The year 2024 was a critical juncture for Uzbekistan’s economy, leaving a profound impact across various sectors. Experts have described the year as particularly challenging, marked by sharp increases in inflation, surging public debt, and imbalances in the country’s fiscal and trade accounts.
From the outset, 2024 presented economic hurdles, including rising budget and trade deficits and a significant increase in public debt denominated in foreign currency. Analysts highlighted that a “sharp rise in utility prices became a serious test for the population” and fueled unprecedented inflation.
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Economic growth in Uzbekistan continued last year, as in the previous two years (6.3% in 2023 and 6% in 2022). It was projected that by the end of 2024, economic growth will be 6%, and the gross domestic product will reach UZS1.4 quadrillion (about $ 110 bn).
There are several indicators that have a direct impact on the economic state of the country, including inflation, the state budget deficit, external debt, and foreign trade. A disruption in the balance of these factors can lead to economic problems. In recent years, the results of these indicators in the republic have been moving in a negative direction. For instance, inflation has not been able to drop from double-digit figures despite government efforts.
A presidential decree signed in 2019 tasked the Central Bank with reducing inflation to 5% by 2023. However, this goal was not achieved in 2023, nor in 2024. Moreover, according to forecasts, it will not be realized even in 2025.
In 2023, the inflation rate was 8.8%, and by November 2024, it had already reached 10%. Economists believe that double-digit inflation is a serious factor that negatively affects the country’s economic development and reduces the purchasing power of the population. This year, Uzbekistan witnessed unprecedented price inflation. Details of this phenomenon will be examined in a separate section of the article.
“Inflation is a tax on the poor.” How does rising prices affect the financial situation of citizens?
The issue of the budget deficit remains relevant in Uzbekistan, characterized by significant excesses of expenditures over revenues. In 2023, the state budget deficit amounted to 59.2 trillion soums, equal to 5% of GDP. According to international standards, the budget deficit should not exceed 3% of GDP.
For example, in the European Union, there is a requirement that the budget deficit must not exceed 3% of GDP, which contributes to economic stability and supports the financial sustainability of the state.
Forecasts for 2024 are also discouraging: the budget deficit of Uzbekistan is expected to amount to 57.2 trillion soums, equivalent to 4% of GDP.
In recent years, there has been an increase in budget expenditures that significantly exceed the amounts prescribed by law and approved by parliament. This indicates a violation of budget discipline, which parliamentarians appear to pay little attention to. Specifically, during live debates, deputies approved a 10 trillion soum (approximately $775.8 million) increase in the 2024 budget expenditures without much discussion. Interestingly, by the end of the year, it became known that expenditures had already exceeded the established limit.
At the end of last year, Uzbekistan's public debt was 34.9 billion. According to data for the third quarter of 2024, this amount had grown to $39.1 billion. In the budget law for 2024, external borrowing was limited to $5 billion, but by the end of the year this amount had been increased to $7.3 billion. This means that by the end of 2024, the public debt will reach at least $42 billion.
In 2025, it is planned to attract new external borrowings in the amount of $5.5 billion. It is especially important that external debt is attracted in dollars, which increases the burden on the budget, since currency exchange is required to repay the debts. This, in turn, increases pressure on the national currency, the sum, which continues to depreciate against foreign currencies.
The situation with foreign trade remains no less alarming. In January-November 2024, the volume of Uzbekistan's foreign trade amounted to $59.4 billion, which is higher than the same period in 2023 ($57.3 billion). At the same time, exports amounted to $24.2 billion, and imports - $35.1 billion. Thus, the negative balance of foreign trade amounted to $10.9 billion, which is a significant factor affecting the country's economic balance.
Have migrants affected the economy of Uzbekistan?
Today, more than two million Uzbek citizens work abroad. In the period from January to October 2024, they sent $12.6 billion to Uzbekistan. Economist Bahadir Ganiev is confident that without migrants' remittances, the republic's economy may not show growth.
"The paradox is that Uzbekistan has been demonstrating stable economic growth for over 20 years. This applies to both the gross domestic product and both nominal and real incomes of the population. This growth, however, does not always depend on the right economic policy. Interestingly, some economists do not want to admit this truth. During Karimov's time, the economic growth was largely ensured by the income of migrants, and the situation is similar now. Without this factor, growth would not be possible,” the expert explains.
Speaking about the current economic situation, Ganiev noted that 2024 was an extremely difficult year, and, in his opinion, 2025 will not bring easy solutions either.
“One of the old vices is that tax authorities are obliged to fulfill the plan for generating budget revenues. If they do not fulfill the plan, they are punished. In response to this, they resort to tricks, for example, collecting taxes for the next period. That is, you have already paid taxes for the last quarter, and tax officials come to large and medium-sized organizations and ask you to pay taxes for the next month, claiming that they must fulfill the plan. As a result, it is difficult to estimate what part of the budget revenues are taxes collected in this way. At the same time, everything seems fine in the economy, but this does not solve the main problem,” the economist says.
