INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND REPUBLIC OF UZBEKISTAN Joint World Bank-IMF Debt Sustainability Analysis May 2019 Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Lalita Moorty (IDA) and Thanos Arvanitis and Maria Gonzalez (IMF) Uzbekistan: Joint Bank-Fund Debt Sustainability Analysis Risk of External Debt Distress Low Overall Risk of Debt Distress Low Granularity in the Risk Rating Not applicable Application of Judgment The risk ratings were not adjusted Based on the Joint Bank-Fund Low-Income Country Debt Sustainability Analysis (LIC-DSA), Uzbekistan has a low risk of debt distress, with debt burden indicators below relevant thresholds in the baseline and all stress scenarios. Over the medium term, the public debt-to-GDP ratio is expected to increase moderately, while the total external debt-to-GDP ratio is expected to decline somewhat. In addition, large foreign exchange reserve buffers mitigate potential distress concerns. The debt sustainability analysis suggests that the most significant risks could result from worse- than-expected external flows (mostly lower remittances) and significantly lower exports. The government should carefully manage external borrowing to maintain Uzbekistan’s strong external position.1 1Due to statistical revisions and progress of structural reforms, comparisons with previous DSAs may not be informative. In particular, significant historical revisions of national accounts and balance of payments statistics hinder comparability. Moreover, given significant progress on transition reforms, staff has adjusted some of the macroeconomic projections to fit earlier experiences of transition economies. BACKGROUND 1. The stocks of total external and public and publicly-guaranteed (PPG) debt remain low and are expected to rise only moderately over the medium term. 2 At the end of 2018, public and publicly-guaranteed external debt amounted to 20½ percent of GDP, while private external debt stood at 14 percent of GDP (text table).3 The relatively low levels of external debt reflects a history of targeting external and fiscal surpluses under Uzbekistan’s previous state-led growth model, a policy that also aimed at building up large international reserve buffers. Uzbekistan: External Public and Private Debt, 2018 Millions of Percent of Percent of U.S. dollars GDP external debt Total external debt 17,078 34.5 100.0 Public and publicly-guaranteed debt 10,017 20.5 58.7 Government debt 7,288 14.9 42.7 Guaranteed debt 2,729 5.6 16.0 Private debt 7,061 14.0 41.3 Sources: Uzbekistan authorities; IMF staff calculations. Uzbekistan: Public and Publicly-Guaranteed Debt, 2018 Millions of Percent of Percent of U.S. dollars GDP PPG debt Total public and publicly-guaranteed debt 10,089 20.6 100.0 Public and publicly guaranteed debt 10,017 20.5 99.3 Domestic debt 72 0.1 0.7 Sources: Uzbekistan authorities; IMF staff calculations. 2. Almost all of Uzbekistan’s public and publicly-guaranteed debt is denominated in foreign currency, with only a small share in domestic currency. At end-2018, about 55 percent of PPG debt was owed to multilateral creditors, 35 percent to bilateral creditors, 4 percent to commercial creditors, and less than one percent represented domestic treasury bills and bonds. After paying off all domestic currency debt in 2011, the government began again issuing treasury bills and bonds in 2018 to set benchmarks for the domestic financial sector. Moreover, in early- 2019, the government for the first time issued Eurobonds for one billion U.S. dollars, which raised public external debt of the government by about 1¾ percent of GDP. 3. The public debt coverage is broad. Public debt covers debts of the general government (central government, local government, the pension fund and other extrabudgetary funds) and SOE 2 PPG debt consists of debts of the general government and debts of state-owned enterprises (SOEs) guaranteed by the government. External debts of SOEs that are not guaranteed by the government are included in private external debt. 3 The levels of both debt indicators doubled approximately following FX liberalization in September 2017 when the official FX rate converged to a much more depreciated parallel market FX rate. 2 debts guaranteed by the government guaranteed (see text table). However, data limitations undermine the completeness and comprehensiveness of PPG external debt data. In addition, the amount of non-guaranteed SOE debt is currently not known. Efforts on improving debt coverage are under way (a joint IMF/World Bank mission in April 2019 was working on improving the quality of debt data and developing a medium-term debt management