Uzbekistan - Economic memorandum : subsidies and transfers (Vol. 2 of 2) : Annexes

Report No. 12934-UZ Uzbekistan Economic Memorandum Subsidies and Transfers (In Two Volumes) Volume II: Anney-s June 20, 1994 Country Operations Division I Country Department IlIl Europe and Central Asia Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not othervwise be disclosed without World Bank authorization  FOR OFFCIAL USE ONLY TABLE OF CONITENTS ANNEX 1: Recent Economic Deveiopments . . . .... ... ..I ANNEX 2: The Agricultural Sector in Uzbeklstan ..11 ANNEX 3: Energy ... 35 ANNEX 4: Calculation of Grant Elemert . ......... 63 Annex Boxes: Annex 1 -1 Monetary Developments ..... 3 Annex 1 - 2 Prices ..6........ ....... 6 Annex Figures: Annex 4 - 1 Impact of Inflation on Grant Element .. 64 Annex 4 - 2 Effect of Maturity on Grant Element .. .. 65 Annex Tables: Annex 1 - 1 Mcnetary Accounts. 4 Annex I - 2 Price and Wage Increases .. 5 Arnex 1 - 3 Exports by Coinmodity. 7 Annex 1 - 4 Balance of Payments ... 8 Annex 2 - 1 Estimated Area, Yield and Output of Irrigated Cotton, Wheat, Maize and Rice,1993 12 Annex 2 - 2 Comparison of Economic Efficiency .. 14 Annex 2 - 3 Estimate of Economic Cost of Producing One Ton of Irrigated Wheat Compared to Importing .............................................. 15 Annex 2 - 4A Estimate of Cost of Subsidy to Uzbekistan's Cotton Industry .17 Annex 2 - 4B Estimate of Transfers from Uzbekistan's CoL.on Industry .. 18 Annex 2 - 4C Impact of Reducing Cotton Quotas, Subsid:es and Introducing Charges and Taxes 19 Annex 2 - SA Estimate of Cost of Subsidy to Uzbekistan's Wheat Industry .21 Annex 2 - 5B Estimate of Transfers from Uzbekistan's Wheat Industry ... .... 22 Annex 2 - 5C Impact of Reducing Wheat Quotas, Subsidies and Introducing Charges and Taxes . 23 Annex 2 - 6A Estimate of Cost of Subsidy to Uzbekistan's MLize Industry .. 25 Annex 2 - 6B Estimate of Transfers from Uzbekistan's Maize Indulstry . 26 Annex 2 - 6C Impact of Reducing Maize Quotas, Subsidies and Introducing Charges and Taxes 27 Annex 2 - 7A Estimate of Cost of Subsidy to UJzbekistan's Rice Industry . I . 29 Annex 2 - 7B Estimate of Transfers from Uzbekistan's Rice Industry ................. 30 Annex 2 - 7C Impact of Reducing Rice Quotas, Subsidies and Introducing Charges and Taxes . 31 Annex 2 - 7 Gross Margin Analysis for Cotton, Wheat, Maize and Rice ... 33 Annex 3 - 1 Petroleum Prices . .................................... 38 Annex 3 - 2 Petroleum Transfer Prices and Taxes .39 Annex 3 - 3 Natural Gas Prices ....... 40 Annex 3 - 4 Natural Gas Transfer Prices and Taxes . 41 Annex 3 - 5 Coal Prices ... 42 Annex 3 - 6 Electricity and Heat Tariffs .... . 43 Annex 3 - 7 Guidelines for Uzbekistan Energy Prices: Scenario A(1) .. ... 44 lThis document has a restricted distribution and may be used by recipients only in the pefonnac of their official d"ties. Its contents may not otherwise be disclosed without World Bank authorization.  Annex 3 - 8 Guidelines for Uzbekistar Energy Prices Scenario B(1) ...... . . . . . . . . . . 45 Annex 3 - . .cenario A: Assumptions and Revenue Projection ....... .. ............ 46 Annex 3 - 10 Scenario B: Assumptions and Revenue Projection ....... .. ............ 47 Annex 3 - 10a Comparison Relative Real Energy Prices Scenario A and B ...... ........ 48 Annex 3 - 10b Government Revenues from Crude Oil and Natural Gas .... ............ 49 Annex 3 11 Energy Subsidies in Uzbekistan ................................ 50 Anne 3 - 12 Prices and Taxes for Gas, Oil and Condensate in Uzbekistan .............. 51 Annex 3 - 13 Uzbekistan Oil, Gas and Condensate Production and Export ..... ......... 52 Annex 3 - 14 Prices and Taxes for Petrol Products ........... .... I ............. 53 Annex 3 - 15 Prices and Taxes for Imported Petroleum Products ...... .. ............ 54 Annex 3 - 16 Uzbek Natural Gas Sales Prices ............ .. .................. 55 Aimex 3 - 17 Purchase and Sal- of Natural Gas (prices) .......................... 56 Annex 3 - 18 Coal Prices and Volumes ................ .................... 57 Annex 3 - 19 Electricity Consumprtion by Consumers .......... .. ............... 58 Annex 3 - 20 Electricity Consumption ................ .................... 59 Annex 3 - 21 Heat Energy Consumption ................ ................... 60 Annex 3 - 22 Comparative Energy Prices ................ ................... 61 Statistical Appendix .......................................... ...... 67  ANNEX 1 RECENT ECONOMIC DEVELOPMENTS Output and Growth 1. The national accounts for 1993 reported that real GDP contracted by 2.5 percent. The dec..a.e in economic activity was concentrated in the manufacturing and construction sectors of the economy. However, falling output in the industrial sectors was mitigated to some extent by an expansion of production in the energy . services sectors. Energy production was up substantially due to a surge in gas output that covered -. iestic energy demand in the face of a disruption in oil imports while oil production rose following opening of a new oil field. The introduction of the Sum-coupon as an additional medium of exchange in Uzbekistan in mid-November 1993 injected more uncertainty into the economic environment in the final quarter of 1993 and contributed to a further destabilization of economic activity. 2. In the first quarter of 1994, GDP declined by about 7 percent (compared to the same period in 1993). This was mainly due to a sharp decline in industrial production -- especially in heavy :adustry. Output in light industry increased by about 3 percent and agricultural output remained at the previous year's level. Sectoral Developmzents 3. Aericulture. Uzbekistan's economy is based on agriculture, which accounts for around 40 percent of total GDP. During thc first three quarters of 1993, agricultural production was up sharply on the corresponding period of the previous year but these statistics exclude the bulk of the cotton harvest -hich usually appears in the fourth quarter figures. Adverse weather meant that the 1993 crop had to .eplanted and provisional figures reporting a drop of 1 percent in total agricultural production in 1993 icate that the cotton harvest was little better than 1992. 4. Manufacturing. Manufacturing industry is the second most important sector in the economy and industrial production contributes roughly 25 percent of GDP. The share of industrial production in total output has declined since independence, as it did elsewhere in the FSfJ. For the whole of 1993, the fall in total manufacturing output to about 15 percent, indicating that ac.tivity weakened further in the final quarter of the year. The largest drops in production occurred in those sectors mest closely linked to other FSU countries with whom trade and payments flows have been disrupted for several months. Industries which rely on inputs from the FSU such as heavy machinery, metal fabrication, aerospace and bulk chemicals were the worst hit. By contrast, small gains were registered in light manufacturing concerns located mainly in the food processing and textiles processing industries. 5. Construction. Total construction output dropped over 60 percent in 1992 when Government spending on new residential and community construction was cut and the funding stopped for many large regional projects previously supported by transfers from the union budget. Construction output fell by another 6 percent in 1993 and the sector remains very fragile. Inflation in construction ce.ts has exceeded that elsewhere in the economy because the disruption in trade with the FSU has also disrupted the supplk .f building materials. Residential construction activity revived somewhat in the final quarter of 1993 vK l,r state budget flows for this purpose resumed.  