Development finance assessment

Revenue of subnational governments
In Uzbekistan subnational governments
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act as extensions to the central government and 
play an important role in providing public services in Uzbekistan. During 2013-2019, they 
implemented around 34 percent of national public spending (56 percent of total national 
spending when excluding extra budgetary accounts). Their spending is concentrated on 
education (43 percent), healthcare (21 percent), and public services (15 percent). Capital 
spending, in contrast, accounted for only 7 percent of total subnational expenditure (World 
Bank, 2019). 
In addition to local taxes (fixed revenue), the local budgets are financed through i) transfer 
of revenues and expenditures between levels of the budget, as well as ii) intergovernmental 
fiscal transfers in the form of subventions, transferred proceeds, government grants, 
intergovernmental settlements and targeted social transfers. For 2020, fixed revenue 
represented 46 percent of total planned local expenditures across all regions and revenue 
transfers represented 39 percent (GoU, 2020). The equalization grants cover the remaining 
financing gap for specific regions. 
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The authorities report that 17,246 enterprises benefited from UZS 9.3 billion in tax incentives through the tax code, 
while 21,355 enterprises benefited from UZS 6.4 billion in tax incentives through government decisions (WB, 2019).
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Subnational governments here refer to the 12 regions (viloyat), one autonomous republic (Republic of Karakalpakstan), 
and one independent city (City of Tashkent); and (iii) 40 cities or urban districts and 162 rural districts, which are 
further subdivided into towns and villages.

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DIMENSION 1: 
ASSESSING DEVELOPMENT FINANCE FLOWS
Local taxes make up the remaining revenue of subnational governments, mostly gasoline 
tax, property tax and land tax in agriculture. Property taxes represented 18.5 percent of local 
tax collection, which is one of the largest compared to the Euro-Asian countries with similar 
scope of local government sector. It amounted to 1.3 percent of GDP in 2016, which is high 
by international comparison. 
To date, the allocation of intergovernmental transfers was complex and highly discretionary. 
The balanced budget criterion incentivized regions to overstate their planned expenditures, 
while understating revenues. Also, subnational governments did not receive budget allocation 
information prior to the Presidential Decree confirming the approved appropriations. This system 
undermines local accountability and efficiency in the use of resources (World Bank, 2019). 
Furthermore, subnational governments are not permitted to run budget deficits. They can 
increase their expenditures only if their revenue collections exceed the forecasted amount 
adopted in the budget decree. They also cannot provide guarantees in favor of third parties 
or grant budget loans to non-governmental entities or individuals. SNGs can attract short-
term loans from the upper level of government, to be repaid by the end of the fiscal year; 
they cannot borrow from other sources. 
The 2020 Citizen Budget signals the GoU’s strong intention to introduce a more transparent 
system of intergovernmental fiscal transfers. The World Bank (2019) recommends increasing 
the predictability of transfers by introducing rule-based allocation mechanisms, reviewing 
and clarifying expenditure assignments across the different levels of government, and 
providing greater fiscal autonomy to subnational governments.