Index trend
Previous Quarterly Editions
Expropriation Risk: 63 63 63 63 ►Political Violence Risk:49 48 48 48 ►Terrorism Risk:50 50 50 50 ►Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ►Sovereign Default Risk:65 65 65 65 ►
Overall Risk Temperature: 60 (Significant) TREND ►
Special topic: Relationship with the 'global rules-based order'
During Islam Karimov’s presidency (1991 – 2016), Uzbekistan was known as one of the world’s most repressive regimes. Street protests in Andijon in 2005 led to a brutal governmental crackdown, with up to 1,500 civilian casualties. That same year, the European Union (EU) imposed an arms embargo, following which Tashkent ordered the closure of a military base used by the U.S. military for the transit of troops and equipment to Afghanistan.
Mounting internal repressions coincided with growing self-isolation. In 2012, Tashkent withdrew from the Russia-dominated Collective Security Treaty Organization while retaining membership in the Shanghai Cooperation Organization in which Russia and China play leadership roles. To date, Uzbekistan has firmly kept clear of joining any regional economic integration projects, either under Russian dominance, such as the Eurasian Economic Union and its customs union predecessor, or among Central Asian republics only.
Following Karimov’s death and Mirziyoyev’s presidency, the government has embarked on a sweeping economic reform program. In September 2017, a progressive liberalization of capital controls began, along with measures to make the economy more investor-friendly. According to official statistics, the volume of incoming foreign direct investment (FDI) in 2023 more than doubled year-on-year, to $7.2 billion. During Karimov’s last six years in power, FDI inflows had, instead, dropped from $3.3 billion (2011) to $1.9 billion (2016).
Accession to the World Trade Organization, which is ongoing, is currently identified as a top policy priority. In contrast, Uzbekistan remains mostly detached from the work of organizations promoting good governance and democratization.
Uzbekistan’s improved business and investment track record is on display in the Heritage Foundation’s Index of Economic Freedom 2023. Namely, the country is given high, medium and low-to-medium rankings in the trade, investment and financial freedom categories, respectively. This is, unsurprisingly, counterbalanced by consistently poor performance on property rights, judicial effectiveness and government integrity, which comprise the rule of law category.
The country was last ranked “not free” by Freedom House and is classified as authoritarian in The Economist Democracy Index 2023, with only marginal improvements since 2017.
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Since coming to power in 2016, President Shavkat Mirziyoyev has engaged in a pro-market reform program. This has resulted in some economic liberalization.
One of the program’s key pillars is privatization — a critical reform area given that state-owned enterprises account for about half of the economy. While this program has seen several successes, it has not met expectations, partly due to the unrealistic goals set by the government and a drop in investor sentiment following Russia’s invasion of Ukraine in February 2022.
In March 2023, the president attempted to reinvigorate privatization by announcing a new wave of privatizations and the sale of over 1,000 state-owned assets. In February 2024, a new law on privatization was passed, setting out a detailed legal and regulatory framework. Even so, the rule of law remains weak, and the degree of the government’s economic intervention is overbearing.
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. These 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 approximately 20 deaths.
The unrest, while a major political shock, is symptomatic of underlying popular discontent over lagging economic development, the lack of employment opportunities (especially among young workers), and chronic shortages of utilities such as gas and electricity. Mass outages of power and heat in Tashkent 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 growing danger of terrorist groups such as Islamic State Khorasan.
Within Uzbekistan, the security services have consistently suppressed any open demonstrations of religious commitment, such as Islamic dress. Periodic arrests of extremists are typically over-reported in the media — likely to send 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’s 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 focus their attention on Moscow’s trade partners that could be facilitating Russian 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 (with Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan) as a potential transhipment hub through which goods might be re-exported to aid the Russian war effort in Ukraine. In June 2023, the EU 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.
Uzbekistan has maintained consistently strong growth, despite the COVID-19 pandemic and geopolitical dislocations of the Russia-Ukraine war.
In 2023, Uzbek gross domestic product grew by 6%, easily beating the last two forecasts of the International Monetary Fund (5.3% and 4.7%, respectively). The European Bank for Reconstruction and Development expects even stronger growth of up to 6.5% in 2024. While it is the case that the population as a whole may not be feeling the benefit of relatively high growth, there is little threat to Uzbekistan’s sovereign default position.
In January, the Uzbek central bank reported $34.6 billion of international reserves, mostly composed of gold (71%), up from $32.7 billion in September 2023. The increase was mainly due to open market interventions by the regulator and gold’s price appreciation.
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.
