World Bank Country Manager in Uzbekistan Loup Brefort in an exclusive interview with UzReport correspondent told about the measures on preventing the consequences of the world economic crisis, as well as investment projects in Uzbekistan.

- Mr. Brefort, what are the main priorities for the World Bank in Uzbekistan?

- The priority of the WB in Uzbekistan is to support the improvement in living standards and living conditions of the population.

So we have agreed with the government that we will work on a series of projects in the agriculture and irrigation sector to improve the income of farmers and productivity of the lands; in the urban water and sanitation sectors to improve conditions so that access to drinkable water and to sanitation services is improved; in health, particularly with a focus on the primary health care in the rural areas; and in education, again, with a particular focus on rural schools and basic primary education.

These are the pillars of our activities but in addition to that, we certainly are keen to assist the government in such areas as climate change impact, reduction of gas flaring which would contribute to the improvement of climate change impact on Uzbekistan. These are really the main areas we are already working and we will focus for the next 2-3 years.

- Please, tell us about the pipeline activities of the Bank.

- Next week we have an investment project that is going to the Board of Directors of the WB for approval. This is the project to provide roughly US$55 million for the rehabilitation of the sewerage and sanitation system in the cities of Bukhara and Samarkand.

In September we expect to submit a very important project to our Board of Directors to deal with water-logging issues in some parts of the Ferghana Valley - this is a drainage project, where we invest around US$67 million to restore agriculture potential and eliminate flooding in buildings in some districts of Ferghana province.

Next calendar year we expect to have a significant water project in the Syrdarya province to rehabilitate and equip a number of villages and small towns in the oblast with drinkable water and we expect to invest something around US$80 million.

Further on we also have agreed with the government that we will work to improve the water supply in the Bukhara province, not just a city but Bukhara province, and we will also invest in a new health project that would be targeted mostly to the rehabilitation of equipment and a training of staff in the policlinics in the rayon’s hospitals.

These are the main projects that we envisage and that will be approved hopefully in the coming 12-13 months.

- Is that financing credits or grants?

- The WB provides credits on highly concessional terms, these are not grants but the terms of our credits are extremely favourable to the Republic of Uzbekistan. The WB lends to the government for 35 years, 15 years of grace period during which the government has not have to repay the principal and the interest rate of these credits is extremely low.

At present, it is something like 0.2-0.3%. These are very highly concessional resources and if you calculate the net present value of these credits, we could say that roughly 70% of the credit is actually a grant.

- What do the World Bank experts think about the impact of the world financial-economic crisis on the economy of Uzbekistan?

- The crisis is actually impacting Uzbekistan much-much less than all of its neighbours and most countries of the world. We expect that growth will continue to be positive in Uzbekistan, and largely positive in Uzbekistan this year and probably the next year.

Uzbekistan is to some extent reaping the rewards of very prudent macroeconomic management over the past three years and also has the chance of very diversified economy and of exporting resources, some of them are most important and not been hit by the crisis.

As you know Uzbekistan is a large exporter of the gas and during the crisis gas price internationally while has somewhat reduced has certainly not seen sharp drop that we’ve seen for the price of oil, for instance. We all know that Uzbekistan is also a large exporter of gold and the price of gold during the time of crisis is usually rather increased than decreased.

These are two main exports that are certainly contribute to shielding Uzbekistan from the impact of the crisis, in addition to its good macroeconomic policies in the past, the large fiscal reserve, and the accumulation of funds in the Fund for Reconstruction and Development.

- What measures does the World Bank take in overcoming world financial crisis globally, and in Uzbekistan particularly?

- Globally the World Bank has responded to requests of many countries to largely increase our financial support. The amount of credits and loans extended by the WB has increased from US$14 billion last year to something like US$35 billion this year.

This shows that the Bank doubled amount of increased support to the governments particularly with budget support and financial support - resources that can be disbursed very quickly and which will be helping governments to implement their fiscal stimulus package.

Uzbekistan is not that affected by the crisis and we continue our support as was envisaged - there is no major change in our activities in Uzbekistan but should the world crisis persist beyond 2010 and if the government is interested we certainly would manage to increase our support. But so far we don’t think that Uzbekistan needs to increase support from the WB.

