BAKU, Azerbaijan, Apr. 29
By Ilkin Seyfaddini – Trend:
S&P Global Ratings has downgraded its forecast of Uzbekistan's economic growth in its new analytical Ratings of banks in Uzbekistan review, Trend reports citing the agency report.
According to S&P Global Ratings, the economic and financial consequences of the COVID-19 pandemic will have a negative impact on the economy of Uzbekistan and will test the resilience of Uzbek banks.
S&P Global Ratings has revised downward the baseline scenario of GDP growth in Uzbekistan in 2020 and believes that the economy will grow at a rate of only one percent, which is below the previous forecast of 5.5 percent.
"The revised assumptions reflect a decline in both domestic and external demand due to measures to contain the COVID-19 pandemic. However, we believe that the Uzbek economy will be able to cope with the consequences of the current stressful situation and is likely to recover at an average growth rate of five percent in 2021-2022. At the same time, the risks reflected in our baseline scenario continue to have a negative impact on banks' ratings," the agency stressed.
"Finally, we still do not have a clear idea of what the impact of the COVID-19 pandemic will be on the economy; it is likely to be greater than we currently anticipate. In addition, the pace at which economic indicators recover will be determined by policy measures aimed at mitigating the negative impact on the economy as well as supporting both the economy as a whole and the population. The government has announced a support package of 45 trillion soum [about $4.4 billion] or about nine percent of GDP, and we believe the measure will partially mitigate the impact of the stress on the country's economy and population," said S&P.
Agency expects that credit losses for Uzbek banks will increase significantly in 2020-2021 to 3-4 percent (compared to 1.6 percent in 2019), with the share of problem loans also increasing to 4-5 percent in 2020, 3-4 percent in 2021 and 2-3 percent in 2022.
"The consequences for Uzbekistan's economy may be more significant than we currently assume. As a result, the risks of deteriorating creditworthiness for banks remain relevant and their impact on the banking sector may be even more significant. As a consequence, we are reviewing the trend of Uzbekistan's economic risk for the banking sector from stable to negative due to possible consequences of the expected economic downturn," S&P said.
S&P Global Ratings noted a high degree of uncertainty with regard to the rate of spread and the timing of reaching the peak indicators of coronavirus infection.
"Authorities in some countries expect that the pandemic will peak around mid-2020, and we estimate the economic and credit consequences of the pandemic based on this assumption. We believe that measures to contain COVID-19 have pushed the world economy into recession. The situation is currently evolving, and we are reviewing our estimates and assumptions to reflect this," the review said.
Earlier, the World Bank predicted that the growth of the Uzbek economy in 2020 will slow down to 1.6 percent. The Asian Development Bank is more optimistic and believes that the economy will grow to 4.7 percent. Fitch predicts it will grow by two percent.
According to the updated forecasts of the Central Bank of Uzbekistan, by the end of 2020 the inflation rate in the country will amount to 11-12.5 percent. The International Monetary Fund (IMF) forecasts that Uzbekistan's real GDP will grow by seven percent in 2021.
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