2 Annex 1 6. Energv. Energy production rose by an estimated 6 percent in 1993. There is some discrepancy between this estimate which is derived from sectoral sources and the official estimnate in the national accounts that reported a gain of close to 20 percent in energy production. It appears that output was up despite static investment le gels and the financial difficulties in the sector because the gridlock in trade paymcnts among the former FSU and a surge in domestic demand for subsidized gas. 7. Services. The policy steps taken to liberalize economic activity have led to growth in the transport, commnunications and other service sectors of the economy. In 1993, service sector output grew b) around 2 percent. Consumer Demand 8. In the absence of significant restructuring of enterprises and collectives. employment levels have not been adjusted downwards in response to declines in production. This has protected the level of real incomes among the population and consumer expenditure has held up relatively well. In 1993, aggregate household money incomes appear to have risen roughly in line with inflation. As a share of nationa! income, aggregate household money incomes declined to around 70 percent in 1993 from 75 percent ;n 1992 - a decline in purchasing power of 5 percent. The share of lzbor incomes in the total remained steady at around 60 percent and most of the decline in purchasing power occurred in the value of transfer payments, the bulk of which were pensions. The reported household savings ratio (including taxes) increased slightl;' to an estimated 12 percent at year end, up from 11.5 percent in 1992, but remains far below the 25 percent level to which it had climbed by 1991 when the limited availability of goods restricted spending. Consequently, consumer expenditure may have declined by as much as 7 percent in 1993. Investment Demand 9. The financial position of the enterprise sector has deteriorated markedly since independence, with the consequence that investment expenditures have been cut back significantly. The pattern of investment expenditure over the first three quarters of 1993 suggests that the volume decline in investment spending may have exceeded 10 percent for the whole of 1993. Spending on capital equipment amounts to about two thirds of total investment expenditure. There were broad based falls in investment across most manufacturing industries, most notably in the chemicals and capital equipment sectors. Agricultural investment also fell again after a big drop in 1992 as did residential construction investment, but investment in the energy sector increased. 10. By source of funds, the share of total investment financed by the internal resources of enterprises declined. There was a particularly sharp deterioration in the financial position of collective farms and investment by these organizations was largely supported by preferential credits from the banking system. Bank credit financed 18 percent of total investment in 1993 compared to only 6 percent in 1992. Money and Credit 11. The supply of money and credit to the Uzbekistan economy grew rapidly in 1993. At the end of December 1993, the total liabilities of the banking system stood at R2,627 billion an increase of over 1000 per.ent on the level at the end of 1992. The main factor fueling the monetary expansion in 1993 wa; ti. .ontinued rapid expansion of bank credit to the economy. Total bank credit to the  Recent Economic Developments 3 Annex Box I Currency Developments FollUwing the break-up of the FSU, the Central Bank of Uzbekistan (CBU) had effectively delegated its reAponsibility for ronetary policy decisions to the Russian Central Bank (CBR). Under these arrangements, the CBU's role in dhe moneary policy process extended only to the preparation of monthly monetary demaa;d forecasts which h based on an analysis of trends in money velocity, inflation and real activity. These were submitted to the CBR which dten provided sufficient cash resources on an interest free basis to finnce the projected level of activity. This system. conainued after the CBR acted to segment the ruble zone in Julv 1993, by introducing the 'new ruble' for use in Russia alongside the old ruble which remained the national currency for the other arembers of the ruble zone including Uzbekistan. The new ruble further compounded payments and settlements problems within the ruble zone which were already fundamentally grid-locked by the unwillingness of parties to extend credit in a r.nidly depreciating currency. On September 7, 1993, Uzbekistan was signatory to an agreement among six of the former ruble zone members, including Russia, to create a new ruble zone with a stable gold backed .urrency. The terms of the agreement however, represented a shift to a much looser monetary union, after the break instigated by Russia in July. Members were required to co- ordinate stabilization, trade and investment policies to prepare for the transition to a coranon monetary system, but during the transition period, were free to issue there own nationrsl currencies if they wished. Fixed exchange rate parities against the Russian ruble would be supported and all national currencies, including the _,~w and old rubles would be freely convertible. Bilateral negotiations also proceeded between Russia and Uzbekistan (and the other FSU countries) on four protocols, including financial policies, banking policies, and customs policies. The nain focus of tnese nerotiations was the terms on which the new ruble would be introduced in Uzbekistan to replace the old ruble, an outcome, which it was hoped would go a long way to solving the related problem of FSU trade arrears. The FSU summit in Minsk had already resolved to set up a new institution, the Interstate Bank, to handle FSU trade clearing and it was also resolved to allow commercial banks to open up correspondent clearing accounts but neither of these developments addressed the fun'a'mcnta] problem which concerned the lack of a stable medium of exchange. As it transpired, the terms on which Russia would .upply new rubles to the system led the government to announce its decision to opt out of the ruble zone on November 2, some days after a similar announcement by Kazakhstan. On November 15 the sum-coupon was introduced along side the old ruble as a new medium of exchange and the internal convertibility of the old ruble was restricted. Until December 6 1993, residents could place o!d rubles on deposit in bank accounts in amounts up tc rbl.200,000 while amounts in excess of 200,000 were frozen for six months without interest. On January 1, 1994, the remaining old rubles in Uzbekistan were removed from circulation. Withdrawals from bank accounts in coupon were permitted from this date, subject to availability of coupons. The official and private sector exchange rates for the sum coupon were unified on April 15, 1994. The exchange rate for the coupon results f-om the weekly interbank foreign exchange auction introduced on April 15. In the foreign exchange auction on June 10, 1994, the official exchange rate was 4,622 sum-couponslUSS. The black market exchange rate was about 31,000 sum-coupons/USS. economy grew at around 1500 percent in 1993; much faster than as total banking system liabilities. The growth in bank credit was led by a large expansion in credit to the government on the central bank's balance sheet, although .his was less apparent in the consolidated position of the financial system. The net foreign asset position of the banking system more than doubled in 1993 and also contributed to the expansion in liquidity in the economy. Cash rubles in circulation' increased by around 700 percent and contributed to the growth of credit as well as net foreign assets. However ruble claims also rose as 1. Since March 9^ cash in circulation is defined to include deposits in commercial banks, since these institutions may generally be regardeJd ad antive financing subsidiaries owned by enterpriscs, organizations or collective farmns.  4 Annex I Uzbekistan's net liability position in the correspondent account system increased and this tended to lower net foreign assets. 