ON IMPROVEMENT OF POLICY

President of the Republic of Uzbekistan

Decree

Implementation of measures to further reduce inflation is an important factor in ensuring the effectiveness of economic reforms aimed at improving living standards and creating sustainable economic growth.

International experience shows that one of the most effective ways of pursuing monetary policy in a market economy is the inflation targeting regime, with the central bank’s active participation in the monetary market, as well as regular analysis of economic development and broader coverage of state policy plans.

At the same time, the introduction of inflation targeting regime requires coordinated preparatory work of the Central Bank of the Republic of Uzbekistan and the Cabinet of Ministers in the following areas:

Gradual reduction of the role of inflationary factors, including tariff regulation reform, ensuring the effectiveness of structural economic reforms in the real sector of the economy and saturation of the domestic market with consumer goods;

Improving the quality of the Central Bank’s macroeconomic analysis and communication policy;

introduction of new instruments to regulate the money market, ensuring the regulator’s effective influence on the credit market.

For the purpose of expanding the use of market mechanisms and instruments of economic regulation to ensure macroeconomic stability, as well as dramatically increasing the effectiveness of monetary policy:

1. The Central Bank of the Republic of Uzbekistan shall provide a gradual transition of monetary policy mechanisms to the inflation targeting regime from 1 January 2020 by reducing the inflation rate to 10% by 2021 and setting a permanent inflation target of 5% by 2023. .

2. To determine the main principles of the monetary policy of the Central Bank of the Republic of Uzbekistan:

setting a permanent inflation target and making it available to the general public;

the use of comprehensive monetary policy instruments to regulate interest rates in the money market and manage inflation processes;

carrying out detailed macroeconomic analysis and forecasts, taking into account open data available at domestic and foreign markets for objective decision-making in the field of monetary policy;

Improvement of the communication policy of the Central Bank of the Republic of Uzbekistan with the goal of achieving the goals of the monetary policy to the general public, providing foreseen in the macroeconomic situation and building confidence of market participants.

3. The Cabinet of Ministers and the Central Bank of the Republic of Uzbekistan shall ensure implementation of comprehensive measures to create conditions for full transition to the inflation targeting regime, in particular:

coordinated monetary and fiscal and antitrust policy;

to continue structural reforms in the economy through accelerating the transition to a competitive market economy, enhancing the competitiveness of local producers, and creating a full-fledged market for goods and services;

step-by-step liberalization of regulated prices aimed at transition to modern methods of antimonopoly control and pricing, as well as expansion of production infrastructure;

reforming the banking system and financial markets in order to develop financial intermediation institutions for the transformation of savings into investment, as well as creating opportunities for long-term planning of financial flows.

4. The following shall be prohibited:

The Concept of joint actions of the Cabinet of Ministers and the Central Bank of the Republic of Uzbekistan on inflation reduction and ensuring price stability (hereinafter - the Concept) according to Appendix 1;

To approve the Road Map on inflation reduction and ensuring price stability in 2020 according to the appendix 2.

5. The Central Bank of the Republic of Uzbekistan through the implementation of monetary policy instruments, mechanisms and processes to coordinate the standards of the inflation target regime precautions:
January 1, 2020, money market interest rates affect the market instruments, including bonds, the Central Bank overnight deposits, permanent auctions, government auctions and credit auctions under foreign currency security;

Gradual enhancement of the role of derivative instruments (swaps, options and futures) and commercial banks in the formation of the exchange rate in managing interest and currency risks by 2020;

the interest rate corridor mechanism for the implementation of flexible interest rate policy through regular interventions of the Central Bank to the interbank money market within a month;

System of macroeconomic analysis and forecasting, providing development of econometric modeling tools based on advanced international experience and technical support of international financial institutions by April 1, 2020;

modern communication policy, which provides for a two-month review by the Central Bank of the current state of the economy, key factors of inflationary processes, and timely monetary policy measures;

Permanent study of the factors of inflation and inflationary expectations, and the study of international best practices by attracting technical assistance from international financial institutions and central banks of other countries.