strategy). Most of the reported private external debt reflects joint ventures between Uzbek SOEs and other firms, mostly in the energy sector. The contingency stress tests are based on standard parameters (see text table): implying a 2 percent of GDP shock to SOE debt, and a 5 percent of GDP shock in case of financial market default. Currently, there are no significant Public Private Partnership (PPP) projects in Uzbekistan. Uzbekistan: Public Sector Coverage in DSA Subsectors of the public sector Sub-sectors covered 1 Central government X 2 State and local government X 3 Other elements in the general government X 4 o/w: Social security fund X 5 o/w: Extra budgetary funds (EBFs) X 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 7 Central bank (borrowed on behalf of the government) 8 Non-guaranteed SOE debt 1 The country's coverage of public debt The general government, government-guaranteed debt Reasons for deviations from the Default Used for the analysis default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 0.0 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 2.0 4 PPP 35 percent of PPP stock 0.0 No significant PPPs currently 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5.0 Total (2+3+4+5) (in percent of GDP) 7.0 1/ The default shock of 2 percent of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). 4. Uzbekistan’s debt-carrying capacity is assessed as strong. The new debt sustainability framework for LICs uses a composite indicator (CI) to capture factors affecting a country’s debt - carrying capacity. In particular, the CI uses a weighted average of the World Bank’s Country Policy and Institutional Assessment (CPIA) score for Uzbekistan, the country’s real GDP growth, remittances, foreign exchange reserves, and global growth. The calculation of the CI is based on 10-year averages of the variables, using 5 years of historical data and 5 years of projection. Uzbekistan’s present CI score is calculated to be 3.06, which is just above the 3.05 lower bound for strong debt carrying capacity. The strong reading for the indicator largely reflects Uzbekistan’s high international reserves (text table). Uzbekistan: Composite Indicator of Debt-Carrying Capacity Classification based on Classification based on the Classification based on the Final current vintage previous vintage two previous vintages Strong Strong Strong Medium 3.06 3.06 3.43 Note: Until release of the April 2019 WEO vintage, the two previous vintages ago classification and corresponding score are based solely on the CPIA per the previous framework. 3 Uzbekistan: Calculation of Composite Indicator of Debt-Carrying Capacity Components Coefficients 10-year CI Score Contribution (A) average components of values (B) (A*B) = (C) components (percent) CPIA 0.39 3.50 1.35 44.0 Real growth rate (in percent) 2.72 6.45 0.18 5.7 Import coverage of reserves (in percent) 4.05 57.96 2.35 76.6 Import coverage of reserves^2 (in percent) -3.99 33.60 -1.34 -43.7 Remittances (in percent) 2.02 2.41 0.05 1.6 World economic growth (in percent) 13.52 3.58 0.48 15.8 CI Score 3.06 100.0 CI rating Strong Applicable Thresholds for Debt-Carrying Capacity In percent Weak Medium Strong External debt burden threshold PV of debt-to-exports 140 180 240 PV of debt-to-GDP 30 40 55 Debt service-to-exports 10 15 21 Debt service-to-revenue 14 18 23 Total public debt benchmark Public debt-to-GDP 35 55 70 MACROECONOMIC ASSUMPTIONS 5. The macroeconomic assumptions in this DSA are broadly unchanged compared with last year’s DSA, except for the external current account outlook (text table). • Real growth: Projected real GDP growth rates have been marginally upgraded for 2019-20, with growth driven by domestic demand. As reforms progress, consumption expands, and investment remains at robust levels. Medium-term growth is projected at 6 percent, as in the previous DSA. Inflation is projected to be high in the near term as price liberalization and relative price and wage adjustments continue, with energy prices in particular converging to cost-recovery levels. Over the medium term, inflation gradually declines as price liberalization is completed. 