent to implement various projects, including the biggest one – fighting coronavirus, as well as modernisation and diversification of the agricultural sector.

It should be noted that the republic had introduced restrictions to raise foreign loans before the coronavirus pandemic. The maximum volume of loans under newly signed loan agreements entered on behalf or against guarantee of Uzbekistan was set at 4 billion dollars.

However, Covid-19 adjusted the situation and the maximum limits of foreign debts were revised. As a result, the authorities raised the limit on loan raising up to 5.5 billion dollars in 2020, and up to 5 billion dollars in 2021.

The reports of the central bank of Uzbekistan show that the foreign national debt of the republic tends to grow for a few years already. By October 2019, the national debt was 21.5 billion dollars, although by September 2018 the foreign debt of the country did not exceed 16.4 billion dollars.

It turns out that the national debt of Uzbekistan almost doubled in just three years. Why did it happen?

Maybe because the republic has implemented a lot of economic reforms in the last few years (after new president Shavkat Mirziyoyev came to power – editor’s note). The need for them can be explained by the fact that despite the natural resources available in Uzbekistan, the republic held the 8th place in the list of the poorest countries of the world in 2018, according to the FocusEconomics report. This indicator shows the inefficiency of the earlier pursued policy of “closed economy”.

The state-controlled economy that existed for many years has hindered the development, welfare of the state depended generally on prices at the mineral market, and the goods produces in the country have repeatedly been on sanctions lists. Thus, the Uzbekistan-grown cotton was boycotted in 2006 due to the use of forced and child labour during cotton pick. Back then, over 300 world brands and retailers signed the obligation not to buy cotton grown in Uzbekistan.

Today, Uzbekistan has already set a course for open market economy and tries to reform the sectors that have long been in stagnation. The lion’s share of borrowed money is supposedly spent on these transformations.

The ministry of finance do not name the exact amount intended for the reforms. According to the information provided by the agency, it may be concluded that the main part of the money borrowed by the republic would be allocated to the energy sector, to support the budget and to improve the transport infrastructure.

It is worth telling that, according to the Central Bank, the largest investor in the economy of Uzbekistan is the Asian Development Bank (ADB), then follows the World Bank, and the third one is Export-Import Bank of China.

In the structure of the foreign debt of Uzbekistan, the main portion are loans raised for more than 10 years. The ministry of finance of the republic does not disclose the interest rates of these loans. Usually, the longer the loan term, the lower the interest rate.

The aggregate debt of the public sector of Uzbekistan is 18.7 billion dollars, and debt of the private sector is 10.6 billion dollars. The main portion of money raised by private economic entities is allocated to the banking and oil and gas sectors of economy.

According to the publication “Budget for citizens 2021” prepared under the joint project of UNDP and ministry of finance of Uzbekistan “Financing of sustainable development in Uzbekistan”, the aggregate national debt is predicted at 28.4 billion dollars by the end of 2021. It will be 44.9 per cent of the republican GDP. The ministry of finance of Uzbekistan calls these amounts of the public debt “moderate and safe for macroeconomic stability.”

Main photo: ua.news

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