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Uzbekistan’s Big Gold Bet Looks Set to Pay Off

  • Uzbekistan is selling more gold than any other country, taking advantage of high gold prices.
  • This strategy helps address budget and trade deficits but raises concerns about economic dependence on gold.
  • Uzbekistan's foreign debt has grown significantly in recent years.

ALMATY, Kazakhstan - When it comes to gold, Uzbekistan has bought low and large.

Now it is selling high.World Gold Council data shows that Uzbekistan was the world's top gold-selling country in March with 11 tons sold, with only Thailand's 10 tons coming anywhere near in terms of volume.

Most other central banks in the world are trying to accumulate the precious metal, but Uzbekistan did plenty of that before the current trend.

And with several economic headwinds to contend with, Uzbekistan's strategy to sell gold has a logic to it.

"We have a trade deficit, a budget deficit. Other exports are not perhaps performing as well as hoped. With [gold] prices high on the back of geopolitical instability, there are worse times to sell gold," independent Tashkent-based economist Yuliy Yusupov told RFE/RL.

Nevertheless, analysts argue that growing dependence on gold sales highlights persisting problems in an economy that -- despite notable overhauls in recent years -- is still very much bogged down.

Less Is More

As the second-biggest producer of gold in the former Soviet Union after Russia, and with the state controlling the industry, gold has long been an anchor of the Uzbek economy.

But in the era of second President Shavkat Mirziyoev, the share of international reserves that are in gold has grown significantly, from under 50 percent when Mirziyoev came to power in 2016 from his late predecessor, Islam Karimov, to nearly two-thirds at present, according to central bank data.

Describing the country's strategy in a November 2022 interview with Bloomberg when Uzbekistan was one of the top global gold buyers, Central Bank Chairman Bekzod Xamraev said "there are two factors for us: the current price and the future price."

"Is the price rising, or has it reached its peak and coming down? This is the moment we are looking for. If the price is rising, we are better off waiting with sales."Gold has enjoyed a tremendous rally this year, with spot prices increasing by more than 13 percent since January 1.

This led to a situation remarked on by privately owned Uzbek media outlet Gazeta.uz last month, wherein the value of the Central Bank's gold reserves actually grew by more than 6 percent in March, notwithstanding gold sales that saw the bank's physical stock of the bullion fall by 10.9 tons to reach 357.7 tons -- a near two-year low.

As of May 1, Uzbekistan's foreign reserves stood at $34.2 billion, of which some $26.5 billion was in gold.

The high gold price moreover softened the impact of a debt repayment of more than $1 billion on a 2019 Eurobond heralded as marking Uzbekistan's exit from financial isolation.

But Smail Ospanov, a former Uzbek official who lives in the United States and regularly comments on economic affairs, said the rally is allowing the government to get away with budgetary indiscipline and limited economic reform and innovation.

"The very fact that the government is trying to replenish its empty treasury by selling gold shows the dire state of the country's economy," he told RFE/RL's Uzbek Service.

"If you look now, Uzbekistan exports mainly gold. The government has failed to diversify its economy in the past decade. Gold is something that should be kept in reserve."

Uzbekistan's trade deficit in 2023 was an unprecedented $13.7 billion. And while exports rose 24 percent, much of the growth was accounted for by record gold sales, which reached more than $8 billion and accounted for one-third of total goods exported.

Hello, Debt!

After coming to power in 2016, the early years of Mirziyoev's rule were accompanied by major economic reforms as well as something of a political thaw.

While the new leader had served as hard-line autocrat Karimov's prime minister, he soon showed he had very different views on the economy, overseeing the liberalization of byzantine currency regulations and leading a foreign investment drive that involved accruing billions of dollars in external debt.

In the last years of Karimov's quarter-century reign, the state debt to GDP ratio was in the 10-15 percent range. Now, Uzbekistan's liabilities before foreign creditors are the equivalent of more than one-third of GDP, roughly doubling in the past five years alone.

In a February ratings commentary, the Fitch rating agency reaffirmed a BB- "stable" outlook for Uzbekistan, while warning of "high commodity dependence" and "structural weaknesses in terms of low GDP per capita, an uncompetitive and large, albeit reducing, state presence in the economy, and weak but improving governance levels."

Regular gold purchases from local mining operations -- purchased in the Uzbek currency, the som, and then sold on international markets for dollars -- have also proven an important means of easing pressure on the national currency.

The som has depreciated nearly 15 percent since the beginning of Russia's full-scale invasion of Ukraine, noticeably more than the currencies of neighbors like Kazakhstan, Kyrgyzstan, and Tajikistan, which also have strong economic ties to sanctions-hit Moscow.


That world-changing event, along with the war in the Middle East and a general sharpening of geopolitical tensions, are among the factors likely to keep the price of gold high in the near future.

Yet for many analysts, the main problem is not gold sales per se, but rather a concerning lack of alternative revenue sources to cover growing public spending -- a habit not helped by systemic corruption.

In March, the Uzbek Economy and Finance Ministry said the country's consolidated budget boasts an annual deficit equivalent to $5 billion, or more than 5.5 percent of GDP, another unwanted record that authorities and the IMF have acknowledged is driving up inflation for a poor population.

A recent IMF mission to the country projected that consumer price inflation would reach 11.5 percent this year, up from 8.8 percent at the end of last year and ahead of growth, which is expected at around 5.4 percent for 2024.

One commodity-free export that exploded in the Mirziyoev era is tourism, which authorities hoped to raise to at least 5 percent of GDP by 2025 after canceling visa requirements for the citizens of dozens of countries.

That ambition was announced in 2018 as new businesses opened in anticipation of a boom that was already being felt at street level around the time the coronavirus pandemic struck.

The pandemic caused a steep correction, however, and the sector is currently nowhere near that indicator. Official figures for 2023 showed 6.6 million foreign tourists, which, while more than 26 percent higher than in 2022, was still a shade under the 6.75 million that visited in 2019.


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