External Debt Management In Uzbekistan

External Debt Management by the Government of Uzbekistan: Policies, Strategies, Techniques, Legal System and Institutional Set Up And Evaluation of their Processes and Methods.

Tarun Das1 Ph.D. Professor (Public Policy), IILM, New Delhi. Consultant, World Bank November 2008

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.The Author would like to express his gratitude to the World Bank HQ and the Uzbekistan Country Office, particularly to Dr. Saumya Mitra, Lead Economist, The World Bank Country Office in Uzbekistan at Tashkent for providing an opportunity to prepare this paper. The background note and the Questionnaire express the personal views of the author, which do not necessarily imply the views of the World Bank or the organizations he is associated with.

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External Debt Management in Uzbekistan Tarun Das , Consultant, World Bank CONTENTS ACKNOWLEDGEMENTS 1. Introduction- Scope and Objectives of the Study Debt Management Policy Debt Sustainability Analysis (DSA) by IMF Staff Legal Framework for External Debt Management in Uzbekistan 1.4 Terms of Reference (TOR) for the Study 2. Basic concepts of external debt and sustainability indicators 2.1 Definition of external debt 2.2 Debt Sustainability and Fiscal Deficit 2.3 Debt Sustainability and Current Account Deficit 2.4 Liquidity versus Solvency 2.5 Debt Sustainability Measures 2.6 World Bank Classification of External debt 2.7 Stress Tests, Debt Distress and Indicative Debt Service Thresholds 2.8 Policy framework and Institutional Set up for External Debt Management 2.9 Capacity Building for Management of Public Debt and Contingent Liability 2.10 International best practices for policy framework and institutional set up 3. Current State of the Uzbekistan Economy 3.1 Economic Performance and Poverty 3.2 Uzbekistan Economic Freedom Indices: The Heritage Foundation 3.3 Strengths, Weakness, Opportunities and Threats (SWOT) 3.4 Economic Growth and Inflation in 2007 3.5 External Sector Performance in 2007 3.6 Money Supply and Banking Operations 3.7 Fiscal Situation and Reforms 3.8 Medium Term Economic Forecasts 3.9 Development Challenges Annex-1: World Bank CPIA Criteria for Debt Management Selected References

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External Debt Management by the Government of Uzbekistan: Policies, Strategies, Techniques, Legal System and Institutional Set Up And Evaluation of their Processes and Methods ACKNOWLEDGEMENTS This Report is based on mainly a review of recent studies on Uzbekistan economy made by the development stakeholders and the lessons and international best practices drawn from the author’s studies on management of external debt in selected developing countries in Africa, Asia and Pacific such as India, Cambodia, Gambia, Indonesia, Lao PDR, Mongolia, Nepal, Samoa, and Thailand . Most of these references are cited in the paper and included in the selected bibliography. The Author would like to express his gratitude to the World Bank HQ and the Uzbekistan Country Office, particularly to Dr. Saumya Mitra, Lead Economist, the World Bank Country Office in Uzbekistan at Tashkent for providing an opportunity to prepare this paper. The author is presently working as Professor (Public Policy) at the Institute for Integrated Learning in Management, New Delhi, India. Earlier he worked as Economic Adviser in the Planning Commission and the Ministry of Finance, Government of India at New Delhi; Strategic Planning Expert in the ADB Capacity Building Project on Governance Reforms, Ministry of Finance, Government of Mongolia at Ulaanbaatar; Commonwealth Secretariat Consultant for Debt Sustainability Analysis for the Government of Gambia at Banjul; and UN-ESCAP Consultant for the Management of External Debt for the Governments of Samoa, Cambodia, Lao PDR and Nepal. The background note and the Questionnaire express the personal views of the author, which do not necessarily imply the views of the World Bank or the organizations he is associated with. Tarun Das, Ph.D. Professor (Public Policy), IILM, New Delhi, and Consultant, World Bank.

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External Debt Management by the Government of Uzbekistan: Policies, Strategies, Techniques, Legal System and Institutional Set Up And Evaluation of their Processes and Methods. 1. Introduction- Scope and Objectives of the Study This is a part of a wider study and an Economic Report being prepared under the World Bank’s Country Policy and Institutional Assessments (CPIA) for discussion between the Uzbek authorities and the Bank. The main objectives of the Economic Report include the following: (i) to develop a common understanding of the meaning of the criteria used in the CPIA exercise and how they are applied; (ii) to obtain information and data relating to the criteria that would enable Bank staff to make updated assessments; and (iii) to discuss with the authorities future policy steps and reform intentions that would affect CPIA assessments. This approach would be successful only if, during its course, the authorities presented data and information on the variables used in the CPIA exercise at a suitably disaggregated level. It is proposed that the Economic Report be based initially on three set of questions, (i) debt policy; (ii) trade; and (iii) revenue mobilization. The present Questionnaire deals with the Debt Management Policies, Strategies, Legal and Institutional Systems, Techniques and Evaluation of their Processes and Methods. 1.1 Debt Management Policy This chapter of the Economic Report will make an assessment of the impact of debt management strategy on minimizing budgetary risks and ensuring long-term debt sustainability. Uzbekistan’s debt burden is manageable with favorable trends of major debt sustainability indicators (Tables-1.1 and 1.2). The ratio of total debt stock to GDP declined to 17.6 percent in 2007 and further to 15.4 percent in 2008 from 42 percent in 2003. The debt service ratio (i.e. the ratio of total debt services to exports of goods and services) declined to around 8.6 percent in 2007 after reaching the maximum at 26.7 percent in 2001. The ratio of total debt stock to exports of goods and services also declined to 43.5 percent in 2005 after attaining the maximum at 158 percent in 2002. The ratio of sort term debt to total debt has declined continuously from 10.4 percent in 2001 to 0.9 percent in 2005. Moreover, foreign exchange reserves are being built up rapidly and stood at $10.2 billion equivalent to 10 months of imports of goods and services at the end of 2007. But, the shares of concessional and multilateral loans are low as compared to those for other low income and developing countries. However, the situation does not pose problems in the near and medium term. The degree and effectiveness of coordination between debt management and macroeconomic policies will also be discussed. Adequate and timely information on debt stocks and flows is an important component of debt management strategy. A dedicated debt management unit should be able to plan strategy and monitor new borrowing and manage risks. Annex-1 presents details related to these CPIA criteria. Present paper has four sections. Following section1dealing with scope, objectives and terms of reference the study, Section-2 presents a brief note on basic concepts on external debt and debt sustainability indicators and

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Section-3 presents a brief note on the current state of the Uzbekistan economy. Section-4 presents a detailed questionnaire for all stakeholders of external debt in Uzbekistan. Table-1.1 Uzbekistan: Trends of Selected Economic Indicators in 2002-2007 Economic Indicators Growth rate of Real GDP (percent) Growth rate of Nominal GDP (percent) CPI inflation rate (%) official estimate CPI inflation rate (percent) IMF estimate Growth rate of reserve money (%) Growth rate of broad money supply (%) Growth rate of net foreign assets (%) Growth rate of net domestic assets (%) Growth rate of net claims on govt (%) Growth rate of credits to the economy (%) Growth rate of exports of G&S (%) Growth rate of imports of G&S (%) As percentage of GDP at current mp Revenue and grants (as % of GDP) Expenditure and net lending (% of GDP) Overall budget balance as % of GDP Augmented budget balance as % of GDP Total Public debt as % of GDP Public External Debt as % of GDP Exports of goods & services as % of GDP Imports of goods & services as % of GDP Current account balance as % of GDP FDI as % of GDP External debt (as % of GDP) Ext. debt service (as % of exports of G&S) Ext. debt service (as % of FE reserves) Memo Items: GDP in sum trillion GDP in US$ billion Nominal GDP per capita (US$) Nominal GDP per capita (US$ PPP) Income velocity of money supply (level) Foreign exchange reserves (US$ Bln) Forgn. Exch. Reserves (Months of imports) End-period Exchange rate (UZ Sums/US$) External debt outstanding (US$ million) Year-End foreign exch. reserves (US$ bln) Foreign exch. reserves (months of imports) Exports of goods & services (US$ billion) Imports of goods & Services (US$ billion) External CAB (US$ Million) External capital balance (US$ Million) Population (million)

2003 4.2 32.0 3.7 7.8 26.7 27.1 45.6 -87.8 -1509 6.9 28.4 8.9

2004 7.7 24.6 3.8 9.1 38.7 47.8 48.8 -50.5 -114 10.8 28.1 26.8

2005 7.0 29.9 7.8 12.3 87.5 54.3 44.0 -28.4 -87.0 15.8 12.0 4.4

2006 7.3 30.4 6.8 11.4 36.5 36.8 76.3 -148 -145 4.3 18.0 13.8

2007 9.5 35.8 6.9 11.9 44.9 46.1 67.4 -88.7 -78.9 16.7 40.7 44.3

2008* 8.0 23.1 6-8 11.0 28.4 32.4 35.8 -38.4 -56.8 30.8 22.1 28.9

33.4 33.9 0.1 0.1 41.6 38.7 37.3 30.6 8.7 0.7 42.0 20.5 49.7

32.2 32.1 0.6 0.6 35.1 32.0 40.5 32.9 10.2 1.6 36.2 17.1 35.6

30.8 31.1 1.2 1.2 28.2 25.2 38.1 28.9 13.7 0.6 29.1 14.1 28.0

31.4 30.9 2.2 5.2 21.3 19.8 37.6 27.5 17.3 1.1 22.7 12.7 17.3

31.7 30.2 2.1 5.1 15.8 14.7 40.4 30.3 19.2 3.3 17.6 8.6 11.3

30.6 31.1 -0.4 5.0 13.5 12.5 41.3 32.7 16.6 3.5 15.4 7.6 8.1

9.8 10.1 396 1654 10.5 1.66 5.1 979 4249 1.66 5.1 3.78 3.10 861 -414 25.6

12.3 11.9 462 1808 9.5 2.15 6.3 1058 4322 2.15 6.3 4.84 3.93 1215 -702 25.9

15.9 14.2 543 1970 8.4 2.90 7.4 1180 4133 2.90 7.4 5.42 4.10 1949 -1191 26.2

20.8 17.0 641 2154 7.6 4.45 7.9 1240 3853 4.46 7.9 5.39 4.67 2933 -1389 26.5

28.2 22.2 827 2388 7.3 7.41 10.2 1290 3913 7.41 10.2 9.00 6.74 4267 -2113 26.9

34.7 26.6 977 6.5 10.1 11.8 4095 10.14 11.6 10.78 8.67 4472 -1741 27.2

* Estimated. Source: International Monetary Fund (2008b) Republic of Uzbekistan: 2008 Article IV Consultation- Staff Report; IMF, Washington, D.C., July 2008.

