CC BY
30 n 0 O IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L 0 AND INDEXES: THEORY, PRACTICE, AND STRATEGY
UZBEKISTAN'S FINANCIAL LANDSCAPE: BRIDGING THE GAP WITH INTERNATIONAL STANDARDS Mukhlisa Gulomova
https://doi.org/10.5281/zenodo.10143635
Abstract. Uzbekistan's financial landscape has undergone significant reforms in recent years to modernize and liberalize the banking sector, develop the capital markets, and promote fintech. This has contributed to economic growth and improved access to financial services. However, challenges remain such as corruption and limited access to financing for SMEs. Uzbekistan is working to enhance regulatory frameworks and transparency to align with international standards and attract more foreign investment. The development of a regional investment financial center aims to improve market infrastructure and regulations. If Uzbekistan addresses ongoing challenges while continuing reforms, it has strong potential to establish itself as a vibrant financial hub in Central Asia.
Keywords: Uzbekistan's financial landscape, Bridging the Gap, International Standards.
Introduction
The financial landscape of a state refers to the overall financial condition and performance of the state's economy. It encompasses various aspects such as the state's budget, revenue sources, expenditure patterns, debt levels, and economic indicators. By analyzing the financial landscape of a state, stakeholders can make informed decisions regarding investments, taxation policies, and resource allocation.
One of the key aspects of the financial landscape of a state is its budget. The state budget outlines the planned revenue and expenditure for a given period, usually a fiscal year. It provides an overview of the state's financial priorities and goals. The budget reflects how the state plans to generate revenue, through sources such as taxes, fees, and grants, and how it intends to allocate these funds to various sectors such as education, healthcare, infrastructure development, and public safety. A balanced and well-managed budget indicates a healthy financial landscape, while deficits or excessive debt levels may signal financial challenges.
Another significant aspect of the financial landscape of a state is its revenue sources. States generate revenue through various means, including taxes, fees, licenses, permits, and federal grants. The composition of revenue sources varies across states depending on factors such as economic structure, tax policies, and population size. For example, states with a large manufacturing sector may rely heavily on sales taxes and corporate taxes, while states with a significant tourism industry may depend more on hotel taxes and tourism-related fees. The diversity and stability of revenue sources play a crucial role in determining the financial resilience of a state.
Expenditure patterns are also an essential component of the financial landscape of a state. States allocate funds to different sectors based on their priorities and needs. Common sectors that receive significant funding include education, healthcare, infrastructure development, public safety, and social welfare programs. The distribution of expenditures among these sectors reflects the state's commitment to providing essential services and promoting economic growth. Efficient and targeted expenditure patterns contribute to a favorable financial landscape by ensuring optimal utilization of resources.
Debt levels are another critical aspect of the financial landscape of a state. States may borrow money through issuing bonds or taking loans to finance infrastructure projects or cover
0 n 0 O IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L 0 AND INDEXES: THEORY, PRACTICE, AND STRATEGY
budget deficits. However, high levels of debt can strain a state's finances and limit its ability to invest in other areas. Debt levels are measured using indicators such as debt-to-GDP ratio or debt per capita. A manageable debt burden indicates fiscal prudence and stability.
Economic indicators provide valuable insights into the overall health and performance of a state's economy. These indicators may include measures such as GDP growth rate, unemployment rate, inflation rate, labor force participation rate, and per capita income. Strong economic indicators indicate a robust financial landscape with opportunities for growth and investment.
Uzbekistan's Financial Landscape: Current Status
Uzbekistan's financial landscape has undergone significant transformations in recent years. The country has implemented several structural reforms to strengthen its economy and attract foreign investment. These reforms have led to a more open and transparent financial system, providing opportunities for both domestic and international investors.
One of the key aspects of Uzbekistan's financial landscape is the development of its banking sector. The government has taken steps to modernize and liberalize the banking industry, encouraging competition and innovation. This has resulted in the emergence of new banking products and services, catering to the needs of individuals and businesses. The increased accessibility to financial services has contributed to the growth of the economy and improved financial inclusion.
