Development finance assessment

State-Owned Enterprises
The Uzbekistan Fund for Reconstruction and Development (UFRD)
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is the country’s largest 
state development fund. The GoU established the UFRD in 2006 to sterilize and accumulate 
foreign exchange revenues, albeit officially the goal of the UFRD is to provide government-
guaranteed loans and equity investments to strategic sectors of the domestic economy. The 
UFRD provides debt financing to SOEs for modernization and technical upgrade projects in 
sectors that are strategically important for the Uzbek economy. It is also the main source 
for the capitalization of state-owned banks (SOBs). All UFRD loans require government 
approval. Increasing transparency regarding the scope and nature of the operations of the 
UFRD would greatly enhance the understanding of the UFRD’s contribution to Uzbekistan’s 
development results. 
SOEs
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in Uzbekistan dominate and have significant influence on the performance 
of many sectors in the economy, including natural resources, energy, manufacturing, 
telecommunications, transport, and agriculture. Comprehensive and reliable data on the 
share of SOEs in GDP, sectoral and regional value-added, employment, and exports are not 
available (Ajwad et al., 2014).
SOEs in Uzbekistan have traditionally been viewed as a key tool for achieving the country’s 
industrial policy objectives. This largely translated into the current structure of industrial 
sectors in Uzbekistan, which are commonly characterized by a major sector-specific holding 
or joint-stock SOE with a mandate of managing the portfolio of SOEs operating in the sector, 
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The Uzbekistan Reconstruction and Development Fund, established in 2006, is a key financial institution under 
the Cabinet of Ministers of the Republic of Uzbekistan designed to implement structural and investment policy. The 
supreme governing body of the Fund is the Council for the Management of the Fund, headed by the Prime Minister 
of the Republic of Uzbekistan.
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Uzbek legislation does not formally identify the term “state-owned enterprise,” and thus no specific ownership 
thresholds designating an enterprise as “state-owned” exist. Most large SOEs in the country are incorporated as joint-
stock companies, commonly majority to fully state-owned.

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DEVELOPMENT FINANCE ASSESSMENT FOR THE REPUBLIC OF UZBEKISTAN
monitoring or supervising the performance of private enterprises, and implementing the 
state’s sector development policies (ADBI, 2020).
Many non-financial SOEs provide goods and services to consumers or other SOEs at 
below cost recovery prices set by government without compensating budget subsidies. 
This practice undermines a level playing field for developing the private sector. About 90 
percent of SOEs are monopolies in their respective industries and with regulated prices, 
they do not have proper incentives to improve operational efficiency. The government also 
mandates SOEs to carry out unreimbursed activities that are not in their core business area, 
such as construction of kindergartens, sports or health facilities, among others. Therefore, 
as corporate restructuring proceeds, explicit fiscal support to the poor or vulnerable will 
need to replace support often provided through SOEs, including through prices below cost 
recovery (World Bank, 2019).
SOEs also execute many of the projects are funded from the budget under the public 
investment program. This includes investment in railroads, electrification of railways, 
purchases of aircraft, and others. 
To finance these development objectives SOEs receive oversized government support 
representing more than a third of consolidated government spending and which are not included 
in the budget. While explicit on-budget subsidies to SOEs are modest (amounting to 1 percent of 
GDP), on-lending by the state-owned banks (SOBs) subsidized by the UFRD and the government 
amounts to about 4 percent of GDP a year. Quasi-fiscal losses of the SOEs amount to at least 6 
percent of GDP, while SOE targeted tax expenditures represent about another 6 percent of GDP. 
These extensive fiscal support measures to SOEs favors capital-intensive industries that generate 
relatively little employment and foreign direct investment (WB, 2019). 
SOBs also provide sizeable concessional lending to SOEs. They on-lend resources 
provided by the UFRD, the government (for housing), or international financial institutions. 
The UFRD lends to four of the SOBs through credit lines for concessional lending according 
to government priorities. The government lends at concessional rates to one of the SOBs 
for housing development and guarantees about half of SOBs’ lending to SOEs, creating a 
contingent liability for the budget (WB, 2019). Lending on concessional terms, in foreign or 
domestic currency, represents 55 percent of the total bank loan portfolio; half of that is to SOEs 
and the rest is under different government programs, including housing, entrepreneurship, 
youth, large farmers, and others. Three-quarters of concessional lending is in foreign currency. 
These contingent liabilities from PPPs and SOEs, if not duly incorporated in government’s 
balance sheets, may increase its exposure to fiscal risks.