Fitch affirms Uzbekistan’s IDR at 'BB-' with a stable outlook

Fitch Ratings has affirmed Uzbekistan's long-term foreign-currency Issuer Default Rating (IDR) at 'BB-' with a stable outlook.

Fitch said it was expecting the Uzbek economy to expand by 6.2% in 2021 adding that the growth would maintain strong momentum, averaging 5.7% in 2022-2023 supported by a gradual pace of fiscal consolidation, strong investment, continued access to external financing and reforms positively impacting agriculture, construction and industrial production.

The same forecast was earlier unveiled by the World Bank’s Autumn Europe and Central Asia Economic Update.

Fitch forecasts that Uzbekistan's overall fiscal deficit would increase to 5.2% of GDP in 2021, slightly below the government's 5.5% target and the 'BB' median forecast of 5.7%.

“Our 2021 forecast incorporates a moderate increase in the consolidated budget deficit to 3.4% of GDP, up from 2.8% in 2020, but below the government projection of 3.7%”, the agency said.

It also forecasts a gradual fiscal consolidation with the overall deficit reaching 4.3% of GDP in 2022 and 3.8% in 2023, as authorities continue to emphasise spending on investment, health and education.

Government debt is set to rise to 42% of GDP in 2021, from 37% in 2020. Fitch projects debt to reach 44% of GDP in 2023, still below the 59% 'BB' median forecast, but more than double its 2018 level of 20%.

The rating agency added that Uzbekistan’s current account deficit would remain wider than peers (6.5% of GDP in 2021 and average 5.7% in 2022-2023), driven by strong domestic demand, but continued external financing availability, FDI inflows and relative stability in gold prices (62% of international reserves) would prevent significant erosion of reserves.

Fitch added that it was expecting the Central Bank of Uzbekistan to maintain positive real rates, as part of its transition to inflation targeting. The inflation is projected to decline to 9.8% by end-2021.