Tashkent, Uzbekistan (UzDaily.com) — International rating agency Fitch Ratings has upgraded Uzbekistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from ‘BB-’ to ‘BB’, assigning a Stable Outlook.

The upgrade reflects accelerated economic reforms and favorable medium-term growth prospects, which Fitch believes will help mitigate macroeconomic risks and support a sustained improvement in structural credit metrics. These include measures to enhance confidence in monetary policy and the efficiency of its transmission, progress in privatization, and increased transparency of public institutions.

Energy tariff liberalization and subsidy reforms led to stronger-than-expected fiscal performance in 2024. These developments have contributed to improved governance indicators, although they remain below the median of peer countries.

The rating is also supported by low public debt, substantial external and fiscal reserves, and a high growth potential. However, the rating remains constrained by relatively low GDP per capita, high reliance on the commodity sector, elevated inflation, and dollarization of the financial system.

Uzbekistan’s consolidated budget deficit in 2024 stood at just over 3% of GDP, better than the 4% target. This was achieved through broad-based revenue growth and a reduction in energy subsidies to below 1% of GDP.

Fitch expects the deficit to average around 3% of GDP in 2025–2026, with continued restraint on spending. Additional fiscal space could be created through improved revenue mobilization.

Reforms of state-owned enterprises (SOEs) have accelerated. The number of SOEs has been reduced, state shares in 18 enterprises have been transferred to the National Investment Fund (established in August 2024), and major firms have been restructured to enhance managerial independence and corporate governance.

Fitch forecasts Uzbekistan’s government debt-to-GDP ratio (excluding external guarantees) will remain around 32% in 2025 and 2026, well below the ‘BB’ median of roughly 54%.

Approximately 89% of public debt is denominated in foreign currency, much of it on concessional terms. The average maturity of external debt exceeds nine years. Government-guaranteed debt amounts to around 6% of GDP.

Net public debt (excluding central government deposits) was estimated at about 26% of GDP at the end of 2024. Non-guaranteed external SOE debt accounts for about 5% of GDP, while public-private partnership project debt contributes roughly 4%.

Economic growth is expected to average 6.3% in 2025–2026, compared to a 3.8% average for other ‘BB’-rated countries. Growth will be driven by continued reforms, robust demand for key exports—particularly gold—and increasing remittance inflows.

In the first quarter of 2025, real GDP expanded by 6.8% year-on-year, fueled by sustained growth in the services sector. However, economic dependence on Russia remains high, accounting for 13.7% of exports, 20.4% of imports, and 77% of remittances. Uzbekistan continues to engage in dialogue over compliance with Western sanctions.

International reserves (including gold) rose to US$49.7 billion as of June 1, 2025, up from approximately US$41 billion at the end of 2024. Reserve coverage of external debt repayments is expected to remain strong—about 10 months in 2025–2026—more than twice the ‘BB’ median.

Reserve growth is largely attributed to rising gold prices, with gold comprising about 77% of total reserves, highlighting exposure to commodity price fluctuations.

Uzbekistan’s net external asset position is projected at 21% of GDP in 2025, down from 44% in 2020, but still strong relative to peers. However, the economy remains vulnerable to external shocks due to the high share of commodity exports—roughly 30% of current external receipts in 2024. The services sector is growing, accounting for 25% of total goods and services exports in 2024, up from 14% in 2021.

The Central Bank of Uzbekistan continues to implement inflation targeting and raised its key policy rate by 50 basis points to 14% in 2025. Average annual inflation is projected at 7% in 2026, down from 9% in 2024 but still above the 5% target. Annual inflation fell to just under 9% in May 2025, down from a March peak of 10%, mainly due to slower service price growth, which accounts for 23% of the consumer basket.

Banking sector profitability is moderate, with return on equity at around 7% at the end of 2024 and a total capital adequacy ratio of approximately 17%. Non-performing loans account for 4% of total loans by regulatory standards, while Fitch estimates the figure to be closer to 10% under IFRS. Financial dollarization is declining, with the share of foreign currency deposits falling to 24.5% in March 2025, down from 40% in early 2020.

The share of subsidized loans dropped to 23% in April 2025 from 28% in June 2024, reflecting reform progress, though this level still hinders full monetary policy transmission.

Fitch assigned Uzbekistan a score of '5' for political stability, rule of law, institutional quality, and anti-corruption under its ESG framework. This rating is influenced by the country's low percentile ranking (28th) in the World Bank Governance Indicators (WBGI).

The agency also notes that limited political freedoms and public participation, weak institutional capacity, and high levels of corruption negatively impact Uzbekistan’s credit profile.