Financial Crime World

Uzbekistan Secures $15 Million Credit to Strengthen Financial Sector

The World Bank’s Board of Executive Directors has approved a 15 million concessional credit for Uzbekistan to support the country’s efforts to reform its financial sector. The five-year project aims to strengthen the banking and insurance sectors, establish a development bank, and improve export and trade financing instruments.

Challenges Facing Uzbekistan’s Financial Sector

The financial sector in Uzbekistan faces several challenges as it transitions to a market economy:

  • State-owned commercial banks (SOCBs): 12 SOCBs dominate the country’s banking landscape, accounting for 86 percent of total credit to the economy. These banks have traditionally intermediated funds from the government to priority sectors and state-owned enterprises at below-market rates, lacking strong governance and risk management.
  • Vulnerability to climate-induced disasters: Uzbekistan is susceptible to droughts and extreme weather events, which could worsen with the effects of climate change. The country’s disaster preparedness and response mechanisms are limited due to a lack of disaster risk insurance coverage.

Project Objectives

The new project aims to address these challenges by:

  • Supporting SOCBs’ restructuring and privatization: Improving financial services efficiency, contributing to productivity, and boosting sustainable growth driven by the private sector.
  • Strengthening financial preparedness for disasters: Enhancing disaster risk insurance coverage to mitigate the impact of climate-induced disasters.
  • Improving export and trade financing instruments: Establishing a development bank and improving financial mechanisms to support Uzbekistan’s economic growth.

The Ministry of Finance will lead the implementation of the project, which will be financed at a low interest rate with a 30-year repayment period and a five-year grace period.

World Bank’s Support

According to Marco Mantovanelli, the World Bank’s Country Manager for Uzbekistan:

  • The reforms aim to improve financial services efficiency, contribute to productivity, and boost sustainable growth driven by the private sector.
  • The project is expected to reduce the government’s direct participation in SOCBs and build a more effective, inclusive, and competitive banking system led by private sector banks.

The International Development Association (IDA) will provide the concessional financing to the Government of Uzbekistan as part of the World Bank Group’s efforts to support the country’s development goals.