1. Assessment and recommendations

Uzbekistan’s economy has liberalised rapidly since 2017 and has sustained strong growth even in the face of recent external shocks, including the COVID-19 pandemic and Russia’s 2022 full-scale invasion of Ukraine. Reforms have focused on the liberalisation of prices and trade, opening the economy to private initiative, privatising large state-owned companies, reforming the energy sector (including unbundling the electricity market and tariff reform) and streamlining taxation policies. The government recognises, however, that its current economic model, powered by the country’s large but shrinking natural gas reserves and dominated by state-owned enterprises (SOEs), is not sustainable economically or environmentally. Consequently, transitioning to a low-emission and climate-resilient path of economic development in line with the Sustainable Development Goals and the Paris Agreement on Climate Change has emerged as an overarching policy objective. In recent years, green transition considerations have become central components of the country’s main strategic planning documents, including the New Uzbekistan Development Strategy 2022-2026 and the Strategy for the Transition to a Green Economy 2019-2030.

The achievement of these goals requires an unprecedented mobilisation of both public and private resources. The gap between the financing currently mobilised and the financing needed is immense, and the government must consequently seek to unlock additional private financial flows. Given the outsized role that the state has played in the economy in general and the financial system in particular, Uzbekistan’s underlying challenge to enable the transition is the development of a larger, more liquid and more active domestic capital market.

On this count, the government of Uzbekistan has a crucial role to play in defining the necessary legal, regulatory and institutional frameworks that will ween domestic entities off generous state subsidies and encourage participation in the domestic capital market. The government’s push for wide-scale privatisation of SOEs and state-owned banks is an important component of Uzbekistan’s strategy in this regard.

Government-led reforms will also be necessary to provide appropriate incentives and motivate different market participants to prepare projects that bring Uzbekistan’s economic activities into alignment with its climate and development goals. Given the growing appetite among investors, particularly international institutional investors, for environmental, social and governance (ESG) compliant financial products, there is an opportunity for Uzbekistan’s government, banks and corporate entities to mobilise the financing that they need for their transition using green financial instruments. Using these instruments will, in turn, also contribute to the dynamism, depth and, through their reporting and monitoring requirements, governance of the domestic capital market.

Green bonds have emerged as important tools for financing the transition towards more sustainable economies, particularly in developed countries but increasingly in emerging countries like Uzbekistan as well. Green bonds and other thematic bonds related to sustainability (e.g. social and sustainability bonds) are similar to conventional bonds, which are fixed-income debt instruments that raise money (debt) for the bond issuer from bond holders against the obligation to repay the debt in regular payments over a defined period of time at a set interest rate, but their proceeds are explicitly earmarked for investment in areas such as renewable energy, energy efficiency, clean transport, recycling and waste management. Bonds can be issued by public authorities (depending on the jurisdiction, both national and subnational governments, including municipalities), credit institutions, companies and supranational institutions in the primary markets.

Bonds are among the key instruments of the capital market traditionally used to raise debt for projects which need a significant amount of financing, such as infrastructure projects. Green bond finance is a natural fit for low-carbon infrastructure assets, such as renewable energy infrastructure, which is characterised by high upfront capital costs and long-term income streams. Compared to bank lending, bonds provide an alternative and often competitive source of finance for non-financial companies. Bonds often offer a lower cost of capital, can have longer maturities and are more liquid. The absence or the relatively low level of collateral requirements is yet another attractive feature of bonds.

Globally, the green bonds market has grown exponentially over the last 10 years. The first green bond was issued by the European Investment Bank back in 2007. Since then, green bonds have matured from a niche instrument into a recognised and growing financing tool in the mainstream debt capital market. According to the Climate Bonds Initiative, volumes of new thematic bond issuances surpassed USD 1 trillion for the first time in 2021, with green bonds (49%, USD 523 billion) accounting for the largest share (Climate Bonds Initiative, 2021[1]). Many actors, such as international finance institutions (IFIs), governments (sovereign, sub-national and municipal) and corporates (financial and non-financial), participate in the domestic and international green bond markets and raise funds to finance or re-finance green investments. Although developed economies account for the majority of green bond issuances, a number of countries in Africa, Latin America and Southeast Asia are making progress and issuers are preparing to tap into this increasingly important source of green finance.

