Uzbekistan Quality Job Creation as a Cornerstone for Sustainable Economic Growth

Figure 1.16: Selected Banking Indicators, Uzbekistan, 2006–2018
(%)

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Uzbekistan Quality Job Creation as a Cornerstone for Sustainable Economic Growth
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inflationary environment, the CBU’s recent increase in the refinancing rate 
is thus a positive action. Concessional interest rates are, however, especially 
problematic in such an environment and should be avoided. There is also 
evidence that institutional development, the emergence of a market economy, 
and secure property rights help financial deepening in transition economies 
(Hasan et al. 2009). If successful, the government’s intended reforms of the 
administration and judiciary as part of the 2017–2021 National Development 
Strategy will help financial development. Other important measures would 
be to (i) lower the current requirement of 125% collateral for loans, which 
prevents many small and medium-sized enterprises from securing credit; 
and (ii) introduce international accounting standards in order to attract
external finance.
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In relation to privatization of state-owned banks, the central economic 
issue is not whether ownership is public or private, but how efficiently an 
enterprise operates. Studies suggest that government-owned banks operate 
less efficiently than private banks (Cole 2009; La Porta et al. 2002; Sapienza 
2004). There is also strong evidence that bank privatization in the Russian 
Federation substantially boosted financial development and lowered 
unemployment (Berkowitz et al. 2014). Similar success would very likely 
occur in Uzbekistan. The government should thus consider privatizing at least 
some of the state-owned banks. 
The second priority area of future reforms should be to enhance competition 
in the marketplace. As also suggested by the International Monetary 
Fund (2018), the government should take on an active role in reducing 
monopolistic practices and abandon the use of any remaining price controls. 
The latter have been used fairly extensively and have affected important 
goods such as cotton, where growers’ prices have been held well below world 
market levels. Similarly, the prices of energy and water have been held below
opportunity cost. 
Competition improves firms’ productivity levels and thus boosts economic 
growth. Furthermore, it shifts labor to high-productivity firms, which in 
turn results in higher wages (Beegle et al., 2012). Thus, contrary to what is 
often feared, increased competition not only leads to more but also 
better 
jobs. However, an integral part of this progress is a loss in low-productivity 
jobs as productivity surges and monopolistic firms lose their market power. 
The net effect on total employment may thus be negative in the short run. 
Nonetheless, increased competition will soon pay off. There is empirical 
evidence that such negative employment impacts are reversed within 1 year 
(Beegle et al., 2012). 
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Chapter 4 addresses the issues of collateral and international accounting standards. 

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