Uzbekistan: the lowest economic growth and the highest inflation rate in all of the region
Impressive economic growth in Central Asia will continue yet, but urgent measures are needed to curtail inflation and loaning. This is the conclusion drawn in "Prospects of Development of the Regional Economy", a report of the International Monetary Fund (IMF). David Owen of the IMF Department of the Middle East and Central Asia presented the report in Alma-Ata, today.
"Macroeconomic parameters in Central Asia remain high," Owen said. "Economic growth in Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan is expected to average 8% this year. This is the seventh year in a row when the growth tempos remain high. GDP of the countries of the region almost doubled in the last decade. The growth was facilitated by the inflow of foreign capitals due to oil export and export of other raw materials and by transactions into the countries of the region that boosted hard currency reserves in all countries. The tax and budget policy improved. State debts of the countries of the region go down. And yet, the inflation pressure is mounting due to high oil prices and loans. The average level of the price-rise in the region is currently estimated at about 10%."
Speaking of the effect of high oil prices on the regional economy, Owen pointed out that Kazakhstan had benefited from it, Kyrgyzstan and Tajikistan as oil importers had found life hard, but all of the region on the whole had benefited too. The IMF believes that oil prices will remain more or less unchanged in 2007 and amount to $60-65.
Russia and China are the largest investors in the region. Their high balance of payment turned them into Central Asian countries' major sponsors.
The average inflation rate amounted to 10%, mostly attributed to high oil prices and active loaning. Transactions from Russia are playing an important role in the balance of payment of the countries of the region, particularly Uzbekistan, Tajikistan, and Kyrgyzstan. These transactions constitute a substantial part of these countries' GDP.
Tax pressure on businesses eased up some. Countries of the region gradually reduce their state debts, official gold and hard currency reserves increase in all countries. All of that is solidifying economic positions of Central Asian countries.
Kazakhstan and Tajikistan display the highest rate of economic growth in the region (9%). Inflation rate there nevertheless remains high - 8-9% in Kazakhstan and 10% in Tajikistan. The IMF therefore advises Kazakhstan to stiffen its monetary policy and Tajikistan to try to do without new loans.
Suspension of gold-mining in Kyrgyzstan had a thoroughly negative effect on its economic development but the situation is improving now. Inflation in this country is relatively low but going up.
As for Uzbekistan, the IMF evaluates its economic growth rate at 6-7% (5% last year), i.e. as slower than in other countries of the region. The inflation rate, however, is estimated at two-digit figures. Doing something about the inflation rate is therefore a priority. Liberalization of foreign trade, development of private enterprise, and development of the financial sphere are no less important.
Asked to explain the unmatched inflation rate in Uzbekistan, the country with probably the largest GDP in the region, Owen pinned the blame on what he called a "weak" financial policy and surplus of the balance of payment. Funds in this country rose by 54% last year.
"This is what I recommend: stiffen the monetary policy and up the nominal exchange rate," Owen said.
According to the IMF expert, Central Asian governments should continue structural and institutional reforms with an eye to a rapid development of private enterprise. Advancement of regional cooperation will facilitate commerce, attract investors, and improve the chances of steady long-term development.