4 • Fiscal: The overall fiscal deficit, which combines the consolidated fiscal deficit and the balance of the government’s policy-based lending operations, is projected to stabilize at 1¾ percent of GDP over the medium term (versus 1½ percent of GDP in the 2018 DSA). • External: The current account deficit is significantly larger than previously projected, reflecting a host of factors, including opening and modernization of the economy, as reflected in the surge of capital goods imports in 2018. Staff also revised the external projections to fit better the experiences of earlier transition economies. These revisions imply a higher current account deficit and a faster real appreciation than in the previous DSA. At the same time, FDI has been revised up assuming reforms continue and stimulate FDI inflows. International reserves are projected to remain relatively stable in the medium term as government borrowing and FDI cover most of the current account deficit during the transition. Uzbekistan: Comparison of Selected Macroeconomic Indicators, 2017-21 2017 2018 2019 2020 2021 Real GDP growth (percent) Current DSA 4.5 5.1 5.5 6.0 6.0 Previous DSA 5.3 5.0 5.0 5.5 6.0 Overall fiscal balance (percent of GDP) 1/ Current DSA -1.9 -2.1 -1.6 -1.8 -1.8 Previous DSA -2.6 -1.0 -1.1 -1.1 -1.4 Current account (percent of GDP) 1/ Current DSA 2/ 1.2 -6.9 -6.5 -5.6 -4.7 Previous DSA 3.0 0.3 -0.8 -2.1 -2.1 Sources: Uzbekistan authorities; and IMF and World Bank staff estimates and projections. 1/ Current and previous data were adjusted for recent revisions, which increased nominal GDP by about 25 percent. 2/ Balance of payments (BOP) statistics revision in 2018 implied a current account deficit ½ percentage points higher due to the adoption of a new BOP methodology. REALISM TOOLS 6. The projections seem to be realistic (Figure 4). Fiscal and real sector projections are consistent according to the realism tests. The change in the primary balance over the next 3 years is close to the median of the cross-country distribution (zero). Nevertheless, for 2019, a small fiscal tightening (0.2 percent of GDP) is projected with limited impact on real GDP growth. However, as past investments and reforms spur GDP growth, the negative growth impact of the fiscal tightening will be more than offset. At the same time, the contribution of government capital expenditure on growth is projected to decline as the reforms reduce the footprint of the government in the economy. 5 EXTERNAL AND PUBLIC DSA Total Public and Publicly-Guaranteed (PPG) Debt 7. PPG debt is projected to rise modestly over the next 20 years (Table 1-2). Under the baseline, the government’s primary deficit will stabilize at 1½ percent of GDP (Table 2). Disbursements of new debt are assumed to average around 5 percent of GDP per year, as the government uses multilateral and bilateral official borrowing for financing investment and support its reform plans: • Historically, about half of PPG external borrowing came from multilateral creditors, one third from official bilateral creditors. These debts typically have maturities on the order of 20 years and implicit interest rates of about 2 percent. However, the Eurobonds issued in 2019 had maturities of five and ten years and interest rates of 4¾ and 5⅜ percent, respectively. • For SOEs, about three-quarters of guaranteed debts reflected official bilateral creditors, with a small portion from commercial creditors. Official borrowing by SOEs has been on terms similar to that of the government. Commercial borrowing has an average maturity of about 5 years with implicit interest rates of about 2½ percent. 8. The projections assume borrowing maturities and interest rates will remain comparable to their historical values. Under these assumptions, the PPG debt-to-GDP ratio is projected to gradually rise from 20½ percent of GDP in 2018 to 26 percent of GDP in 2039. 9. Debt burden and service ratios show minimal increases under the baseline scenario (Table 4). The solvency indicator, the present value (PV) of public debt-to-GDP increases marginally from 16 percent in 2018 to about 20 percent in 2029, which is below the 70 percent benchmark. Solvency and liquidity indicators normalized by revenue show a deterioration in 2019 due to the tax reform—which reduced the tax burden—but afterwards the indicators increase only marginally. The PV of the public debt-to-revenue ratio ticks up from 73 to 77 percent between 2019 and 2029, while the public debt service-to-revenue ratio remains below 10 percent. 10. Domestic debt remains limited. The government aims to keep issuing moderate levels of domestic debt in domestic currency to support the financial sector development. Nevertheless, given high inflation, the cost of local debt can be high, while the government has sizable liquid assets amounting about 30 percent of GDP. As a consequence, domestic debt issuance is expected to remain negligible. Total External Debt 11. Under the baseline scenario, total external debt declines from 34 percent of GDP in 2018 to 31 percent of GDP in 2024 and remains around that value until 2039 (Tables 1-2 and Figure 1). While public external debt increases over the next 20 years, private external debt is projected to decline. An important driver of the external debt decline is the projection of persistent 6 real exchange appreciation, which is consistent with the experiences of earlier transition economies (reflected in the debt dynamics residuals reported in Tables 1-2). 