Fitch Ratings, on February 23, confirmed Uzbekistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-’ with a Stable Outlook. Uzbekistan’s ratings are a balance of strong external and fiscal buffers, low government debt, and a history of high growth compared to ‘BB-rated peers.
These strengths are offset by high commodity dependence and structural weaknesses such as low GDP per capita, a large but decreasing state presence in the economy, and weak but improving governance levels.
What does 'BB-' rating stands for?
'BB-' grade (junk bond territory). The Standard & Poor's and Fitch credit agencies assign a BB credit rating to a bond issuer, such as a government or corporation, to reflect the issuer's creditworthiness and possibility of bond default.
Bonds with a BB rating are not investment grade, indicating a comparatively high credit risk. It means that there is doubt about the borrower's ability to fulfil its financial obligations, making it appear "junk" or unstable.
Progressing reforms
A significant reduction in energy subsidies for households is set to be implemented in May 2024, following the liberalisation of tariffs for industries in October 2023. Fitch anticipates that successful implementation will benefit long-term public finances and decrease contingent liability risks from state-owned electricity distribution companies.
Rating | Prior | |
| Uzbekistan | LT IDR BB- | BB- |
| ST IDR B | B | |
| LC LT IDR BB- | BB- | |
| LC ST IDR B | B | |
| Country ceiling BB- | BB- | |
| senior unsecured | LT BB- | BB- |
However, the phasing out of subsidised lending is moving at a slower pace, likely due to social considerations. After the successful privatisation of Ipoteka Bank in the first 6M 2023, authorities have extended deadlines for selling controlling stakes in two other large lenders. This supports Fitch’s expectation that the original timeframe for bank privatisations would be challenging as business model transformations are still being implemented. Investor sentiment may also be affected by ongoing geopolitical uncertainty in the region, which could delay privatisation.
Fiscal slippage in 2023
The headline budget deficit, which includes balances of extrabudgetary accounts and the Uzbekistan Fund for Reconstruction and Development (UFRD), widened by 1.4 pp (0.014%) to 5.5% of GDP in 2023. This significantly exceeded the original budgeted target of 3%, reflecting delays to energy tariff liberalisation, a slower-than-expected decrease in subsidised lending, and lower-than-expected corporate profit tax following short-term energy shortages in Q1 2023.
Fitch expects the deficit to contract to 4.3% of GDP in 2024 and 3.9% in 2025, as cuts to energy subsidies will permanently reduce expenditure by an estimated 1.5 pp (0.015%) of GDP from 2024. Risks to this outlook arise from higher inflation, which may necessitate greater provision of offsetting support measures to the population.
Low public debt levels
Gross general government debt (GGGD; including external state guarantees) stood at 36% of GDP as of end-2023 (current ‘BB’ median: 52%). Authorities issued $660 mn (0.7% of GDP) in a Eurobond and UZS 4.25 trillion or $340.5 mn (0.4% of GDP) in soum-denominated green bonds in external markets in October 2023, as a revised, larger deficit increased financing requirements.
As of the end 2023, 92.6% of government debt was foreign-currency-denominated, although risks are mitigated by the high share of concessional debt (88% of external public debt) and fairly long maturities (2023: 9.1 years) for external debt. The large stock of government deposits and the assets of the UFRD (2023: 18.4% of GDP) will keep net government debt levels low. While the UFRD is an important buffer, the proportion of foreign-currency-denominated assets nearly halved since 2017 (when economic reforms began) to $6.5 bn (7.2% of GDP) as of the end of 2023.
Follow Daryo's official Instagram and Twitter pages to keep current on world news.
Comments (0)