12. In the first quarter of 1994, the increase in money supply in real terms was less than in the corresponding period of the previous year. Real Money Balances 13. The growt;i of the nominal money stock in 1993 outpaced consumer price inflation so Annex Table 1 there was a modest expansion in real terms in most Monetary Accounts measures of money and credit. Sincc real activity declined, the observed velocity of money also fell. 1992 1993 The fall in money velocity is indicative of instabiiity in the demand for money and the inflation induced (bin. rbi., end-of-period stocks) erosion in the purchasing power of money has Central Bank probably reduced real money demand. In these Net foreign assets 145 768 circumstances, the expansion in reai money balances of which 27 may understate the monetary contribution to the CGold 62 inflationary process since money demand may have actually contracted by a significant amount, in which Net domestic assets (16) 1.363 event goods prices will be driven up further as of which: .. . . ~~~~~~~~~~~~~Credit to Government (10) 1,441 individuals increase spending to reduce excess real Credit to banks 285 1,282 money balanccs. Liabilities 129 2.131 14. Rapid inflation in the nominal money of which: stock and the price level led to large transfers of real CLrrency outside CBU 97 587 wealth away from the net-lending sectors of the economy towards those who are net borrowers. In Net foreign assets 187 -804 the first instance, the primary beneficiary of this of which: process is the enterprise sector where the current Foreign Exchange 52 value of liabilities to the rest of the economy has Gold 62 declined dramratically. This transfer has been largely Net domestic assets 44 3,528 at the expense of the Government's budget, and the of which: private population via the intermediation of the Credit to Government (32) 788 Savings Bank. However, the first round effect Credit to economy 477 3,751 overstates the final impact of inflation on the distribution of financial wealth because some part of Liabilities 231 2,724 the transfer to enterprises flows back to the private of which: population in the wages bill paid by enterprises. CRubrlendceyponsirculatn 150 2,535 Furthermore, some enterprises that may now be Ruble_deposits _____2_139 technically insolvent as a result of the accumulation of Source: International Monetary Fund inter-enterprise arrears following the disruption of trade among the FSU can continue to report profits and avoid bankruptcy. as can other enterprises whose operations are un-economic when valued at relative prices that more Jo')ely approximate market values.  Recent Economic Developments 5 Wages and Prices 15. Prices. The price level climbed at a faster rate in 1993 than in the previous year. Measured by the implicit price deflators accompanying the national accounts, the inflation rate averaged about 1100 percent in 1993, up from around 900 percent in 1992. Output price increases have been steepest in the construction sector, about average in the transport and industrial sectors, and somewhat lower in agriculture. In the first quarter of 1994, retail and wholesiae prices increased monthly by about 20 percent. 16. Several factors are responsible for the destabilization of the price level (see Box 1.1). First, the price liberalization of early 1992 Price Annex Table 2 led to a dramnatic upward adjustment in the price of many goods in 1992 1993 1994 response to the generalized excess 'laa-Mar) d_.mand for consumec goods that then ( -a- prevailed in the economy. Second. Wholesale Prices - (al items 2,700 1c100 996 t,he eApdlsionist monetary policy of Retail Prices - all items 528 851 650 Russia since the breakup of the Union Consumer Prices - all items 688 1,003 na fueled aggregate demand throughout - food 692 937 ra the FSU. Given the limited responsiveness of aggregate supply, Avg Wages Whole Economy 612 700 na the loose monetary policies have led Avg Monthly Wage (rbl./)um-coupon 2,26 28,668 93,320 to an acceleration of inflation. Third, consumer subsidies have been Source: Uzgoskornprognostat and IMF partially removed with the result that rapid inflation at the wholesale level has been increasingly transmitted to the retail level. Fourth, the liberalization of energy prices in mid-1993, especially the increase in oil prices toward the world market price level, had a significant direct and indirect impact on the inflation rate. In addition, inflation in the cost of services greatly exceeded that in goods. 17. Wages. The minimum wage was more than doubled in early January 1994 when it stood at R30,000 compared to R16,200 in November 1993 and R2,500 a year earlier. Average nominal wages throughout the economy rose at an annual rate of 700 percent over the first three quarters of 1993 compared to around 600 percent in the corresponding period of the previous year but nominal wage inflation in the state sector accelerated more dramatically over this period. Wages increased by inore in the high wage sectors such as financial services, goveniment and industry, than in low wage sectors such as agriculture and health care, so the income distribution in the economy became less equal. Money wages in the financial services sector were more than double those in agriculture, h,wever, this may exaggerate the disparity in income levels between the two sectors because the proceeds trom market sales of surplus product are a significant component of total farm income.s3. Non-wage compensation of this type rose from around one-third of total farm income in 1992 to over one half during the first ten months 2. Corn,:- -lr-in-kind is also an imnpo!tant component of total lahor incomes that may extend to expenditures on meals housing. ht:t .'! irnsport in many collectives and enterprises.  6 Annex I of 1993. Average real wages deciinied by almost 50 percent in 1992 and by a further 10 percent in 1993. The minimum real wage also fell by around 10 percent, as did pensions and allowances. L2bor Market 18. While the population growth rate is relatively high, labor supply growth and productivity are static. The age distribution of the population is heavily skewed towards the 0- 16 year age group and the population of working agt is growing at only 2.3 percent p.a. compared to total population growth of 2.6 percent p.a. Annex Box 2 Prkes Wolesale Prkies. Wholesale price inflation averaged around 1100 percent in 1993 and actually decelrated from 2,700 percent in 1992. Wholesale prices in most sectors rose steeply in January and again in June and July, coinciding with Russia's move to suspend convertability within the ruble zone. Price increases were steepest in the food, chemicals, manufactured intemediate goods and construction materials sectors. Further steep price in,;reases took place during the third quarter when de.mand was fueled by the unbridled !rowth in credit and liquidity that accompanied ti sheUf to new monetary arra.;gements. Retail price increases have been capped to some extent by increased subsidies on a range of goods and inflation at the retail level has generally been lower than that at the wholesale level. Retail Prices. Retail price inflation averaged around 1300 percent in 1993, up from 800 percent in 1992. Large jumps in the level of retail prices took place in January 1993 when planned price rises took effect for a range of goods subject to administrative price fixing. Following sirmilar developments in wholesale prices, there was 'rot:ner broad based increase in prices in June and July 1993. There are some vroblems with the quality of the pr._e data. The Uzbek Statistical Office (Uzgoskomprognostat) has compiled a new consumer price index (CPI) index according to which the consumer price inltion rate was lower over the first three quarters of 1993, however it corresponds less well with reported inflation in the prices of individual goods tO the consumer tnan does the retail price index (RPI). The main methodological difference inthe ,onstrction of the CPI and the RPI appears to be that the former includes a weighing on expenditures on subsidized utilities suct as heating and water. In September 1993, the annual increases in the prices of food items ranged from 1,000 percent for milk and 859 percent for bread, to 650 percent for meat, 500 percent for flour, and 150 percent fron rice. Retail energy prices also went up steeply. The cost of household electricity rose by 1,000 percent in the year to October 1993 and the price of subsidized coal rose by 850 percent. Retail gasoline price 'se by a factor of tweive in the year to September but the tariff on subsidized naural gas for residential consumption. .,y less than the RPI. 19. In the face of declines in GAP and manufacturing output of about 10 percent and 12 percent respectively in 1992, the reported unemployment rate remained under 1 percent in September 1993. The main reason for this is that currently, enterprises face many administrative and legal restrictions in their hiring and firing decisions anA in aniy event, are generally not setting employment levels in response to market signals in order to maximize profitability. Moreover, enterprise decisions are further constrained by powerful trade unions in some sectors of the economy, notably mining. The laber market data indicates that there was a modest expansion of employment over 1992 and 1993 although this has probably coincided with an increase in disguised unemployment.  