Uzbekistan’s inclusive turnaround: solutions at the level of each mahalla

Under the chairmanship of the President of the Republic of Uzbekistan, a video conference meeting was held on January 23 on the key tasks of reducing poverty and ensuring employment for the population for 2026. In terms of its content and formulation of issues, it became a turning point in the evolution of the country's social policy.

The relevance of the transition to a new model of managed targeting

The results of the reforms demonstrate the transition from the next stage of social policy. For the first time, the fight against poverty is made directly dependent on the results at the level of specific communities.

Such a shift was a consequence of the achieved socio-economic results. At the end of 2025, the country’s economy grew by 7.7%, which is significantly higher than forecast estimates (6.5%), and the GDP volume exceeded $147 billion and amounted to about $3.9 thousand per capita. In all sectors of the economy, growth rates exceeded 2024 levels. The volume of foreign investment reached $43 billion, and the volume of exports reached $33.8 billion. Over the year, inflation decreased from 9.8% to 7.3% in 2025.

Strong economic growth ensured a significant increase in budget revenues, which were consistently allocated to solving social issues, fighting poverty and developing mahallas. Due to this factor, in 2025, 5.4 million people were provided with sources of income, 330 thousand families were lifted out of poverty. As a result, the unemployment rate dropped to 4.8% and the poverty rate to 5.8%.

As overall poverty rates decline, the geography of poverty changes. It becomes local, concentrated and heterogeneous. Almost a third of low-income families and about a fifth of the unemployed are concentrated in a limited number of mahallas, which requires a transition to a new model.

Against this background, the main indicator becomes the achieved result at the level of each community. The persistence of poverty or unemployment means that measures need additional adjustment.

In this regard, for the first time at the national level, a systematic classification of all areas of the country by poverty level was carried out. Based on 20 criteria, 37 “complex” districts and 903 “complex” mahallas were identified, in which about 120 thousand poor families and about 155 thousand unemployed citizens live. At the same time, work to shape the appearance of the “New Uzbekistan” has begun in another 33 districts and 330 “difficult” mahallas.

The peculiarity of the new approach is that “difficult” territories are considered as points of structural transformation. For each mahalla and district, comparative advantages are analyzed, including economic, agricultural, industrial, logistics or service.

Individual mahalla development programs are formed. Practice shows that even in the most vulnerable areas, ensuring a stable availability of water and electricity, minimal infrastructure and cooperation with markets can significantly increase the income of the population.

Thus, this year, territorial targeted development is becoming the main tool for achieving set goals, which was clearly outlined by the President.

Infrastructure as an economic asset

The new model places special emphasis on revising regional policy priorities. As the President noted, residents and entrepreneurs in “difficult” areas and mahallas primarily expect improvements in roads, water and electricity supplies, and not the expansion of tax benefits.

The concentration of resources on a limited number of problem areas makes it possible to transform infrastructure investments from general budget financing into an instrument of targeted socio-economic impact. In 2026, 20 trillion soums will be allocated for the development of regional infrastructure, of which 12 trillion soums are intended for “difficult” districts and mahallas.

At the same time, funds returned from the republican budget to local budgets will increase by 2 times.

An additional allocation of 50 billion soums is provided each “complex” district and 2 billion soums for each “complex” mahalla.

In total, district khokimiyats and local councils will receive about 4 trillion more soums, exclusively to support problem areas.

An important element of this model is providing “complex” districts and mahallas with a stable energy supply.

In 2026, it is planned to build small solar power plants with a capacity of 300 kW in each of the 903 “complex” mahallas for a total cost of about $110 million. The stations will be transferred free of charge to mahallas, forming a local energy asset. Due to the generation of “green” electricity, a sustainable source of additional income in the amount of 400–500 million soums per year is created in each mahalla.

The funds received are expected to be used for energy-efficient renovation of the housing stock, reducing utility costs and improving the quality of life of the population. The operation of solar stations will be ensured with the involvement of members of low-income families, which makes it possible to simultaneously solve the problems of employment and infrastructure sustainability.

Special emphasis is placed on supporting the most vulnerable households. It was ordered to conduct a targeted survey of 6,700 families in which there is a disability of the first group and there are no able-bodied family members, followed by identifying the needs for energy-efficient modernization of housing and the beginning of “green” renovation.

Collectively, these measures form a model of territorial and energy sustainability. And the assessment of the effectiveness of local authorities is submitted for public assessment, consolidating the transition to results-oriented management.

Comparative advantages of mahallas

The President clearly defined key socio-economic targets for 2026, including providing permanent employment for about 1 million people, lifting 181 thousand families out of poverty, increasing the number of mahallas free from poverty by 2.5 times - to 3.5 thousand, as well as reducing the unemployment rate to 4.5%.

The achievement of these goals is expected based on the comparative advantages of specific areas and mahallas in industry, agriculture and the service sector. This approach makes it possible to concentrate resources where they provide the greatest multiplier effect on employment and income of the population.

