Country Report Uzbekistan April 2009

Outlook for 2009-10

• The president, Islam Karimov, will retain a tight grip on power, with few prospects for democratisation or increased transparency.
• There are questions regarding Mr Karimov's health, and uncertainty over who will eventually succeed him is likely to persist.
• The relaxation of EU sanctions in October 2008 will encourage Uzbekistan to attempt to foster closer economic links with the West. However, ties with Russia and China will also remain strong.
• Real GDP growth will moderate over the forecast period, owing to a decline in export demand. The Economist Intelligence Unit forecasts real GDP growth of 2.5% in 2009, ahead of a pick-up to 3.5% in 2010.
• Inflation is forecast to slow from an estimated annual average of 14% in 2008, owing to lower import prices for food and fuel, but the extent of disinflation will be limited by rapid growth of the money supply.
• The current-account surplus is expected to decline to around 17.5% of GDP in 2009-10 as import demand falls in Russia, Uzbekistan's chief export market, and as remittance inflows decline.

Monthly review

• Official visits from representatives of EU states have increased following the lifting of the EU's sanctions against Uzbekistan in October 2008.
• The EU's policy of greater engagement is aimed at improving human rights in Uzbekistan. However, there has been no visible progress in this area. Freedom House classes Uzbekistan as one of the world's worst human-rights violators.
• Our democracy index for 2008 ranks Uzbekistan as fourth from the bottom worldwide in terms of democratic freedoms. This is unlikely to change under Mr Karimov's regime, which will deal harshly with any popular unrest.
• A shortage of foreign currency, to which the government has responded by imposing more restrictions on currency convertibility, has contributed to a rapid depreciation of the som and the re-emergence of a black-market rate.
• The government has acknowledged that a lack of reform in the banking sector is having a detrimental effect on the business environment.
• No official economic data for 2009 have yet been released, but the data for 2008 indicate that regional economic disparities may be increasing.
• Output in the automotive sector, which exports mainly to Russia, fell in the first two months of 2009. Agriculture continues to perform poorly. Revised trade data show a smaller surplus than previously reported.

This report covers the following industry codes:
SIC Code: 1;49
NAICS Code: 11;22