12. Under the baseline, all PPG external debt indicators remain below their indicative thresholds (Table 3). As regards solvency indicators, the PV of PPG external debt-to-GDP rises from 18 percent in 2019 to 20 percent in 2039, and is below its indicative threshold of 55 percent throughout the period. The PV of PPG external debt-to-exports ratio would rise from 69 percent in 2019 to about 97 percent in 2039, less than half the indicative threshold of 240 percent. As regards liquidity indicators, the PPG debt service-to-exports and to-revenue ratios stay below 10 percent. Both indicators remain below their thresholds, which are respectively 21 and 23 percent. 13. The ratio of private external debt to GDP will decline as joint ventures reach the repayment stage. In many cases these are debts related to joint ventures in which SOEs are part. The creditors of these debts are largely foreign commercial banks and corporations. Private external debt is projected to decline sharply in 2019 and 2020, as some enterprises pay off outstanding debt as investment projects are completed and reach the debt repayment stage. Thereafter, private external debt is projected to decline gradually and stabilize at around 6 percent of GDP. 14. While total external debt is expected to remain stable going forward, the underlying drivers will change (Figure 3). In the past, the non-interest current account was in surplus and the exchange rate was the main factor driving the external debt ratio. In particular, the 2017 depreciation almost doubled the external debt to GDP ratio. Looking forward, productivity growth is expected to contribute to appreciation of the real exchange rate, as was observed in other earlier transition economies. Thus, moderate overall fiscal deficits (of about 2 percent of GDP) and significant current account deficits (on the order of 4-6 percent of GDP) are expected to drive debt dynamics. Stress Testing and Risks 15. The DSA shows that debt ratios are robust to a range of adverse shocks (Figures 1 and 2)4: • A one standard deviation shock to the other external flows —which includes remittances and FDI— would have the greatest impact on the PV of external debt-to- GDP and exports ratios (Table 3). Under this shock, the PV of debt-to-GDP ratio would rise to 29 percent in 2024 and decline to 24 percent in 2039 compared to 19 percent for both years under the baseline. The PV of debt-to-exports ratio would rise to 139 percent in 2024 and decrease to 116 percent in 2029 compared to about 92 percent under the baseline. Nonetheless, all ratios would remain below the benchmark thresholds. 4 Results of stress test of public debt and PPG external debt are similar so the results for PPG external debt are only discussed. 7 • A one standard deviation shock to exports would have a considerable impact, similar to the other external flows. As in the other flows shock, all the stock and flow ratios would remain below standard thresholds. • A combination shock (of one-half standard deviation in GDP growth, fiscal balance, exports, financing flows, and depreciation) would have the next highest impact. But again, stock and flow ratios would remain below standard thresholds. 16. Overall, Uzbekistan’s risk of external debt distress remains low. The stock of external debt is projected to decrease to about 31 percent of GDP by 2029, while the stock of overall public debt including guaranteed debt is projected to reach about 25 percent of GDP (Tables 1-2). All debt stocks and debt service ratios are projected to remain well below the relevant indicative thresholds (Figures 1-2, Tables 2-4). The DSA outlook benefits from robust growth and continued relatively low cost of financing as concessional borrowing, which underscores the importance of policies that safeguard sustainable catch-up growth and external stability. Large fiscal buffers (about 30 percent of GDP) and sizable international reserves (about 13 months of imports) are important risk-mitigating factors. 17. Market-financing risk is low (Figure 5). Low gross financing needs and the reduced sovereign spreads support the low risk of potential liquidity needs. All debt stocks and debt service ratios are below the relevant thresholds, signaling some margin to manage debt. In addition, large liquid fiscal buffers allow to cope with temporary adverse shocks. CONCLUSION 18. Based on the debt sustainability analysis, Uzbekistan’s risk of public debt and external debt distress is low. All solvency and liquidity indicators are projected to remain below their respective thresholds under both the baseline and stress scenarios. 