From the start of 2024 to the end of November, the Central Bank of Uzbekistan sold $6.6 bn worth of gold, a decrease compared to the record $8.15 bn exported during the same period in 2023.
Economists argue that these gold sales are primarily used to offset the significant trade deficit between exports and imports. However, they caution that this approach is not a sustainable solution. Instead, they emphasize the importance of increasing gold reserves, as larger reserves enhance the confidence of international financial institutions and investors in the country’s economic stability.
“A year of unprecedented inflation”
In 2024, Uzbekistan experienced unprecedented inflation, which became one of the most noticeable economic problems of the year. The main factor in the rise in prices was the increase in electricity tariffs. In May, gas and electricity prices for the population were increased, followed by an increase in tariffs for hot and cold water. In early spring, utility prices also increased.
In 2024, gas prices in Uzbekistan increased by 129%, electricity by 67%, and hot water by 32%.
Doctor of Economics, Professor Islambek Niyezmetov noted in an interview for Daryo that the sudden increase in prices dealt a significant blow to the population.
“In 2024, we witnessed unprecedented inflation. Such price increases may have happened in childhood, but I have not seen such a sharp increase in all the years that I have been studying economics.”
Increasing utility bills directly reduces the purchasing power of the population, which has a devastating effect on the economy. This leads to a reduction in aggregate demand, which, in turn, reduces supply. If demand falls, an economic crisis begins.
“Factors that reduce demand include an increase in taxes and mandatory payments. Utility bills are a kind of hidden tax,” the professor explains.
According to experts, the increase in energy tariffs has led to an increase in the annual inflation rate this year by 3.6%. In 2025, further price increases are expected: electricity tariffs will increase by 24%, natural gas tariffs by 36%, liquefied gas tariffs by 25%, and methane tariffs by 39%. This will lead to an increase in inflation from 1.5% to 1.8%.
Gas crisis in Uzbekistan: how did we turn from an exporter into an importer?
According to economist Bakhadir Ganiev, the sharp increase in utility tariffs has caused significant suffering for the population. In his opinion, such measures should first be tested in limited regions and then gradually implemented throughout the country.
"It was a mistake to raise utility bills so sharply, which are extremely important for the population, at a time when citizens' incomes are not growing, but on the contrary, are falling, and when food prices continue to rise due to economic crises and wars. As an economist, I am not against raising prices, but this should have been done gradually, slightly above the inflation rate, to give people time to get used to it," Ganiev noted.
The increase in tariffs has had a significant impact on every family and every citizen. Such radical measures as the sudden refusal of utility subsidies are called "shock therapy" in economics. It was necessary to prepare for such changes. For example, by strengthening social protection and then gradually raising prices.
"This did not happen to us. The sharp increase in prices was carried out in a liberal-capitalist manner, without discussing and checking the impact on different regions. As a result, 90% of the population is forced to spend a significant part of their income on paying for utilities. The worst thing is that this was done in a year of economic difficulties," the expert added.
In his opinion, if the tariff change had occurred in a year of economic growth, people would have accepted it more easily.
“People would have agreed if the increase had been gradual – by 20% per year, and not immediately by 2-3 times. In that case, increasing tariffs to the current level could have taken 3-4 years and would have gone hand in hand with the growth of income population," Ganiev emphasized.
Mubarak Gas Processing Plant
Now, many people have found themselves in a difficult situation due to the sharp increase in tariffs, which is a very risky step.
"We live in difficult times from a geopolitical point of view. In such a period, we cannot risk the well-being of people. Secondly, the energy sector in the country is not efficient enough. Why should the population finance this?" the economist asks.
Doctor of Economics Islambek Niyezmetov also noted that the increase in electricity tariffs did not solve the problem of frequent power outages, which negatively affects the lives of citizens, especially the activities of entrepreneurs.
"We conduct educational courses, and frequent power outages make them difficult to conduct. During the year, we had to suspend classes several times. Students come from other regions, and we were forced to tell them: "Don't come, there is no power," says Niyezmetov.
In his opinion, such interruptions have a significant negative impact on business.
“It is impossible to work if there is no electricity. Even simple things like sewing or hairdressing are impossible without energy. This will lead to a loss of customers and serious damage to business,” the economist concluded.
Wages, pensions and benefits in Uzbekistan have been increased
Since September 2024, pensions and benefits have been increased by 15%, and since October, salaries of employees of state organizations have increased by 10%, including the salaries of teachers and doctors have been increased by 15%. In an interview with a correspondent of “Daria”, a representative of the Ministry of Economy reported that 1.9 million people work in budgetary organizations of Uzbekistan.
This year, the population of Uzbekistan, according to statistics, has increased to 37 million people. Of these, 56.4% are able-bodied citizens, that is, about 20 million people. This means that a significant part of the population does not work in state organizations.
