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.
