UNDP Poverty Report 2000

Slow Economic Reform and Social Development

Uzbekistan began the transition to a socially oriented market economy in 1996. Unlike some other transition economies, which chose rapid change or shock therapy, Uzbekistan adopted a gradual, evolutionary reform. The state continued to develop and implement reforms and maintained expenditures on social protection. As a result, it moderated the rise in poverty.

Uzbek GDP dropped by 17% in the early 1990s - about half the average of 38% for the Baltic states and former Soviet republics. Since 1996 the economy has grown, with inflation down to about 18%. Given its approach of gradual reform, the country has seen no need to adopt an explicit national anti-poverty plan. Its strategy has been to prevent the rise of poverty rather than address the poverty consequences of rapid transition after the fact.

Privatizing Land and Housing

The Uzbek people benefited from social assistance and the transfer of housing and land. Housing has been privatized, and small plots of land have been allocated, for lifetime use, to the rural and peri-urban population. More than 1 million people own formerly state-owned apartments, and another 700,000 have moved into privately owned dwellings. The land plots are an economic "safety net" that have helped maintain food con-sumption, accounting for 80 - 90% of meat and milk production and half of all agricultural output. But in many cases the plots are large enough only to meet household needs, not to generate the added income to prosper.

Reform of the country's system of social assistance has been geared to better targeting of expenditures to those in need, within the context of reducing administrative costs and overall subsidies to the population. The current system provides income transfers to the needy, child and maternal benefits, and assistance to the elderly. It also offers free basic health services and free primary and secondary education. Some benefits are targeted to the poor: children from low-income households, for example, are given free school uniforms and winter clothing.

The government has also tried to guarantee a minimum income for the population through pensions, a mini-mum wage and such allowances as maternity and sick pay. Recently it began a public works programme to provide short-term jobs for agricul-tural workers who have been laid off.

The system of social protection is still changing. Some benefits, such as pensions, are unlikely to be sustainable. And the share of social assistance in total government expen-ditures was halved in the 1990s, compounding delays in wages - often by months, sometimes even by years.

Uzbekistan receives little external assistance - its official development assistance is about 0.5% of GNP. The government proposes to set up a Social Transformation Fund, in part to mobilize more external resources, but has not yet put it into operation. The fund would support public works projects, microfinance for income generation and the promotion of small and medium-scale enterprises.

There is no separate commission to coordinate poverty-related activities. If set up, the Social Transformation Fund is likely to assume this function. The World Bank is considering a $15 million loan for the fund, but the government prefers grant financing.

The Role of Mahallas

Local governments now retain about 60% of all government revenues. And for poverty reduction, the most important institutions are probably the mahallas, official self-governing bodies in each neighbourhood. The communities, which range from 600 - 800 people in rural areas to as many as 15,000 people in urban areas, elect a chairperson, with approval from the subprovince governor.

The mahallas have the responsibility for identifying recipients eligible for social assistance and delivering the benefits to them. In making decisions, the communities blend the fixed rules of the Ministry of Labour with their own discretion. Recipients have to submit a formal application for assistance, and a special committee visits their homes to determine their eligibility and the size of their benefits.

The functions of the mahallas go beyond social assistance. Employing kashar methods - traditional community cooperation - mahallas mobilize community members to undertake projects to meet agreed community needs. According to a 1999 law, they promote the rights of citizens to manage public affairs, involve citizens in solving local prob-lems, assist authorities in enforcing laws and foster social cohesion in a multiethnic society. Mahallas may own property and start their own industrial or commercial enterprises.

A mahalla foundation promotes the system. But in some regions the resources for social assistance are inadequate to fully cover people's needs, so benefits are spread over all eligible households or rotated among them. The system of allocation needs to be examined to determine whether funds are targeted to the regions most in need and, within regions, to the mahallas most in need.

Outside the mahallas, there are only about 20 independent civil society organizations, mostly government-sponsored organizations established in the Soviet era.

No Official Definition of Poverty

There is no official definition of poverty in Uzbekistan and thus no reliable estimate of its extent. Nor is there a mechanism to monitor the impact of policies and interventions on the poor. As in many other countries formerly in the Soviet bloc, the government of Uzbekistan appears reluctant to address poverty explicitly. But it is greatly concerned about social development and the rise of inequality. To address the significant income disparities between rural and urban areas and among regions of the country, the government is introducing a progressive tax system and allocating more fiscal resources to poorer regions.

Still, little attention appears to be paid to whether Uzbekistan's growth is pro-poor. Government macro-economic and sectoral policies are not judged by whether they benefit poor or low-income households. Indeed, the practices of overvaluing the exchange rate and setting official prices for wheat and cotton have hin-dered agriculture - the main source of income for many poor households.

An explicit anti-poverty plan could help focus the government's efforts and set up a system to monitor the impact of its policies on poverty - to make macroeconomic policies more pro-poor and better target its resources for economic and social assistance.