Insights from Experts on the US Dollar in Uzbekistan in 2025

In 2024, the value of the soum is expected to decrease by 4.5% against the US dollar. This is an improvement compared to 2023, when the national currency depreciated by nearly 10%. Kursiv Uzbekistan spoke with experts to explore the external and internal factors influencing the soum in 2024 and what is anticipated for 2025.

Exchange rate dynamics in 2024

The year 2024 presented another challenge for the Uzbek soum, according to Nuriddin Lafizov, head of Alif in Uzbekistan. He noted that despite the lack of direct pressure, the currency was affected by various economic factors, including the trade balance and the Real Effective Exchange Rate (REER). The REER measures the stability of the national currency relative to Uzbekistan’s key trading partners. A significant event was the increase of the REER to 106% by November 2024, which is above the optimal level of 100%, indicating that the national currency is overvalued.

Lafizov emphasised that the growth of the REER was primarily due to the weakening of the currencies of major trading partners, such as the Russian ruble, Kazakh tenge, Chinese yuan and Turkish lira. As a result, the Uzbek soum became more expensive compared to these currencies, putting pressure on exporters and contributing to an increased trade deficit.

Satori IB Group analyst Ivan Orlov explained that the Kazakhstani tenge depreciated by 14% against the dollar over the year, while the Russian ruble fell by more than 15%. He noted that the moderate devaluation of the soum in 2024 is partly attributed to the low base from the previous year when the currency had weakened sharply against the dollar.

Kap Depo senior analyst Shodibek Kenjaev added that the exchange rate dynamics were influenced by the increased demand for foreign currency in the first quarter, the weakening of partner countries’ currencies, and higher payments on external liabilities.

Additionally, Kenjaev mentioned that the issuance of Eurobonds worth $1.5 bn in 2024 bolstered exchange rate stability and the country’s financial stability.

Influence of foreign exchange reserves and the Central Bank

Analyst of Satori IB Group Ivan Orlov notes that Uzbekistan’s currency has demonstrated stability despite the pressure from the weakening of the ruble and tenge. A positive factor was the increase in gold and foreign exchange reserves from $35bn (as of 1 January 2024) to $41bn (as of 1 December 2024), which gives a positive signal to the market and increases the safety margin of the sum, he adds. Currency interventions are an important tool for the Central Bank of Uzbekistan to support the exchange rate of the soum. In 2022-2023, the Central Bank actively used this tool at the expense of spending gold and foreign exchange reserves, Orlov emphasises.

Like a year earlier, the Central Bank preferred to keep the exchange rate stable, which avoided shocks in the currency market, Lafizov said. However, tensions persisted as the overvalued currency created difficulties for the export sector. In August 2023, the Central Bank devalued the soum by 3.8%, attributed to the same factors. However, in 2024 there were no such actions until the end of the year, emphasising the regulator’s cautious approach, the head of Alif in Uzbekistan said.

Kenzhayev added that the change in central bank leadership and the appointment of Timur Ishmetov could have a significant impact in the future. Ishmetov, an advocate of a market economy, emphasises slowing inflation and strengthening the role of the private sector in the economy, which creates confidence in macroeconomic stability.

Predictions for 2025

According to Lafizov, the exchange rate is expected to cross the psychological threshold of 13,000 soums per dollar in early 2025. By the end of the year, it may reach between 13,700 and 13,800 soums per dollar. The central bank plans to adopt a cautious approach to minimise risks and keep inflation under control.

The head of Alif believes that “this development is necessary to strengthen exporters’ positions, reduce the trade deficit, and correct the overvalued national currency. “

Orlov also emphasises the importance of developing exports. Increased demand for goods from Uzbekistan in the international market could lead to an inflow of foreign currency, supporting the exchange rate. However, he cautions that external shocks are still risky, particularly instability within the CIS countries. A representative from Satori IB Group noted the Uzbek Ministry of Economy and Finance’s forecast, which suggests an average annual exchange rate of 13,350 soums per dollar, indicating a year-on-year devaluation of 4.8%.

Kenzhayev predicts a similar scenario, forecasting an average annual exchange rate of 13,300 soums, which could increase to 13,450 soums by the end of 2025.

“Significant jumps or sharp fluctuations in the soum exchange rate are not anticipated next year, even if the Central Bank’s key interest rate changes,” he added.

Challenges and solutions for 2025

Experts agree that 2025 will mark a gradual adaptation to new economic realities. The Central Bank’s support and export growth will be crucial for stabilising the exchange rate of the Uzbek som. However, external factors, such as changes within the CIS and the global economy, will continue to pose significant challenges for the national currency.

“The Central Bank will likely adopt a cautious approach to minimise market risks. A moderate devaluation will help control inflation and prevent sharp fluctuations in the exchange rate, which could jeopardise economic stability. It is essential to closely monitor external factors, including the exchange rates of trading partners, as these will play a key role in the dynamics of the Uzbek som,” stated Nuriddin Lafizov.

Shodibek Kenzhaev believes that stabilising partner countries’ currencies, including the Russian ruble, could have a positive impact. Additionally, a more balanced foreign policy from the United States, especially with Donald Trump potentially returning to power, may reduce geopolitical tensions, positively affecting the overall economy and increasing the volume of foreign currency in Uzbekistan.

Despite the challenges, Ivan Orlov points out that currency devaluation is common in developing countries. For individuals, this is partially offset by high interest rates on bank deposits in the local currency. According to the Central Bank, in November 2024, the average interest rate on sum deposits for individuals was 22.1%, significantly higher than the devaluation rate, resulting in an exceptionally high quasi-dollar yield.

Kursiv Uzbekistan also reports on forecasts for the dollar exchange rate in Uzbekistan, as published by S&P.