Fitch maintains Uzbekistan's 'BB-' Rating with a Stable Outlook

Fitch Ratings has reaffirmed Uzbekistan's credit rating at 'BB-' with a Stable Outlook in its latest report. Here's a look at the key findings:

Credit Fundamentals: Fitch's assessment recognizes Uzbekistan's robust external and fiscal buffers, low government debt, and a history of high growth relative to countries with a similar 'BB' rating. However, challenges are noted, including high commodity dependence and structural weaknesses such as low GDP per capita, an uncompetitive and large state presence in the economy, and weak governance levels.

Fiscal Dynamics: 2023 witnessed the widening of the budget deficit to 5.5% of the GDP, surpassing the originally targeted 3%. Fitch attributes this increase to delays in energy tariff liberalization, slower-than-expected reduction in subsidized lending, and lower corporate profit tax. Yet, Fitch predicts a contraction of the deficit to 4.3% in 2024 and 3.9% in 2025, fueled by proposed measures and cuts to energy subsidies.

Debt Profile: Fitch emphasizes the relatively low public debt levels in Uzbekistan, with a significant portion in foreign currency. Notably, it recognizes the presence of a high share of concessional debt as a mitigating factor, coupled with sustainable maturities for external debt.

Inflation: Fitch factors in a potential boost of up to 3pp to inflation from higher energy tariffs in 2024, which is expected to result in annual average inflation of 13% for the year. Further phases of tariff increases, as authorities aim to achieve full market pricing by 2027-28, pose potential upside risks to inflation.

Banking Sector: While the banking sector has seen solid credit growth and the non-performing loan (NPL) ratio appears low, Fitch highlights concerns related to the quality of loans issued at the start of the reform period in 2017.

For a complete commentary, please refer to this link: https://www.fitchratings.com/research/sovereigns/fitch-affirms-uzbekistan-at-bb-outlook-stable-23-02-2024