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Gayibnazarov Bakhodir Karimovich
director of the Center for Retraining
and statistical research
State Statistics Committee of Uzbekistan,
Doctor of Economics, Professor

 At the present time, we are watching news and we often hear about economic growth, economic development, stable growth or decline in the country's economy via the Internet, television channels, radio and other media. Well, what do these terms mean? How do they differ from each other? We will try to answer these questions more understandable and easier.

What is the difference between economic growth and economic development?

There are differences between the growth and development of the economy, and they are reflected in the following: economic growth is a steady and annual increase in the production capacity of the country. It, also, quantitative changes, growth of production and consumption of goods and services.

Economic development is a more capacious concept than economic growth, that is, it is not only the growth of production, but also the welfare of the population, as well as positive, qualitative and other changes in the economy (innovations in production, production, services, management and economy generally).

 Of course, the question arises: what changes and factors influence economic development?

Economic development is a multilateral process that includes changes in the technical, economic and social spheres.

Economic growth can best be estimated on the basis of a change in per capita gross domestic product (GDP), not the total, but the specific value. The essence of this is that the size of the gross product (after adjusting for inflation) is divided by the number of inhabitants of the country. And then it really becomes clear: did the "piece of pie", which on average account for each inhabitant, increase? If this has increased, then, economic growth has ensured the main result - an increase in the standard of living of citizens. If the value of GDP per capita decreases, the welfare of citizens falls.

So what is the gross domestic product? GDP is the market value of all final goods and services produced by the country for a certain period.

For what periods of GDP is considered and in what units are they measured? Usually it is considered by quarters and by the end of the year. GDP can be expressed both in the national currency of the country - in soums, and for international comparison purposes - in US dollars.

Since when did the GDP begin to count? GDP was first mentioned by Simon Kuznets in a report for the US Congress in 1934. In it, the Blacksmith, in particular, warned against using GDP as an indicator of well-being. After the Bretton Woods Conference in 1944, GDP became the main tool for measuring the volume of the economy.

It should be noted that GDP is mainly allocated in two types - nominal (in current prices) and real (in comparable prices). For the purpose of international comparison, GDP is measured in international currency units, usually in US dollars. In addition, in international comparisons, GDP and its per capita share are translated at purchasing power parity (PPP) of the national currency.

Nominal GDP is considered in current prices, and real - in comparable prices.

GDP is calculated in three ways - production (by added value), revenue (distribution) and expenditure.  

For example, GDP by income consists of the amount of net taxes calculated on the activities of all economic entities of the national economy, households (taking into account foreign citizens), enterprises (including foreign and joint), non-state and non-profit enterprises, etc. This means that the incomes of one family form part of the GDP.

As an example and for ease of understanding, we calculate the incomes and their changes as an indicator of the GDP of the Bazarov family, consisting of three people - mother, father and child. For example, such a family in 2016 earned 9 million soums, and in 2017 - already 10 million sum.

Based on this, the nominal income of the Bazarov family for 2017 relative to 2016 increased by 11.1%. Formally, we can say that the Bazarov family in 2017 began to live 11.1% better than in 2016. However, this is not so, because the prices for goods and services in 2017 also increased. To clarify this situation, we will have to turn to the real income (GDP) of the family.

So, in determining real GDP, inflation is taken into account. According to official figures, in 2017 it was 14.4%. For the Bazarov family, the real income is calculated as follows: (100% + 11.1% / 100% + 14.4%) х100 - 100 = - 2.9%. In other words, in reality in 2017 they began to live worse by 2.9%, even despite the increase in incomes.

For comparison: changes in the incomes of the population of countries on an international scale, should be transferred to some sort of permanent unit of currency. Generally, income or GDP per capita is indicated in US dollars.

In our example, the Bazarov family's income in 2016 amounted to: 9 million soums / 2,966 soums = 3,033 dollars (at an exchange rate of 1 US dollar 2,966 soums); 2017: 10 million UZS / 5,121 UZS = US $ 1,953 (at an exchange rate of US $ 1 5121 UZS).

For each member of the family, this indicator in 2016 was $ 1011, and in 2017, $ 651.

Unfortunately, in comparative analyzes of the international level, measuring the indicators of countries in one currency unit does not always reveal the real picture, because, according to the theory of purchasing power parity, the same amount of money converted into national currencies at the current exchange rate in different countries of the world you can buy the same number of goods and services. And therefore, for comparison, the above indicators would be better expressed in PPP.

Similarly, a comparative analysis of GDP per capita by PPP would be more important.

What is PPP? Purchasing power parity is the ratio of two or more monetary units, currencies of different countries, determined by their purchasing power with respect to a certain set of goods and services.

So, in 2016 the parity of the national currency of Uzbekistan - UZS relative to the US monetary unit - to the dollar was 3.1.

In 2017, the national currency of the country - by reducing the sum of the real exchange rate (devaluation), PPP exchange Uzbekistan amounted to 4.6 (for forecast data).

Taking into account the above, we will calculate the change in the incomes of the Bazarov family. So, in 2016, based on the PPP of the currency, the gross per capita income of the Bazarov family members was 3 133 (1011х3.1) US dollars, and in 2017 - 2 992 (651х4.6) US dollars.

As it is clear from this, the per capita income of members of the Bazarovs' family at the PPP currency in 2017 relative to 2016 did not decrease sharply. In the analyzed period, this indicator decreased by 141 dollars.

