2009 Index of Economic Freedom

Quick Facts

Population:

• 26.5 million

GDP (PPP):

• $58.2 billion
• 7.3% growth
• 6.0% 5-year compound annual growth
• $2192 per capita

Unemployment:

Inflation (CPI):

• 12.3%

FDI Inflow:

• $164.0 million

Uzbekistan’s economic freedom score is 50.5, making its economy the 148th freest in the 2009 Index. Its score is 1.4 points lower than last year, reflecting declines in six of the 10 economic freedoms. Uzbekistan is ranked 33rd out of 41 countries in the Asia–Pacific region, and its overall score is lower than the world average.

Uzbekistan has taken a path of state-controlled economic development since independence more than two decades ago. State intervention remains considerable in many areas of the economy and has failed to generate robust economic development. Uzbekistan has a moderate income tax rate and a low corporate income tax, but an inefficient and burdensome regulatory environment hinders dynamic entrepreneurial activity.

Uzbekistan has room for improvement in monetary freedom, investment freedom, financial freedom, property rights, and freedom from corruption. Monetary stability is weak, and the government controls prices through state ownership and the legal ability to declare certain companies or goods as state monopolies. Foreign investment is officially welcome, but opaque bureaucracy and political interference are disincentives. The courts are also subject to political interference, and corruption is pervasive throughout the civil service. Uzbekistan is perceived to be one of the world's most corrupt countries.

Background Back to the top

Uzbekistan is a member of the Shanghai Cooperation Organization. President Islam Karimov has ruled since the late 1980s and used the violent May 2005 Islamist Andijan insurrection to intensify the repression of opponents. In 2008, the government allowed the U.S. and NATO limited use of an airfield and railroads to resupply military forces in Afghanistan, enacted laws canceling the death penalty, and introduced habeas corpus. Rich in iron, gold, uranium, copper, and rare and non-ferrous metals, Uzbekistan relies heavily on natural gas, oil, gold, and uranium exports, but cotton remains the main source of export revenues. Russian investment is growing in numerous sectors.

Business Freedom 68.4 Back to the top

The overall freedom to conduct a business is limited by Uzbekistan's regulatory environment. Starting a business takes 15 days, compared to the world average of 38 days. Obtaining a business license takes more than the world average of 18 procedures and 226 days. Closing a business is a lengthy process.

Trade Freedom 65.4 Back to the top

Uzbekistan's weighted average tariff rate was 7.3 percent in 2006. Some high tariffs, services market access barriers, discriminatory import taxes and fees, non-transparent and burdensome standards and certification regulations, non-transparent government procurement, export subsidies, weak enforcement of intellectual property rights, corruption, and inefficient and cumbersome customs implementation add to the cost of trade. The government sometimes closes border posts to restrict trade. Twenty points were deducted from Uzbekistan's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 88.3 Back to the top

The top income tax rate is 25 percent, and the top corporate tax rate is 10 percent (17 percent for commercial banks). Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 21 percent.

Government Size 68.1 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 32.6 percent of GDP. State intervention in the economy remains prevalent and continues to hinder development of the private sector and the privatization of large state-owned enterprises.

Monetary Freedom62.6 Back to the top

Inflation is high, averaging 12.6 percent between 2005 and 2007. The government influences prices through regulation, subsidies, and state-owned enterprises and utilities. It controls prices primarily by declaring companies or certain products national or regional monopolies, which automatically requires official review and approval of prices. Fifteen points were deducted from Uzbekistan's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom30.0 Back to the top

Officially, foreign and domestic investments face equal treatment under the law. In general, numerous sectors are either reserved for the state or subject to limited-ownership restrictions. In practice, investors face such barriers as cumbersome procedures, the threat of expropriation, inconsistent and arbitrary regulation, corruption, and political unrest and violence. Residents and non-residents may hold foreign exchange accounts, subject to some restrictions. Payments and transfers face quantitative limits. Some capital transactions, including credit operations and real estate transactions, are subject to controls.

Financial Freedom20.0 Back to the top

Uzbekistan's underdeveloped financial sector is subject to heavy government intervention. Along with high costs of financing, the limited capacity of the banking sector for financial intermediation remains a key barrier to development of the private sector. The five largest banks account for over 80 percent of assets; the largest state-owned bank alone controls 65 percent. Government-controlled banks support the government's economic priorities through subsidized loans offered to specific sectors. The government uses the banking system to collect and enforce taxes by freezing the accounts of those who are believed to be evading taxes. Foreign banks may operate only in a subsidiary status, and all routine banking operations require government permission. The insurance sector is minimal. Uzbek law grants state-owned companies a monopoly over certain forms of insurance. Capital markets are virtually nonexistent, and the stock market is very small.

Property Rights20.0 Back to the top

The government influences Uzbekistan's judiciary. Judicial procedures fall short of international standards, corruption is extensive, and expropriation is possible. There is no general system for registration of liens on chattel property. Pirated audiotapes, compact discs, videotapes, and other optical media are sold freely.

Freedom From Corruption17.0 Back to the top

Corruption is perceived as pervasive. Uzbekistan ranks 175th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2007. Foreign-owned businesses view corruption as one of the largest obstacles to foreign direct investment. The law does not forbid government officials from acting as “consultants,” a common method of extracting payment.

Labor Freedom64.9 Back to the top

Uzbekistan's relatively rigid labor regulations impede overall employment and productivity growth. The non-salary cost of employing a worker is high, but dismissing a redundant employee is moderately easy. Regulations related to the number of work hours remain rigid.