The discussions between the Uzbek authorities and the IMF mission focused on economic developments in 2007, the outlook for 2008 and the medium term, and policy issues of importance for Uzbekistan in the short and medium term. The discussions were fruitful and open, and benefited from cooperation from the authorities, for which the mission is grateful.

The mission recognizes that, following the trend of recent years, the economic performance during 2007 was generally strong, with high GDP growth of 9½ percent according to official data, continued very large trade and external current account surpluses, and further increases in foreign direct investment and international reserves. Inflation remained high at about its level in 2006. The banking system has not been adversely affected by recent developments in global financial markets.

On the policy side, the authorities implemented prudent fiscal policies, which resulted in a budgetary surplus. The strong balance of payments together with the policy of nominal depreciation of the sum fueled monetary aggregates and created challenges for monetary policy. In response, the central bank appropriately tightened monetary policy starting in the latter part of 2007. Structural reforms continued at a gradual pace with welcome progress in capitalization of banks and the related strengthening of the banking system, treasury modernization, and tax reforms with a newly adopted tax code.

The mission notes that the economic outlook for 2008 appears favorable with continued strong performance projected for economic growth and the balance of payments. The main challenge in the short term is to reduce inflationary pressures.

To ensure a reduction in inflation as well as continued high rates of economic growth over the medium term, the mission made a number of recommendations. These included: a more flexible exchange rate policy that would support a tighter monetary policy stance; a continuation of cautious fiscal policies until inflation is reduced; further reforms, particularly in the financial sector and exchange and trade regimes to fully exploit the potential of the Uzbek economy; and significant improvements in the quality and availability of data. These recommendations will be thoroughly considered by the authorities in the formulation and implementation of economic policies.

The mission emphasized to the authorities that the Fund staff stands ready to assist Uzbekistan in its reform efforts, including through technical assistance.