Uzbekistan Accelerates Digital Transformation to Formalize Shadow Economy

Uzbekistan has banned cash transactions for key items as part of a broader strategy to formalize its shadow economy through increased digital penetration and business traceability.

The move, implemented this month, targets sectors where informal economic activity has traditionally been prevalent, aiming to bring more transactions into the formal economy by requiring digital payments for specific goods and services.

According to officials, the initiative is designed to raise digital payment adoption and improve the government’s ability to monitor business operations, particularly in areas that have historically operated outside regulatory oversight.

Critics, however, warn that transitioning the estimated $41 billion shadow economy to digital platforms may prove challenging due to entrenched informal practices and limited access to financial infrastructure in certain regions.

Recent data shows progress in reducing the informal sector’s size, with Uzbekistan’s shadow economy accounting for 33% of GDP in 2025, down from an estimated 45–50% in 2019, according to the Ministry of Economy and Finance.

This decline has coincided with broader economic reforms, including tax simplification, the expansion of digital tax administration, and growing use of electronic payments across various industries.

Authorities have emphasized administrative simplification over punitive enforcement, introducing measures such as streamlined business registration and targeted incentives to encourage voluntary compliance and formalization.

Informal employment remains concentrated in construction, agriculture, and trade and food services — sectors characterized by seasonal labor, flexible hiring models, and historically lower compliance costs, as noted by the Center for Economic Research and Reforms.

The government’s approach draws on international examples, referencing Norway’s high rate of cashless payments (97–98% in 2024) and Estonia’s integration of digital tax filing, electronic invoicing, and nationwide electronic identification, which have contributed to significantly lower shadow economy levels in those countries.

In parallel with anti-informality measures, Uzbekistan is advancing its digital transformation agenda, with IT exports nearing $1 billion and foreign direct investment in artificial intelligence and digital technologies approaching $2 billion, according to recent government reports.

The startup ecosystem has expanded rapidly, with the number of startups increasing tenfold and total investment exceeding $300 million, reflecting improved conditions for technology-driven businesses outside the capital.

Global technology firms are increasingly engaging with Uzbekistan’s market, exemplified by EPAM Systems’ growth from five employees in 2019 to over 600 local specialists, and Ivention’s establishment of its fastest-growing international branch in the country.