19. Debt sustainability ratios could worsen if external borrowing is significantly higher than projected. This analysis assumes the increase in external borrowing is modest, i.e. after an initial boost as reforms get underway, external PPG borrowing remains around 4-5 percent of GDP. Additional external borrowing could result in higher growth, exports, and revenues, but could impose an additional burden if not used wisely. 20. The authorities agree with the staff’s views. They concur that the risk of debt distress is low, given the significant buffers and low debt-to-GDP ratio. The authorities share the view that investment needs must be addressed in a context of sound macroeconomic framework, including a sound fiscal policy. The authorities are also committed to strengthen debt management capacity to further minimize the risk of debt distress. 8 Table 1. Uzbekistan: External Debt Sustainability Framework, Baseline Scenario, 2018-2039 (In percent, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2018 2019 2020 2021 2022 2023 2024 2029 2039 External debt (nominal) 1/ 34.5 34.0 33.5 32.2 31.4 30.9 30.6 30.9 32.0 18.6 31.5 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 20.5 23.1 24.6 24.6 24.6 24.7 24.8 25.1 26.1 9.8 24.6 Is there a material difference between the No two criteria? Change in external debt 0.4 -0.5 -0.5 -1.3 -0.8 -0.5 -0.3 0.3 0.1 Identified net debt-creating flows 11.0 3.2 2.0 1.0 0.5 0.2 0.1 0.0 0.0 -3.0 0.7 Non-interest current account deficit 6.0 5.5 4.7 3.9 3.6 3.6 3.4 3.4 3.4 -1.8 3.8 Deficit in balance of goods and services 18.4 16.4 14.5 12.9 11.9 11.3 10.7 10.7 10.7 3.9 11.9 Exports 28.0 25.8 23.6 22.0 21.4 21.2 21.1 21.1 21.1 Imports 46.4 42.2 38.1 34.9 33.3 32.5 31.7 31.7 31.7 Debt Accumulation 6.0 30 Net current transfers (negative = inflow) -8.3 -7.2 -6.4 -5.8 -5.3 -4.9 -4.5 -4.5 -4.5 -2.3 -5.1 of which: official 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other current account flows (negative = net inflow) -4.1 -3.7 -3.4 -3.2 -3.0 -2.8 -2.8 -2.8 -2.8 -3.3 -3.0 5.0 25 Net FDI (negative = inflow) -1.2 -1.7 -1.8 -2.0 -2.2 -2.4 -2.4 -2.4 -2.4 -1.8 -2.3 Endogenous debt dynamics 2/ 6.2 -0.6 -0.8 -0.9 -0.9 -0.9 -0.9 -0.9 -1.0 4.0 20 Contribution from nominal interest rate 1.0 1.0 0.9 0.9 0.8 0.8 0.8 0.8 0.8 Contribution from real GDP growth -2.0 -1.6 -1.8 -1.8 -1.7 -1.7 -1.7 -1.7 -1.8 3.0 15 Contribution from price and exchange rate changes 7.2 … … … … … … … … Residual 3/ -10.6 -3.7 -2.5 -2.2 -1.3 -0.7 -0.4 0.3 0.1 5.3 -1.0 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 10 Sustainability indicators 1.0 5 PV of PPG external debt-to-GDP ratio 15.6 17.7 19.2 19.1 19.2 19.2 19.3 19.5 20.5 PV of PPG external debt-to-exports ratio 55.6 68.7 81.6 86.6 89.5 90.5 91.5 92.3 97.5 0.0 0 PPG debt service-to-exports ratio 3.9 4.6 6.5 7.5 7.9 8.1 8.7 8.8 10.1 2019 2021 2023 2025 2027 2029 PPG debt service-to-revenue ratio 3.9 4.7 6.0 6.4 6.5 6.6 7.0 7.1 8.1 Gross external financing need (Million of U.S. dollars) 6,002 5,424 5,381 4,965 4,887 5,010 5,385 8,379 17,449 Rate of Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 5.1 5.5 6.0 6.0 6.0 6.0 6.0 6.0 6.0 7.1 6.0 GDP deflator in US dollar terms (change in percent) -17.4 13.6 9.4 7.4 6.1 6.2 5.7 1.5 1.0 -2.3 5.8 Effective interest rate (percent) 4/ 2.7 3.3 3.1 3.0 2.9 2.8 2.8 2.7 2.6 2.4 2.9 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 13.9 10.3 6.0 6.5 9.2 11.5 11.4 7.6 7.0 2.3 9.2 of which: Private Growth of imports of G&S (US dollar terms, in percent) 42.3 8.8 4.8 4.3 7.4 9.6 9.6 7.6 7.0 8.7 8.2 40 Grant element of new public sector borrowing (in percent) ... 19.7 20.7 26.2 25.9 25.6 22.4 22.9 24.1 ... 24.0 Government revenues (excluding grants, in percent of GDP) 27.9 25.4 25.4 25.6 25.8 25.9 26.1 26.1 26.1 28.4 25.9 35 Aid flows (in Million of US dollars) 5/ 0.0 276.0 610.0 295.0 195.0 95.0 0.0 0.0 0.0 30 Grant-equivalent financing (in percent of GDP) 6/ ... 1.3 1.2 1.1 1.0 1.0 0.9 0.7 0.8 ... 0.9 Grant-equivalent financing (in percent of external financing) 6/ ... 19.7 20.7 26.2 25.9 25.6 22.4 22.9 24.1 ... 