By Abdul Kerimkhanov
According to Fitch forecasts, inflation in Uzbekistan will average 14.9 percent in 2019 and rise to 16 percent in 2020 before declining to 13.5 percent by 2021.
These indicators exceed the Uzbek government's forecasts of 12.6 percent and 9.9 percent in 2020-2021. They continued domestic demand pressures, expected utility tariff adjustments and the country’s currency depreciation given the large external imbalances.
"A high current account deficit, increased public spending that are impacting domestic liquidity, strong foreign currency demand and depreciation in key trading partners have built up pressure on the som, which had strengthened in August, resulting in a 7.5 percent depreciation of som against dollars compared to the previous (12 percent compared to late 2018)," Podrobno.uz reported.
Fitch mentioned that the Central Bank of Uzbekistan (CBU) has eliminated the cap in daily currency trading fluctuation at interbank trading sessions, a significant step towards increased exchange rate flexibility after the September 2017 exhange rate liberalisation.
Uzbek authorities target an overall fiscal balance in the medium term by reducing policy lending and quasi-fiscal spending and improving coordination between the Ministry of Finance (MoF) and other entities involved in public investment.
In addition, authorities plan to reform government’s direct concessional lending by increasing the interest rate on new local-currency loans to the level of the refinancing rate and moving towards market rates in 2021. The MoF is also developing debt rules introducing ceilings for total public debt and annual borrowing.
Cuts to the VAT rate and social contributions could cost 2.1pp in budget revenues, but authorities expect this to be partly compensated by elimination of most of the import VAT exemptions and increases profit and excise taxes.
Fitch predicts the overall fiscal deficit to decline to 2.4 percent of GDP in 2020 and 1.8 percent in 2021, as authorities plan to tighten broad fiscal policy by gradually phasing out preferential policy lending, and plan to include UFRD spending in the 2020 budget to increase control over overall fiscal policy.
"Government debt will increase to 28.7 percent of GDP (including 8.1 percent of GDP in guarantees) in 2019, up from 20.8 percent in 2018, reflecting increased external borrowing (net $5.3 billion including guarantees) and the weaker som," Fitch forecasts.
Abdul Kerimkhanov is AzerNews’ staff journalist, follow him on Twitter: @AbdulKerim94
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