Eastern Europe, the Caucasus and Central Asia (EECCA) has lagged behind other regions in the world in tapping into bonds markets to finance green investments. Private sources of finance, such as equity or bonds, that can leverage bank financing, have been used to only a limited extent so far in the region. Among EECCA countries, thematic bonds have only been issued in Armenia, Georgia, Kazakhstan, Ukraine and, starting in 2021, Uzbekistan. Apart from these first issuances, capital markets in the region, including Uzbekistan, have remained poorly developed, which acts as a major constraint for wider use of the instrument.

Following its first sovereign issuance of a conventional bond in 2019, Uzbekistan began experimenting with thematic bonds, issuing its first sovereign sustainable bond (a so-called “Sustainable Development Goals bond”) in late 2021. A sovereign green bond was issued in late 2023. Two SOEs and three state-owned banks, several of which are slated for privatisation in the coming years, have followed the government’s lead and issued conventional bonds. The country’s first corporate green bond was issued in a private placement in August 2023 by SanoatQurilishBank (SQB), a large state-owned bank (UzReport, 2023[2]).

Establishing a green securities market is often seen as one of the major steps that can enable the transition to a green economy. In more advanced markets, green bonds are also seen as a vehicle for an inter-agency and intra-governmental debate around issues related to financing the low-carbon transition. They encourage dialogue between the financial and environmental communities, which can in turn raise the profile of climate and clean energy policies in the national agendas, improve cooperation between the two communities and help develop mutually beneficial solutions to problems that inhibit higher demand for green finance.

However, the success of green bonds is contingent on the smooth functioning of bond markets as a whole. They are subject to the same risks, including exchange currency risk, as well as risks related to their underlying projects, such as a lack of market-ready green projects and, for the issuer, reputational risks if the projects are found to differ from the criteria laid out in the bond’s framework. Although bonds and other fixed-income debt instruments are perceived as low-risk investments, the market’s appetite for them varies depending on various factors, most notably the interest rate and inflation. When interest rates and inflationary pressures rise as they did in 2022, the market’s appetite for fixed-rate debt instruments – including green and conventional bonds alike – tends to dwindle, as investors seek higher returns. In short, adding a “green” label to poorly functioning financial instruments will not solve the fundamental structural problems in the market.

Experience from other regions demonstrates that increased demand for green bonds can become a driver and source for the expansion of the bonds market in a country more generally, gradually improving the wider debt capital market. Moreover, green bonds have an established and growing investor base, as a growing number of investors adopt green portfolio requirements. Green bonds with credible monitoring and reporting mechanisms could attract more capital from such investors, offering a much-needed alternative source of financing projects related to the green transition.

The present report explores the current economic and environmental situation and direction of travel established in Uzbekistan’s strategies and development plans (Chapter 2), the existing sources of financing to achieve these plans and the remaining gap between current spending and investment needs (Chapter 3), the institutional set-up, market actors and legal and regulatory frameworks of the financial system (Chapter 4) and opportunities to expand the use of green bonds by different issuers and across several sectors (Chapter 5).

Based on these assessments and consultations with various state and non-state stakeholders in Uzbekistan, the OECD has identified a set of reforms that could support green bond issuance and their contribution to Uzbekistan’s climate, development and capital market-related goals. Conclusions and recommendations relevant to the areas outlined above are presented in their corresponding chapters. Below the key recommendations have been reorganised into two categories: recommendations aimed at the government officials related to legislative, regulatory and policy reforms that would facilitate green bond market development and those aimed at other actors, particularly corporate entities.

The government of Uzbekistan has already made great strides in addressing the most pressing economic, environmental and capital market-related problems that the country faces. Efforts in these areas should continue and accelerate, given the scale of the transition at hand and the annual financing gap. Delayed spending on Uzbekistan’s green transition will lead to greater cumulative costs, whereas early action will allow Uzbekistan to build on its growing experience to seize additional opportunities as its market develops and chosen policy directions mature.

