Fiscal Challenges and External Dynamics: Assessing Uzbekistan's Economic Landscape
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Fiscal position leaves little room for more generosity
With public debt at 36% of GDP (almost entirely external FX, long maturity) liquid FX state savings (UFRD) at 11% of GDP and a recent increase in expenditures to an historical high of 36% of GDP, Uzbekistan has little room for further fiscal generosity. In 2022, the consolidated deficit narrowed by 0.5ppt to 3.9% of GDP on higher revenues, and for 2023-24 higher tax measures and cost control (following the constitutional reform) are planned, potentially leading to further reduction in the deficit to 2-4% of GDP.
However, one third of the revenues are commodities-dependent and volatile, while high inflation may require extra social spending. The deficit is expected to be financed primarily via external borrowing, but the NBU expects the share of external borrowing to drop from 66% to 52% in 2023.
Key fiscal indicators (% of GDP)
Sum fails to benefit from geopolitical spillover
Uzbekistan’s current account improved from its standard 5-7% of GDP deficit to just 0.8% in 2022 thanks to the inflow of remittances from Russia. However, the balance of trade did not improve, as higher exports of commodities (one third of exports) and extra trade with Russia (share of Russia in exports went up from 12% to 16%) were offset by higher imports (Russia share remained 20%).
That said, improvement in the current account failed to be absorbed by the FX market (unlike Georgia and Armenia), as UZS has gradually depreciated by 6% against USD since mid-2022 and is now 6% below end-2021 levels, like RUB and KZT. This suggests some pressure on the capital account but, on the positive side, Uzbekistani Sum’s depreciation risks seem to be under control.
Balance of payments and USD/UZS
