UZBEKISTAN

According to the 1992 Constitution (with 2017 amendments), Uzbekistan is a unitary presidential Republic. The president is directly elected by universal suffrage for a five-year term. Since 2004, the Supreme Assembly (Oliy Majlis) constitutes the bicameral parliament, composed of the Senate and the legislative chamber. The Senate is composed of 100 members: 84 senators are indirectly elected by elected legislative bodies of cities, districts and regions - each of the 12 regions, as well as the Karakalpakstan Republic and the capital city of Tashkent are represented by six senators; the remaining 16 seats are appointed by the president. The legislative chamber (lower chamber) is composed of 150 members, which are elected via universal suffrage.

The system of local government is acknowledged in the Constitution. The 1993 Law on Local Public Administration establishes a dual system of appointed local state administration and elected local governments. The office of the president of the Republic is the central piece of the governance framework and public administration with powers to appoint and dismiss the head of the regional state administration (namely, governor or hokim). Regional hokims are in charge of appointing the districts’ and cities’ heads of state administration. At all levels, the head is the appointed chairperson of the elected local council. Local councils have a symbolic say in approving the local regulations and reports from the respective local state administration. The system of subnational governments is supplemented by a third level - “self-governing community” organisations in settlements, villages (kishlaks and auls), as well as in makhallas (communities of neighbour households). They exercise their powers via citizens' assemblies that elect a chairman (aksakal). The mahallas exist in a number of Central Asia countries since medieval ages to resolve local issues.

Local self-government activities are regulated by the 1993 Law on Self-Government Bodies (revised in 2013). All levels of subnational public administration are highly dependent on the central government. Under the initiative of the new president (in power since 2016) the Strategy of the Administrative Reform (2017) was adopted. It states the need to strengthen the role of self-governing bodies in the system of public administration. The president also called for the introduction of direct elections of regional and district hokims.

In 2017, after the enactment of the Law on Elections to District Councils of People's Representatives of Tashkent City, the first elections were held for the 12 intra-city district councils. In 2018 a new law on election of the chairman (aksakal) of the community assembly (mahalla) was adopted to introduce uniform rules for this procedure.

However, no other legislative amendments were introduced since then neither to the National Elections Code, nor to the Law on Self-Government Bodies. The draft of the new law on Local Self-Government Bodies has not been developed yet. Still, the new five-year national development strategy for 2022-2026 continues to pay attention to local self-government, stressing the necessity to expanding the powers of mahallas and strengthening their financial independence.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
9 168 urban and rural community assemblies (mahalla)	7 cities of national subordination (since 2019), 24 cities of regional subordination (including Nukus – the capital city of Karakalpakstan), 88 cities of district subordination 161 rural districts (tumans) 14 intra-city districts (in Tashkent and Namangan)	12 regions (viloyats), Karakalpakstan Republic, the capital city of Tashkent
Average municipal size: 3 734 inh.
9 168	294	14	9 476

OVERALL DESCRIPTION: The subnational state government structure follows a two-tier system of elected local councils and appointed local state executive governments. Local assemblies (mahallas) are not considered as administrative bodies. This system is inherited from the Soviet era when representative bodies played only a nominal role. The territorial administrative division also has not changed since the 1980s. In 2021, there were 12 regions in addition to two territorial units with a special status: the capital city of Tashkent and the Republic of Karakalpakstan. The regions are subdivided into 31 cities and 175 districts. In 2019, seven out of the 30 industrial cities changed their status from regional to national subordination. They are now directly supported by and accountable inclusively to the central government. This was enacted by the law on Administrative and Territorial Division of Uzbekistan in 2020. The number of districts has increased since 2017 due to the creation of one additional intra-city district in Tashkent in 2020, two newly established intra-city districts in Namangan (the second biggest city in Uzbekistan) in 2019 and 2020, and the two additional rural districts in regions (2019 and 2020). Proposals for the creation of new districts were put forward by the president of Uzbekistan and approved by the parliament. In the future, it is planned to further increase the number of rural districts, as well as create five intra-city districts in the city of Samarkand (the third largest city in the country). The creation of new districts is justified by the need to develop the economy, ensure the growth of employment of the population and strengthen the social sphere in the relevant territory. It is part of the governance reform programme announced in 2017.

Self-government bodies (mahallas) are organised at the lowest level of administrative and territorial jurisdiction in tiny neighbour communities all over the country, both in rural and urban areas.

