Uzbekistan: Post-COVID Economic Recovery Strategy

                 Bakhtishod Khamidov, Malika Jumaniyozova,

Center for Economic Research and Reforms under the

Administration of the President of the Republic of Uzbekistan

Given the high likelihood of the second wave of COVID-19 outbreak, countries still face a choice between the people and the economy. Today the task of reducing the spread rate of infections directly contradicts the task of limiting the depth of the economic recession accompanied. In other words, a slowdown in the process of reaching the peak of infection can occur only when the economy will not operate at full capacity. In this case, the removal of workers from their jobs, social distancing of consumers reduces economic activity, which affects economic growth negatively, and through the channel of economic expectations – to the levels of investment and consumption.

Estimations show that without government intervention (containment policy), with an initial mortality rate of 2 % and reproduction rate of 50% in an overloaded health systems 1% of the world’s population can die (76 million people). However, if the quarantine and self-isolation policies are activated for a short period of time (a month or two) and 50% or more people may not be able to work, GDP may decrease by 6.5-10%.

It should be emphasized that most countries choose the intervention policy in order to smooth the epidemiological curve (the first wave was in February-April, the second one is possibly in coming autumn) in order to avoid beds and mechanical ventilation devices shortage problem in infectious diseases hospitals.

Therefore, economic recession during the fight against the spread of COVID-19 is recognized as a necessity, and at the same time, it can cause long-term economic damage, because many firms and banks may go into bankruptcy, job places may be reduced and large number of people may fall below the poverty line, and national balances loose balances. Consequently, governments can and should try to smooth out the curve of economic downturn, through their anchors of economic intervention.

Impact of pandemic on the macroeconomic balances of Uzbekistan.

The following were observed based on preliminary results of the first quarter of 2020, compared with the previous year:

-a decline in the imports of consumer goods and medicines (according to the Chinese statistics, in the first quarter of 2020, China’s exports to Uzbekistan decreased by 14.3%);

-a decrease in migrant remittances (according to World Bank forecasts remittances will decrease by 20%, the number of citizens who could not go to work abroad amounted to 143 thousand people);

-slowdown in the import of technologies, semi-finished products and raw materials (due to the temporary delays in international transportation);

-a decrease in the export of goods and services ( as a result of a decrease in external demand and prices for basic commodities, according to Chinese analysis Uzbekistan’s exports to China in the first quarter of 2020, decreased by 31.2%);

-decrease of budget revenues (as a result of reduced economic activity);

-increase in unemployment (according to opinion polls 21% of people temporarily lost their jobs);

-decrease in demand for durable goods and services (as shown by a survey by the Center for economic research and reforms, 68 % of the population believes that now it is not the time to buy durable goods, against 13 %);

-decrease in saving and investment;

-an increase in the share of non-performing debts and bank liquidity;

-increase in social responsibility of the government and pressure on the budget, government debt (the government intends to attract loans of international financial institutions which amounts to $3.1 billion);

Given the interrelations and interdependence among sectors and agents of the economy, without an economic intervention policy, an economic recession can turn into a financial crisis (due to the problems in liquidity in the banking system), a debt crisis (due to an increase in additional debts) or a foreign currency crisis (due to the decrease in foreign trade).

How does Covid-19 affect main macroeconomic balances?