Why do countries borrow – and is Uzbekistan’s debt too high?

But why do governments accumulate so much debt, and how dangerous can it become? Why does Washington continue borrowing instead of simply printing more dollars? How much does Uzbekistan actually owe – $46 billion, $82 billion, or closer to $89 billion? And is it possible for a country to operate without borrowing at all?

In the latest edition of Kun.uz’s “Simple Economics” series, we break down these questions in simple terms.

Why do governments borrow money?

Much like individuals borrow money from banks or friends when they need additional funds, governments also take on debt by borrowing from other countries, international financial institutions, and private investors. When state spending exceeds revenues, governments generally have three options: cut expenditures, raise taxes, or borrow from financial markets.

Economic history shows that higher taxes are often politically unpopular and can weigh on household incomes and business activity. Spending cuts, meanwhile, usually mean reducing funding for healthcare, education, or infrastructure. As a result, borrowing has become the preferred tool for covering budget deficits.

Governments have relied on debt for centuries. Kings once borrowed money to build fortresses and finance wars, while empires needed funds for fleets and weapons. But major military campaigns eventually became too expensive to be financed by a small circle of wealthy creditors.

A major shift came in the late 17th century, when England faced a financial crisis during King William III’s war with France. With the royal treasury depleted, the traditional system of borrowing from a handful of rich lenders proved insufficient.

The solution was to divide government debt into smaller portions and sell them to the public. In exchange for lending money, investors were promised repayment with interest. This laid the foundation for the modern government bond market and allowed states to raise large sums without sharply increasing taxes.

The bond market expanded rapidly during the two world wars of the 20th century as military spending soared. Borrowing continued after the wars ended, as many countries needed financing to rebuild devastated economies and infrastructure.

More recently, the 2008 global financial crisis and the COVID-19 pandemic triggered another sharp rise in public debt worldwide, a trend that continues today. Over the past year alone, US national debt increased by $2.77 trillion – equivalent to about $7.6 billion a day, $315 million an hour, $5.2 million a minute, or roughly $87,000 every second.

Why can’t governments just print more money?

This raises an obvious question: if governments can print money, why borrow at all?

Economists say excessive money printing can quickly fuel inflation. When governments create large amounts of money without a corresponding increase in goods and services, the currency's purchasing power declines. In simple terms, more money begins chasing the same amount of products, pushing prices higher.

If the process accelerates, inflation can spiral into hyperinflation, severely damaging an economy and eroding trust in the national currency.

Zimbabwe’s 2008 crisis remains one of the most striking examples. The government financed spending by printing money on a massive scale, triggering runaway inflation that officially reached 231 million percent. Prices rose so rapidly that banknotes became virtually worthless, forcing people to carry bags of cash to buy basic goods. Many Zimbabweans eventually abandoned the local currency in favor of barter or the US dollar.

A similar crisis unfolded in Venezuela after 2016. Authorities attempted to contain soaring prices by imposing strict price controls on food and medicine, but the measures instead led to widespread shortages and empty supermarket shelves.

Who lends money to governments?

If even the world’s richest countries owe trillions of dollars, who lends them the money?

Government debt is generally divided into two categories: domestic and external debt.

Domestic debt is money borrowed within a country. In the United States, Treasury bonds are bought by households, banks, insurance companies, and investment funds in exchange for interest payments. Uzbekistan also regularly issues government bonds on the domestic market. As of January 1, 2026, the country’s domestic public debt stood at $7 billion.

Governments also borrow from foreign investors, commercial banks, and international financial institutions. China and Japan, for example, are among the largest holders of US Treasury securities, widely seen as among the safest assets in global markets.

Countries with stable economies and developed financial markets can usually borrow easily by issuing bonds internationally.

Poorer or less stable economies, however, often struggle to attract investors due to concerns about repayment risk. Many, therefore, rely on institutions such as the World Bank and the Asian Development Bank to finance infrastructure, energy, and development projects. These loans typically come with relatively low interest rates and policy conditions.

Countries facing severe financial distress may also seek emergency assistance from the International Monetary Fund, which provides stabilization loans in exchange for economic reforms.

Uzbekistan’s external public debt currently stands at $39.8 billion. Of that total, $8.9 billion, or 22%, is owed to the World Bank, while $8.3 billion, or 21%, is owed to the Asian Development Bank.

Among individual countries, China and Japan are Uzbekistan’s largest creditors. Financial institutions from China account for 10% of the country’s external public debt, while Japanese lenders hold another 8%.

Is borrowing always bad?

Debt is often viewed as a burden, but for governments, borrowing is not necessarily harmful. Economists generally distinguish between “good” debt and “bad” debt.

For individuals, borrowing to acquire new skills or start a business can increase future income and make repaying a loan easier. Governments operate in much the same way.

States borrow to finance roads, bridges, power plants, schools, hospitals, and other infrastructure projects that can strengthen economic growth and raise future revenues. Debt used to develop infrastructure and human capital is therefore often considered productive.