Recent Econt.iic Developments 7 Trade and Currnt Account 20. FSU Trade. The acceleration in inflation, tne economic instability in Russia and the other FSU countries, and the breakdown ot the payments system between FSU countries have caused a serious disruption to international trade flows in Uzbekistan. Russia's decision to suspend convertability of the Russian ruble from July 1993 and the introduction of national currencies in neighboring countnies have also had adverse consequences for Uzbekistan's bilateral trade with these countries. Valued at the annual average official exchange rate, the deficit on trade with the FSU amounted to USS198 million equivalent in 1992. Trade with the FSU accounted for around two-fifths of total exports and imports respectively. Measured in constai-t rubles, Uzbekistan's exports to the FSU fell by 35 percent in 1992 and by a further 20 percent for the whole of 1993. On the other hand, import demand in Uzbekistan fell more than exports did, with the result that the trade oalance with the FSU improved in real terms. In 1993, cotton fibre accounted for about 50 percent uf Uzbekistan's expon trade with the FSU, most of wh;..l represented deliveries under bilateral trade agreements. Natural gas accounted for another 23 percent of total exports and electric power, 12 percent. While the volume of cotton exports to the FSU was not much changed on the previous year, energy export volumes rose appreciably. There was an estimated fourfold increase in the volume of natural gas shipments to the FSU while electricity exports more than doubled. 21. Uzbekistan's main import from the FSU is oil. Oil products, the bulk uf which Anex Table 3 was gasoline and diesel, amounted to almost 30 FSU Trade by Commodi y percent of total FSU imports. In volume 1992 1993 terms, oil deliveries also rose by about 30 - -i- percent from their level in 1992. Natural gas Total Exports to FSU: 1231 18 im,ports connected with a significant transit of which Cotton Fibre 49.1 600 trade from Turkmenistan through the existing Natural Gas 3.9 262 pipeline system comprised 8 percent of total Electricity 0.1 142 imports, and imports of metal products Otl Products 16.3 59 accounted for another 9 percent of the total. The volume of trade in rmetal products and Total Imports to FSU: 161.9 1489 other manufactured goods fell sharply last year of which Wheat 14.62 352 due to the disruption in external payments Natural Gas 7.6 118 system. Otl Products 27.1 423 Metal Products 32 128 22. Hard Currency Trade. The key factors Source: Goskomprognostat, World Bank staff estmates impinging upon the development of foreign trade in 1992 were: (i) the large, steep devaluation of the ruble n January 1992; (ii) the rapid inflation in the domestic price level; and, (iii) decline in the terms-of-trade. The overriding influence was the January 1993 devaluation of the ruble by some 5,000 percent3 which resulted in an overshoot of the equilibrium real exchange rate, measured with the wholesale price index. The deficit on the balance of trade was US$60 million in 1992. 3. 1'zhekictar Rejoining the World Trading Community, frdthcoming, World Bank, 10/1993, p.1.2  8 Annex 1 23. During the first six months of 1993, thc norinal depreciation of the ruble exchange rate continued to be out-pa-ed by the ris.e in the price level, leading to a further 25 percent appreciation in the real exchange rate. Since then, the real exchange rate appears to have stabilized even though Russia's introduction of the new ruble in July resulted in a further marked depreciation in the nominal value of the old "soviet ruble", up until it ceased to function as a medium of exchange in Uzbekistan in late 1993. 24. The balance of hard currency trade showed a surplus of US$158 million in 1993 after the US$60 million deficit in 1992. The main reason for this turn-around was lower grain imports from hard currency areas in 1993 which more than offset increased imports of other food items and sharply higher imports of capital goods. Wheat and food accounted for 72 percent of Uzbekistan's imports from the non- FSU, machinery and equipment totalled 12 percent, and textiles ancl clothing contributed another 6 percent of the total. The value of hard currency cotton exports declined by some 15 percent 1993, due mainly to a decline in average prices received but export volumes were also down mod.estly. 25. The replacemen. Or the 60 percent surrender requirement for Annex Table 4 foreign exchange earnings with a 33 Blce of Payn 'nts percent foreign exchange earnings tax, 1992 1993 coupied the prohibition on barter trade estimates from July 1993, appear to have had some effect on the financing of foreign (US$ liOn) trade. The proportion of total foreign 1. Current Account (A+B+C+D) -239 -417 A. FSU Trade Balance' (in bin. rbl.) -39 -381 trade settled in convcrtible currencies Exports (in bin. rbl,) 123 1346 rose from about 50 percent in 1992 to Imports (in bin. rbl.) 162 1727 around 75 percent in 1993 and velumes B. Foreign Trade Balance -60 158 of barter trade have declined. Exports 869 1438 Imports 929 1280 C. Factor Services (net)2 -4 38 26. In the first quarter of D. Transfers (net) 2 12 1994, hard currency exports amount to US$233 million whereas imports were 1I. Ca,ital Account (E+F+G+H, -277 -353 US$180 million. The increase in E. Foreign Direct Investment 9 48 exports resulted from a 50 percent F. Foreign Credits (net)3 115 382 H. Net reserves -215 -601 increase In cotton exports. Imports G. Errors and Omissions -183 53 declined due to significantly lower food H. Other Capital' -3 292 and machinery imports. III. Financing Balance of Payments J. Correspondent Accounts 158 162 K. Inter-FSU Arrears 357 81 27. While an accurate picture Source: Goskomprognostat, IMF, World Bank staff estimates of the overall balance of nayments is difficult to obtain owing to statistical and 1/ Converted at annual average official exchange rates. methodological problems, some trends 2/ tncludes i,tcrest and dividends. 3/ Include- shnri-terrn trade credits. are evident. The overall current account 4/ Includes In 1993 57.3 billion rubles and 180.4 billion rubles in balance, measured in US dollars at Russian state credits for refinancing correspondent account liabilities. quarterly average official exchange rates, widened from a dtAficit of US$239 million in 1992 !-5417 million in  Recent Economic Developments 9 1993. The improvement in the balarce of non-FSU trade somrtwhat offset a wider deficit on the balance of trade with FSU countries. Publi Finances 28. Thu Government has limited the budget deficit in the narrowly defined ruble budget to about 2.5 percent of GAP in 1993 (excluding gold operations). However, this outcome has largely been achieved by shifting expenditures to extra-budgetary funds. A cons3lidated budget that accounts for net lending, extrabudgetary funds and foreign currency expenditures and receipt would show a substantially higher deficit. 