Fitch Ratings confirm rating of Uzbekistan at “BB-”

Fitch Ratings has affirmed Uzbekistan’s long-term foreign currency (LTFC) issuer default rating (IDR) at «BB-» with a stable outlook.

According to the agency’s last report, Uzbekistan’s ratings balance robust external and fiscal buffers, low government debt and a record of high growth relative to “BB” rated peers.

«Uzbekistan’s government is progressing with key structural economic reforms, including privatization of state-owned enterprises and a continued reduction in preferential lending to stimulate competition in the economy. The government plans to revive its energy tariff reform, after putting off implementation in May 2023. Successful implementation will benefit long-term public finances and reduce contingent liability risks from state-owned electricity distribution companies,» the agency said in its report on Uzbekistan.

Despite the Russian invasion of Ukraine and anti-Russian sanctions imposed by the West, Uzbekistan’s commercial ties with Russia will remain deep, and the government will continue balancing this with strong ties with Western countries as it seeks to avoid becoming subject to secondary sanctions.

The agency expects the current account deficit to widen to 4.8% in 2023 – as remittances normalize and the trade deficit worsens – and to average 4.7% in 2024-2025.

Fitch expects gross general government debt to stabilize at just over 37% of GDP in 2023-2025, while 91.3% of government debt is FX-denominated as of Q1, 2023. Risks are mitigated by the high share of concessional debt and fairly long maturities for external debt.

Energy tariff hikes will result in a marked increase in inflation in 2024 to 13% on average, before falling to 6.5% in 2025.

According to Fitch, a significant worsening of external finances or a significant increase in the government debt-to-GDP ratio can lead to negative rating action for Uzbekistan.

On the other hand, consistent implementation of structural reforms that boost GDP growth prospects and macroeconomic stability, fiscal consolidation that enhances medium-term public debt sustainability, a marked and sustained improvement in governance standards and an easing in geopolitical risks are factors that could lead to positive rating action for Uzbekistan.