Fitch Ratings has assigned Karakalpakstan long-term foreign- and local-currency issuer default ratings of ‘BB-’ with a stable outlook, citing heavy reliance on central government funding and limited control over its own finances.

The ratings match Karakalpakstan’s standalone credit profile of ‘bb-’. Fitch expects the republic’s payback ratio, a measure of how many years of operating balance it would take to repay debt, to stay below 9x through 2030 under its rating case. Its short-term ratings were set at ‘B’.

Fitch rated all six of Karakalpakstan’s key risk factors ‘Weaker’, including its revenue and spending flexibility. Transfers made up 51% of its 2025 operating revenue and taxes 44%. Transfers averaged 58% over 2021-2025. The agency said that dependence on the ‘BB’ rated central government, and ongoing changes to national fiscal rules, make revenue hard to predict.

The republic has little room to raise money itself. The central government sets all tax rates and decides how revenue is shared between tiers of government. Income and property taxes, fees and charges, some of which Karakalpakstan can adjust, accounted for 5% of 2025 operating revenue. Fitch said any increase from these adjustments would cover well under half of the revenue lost in a downturn.

Spending is similarly rigid. Inflexible items accounted for 76% of total expenditure in 2025, with salaries at about 30% of operating spending. Capital spending was about 6% of the total. Inflation averaged 10% in 2021-2025.

Karakalpakstan is barred under national law from borrowing on the market, so it has no record of market access. Its debt comes from intergovernmental borrowing, which Fitch described as modest. Cash totaled 176 billion soums at the end of 2025, though most of it is earmarked for specific spending. A central government mechanism offers short-term budget loans to cover gaps within a year.

Fitch’s base case assumes the borrowing restrictions stay in place and new debt remains moderate and mostly from the central government. Its more cautious rating case assumes new market debt, higher capital spending and a gradually weakening operating balance.