Geopolitical Tensions and Currency Fluctuations Threaten Uzbekistan’s Financial Stability
Uzbekistan’s Financial Stability Faces Risks Amid Geopolitical Instability
A recent survey conducted by the Central Bank of Uzbekistan has highlighted significant risks in the country’s financial system, with external geopolitical instability being the primary concern. The findings, revealed in the bank’s 2024 Financial Stability Report, shed light on vulnerabilities and potential threats facing Uzbekistan’s financial sector.
In a survey carried out among 35 commercial banks in June 2024, respondents identified the worsening geopolitical situation as the most critical risk to the financial system. This marks a shift from earlier concerns highlighted in the January 2024 survey, where currency volatility was the top threat. Other risks identified by respondents include sharp fluctuations in exchange rates, rising household debt, increasing inflation, and the looming threat of cyberattacks.
According to the survey results, 45% of respondents listed external geopolitical risks as their top concern, followed by currency volatility (37%), rising household debt (35%), inflation (33%), and cyberattacks (24%). The report also flagged other risks such as defaults by major borrowers, economic downturns, liquidity shortages, declining real estate prices, and climate change-related risks.
Looking at the likelihood of systemic risks materializing in the short term, 46% of respondents indicated the probability as low, while 43% considered it moderate. When looking at the medium term (1-3 years), 51% of respondents anticipated a moderate likelihood of systemic risks, with 31% foreseeing a high probability.
Despite the challenges ahead, the survey showed that 60% of respondents have confidence in the stability of Uzbekistan’s financial system over the next three years, but this figure is down by 14% from the January 2024 survey. Additionally, 37% of respondents expressed partial confidence in the financial system’s stability.
Recent trends identified in the survey include an increase in demand for credit reported by 57% of respondents in the last six months, along with 46% noting improved availability of short-term financing. However, 37% reported no significant changes in long-term financing availability or interbank liquidity.
The report also echoes concerns raised by the International Monetary Fund (IMF), which highlighted external and internal risks to Uzbekistan’s economy. The ongoing war in Ukraine, commodity price volatility, and global economic stagnation were noted as key external threats, while domestically, potential risks related to delays in government spending reductions and obligations from public-private partnership projects were highlighted.
Uzbekistan’s financial regulators and institutions are closely monitoring these risks to ensure the country’s financial system remains resilient amidst ongoing global uncertainties. The findings of the survey provide valuable insights that will help guide policymakers and stakeholders in safeguarding Uzbekistan’s financial stability in the face of evolving challenges.
