TASHKENT, Uzbekistan, December 22. A strong demonstrated commitment to economic reforms that could enhance potential growth and reduce economic imbalances is a positive sensitivity for Uzbekistan’s ‘BB-’ sovereign rating, a Fitch Ratings report says, Trend reports.
“Economic reform in Uzbekistan has moved into a complex phase in which the authorities are focused on sequencing, after substantial progress in the past six years. Political commitment to reform still appears strong, but some recent measures highlight the difficulty with transitioning to a fully market-driven economy, including by eliminating subsidized/directed lending, amid geopolitical uncertainty and social considerations. A strong demonstrated commitment to economic reforms that could enhance potential growth and reduce economic imbalances is a positive sensitivity for Uzbekistan’s ‘BB-’ sovereign rating,” the report says.
Fitch notes that, in October 2023, a presidential decree ordered the deferral of a $140 million loan repayment to the Uzbekistan Fund for Reconstruction and Development (UFRD) by the national rail operator (UTY) for five years. Additionally, UFRD was ordered to lend $150 million to private logistics companies with close working relationships with UTY, to build a private-sector system for cargo movement.
“The loan deferral represents continued government involvement in credit provision, which appears inconsistent with the goal of market-based lending practices. The government aims to divest non-core assets of UTY, although private-sector interest is unclear," Fitch said.
"Following the sale of 73.7 percent of the government’s common shares in Ipoteka Bank in June, the authorities extended deadlines for selling controlling stakes in two other large lenders. This reinforces Fitch’s expectation that the original timeframe for bank privatizations would be challenging, as business model transformations are still being implemented. Investor sentiment may also be affected by ongoing geopolitical uncertainty in the region, which could delay privatization,” the analysts stated.
Fitch also believes that the government’s timeframe to phase out subsidized development lending in the banking sector has been extended, as evident in a recent decision to reorganize state-owned Qishloq Qurilish Bank into a policy institution tasked with providing long-term financing for small businesses at below-market rates, supported by state capital injections.