On February 10th, 2006, the Cabinet of Ministers of the Republic of Uzbekistan held the session to review the socio-economic development of Uzbekistan in 2005, and to set key priorities of economic reforms in 2006. President of the Republic of Uzbekistan Islam Karimov addressed the session with a report.

The head of the state noted that the forecasted parameters have been achieved on practically all macroeconomic indexes while on many of them the figures have exceeded the forecast. GDP grew by 7%, annual inflation rate was at 7,8%. Industrial production rose by 7,3%, including 17,7% growth in consumer goods manufacturing. Agricultural production grew by 6,2%. The 2005 State Budget was executed with a surplus of 0,1% to GDP as set against the estimated deficit of 1% while its revenues exceeded the forecast by 39%.

The steady rates of GDP growth, which have been in excess of 7% for the last two years, are noteworthy. Since 2000, the economy has grown by 30,1% while since 1991 - by 28.2%. This tendency is a result of systemic, consistent and persistent work on the gradual realization of a well-elaborated model and a long-term program of market reforms and the modernization of the country.

The President of Uzbekistan dwelled upon the most important aspects of economic reforms in 2005.

First, it is systematic and consistent structural transformation of the economy. Reforms have positively affected the country?s GDP structure, where Industry share has grown to 20,7% whilst it was only 14% in 2002. Considerable growth rates were recorded in the Service Sector, whose GDP share rose to 38,5%. For the last 5 years, Communication and Transport Industries have expanded 1,5-fold.

The 11,5% export growth in 2005 was a major result of the reforms and economic modernization of Uzbekistan. The share of finished commodities (automobiles and aviation, electronics, chemical and petrochemical production, textiles etc) and services in the export exceeded 50% due to which the state current account surplus has reached 1,3 billion USD - the highest figure since independence. As a result, the country?s exchange reserves rose by 30%.

Qualitative progress in the development of industries has been achieved due in many respects to the structural changes in investments, whose share in GDP rose to well over 20%. Direct foreign investment and crediting grew by 50%.

Second task is to expand and deepen the processes of economic liberalization. In 2005, the Corporate Income Tax was lowered from 18% to 15%, which allowed enterprises to release and save additional 40 billion sums.

Of exceptional importance, especially in terms of stimulating the entrepreneurship, became the introduction of the unified 13% income tax for small businesses as set against the previous consolidated payments of 15.2%. As a result of the alleviated tax burden, fiscal payments to the state budget were reduced to 22,6%.

Third, in 2005 a deciding step was made towards the liberalization of the system of access to and distribution of material resources and finished products.

Trade turnover at stock and commodity exchanges has risen 5,5-fold since 2001. Today open trade accounts for one-third of the total wholesale turnover, while in 2000 it was only 8.5%.

The First International Cotton Fair held in Tashkent in 2005 was of particular importance. More than 340 representatives of 200 foreign companies from 26 countries attended the fair. 122 contracts with foreign companies were concluded. The geography has changed and the mechanism of selling and delivering to processing plants avoiding intermediaries became more transparent.

Fourth, a fundamental shift has been made to expand private sector, accelerate the development of small business, farming and entrepreneurship. In 2005, a new course was taken to sell whole enterprises, as well as state shares holdings, to private ownership. As a result, 902 out of 980 enterprises at sale have been privatized. Altogether, 4660 enterprises and other entities have been sold to private owners. Today, private sector accounts for about 76% of GDP, 78% of industrial production, and practically whole agricultural production and retail. 77%, or more than two-thirds of the total labor force, are employed in the non-state sector.

It would be no overstatement to say that the year 2005 became a turning-point in the acceleration of the development of small business and private entrepreneurship. The share of Small Business in the country?s GDP reached 38.2%. This sector now employs more than 65% of the labor force. Small businesses account for 85% of new work places. More than 1 million people are involved in farming. In 2005, they produced more than 65% of raw cotton and more than 55% of grain.

