Ministry of Finance of the Republic of Uzbekistan

2. Ministry of Finance of the Republic of Uzbekistan Roadmap of key economic reforms for 2019-2021 PRIORITY 1: MAINTAINING MACROECONOMIC STABILITY Tashkent - 2018

3. Agenda • Strong economic foundations and safety nets for reforms • Macroeconomic stabilityas a Government key priority • Roadmap of key reforms in fiscal sector in 2019-2021: Maintaining macroeconomic stability

4. Strong economic foundations support current reforms and serve as safety net for reforms • 7.1% average GDP growth in 2013-2017 slowed down to 5,2% in 2017-2018 with further projected acceleration up to 7% by 2021 • Inflation level ranged 5-7% in 2013-2015 peaking up to 16-17% during positive structural reforms CPI change (dec./dec.), p. p. Contribution to GDP growth by economic sectors, p. p.

5. Strong economic foundations support current reforms and serve as safety net for reforms • Low external public debt (24% of GDP) and solid FX reserves serves as a safety net Total external debt breakdownUSD bn, GDP calculated in USD Total external public debtYear-end, GDP calculated in USD

6. Strong economic foundations support current reforms and serve as safety net for reforms • 13 consecutive years of current account surplus projected temporary turn to negative due to advance import growth • FX reserves equal to 20 months of imports Trade balance Primary income Secondary income Current account balance Balance of payments components, % of GDP Sizeable FX ReservesUSD bn • XAU mn 

7. Macro stability and improved macroeconomic management is a cornerstone of sustainable development Flexible exchange rate has operated smoothly since September 2017 Consolidated budget revenue and expense, UZSbn

8. Macro stability and improved macroeconomic management is a cornerstone of sustainable development • Despite solid buffers government still priorities maintaining macroeconomic stability aimed at: • Low and stable inflation environment • Sustained high job-led economic growth • Fiscal policy discipline and prudent debt management • Flexible exchange rate with low volatility • Macroeconomic risks management • Macroeconomic stability allows to focus on micro reforms: • Price liberalization can’t be carried out in unmanageable inflation environment; • Trade liberalization and import growth has limited space if country had large scale current account deficits, etc.

9. Roadmap of key reforms in fiscal sector in 2019-2021: Maintaining macroeconomic stability • Stronger Macroeconomic Institutions • Clearer institutional mandates • Strengthened institutional coordination • Improved quality and timeliness of macroeconomic data • Fiscal Policy • Credible and sustainable fiscal policy • Increased fiscal transparency • Improved efficiency and accountability of public expenditure • Tax Reform • Tax system is fairer, more efficient and revenue sustainable • Simpler and more efficient tax code • Improvements to tax administration that reduce compliance burdens

10. Roadmap of key reforms in fiscal sector in 2019-2021: Maintaining macroeconomic stability • Further improving data quality and higher transparency • Conducting coherent fiscal and monetary policy to ensure macroeconomic, incl. price stability • Developing a public domestic and foreign debt strategy, roadmap to improve debt management infrastructure (as a pre-requisite for the issuance of sovereign bonds) • Developing fiscal rules (ceilings to ratios: debt, budget deficit and budget revenues to GDP, limits on expenditure during decrease of revenue, etc.) • Implementing Tax reforms and ensuring fiscal stability

11. 1st half of 2019 • - Studying foreign experience of fiscal rules implementation • - Considering the application of fiscal rules • 2nd halfof 2019 • - Inventory of existing documents on fiscal constraints • - Regulatory framework development • 1st halfof 2020 • - Testing fiscal rules and performance analysis ImplementingFiscal rules • 1st stage • 2nd stage • 3rd stage

12. 1st stage • 1st half of 2019 • 2nd stage • 2nd half of 2019 • 3rd stage • 1st half of 2020 ManagingFiscal risks • - Developing a methodology for assessing fiscal risks and fiscal sustainability indicators • - Inviting international experts • - Study of existing risks that negatively affect stability of the budget system • - Implementing a budget risk assessment system based on defining fiscal vulnerability indicators

13. Tax policy reform Priority goals: • To reduce the tax burden on the economy to 2% of GDP; • Eliminate imbalances in the tax burden between small and large businesses; • To simplify tax reforming system; • Abolish number of inefficient tax and custom brakes; • Recognize legal entities with annual turnover of less than use 1 billion of small businesses; • Implement a full-fledged VAT offset system specifying the VAT base Tax payers will be entitled to offset VAT in the cost of purchased fixed assets consumption intangible assets.

14. Improving the efficiency and accountability of public spending THE IMPLEMENTATION OF THE MEDIUM TERM BUDGETING OF PUBLIC EXPENSES • Starting with the 2019 Budget Message, the draft State Budget is submitted along with the budget guidelines for the next 2 years. • Expansion of indicative indicators to budgetary industry ceilings will enable industry ministries and departments to develop industry programs for the medium term in conjunction with budget limits. • In this connection, it is proposed, starting from the Budget Message for 2020, to present budget benchmarks by industry for the medium term.

15. Improving the efficiency and accountability of public spending PROGRAM DEVELOPMENT ON SUPPORTING SECTORIAL MINISTRIES IN IMPLEMENTING THE EFFECTIVENESS REFORM OF PUBLIC EXPENSES • Widely used in the world, program budgeting allows sectorial ministries to use allocated funds for the industry more efficiently. • However, the main task on the way to transition to program budgeting is the availability of qualified specialists in sectorial ministries and departments, who are able to form medium-term programs, establish indicators and evaluate results. • In this regard, the Ministry of Finance will develop a program to support sectorial ministries at the initial stage of the implementation of the reform of the effectiveness of public spending.

16. Improving the efficiency and accountability of public spending EFFICIENCY OF GOVERNMENT EXPENDITURES IN HIGH COST SPHERES: • Currently, there is no clear methodology for analyzing the effectiveness of public spending, which does not allow to evaluate the priority of a project. • Implementing effectiveness analysis of public spending: • will improve the efficiency of budget expenditures through the redistribution of funds from low-performing projects to demanded ones; • implementation of program budgeting. Indicators of the analysis will be used in evaluating the activities of a responsible ministry or department; • The methodology and procedure for conducting performance analysis will be developed by the Ministry of Finance, the Ministry of Economy, the State Committee for Investments with the assistance of international experts.

17. Thank you for your attention!