S&P Global Ratings confirms Fergana region's credit rating at "B+"

On December 8, 2023, S&P Global Ratings reaffirmed the Fergana region's long-term credit ratings for obligations in foreign and national currencies at the "B+" level with a forecast for changes set at "Stable."

Forecast Analysis

The Stable Outlook is based on the expectation that the Fergana region will maintain robust fiscal performance, supported by transfers from the central government budget. Additionally, the region is not expected to incur commercial debt, in line with current national legislation barring regional and local governments from engaging in commercial borrowing.

Negative Scenario

S&P Global Ratings outlines a potential downgrade scenario if the relationship between the Fergana region administration and the Uzbekistan government changes, leading to the removal of restrictions on the budget deficit size. This could result in a significant deterioration of the region's budget indicators.

The ratings could see an upgrade if the institutional system of Uzbekistan becomes more efficient or if the well-being of the Fergana region's population significantly improves.

Rationale

The Fergana region's credit ratings are positively influenced by its adherence to strong budget indicators as per national legislation. However, constraints include the centralized and unstable nature of Uzbekistan's regional (municipal) finance system, low levels of prosperity with a GDP per capita around $1,300, and limited autonomy of regional administrations due to centralized control by the central government.

S&P Global Ratings notes the instability of Uzbekistan's regional finance system, affecting the flexibility of budget policies in the Fergana region. Centralized decision-making processes impact the region's ability to plan effectively, with changes in tax allocation, transfers, and spending powers occurring frequently.

Economic Overview

The Fergana region's economy is considered underdeveloped, with GDP per capita at about $1,300 and a concentration in the agricultural sector. Despite hosting 10% of the country's population, its contribution to Uzbekistan's GDP was 5.5% as of mid-2023. The region's economic growth is projected to align with the national average, averaging 5.5% of GDP per annum in real terms until 2025.

Financial Strength and Debt Levels

Fergana complies with Uzbek legislation that prohibits budget deficits, but S&P Global Ratings makes adjustments for some data inconsistencies. The region executed the 2022 budget with a deficit of 2.6%, covered by the surplus from 2021 and short-term loans. The rating agency expects the budget, accounting for capital expenditures, to approach a zero-level deficit until 2025. Fergana's commercial debt remains at zero due to legislative restrictions.

Financial and Economic Indicators (2020-2025):

• Current income: Fluctuates from UZS 3.767 bn (around $304,947) in 2020 to a projected UZS 12.780 bn (around $1,034,570) in 2025.
• Current expenses: Increase from UZS 3.763 bn (around $304,623) in 2020 to an estimated UZS 12.621 bn (around $1,021,698) in 2025.
• Current balance, % of current income: Ranges from 0.1% in 2020 to 1.2% in 2025.
• Capital income and expenditures: Exhibit variations over the forecast period.