24.0 25 Nominal GDP (Million of US dollars) 50,485 60,490 70,156 79,887 89,851 101,155 113,366 175,660 346,685 Nominal dollar GDP growth -13.2 19.8 16.0 13.9 12.5 12.6 12.1 7.6 7.0 4.8 12.1 20 15 Memorandum items: PV of external debt 7/ 29.5 28.6 28.1 26.7 26.0 25.4 25.1 25.3 26.4 10 In percent of exports 105.5 110.8 119.3 121.2 121.4 119.9 119.3 120.1 125.2 5 Total external debt service-to-exports ratio 25.3 19.8 20.4 19.8 18.9 18.0 17.9 18.0 19.2 PV of PPG external debt (in Million of US dollars) 7855.6 10704.2 13488.5 15249.8 17209.2 19398.0 21868.3 34173.9 71197.2 0 (PVt-PVt-1)/GDPt-1 (in percent) 5.6 4.6 2.5 2.5 2.4 2.4 1.6 1.5 2019 2021 2023 2025 2027 2029 Non-interest current account deficit that stabilizes debt ratio 5.6 6.0 5.2 5.1 4.5 4.0 3.7 3.1 3.3 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 9 Figure 1. Uzbekistan: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2019-2019 (In percent) PV of debt-to GDP ratio PV of debt-to-exports ratio 60 300 50 250 40 200 30 150 20 100 10 50 0 0 Most extreme shock is Non-debt flows Most extreme shock is Exports -10 -50 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 25 25 20 20 15 15 10 10 5 5 Most extreme shock is Exports Most extreme shock is Combination 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Historical scenario Most extreme shock 1/ Threshold Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Tests Terms of marginal debt Combined CLs No Avg. nominal interest rate on new borrowing in USD 2.2% 2.2% Natural Disasters n.a. n.a. USD Discount rate 5.0% 5.0% Commodity Prices 2/ n.a. n.a. Avg. maturity (incl. grace period) 17 17 Market Financing No No Avg. grace period 4 4 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests interactions of the default settings for the stress are assumed to be covered by PPG external MLT debt in the external DSA. Default terms tests. "n.a." indicates that the stress test does not of marginal debt are based on baseline 10-year projections. apply. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 10 Table 2. Uzbekistan: Public Sector Debt Sustainability Framework, Baseline Scenario, 2018-2039 (In percent, unless otherwise indicated) Actual Projections Average 6/ 2018 2019 2020 2021 2022 2023 2024 2029 2039 Historical Projections Public sector debt 1/ 20.6 23.2 24.7 24.7 24.6 24.7 24.8 25.2 27.4 9.9 24.7 Definition of external/domestic Residency- of which: external debt 20.5 23.1 24.6 24.6 24.6 24.7 24.8 25.1 26.1 9.8 24.6 debt based of which: local-currency denominated Change in public sector debt 0.4 2.6 1.5 0.0 0.0 0.1 0.1 0.4 0.2 Is there a material difference Identified debt-creating flows -3.0 -1.5 -1.6 -1.1 -1.0 -0.9 -0.8 0.3 0.2 -1.5 -0.7 No between the two criteria? Primary deficit 1.6 1.4 1.5 1.4 1.5 1.4 1.4 1.4 1.4 -1.5 1.4 Revenue and grants 27.9 25.4 25.4 25.6 25.8 25.9 26.1 26.1 26.1 28.5 25.9 of which: grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Public sector debt 1/ Primary (noninterest) expenditure 29.4 26.7 26.9 27.0 27.2 27.3 27.6 27.6 27.6 27.0 27.3 Automatic debt dynamics -4.5 -2.8 -3.0 -2.5 -2.4 -2.2 -2.2 -1.1 -1.2 of which: local-currency denominated Contribution from interest rate/growth differential -1.0 -0.9 -1.2 -1.4 -1.4 -1.4 -1.4 -1.4 -1.5 of which: foreign-currency denominated of which: contribution from average real interest rate 0.0 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 of which: contribution from real GDP growth -1.0 -1.1 -1.3 -1.4 -1.4 -1.4 -1.4 -1.4 -1.5 30 Contribution from real exchange rate depreciation -3.5 ... ... ... ... ... ... ... ... 25 Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5 Residual 3.4 2.1 1.3 0.0 -0.1 0.1 0.1 0.4 0.4 2.7 0.4 0 Sustainability indicators 0.28 0.25 0.25 0.26 0.26 0.26 0.26 0.26 0.26 -5 2019 2021 2023 2025 2027 2029 PV of public debt-to-GDP ratio 2/ 16.2 18.5 19.7 19.5 19.4 19.4 19.5 20.1 22.4 PV of public debt-to-revenue and grants ratio 58.2 72.7 77.5 76.2 75.3 74.9 74.7 77.0 85.6 Debt service-to-revenue and grants ratio 3/ 3.9 5.2 6.0 6.4 6.5 6.6 7.0 7.1 12.3 Gross financing need 4/ 2.6 2.7 3.0 3.0 3.1 3.1 3.2 3.3 4.6 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 30 Real GDP growth (in percent) 5.1 5.5 6.0 6.0 6.0 6.0 6.0 6.0 6.0 7.1 6.0 25 Average nominal interest rate on external debt (in percent) 2.1 2.4 2.4 2.4 2.4 2.3 2.3 2.2 2.1 1.9 2.3 Average real interest rate on domestic debt (in percent) -20.3 77.4 -13.5 -10.5 -8.5 -7.7 -7.3 -4.2 2.3 -12.7 3.4 20 Real exchange rate depreciation (in percent, + indicates depreciation) -18.0 … ... ... ... ... ... ... ... 8.7 ... 15 Inflation rate (GDP deflator, in percent) 28.1 21.7 15.6 11.7 9.3 8.3 7.8 6.6 6.5 16.1 10.0 10 Growth of real primary spending (deflated by GDP deflator, in percent) 16.7 -4.2 6.7 6.5 6.7 6.3 6.9 6.0 6.0 8.1 5.4 5 Primary deficit that stabilizes the debt-to-GDP ratio 5/ 1.1 -1.2 0.0 1.4 1.5 1.3 1.3 1.0 1.2 -3.2 1.0 0 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -5 2019 2021 2023 2025 2027 2029 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The general government, and government-guaranteed debt. Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 11 Figure 2. Uzbekistan: Indicators of Public Debt, 2019-2029 (In percent) PV of Debt-to-GDP Ratio 80 70 60 50 40 30 20 10 Most extreme shock is Non-debt flows 0 -10 2019 2021 2023 2025 2027 2029 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 140 20 18 120 16 100 14 80 12 60 10 8 40 6 20 4 0 2 Most extreme shock is Non-debt flows Most extreme shock is Non-debt flows -20 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Most extreme shock 1/ Public debt benchmark Historical scenario Borrowing Assumptions for Stress Tests* Default User defined Shares of marginal debt External PPG medium and long-term 100% 100% Domestic medium and long-term 0% 0% Domestic short-term 0% 0% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 2.2% 2.2% Avg. maturity (incl. grace period) 17 17 Avg. grace period 4 4 Domestic MLT debt Avg. real interest rate on new borrowing 0.0% 0.0% Avg. maturity (incl. grace period) 1 1 Avg. grace period 0 0 Domestic short-term debt Avg. real interest rate -0.1% 5.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 12 Table 3. Uzbekistan: Sensitivity Analysis for Key Indicators of PPG External Debt, 2019-203 (In percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of debt-to GDP ratio Baseline 18 19 19 19 19 19 19 19 19 19 19 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 18 16 13 11 8 6 4 1 -1 -2 -4 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 18 20 20 20 20 20 20 20 20 20 20 B2. Primary balance 18 21 25 24 24 24 23 23 23 23 23 B3. Exports 18 23 28 27 27 27 26 25 25 24 24 B4. Other flows 3/ 18 26 31 30 29 29 28 27 26 25 24 B5. Depreciation 18 24 21 21 21 21 22 22 22 22 23 B6. Combination of B1-B5 18 27 31 30 30 29 28 27 26 26 25 C. Tailored Tests C1. Combined contingent liabilities 18 25 24 24 23 23 23 23 23 23 23 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 18 21 21 21 22 22 21 21 21 21 21 Threshold 55 55 55 55 55 55 55 55 55 55 55 PV of debt-to-exports ratio Baseline 69 82 87 89 90 92 92 92 92 92 92 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 69 68 60 50 39 28 17 7 -4 -12 -20 0 69 82 87 90 91 94 94 94 94 95 95 B. Bound Tests B1. Real GDP growth 69 82 87 89 90 92 92 92 92 92 92 B2. Primary balance 69 90 112 113 113 112 111 110 108 108 108 B3. Exports 69 112 174 175 174 173 169 164 160 156 154 B4. Other flows 3/ 69 109 141 141 139 137 133 127 123 119 116 B5. Depreciation 69 82 75 79 80 82 83 84 85 86 87 B6. Combination of B1-B5 69 122 134 166 164 162 157 152 147 143 140 C. Tailored Tests C1. Combined contingent liabilities 69 105 109 111 111 110 110 109 108 107 107 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 69 82 87 91 92 93 92 91 91 91 92 Threshold 240 240 240 240 240 240 240 240 240 240 240 Debt service-to-exports ratio Baseline 5 7 7 8 8 9 7 7 7 7 9 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 5 7 8 9 9 11 6 5 3 2 4 0 5 7 8 9 10 11 7 7 6 5 6 B. Bound Tests B1. Real GDP growth 5 7 7 8 8 9 7 7 7 7 9 B2. Primary balance 5 7 8 9 9 10 8 9 9 9 10 B3. Exports 5 8 11 13 13 13 12 14 14 14 16 B4. Other flows 3/ 5 7 8 9 9 10 9 11 11 11 12 B5. Depreciation 5 7 7 8 8 8 6 6 6 6 8 B6. Combination of B1-B5 5 7 10 11 11 12 12 13 13 13 15 C. Tailored Tests C1. Combined contingent liabilities 5 7 8 8 9 9 7 7 7 8 9 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 5 7 8 8 9 10 11 7 7 7 9 Threshold 21 21 21 21 21 21 21 21 21 21 21 Debt service-to-revenue ratio Baseline 5 6 6 7 7 7 5 6 6 6 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 5 7 7 7 8 9 5 4 3 2 3 0 5 6 7 7 8 9 6 5 5 4 5 B. Bound Tests B1. Real GDP growth 5 6 7 7 7 7 6 6 6 6 7 B2. Primary balance 5 6 7 8 8 8 7 7 7 7 8 B3. Exports 5 6 7 8 8 8 7 8 8 8 9 B4. Other flows 3/ 5 6 7 8 8 8 8 9 9 9 10 B5. Depreciation 5 7 8 8 8 8 6 6 6 6 8 B6. Combination of B1-B5 5 6 8 8 8 8 8 9 9 9 10 C. Tailored Tests C1. Combined contingent liabilities 5 6 7 7 7 7 6 6 6 6 7 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 5 6 7 7 7 8 9 6 5 5 7 Threshold 23 23 23 23 23 23 23 23 23 23 23 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 13 Table 4. Uzbekistan: Sensitivity Analysis for Key Indicators of Public Debt, 2019-2039 (In percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of Debt-to-GDP Ratio Baseline 18 20 20 19 19 20 20 20 20 20 20 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 18 17 14 11 9 7 5 3 1 0 -1 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 18 21 22 22 23 24 25 25 26 27 28 B2. Primary balance 18 22 25 25 24 24 24 23 23 23 23 B3. Exports 18 23 27 27 26 26 26 25 24 24 24 B4. Other flows 3/ 18 26 32 31 30 29 29 27 26 26 