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ANALYSIS OF PUBLIC DEBT POLICY AND ITS EFFECTIVENESS
IN UZBEKISTAN
Naimov Shoxrux Sharofiddinoovich
Researcher of TSEU
E-mail:
Shokhrukh.sharafiddinovich@mail.ru
Abstract:
The article considers the issues of public debt management, the
importance of economic growth and reduction of debt servicing costs. The conditions of
observance of debt management, the negative impact of public debt on the economy, the
issues of borrowing, the effectiveness of borrowing, sources of debt coverage, the impact of
borrowing on the socio-economic development of the state are studied.
Keywords:
debt, deficit, crisis, external debt, mechanism, method, external debt
management.
Introduction
As the President of the Republic of Uzbekistan Sh. M. Mirziyoyev noted in his
message to the Oliy Majlis “... we determined the maximum upper limit of the state
external debt. The Cabinet of Ministers is instructed to develop draft laws "On State
Financial Control" and "On Government Debt" with the involvement of international
experts within three months»
[1].
The classification of external debt is closely related to debt service and its
effective management. Debt service is the total repayment of debt, which includes the
payment of principal, interest, commissions and penalties. Debt service ratio is one of the
key indicators characterizing the external debt condition. This ratio is expressed as the
ratio of the percentage of servicing payments to the debt of the country to the revenues
from export of goods and services. This indicator usually characterizes the public external
debt and the state external debt. Public debt management includes the following set of
actions by the state: to study the market capitalization of loan capital; development of
terms and conditions for issuance of new loans; Payment of interest on previously issued
loans; conversion and consolidation of loans; setting the money market bond rates;
Carrying out of measures on establishment of interest rates on state loans and loans;
repayment of previously issued loans.
Analysis of the relevant literature
Early ancient views on public debt focused on its politically oriented features. In
particular, public debt was viewed primarily as liabilities in the form of contributions to
cover the damage inflicted by defeated countries on warring countries.
Scottish philosopher-
economist David Hume has a negative view of the state’s
credit policy. In his view, public debt is seen as an alternative to financing the state budget
deficit without increasing the tax burden. However, the state’s abuse of the state’s debt
policy recognizes that the nation’s debts can be liquidated, and conversely, if this state is
not observed, the sta
te’s debts can end the nation’s debts
[2].
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In this case, D. Yum sees the category of “public credit” as a method of transforming
capital from a relatively efficient sector to a public sector that is considered inefficient,
which forms the material basis of public debt. [3]
One of the founders of the School of Classical Economists was Adam Smith's
position
on public debt is based on his views on limiting government intervention in the economy.
According to him, the internal and external debt of the state has an equally negative
impact on the economy. [4]
David Ricardo sees public debt as a tool to attract internal and external financial
resources without increasing revenue to the budget in exchange for increasing the tax
burden to finance the budget deficit in times of economic crisis.[5]
Economist Thomas Robert Malthus recognizes debt financing of the budget deficit
as a macroeconomic factor in increasing aggregate demand [6].
Jon Stewart Mill
acknowledges that attracting “excess
accumulated foreign
investment” as public debt does not have a significant impact on macroeconomic stability
when public investment is effectively invested in the country’s economy. It treats the loan
as a voluntary transaction. In a debt relationship, the loan capital is recognized at the
discretion of the lender. [7]
According to A. V. Mukabenov, public debt is the aggregate of the state budget
deficit for a certain period
. [8]
In the opinion of N. Lyushnin, that an increase in external debt leads to an increase
in the cost of its servicing, which is financed by public investment in social development or
by inflationary tax
. [9]
Methodology of research
The theoretical and methodological basis of this article is general economic
literature and scientific articles, research of economists on public debt management,
discussions with scientists and industry representatives, expert assessments, comparative
analysis, conclusions, suggestions and recommendations in relevant areas. In the process
of studying the topic, along with general economic methods, special approaches to data
structuring were used, such as comparison, aggregation of theoretical and practical
materials, and systematic analysis.
For example, a reduction in the tax burden leads to a decrease in budget revenues
and, consequently, a budget deficit. A decrease in the tax burden (T) in parallel affects an
increase in the personal income (Yd) of taxpayers without changing income and,
ultimately, an increase in consumption and savings rates.
Y-T =Y
d
= bC+ (1-b)S
(1)
Increased consumer demand for goods and services in the economy will
affect the growth of production in the short term. This is especially true in an economy
where demand is seen as a driving force. As a result, the IS curve is raised to the right and
up. In this case, the equilibrium in the money market (LM), expressed by formula (1), shifts
to the right and upwards due to short-term growth in production and interest rates.
(M/P)
s
=(M/P)
d
(Y,i)
(2)
Naturally, there is a shift in the equilibrium (IS) in the market of goods and
services accordingly. This can be expressed by the following formula:
Y=C(Y-T)+I(r)+G
(3)
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An increase in consumer demand in return for an increase in personal income leads
in parallel to an increase in the real interest rate and an increase in the demand for money.
