KEY ARTICLES

ECONOMIC DEVELOPMENT, DIGITAL TRANSFORMATION AND ESG BANKING IN THE REPUBLIC OF UZBEKISTAN

Page of the founder. IBC Journal № 2 (16) 2022
The main macroeconomic, foreign trade and banking indicators of the Republic of Uzbekistan for 2021

In 2021, Uzbekistan's GDP equiva­lent amounted to 69.2 billion US dollars. GDP per capita amounted to $1.9 thou­sand; this indicator increased by 5.3% after a slight decline in 2020.
Generally, annual rate inflation rate slowed by 1,1% compared to the corre­sponding period in 2020 and formed within the target for 2021, amounting to 10% at the end of the year.

By the end of 2021, it was possible to return to positive dynamics in foreign trade. The volume of foreign trade turn­over increased by 16%, export – by 10%, import – by 20%. The trade balance was negative in the amount of 8.9 billion US dollars.

The increase in export is mainly due to a serious increase in the supply of tex­tiles and clothing abroad (by 1.5 times), non-ferrous metals and products made from them (by 1.6 times), machinery and equipment (by 1.6 times), chemi­cal products (by 1.4 times) and services (by 1.3 times).

Import shows a significant increase in the supply of food products (35%), chemical products (24%), ferrous metals and products made from them (35%), energy and petroleum products (39%), services (42%).

Today, the Republic of Uzbekistan conducts trade relations with 160 coun­tries of the world. The largest volume of foreign trade turnover was record­ed with the People's Republic of Chi­na (16.6%), Russian Federation (14.2%), the Republic of Kazakhstan (7.5%), the Republic of Turkey (5.9%), the Republic of Korea (4.8%), the Federal Republic of Germany (2.9%).

Regarding the banking system of Uz­bekistan, it currently includes 33 banks: 13 banks with a government share, 7 joint-stock commercial banks, along with 5 private and 8 foreign banks.
Against the background of a sharp increase in the volume of loans over the past 5 years, the ratio of loans to GDP in the country increased by 26 per­centage points and by the end of 2020 reached 47%.

In 2021, the devaluation of the ex­change rate amounted to 3.4%, which is the lowest indicator in three years. At the same time, the growth of export earnings (34%) and cross-border money transfers to the country (34%) became a factor supporting the supply of foreign currency in the domestic foreign ex­change market, which made it increase it by 1.6 times.

The weighted average interest rates offered by banks on term deposits in na­tional currency in December amounted to 20.2% for individuals and 15.1% for le­gal entities and formed a positive spread regarding inflation expectations. This, in turn, contributed to the growth of the total volume of term deposits in the na­tional currency by 1.5 times, including deposits of individuals – by 1.7 times.

Digital Uzbekistan

In recent years, the Republic of Uz­bekistan, as elsewhere in the world, has been undergoing a process of digital transformation of banks.

On April 28, 2020, the President of Uzbekistan signed a resolution "On measures for the widespread intro­duction of digital economy and e-gov­ernment". Thus, the share of the dig­ital economy in Uzbekistan's GDP is planned to increase by 2 times by 2023, and the share of electronic public ser­vices – to 60% in 2022 (178 public ser­vices have now been provided through the EPIPS (Unified portal of interac­tive public services)). The resolution also provides for the development of digital entrepreneurship with a 3-fold increase in the volume of services in this sphere by 2023 and bringing their export to 100 million US dollars. More than that, on October 5, 2020, the pres­idential decree approved the strategy named "Digital Uzbekistan – 2030", where the targets for the development of digitalization are more detailed in the regional context.
We should note that today the num­ber of Internet users in the republic has reached 22.1 million people; the level of mobile coverage of settlements in the country reached the indicator of 97%, and the mobile Internet – 87%. Cur­rently, over 70% of schools and 78% of healthcare facilities in the country are connected to the Internet.