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Table-1.2: Trends of External Debt in Uzbekistan in 1995-2005 (US$ Million, unless otherwise specified) Items 1995 2000 2001 2002 2003 2004 2005 Total Debt stock (EDT) Long term debt Public & guaranteed Private non-guaranteed Use of IMF credit Short-term debt Principal repayments Long term debt IMF purchases Interest payments (INT) Long term debt IMF charges Short term debt Total debt service paid (TDS) Long term debt IMF repurchases and charges Short term debt (interest only) Gross national income (GNI) Exp.of goods and services (XGS) Workers remittances Imp.of goods & services (MGS) International reserves (RES) Current account balance

1799 4618 4855 4776 5012 5007 4225.5 1430 4209 4274 4383 4748 4810 4189 1415 3764 3904 4003 4257 4302 3638.5 15 445 370 380 491 508 550.5 157 127 78 62 43 19 0 212 282 503 331 221 178 36.5 149 646 635 581 659 700 782.2 149 581 590 559 636 675 782.2 0 65 45 22 23 25 0 96 236 227 180 152 148 172 80 204 206 164 145 141 172 3 9 5 2 1 1 0 13 23 16 14 6 6 0 245 882 862 761 811 848 954.2 229 785 796 723 781 816 954.2 3 74 50 24 24 26 0 13 23 16 14 6 6 0 13316 13541 11196 9543 10012 11912 13946 3800 3400 3223 3020 3810 3890 5680 0 0 0 0 0 … … 3840 3198 3379 3023 3247 … … 1867 1273 1215 1400 1659 2146 2895 -21 216 -113 117 882 1215 1949 Debt Sustainability Indicators (in per cent) Items 1995 2000 2001 2002 2003 2004 2005 Total Debt stock (EDT)/ XGS 47.3 135.8 150.6 158.1 131.5 128.7 74.4 Long term debt/ XGS 37.6 123.8 132.6 145.1 124.6 123.7 73.8 Public & guaranteed/ XGS 37.2 110.7 121.1 132.5 111.7 110.6 64.1 Private non-guaranteed/ XGS 0.4 13.1 11.5 12.6 12.9 13.1 9.7 Use of IMF credit/ XGS 4.1 3.7 2.4 2.1 1.1 0.5 0.0 Short-term debt/ XGS 5.6 8.3 15.6 11.0 5.8 4.6 0.6 Total Debt stock (EDT)/ GNI 13.5 34.1 43.4 50.0 50.1 42.0 30.3 Long term debt/ GNI 10.7 31.1 38.2 45.9 47.4 40.4 30.0 Public & guaranteed/ GNI 10.6 27.8 34.9 41.9 42.5 36.1 26.1 Private non-guaranteed/ GNI 0.1 3.3 3.3 4.0 4.9 4.3 3.9 Use of IMF credit/ GNI 1.2 0.9 0.7 0.6 0.4 0.2 0.0 Short-term debt/ GNI 1.6 2.1 4.5 3.5 2.2 1.5 0.3 TDS/ XGS 6.4 25.9 26.7 25.2 21.3 21.8 16.8 INT/ XGS 2.5 6.9 7.0 6.0 4.0 3.8 3.0 INT/ GNI 0.7 1.7 2.0 1.9 1.5 1.2 1.2 Short-term/ Total debt 11.8 6.1 10.4 6.9 4.4 3.6 0.9 Concessional/ EDT 10.4 30.4 30.1 32.7 35.6 37.6 …. Multilateral/ Total debt 13.7 9.8 10.7 11.9 12.5 14.8 … Source: (1) World Bank, Global Development Finance 2006 for the years 1995-2004 and ADB for the year 2005.

Table 1.3A External Debt: Public and Publicly Guaranteed:

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Average Terms of Commitment Items Interest (% per annum) Maturity (years) Grace period (years) Grant element (%)

1995 5.7 15.5 4.3 24

2000 6.4 14.9 3.5 19.5

2002 3.0 22.7 6.7 47.4

2003 2.9 13.9 2.5 32.5

2004 2.1 26.3 6.4 57.5

2005 2.6 23.4 6.4 52.2

Table 1.3B External Debt: All Creditors: Average Terms of Commitment Items Interest (% per annum) Maturity (years) Grace period (years) Grant element (%)

1995 5.7 15.5 4.3 24

2000 6.4 14.9 3.5 19.3

2001 4.5 13.0 2.9 25.0

2002 3.0 22.7 6.7 47.4

2003 3.0 13.7 2.5 31.6

2004 2.1 26.2 6.4 57.2

Table 1.3C External Debt: Official Creditors: Average Terms of Commitment Items Interest (% per annum) Maturity (years) Grace period (years) Grant element (%)

1995 5.2 18.1 5.1 28.9

2000 6.0 17.9 4.4 24.0

2001 4.1 22.3 4.7 39.0

2002 3.0 26.5 7.9 53.2

2003 4.5 21.2 4.9 36.0

2004 1.9 28.6 6.9 61.4

Table 1.3D External Debt: Private Creditors: Average Terms of Commitments Items Interest (% per annum) Maturity (years) Grace period (years) Grant element (%)

1995 7.1 9.0 2.5 11.2

2000 7.3 6.4 1.4 7.5

2001 4.8 6.6 1.6 15.3

2002 3.1 7.5 2.0 23.6

2003 2.1 9.5 1.1 29.2

2004 3.2 7.7 2.2 24.5

Table 1.3E Currency Mix of External Debt (in percentage) Currency Euro Japanese Yen Pound Sterling Swiss Franc U.S. Dollars

1995 … 3.1 0.0 0.1 66.5

2000 … 21.2 0.0 0.0 56.7

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2001 16.0 20.7 0.0 0.0 57.6

2002 18.2 20.7 0.0 0.0 54.4

2003 20.7 21.1 0.0 0.0 49.6

2004 19.6 21.4 0.0 0.1 48.9

1.2 Debt Sustainability Analysis (DSA) by IMF Staff As a part of the Republic of Uzbekistan: 2008 Article IV Consultation, IMF Staff makes a Debt Sustainability Analysis (DSA) for Uzbekistan. The IMF concluded that the medium-term (2009-2013) outlook of the Uzbekistan external debt situation is favorable under both the baseline projections and the standard stress tests. The authorities have ambitious targets at 8–9 percent export-led GDP growth over the medium term, and believe that these growth rates are achievable through consolidating macroeconomic stability, modernizing various sectors, improving physical and social infrastructure, enhancing the role of the private sector, and attracting FDI. They expect the external current account to continue registering relatively large surpluses. The IMF team assessed that the recorded current account surplus should decline as external statistics improve through proper recording of the debit items. The IMF staff’s more conservative baseline scenario based on current policies assumes that GDP growth would slow down gradually to about 6 percent as export growth slows and the economy faces capacity constraints, and the current account surplus would decline gradually to 8 percent of GDP. Then the IMF staff makes the following standard “two Baseline Scenarios” and “six Bound Tests”: Baseline: A. Alternative Scenarios A1 = Key variables at their historical averages in 2008–132 A2 = New public sector loans on less favorable terms in 2008–133 B Bound Tests B1 = Real GDP growth at historical average minus one standard deviation in 2009–10 B2 = Export value growth at historical average minus one standard deviation in 2009-104 B3 = U.S. dollar GDP deflator at historical average minus one SD in 2009-10 B4 = Net non-debt creating flows at historical average minus one SD in 2009-105 B5 = Combination of B1-B4 using one-half standard deviation shocks B6 = One-time 30 percent nominal depreciation relative to the baseline in 20096 IMF staff concluded that under all scenarios and stress tests the external debt situation of Uzbekistan has low and declining external and public debt levels, and the debt outlook is 2

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), noninterest current account in percent of GDP, and nondebt creating flows. 3

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline, while grace and maturity periods are the same as in the baseline. 4

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 5 6

Includes official and private transfers and FDI. Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

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resilient to adverse shocks. Tables 7–10 from the IMF Report are reproduced here.