REGIONAL LEVEL: According to the Constitution, there are three types of regional governments: (i) regions as provinces (12), (ii) the inner Karakalpakstan Republic (which occupies 37% of Uzbekistan territory 80% of which is a desert, and thus has only 5,6% of the population) and (iii) the national capital city of Tashkent. According to the Law on Local State Governments (1993, last amended in 2021), regional executive governments have a dual subordination to both the local representative body and the central government. All of them are headed by a chairperson or hokim, appointed and dismissed by the president of Uzbekistan.

According to article 70 of the Constitution, the Republic of Karakalpakstan enjoys certain autonomy, which is reflected both in national and the Republic’s Constitution. Thus, the chairperson of Karakalpakstan is to be appointed or dismissed by the decision of the Republic’s representative body. The representative bodies of all regions, as well as their chairpersons acquire the mandates for five years. The chairperson of a region is in charge of appointing and dismissing district and city chairpersons of the relevant region with the formal approval of the respective local councils.

INTERMEDIATE LEVEL: Regions are further subdivided into cities and districts (Tashkent – into intra-city districts). Each of them is headed by its own hokim and is composed of several mahallas. Local state government units of districts and cities of regional subordination have both a legislative local council (kengash) and an executive body, while city governments of district subordination have only an executive body. The local councils are elected for a five-year term by the residents of the respective jurisdictions via universal suffrage. All local councils are headed by a chairperson, who is also vested with the local executive powers. Districts are in charge of overseeing lower territorial jurisdictions – cities of district subordination, urban and rural settlements. Districts and cities are authorised to engage in inter-municipal cooperation. This can take the form of joint ventures or business associations to improve service delivery or perform common duties in the interest of a larger territory.

MUNICIPAL LEVEL: According to the Law on Self-Government (2013) and later resolution of the Cabinet of Ministers on the procedure for the formation, unification, division and abolition of mahalla (2014), mahalla can be established in villages inhabited by no less than 500 families. Mahalla can also be established in cities especially in the form of groups of families inhabiting apartment buildings. The territorial jurisdiction of each mahalla is established by the respective district chairperson. Mahalla assemblies are chaired by the local patriarch (aksakal) elected by the citizens’ assembly for a three-year term according to the Law on the Elections of an Assembly Chair (2018).

In 2020, a new national ministry, the Ministry of support for the mahalla and family was created. Its major tasks are stated as “supporting the activities of self-government bodies, protecting their rights and legitimate interests, as well as strengthening the role and importance of self-government bodies, increasing their status in solving everyday problems of citizens and the implementation of citizens control”.

The responsibilities of the local state administration and the mahalla are respectively established briefly by the 1993 Law on Local State Governments and the 1999 Law on Self-Government Bodies (revised in 2013). In addition, the expenditure responsibilities of the state government are established in the Budget Code (2013, last amended in 2021). Yet, there is no demarcation of responsibilities between the central government and regional governments, resulting in unfunded mandates and a strong vertical power-sharing structure. However, expenditure obligations of cities and districts are listed separately. The Law on Self-government bodies only vaguely refers to mahalla’s responsibilities and competences: mahallas approve local development plans aimed at complex development, landscaping and nature preservation; they also have the right to identify families in need of social subsidies. These are more generally identified and determined by the special earmarked funds to mahallas in each district or city budgets. The amount of this fund and specific lines of expenditures are subject to the approval by the mahalla.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Intermediate level	Municipal level
1. General public services (administration)	Regional/city administration and operation of general services; Public buildings and facilities	District/city administration and operation of general services;Public buildings and facilities	Assisting the state government in tax collection;Monitoring district works in the mahalla
2. Public order and safety	Recruitment for the army service		Management of citizens’ voluntary contribution to fight disasters
3. Economic affairs / transports	Agriculture, irrigation and forestry;Subsidies to public transport companies	Veterinary services; Local roads	Approval of local development plans; Collection of statistical data on farmers’ enterprises
4. Environment protection	Parks & green areas	Parks & green areas; Waste management;Street cleaning	Approval of local nature preservation plans
5. Housing and community amenities	Housing renovation;Drinking water distribution;City improvement	Housing renovation;City and village improvement	Approval local landscaping plans;Management of voluntary works on community improvements
6. Health	General and specialised(incl. emergency) hospitals	Primary healthcare (medical centres);Preventive healthcare
7. Culture & Recreation	Sports facilities and events;Recreation facilities;Cultural facilities and events	Sports facilities and events; Recreation facilities; Cultural facilities and events;Musical and arts schools for children	Management of cultural and sports events (shared with districts)
8. Education	Specialised secondary education (boarding schools);Afterschool centres; Orphanages	Pre-primary, primaryand secondary education;Afterschool centres
9. Social Welfare	Care to elderly and people with disabilities (benefits and services); Support services and subsidies for low income families	Care people with disabilities (benefits and services)	Management of social subsidies;Management of district government social care programs for elderly citizens;Women’s rights protection