An increase in interest rates leads to a decrease in investment and a slowdown in the
inflow of capital from abroad (shifting from
NFI
1
to
NFI
2
). As a result, there is a decrease in
net exports
(
NX(ε
r
)
, which is functionally related to the growth of the exchange rate and,
ultimately, the national exchange rate.
Analysis and results
As a result of the conservative nature of Uzbekistan's foreign debt policy during the
years of independence, the level of public debt is moderate in international standards and
comparative analysis with other countries. We can see this from the data in Table 1 below.
1-
Table
Comparative analysis of public debt to GDP in the Republic of Uzbekistan and globally
Indicators
2012
2013
2014
2015
2016
2017
2018
2019
2020
The share of public debt of
Uzbekistan in GDP, in%,
N(Uzb)
8,6
7,9
7,1
10,1
11,6
19,7
29,2
30,5
36,1
The share of public debt of the world
in GDP, in%,
N(W)
79,6
78,3
78,6
79,7
82,7
81,3
81,5
83,3
96,4
The share of public debt of developed
countries (G8) in GDP, in%,
N(G8)
106,7
105,2
104,6
104,2
106,7
104,5
103,9
105,2
122,4
The share of public debt in GDP of
rapidly developing countries, in%,
N(EC)
37
38,2
40,3
43,7
46,5
48,1
49,7
53,2
62
Source: information of State statistics committee of the Republic of Uzbekistan.
From Table 1 we can see that during the analyzed 2012-2019, public debt in the
Republic of Uzbekistan had a growing trend. The oscillation amplitude of public debt to
GDP in this period (2012-2020) was min.7.1% and max. 36.1%. The low rate was recorded
in 2014 and has been on a steady growth trend in recent years.
The debt burden in Uzbekistan is low compared to other countries. In particular, the
world's gross domestic government sovereign debt is projected to be the lowest relative to
world GDP in 2013 at 78.3%, and by 2020 at 96.4%, the highest. This indicator of sovereign
debt of the global state and its growth was influenced by the debt of developed countries.
In particular, we can see that in the analyzed period, the debt of developed (G8)
countries exceeded 100% of GDP. In particular, the lowest figure in the analyzed period
was observed in 2018 (103.9%), and by 2020 this figure is projected to reach 122.4%. It is
noted that this is mainly due to the slowdown in economic growth as a result of the global
pandemic in 2020, the problems associated with the excessive increase in public spending.
Although the share of public debt in GDP in developing countries was lower than in
developed countries (min.37% - 2012, max. 62% -2020), it had a steady growth rate in the
analyzed period.
In the general context, although the share of public debt of the Republic of
Uzbekistan in GDP is low compared to comparable indicators (high debt burden 36.6%,
including the forecast for 2020), their dynamic study trend in Uzbekistan in 2017-2020
shows high growth.
This, in turn, indicates the widespread use of active debt policy in
attracting foreign investment to ensure economic development of the country in the
economic policy pursued on the basis of the Action Strategy for the five priority areas of
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development of the Republic of Uzbekistan in 2017-2021. Hence, the conceptual basis of
public debt policy in this period is based on the capital-generating theory of public debt.
Static indicators of the share of public debt in GDP will change in the near and
medium term, depending on its performance as a result of its annual dynamic trend.
Annual growth (+) or decrease (-) rate of the share of public debt in GDP
(
Δ(Uzb)
)
by
subtracting the nominal amount of the current year's share
(
N(Uzb)
t
)
from the nominal
amount of the previous year's annual growth
(
N(Uzb)
t-
can be identified.
The indicators for this trend can be seen in the
р
icture
below
.
Picture 1. Annual dynamics of public debt in the Republic of Uzbekistan and globally
Source: Prepared by author's researches.
As can be seen from the table, the highest annual growth rates of the share of
public debt in GDP in Uzbekistan are observed in 2017 (6.9%), 2018 (9.5%) and 2020
(5.6%). In 2013-2014, the annual decline in the share of public debt in GDP was -0.7 and -
0.8%, respectively.
In particular, in 2013-14, on a global scale
(
ΔW
2013
=-1,3%
)
, the annual decline in
public debt in world GDP was mainly due to the decline in the G8
(
ΔG
2013
=-1,5%
)
. The
decline in these years can be explained by the following cases:
First, public debt was formed mainly due to external debt, which accounted for
foreign investment and domestic debt in the form of guarantees of the Government of the
Republic of Uzbekistan.
Second, the annual decline in the share of public debt in GDP is not due to the
process of debt repayment, but to the growth of the nominal volume of public debt, with
an annual decline in the share of public debt in GDP.
Problems in the public financial system in developed countries (G8) in the context of
the first wave of the global financial and economic crisis (2007-2011), chronic deficits and
high levels of indebtedness In the context of the second wave of the crisis (post-2012) was
the basis for pursuing a policy aimed at preventing the problem of devaluation
(
Devaluation-Debt trap
).
