Document of the World Bank

FOR OFFICIAL USE ONLY

Report Number: 84954

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

MULTILATERAL INVESTMENT GUARANTEE AGENCY

AND

INTERNATIONAL FINANCE CORPORATION

COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT

FOR THE

REPUBLIC OF UZBEKISTAN

FOR THE PERIOD FY12–FY15

June 10, 2014

Central Asia Country Management Unit Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its content may not otherwise be disclosed without World Bank authorization.

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The date of the last Country Partnership Strategy was November 1, 2011.

CURRENCY EQUIVALENTS Currency Unit = Uzbekistan Soum

US$ 1 = 2,250.36 Sum

Government Fiscal Year: January 1 – December 31

ABBREVIATION AND ACRONYMS

AAA Analytic and Advisory Activities IFC International Finance Corporation ADB Asian Development Bank ILO International Labor Organization AEM Advanced Electricity Metering

Program IMF International Monetary Fund

CAEWDP Central Asia Energy-Water Development Program

MDG Millennium Development Goal

CASA Central Asia South Asia Electricity Transmission and Trade Project

MoU Memorandum of Understanding

CPS Country Program Strategy MSMEs Micro, Small and Medium Enterprises ECA Europe and Central Asia PEFA Public Expenditure and Financial

Accountability EU European Union RESPII Rural Enterprise Support Project

-Phase II FRD Fund for Reconstruction and

Development SECO State Secretariat for Economic Affairs

SECO GDP Gross Domestic Product SKWRMIP South Karakalpakstan Water

Resources Management Improvement Project

GPE Global Partnership for Education SME Small and Medium Enterprises IBRD International Bank for

Reconstruction and Development SOEs State Owned Enterprises

ICT Information and Communication Technology

UNDP United Nations Development Program

IDA International Development Association

WDR World Development Report

Vice President

IBRD/IDA Laura Tuck

IFC Dimitris Tsitsiragos

MIGA Michel Wormser

Country Director Country Manager

Saroj Kumar Jha Takuya Kamata

Tomasz Telma Moazzam Mekan

Ravi Vish

Task Team Leader Denis Boskovski Zafar Khashimov/Iuliia Mironova Franciscus Linden  

REPUBLIC OF UZBEKISTAN

COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT

TABLE OF CONTENTS

INTRODUCTION ....................................................................................................................................... 2

COUNTRY CONTEXT .............................................................................................................................. 3

DEVELOPMENT CHALLENGES AND RELEVANCE OF THE CPS ............................................... 6

PROGRESS TOWARD ACHIEVING CPS OBJECTIVES ................................................................... 7

MODIFICATIONS TO THE CPS AND THE WAY FORWARD ....................................................... 10

RISKS ......................................................................................................................................................... 12

ANNEX 1: RESULTS MATRIX ............................................................................................................. 14

ANNEX 2: CPS LENDING AND AAA PROGRAM: PROJECTED AND REVISED ...................... 21

ANNEX 3: REVISED RESULTS FRAMEWORK FOR THE UZBEKISTAN CPS FY2012-2015 .. 23

ANNEX 4: GENDER IN UZBEKISTAN ................................................................................................ 27

ANNEX 4: UZBEKISTAN AT A GLANCE ........................................................................................... 30

 

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INTRODUCTION

1. This Progress Report assesses the implementation of the FY12–FY15 joint Bank-IFC-MIGA Country Partnership Strategy (CPS) for the Republic of Uzbekistan. The CPS supports the Government’s medium-term strategy to continue the gradual transition to a more market-oriented economy, to ensure equitable distribution of growth between regions, and to improve the quality of infrastructure and social services. The CPS’s two tier approach has proven to be effective. In the first tier, where government and Bank views broadly converge, support for increasing the efficiency of infrastructure and improving access to social services combines lending and advisory services. In the second tier, where government and Bank perspectives differ, support for the government’s competitiveness and economic diversification agenda is focused on policy dialogue and technical assistance. IFC maintains its focus on private sector development through a combined investment and advisory approach.

2. Uzbekistan has sustained stable growth and poverty reduction, but reforms to address economic inefficiencies lag behind. The economy has continued to grow steadily at an average rate of 8 percent over 2012 and 2013, driven mainly by domestic demand, especially public investment.1 The trade balance has been positive, although worsening, and the current account remains in surplus. Supported by budget surplus, fiscal policy has been expansionary, offsetting weaker external demand. Public debt and external debt remain low. The nationally defined poverty rate is expected to fall to 13.7 percent in 2015, thus meeting the first Millennium Development Goal (MDG). The remaining MDG targets are achievable, although more concerted effort is needed in some areas. While macroeconomic performance has been strong and the Government has introduced a range of measures to improve the business environment, progress on governance and the investment climate has been mixed. Uzbekistan still remains in the lowest groups in international governance surveys.

3. The Government is making progress toward realizing the CPS milestones, with the strategic themes of the CPS remaining valid for the rest of the period. Development and implementation of lending and knowledge work is on track toward meeting the country’s development objectives. Following progress in removing impediments related to public tender and government procedures, the young lending portfolio is now showing positive trends in meeting its development objectives. An unprecedented amount of economic and sector work has already been delivered, providing analytical foundations for follow-on lending projects. Nevertheless, access to macroeconomic and microeconomic data, including household surveys, remains a challenge, hindering in-depth and more focused analytical work in such critical areas as macro developments, growth, and poverty and shared prosperity analysis. IFC’s program complements IDA/IBRD efforts in private sector development. Details of progress to date are reflected in the Results Matrix (Annex 1).

4. The risks identified in the CPS are still valid. While the country’s economic, political, and social environment is currently stable, risks exist that can influence CPS implementation. These include possible deterioration of security conditions due to the situation in Afghanistan and increasing tensions between Uzbekistan and its neighbors over trans-boundary energy and water resources. At a country level, risks include the economy’s vulnerability to possible external shocks affecting commodity prices, a slowdown in Uzbekistan’s key trading partners—especially Russia but also China—and inadequate political commitment required to advance economic reforms. These risks suggest a continued need for close follow-up and a flexible approach from the Bank.

 

                                                            1 2013 figures are estimates throughout the report.

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COUNTRY CONTEXT

Political context

5. Uzbekistan has a stable, highly centralized government, with governance and transparency remaining as major challenges. The influence and executive powers of the Presidency and the Cabinet of Ministers are far reaching, allowing for little or no independence in decision-making by individual ministries or agencies. Public accountability remains weak, and voice and participation in economic and social policy dialogue is limited. The government has taken steps to increase transparency, including allowing the publication of the IMF’s 2012 Article IV report and of the consolidated general government operations for 2011 and 2012 in the IMF’s Government Finance Statistics Yearbook. Despite this progress, limited availability of key economic, financial, and social data continues to hamper economic analysis and policy advice.

6. Parliamentary and presidential elections are set for late 2014 and early 2015, respectively, and the outcomes are difficult to predict. International media speculates on leadership succession and potentially uncertain political outlook. At the same time, there are concerns about regional stability in Central Asia. The government continues to engage key bilateral partners: Russia, the United States, the European Union, Japan, Korea and China.

Economic developments

7. Uzbekistan’s economy continued to grow steadily, at an average annual rate of 8 percent in 2012 and 2013. All sectors of the economy contributed to economic growth. Services, which now contribute almost half of GDP, grew by more than 9 percent2 in 2012 and 2013, mainly as a result of domestic trade and hospitality services. Good weather conditions and public investment in irrigation boosted agriculture growth to about 7 percent a year. Meanwhile the government’s industrial modernization and localization program supported industrial sector growth of 4.4 percent in 2012 and 6.2 percent in 2013.

8. On the demand side, Uzbekistan has seen notable increases in public investment and, to a lesser extent, private consumption. The government has continued implementation of the US$47 billion public investment program for 2011–15, of which over 70 percent is focused on oil, gas, and electricity. Total investment increased by 2.8 percentage points in 2013 to reach 25.6 percent of GDP. Public investment accounted for 3.2 percent of GDP and private investment, including investment from state-owned and state-controlled enterprises (SOEs), made up the remaining 22.4 percent. At the same time, rising real wages and steady remittance inflows, which reached 6.8 percent of GDP in 2012 and 6.5 percent in 2013, helped drive private consumption. This strong domestic demand has helped offset weaker external demand for Uzbek goods and services.

9. The consolidated fiscal balance, which includes the Fund for Reconstruction and Development (FRD), remained in surplus in 2013 but fell to 1.8 percent of GDP, due to lower-than-projected revenues and increases in expenditures. Revenues fell by 2.2 percent to 36.3 percent of GDP due to smaller income and export tax receipts, on account of falling international gold and copper prices, and tax cuts for micro- and small-size enterprises (MSEs).3 Preliminary estimates show that increases of social allowances and higher capital spending raised expenditures by 0.7 percent to 34.5 percent of GDP. The fiscal balance, excluding FRD, turned negative in 2013 and is projected to stay in deficit over the medium term.

                                                            2 WB estimate. 3 It is estimated that the gold prices fell below the price set by the government at the beginning of the year. Export receipts from gold therefore were channeled toward the government’s foreign exchange reserves, rather than collected as revenues under the FRD.

