The international rating agency S&P Global Ratings published a regular report on the Republic of Uzbekistan. Accordingly, Uzbekistan's rating has been maintained at 'BB-', while the outlook has been raised from 'negative' to 'stable'.

    The S&P rating agency assigned the Republic of Uzbekistan a sovereign credit rating for the first time on December 21, 2018. The agency twice a year reassesses the sovereign credit rating of Uzbekistan and, during the assessment, gets acquainted with the latest economic news in the country.

    Since June 2020, S&P cut the credit ratings of 21 countries and the forecast indicators of 13 countries, including Uzbekistan, have been changed to “negative”.

    This decision was attributed to the relatively high growth of Uzbekistan's external debt over the past two years. At the same time, it was reported that the credit rating of Uzbekistan may decrease if the growth of the country's external debt does not stabilize over the next 12 months.

    Officials from the Ministry of Finance, the Central Bank and the Ministry of Economic Development and Poverty Reduction of the Republic of Uzbekistan provided information on the macroeconomic situation in the country and ongoing reforms during conference calls held on May 10-11 this year.

    As a result of these conference calls, a meeting of the S&P credit committee was held, at which Uzbekistan’s outlook has been raised from "negative" to "stable" for the following reasons. 

   1. As noted by S&P, in 2020 Uzbekistan was one of the few countries in the world achieved economic growth (1.6%).

    According to the agency, the main reasons for economic growth were the functioning of the agricultural and industrial sectors, despite the restrictions associated with COVID-19, the implementation of large infrastructure and investment projects in line with the government's swift measures to stimulate the economy.

   According to the agency's forecasts, in 2021 the economy of Uzbekistan will grow by 4.8%, and the service sector will be the main driver of growth.

    2. According to the report, the growth of external debt has slowed down, while short-term fiscal and external risks have decreased.

   In particular, the agency positively assessed the establishment of the annual limit of the state external debt ($ 5 billion) and the maximum size of the state debt (60% of GDP) in the law “On the state budget”, as well as more “demanding” rules for the selection of projects financed by the state debt.

    The agency also noted that since 2017, the Government has significantly accelerated the implementation of its tasks to reform and modernize the economy.

    The agency believes that these reforms will improve the productive efficiency of the economy and the institutional capacity of the government.

    3. The fiscal position of Uzbekistan in 2020-2021 has improved relative to the expectations of the S&P. It is noted that the high gold prices in 2020 led to a lower-than-expected overall budget deficit in support of government revenues and the external balance (by the end of 2020, the overall budget deficit was 4.5 percent).

    As a result, part of the funds raised to support the budget was saved, and the volume of state assets was increased. This, in turn, helped to stabilize the ratio of net public debt to GDP.

    Uzbekistan's economic growth is expected to accelerate this year, although the risks associated with COVID-19 remain high, according to the report.

    4. The report notes that Uzbekistan's external balance ended in 2020 better than expected. According to the agency, at the end of 2020, the liquid assets of the public and financial sectors exceeded the total amount of external debt.

    5. In recent years, the government has implemented a number of reforms, including increasing the independence of the judiciary, removing restrictions on freedom of speech and increasing accountability to citizens, fighting corruption, increasing the transparency of economic data, liberalizing trade and the exchange rate, and reforms and plans to privatize state owned enterprises.

    It was noted that reducing the participation of the state in the economy and improving the inflow of direct investments remains one of the main goals of the Government.

    At the same time, the need to increase GDP per capita, improve the efficiency of monetary policy, reporting, and develop a system of mutual deterrence between institutions also noted.

   The agency's report lists factors that positively and negatively affect Uzbekistan's rating. According to it, the integration of Uzbekistan into the world economy and the improvement of the potential for economic growth and the level of fiscal and external reserves as a result of economic reforms serves as factors in increasing the country's credit rating.

    However, the following factors could bring to lowering the country's rating:

- if the fiscal and external reserves of Uzbekistan decrease quickly or significantly in comparison with the Agency's expectations;

- an increase in borrowing and a decrease in foreign assets as a result of an insufficient inflow of foreign direct investment;

- if the level of dollarization of the economy rises significantly;

- fulfillment of contingent liabilities of the state as a result of state enterprise weak conditions (i.e. if the state will pay the debts of SOEs).

    The Ministry of Finance, with the support of the responsible ministries and organizations, will continue to communicate with the S&P agency and provide information on future reports.

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The above are excerpts from an article contributed by the Information Service of the Ministry of Finance of the Republic of Uzbekistan for publication. -Ed.