The national debt of Uzbekistan is expected to grow at a slightly slower pace in the coming years compared to previous periods. Meanwhile, the current account deficit will remain high. This forecast is provided by S&P Global Ratings.
Borrowing
From 2020 to 2023, the average annual increase in national debt was 6.3% of GDP. The main factors contributing to this were increased investments in energy, the extractive sector, and infrastructure projects, alongside high social expenditure levels.
Starting this year, a gradual budget consolidation is anticipated through the reduction of subsidies, the elimination of some tax benefits, and a shift towards targeted social spending. Rising gold prices and measures to reduce the shadow economy should enhance budget revenues this year and help reduce the deficit to 4% of GDP.
According to preliminary estimates, the total national debt is expected to reach 43% of GDP by 2027. The Law on National Debt sets a ceiling at 60%.
Domestic borrowing is actively developing—its volume increased from 11% at the end of 2022 to 17% by the end of June this year. It is expected that this will help reduce vulnerability to fluctuations in currency flows and stimulate the development of domestic capital markets.
Overall, Uzbekistan's credit profile is assessed as positive. The majority of borrowings (86%) have been attracted on concessional terms, although the share of commercial loans is increasing. At the same time, the volume of liquid assets has decreased from 33% to 11% of GDP over seven years.
Foreign Trade Balance
The current account deficit is expected to reach 6.2% of GDP by the end of this year, down from 7.7% in 2023. Alongside the growth of remittances, S&P notes the high base effect due to large import purchases (particularly aircraft).
Analysts note that the authorities are taking measures to slow down imports—specifically, they are abolishing benefits on imported finished products. However, the trade balance will be affected by the supply of equipment for new investment projects, as well as natural gas. The financing of the deficit will primarily be organized through national debt.
At the same time, a large portion of exports is accounted for by raw materials: for instance, 43% of export revenue in the first half of the year came from gold. Currently, the price dynamics for precious metals remain positive, but by 2027, they could drop by a quarter—to $1800 per troy ounce.
A decrease in gold prices will impact the volume of liquid reserves held by the Central Bank, where currently up to 90% is in precious metals. Moreover, according to S&P calculations, by 2027, these reserves should be sufficient for approximately five months of payments.
Monetary Policy
Experts have noted the increasing effectiveness of Uzbekistan's monetary policy following the liberalization of the exchange rate in 2017. However, banking regulation still tends to be reactive and not always transparent.
By the end of the year, S&P expects inflation to be around 9.8% (down from 10.4% in 2023), partly due to rising energy tariffs. By 2027, it should slow to 6.5%, with the Central Bank aiming to reduce it to the target of 5%.
The resilience of the banking sector, amidst economic growth and rising household incomes, along with a relatively low prevalence of consumer loans, will remain high. The Central Bank is gradually introducing stricter lending requirements, including limits on the share of auto loans and maximum debt burden.
Two-thirds of the sector's assets are held by state banks—analysts claim this reduces the effectiveness of monetary transmission. Meanwhile, the government has already privatized "Ipoteka-bank" and is currently preparing to sell "Asaka Bank" and "Uzpromstroybank" (although experts expect delays in this process).
Along with funding from the government and international organizations, banks are actively attracting deposits, but access to long-term financing remains challenging. Additionally, there is a high dollarization of loans (42%) and deposits (27%).
Previously, Spot reported that in October, the difference between buying and selling currency to the public exceeded $600 million.