29. Government Revenues. By contribution to total revenue, the most important tax instruments are the value added tax; the enterprise profit tax; excise taxes; and the tax on natural resources. The increase in government revenues compared to 1992, when total receipts amounted to only 31.9 percent of GAP, was due to much higher collections from the VAT and the enterprise profits tax, and the combined effect of the introduction of a range of new taxes. VAT collection methods were irmproved and some exemptions were removed. The ente.-prise profits tax is currently levied on the sum of wages plus profits, however, from 1994, the tax base will change to allow for the deductiLility of wages. The enterprise profits tax is levied at different rates in different sectors of the economy. In 1993, the ax rate in manufacturing industry was 25 percent, in construction; 15 percent, in the financial sector and among trading enterprises; 35 percent. 30. Government Expenditure. NMuch of the expenditure on the government budget is targeted toward social goals. Spending on -he socio-cultural budget includes edc1cation, health, culture, science and social security. The socio-cultural budget totalled 17.2 percent of GAP in 1993, up from 15 percent in 1992. The 2 percent rise in the real resources directed to this budget was evenly distributed across the education, health and cultural sub-budgets. Spending on the social safety net primarily consists of outlays on consumer subsidies. Food subsidies represented 68 percent of total consumer rrice subsidies and services subsidies, mainly for gas central heating and public transportation, accounted for 21 percent. 31. Extra-bud t.tarv Funds. Budgetary control is seriously affected by the use of several extrabudgetary funds. This ^ludes 15 foreign exchange funds (1 republican and 14 local). These funds are mainly used for the imPlLL of foodstuff and other important goods. Since thz. prices of these goods have increased, the deficit in these funds has increased. In addition to extrabu-igetary foreign exchange funds, the Government also maintains ruble-denominated funds like the pension, employment, social insurance, price regulation and privatization fund.  ANNkX 2 THE AGRICULTURAL SECTOR IN UZBEKISTAN 1. Crop Yields. In 1993, the average estimated yields from four major irrigated crops were as follows: seed cotton, 2.6 tons per hectare; wheat, 2.5 tons per hectare; maize (for grain), 3.4 tons per hectare; and rice, 3 tons per hectare. These four crops were produced over an area of about 2.2 million hectares or about 55 percent of the total irrigated area. By comparison, average production figures from more efficient countries are as follows: seed cotton, 4.5 tons per hectare; wheat, 4 tons per hectare; maize, 8 tons per hectare; and rice, 8 tons per hectare. Uzbekistan's cotton industry is further disadvantaged by poor gin turnout (ratio of lint produced from ginning to seed cotton inputs) which is estimated to be about 32 percent. Other competing countries achieve average turnout figures of up to 39 percent, or 22 percent more lint per unit of seed cotton than that achieved by Uzbekistan. 2. Yields from livestock enterprises are also low in Uzbekistan. Collective farms report average cattle weight gains of 0.5 kilograms per day for cattle up to two years of age on irrigated pasture and milk yields of 7 liters per day per cow with an average butter fat content of 3 percent to 4 percent. Live-weight gains in excess of 1.0 kilogram per day should be achieved from young cattle on irrigated pasture and dairy cattle should produce 10 to 12 liters of milk per day with a butter fat content of 3.5 percent. 3. Output. Table 1 below estimates output and average yield for irrigated cotton, wheat, maize and rice for 1993 by oblast and region. Regional analysis has been used throughout this chapter where applicable and tte regions correspond to the following: Region I Tashkent Oblast Region 2 Syrdarya and Djizzak Oblasts Region 3 Namangan, Fergana, and Andijan Oblasts Region 4 Kashkadarya, Khorezm, Suzkhandarya, Samarkand, Bukhara, and Navoii Oblasts Region 5 Karakalpakistan Oblast 4. Trade. In 1990, agricultural exports from Uzbekistan amounted to 30.2 percent of total exports and agricultural imports amounted to 16.7 percent of total imports. Agricultural exports to non- FSU republics were 58.6 percent of total exports and agricultural imports 50.8 percent. In that same year wotton exports to non-FSU destinations were 55.2 percent of exports to those destinations and grain imports were 22.4 percent of imports from those countries. In 1992, cotton exports to non-FSU countries were 77.5 percent of exports to non-FSU countries and imports of food products accounted for some 72.5 percent of total imports from those countries. Wheat imports from non-FSU countries accounted for 57.5 percent of total imports from non-FSU countries. In 1990, inter-republic imports and exports in agricultural products (crops, excluding cotton, and animal husbandry) amounted to 7.8 percent and 5 percent of total imports and exports respectively. In 1992, the respective proportions were down to 2.9 percent and 1.2 percent. These data indicate an increasing reliance on non-FSU countries for exports of agricultural products and cotton, and imports of grain. It shows that the increased export revenues are being used to inmrort food products previously supplied by other FSU republics.  12 Annex 2 Annex Table 1 Estimated Areas, Yield and Output of Irrigated Cotton, Wheat, Maize and Rice, 1993 Cottol Wheat Maie Rice Area Yield Total Arca Yield Total Area Yicid Total Area Yield Total OX)ha t/ha (X)t (XX)h tIha (XXX OOOh tlha o(XXt Wt)h t ha (X(tX Reion I Tashkent 1256 27 3379 160 27 429 102 34 344 136 38 511 Region 2 Syrdarya 151.3 2.4 3(A) 1 17 2 2 6 44 2 6 6 3 7 24.6 7 2 32 22 8 Djizzak 1447 23 335.7 174 25 433 78 35 269 02 01 Total 296 0 2 4 695 8 34 6 2.5 87 5 144 3.6 51.5 74 31 22 8 Region 3 Narnangan 107.7 2.1 229 4 12.2 3.3 40 4 83 5.1 419 5 5 33 18 2 Fergana 139 8 3 0 415 2 19 4 28 54 7 82 3.4 275 0 7 14 1 0 Andijan 131 9 2 7 360 1 11 2 3 6 40 2 79 4 9 390 2.5 1.8 4 5 Total 379.4 2 6 1,004 7 428 3 2 135 3 244 4 4 1084 8 7 27 23 7 Region 4 Kashkadarva 2083 24 4895 552 2 1 1154 2.6 26 68 02 18 04 Khortzm 113.0 3.0 337 9 5 7 2 2 12 7 3 4 3.6 12 2 29.7 35 103 4 Suzkhandarya 135.3 3 1 418 9 22 8 2 7 65 6 1 3 7 225 8 3 32 26 6 Samarkand 113 6 2 6 292 0 26 4 2 4 63 4 4 0 2.9 114 1 1 1,7 18 Bukhara 121 3 3 2 391 ( 13 1 2 4 31 7 3 2 3 2 10 1 0 5 1 2 0.6 Navoi. 475 29 135 4 7 4 2 3 17 2 1.7 2 5 42 0 4 1 2 0 5 Total 739 2 '8 2, W66 1306 23 3(0)9 210 3.2 672 402 33 1333 Region 5 Karakalpakistar. 149 4 2 328 2 n 9 1 2 14 8 18 2 2 1 37 7 99 5 2 9 284 6 GRANDTOTAI. 6894 t 4,433 2 235 9 25 581 4 88 2 34 2P92 1694 30 515 4 Note I. Areas of eachi crop are for the crop Sarvested in 1993 Note 2: Cotton yields are quotas fir the 1993 crop At time of preparation 96) percent of quota had been harvested Note 3 Yields for svheat. rriai,c and rice are 1992 ieild- hecause final 1993 yields were not available at time of data collection 5. Employment. Employment in the agricultural sector made up 39.2 percent of total employment in 1990 (42.5 percent in 1991) and the gross product from that sector accounted for 26.2 percent of total gross product in the same year (26 percent in 1991). 6. Irrigation Most irrigation is furrow or flood type which draws water, supplied free to farmers, from Government supply channels. Water usage varies considerably between regiens and for cotton it ranges from about 9,000 cubic meters per hectare in Samarkand to 17,000 cubic -Lers per hectare in Karakalpakistan. The average usage is 13,200 cubic meters per hectare.  