Problems arise when governments borrow mainly to cover day-to-day spending or finance inefficient projects with inflated costs. Over time, some countries end up taking on new loans simply to repay old ones, creating a debt trap.

In such cases, governments may be forced to cut spending on healthcare, education, and social support in order to meet debt obligations. Investor confidence weakens, credit ratings deteriorate, and borrowing becomes more costly.

Like individuals, countries are also assessed by international rating agencies. A weak rating makes it harder to secure financing and usually means lenders demand higher interest rates to compensate for greater risk.

For debt to remain sustainable, economic growth must outpace the growth of debt obligations.

In Uzbekistan, roughly half of external public debt has been used to support the state budget, while the remainder has been directed toward energy, agriculture, transport, infrastructure, and social projects.

In macroeconomic theory and in the practice of the International Monetary Fund, the key indicator is not the absolute size of debt but its ratio to GDP, which reflects a country’s capacity to service its obligations. Many countries, therefore, impose borrowing limits by law. In Uzbekistan, public debt is capped at 60% of GDP.

How much debt does Uzbekistan have?

External debt is generally divided into two categories: public external debt and corporate external debt.

As of January 1, 2026, Uzbekistan’s external public debt stood at $39.8 billion. However, this figure excludes foreign loans taken out by companies without state guarantees.

In Uzbekistan’s case, a significant share of such “private” debt is held by state-owned enterprises. If major companies such as Uzbekistan Airways, Uzbekistan Railways, or Uzbekneftegaz borrow from foreign lenders without government guarantees, those obligations are formally classified as corporate debt.

Because these companies are state-owned or state-controlled, economists often describe such liabilities as “quasi-sovereign” debt. Although they are not included in official public debt statistics, they can still pose risks to the country’s financial stability, as the government may ultimately be forced to intervene if the companies fail to meet their obligations.

International financial institutions and analysts have repeatedly warned about the risks linked to these unguaranteed corporate borrowings. In practice, part of Uzbekistan’s corporate external debt could eventually become an indirect burden on the state.

According to the latest available data, Uzbekistan’s gross external debt increased by $18 billion in 2025, reaching $82 billion by the end of the year. Overall, the country’s external debt has more than doubled over the past five years.

As of January 1, 2026, Uzbekistan’s public debt amounted to about $1,225 per capita, while total external debt stood at roughly $2,149 per person.

Is Uzbekistan’s debt becoming dangerous?

The International Monetary Fund currently assesses Uzbekistan’s risk of debt distress as low. Uzbek officials have also repeatedly said the country’s debt remains manageable relative to the size of the economy and population.

Some observers point to countries such as the United States, China, and Japan, arguing that large debt burdens do not necessarily prevent economies from functioning. Economists, however, note that Uzbekistan faces a very different set of conditions.

One key issue is the structure of the economy. Uzbekistan remains heavily dependent on commodity exports such as gold, uranium, and copper, while remittances continue to play an important role in supporting growth. Economies with limited diversification are generally more vulnerable to external shocks.

Unlike the United States or Japan, which have broad industrial bases and highly diversified economies, Uzbekistan could face increased pressure if global commodity prices fall or remittance inflows weaken because of economic slowdowns abroad or currency fluctuations.

Another major risk is linked to foreign currencies. As of January 1, 2026, around 64% of Uzbekistan’s external public debt was denominated in US dollars, 12% in Uzbek soums, 9% in euros, 6% in Japanese yen, 4% in IMF Special Drawing Rights, and 3% in Chinese yuan, with the remainder in other currencies.

As a result, a sharp depreciation of the Uzbek soum could significantly increase debt-servicing costs, since most repayments must be made in foreign currency.

Debt servicing costs are also rising rapidly. Interest payments on public debt reached UZS 18.1 trillion in 2025, compared with UZS 14.5 trillion in 2024 and UZS 8.2 trillion in 2023 — an increase of more than twofold in just two years.

The UZS 18.1 trillion figure covers interest payments alone and does not include principal repayments. Economists warn that if servicing costs continue to rise, the government could eventually be forced to borrow new funds to meet existing obligations.

Is it possible for a country to live without debt?

In theory, yes. A small number of economies, including Macau, Liechtenstein, and Brunei, maintain debt levels close to zero, as do several Gulf Arab states.

Most share several common features: relatively small populations, compact economies, and exceptionally large revenue sources.

The Gulf States and Brunei benefit from vast oil and gas reserves, which generate substantial income for comparatively few citizens. Macau earns billions of dollars from taxes on its casino industry, while Liechtenstein has developed into a major financial center despite its small population.

These economies also face lower pressures on infrastructure, defense, and social spending than larger countries.

As a result, sustained budget surpluses are rare and usually depend on unique geographic or economic advantages that other countries find difficult to replicate.