Uzbekistan upgraded to BB by Fitch on reform progress

Investing.com -- Fitch Ratings has upgraded Uzbekistan’s Long-Term Foreign-Currency Issuer Default Rating to ’BB’ from ’BB-’ with a Stable outlook, the rating agency announced Thursday.

The upgrade reflects accelerated reform progress and favorable medium-term growth prospects, which Fitch expects will contain macroeconomic stability risks and drive sustained improvement in structural credit metrics.

Uzbekistan has implemented several key reforms, including measures to improve monetary policy credibility, advancement of privatization plans, and enhanced transparency of public institutions. Energy tariff liberalization and subsidy reform contributed to stronger-than-expected fiscal performance in 2024.

The consolidated budget deficit for 2024 was just over 3% of GDP, better than the authorities’ target of 4%. This improvement resulted from broad-based revenue increases and a reduction in energy subsidy expenditure to less than 1% of GDP. Fitch projects the deficit will average 3% of GDP in 2025 and 2026.

Government debt-to-GDP ratio (excluding external guarantees) is forecast at about 32% in 2025 and 2026, well below the ’BB’ median of approximately 54%. Nearly 89% of debt is foreign-currency-denominated, with a sizeable portion being concessional.

Fitch forecasts high economic growth of 6.3% in 2025 and 2026, broadly in line with 2024 and above the peer median of 3.8%. Real GDP in the first quarter of 2025 grew by 6.8% year-on-year, boosted by strong expansion in services.

Foreign exchange reserves including gold increased to $49.7 billion as of June 1, 2025, from about $41 billion at the end of 2024. The increase was largely driven by higher gold prices, which accounts for nearly 77% of FX reserves.

Inflation is expected to slow to an average of 7% in 2026, from about 9% in 2024, though still above the central bank’s 5% medium-term target. The Central Bank of Uzbekistan has raised its policy rate by 50 basis points so far in 2025, to 14%.

The banking sector shows stability with a total capital adequacy ratio around 17% at the end of 2024. Financial dollarization has been decreasing, with deposit dollarization reaching about 24.5% in March 2025, down from approximately 40% in early 2020.

Fitch noted that Uzbekistan’s rating continues to reflect low public debt, sizeable external and fiscal buffers, and high potential growth, balanced against relatively low GDP per capita, high commodity dependence, and still-high inflation and financial dollarization.

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