Thus, owing to the steps taken a few years ago, today Uzbekistan is not among the outsiders in digitalization and is able to expand the scope of digital solutions that will serve for the benefit of the entire population of the coun­try. For example, now there are 3 digi­tal banks in Uzbekistan – "Anorbank", "Apelsin" and "TBС Bank".

In February 2020, the Law of the Re­public of Uzbekistan "On Payments and Payment Systems" came into force, reg­ulating, among other things, the use of electronic money and payment systems. In Uzbekistan, electronic money are the same money, only their circulation is carried out in an electronic system.

Today, such systems in the republic include Click, OSON and Payme. Cur­rently, over 500 thousand wallets have been created in the Click system, more than 140 thousand in OSON, and more than 100 thousand in Payme.

Uzbekistan has also implemented the system of remote biometric identifica­tion of bank customers and the ability for businesses to accept payments via Tap-to-Phone system – namely, without a terminal.

The number of users of remote bank ac­count management increased by 1.4 times and exceeded 20 million users; the volume of transactions using NFC technology in­creased by 4 times by the end of 2021 and amounted to US$ 1.1 billion in equivalent terms; the number of QR codes increased almost by 1.5 times and reached 92 thou­sand, and the coverage rate of contactless payment technologies reached 40%.

ESG banking

The principles of ESG (environmen­tal, social and corporate responsibility) are the important component of state policy in Uzbekistan.

On October 4, 2019, the presidential decree approved the "The strategy for the transition of the Republic of Uzbeki­stan to "green" economy for the period of 2019-2030".

In January 2021, an open environ­mental, social and management report (ESG) named "Progress in Uzbekistan" was published for the first time in the republic. It examines the main pillars of economic development, including infra­structure for growth, active governance and strong civil society and sustainable livelihoods.

By 2030, the Strategy provides:
  • reduction of greenhouse gas emis­sions per unit of GDP by 10% from the level of 2010;
  • two-fold increase in energy efficien­cy index and reducing the carbon intensity of GDP;
  • further development of renewable energy sources, bringing their share to over 25% of the total electricity generation;
  • providing access to modern, inex­pensive and reliable energy supply to 100% of the population and sectors of the economy.

The Uzbek model of sustainable de­velopment is designed to become a long-term strategy for the development of the country.

In addition to Uzbekistan's commit­ment to the UN Sustainable Develop­ment Goals, the Government is work­ing with transnational organizations within the reform process. The key objective of this international coop­eration is to ensure that the results of the reform process can be financed and lead to the adoption of laws that comply with internationally recognized legal standards.

As part of this work, Uzbekistan par­ticipates in various programs, exchanges and consultations with experts from the Organization for Security and Co-opera­tion in Europe (OSCE), the World Bank, the International Development Asso­ciation (IDA), the World Customs Or­ganization (WСO), the European Bank for Reconstruction and Development (EBRD) and the International Labor Or­ganization (ILO).

Sustainable development requires both planning and implementation. This process places high demands on the collection and evaluation of relevant information, implies the participation of stakeholders and the availability of transparent reporting.

As part of the gradual transition to green economy, the Association of Banks of Uzbekistan is actively nego­tiating cooperation with foreign orga­nizations.

The representatives of the Associ­ation also held several meetings with the representative of the UN Global Compact. During the conversation, the parties discussed the prospects for the entry of the Association of Banks of Uz­bekistan into this Agreement.

The UN Global Compact is the largest international initiative aimed at involv­ing business in sustainable development activities, including promoting their so­cial responsibility. The initiative declares ten principles in the field of human rights, labor relations, environmental protec­tion, and the fight against corruption.

The Association also actively cooper­ates with the AIFC Green Finance Cen­tre (Republic of Kazakhstan). During the meetings the possibilities of promoting the development of green finance in the Republic of Uzbekistan, attracting investments into sustainable economy through such trend-oriented financial instruments as green and social bonds, and establishing the subsidiary in the Republic of Uzbekistan were discussed.