The Agricultural Sector in Uzbekistan 13 Comparison of EffMciencies of Producing Alternative Crops 7. Quotas are used by the Government to determine the levels of production of different crops. Under the current arrangements, farmers do not have the option to produce the crops which will provide optimal economic returns. Emphasis is given to cotton which, in 1992, produced 77.5 percent of the export revenue from non-FSU countries. The table below summarizes the economic efficiency of growing irrigated cotton, wheat, maize, and rice on a per hectare basis and also on the basis of each 1000 cubic meters of water used to produce the crop. 8. Genterally, in developed countries where: (i) cotton yields are very high; (ii) quality is above average; (iii) irrigation efficiency is high; (iv) farming practices are efficient; and, (v) the country is an exporter of cotton and grain, there is no broad-acre crop that can compete with cotton for return per unit area or on the basis of water used. However, this does not necessarily apply to a country like Uzbeksitan, which is a relatively inefficient producer and exporter of cotton and importer of grain. On the assumptions used in the analysis, cotton is more profitable than wheat or maize on a per hectare basis. Farmers report that it is possible to double crop maize and wheat (achieve a crop of maize and wheat in one year) in some areas, The table indicates that this may be the preferred option to a single crop of cotton in Regions 1, 2, and 3. Rice production is the preferred option over cotton, up to the level of home consumption, in Regions 1. 2, and 5, and the return from rice irn Region 4 equates to cotton in Region 4. The table also indicates that on a per hectare basis rice is preferable to either wheat or maize in all regions, but where double cropping of wheat and maize can be achieved it is only preferable in Regions 1, 4, and 5. 9. As irrigation water is considered to be the limiting resource in agriculture, its efficiency in producing crops should be evaluated. The table above also shows the economic return per 1,000 cubic meters of water. Cotton shows a higher return than maize ir all regions, but wheat provides a higher return than cotton in Regions 1, 2, and 3. A double crop of wheat and maize is preferable to cotton in all regions except Region 5. Rice is preferable to cotton, up to the level of home consumption, in Regions I and 2 and is on par with cotton in Region 4. 10. The analysis shows that it is in the country's interest to expedite changes in the mix of crops, such as increasing the production of grain to replace imports. This may best be achieved by eliminating production quotas and allowing the market to determine the price cf commodities. Export of Fertilizer and Import of Wheat 11. Uzbekistari exported 300,000 tons of fertilizer tc non-CIS destinations and imported 3.7 million tons of wheat from non-FSU sources in 1992. The estimated economic cost of transporting fertilizer from the fertilizer works to FOB is $57 per ton and the estimated economic cost of transporting wheat from FOB to the distribution point in Uzbekistan is $67 per ton. These costs are included in the economic prices. The analysis which follows determines the viability of using exported fertilizer for wheat production to replace some grain imports. It should be noted that irrigation water, not fertilizer, is the limiting factor in irrigated crop production in Uzbekistan. Therefore. to produce extra wheat, either water savings must be made from existing crops or other crops need to be replaced with wheat. The analysis assumes that water savings. as discussed above, can and should be made. The resulting benefits from water savings necessary for the wheat crop are also shown in the table below. These savings have behii deducted from the estimated economic cost of producing a crop of irrigated wheat in Uzbekistan in 1' 0P1- 2 below.  14 Annex 2 Annex Table 2 Comparison of Economk Efficiency of Growing Key Crops Item Region I Region 2 Region 3 Region 4 Region 5 Economic return/hb a) Cotton 612 498 718 763 330 Wheat 460 434 568 367 110 Maize 278 329 466 262 30 Wheat & maize 738 763 1034 629 140 Rice 917 732 602 776 611 Economic return/'000 m3 water Cotton 47 52 57 58 20 Wheat 71 91 91 56 13 Maize 21 35 37 20 2 Wheat & maize 92 126 128 76 15 Rice 71 77 48 ag 37 Source: World Bank staff estimates. 12. The above analysis shows that the estimated cost of producing wheat in Uzbekistan using home produced fertilizer is about one quarter that of importing grain. It must be emphasized that this assessment is based on water savings from other crops, providing new farm land with adequate water to produce the additional wheat. Given the water savings estimated above, there would be adequate water from these savings to irrigate an area of about 600,000 hectares of wheat. With current fertilizer usage, the 600,000 hectares of wheat would require about 130,000 tons of urea (or equivalent), 110,000 tons of triple supe,r phosphate (or equivalent), and 36,000 tons of muriate of potash (or equivalent). The total fertilizer requirement is therefore about 276,000 tons, which roughly equals the total export quantity of fertilizer of 315,000 tons exported to non CIS countries in 1992. For an average yield of 2.5 tons of irrigated wheat per hectare, the additional 600,000 hectares would produce 1.5 million tons, or about 40 percent of the wheat imported from non CIS countries in 1992. The estimated net economic savings amount to about $250 million, half of which is freight savings.  The Agricultural Sector in Uzbekistan 15 Annex Table 3 Estimate of Economic Cost of Producing One Ton of Irrigated Wheat, Compared to Importing Item Region I Region 2 Region 3 Region 4 Region 5 Wheat yield (tons/ha) 2.68 2.53 3.16 2.30 1.24 Water saving from existing strategy - Cotton ('000 M3) 2 2 2 2 2 - Wheat ('000 M3) 2 2 2 2 2 Total ('000 M3) 4 4 4 4 4 Economic cost per '000M3 (S) 6.5 6.5 6.5 6.5 6.5 Benefits - water savings/ha (S) 26 26 26 26 26 Economic cost of production -wheat, existing mgt. system/ha 151 143 153 159 172 Less water savings (cotton & wheat) 26 26 26 26 26 Net cost 125 117 127 133 146 Net cost per ton of wheat 47 46 40 58 118 Price of imp. wheat/ton ($) 228 228 228 228 228 Source: World Bank staff estimates.  16 Annex 2 Agriculture Estimates of Subsidies and Transfers for Cotton, Wheat, Maize and Rice (all prices for October 1993) Region I Tashkent Oblast Region 2 Syrdarya and Djizzak Oblasts Region 3 Namangan, Fergana, and Andijan Oblasts Region 4 Kashkadarya, Khorezm, Suzkhandarya, Samarkand, Bukhara, and Navoii Oblasts Region 5 Karaka1pakistan Oblast Abbreviations: N - Nitrogen P - Phosphorous K - Potassium R&M - Repairs and maintenance  The Agricultural Sector in Uzbekistan 17 Amu Table 4A Fakbate of Cost of Subie to UsbeWiuan's Cotton Indmstry, 193 (Crop by Reon) r1EM Ruble Exch. Dolar Ren. I Regn. 2 Rep. 3 Regn. 4 Regn. 5 Total Price Rate Pricev Area of cotton (ha) 125,600 296,000 379,400 739.000 149,400 1,689,400 Unit price and Unis of inpuis/h Operator hours 30 2,500 55 55 55 55 55 Labourer hours 20 2,500 296 296 296 296 296 Fuel (kgs) 130 2,500 0.20 277 280 277 280 282 Seed (kgs) 3.5 2,500 70 70 70 70 70 N. Fertiliser (kgs) 6 2,500 0.14 210 200 190 180 240 P. Fertiliser (kgs) 25 2,500 0.14 190 190 200 200 240 K. Fertiliser (kgs) 0 2,500 0.11 0 0 0 0 0 Chemrricaib ikgs) 75 2,500 0.6 66 66 66 66 66 Water ('000m3) 0 2,500 6.5 13 10 13 13 17 Repairs & mnaintenance 1,420 2,500 20 1 1 1 1 1 Depreciation 1,650 2,500 50 1 1 1 1 1 EST. OF IMPLICIT SUBSD[ESMHA (S) Labour- Econornic cost 3 3 3 3 3 Labour- Farm cost 3 3 3 3 3 Labour- Implicit subsidv 0 0 0 0 0 Fuel- Economic cost 56 57 56 57 57 Fuel- Farm cost 14 15 14 15 15 Fuel- Implicit subsidy 42 42 42 42 42 Seed- Economic cost 0 0 0 0 0 Seed- Farm cost A0 0 0 0 Seed- Implicit subsidy 0 0 0 0 0 N. Fert.- Economic cost 30 29 27 26 34 N. Fert.- Farm cost 1 0 0 0 1 N. Fert.- Imilicit subsidy 30 28 27 25 34 P. Fert.- Economic cost 26 26 27 27 33 P. Fert.- Farm cost 2 2 2 2 2 P. Fenr.- -Imlicit subsidy 24 24 25 25 30 K. Fert.- Economic cost 0 0 0 0 0 K. Fert.- Farm cost 0 0 0 0 0 K. Fert.- Im[licit subsidy 0 0 0 0 0 Chemicals- Econ. cost 40 40 40 40 40 Chemical- Farm cost 2 2 2 2 2 Chem.- Implicit subsidy 38 38 38 38 38 Water- Economic cost 84 62 81 85 108 Water- Farm cost 0 0 0 0 0 Water- Implicit subsidy 84 62 81 85 108 R & M- Economic cost 20 20 20 20 20 R & M- Farm cost I I I I I R & M- ImMlicit subsidy 19 19 19 19 19 Depreciation- Fcon cost 50 s0 50 50 50 Depreciation- Farm cost 1 I I I I Dcp.