THE IMPACT OF INFLATIONARY PROCESSES ON INVESTMENT PROJECT APPRAISAL IN THE CONTEXT OF AN EMERGING MARKET ECONOMY: PRACTICE AND METHODOLOGICAL CHALLENGES IN UZBEKISTAN

Abstract

Inflation is one of the most significant yet frequently underestimated factors in the appraisal of investment projects. Under conditions of high and volatile inflation, nominal cash flows distort the true economic efficiency of a project, potentially resulting in erroneous investment decisions. This paper examines how inflationary processes affect key investment appraisal indicators—Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period—using Uzbekistan as a case study, where annual inflation fluctuated between 7% and 14% from 2017 to 2023. Both theoretical approaches to inflation adjustment (nominal vs. real methods, cash flow indexing, scenario analysis) and practical difficulties encountered by investors and analysts in the Uzbek context are explored. The study reveals that only 28% of analyzed investment projects correctly account for inflation, while the majority rely on simplified or incorrect methods, leading to systematic overestimation of expected returns. Practical recommendations are proposed to improve methodological rigor and investment decision-making quality.