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Table 1: Uzbekistan’s macroeconomic framework, 2010-16

Actuals Projections 2010 2011 2012 2013e 2014 2015 2016

In percent of GDP unless otherwise indicated National Accounts and Prices Real GDP growth, in percent 8.5 8.3 8.2 8.0 7.0 6.5 6.0 GDP per capita growth, in percent1 5.7 5.6 6.7 6.3 5.4 5.0 4.5 CPI inflation (official avg.), in percent 7.5 7.6 7.0 6.8 6.8 6.7 6.7

CPI inflation (IMF yearly avg.), in percent2

12.1 13.3 11.0 11.0 11.0 11.0 11.0

Investment Investment 24.6 23.5 22.8 25.6 25.3 25.2 25.0 Public 4.4 3.9 4.0 3.2 3.2 3.4 3.4 Private (incl. SOEs) 20.2 19.6 18.8 22.4 22.1 21.8 21.6 Fiscal Balances (augmented Government, incl. FRD)

Revenues and grants 38.7 42.1 38.5 36.3 37.2 37.1 36.7 Revenues 38.3 41.8 38.2 36.0 36.9 36.8 36.4 Grants 0.4 0.3 0.3 0.3 0.3 0.3 0.3 Expenditures 33.8 33.3 33.8 34.5 34.4 34.6 34.6 Current expenditures 29.4 29.4 29.6 30.1 30.0 30.0 30.0 Capital expenditures3 4.4 3.9 4.2 4.4 4.4 4.6 4.6 Consolidated fiscal balance4 4.9 8.8 4.7 1.8 2.8 2.5 2.1

External Sector Current account balance 6.2 5.8 2.7 2.5 3.1 2.0 0.8

Exports, G&S 32.0 33.1 27.8 28.7 29.9 29.3 28.9 Imports, G&S 28.8 31.2 29.8 30.2 30.5 30.8 31.4

FDI, net 4.2 3.6 1.7 1.7 1.7 1.5 1.5 Remittances, net 4.5 5.9 6.8 6.5 6.4 6.2 6.1 Debt

Total external debt 19.8 18.6 17.3 17.7 17.0 16.3 16.4 Total public debt 8.1 6.8 5.6 5.9 6.6 6.9 7.1

Memo items Annual GDP, US$ millions 39,332 45,343 51,185 56,793 60,226 64,625 68,887

GDP per capita, US$ 1,377 1,545 1,719 1,878 1,962 2,075 2,182 Fiscal balance (excl. FRD) 2.0 2.0 0.1 -0.9 -1.0 -1.3 -1.3 Int. reserves, months of imports 14.1 14.6 14.3 13.8 13.7 13.3 12.7 Exchange rate (avg., sums per US$) 1,586 1,715 1,890 2095.0 .. .. ..

Source: Official Statistics and Bank staff estimates Notes: e – estimates; 1/ 2010 and 2011 figures are affected by a statistical adjustment to population growth made by official statistics; 2/ IMF’s 2012 Article IV Staff report; 3/ including capital transfers; 4/  in 2014, a one-off transfer of international reserves from the FRD, combined with slightly lower FRD expenditures, is estimated to push up the consolidated fiscal balance for the year.

10. The authorities have maintained public debt at low levels, borrowing externally to support the government’s investment program. The country’s external debt remains at about 17–18 percent of GDP and is projected to stay at this level for the next few years. Public debt—all of it to external creditors—was manageable at about 6 percent of GDP in 2012 and 2013. It is expected to increase modestly in 2014–16 as the government continues its policy of gradually increasing foreign borrowing to take advantage of low international interest rates. All domestic public debt liabilities were paid off in 2012.

11. A fall in exports and higher investment-related imports narrowed the current account surplus to 2.7 of GDP in 2012 and 2.5 percent in 2013, from 5.8 percent in 2011. As a result of weaker demand from Russia, exports fell by 4.9 percent in 2012, but rebounded in 2013 on account

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of large increases in gold sales and food exports. Imports continued growing, albeit at a slower pace, largely due to capital and intermediate goods related to public investment projects. These factors led to a reduction of the trade surplus in 2012 and 2013 relative to 2011.

12. The exchange rate regime is restrictive and contributes to inflation. Official data suggest inflation was around 7 percent during 2012–13, although the IMF’s alternative estimates are closer to 11 percent. Both non-monetary and monetary factors contributed to inflation, including: administered price controls, especially the recent increases for cost-recovery of gas and electricity prices; increases to public sector salaries, pensions, and social allowances; and high credit growth. Inflationary pressures also arise from the authorities’ policy of nominal exchange rate depreciation to maintain export competitiveness.4 There remains a significant margin between the official and parallel market exchange rates.5 Effective from February 2013, foreign exchange operations with individuals can take place only through conversion operations departments in authorized banks and foreign exchange bureaus. These departments sell foreign currency to residents by converting Soums from a personal bank card to foreign exchange deposited on an international payment card. Cash transactions are no longer possible.

13. While the banking sector remains well capitalized, financial intermediation is still weak. A high capital adequacy ratio of around 24 percent and low levels of non-performing loans point to a stable banking sector. However, credit to the private sector is only half of that observed in other transition economies. Moreover, the market continues to be dominated by state-owned banks, which hold 80 percent of the sector's assets.

Economic prospects

14. Growth is expected to average 6 to 7 percent in the medium term although a slowdown in Russia or in China could affect these prospects. The baseline scenario assumes the continuation of the government’s investment program, marginal implementation of structural reforms, steady fuel and energy prices, and stable remittance inflows, all of which could help partially offset any fall in export of other goods and services. These projections take into consideration a number of downside risks, which can potentially reduce the projections of growth rate down from the 8 percent. A weaker external outlook in Russia or in China is expected to affect exports, and potentially remittances. Uzbekistan maintains large fiscal buffers and low debt, allowing the government to introduce counter-cyclical policy measures to offset demand shocks in the short to medium term.

15. Higher rates of growth will only materialize if structural reforms are implemented. The authorities continue to advocate a gradual transition to a more market-oriented economy. An advanced structural reform agenda to enhance the current investment and business climate is necessary to sustain and increase economic growth. If targeted reforms were put in place to help free up the business environment for the non-commodity sectors, combined with productivity improvements of commodity-based SOEs, medium-term growth could surpass current forecasts.

16. Uzbekistan’s economy remains vulnerable to external shocks affecting commodity prices, exports, and remittances. The Bank Group will therefore continue to monitor regional economic developments and, in the event of adverse events, be prepared to adjust the scope and focus of the program as needed. In addition, the government’s agenda to increase competitiveness and promote diversification—as well as CPS program support in these areas—addresses this risk. The government has also built up significant fiscal buffers, which could be used to support countercyclical policy measures, as has been done in the past. The Bank Group also monitors the

                                                            4 In 2012 and 2013, nominal depreciation of the official exchange rate against the US Dollar was around 10 percent and 11 percent respectively.

5 Uzbekistan fails to meet its obligations under Article VIII, sections 2(a), 3, and 4 of the International Monetary Fund’s Articles of Agreement (IMF 2012 Article IV report).

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country’s vulnerability to national disasters, given its location in a relatively high risk area according to recent assessments.

Poverty and Human Development

17. The twin goals of poverty reduction and shared growth are central to the authorities’ development agenda. The government has set forth its poverty reduction strategy in its Second Welfare Improvement Strategy. Among the cross-cutting development policy goals and priorities is that the benefits of overall growth are to be shared equitably by the entire population. This goal is pertinent to the shared growth and poverty agendas of the World Bank Group. Consistent with these directions, the authorities’ development programs are focused on disadvantaged regions, including Karakalpakstan and the Fergana Valley areas.

18. Uzbekistan is making steady progress toward the first Millennium Development Goal (MDG) of halving poverty by 2015. Nationally defined poverty rates declined from 27.5 percent in 2001 to an estimated 14.5 percent in 2013.6 Steady economic growth, sustained annual increases in salaries and remittances, and government social protection programs all contributed to this decline. While the country remains on course to achieve the goal of halving poverty, related challenges such as inequality and rural-urban and regional disparities continue to be an issue.

19. Progress toward the remaining MDGs is generally positive, although some areas are lagging. Uzbekistan has already achieved the MDG targets on maternal health and gender equality in primary and secondary education, although more needs to be done to improve equality in tertiary education. Good progress has been made in the areas of child mortality and the incidence of tuberculosis infection. At the same time, reversing the incidence of HIV remains a challenge, with 3,584 new HIV infections officially registered in 2011. Access to clean drinking water is relatively high (83 percent of the population reportedly has access).

DEVELOPMENT CHALLENGES AND RELEVANCE OF THE CPS

20. The development challenges for Uzbekistan that were identified in the CPS FY12–15 report largely remain valid. To become an upper middle-income country, Uzbekistan needs to transition from a factor-driven economy to an efficiency-driven economy by continuing to diversify and improve the efficiency of its economy. Growth is still reliant on capital and resource-intensive industries (e.g., copper, cotton, gold, and gas), fluctuating in tandem with global commodity prices.

21. Critical elements of the transformation are to continue increasing efficiency—in particular for infrastructure in energy, water, and transport—to reduce external costs. Uzbekistan continues to remain the second most energy-intensive economy in Europe and Central Asia (ECA) region. To produce a unit of GDP, Uzbekistan uses two times more energy than the ECA average. The Government is committed to increasing energy efficiency and has intensified construction of the modern combine cycle gas turbines and has mothballed the outdated single-cycle units, as regulated through two Presidential Decrees. A large percent of the country’s electricity is still consumed by irrigation pumping operations; more efficient water resource management will bring about greater energy efficiency. In addition to the apparent need to improve trade logistics (Uzbekistan is ranked 117 in the Logistical Performance Index) to overcome its disadvantages as a double land-locked country, there is a need to improve domestic trade connections. Uzbekistan is a road transport-intensive economy, with a network that carries 60,000 tons-km per square km.7 In

                                                            6 Uzbekistan’s national poverty line is measured by the minimum food consumption equivalent to 2,100 kilo-calories per person per day. 7 This is four times higher than Azerbaijan and two times higher than Kazakhstan.

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2010, roads accounted for 52.1 percent of country’s freight by ton-km and 89.4 percent of its passengers by passenger-km.

22. Another element of the transformation is to increase the competitiveness of the economy, in particular strengthening the institutional and macroeconomic environment, as well as governance. Strong and more transparent governance and accountability structures, and efficient public financial management, are key to economic development. The government has recently taken initial steps toward improving data transparency and information-sharing. However, substantial improvements in the quality of national economic statistics and the dissemination of economic data through internationally recognized channels, such as IMF’s International Financial Statistics report, remain high priorities. National quality infrastructure—including standard, accreditation, and certification—is also a central part of the government’s export-promotion strategy, as well as scaling-up of financial instruments (trade finance, guarantees, and credit lines).

23. Improvements to the business climate remain imperative if the country wants to improve productivity and increase private sector involvement. The Government recognizes the important role of the private sector in promoting sustainable economic growth. Uzbekistan was one of the top twenty reformers in the Doing Business 2013 and has moved up the rankings from 166 in 2011 to 146 in 2013.8 However, key impediments remain for foreign direct investments, such as restrictions on foreign exchange allocation and circulation of local currency. Highly publicized investment dispute cases attract the attention of potential investors overseas. Structural reforms are needed to improve the productivity of existing industries and to unlock the potential of higher value-added sectors. For example, compared to cotton, where state control still remains on many aspects, horticulture can help private farmers move up the value chain and earn higher profit margins, in particular in processing and exports.

