Previous Quarterly Editions
Expropriation Risk: 65 66 65 64 ▼Political Violence Risk:57 57 51 50 ►Terrorism Risk:46 47 50 50 ▲Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ►Sovereign Default Risk:47 56 65 65 ►
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Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: LowFood/fuel policy protests: Medium
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Since 2017, President Shavkat Mirziyoyev has pursued a policy of international openness and engagement, in contrast to his predecessor’s isolationism. He has sought friendly relationships with everyone and is keen to promote Uzbekistan as a regional power. To this end, Uzbekistan is leveraging its friendly relationship with the Taliban regime in Afghanistan to act as a go-between in international negotiations.
Among the Central Asian republics, Uzbekistan is the furthest from Russia – it is not a member of the Russian-led Eurasian Economic Union or the Collective Security Treaty Organization. Mirziyoyev has come close to criticising openly Russia’s invasion of Ukraine in February 2022 but has not crossed that line yet. Tashkent has made clear it is neutral in the conflict and will not recognise the breakaway republics of Donetsk and Luhansk.
China is an increasingly dominant partner. By demonstrating Russia is an unreliable international partner,
with its military is struggling in Ukraine, for example, the Russia/Ukraine crisis is pushing Tashkent closer to Beijing, an opportunity Beijing seems eager to take advantage of. From China’s perspective, the Russia/Ukraine crisis, which has effectively blocked supply routes through Russia, has given new importance to Uzbekistan’s place in Beijing’s Belt and Road Initiative of international infrastructure investments and construction. On the side lines of the Shanghai Cooperation Organisation summit in September, China, Uzbekistan,
and Kyrgyzstan agreed to push ahead with construction of a railroad intended to provide a route to Europe that bypasses Russia.
Uzbekistan’s relationships with Western powers have improved under Mirziyoyev, helped by an impressive domestic reform agenda and the opening of the economy to foreign investment. However, especially since the chaotic U.S. withdrawal from Afghanistan in August 2021, there are few common interests to cement meaningful partnerships and the relationship is likely to be primarily economic.
Uzbekistan is developing relationships with emerging regional powers, most notably Turkey and Iran. Turkey in particular is interested in increasing its partnerships in Central Asia and has revitalised the Organisation of Turkic States to this end, but this push depends on Turkish President Recep Tayyip Erdogan’s personal interest in pan-Turkism.
It is expected Uzbekistan will continue to move away from Russia and towards China while seeking to develop relationships with other regional powers and to attract more Western investment.
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President Mirziyoyev has continued his pro-market reform agenda with the aim of turning Uzbekistan into a modern market economy. The state retains a large role – state-owned enterprises account for 55% of the economy but is taking concrete steps to reduce it. By 2023, the government plans to fully or partially privatise 75% of the state-owned firms. The first initial public offering of Qishloq Qurilish Bank, a state-owned bank, was due on October 1.
The government is keen to attract foreign investment. The inaugural Tashkent International Investment Forum was held in March. Significant progress has been made since 2017, but deeper reforms will be needed to create a competitive private sector and a more attractive business climate. Corruption, including in the judicial sector, remains rife despite some high-profile arrests, and politically connected individuals continue to enjoy a privileged position.
TREND►
In July, large protests were held in the Republic of Karakalpakstan against a proposed constitutional change that would remove the republic’s right to hold a referendum on secession. The authorities responded with force. Around 20 people were killed, 243 injured, and 500 arrested. In response, Mirziyoyev dropped the amendments concerning Karakalpakstan from the new constitution.
While the unrest in Karakalpakstan is unlikely to spread, socioeconomic and political discontent is mounting with little outlet. Mirziyoyev’s reform agenda has made substantial progress in the socioeconomic sphere, but Uzbekistan’s people are feeling the economic consequences of the Russia/Ukraine crisis, including higher global fuel and food prices. Many men who would have travelled to Russia as migrant workers are now unemployed and, in June, the government stopped grain subsidies due to the disruption to global food supplies, causing the price of bread to increase.
Mirziyoyev promised political reforms but has delivered little. The main effect of the wider set of constitutional reforms, which will be put to a referendum, may be to consolidate Mirziyoyev’s hold on power. A key change would limit presidents to one seven-year term, rather than two five-year terms. The change would likely ‘reset’ Mirziyoyev’s previous presidential terms, allowing him to stand for a third in 2026.
Given the near absence of organised opposition, large protests around political issues are unlikely without a trigger event to mobilise around. The constitutional referendum may provide such an event, but political violence in Uzbekistan is rare.
TREND ▲
There is a significant and growing risk of cross-border attacks from Afghanistan by Islamic State Khorasan (ISKP). The group, which has largely absorbed the Islamic Movement of Uzbekistan, has increased its presence and operational capacity in northern Afghanistan. ISKP-affiliated militants claim to have fired rockets into Uzbek territory on April 18 and July 5. Uzbek authorities confirmed the second attack but deny the first.
ISKP has increased its recruitment and propaganda activities among Uzbek speakers, raising the risk of domestic attacks. The government’s restrictions on religious practice create resentment among the devout, with reports of forced beard shaving re-emerged in May.
In July, the U.S. included Uzbekistan on a list of countries that could serve as transhipment points allowing Russia to evade sanctions. This followed the imposition of secondary sanctions on Promcomplektlogistic, a privately owned and Tashkent-registered logistics company. However, in general, Uzbekistan is complying with sanctions.
The country’s som currency has regained some of its value following a 15% fall in early March and it is expected to return to stability. Inflation is likely to remain above 10% into 2023.
Uzbekistan’s economic growth is expected to slow to 3.6% in 2022, after four years of growth of above 5%, largely due to the economic fallout from the Russia/Ukraine crisis. Uzbekistan will continue to see reduced remittances, high oil and food prices, and disruption to financing and supply chains. Government debt, which is expected to reach 37% of GDP by the end of the year, remains manageable and Uzbekistan has robust international reserves.
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