Uzbekistan’s economic policy response to COVID-19 pandemic

Uzbekistan’s economic policy response to COVID-19 pandemic

Unprecedented measures are being taken on a global scale to combat the spread of coronavirus infection, in particular by the introduction of restrictions on the movement of people and the suspension of enterprises.

This has caused a sharp decline in production and consumption in major economies, disruption of global production chains and trade relations, lower commodity prices and worsening global financial markets.

The economy of Uzbekistan is also affected by these factors, which requires the adoption of effective proactive measures to mitigate their negative impact. Particular attention should be paid to supporting and ensuring the sustainability of such rapidly developing sectors of the republic’s economy as tourism, transport, pharmaceutical and textile industries.

In order to ensure macroeconomic stability, uninterrupted operation of industries and economic sectors, stimulate foreign economic activity, provide effective social support to the population during the period of counteracting the spread of coronavirus infection and other global risks, and preventing a sharp decline in the country's population incomes.

• The Anti-Crisis Fund under the Ministry of Finance of the Republic of Uzbekistan (hereinafter - Anti-Crisis Fund) was established in the amount of 10 trillion soums (~ 988.8  million US dollars). Its resources are used to combat coronavirus infection, support entrepreneurship and employment, including infrastructure projects, Ensuring the sustainable functioning of economic sectors and increasing social support for the population.
• Furthermore, The Republican Anti-Crisis was established, and headed by the Prime Minister.  Commission promptly solves the problems and prepares additional measures.[1]

By the decree № 5969 "On priority measures to mitigate the negative impact on the economy of the coronavirus pandemic and global crisis phenomena" dated March 20, 2020, the President of Uzbekistan approved a package of measures to mitigate the negative impact of the coronavirus pandemic and global crisis on the economy. 

General economic activities:

1. Attracting external borrowings up to 1 billion US dollars to support the budget at the expense of soft loans from international financial institutions and other sources in order to ensure financing of the State Budget and the Anti-Crisis Fund.
2. Formation of additional infrastructure projects in the regions of the republic, financed from the funds of the Anti-Crisis Fund and providing for construction, reconstruction and repair- more than 3.6 trillion soum (~ 356 million US dollars).
3. The capitalization of the State Fund for the Support of Entrepreneurship is increasing, taking into account the need to expand the volume of provision of guarantees to business entities and compensation for covering interest expenses on loans

Enterprise Support

1. From April 1 to October 1, 2020:

• For individual entrepreneurs, the minimum amount of social tax is reduced to 50% of monthly income tax;
• The amount of deductions for wholesalers of alcoholic beverages is reduced from 5% to 3%;
• Fees for the right to retail alcohol products for catering enterprises are reduced by 25% of the established amounts.

1. From April 1 to July 1, 2020:  the accrual and payment of tourist (hotel) tax is suspended.
2. Tax rates for the use of water resources for the volumes used for irrigation of agricultural land are reduced by 50% of the established rates.
3. The submission of a declaration on the total annual income of individuals for 2019 is extended until August 1, 2020.
4. The deadline for payment of property tax and land tax of individuals is extended until October 15, 2020.
5. From April 1, 2020:  Incomes of individuals received in the form of material benefits from charitable organizations are exempted from taxation.
6. During the time of antiviral measures  it is recommended that Kengashes of people's deputies of districts and cities to reduce by 30% the fixed amount of personal income tax for individual entrepreneurs whose activities directly or indirectly depend on the tourism sector.
7. An extension (installment plan) is granted to business entities for payment of property tax, land tax and tax for the use of water resources without interest (for 6 months).
8. Until October 1, 2020:

• The application of penalties to business entities for overdue receivables from foreign trade operations is suspended;
• The accrual of interest on property tax, land tax and tax for the use of water resources to business entities experiencing temporary difficulties is suspended, and measures to enforce collection of tax debt are not taken.

1. Measures are being taken to expand the remote servicing of taxpayers to fulfill tax obligations without visiting tax authorities.
2. Until January 1, 202: the tax audit of the activities of business entities is paused , with the exception of a tax audit conducted in criminal cases and in connection with the liquidation of a legal entity.

Export support

1. During the year 2020, entrepreneurs are allowed to:

• export of goods without guarantee payment with the existing overdue receivables not exceeding 10% of the total export of goods for the reporting year;
• one-off operations for the import of technological equipment and raw materials in exchange for the repayment of overdue receivables from foreign trade operations.
  1. From April 1, 2020: the mechanism of customs clearance of imported food products is being introduced in an accelerated manner , including by issuing permits before the goods arrive on the territory of the Republic of Uzbekistan.
  2. Until October 1, 2020: the Republican Commission for the Development of the Export Potential of Regions and Industries is granted the right to independently make decisions on the provision of subsidies to compensate for part of the transport costs of exporters from the funds allocated to the Export Promotion Agency[2].