Scope of fiscal data: Autonomous Republic of Karakalpakstan, 12 provinces and Tashkent City (all consolidated with lower levels of government)

SNA 2008

Availability of fiscal data: Medium

Quality/reliability of fiscal data: Low

GENERAL INTRODUCTION: Though subnational government yearly budget plans are to be approved by relevant local council, they have little independence in managing public finances. Regional, city and district governments develop and execute their budgets with the approval of the central government. Despite a highly centralised administrative structure, subnational governments play an important role in public services funding. Horizontal imbalances in regional per capita spending are not high (per capita spending of a “rich” region is only 40% higher than that of a “poor” one). Two instruments are used to equalise financial resources among subnational governments of the same type: (i) varying tax sharing rates across regions, and (ii) intergovernmental fiscal cash transfers (budgetary support from the higher level of government). These aim to close the fiscal gaps between expenditure and revenue forecasts prepared by the Ministry of Finance.

Mahalla budgets are not mentioned in the Budget Code and they are not assigned any taxes. Their financial resources are formed out of contributions of citizens and legal entities, as well as contributions from the city or district government. However, most of the mahalla‘s funds come directly from the upper level of the budget.

Subnational government expenditure by economic classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	634	8.6%	29.6%	100.0%
Inc. current expenditure	525	7.1%	28.3%	82.7%
Compensation of employees	274	3.7%	44.5%	43.2%
Intermediate consumption	91	1.2%	57.1%	14.4%
Social expenditure	61	0.8%	11.6%	9.5%
Subsidies and current transfers	97	1.3%	18.1%	15.4%
Financial charges	2	0.0%	6.9%	0.3%
Others	-	-	-	-
Incl. capital expenditure	110	1.5%	38.6%	17.3%
Capital transfers	-	-	-	-
Direct investment (or GFCF)	110	1.5%	38.6%	17.3%

EXPENDITURE: Uzbekistan’s budget system is characterised by large vertical imbalances (limited own revenue sources of subnational governments combined with large spending mandates).

Subnational governments account for around 30% of national public spending (more than half of total national spending excluding extra budgetary funds), equivalent to about 9% of GDP in 2020. These levels are rather high compared with other countries of the region.

By economic classification, the highest share of regional current expenditure (43%) is allocated to staff wages, specifically teachers and doctors. This is accounted for by the fact that wage rates of public servants are determined by the central government. In order to comply with the central government mandatory rates, regional governments allocate a very low share to other categories. However, in the context of the pandemic, in 2020 ccompensation of employees fell from 78% to 52% of current expenditures (from 6.7% to 3.7% of GDP), while spending on purchase of goods and services, social benefits and other expenses doubled.

Subnational budgeting for expenditure includes a negotiated procedure with the central government. Regional governments consolidate the lower level governments’ requests and submit them to the Ministry of Finance. To cover the projected expenditure needs, subnational governments argue for higher tax sharing rates or transfer allocation.

DIRECT INVESTMENT: Capital expenditure from local funds represented 17.3% of subnational government spending in 2020. Still, construction of infrastructure is mostly covered by the central government via several earmarked funds aimed at specific investment purposes, such as the Reconstruction and Development Fund; the Roads Fund; the Fund for Development of Educational and Health Infrastructure; the Irrigation Fund; the Ecological and Waste Management Fund; the Fund for the Development of Aral Sea Region and the Drinking Water Fund. However, regional governments accounted for 38.6% of total capital spending in 2020. In addition, subnational tiers of government are often empowered by the central government to monitor and even manage the investment process within their jurisdictions.