Uzbekistan’s 2030 targets related to reducing greenhouse gas emissions, integrating renewable power generation, boosting energy efficiency and encouraging electrification of end-use sectors are a good first step. Uzbekistan should complement these medium-term targets with a comprehensive, economy-wide net-zero target and an accompanying long-term low-emission development strategy. Such a strategy, called for by the Paris Agreement to which Uzbekistan is a signatory, would provide the government’s vision beyond the 2030 targets laid out in Uzbekistan’s Nationally Determined Contribution (NDC) and establish the necessary stages for Uzbekistan to achieve more ambitious, long-term targets, and ideally net-zero emissions.

Given the outsized role that infrastructure plays in shaping long-term emissions, Uzbekistan’s first step would be to adopt a strategy focused on its key infrastructure projects, charting their life-cycle emissions against Uzbekistan’s emission reduction targets. Sector-specific emission pathways can be useful tools to plan the investments required for each sector’s transition and help avoid locking in emissions. A credible long-term low-emission development strategy will help the government correct its course of action and ratchet up ambition on GHG abatement.

To effectively marshal the domestic and international, public and private financing sources available, Uzbekistan should adopt a coordinated long-term development financing strategy. Building on preliminary work by the International Finance Corporation (IFC) and other development partners, Uzbekistan should clearly define the gap between current spending and the financing necessary for Uzbekistan to meet its climate commitments and wider development goals. Based on this gap assessment, Uzbekistan’s development financing strategy can identify the sources of financing that are most appropriate for each component of the transition. For instance, renewable energy projects, which are essential for Uzbekistan’s transition from a highly energy- and GHG-intensive economy, are good candidates to attract private financing.

Uzbekistan should adopt a consolidated law on capital markets, simplifying the current legislative and regulatory framework consisting of multiple laws, presidential decrees and regulations. A less opaque legislative and regulatory framework will reduce unnecessary complexity, avoid contradictions between legislative acts, improve the market’s overall functioning and remove barriers to potential market participants, both domestic and international. A 2021 presidential decree included this as a priority action for further market development (Government of Uzbekistan, 2021[3]).

The government’s current privatisation efforts should be reinvigorated with appropriate safeguards and transparency regarding auctions. External factors, including Russia’s invasion of Ukraine, quashed some early efforts to privatise Uzbekistan’s SOEs and state-owned banks, but the government should continue its efforts to deliver on its objective to reduce the state’s role in the economy and particularly in the banking sector. Developing domestic capacity on capital markets and securities as well as improving corporate governance and transparency in state-owned banks will help prepare them for privatisation and their growing need to mobilise alternative sources of financing as they are weened off of government subsidies. International experience and peer-to-peer exchanges, particularly from other transition economies, will be valuable in managing their privatisation smoothly.

Uzbekistan’s securities market, currently divided between two exchange platforms, should be harmonised to reduce transaction costs and other barriers to potential market participants. Seamless integration of the platforms for government and corporate securities will address some of the demand-side problems facing Uzbekistan’s capital market, encouraging wider participation in the market, increasing transaction volumes and developing the market’s liquidity. Working with recognised international exchanges and allowing double placement could help both improve Uzbekistan’s stock exchanges’ practices as well as attract more investors.

Uzbekistan has tasked its Ministry of Economy and Finance with attracting additional domestic and international private financing to green infrastructure projects in the country through the issuance of green bonds. Uzbekistan should build on its experience with its first sovereign sustainability bond and explore opportunities for sovereign green issuances.

Green bonds are best suited to projects with high up-front capital costs and long-term fixed income streams, such as renewable energy generation projects. The large-scale wind and solar generation plants financed by loans from international firms, like those promoted by ACWA Power and Masdar, could be refinanced using a green bond, potentially at more competitive rates. The development of future projects of a similar size could be excellent candidates for inclusion in green bond issuances.

Uzbekistan’s line ministries, including the Ministry of Energy, Ministry of Investments, Industry and Trade, and the Ministry of Transport, regularly publish lists of priority infrastructure projects in need of financing. The selection process for projects for inclusion in Uzbekistan’s first sovereign sustainability bond was supposed to include consultation with line ministries, but according to the results of OECD fact-finding meetings with ministry representatives in 2022 their involvement in the process was limited. For future issuances, Uzbekistan can draw on the existing priorities of its line ministries to develop bankable pipelines of high-impact infrastructure projects.