According to Presidential Decree № 5978 of April 3, 2020, was established that from April 1 to December 31, 2020:

a) tour operators, travel agents and tourism entities providing hotel services (accommodation services), «Uzbekistan Airways» JSC and its structural divisions, «Uzbekistan Airports» JSC and «Uzairnavigation Center» State Unitary Enterprise:

• exempt from paying land tax from legal entities and property tax of legal entities;
• pay social tax at a reduced rate of 1 percent;

b) payers of value added tax, the turnover on the sale of goods (services) of which does not exceed 1 billion soums (~ 98.8 thousand US dollars) per month and using electronic invoices, has the right to calculate and pay value added tax on a quarterly basis;

c) the procedure for applying increased property tax and land tax rates in relation to unused production areas, non-residential buildings, including those identified before April 1, 2020, as well as interest and penalties for recovering debts arising from the application of increased rates, is suspended on the specified taxes.

Enterprise Support

1. The calculation of a fixed amount of personal income tax and social tax are suspended for individual entrepreneurs who have been forced to suspend their activities for the period of quarantine measures, without having to submit a certificate of state registration, with notification of suspension of the activities of the state tax service through a personal taxpayer account.
2. Granted the right to interest-free deferment (installment plan) of taxes for a period up to October 1, 2020 with notification of tax authorities to micro-firms, small enterprises and individual entrepreneurs who have suspended their activities and (or) whose revenue from the sale of goods (services) is reduced by more than 50 percent compared to the monthly average for the first quarter of this year. By the Presidential Decree №5986 from April 27, 2020, the period for granting interest-free deferral (installment plan) has been extended until December 31, 2020.[3]

It is determined that until October 1, 2020, the State Fund for Supporting the Development of Entrepreneurship provides:

• guarantee on loans issued to business entities with a positive credit history for working capital replenishment, up to 75 percent inclusive of the loan amount, but not more than 10 billion soums (~988.7 thousand US dollars), regardless of the number of projects;
• compensation for interest expenses on loans issued to business entities in national currency for working capital replenishment with an interest rate not exceeding 1.75 times the basic rate of the Central Bank, while maintaining the established compensation amounts.

It is determined that:

• a moratorium is introduced up to October 1, 2020 to initiate bankruptcy procedures and declare bankruptcy of enterprises faced with financial difficulties due to restrictive measures introduced to counter the spread of coronavirus infection;
• The deadline for conducting an audit at the end of 2019 for business entities subject to a mandatory audit is extended until October 1, 2020;
• the accrual and collection of rental payments for the use of state property by business entities that are forced to suspend their activities for the period of the quarantine measures are suspended;
• income tax payers have the right to submit a certificate of the amount of advance payments on income tax starting from the second quarter of 2020 based on the expected volume, with the abolition of the requirement of its calculation based on the results of the previous quarter.

Presidential Decree №5996 "On Next Measures to Support the Population and Entrepreneurship during the Coronavirus Pandemic"[4] from May 18, 2020 includes:

Enterprise support

   From June 1 to September 1, 2020 small businesses, as well as markets and shopping malls, cinemas, public catering, public transport, legal entities carrying out activities for the carriage of passengers, are exempt from paying property tax and land tax domestic services, the provision of premises for rent, including for banquets, and sports and fitness facilities.

Small business will be provided with additional state support in the form of write-offs of amounts:

• write-offs of property tax and land tax payable for April and May, for which interest-free deferral (installment plan) was provided in accordance with Presidential Decrees № 5969 of March 19 and №5978of April 3, 2020;
• write-offs of penalties and fines for land tax and property tax as of May 15, formed on January 1.
• the right to apply a deferral of payment of customs duty and excise tax levied on the importation of goods, except for consumer goods, for a period up to July 1 with subsequent payment deferred amount in equal installments for 120 days.
• from May 1 to July 1 the social tax rate is reduced from 12% to 1%.
• the decree suspends the collection of debts on taxes, penalties and accrued fines for violation of tax laws by micro-firms and small enterprises as of May 15.

The decree instructed to provide additional state support in the form of the provision by the State Fund for the Support of Entrepreneurial Activities of compensation for covered interest expenses:

• for investment loans issued in national currency with an interest rate not exceeding 1.75 times the basic rate of the Central Bank in the first year of the loan agreement;
• on loans in the amount of up to 500 million soums (~ 49.5 thousand US dollars), issued before October 1 in national currency for working capital replenishment, in the amount of 10 percentage points for the duration of the loan agreement.

