TASHKENT — Uzbekistan’s moves to devalue and partly float its currency mark the country’s first step toward much-anticipated reforms to wipe out the black market in foreign exchange and liberalize the economy. However, the next steps to come remain unclear.
Remittances from Uzbeks working in Russia and other countries account for around 10% of the economy. This fund flow has mostly gone into the black market. Nearly all purchases of property and cars, as well as bribes for government officials, are made in dollars.
So it was a jolt to the country when on Sept. 4 the central bank suddenly devalued the som by 48%. It set the new exchange rate at 8,100 to the dollar, matching the black market rate and indicated the rate would be reset each Monday. On Sept. 11, it was set at 8,092.13.
Currency reform is likely to be painful for Uzbekistan in the short term. “Inflation is likely to rise into the double digits over the next few months from around 8% at the end of 2016,” said rating agency Moody’s Investors Service in a note, referring to the experience of other area nations. Higher inflation in turn will “lower real wages [and] profits and reduce domestic demand and growth,” it added, predicting gross domestic product expansion will slow to “low or possibly negative rates” from an average of 8% over the past five years.
The agency said the devaluation will begin to show a positive impact after two or three years as the economy adjusts to global prices for energy and commodities, Uzbekistan’s key sources of export revenue.
Ahead of the devaluation, the authorities in August abolished rules requiring exporters to exchange some of their hard-currency earnings with the government and allowing certain banks to sell dollars to importers at the black-market rate.
The disparity between the official rate and the market rate had widened hugely over the last year. After then-president Islam Karimov was declared dead on Sept. 2, 2016, the black-market exchange rate climbed,…