New regulations on sovereign loans and guarantees in Uzbekistan

On January 16, 2020, the Cabinet of Ministers adopted the Resolution No. 27 “On Measures for Effective Management of the State Debt and Ensuring the Targeted Use of the Attracted Debt” (the “Resolution”). The Resolution provides for a general strategy for managing the state (sovereign) debt in 2020, introducing a number of procedural requirements and setting some thresholds. The Resolution also mentions legal entities and banks, in which the state share is more than 50 %. The goal is to gradually shift them to market-based financing. Some important developments brought in by the Resolution are briefly described below. (An unofficial translation of the Resolution is available in English at the following link)

As part of the strategy, on February 1, 2020, a specialized guarantee fund under the Treasury of the Ministry of Finance (the “Fund”) will be established to ensure that state loans / state-guaranteed loans are properly repaid by borrowers and refinancing banks. The Fund will make relevant payments, where borrowers (banks) do not make timely and full payments themselves. Such payments will have to be reimbursed to the Fund.

Thresholds for 2020

Giving a reference to the Law on the State Budget for 2020, the Resolution reiterates that:

• the overall amount of the foreign state debt being attracted under state loans/state-guaranteed loans in 2020 may not exceed USD 4 bln;
• foreign loan drawdowns in 2020 may not exceed USD 1.5 bln if such loans are repayable at the expense of the state budget;
• the interest charged for the provision of sovereign guarantees may not be less than 0.5% per annum of the outstanding amount of a debt.[1]

Procedural Requirements for Financing Projects Through Sovereign Loans

Starting from January 1, 2020, the following procedural requirements will apply:

• legal entities, in which the state has a stake of 50% or more, are required to notify the Ministry of Finance when taking foreign loans. The notification procedure is to be adopted;
• state loans/state-guaranteed loans are subject to approval by the Presidium of the Cabinet of Ministers. A request for the execution of a relevant loan agreement or provision of a sovereign guarantee shall be accompanied by the official results of a deep socio-economic and financial study of relevant projects and programs.
• the Center for the Examination of Projects and Import Contracts under the Ministry of Economy and Industry of Uzbekistan will conduct mandatory examination of pre-project, technical and tender documentation for all projects financed through state loans/state-guaranteed loans. The examination is not required for programs[2] and projects, where more than 80% of the project value or more is refinanced through commercial banks.

Regulations on criteria for the selection, the relevant review procedure and on the monitoring of the projects and programs financed through sovereign loans is going to be developed and adopted shortly.

As the Resolution provides, from now on, a relevant medium-term strategy for managing the state debt will be adopted by the Cabinet of Ministers annually with corresponding thresholds and, if required, procedural requirements being updated.

[1] Rules for the Procedure for Charging Fees for the Provision of Guarantees of the Republic of Uzbekistan for Attracted Foreign Loans No. 7 of January 7, 2004 stipulate that sovereign guarantees on loans extended on preferential terms are charged at the rate of 0.1 % per annum. Therefore, it is unclear whether the Resolution is intended to abolish such a practice.

[2]  The Resolution makes reference to programs of socio-economic and strategic importance that, accordingly, do not require the development of a preliminary project documentation and are funded through sovereign loans.