Wednesday, 22, May, 2019

Moody's has today assigned a first-time long-term issuer rating to the Government of Uzbekistan at B1. The outlook is stable. In addition, Moody's has also today assigned a provisional rating of (P) B1 to Government of Uzbekistan's forthcoming medium-term note program and a B1 rating to the planned drawdown from the program.

The ratings were initiated by Moody's Investors Service and were not requested by the rated entity. The ratings on the medium-term note program and drawdown are being assigned ahead of planned issuance by the Uzbek government in the United States under Rule 144A.

The factors supporting the issuer rating include:

1. Uzbekistan's Economic Strength is "Moderate (-)". The economy's shock absorption capacity is underpinned by robust growth potential supported by demographic trends, balanced by low incomes and very low competitiveness as the economy transitions from a planned, state-owned monopolistic system.

2. Uzbekistan's Institutional Strength is "Very Low" reflecting Moody's assessment of the execution challenges involved in a very significant overhaul of the country's institutions and design and implementation of new policy tools that would pave the way for a transition to a market-based economy, notwithstanding the authorities' commitment to wide-ranging reforms.

3. Uzbekistan's Fiscal Strength is "Moderate (+)", supported by relatively low government debt currently financed at low costs, which provides some fiscal flexibility should financial pressure on the broader public sector rise, especially as state-owned enterprises face more competition.

4. Uzbekistan's Susceptibility to Event Risk is "Moderate", driven by political risks stemming from a potential rise in opposition to the reform program, in the face of short-term economic and social costs, that could slow its progress and impair its effectiveness.

The stable outlook reflects Moody's expectations for balanced risks both over the near and medium term. Upside and downside risks mainly relate to the credit implications of the reforms now under way. Uzbekistan's reform program could strengthen its credit profile if they led to a sustained increase in productivity growth and competitiveness and if they improved government and policy effectiveness. On the downside, opening state-owned enterprises and banks to more competition in a market-based environment could undermine Uzbekistan's credit profile, at least in the near to medium term, as large financial and non-financial enterprises would potentially face significant losses in revenue, lower profitability and liquidity pressure. Such developments would weigh on Uzbekistan's fiscal strength, external position and, potentially, on political stability particularly if related employment losses were significant.

Moody's has also assigned a Ba3 local currency bond and bank deposit ceiling, a B1 foreign currency bond ceiling and a B2 foreign currency bank deposit ceiling. The local-currency bond ceiling reflects the maximum credit rating achievable in local currency for a debt issuer domiciled in Uzbekistan (similarly for a bank deposit). The ceilings on foreign-currency bonds and bank deposits capture foreign-currency transfer and convertibility risks. In addition, the short-term foreign-currency bond and deposit ceiling is "Not Prime.''

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