Moreover, Uzbekistan has made significant progress in improving its regulatory framework and corporate governance standards. The country has implemented measures to enhance transparency and accountability in the financial sector, ensuring a level playing field for all market participants. This has instilled confidence among investors, both domestic and foreign, leading to an influx of capital into the country.
In addition to the banking sector, Uzbekistan's financial landscape also includes a vibrant capital market. The government has introduced reforms to develop and diversify the capital market, providing opportunities for companies to raise funds through equity and debt instruments. This has not only facilitated access to capital for businesses but has also created avenues for investors to participate in the growth of Uzbekistan's economy.
The government has taken steps to promote financial technology (fntech) in Uzbekistan. Fintech startups have emerged in various sectors, such as payments, lending, and wealth management, revolutionizing the way financial services are delivered. This digital transformation has not only improved efficiency but has also increased financial inclusion, especially for underserved populations.
However, despite these positive developments, challenges remain in Uzbekistan's financial landscape. The country still faces issues such as corruption, inadequate infrastructure, and limited access to finance for small and medium-sized enterprises. Addressing these challenges will be crucial for sustaining the growth of the financial sector and ensuring inclusive economic development.
The global financial crisis of recent years has had a profound impact on economies worldwide, and Uzbekistan is no exception. The aftermath of the crisis resulted in a loss of potential production capacity, estimated at 8.4%. The limited availability of credit resources during the crisis led to the emergence of inefficient capital and a delay in investments in innovation. These factors compressed production potential and labor productivity, hindering long-term growth prospects.
0 n 0 O IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L 0 AND INDEXES: THEORY, PRACTICE, AND STRATEGY
To mitigate the negative consequences of the financial crisis, new regulations and reforms have been introduced at both international and regional levels. The European Union, for example, established the Capital Markets Union to reduce the reliance on bank financing and enhance the attractiveness of stock markets for small and medium-sized enterprises. However, concerns have been raised about the complexity and transparency of the regulatory framework, emphasizing the need for focused efforts on key principles of financial regulatory reform.
The relationship between finance and economic growth is not straightforward. In the 1990s, it was widely believed that financial development was positively correlated with economic growth. Developed financial sectors were seen as catalysts for entrepreneurship, innovation, investments, and productivity. However, recent empirical research has shown that the link between finance and economic growth is not linear.
Countries with medium-income levels tend to benefit from financial sector development, while those with high-income levels may experience diminishing returns. Thus, there is no one-size-fits-all approach to the optimal size of the financial sector. Policymakers need to focus on creating the right institutional framework and incentives to ensure risk limitation and stability.
The banking system is a crucial component of Uzbekistan's financial landscape. Historically, banks have played a vital role in financing entrepreneurship and the emergence of new firms, driving positive dynamics in economic activity. However, there have been concerns about the disconnect between the banking sector and the real economy.
One explanation lies in the structure of banking activities in industrialized countries. As banks expand their non-interest income streams, they rely less on traditional deposit-taking and lending activities. This shift can lead to a reduced focus on supporting the real sector, especially during periods of market instability.
Another factor is the difference between consumer and commercial lending. While credit channels are closely linked to investment and innovation, as economies reach their peak productivity in certain sectors, further expansion of lending to the real sector becomes increasingly challenging [1].
Additionally, the employment structure within the financial sector can impact its ability to sustain economic growth. Highly skilled professionals in the banking sector may be attracted to higher-paying industries, resulting in a potential talent drain.
Uzbekistan's financial system faces both challenges and priorities in its pursuit of sustainable growth. Key areas of focus include enhancing financial stability, improving access to financing, and promoting innovation.
Maintaining financial stability is crucial for sustainable economic growth. Uzbekistan has taken steps to strengthen its financial regulatory framework, ensuring prudent risk management and improved transparency. Efforts are being made to strike a balance between bank-centric and market-centric financing models, with the aim of reducing systemic risks and promoting stability.