Therefore, in developed countries, 2013-2015 (2013 -1.5%, 2014 -0.6%, 2015 -0.4%)
and 2017-2018 (2017 -2.2%, 2018) -0.6%) years saw a decline in the share of public debt
-4
-2
0
2
4
6
8
10
12
14
16
18
2013
2014
2015
2016
2017
2018
2019
2020
Δ(Uzb)= N(Uzb)t+1- N(Uzb)t
-0,7
-0,8
3
1,5
8,1
9,5
1,3
5,6
Δ(W)= N(W)t+1- N(W)t
-1,3
0,3
1,1
3
-1,4
0,2
1,8
13,1
Δ(G8)= N(G8)t+1- N(G8)t
-1,5
-0,6
-0,4
2,5
-2,2
-0,6
1,3
17,2
Δ(EC)= N(EC)t+1- N(EC)t
1,2
2,1
3,4
2,8
1,6
1,6
3,5
8,8
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relative to GDP, rather than an annual increase. By 2019-2020, there is a high annual
growth rate of the share of public debt in GDP (1.3% and 17.2%, respectively). Based on
these data, we can consider the dynamic trends in the share of public debt in GDP through
the following
р
icture
.
Picture 2. Dynamic trends in the share of public debt to GDP.
Source: Prepared by author's researches.
According to
р
icture
2, the dynamic trend in the change in the share of public debt
in GDP in 2016-2020 in Uzbekistan was high and the trend equation was as follows
:
y=0,6193x
2
-2493,4x+3E+06
The coefficient of determination was R² = 0.9907. This figure is high growth by 2020
in the world, developed and developing countries. In particular, compared to 2019, there
was a high change in the share of public debt in GDP in developed countries in 2020, with a
low coefficient of determination of the polynomial equation based on a weak decline in
the horizontal platform
R
2
=0,6139
. Because by 2020 there is a sharp increase compared to
2019.
External debt has been a priority in the public debt policy of the Republic of
Uzbekistan since 2010. As a result, public debt formed in the last decade was mainly
foreign debt. In practice, short-term government bonds were used as instruments of
domestic debt, and these debt instruments served to ensure the actual current liquidity of
the state budget by covering the temporary cash gap. The short-term nature of these
liabilities has provided an opportunity to fully repay them during the current year.
2-Table
Indicators of public debt policy of the Republic of Uzbekistan, mln. doll.
№
Indicators
2014
2015
2016
2017
2018
2019
2020
(
prognosis
)
1.
External debts of the
state
4698,2 5601,2
6475
7600
10016,4 15604,7
15710,1
2.
Domestic debt of the
state
0
0
3000,0 4000,0
4800,0
2000,0
5989,4
3.
Gross public debt
4698,2 5601,2
6475
7600
10087,9 15776,5
21700
Source: information of State statistics committee of the Republic of Uzbekistan.
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As can be seen from Table 2, from 2018 the Ministry of Finance of the Republic of
Uzbekistan began to use the practice of placement of state medium-term treasury bonds
of
the
Republic
of
Uzbekistan
for
a
period
of
1
to
5
years
.
The state began to focus on the socio-economic development of the country, as well as the
implementation of major investment projects, primarily through the financial resources
raised through the placement of medium-term treasury obligations. In particular, in 2018,
a total of 71.5 mln. In 2020, in exchange for the issuance of state treasury bonds - 147.37
million US dollars. It is planned to issue bonds with a nominal value of 1.4 trillion soums.
Gross public debt in 2014 amounted to 4698.2 mln. USD, and by 2017 it will be 7600
mln. dollars, we can see that mainly the total debt corresponded to the external debt.
Also, during the whole period under analysis, external debt has been the main component
of the gross public debt. Therefore, improving the external debt management system in
the medium and long-term public debt management system is one of the strategic issues.
In attracting external debt, we can see that loans from international financial
institutions and foreign countries are of paramount importance in terms of creditors. In
particular, by the beginning of 2020, the public debt will reach 21.7 billion soums. USD
(36.0% of GDP). Of this, the external debt amounted to 15710.1 mln. USD (25.4% of GDP).
The country's external debt in terms of creditors amounted to 6.7 billion soums. The
U.S. dollar is up. At the expense of international financial institutions 7.7 bln. USD and 1.0
bln. USD
.
In 2019, the Asian Development Bank was the leader in the sources of external debt
in the form of a credit mechanism (a total of $ 3929.0 million), accounting for 51% of total
loans from international financial institutions. In addition, the share of loans provided by
members of the World Bank Group is 37% and the share of loans of the Islamic
Development Bank in loans is 11%.
Conclusion and offers
Thus, it can be concluded that the main share of loans from international financial
institutions to ensure the economic development of the country falls on investment loans.
This situation serves as a strategic source of funding for the implementation of economic
development projects, which will ensure a positive high growth of GDP in the future of the
country's external debt policy.
In the context of relatively
low debt burden in rapidly developing countries, there is
an annual steady growth trend in the share of public debt in GDP.
Government medium-term treasury bonds are intended to be placed mainly with
banks and legal entities, are the object of REPO transactions and can serve as collateral for
loans. In this process, too, the central bank acts as a fiscal
agent, confirming that the loan
instrument has contributed to the state budget for the investor.
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Message of the President of the Republic of Uzbekistan Shavkat Mirziyoev to the
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—
p.
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Юм
,_
Дэвид
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