Fifth, considerable work has been done to drastically limit the intervention of state and controlling bodies into the financial and economic activities of enterprises and to broaden economic freedoms and rights of business entities and entrepreneurs.

Since 2001, the number of inspections has decreased by 2.5 times. Decisive steps were taken to completely eliminate outdated practices of considering disputes between economic entities in the state controlling bodies of different levels. All these issues are now considered only in courts. It is noteworthy that the majority of cases are solved in favor of entrepreneurs and economic entities. In 2005 only, more than 45 billion sums were compensated in their favor.

As a result of the administrative reform since 2001, total number of administrative personnel decreased by 75 thousand people, or 35,5%. The administrative reform has been implemented to primarily alter the functions of administrative structures, cease or considerably limit their authoritative, regulative, and supervisory powers as well as to bar their direct intervention into the activities of enterprises.

Speaking about the qualitative changes in the economy and the real advancement on the path of market reforms, President Islam Karimov emphasized how important it is to keep in mind the ultimate goal of the reforms, i.e. how they effect social welfare of people. In 2005, the wages of the budgetary sphere employees, pensions, stipends and welfare benefits increased by average 40%. Population?s real incomes grew by 22%.

The President of Uzbekistan outlined key priorities of economic reforms in 2006. Ensuring sustainable high rates of economic growth, stable and well-balanced macroeconomic indicators must be in central focus.

This goal implies achieving 7,2% of GDP growth in 2006, and 6% growth per capita. Economic growth in 2006 will first off all be attained through the accelerated development of Industry (9%), agricultural production (5,2%), Services (13,2%) and Trade (8,5%). The inflation rate are planned to keep within 6-8% during this year.

The creation of strong base for the accelerated development of production is bound with, first, the further implementation of budget and tax reforms, simplification and unification of the taxation system and the reduction of fiscal burden, and, second, the deepening and widening of structural reforms and economic modernization, provision of all necessary conditions for foreign investments.

Islam Karimov pointed out to the necessity to strengthen legal framework, create clear and transparent mechanism of applying the benefits and preferentials, expand the introduction of new forms of investments, inform foreign business circles and potential partners of the investment opportunities in different sectors of our economy.

Third priority is a large-scale expansion of private ownership, strengthening guarantees and formation of the favorable business environment.

The Cabinet of Ministers has been instructed to adopt the 2006-2008 Privatization Program that would include strategically insignificant natural monopoly enterprises and a broader list of zero redemption value enterprises and entities with investors taking concrete investment obligations.

Forth priority, provision of employment as key factor to ensure the growth of income and standards of living. This shall be achieved through the creation of new micro-firms, development of family business and small private enterprises, stimulation of micro-crediting, expansion of home employment in cooperation with large industrial enterprises.

Fifth priority, comprehensive export stimulation and provision of exchange resource savings as well as their rational and effective use.

The head of the state emphasised that under contemporary conditions of tough international competition, it is necessary to expand export crediting and export insurance mechanisms for local manufacturers.

In view of Uzbekistan?s joining Euro-Asian Economic Community organization, measures are now necessary to unify customs procedures. To this end, a new Customs Code shall be drafted with the advice of international experts. The new Code shall ensure transparency in administering all customs procedures, protection of the domestic market from smuggled low quality products. The new Customs Code must become legal document of direct effect.

Sixth priority that must be given special attention is housing and municipal services reform. The main issue here is the improving municipal services management, lifting the status, provision of the organizational and financial independence and effectiveness of House Ownership Associations, whose number in Uzbekistan has reached 2,5 thousand.

In conclusion, Islam Karimov emphasized one more priority ? realization of the measures to ensure strict saving of energy resources, first of all in energy-intensive sectors such as chemical, non-ferrous, electric power industries. The Cabinet of Ministers was instructed to elaborate and adopt a Program on measures to save energy resources in 2006-2010.