Research trip to Uzbekistan

In November 2024, a member of the Emerging Markets Fixed Income team traveled to Uzbekistan to attend several meetings with policymakers, financial institutions and partners from both the public and private sectors. The dominant topics of discussion were the fundamental factors supporting the country’s long-term growth prospects, the reform agenda across different sectors and financial market developments.

Uzbekistan’s economy has achieved annual growth rates averaging over 5% since 2017, after Shavkat Mirziyoyev became president. This change of political regime has seen the implementation of bold reforms, with the opening-up of the economy and financial markets, the privatization of sovereign owned entities and recent cuts to energy subsidies. If the future reform agenda is executed efficiently and capital is allocated correctly, Uzbekistan has the potential to achieve even stronger economic growth in the future.

In 2024, the biggest reform happened in the energy sector, where increased tariffs pushed prices 61% higher. The next round of major reforms will focus on the privatization of sovereign owned entities and especially also on the banking sector. However, this might be delayed as it is currently hard to find a bank willing to absorb low-quality assets. The government continues to play a significant role in the banking sector and this is likely to continue as some of the biggest banks will stay under sovereign ownership and leadership.

Funding for the 2025 fiscal deficit will be divided into external and local issuances. External funding will be executed predominantly through international financial institutions, and public commercial bonds do not seem to be the primary focus. Local market funding will be increased further, developing the local government bond market, and there is clear willingness to extend maturity profiles after the successful first 10-year maturity issuance earlier in 2024.

The short- to medium-term fundamental outlook for Uzbekistan remains positive. The sentiment on the ground remains optimistic and the authorities are committed to both continuing with the reform agenda and developing local financial markets. Investments in the local currency fixed income market are supported by attractive real yield valuations and a strong commitment from the Central Bank of Uzbekistan to a floating currency with a stable depreciation path.