Baku, Azerbaijan, Dec.22
Trend:
S&P Global Ratings assigned its ‘BB-/B’ long- and short-term foreign and local currency sovereign credit ratings to Uzbekistan. The outlook is stable. The transfer and convertibility (T&C) assessment is ‘BB-’.
The stable outlook reflects the agency’s expectation that, over the next year, Uzbekistan’s fiscal and external net asset positions will remain strong, albeit decline slightly, due to expected future current account deficits and government borrowing.
“We could raise the ratings if monetary policy effectiveness were to improve, for example through a decline in dollarization of the economy. Further diversification of the government’s revenue base or the composition of the economy’s exports would also be supportive of the ratings,” the agency said.
“We could lower the ratings if the fiscal or external positions deteriorated, for example if fiscal deficits increased beyond our base-case scenario or if higher-than-expected current account deficits led to an increase in external financing needs. We could also lower the ratings if we observed increasing weakness in key state-owned enterprises (SOEs), leading to growing contingent liabilities for the government,” S&P Global Ratings said.
“Our ratings on Uzbekistan are supported by the government’s strong fiscal and external positions. These strengths predominately arise from the government’s large asset position, which stems partly from the policy of transferring part of the revenues from commodity sales to the Uzbekistan Fund for Reconstruction and Development (UFRD),” the statement of S&P Global Ratings said.
“Over our forecast period through 2021, we expect real GDP growth to average 5 percent, supported by growth in the services, manufacturing, and natural resources sectors. The construction sector is a small but growing part of GDP. The economy has been government led for many years, and is dependent on SOEs, which contribute an estimated 60 percent of GDP. Nevertheless, Uzbekistan has a significant endowment of natural resources, including large reserves of diverse commodities, the export of which have supported past current account surpluses. Globally, the country is one of the top 20 producers of natural gas, gold, copper, and uranium. Uzbekistan’s population is young: almost 90 percent is at or below working age, presenting an opportunity for labor supply-led growth. However, it will remain a challenge for job growth to match demand,” S&P Global Ratings said.