As part of its push for the use of green bonds, Uzbekistan tasked its Ministry of Economy and Finance with the development of a national green taxonomy, which was adopted in October 2023. As experiences of other countries have shown, the development of a functioning green taxonomy is an iterative process of gradual improvements, revisions and expansions. The Ministry should seek to draw on emerging good practices from jurisdictions that have already been developed and seek to clearly classify economic activities that align with Uzbekistan’s environmental and development goals. Ideally, the taxonomy would continue to be developed with future more ambitious climate objectives taken into account such as, for instance, a net-zero target and long-term low-emission develop strategy. In a similar vein, the government could consider expanding its existing SDG Bond Framework.

Uzbekistan should remove legislative and regulatory barriers to the adoption of more financial instruments and potential issuers of green bonds. Such barriers include the Budget Code’s stipulation that subnational governments cannot issue debt instruments and the lack of legal framework for Islamic financial instruments, which prevents the development of green sukuks.

  • In the case of subnational bonds, Uzbekistan could consider granting the ability to issue debt to a limited number of regional governments with sufficient capacity (i.e. City of Tashkent) under the supervision of the Ministry of Economy and Finance. Kazakhstan adopted this approach, and its subnational governments are now active participants in debt markets, under the strict control of the Ministry of Finance.

  • In the case of Islamic finance and green sukuks, in addition to defining a legislative framework, Uzbekistan should draw on international experience from Islamic finance leaders (e.g. Indonesia, Malaysia, Gulf Cooperation Council countries) and adopt policies that facilitate the instrument’s adoption.

Uzbekistan’s soon-to-be privatised banks and SOEs should build on experience from the country’s first conventional corporate bond issuances and SQB’s first green bond. Uzbekistan’s large state-owned banks and enterprises, many of which are slated for privatisation in the coming years according to the Strategy for the Reform of the Banking System 2020-2025 (Government of Uzbekistan, 2020[4]), need to adapt to the green transition to remain viable. They could use green bonds to finance components of their own transformation. For instance, UzAuto Motors, a state-owned car manufacturer that issued one of Uzbekistan’s first corporate bonds, could seek to use a green bond to support the domestic production of electric vehicles, which the government has identified as a priority for the transition of its transport sector.

State-owned banks and SOEs should seek peer-learning opportunities with experienced issuers of green bonds. An OECD-organised peer-learning workshop between SanoatQurilishBank (SQB), a large Uzbek state-owned bank, and Ameriabank, a pioneering Armenian bank in green bond issuances, provided an opportunity for bankers operating in countries with shared history and challenges but different levels of market maturity to exchange on practical, real-life solutions. This workshop, organised following a request from SQB, could be replicated with banks’ own funds or donor financing to encourage high-impact capacity development. SQB’s first green bond issuance in a private placement in August 2023 is an encouraging first step for the country’s banks.

As reforms expand the types of green financial instruments admissible on the market, corporate entities should seek to adopt those that are best suited to their needs. Given the latent demand for Islamic finance in Uzbekistan, they should consider Islamic alternatives to traditional debt instruments, such as green sukuks.


[1] Climate Bonds Initiative (2021), Sustainable Debt: Global State of the Market 2021, Climate Bonds Initiative, https://www.climatebonds.net/files/reports/cbi_global_sotm_2021_02h_0.pdf (accessed on 14 June 2023).

[3] Government of Uzbekistan (2021), Kapital bozorini yananda rivojlantirish chora-tadbirlari to’g’risida [On measures for further development of the capital market], https://lex.uz/docs/-5371091 (accessed on 14 June 2023).

[4] Government of Uzbekistan (2020), О стратегии реформирования банковской системы Республики Узбекистан на 2020 — 2025 годы [On the Strategy for the Reform of the Banking System of the Republic of Uzbekistan 2020-2025], https://lex.uz/ru/docs/4811037#4814990 (accessed on 14 June 2023).

[2] UzReport (2023), Oʻzsanoatqurilishbank 100 million AQSH dollarlik obligatsiyalarni xususiy joylashtirishni muvaffaqiyatli amalga oshirdi [Uzsanoatqurilishbank has successfully implemented a private placement of bonds worth 100 million US dollars], https://uzreport.news/finance/o-zsanoatqurilishbank-100-million-aqsh-dollarlik-obligatsiyalarni-xususiy-joylashtirishni-.

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