Moody’s Investors Service assigned its first ever long-term issuer rating to the Uzbek government at B1 with a stable outlook on February 13 ahead of the Uzbek Eurobond debut on the same day.
The agency also assigned a provisional rating of (P) B1 to the Uzbek government’s forthcoming medium-term note programme and a B1 rating to the planned drawdown from the programme.
The rating comes after S&P Global Ratings and Fitch Ratings assigned their issuer ratings for Uzbekistan in December at ‘BB-’. Moreover, S&P Global Ratings has assigned its ‘BB-’ long-term foreign currency rating to Uzbekistan’s expected first issuance. Similarly, Fitch Ratings assigned Uzbekistan’s upcoming foreign currency-denominated senior unsecured bonds an expected rating of ‘BB-(EXP)’.
The stable outlook “reflects Moody’s expectations for balanced risks both over the near and medium term,” Moody’s said. “Upside and downside risks mainly relate to the credit implications of the reforms now under way. Uzbekistan’s reform program could strengthen its credit profile if they led to a sustained increase in productivity growth and competitiveness and if they improved government and policy effectiveness.”
“On the downside, opening state-owned enterprises and banks to more competition in a market-based environment could undermine Uzbekistan’s credit profile, at least in the near to medium term, as large financial and non-financial enterprises would potentially face significant losses in revenue, lower profitability and liquidity pressure,” the ratings agency noted. “Such developments would weigh on Uzbekistan’s fiscal strength, external position and, potentially, on political stability particularly if related employment losses were significant.”
Moody’s also graded Uzbekistan’s economic strength as "Moderate (-)", noting that the Uzbek economy’s shock absorption capacity is underpinned by robust growth potential supported by demographic trends. The economy is also balanced by low incomes and very low competitiveness as the economy transitions from a planned, state-owned monopolistic system, it said.
Uzbekistan’s institutional strength was graded as "Very Low" reflecting Moody’s “assessment of the execution challenges involved in a very significant overhaul of the country’s institutions and design and implementation of new policy tools that would pave the way for a transition to a market-based economy, notwithstanding the authorities’ commitment to wide-ranging reforms.”
Uzbekistan’s fiscal strength was graded at "Moderate (+)" thanks to relatively low government debt currently financed at low costs providing some fiscal flexibility in the event of financial pressure on the broader public sector rise, especially as state-owned companies face more competition.
Finally, Uzbekistan’s susceptibility to event risk was graded "Moderate", “driven by political risks stemming from a potential rise in opposition to the reform program, in the face of short-term economic and social costs, that could slow its progress and impair its effectiveness,” the agency said.