High infrastructure spending, an improved investment climate, increased exports, and expected agriculture pickup are helping Uzbekistan sustain its growth, but the economy remains challenged by persistent credit expansion, accelerated inflation, and a widening current account deficit, according to a new report by the Asian Development Bank (ADB).
In the Asian Development Outlook (ADO) 2019, ADB projects gross domestic product (GDP) growth for Uzbekistan at 5.2% in 2019 and 5.5% in 2020, following 5.1% in 2018. ADO is ADB’s flagship annual economic publication.
“The Government of Uzbekistan is on track to meet its goal of transforming to a market-driven economy,” said ADB Country Director for Uzbekistan Ms. Cindy Malvicini. “Comprehensive reforms will help the country create an enabling environment for businesses, address inequality, enhance productivity, and attain long-term sustainable growth.”
In 2018, investments were the main driver of growth, expanding gross capital formation by 18.1%, compared with 7.1% in 2017. Higher investment in manufacturing, housing, energy, and mining was fueled by a 36.6% surge in foreign investment and lending for fixed capital. Growth in industry, excluding construction doubled to 10.6% in 2018, driven by increases in manufacturing, mining, and quarrying. Construction expanded by 9.9% up from 6.0% in 2017 with gains in housing and production facilities.
The protracted impact of foreign exchange liberalization together with utility price increases, price liberalization for bread, higher wages and pensions, and rapid credit growth accelerated inflation. Average inflation rose from 13.7% in 2017 to 17.9% in 2018, despite exchange rate stability, monetary tightening, and the cancellation of customs duties for basic foodstuffs.
Investments are expected to remain the major growth driver for 2019, reflecting further improvement of the investment climate and government-led investments to modernize manufacturing, mining, power generation, transportation, and housing. Private consumption is expected to benefit from wage growth.
Inflation is projected to decelerate to 16% in 2019 and further to 14% in 2020 as lending growth under state programs slows and customs procedures are further streamlined resulting in increased imports. Inflationary pressure will persist due to a November 2018 rise in energy prices, further hike in electric power and natural gas prices in June 2019, consequent adjustments to pensions and wages, and upwards revisions to customs duties on imports.
The current account deficit is expected to remain high at 7.0% of GDP in 2019 and narrow slightly to 6.5% in 2020. The exports of goods are forecast to grow by 10% in 2019 and 12% in 2020, reflecting an increase in gold prices, stable demand for natural gas from the People’s Republic of China, expanded agricultural exports to the Russian Federation and neighbors, and further processing of cotton into textiles. Imports of goods are projected to rise by 25% in 2019 and 20% in 2020 as demand generated by infrastructure projects and the continued modernization of industry boosts imports for these sectors. External borrowing for state-led development programs is projected to push external debt to the equivalent of 35% of GDP in 2019 and 2020.
The report suggests prioritizing reforms in irrigation, which faces challenges stemming from land degradation and water shortages. The government is recommended to develop a long-term sector strategy, incorporating climate change adaptation and mitigation, farmers’ access to extension services and finance, and secure land tenure. In addition, Uzbekistan should promote water resources management and climate proofing across borders.
Since joining ADB in 1995, Uzbekistan has committed 70 loans totaling $7.4 billion, including two private sector loans totaling $225 million. ADB also provided $6 million in equity investment, $218 million in guarantees, and $87.3 million in technical assistance grants. In 2018, ADB committed five loans totaling $1.1 billion to improve power generation efficiency, primary health care services, access to finance for horticulture farmers and businesses, access to drinking water in the western part of Uzbekistan, and economic management in the country.
Economic Diversification Can Create More and Better Jobs in Ghana
Ghana’s economic growth has been strong over the past decade, with annual GDP per capita growth at 4.4 percent between 2006 and 2017. Growth however has been heavily concentrated in the natural resources and commodities sectors which has had an impact on how and where jobs can be created, according to a World Bank report, entitled “Economic Diversification Through Productivity Enhancement.”
“About 40 percent of the employed work in non-wage agriculture and most urban workers are in low-productivity informal jobs, primarily in the services sector”, said, Pierre Laporte, World Bank Country Director. “The need for economic diversification is therefore urgent for the creation of more and better jobs. Increasing productivity of firms is critical to accelerate job rich growth”.
The report analyzes the main challenges for economic diversification. Ghana’s productivity levels are relatively high in the African context, although they lag behind most other lower-middle- and middle-income countries. The report highlights key constraints for firms to engage in productive activities, such as: (i) access to finance; (ii) access to well-located services, and affordable industrial land; and (iii) access to qualified labor, which is particularly important for firms operating at the technological frontier.
“Growth comes through structural change – a shift of economic activities and employment from low to high productivity areas would help to overcome Ghana’s economic concentration and challenges related to job creation” said Michael Geiger, World Bank Senior Economist and co-author.
Capital accumulation has been a driving force for economic growth over the past decade. Increasing the capital stock is good news for an economy that is trying to address its infrastructure gap and has ambitious goals to catch-up economically. Capital accumulation in Ghana was realized through strong increases in investments concentrated in a few, natural resource sectors. In order to broaden Ghana’s economic endowment, investments need to benefit more sectors in the economy.
To create a pathway to a more diversified economy, the report suggests taking advantage of short-term wins in promising sectors for growth such as agribusiness, chemicals, textiles, processed resources through upgrading of existing production and product differentiation. It calls for interventions to lay the foundation for economic activity to flourish, such as human capital and physical infrastructure development, bettering the business enabling environment by removing some of constraints to productivity growth, and addressing structural issues to attract more foreign direct and domestic investments.
