Development finance assessment

Measures that support a greener recovery & future development path
Analysis of COVID-19 recovery packages
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shows the potential for strong alignment 
between the economy and the environment and a ‘green route’ out of the crisis as also 
being economically effective. Additional revenue from e.g. a carbon tax or reduced fossil fuel 
subsidies could be re-direct savings into more sustainable initiatives to build back better, with 
a strong focus on creating ‘green jobs’ in environment, climate mitigation and adaptation. 
Clear communication around the use of these additional proceeds, e.g. increasing 
investment to modernize and ‘green’ Uzbekistan’s energy infrastructure or sustaining social 
spending, may further increase support for the reforms. In the short term, clean energy 
infrastructure construction is particularly labor intensive, creating twice as many jobs per 
dollar as fossil fuel investments, as well as being less susceptible to off-shoring.
Address knowledge gaps with regards to total public and private climate finance in Uzbekistan, 
and its efficiencies, to support a greener recovery. 
Undertake a systematic qualitative and quantitative analysis of Uzbekistan’s public 
expenditures and how they relate to climate change, as well asexplore the value of establishing 
a climate budget tagging system to monitor and manage climate related expenditure 
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The 2012 Philippines ‘sin tax reform’-restructuring excise tax on alcohol and tobacco- ended a precipitous decline 
in the value of excise taxes on alcohol and tobacco caused by loopholes in previous legislation. Under the new law, 
revenues increased year-on-year by 85.6%, yielding fresh revenue of some 51 billion pesos (approximately, $1.18 
billion) in 2013. Close to 80% of this figure is earmarked to health-care subsidies for the poorest Filipinos.
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Based on 700 stimulus policies and a global survey of 231 experts from 53 countries, including from finance 
ministries and central banks (Hepburn C., et al., 2020).

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RECOMMENDATIONS
year-on-year. The institutional set-up for supervising climate finance and environmental 
protection has evolved significantly in recent years, resulting in unclear responsibilities, 
coordination and capacity for attracting sufficient green finance. Considering Uzbekistan’s 
exposure to environmental risks addressing this data and information gap is critical to devise 
an evidence-based green recovery approach. 
Adopt a carbon tax and reform fossil fuel subsidies to lower greenhouse gas emissions.
Uzbekistan currently has no carbon taxes, nor participates in any emissions trading scheme 
(ETS). At this stage, setting up an ETS may be administratively burdensome. Therefore, carbon 
taxes may be an appropriate policy option that would combine revenue generation while 
achieving Uzbekistan’s emissions reduction target and limit the future adverse impact of 
climate change. To enhance the public acceptance of the new tax, the collected revenue, in 
turn, can be used for the benefit of the entire society through public spending. Public spending 
can target climate change in general through mitigation measures, such as reforestation 
programmes, or benefit specific vulnerable groups through adaptation measures, such as 
capacity building for small-scale farmers. 
The design of the carbon tax, as well as estimating its revenue potential, would require 
more in-depth analysis. Such analysis can inform a multi-stakeholder dialogue process to 
address critical policy trade-offs related to the introduction of a carbon tax. At present, many 
industrial enterprises have not yet fully recovered from the pandemic a carbon tax risks 
increasing their production costs and decreasing their international competitiveness.
Phasing-out fossil fuel subsidies represents a triple-win situation. It would enhance energy 
security, reduce emissions of greenhouse gases and bring improved fiscal space for governments. 
The structurally low oil prices and the real depreciation of the UZS provide a window of opportunity 
to reduce inefficient fossil fuel subsidies. For Uzbekistan, the first step in reforming energy subsidies 
would consists of formulating an integrated reform strategy that would align energy prices to 
market and cost recovery levels to reduce budgetary costs gradually. This may be combined 
with appropriate incentives to reduce energy intensity and inefficiencies. In anticipation of strong 
social opposition to the phasing-out of fossil fuel subsidies, the GoU could consider reducing 
existing leaks from privileged segments of the population, all the while strengthening the focus 
on vulnerable social segments through better registry systems, and better targeted social safety 
nets, to compensate for the unintended side effects of higher tariffs. Increasing transparency 
around the extent of fossil fuel subsidies and related quasi-fiscal losses may shed light on the 
magnitude of the resources to be freed-up. 
Strengthen resilience to the impact of climate risks.
A strategic, ‘joined-up’ approach to disaster risk reduction (DRR) and mainstreaming 
is an essential component of national development plans in hazard-prone countries. 
Mainstreaming DRR is a vast agenda, beyond the scope of this analysis. However, from a 
financing perspective it is worth noting the relevance of integrating DRR in current and future 
development plans. As a first step, this would require strengthening understanding and 
awareness of the need for disaster risk reduction and its mainstreaming into development, 
and greater accountability for disaster-related losses by establishing a solid, rigorous body 
of evidence on hazard mapping and physical exposure, on disaster losses, on the socio-
economic impact of disasters at national and community levels, and on the scope for en-
hanced resilience. Subsequently, as part of establishing the national enabling environment 
for DRR, Uzbekistan might consider developing explicit disaster loss accounting, a disaster 
response financing strategy and establish dedicated funding lines for disaster risk reduction 
in state and local budgets.

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DEVELOPMENT FINANCE ASSESSMENT FOR THE REPUBLIC OF UZBEKISTAN
Financing instruments to mitigate future climate related risks include weather or catastrophe 
insurance schemes. 
Such schemes provide pay-outs to sovereigns or farmers when a major weather disaster strikes. 
Disaster risk insurance—if applied in tandem with other risk reduction measures—can offset the 
negative impacts of hazards, such as storms, floods and droughts, by supporting adaptation and 
increasing the risk resilience of vulnerable people. Forming disaster risk insurance schemes has 
costs. A careful cost-benefit analysis should be undertaken to determine the appropriateness 
of disaster risk insurance against direct investment in risk prevention. Such analysis would 
require involving national insurance industry experts in Uzbekistan to benefit from their detailed 
perspective in offering ways forward on these issues.
Consider using Strategic Environmental Assessments (SEA) to ensure that environmental and 
possibly other sustainability aspects are considered effectively in policy, plan and program 
making. 
SEA provides a practical and direct means of progressing the SDGs on Environmental 
Sustainability. It refers to a range of analytical and participatory approaches that aim to 
integrate environmental considerations into policies, plans and programmes and evaluate the 
inter linkages with economic and social considerations. SEA can be described as a family of 
approaches which use a variety of tools, rather than a single, fixed and prescriptive approach. 
A good SEA is adapted and tailor-made to the context in which it is applied.