It is unclear whether there will be a deep and comprehensive analysis of how monthly salaries have changed. This information is unlikely to be published. According to official statistics as of October 1, the average nominal salary in the country was 5 million 151 thousand soums.
“Salaries have indeed increased, but only for public sector employees. Most people in the country are self-employed, and their incomes have remained at the same level. For example, if a person earns 5 million soums per month, he could afford to buy 50 kilograms of meat in January. But four months later, the price of meat rose to 125 thousand soums per kilogram. As a result, purchasing power has not increased and has even decreased: now you can buy only 45 kilograms of meat for these 5 million. This is an example of inflation, which makes life difficult for those whose incomes have not increased at the same rate as prices,” says Islambek Niyezmetov.
In his opinion, the official data that inflation is 10% does not reflect the real situation.
“I believe that this year inflation was at least 20%. Let’s take the dollar exchange rate: at the beginning of the year it was much lower, and now it is approaching 13 thousand soums. If you compare the purchasing power at the beginning of the year with that at the end of the year, everything becomes obvious,” the economist emphasizes.
Another important point that Niyezmetov talks about concerns the unemployment rate in Uzbekistan, which at the beginning of the year was 6.8%.
“Today, 40% of working people in the country's economy pay income tax, including individual entrepreneurs and the self-employed. The remaining 60% work unofficially. How can you know exactly what percentage of them are officially employed and who is unemployed? Can these calculations be trusted? In my opinion, there are serious errors in these figures,” concludes Islambek Niyezmetov.
What can be done?
Bakhadir Ganiev also shared his opinion on why the current economic system of Uzbekistan is not effective enough. The expert is sure that not all economic decisions are made by people with sufficient qualifications in this area.
“There are indeed strong economists in the country. Highly qualified specialists work in the Ministry of Finance and other government agencies. However, the problem is not with them. Some issues are resolved by people who have nothing to do with the economy,” Ganiev noted.
He believes that the main problem is not the lack of economic knowledge in the government, but that people close to the president and who have political power use their opportunities and powers for their own interests.
“I am sure that they interfere in economic decision-making,” he added.
Islambek Niyezmetov, in turn, emphasized the importance of political decisions for effective monitoring and management of the economic situation in the country.
“The first step should be to reduce the size of the government itself. It is necessary to adopt the concept of an effective government, which implies working with fewer ministries and departments.
tv. Another important point is to increase the level of digitalization while significantly reducing the state apparatus. If the government becomes more compact, this will reduce tax expenditures and reduce opportunities for corruption. This is a political decision,” Niyezmetov noted.
The economist also proposed moving to a system of electing governors and ministers so that they become accountable to the people.
“Leaders must be held accountable for the consequences of their decisions. For example, if changes to the Tax Code cause harm to the population or entrepreneurs, those who proposed them must be held accountable,” the expert noted.
He emphasized the need to hold public officials accountable if their decisions lead to damage.
“The damage must be compensated. This will require amendments to the Constitution, because at the moment the document does not provide for the election of ministers and governors,” he said.
In addition, Niyezmetov is confident that the solution to problems such as monopolies also lies in the area of political decisions.
“Monopolies can be eliminated by political methods. For example, why do we continue to support GM? If tariffs are reduced, the monopoly will disappear on its own. And “customs clearance” should be equated to a regular commodity duty, and cars will begin to enter the country in large volumes,” the scientist concluded.
Strengthening the “status” of a gas importer
2024 will go down in history as a period of a sharp increase in Uzbekistan's dependence on gas imports. The rapid growth in the volume of purchases abroad, as well as the need for its own reserves, increase the burden on both the population and the state budget.
Thus, in the period from January to November 2024, the volume of gas imports amounted to a record $1 billion 551 million. This is an absolute maximum for the country. The ministries of economy and finance are required to disclose how these increased import volumes affect the state budget and inflation.
The main reason for the increase in imports is the insufficient volume of gas production from its own reserves. In January-November 2024, the country produced 40.8 billion cubic meters of gas, which is less than in the same period in 2023, when production amounted to 42.7 billion cubic meters. For comparison, the annual gas consumption of all greenhouses in Uzbekistan is about 1 billion cubic meters.
A decrease in gas production is one of the factors contributing to inflation, since the largest subsidies from the state budget are directed specifically to energy. Thus, in 2023, 18 trillion soums were allocated to cover losses from gas sales. These losses arose due to the fact that the extracted gas was sold at a price significantly below the market price. In 2024, this amount is expected to be 9.5 trillion soums and will be distributed into several parts.
In accordance with the presidential decree, the task was set to increase gas production to 56.3 billion cubic meters in 2022. However, this goal was not achieved, and two years later the situation remains unchanged.
Author: Islombek Umaraliev
Translation: Tawney Kruger
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