Tashkent, Uzbekistan (UzDaily.com) — On 23 May 2025, the international rating agency S&P Global Ratings revised Uzbekistan’s sovereign credit rating outlook from “Stable” to “Positive.”

At the same time, the agency affirmed the country’s long-term and short-term foreign and local currency sovereign credit ratings at “BB-/B.” The transfer and convertibility assessment remains at “BB-.”

Outlook

The positive outlook reflects the agency’s expectation that the government will continue implementing economic and institutional reforms, along with steps toward fiscal consolidation. The revision also reflects S&P’s assessment that elevated gold prices will continue to support Uzbekistan’s export and budget revenues.

Potential for Upgrade

The ratings could be raised if Uzbekistan maintains its reform agenda, including energy tariff liberalization and improved oversight of state-owned enterprises. An upgrade may also be warranted if fiscal and current account deficits are reduced without compromising economic activity.

Potential for Downgrade

The outlook could be revised back to “Stable” if external and fiscal deficits exceed expectations due to deteriorating terms of trade, elevated public spending, or rising borrowing costs. The outlook could also weaken if GDP growth slows more than anticipated—for example, if investment projects funded by debt yield lower returns.

Rationale for Outlook Revision

The outlook revision reflects continued efforts to liberalize and strengthen the economy, a reform agenda launched in 2017, and progress in governance and macroeconomic management. S&P expects that ongoing reforms, public investment, and remittance inflows will sustain robust economic growth, averaging 5.6% between 2025 and 2028.

Since October 2023, the government has been gradually raising electricity and gas tariffs, aiming to cut subsidies and reduce reliance on gas imports. By 2027, energy prices are expected to be fully aligned with cost levels. These reforms, along with high gold prices and rising nominal GDP, are expected to reduce the fiscal deficit from 4.9% of GDP in 2023 and 3.3% in 2024 to an average of 3.0% over 2025–2028.

Fiscal and External Policy

Uzbekistan’s economic model is built on large-scale investment funded by borrowing. While this drives up public and external debt, S&P expects the pace of debt accumulation to slow. The current account deficit reached 5.0% of GDP in 2024 and is projected to average 5.7% over 2025–2028, driven by lower gold prices and increased imports tied to investment projects.

Uzbekistan’s ratings are supported by a moderate level of net public debt, which the agency projects at 34% of GDP by 2028. The country’s sovereign financial position is also bolstered by a policy of channeling a portion of export revenues into the Uzbekistan Fund for Reconstruction and Development (UFRD).

Constraining factors include a low GDP per capita, heavy reliance on commodity prices, and limited monetary policy flexibility. Despite reforms, policy predictability remains limited due to centralized governance and insufficient separation of powers.

Economic Growth and Investment

According to S&P, Uzbekistan’s economy grew by 6.5% in 2024, led by strong performance in ICT, construction, and trade. From 2021 to 2023, the average annual growth rate was 6.8%. Growth remains investment-driven, with gross capital formation at approximately 33% of GDP in 2024. Under the "Uzbekistan – 2030" strategy, investment is targeted at energy, transport, telecommunications, agriculture, and tourism.

Saudi-based ACWA Power plans to invest $7.5 billion (about 7% of GDP) in energy projects by 2030, aiming to raise the share of green energy from 20% to 40%. The government also plans to increase the extraction of copper, gold, silver, and uranium to diversify its export base.

Domestic Demand, Inflation, and Monetary Policy

Despite rising tariffs and interest rates, domestic consumption is expected to be supported by remittances, wage growth, tax incentives, and price controls on select goods. Privatization of state-owned enterprises, regulatory reforms, and Uzbekistan’s expected WTO accession in 2026 are likely to attract greater investment inflows.

Per capita GDP is forecast to reach $3,300 in 2025, a level the agency still considers a constraint on creditworthiness. While 90% of the population is of working age, job creation is not keeping pace with labor market demand. Russia remains the primary destination for Uzbek labor migrants, and its economic weakness poses additional pressure.

Relations with Russia and Sanctions Risk

Remittances increased by 30% in 2024, reaching $14.8 billion (13% of GDP). Although inflows from the U.S., Germany, Poland, and South Korea are growing, 77% of remittances still originate from Russia. Bilateral trade with Russia rose by 15% to $11.6 billion. In October 2023, Uzbekistan signed a two-year contract with Gazprom to import 9 million cubic meters of gas per day. A potential ceasefire between Russia and Ukraine may affect trade dynamics, though the impact on Uzbekistan is considered manageable.

The agency notes the risk of secondary sanctions on Uzbek companies operating with Russia. In response, the government is implementing stronger compliance mechanisms and automated monitoring systems.

Fiscal Indicators and Debt Burden

S&P projects the government will meet its fiscal deficit target of 3.0% of GDP in 2025. High gold prices support public revenues, with gold and copper accounting for a third of budget income. Energy tariff hikes could save about 0.5% of GDP. Plans also include improving the targeting of social assistance and phasing out some tax exemptions.

Public debt, including guarantees, is expected to rise to 40% of GDP by 2028, up from 33% in 2024. A national law caps public debt at 60% of GDP. The agency highlights the risk that state-owned enterprise (SOE) debt—amounting to 4.6% of GDP in 2024—could be transferred to the government balance sheet.

Public-private partnership (PPP) contracts account for 27% of GDP. New regulations are being developed to manage future liabilities more effectively.

Currency Policy, Inflation, and the Banking Sector

Domestic borrowing is increasing, rising from 11% in 2022 to 16% in 2024. Although interest payments are growing, the average rate is expected to remain below 5% of budget revenues, due to the large share (74%) of concessional loans.

Government assets have declined from 33% of GDP in 2017 to 9.3% in 2024. The agency considers only the external portion of the UFRD’s assets as liquid.

The current account deficit is expected to rise to 6.2% of GDP by 2028, with borrowing as its main financing source. Direct investment is expected to increase with privatization progress, though timing will depend on market conditions.

Central bank reserves are projected to decline but remain sufficient to cover seven months of imports. However, 77% of reserves are in gold, exposing the country to price risk.

The Central Bank of Uzbekistan continues to pursue inflation targeting. Inflation is forecast to decline from 10.1% in 2025 to 8.6% by 2028. In March 2025, the policy rate was raised to 14%.

Banking Sector

State-owned banks hold 65% of total assets. Preferential lending programs reduce the effectiveness of monetary policy. Following the sale of Ipoteka Bank, the government is preparing to privatize SQB and Asakabank.

Dollarization is declining but remains high: 41% of loans and 26% of deposits are in U.S. dollars. Growth in consumer lending is being moderated through lending caps and stricter requirements.

The banking sector remains stable, supported by strong demand for credit and reliable funding from the government, international financial institutions, and depositors. However, the domestic capital market remains underdeveloped. Regulatory oversight is improving but is still considered reactive rather than proactive.