Subnational government expenditure by functional classification
2018	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	611	8.8%	-	100.0%
1. General public services	93	1.4%	23.2%	15.3%
2. Defence	-	-	-	-
3. Security and public order	-	-	-	-
4. Economic affairs/transports	25	0.4%	11.5%	4.0%
5. Environmental protection	3	0.0%	76.8%	0.5%
6. Housing and community amenities	31	0.4%	80.6%	5.0%
7. Health	126	1.8%	78.9%	20.7%
8. Recreation, culture and religion	17	0.2%	60.8%	2.8%
9. Education	262	3.8%	70.4%	42.9%
10. Social protection	43	0.6%	9.8%	7.0%

Expenditure assignment across levels of government involves specific task assignments rather than functional responsibilities. For example, the Budget Code explicitly specifies that only maintenance and renovation of healthcare facilities are the responsibility of subnational governments. In education, various level of governments (Republic, region, and district/city) are all involved in delivering secondary school services. Unclear functional assignment may undermine local accountability and efficiency of expenditure and service delivery.

Education appears to be the largest expenditure line (43%), followed by health (21%). These functions are almost entirely (more than 80%) delegated to subnational governments. General public service expenditure increased in recent years from 5% (in 2016) to 15% (in 2018) of total expenditures. One possible explanation is that subnational executive bodies used to be territorial representations of the central government and public servants in these institutions were paid from the central budget. However, recently, the process of administrative decentralisation has been launched.

Subnational government revenue by category
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	638	8.6%	31.9%	100.0%
Tax revenue	305	4.1%	21.1%	47.8%
Grants and subsidies	290	3.9%	-	45.5%
Tariffs and fees	41	0.6%	-	6.5%
Income from assets	2	0.0%	-	0.3%
Other revenues	-	-	-	-

OVERALL DESCRIPTION: In Uzbekistan, tax revenue accounts for the largest share of subnational government revenue (48%), amounting to 4.1% of the GDP and 21.1% of general government revenue in 2020. The National Tax Code does not specifically define local taxes. The Budget Code lists two types of taxes: “national” and “local”. It also assigns particular taxes to central and regional governments. The latter include: shares of national taxes (set by the law on the national budget for the coming fiscal year); local taxes; non-tax revenue grants. Shared tax revenues are the most important source of revenues for subnational governments.

The balanced budget rule with gap filling from shared taxes and transfers from the central government is a key criterion for determining particular tax sharing rates and the size of targeted transfers. Parameters for both instruments are decided annually and vary across the years and subsidised regions. Regional governments share their revenues with district/city governments at their own discretion.

TAX REVENUE: All taxes in Uzbekistan are collected by the National Tax Committee. Subnational governments have little autonomy over revenue collection. According to the Budget Code, subnational governments’ tax revenue is composed of shares of national taxes and locally raised tax revenue. Major local taxes have their rate and base established and reviewed by the Cabinet of Ministers or in the annual budget resolution. Local tax rates (except for the property tax, whose rate has been fixed at 4% by the tax code) are subject to annual review by the Cabinet of Ministers. However, subnational governments are now allowed to retain locally collected revenues (own revenue) that exceeds planned revenues. The particular sharing rates of shared taxes are established by the law on the central government budget for the coming fiscal year. As a result of the sharing rates policy in 2020, the three main national taxes (PIT, CIT and VAT) respectively account for around 18.7%, 6.3% and 2.5% of subnational government revenue, and approximately 2.4% of the GDP. Other shared taxes include small business simplified tax, tax on imputed income, excises (5.4% of subnational government revenue), natural resources tax, and water resources tax.

Local taxes are made up of gasoline tax, property tax, land tax and simplified land tax. Property tax accounts for a significant share of local tax revenues (13%) and local revenues (6.2%), which is one of the largest compared to Eurasia countries with similar scope of local government sector. It amounted to 0.5 % of GDP in 2020.

GRANTS AND SUBSIDIES: Grants and subsidies from the upper level of budget only complement the system of varying rates of shared taxes. The Budget Code recognises the following six types of intergovernmental fiscal transfers: targeted social transfers (aimed at wage payments to teachers and doctors), targeted non-social transfers (subventions), general purpose transfers, budget loans, mutual settlements, equalising transfers. Besides the cash transfers listed above, the Budget Code quite correctly qualifies shared taxes as one more type of intergovernmental transfers (which is unique for Eurasian countries). Unfortunately, there is no rule-based and transparent intergovernmental fiscal transfers allocation system: it is highly discretionary and creates uncertainty for subnational governments. Subnational governments and the Tax Committee in parallel prepare revenue forecasts, while subnational governments and the Ministry of Finance in parallel estimate expenditure needs. As a result, the subnational budget preparation process includes a negotiated procedure with the central government where subnational governments argue over the estimate of a projected primary budget deficit to be covered by intergovernmental fiscal transfers.