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10

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Limitations of the IMF Assessment However, IMF Study has the following limitations: (1) It makes stress tests for only public external debt and public debt, but it does not make sensitivity analysis for the private debt which has important impact on the economy’s financial and foreign exchange situation. The Asian financial crisis in the 1990s and the present global financial turmoil have originated not from the public debt rather from the private debt. (2) It does not make Strength, Weakness, Opportunities and Threats (SWOT) Analysis for the Uzbekistan economy, which has both direct and indirect impact on debt. A tentative SWOT analysis is made by the present author in Annex-3. (3) It does not deal with external sector related contingent liabilities, and domestic sector related off balance sheet and off budget risks of the government. (4) It does not make in-depth analysis of the Policies, Strategies, Systems, Techniques, Legal and Institutional Set Up for the management of external debt and public debt in Uzbekistan and a critical Evaluation of their Processes and Methods. The present report will make an attempt to fill these gaps on the basis of desk study as well as field surveys through interviews and designed questionnaires for all the stakeholders of public debt and external debt. 1.3 Legal framework for External Debt Management in Uzbekistan As per government’s business rules and procedures, Ministry of Finance is in charge of evaluation of projects being financed by external aid. It is also in charge of government borrowing from external sources and making payment of interest charges and repayment of principal. Normative - legal framework of activity Regulations of the Ministry of Finance of the Republic of Uzbekistan have been approved by the Resolutions of the Cabinet of Ministers "On Approval of the Regulations of the Ministry of Finance of the Republic of Uzbekistan" №533 dated Nov 23, 1992. The organizational structure of the Ministry has been approved by the Resolutions of the Cabinet of Ministers "On organizational structure of the Ministry of Finance of the Republic of Uzbekistan" № 59 dated February 11, 1992 According to the assigned tasks the Ministry of Finance within its competence given by legislation performs the following main functions relating to management of external debt: “In the framework of state debt management together with the Central Bank carries out monitoring, counting and servicing of internal debt of the Republic of Uzbekistan, submits suggestions to the Cabinet of Ministers of the Republic of Uzbekistan about improvement of the structure of government debt, acts as a government securities issuer, develops and approves legislative acts for securities issuance, manages external debt,

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develops top parameters of government external loans, prepares and submits guarantees of the Government of the Republic of Uzbekistan, organizes fulfillment of loan and other contract obligations to external creditors, carries out records and control over use and servicing of foreign credits attracted or guaranteed by the Republic of Uzbekistan.” 1.4 Terms of Reference (TOR) for the Study In the light of above discussions, the present study will have the following objectives: 1.

To study the external debt recording and analysis system; and quality and coverage of external debt statistics;

2.

To study the trends of stock and composition of external debt, key external debt sustainability indicators, currency-maturity-interest mix of external debt, creditor-wise and borrower-wise classification of external debt;

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To review Debt Management Policies, Strategies, Processes, Legal Framework, and Institutional Arrangements,

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To make a Debt Sustainability Analysis (DSA) of external debt as per joint guidelines by the World Bank and IMF;

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To study the risk management framework, policies, strategic benchmarks and institutional set up;

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To study the sovereign external debt management and the contingent liabilities relating to external debt;

7.

To recommend and suggest best practices for the following: a) Debt recording, analysis and debt statistics; b) Management of external debt and public debt; c) Institutional and operational framework; d) Legal and regulatory framework; e) Monitoring and evaluation of external debt, public debt and contingent liabilities; f) Risk management modeling and stress test; g) Monitoring debt indicators for debt sustainability analysis; h) Possibilities of debt restructuring or debt relief;

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2. Basic Concepts of External Debt 2. Conceptual Issues Relating to External Debt Debt sustainability basically implies the ability of a country to service all debts – internal and external on both public and private accounts- on a continuous basis without affecting adversely its prospects for growth and overall economic development. It is linked to the credit rating and the creditworthiness of a country. However, there is no simple answer to the question- what should be the sustainable or optimal level of debt for a country? Before discussing various measures for sustainable debt management, it is useful to clarify certain basic concepts regarding measurement of external debt. 2.1 Definition of external debt The Guide on external debt statistics jointly produced by the Bank for International Settlements (BIS), Commonwealth Secretariat (CS), Eurostat, International Monetary Fund (IMF), Organization for Economic Co-operation and Development (OECD), Paris Club Secretariat, United Nations Conference on Trade and Development (UNCTAD) and the World Bank and published by the IMF (2003) defines “Gross external debt, at any time, as the amount of disbursed and outstanding contractual liabilities of residents of a country to non-residents to repay the principal with or without interest, or to pay interest with or without principal”. This definition is crucial for collection of data and analysis of external debt: 1. First, it talks of gross external debt, which is directly related to the problem of debt service, and not net debt. 2. Second, for a liability to be included in external debt it must exist and must be outstanding. It takes into account the part of the loan, which has been disbursed and remains outstanding, and does not consider the sanctioned debt, which is yet to be disbursed, or the part of the debt, which has already been repaid. 3. Third, it links debt with contractual agreements and thereby excludes equity participation by the non-residents, which does not contain any liability to make specified payments. 4. Fourth, the concept of “residence” rather than “nationality” is used to define a debt transaction hereby excluding debt transaction between foreign-owned and domestic entity within the geographical boundary of an economy. Besides, while borrowing of overseas branches of domestic entities including banks would be excluded from external debt, borrowing from such overseas branches by domestic entities would b included as part of external debt. 5. Fifth, it talks of contractual agreements, and excludes contingent liabilities. For a liability to be included in external debt, it must exist at present and must have contractual agreement. 6. Finally, the words “principal with or without interest” include interest free loans as these involve contractual repayment liabilities, and the words “interest with or

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without principal” include loans with infinite maturity such as recently popular perpetual bonds as these have contractual interest payments liabilities. Three other concepts- one relating to interest payments, another relating to currency and another relating to short-term debt need some clarification. While calculating interest, in general an accrual method rather than the actual cash-flow method is used. As regards currency, debt is made in different currencies and it is a common practice to convert all debt in a single foreign currency, say US dollar, and also in domestic currency. In some cases, debt from non-residents could be denominated in terms of domestic currency. As per definition of external debt, such debt should form a part of external debt, even though it may not be fully convertible. In general, short-term debt is defined as debt having original maturity of less than one year. However, Southeast Asian crisis highlighted the necessity to monitor debt by residual maturity. Short-term debt by residual maturity comprises all outstanding debt having residual maturity of less than one year, irrespective of the length of the original maturity. Residual maturity concept is distinctly superior to original maturity concept. 2.2 Debt Sustainability and Fiscal Deficit External public debt is sustainable when debt services (repayment of principal plus interest payments) can be paid without resort to exceptional financing (such as debt relief) or debt restructuring or a major correction in the balance of income and expenditures. Debt-servicing problems in low-income countries arise when the costs of servicing public debt become very high, and official creditors (such as international financial institutions or governments, and donors) do not to provide sufficient new financing in terms of loans or grants for financing a country’s primary deficit. Although external official debt is the dominant source of financing, domestic debt is equally important for a developing country. In general, interest rates on domestic debt are very high in low-income countries and maturities tend to be short, exposing a country to significant roll-over and liquidity risks. Unlike external debt, which is mostly concessional, domestic debt is usually issued at market rates. This implies that costs of servicing domestic debt depend on overall macroeconomic environment and fiscal situation of a country. Debt sustainability is closely related to the fiscal deficit, particularly to the primary deficit (i.e. fiscal deficit less interest payments). Sustainability requires that there should be a surplus on primary account. It also requires that the real economic growth should be higher than the real interest rate. Countries with high primary deficit, low growth and high real interest rates are likely to fall into debt trap.

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2.3 Debt Sustainability and Current Account Deficit A current account deficit occurs if imports of goods and services (excluding interest payments) exceed exports of goods and service plus net transfers. It is often the most important factor that leads to a rise in external debt. A persistent negative current account balance is likely to indicate that a country may face an increase in its probability of debt distress. The standard textbook two-gap theory on the Balance of Payments also states that high fiscal deficit spills over current account deficit of the balance of payments. Thus persistent and high levels of current account deficit is an indication of the balance of payments crisis and needs to be tackled by encouraging exports and non-debt creating financial inflows. 2.4 Liquidity versus Solvency One important conceptual issue relates to the distinction between debt service problems due to liquidity crunch and those due to insolvency. These concepts are borrowed from the financial analysis of corporate bodies, but there are distinctions between firms and countries (Raj Kumar 1999). If a firm has positive net worth but faces difficulty to meet the obligations of debt service, it is considered to be solvent but to have liquidity problem. When it has negative net worth, it is insolvent. There is difficulty to apply these concepts to a country, as it is difficult to value all the assets of a country such as natural resources, wild life, antics in museum, heritage buildings and monuments. Besides, firms can disappear due to insolvency problems, but a country cannot become bankrupt nor disappear nor are overtaken or merged purely on account of financial problems. So we need to consider medium and long term prospects of a country in terms of growth and balance of payments. 2.5 Debt Sustainability Measurements There are broadly two approaches to determine debt sustainability of a country. One is to develop a comprehensive macroeconomic model for the medium term particularly emphasizing fiscal and balance of payments problems, and another is to assess various risks associated with debt and to monitor various debt sustainability indicators over time. These indicators express outstanding external debt and debt services as a percentage of gross domestic product or other variables indicating the strength of the economy. Some commonly used debt sustainability indicators are given in Table-2.1 2.6 World Bank Classification of External debt On the basis of ratio of PV to GNI and PV to XGS (exports of goods and services), the World Bank in their report on Global Development Finance 2005 has classified countries into three categories viz. low indebted, moderately indebted, and severely indebted countries as indicated in Table-2.2. While PV takes into account all debt servicing obligations over the life span of debt, GNI indicates country’s total potentials and XGS

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indicates foreign exchange earnings reflecting debt-servicing ability. Countries are also classified into low and middle income depending on the level of per capita income. Purpose 1. Solvency ratios

2. Liquidity monitoring ratios

3. Debt burden ratio

4. Debt structure indicators 5. Public sector indicators

6. Financial sector indicators

7. Corporate sector indicators

Table-2.1: Debt Sustainability Indicators Indicators (a) Interest service ratio – the ratio of interest payments to exports of goods and services (XGS). (b) External debt to GDP or XGS or Revenue ratio (c) Present value of debt services to GDP or XGS ratio (d) Basic debt service ratio- Ratio of total debt services (interest payments plus repayments of principal) to XGS (e) Cash-flow ratio for total debt or the total debt service ratio (i.e. the ratio of total debt services to XGS) (f) Interest payments to reserves ratio. (g) Ratio of short-term debt to total debt or XGS or foreign exchange reserves (h) Import cover ratio- Ratio of total imports to total foreign exchange reserves. (i) Total external debt to GDP or GNP or XGS ratio (j) Debt services to GDP (or GNP) ratio (k) Total public debt to budget revenue ratio (l) Ratio of concessional debt to total debt (m) Rollover ratio- ratio of amortization (i.e. repayments of principal) to total disbursements (n) Ratio of interest payments to total debt services (o) Ratio of short-term debt to total debt (p) Ratio of public sector debt to total external debt or GDP (q) Public sector debt services to XGS ratio (r) Public sector debt to government revenue ratio (s) Average maturity of non-concessional debt (t) Foreign currency debt over total debt (u) Open foreign exchange position- Foreign currency assets minus liabilities plus long term position in foreign currency stemming from off-balance sheet transactions (v) Foreign currency maturity mismatch (w) Ratio of foreign currency loans for real estate to total credits given by the commercial banks (x) External sector related contingent liabilities (y) Trends of share market prices (z) GDRs and Foreign Currency Convertible Bonds issued (aa) Inflows of FDI and portfolio investment (bb) Leverage (debt/ equity ratio)- Ratio of debt to equity (cc) Interest to cash flow ratio (dd) Short-term debt to total debt (ee) Return on assets (ff) Exports to total output ratio

