TOPIC OF THE WEEK: Uzbekistan is gingerly breaking away from the twin-deficit curse
Probably the most cited economic risks for Uzbekistan over the years have been its persistent CA and fiscal gaps. Indeed, the twin deficits ballooned from a virtual balance in 2017 to a hefty 12.6% of GDP in 2023. The surge in fiscal spending in the post-COVID years and political cycle-related loosening of budget policy in 2022/2023 weighed heavily on the government's bottom line, while the need to ramp up domestic investment brought about a (welcome) increase in intermediate goods imports. There has been sizable progress over 2024 and 2025, and in this report, I analyze the evolution of the twin deficits in the last two years, having been able to construct the 2025 data despite its not yet being officially available in full.
2023 marked the first year when conscientious efforts to redress outstanding fiscal excesses were put in motion, and these have been commendably sustained in 2024 and 2025. The series of tariff hikes implemented since late 2023 have sharply reduced the amount of the gas subsidy, while a broader expenditure optimization has contributed to a restrained expenditure policy. Moreover, both in 2024 and 2025 the headline fiscal position ended up better than planned, with the 2024 realized consolidated deficit (as a share of GDP) hitting 3.3% vs the planned 4.0% and the 2025 gap reaching 2.1% vs the planned 3.0%. Without a doubt, the favorable economic cycle lent a hand with the outperformance of revenue compared with the original plans, particularly so in 2025, when GDP growth came in at 7.7% vs the budgeted 6.2%. However, fiscal prudence has been on display, with the windfall largely saved to generate the smaller deficit last year.
There has probably been more favorable and fortunate tailwinds on the external side as the still large trade deficits have been usefully offset by record-high remittances. Still, even here authorities should be lauded for their targeted efforts to help strategically diversify away from Russia. The government has been striking many deals on the state level with peers in Europe and Asia for organized employment of Uzbek citizens abroad. As a result, the share of Russia-sourced remittances has declined from the peak of 87 percent in 2022 to around 77% now.
In combination, the twin deficits have significantly diminished over the last two years, to 8.3% of GDP in 2024 and an estimated 3.1% of GDP in 2025, i.e., four-fold from the 2023 peak. Naturally, complacency should not set in. The fiscal and external balances may be vulnerable in the case of unfavorable gold and copper prices, strong exchange rate fluctuations, a drop in remittance inflows, or an unwelcome reversal of policy momentum. These are risks that still need to be monitored.
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