Uzbekistan’s capital market saw significant developments with the introduction of several key reforms on June 12. The Cabinet of Ministers approved the introduction of Individual Investment Accounts (IIA). This initiative enables Uzbek citizens aged 18 and older to invest in local securities, such as corporate bonds and stocks, without incurring personal income tax (12%). The annual deposit limit for an IIA is set at 100 minimum wages, equivalent to UZS 105 mn (almost $8,400). Withdrawals from the IIA within 12 months will be subject to taxation according to relevant tax laws.
IIAs can be established remotely through an investment intermediary, with a one-year validity period for each account. Dividends and interest payments from investments are directed to the client's regular deposit or bank account, rather than the IIA.
The introduction of Individual Investment Accounts (IIAs) and transactions involving State Debt Securities (SDS) of the Bank of Georgia represent significant developments for the capital market of Uzbekistan. While IIAs promote increased capital circulation within the country, SDS transactions attract foreign capital. If implemented effectively, IIAs can enhance market liquidity more rapidly than institutional investors, who typically enter the market more slowly.
Before the introduction of IIAs, bank deposits were the most attractive investment tool, yielding returns of around 20-24%. By investing in corporate bonds through IIAs with a 12% tax exemption, individuals can secure an almost guaranteed return of 36%. Successful implementation of this initiative might foster greater trust in the capital market and enhance its liquidity.
Additionally, it will be more cost-effective for companies to raise debt as they stand to benefit from reduced debt-raising costs. While the average interest rate for bank credit among legal entities in the first half of 2024 stands at around 23%, corporate bonds carry an average rate of 25% for the same period. Given the stricter credit requirements for bank loans compared to issuing corporate bonds, many companies may opt for the latter, thus driving further growth in the bond market,
- Zakhro Murtazaevainan, Financial Analyst at Avesta Investment Group told Daryo's correspondent.
On the same day, The Bank of Georgia executed its first transaction for local government bonds, known as State Debt Securities (SDS), marking a notable advancement in the market. These bonds, denominated in Uzbek soums (UZS), are now traded on the Uzbek Republican Currency Exchange (UZCE) trading platform.
The introduction of the "Regulatory Sandbox" regime, launched by the National Agency for Perspective Projects (NAPP) under the Presidential Decree, has facilitated this development. This three-year initiative, which began at the start of the year, allows international custodians and brokers to invest in local securities, primarily SDS. The Bank of Georgia's transaction under this regime underscores growing international confidence in Uzbekistan's economic environment. As the first participant in this sandbox, the Bank’s involvement is expected to attract additional global financial institutions and investors.
In alignment with the Presidential Decree, the NAPP approved guidelines for issuing green bonds on June 10, 2024. Issuers must submit a framework program and a certification of compliance with "green" standards from an authorized organization. Funds raised through green bonds must be used following the National Green Taxonomy or equivalent standards, with periodic reporting required on fund allocation.
This legislative change aims to encourage the issuance of green bonds and attract international investors, including institutions such as the EBRD, ADB, and IFC, which prioritize sustainable investments. These reforms are expected to significantly enhance Uzbekistan's capital market, fostering growth and international engagement.
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