Impact Assessment of the Coronavirus Outbreak on the

Transport Industry of Uzbekistan and Mitigation Measures

Dildora Ibragimova

Infrastructure Development Project Manager,

Institute of Forecasting and Macroeconomic Research

Republic of Uzbekistan

E-mail: ibrdilya@mail.ru

Abstract: The article assesses the impact of the anti-crisis measures taken based on the analysis of the volume of cargo transported, and describes the problems of the industry by type of transport in the current circumstances caused by the global coronavirus pandemic. Concrete measures are formulated to mitigate the negative impact on economic development.

Keywords: COVID-19, air transport, road transport, rail transport, transit corridors, multimodal corridors.

Currently, the coronavirus pandemic (hereinafter COVID-19) is considered the most relevant issue of the day all over the world) [1].

COVID-19 seriously affected all spheres of human activity, literally "paralyzing" the world's largest economies. The activities of transport and logistics companies have also been significantly affected by quarantine measures in connection with the ban on the movement of passengers on all modes of transport [2, 3] and the restriction of cargo transportation by road by some countries, which, in turn, may lead to a decrease in the pace of world trade. However, it is certainly self-isolation and restrictions on public transport that reduce the risks of widespread of the virus.

Losses in the volume of passenger and cargo transportation within the Republic and beyond its borders can undoubtedly significantly slow down the growth of the economy of Uzbekistan. An Anti-Crisis Fund [4] has been set up for the duration of antiviral measures to support entrepreneurship, infrastructure projects, and leading sectors of the Republic's economy, including tourism and transport. As a priority measure to prevent the import and spread of a new type of COVID-19 virus, a commission has been established in Uzbekistan to study the situation in the country and abroad in connection with the spread of this type of coronavirus [5].

In accordance with the preliminary estimates of experts about the loss of up to 31 million US dollars [6] in the tourism industry of Uzbekistan, as well as the introduction of restrictions on passenger transportation in domestic and interstate communications, the aviation sector of the country has been granted a number of preferences: deferred payment of debt on loans without accrual of penalties, revision of loan repayment schedules of JSC "Uzbekistan Airways", exemption from payment of land and property taxes, and payment of social tax at a reduced rate of 1 percent [7].

Passenger transportation by rail in the 1st quarter of 2020 decreased to 81%, and by air-to 83.4 %. Carriage of passengers in road transport was 103.3% compared with the 1st quarter of 2019. According to the data, the introduction of quarantine measures did not have a big impact on the drop in traffic (Fig.1). But since April, there has been a sharp decline in passenger traffic on road transport 

Source: compiled according to the State Committee of the Republic of Uzbekistan on Statistics

Fig. 1. The growth rate of the volume of passengers sent by transport modes

in 2020, % to Q1 2019

However, the spread of COVID-19 did not affect the Republic's cargo transportation activities and in order to ensure timely delivery of goods and prevent slowing down of foreign trade transportation processes, the Government of the country is taking increased measures to reorient part of the volume of international road transport to rail, as well as multimodal transport, bypassing countries closed to transportation due to quarantine measures.

Analysis of the dynamics of cargo shipments for the 1st quarter of 2020 shows a 35.5% decrease in traffic volumes due to restrictions imposed during the period of measures taken to combat the pandemic in air transport. In road transport, the volume of cargo sent by the 1st quarter of 2019 increased to 105.8% due to the dispatch of goods in domestic traffic. 17.1 million tons of cargo were sent from the Republic's railway stations, which amounted to 100.9% by Q1 2019. (Fig. 2).

Source: compiled according to the State Committee of the Republic of Uzbekistan on Statistics

Fig. 2. The growth rates of the volume of cargo sent by transport modes in 2020,

% to Q1 2019.

In interstate communication.

If in the 1st quarter of this year, the indicators for air (export and import) and road (export and transit) modes of transport had a stable growth rate compared to the same period last year, then in April – may, at the height of the quarantine period, their sharp decline is observed.

And in rail transport, there is a tendency to increase the volume of cargo transportation due to the reorientation of transport from road transport. Thus, in January-may 2020, the volume of transit cargo traffic increased to 121.1%, export-114.3% compared to the corresponding period of 2019 (Fig. 3).

Fig. 3. The growth rates of international rail transport in 2020,

% to January-may 2019.

Uzbekistan has trade relations with more than 193 countries of the world, so it is very important to assess its potential in the current extreme conditions for the country and to occupy its niche in the world market of transport services in order to mitigate the negative effects on the country's economy from the COVID-19 pandemic.

