TASHKENT

Moody’s Investors Service has changed Uzbekistan’s rating outlook to positive from stable and affirmed the country’s B1 long-term issuer and senior unsecured ratings, a move investors will see as an endorsement of the government’s economic reform plan.

“The outlook change to positive reflects demonstrated improvements to institutional capacity and policy effectiveness that, if continued, will support a higher rating,” Moody’s said in a statement.

After more than two decades of economic isolation, the Central Asian country is making efforts to reform its centralised economy. President Shavkat Mirziyoyev has made attracting foreign investors one of his top priorities in a reform programme that has included liberalising the country’s foreign exchange market and modernising business practices, cutting down on the soviet-era bureaucracy that still hampers many companies.

“The affirmation of the rating reflects Uzbekistan’s small, low-income economy and fiscal and political risks relating to the government’s forthcoming structural reforms that will reduce the state’s substantial role in the economy and which may result in the crystallisation of contingent liabilities during the transition to a market-driven economy,” the rating agency said.

A series of key reforms to remove price controls on key goods and liberalise foreign exchange transactions have already enhanced productivity and competitiveness, albeit from a low base, which Moody’s expects to bolster economic growth and reduce inflation expectations over time.

Moody’s said it expected Uzbekistan’s Gross Domestic Product (GDP) growth to rebound to 5.5 percent in 2021 and 6.3 percent in 2022 “as government-backed construction and public investment projects accelerated following the pandemic, while domestic private consumption is likely to recover only gradually amid recent increases in coronavirus cases.”

The country’s government expects the economy to grow 5.1 percent this year, up from 1.6 percent in 2020. GDP grew by 3 percent year-on-year in January-March. Positive growth this year is expected to accelerate in 2022 to 5.8 percent,

Moody’s said that gradual progress in key structural reforms, including improvements to the monetary policy framework and adoption of a medium-term fiscal strategy, will limit the growth of government debt.

“Further progress in reforms that further open the economy and financial sector to more competition and spur productivity in sectors such as textiles would point to stronger creditworthiness,” the rating agency said.

Moody’s said that Uzbekistan’s local and foreign currency country ceilings remained unchanged at Ba2 and B1.