Public Information Notice: IMF Executive Board Concludes 2010 Article IV Consultation with Turkmenistan
IMF News, November 5, 2010
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- Published: November 5, 2010
Background and outlook
- On September 3, 2010, the Executive Board concluded the Article IV consultation with Turkmenistan.
- Turkmenistan's economy proved resilient to the global financial crisis; lower external demand reduced natural gas and oil production, but new pipelines to China and Iran (operational in 2009 and 2010) supported diversification of gas export markets.
- Hydrocarbon production is expected to increase significantly over the next five years, translating into growing fiscal revenues and a further strengthening of the external position.
- The favorable outlook provides a foundation for accelerating reforms: improving public financial management, increasing financial intermediation, and stimulating private sector growth.
Economic performance and key developments (2009–2011)
- Real GDP growth:
- 2009: 6.1 percent (despite a sizable drop in hydrocarbon production)
- 2010 (Proj.): 9.4 (annual percentage change)
- 2011 (Proj.): 11.5 (annual percentage change)
- Inflation (Consumer price index, e.o.p):
- 2008: 8.9 percent
- 2009: 0.1 percent (decline due to falling import prices, stable exchange rate, more liberal trade regime, increased access to foreign exchange)
- 2010 (Proj.): 4.6
- 2011 (Proj.): 5.0
- Current account:
- 2008: surplus of 19 percent of GDP (noted in text)
- 2009: deficit of 16 percent of GDP (text)
- 2009 (level): -2,981 (millions of U.S. dollars)
- 2010 (Proj., level): -981 (millions of U.S. dollars)
- 2011 (Proj., level): 763 (millions of U.S. dollars)
- In percent of GDP: 2009 -16.1; 2010 (Proj.) -4.9
- External sector (in millions of U.S. dollars):
- Export of goods: 2009: 8,946; 2010 (Proj.): 9,502; 2011 (Proj.): 11,765
- Of which hydrocarbons: 2009: 8,419; 2010 (Proj.): 8,958; 2011 (Proj.): 11,200
- Import of goods: 2009: 8,071; 2010 (Proj.): 7,587; 2011 (Proj.): 7,849
- Investment and saving (percent of GDP):
- Gross investment: 2009 Prelim.: 47.4; 2010 (Proj.): 49.2; 2011 (Proj.): 49.7
- Gross saving: 2009 Prelim.: 31.2; 2010 (Proj.): 44.3; 2011 (Proj.): 63.4
Fiscal position and public financial management
- State budget:
- 2009 Prelim. overall balance (+=surplus): 7.8 percent of GDP (surplus exceeded target)
- 2010 (Proj.) overall balance: 2.8 percent of GDP
- 2011 (Proj.) overall balance: 1.2 percent of GDP
- Total revenue (percent of GDP): 2009 Prelim.: 22.4; 2010 (Proj.): 18.4; 2011 (Proj.): 17.5
- Total expenditure and net lending (percent of GDP): 2009 Prelim.: 14.7; 2010 (Proj.): 15.6; 2011 (Proj.): 16.3
- Budget surplus was saved in the Stabilization Fund; total value estimated at 15 percent of GDP at end-2009.
- Public financial management reforms:
- New budget code drafted with EU assistance expected to be finalized by end-2010.
- Treasury modernization project underway.
- Directors urged enhanced selection and monitoring of public investment projects, focus on quality and efficiency, and prioritization of productive projects and social infrastructure.
- Recommendation to request technical assistance from the World Bank and other donors for project appraisal and public financial management.
- Directors recommended gradually including remaining extra-budgetary funds in the state budget and setting Stabilization Fund (SF) objectives and operations according to best international practice; phase out use of SF resources for extra-budgetary projects and strengthen its saving function.
- Consideration advised for joining the Extractive Industries Transparency Initiative.
Monetary policy, exchange rate, and macroprudential stance
- Monetary policy in 2009 focused on exchange rate and price stability; the Central Bank of Turkmenistan (CBT) maintained a stable exchange rate of the manat.
- Directed lending under government projects continued but expected to moderate in 2010.
- Directors noted maintaining a fixed exchange rate is appropriate in the short to medium term, but recommended considering more flexibility in the long run to develop deeper foreign exchange markets and limit commodity price volatility transmission.
- Preconditions for increased exchange rate flexibility: increased policy coordination and central bank independence, development of a credible monetary anchor, improved prudential regulation and bank risk management, and development of a deeper foreign exchange market.
- Directors suggested shifting directed lending to fiscal authorities to improve CBT independence and monetary policy effectiveness; if state support continues, consider creating specialized government agencies for that support.
Financial sector reforms, IFRS, and AML/CFT
- Banking sector reforms:
- Implementation of IFRS across banks envisaged by end-2011 per a comprehensive action plan.
- Directors called for IFRS implementation across the whole banking sector, including the CBT, and for subsequent bank recapitalization.
- Abolish interest rate controls mainly associated with directed lending; promote development of commercially-oriented banks to deepen financial intermediation.
