In a report released by Fitch Ratings on August 25, 2023, it has been confirmed that Uzbekistan's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) remains steady at 'BB-' with a Stable Outlook.
The assessment underscores the equilibrium achieved by Uzbekistan's ratings through a combination of robust external and fiscal reserves, limited government debt, and a track record of substantial growth when compared to other 'BB' rated counterparts. This is weighed against the nation's significant reliance on commodities and inherent structural vulnerabilities, such as low GDP per capita, a dominant state presence in the economy, and governance challenges.
The government has embarked on key economic reforms, a notable stride being the privatization of state-owned enterprises, coupled with the ongoing reduction in preferential lending to spur competitive dynamics within the economy. The report also highlights the country's strong external financial position, indicated by foreign exchange reserves equivalent to 9.4 months of current account obligations as of July 2023, with the economy standing as a net external creditor.
Forecasts from Fitch indicate that the gross general government debt is anticipated to stabilize at slightly over 37% of the GDP between 2023 and 2025. As part of its structural economic reform strategy, the Uzbek government plans to reinstate its energy tariff reform, a move initially deferred in May 2023. The successful implementation of this reform is expected to have a favorable impact on long-term public finances while mitigating risks tied to state-owned electricity distribution entities.
Uzbekistan's World Bank Worldwide Governance Indicators (WBGI) demonstrated a marked improvement, rising by 9 percentage points in the 2021 ranking to the 29th percentile overall, in contrast to the current 'BB' median of the 50th percentile. Notably, this advancement was primarily driven by enhanced scores in the Regulatory Quality Index (up by 17 percentage points) and the Government Effectiveness Index (up by 11 percentage points).
The report further sheds light on the impact of rouble volatility, leading to a 25% decrease in remittances during the first half of 2023, although these levels remain relatively high when evaluated against historical standards. Fitch projects that the current account deficit is poised to expand to 4.8% in 2023 as remittances normalize and the trade deficit worsens. The average deficit is anticipated to be around 4.7% in 2024-2025, with the external liquidity ratio projected to maintain an average of approximately 400% over the period of 2023-2025, surpassing the current 'BB' median of 144%.
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