The cost of capital in Uzbekistan: what return should an investor require in 2026?

Every serious investment decision in Uzbekistan eventually comes down to one number: the return an investor should require for taking the risk. It sets the discount rate in a valuation, the hurdle for a new project and the price at which a stake is worth buying. It is also the number most often guessed rather than built.

This note builds it from published data, in dollars and in soums, sets it against what the local market actually charges for money, and shows what a sovereign rating upgrade would be worth. The aim is a defensible starting point, not a single right answer.

The building blocks

The standard approach starts with a risk-free rate, adds a premium for investing in equities in a mature market, and then adds a premium for the specific country. Damodaran’s widely used dataset, updated in January 2026, prices that country premium from sovereign ratings and market spreads.

Two points of judgement sit inside that figure. The first is the rating. Damodaran works from Moody’s, which rates Uzbekistan Ba3; Fitch has it at BB with a positive outlook, one notch higher, so a Fitch-based estimate would come out somewhat lower. The second is the beta of 1, which assumes a business of average risk. A utility with regulated tariffs might justify less; an early-stage venture, considerably more.

How Uzbekistan compares

On the same method, Uzbekistan sits in the middle of the emerging-market range: level with Türkiye, which shares the Ba3 rating, about two and a half points above Kazakhstan and three and a half above Poland.

The premium over Kazakhstan is the clearest way to read the gap. Kazakhstan is rated Baa1, investment grade, and Uzbekistan is not. The difference of about 2.6 points in the required return is, in effect, the price of five rating notches.

From dollars to soums

Many Uzbek businesses earn in soums, so the dollar rate has to be translated. The consistent way to do it is the Fisher relation: scale the dollar rate by the expected gap between Uzbek and US inflation. Uzbek headline inflation was 6.2% in August 2026, and the central bank targets 5% by the end of 2027.

A soum cost of equity of roughly 16–19% is the range a valuation should test. Using a dollar rate on soum cash flows, or the reverse, is one of the most common errors in local valuations.

What the local market charges for money

The estimate looks reasonable against market prices.

Three things stand out. Real interest rates are high: a 14% policy rate against 6.2% inflation leaves a real rate of almost eight points. The direction is favourable: the government’s three-year soum bonds were priced at 16.625% in 2024, 15.5% in 2025 and 12.25% in 2026, with demand of about four times the amount offered. And the gap between soum and dollar borrowing is wide, at roughly twelve points for companies.

The debt paradox

In most markets, debt is cheaper than equity, and the tax deduction on interest makes it cheaper still. That is why a little leverage lowers a company’s weighted cost of capital. In Uzbekistan’s soum market, that logic barely holds.

A company borrowing in soums at 22% pays about 18.7% after the 15% corporate income tax, roughly the same as, or slightly above, the 16–19% cost of equity estimated above. A soum-funded business with 40% debt therefore has a weighted cost of capital of about 18%, no lower than an all-equity one.

Dollar debt is the obvious alternative. At about 10.2%, or 8.7% after tax, it is far cheaper, but the saving only survives if the soum depreciates by less than about 11% a year against the dollar. Since 2018 it has weakened by about 6.5% a year on average, and by about 4.6% a year since 2020, so dollar borrowing has paid off. The risk sits in the tail: between 2016 and 2018, around the liberalisation of the exchange rate, the official rate moved by 172%. For exporters and businesses with dollar revenue, dollar debt is a natural fit. For a company that earns only in soums, it is a currency bet that should be sized and hedged deliberately.

What a rating upgrade would be worth

Fitch’s positive outlook makes the rating question practical rather than theoretical. Holding cash flows constant and assuming 4% nominal growth in dollars, the effect of a better rating on value is substantial.

For investors, the implication is straightforward. Assets bought at today’s discount rates carry an option on rerating that does not depend on the business performing any better. That option is not guaranteed, but the reform record and the fiscal position Fitch cites, with government debt of about 32% of GDP against a BB median of about 54%, give it substance.

How to use these numbers

1. Match currencies. Discount dollar cash flows at dollar rates and soum cash flows at soum rates.
2. Use ranges, not points. A table of values for costs of equity between, say, 13% and 15% in dollars is more honest than a single figure.
3. Put specific risks in the cash flows. Licensing, energy supply or a key customer are better modelled as scenarios than as an arbitrary extra premium on the discount rate.
4. Think about structure. Treaty-protected holding companies, co-financing with development banks such as the EBRD and IFC, and the currency of debt all change the risk an investor actually bears.

GSI’s business and property valuation and investment consulting work starts from this kind of analysis, adjusted to the sector and structure of each project. For the risks behind the premium, see our honest risk assessment; for the growth record that supports the case, see Uzbekistan’s growth in context.

This article is for general information and does not constitute investment, valuation or tax advice. Figures are taken from the sources listed below and may be revised.