Enhancing access to financing, particularly for small and medium-sized enterprises (SMEs), is a priority for Uzbekistan. The government has implemented initiatives to promote lending to SMEs, including the establishment of dedicated funds and guarantee programs. By improving access to credit, Uzbekistan aims to stimulate entrepreneurship, job creation, and overall economic growth.
Innovation plays a crucial role in the development of the financial sector. Uzbekistan recognizes the importance of embracing technological advancements and promoting digitalization in financial services. Efforts are underway to enhance the efficiency and security of payment
0 n 0 O IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L 0 AND INDEXES: THEORY, PRACTICE, AND STRATEGY
systems, develop fintech infrastructure, and foster a supportive regulatory environment for innovation [2].
It should be noted that now the Government of Uzbekistan is actively involved in ensuring the harmonization of scientific potential and practical activities in working with international ratings and indices. Resolution of the President of the Republic of Uzbekistan, dated 05/18/2022 No. PP-246 contains several strategies and programs proposed by various institutions in Uzbekistan from July 2022 to December 2023.
Among them are the improvement of entrepreneurial freedom, the modernization of the labor market, the strengthening of monetary freedom and freedom of investment. Other proposals are aimed at simplifying customs procedures, developing transport infrastructure and improving logistics services. Digital strategies are aimed at increasing online services, internet access and digital literacy. It is also a priority to ensure transparent and responsible governance, such as strengthening parliamentary oversight and civic participation.
Modernization of credit reporting and debt management is also being considered. The resolution is a comprehensive set of economic, technological and political reforms proposed by Uzbek research centers and government agencies. In the next part of the work, specific studies in this area will be considered, as well as key performance indicators, thanks to which it is possible to assess the improvement of the position of the Republic of Uzbekistan in international rankings and indices [3].
Uzbekistan's Financial Landscape: Bridging the Gap with International Standards
Uzbekistan, with its vast resources and strategic location in the heart of Central Asia, holds immense potential for economic development. Over the years, the country has made significant strides in its financial market, aiming to align with international standards and attract foreign investors. Here, we will explore the key aspects of Uzbekistan's financial landscape and the efforts being made to bridge the gap with international standards.
The development of the financial market is a crucial aspect of any economy. In Uzbekistan, the government has recognized the significance of a robust financial market in driving economic growth. As part of the Development Strategy of Uzbekistan for 2022-2026, there are plans to expand the financial resources in the economy by increasing the turnover of the stock market from $200 million to $7 billion over the next five years. Additionally, there is a focus on transforming state-owned banks into modern institutions and increasing the share of the private sector in the banking system's assets to 60% by 2026.
The Central Bank of Uzbekistan plays a vital role in the development of the financial market. Deputy Chairman of the Central Bank, Abrokhuzha Turdaliyev, highlighted the efforts being made to develop the capital market, which holds significant importance for banks. One of the key objectives is to create favorable conditions for the entry of foreign investors into the Uzbekistan market. The Central Bank is also focused on building trust among citizens by ensuring the protection of deposits and improving services while safeguarding the rights of investors from fraudulent activities.
To further enhance the national market and attract international financial institutions, Uzbekistan has plans to establish a regional investment financial center. This center aims to improve regulations, infrastructure, and the availability of financial market instruments. To achieve this goal, the banking sector is adopting modern methods to automate processes and improve the efficiency of services. However, the regulation and organization of the financial
0 n 0 O IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L 0 AND INDEXES: THEORY, PRACTICE, AND STRATEGY
market pose complex challenges that require continuous adaptation to changing trends and the introduction of new financial instruments [4].
Uzbekistan recognizes the importance of aligning its financial market with international standards. One of the key steps in this transition is the establishment of the National Agency for Project Management (NAPM) as the regulatory authority for the capital market. This move is expected to bring more focus and efficiency to the development of the financial market. The previous regulator, the Ministry of Economy and Finance, faced challenges in implementing ambitious goals, such as the initial public offerings (IPOs) of major companies and banks. The successful execution of IPOs is crucial in increasing the free-float market capitalization and attracting investors [5].
