Uzbekistan: Supplemental Financing to Uzbekistan Green and Resilient Market Economy Climate Policy-Based Financing

OBJECTIVE

To help the Government of Uzbekistan sustain the reform momentum in its ongoing transition to a green economy amid the macro-fiscal pressures arising from the situation in the Middle East.

DESCRIPTION

The current situation in the Middle East is impacting Uzbekistan’s economy through higher and more volatile energy and commodity prices, imported inflation, and disrupted trade and logistics. Fuel markets have come under pressure, with gasoline prices reaching a record high in late June, rising 11–12% since the start of the month. In 2025, around USD3.9 billion of imports (9% of total imports) and USD1.4 billion of non-gold exports (10% of total exports) transited through affected southern corridors. Rerouting through alternative corridors has increased transport costs and delivery times. Overall, the government’s adverse scenario estimates that, relative to the baseline, gross domestic product (GDP) growth could be 0.8 percentage points (ppts) lower, inflation 0.3–0.5 ppts higher, and the fiscal deficit 0.24 ppts of GDP wider. A severe or prolonged logistics disruption could have an additional impact of 0.7%–1.0% of GDP.

The situation poses a risk that some crucial energy sector reforms could be deferred under pressure from the external shock, notwithstanding the government’s demonstrated commitment. These reforms include tariff increases toward cost recovery, the phase-out of fossil fuel subsidies, the move to a wholesale electricity market, and preparing large SOEs for divestment. The key challenge is maintaining the pace and trajectory of reforms while absorbing the fiscal pressures from the Middle East situation, which are manifesting as inflationary pressures. The Loan will provide supplemental financing for the Uzbekistan Green and Resilient Market Economy Program Climate Policy-Based Financing (“Program”), approved on Nov 19, 2025, to sustain the government’s reform momentum, maintain priority public expenditures, including infrastructure investments and maintenance, and safeguard other essential development programs including those supporting Uzbekistan’s climate transition objectives. This Program is the first in the programmatic series of CPBFs, co-financed with the World Bank (WB). The Second Uzbekistan Green and Resilient Market Economy Program Climate Policy-Based Financing, currently under preparation, is targeted for approval in 2027.

The proposed Loan is consistent with the requirements set forth in the Decision to Support AIIB’s Policy-Based Financing in Eligible Crises, (June 13, 2023, amended May 20, 2026), which inter alia authorizes the provision of supplemental financing for CPBF operations under implementation in response to an eligible crisis, as well as with the objectives of the Energy, Food Security and Economic Resilience Facility, which supports Members in addressing the impacts of the recent developments in the Middle East. The Loan is also consistent with AIIB’s mandate to foster sustainable economic development and with the Corporate Strategy.

The Ministry of Economy and Finance (MoEF) will continue to serve as the main implementing agency and is thus responsible for implementing the Program. The MoEF will coordinate with other government agencies to implement the Program.

ENVIRONMENTAL AND SOCIAL INFORMATION

Applicable Policy and Environmental and Social Instruments. AIIB's Environmental and Social Policy (ESP), including the Environmental and Social Exclusion List (ESEL) and provisions related to CPBF set forth in Section 16 of the ESP, are applicable to this Program. Therefore, the provisions on Environmental and Social (ES) categorization in the ESP do not apply to this Program. The Program focuses on policy and institutional reforms and does not directly involve activities expected to cause involuntary resettlement or impacts on Indigenous Peoples. Some downstream investment activities that may be facilitated by specific policy actions under the Program could, however, give rise to indirect, short-term, and temporary adverse ES effects. These potential effects were assessed as part of the original Program preparation. The assessment is informed by the analytical work of the World Bank (WB), the lead co-financier of the Program, including an ES effects analysis matrix covering the Program’s policy actions. The matrix identifies potential direct and indirect ES effects associated with the policy actions and corresponding mitigation measures, which were disclosed on the Bank’s website in 2025[1]. 

Environmental and Social Aspect. The Supplemental Financing does not introduce any new policy actions, physical investments, or changes to the Program’s implementation arrangements that would increase its ES risk profile. The Supplemental Financing will provide additional budget support to sustain implementation of the Program in response to the external shock and will not directly finance possible downstream investment activities. Accordingly, the incremental ES risk associated with the Supplemental Financing is expected to be minimal, and there are no changes required to the ES management framework or assessment undertaken for the Program. In addition, while the AIIB-supported policy actions under this Program do not include gender as a primary objective, several reform areas present opportunities for gender co-benefits aligned with the government’s gender equality policy framework, such as the National Strategy on Gender Equality to 2030 and related action programs.

Program Grievance Redress Mechanism (GRM) and Monitoring Arrangement. Individuals and communities who believe they may be adversely affected by activities associated with the Program may submit complaints through the responsible government authorities and applicable local and national grievance mechanisms. The existing grievance mechanisms relevant to the Program will continue to apply under the Supplemental Financing. Information on the applicable GRMs, including how and where complaints may be submitted, will be disclosed in an appropriate and timely manner. Affected people will also have access to AIIB’s Project-affected People’s Mechanism (PPM), in accordance with its applicable procedures. This Supplemental Financing uses the parent program's ES monitoring arrangements led by the MoEF.

[1] https://www.aiib.org/en/projects/details/2025/_download/Uzbekistan/For-disclosure_P001011_Green-and-Resilient-Market-Economy-Climate-Policy-Based-Financing_ES-Matrix.pdf