Page 18 - bne magazine September 2023

18 I Companies & Markets bne September 2023
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How exposed is the Uzbek soum to the collapse of the Russian ruble?
Ben Aris in Berlin
The Uzbek soum has started to lose value in the last few days and the country’s international reserves have fallen for the fourth straight month as it appears the National Bank of Uzbekistan has tried to protect the currency, which is being dragged down by the collapse of the Russian ruble.
Uzbekistan's official international reserves as of August 1 amounted to $33.64bn, slightly down by $71.8mn since July
1, according to central bank data. The reserves have dropped for the fourth straight month in a row. The budget is also under pressure, as the state budget deficit neared UZS30 trillion ($2.6bn) in 1H23, Deputy Prime Minister and Minister of Economy and Finance Jamshid Kuchkarov said on August 4. The NBU could hike rates to support the soum, but with inflation falling it has been reluctant to curtail growth, and left the rates on hold at the last meeting on July 27.
“Uzbekistan is stuck between
a rock and hard place as it tries to manage its own economic recovery from the polycrisis of recent years, but at the same time deal with the external shock of Russia’s currency woes”
Uzbekistan is stuck between a rock and hard place as it tries
to manage its own economic recovery from the polycrisis of recent years, but at the same time deal with the external shock of Russia’s currency woes.
The Russian ruble has lost a quarter of its value since the start of this year and half its value since its last peak of RUB53 to the dollar last March. As the economies of the Commonwealth of Independent States (CIS) are so interlinked, how exposed is Uzbekistan’s soum to the collapse of the ruble?
All of the CIS currencies reacted quickly to the dramatic fall
in the value of the Russian currency immediately after the invasion of Ukraine at the end of February 2022, but both the ruble and the CIS currencies quickly recovered after the Central
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Bank of Russia (CBR) put through an emergency 10% rate hike in the first week of the war.
Now the ruble has been sliding since June 2022, with the decline in its value accelerating since January this year, about the same time as the twin Western oil sanctions came into effect on December 5 and February 5.
Uzbekistan is exposed to the Russian economy in several ways, according to consulting firm Macro Advisory. First of all, it is
a significant recipient of migrant remittances from Russia, where over a million Uzbeks work, constituting the largest inflow of funds in monetary terms. In the first half of 2023 these remittances were estimated to comprise around 21%
of Uzbekistan's GDP.
Secondly, Russia stands as Uzbekistan's second-largest trading partner and a vital market for its vegetable exports, says Macro Advisory.
The Uzbekistani government is faced with a delicate balance concerning its currency, the soum, against the Russian ruble. A stronger soum could potentially erode the country's trade competitiveness and negatively affect the economy by reducing the value of remittances when converted to local currency.
The Central Bank reports highlight that the influx of remittances demonstrated a positive trend in the first quarter, with monthly transfers exceeding the previous year's figures. From January to April remittance inflow surged by 21% to
So far the currencies of Central Asia have been relatively unaffected by the collapse in value of the Russian ruble, but the soum has started to fall. Just how exposed is Uzbekistan to Russia's currency woes? / bne IntelliNews