25 B5. Depreciation 18 22 20 18 16 15 14 13 12 11 10 B6. Combination of B1-B5 18 20 21 21 21 20 20 20 20 19 19 C. Tailored Tests C1. Combined contingent liabilities 18 25 24 24 24 23 24 23 23 23 23 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 18 20 20 20 20 20 20 20 20 20 20 Public debt benchmark 70 70 70 70 70 70 70 70 70 70 70 PV of Debt-to-Revenue Ratio Baseline 73 77 76 75 75 75 76 75 76 76 77 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 73 67 55 44 34 25 18 11 5 0 -5 0 5 6 7 7 7 8 6 5 5 5 7 B. Bound Tests B1. Real GDP growth 73 81 84 86 89 91 94 96 100 102 106 B2. Primary balance 73 85 98 95 93 91 91 90 89 89 89 B3. Exports 73 89 107 104 101 99 98 94 93 90 90 B4. Other flows 3/ 73 103 124 119 115 112 109 104 101 98 97 B5. Depreciation 73 88 78 70 64 58 54 49 45 41 38 B6. Combination of B1-B5 73 79 83 81 79 78 78 76 75 74 74 C. Tailored Tests C1. Combined contingent liabilities 73 99 96 93 91 90 90 89 89 88 89 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 73 78 77 76 76 76 75 75 75 75 77 Debt Service-to-Revenue Ratio Baseline 5 6 6 7 7 7 5 6 6 6 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 5 6 6 5 5 5 3 2 2 1 1 0 5 6 7 7 7 8 6 5 5 5 7 B. Bound Tests B1. Real GDP growth 5 6 7 7 7 8 6 6 7 7 9 B2. Primary balance 5 6 7 8 8 8 7 7 7 7 8 B3. Exports 5 6 7 7 7 8 7 8 8 8 9 B4. Other flows 3/ 5 6 7 8 8 8 8 9 9 9 10 B5. Depreciation 5 7 8 8 8 8 6 6 5 5 7 B6. Combination of B1-B5 5 6 8 8 8 8 7 7 6 6 8 C. Tailored Tests C1. Combined contingent liabilities 5 6 7 7 7 7 6 6 6 6 7 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 5 6 7 7 7 8 9 6 5 5 7 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 14 Figure 3. Uzbekistan: Drivers of Debt Dynamics – Baseline Scenario Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 40 80 Residual 25 Previous DSA proj . 30 70 DSA-2015 20 Interquartile range Price and (25-75) 60 exchange 20 15 rate 50 Real GDP 10 10 growth Change in PPG debt 40 0 5 3/ Nominal 30 interest rate 0 -10 20 -5 Median Current -20 10 account + -1 0 FDI -30 0 Change in -1 5 Contribution of 5-year 5-year Distribution across LICs 2/ 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PPG debt 3/ unexpected historical projected -2 0 changes change change Public debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residual 20 Current DSA 20 Previous DSA proj. DSA-2015 Other debt Interquartile 80 creating flows range (25-75) 10 15 70 Real 60 Exchange rate 10 50 depreciation Real GDP 0 growth Change in debt 40 5 Real interest 30 rate -10 20 0 Primary deficit 10 -20 -5 Median 0 Change in debt 5-year 5-year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Distribution across LICs 2/ historical projected Contribution of change change -10 unexpected 1/ Difference betw een anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for w hich LIC DSAs w ere produced. 3/ Given the relatively low private external debt for average low -income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 15 Figure 4. Uzbekistan: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 9 0.3 Distribution 1/ 14 0.2 8 Projected 3-yr 0.1 12 adjustment 3-year PB adjustment greater than 7 0 In percentage points of GDP 2.5 percentage points of GDP in -0.1 10 approx. top quartile 6 -0.2 In percent 5 8 -0.3 4 Baseline -0.4 6 -0.5 Multiplier = 0.2 3 -0.6 4 Multiplier = 0.4 2 -0.7 Multiplier = 0.6 -0.8 2 1 Multiplier = 0.8 -0.9 0 0 -1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 More 2013 2014 2015 2016 2017 2018 2019 2020 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since possible real GDP growth paths under different fiscal multipliers (left-hand side scale). 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is found on the vertical axis. Public and Private Investment Rates Contribution to Real GDP growth (percent of GDP) (percent, 5-year average) 36 7 32 6 28 5 24 4 20 16 3 12 2 8 1 4 0 0 Historical Projected (Prev. DSA) Projected (Curr. DSA) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA Contribution of government capital 16 Figure 5. Market-Financing Risk Indicators GFN 1/ EMBI 2/ Benchmarks 14 570 Values 3 250 Breach of benchmark No No Potential heightened liquidity needs Low 1/ Maximum gross financing needs (GFN) over 3-year baseline projection horizon. 2/ Uzbeksitan is not included in EMBI. Spread from the Uzbek 2019 international issuance. 60 PV of debt-to GDP ratio PV of debt-to-exports ratio 300 50 250 40 200 30 150 20 100 10 50 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 25 25 20 20 15 15 10 10 5 5 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Market financing Threshold Sources: Country authorities; and staff estimates and projections. 17