- Implicit subsidy 49 49 49 49 49 TOTAL PER HA (S) 286 263 282 284 321 TOTAL SUBSIDY (S MILLI3)h 36 78 107 210 48 479  18 Annex 2 Annex Table 4B Egimate of Trtufen from Uzbekltaa's Cotton Induitry, 1993 (Crop by Region) Unit Region I Region 2 Region 3 Region 4 Region 5 TOTAL Amt Value Amt Value Amt Valuc Amt Value Amr Value Area of cotton (ha) 125,600 296,000 379,400 739,000 149,40 1,689,400 Economle prke of output/ha Yield (seed cotton) ton 2.69 2.35 2.65 2.80 2.20 Turnout h 32 32 32 32 32 Seed % 56 56 56 56 56 Linters& motes 9 7 7 7 7 7 Yield lint ton 0.86 0.75 0.85 0.89 0.70 Yield seed ton 1.51 1.32 1.48 1.57 1.23 Yield linters & motes ton 0.19 0.16 0.19 0.20 0.15 Price lint S/ton 789 762 926 916 679 Price seed S/ton 100 100 100 100 100 Price linters & motes S/ton 485 485 485 485 485 Lint value $ 679 573 785 820 477 Seed value S 151 132 148 157 123 Linters & metes value $ 91 80 90 95 75 TOTAL VALUE $ 921 784 1023 1.071 675 Farm price for output (seedcotton)/ha Yield ton 2.69 2.35 2,65 2.80 2.20 Of which quota (80%) ton 2.15 1.88 2,12 2.24 1.76 Of which over-quota ton 0.54 0.47 0.53 0.56 0.44 Average quota price R/ton 121,000 118,000 136,000 135,000 109,000 Est ov/quota lint price R/ton 685,000 668,000 769,000 763,000 620,000 Income/ba Quota conon Rubles 260392 221,903 288,115 302,020 191,578 Over quota lint Rubles 117930 100,496 130,330 136,558 87.177 TOTAL INCOME Rubles 378322 322,399 418,444 438,578 278,755 Exchange ratc R/S 2,500 2,500 2,500 2,500 2,500 Total income/ha S 151 129 167 175 112 Transfer from Cotton per hectare S 770 655 856 896 563 TOTAL TRANSFER FROM COTTON S niln 97 194 32S 662 84 1,361 Less transfers to cotton S nin 36 78 107 210 48 479 NET TRANSFER FROM COTTON S min 61 116 218 452 36 883 Net transfers per ha S 484 393 574 611 242 522  The Agricultural Sector in Uzbekistan 19 Anmx Table 4C Impact of Reducing Cotton Quotas, Subuidles, and Introducing Charges and Taxes ITEM Region I Rcgion 2 Region 3 Region 4 Region 5 Total Current Position Output of Cotton Area of crop (ha) 125,600 296.000 379,400 739,000 149,400 1,689,4(X) Yield (tonnes of seed cotton/ha) 2.69 2.35 2.65 2.80 2 20 Turnout (%) 32 32 32 32 32 Total lint ('000 tonnes) 108 223 322 661 105 1419 Total conon sed ('000 tonnkes) 189 390 563 1157 184 2,483 Total linters St motes ('000 tonnes) 24 49 70 145 23 310 International price of lint (S/tonne)' 789 762 926 916 679 International price of seed (S/tonne)W 100 100 100 100 100 Int. price of linters & motes (S/onne)4 485 485 485 485 485 Value of crop (5 million) 116 232 388 792 101 1,628 Net Farmers' Cash Income (A) Free cotton oortion - Share of seed cotton (9) 20 20 20 20 20 - Pnee from domestic sales of lint ($/tonne) 274 267 308 305 248 - Gro,s income (S rnillion) 6 12 20 40 5 83 :(B)-uota cotton Dortion - Share of seed cotton (%) 80 80 80 8C 80 - Procurement price of lint (S/tonne) 151 148 170 169 136 - Gross income (S million) 13 26 44 89 11 184 (C) Total Gross Income (S mill) (A+B) 19 38 64 130 17 .7 (D) Cash Input Costs (S million) 3 7 9 17 4 39 -Net Income (S million) (C-D) 16 31 55 112 13 228 Net Farmers' Inc. Without Subsidies Net Cash Income (S million) 16 31 55 112 13 228 Implicit input subsidies (S million) 36 78 107 210 48 479 Income Without Subsidies (5 milion) -20 -46 -52 -98 -35 -251 Government's Revenue (S mininon) a Oppofrunity Cost of Resources Crop Revenue 97 194 325 662 84 1.361 Implicit input subsidies 36 78 107 210 48 479 Net Revenue 61 116 218 452 36 883 Reconeilliadon of Funds (S mil) Net Government revenue 61 116 218 452 36 883 Implicit input subsidies 36 78 107 210 48 479 -Net farmers' income 16 31 55 112 13 228 Farmers' input costs 3 7 9 17 4 39 Totl Value of Crop 116 232 388 792 101 1,628 ZERO SUBSIDIES, ZERO QUOTA + TAXES Output of Of Comon Area of crop (ha) 125,600 296,000 379,400 739,000 149,400 1,689,400 Yield (tomnes of seed conon/ha) 3.09 2.70 3.05 3.22 2.53 Tumout (%) 32 32 32 32 32 Total lint ('000 tonnes) 124 256 370 761 121 1,631 Total cotton seed ('000 tonnes) 218 448 647 331 211 2,855 Total linters & motes ('000 tonnes) 27 56 81 166 26 357 International price of lint (S/tonneSz 789 762 926 916 679 International price of seed (S tonne' 100 100 100 100 100 Int. price of linters & motr- e t nneb 485 485 485 485 485 -Value of crop (S million) 133 267 446 910 116 1,873  20 Annex 2 Anzex Table 4C (coot.) rrEM Region I Region 2 Region 3 Region 4 Region 5 Total Not Farner' Income (S nil)ion) -(E) Valueofcroo 133 267 446 910 116 1,873 (F) Economic input costs ex. water 28 66 85 165 35 379 (Gr)nigationwatercosts 11 18 31 63 16 139 (H) Land rental- 12% of Rross incore 16 32 54 109 14 225 - (J) Income before tax (E-F-G-H) 78 150 277 574 50 1130 - (K) Foreign exch, revenue tax (10% of lint) 10 20 34 70 8 141 (L) Enterprise tx (28%) 12 24 44 91 8 178 -income aftr Tax (J-K-L) 56 107 199 413 35 810 Government Revenue (S million) - Water charges 11 18 31 63 16 139 Foreign exchange revenue tax 10 20 34 70 8 141 - Land rental 16 32 54 109 14 225 - Enterprise tax 12 24 44 91 8 178 -Total Revenue 49 93 162 332 46 683 Reconcialio of Funds ($ miUion) - Government revenue 49 93 162 332 46 683 - Farmers' income after tax 56 107 199 413 35 810 - Funds to suppliers' of inputs 28 66 85 165 35 379 -Total Value of Crop 133 267 446 910 116 1,873 a/ World Bank projectons for 1993 in 1993 pnces adjusted for quality by regions after ginning costs ex gin. b/ Estirnate of economic ex gin value of cotton seed, linters & motes.  The Agricultural Sector in Uzbekistan 21 Annex Table SA Esttntat- of Cost of Subsidies to Uzbekistan's Irrigated Wheat Industry, 193 W'rop by Region) ITEM Ruble Exch. Dobar Regn. I Regn. 2 Regn. 3 Regn. 4 Regn. 5 Total Price Rate Price krea of wheat (ha) 16(000) 34,600 42. (X) 134)55() I I (ii Jnit price and .Jnits of inputs/ha )perator hours 30 2,.500 22 22 22 22 2' ,abourer hours 20) 2,50W 44 44 44 44 44 'uel (kgs) 130 2.500 0.2( 149 153 153 158 1 8 ieed (kgs) 1( 2,500 22() 220 22)) 221) 2.'o 4. Feniliser (kgs) 6 2,5X0 0. i4 95 10t II)) 115 '2) 1. Fertiliser (kgs) 25 2.500 0.14 80 85 85 95 1(N) C. Feriliser (kgs) 3 5 2,500 0 11 25 30) 2' 3( 35 'hemicals (kgs) 75 2,500 0.6 20) 2) 21 21) 20 ,ater )'(XX)m3) 4) 2,5(X) 6.5 6 5 6 tepairs & maintenance 770) 2,5(X) i I I I I I )epreciation 8W) 2.5(X) 27 1 1 1 'ST. OF INIPLICIT iUBSIDIES/HA (S) .ahour- Economic cost I I I .abour Farm cost I I I I .abour- Implicit suhsids 0 0 0 4) uel- Economic cost 30) 31 31 32 '2 vuel- Farm c(st 8 8 8 8 S 7uel- Implcit subsidy 22 23 23 24 24 ieed- Economic cost 1 1 1 I ieed- Farm cost I I I I ie_d- Implhcit su6sidN () 4) (1 FFen - Economic co.it 14 14 1 17 1- Fert - }:arm cost )) )) )) 4) 0 *:_Fert - Implicit subsidy 13 14 6 Ih 11 FerT - Economic cost 11 12 12 13 !4 Fert. Farm cost I I I i I Fen - ImPiiLt suhsids i 2 1; .Fen. - Fconomic cost 3 3 3 3 Fert.- Faim cost (3 0 o 4) Fer. - Implicit subsids 3 3 3 3 4 'hemicals- Econ. cost 12 1 12 12 12 'hemical- Farm cost I I I I 'hem - ImPicit sIisids 1 1 11 II 11 II Vater- Economic cost 42 31 41 43 54 Vater- Farm cost 3 0 () )0 Vater- Implcit subsid_s 42 31 41 43 54 & M- Economic cost I I 11 II II II & M- Farm cost 0 () (4 4) II & M- implilit subsid 11 11 1 I 11 Xeprecianor.