IMF urges Uzbekistan to maintain tight monetary stance and prepare for further hikes if inflation stalls

The International Monetary Fund (IMF) has urged Uzbekistan to maintain a tight monetary policy stance and stand ready to tighten it further if disinflation stalls. The recommendation comes as part of the IMF’s concluding statement following its 2026 Article IV consultation with Uzbekistan, highlighting that while the country's economic outlook remains robust, external uncertainties and domestic demand pressures persist.

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According to the IMF, Uzbekistan’s real GDP is projected to expand by approximately 6.8% in 2026 and 6.0% in 2027, driven by strong private consumption, robust investment, and ongoing structural reforms. High global gold prices and steady remittance inflows helped narrow the consolidated budget deficit to 2.1% of GDP in 2025. These factors, alongside growth in non-monetary exports, also reduced the current account deficit to 3.9% of GDP. International reserves remain comfortable and are projected to cover 12 months of imports by the end of 2026, dropping the current account deficit further to 3.2% of GDP this year.

Despite these positive indicators, the IMF warns of significant downside risks. Externally, an escalation of geopolitical tensions, particularly secondary impacts from the conflicts in the Middle East, could weaken global demand, lower commodity export prices, and tighten international financial markets. On the domestic front, the fund identified risks such as pro-cyclical fiscal spending, the continuation of state-subsidized preferential lending, and potential delays in addressing structural bottlenecks. Conversely, faster-than-expected structural reforms could push growth above current projections.

To mitigate risks of economic overheating and rebuild fiscal buffers, the IMF advises a cautious fiscal approach. This is particularly crucial for the remainder of 2026, as budget revenues may outperform initial targets. Limiting intra-year spending increases will be vital to anchor inflation expectations and bolster policy credibility.

The fund recommends introducing a strengthened fiscal framework to insulate public spending from volatile mineral revenues, suggesting an operational target such as a cap on the non-extractive primary deficit. Additionally, raising specific excise taxes, scaling back tax holidays, and strengthening tax and customs administration are recommended to reverse the recent decline in the tax-to-GDP ratio.

On monetary policy, the Central Bank of Uzbekistan must keep its operations firmly anchored toward achieving its medium-term inflation target. Given persistent domestic demand and a positive output gap, the current tight stance is deemed appropriate, but monetary authorities must be prepared to hike rates if inflation reduction slows down.

The IMF stressed that maintaining exchange rate flexibility is critical to absorbing external shocks and protecting foreign reserves. To enhance monetary policy transmission, the fund advises accelerating the restructuring and privatization of state-owned banks, phasing out directed credit, and safeguarding central bank independence. Financial inclusion initiatives, the report notes, should rely on market competition and risk-based pricing rather than administrative controls or subsidized credit, which risk weakening financial sector balance sheets.

Finally, reducing the state’s footprint in the economy and fostering market institutions remain key to unlocking private sector productivity. Continued reform of state-owned enterprises through privatization and enhanced corporate governance will help establish a level playing field and attract private investment.