A number of problems in transporting goods to foreign countries during the pandemic led to a drop in the volume of cargo transportation by road:

1. Some countries close borders for vehicles to cross;
2. In those countries where there is no restriction on road transport, the following situation occurs: vehicles leave the same country with the export cargo to the destination country, after arriving and crossing the border of the destination country, the cargo is delivered to the recipient. Due to the actions of the quarantine regime for the duration of the pandemic, the driver is moved to the quarantine zone for 2 weeks, then after the end of the quarantine period, the car leaves with another passing cargo to the destination, i.e. to the country of initial departure. Then the driver is moved to the quarantine zone again at the place of stay. Thus, for 1 flight there and back and to the time spent on the road is added about a month because of the quarantine measures taken;
3. As a result of the above-mentioned problem, drivers increase their freight charges, which affects the reduced competitiveness of the automotive services market.

Due to the current problems in road transport, it is considered appropriate to implement a number of mitigating measures and mechanisms to eliminate the congestion and their further development:

1. Cargo carriers need to increase driver shifts per vehicle unit so that the vehicle is not idle while waiting for drivers in quarantine by hiring other drivers from the destination country who have passed the quarantine period. After the arrival of replacement drivers in the destination country, another team is hired to export cargo from Uzbekistan;
2. In order to encourage road carriers to cancel all road tolls for all vehicles, including tolls for tunnels and bridges, until the threat of COVID-19 is removed. Example: China's experience [8];
3. Introduce a non-stop and free mode for trucks transporting medical supplies and personnel, as well as cancel or simplify inspections of such vehicles. Example: China's experience [8].

A large share of losses is attributed to the Republic's air transport, which is currently limited to the transportation of humanitarian aid goods to certain countries during the crisis. In order to increase profitability, as well as meet the demand of exporters, it is advisable to reorient the activities of air transport and continue the conversion of temporarily stored passenger aircraft to cargo aircraft.

For reference: the Board of Uzbekistan Airways JSC decided to re-equip Boeing-767-300-ER in the Boeing cargo variant-767-300-PTC (passenger-to-cargo) [9]. This will reduce the airline's unprofitability and increase the volume of traffic.

In this difficult situation, new prospects are opening up for railway transport. Thanks to the cooperation with other countries on a new level and reached international agreements with the railway administrations of other countries, possibilities of development of cargo transportation, improve existing and open new export, import and transit corridors, as well as develop new international multimodal transportations with the use of flexible tariffs.

The main focus is on supporting entrepreneurs and representatives of business communities engaged in foreign economic activities. Thus, in March and April of this year, three container block trains with export cargo of the Almalyk mining and metallurgical combine joint stock company were sent from the Sergeli railway station (Tashkent) along the Baku–Tbilisi–Kars multimodal route. Such cargo transportation is carried out on a weekly basis. In addition to Turkey, similar block trains are also planned to Russia, the European Union, China and other Asian countries [10].

Due to the closure of the Turkmen-Iranian border [11], there is a sharp decrease in traffic in interstate traffic along the North-South corridor with a sufficiently developed infrastructure of both countries. The introduction of the Convention ban by Turkmenistan will undoubtedly lead to a decrease in the volume of rail transport, export and transit, on average, by 2% and 2.3% [12], respectively, of Uzbekistan's cargo destined for Iran.

The above-mentioned situation with the restriction of cargo transit through the territory of Turkmenistan to/from Iran (North-South transport corridor) also blocks the mutual trade turnover of such countries as China, the Baltic States, Belarus, Ukraine, Russia, Kazakhstan, Tajikistan, Kyrgyzstan, etc. with the countries of the Persian Gulf, Pakistan, India, Bangladesh, etc.

The favorable geographical position of Uzbekistan allows for unrestricted foreign trade transportation along alternative routes and affects the stable functioning of the industry.

There is a strong argument for choosing these routes to the above countries. In the structure of Uzbekistan's foreign trade turnover, China occupies the leading position (at the end of 2019, the bilateral trade turnover exceeded 7.6 billion us dollars, the share -18.1%), followed by the Russian Federation – 15.7% and 6.6 billion us dollars, Kazakhstan – 8.0% and 3.4 billion us dollars, the Republic of Korea – 6.5% and 2.8 billion us dollars, Turkey– 6.0% and 2.5 billion us dollars, respectively [13].

