S&P Global Ratings has affirmed its "BB-/B" long- and short-term foreign and local currency sovereign credit ratings on Uzbekistan, with a stable outlook.

The rating agency said, “The stable outlook reflects our expectation that Uzbekistan's comparatively strong fiscal and external stock positions and low interest burden should continue to help its economy withstand potential negative macroeconomic spillover effects from the Russia-Ukraine war. The stable outlook also incorporates our expectation of a rising government and external debt burden.”

The rating could be lowered if Uzbekistan's fiscal and external positions weaken more than analysts currently expect, leading to faster growth in total external debt. “This could, for instance, result from a more significant fallout from the Russia-Ukraine war through the channels of trade, remittances, or higher domestic social risks. In addition, the ratings could come under pressure if inadequate government oversight or administrative capacity led to payment delays by government-related entities (GREs), with possible implications for government-guaranteed debt,” S&P noted.

Meanwhile, the ratings could be raised if Uzbekistan's economic reforms result in stronger economic growth potential and broader diversification of export receipts and fiscal revenue, leading to improved fiscal and external metrics.

S&P estimates a fiscal deficit of 5.5% of GDP this year compared to 3.5% in previous forecasts because the government increased wages and social spending. It also expects fiscal consolidation will proceed more slowly since some of the social spending will be harder to reverse.

Ratings on Uzbekistan are supported by the economy's overall net external asset position and the government's moderate debt levels.

Real GDP growth, according to S&P, will average 5.2% over 2023-2026, supported by domestic demand and investment.