Page 16 - Uzbek Outlook 2024

In addition, Uzbekistan's official development strategy (passed in 2023) saw a reduction of fiscal deficits to 3% in 2024 and 2% in the medium term. A legislative amendment from in 2023 was supposed to cap deficits at 3% of GDP in the future, but the FinMin has not given a direct explanation as to why it chose to breach this rule in the current framework.
Official deficit projections were ultimately exceeded in the last three years and the same is set to happen in 2023. Overall, the political talk of fiscal consolidation seems limited to a narrative at present.
This implies risks for 2024 as well, but President Mirziyoyev's agenda clearly takes political precedence at present, so there is little scope for prudence from the government.
In line with the more populist aspects of the presidential policy course, in 2024 will see an additional salary hike in the public sector as well as pension indexation. The associated extra spending will total UZS 9.55 trillion. In comparison, the 2023 budget only entailed a UZS3.8 trillion hike, which later expanded to UZS6.4 trillion as the president ordered extra stimuli before 2023's referendum vote. Overall, 2024 social spending will amount to UZS 151.4 trillion or over 50% of republican budget expenditure.
Macroeconomic assumptions
The government expects GDP growth at 5.6%-5.8% in 2024. This is in line with the most recent forecast for 2023 and also corresponds with major IFI projections. As a whole, the authorities have managed to maintain consistent growth in recent years despite the pandemic and subsequent disruptions related to the war in Ukraine. In this context, the 2024 goal is not unrealistic, though it should be noted that recent years have required unplanned fiscal spending to achieve the official targets, which may be a risk in 2024 as well. Apart from the uncertainty related to geopolitical volatility, current forecasts of lower global demand in 2024 also imply potential pressure. The fiscal balance will be particularly vulnerable in case of unfavourable gold and copper prices, strong exchange rate fluctuations, or a drop in remittance inflows caused by a potential crisis in the Russian economy.
External developments can also affect inflation, which is seen at 8-10% at end-2024. Specifically, global dynamics of hydrocarbon and food prices will be key. The Uzbek authorities tend to offer fiscal support to households in case of strong food price spikes, so global market volatility is a fiscal risk in this respect. The government plans to liberalise utility tariffs in 2024, but would likely be dissuaded if severe inflationary pressures materialise. This would maintain elevated spending on energy-related subsidies whilst also reducing revenues. In general, the central bank has indicated it plans to keep a relatively tight stance, which should allow it to achieve the 2024 year-end target under a baseline scenario. At the same time, it should be noted that the bank recently delayed its medium-term inflation target to 2025-2026. It has rejected potential measures to curb domestic consumption, citing risks to macro stability, but political considerations are at play, too.
16 Uzbekistan Outlook 2021 www.intellinews.com