The Fund for Reconstruction and Development of Uzbekistan should be transformed from an investment fund into a full-fledged sovereign fund. This proposal was made by Abdullah Abdukodirov, First Deputy Director of the Agency for Strategic Development and Reforms, at the plenary session of the VIII International Cbonds Conference.

Key figure of the presentation

According to the agency's deputy head, 97% of issued bonds circulate abroad and only 3% — within the country.

"Everything you see here represents 97% of bonds that have been issued and are circulating abroad. Only 3% are within Uzbekistan. What does this tell us? That all of this is oriented toward the external market," he stated.

The ratio is telling: the country's debt market is formally developing, but primarily serves foreign investors rather than domestic ones.

Logic of the proposal

"I believe the time has come when our sovereign fund — the Fund for Reconstruction and Development of the Republic of Uzbekistan — should transform from an investment fund, which is essentially what it is now, into a truly sovereign fund. Then this fund will be a source of cheap money," said Abdukodirov.

In his view, the availability of affordable financing will enable the creation of cheaper instruments in the securities market and form an internal source of capital.

The difference between the two models

An investment fund invests in projects and is evaluated by the returns on those investments. A sovereign fund performs a broader function: it manages national savings, smooths external shocks, and can act as an anchor investor in the domestic market.

It is precisely this latter role that is implied: a large domestic buyer of bonds can reduce borrowing costs for local issuers.

Why money domestically is expensive

The agency's deputy head emphasizes: without reducing the cost of money in the domestic market, there is no point in expecting a large internal source of capital to emerge.

The reason is clear from current conditions: with the Central Bank's base rate at 14%, borrowing in som is more expensive for issuers than issuing eurobonds in foreign currency. Hence the bias toward external placements.

Practical confirmation — recent deals: AKFA Aluminium is preparing $300 million eurobonds, Centrum Holding is discussing an IPO in London, Alif Uzbekistan is placing sukuk in Astana.

What this means for a retail investor

While most securities circulate abroad, a local investor has access to a narrow range of instruments. Development of the domestic market would expand the choice — but declining yields are the flip side of this process.

Today high rates work in favor of savers: comparing deposit rates with bond yields, an investor receives a premium precisely because of money's expensiveness in the economy.

This material is for informational purposes and does not constitute investment advice.