S&P's updates Uzbekistan’s outlook to “Stable”

The international rating agency S&P has raised Uzbekistan’s outlook to “Stable”, but maintained the rating at the level of "BB-".

In June last year, the S&P had downgraded the credit ratings of 21 countries, changing the forward-looking indicators of 13 countries, including Uzbekistan, to "Negative".

The decision was made against the background of relatively high growth of Uzbekistan's external debt over the past two years. At the same time, it was reported that the credit rating of Uzbekistan may decrease if the growth of the country's external debt does not stabilize over the next 12 months.

Officials of the Ministry of Finance, the Central Bank and the Ministry of Economic Development and Poverty Reduction of Uzbekistan provided information on the macroeconomic situation in the country and ongoing reforms during conference calls held on May 10-11 this year.

Following these conference calls, the credit committee of S&P has decided to raise the rating outlook of the country for the following reasons.

1. According to S&P, in 2020, Uzbekistan was one of the few countries in the world that achieved economic growth (1.6%).

According to the agency, the main reasons for the economic growth were the functioning of the agricultural and industrial sectors, despite the restrictions associated with coronavirus (COVID-19), the implementation of major infrastructure and investment projects, and the government's rapid measures to stimulate the economy.

The agency forecasts Uzbekistan’s economy to grow by 4.8% in 2021, with the service sector becoming the main driver of growth.

2. The growth of external debt has slowed, and short-term fiscal and external risks have decreased.

The agency positively assessed the establishment of the annual limit of the state external debt ($5bn) and the maximum amount of the state debt (60% of GDP).

3. Uzbekistan's fiscal position in 2020-2021 has improved relative to S&P expectations. The high price of gold in 2020 led to a lower-than-expected total budget deficit in support of government revenue and the external balance (by the end of 2020, the total budget deficit was 4.5%).

As a result, some of the funds raised to support the budget were saved, and the volume of state assets was increased. This, in turn, helped to stabilize the ratio of net public debt to GDP.

Uzbekistan's economic growth is expected to accelerate this year, although the risks associated with COVID-19 remain high.

4. The report notes that Uzbekistan's external balance sheet ended better than expected in 2020. According to the agency, at the end of 2020, the liquid assets of the public and financial sectors exceeded the total amount of external debt.

5. In recent years, the Uzbek government has implemented a number of reforms, including increasing the independence of the judiciary, removing restrictions on freedom of speech and increasing accountability to citizens, combating corruption, increasing the transparency of economic data, liberalizing trade and the exchange rate, and reforming and privatizing SOEs.