Uzbekistan outlook revised to positive due to resilient growth and reforms

Investing.com -- S&P Global Ratings has revised its outlook for Uzbekistan from stable to positive, citing resilient economic growth and a strong momentum in reform implementation. The credit rating agency has also affirmed the country’s ’BB-/B’ ratings.

The improved outlook is bolstered by stronger gold prices, which are expected to boost Uzbekistan’s exports and fiscal revenues, and keep foreign exchange reserves high. The country’s ongoing economic reforms and robust domestic demand, supported by investments and labor remittances, are projected to sustain relatively strong GDP growth despite global trade tensions and uncertainties.

The positive outlook also indicates that the government is expected to continue implementing economic and governance reforms, while progressing with fiscal consolidation measures. The scenario also reflects expectations of high gold prices, which will support Uzbekistan’s export and fiscal receipts.

The ratings could be raised if Uzbekistan’s commitment to reform persists, as demonstrated by continued energy tariff reforms and improved supervision of government-related entities (GREs). An upgrade could also be considered if Uzbekistan moderates its budgetary and current account deficits without significantly impairing economic performance.

However, the outlook could be revised back to stable if external and fiscal deficits weaken beyond expectations due to less favorable terms of trade, persistently high government spending, or higher borrowing costs. The outlook could also be revised to stable if growth slows significantly, for instance due to lower-than-anticipated benefits from debt-financed investment projects.

The revision to a positive outlook reflects ongoing efforts to liberalize and improve the resilience of Uzbekistan’s economy, a process that began in 2017. Efforts to enhance governance and macroeconomic management are also acknowledged. The country’s strong growth outlook is supported by ongoing economic reforms, government investments, and remittance inflows. Real GDP is expected to expand by 5.6% on average over 2025-2028.

The government has been addressing issues related to energy security, the high fiscal cost of subsidies, and rising gas imports by raising electricity and gas tariffs since October 2023. Authorities plan for energy pricing to reflect costs by 2027. Lower subsidies, favorable gold prices, and high nominal GDP growth should help Uzbekistan reduce its fiscal deficit to 3.0% of GDP, on average, over 2025-2028, down from 4.9% in 2023 and 3.3% in 2024.

Government development plans require sizable debt-financed investments. These are expected to continue driving up Uzbekistan’s net general government and external leverage, but the speed of the increase is expected to ease. The current account deficit moderated to 5.0% of GDP in 2024, and deficits are forecasted to slightly widen to 5.7% of GDP, on average, over 2025-2028, assuming declining gold prices and elevated import growth to support public investment projects.

The ratings on Uzbekistan are supported by the economy’s moderate level of net general government debt, forecasted to reach 34% of GDP by the end of 2028. The sovereign’s fiscal and external stock positions have historically benefited from its policy of transferring some revenue from commodity sales to the Uzbekistan Fund for Reconstruction and Development (UFRD), a sovereign wealth fund.

However, the ratings are constrained by Uzbekistan’s low economic wealth, measured by GDP per capita, high exposure to commodity price volatility, and relatively limited monetary policy flexibility. Despite reforms, policy responses are difficult to predict, given the highly centralized decision-making process, developing accountability mechanisms, and the limited checks and balances between institutions.

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