- What specific features you can name in the economic model of Uzbekistan? What are the peculiarities of investment climate?

- I already mentioned that Uzbekistan is blessed by the fact that some of its exports actually not been particularly hit by the crisis. I was mentioning gas, I was mentioning gold but it is not all the story.

I think it is clear that Uzbekistan has been very conservative in its financial sector for the past number of years, has not opened up the financial sector as much as other countries have done, Uzbekistan has not encouraged the banks to use very sophisticated financial instruments which proved in the US for instance or in the UK to have an impact on the health of the fin sector.

The financial sector has traditionally been very tightly controlled and supervised. So the financial crisis does not hit the financial sector of Uzbekistan. And certainly this helps the financial sector to continue providing support to the real sector of the economy, to the entrepreneurs and the enterprises in a way that another countries where banks are in a much worse position are not been able to provide.

I will characterize very prudent macroeconomic management over the years that has led to accumulation of reserves and budget surplus, which allow the government to implement programs during the time of a crisis to accelerate public investment programs which are generating activities and jobs.

The second feature is certainly some of the characteristics of the export of Uzbekistan - goods that have not been affected by crisis and finally the characteristic of the financial sector of Uzbekistan which has been very prudently and I would say rather conservatively managed in the past years has led to the fact that the banks have not been affected by the impact of the world fin crisis starting in the US and then spreading to the other countries of the world.

- So you consider that such a conservative policies are justified?

- Yes, these set of prudent policies might have led to less rapid growth that could have been at the time of the boom in the world economy, but at the same time and at the time of crisis they certainly put Uzbekistan in a much better position so in the medium to long term these rather conservative policies actually shielding Uzbekistan from the worst impact of the crisis.

But at the same time we have to recognize that it might not have led Uzbekistan to grow as fast as it could have in better years. It is a question of dampening the cycle, the economic cycle, which is less “boom and bust” than in other countries. Ultimately I think these policies are designed to privilege stability.

- What can you say about the impact of the crisis on CIS countries and how it will impact the relations between the countries?

- It is clear that most of the countries if not all the countries of the Former Soviet Union except Uzbekistan are being very hardly hurt by the crisis. They will all have very negative rate of growth and it is inevitable that some of the impact of this reduced growth in Russia, Ukraine which are important trading partners of Uzbekistan will have an impact on the exports from Uzbekistan.

Economically certainly the fact that the countries that used to buy goods from Uzbekistan are suffering from negative growth will reduce the potential for export from Uzbekistan, but we don’t think that the impact is going to be dramatic and we think that the government certainly has the budget resources to develop some programs at least during a couple of years to reduce the impact.

We hope that by the end of 2010-2011 the world economy will resume growth and in that case the measures taken by government and by the enterprises of Uzbekistan to upgrade their production facilities and become more competitive will position Uzbekistan very well to take advantage on resumption of a growth.

- How investment climate in Uzbekistan is seen by potential foreign investors?

- I think that it is seen differently by different type of investors. There are some investors from some countries that seem to have more problems investing in Uzbekistan and there are others that seem to find that this is climate they can work with. I don’t think that we can generalize.

There continues to be significant investments from some partners like Korea, Russia, lately we have seen investments from India, less so from western countries. I would like to say that it depends on the sectors and not only of the country of origin but it looks like that investing in some sectors that are considered as strategic for development and receive the support from the government is easier that in other sectors.

I mentioned oil and gas - it is the sector where the government is keenly interested in attracting investments from abroad and is probably taking the measures that are conducive to foreign investments. Another example is the Navoi free economic zone, which is a strategic priority for the government and the conditions have been created to attract investments.

In other sectors that might not be part of the strategic priorities of the government investment climate might be considered as more difficult. I think that we have to be cautious and selective in the answer - it depends from country to country and it depends from sector to sector.

- Does public sector has priorities compared to private sector when investing?

- I would say that it is probably easier to invest in the sectors that are strongly supported by the government as strategic priorities and a bit more difficult when the investor is investing in the sector where the government is not focused.

Source: World Bank