Karakalpakstan assigned BB- issuer ratings with stable outlook by Fitch

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Karakalpakstan Fitch BB- rating

Highlights

Fitch Ratings assigned Karakalpakstan BB- issuer ratings with a stable outlook, reflecting a weaker risk profile and financial profile at the lower end of aa.
In 2025, 51% of Karakalpakstan's operating revenue comes from transfers and 44% from taxes, highlighting significant reliance on Uzbekistan's central government.
Karakalpakstan held UZS176 billion in cash at end-2025, but remains barred from market debt issuance and relies mainly on central government support for liquidity.

Rating rationale and fiscal profile

As reported by Fitch Ratings, the Republic of Karakalpakstan's Long-Term Foreign- and Local-Currency Issuer Default Ratings are aligned with its standalone credit profile of bb-, reflecting what the agency describes as a weaker risk profile and a financial profile at the lower end of the aa category.

Fitch says the region's revenue base remains exposed to ongoing tax and budget reforms in Uzbekistan, where the central government controls tax rates and allocation across tiers of government. Transfers made up 51% of operating revenue in 2025, while taxes contributed 44%, underscoring Karakalpakstan's reliance on central government funding.

The agency also assesses expenditure sustainability and adjustability as weaker, citing mandatory spending commitments, inflation-linked salaries and limited room to cut capital expenditure. In 2025, inflexible spending items account for 76% of total expenditure, while capex stands at about 6% of the total.

Debt constraints and regional positioning

Karakalpakstan's liquidity position relies mainly on cash holdings and central government support mechanisms rather than capital markets. Fitch says the republic held UZS176 billion in cash at end-2025, although much of that balance is restricted for specific spending purposes, and national rules continue to bar the region from issuing market debt.

Under Fitch's base case for 2026-2030, borrowing restrictions remain in place and new debt stays moderate, mainly sourced from the central government. Its rating case nonetheless tests a scenario involving new market debt, higher capex and a gradual deterioration in the operating balance to reflect uncertainty around revenue and expenditure.

Among peers, Fitch places Karakalpakstan alongside Uzbekistan's Jizzakh and Fergana regions, both rated BB-/Stable. The agency says the republic is rated above Balikesir Metropolitan Municipality in Turkiye because of a stronger financial profile, but below Kazakhstan's Aktobe Region, which benefits from stronger credit metrics.

Previously, we outlined the main factors behind rising sovereign borrowing risks as geopolitical tensions and higher fiscal spending strain ratings.

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