24. Advancing to a higher middle-income economy will require a highly skilled workforce; thus, improving access to social services remains key. With a growing and young population (30 percent is under the age of 15) the government is keen to improve the access, quality, and equity of basic public services to ensure shared growth and social inclusion. These services include health, education, water supply and sanitation, and social protection systems. While enrollment in basic education is generally on track, access to higher education in Uzbekistan remains low: the tertiary enrollment rate has declined 9 from around 15.2 percent in 1991 to around 9 percent now 10 . Uzbekistan has made significant investment in its social protection system, but its efficiency and effectiveness have to be improved. There is a need to focus more on better targeting the vulnerable population and improving the delivery system.

PROGRESS TOWARD ACHIEVING CPS OBJECTIVES

25. The two-tier approach adopted by the CPS has proven to be successful. The CPS maintained a two-tier approach. In the first tier, where government and Bank Group views broadly converge, support for increasing the efficiency of infrastructure and for improving access to social services combines lending and advisory services. In the second tier, where government and Bank Group perspectives differ, support for the government’s competitiveness and economic diversification agenda is focused on policy dialogue and technical assistance. In both tiers, the Bank program is delivering results, by scaling up lending programs for the first tier and deepening policy

                                                            8 189 countries were part of the Doing Business Survey in 2013 9 the Government considers labor market demands 10 This excludes Uzbek students studying overseas.

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discussions in the second tier. In certain areas where mutual policy understanding deepened, such as horticulture and transport, lending has been expanded, following the government’s adoption of the key recommendations coming from the Bank’s analytical and advisory work. In the areas where policy convergence has not been observed, such as in financial sector, a proposed lending program has been dropped, while IFC’s investment and advisory services in this sector remained modest and focused on well-managed banks.

26. The World Bank Group has been working closely with the government on strategic reform issues under “Uzbekistan Vision 2030.” The “Vision” is analytical and technical support, by the Bank Group as well as the United Nations Development Program (UNDP) and local think thanks, toward Uzbekistan’s ambitious goal of achieving upper middle-income status by the middle of the century. This work is focused on transitioning Uzbekistan from a factor-driven economy to an efficiency-driven economy over several decades in a way that yields a better life for the people of Uzbekistan. The analysis is addressing the medium- to long-term issues: (i) building the foundations of a modern high-income society; (ii) social sustainability, which includes ensuring prosperity for all; and (iii) environmental sustainability, especially in improving water and energy efficiency.

27. The strong portfolio of sector-wide Analytic and Advisory Activities (AAA) increased knowledge and underpinned current and future lending activities. The solid AAA program and delivery of key sector strategy notes have contributed to the expansion of the lending pipeline, which now includes new projects in horticulture, transport, and education. In addition, these analytical works serve as background input to the Government’s comprehensive economic visioning exercise, “Uzbekistan Vision 2030.” A diversified Technical Assistance (TA) portfolio in areas such as procurement, Information and Communication Technology (ICT) and operational capacity development, have strengthened the Bank’s positioning in Uzbekistan as a knowledge- and global expertise-sharing institution.

Table 2: Linking the Analytical and Advisory work with lending operations

Analytical and Advisory Product Follow-on Pilot/Roll-out Project Transport FY13 Uzbekistan at a Crossroads: Toward

Sustainability in the Transport Sector FY13 Trade Logistics and Supply Chain Performance

FY15 Regional Road Rehabilitation Project FY15 Pap-Angren Railways Project

Energy FY13 Energy/Power Sector Issue Notes FY13 Framework Paper for Energy Efficiency for Industrial Enterprises

FY13 Additional Financing for Industrial Energy Efficiency FY15 District Heating Project FY15–16 Electricity Distribution Project

Agriculture FY13 Strengthening the Horticulture Value Chain FY14 Horticulture Development Project Water Resource Management

FY15 Water Resource Management Strategy Notes

FY15 Fergana Valley Water Resource Management II FY16 Kharsi Pumping Rehabilitation

Water Supply Sanitation

FY15 Water Supply Sector Strategy FY15–16 Water Supply Sector Investment Programs

Education FY13 Improving early Childhood Care and Education Report FY14 Modernizing Higher Education

FY14 Improving Pre-Primary and General Secondary Education Project FY15 Tertiary Education Project

Fiduciary FY13 Public Expenditure and Financial Accountability Assessment

FY14–15 National Procurement Strategy Development TA FY15–16 Procurement Law Development

28. Progress is most visible in the first tier of the CPS and, in particular, in infrastructure efficiency. Within this tier, the Bank invested in an energy efficiency facility for industrial enterprises, which resulted in more than 20 percent energy savings in Uzbekistan’s largest enterprises. A Sourcebook for Strategic Development of Industrial Energy Efficiency and an

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Energy/Power Sector Issues Note have been developed to help the Government prioritize investments and to systematically and effectively target energy savings in the manufacturing sector. Investments in the water sector resulted in increased efficiency of management of irrigation systems in Ferghana Valley. The Talimarjan Transmission project will halve the power outages in South West Uzbekistan.

29. Another pillar of the first tier—improving service delivery—has been underpinned by significant analytical and advisory work. Uzbekistan has benefited from considerable analytical support and technical assistance in the areas of early childhood education, tertiary education, dialogue on poverty and social protection, and health financing. The accompanying investment projects resulted in improvements in the quality of primary health care through training of more than 3,000 doctors and 7,000 nurses. The quality of teaching is also being improved, through better education financing and school management, and the introduction of a more student-centered approach to teaching. In addition, 98 percent of the population in Bukhara and Samarkand now has reliable access to water supply.

30. The private sector development and competitiveness agenda is an area of concerted effort by the whole World Bank Group. The Bank and the IFC are engaged in continuous dialogue with policy makers and the private sector. Through specific technical assistance focused on Doing Business reforms, the World Bank Group advised the government on how to improve the regulatory framework for the private sector, aiming to reduce the cost of doing business and hence foster entrepreneurship. Improvements supported by the WBG included simplification of permit procedures for businesses. Complementing these efforts, the IFC started piloting risk-based tax inspections in three districts. If successfully implemented, they will significantly reduce the cost of running a business. On a parallel track, IFC advisory projects helped the client companies improve corporate governance and quality standards. These changes lay the groundwork for increased private sector investments, some of which could be supported by IFC. MIGA complemented these by helping Uzbekistan attract and retain foreign direct investment. In 2012, MIGA issued a US$119.5 million guarantee for the Khauzak-Shady Block and Kandym Field Group project.

31. Interventions in the financial sector have been very targeted and have aimed to improve access to finance, particularly for farmers and SMEs. IFC supported well-managed local banks through equity investments, SME credit lines, as well as trade finance, which supported the growth of their SME loan portfolio from about US$120 million to US$170 million for nearly 7,500 SMEs. On the advisory side, the WBG supported legislative changes in the area of credit information-sharing and movable collateral registries. This work has led to the establishment of a private credit bureau in 2012, for which IFC is currently helping attract a foreign partner. In addition, IFC advisory services supported the certification program for risk management professionals in the banking sector. To complement these efforts, IFC provided advisory services to help the client banks develop customized financing products for farmers. Despite these results, the level of financial intermediation remains low and access to finance needs to be increased.

32. Activities related to improved governance, increased transparency and access to information are gaining traction, albeit in small scale. Prior to the current CPS period, the Bank engagements in these areas were almost non-existent. In 2012, the Bank undertook a Public Expenditure and Financial Accountability (PEFA) Assessment to provide the Government with an integrated assessment of the public finance management system, as well as suggestions on reform planning and implementation. The Bank also initiated collaboration with the Organization for Economic Cooperation and Development, which supports Uzbekistan’s implementation of the Istanbul Declaration Anti-Corruption Reforms in the Central Asia. Following these engagements, government institutions are now actively collaborating with the Bank teams on developing a Public Procurement Strategy, which will lead to development of a new Public Procurement Law. However,

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the governance agenda in Uzbekistan requires further improvement, as the country is continuously ranked in the bottom 10 percent in the Worldwide Governance Indicators list. In addition, access to macroeconomic and microeconomic data, including household surveys, is poor; this adversely affects monitoring as well as the scope of technical assistance and analytical work.

33. Progress has also been made in resolving procurement issues and implementation delays. There was considerable improvement in the registration of international contracts during 2012–13. There have been many years of unsuccessful attempts to have Government exempt Bank-financed projects from contract registration and price verification after signature of international contracts. The introduction of systematic monitoring of contract registration and implementation, from the no-objection to the issuance of bid evaluation reports and draft contracts during 2012–13, have significantly improved project implementation and disbursement. Prior to 2012, registration of Bank-financed contracts took eleven to seventeen months. Currently, in most cases, turnaround time for the contract review and registration is less than one month after contract signature.

34. Improvements have been made in processing of projects through Government institutions. As of April 2014, the disbursement ratio of active projects is 7.2 percent (lower than the ECA average of 18.4 percent), with most of the projects rated below the line. This is expected to improve through the implementation of the framework Memorandum of Understanding (MOU) signed between the Government and the Bank; the MOU is aimed at expediting the internal preparation procedures and advance procurement processes, thereby decreasing the lag between Board approval and project effectiveness from the average of 12 months in FY13 to a period that is closer to the ECA average of three months. The MOU also allows the Government to launch major procurement at the project preparation stage, thereby significantly shortening the time between project effectiveness and first disbursement.

35. Scaled-up project communication is helping the program achieve its objectives. Communication efforts have intensified during the CPS period, confirming the Bank’s position as a premium knowledge provider. The findings of the FY13 Uzbekistan Country Survey demonstrate that the World Bank is viewed as a respectful, honest, and reliable development partner in Uzbekistan. Stakeholders see a very important role for the Bank in the country’s development in general and in the identified priority areas in particular: domestic private sector development, agriculture, education, and governance.

MODIFICATIONS TO THE CPS AND THE WAY FORWARD

36. The World Bank strategic focus, as outlined in the CPS, remains valid for the remaining period of the CPS, with no significant modification. The two tier approach has proven successful and remains relevant for the remainder of the CPS period. There is an increased emphasis on sector-wide strategies and knowledge work, with solid utilization of IDA resources. New emphasis will be placed on access to macroeconomic and microeconomic data.

