American Journal of Research in Humanities and Social Sciences ISSN (E): 2832-8019 Volume 10, | March, 2023 P a g e | 1 www.americanjournal.org THE İMPACT OF UZBEKİSTAN'S SOVEREİGN WEALTH FUNDS ON ECONOMİC GROWTH I. T. Jumaniyazov PhD in Economical Sciences, Associate professor Department of Finance, Tashkent Institute of Finance, Tashkent, Uzbekistan. inomjonscience@gmail.com A. Khaydarov PhD in Economical Sciences, Associate professor Department of Finance, Tashkent Institute of Finance, Tashkent, Uzbekistan. A B S T R A C T K E Y W O R D S In developed and developing countries the economic growth of the state depends on many factors. One of the institutions that have an impact on the economy is Sovereign wealth fund. These types of funds have different and at the same time similar objectives. This paper studies the activity of one of those Sovereign wealth fund i.e. the Uzbekistan Reconstruction and Development Fund, established in 2006. It analyzes the significance of the fund’s expenditure in the economic growth of Uzbekistan. The study shows that fund’s expenditure has positive correlation with GDP growth of the country. According to regression analysis, expenditure of the fund is significant variable for the GDP growth of Uzbekistan. Moreover it analyzes some Asian countries’ experience and develops conclusions and proposals on the improvement of Uzbekistan Reconstruction and Development Fund. Sovereign wealth fund, Uzbekistan Reconstruction and Development Fund, GDP growth, expenditure, Uzbekistan INTRODUCTION In the world practice, Sovereign Wealth Funds is an energizing force for the investment and innovation with their amount on operating the large infrastructural projects, developing the economy speedily for constructing the production objects with high modern technology, operating the social-economic projects with the foreign investments in partnership. According to information in 2018 more than eighty sovereign wealth funds were organized more than in fifty countries and their common capital was 8.1 trillion USD. If we look at the geography of organizing sovereign wealth funds, we see its 40, 24 percent are in the Near East countries, 39, 74 percent are in Asia, its 13, 11 percent are in Europe, 2, 8 percent are in America, 2, 7 percent are in Africa and 1, 4 are in other countries. Today every country is tending to strengthen its position in the world economy by providing its economic development. The tendency of forming sovereign funds in the various countries, extending their sizes and geography, organizing such institutions and their importance, the participation of some American Journal of Research in Humanities and Social Sciences Volume 10, March, 2023 P a g e | 2 www.americanjournal.org countries as a practical instrument for the social-economical development show that learning the experiments of these funds is very important. In addition, many sovereign funds in the several countries, a mission of resolving the deficiencies of sovereign wealth funds in the objective market, a monetary peculiarity and a mission of stopping inflation, investing state money into the human capital, raising the diversification degree of the state economical sector and other missions increase the importance of sovereign wealth funds. So, we devoted this article to the progressive foreign experiments in the activity of sovereign wealth funds. In most well-of and less well of countries the economic growth of the state depends on many factors. One of the institutions that has an impact on the economy is Sovereign wealth fund. One of those Sovereign wealth fund i.e. the Uzbekistan Reconstruction and Development Fund. The Uzbekistan Reconstruction and Development Fund, established in 2006 in accordance with the Decree of the President of the Republic of Uzbekistan on 05/11/2006, is a financial institution under the Cabinet of Ministers of the Republic of Uzbekistan designed to ensure the implementation of projects for the modernization and technical re-equipment of leading basic sectors of the economy, achieving a dynamic, sustainable and balanced socio-economic development of the country, as well as the implementation of an effective structural and investment policy. The Fund for Reconstruction and Development of the Republic of Uzbekistan also finances the implementation of national socially significant state programs and projects for the formation of production and non-production infrastructure, primarily in promising but insufficiently developed regions, modernization and development of transport and telecommunications infrastructure, creating the conditions for integration republic in the international network of communications, providing the shortest access to international transport corridors and the world stems markets. The Fund for Reconstruction and Development of the Republic of Uzbekistan can participate in organizing joint financing of projects with international financial institutions, credit institutions of the republic and foreign countries. The founder of the Foundation is the Government of the Republic of Uzbekistan represented by the Ministry of Finance. The supreme governing body of the Foundation is the Council for the Management of the Foundation, headed by the Prime Minister of the Republic of Uzbekistan. As mentioned above main objective of this sovereign fund is to finance mostly social programs, however investment rate of return is not main target of the fund that needs achieving. Although the managers of the fund use the part of the funds to bank deposits and some other types of investments, still rate of return is not significant. LITERATURE REVIEW Sovereign wealth funds are financial vehicles owned by states which hold, manage or administer public funds, which can be invested in a wider range of assets of various kinds (Jing Yu 2012). Another definition is Sovereign Wealth Funds (SWF) as sovereign vehicles (returns enter the government’s fiscal budget) with high foreign asset exposure, nonstandard liabilities (could be as simple as wage growth or as complicated as maintaining external purchasing power) with long (generation spanning) time horizon (Andreas Gintschel 2008). The object of strategic sovereign wealth fund is to maximize the whole country welfare through the SWF investing (You Miao 2011). SWFs also served as “investors of last