In these circumstances, there is a need to use alternative transport corridors to South-East Asia. One of these alternative transport projects is the Kabul corridor [14] (Uzbekistan-Afghanistan-Pakistan). It is considered expedient to accelerate the use of existing international highways and the organization of road transport of goods on existing international roads in Afghanistan between the stations of Peshawar (Pakistan) and Mazar-I-Sharif or Galaba (Uzbekistan) under the operator of the Railways of Uzbekistan, with the charging of a tariff for rail transport for the organization of intermodal transport (rail and road). The development of this route will lead to an increase in the transit potential of the countries of the Central Asian region, including Uzbekistan, and the formation of new transit corridors: "India-Pakistan-Afghanistan-Uzbekistan-Kazakhstan-Russia-Belarus-EU", "China-Kyrgyzstan-Uzbekistan-Afghanistan-Pakistan-India" [15]. In turn, the above-mentioned measures will allow to fulfill the instructions voiced in the address of the President of the Republic of Uzbekistan to the Oliy Majlis: "According to international experts, by improving infrastructure, ensuring transparency of tariffs and opening new routes, the transit potential of our country can be increased from the current 7 million tons to 16 million." [16].

Based on the above, it should be noted that along with the anti-crisis measures taken during the period of declining business activity of the population, it is necessary to develop organizational and economic measures based on the results of scientific research and forecasts to stabilize the economy, including in the field of transport.

References:

1. Naming the coronavirus disease (COVID-19) and the virus that causes it.. The World Health Organization official website. Available at: https://www.who.int/ru/emergencies/diseases/novel-coronavirus-2019/technical-guidance/naming-the-coronavirus-disease-(covid-2019)-and-the-virus-that-causes-it.
2. Decision of the Special Republican Commission. Press service of the Ministry of Foreign Affairs. Available at:

https://mfa.uz/ru/press/news/2020/03/23917/.

1. Address by the President of Republic of Uzbekistan to the people in connection with the situation around the coronavirus. Press service of the Ministry of Foreign Affairs. Available at https://mfa.uz/ru/press/news/2020/03/23835/.
2. Decree of the President of the Republic of Uzbekistan No. DP-5969 dated March 19, 2020 "On priority measures to mitigate the negative impact of the coronavirus pandemic and global crisis phenomena on the economy sectors». Available at: https://lex.uz/ru/docs/4770763.
3. Order of the President of the Republic of Uzbekistan No. O-5537 dated January 29, 2020 on the Formation of the Special Republican Commission for the Preparation of the Program of Measures to Prevent the Importation and Spread of a New Type of Coronavirus in the Republic of Uzbekistan. Available at: https://www.lex.uz/docs/4720408.
4. The World Tourism Organization Data. Available at: https://www.unwto.org/tourism-covid-19.
5. Decree of the President of the Republic of Uzbekistan No. DP-5978 dated April 3, 2020 "On Additional Measures to Support the Population, Sectors of the Economy, and Business Entities During the Coronavirus Pandemic". Available at: https://lex.uz/ru/docs/4780477.
6. Chinese authorities supported road carriers in the conditions of coronavirus. Information and analytical Agency "SeaNews", March 27, 2020. Available at: https://seanews.ru/2020/03/27/ru-vlasti-kitaja-podderzhali-avtoperevozchikov-v-uslovijah-koronavirusa/.
7. Press service of "Uzbekistan Airways" JSC. Available at: https://t.me/uzbekistanairways/1032.
8. A container train with Uzbekistan's export products went to Turkey. The information service of "Uzbekistan Railways» JSC, March 30, 2020. Available at:

http://www.railway.uz/ru/informatsionnaya_sluzhba/novosti/18315/.

1. Message from the Consular and Legal Department of the Ministry of Foreign Affairs, 8 March 2020 г. Available at:

https://mfa.uz/ru/press/news/2020/03/23692/.

1. The author's calculations are based on data from the Ministry of Transport of the Republic of Uzbekistan.
2. The State Committee of the Republic of Uzbekistan on Statistics Data. Available at: https://stat.uz/uploads/docs/tashqi_savdo_dekabr_ru.pdf.
3. The Result of Multilateral Negotiations: “Kabul corridor”. Information Service of “Uzbekistan Railways” JSC, April 11, 2019. Available at: http://railway.uz/ru/informatsionnaya_sluzhba/novosti/14457/.
4. A new transport corridor, new opportunities and large-scale prospects. The information service of "Uzbekistan Railways" JSC, December 7, 2018. Available at: http://railway.uz/ru/informatsionnaya_sluzhba/novosti/12598/.

16. Address by the President of the Republic of Uzbekistan Shavkat Mirziyoyev to the Oliy Majlis, January 24, 2020. Available at: https://president.uz/ru/lists/view/3324.