37. The World Bank strategy in Uzbekistan continues to be consistent with regional strategies and programs for Central Asia that support regional connectivity. The World Bank Group will continue to contribute to the sound management of water resources and advancing the regional energy trade through the Central Asia Energy-Water Development Program (CAEWDP) and Central Asia Regional Economic Cooperation, which aim to improve diagnostic and analytical tools to help the countries in the region manage their water and energy resources, promote dialogue among riparian countries for improved management of shared river basins, strengthen regional energy trade, and stimulate investments, in coordination with other development partners. IFC will complement

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these efforts through its new regional Renewable Energy Advisory Project, which is designed to help the governments across Central Asia and the Southern Caucasus improve the regulatory framework for renewables and support renewable project developers. The Government has identified climate resilience as a strategic issue for future economic growth, for efficient use of water, land, and energy resources, and for potential regional collaboration. It has actively participated in the First Central Asia Climate Change Forum convened by the Bank in June 2013 and is currently discussing with neighboring countries the possibility of a regional program for climate resilience. Through the Central Asia Hydrometeorology Modernization Project, the Bank is improving the accuracy and timeliness of delivery of weather, climate, and hydrological services in the region.

38. Investments in the transport and energy sectors are deepening and new areas of collaboration are being explored. The Transport Sector Review provided a comprehensive analysis of urban transport in Tashkent city road transport and railways and offered examples of international experience in how to address sector challenges through policy changes and investment in the short to longer term. It also proposed activities for which the Bank can provide support. As a result, the Government requested IBRD funding to support two projects in the transport sector: Pap-Angren Railways Project and Regional Roads Project. Interventions in the energy sector will also continue through investments in rehabilitating the distribution of energy and heating. The Government also expressed interest in exploring potential collaboration in Land Registration, Forests and Natural Resources Management; and Food Safety and Trade in the Livestock Sector. Initial dialogue and analytical work is ongoing in those areas as a foundation for potential further engagement.

39. IFC will maintain its strong focus on the financial sector, while exploring opportunities to support the real sector investments. In the financial sector, IFC is planning to scale up its support to financial intermediaries aiming to expand their lending to Small and Medium Enterprises (SMEs), increase supply of trade finance and agri-finance, and introduce new products. In the real sector, IFC will continue to prioritize investment and advisory support for agribusiness clients. Working together, IFC and the Bank will support the Government’s program for economic diversification of the agriculture sector, including support for the development and modernization of rural enterprises, and reorientation toward higher value-added crops and business lines. In addition, IFC will seek to peruse larger investment projects in the petrochemicals, mining, and energy sectors identified during the first half of the CPS implementation. It will consider various financing options for these projects, including equity and debt finance, resource mobilization from partner banks and MIGA, as well as subnational finance. If they materialize, these investments will significantly increase IFC portfolio in the country.

40. Social sustainability issues and citizen engagement are at the forefront of the World Bank Group’s agenda. Social assessment is carried out for proposed lending. Looking forward, the Bank will seek to systematically include mechanisms for beneficiary feedback in all projects and, wherever feasible, to build participatory processes into project design and implementation. Two areas of particular focus will continue to be gender, and child and forced labor. Gender perspectives and issues have been systematically included in project preparation since the start of the CPS, with specific social studies assessing (where applicable) gender issues in a particular sector and potential gender activities within the project. Where possible, gender-disaggregated indicators are included in the Project Results Framework. In Uzbekistan, high peak labor demand during the cotton harvest period, in combination with the state production quota system, led to the state-sponsored use of forced and child labor, with staff from schools, universities, hospitals, and other government organization joining the cotton harvesting. The International community and Civil Society Organizations (CSOs) have been raising concerns about this practice, including a 2013 complaint received by the Inspection Panel against Bank-financed agriculture projects. The World Bank has

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long been undertaking a holistic approach on the issue, through a project-level safeguard measures, policy dialogue with the authorities, and collaboration with other international organizations, CSOs and development partners. Recognizing the importance and complexity of the forced and child labor issue in Uzbekistan, third party monitoring and feedback mechanism are incorporated in selected Bank-supported agriculture and education projects. In addition, arrangements have also been made for some project land to be exempted from the state cotton production quota, and additional efforts are made to enhance diversification and mechanize the cotton harvest. These comprehensive efforts aim to eliminate the use of child and forced labor in cotton harvesting.

41. Uzbekistan is likely to fully utilize its IDA allocation, for the first time in the history. The delivery of IDA-financed projects was prioritized in the early years of the CPS. During FY12–13, four IDA-financed projects worth US$315 million were delivered, out of the total IDA-16 allocation of some US$555 million. Uzbekistan’s remaining IDA allocation stands at SDR 161.9 million for FY14, and SDR 122.7 million for FY15.11 Since its per capita gross national income exceeded the IDA operational cutoff for the first time only in 2011, Uzbekistan will retain its access to IDA resources for the entire FY12–15 CPS period, with a timetable for graduation to be set in future IDA discussions. IBRD-financed activities, in total value of more than US$550 million, have been positioned for delivery by FY15, following the current utilization of IBRD allocation at US$180 million. Actual and projected lending programs are presented in Annex 2. Total commitments in the active portfolio amount to US$1.04 billion (US$737.5 million/IDA, US$290 million/IBRD and US$12.7 million/GEF). The average age of the portfolio is relatively low, with half of the projects less than three years old. Most of the active projects are on track to achieve their development objectives. The total portfolio size is expected to reach US$2 billion by the end of this CPS. The Trust Fund portfolio is expanding from US$1million/year to US$13million and over US$50 million committed in FY13 and FY14 respectively. IFC has committed investments of about US$32 million, mostly in the financial sector and agribusiness.

RISKS

42. The main risk to CPS implementation is the insufficient political commitment required to advance further economic reforms. Increase of state capture and introduction of further regulations may reverse the already achieved results and prevent the Pillar 2 outcomes related to enhancing the competitiveness of the economy to be achieved. Low interest of medical personnel to attend the required educational programs may decrease the achievement of the CPS outcome related to the increased quality of health services. Finally, the lack of willingness to disclose reliable economic, financial, and social data may impede the ability to credibly track the economic developments in the country. In addition to working closely with other development partners, including IMF, and stakeholders to continuously assess policy reforms and help the government improve statistical disclosure, the Bank Group will also closely monitor CPS implementation. In the case of adverse developments, the Bank will adjust its engagement through the two-tier approach.

43. Regional risks may influence the implementation of key regional World Bank Group programs. These include the possible deterioration of security conditions due to the situation in Afghanistan, and increasing tensions between Uzbekistan and its neighbors over trans-boundary energy and water resources. The forthcoming release of the Rogun assessment studies and the recent                                                             11 IDA allocation for FY15 is indicative, as it may vary depending on total IDA resources available, the country’s performance rating, GNI per capita, population, the terms of IDA assistance and the allocation deductions associated with MDRI annual debt service foregone; the performance, other allocation parameters, and IDA assistance terms for other IDA borrowers; and the number of IDA eligible countries. Also, since IDA allocation is provided in SDR terms, the exchange rate for each operation depends on the applicable prevailing rate at the time of approval.

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Board approval of CASA-1000, both of which Uzbekistan adamantly opposes, and its refusal to participate in riparian consultations, may create more tensions in Central Asia. Tensions may manifest themselves in heated media and public relations exchanges, or even in more serious border closures and trade restrictions. Several Bank Group activities—especially its CAEWDP, as well as continuous dialogue with the Government, focused efforts on basin-wide consultations and transparent sharing of information—are intended to help mitigate this risk. The World Bank will continue to liaise with key international agencies to monitor political and security developments, and to assess their possible impact.

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ANNEX 1: RESULTS MATRIX

STRATEGIC THEME I. IMPROVING ENERGY INFRASTRUCTURE AND WATER RESOURCES MANAGEMENT National Priorities Improvement of energy efficiency. Improved environmental management. Private sector development. Improved water use. Issues and Obstacles Energy: low quality of electricity supply; high energy usage per unit of GDP productivity; high losses in supply chain. Lack of private investment. Double-landlocked nature of Uzbekistan affects its competiveness. Inefficient use of water resources for irrigation. Inadequate meteorological, climate, and hydrological information for decision making.

CPS Outcomes Revised and new CPS Outcomes Progress to Date CPS Instruments and partners Improved energy sector reliability as seen through reduction of outages in South West Uzbekistan from 92 hours per year to 48 hours per year, and Government adoption of strategic plan for the energy sector.

The Outcome is retained. The reduction of power outages cannot be achieved until the complete planned transmission grid is constructed, but is expected to be achieved by the end of the CPS period. At the level of strategic plan for the energy sector, the World Bank is providing significant advice through the EE Strategy for the industrial sector, the UAP-EST Assessment, and the Energy Sector Note.

The construction of 218 kilometers 500 kV transmission line connecting Talimarjan Power plant with Sogdiyana substation and transmission line Guzar- Karaikul has been completed. The 500 kV Switchyard at Talimarjan Power Plant is in final stages and expected to be completed by February 2014, almost 21 months ahead of appraisal schedule. UAP-EST (Uzbekistan-Afghanistan-Pakistan Electricity Supply and Trade) Assessment was completed and disseminated to the Government in 2012. Energy Sector issues Note was delivered in 2013.

SPN: FY10 Talimarjan Transmission Project, FY12 Advanced Electricity Metering Project. New IBRD: FY15 District Heating Project, FY15 Electricity Distribution Rehabilitation Project. TF: ECAPDEV grant for preparation of District Heating Project.

AAA: Energy/Power Sector Issues Note Regional power market assessment (UAP-EST). NEW IFC INV: Financing of Uzelectroset Company (TBC). New IFC AS: IFC Regional Renewable Energy Advisory program. Key Partners: ADB, JICA, IsDB, EU, China EximBank.

Electricity constraint to firms’ ability to operate competitively have been significantly reduced (follow-up to 2008 firm-level survey (baseline).

The Outcome has been revised to state: Improved energy efficiency of the largest industrial enterprises through introduction of energy efficiency measures (target: 20 percent energy savings).