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(gg) Net foreign currency cash flow (hh) Net foreign currency debt over equity 8. Dynamic ratios (ii) Average interest rate/ growth rate of exports (jj) Average interest rate/ growth rate of GDP (kk) Average interest rate/ growth rate of revenue (ll) Change of PV of debt service/ change of exports (mm) Change of PV of debt service/ change of GDP (nn) Change of PV of debt service/ change of revenue Source: Tarun Das (2006a) and IMF (2003) Table-2.2 Cross classification of countries by income level and indebtedness Severely Indebted Either PV/XGS > 220% Or PV/GNP > 80%

Moderately Indebted Either 132%
Less Indebted Both PV/XGS<132% and PV/GNP<48%

Low income: GNI per capita less than US$765

Severely Indebted Low income (SILI)

Moderately Indebted Low income (MILI)

Less Indebted Low income (LILI)

Middle income: GNI per capita between US$766 and US$9,385

Severely Indebted Middle income (SIMI)

Moderately Indebted Middle income (MIMI)

Less Indebted Middle income (LIMI)

Indebtedness → Income Level ↓

2.7 Stress Tests, Debt Distress and Indicative Debt Service Thresholds Stress tests are closely related to the debt sustainability indicators and are useful in identifying major liquidity risks, as well as strategies to mitigate them. Stress tests can be used to test a variety of scenarios such as the following: (a) (b) (c) (d) (e) (f)

Types of capital inflows (FDI, trade credit, other credits) Periods of access to capital markets Exchange rate changes/ derivative positions Risks due to price and interest rate changes Macroeconomic uncertainties (such as outlook for exports and imports) Policy uncertainties (fiscal and monetary policies) (a) Standard Stress Tests (a) (b) (c) (d) (e) (f)

Revenue growth = Baseline GR – 1 SD Export value growth = Baseline GR – 1 SD Assets value growth = Baseline GR – 1 SD Inflation rate = Baseline Rate + 1 SD Net non-debt creating flows = Baseline Inflows – 1 SD One-time major nominal or real exchange rate depreciation = Baseline + ½ SD

where GR stands for growth rate and SD for standard deviation.

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(b) Indications of debt distress episodes

Debt distress is indicated by recourse to any of the following forms of exceptional finance: (a) Arrears: Number of years in which principal and interest arrears to all creditors is in excess of 5% of total debt outstanding (b) Debt rescheduling: Year of initial debt restructuring plus two subsequent years (c) Bailout by financial institutes / lenders (d) Normal times are non-overlapping periods of five years in which no signs of above mentioned debt distress are observed. (c) Determinants of debt distress • Traditional Debt Sustainability Indicators include the following: – Present value of debt/exports ratio – Present value of debt/revenues ratio – Present value of debt/assets ratio – Debt service/exports ratio – Debt service/revenues ratio – Debt service/assets ratio • Shocks can arise as significant fall or volatility of the following: – Real revenue growth – Real depreciations – Assets value growth (d) Quality of institutions and policies 1. There could be substantial value-added in looking at the role of organizational quality, good governance, policies and shocks in addition to traditional debt burden indicators when assessing probability of debt distress. 2. Using a common debt-burden threshold to assess sustainability for all companies is unlikely to be appropriate. 3. There is a strong tradeoffs between quality of institutions, policies, systems of auditing and sustainable level of debt. (e) Indicative Debt and Debt-Service Thresholds (%)

To assess debt sustainability, debt burden indicators are compared to indicative debtburden thresholds. If a debt-burden indicator exceeds its indicative threshold, then a country is at a higher probability of debt distress. The basic assumption is that a country with a high debt service burden relative to its repayment capacity is more likely to run into debt-servicing difficulties. As per joint Fund-Bank empirical studies (IMF 2006) low-income countries with weaker policies and institutions tend to face debt-servicing problems at lower levels of debt than countries with sound fundamentals and strong institutions, because governments with weak institutions and inadequate macroeconomic policies tend to misuse and mismanage public funds. These countries are also more 21

vulnerable to exogenous shocks, such as declines in the international prices of the major exports or a natural disaster at home, since they lack adequate preemptive measures for disaster management and mitigation. Thus, the indicative debt-burden thresholds8 depend on a country’s quality of policies and institutions, measured by the Country Policy and Institutional Assessment (CPIA) index of the World Bank (see Table 2.3). The CPIA grades countries according to their economic management, structural and social policies as well as public sector management and institutions. The index is updated annually. Table 2.3 Indicative Thresholds for Debt Sustainability Indicators (in percent) Indicators

Quality of Debt Management Policies and Institutions Poor

Medium

Strong

NPV debt/GDP ratio (%) NPV debt/XGS ratio (%)

30 100

44 150

50 200

NPV debt/Revenue ratio (%) Debt service/XGS ratio (%) Debt service/Revenue ratio (%)

200 15 25

250 20 30

300 25 35

Source: IMF (2006) For example, if the policy regime and institutions of a country is assessed as “Poor” by the World Bank CPIA, then the debt service to exports ratio for this country should be kept below 15 percent. If debt service ratio exceeds 15 percent, the country would face problems for servicing debt. If the policy regime of a country is considered to be “Medium”, the country can have debt service ratio up to 20 percent. If the policy regime for a country is assessed as “Strong”, the country’s debt/service ratio can go up to 25 per cent. Other indicators have similar interpretations. However, IMF concludes that the indicative debt burden thresholds are indicative

benchmarks for making a debt sustainability assessment based on a forward-looking analysis of debt and debt-service trends, and not intended to be rigid ceilings. In a similar vein, it is neither expected nor suggested, that countries with low debt ratios borrow up to their thresholds. (f) Debt Distress Classifications

A country faces an episode of debt distress if it cannot service its debt without resort to exceptional financing (such as debt relief) or a major future correction in the balance of income and expenditures. The joint WB/IMF DSA framework classifies countries according to their probability of debt distress into four broad categories:

(1) Low risk

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All debt indicators are well below the relevant indicative debt burden thresholds. Alternative scenarios and stress tests do not result in indicators breaching thresholds in any significant way. (2) Moderate risk The baseline scenario does not indicate a breach of thresholds. Alternative scenarios and stress tests show a substantial rise in the debt-service ratio over the projection period. As a consequence, the debt-service ratio may reach its indicative threshold, while debt-stock ratios may breach them. (3) High risk The baseline scenario indicates a breach of debt stock and/or service ratios over the projection period. This is exacerbated by the alternative scenarios/stress tests. (4) In debt distress Current debt stock and service ratios are in significant and/or sustained breach of thresholds. 2.8 Policy framework and Institutional Set up for External Debt Management International experiences and practices of management of external debt, public debt and associated contingent liabilities by leading public debt offices bear many valuable lessons for developing countries in the process of strengthening their debt management capacity. Many countries - mainly advanced and some emerging market economies - have set up integrated public debt offices and are successfully managing their sovereign debts. In most countries where debt offices have been set up, there is clear evidence of moving towards fiscal consolidation. There has also been a significant change since late 1980s in the institutional structure, the role and style of functions of public debt management towards risk management. This has been enabled by institutionalization of the debt office with an in-house risk management culture, as a specialized institution, staffed with professionals and market specialists. The role of such debt offices, in many instances, gradually transformed into treasury operations on the lines of those performed by investment banks, corporate houses and foreign exchange management by central banks. Within the debt office, middle office emerges as the risk manager, which formulates and advises on the debt management strategy and also develops benchmarks for assessing the risk-cost trade off of the portfolio. The primary requirement for a debt office is to bring the size of public debt at sustainable levels. Without sustainability of debt, risk management would not have much impact towards insulating the debt portfolio from systemic risks. The main risks that need to be managed for the sovereign debt portfolio are foreign currency risk, interest rate risk, credit risk, liquidity risk, refinancing risk, operational risk and payments and settlement 23

risk. Many debt offices have addressed management of market risks like currency and interest rate risk by establishing a risk management framework for the sovereign debt in an asset-liability management framework. A prudential risk management framework is essential for reducing uncertainty among sovereign debt managers as to the government’s tolerance for risk, its willingness to trade off cost and risk objectives. Once the risks are identified, risks and costs for alternative debt strategies are measured in a scenario-based model under a base case scenario and different market rate scenarios; or in a simulation-based model under value-at-risk, costat-risk or budget-at-risk approach. The government then chooses the strategy that best represents the government’s preferences for managing the risk/cost trade-off, and generally tends to choose a policy framework along an efficient frontier, which entails minimum risk. The debt managers may also use various derivatives such as buyback operations, currency and interest swaps and other hedging activities. The institutional structure for public debt management, world wide, could be broadly characterized into two categories – setting up of a centralized public debt office and scattered debt management responsibilities. The former category of a centralized debt office, which has been the showcase for countries currently strengthening their debt management capacity, is mainly found in advanced countries and a few emerging market economies. For these countries, there has been a preference to locate the debt office as a separate entity under the Ministry of Finance or within the mainstream Ministry. There are also some instances of locating the debt office outside the Ministry as an autonomous agency, but with a Memorandum of Understanding (MOU) signed between the Ministry of Finance and the Public Debt Office. This institutional mechanism is usually, safeguarded, by public debt legislation or legal statutes. The second category of institutional structure reflects dispersed debt management responsibility, either within the Ministry of Finance (for most emerging market economies) or scattered between the Ministry of Finance (responsible for external public debt management) and the central bank (responsible for the internal public debt management). A World Bank survey of about 50 developing economies showed that in about 11 per cent of these countries, central bank manages domestic debt. Some of the emerging market economies, with dispersed debt management responsibilities between the Ministry of Finance and the central bank (Hungary, Colombia, and South Africa) have already separated debt management responsibility from their central banks. Moreover, some emerging market economies with debt management responsibility within the Ministry of Finance (China, India, Thailand, South Korea, Brazil, and Mexico) have set up a middle office under the Ministry of Finance as a first step towards strengthening their debt management capacity. Although, independent set-up for the Public Debt Office and the Ministry of Finance are regarded as somewhat separate watertight compartments for locating the debt office, in reality, however, there is a very thin dividing line between the two. The Ministry of Finance always exercises some measure of control over the operations of the debt office, irrespective of its location. This is unavoidable because it is the liability of the

