TOPIC OF THE WEEK: Is Uzbekistan poised to close the chapter on fiscal profligacy?
Wading through the 138 pages of Uzbekistan’s 2026–2028 Fiscal Strategy is a test of endurance, and of language skills, since the document exists only in Uzbek. However, it is very much worth the effort as it provides a glimpse into government's thinking about the fiscal envelope in the next couple of years.
The government provides credible projections on the macroeconomics of the country, assuming stable GDP growth of around 6% from 2026 onward, a goal that is largely aligned with the forecasts of the key global financial organizations—the IMF and World Bank. This is a forward-looking growth prediction that is quite reasonable, although subject to external shocks such as volatility in commodity prices and exchange rates, and the possible decline of remittances from Russia.
In turn, inflation is expected to ease to 6–7% in 2026, with a gradual convergence to the 5% CPI target in 2027–2028. This is also a realistic assumption. The fiscal framework identifies energy and food prices as the predominant sources of short-term price volatility, given that Uzbekistan has a propensity to tap into fiscal buffers in response to global commodity shocks. The inflation environment is driven by the phasing-in of massive utility rate increases—passed in 2024–2025—coupled with the near-execution of tariff reform, which would also contain price pressures. At the same time, the Central Bank's move towards a pure inflation-targeting regime signals its changing credibility. Whereas previous 5% CPI goals were repeatedly postponed, the plan now foresees attaining this level towards the end of the forecasting period, reflecting a realistic recognition of the incidence of structural inflation.
In line with the 2030 Development Strategy and medium-term deficit targets, the fiscal framework for 2026 shows a consolidated budget deficit of 3% of GDP, i.e., UZS 58.8trn. The consolidation is a result of stable revenues and controlled expenditures. Most of the gains are a result of disciplined cuts in subsidies, controlled growth of the wage bill, and upward statistical revisions to nominal GDP, which have all combined to reduce the deficit ratio from 5% of GDP in 2023 to 3% of GDP now. Energy subsidies, previously a huge budgetary burden at 1.7% of GDP in 2023, will dip to 0.7% of GDP by 2026, and social spending, while still destined to account for 55% of all expenditures, has also decreased modestly as a percentage of GDP. These combined efforts point to a conscious shift away from politically motivated fiscal expansion toward discipline-based consolidation.
Public finances are underpinned by prudent debt management, in addition to a well-considered, balanced financing policy. Public debt has doubled since 2020 nominally but is still modest at about 34% of GDP, below the self-imposed ceiling of 50%, which is very unlikely to be reached in the foreseeable future. While government debt is manageable, the interest costs of servicing the debt are rising fast. Over the next five years, the government will continue to limit new foreign lending under state guarantees to US$5.5bn in 2026, US$5.0bn in 2027, and US$4.5bn in 2028, and will further reduce dependence on foreign funds in the following years. The 2026 financing requirement will come down to 4.5% of GDP vs 6.7% of GDP in 2025 (and 7.0% of GDP in 2023). It will stay around the 4.5%-of-GDP level by the end of the forecasting period.
Overall, the 2026–2028 plan balances Uzbekistan's ambitious economic program with a conscientious desire to demonstrate fiscal prudence. Authorities are well placed to defend their plan with responsible spending and borrowing initiatives.
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