More than US$20 million were provided to 19 industrial enterprises to implement 28 energy efficiency sub-projects that improve their overall performance and competitiveness. As a result more than 60,000 MWh of electricity and 30 million m3 of natural gas will be free out

SPN: FY10 Energy Efficiency for Industrial Enterprises Project (UzEEF) and FY13 Additional Financing. AAA: A Sourcebook for Strategic Development of Industrial Energy

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annually and available for other consumers by the end of 2015. Uzbekistan industrial enterprises achieved more than 20 percent energy savings.

Efficiency. New IFC AS: IFC Regional Renewable Energy Advisory program. Key Partners: ADB, JICA, IsDB, EU, China EximBank.

Improved water resources management: - Area of irrigated land with adequate water supply. - Area of irrigated land with adequate drainage is increased.

Increased efficiency of water resources management as seen through increase of irrigated areas with adequate irrigation water supply (baseline: 40,000ha, target: 74,000ha).

The new agreed Results Framework increased the area of irrigated land with adequate water supply to 74,000 ha. The irrigated area in South Karakalapkistan increased by nine percent and yields increased by 20 percent.

SPN: Drainage, Irrigation and Wetlands Improvement project, FY08 Rural Enterprise Support project II, FY10 Ferghana Valley Water Resources Management Project. New IDA/IBRD: FY14 South Karakalpakstan Water Resource Management Improvement Project, FY15 Ferghana Valley Water Resources Management Project-Phase 2, FY16 Karshi Pumping Rehabilitation Project. AAA: Water Resource Assessment, Strengthening Irrigation Governance (Regional activity). Key Partners: SDC, EC, GTZ, KfW, , JICA, USAID, ADB, SDC, OPEC Fund, Kuwait Fund, Government of France, Government of China, IsDB.

Decrease in the water salinity and reduction of highly saline lands by more than 100mg/l using a three-year average comparing the period (2005-2007) and the period (2010-2012)

Water salinity has dropped using a three-year average comparing the period (2005-2007) and the period (2010-2012) by 130mg/l (0.13g/l). Ground water levels have dropped throughout the area and highly saline lands reduced by 55 percent.

Increased efficiency of management of irrigation water resources in project areas, as seen through establishment of Water Users Associations in the project areas (baseline: 62 WUAs, target: 100 WUAs).

62 Water Users Associations (WUA) in seven project districts were provided technical and financial support (starting from conducting an inventory, development of annual work plans and trainings on strengthening the capacity of WUAs). This was found as the best practice and replicated nation-wide. 41 new WUAs were established in Beruni and Turtkul disctricts, covering 67,000 ha. of irrigated land. 837 WUA members from 25 WUAs (target - 1,000) from three districts were trained on different topics (system O&M, water volume-based payments, etc.).

STRATEGIC THEME II: ENHANCE COMPETITVENESS OF THE ECONOMY National Priorities Better institutions through improved macroeconomic management and more effective and transparent fiscal/budget policy. Enhanced Industrial Competitiveness.

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Issues and Obstacles Restricted availability of key economic, financial, and social data. Key economic data does not comply with the generally accepted methodology. Economic and social development Strategy of Uzbekistan is not articulated in a publicly available document. Fiscal and budget data is not publicly available. CPS Outcomes Revised and new CPS Outcomes Progress to Date CPS Instruments and partners Data transparency and data quality improved as seen through publication of key budget data on the Ministry of Finance’s website.

The Outcome is retained and partially achieved.

Government has improved data transparency. However, some core macro variables are still publicly unavailable (e.g. balance of payment statistics, demand and supply breakdown of GDP, monetary aggregates, employment data).

Macroeconomic Monitoring TA, CPIA-driven Policy Dialogue TA,

Enhanced regulatory policy frameworks and institutional capacity for investment, private sector development and trade, as seen through: (i) improved business environment as measured by the Doing Business indicators; (ii) adopted legislation on standards, metrology and accreditation is aligned with minimum international guidelines; and (iii) adherence of Uzbekistan’s accreditation system with international guidelines and membership in the Metre Convention as a Member State or an Associate of the General Conference on Weights and Measures.

This Outcome has been revised and limited to state: Improved business environment as seen through enhanced regulatory policy in priority Doing Business areas: Starting Business: (i) Number of procedures reduced from 6

(2011) to 4 (2015) (ii) Number of days to register business

reduced from 14(2011) to 6 (2015) Registering Property: (i) Number of procedures reduced from 14

(2011) to 10 (2015) (ii) Number of days to register property

reduced from 77 (2011) to 68 (2015) Getting Credit: (i) Private bureau coverage increased from

3.6 percent of adults (2011) to 20 percent of adults (2015)

(ii) The volume of outstanding loans to MSMEs in the portfolio of financial intermediaries supported by IFC increased by 50% from US$120 million (2010) to US$180 million (2015)

 

Specific TA focused on Doing Business reforms and competitiveness has been provided, leading to adoption of a new Law on Permit Procedures, positively affecting several indicators measured by the Doing Business report. The new Law on Collateral Registry has been developed and adopted. In FY12-FY14YTD IFC provided about US$20 million in trade finance through local banks and SME loans of US$8 million. The volume of MSME loans provided by IFC client banks increased by about 40 percent from US$120 million at the end of CY2010 to US$160 million at the end of CY2012.

AAA: Improving the Construction Permitting System in Uzbekistan, Property Registration in Uzbekistan, Business Environment Assessment Report, Enhancing SME’s Productivity and Competitiveness in Uzbekistan, Improving Access to Credit Through Secured Transactions Reform, Land Administration Dialogue. IFC INV: Portfolio comprised of two GTFP lines, one MSME credit line and equity in local banks.

New IFC INV: Potential MSME and trade finance, potential investments in petrochemicals and mining. IFC AS: Azerbajan and Central Asia Financial Infrastructure Project. TFs: Strengthening Regulatory and Supervisory Framework (FIRST TA), Enhancing Financial Reporting and Auditing in the Banking System (FIRST TA), Accelerating ICT Adoption and Support for Implementation of the e-

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Government Development Master Plan (Korean TA). Key Partners: SDC, USAID, GIZ, UNDP, JICA, EU, KfW, ADB.

STRATEGIC THEME III: DIVERSIFICATION National Priorities Improved institutions for enterprise sector development. Increase productivity of Agriculture. Issues and Obstacles Restrictive business environment hinders modernization, economic growth FDI and export competitiveness. Low agricultural productivity. Limited financial support available for investments in high growth sectors.

CPS Outcomes Revised and new CPS Outcomes Progress to Date CPS Instruments and partners Increased investment in human and physical capital in the agriculture sector, as seen through: (i) number of farms benefitting from credit lines (target: 400 farms and agribusinesses). and (ii) training and seminars for farmers/agribusiness owners (target: 50.000 participants).

The Outcome has been revised for clarity and focus. It is on track to be achieved.

415 farms and agribusinesses have thus far benefitted from the credit line through six participating financial institutions. Investments financed include: agricultural machinery such as tractors and grain harvesters, livestock, poultry business, agro-processing, orchards and vineyards, fish farming, greenhouses and vegetable farming. A survey of sub-loan beneficiaries showed that the following results have been achieved: (a) creation of 279 new jobs; (b) average increase in enterprise sales of 86 percent; (c) average increase in enterprise profits by 306 percent; (d) average increase in household incomes by 151 percent; (e) average increase in the processing volume of 20 percent; and (f) average increase in the number of animals by 230 percent. 269 on-farm management training seminars have been conducted for 50,848 farmers/agribusiness owners, including 7,530 women. Included in all trainings is a session on the prevention of child labor in addition to covering topics ranging from orchard and vineyard production to preparing business plans, agricultural law and taxation; to processing and marketing of products. The

SPN: FY08 RESP II and FY13 Additional Financing. TF: FY13 GEF Sustainable Agriculture and Climate Change Mitigation Project. AAA: Horticulture Policy Note for Uzbekistan. NEW IFC INV: A loan to agro-processing company AGROMIR; a loan to International Bottles Tashkent Company. IFC AS: Food Safety advisory to (active clients: International Bottles Tashkent Company). NEW IFC AS: Central Asia Agrifinance Project (active clients: Hamkorbank).

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training will be expanded to include forced labor in addition to child labor. IFC committed US$4 million loan to a beverage producer and is expecting to invest US$7 million in an agro processing company by the end of FY14. IFC provides advisory assistance to a local bank to build its capacity to finance agricultural investments.

STRATEGIC THEME IV: IMPROVING ACCESS TO SOCIAL SERVICES National Priorities Improve the quality of primary and basic secondary education while maintaining universal access. Improve access to quality health care at the primary level and at secondary health care facilities. Increased access to water and sanitation. Issues and Obstacles Poor quality and relevance of education. Poor infrastructure and outdated diagnostic and medical equipment at the rayon level secondary facilities. Inefficient resource allocation to rayon hospitals based on input-based norms (bed and staff numbers), reflecting nominal capacity and not the level of services provided. Inadequate access to safe water and sanitation services in urban and rural areas. Low capacity of sector institutions. Inefficient WSS sector financing. CPS Outcomes Revised and new CPS Outcomes Progress to Date CPS Instruments and partners Improved quality of education services in pilot schools in project area as measured through the comparison of the results from the national student assessment between project and non-project schools (target: scores in project schools are three percent higher than those in non-project schools).

The Outcome has been revised for clarity, with added target value.

Two rounds of national standardized student assessments have been carried out, one in 2008 and one in 2013. The report on results show and overall upward trend in learning achievements in project schools of three percent. Learning materials are provided to all 2195 project schools (10 percent of total number of schools in the country) have received learning materials.

SPN: FY09 Basic Education Project-Phase II. New IDA: FY15 Modernizing Higher Education Project. TF: Improving Pre-school and Basic Education Project (GPE grant). AAA: Improving Early Childhood Care and Education, Tertiary Education Policy Note. Key Partners: GPE, EU, UNESCO, UNDP, UNICEF, JICA, KOICA, GIZ, BC, OPEC Fund, EDCF (Korea), Saudi Development Fund.

Improved quality of health services as seen through refurbishment of 50 rayon level project health facilities with modern biomedical equipment.

Outcome is retained and on track to be achieved. Target values have been revised and increased due to the approval of the Additional Financing of the Health Sector Improvement project.

Delivery of equipment to the completed facilities has begun (79 facilities received digitizers, 161 – refrigerators, 110 – ultrasound devices).