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Government that is to be managed by the debt office. Therefore, even among the most independent set-ups like National Treasury Management Agency of Ireland and the Swedish National Debt Office which are entrusted with day-to-day management responsibilities, the Ministry of Finance determines the policy, sets the operational guidelines and the benchmarks under which the debt office is required to operate. Governance issues promoting sound and professional approach towards debt management, required debt offices to clearly define and disclose its objectives for debt management, establishing an organizational structure that ensures clear accountability and transparency of responsibilities with appropriate internal controls, and establishment of a legal framework wherever possible. For enabling sound risk management practices, most debt offices established prudent risk management strategy and policy, strengthened middle office analytical capability, and defined a framework for risk management ensuring consistency with other macroeconomic policies and objectives. Debt offices also accorded priority to recruitment of trained staff, and selection and implementation of effective management information systems. 2.9 Capability Building for Management of Public Debt and Contingent Liability Continual upgrading of the information and communications technology (ICT) and the professionals engaged in the management of public debt and contingent liabilities is essential for maintaining debt sustainability over time. Once the public debt management responsibility is centralized and a computerized debt recording system functions efficiently, the main challenge is to develop a risk management office (or middle office). Building a sound risk management capability within a sovereign debt management operation can take several years given the experiences of even the developed countries like Belgium, Colombia, Ireland, New Zealand and Sweden. However, there is no uniform model which holds good for all countries and at all times. The system needs to be country-specific and owned by the respective government and cannot be imported directly from other countries. Given that risk management skills are a scarce resource and training staff in this area is very expensive, a strategy needs to be developed to hire new staff with these skills and to have an intensive training program for existing staff. Appropriate wage-income policies and succession plan also need to be formulated to retain these staff given their obvious marketability or to replace a staff in the case of need. The manager or the head of the middle office should also have strong technical and public policy skills. A decision on whether to introduce specialist risk management software should be deferred until risk management skills and a sound technical knowledge have been built up within the debt offices. Rushing into these decisions may lead to the establishment of a risk management framework without full understanding of the alternative strategies or an understanding of how the designated software actually works. There is also the question of compatibility of this software with the management information systems. 2.10 International Best Practices for Policy Framework and Institutional Set Up

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for External Debt Management As regards policy framework, international best practices for the management of external debt leads to the following broad conclusions: (a) Management of external debt is closely related to the management of domestic debt, which in turn depends on the management of overall fiscal deficit. (b) Debt management strategy is an integral part of the wider macro economic policies that act as the first line of defense against any external financial shocks. So debt management policies need to be well coordinated with fiscal policies, monetary policies, financial and capital market policies and overall macroeconomic policies. (c) As regards institutional set up, nearly all of the autonomous debt management offices have adopted an organizational structure similar to that in leading corporate treasury and investment banks. They divide functional responsibilities for managing transactions into different offices within the debt management organization and established procedures to ensure internal control, accountability, checks and balances. Usual practice is to establish separate front offices, middle office, back office and head office, as explained earlier. (d) International best practices also indicate that debt management offices generally form a part of the Ministry of Finance, although the management of external assistance from the IMF is the joint responsibility of the Ministry of Finance and the Central Bank. A few developed countries have set up independent debt offices outside the Ministry of Finance for management of both domestic and external debt. However, a developing country will need a number of years before migrating to such an independent system.

(e) Almost all the developing countries donot allow sub-national governments (states, provinces, corporations, municipalities etc.) to borrow directly from external sources, although public sector enterprises are allowed to borrow directly from external sources, preferably without government guarantees. (g) (f) There is need to have a cautious approach on external short-term credit. In many developing countries, like India, government does not resort to any short term borrowing from external sources, although the public sector enterprises and the private sector companies are allowed to borrow short-term credit externally subject to certain conditions and prudential limits. (g) For an emerging economy like Uzbekistan, it is better to put a limit on private commercial borrowing with short and medium maturity.

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(h) (h) Big bullet loans are bad for small economies like Uzbekistan as these can create refinancing risk and roll over problems in future. (i) It is not enough to manage the government balance sheet well, it is also necessary to monitor and make an integrated assessment of national balance sheet and to put more attention on surveillance of overall debt- both internal and external, private and public. During the last financial and foreign exchange crisis towards the end of the last decade, in each of the major Asian crisis economies, viz. Indonesia, Korea and Thailand, weakness in the government balance sheet was not the source of vulnerability, rather vulnerability stemmed from the un-hedged sortterm foreign currency debt of the private sector comprising commercial banks, finance companies and corporate sector. (j) It is not sufficient to manage the balance sheet exposures, it is equally important to manage off-balance sheet exposures and contingent liabilities. (k) (l) It is necessary to adopt suitable policies for enhancing exports and other current account receipts (tourism earnings and remittances) that provide natural hedge and the means for financing imports and debt services. (l) (m)Detailed data recording and dissemination are pre-requisites for an effective management and monitoring of external debt and formulation of appropriate debt management policies. (m)It is vital that external contingent liabilities and short-term debt are kept within prudential limits. (n) It is important to strengthen public and corporate governance and enhance transparency and accountability by strengthening internal and external audit. (o) It is also necessary to strengthen the legal, regulatory and institutional set up for management of both internal and external debt. (p) A sound financial system with well developed debt, money and capital markets is an integral part of a country’s debt management strategy.

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3. Uzbekistan- Current Economic Performance and Outlook7 3.1 Economic Performance and Poverty Uzbekistan economy is currently in a resilient and rebound mood. Economy performed very well since 2004 benefiting from favorable external environment and improved policy framework. Uzbekistan suffered less economic shock from the dissolution of the Soviet Union than did most other former Soviet republics because it avoided hasty liberalization of the economy, and relied on an import-substitution trade regime that prevented the collapse of domestic agriculture and manufacturing, which was a widespread occurrence in other former Soviet Republics. It produces large amounts of cotton and gold, and commodities of value on world markets. There was also an exchange rate regime which complemented the regulation of trade regime and minimized capital flight. The country achieved an average growth rate of nearly 8 per cent during 4 years 20042007 with peak at 9.5 per cent recorded in 2007 (Table 3.2), compared to an average growth rate of only 4.2 percent during 1999-2003. The increased productions and exports boom of cotton, automobiles, gas, and metals served as the main drivers of growth supported by favorable weather conditions and high world prices of cotton and metals. Uzbekistan economy usually does well when the weather conditions are favorable and international commodity markets are buoyant. Higher growth coupled with a sharp decline in the population growth rate from 2% in the 1996-99 to 1.2% in 2000-07, led to an increase of annual per capita GDP growth, from 2% in the late 1990s to 6% in 2004-06 and 8% in 2007. Despite high economic growth, employment generation and private consumption lagged behind and the incidence of poverty remained wide-spread, as poverty ratio had been relatively growth-inelastic. This implies that the so-called trickle down effects of high growth have been uneven, slow and delayed in the case of Uzbekistan. A study made by Mckinley and Weeks (2007) concluded that, although the growth performance of Uzbekistan in the post-independent era was better than for similar former Soviet Union Republics (Table 3.1), there are untapped potentials for achieving faster trend growth rates, and if more broadly based, such growth could bring dramatic gains in employment and poverty reduction. Table 3.1: Comparative Economic Performance of Uzbekistan, Annual GDP Growth (%)

Countries 1991-1994 Central Europe -3.3 Baltic states -11.7 Other Soviet Republics -15.4 Uzbekistan -6.8 Source: Mckinley and Weeks (2007) 7

1995-1999 3.2 4.8 0.2 1.1

2000-2006 4.5 8.0 9.2 5.1

1991-2006 2.1 2.1 0.3 0.9

This section is primarily based on (a) the Uzbekistan Country Brief 2008 prepared by the World Bank (July 2008); (b) the ADB Country Report on Uzbekistan prepared by Iskandar Gulamov and Kiyoshi Taniguchi of the Uzbekistan Resident Mission, ADB, Tashkent, for the real sectors; and (c) International Monetary Fund (2008b) Republic of Uzbekistan: 2008 Article IV Consultation- Staff Report; IMF, Washington, D.C., July 2008, for the financial and external sectors.