- Econ cost 27 27 28 27 2' )epreciation- Farm cost I I I I I )ep - Impihcit subsids 26 26 2t, 2h 26 'OTAI. PER HA (S) 139 13) 141 146 159 'OTALI SUBSIDY (S MILLION 2 5 6 19 2 34  22 Annex 2 A_S TAbk 53 EaSbaaa of Trmen frm Uslaa's k1.MW Whm IuU, 13 (Crop by Regi. Unit Region I Region 2 Region 3 Region 4 Region 5 TOTAL Amt Value Ain Vahe AMnt Value Aum Value Amt Value Ana of wheat (ha) 16,000 34,600 42,300 130.550 11.900 235,850 Ecom_k prke ot.wims Yield ton 2.68 2.53 3.16 2.30 1.24 Price S/ton 228 228 228 228 228 TOTAL VALUE S 611 S77 721 52 283 Fam prie for outpwb Yield ton 2.68 2.53 3.16 2.30 1.24 Of whiCh quota (80%) ton 2.14 2.02 2.53 1.84 0.99 Of which over-quota ton 0.54 0.51 0.63 0.46 0.25 Average quota price R/ton 50,000 50,000 50.000 50.000 50,000 Est over quota price R/ton 140,000 140,000 140.000 140.001; 140,000 Incme/ba Quota wheat Rubles 107,200 101,191 126,447 92.194 49600 Over quota wheAt Ruble, 75.040 70,834 88,513 64,536 34,720 TOTAL INCOME Rubls 182.240 172,024 214,959 156,730 84,320 Exchange rate R,/S 2,500 2,500 2,500 2.500 2,500 Totali Come/ba S 73 69 86 63 34 Transfer from Wbeat per hectare $ 538 508 635 463 249 TOTAL TRANSFER FROM WEAT S ahln. 9 Is 27 60 3 117 Lam trauoer to weat S min. 2 5 6 19 2 34 NET TRANSFER FROM WEAT S min. 6 13 21 41 1 83 Net traden rer ha $ 399 378 494 317 90 352  The Agricultural Sector in Uzbekistan 23 Aisz Ta SC lapse of Reavdi Whea Quot., khiiu, mmd Iaotreae Chars" mad Tmaos rrEm Region I Reion 2 Region 3 Region 4 R"ion 5 Total Cwru P ~at of WI. - Area of erop (ha) 16.000 34,600 42,800 130.550 11,900 235,850 - Yiel (loosc. of wheat/ha) 2.68 2.53 3.16 2.30 1.24 - Totl wbet ('OS0 ltoos) 43 U 135 301 15 581 - lnrseioral pric of wheut (Sonne)' 228 228 228 228 228 * VeKw of ecp(t mm ) 10 20 31 H 3 133 Not Fu,ueru Iclace. - (A) Frec wheat noron - Shre of wheu (%) 20 20 20 20 20 - Price: domestic sales of wheat (S/tonne) 56 56 56 56 56 - Gross income (S milion) 0 1 2 3 0 7 - (B) Ouota wheat oortion -Share of wheat (%) 80 80 80 80 80 - Procurement price of wheat (S/tonne) 20 20 20 20 20 -Gross income (S milion) I 1 2 5 0 9 (C) Totl Gross Incorne (S mill) (A+) 1 2 4 8 0 16 -(D) iutcosts (Smillion) 0 0 1 2 0 - Net la'come (S ilon) (C-D) 1 2 3 7 0 13 Net Farmcrs Inc. Witwut Subs: es -Net Cash Income (5 million) 1 2 3 7 0 13 Implicit input subsidies (S rnillion) 2 5 6 19 2 34 lxconme Without Subsidies (S WMlon) -1 .3 .3 -13 2 -21 Government's Revenue (S miiOon) * Oppornit3 Cost of Resoures - Crop Revenue (S million) 9 18 27 60 3 117 Implicit input subsidies 2 5 6 19 2 34 - Nd Revenue 6 13 21 4! 1 83 ReconcIliation of Funw S mill) -Net Government revenue 6 13 21 41 1 83 - Implicit input subsidies 2 5 6 19 2 34 -Net farmers' incomre 1 2 3 7 0 13 -Pmers' input costs 0 0 1 2 0 3 -Towt Value of Crop 10 20 31 69 3 133 ZERO SLIGSDIES, ZERO QUOTA + TAXES Outut of WReat -Area of crop (ha) 16,000 34,600 42,800 130,550 11,900 235,850 - Yield (tonnes of wheat/ha) 3.08 2.91 3.64 2,65 1.43 - Total wheat ('000 tonnes) 49 101 156 346 17 669 - International price of wbeat (S/tonne)J 228 228 228 228 228 -Value of crop (SiWlno) 11 23 35 79 4 IS2 Net Famens' lxcome (S mWon) -(E) Value of crop 11 23 35 79 4 152 -(F) Economic input costs ex water 2 4 5 15 1 27 - (G) Irrigation water costs I 1 2 6 ! 10 -(H) Land rental (12% of gross income) 1 3 4 9 0 18 - (J) Incooe before tax (E-F-G-H) 7 15 25 49 1 97 -(K) Enterprise tax (18%) 1 3 4 9 0 18 Income after tax (J-K) 6 13 20 40 1 80  24 Annex 2 Annex Table 5C (cont I Government Revenue (S million) - Water charges I 1 2 6 It) - Land rental 1 3 4 9 n I - Enterpnse tax 1 3 4 9 Ix Total Revenue 3 7 It 24 1 46 Reconciliation of F'unds (S million) - Government revenue 3 7 1() 24 1 - Farmers' income after tax 6 13 20 40 1 - Funds to suppliers of inputs 2 4 5 Is I , -Total Value of Crop 11 23 35 79 4 152 a/ World Bank pm)ectons to 1991 in 1991 prices adjusted for quality  The Agricultural Sector in Uzbekistan 25 Annex Table 6A Estimate of Cost of Subsidis to Uzbekldtan's Irripted Maize Industry, 1993 (Crop by Region) IT1EM Ruble Exch. Dollar Rep. I Rep. 2 Rep. 3 Rep. 4 Rep. 5 Total Price Rate Price Area of maize (ha) 10,200 14,400 24.400 21,000 18,200 88,200 Unit prke and Uni of inputs/ha Opemator hours 30 2.500 36 36 36 36 36 Labourer hours 20 2,500 150 150 150 150 150 Fuel (kgs) 130 2,500 0.20 217 220 217 220 223 Seed (kgs) 3 2,500 40 40 40 40 40 N. Fertliser(kgs) 6 2,500 0.14 190 230 170 170 220 P. Fertiliser (kgs) 25 2,500 0.14 160 160 130 130 200 K. Fertiliser(kgs) 3.5 2,500 0.11 50 50 30 0 60 Chemicals (kgs) 75 2,500 0.6 53 53 53 53 53 Water ('000m3) 0 2,500 6.5 13 10 13 13 17 Repairs & maintenance 1110 2,500 16 1 1 1 1 1 Depreciation 1290 2,500 40 1 1 1 1 1 EST. OF IMPLICIT SUBSIDISHA (S) Labour- Eeonomic cost 2 2 2 2 2 Labour- Farm cost 2 2 2 2 2 Labour- ImpDlicit subsidy 0 0 0 0 0 Fuel- Economic cost 44 45 44 45 45 Fuel- Farm cost 11 1I 11 11 12 Fuel- Implicit subsidv 33 33 33 33 34 Seed- Economic cost 0 0 0 0 0 Seed- Farm cost 0 0 0 0 0 Seed- Iniplicit subsidy 0 0 0 0 0 N. Fen.- Economic cost 27 33 24 24 32 N. Fert. Farm cost 0 1 0 0 1 N. Fe.nt - l!nplicit subsidv 27 32 24 24 31 P. Fert. -Economic cost 22 22 18 18 27 P. Fert.- Farm cost 2 2 1 1 2 P. Fert.- Imolicit subsidy 20 20 17 17 25 K. Fert.- Economic cost 6 6 3 0 7 K. Fert.- Farm cost 0 0 0 0 0 K. Fert.- Imicit subsidy 6 6 3 0 7 Chemicals- Econ. cost 32 32 32 32 32 Chemical- Farm cost 2 2 2 2 2 Chem.- Implicit subsidy 30 30 30 30 30 Water- Economic cost 85 62 81 85 108 Water- Farm cost 0 0 0 0 0 Water- Implicit subsidy 85 62 81 85 108 R & M- Economic cost 16 16 16 16 16 R & M- Farm cost 0 0 0 0 0 R & M- Implicit subsidy 16 16 16 16 16 Depreciation- Econ cost 40 40 40 40 40 Depreciation- Farm cost I I I 1 De.- Inmlicit subsidy 39 39 39 39 39 TOTAL PER HA (5) 255 239 243 244 290 TOTAL SUBSIDY (S MILLION.) 3 3 6 5 5 22  26 Annex 2 Annex Table 6B Estimate of Transfers from Uzbekistan's Irrigated Maize Industry, 1993 (Crop by Region) Unit Region I Region 2 Region 3 Region 4 Region 5 TOTAL Amt Value Amt Value Amt Value Amt Value Amt Value Ared of maize (ha) 10,200 14,400 24,400 21,000 18,200 88,200 Economic price of oudput/ha Yield ton 3.37 3.58 4.44 3.20 2.07 Pnce S/ton 164 164 164 164 164 TOTAL VALUE S 551 585 726 523 338 Farm price for output/ha Yield ton 3.37 3.58 4.44 3.20 2.07 Of which quota (80%) ton 2.70 2.86 3.55 2.56 1.66 Of which over-quota ton 0.67 0.72 0.89 0.64 0.41 Average quota price R/ton 150,000 150.000 150,000 150,000 150.000 Est over quota price R/ton 220,000 220,J00 220,000 220,000 220,000 Income/ba Quota maize Rubles 404,400 429,400 533,169 384,206 2484,00 Over quota maize Rubles 148,280 157,447 195,495 140,875 910,80 TOTAL INCOME Ruh.es 552,680 586,847 728,664 525,081 339,480 Exchange rate R/$ 2,500 2,500 2,500 2.500 2,500 Total income/ha S 221 235 291 210 136 Transfer from Maize per hectare S 330 350 435 313 203 TOTAL TRANSFER FROM MAU,E S min. 3 5 11 7 4 29 .Ass transfers to maize S mm. 3 3 6 5 5 22 NET TRANSFER FROM MAIZE S mtn. 1 2 5 1 -2 7 Net transfers ner ha S 75 112 192 69 -87 79  The Agricultural Sector in Uzbekistan 27 Annex Tabke 6C Impact of Reducing Maize Quots, Subsidies, and Introducing Cbarges ad Taxes ITEM Region I Region 2 Region 3 Region 4 Region 5 Total Current Position Oa11m1t of Mai* Am, of crop (ha) 10,200 14,400 24,400 21.000 18.200 88,200 Yield (tonnes of maize/ha) 3.37 3.58 4.44 3.20 2.07 Total nuie ('000 tonnes) 34 52 108 67 38 299 Imnemational price of maize (S/tonne)" 164 164 164 164 164 Vow of crop S ndeion) 6 8 18 11 6 49 Net Farmers' Income (A) Free maize oortion - Share of maize (%) 20 20 20 20 20 - Price: domestic sales of maize (S/tonne) 88 8 88 88 8 - Gross income (S million) I 1 2 1 1 5 (B) Ouota maize portion -Share of maize (%) 80 80 80 80 80 * Irocurement price of maize (S/tonne) 60 60 60 60 60 - Gross income (S million) 2 2 5 3 2 14 (C) Total Gross Income ($ mill) (A+B) 2 3 7 4 2 20 (D) Cash input costs (S million) 0 0 0 0 2 Net '-come (S million) (C-D) 2 3 7 4 2 18 Net Farmers' Inc. Without Subsidies Net Cash Income (S million) 2 3 7 4 2 18 Implicit input subsidies (S million) 3 3 6 5 5 22 Income Without Subsidies (S milion) -1 0 1 -1 -3 4 Government's Revenue (S milion) a Oppornutiity Cost of Resources Crop Revenue (S million) 3 5 11 7 4 29 Implicit input subsidies 3 3 6 5 5 22 Net Revenue 1 2 5 1 -2 7 ReconciUiaion of Funds (S mill) Net Government revenue 1 2 5 1 -2 7 Implicit input subsidies 3 3 6 5 5 22 Net farmers' income 2 3 7 4 2 18 Farmers' input costs 0 0 0 0 0 2 Total Value of Crop 6 8 18 11 6 49 ZERO SUBSIDIES, ZERO QUOTA + TAXES Ouput of Maize Area of crop (ha) 10,200 14,400 24,400 21.000 18.200 88,200 Yield (tonnes r' maize/ha) 3.88 4.12 5.11 3.68 2.38 Total maize ('000 tonnes) 40 59 125 77 43 344 International price of maize (S/tonne)- 164 164 164 164 164 Value of crop (Smillion) 6 10 20 13 7 56 Net Fanners' Income (S million) (E) Value of crop 6 10 20 13 7 56 (F) Economic input costs ex. water 2 3 4 4 4 16 (G) Irrigation water costs I 1 2 2 2 7 -(H) Land rental (129 Gof gross income 1 1 2 2 1 7 (J) Income before tax (E-F-G-H) 3 5 12 6 1 26 (K) Enterprise tax (18%) 1 1 2 1 0 5 Income after tax (J-K) 2 4 10 5 1 21  28 Annex 2 Anax Tabl 6C (coat.) llEM Region I Region 2 Region 3 Region 4 Region 5 Total GovernenEt Reveaw (S n aW