Strain of a record budget deficit: What’s left for Uzbekistan’s future?

2024 has been a difficult year for the state budget. Uzbekistan has been experiencing a record budget deficit since the beginning of this year. According to estimates, at the end of the first half of the year, the budget deficit exceeded 30 trillion soums.

Last year, Uzbekistan also recorded the worst budget balance in history, ending the year with a deficit of 59 trillion soums.

What are the factors causing the deficit? What is the impact of the budget deficit on the country's overall economy, and are the efforts being made to reduce expenses effectively? To get answers to these questions, QALAMPIR.UZ invited Doctor of Economic Sciences, Professor Tolqin Bobokulov to an interview.

— Mister Tolqin, as you know, there is a record deficit in the state budget. What is the impact of the budget deficit on the economy as a whole and on the lifestyle of ordinary people?

— The state budget is one of the main macroeconomic indicators. Therefore, countries around the world, even developed ones, have set a limit on the amount of the budget deficit. This limit is set in the Maastricht Treaty and should not exceed 3 percent of nominal GDP. Experts have proven that if the deficit exceeds 3 percent, this will negatively affect GDP growth and increase inflation.

Uzbekistan adopted this indicator in its development strategy for 2022-2026. However, it failed to meet the 3 percent norm set in it. In 2023, the indicator was changed to 4 percent, but the deficit again exceeded 4 percent of nominal GDP. After that, this norm was again increased by the Senators to 5.5 percent.

The budget deficit has both negative social and economic consequences. If we focus on the social consequences: the state's ability to increase the monthly salaries of employees of budgetary organizations is limited. For example, to increase the salary of teachers by at least 1 million soums, the state will have to earn an additional half a trillion soums every month.

As for the economic consequences, if the state cannot cover the budget deficit, it will be forced to borrow externally to cover the deficit. This will lead to inflation and depreciation of the national currency.