Uzbekistan's Economic Outlook: Navigating Challenges and Seeking Opportunities
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Country strategy: limited benefits
Despite positive spillover from the Russia-Ukraine conflict, Uzbekistan’s growth momentum is waning on a sluggish agriculture sector, gas supply disruptions, elevated inflation and unemployment amid growing population. Fiscal policy has been generous so far but is now likely to face some consolidation. Still, with GDP growth of around 5-6% pa, a relatively sound fiscal and external position, and ongoing reform agenda, the country looks attractive.
A move to investment grade could be a trigger for the local FX (which is now under gradual depreciation pressure), but the prospects of that are clouded by the recent constitutional reform and the increase in trade with Russia, which might entail higher risks of secondary sanction scrutiny by the US and EU.
Forecast summary
Growth momentum waning
Despite an inflow of c.100,000 (0.3% of the regular population) of immigrants from Russia and doubling of remittances to 18% of GDP, Uzbekistan’s GDP growth slowed by 1.7ppt to 5.7% in 2022 on weak agriculture output (25% of GDP) and limited consumption on high unemployment. In 2023, growth is set to remain at 5-6% (1Q23 GDP is up 5.5% YoY).
Support comes from a 3ppt cut in VAT and wider fiscal deficit in 1Q23, but constraints include normalisation of financial inflows from Russia, neutral effect of re-export/import of goods to/ from Russia, gas supply disruptions (from Turkmenistan) in early-2023 and elevated inflationary pressure.
CPI was 11% YoY in April and likely to stay double-digit (year average) with a weak Uzbekistani Sum, monetary easing (key rate decline in past month from 17% to 14%), Source: National sources, ING expected liberalisation of tariffs mid-2023 and local harvest issues.
GDP growth by components (% YoY and ppt)
