TOPIC OF THE WEEK: UZS benefits from a rare confluence of favorable external conditions
Last week, I argued that CCA appreciation vs. the US$ has come to an end and may only resume on a sustainable basis should the RUB start strengthening again (the RUB has already retraced some of its recent losses). I stressed that the Uzbekistani sum was the only CCA currency that did not quite fit this explanation and offered some brief comments on that. As the UZS has powered on, thus shrugging off the centrality of my RUB thesis, I now take advantage of the publication of the 2Q25 BoP data on Uzbekistan to evaluate in more detail to what extent the external picture may have contributed to UZS outperformance.
The analysis suggests that there has been an exceptionally copious supply of foreign exchange in 2Q (and, more broadly in 1H), driven by the sharp transition from a large CA deficit in late 2024 into a much smaller gap in 1Q25 and a rare CA surplus in 2Q25. In turn, this has been facilitated by record-high remittances, a very unusual non-energy CA surplus boosted partly by robust gold exports, and a relatively small energy CA deficit. I suspect that not all of these factors are cyclical as I anticipate remittances to remain strong and gold exports to continue providing support to the CA, at least for the time being. There is a bigger question about the sustainability of the non-energy CA surplus as GDP growth powers on, and about the magnitude of the energy CA deficit, which will ultimately hinge on whether the recent positive momentum in green energy electricity generation can be sustained.
Now read on...
Register to sample a report