While Uzbekistan's financial market is undergoing significant transformations, there are challenges that need to be addressed. The frequent changes in regulatory bodies, the shortage of skilled personnel, and the lack of effective monitoring have hindered the implementation of key initiatives. However, there are opportunities for growth, such as the introduction of new financial instruments like exchange-traded funds, mortgage-backed securities, and crowdfunding. These instruments can contribute to the popularity of the Uzbekistan market among investors and diversify investment opportunities.
Looking ahead, Uzbekistan's financial market has immense potential for growth. To realize this potential, it is essential to continue developing the regulatory framework, improving transparency, and strengthening investor protection.
Collaborative efforts between the government, regulatory authorities, and the financial industry are crucial in bridging the gap with international standards. Additionally, enhancing financial literacy among citizens and promoting the use of digital technologies can further accelerate the development of the financial market [6].
It should also be noted that the Government is working to improve the position of the Republic of Uzbekistan in international ratings and indices, as well as to introduce a new mechanism for systematic work with them in government agencies and organizations.
In particular, over the past four years, Uzbekistan has risen by 52 positions in the "Index of Economic Freedom" of the Heritage Foundation, by 19 positions in the 'Logistics Efficiency Index", and by 18 positions in the "Doing Business Index" of the World Bank.
According to Appendix No. 2 to the Decree of the President of the Republic of Uzbekistan dated June 2, 2020 No. DP-6003, it should be noted that there is a distribution of socio-economic and political-legal ratings and indices between the working bodies of the Council.
Socio-economic sphere (Ministry of Finance) is distributed among the following bodies:
1. Sovereign credit ratings.
2. Doing Business Index.
3. Global Competitiveness Index.
4. Economic Freedom Index.
5. OECD Country Risk Classification.
6. Logistics Performance Index.
7. Open Budget Index.
8. E-government Development Index.
9. Human Development Index.
10. Sustainable Development Goals.
11. Global Innovation Index.
0 n 0 O IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L 0 AND INDEXES: THEORY, PRACTICE, AND STRATEGY
12. Statistical Capacity Indicator.
13. Competitive Industrial Performance Index.
14. FDI Regulatory Restrictiveness Index.
Appendix No. 3 to the Decree of the President of the Republic of Uzbekistan dated June 2, 2020 No. DP-6003 consists of several ratings, and they include statistical data. Statistics include data for 2020, 2022, the current state and projected values.
The category of sovereign credit ratings, the responsible state body of which is the Ministry of Finance, includes the ratings of Fitch and S&P Global Ratings, the current value of which, according to statistics, is "BB", which means "stable", and it was also in 2020 and 2022. However, the predicted value is "BBB", which means "positive". Thus, the government expects that the ratings of Fitch and S&P Global will be improved by 2030.
Other key performance indicators are also expected to increase. For example, the protection of minority investors is expected to increase by 28.57% by 2030. The tax payment rate will increase by 17.42% by 2030.
The level of government intervention, which includes such indicators as the tax burden, government spending and financial well-being, will increase by 4.5%, 19.68% and 0.6%, respectively. The monetary freedom indicator will improve by 25.88% by 2030.
Speaking about the indicator of market openness and the indicator of financial freedom in particular, it should be noted that financial freedom will increase by 4 times [9].
The OECD Country Risk Classification, which refers to the process of assessing and categorizing the level of risk associated with investing or doing business in a particular country [10]. Now the country is in Group 5 on a par with such countries as Bangladesh, Algeria, Albania, etc. In 2030, the country will enter Group 3. Now Group 3 includes countries such as Bulgaria, Croatia, India, etc. Being in Group 3 means that the country in the group is much more attractive for investment and arouses potential interest from investors [11].
