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Moody’s upgrades Uzbekistan’s rating to Ba3 with a stable outlook

Moody’s Investors Service today upgraded the long-term issuer rating and senior unsecured rating of the government of Uzbekistan from B1 to Ba3.

The agency also upgraded the rating of the program for issuing medium-term Eurobonds (medium-term notes, MTN) from (P)B1 to (P) Ba3. The agency changed the outlook from positive to stable.

The upgrade reflects Uzbekistan’s demonstrated commitment in recent years to a comprehensive reform agenda that has endured through two significant successive crises and which Moody’s expects to continue. 

Despite the coronavirus pandemic and the military conflict between Russia and Ukraine, real GDP growth and fiscal and external indicators remain strong, reflecting the resilience of the economy and improved policy effectiveness in recent years. As fiscal and monetary instruments evolve, Moody’s expects further improvements in institutions and governance.

The stable outlook reflects the risks of rising debt levels above Moody’s current expectations and geopolitical risks to growth. However, fiscal risks are mitigated by the government’s relatively low and sustainable debt burden and significant assets in the Fund for Reconstruction and Development of Uzbekistan (FRDU).

Moody’s has changed Uzbekistan’s country ceilings in national and foreign currencies to Ba1 and Ba3 from Ba2 and B1, respectively. The two-notch gap between the local currency ceiling and the sovereign rating reflects the government’s significant economic power and weak policy predictability, which is partly balanced by a moderate risk of external vulnerabilities that reflects a persistent, albeit declining, current account deficit and moderate external debt. that is, on preferential terms. The two-notch gap between the foreign currency ceiling and the national currency ceiling is associated with Uzbekistan’s relatively weak monetary and fiscal policy framework and the limited capital account, which may be subject to further restrictions on transfers and convertibility during periods of stress.

Moody’s expects Uzbekistan’s debt burden to stabilize below 45% of GDP over the next 3 years. While Moody’s expects increases in social spending (more than 25% pa in 2021 and 2022) and delayed energy reforms to delay fiscal consolidation, the increase in the deficit is offset by recent improvements in revenue collection thanks to tax reforms, as evidenced by 33.6% and an increase in VAT and income tax receipts by 28.4%, respectively, between 2021 and 2022. 

Meanwhile, scheduled 2022 debt issuances were delayed due to unfavourable market conditions as the government instead used the assets and continued funding from an international financial institution. However, FRDU assets remain at $16.5 billion, with more than 50% liquid assets covering about 28% of total government debt in 2022.

 

Moody’s upgrades Uzbekistan’s rating to Ba3 with a stable outlook

Tashkent, Uzbekistan (UzDaily.com) — Moody’s Investors Service today upgraded the priority issuer rating and a senior unsecured index rating of Uzbekistan from B1 to Ba3.

The agency also upgraded the rating of the program for issuing medium-term Eurobonds (medium-term notes, MTN) from (P)B1 to (P)Ba3. The agency changed the outlook from positive to stable.

Upgrading the quality of Uzbekistan’s sustained comprehensive reform program in recent years is being maintained through the next two successive crises and which Moody’s expects to continue.

Despite the pandemic, growth and the military conflict between Russia and Ukraine, real GDP growth and fiscal and external indicators show strong economic performance and improved policy efficiency in recent years. Fiscal and monetary instruments continue, Moody’s expects efficiency gains in the institution and management.

Stable outlook for the risk of rising debt levels above the current Moody’s expectation and geopolitical upside risks. However, fiscal risks are offset by a relatively low and acceptable level of debt and significant assets in the Fund for Reconstruction and Development of Uzbekistan (FRDU).

Moody’s has changed Uzbekistan’s country ceilings in national and foreign currencies to Ba1 and Ba3 from Ba2 and B1, respectively. The two-notch gap between the local currency ceiling and the sovereign rating has a significant impact on outliers and weak policy predictability, which is partly balanced by a moderate risk of external vulnerabilities that consumes a sustained, albeit consuming, the sustained shortfall in the contraction of operations and a moderate amount of external debt. that is, on preferential terms. A two-level gap between the foreign and national currency ceiling is associated with the relative soundness of Uzbekistan’s monetary and fiscal policy framework, as well as the limited capital account, which may be subject to limits on transfers and convertibility over periods of stress.

Moody expects Uzbekistan’s debt burden to stabilize below 45% of GDP over the next 3 years. While Moody’s expects an increase in special spending (more than 25% per annum in 2021 and 2022) and delayed energy reforms while delaying fiscal consolidation, the increase in the deficit is offset by the recent increase in revenues thanks to tax reforms, as evidenced by the accumulation of 33.6 % and an increase in VAT and income tax receipts by 28.4%, respectively, between 2021 and 2022.

those planned for 2022. However, the FDA’s assets ended up at $16.5 billion, with more than 50% asset disappearances, which account for about 28% of total government debt in 2022.

Despite the ongoing military conflict between Russia and Ukraine, trade and remittance flows have so far exceeded expectations: exports in January-November 2022 increased by 12% compared to the same period in 2021, and remittances from Russia almost tripled over the same period. 

Inflation has increased and remains high, increasing social risks. However, the conflict between Ukraine and Russia also opens opportunities for Uzbek companies in logistics, trade and transport, and tourism as Western companies leave the Russian market and Russians to move to the region. 

Moody’s expects GDP growth to ease to 5% in 2023 due to slower remittances and inflation impacting domestic private consumption but to recover next year as government-supported construction and public investment projects accelerate.

 

Source: www.uzdaily.uz