Index trend
Previous quarterly editions
Expropriation Risk: 63 63 60 60 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:50 50 50 50 ►Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ►Sovereign Default Risk:65 65 56 65 ▲
Overall Risk Temperature: 60 (Significant 2) TREND ▲
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
1
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
Under President Islam Karimov — who ruled Uzbekistan from the early 1990s until his death in 2016 — Tashkent had tense relations with both Tajikistan and Kyrgyzstan, and some of their interaction could arguably be considered gray zone action.
Uzbek-Kyrgyz relations were marred by repeated border shootings, with the most serious occurring in 2010, 2013 and 2016. The key irritant in the Uzbek-Tajik relationship was the construction by Dushanbe of the Rogun hydropower plant, which reportedly carried risks for the entire agricultural sector of Uzbekistan because of likely water shortages. In 2001, the two countries introduced travel visas. In 2009, Uzbek customs began to delay railcars transporting goods to Tajikistan, including not only those intended for the Rogun project but also foods and medicines. In 2012, nine out of 16 border crossings were temporarily closed by the Uzbek side due to alleged renovation, alongside a unilateral halt to cross-border natural gas supply. The latter put production at Tajikistan’s largest aluminum plant in jeopardy.
Both bilateral relationships started to normalize after Shavkat Mirziyoyev’s accession to the Uzbekistan presidency in late 2016. In 2018, Uzbekistan and Tajikistan agreed to scrap visas for stays of less than 30 days, with Tashkent voluntarily lowering fees on the transit of goods to Tajikistan, reopening several border crossings and restoring rail communication. A long-standing territorial dispute involving Uzbekistan’s Farhad hydropower plant was also settled.
Similarly, Uzbekistan and Kyrgyzstan gradually resolved many of their differences. In 2021, they established an Uzbek-Kyrgyz development fund. The following year, the two sides settled a number of territorial disputes, namely by putting a strategic cross-border artificial lake under joint management.
TREND ►
Since coming to power in 2016, President Mirziyoyev has engaged in a pro-market reform program that has resulted in a degree of liberalization of the economy. One of the key pillars of the program is privatization — a critical reform area given that state-owned enterprises account for about half of the entire economy. While this program has seen several successes, it has not lived up to expectations, in part due to the unrealistic goals set by the Uzbek government and a drop in investor sentiment following Russia’s invasion of Ukraine in February 2022.
In February 2024, a new law on privatization was passed, setting out a detailed legal and regulatory framework. Two months later, Mirziyoyev signed a decree instructing the government to speed up work to privatize 247 state-owned firms, more than 1,000 real estate properties and 12 leading state-run companies whose shares were to be floated on public stock exchanges.
Despite the stated ambition of the presidential administration, however, the rule of law remains weak, and the degree of the government’s intervention in the economy is overbearing. When the president relaunched his privatization agenda in March 2023, Spanish engineering company Maxam was reported to have filed a claim against Uzbek state chemical company Uzkimyosanoat in London for alleged non-fulfilment of contractual obligations on a “systematic basis.” The case appears to be pending.
In July 2022, the Uzbek province of Karakalpakstan — among the poorest in the country — was rocked by mass protests against proposed amendments to the constitution that would have seen the region lose its autonomous status. Despite the government’s swift withdrawal of the amendments, the protests continued for several days, resulting in the deaths of approximately 20 people.
The unrest in Karakalpakstan, while a major political shock, is symptomatic of underlying popular discontent over lagging economic development, the lack of opportunities for employment, especially among young workers, and chronic shortages of utilities such as gas and electricity.
Mass outages of power and heat in the capital and other cities during a severe cold snap at the end of 2022 and in January 2023 further lowered trust in the government. While a systemic threat to the Mirziyoyev administration and Uzbekistan’s overall stability is unlikely, localized protests are likely to remain a feature of the current authoritarian, centralized political system.
The rise of Islamic State Khorasan in the northern regions of Afghanistan has created new security concerns in Uzbekistan. In 2022, at least two incidents were recorded of rocket fire from Afghanistan into Uzbekistan. In March 2023, 10 Western nations issued a joint communique that expressed grave concern about the increasing threat of terrorist groups such as Islamic State Khorasan.
Within Uzbekistan, the security services have consistently suppressed open demonstrations of religious commitment, such as Islamic dress. Periodic arrests of extremists are typically overreported in the media, likely with the intention of sending a message to other Islamist groups and to justify the repressive activities of the security apparatus. In practice, the threat of a serious terrorist attack within Uzbekistan remains low.
In June 2022, an Uzbek logistics company, Promcomplektlogistic, was listed on the U.S. Department of Commerce Entity List for supplying prohibited electronics to Russia. Since then, Uzbekistan and other Central Asian countries have been subject to even greater scrutiny over their compliance with Western sanctions regimes as Western governments increasingly focus their attention on Russia’s trade partners that could be facilitating sanctions evasion.
Already in February 2023, two Uzbek nationals were sanctioned by the U.S. Department of Commerce, and in a March advisory note the U.S. government cited Uzbekistan (together with Kazakhstan, Kyrgyzstan and Tajikistan) as a potential transshipment hub through which goods might be re-exported to aid the Russian war effort in Ukraine. In June 2023, the European Union imposed sanctions on two Uzbek firms suspected of facilitating sanctions circumvention, followed by one more designation the following February.
Nevertheless, any sanctions against Uzbek nationals or entities are likely to be highly selective, meaning that the majority of the Uzbek economy will not be affected by any forthcoming sanctions action.
TREND ▲
Uzbekistan has maintained consistently strong growth, despite the COVID-19 pandemic and geopolitical dislocations following the Russian invasion of Ukraine in 2022. In 2023, GDP grew by a robust 6%, easily beating the International Monetary Fund’s (IMF’s) last two forecasts (5.3% and 4.7%, respectively). The European Bank for Reconstruction and Development expects even stronger growth of up to 6.5% in 2024, with growth in the first half of the year already reaching 6.4%. While it is the case that the population as a whole may not be feeling the benefit of this relatively high growth, there is little threat to Uzbekistan’s sovereign position.
In July, the Uzbek central bank reported $37.4 billion worth of international reserves, mostly comprising gold (78%), up from $34.6 billion in January. The increase was mainly due to a more favorable import-export balance, higher remittances from abroad and the placement of Eurobonds by state-owned banks.
All three major credit rating agencies — Standard & Poor’s, Moody’s and Fitch — have a stable macroeconomic outlook for Uzbekistan. Their current long-term ratings are BB–, Ba3 and BB–, respectively.
