Uzbekistan : Public Expenditure Review

Abstract

This Public Expenditure Review (PER) is Uzbekistan's first one, prepared as part of the Bank's effort to establish a multiyear program of public expenditure work with the Government. The PER seeks to demonstrate how to improve the quality of the ongoing fiscal adjustment, and increase the efficiency of government expenditure, emphasizing the interconnections between sector policies and budgeting. At the request of the Government, the PER focuses on the health and education sectors, and, complements a Country Financial Accountability Assessment (CFAA), being prepared in parallel, focused on issues of internal control, and internal and external public expenditures audit. The reduction of expenditure, in the face of declining revenues, led to a remarkable, necessary improvement in the overall fiscal position. The broad public sector deficit has fallen to around 2 percent of GDP by 2003, from close to 10 percent in the late 1990s and, as a result, although high, debt levels have stabilized. However, the PER argues how sustainable are the deficit reductions. The brunt of reductions fell on non-salary recurrent expenditures, often vital materials and supplies, and on maintenance expenditures. As a result, there are funding shortages for primary health and basic education, as Chapters 2 and 3 show, and the government is unable to allocate sufficient expenditures on some of its stated priorities. An important reason for such outcome is the budgeting system, as Chapter 4 shows, which determines budget allocations based on input norms. Nevertheless, under-funding and inefficient expenditure allocation is also due to other factors discussed in Chapter 4. Ensuring that key services, such as basic health and education, are maintained and do reach the poor, will entail a rationalization of expenditures which, in turn, will require sectoral and associated budgeting reforms. Finally, the report addresses policy priorities and expenditure issues in the health and education sectors, and the necessary reforms in public expenditure management to implement the sector policies.