Moody’s has improved the credit rating of Uzbekistan. Causes and possible risks

According to, Moody’s has upgraded Uzbekistan’s credit rating for “commitment to a comprehensive reform program”. The organization expects the government to continue with more complex reforms, although the pace could be moderate “to manage social and political risks”.

The international rating agency Moody’s announced an increase in the sovereign credit rating of Uzbekistan from B1 to Ba3 (similar to “BB-” from S&P and Fitch), and also changed the outlook from “positive” to “stable”.

According to the agency, the upgrade reflects “Uzbekistan’s demonstrated commitment in recent years to a comprehensive reform agenda” that has been maintained through two significant successive crises and that Moody’s expects to continue.

Despite the coronavirus pandemic and the military conflict between Russia and Ukraine, real GDP growth, fiscal and external indicators remain strong, reflecting the resilience of the economy and improved policy effectiveness in recent years. As fiscal and monetary instruments continue to evolve, the agency expects further improvements in institutions and governance.

The stable outlook reflects the risks of rising debt levels above current expectations and geopolitical risks to economic growth. However, fiscal risks are mitigated by the government’s relatively low and sustainable debt burden, as well as the presence of significant assets in the Uzbekistan Reconstruction and Development Fund.

Moody’s also notes the government’s strong economic footprint and weak policy predictability, partly balanced by the moderate risk of external vulnerabilities, reflecting a persistent, albeit declining, current account deficit and moderate external debt (mostly on concessional terms).

Analysts expect the government to continue with more complex reforms, although the pace could be moderate “to manage social and political risks”.

In particular, further progress is expected on reforms currently underway (2022-2026 agenda), including IPOs of large state-owned enterprises and bank privatizations, which will lead to further increases in productivity and competitiveness. They will continue with the privatization of smaller state-owned enterprises and the separation of state-owned gas and electricity companies.

Monetary reform includes the issuance of government securities denominated in soums to develop Uzbekistan’s domestic capital markets. The government first issued five- and ten-year Treasury bonds, as well as two-year inflation-linked bonds, on the market for the first time in 2022. Since February 2022, foreign and local investors have been allowed to buy government securities at primary auctions. In addition, the government plans to intensify open market operations to support interbank repos and the government securities market.

In terms of fiscal policy, the government has set fiscal barriers such as a debt ceiling of 60% of GDP, annual borrowing limits, etc.

Moody’s expects Uzbekistan’s debt burden to stabilize below 45% of GDP over the next 3 years. While Moody’s expects that increases in social spending (more than 25% per year in 2021 and 2022) and delayed energy reforms will delay fiscal consolidation (revenue or spending optimization to reduce government debt and budget deficits to ensure fiscal sustainability), the deficit will widen budget (up to 4%) is offset by improved tax collection due to tax reforms, as evidenced by the growth in VAT and income tax revenues.

Meanwhile, scheduled 2022 debt issuances were delayed due to unfavorable market conditions as the government instead used the assets, along with continued funding from international financial institutions. However, FRDU assets were at $16.5 billion, with more than 50% liquid assets that could cover about 28% of total government debt in 2022.

Despite the ongoing military conflict between Russia and Ukraine, the volume of exports and remittances has so far exceeded the agency’s expectations: exports in January-November increased by 12%, and remittances from Russia almost tripled. Fears about the mass return of labor migrants from the Russian Federation did not materialize.

However, as the conflict escalates into a protracted war and sanctions on the Russian economy tighten, Moody’s retains major risks. These include the unpredictability of cash flows, pressure on the labor market and price pressure on the housing market of Uzbekistan due to the flow of Russian emigrants, as well as the risk of receiving secondary sanctions.

Inflation has increased and remains high, increasing social risks. However, the conflict between Ukraine and Russia also opens up opportunities for Uzbek companies in logistics, trade and transport, and tourism as Western companies exit the Russian market and Russians move to Uzbekistan.

Moody’s expects GDP growth to ease to 5% in 2023 due to slower remittances and inflation impacting domestic private consumption, but to recover next year as government-supported construction and public investment projects accelerate.