VZCZCXRO2748
RR RUEHLN RUEHVK RUEHYG
DE RUEHNT #0951/01 2310747
ZNR UUUUU ZZH
R 180747Z AUG 08
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC 0176
INFO RUEHBUL/AMEMBASSY KABUL 2777
RUEHIL/AMEMBASSY ISLAMABAD 4486
RUEHKA/AMEMBASSY DHAKA 0525
RUEHKT/AMEMBASSY KATHMANDU 0797
RUEHLM/AMEMBASSY COLOMBO 0758
RUEHNE/AMEMBASSY NEW DELHI 1436
RUEHBJ/AMEMBASSY BEIJING 1111
RUEHBS/USEU BRUSSELS
RUCNCIS/CIS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 04 TASHKENT 000951 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR SCA/CEN AND EB 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EAID EINV KCRM SOCI UZ
 
SUBJECT: UZBEKISTAN:  COST OF LIVING SOARS, 
POVERTY REMAINS HIGH 
 
REFERENCES: 
A -- Kommersant, 1 August 2008, p. 2 
B -- World Bank, Uzbekistan Country Brief 2008 
C -- 
www.imf.org/external/pubs/ft/scr/2007/cr07133 .pd 
f 
D -- Tashkent 591 
E -- 
www.imf.org/external/pubs/ft/scr/2008/cr08235 .pd 
f 
F -- 07 Tashkent 1596 
G -- 07 Tashkent 1661 
H -- Pravda Vostoka, 23 July 2008 
I -- Transparency International, Corruption 
Perceptions Index for 2007, 
http://www.transparency.org/policy_research/s urv 
eys_indices/cpi/2007 
J -- Tashkent 769 
K -- Tashkent 900 
L -- http://investment.uz/content/view/500/9/ 
M -- 07 Tashkent 1386 
 
¶1. (SBU) SUMMARY. Official GOU figures 
continue to show robust macroeconomic 
growth, but the benefits of this growth are 
slow to be seen in the economic lives of 
Uzbek citizens.  Although gross national 
income per capita is growing, the official 
consumer price index of 6.5 percent stands 
in sharp contrast to estimates by the World 
Bank (WB) and by Post that show the cost of 
living rising by 12 or even 20 percent or 
more per year.  Ranking among the five most 
corrupt countries in the world according to 
Transparency International, Uzbekistan has 
a shadow economy that accounts for 20 
percent of GDP by official estimates and by 
up to 45-50 percent of GDP in independent 
assessments. According to the WB, over a 
quarter of the population lives below the 
poverty line, but to date the GOU has not 
announced any effective anti-poverty 
measures.  The GOU has yet to recognize 
that poverty reduction can be the spark 
that will ignite Uzbekistan's economic 
growth engine.  END SUMMARY 
 
INCOMES and EXPENSES 
-------------------- 
 
¶2. (SBU) In April the State Statistics Committee 
of Uzbekistan issued a report on household 
incomes and expenses in the first quarter of 
¶2008.  The report says that nominal household 
incomes amounted to USD 3.46 billion (30.9 
percent increase compared with the first quarter 
of 2007), while monetary expenses and savings 
rose 26.4 percent to USD 3.38 billion.  These 
numbers correspond to income and expenses of USD 
1.4 and USD 1.37, respectively, per person per 
day.  (COMMENT:  By comparison, according to the 
Rosstat Agency the average income in Russia in 
June 2008 was approximately USD 21 per person 
per day [Ref A]. END COMMENT.) 
 
¶3. (SBU) According to the statistics committee 
report, incomes were structured as follows:  USD 
1.2 billion in wages paid by employers (42.3 
percent rise); USD 1.6 billion generated from 
business activities, including property rentals 
and the sale of agricultural products (21 
percent increase); and USD 660 million in social 
benefits. 
 
¶4. (SBU) The report also shows that the annual 
gross national income (GNI) per capita is 
growing gradually and amounted to about USD 650 
in 2007.  This reflects improvement after a 
 
TASHKENT 00000951  002 OF 004 
 
 
sharp decline in 1991-1996 (from USD 1,100 down 
to USD 350) but remains low compared with other 
leading CIS economies. 
 
POVERTY and UNEMPLOYMENT 
------------------------ 
 
¶5. (SBU) According to WB figures about 25.8 
percent of the Uzbek population lives below the 
poverty line and is able to spend less than USD 
1.1 per day (Ref B).  About 75 percent of the 
population falls below the international poverty 
line and is able to spend less than USD 2.15 per 
day. 
 
¶6. (SBU) Despite the high poverty level, the 
unemployment rate is low:  about 0.75 percent 
according to GOU official sources and about 8 
percent according to the International Labor 
Organization.  The WB explains the low 
unemployment by pointing to the low-productivity 
and low-income jobs held by the majority of the 
population, especially in rural areas.  The 
official number of small businesses in the 
country is 429.7 thousand, whereas the 
officially employed population exceeds 10.6 
million.  (COMMENT:  If the entire population 
were employed by small businesses, this 
corresponds to about 25 employees per business, 
a number that strikes us as too large.  END 
COMMENT)  About 58 percent of the employed 
population works in trade and services, 29 
percent in agriculture, and 13 percent in 
industry. 
 
COST of LIVING 
-------------- 
 
¶7. (SBU) The Statistics Committee report says 
the consumer price index (CPI) rose no more than 
6.5 percent during the first quarter of 2008. 
If true, this implies that most of the 26.4 
percent growth in expenses came from growth in 
consumption and savings, but it is equally or 
even more likely that the statistics committee 
has understated the level of inflation. 
 
