Uzbekistan finds itself at a critical juncture in its economic reform journey, with Fitch Ratings shedding light on the intricacies of the current phase. Over the past six years, the nation has made significant strides in economic transformation, emphasizing market-driven principles. However, challenges persist in eliminating subsidized and directed lending, compounded by geopolitical uncertainties and social considerations, Fitch Ratings reports.
In a noteworthy development in October, a presidential decree sanctioned the deferral of a $140mn loan repayment by the national rail operator (UTY) to the Uzbekistan Fund for Reconstruction and Development (UFRD) for a five-year period. Simultaneously, UFRD was directed to extend a $150mn loan to private logistics firms closely affiliated with UTY, aiming to establish a private-sector cargo movement system. These directives raise questions about the government's continued involvement in credit provision, potentially conflicting with the envisioned market-based lending practices.
The privatization of key banks is another facet of Uzbekistan's economic reforms. After the government's sale of 73.7% of common shares in Ipoteka Bank in June, the deadlines for divesting controlling stakes in two other major lenders were extended. This move aligns with Fitch's expectations that the original timeframe for bank privatizations would be challenging, given the ongoing implementation of business model transformations. Moreover, geopolitical uncertainties in the region could impact investor sentiment, potentially delaying the privatization process.
The government's commitment to phasing out subsidized development lending in the banking sector has encountered an extension of the timeframe. Recent decisions, such as the reorganization of the state-owned Qishloq Qurilish Bank into a policy institution, underscore this extension. The reorganized bank is now tasked with providing long-term financing for small businesses at rates closer to banking sector averages. While the government aims for a market-oriented approach, recent initiatives seem to deviate from this goal.
In the energy sector, Uzbekistan is gearing up for the second phase of tariff reforms scheduled for May 2024. The government has taken steps to secure a stable energy supply, evident in increased Russian natural gas supplies and enhanced distribution networks. However, challenges persisted in December, highlighting the importance of ensuring a reliable energy supply. The government's ambition to reduce subsidies to energy distribution companies and phase out all tariffs by 2027 is viewed positively by Fitch Ratings.
The Central Bank of Uzbekistan has proposed a plan to decrease subsidies for energy resources and social expenditures in its monetary policy spanning from 2024 to 2026. This move is anticipated to significantly bolster budget consolidation. While advocating for reduced subsidies and social expenses, the Central Bank also highlighted the importance of sustaining state investments, emphasizing their enduring positive impact on economic growth. This aligns with the current economic trajectory of Uzbekistan, projecting a 5% GDP growth for both 2023 and 2024. In the context of energy tariff liberalization, the Central Bank stressed the need to continue targeted support for the population. This recommendation comes as Uzbekistan experienced a 9% rise in GDP per capita in 2022, although it remains the lowest among comparable countries.
Earlier Daryo reported that Fitch Ratings has formally revoked the 'BB-' Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) with a Stable Outlook for Tashkent city, Uzbekistan. The city's decision to no longer participate in the rating process led to Fitch discontinuing its ratings and analytical coverage.
Fitch Ratings Inc. is a prominent American credit rating agency, part of the trio of major credit rating agencies known as the "Big Three," alongside Moody's and Standard & Poor's. It holds the distinction of being one of the three nationally recognized statistical rating organizations appointed by the U.S. Securities and Exchange Commission in 1975.
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