6. To form the Commission on coordination of measures on reduction of inflation rate and ensuring of price stability (hereinafter - the Commission) in composition according to appendix 3.

To set the main objectives of the Commission:

analyze and critically evaluate the inflationary factors and the reasons for the rise in prices;

focusing on the efforts of all ministries and agencies to reduce inflation in the economy and to ensure the consistency of the policies being pursued;

Identification of shortcomings and problems in the timely and effective implementation of measures aimed at transferring the monetary policy of the republic to the inflation targeting regime, as well as working out proposals for their elimination and responsibility of the heads of the authorized bodies and organizations in this area;

Organize discussions with heads and other representatives of authorized bodies and organizations at least twice a month on the implementation of measures to stabilize prices and reduce inflation in the domestic market, as well as inform the President of the Republic of Uzbekistan about the work done.

7. It is established that:

As of January 1, 2020, interest rates on all types of newly issued loans by commercial banks (in national currency), including government loans, will be set at no less than the Central Bank’s refinancing rate. Except loans to agricultural producers for cultivation of cereals;

On January 1, 2021, the practice of granting loans at preferential interest rates will be abolished, giving the commercial banks the right to independently set interest rates by introducing mechanisms to compensate for a certain percentage of interest expenses.

8. Ministry of Finance of the Republic of Uzbekistan:

By February 1, 2020, the Ministry of Energy, the Antimonopoly Committee, the Ministry of Economy and Industry and other interested ministries and agencies should develop a schedule of liberalization of regulated prices (tariffs) for 2020-2021, taking into account their impact on inflation. Submit to the Cabinet of Ministers of the Republic of Uzbekistan for approval;

to provide for a gradual reduction of the total fiscal deficit to no more than 1.5% by 2022;

To ensure strict execution of the State Budget of the Republic of Uzbekistan within the established parameters, as well as compliance with the Central Bank’s fiscal and monetary policy.

9. The Agency for the Development of the Capital Market of the Republic of Uzbekistan, together with the Ministry of Finance and the Central Bank, has developed specific mechanisms and tools to address the potential negative consequences of the proposals, terms, mechanisms and timing of non-resident access to the financial market by July 1, 2020. To the Cabinet of Ministers of the Republic of Uzbekistan.

10. The Cabinet of Ministers and the Central Bank of the Republic of Uzbekistan shall:

Qualitative and timely execution of the Concept and the Roadmap;

• Consideration and discussion of fiscal and monetary policy and the status of structural reforms at the meetings of the Economic Council to ensure the implementation of the Road Map, the main directions of structural reforms in the Republic of Uzbekistan for 2019-2021;

Flexible macroeconomic policy, as well as long-term inflation target reduction, based on the real situation in the world markets and the practical results of structural economic reforms;

To provide quarterly information to the Administration of the President of the Republic of Uzbekistan on the implementation of the Roadmap and information on the effectiveness of measures to ensure price stability, as well as the factors and risks of achieving the inflation target.

11. The Central Bank of the Republic of Uzbekistan, the Ministry of Higher and Secondary Special Education together with the Ministry of Finance and the Antimonopoly Committee of the Ministry of Finance and the Antimonopoly Committee of April 1, 2020 an action plan to improve financial literacy to develop and approve.

12. The Central Bank of the Republic of Uzbekistan, together with the Ministry of Finance, the Ministry of Justice and other interested ministries and agencies, within two months to submit proposals to the Cabinet of Ministers on amendments and additions to the legislation arising from this Decree.

13. Control of execution of this Decree to assign to the Prime Minister of the Republic of Uzbekistan ANAripov and the chairman of Central Bank of the Republic of Uzbekistan MBNurmuratov.

President of the Republic of
Uzbekistan

Sh.MIRZIYOYEV

Tashkent,

November 18, 2019