In the calculation of GDP at PPP can be treated and the consumer basket of goods, but we believe for the first acquaintance with the concept of purchasing power fairly and given an explanation.

Meanwhile, measuring the growth of the economy by the absolute growth of GDP or by the growth of GDP per capita depends also on the purpose for which the assessment is carried out. As a rule, GDP is used to assess the economic growth of a state or testifies to the success of the country's economy. For example, according to real growth of GDP per capita, you can estimate the prosperity of the inhabitants of the country.

In economic theory, there is also the notion of sustainable economic growth, which is an integral part of stable development.   

What are the criteria for determining the stability of growth? Sustained economic growth is a positive dynamic of macroeconomic indicators without significant fluctuations in their values ​​over a long period of time (usually, not less than five years) with the growth of these indicators on the basis of constant proportional rates.

Now we will try to answer the question: how to achieve sustainable economic growth?

First of all, factor resources that affect the growth of the economy's stability and use them effectively should also be taken into account. What does it include? This includes the following: the amount of natural resources and their quality; the number of human resources and intellectual abilities; volume of fixed capital; modern technologies.  

The dynamic (stable) nature of the production of material goods and services in Uzbekistan, on the one hand, is the result of the availability of productive resources and their effective use, as well as the achievement of scientific and technical progress, on the other, it is a direct dependence on the possibilities of developing available resources.

Along with this, while ensuring economic growth, the presence of a deficit of domestic capital further increases the role of external economic factors, especially foreign investment and credit.

What happens with the growth or decline in GDP and its volume per capita?

GDP is an important indicator characterizing the development of the country's economy and is indicative of the well-being of citizens.

When GDP and GDP per capita grow, it is good for the country's economy and its inhabitants. Decrease of this indicator means occurrence of problems in economy and decrease in well-being of the population.

According to statistical data, in 2016 the volume of GDP in Uzbekistan in real prices was equal to 199 trillion. soums or 67 billion US dollars. Per capita GDP was respectively 6.2 million soums or US $ 2 106. In 2016, the official exchange rate of the dollar at an average annual rate was $ 2,966.

For reference: in 2017, the average annual exchange rate of the dollar was 5,121.1 sum.

In Uzbekistan in 2017, the average salary was 1453 thousand UZS (growth rate 12.3%) or USD 283.8. The amount of wages relative to the previous year in dollars, as it were, decreased by $ 436.2. However, in 2016, the official exchange rate of the dollar did not reflect the real value of the goods, and therefore the real payment capacity of wages. Therefore, if we consider wages in 2016 at the "black" market rate, then its value was then $ 201.7. Therefore, if it proceeds, from the fact that the average wage in 2017 was $ 184.6 at the "black" market rate, compared to 2016, wages fell by $ 17.1 or 8.5%.

Meanwhile, as international practice shows, as a result of the devaluation, the process of inflation is intensifying and, therefore, the decrease in consumer ability is considered natural. To answer the question whether, at the same time, the population becomes poor or poor, consider GDP at purchasing power parity.

So, based on the results of 2017, the total GDP of the republic for PPPs was $ 223.6 billion, and per capita - $ 6,903.4, or per capita GDP growth was $ 378 more (5, 8%). This fact is considered positive and there is no reason to talk about the impending poverty or poverty of the population.

For reference: according to the World Bank, in our country the total GDP for PPP in 2016 was $ 207.8 billion, and per capita - $ 6,525.3

In 2018, devaluation will have a significant impact on GDP (in dollar terms). Proceeding from this, next year the nominal GDP will reach 290 trillion. soums or $ 36 billion with an account of 8,050 soums for one US dollar ($ 1,125 per capita). At the same time, in the coming years due to real economic growth is expected growth in real GDP at parity of purchasing power per capita and the welfare of citizens.

The question of the devaluation of the exchange rate calculated on the basis of GDP per capita in US dollars and on the reduction of average wages in comparison with previous years can be explained in such a way that this is a natural phenomenon based on world experience. Moreover, taking into account the fact that the basic consumer spending of the population is carried out in national currency, this provision does not mean that the purchasing power of the population has decreased.

The same is observed in neighboring countries. For example, in connection with the devaluation, the volume of GDP in Kazakhstan in 2016 decreased compared to the volume of GDP in 2011-2015 from 200-230 to 123.2 billion US dollars or almost 100 billion US dollars (46%) (in 2017 this amounted to 126.3 billion US dollars). Accordingly, the GDP per capita in dollar terms and the average wage have also been reduced. A similar trend is observed in the Russian Federation.

In 2019-2020, Uzbekistan's GDP is projected to grow in US dollars, which is estimated to indicate an increase in the dollar rate. In this case, the growth in exports and its share in GDP will be a key factor in GDP growth in dollar terms.

What are the economic results observed in 2017?

If you pay attention to the results of the past year, it becomes obvious that the nominal GDP (in current prices) increased by 25.3%, and real GDP (in comparable prices) - by 5.3%. In the realities of the last year, industrial production grew by 4.6%, construction - by 5.6%, agriculture - by 2.0%, and the total volume of services - by 6.9%. Exports of goods and services increased by 12.3%, the inflation rate was 14.4%.

In conclusion, it can be said that each country seeks to ensure sustainable economic growth, because it leads first to an increase in the volume of the national product and revenues, secondly to the effective use of resources, thirdly, to the emergence of new needs and opportunities, Fourth, to enhance the country's image in the international market and, most importantly, ensure a prosperous life.

In other words, all economic reforms are aimed at achieving one goal - improving and improving people's well-being.

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