¶8. (SBU) Official economic data on Uzbekistan 
are unreliable and usually are not made 
available to outside observers.  (COMMENT: 
Although the GOU does share its raw economic 
data with the International Monetary Fund (IMF), 
it does so under a non-disclosure agreement. 
END COMMENT)  The GOU does not issue raw data on 
the cost of living or the cost of a basic basket 
of goods.  According to data collected and 
analyzed by post, the cost of living has been 
growing 25-30 percent per year for the past five 
years and already has grown 26.5 percent in 
January-June 2008.  In its 2006 Article IV 
Consultation for Uzbekistan, the IMF estimated 
the true rate of inflation to be 19.5 percent 
(Ref C).  In its just-released report for 2008, 
the IMF estimates inflation to be running at a 
more moderate 12.3 percent (Refs D and E). 
 
¶9. (SBU) Post's analysis shows that the average 
monthly cost of living for one household 
(excluding high cost goods, home appliances, 
mortgage payments, clothes, travel, and other 
optional goods and services) grew from USD 498 
in January 2007 to USD 618 in January 2008 and 
to USD 769 in June 2008.  Sharp price increases 
for rice, flour, bread, vegetable oil, and 
energy caused spontaneous protests in some towns 
last fall (Refs F and G). 
 
¶10. (SBU) A shortage of water for irrigation 
 
TASHKENT 00000951  003 OF 004 
 
 
this year already has led to reductions in 
various crops, mainly rice and grain.  In 
addition, neighboring Kazakhstan, the largest 
supplier of grain and flour to Uzbekistan, has 
introduced export quotas.  Due to the shortage 
of forage, private farmers are reducing their 
livestock holdings.  All these factors may lead 
to a further rise in foodstuff prices this 
coming fall and winter. 
 
¶11. (SBU) With great official fanfare the GOU 
increases minimum wages and pensions on average 
twice a year (most recently on July 23 [Ref H]) 
but there are those who believe this is a way to 
increase tax revenues, not an expression of 
government largess.  Many taxes -- for example 
the unified tax for private entrepreneurs and 
small businesses as well as some import duties - 
- are based on minimum salary.  By increasing 
the minimum salary, the GOU increases its tax 
revenue base.  Moreover, the wage hikes 
encourage matching inflation. 
 
SOCIAL IMPACT 
------------- 
 
¶12. (SBU) To survive in such a challenging 
environment, many low income families are forced 
to limit consumption of quality foods.  With 
meat prices in Tashkent averaging about 3 
USD/lbs -- roughly the same as in the U.S. -- 
some families are reported instead to be buying 
meat waste products normally used for pets.  The 
growing demand for cheap goods has been 
accompanied by a corresponding decline in 
quality.  Almost all food stuffs sold at the 
lower end of the price spectrum do not meet 
minimal quality standards set by the GOU. 
 
¶13. (SBU) People looking for alternative sources 
of income continue to turn to illegal sectors of 
the economy.  Our contacts in the WB office in 
Tashkent estimate the shadow economy in 
Uzbekistan accounts for 45-50 percent of GDP, 
and even Uzbek authorities acknowledge the 
shadow economy could account for up to 20 
percent of GDP. 
 
¶14. (SBU) Low incomes in the public sector and 
the large shadow economy encourage corruption. 
Transparency International's Corruption 
Perceptions Index for 2007 ranks Uzbekistan 
among the five most corrupt countries in the 
world along with Haiti, Somalia, Iraq, and Burma 
(Ref I). 
 
¶15. (SBU) Many people -- in particular in rural 
areas -- are migrating within the country or 
abroad to Kazakhstan and Russia in search of 
work. There are no official statistics, but the 
WB office in Tashkent estimates the number of 
permanent or temporary labor migrants has 
reached 5 million.  Remittances have grown 
sharply in the last five years.  Official 
figures acknowledge almost USD 1.6 billion (9 
percent of GDP) in remittances in 2007.  The 
real volume of remittances could be two times 
higher.  (COMMENT:  It is rumored that the level 
of remittances may be dropping because some 
migrant laborers are now taking their families 
with them when they go abroad.  END COMMENT) 
 
GOU REACTION 
------------ 
 
¶16. (SBU) The GOU says the poverty level will 
decline from 25.8 percent to approximately 13 
percent by 2015; Uzbekistan has also approved a 
 
TASHKENT 00000951  004 OF 004 
 
 
bill to join the UN Anti-Corruption Convention 
and a bill to ratify the protocol to prevent 
human trafficking and implement punishment rules 
from the UN Anti Trans National Organized Crime 
Convention.  Both bills were passed on June 27, 
2008 (Refs J, K, and L).  At the same time, 
however, to date no effective poverty-reduction 
incentives have been announced. 
 
COMMENT 
------- 
 
¶17. (SBU) The income and poverty picture in 
Uzbekistan has changed little since Post's last 
report in 2007 (Ref M).  The GOU is continuing 
to use strict monetary policy instruments and 
import restrictions to "protect" the economy 
(Ref D and E). 
 
¶18. (SBU) The existing level of poverty in 
Uzbekistan may create preconditions for further 
criminalization of the economy and society as 
well as undermine social stability.  The GOU has 
yet to accept that real poverty reduction 
measures along with favorable external 
conditions will increase domestic market 
potential, stimulate further development of 
small businesses, and create a favorable 
economic environment for investors.  Investments 
will create new jobs, which will serve to 
further poverty reduction.  In other words, 
poverty reduction can be the spark that ignites 
Uzbekistan's economic growth engine. 
 
¶19. (SBU) Post's 2003-2008 cost of living 
analysis for Uzbekistan is available in 
spreadsheet form upon request to 
McCutcheonRA@state.gov. 
 
DBUTCHER