Previous Quarterly Editions
Expropriation Risk: 68 65 62 62 Political Violence Risk: 40 38 38 38 Terrorism Risk: 58 58 56 54 Exchange Transfer and Trade Sanction Risk: 66 62 58 58 Sovereign Default Risk: 61 60 58 58
TREND ▼ OUTLOOK ►
In August, the first state visit by a Tajik president to Tashkent in seventeen years underlined the success of Shavqat Mirzioyev in improving bilateral relations since becoming Uzbekistan’s acting president in late 2016. The issues that caused sustained tension over the last two decades, including border demarcation, trade and transit, Islamic insurgent threat management and the impact on shared river water use from Tajik hydroelectric dam construction, are now being addressed positively on both sides. Uzbekistan has agreed to support rather than obstruct Tajikistan's giant Roghun dam project, while Tajikistan will support Uzbek efforts to engage with the Taliban while strengthening frontier defences. Electricity links between the two countries are also being restored, and Uzbekistan has recently opened talks with Russia about buying nuclear generation capacity. A delegation from Rosatom visited the country in late May. President Mizioyev is also pursuing better relations with the rest of Central Asia, and has recently been facilitating Afghan peace talks involving the Kabul government and the Taliban as each side regards Uzbekistan as both neutral and influential. Relations with Moscow are also improving and President Putin is expected to come to Tashkent in the autumn. Moscow is concerned that insurgents from Afghanistan may slip across the border into Central Asia and eventually into Russia, and a well trained and equipped Uzbek military would ease Moscow's worries about needing to commit large numbers of its own troops in the event of a major crisis. Russian Defence Minister Sergey Shoigu has made several recent trips to Tashkent to offer training for the Uzbek military, including on counter-insurgency tactics, and joint military exercises resumed in 2017. Having hosted in April his Turkmen counterpart’s first visit to Uzbekistan for a decade, Mirzioyev will continue working to improve regional relations. However, he is likely to maintain the Uzbek reluctance to join regional economic or security bodies. With new trade routes opening up through Central Asia, largely as a result of China's Belt and Road Initiative, Uzbekistan stands to gain simply from being a cooperative trading hub. Although the president’s decision to devalue the som last year and let it float freely has been widely welcomed by the IMF and others abroad, the immediate impact has been to push inflation close to 20% as prices rise. Nor has there been any easing in the chronic levels of unemployment that make remittances from Russia and neighbouring countries so crucial to the economy. In an explicit reward for the country’s move towards liberalising policies, in May the World Bank announced almost a billion dollars in new financing for new projects involving energy efficiency, horticulture, and emergency medical services. President Mirzioyev is aware of the need to make the benefits of a more market-based economy evident as soon as possible.
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Russian energy majors Gazprom and Lukoil, which have long-standing exploration and extraction contracts in Uzbekistan, have indicated that they plan substantial new investment. Gazprom extended its contract for the Shahpakhty gas field on the western Ustyurt plateau at the end of May as it is using Uzbek as a substitute for Turkmen gas after its relations with Turkmenistan broke down. Other energy firms, even Chinese ones, have shown less interest so far as they await further evidence of the government’s long-term intentions. Privatisation events are likely to start with the state airline but there is no indication that it will extend to the energy sector in the medium term and the high rates of corruption and bureaucratic inefficiency will take time to tackle.
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A change in the leadership of the National Security Service (SNB) was meant to end its status as an organisation above the law, but it is not clear how much of a change there will be as the country approaches a period of higher prices and job losses as a result of economic restructuring. Any sizeable public gathering is still liable to trigger a strong response and the government is likely to retain official definitions of Islamic radicalism that also encompass non-violent government opponents, giving the security forces wide scope for action. However, in August the government granted the first NGO accreditation in more than a decade to a US group that arranges educational and cultural exchanges, suggesting some small progress towards a slightly looser grip on civil society.
In its first major arms purchase under President Mirzioyev, Uzbekistan has bought twelve Mi-35M attack helicopters from Russia, apparently at a discounted price. The decision to start with helicopter gunships may have been influenced by what the country can afford, but also reflects their utility as a counter-insurgency tool in light of Uzbekistan's proximity to Afghanistan. Updates to Soviet-era equipment suitable for combating insurgents are likely to follow. The interior ministry warned last year that Islamist militants returning from conflicts abroad were being identified on an almost daily basis. While this remains a legitimate concern, there is also evidence of home-grown radicalism.
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Central bank figures show growth of 4.9% in the first half of 2018, helped by the uptick in exports during the first quarter, and suggest somewhere close to 5.5% for the year as a whole. However, inflation is back to double-digit levels not seen since 2013 and is expected to be around 13% for the year. There are plans to expand the country’s Islamic banking sector.
External debt is still below 20% of GDP, but new loans from China associated with its Belt and Road initiative, and possibly from Russia if a nuclear power deal is signed, could push this up quickly. The issuance of a som-denominated ‘Samakand’ bond in London in June was a step towards the government’s hope of issuing the country’s first Eurobond this year, possibly for as much as 300 million dollars, as part of its effort to attract a positive sovereign credit rating from the major international agencies.
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