As an example of the use of comparative advantages based on the location and specialization of mahallas, the President named the Furkat district, which has a number of advantages. Firstly, this is cooperation with neighboring economically active centers. Secondly, deepening the specialization of nearby mahallas and combining competencies. Thirdly, increasing added value by launching processing.

As part of the formation of a model of a differentiated approach to the development of problem areas, further measures were outlined.

Deepening the specialization of mahallas

The main attention will be focused on deepening the specialization of mahallas, since in mahallas with deep specialization the level of well-being is much higher. Practice shows that in mahallas with stable specialization the level of well-being is noticeably higher, and the number of recipients of social assistance is half as low and is about 7 people for every 10 thousand population.

Currently, about 90 thousand hectares of household and rental land are concentrated in 903 “complex” mahallas. To transform this resource into a source of sustainable income, a new mechanism of “social contract” between the state and mahalla has been proposed. Mahallas, which manage to increase household incomes by 3-4 times by relying on the skills of the population and rational use of land, receive additional funding in the amount of 2 billion soums for the development of road, water and irrigation infrastructure. The implementation of this model is planned to begin with “complex” mahallas.

To deepen the specialization of mahallas, banks will allocate a total of 17 trillion soums of loans. At the same time, 4% of the loan is compensated for production projects, and 6% for processing.

Comparative advantages of mahallas

In 2026, 140 trillion soums of credit resources are provided for the development of small and medium-sized businesses in mahallas, compared to 130 trillion soums a year earlier. At the same time, banks are tasked with strengthening the financing of entrepreneurship; with the planned $6 billion from external sources, the total amount of funds allocated to makhalla projects should be increased to $8 billion.

Not only the scale, but also the principle of distribution of loans changes in content. The model in which, within the framework of the Family Entrepreneurship program, loans were issued on equal terms at a rate of 17.5% for all districts and cities, gives way to territorial differentiation, in particular for 37 “difficult” districts the rate is reduced to 12%. This step transforms lending into a tool for accelerating the development of problem areas.

At the same time, the limits and target areas of the program are expanding. In all regions, the maximum size of a preferential loan increases by 1.5 times - from 33 to 50 million soums. To provide resources for this decision, another 2 trillion soums are added to the planned 3.6 trillion soums.

Taken together, the credit policy of 2026 is formalized as a targeted development mechanism, as a controlled transformation of credit into employment, income and local growth.

Institutional changes in system management

At the same time, a number of institutional changes are envisaged to improve the efficiency of all levels of management related to the development of mahallas.

Work in mahallas ceases to be administrative and intermediary in nature and is built around specific projects. In this model, the assistant khokim acts as a manager of territorial development, responsible for the implementation of project decisions.

Multi-level coordination is introduced to ensure the integrity of project management. Regional bankers are attached to the initiatives of the khokim’s assistants, the first deputy khokim of the region provides operational support, and the “Reform Headquarters” takes control of issues that require interdepartmental decisions. Since February, a system of training khokim assistants in project management has been launched, starting with “complex” mahallas. In each district, a portfolio of projects is formed with subsequent transition to practical implementation.

One ​​hundred “complex” mahallas that have shown the best performance in terms of job creation, income growth and poverty reduction will receive 1 billion soums of additional funding. Assistants to the khokims of these mahallas will be able to improve their skills in China, Turkey, Korea and Malaysia.

In this regard, work on developing master plans for mahallas is being intensified. For this purpose, foreign experts are involved, and the potential of domestic universities is also used. Graduate students of architectural disciplines will be able to participate in the development of “complex” mahallas, the best projects will be encouraged by government grants.

In general, institutional changes record the transition from a universal approach to a differentiated territorial policy.

The redistribution of resources is justified by the structure of the economy, for example, 62% of industrial production and 57% of the service sector are concentrated in 50 districts and cities with high entrepreneurial potential. The growth of their budget revenues creates the opportunity to concentrate government efforts on problem areas.

This can be seen from the dynamics of revenues, so if three years ago the additional income of local budgets in these 50 territories amounted to 875 billion soums, then this year an increase of 8.5 times is expected - up to 7 trillion 400 billion soums.

As a result, there is the opportunity to direct more attention to “difficult” areas and mahallas, where poverty and unemployment are concentrated territorially.

Conclusion

Decisions and tools of 2026 show that the social policy of Uzbekistan goes beyond the traditional redistribution of resources and moves to a model of managed territorial development. The new model is based on three interrelated areas.

First, the concentration of infrastructure resources in “difficult” areas and mahallas with the formation of long-term local assets, reducing household costs and increasing energy sustainability.

Second, expanding employment due to comparative advantages and deepening the specialization of territories, provided with financial incentives, access to credit and solutions along the chains added value.

Third, institutional reconfiguration of management, in which the project approach and cross-level coordination link resources, responsibility and measurable results.

The turn of the current stage is that targeting becomes a technology focused on “heavy” territories. The escape from poverty is understood as an individual household trajectory, where local conditions, skills and infrastructure are decisive. The Mahalla Seven and the Institute of Assistant Khokims act as a link, providing coordination and feedback until results are achieved.

Khurshed Asadov,

Deputy Director of CEIR