The fact that the transfer system allows gaps to be filled on an ad hoc basis breaks the link between subnational expenditure responsibilities and revenue resources. This discourages subnational governments from efficient and transparent public finance management, negatively affects the level of service delivery and reduces subnational governments’ incentives for increasing their own revenues.

OTHER REVENUE: Tariffs and fees, property income and other revenues account for 7% of subnational government revenue. They include revenue from the privatisation of public property, stamp duties, fines and penalties. There is little if any autonomy of regional and city/district governments to influence these revenues.

ⓘ No detailed data available for this country

FISCAL RULES: Subnational governments are not permitted to run budget deficit. Revenues and expenditures adopted for the next fiscal year must be equal. They can only increase their expenditures if the revenue received exceeds the amount provided for in the budget decree.

DEBT: Subnational governments cannot provide guarantees in favour of third parties or grant budget loans to non-governmental entities or individuals. Subnational governments can obtain short-term loans from the upper level of government, which is to be repaid by the end of the fiscal year. They cannot borrow from anywhere else.

TERRITORIAL MANAGEMENT OF THE CRISIS: A National Commission to develop the programme of measures to prevent the spread of coronavirus was established in Uzbekistan on 29 January 2020. No representatives of subnational authorities were included in this commission.

However, local governments were assigned the obligation to provide medical institutions with effective personal protective equipment, diagnostic materials, antivirals, symptomatic drugs, as well as other means and equipment necessary for the effective prevention, diagnosis and treatment of coronavirus and other infectious diseases. They were also obliged to implement a set of measures to prevent the spread of coronavirus in educational institutions.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: By decision of the central government, tax exemptions were introduced for restaurants and for individuals/businesses on rents. Small businesses were exempted from the payment of certain taxes, rent, fines and interest payments for loan servicing; self-employed citizens were exempted from income tax. Tax deductions were increased, tax rates reduced and banks were required to provide low-interest loans.

At the request of the central government, local governments reduced local taxes by 30% and provided a six-month grace period for the payment of property and land tax. No direct compensation was provided to local governments in return. The central government took over the financing of public works in different regions to improve infrastructure and support employment. The central government also provided additional funds to subnational governments to increase healthcare expenditure, including medicines, the costs of quarantines, and salary supplement for medical employees. With these funds, local governments provided a free set of food and hygiene products, as well as disposable masks and antiseptics to isolated elderly and disabled people in need of care.

At the same time, problems with the provision of social aid emerged. The work of volunteer groups (public associations, NGOs, associations of disabled people) was prohibited since voluntary assistance was centralised through a single Coordinating Centre managed by the central government. However, the Centre proved to be not very efficient. A list of people in need has not been established and information requested from mahalla committees did not meet the requirements and missed a large number of people in need.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: Uzbekistan is one of the few countries in the world that avoided a severe economic downturn in 2020. Despite the pandemic crisis, its GDP growth has remained positive, although down to 1.7% from 5.5% in 2019. The lifting of the quarantine measures in the third quarter of 2020, the partial recovery of remittances and sustainable agricultural production contributed to the strengthening of economic activity in the second half of 2020.

However, the coronavirus has had a significant impact on subnational governments finances in Uzbekistan. In 2020 compared to 2019, the share of subnational revenues in general government revenues decreased from 36.5% to 31.9%, while the share of expenditures decreased from 37.2% to 29.6%. Expenditures and revenues of subnational governments as a percentage of GDP decreased from 10.2% in 2019 to 8.6% in 2020. Before the pandemic, the share of tax revenues in the total revenues of subnational governments exceeded 60%, by the end of 2020 it dropped to 48%, primarily due to a significant reduction in revenues from taxes on goods and services. Subnational budgets were balanced by central government grants, which increased from 32.5% to 45% of total subnational government revenue. Significant changes have also taken place on the expenditure side. Compensation of employees fell from 78% to 52% of current expenditures (from 6.7% to 3.7% of GDP), while spending on purchase of goods and services, social benefits and other expenses doubled.

ECONOMIC AND SOCIAL STIMULUS PLANS: In early September 2020, the central government adopted a large-scale post-crisis programme for 2020-21, with a focus on restoring investment and economic activity, and creating conditions for further economic reforms. The plan was due to be implemented in two stages, with a focus on stabilisation and recovery until the end of 2020, before moving to structural reforms in 2021.