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Table 3.2 Uzbekistan: Trends of Selected Economic Indicators in 2002-2007 Economic Indicators Growth rate of Real GDP (percent) Growth rate of Nominal GDP (percent) CPI inflation rate (%) official estimate CPI inflation rate (percent) IMF estimate Growth rate of reserve money (%) Growth rate of broad money supply (%) Growth rate of net foreign assets (%) Growth rate of net domestic assets (%) Growth rate of net claims on govt (%) Growth rate of credits to the economy (%) Growth rate of exports of G&S (%) Growth rate of imports of G&S (%) As percentage of GDP at current mp Revenue and grants (as % of GDP) Expenditure and net lending (% of GDP) Overall budget balance as % of GDP Augmented budget balance as % of GDP Total Public debt as % of GDP Public External Debt as % of GDP Exports of goods & services as % of GDP Imports of goods & services as % of GDP Current account balance as % of GDP FDI as % of GDP External debt (as % of GDP) Ext. debt service (as % of exports of G&S) Ext. debt service (as % of FE reserves) Memo Items: GDP in sum trillion GDP in US$ billion Nominal GDP per capita (US$) Nominal GDP per capita (US$ PPP) Income velocity of money supply (level) Foreign exchange reserves (US$ Bln) Forgn. Exch. Reserves (Months of imports) End-period Exchange rate (UZ Sums/US$) External debt outstanding (US$ million) Year-End foreign exch. reserves (US$ bln) Foreign exch. reserves (months of imports) Exports of goods & services (US$ billion) Imports of goods & Services (US$ billion) External CAB (US$ Million) External capital balance (US$ Million) Population (million)

2003 4.2 32.0 3.7 7.8 26.7 27.1 45.6 -87.8 -1509 6.9 28.4 8.9

2004 7.7 24.6 3.8 9.1 38.7 47.8 48.8 -50.5 -114 10.8 28.1 26.8

2005 7.0 29.9 7.8 12.3 87.5 54.3 44.0 -28.4 -87.0 15.8 12.0 4.4

2006 7.3 30.4 6.8 11.4 36.5 36.8 76.3 -148 -145 4.3 18.0 13.8

2007 9.5 35.8 6.9 11.9 44.9 46.1 67.4 -88.7 -78.9 16.7 40.7 44.3

2008* 8.0 23.1 6-8 11.0 28.4 32.4 35.8 -38.4 -56.8 30.8 22.1 28.9

33.4 33.9 0.1 0.1 41.6 38.7 37.3 30.6 8.7 0.7 42.0 20.5 49.7

32.2 32.1 0.6 0.6 35.1 32.0 40.5 32.9 10.2 1.6 36.2 17.1 35.6

30.8 31.1 1.2 1.2 28.2 25.2 38.1 28.9 13.7 0.6 29.1 14.1 28.0

31.4 30.9 2.2 5.2 21.3 19.8 37.6 27.5 17.3 1.1 22.7 12.7 17.3

31.7 30.2 2.1 5.1 15.8 14.7 40.4 30.3 19.2 3.3 17.6 8.6 11.3

30.6 31.1 -0.4 5.0 13.5 12.5 41.3 32.7 16.6 3.5 15.4 7.6 8.1

9.8 10.1 396 1654 10.5 1.66 5.1 979 4249 1.66 5.1 3.78 3.10 861 -414 25.6

12.3 11.9 462 1808 9.5 2.15 6.3 1058 4322 2.15 6.3 4.84 3.93 1215 -702 25.9

15.9 14.2 543 1970 8.4 2.90 7.4 1180 4133 2.90 7.4 5.42 4.10 1949 -1191 26.2

20.8 17.0 641 2154 7.6 4.45 7.9 1240 3853 4.46 7.9 5.39 4.67 2933 -1389 26.5

28.2 22.2 827 2388 7.3 7.41 10.2 1290 3913 7.41 10.2 9.00 6.74 4267 -2113 26.9

34.7 26.6 977 6.5 10.1 11.8 4095 10.14 11.6 10.78 8.67 4472 -1741 27.2

* Estimated. Source: International Monetary Fund (2008b) Republic of Uzbekistan: 2008 Article IV Consultation- Staff Report; IMF, Washington, D.C., July 2008.

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National poverty ratio (defined as percentage of persons consuming less than 2,100 kilocalories per day) declined by only 1.7 percentage points from 27.5% in 2001 to 25.8% in 2005 (Table 3.3). Poverty reduction was uneven in rural and urban areas. While urban poverty ratio declined from 22.5% in 2001 to 18.3% in 2005, rural poverty ratio remains more or less invariant around 30 percent over the same period. Consequently, the difference between the poverty ratio in urban and rural areas grew from 8% in 2001 to almost 12% in 2005. The rural population makes up 64.4% of the total population but the proportion of the disadvantaged population living in rural areas is 74.7%. This geographic distribution of the disadvantaged population highlights the large differentiation in poverty rates between the regions as well as the fundamental difference between Tashkent city and other regions of the country. The highest poverty rate in 2005 was in Karakalpakstan (44%) and the lowest one was in Tashkent city (6.7%), with the second lowest being Ferghana oblast (15.8%) (Table 3.4). Sectors Total Urban Rural

Table 3.3 Poverty rate (2001– 2005), in % 2001 2002 2003 2004 27.5 26.5 27.2 26.1 22.5 21.8 22.0 18.8 30.5 29.4 28.7 30.3

2005 25.8 18.3 30.0

Source: Family Budget Survey (2001) as reported in IMF PRSP for Uzbekistan (2008)

Table 3.4 Geographic Distribution of Poverty in 2005 (in percent) Territory/ oblast Poverty ratio Total population Disadvantaged population (%) Total 25.8 100 100 Urban 18.3 35.6 25.3 Rural 30.0 64.4 74.7 Karakalpaktan 44.0 5.1 8.7 Andijan 23.1 9.5 8.5 Bukhara 20.8 6.4 5.1 Jizzakh 29.6 3.7 4.3 Kashkadarya 41.0 8.5 13.5 Navoi 26.3 2.9 3.0 Namangan 33.4 7.9 10.2 Samakand 23.9 11.2 10.4 Surkhandarya 34.6 7.3 9.8 Syrdarya 32.6 2.4 3.0 Tashkent oblast 20.4 10.1 8.0 Ferghana 15.8 11.6 7.1 Khorezm 31.0 5.1 6.1 Tashkent city 6.7 8.2 2.1 Source: State Statistics Committee, as reported in IMF PRSP (2008)

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As judged by the World Bank’s poverty line of 2 USD per day, around 45% of the Uzbek population lived on less than 2 USD per day. Income inequality as judged by Gini coefficient also remained high at 36.8 percent in 2003. The share of the lowest 10 percent of the households in income or consumption was only 2.8%, while that of the highest 10% of the households was 29.6%. As in many developing states, the most vulnerable groups in terms of poverty are rural inhabitants, families with many children, the disabled, the unemployed, people with lower level of education and households with women breadwinners. A common characteristic of poor families is that the head of household is unemployed and they have many children. Even employment does not always guarantee protection from poverty, as 50% of the poor families have an employed household head. However, being unemployed sharply increases the potential for poverty. A recent survey further revealed that “income-poor” in Uzbekistan can be “asset rich”. For example, over 98 per cent of the population owns a house or flat, 86 per cent have plots of land, 87 per cent have a TV set, 38 per cent have a refrigerator and 12 per cent have a car. Despite sustained high growth since 2004, Uzbekistan’s economy is underperforming compared with other CIS economies. It is still the poorest country in the region, with GDP per capita (at PPP) at only 40% of the CIS average. Its economic potential remains significantly underutilized. Although geographic limitations (a large distance to major markets) could provide a part of the explanation, major constrains for faster poverty reduction and employment generation include lack of appropriate policies for the private sector development. 3.2 Uzbekistan Economic Freedom Indices: The Heritage Foundation Uzbekistan's economy is 52.3 percent free, according to Heritage Foundation 2008 assessment, which makes it the world's 130th freest economy. Uzbekistan is ranked 24th out of 30 countries in the Asia–Pacific region, and its overall score is lower than the regional average. Uzbekistan has relatively high levels of fiscal freedom (88%), business freedom (67.8%), and labor freedom (72.1%). The top personal income tax rate is moderate, the top corporate tax rate is low, and overall tax revenue equals little more than 20 percent of GDP. The labor market is flexible. Licensing and bankruptcy procedures are costly, but opening a business is easy, and the average tariff rate is moderate. Uzbekistan is weaker in monetary freedom (57.5%), investment freedom (30%), financial freedom (20%), property rights (30%), and freedom from corruption (21%). Inflation is disastrous, and the government controls the prices of a variety of goods through state monopolies. Foreign investment is officially welcome, but opaque bureaucracy and political interference create disincentives. The courts are subject to political interference, and corruption is pervasive throughout the civil service.

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3.3 Strengths, Weakness, Opportunities and Threats (SWOT) A SWOT analysis of the Uzbekistan economy is presented in Table-3.4. It is evidenced by the table that Uzbekistan has many strengths and opportunities to achieve higher growth provided it continues with strict monetary discipline and fiscal prudence, it brings the structural reforms for private sector development to their logical ends, and is able to tackle the risks due to variations of international prices of its major exports such as cotton, gold, copper and gas and major imports such as petroleum oil and food products. 3.4 Economic Growth and Inflation in 2007 Uzbekistan achieved a real GDP growth rate of 9.5% in 2007, supported by a growth of 6.1% in agriculture value added, 12.1% in industry, and 26.6% in services. Despite deteriorating soil quality, rising grain harvests, higher world prices for cotton, and increasing productivity from privatization of agricultural cooperatives helped agriculture to grow by 6.1% in 2007. Industrial growth was aided by increased production and exports of metals, gas, and automobiles. Metals, country’s largest single export, received significant govt. investment in recent years. Gas export volumes increased by 18%, and secured a 40% gain in export prices. Overall, fuel and energy sub-sector grew by 10.1%. Automotive industry output increased by 27%, driven by substantial government support through various tax exemptions and subsidies. Growth in services stemmed from increased revenues from gas transit, substantial Russian-led investments in the communications, and significant construction activities in housing and infrastructure. High inflation remained as a major problem for both the government and the Central bank. Although the official estimate of the Consumer Price Index (CPI) based inflation in 2007 was 7%, the IMF estimated CPI inflation at 12.3%8, caused by a marked expansion in the money supply, increases in administered prices, public sector wage rises, and unproductive expenditure related to the general election. The authorities responded by further tightening the monetary and fiscal discipline, reducing the pace of sum depreciation, and limiting the pass-through of higher international food prices through administered prices.

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The divergence between official estimate of inflation (6.8%) and the International Monetary Fund (IMF) estimate (11.4%) was almost the same in 2006. In general, IMF estimate of CPI inflation is about five percentage point higher than the official estimate of CPI inflation. IMF states that its estimates are consistent with other available information, including producer prices, GDP deflators, wage increases, growth in monetary aggregates, and utility price increases.

