IMF Executive Board Concludes 2011 Article IV Consultation with Turkmenistan

Public Information Notice (PIN) No. 11/161
December 20, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On August 29, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Turkmenistan.1


The economy grew strongly in 2010, with overall GDP growth increasing to 9.2 percent, on the back of a rebound of the hydrocarbon sector and the continued strong pace of public investment. Despite increasing gas exports to China and Iran, very high investment-related imports resulted in a large current account deficit of about 12 percent of GDP. The overall external position, including official reserves, remains very strong. Headline inflation (end-of-period) increased to 4.8 percent in 2010, mainly reflecting the impact of high global food prices and despite administrative price controls on basic goods and services and supply-boosting measures.

Strong fiscal stimulus continued in 2010, reflecting outlays on industrial and social infrastructure. Staff estimates that the overall fiscal position, which includes large extrabudgetary spending, turned into a deficit of about 1 percent of GDP in 2010 from a surplus of 17 percent of GDP in 2009. The state budget registered a surplus of 2.3 percent of GDP in 2010, down from 7½ percent of GDP a year earlier. The surplus was transferred to the Stabilization Fund (SF) and mainly deposited with commercial banks for their further lending under government projects.

The fixed exchange rate against the U.S. dollar continued to anchor monetary policy. Broad money growth accelerated, driven by the strong pace of credit growth of about 30 percent, as onlending of SF deposits offset a slowdown in directed lending by the Central Bank of Turkmenistan (CBT). While most banking system lending continues to be channeled to state owned enterprises (SOEs), credit to the private sector gained some ground under government concessional lending programs for small and medium enterprises (SMEs) and agriculture. The reform to adopt International Accounting and Financial Reporting Standards in banks is on track for implementation by end-2011. This reform along with new banking legislation enacted early this year is a first step in the government’s program to develop the banking system during 2010−30.

The near and medium-term growth outlook is favorable, buoyed by more diversified gas exports and sustained strong public investment. Staff projects real GDP growth at about 10 percent in 2011 and 7 percent over the medium term, accompanied by further strengthening of the external position. Inflation (end-of-period) is projected to increase further to 7½ percent in 2011 and hover around 6 percent thereafter, mainly reflecting emerging domestic demand pressures as global food prices subside. Near term downside risks arising from the global economic outlook, especially in Europe, are likely to be balanced by the continued high public spending and strong growth in China. Risks over the longer term are mostly related to the economy’s dependence on the hydrocarbon sector and volatile prices for the country’s exhaustible resources.

Executive Board Assessment

Executive Directors noted that Turkmenistan’s economic growth prospects continue to be favorable, driven by strong public investment and exports. The economy is also benefitting from earlier monetary and exchange rate unification reforms. Directors agreed that the key medium-term challenges are to ensure macroeconomic stability, while strengthening the governance and management of hydrocarbon sector, and accelerating structural reforms to diversify the economy, increase the role of the private sector, and foster sustained and inclusive growth.

Directors welcomed the Central Bank’s objective to create institutional conditions needed to maintain price stability. They stressed that phasing out directed lending by the Central Bank, along with adoption of supporting regulations and the new banking laws, would facilitate more active and effective monetary policy implementation. Directors agreed that while the fixed exchange rate has served the economy well, greater flexibility in the long run would help absorb shocks, including from commodity price volatility.

Directors noted that pressing social and infrastructure needs warrant higher spending, but encouraged the authorities to be cautious on the pace of public spending, taking into account macroeconomic objectives and the economy’s absorption capacity. They agreed that scaling back non-priority spending and gradually replacing the costly and largely inefficient food and energy subsidies with cash transfers and targeted income support would help ensure the effectiveness and equity of public spending.

Directors emphasized the importance of strengthening public financial management and welcomed the recent measures to improve efficiency of revenue collection. They looked forward to the timely adoption of the new budget code, and encouraged the authorities to use the new code to bring large extrabudgetary activities under greater scrutiny, modernize the budget classification, and guide short-term policy decisions in a medium-term budget framework.

Directors underscored the importance of enhancing the framework for managing hydrocarbon resources to improve governance and oversight of these resources. They considered that aligning hydrocarbon wealth management with best international practices, including the Extractive Industry Transparency Initiative and the Santiago Principles for Sovereign Wealth Funds, would help ensure that the increasing public resources translate into sustainable and inclusive growth.

Directors noted the further progress in enhancing banking supervision, international financial reporting standards, and the AML/CFT framework. They underscored that the ongoing financial sector reform would benefit from a greater role for market forces in the allocation of financial resources. In this regard, priorities could include reducing banking sector segmentation to increase competition and eliminating regulatory controls on interest rates and lending.

Directors were encouraged by the authorities’ ongoing efforts to move to international statistics standards by 2013. They urged the authorities to ensure the compliance of national statistics with the core requirements of the IMF standards and codes on fiscal, monetary, financial, and national accounts data.

Turkmenistan: Selected Economic Indicators
  2007 2008 2009 2010 2011 2012
        Prelim. Projections
  (Annual percentage change)

Production and Prices


  Real GDP

11.1 14.7 6.1 9.2 9.9 7.2

  Consumer price index (e.o.p.)

8.6 8.9 0.1 4.8 7.5 7.0
  (In percent of GDP)

Investment and Saving


  Gross investment

18.6 31.7 50.5 58.6 60.0 53.3

  Gross savings

34.1 48.3 34.5 46.8 57.1 50.8

General Government (State budget)


  Total revenue

17.3 20.9 22.1 17.8 18.7 18.2

  Total expenditure and net lending

13.4 10.9 14.5 15.6 18.2 16.8

  Overall balance (+ =surplus)

3.9 10.0 7.6 2.3 0.5 1.4
  (Annual percentage change)

Monetary indicators


  Reserve money

70.3 -3.7 56.7 49.3 41.6 35.7

  Manat broad money

96.4 -7.6 68.6 74.2 55.6 51.1
  (In millions of U.S. dollars, unless otherwise specified)

External sector


  Exports of goods

9,114 11,786 8,946 9,660 14,189 15,151

    Of which: Hydrocarbons

8,093 11,007 8,419 8,617 13,211 14,152

  Imports of goods

3,780 5,363 8,071 7,428 9,567 9,726

  Current account

4,037 3,560 -2,981 -2,349 -694 -684

    In percent of GDP

15.5 16.5 -16.0 -11.7 -2.9 -2.5

Sources: Turkmenistan authorities; and IMF staff estimates.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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