Conclusion
Uzbekistan's financial landscape is evolving to meet the challenges of a rapidly changing global economy. The country is focused on maintaining financial stability, improving access to financing, and fostering innovation. By addressing these priorities, Uzbekistan aims to create a resilient and dynamic financial system that supports sustainable economic growth and development.
The development of the banking sector, improvements in regulatory frameworks, the growth of the capital market, and the promotion of fntech have all contributed to creating a more open and transparent financial system. However, challenges remain that need to be addressed to further enhance the country's financial landscape and support inclusive economic growth. Uzbekistan's financial landscape is undergoing significant changes to align with international standards. The efforts to expand the financial market, attract foreign investors, and create a regional investment financial center demonstrate the country's commitment to economic growth. While challenges persist, the opportunities for development are vast. By addressing the challenges and implementing necessary reforms, Uzbekistan can bridge the gap with international standards and establish itself as a vibrant and attractive financial hub in Central Asia.
In this article, some resolutions of the President of Uzbekistan were considered. The resolutions discuss Uzbekistan's efforts to improve its position in international rankings and indices. Over the past four years, it has risen 52 places in the index of economic freedom and 19 places in the logistics efficiency index. State institutions are responsible for working on specific
0 n 0 O IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L 0 AND INDEXES: THEORY, PRACTICE, AND STRATEGY
socio-economic and political-legal ratings. These include credit ratings, ease of doing business, competitiveness, and more. Statistics show expected improvements in these areas by 2030, such as an increase in credit ratings to BBB. According to the OECD forecasts, financial freedom will increase fourfold, and the country may move into a more attractive risk category for investors. In general, the Government is striving to increase the competitiveness and attractiveness of Uzbekistan for investment due to progress in these global indicators.
REFERENCES
1. Rasulev A.F. Uzbekistan: new challenges of the financial system in the context of innovative development // EVD. 2016. No. 2 (44).
2. Srozhiddinova Z. K. The system of public finance: management reform, directions of improvement in the republic of Uzbekistan // Financial Journal. 2023. No.3.
3. Resolution of the President of the Republic of Uzbekistan, dated 05/18/2022 No. PP-246 on measures to ensure the harmonization of scientific potential and practical activities in working with international ratings and indices. [Electronic resource] - URL: https://lex.uz/en/docs/6026694.
4. Financial market development is an important aspect of the economy. [Electronic resource] -URL: https://ochiqmuloqot.mift.uz/ru/razvitie-finansovogo-rynka-vazhnyj-aspekt-ekonomiki/.
5. Uzbekistan's stock market wants to increase 20 times in seven years. [Electronic resource] -URL: https://ochiqmuloqot.mift.uz/ru/razvitie-finansovogo-rynka-vazhnyj-aspekt-ekonomiki/.
6. Yuldasheva E.I. The financial market of Uzbekistan: development in the conditions of liberalization // Innovations and investments. 2019. No. 1.
7. Rasulev A.F. Uzbekistan: priorities and challenges of the financial system// EVD. 2016. No. 13 (13).
8. Rasulev, A. F. Uzbekistan: priorities and new challenges of the financial system. The doctrine. Socio-Political Studies. 2016. 13 (13), 167-187.
9. Decree of the President of the Republic of Uzbekistan, dated 02.06.2020, No. UP-6003 on improving positions of the republic of Uzbekistan in international ratings and indices, as well as implementation in government bodies and organizations of new mechanisms of working with them on systematic manner. [Electronic resource] - URL: https://lex.uz/docs/5528047.
10. Country risk classification. [Electronic resource] - URL: https://www.oecd.org/trade/topics/export-credits/arrangement-and-sector-understandings/financing-terms-and-conditions/country-risk-classification/.
11. Country Risk Classifications of the Participants to the Arrangement on Officially Supported Export Credits. [Electronic resource] - URL: https://www.oecd.org/trade/topics/export-credits/documents/cre-crc-current-english.pdf.
