On 21 December 2018, S&P Global Ratings assigned its ‘BB-/B’ long- and short-term foreign and local currency sovereign credit ratings to Uzbekistan. The outlook is stable. The transfer and convertibility (T&C) assessment is ‘BB-’.

The stable outlook reflects the agency’s expectation that, over the next year, Uzbekistan’s fiscal and external net asset positions will remain strong, albeit decline slightly, due to expected future current account deficits and government borrowing.

“We could raise the ratings if monetary policy effectiveness were to improve, for example through a decline in dollarization of the economy. Further diversification of the government’s revenue base or the composition of the economy’s exports would also be supportive of the ratings,” the agency said.

“We could lower the ratings if the fiscal or external positions deteriorated, for example if fiscal deficits increased beyond our base-case scenario or if higher-than-expected current account deficits led to an increase in external financing needs. We could also lower the ratings if we observed increasing weakness in key state-owned enterprises (SOEs), leading to growing contingent liabilities for the government,” S&P Global Ratings said.

“Our ratings on Uzbekistan are supported by the government’s strong fiscal and external positions. These strengths predominately arise from the government’s large asset position, which stems partly from the policy of transferring part of the revenues from commodity sales to the Uzbekistan Fund for Reconstruction and Development (UFRD),” the statement of S&P Global Ratings said.

“Our ratings are constrained by Uzbekistan’s low economic wealth, as measured by GDP per capita. In our view, future policy responses may be difficult to predict, given the highly centralized decision-making process and that accountability and checks and balances between institutions are relatively underdeveloped. Our ratings are also constrained by low monetary policy flexibility,” the agency noted.

S&P Global Ratings said institutional And Economic Profile: Reforms have begun to open up the economy but challenges remain Broad-based policy reforms have improved institutions, albeit from a low base, and opened up the economy.

“We expect decision-making to remain centralized. GDP per capita remains low, at an estimated $1,200 in 2018. We expect real GDP growth to remain relatively strong, averaging 5% over our forecast period to 2021,” the agency said.

S&P Global Ratings underlined that President Mirziyoyev, wh came to power after the death of longstanding President Karimov in 2016, has initiated a series of broad-based policy reforms, including attempts to increase the independence of the judiciary, remove some restrictions on free expression, and increase the government’s accountability to its citizens. Changes have also included the implementation of an anti-corruption law, an increase in transparency regarding economic data, and the liberalization of trade and the foreign exchange regimes.

The agency said that relationships with neighbors have also greatly improved, evidenced by increased co-operation in border demarcation with Kyrgyzstan and improvements in transportation links with Kazakhstan and Tajikistan. Further reforms earmarked for implementation beginning in 2019 are a new tax system, reforms in the banking system, and early stage development of domestic financial markets. "