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Table-3.4 SWOT Analysis of the Uzbekistan Macro-economy 1. Sustained high GDP growth averaging around 8% since 2004. 2. Cotton, metals, gas, construction are the leading sectors. Strengths 3. Favorable fiscal situation, with overall fiscal surplus in recent years. 4.

Strict monetary discipline

5. Declining ratios of public debt to GDP (estimated 13.5% in 2008) 6. Enabling environment for FDI and public-private partnership. 7.

Internal environment

8. 9. 10. 1. Weaknesses

2. 3. 4.

5. 6.

External environment

7. 8. Opportunities

1.

2. 3.

4. 5. 6.

Favorable fiscal reforms with simplified rules and tax cuts. Improvement in budgeting system and planning with introduction of medium-term budgeting, adoption of GFSM-2001 budget classification and switch to standard accounting and auditing rules. High levels of fiscal freedom (88%), business freedom (67.8%), labor freedom (72.1%) and flexible labor markets. Moderate personal income tax rate and low corporate tax rate. Land locked economy with long distances to major growth centers in the neighboring economies Growth is not broad-based with high dependence on exports of cotton, metals and gas. High cost economy due to rising utility prices and substantial increase in wages and salaries Underdeveloped money markets, and despite high growth rates of money supply, the degree of monetization is low. Notwithstanding recent progresses, the financial system remains underdeveloped with low intermediation. Difficult business environment, with costly licensing and bankruptcy procedures. Ranked the 138th in 2008 in the world as per the latest World Bank Doing Business Report. Low levels of domestic savings (around 23% of GDP) High poverty ratio (28%) and inequality index (Gini ratio 36.8%) Average tariff rate is moderate. Comfortable foreign exchange reserves (equivalent to 10.2 months of imports at the end of 2007 and estimated 11.6 months of imports in 2008) Declining ratios of external debt to GDP Declining and low external debt service ratios (8.6% in 2007 and 7.6% in 2008) indicating sustainability of external debt over time (and possibility of no debt trap). Despite downside risks, international commodity prices are expected to remain buoyant in the near term, and the growth prospects of the neighboring economies, having pulls on the Uzbek economy, are bright... The Uzbek economy remains insulated from the global financial crisis because of its limited integration with the world financial markets.

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Threats

1. Economy is heavily dependent on external trade of a few items, whose prices are volatile and subject to global business cycles. 2. Overall GDP growth and government revenue remain vulnerable to terms of trade shocks trigged by possible sharp declines in international prices of cotton, metals and gas in future. 3. Business environment is not so favorable and doing business in Uzbekistan is not easy due to restricted trade and business practices. 4. Balance of payments remains vulnerable to future risk of further hardening of global prices of food grains and petroleum products 5. Foreign investment is officially welcome, but opaque bureaucracy and political interferences create disincentives for FDI inflows.

3.5 External Sector Performance in 2007 Balance of payments situation remained very comfortable for recent years. Uzbekistan always maintained an external current account surplus, which amounted to $4.3 billion in 2007, amounting to 19.2% of GDP, aided by commodity exports boom and significant rise in remittances. Exports of gold, cotton, and energy (mainly gas), accounted for 56% of total exports of goods in 2006 and also performed well in 2007 due to strong external demand and soaring international prices in 2007. As one of the world’s largest producers and exporters of gold, Uzbekistan benefited from the metal’s record prices in 2007. Remittances represent another significant foreign currency source, and come primarily from Uzbeks working in Kazakhstan and the Russian Federation. Foreign Exchange Reserves increased to a record level at $7.4 billion, equivalent to 10.2 months of imports of goods and services at the end of 2007. Because of a conservative external borrowing policy followed by the govt, external debt to GDP ratio declined to 17.6% of GDP by end-2007. Substantial current account surplus and foreign direct investment inflows put upward pressure on the exchange rate of Uzbek sum. The central bank intervened in the foreign exchange market to prevent a nominal appreciation of the sum, against the US dollar, continuing a policy aimed at boosting exports. During 2007 the “sum” depreciated by about 4% against the dollar. 3.6 Money Supply and Banking Operations Rise of foreign exchange reserves by $3 billion in 2007 created pressures on growth in bank liquidity and monetary expansion. The central bank expanded its open-market operations, by selling central bank certificates. The impact of these operations, however, was partly offset by a reduction in reserve requirements for local deposits from 15% to 13%. Money supply grew rapidly by 46% on top of 36.8% growth in 2006. Although general confidence in the banking system has been rising, the ratio of broad money (M2) to GDP is low (about 16% in 2007), which suggests that banking still plays a relatively minor role in the economy.

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The policy of checking taxpayers’ bank accounts by the tax authorities undermines confidence in banking. As a part of anti-inflationary efforts, the central bank puts limit on the volume of cash that depositors may withdraw, which induces greater holdings and transactions in cash. 3.7 Fiscal Situation and Reforms Fiscal policy was prudent in 2007 and the outcome was better than budgeted. The consolidated general government budget recorded a surplus of 2.1% of GDP in 2007, marginally lower than 2.2 percent in 2006, due to deceleration in revenue growth and rise of expenditure caused by an increase of wages and pensions twice in 2007, by 25% in August 2008 and by 20% in November 2008, although these were counterbalanced by some moderation in planned capital spending. The augmented fiscal surplus, combining the consolidated government and the Fund for Reconstruction and Development (FRD), remained unchanged around 5 percent of GDP compared with a budgeted deficit of 1 percent of GDP. The strong budget performance in the past 2 years was driven by tax reforms, growing customs receipts, and increases in utility prices. However, still more revenue strengthening is required as the Govt is committed to raise all public sector wages, pensions, and social benefits by 150% by 2010, relative to 2006. Fiscal Reforms Fiscal and financial reforms progressed further in 2007-2008. There was a concerted effort to increase bank capitalization. Treasury modernization continued under the ongoing technical assistance project, as did tax reforms. Further the restructuring of “shirkats” into private farms was completed. According to the World Bank’s Doing Business 2009 Report, Uzbekistan improved its ranking and jumped from the 145th place in 2007 to 138th place in 2008 thanks to establishing a private credit bureau and a public credit registry to share credit information among financial institutions. These measures have significantly improved access of population to credit resources. The report also notes that adoption of new Tax Code and decrease of tax burden resulted in decrease of income tax and single tax payment in 2007. In Jan 2008, Parliament approved a revised tax code. As a part of policies to reduce the tax burden, the rate of unified tax for micro- and small enterprises was reduced from 10% to 8%, and the rate of corporate income tax for banks was lowered from 17% to 15%. The new code also introduced an excess profits tax for “subsurface users” extracting or producing cathode copper, cement, polyethylene granules, and gas. The tax rates are 60% for cathode copper and 75% for all other commodities. The taxable base for the excess is defined as the difference between the price set by legislation and the selling price. The Government established a treasury, which, under a public finance reform management project, is setting up a treasury single account and is streamlining the budget execution mechanism. In 2007, it implemented treasury operations at the regional level, closed thousands of accounts of spending units, and introduced territorial single treasury

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accounts. The major medium-term challenge is to consolidate all government fiscal accounts into a single account, including those of the Government’s extra-budgetary funds. A Reconstruction and Development Fund (RDF) was established in 2006 with capital targeted to reach $1.0 billion by 2010.It had already reached $1.2 billion at end-2007 because of a strong budgetary position. Eight high-priority investment projects have been approved for financing from RDF funds in 2008, mainly in the chemical and hydrocarbon sectors. RDF’s role in these projects will focus on procuring capital goods.

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3.8 Medium Term Economic Forecasts Assuming that world prices of gold, cotton, and gas would stay buoyant over the next couple of years, there would be no destabilizing factors either at home or abroad, and there would be no monsoon failures, economic prospects of Uzbekistan in the near and medium terms are considered to be bright. According to the assessments made by the IMF, risks to the 2008 economic outlook of Uzbekistan appear to be limited with strong growth prospects of its major trading partners. Despite downside risks, international commodity prices are expected to remain buoyant. The Uzbek economy remains insulated from the global financial crisis because of its limited integration with the world financial markets. The IMF Staff analysis suggests that a 10 percent decline in international commodity prices would lead to a reduction of the Uzbekistan current account surplus and government revenues by only 1 percentage point of GDP each. According to forecasts made by IMF, healthy external demand and surging commodity prices, coupled with greater remittances and import controls, are expected to keep the current account surplus at 16.8% in 2008 and 12.9% in 2009. The medium term outlook is also favorable. The authorities target 8-9 percent export-led growth over the medium term, which appears to be feasible. These ambitious targets will be achieved through consolidating macroeconomic stability, modernizing various sectors, improving physical and social infrastructure, attracting more FDI, enhancing the role of private sector and public-private partnership. The conservative fiscal stance is expected to be continued by the government, leading to fiscal surplus and so assisting monetary policy efforts to control high inflation. However, the central bank’s commitment to currency depreciation to support exports are likely to lead to persistent rapid expansion in money supply. Excessive money supply along-with planned increases in utility tariffs are expected to create inflationary pressures. 3.9 Development Challenges Since 2004 the Uzbekistan economy had been buoyant with high economic growth and surplus on both domestic and external current accounts. But, it has also led to various development challenges such as how to contain the inflationary pressures, how to sustain high growth with strict monetary discipline and fiscal prudence, how to promote equitable growth and to raise the levels of living of all citizens, how to eradicate poverty and unemployment at a faster speed, and how to create enabling environment for publicprivate partnership and international cooperation in the development process. The authorities have made significant progress in macroeconomic adjustment, but have further scope for improving the macroeconomic policy mix, particularly in regard to antiinflationary measures and movement towards full convertibility of Uzbek Sum on current account transactions. The reforms backlog suggests that the economy is underperforming, although it is now moving along a higher growth profile. If the structural reforms needed for private sector-led growth are carried out to their logical ends, Uzbekistan can become

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one of the most dynamic economies in central Asia and can achieve still higher growth along-with faster reduction of poverty and unemployment. Favorable economic conditions with large foreign exchange reserves, a low level of external debt, and positive fiscal balance put the government in a comfortable position to push through long-awaited reforms aimed at deepening industrial diversification, banking and trade liberalization, and private sector development. The authorities are in a position to exploit the present growth momentum and substantially expand reform initiatives in order to secure sustainable high growth for the longer term.