- Support for SMEs and private sector noted, including a joint initiative to create a private bank with foreign capital participation (including EBRD participation) to enhance access to finance for micro, small, and medium-sized businesses.
- Directors urged facilitating SME access to bank financing.
- AML/CFT:
- Significant progress over the last year; in June 2010 a FATF Plenary Session publicly acknowledged Turkmenistan's progress.
- Remaining technical deficiencies being addressed with TA from the Eurasian Group and IMF.
- Directors encouraged continued engagement with FATF, EAG, and IMF to achieve full compliance with FATF recommendations to improve banks' ability to provide high quality international banking services.
Data, statistics, and transparency
- Authorities decided to move to international statistics standards by 2012.
- Directors encouraged expanding statistics reforms to include monetary and fiscal statistics, disseminating more macroeconomic data, and joining the General Data Dissemination System (GDDS) over the medium term.
- Directors encouraged accepting obligations under Article VIII of the Fund’s Articles of Agreement and further liberalizing foreign exchange regulations and developing the foreign exchange market; shifting more ICE approval responsibilities to banks was advised.
Executive Board priorities and recommendations (summary)
- Use the favorable outlook and strong external position to:
- Improve public financial management (selection and monitoring of public investment projects; focus on quality and efficiency).
- Develop the financial sector and deepen financial intermediation.
- Eliminate remaining foreign exchange restrictions and further liberalize the foreign exchange regime.
- Promote private sector development, including enhanced support and financing access for SMEs.
- Fiscal recommendations:
- Scale back fiscal stimulus as global demand recovers and be prepared to cut non-priority spending if inflationary pressures emerge; protect and possibly increase spending on education, healthcare, and social security (especially in rural areas).
- Improve efficiency of social spending by restructuring social programs and subsidies, phase out administered prices gradually, and implement targeted social programs to protect the most vulnerable.
- Governance and transparency:
- Utilize Fund TA on optimal management of hydrocarbon resources and consider joining the Extractive Industries Transparency Initiative.
- Strengthen implementation capacity and training.
Selected economic indicators (annual and levels as reported)
- Production and prices (Annual percentage change)
- Real GDP: 2005 13.0; 2006 11.4; 2007 11.6; 2008 10.5; 2009 6.1; 2010 Proj. 9.4; 2011 11.5
- Consumer price index (e.o.p): 2005 10.4; 2006 7.1; 2007 8.6; 2008 8.9; 2009 0.1; 2010 Proj. 4.6; 2011 5.0
- Investment and saving (In percent of GDP)
- Gross investment: 2005 21.5; 2006 18.3; 2007 19.0; 2008 37.1; 2009 Prelim. 47.4; 2010 Proj. 49.2; 2011 49.7
- Gross saving: 2005 26.7; 2006 34.0; 2007 35.1; 2008 55.8; 2009 Prelim. 31.2; 2010 Proj. 44.3; 2011 63.4
- General government (State budget) (In percent of GDP)
- Total revenue: 2005 20.5; 2006 20.2; 2007 17.3; 2008 23.6; 2009 Prelim. 22.4; 2010 Proj. 18.4; 2011 17.5
- Total expenditure and net lending: 2005 19.7; 2006 14.9; 2007 13.4; 2008 12.3; 2009 Prelim. 14.7; 2010 Proj. 15.6; 2011 16.3
- Overall balance (+=surplus): 2005 0.8; 2006 5.3; 2007 3.9; 2008 11.3; 2009 Prelim. 7.8; 2010 Proj. 2.8; 2011 1.2
- Monetary indicators (Annual changes)
- Reserve money: 2005 3.3; 2006 16.4; 2007 70.3; 2008 -3.7; 2009 56.7; 2010 Proj. 30.0; 2011 27.0
- Manat broad money: 2005 5.6; 2006 11.0; 2007 96.4; 2008 -7.6; 2009 68.6; 2010 Proj. 33.0
- External sector (In millions of U.S. dollars)
- Export of goods: 2005 4,944; 2006 7,155; 2007 9,114; 2008 11,786; 2009 8,946; 2010 Proj. 9,502; 2011 11,765
- Of which: Hydrocarbons: 2005 4,198; 2006 6,228; 2007 8,093; 2008 11,007; 2009 8,419; 2010 Proj. 8,958; 2011 11,200
- Import of goods: 2005 2,947; 2006 2,558; 2007 3,780; 2008 5,363; 2009 8,071; 2010 Proj. 7,587; 2011 7,849
- Current account (level): 2005 875; 2006 3,351; 2007 4,037; 2008 3,560; 2009 -2,981; 2010 Proj. -981; 2011 763
- In percent of GDP: 2005 5.1; 2006 15.7; 2007 15.5; 2008 18.7; 2009 -16.1; 2010 Proj. -4.9
Source: IMF Public Information Notice No. 10/146 (Article IV consultation conclusions, September 3, 2010).