Statement at the Conclusion of an IMF Staff Visit to Turkmenistan

Press Release No. 13/442
November 11, 2013

An International Monetary Fund (IMF) mission led by Mrs. Veronica Bacalu visited Ashgabat on October 31−November 7, 2013 to discuss recent economic developments, government policies, and prospects for the economy of Turkmenistan.1 The discussions paved the ground for the next Article IV Consultation, tentatively scheduled for summer 2014. The IMF team met with senior government and central bank officials, and representatives of ministries and agencies, commercial banks, and international financial institutions. At the conclusion of the mission, Mrs. Bacalu issued the following statement:

“Economic growth has been strong in 2013 on the back of high growth of nonhydrocarbon economy supported by strong public investment. Economic growth is expected to reach 10.1 percent in 2013 and 10.7 percent in 2014. The current account will record a deficit in 2013 and 2014 owing to strong import growth, particularly in capital goods.

“A sharp and sustained decline in international energy prices is the largest possible risk to economic growth. Also, a slowdown in the country’s largest trading partners, China and Russia, poses some risks. Yet the short-term impact of the materialization of these risks would be limited as external buffers are large.

“Despite strong GDP growth, inflation is expected to be relatively low in 2013 given the high import content of fiscal spending, soft international food prices, price controls, and fixed exchange rate. Headline inflation is projected at 5½ percent by end-2013 and 6 percent by end-2014.

“The budget surplus declined in 2013 because of increased capital spending. High levels of public investment, while aimed at increasing productive capacity, may compromise long-term fiscal sustainability and weaken prospects for the diversification of the non-hydrocarbon economy. In addition, improved capacity to monitor expenditure efficiency and transparency could reduce opportunities for corruption. A new budget code, to be adopted by end-year, should help strengthen public finance management and introduce a medium-term fiscal framework. Expanding public finance coverage to include the extrabudgetary activities would be a welcome step.

“Promoting more effective monetary policy requires eliminating directed lending and liberalizing interest rates. While the exchange rate peg continues to be appropriate as an anchor for monetary policy, it limits the ability of the economy to absorb shocks and manage volatility. The authorities need to begin building capacity to introduce greater exchange rate flexibility in the longer term.

“The mostly state-owned banking sector is in need of reform to effectively support private intermediation. The introduction of International Financial Reporting Standards and the decision to raise bank capital are first steps to strengthen the state-dominated banking system. Introducing corporate governance standards in banks, improving banking supervision, and strengthening risk management practices are also essential.

“A major acceleration of reforms is needed for the government to reach their objective of privatizing 70 percent of the non-hydrocarbon economy by 2020. The privatization program should be conducted in consultation with international financial institutions to ensure that best international practice is followed. Encouraging the growth of private enterprise requires improvements to the business environment and reducing opportunities for corruption. In addition, taking further measures toward manat convertibility for current account transactions, and following through with recently announced WTO accession plans would help facilitate trade.

“The ongoing efforts to adhere to international statistics standards are encouraging and should aim at joining the IMF General Data Dissemination System and opening a country page in the IMF’s International Financial Statistics.

“The mission thanks the authorities for their cooperation and productive discussions.”


Turkmenistan: Selected Economic Indicators
 
  2009 2010 2011 2012 2013 2014
          Projections
 
  (Annual percentage change)    

Production and Prices

           

Real GDP

6.1 9.2 14.7 11.1 10.1 10.7

Consumer price index (ave.)

-2.7 4.4 5.3 5.3 6.0 5.7
  (In percent of GDP)    

Investment and Saving

           

Gross investment

46.6 52.9 51.9 47.2 48.1 46.3

Gross savings

31.8 42.3 53.9 47.2 44.7 44.6

State budget

           

Total revenue

20.4 16.1 18.3 21.0 16.5 16.0

Total expenditure and net lending

13.4 14.1 14.6 14.7 16.3 16.5

Overall balance (+ =surplus)

7.0 2.0 3.6 6.4 0.2 -0.4
  (Annual percentage change)    

Monetary indicators

           

Reserve money

56.7 49.3 129.8 3.6 3.6 3.2

Manat broad money

68.6 74.2 52.1 32.8 30.0 27.0
  (In millions of U.S. dollars, unless otherwise specified)

External sector

           

Exports of goods

8,946 9,660 16,719 19,884 19,901 21,286

Of which: Hydrocarbons

8,419 8,617 15,817 18,743 18,691 20,048

Imports of goods

8,071 7,428 10,447 13,357 14,615 15,673

Current account

-2,981 -2,349 582 15 -1,389 -814

In percent of GDP

-14.7 -10.6 2.0 0.0 -3.4 -1.7
 

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.



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