SPN: FY11 Health III and FY13 Additional Financing. TF: Results-Based Financing for Health TA. Key Partners: ADB, UNDP, UNICEF, JICA, WHO, , KfW, GIZ, IsDB, KOICA, Saudi Development

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Fund. Increased capacity of health personnel in

urban and rural PHC facilities receiving the training under 10-month GP program (baseline: 670 doctors, target 3000 by 2018); and,

Health personnel at PHCs (9,400 doctors and 85,500 nurses by 2018) receiving training under continuous professional education.

Outcome is retained and on track to be achieved. Target values have been revised and increased due to the approval of the Additional Financing of the Health Sector Improvement project.

As of end 2013: 1,132 doctors received the training under the 10-month GP program. As of end 2013, 2,805 doctors and 7,041 nurses have received training under continuous professional education.

Increased household access to sanitation services in project areas of Bukhara and Samarkand (baseline:0, target: 6000).

The Outcome is retained and partially achieved.

Cumulative number of household connected to public sewer system: 816 in Bukhara and 1,184 in Samarkand. The capacity of targeted WSS sector and local government institutions staff has been improved through training and capacity building (as of Feb 2014, the total number of trained staff is 161 in Bukhara and 123 in Samarkand.

SPN: FY10 Bukhara and Samarkand Sewerage Project, FY11 Syrdarya Water Supply project, FY13 Alat and Karakul Water Supply Project. New IDA: FY16 Water Supply APL. AAA: Social Impact Analysis of WSS services (Regional activity). Key Partners: SDC, ADB, EC, GIZ, KfW, JICA.

CROSS THEMATIC AREA: GOVERNANCE National Priorities Increase efficiency of public financial management. Issues and Obstacles Limited access to economic & financial information, and accounting and reporting do not sufficiently ensure transparency of financial information. Legal & institutional framework for internal and external audit below international benchmarks. CPS Outcomes Revised and new CPS Outcomes Progress to Date CPS Instruments and partners Improved framework for transparency and management of public finances, as seen through: (i) development and adoption of Public Procurement Strategy and Public procurement Law. and (ii) developed framework for internal control and audit of the Ministry of Finance.

This Outcome has been revised compared to the CPS, for clarity and consolidation purposes. It has been partially achieved.

TA to support draft Procurement Law is being delivered. Draft Public Procurement Strategy 2014-2015 and draft Public Procurement Law is under preparation. Internal control and audit framework of the Ministry of Finance are being developed through the collaboration with the PEMPAL Internal Audit Community of Practice activities to contribute to the internal control and audit framework development. A follow up capacity building activities in internal control and audit are currently planned. PEFA report was completed in FY13 and shared with the Government, but never disseminated. Software for Risk Based tax audits of Unified Single Taxpayers has been

AAA: PEFA assessment, Improve Public Procurement Outcomes TA. IFC AS: Central Asia Tax project. Key Partners: EU, UNODC, UNDP. TFs: Strengthening Regulatory and Supervisory Framework (FIRST TA), Enhancing Financial Reporting and Auditing in the Banking System (FIRST TA). IFC AS: Central Asia Tax project Key Partners: FIRST, UNDP, EU, OSCE.

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developed jointly with the IFC and State Tax Committee It has been piloted in three districts of Tashkent city. Completed the Country Strategy and Action Plan for Enhancing Financial Reporting in the Banking Sector in Uzbekistan by the Centre for

Financial Reporting Reform (CFFR).One of the priority areas identified is strengthening the role of the accounting and auditing profession with professional associations’ capacity development.

 

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ANNEX 2: CPS LENDING AND AAA PROGRAM: PROJECTED AND REVISED1

CPS Lending program (Envisioned) (US$ million)

CPS Progress Report Lending Program (Actual) (US$ million)

FY 12 IBRD IDA Notes FY 12 IBRD IDA Other Advanced Electricity Metering 110 Delivered in FY12 Advanced Electricity Metering 180 Alat-Karakul Water Supply 50 Delivered in FY13 Rural Enterprise Support II - AF 40 Delivered in FY13 Total FY12 110 90 Total FY12 180 0 0 FY13 FY13 Actual Alat-Karakul Water Supply 82 Rural Enterprise Support II – AF 40 Enterprise Energy Efficiency II 100 Delivered in FY13 Enterprise Energy Efficiency - AF 100 Water Sanitation Sector Investment I 50 Postponed to FY16 Health 3–AF [New: Using WSSI/Micro IDA] 93 South KKP Water Resource Improvement 150 Delivered in FY14 GEF Grant (Associated with RESPII-AF) 12.69 Total FY13 100 200 Total FY13 0 315 12.69 FY14 FY14 Actual/Proposed South KKP Water Resource Improvement* 17.5 242.5 Early Childhood Development 50 Financed by GPE GPE Grant – Early Childhood 49.9 Horticulture Pilot Project 100 Delivered in FY14 Horticulture Development Project* 150 Water Sanitation Sector 2 100 Postponed to FY17 Microfinance access 100 Dropped [IDA to HealthAF] Electricity Distribution 100 Postponed to FY15 Total FY14 200 250 Total FY14 167.5 242.5 49.9 FY15 FY15 Proposed [Electricity Distribution-Reserve] [200] Urban Integrated Development Project 100 To be delivered in FY15 Urban Districts Heating (IDA-17**) 100 Transport Unidentified 100 To be delivered in FY15 Pap-Angren Railway 200 IBRD Project Unidentified (outer years) 100 To be delivered in FY15 Regional Road Development 200 [Fergana Valley WRM-II - Reserve] [100] IDA Project Unidentified (IDA17) 100 Higher Education (IDA-17**) 40 Total FY15 300 100 Total FY15 400 140** 0

Total lending FY12-15 710 640 (Total) 1,350 Proposed lending FY12-15 (Total) 1,455 747.5 697.5 [62.59]

*_/ The IDA amount includes SDR161.9 million (US$240 million) plus US$2.5 million from cancellation of BEPII Project. **_/ Tentative IDA-17 allocation for FY15 is SDR122.7 million.

                                                            1 Lending volumes will depend on the country's performance and priorities, IBRD lending capacity, demand from other borrowers and global economic developments. 

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AAA Programs CPS AAA Program (Envisaged) CPA Progress Report AAA Program (Actual/Planned) I.IMPROVING INFRASTRUCTURE TA/ESW Completion Status Completion Energy Sector Strategy ESW FY12 Energy Sector Strategy Note Delivered FY13 Uzbek/Afghan/Pakistan Energy Assessment TA FY12/FY13 Uzbek/Afghan/Pakistan Energy Assessment Delivered FY13 Framework Paper for Industry Energy Efficiency Delivered FY13 Transport Assessment ESW FY13 Transport Sector Review Delivered FY13 Trade Logistics and Supply Chain Performance Delivered FY13 Water Resource Management Strategy ESW FY13 Water Resource Management Strategy Underway FY15 II. ENHANCE COMPETITIVENESS OF ECONOMY Macroeconomic Monitoring TA Yearly Macroeconomic Monitoring Underway Yearly Data Sharing and Transparency TA FY13 Data Sharing and Transparency Dropped - Uzbekistan Vision 2030 TA FY13 Uzbekistan Vision 2030* Underway FY14 Industrialization Policy Note ESW Yearly (Industry Note) Tourism Sector Framing Paper Delivered FY13 (Industry Note) Private Sector Competitiveness Delivered FY13 Korean TF / ICT Development TA Underway FY14 ICT e-Government Support TA Underway FY14 Land Administration Dialogue TA Underway FY14 Natural Resource Management TA Underway FY14III. DIVERSIFICATION Doing Business TA Yearly Doing Business Delivered Yearly Innovation and Growth TA Yearly Innovation and Growth Dropped - Financial Sector TA FY12-14 Banking Sector Financial Reporting (FIRST) Delivered FY14 Banking Supervision - Basel II&III Delivered FY14 Horticulture Strategy ESW FY12 Strengthening Horticulture Value Chain Delivered FY13 National Quality Infrastructure TA FY13 National Quality Infrastructure Delivered FY13 IV. SOCIAL SERVICE DELIVERY Improving Early Childhood Care and Education Delivered FY13 Modernizing Higher Education Delivered FY14 Water Utility Pricing Note ESW FY12 Water Supply Sector Strategy Underway FY15 Cities Alliance - Bukhara Samarkand Urban Dev. Delivered FY14 Poverty Monitoring and Analysis TA Yearly Jobs and Social Protection Underway FY14 CROSS-CUTTING THEME: GOVERNANCE Public Exp. and Financial Accountability (PEFA) ESW FY12 Public Exp. and Financial Accountability (PEFA) Delivered FY13 Procurement Strategy Development TA Underway FY15 Procurement Law Development TA Plan FY16 FY17 User Impact Assessment of Water Utilities Underway FY15 Social Accountability for Agriculture Water Users Underway FY15

*_/ Uzbekistan Vision 2030 task has many sub-tasks and corresponding Internal Orders

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ANNEX 3: REVISED RESULTS FRAMEWORK FOR THE UZBEKISTAN CPS FY2012-2015

CPS FY12-15 Outcomes Revised CPS Outcomes Description STRATEGIC THEME I. IMPROVING EFFICIENCY OF INFRASTRUCTURE Improved energy sector efficiency: - Reduced duration of outages in South West Uzbekistan from 92 hours per year to 48 hours per year - Agreement on priority issues in power sector and strategic plan to deal with them adopted

Improved energy sector reliability as seen through reduction of outages in South West Uzbekistan from 92 hours per year to 48 hours per year, and Government adoption of strategic plan for the energy sector.

This Outcome has been consolidated for clarity.

Electricity constraint to firms’ ability to operate competitively have been significantly reduced (follow-up to 2008 firm-level survey (baseline)

Improved energy efficiency of the largest industrial enterprises through introduction of energy efficiency measures (target: 20 percent energy savings).

This Outcome has been consolidated for clarity.

Development of infrastructure PPPs: - Implementation of at least one pilot PPP project the country

Dropped. This Outcome cannot be measured during the period covered by the CPS.

Sustainable transport: - Increased transport efficiency - Minimum ecological footprint of public and private transport - Increased safety of transport operations

Dropped. This Outcome cannot be measured during the period covered by the CPS. It concerns transport project that will be prepared at a later stage.

