The state budget deficit of Uzbekistan, amounting to Uzbekistani som (UZS) 25.6 trillion ($2.0bn) in the first four months of 2024, has surpassed expectations, raising concerns about the country's fiscal health and the potential impact on inflation.

Data released by the Ministry of Economy and Finance showed the worrying path taken by the expanding budget gap:

• January – state budget revenues UZS16.2 trillion ($1.3bn), expenditures UZS21.9 trillion ($1.7bn). Resulting deficit: UZS5.8 trillion ($459mn).
• February – revenues UZS16.9 trillion ($1.3bn), expenditures UZS24.1 trillion. Resulting deficit: UZS7.2 trillion ($617.3mn).
• March – revenues UZS17.5 trillion ($1.4bn), expenditures UZS24.3 trillion ($1.9bn). Resulting deficit: UZS6.9 trillion ($546mn).
• April – revenues UZS19.3 trillion ($1.5bn), expenditures UZS25.3 trillion ($2bn). Resulting deficit: UZS5.7 trillion ($451.1mn).

The 2024 State Budget Act forecasts 12-month state budget revenues at UZS270.4 trillion ($21.4bn) and expenditures at UZS280.7 trillion ($22.2bn).

The deficit of the consolidated budget, which includes state-targeted funds, the Reconstruction and Development Fund, and off-budget funds of budget organisations, is capped at UZS52.6 trillion ($4.2bn), or 4% of GDP.

The finalised deficit for last year is expected to exceed 5% of GDP. Initially, officials targeted 3% of GDP.

Mamarizo Nurmurodov, Uzbekistan’s central bank chief, has previously expressed concerns that a sharp increase in state spending could fuel inflation. These concerns now appear justified.

Budget deficits can serve as a double-edged sword, presenting both advantages and disadvantages to the economy and fiscal policy. On the positive side, deficit spending can act as a potent tool for stimulating economic growth during downturns, fuelling aggregate demand, job creation and consumer spending. Deficits can facilitate crucial investments in infrastructure, education and healthcare, fostering long-term economic development and enhancing overall quality of life.

Moreover, deficit spending can function as a countercyclical fiscal policy, stabilising the economy during periods of recession and mitigating their severity and duration.

However, on the flip side, persistent budget deficits can lead to surging public debt, burdening future generations with higher taxes and diminished public services. Increased government borrowing can drive up interest rates, making borrowing more costly for businesses and consumers, potentially impeding economic growth.

Additionally, financing deficits by expanding the money supply can trigger inflation, eroding consumers' purchasing power and negatively impacting the economy as a whole.