The report concludes that a more diverse economy could help reduce economic volatility from commodity cycles and offer new opportunities for more people to benefit from strong economic growth.
Income Growth Sluggish for Malaysian Youth, Lower- Income Households
Slowing income growth among lower-income households and younger workers has contributed to perceptions of being “left behind”, according to the 21st edition of the World Bank’s Malaysia Economic Monitor, launched here today.
Although median incomes continue to outpace inflation, income growth rates for low-income Malaysians slowed between 2014 and 2016. Moreover, wage growth for younger and less-educated workers has been sluggish, persistently trailing the earnings of older and better-educated workers, according to the report.
Median employment income for younger workers aged between 20 and 29 grew at an annual rate of 2.4 percent, compared to 3.9 percent for those 40 to 49 years old over the same period. The increase in the monthly absolute earnings gap between these two age groups has been more pronounced, more than doubling from RM529 in 2004 to RM1,197 in 2016 (all amounts adjusted for inflation). This signifies a growing wage divide and wage stagnation for the youths.
The report highlighted varying purchasing power in different parts of the country, poor financial planning, household indebtedness, and unaffordable housing as other key factors affecting living costs.
“The cost of living is a concern which extends beyond prices. Those on lower wages spend their income to pay for essentials – rent, transportation, food – and in the end, they find not much is left for the month. The challenge for policymakers is that different solutions are needed to cater to different groups with different needs,” said YB Datuk Seri Saifuddin Nasution Ismail, Malaysia’s Minister of Domestic Trade and Consumer Affairs. “The National Action Council on Cost of Living was established so that efforts by different ministries and government agencies can be formulated, consolidated and discussed under one roof. This timely report by the World Bank also serves to inform efforts to better serve the people.”
Amidst global uncertainty, the report notes that Malaysia’s growth continues to be sustained with GDP projected to expand by 4.5 percent in 2020, largely driven by the expected expansion of private consumption of 6.5 percent and despite weaker-than-anticipated investment and export growth in recent months.
Given the outlook, preserving fiscal space will be vital to mitigate the impact of any shocks. More can be done to raise government revenue, forecasted to be at 15.2 percent of GDP in 2020, without affecting low-income households, in key areas such as making personal income taxes more progressive and broadening consumption taxes. This will help create fiscal space for development and social spending to boost shared prosperity.
“More than ever, we need to scale up investments in people to encourage sustainable, inclusive economic growth. Malaysia can make policy decisions to combat inequality and improve the lives and opportunities of the poorest,” said Mara Warwick, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “The report draws on strong evidence to identify high-impact policies with a proven record of building shared prosperity and improving people’s access to services and long-term development opportunities.”
Alleviating cost of living pressures demands a mix of short-term measures and long-term policies, according to the report. Short-term measures should strengthen social safety nets, while over the long run, greater coordination across agencies and implementation of structural reforms to foster greater market competition and accelerate productivity would help lift real incomes for all.
Inequality threatening human development
Despite global progress in tackling poverty, hunger and disease, a “new generation of inequalities” indicates that many societies are not working as they should, the UN Development Programme (UNDP) argues in its latest report released on Monday.
The 2019 Human Development Report (HDR) states that just as the gap in basic living standards is narrowing for millions of people, inequalities surrounding education, and around technology and climate change, have sparked demonstrations across the globe.
Left unchecked, they could trigger a ‘new great divergence’ in society of the kind not seen since the Industrial Revolution, according to the report.
“This Human Development Report sets out how systemic inequalities are deeply damaging our society and why,” said Achim Steiner, the UNDP Administrator.
“Inequality is not just about how much someone earns compared to their neighbour. It is about the unequal distribution of wealth and power: the entrenched social and political norms that are bringing people onto the streets today, and the triggers that will do so in the future unless something changes. Recognizing the real face of inequality is a first step; what happens next is a choice that each leader must make.”
‘Inequality not beyond solutions’
Mr. Steiner added crucially that “inequality is not beyond solutions”.
The human development approach views “richness” as going beyond the idea that economic growth will automatically lead to development and wellbeing.
It focuses on people, and their opportunities and choices.
UNDP research shows that in 2018, 20 per cent of human development progress was lost due to the unequal distribution of education, health and living standards.
“What used to be ‘nice-to-haves’, like going to university or access to broadband, are increasingly important for success, but left only with the basics, people find the rungs knocked out of their ladder to the future,” said Pedro Conceição, Director of the HDR Office at UNDP.
Invest in education, productivity, public spending
The report recommends revamped policies in the areas of education, productivity and public spending.
As inequality begins even before birth and can accumulate through adulthood, investing in young children’s learning, health and nutrition is key. These investments must continue throughout life as they have an impact on earnings and productivity in the labour market.
UNDP observed that countries with a more productive workforce generally have a lower concentration of wealth at the top, which is enabled by policies that support stronger unions, the right to a minimum wage, social protection and which bring more women into the workplace.
The report further highlights the role of taxation, which cannot be looked at on its own. Rather, fair taxation should lie behind policies that include greater public spending on health, education and greener energy alternatives.
As the UNDP chief noted, “Different triggers are bringing people onto the streets — the cost of a train ticket, the price of petrol, demands for political freedoms, the pursuit of fairness and justice. This is the new face of inequality”.
Looking to the future, the report asks how inequality might be viewed years down the line, especially in relation to “two seismic shifts” that will shape the next century.
Those are the climate crisis, and the progress of the technological transformation that includes renewables and energy efficiency, digital finance and digital health solutions.
The report calls for opportunities to be “seized quickly and shared broadly”.
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