Improved water resources management: - Area of irrigated land with adequate water supply is increased by 40,000 ha\ - Area of irrigated land with adequate drainage is increased by 30,000 ha

Increased efficiency of water resources management as seen through increase of irrigated areas with adequate irrigation water supply (baseline: 40,000ha, target: 74,000ha).

This Outcome has been retained and clarified.

Decrease in the water salinity and reduction of highly saline lands by more than 100mg/l using a three-year average comparing the period (2005-2007) and the period (2010-2012)

These outcomes have been added to clarify the results of the overall activities and reform in the irrigation sector. Increased efficiency of management of irrigation water resources in

project areas, as seen through establishment of Water Users Associations in the project areas (baseline: 62 WUAs, target: 100 WUAs).

Disaster- and climate change-related risks reduced: Improved accuracy of weather and seasonal river flow forecasts; up to 90% accurate by 2016.

This Outcome cannot be measured during the period covered by the CPS.

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CPS FY12-15 Outcomes Revised CPS Outcomes Description STRATEGIC THEME II. ENHANCE COMPETITIVENESS OF THE ECONOMY - Data transparency and data quality improved - Key economic data is in compliance with the generally accepted methodology - Efficiency of public resource mobilization improved - Improved transparency and public accountability in the public finances through - Improved alignment between national priorities and budgetary allocations - Increased Treasury coverage

Data transparency and data quality improved as seen through publication of key budget data on the Ministry of Finance’s website.

The revised Outcome encompasses a number of the outcomes of the original Results Matrix. The new Outcomes has been revised and simplified.

STRATEGIC THEME III. DIVERSIFICATION Enhanced regulatory policy frameworks and institutional capacity for investment, private sector development and trade: - Improved business environment as measured by the Doing Business indicators - Legislation on standards, metrology and accreditation is aligned with minimum international guidelines

Adherence of Uzbekistan’s accreditation system with international guidelines and membership in the Metre Convention as a Member State or an Associate of the General Conference on Weights and Measures

Improved business environment as seen through enhanced regulatory policy in priority Doing Business areas: Starting Business: (iii) Number of procedures reduced from 6 (2011) to 4

(2015) (iv) Number of days to register business reduced from

14(2011) to 6 (2015) Registering Property: (iii) Number of procedures reduced from 14 (2011) to 10

(2015) (iv) Number of days to register property reduced from 77

(2011) to 68 (2015) Getting Credit: (iii) Private bureau coverage increased from 3.6 percent of

adults (2011) to 20 percent of adults (2015) The volume of outstanding loans to MSMEs in the portfolio of financial intermediaries supported by IFC increased by 50% from US$120 million (2010) to US$180 million (2015)

The Outcome was revised for better focus and accuracy of measurement.

25

CPS FY12-15 Outcomes Revised CPS Outcomes Description Increased investment and employment in Agriculture sector: - Improved agricultural productivity in target areas as measured by yield of key products Baseline (ha/tons)-> Target (ha/tons) wheat 4.0 -> 5.04 cotton 2.00 -> 2.5 melon-gourds 11.8 -> 14.3 maize – 13.1 -> 15.7 orchards–apple 4.3 -> 4.5 vineyards – 4.1 -> 4.3 - 20% of PFI’s agriculture lending portfolio supports development of: (i) poultry; (ii) livestock (iii) fishery; and (iv) horticulture sectors Fruits and vegetable production acreages increased by 200,000 ha.

Increased investment in human and physical capital in the agriculture sector, as seen through: (i) number of farms benefitting from credit lines (target: 400 farms and agribusinesses). and (ii) training and seminars for farmers/agribusiness owners (target: 50.000 participants).

The Outcome has been revised for clarity and focus.

STRATEGIC OBJECTIVE IV: IMPROVING ACCESS TO SOCIAL SERVICES

Improved access to quality basic education services: - 100% of project preschools and Grades 1-9 grades have and are using core set of teaching and learning materials [as measured through an evaluation] - 50% of teachers at sampled project schools where learning materials acquired under the project are used effectively in classrooms Implementation and dissemination of results of national student assessment through the national media and newspapers

Improved quality of education services in pilot schools in project area as measured through the comparison of the results from the national student assessment between project and non-project schools (target: scores in project schools are three percent higher than those in non-project schools).

The Outcome has been revised for clarity, with added target value.

Improved access to health services: - Refurbished rayon level project health facilities with modern biomedical equipment - Increased proportion of hospitals following at least 20 NCD treatment standards (Target 100% hospitals of intervention areas)

Improved quality of health services as seen through refurbishment of 50 rayon level project health facilities with modern biomedical equipment.

Outcome is retained and on track to be achieved. Target values have been revised and increased due to the approval of the Additional Financing of the Health Sector Improvement project.

26

CPS FY12-15 Outcomes Revised CPS Outcomes Description Increased household access to safe drinking water and sanitation services in urban and rural areas: - Number of households benefitting from improved WSS service and/or from improved municipal infrastructure service (46,680 households with metered WS in Syr Darya region) - 2,000 & 4,000 new households connected to public sewerage system in Bukhara & Samarkand respectively; - 280,100 people with access to improved water supply in Sir Darya region Improved capacity of targeted WSS sector and local government institutions

Increased household access to sanitation services in project areas of Bukhara and Samarkand (baseline:0, target: 6000).

The Outcome is revised since part of the results will be achieved through new projects.

CROSS THEMATIC AREA: GOVERNANCE Enhanced regulatory policy frameworks and institutional capacity for PFM: - Coordinated Public Financial Management reform process that is informed by good international practice and benchmarking - Formal adoption of Public Sector Accounting Strategy and its phased implementation, and based on instructions for application of IPSAS and supported with training - Internal control and audit framework developed under the WB IDF grant implemented

Improved framework for transparency and management of public finances, as seen through: (i) development and adoption of Public Procurement Strategy and Public procurement Law. and (ii) developed framework for internal control and audit of the Ministry of Finance.

This Outcome has been revised compared to the CPS, for clarity and consolidation purposes. It has been partially achieved.

.

27

ANNEX 4: GENDER IN UZBEKISTAN

During two years of CPS implementation the gender situation has not changed much and remains strong, especially in the area of human capital. The gender disparity in primary and secondary education and health care facilities is negligible. Enrollment levels by gender are almost equal: 54 percent of pre-school children are female as of 2010, and 48 percent of all general educational secondary school students are female, according to official data from 2012. The gender parity index for enrolment rates (ratio of enrollment rate for females to enrollment rate for males) in Early Childhood Care and Education was 100 percent, in 2011, and gender parity indexes for grades one to four and grades five to nine are 97 percent and 98 percent, respectively (source: World Bank EdStats data). Graduation rates at the tertiary level are also similar for men and women, with a graduation rate of 10 percent for women and 13 percent for men, in 2011 (same source).

Women’s labor force participation is 51 percent and they comprise 40 percent of the labor force. Health indicators are good as indicated by high and rising life expectancy of women (71 years) compared to other lower middle income countries (68 years) and average life expectancy for men (65 years).

The government remains committed to addressing gender related issues. For example, in 2012, it adopted an ambitious program of measures for family support adopted by the government in 2012, which has been declared as a “Year of Family”. It included adoption of the Law on Family Entrepreneurship in March of 2012 which legally endorsed the rights, duties, labor relations and forms of state support to family business. Furthermore, the population’s access to the formal financial sector is relatively high, especially when compared to other Central Asian countries. The gender gap in participation in the formal financial sector is small (especially when compared to other lower middle income countries) with almost one in five adults holding an account at a formal financial institution.

It should also be noted that during the last two years the State Committee for Women’s Affairs became much more active and engaged in coordinating and promoting empowerment of women across the country. They conducted an international conference “Guaranteeing of Rights and Freedoms of Women, Their Active Participation in Social, Political and Cultural Life of the Country: Uzbekistan Experience” in June 2013.

II: Gender in Uzbekistan portfolio

Gender issues have been considered at the preparation stage of the projects in the current CPS. Each project team had a Social development expert and conducted social studies related to gender issues in applicable sectors. Almost all projects approved since the beginning of the CPS are gender-informed (AEM, RESP-II Additional Financing, Sustainable Agriculture and Climate Change Mitigation Project (GEF) and Alat-Karakul Water Supply Project) and, where possible, gender-disaggregated indicators are included in the Project Results Framework.

Agriculture

RESP-II was approved in 2008 and while it did not trigger any social safeguards, the project unit successfully included a gender indicator (jobs for women). Monitoring reports are now disaggregating impacts according to gender (e.g. number of jobs created for women) and region.

28

Currently nine percent of loans are given to women. The figure appears low because RESP II loans tend to be larger amounts (US$50,000 and above) which tends to be used for equipment and machinery. Women usually borrow from other schemes, which are more suitable for small enterprises. Most RESP II loans to women are in the area of poultry and cattle. Participating banks noted that women tend to be more reliable and responsible regarding timely repayment of loans as compared to men. While women may not be significant as primary borrowers, they are significant beneficiaries of RESP II as they benefit from job creation and are targeted in the training activities. The figures show that of the 1,260 jobs created through RESP II, 28 percent of jobs went to women and 72 percent to men. These jobs tend to be concentrated around packing and sorting in the food processing industry as well as with veterinary and accounting services.

The approach taken in RESP-II is followed in the Additional Financing for RESP-II and Sustainable Agriculture and Climate Change Mitigation Project (GEF). Proposed Horticulture project will also maintain similar approach in Financing and Training components.

Proposed South Karakalpakstan Water Management Project plans to go further and establish quota for women to take part in Farmers Field Schools and Demonstrations, to make sure that FFSs and Demonstrations are organized during particular months within the agricultural season that are suitable for women to attend, and will help arrange transportation if requested to facilitate their participation.

Results Framework numbers for water users and number of farmers trained will be gender-disaggregated.

Water Supply

Alat-Karakul Water Supply Project will ensure provision of safe and reliable water service to urban and rural population, contributing to human development and social inclusion through improved health and productivity benefits, as well as direct creation of local jobs. In particular the Project will change the daily lives of women and girls, contributing to gender advancement.

Within the Subcomponent B4: Communication Strategy, Public Awareness Campaigns, Consumer Satisfaction and Gender Surveys the Project plans to conduct Gender Assessment and baseline survey to determine how the availability or lack of water supply service affects the daily lives and health of people, particularly women and girls.

