Fitch Ratings has assigned Uzbekistan’s Republic of Karakalpakstan a long-term credit rating of BB- with a stable outlook. In its first assessment of the republic, Fitch cited Karakalpakstan’s reliance on central government transfers and its limited power to raise revenue or borrow.
The November 11 rating is below investment grade and applies to borrowing in both foreign and local currencies. The agency also assigned the republic a short-term rating of B. Within Uzbekistan, the Jizzakh and Fergana regions both have BB- ratings with stable outlooks. Outside the country, Yerevan in Armenia and Konya Metropolitan Municipality in Türkiye share the same long-term rating.
Fitch classified Karakalpakstan’s risk profile as “Weaker,” but placed its financial profile at the lower end of the aa category. These assessments and a comparison with peers produced a standalone credit profile of bb-, Fitch’s grade for the republic’s own creditworthiness.
Transfers from the central government accounted for 51% of Karakalpakstan’s operating revenue in 2025, while tax revenue made up 44%. Between 2021 and 2025, transfers averaged 58% of operating revenue. Changes in Uzbekistan’s tax and budget rules make that income hard to predict. The central government sets tax rates and determines how the proceeds are shared, limiting the republic’s ability to raise its own revenue during an economic downturn.
Karakalpakstan also has little room to cut spending. In 2025, inflexible spending accounted for 76% of the republic’s total expenditure. Salaries represented about 30% of operating expenditure and are adjusted for inflation. Capital expenditure accounted for about 6% of total spending. Changes in the services regional authorities must provide have made it harder to plan spending, as has inflation, which averaged 10% a year between 2021 and 2025.
Under Uzbek law, regional authorities cannot borrow directly on financial markets and rely mainly on loans from other levels of government. Some companies overseen by Karakalpakstan borrow from banks, but Fitch said their combined debt was small.
At the end of 2025, the republic held 176 billion soums in cash, worth about USD 14.6 million at the year-end exchange rate. Most of that money was earmarked for specific expenses. The republic can draw on short-term loans from the central government to cover temporary cash shortages.
Fitch’s baseline for 2026–2030 assumes that borrowing restrictions remain in place and that most new debt comes from the central government. The agency also tested how Karakalpakstan would fare if it borrowed on financial markets to fund higher capital spending while its operating surplus narrowed. Under that scenario, Fitch projects that net adjusted debt will peak at 8.7 times the annual operating surplus in 2030. The ratio measures how many years of surplus it would take to repay that debt.
Karakalpakstan is Uzbekistan’s largest region by area, covering about 37% of its territory. Its 2.1 million residents account for about 5% of the national population. Over recent decades, the retreat of the Aral Sea has exposed vast stretches of seabed and cost local fishing communities their livelihoods. Agriculture and industry remain important to the republic’s growing economy. Fitch puts average economic output per person at about 53% of the national figure.
