Page 19 - Uzbek Outlook 2022

5.4 Budget deficit

By the end of 2021, the consolidated budget deficit was projected to reach 5.5% of GDP.

In the medium term, a gradual reduction of the deficit is planned to ensure the sustainability of the public
finances.

In 2022, the consolidated budget is forecast to have a deficit of $2.3bn (3% of GDP).

Starting from 2023, the government plans to introduce an operational budget rule that sets a limit on the
size of the deficit of the consolidated budget at 3% of GDP.

6.0 Markets outlook

6.1 FX

High inflation observed in the country over the years has forced the central bank to keep its monetary
policy rate relatively high.

However, banks with access to dollar funding have been able to afford the offering of significantly lower
rates on dollar loans. The spread between the cost of borrowing in Uzbekistani som and dollars is so
wide that most borrowing is done in FX. That exposes Uzbek companies to significant FX risks.

According to Mirsaid Nosirov, an analyst at the regulator, the dollar share of loans was 48% as of
November, but there had been a gradual decline.

With retail deposits paying 17.5% and loans costing 21% in som, there was a 3-4% spread that
remained a disincentive for business to borrow for investment capital in the local currency. However,
Nosirov pointed out that the som has been very stable and only depreciated against the dollar by 2% in
the first nine months of 2021.

The central bank has to be worried by the dollarisation of credits as other countries, such as Ukraine
and Poland, have come-a-cropper in the past by exposing themselves to FX risks that proved too big.

The share of dollar loans has fallen from 70% previously to around 50%:50% local vs foreign exchange
now.

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