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ANNEX-1: Country Policy and Institutional Assessments (CPIA) for External Debt

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Selected References Asian Development Bank (2008a) Asian Development Outlook 2008, Country Report on Uzbekistan, ADB, Manila. Asian Development Bank (2008b) Uzbekistan, pp.400-404, Key Indicators of Developing

Asian and Pacific Countries, ADB, Manila Advameg Inc. (2008) Uzbekistan- An Overview of economy. Das, Tarun (1999a) East Asian Economic Crisis and Lessons for External Debt Management, pp.77-95, in External Debt Management, ed. by A. Vasudevan, April 1999, RBI, Mumbai, India. Das, Tarun (1999b) Fiscal Policies for Management of External Capital Flows, pp. 194-207, in Corporate External Debt Management, edited by Jawahar Mulraj, December 1999, CRISIL, Bombay.

Das, Tarun (2000) Sovereign Debt Management in India, pp.561-579, in Sovereign Debt Management Forum: Compilation of Presentations, November 2000, World Bank, Washington D.C. Das, Tarun (2003a) Off budget risks and their management, Chapter-3, Philippines Improving Government Performance: Discipline, Efficiency and Equity in Managing Public Resources- A Public Expenditure, Procurement and Financial Management Review (PEPFMR), Report No. 24256-PH, A Joint Document of The Government of the Philippines, the World Bank and the Asian Development Bank, World Bank Philippines Country Office, April 30, 2003. Das, Tarun with Raj Kumar, Anil Bisen and M.R. Nair (2003b) Contingent Liability Management- A Study on India, pp.1-84, Commonwealth Secretariat, London. Das, Tarun with Usha Thorat and Charan Singh (2003c) Management of Public Debt in India, pp.85-110, in Guidelines for Public Debt Management: Accompanying Document and Selected Case Studies, 2003, IMF & World Bank, Washington D.C. Das, Tarun with Anil Bisen (2003d) Management of External Debt in India, in External Debt Statistics- Guide for Compilers and Users, 2003, IMF, Washington D.C. Das, Tarun (2005a) International Cooperation Behind National Borders- A Case Study for India, pp.1-50, Office of Development Studies, UNDP, UN Plaza, New York, 2005. Das, Tarun (2005b) Management of Public Debt, External Debt and Medium Term Expenditure Framework for the Government of Samoa, pp.1-35, presented at the National Workshop on External Debt Management, organized jointly by UN-ESCAP and the Ministry of Finance, Government of Samoa, at Apia, 20-22 August 2005.

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Das, Tarun (2005c) Management of External Debt in India and Lessons for Other Developing Countries, pp.1-35, UN Economic and Social Commission for Asia and Pacific, Bangkok. Das, Tarun (2005d) Management of External Debt and Medium Term Fiscal Framework for the Government of Indonesia, presented at the Multi-stakeholders Consultation on the External Debt and Fiscal Responsibility Law, organized jointly by the United Nations Institute for Training and Research (UNITAR), the Australian Agency for International Development (AusAID) and the Ministry of Finance, Government of Indonesia, at Jakarta, 28 November- 2 December 2005.

Das, Tarun (2006a) Management of External Debt: International Experiences and Best Practices, pp.1-46, Best Practices series No.9, United Nations Institute for Training and Research (UNITAR), Geneva, January 2006. Das, Tarun (2006b) Governance of Public Debt- International Experiences and Best Practices, pp.1-23, Best Practices series No.10, United Nations Institute for Training and Research (UNITAR), Geneva, January 2006. Das, Tarun (2006c) Management of External Debt and Medium Term Fiscal Policy Framework for the Government of Cambodia, presented at the National Workshop on External Debt Management, organized jointly by UN-ESCAP and the Ministry of Finance, Government of Cambodia, at Phnom Penh, 21-22 February 2006. Das, Tarun (2006d) Management of External Debt and Medium Term Fiscal Policy Framework for the Government of Lao PDR, presented at the National Workshop on External Debt Management, organized jointly by UN-ESCAP and the Ministry of Finance, Government of Lao PDR, at Vientiane, 23-25 February 2006. Das, Tarun (2006e) Management of External Debt and Medium Term Fiscal Policy Framework for the Government of Nepal, presented at the National Workshop on External Debt Management, organized jointly by UN-ESCAP and the Ministry of Finance, Government of Nepal, at Katmandu, 24-28 May 2006. Das, Tarun (2006f) Management of External Debt and Medium Term Fiscal Policy Framework for the Government of Malaysia, presented at the International Conference on Global Economic Prospects,, organized by organized by the Malaysian Institute of Economic Research (MIER), at Kuala Lumpur, 5-7 December 2006. Das, Tarun (2008a) Financial Planning - Part-1: Methodology, pp.1-34, and Financial Planning Methodology and Policies- Part-2: Policies, pp.1-32, ADB Capacity Building Project on Governance Reforms, Ministry of Finance, Government of Mongolia, Ulaanbaatar, Jan 2008. Das, Tarun (2008b) Medium Term Macroeconomic Framework and the Debt Sustainability Analysis for the Government of Gambia, presented at the National Workshop on Debt Sustainability Analysis, organized jointly by the Commonwealth Secretariat, and the Ministry of Finance, Government of Gambia, at Banjul, 18-21 August 2008.

Gulamov, Iskandar and Kiyoshi Taniguchi (2008) ADB Country Report on Uzbekistan, Office of the Uzbekistan Resident Mission, ADB, Tashkent.

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The Heritage Foundation (2008) Uzbekistan Economic Freedom Indices, Washington D.C., USA. India, Government of (2008) India’s External Debt- A Status Report 2007-2008, pp.155, Ministry of Finance, New Delhi, August 2008. International Monetary Fund (2003) External Debt Statistics- Guide for Compilers and Users, 2003, IMF, Washington D.C. International Monetary Fund (2006) How to do a Debt Sustainability Analysis for Low-Income Countries, A Guide to LIC Debt Sustainability Analysis, pp.1-46, October 2006, IMF, Washington D.C. International Monetary Fund (2008a) Republic of Uzbekistan: Poverty Reduction Strategy Paper, pp.1-143, IMF Country Report No. 08/34, IMF, Washington D.C., January 2008

International Monetary Fund (2008b) Republic of Uzbekistan: 2008 Article IV Consultation- Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Uzbekistan, IMF, Washington, D.C., July 2008. International Monetary Fund and the World Bank (2003) Guidelines for Public Debt Management: Accompanying Document and Selected Case Studies, 2003, Washington. Mckinley, Terry and John Weeks (2007) A Proposed Strategy for Growth, Employment and Poverty Reduction in Uzbekistan, pp.1-30, Country Study, No.12, International Poverty Centre, October 2007. Nationmaster (2008) The World Fact Book, Uzbekistan, page updated on 21 August, 2008, http://www.nationmaster.com Ranaweera, Thilak (2003) Alternative Paths to Structural Adjustment in Uzbekistan in a Three-Gap Framework, World Bank Policy Research Working Paper No. 3145, World Bank, September 2003. Ronobank (2006) Country Report Uzbekistan, pp.1-6, Economic Research Department, Country Risk Research, Uzbekistan, Tashkent, June 2006. Ronobank (2008) Introduction to Uzbekistan- An Update, pp.1-3, Economic Research Department, Country Risk Research, Uzbekistan, Tashkent, August 2008. UN Economic and Social Commission for Asia and the Pacific (UN-ESCAP) (2006) Manual on Effective Debt Management, pp.1-104, United Nations, ESCAP, New York, 2006.

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USA, Federal Government of (2007) Background Note: Uzbekistan, pp.1-14, Under Secretary for Public Diplomacy and Public Affairs, Bureau of Public Affairs, Electronic Information and Publications Office, Bureau of South and Central Asian Affairs, December 2007. USA Library of Congress (2007) Country Profile: Uzbekistan, pp.1-19, Federal Research Division February 2007. Uzbekistan, Republic of (2002) Uzbekistan—Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding, addressed to the Managing Director, pp.1-17, IMF, January 31, 2002. Uzbekistan, Republic of (2005) Family Budget Survey 2005, Tashkent, 2005. Uzbekistan, Republic of (2007) Welfare Improvement Strategy of Uzbekistan, Full Strategy Paper for 2008-2010, pp.1-142, Tashkent, 2007. World Bank (2000) Sovereign Debt Management Forum: Compilation of Presentations, November 2000, World Bank, Washington D.C. World Bank (2003a) Republic of Uzbekistan Country Economic Report, Report No.25625-UZ, Europe and Central Asia Region, April 30, 2003, Washington D.C. World Bank (2003b) Off budget risks and their management, Chapter-3, Philippines Improving Government Performance: Discipline, Efficiency and Equity in Managing Public Resources- A Public Expenditure, Procurement and Financial Management Review (PEPFMR), Report No. 24256-PH, A Joint Document of The Government of the Philippines, the World Bank and the Asian Development Bank, Poverty Reduction and Economic Management Unit, World Bank Philippines Country Office, April 30, 2003.

World Bank (2007) Promoting Growth and Higher Living Standards- Some Diagnostic Tools and Project Options, pp.1-27, Power Point Presentation, World Bank, Europe and Central Asia Region, March 12, 2007. World Bank (2008a) Uzbekistan at a Glance, World Bank Website, Washington, D.C. World Bank (2008b) Uzbekistan Country Brief 2008, pp.1-8, Updated July 2008. World Bank (2008c) Doing Business in Landlocked Economies 2009, September 2008.

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