Uzbekistan has recorded remarkable growth over the past six years. The value of GDP has doubled, to over $100bn last year, and the average income of the population has risen threefold. That growth was achieved with heavy investment in sectors such as electricity generation, transportation and reform driven changes across most other sectors. But the president has now set a target of again doubling GDP by the “early part of the next decade” and boosting incomes further. To achieve this, the country needs to move up a growth gear.

That next gear will involve a greater effort to accelerate the long-talked about privatisation programme and to further reduce the often-difficult bureaucracy which many multi-national companies cite as the main reason for their slower investment and expansion in the country. The privatisation programme has now been better defined and more precise targets and timelines set. Some of the responsibility for moving the programme forward has been outsourced to Templeton Asset Management, a sign of President Mirziyoyev’s still low confidence in the civil service, despite extensive reforms in recent years.

The president’s plan for achieving his ambitious goals also includes $50bn to be invested in over 120 so-called investment projects and $150bn to be invested in 500 infrastructure projects and upgrades. The money for these projects will continue to come from subsidised loans and grants from the IFIs, from new sovereign debt issuance and from the sale of state assets. Despite the rise in public debt, which also almost doubled over the past five years, the country’s balance sheet is in good shape. Sovereign debt to GDP at circa 35% could grow to 40% which, assuming the GDP expansion target is met, would allow for additional borrowing of $40bn over the next five years.

However, to fund the very extensive investment plans, the privatisation process now needs to start moving faster and to exclude the local vested interests that have been a major reason for slow progress to date. Hence the involvement of an external asset manager to try to sidestep local actors.

On the risk flip side, one of the reasons why Uzbekistan’s balance sheet looks good today is because of the strong rise in the price of gold, up almost 100% over the past 30 months. Gold now accounts for over 40% of the value of all exports and has contributed rising revenue for the budget. There is no reason to assume the price of gold is set to reverse these gains; in fact most predictions are for further gains against the backdrop of geopolitical and global economic instability. However, the Central Bank of Uzbekistan (CBU) and ratings agencies highlight the risk to financial stability in the event the gold price were to start a retracement before Uzbekistan builds greater diversification in its exports.

Another positive factor for Uzbekistan is that it appears to be close to concluding negotiations to become a member of the World Trade Organization (WTO) in 2026. That process has also helped drive some reforms, e.g. the breaking of the state monopoly in some areas of the energy sector and in utilities management. Export tariff reforms will also help create incentives for greater diversification in value-added manufacturing, e.g. in textiles and in food processing, for export growth.

Of course, the story is not without difficulties. Reforms and rapid investment have led to persistently high inflation and a mismatch between growth and support. Inflation is set to climb back to over 10% again in the coming months because of utility tariff increases from May. The CBU has acknowledged it has again pushed further back its timeline for achieving target inflation of 5%. At best, that may now be achieved in 2027 and could be later if some of the risks identified by the CBU (see commentary in this report) come to pass.

The CBU has also said it will maintain a tight monetary policy for this year (the policy rate is now 14%) to contain inflation pressures. But the high rate is a restraint on investment and loan growth. There are also concerns about social stability in some areas of the country, especially in regions dependent on agriculture. Growing and large-scale purchasing of agriculture land by Chinese companies, often involving the forced eviction of Ukbek citizens, has caused considerable resentment and raises the risk of protests if not managed adeptly. The frequent occurrence of power outages in major cities – the result of construction growing faster than the available power supply – is also a potential source of frustration.

Russia and China dominate investment and trade. Chinese investment in Uzbekistan has also expanded fast over the past five years. It has the largest share of foreign companies in the country and is the biggest trade partner, albeit a position that Russia is expected to regain as gas sales are set to increase over the next few years. Uzbekistan is also very dependent on Russia as a source of worker remittances which, in total, account for 77% of all remittances. Despite the decline in the number of workers in Russia, as a result of Moscow’s tighter immigration policy, the value of remittances has growth (almost $12bn last year) because of the high growth in wages and the strength of the ruble (up almost 30% versus the US dollar this year to date). Total remittances now account for almost 20% of household income in Uzbekistan – a vulnerability also highlighted by the CBU in its annual risk assessment.

But despite the dominance of China and Russia in investment and trade, President Mirziyoyev has, like his neighbour in Kazakhstan, successfully managed a policy of neutrality. The country is actively engaged with the US and the EU in talks to develop the country’s mineral resources. Investment in renewable energy has surged to billions of dollars from both Saudi Arabia and the United Arab Emirates, and more is set to come.

In regional terms, Mirziyoyev is positioning Uzbekistan to be the major Central Asian political power in the future – a role which Kazakhstan can claim today. Mirziyoyev has brokered a deal to finally resolve border demarcations in the Ferghana Valley with Tajikistan and Kyrgyzstan which, if it holds, should allow for much greater investment into the region.

A greater challenge may be in terms of water management. Central Asia is facing a water shortage problem (today) and crisis (soon). Global warning and melting glaciers are a big part of the problem but the more immediate concern is that Afghanistan is completing a major canal which may drain 20-25% of the water in the Amu Darya river. This is a critical source of water for Uzbekistan’s agriculture industry and for neighbouring  Turkmenistan and Kazakhstan. When the canal is operational the issue could quickly evolve into a regional dispute.

Despite the challenges, Uzbekistan remains a very promising investment and business story and is in a strong position to continue delivering growth. But to achieve greater diversification in the economy and in exports, the broader investment programme needs to pick up as does the privatisation process. Investors and multinational companies want to invest in Uzbekistan, and many are planning to do so or to expand existing operations. But the pace is slow because of frustration with the poor delivery of previous commitments. If the president gets the next phase right, then investment will grow, as will much greater opportunities for investors.