German rating agency confirms Uzbekistan’s ratings at BB-

Economy Materials 10 March 2020 17:16 (UTC +04:00)

BAKU, Azerbaijan, Mar. 10

By Ilkin Seyfaddini - Trend:

German rating agency Rating-Agentur Expert RA GmbH (RAEX-Europe) confirmed rating of the sovereign government (SGC) of Uzbekistan at BB- in local and foreign currency, Trend reports with reference to the report of RAEX.

RAEX-Europe confirmed the rating of the sovereign government (SGC) of Uzbekistan at "BB-" (sufficient level of credit capacity of the government) in local currency and at "BB-" (sufficient level of credit capacity of the government) in foreign currency.

"The affirmation of Uzbekistan's ratings at 'BB-' with stable outlook is conditioned by accelerated economic growth, acceptable level of public debt and deficit, as well as ongoing structural reforms in the economy. The ratings are also underpinned by the stability of the banking sector, where favorable levels of capitalization and profitability are maintained," said Vladimir Gorchakov, Associate Director of RAEX-Europe.

As Vladimir Gorchakov said, the ratings are constrained by rising levels of debt and deficits, high inflation and exchange rate volatility, and increased financial dollarization.

"Despite significant improvements, the level of welfare per capita, institutional development, large hidden obligations of the government, as well as limited effectiveness of monetary and fiscal policy are constraining the rating," said Associate Director of RAEX-Europe.

Economic growth remains high due to investments as well as structural reforms, while low per capita income and high unemployment are constraining creditworthiness. Uzbekistan remains one of the fastest growing economies in the Central Asia and Caucasus region, with GDP growth of 5.6 percent in 2019 compared to 5.4 percent in 2018.

The government's official forecast for GDP growth is approximately 5.5 percent in 2020 and 6.2 percent in 2022, while IMF expects it to be close to 6 percent in the coming years. GDP growth is expected to range between 5 and 6 percent in 2020 and 2021 if the macroeconomic environment remains stable and all announced reforms are implemented on time. However, we can reduce our current forecast in case of a significant slowdown in the global economy, as well as delays in investment and privatization programs in Uzbekistan.

Despite the rapid growth in recent years, the debt burden is at acceptable levels, with favorable maturities and payment terms. According to preliminary estimates of the Ministry of Finance of Uzbekistan, as of January 1 2020, the total public and publicly guaranteed debt of Uzbekistan amounted to $21.1 billion, which is close to 36 percent of GDP.

The growth of almost 60 percent per annum in nominal terms to the year was due to the issuance of sovereign Eurobonds in the amount of $1 billion in February 2019; loans and guarantees for investment projects; issuance of bonds denominated in soums; and depreciation of the national currency during the year.

In terms of debt structure, the predominance of foreign currency debt (over 97 percent of domestic debt and 100 percent of external debt) remains a key risk factor.

However, these risks are partially offset by the debt structure in terms of maturity and types of creditors. About 32 percent of total debt is owed by foreign governments and government agencies (mainly China and Japan), 33 percent is owed to international financial institutions with concessional terms (51 percent from the Asian Development Bank and 37 percent from the World Bank).

For 2020, new external debt is limited to $4 billion, while borrowings for government target programs are limited to $1.5 billion.


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