resort” during the last crises, intervening to support their domestic financial markets (Clark G.L. 2010). (Jen 2007) wrote that SWFs are big and are growing fast, and their investments American Journal of Research in Humanities and Social Sciences Volume 10, March, 2023 P a g e | 3 www.americanjournal.org will have significant implications for financial asset prices around the world. However all issues regarding the management of sovereign wealth funds can be solved not only by hedging or investing in overseas projects. Sovereign wealth funds can address the issues of national wealth in two ways. The first is saving the gains from natural resources to future generation. The second way is earmarking the part of windfall to the fund to reduce the risk that government officials do not use that money for their own needs(Shai Bernstein 2013). These researches show that there should be different approaches to manage the resources of the fund. In managing the financial resources of the fund, one of the issues is to optimize the investment portfolio of the fund. In order to achieve optimal investment portfolio several researchers have developed different models to maximize the investment return rate and optimize the investment portfolio of the fund. (Bodie Z. 2014) solves this problem theoretically that the optimal portfolio can be broken down into a performance-seeking portfolio and three hedging demand terms for the variability of the fiscal surplus and external and domestic debt. A bit different method is used by (You Miao 2011), she uses total risk of whole economy to show the optimal portfolio for the fund. ANALYSIS AND FINDINGS First of all we would like to check correlation coefficient and relationship between the expenditure and revenue of the fund. The revenue and expenditure of the fund [1] Years Fund revenue Fund expenditure 2007 928.5 139.5 2008 1115.6 222.5 2009 762.9 354.2 2010 1529.7 1408 2011 1905.7 1368.3 2012 4747.6 1496.8 2013 2618.5 1545.1 2014 2335.9 1984.2 2015 2263.5 2454.5 2016 2936.5 2474 2017 2755.9 2309.1 2018 5463.5 8979 Mean 2446.983333 2061.266667 Median 2299.7 1520.95 SD 1441.325015 2330.191442 Correlation coefficient 0.782551959 Source: Fund for Reconstruction and Development of the Republic of Uzbekistan. Correlation coefficient shows that there is a highly positive relationship between two indicators. In addition linear regression also proves that. However there is a big gap in 2018 among them. The fund American Journal of Research in Humanities and Social Sciences Volume 10, March, 2023 P a g e | 4 www.americanjournal.org has a great impact in the economy of Uzbekistan. We decided to determine the significance of the Fund for Reconstruction and Development of the Republic of Uzbekistan on the GDP growth of the country. After acquiring the results we are able to develop some conclusions on it. We have used the data of the World Bank and International Monetary fund and the data on the official website of the fund. Macroeconomic factors and expenditure of Fund for Reconstruction and Development of the Republic of Uzbekistan [2] T Years GDP growth Population growth Fund expenditure FDI/GDP Trade/GDP Inflation 1 2007 9.9 1.4234749 8.32705227 3.16071691 74.41419298 12.2591944 2 2008 9 1.60532736 8.23638609 2.40715231 79.74799203 12.7145086 3 2009 8.1 1.68734097 8.73056427 2.49931553 68.6731422 14.1176471 4 2010 8.5 2.82284968 8.70907482 4.16052269 59.3062305 9.39963614 5 2011 8.3 2.68401551 8.84785634 3.56122877 63.48863951 12.804878 6 2012 8.2 1.47209999 8.87596944 1.08649822 59.81747444 12.1867322 7 2013 8 1.56190433 8.86531722 1.10018424 57.47960682 12.0017521 8 2014 7.7 1.68690036 8.74696874 1.2008776 54.57225204 11.0285491 9 2015 8 1.74425837 8.71505856 0.09938042 49.32409843 10.0035224 10 2016 7.8 1.73884926 8.97993515 0.19776841 51.15342106 13.896894 11 2017 5.3 1.67918372 9.28300481 0.19277725 68.51854233 14 Source: Author’s compilation using the data of World Bank, IMF and Fund for Reconstruction and Development of the Republic of Uzbekistan After determining and collecting all data we used logarithm to the column of expenditure of Fund for Reconstruction and Development of the Republic of Uzbekistan so the indicators become closer to each other. We would like to determine if the expenditure of the fund is significant to the GDP growth of the country. Calculations using the data in figure [4] Variables GDP growth Population growth 0.899 (0.557) FDI/GDP 0.604** (0.213) Trade/GDP 0.080** (0.023) Inflation rate -0.167 (0.121) Expenditure of Fund for Reconstruction and Development of the Republic of Uzbekistan 3.213** (0.798) Constant 39.739*** (6.264) Observations 11 R-squared 0.939 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 American Journal of Research in Humanities and Social Sciences Volume 10, March, 2023 P a g e | 5 www.americanjournal.org From the above calculations, we can conclude that the factors analyzed for the growth of GDP growth are influenced by the flow of foreign direct investment, the degree of economic openness, and the level of savings expenditure change. That is, the increase in savings by 1% will increase the current rate of GDP growth by 3.2%. It means if the current GDP growth rate is 5 percent, an increase of fund expenditure by 1 percent will increase 5 percent GDP growth rate to 5.16 ( 5x1.032) percent. At the same time, the statistical error rate was equal to p <0.05, indicating a higher level of significance of funds expenditure on GDP growth. Conclusions According to the analysis and calculations the following questions have been developed: • Fund for Reconstruction and Development of the Republic of Uzbekistan has a high influence in the economy of the country and this fund mostly invests in projects to improve the sustainability of the economy, however the fund’s investment portfolio has been well diversified; • There is not clear information about the rate of returns of the projects of the fund, and it does not allow to assess if the fund’s capital has been allocated well; • However, according to calculations we can conclude that expenditure of the fund has a significance to the GDP growth of the country. • Fund for Reconstruction and Development of the Republic of Uzbekistan does not invest in financial assets i.e. it does buy stocks or bonds. 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