Strategic role of sovereign wealth funds in infrastructure development and inflation management: evidence from Uzbekistan

This study has been investigated the dual and temporally sequenced role of Sovereign Wealth Funds (SWFs) in financing national development while managing macroeconomic stability, with a focus on Uzbekistan. Utilizing a mixed-methods approach, we analyze the operations of the Uzbekistan Fund for Reconstruction and Development (UFRD) from 2018 to 2024. Econometric analysis, including Vector Error Correction Models, reveals a clear dual-impact pathway: SWF-driven infrastructure investment exerts significant short-term inflationary pressure, primarily through demand-pull effects in the construction sector, peaking around 12 months post-investment. However, this transitions into a long-term disinflationary force as new capacity enhances productivity and reduces logistical costs, with effects becoming evident after approximately 24 months. The net outcome is critically mediated by the government monetary policy. The research allows concluding that SWFs can be potent tools for transformative development, but their efficacy requires explicit coordination with macroeconomic policy to navigate the inherent short-term trade-offs and secure long-term supply-side gains.

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