The Project also plans to explore ways to ensure that a certain percentage of women are gainfully employed by Bukhara Water Utility (BVK) for its Alat and Karakul operations, either as supervisors, surveyors or as manual labor at project construction sites. Such options will be explored in consultation with women and the Mahalla committees and a rapid assessment will be carried out to determine the role women currently play, informally or formally, in the management of water services delivery. The sanitation studies will look at specific needs of women, children and elderly.

A follow- up survey would be financed at the end of project implementation to evaluate the impact of the project on improving the lives of women and girls as a result of better water supply.

The Results Framework would include gender-disaggregated number of direct beneficiaries.

29

Energy

ADB is actively pursuing gender mainstreaming in its portfolio and the WB energy projects benefit greatly from these activities. Two of three energy projects in Uzbekistan portfolio are implemented either jointly or in coordination with the ADB projects.

There are no specific gender issues determined for the Advanced Electricity Metering Project, but as women are the main users of electricity in households it was agreed that the communication campaign would target women to most extent. The ADB partner project in three other provinces has an extensive plan of gender and public awareness activities and it was agreed that these activities will be aligned and whether appropriate conducted in close collaboration. AEM is the first Bank project that has a staff responsible for gender issues within the PMU structure.

ADB-financed Talimarjan Power Project, which is closely related to the World Bank project, includes measures to promote gender equality and women’s empowerment through better access to and use of relevant facility services, resources, and assets as well as the development of new employment or income generation opportunities for women at both the power plant and surrounding community.

Capacity building — on March 1, 2013, the staff of PIUs that is responsible for either gender or M&E issues participated in the seminar on gender in projects. The Gender expert from ADB presented the approach to gender mainstreaming in the investment projects that is pursued by the ADB. Participants discussed potential activities and collaboration in gender issues.

Development partner coordination — the Bank coordinates its gender-related activities with development partners, in particular with the ADB (energy projects), SECO (RESP) and UN agencies. The Bank is a member of the UN Gender Theme Group which informs, discusses and coordinates (where possible) gender activities in the country.

30

ANNEX 4: UZBEKISTAN AT A GLANCE

31

32

Millennium Development Goals Uzbekistan

With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)

Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2011 Poverty headcount ratio at $1.25 a day (PPP, % of population) .. .. .. .. Poverty headcount ratio at national poverty line (% of population) .. .. 27.5 .. Share of income or consumption to the poorest qunitile (%) 10.6 .. 7.8 .. Prevalence of malnutrition (% of children under 5) .. 15.3 7.1 4.4

Go al 2: ensure that children are able to co mplete primary scho o ling Primary school enro llment (net, %) .. .. .. 90 Primary completion rate (% of relevant age group) .. 99 95 93 Secondary school enro llment (gross, %) 101 93 88 106 Youth literacy rate (% of people ages 15-24) 100 100 100 ..

Go al 3: e liminate gender disparity in educat io n and empo wer wo men Ratio of girls to boys in primary and secondary education (%) .. .. 98 98 Women employed in the nonagricultural sector (% of nonagricultural employment) 37 36 37 39 Proportion o f seats held by women in national parliament (%) .. 6 7 22

Go al 4: reduce under-5 mo rtality by two -thirds Under-5 mortality rate (per 1,000) 74 69 61 41 Infant mortality rate (per 1,000 live births) 61 57 51 36 M easles immunization (proportion of one-year o lds immunized, %) 84 91 99 99

Go al 5: reduce maternal mo rtality by three- fo urths M aternal mortality ratio (modeled estimate, per 100,000 live births) 59 36 33 28 B irths attended by skilled health staff (% of to tal) .. 98 96 100 Contraceptive prevalence (% of women ages 15-49) .. 56 67 65

Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases Prevalence of HIV (% of population ages 15-49) .. .. .. .. Incidence o f tuberculosis (per 100,000 people) 125 199 286 101 Tuberculosis case detection rate (%, all forms) 37 22 22 52

Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs Access to an improved water source (% of population) 90 90 89 87 Access to improved sanitation facilities (% of population) 84 85 91 100 Forest area (% of land area) 7.2 7.4 7.6 7.7 Terrestrial protected areas (% of land area) 2.1 2.3 2.3 2.3 CO2 emissions (metric tons per capita) 5.3 4.4 4.9 3.7 GDP per unit o f energy use (constant 2005 PPP $ per kg of o il equivalent) 0.9 0.8 0.8 1.8

Go al 8: develo p a glo bal partnership fo r develo pment Telephone mainlines (per 100 people) 6.8 6.7 6.7 6.9 M obile phone subscribers (per 100 people) 0.0 0.0 0.2 91.6 Internet users (per 100 people) 0.0 0.0 0.5 30.2 Households with a computer (%) .. .. 0.1 6.9

Note: Figures in italics are for years o ther than those specified. .. indicates data are not available. 3/20/14

Development Economics, Development Data Group (DECDG).

Uzbekistan

0

25

50

75

100

125

2000 2005 2010

Primary net enrol lment ratio

Ratio of girls to boys in primary & secondary education

Education indicators (%)

0

20

40

60

80

100

120

2000 2005 2010

Fixed + mobile subscribers Internet users

ICT indicators (per 100 people)

0

25

50

75

100

1990 1995 2000 2011

Uzbekistan Europe & Central Asia

Measles immunization (% of 1-year olds)

33

CAS Annex B2 -

Selected Indicators* of Bank Portfolio Performance and Management

As Of Date 4/24/2014

Indicator 2011 2012 2013 2014 Portfolio Assessment Number of Projects Under Implementation a 10 10 10 9Average Implementation Period (years) b 2.5 2.8 2.9 3.7Percent of Problem Projects by Number a, c 10.0 40.0 20.0 55.6Percent of Problem Projects by Amount a, c 4.0 22.5 22.6 50.3Percent of Projects at Risk by Number a, d 20.0 50.0 20.0 55.6Percent of Projects at Risk by Amount a, d 10.3 33.9 22.6 50.3Disbursement Ratio (%) e 13.8 11.9 13.8 7.3Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project)

Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 14 3 Proj Eval by OED by Amt (US$ millions) 523.8 98.3 % of OED Projects Rated U or HU by Number 30.8 33.3 % of OED Projects Rated U or HU by Amt 43.5 44.5

a. As shown in the Annual Report on Portfolio Performance (except for current FY).

b. Average age of projects in the Bank's country portfolio.

c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP).

d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.

34

IBRD/IDA Program Summary Uzbekistan

As Of Date 4/24/2014

Proposed IBRD/IDA Base-Case Lending Program a

Fiscal year

Project ID US$(M) Strategic

Rewards b (H/M/L)

Implementation b Risks (H/M/L)

2014 Horticulture Development Project 150.0 S KARAKALPAKSTAN WATER RES MGMT IMPR 260.7 Result 410.7

2015 DISTRICT HEATING ENERGY EFFICIENCY 187.0 Fergana Valley WRM - Phase II 0.0 Modernizing Higher Education Project 40.0 Pap-Angren Railway 200.0 Regional Roads and Development Project 200.0 Result 627.0

2016 Electricity Distribution Rehab. Project 200.0 Karshi Pumping Cascade Rehabilitation 0.0 WATER SUPPLY & SAN APL 1 50.0 Result 250.0

Overall Result 1,287.7

Uzbekistan: IFC Investment Operations Program 2011 2012 2013 2014*

Original Commitments (US$m) IFC and Participants 0.45 15.59 0.53 15.90 IFC's Own Accounts only 0.45 15.59 0.53 15.90

Original Commitments by Sector (%)- IFC Accounts onlyFINANCE & INSURANCE 100 73.69 100 100 FOOD & BEVERAGES 26.31 Total 100 100 100 100

Original Commitments by Investment Instrument (%) - IFC Accounts only Equity 100 3.11 Guarantee 70.58 100 52.84 Loan 26.31 47.16 Total 100 100 100 100

* Data as of April 01,2014

35

(IFC) for Uzbekistan Committed and Disbursed Outstanding Investment Portfolio

As of 3/31/2014 (In USD Millions)

Committed Disbursed Outstanding

FY Approval Company Loan Equity **Quasi

Equity *GT/RM Participant Loan Equity **Quasi

Equity *GT/RM Participant

11/12/2010/14 Hamkorbank 8.07 3.46 0 0 0 0.57 3.46 0 0 0 2012 Ibt 4.1 0 0 0 0 0 0 0 0 0

Total Portfolio: 12.17 3.46 0 0 0 0.57 3.46 0 0 0

* Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types.

36

Uzbekistan

Operations Portfolio (IBRD/IDA and Grants) As Of Date 4/24/2014

Closed Projects 16 IBRD/IDA Total Disbursed (Active) 201.91 of which has been repaid 0.00 Total Disbursed (Closed) 289.38 of which has been repaid 330.34 Total Disbursed (Active + Closed) 491.29 of which has been repaid 330.34 Total Undisbursed (Active) 792.71 Total Undisbursed (Closed) 1.05 Total Undisbursed (Active + Closed) 793.77

Active Projects

Last PSR

Supervision Rating Original Amount in US$ Millions

Difference Between Expected and Actual

Disbursements a/ Project

ID Project Name

Development Objectives

Implementation Progress

Fiscal Year

IBRD

IDA GRANT Cancel. Undisb. Orig. Frm

Rev'd

P122773 Advanced Electricity Metering Project MU MU 2012 180 179.55 82.883333

P118197 Alat-Karakul WS MS MS 2013 82 82.59992

P112719 Bukhara & Samarkand Sewerage Project.

MU MU 2010 55 29.68831 21.487374

P118737 Energy Eff. Indust. Enterprises S S 2010 125 105.5202 -1.103102 -9.93644

P110538 Ferghana Valley Water Resources Mgt. MS MU 2010 65.544 33.82214 22.459829

P113349 Health System Improv. Project MS MS 2011 186 161.8473 11.378943 -1.29209

P109126 Rural Enterprise Support II MU MU 2008 107.96 57.08059 18.994868

P127486 Sustainable Agr. & CL CH Mitigation GEF

# MU 2013 12.699 12.699

P111760 Syrdarya Water Supply MS MU 2011 88 82.20409

P119939 Talimarjan Transmission Proj. S MS 2011 110 60.40136 31.234698

Overall Result 290 709.504 12.699 805.4129 181.04063 -11.2285