IMF Executive Board Concludes 2017 Article IV Consultation with Turkmenistan
IMF News, June 15, 2017
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- Published: June 15, 2017
Background and recent policy measures
- On May 26, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Turkmenistan.
- Context:
- Turkmenistan is described as a major natural gas producer adjusting to persistently low hydrocarbon prices and slower economic activity in trading partners.
- Growth has been stable at above 6 percent over the past couple of years, supported by rising natural gas export volumes to China, expansionary credit policies, and industrial policies to substitute imports and promote exports.
- The state budget deficit was small at 1¼ percent of GDP last year, but the current account deficit widened to 21 percent of GDP.
- Policy actions adopted over the past couple of years:
- Public investment cuts.
- Step devaluation of the currency.
- A one-time increase in utility tariffs.
- Intensified efforts to develop a local production base and ambitious plans to:
- Increase natural gas production.
- Build new pipelines.
- Develop petrochemical industries.
- Expand mining and processing of non-hydrocarbon natural resources.
- Support private sector development.
Macroeconomic outlook and projections
- General outlook:
- Macroeconomic performance is expected to remain uneven over the next several years, with continued growth, moderate inflation, and a balanced budget, but persistent external pressures.
- Growth is projected to accelerate slightly from last year’s 6.2 percent to 6.5 percent in 2017.
- Inflation is forecast to remain moderate at about 6 percent.
- The state budget is expected to stay close to balance.
- External deficits are projected to remain sizable, at about 11 percent over the medium term.
- Selected economic indicators, 2015–18 (Est. = 2015, 2016; Proj. = 2017, 2018):
- Output and prices (Annual percentage change)
- Real GDP: 6.5, 6.2, 6.3, 6.5
- Real hydrocarbon GDP: 0.1, -4.8, 4.3, 7.5
- Real nonhydrocarbon GDP: 9.4, 11.4, 7.4, 5.8
- Consumer prices (period average): 3.6, 6.0, 6.0, 6.0
- Investment and savings (In percent of GDP)
- Gross investment: 47.0, 42.0, 40.0, 40.0
- Of which: State budget: 6.6, 2.8, 2.4, 2.5
- Gross savings: 32.9, 26.0, 29.2, 28.4
- Fiscal sector
- State budget balance: -0.7, -1.3, 0.2, 0.0
- Revenue: 16.5, 12.8, 12.4, 13.1
- Expenditure: 17.2, 14.1, 12.9, 13.1
- Nonhydrocarbon primary state budget balance (in percent of non-hydrocarbon GDP): -8.4, -5.3, -5.6, -4.7
- Monetary sector (12-month percent change, unless otherwise indicated)
- Credit to the economy: 39.4, 24.0, 19.0, 18.0
- Credit to GDP ratio: 45.2, 55.9, 56.8, 60.1
- Broad money, incl. foreign currency deposits at CBT: 16.1, 9.3, 7.0, 7.0
- Real effective exchange rate: 0.5, …, …, …
- External sector (In percent of GDP, unless otherwise indicated)
- Exports of goods (In millions of US$): 12,164, 7,519, 10,113, 11,227
- Imports of goods (In millions of US$): 14,051, 13,177, 13,022, 13,642
- Current account balance: -14.0, -21.0, -12.8, -11.6
- Foreign direct investment: 8.5, 4.5, 4.5, 4.5
- Total public sector external debt: 19.4, 23.9, 24.3, 27.6
- Sources for table: Turkmen authorities; and Fund staff estimates and projections.
Executive Board assessment — findings and near-term priorities
- Commendations and concerns:
- Directors commended the authorities for policy measures implemented over the past two years to facilitate steady growth and adjustment to lower oil and natural gas prices.
- Directors noted that external imbalances remain sizeable and stressed the need for additional policy adjustment to reduce the current account deficit while implementing reforms for strong, sustainable, and inclusive growth.
- Near-term priority:
- Reduction in the current account deficit.
Executive Board recommended policy package and structural reforms
- Near-term policy package that Directors concurred would facilitate adjustment:
- Cuts in public investment spending.
- Slower credit growth.
- Exchange rate devaluation.
- Social protection:
- Directors stressed that vulnerable segments of the population should be protected as the policy adjustment proceeds.
- Exchange rate and monetary framework:
- While the fixed exchange rate regime remains appropriate for the time being, over the medium term greater exchange rate flexibility would:
- Support adjustment to external shocks and changes in the macroeconomic environment.
- Pave the way for modernizing the monetary policy framework.
- Eliminating the exchange rate restrictions on current international transactions would help increase economic efficiency.
- Structural reforms to address low hydrocarbon prices and support diversification:
- Improvements in the business and regulatory environment.
- A decisive push for reform and privatization of state-owned enterprises.
- Downsizing and greater efficiency of public investment.
- Continued focus on social protection and human capital development.
- Gradual scaling down of the state's role in planning and coordinating economic activity.
- Financial sector and prudential measures:
- Directors looked forward to the planned financial regulatory overhaul to align Turkmenistan’s regulatory framework with the Basel standards.
- Given strong loan growth and directed credit for state-led projects, Directors saw merit in:
- Tightening prudential requirements.
- Rationalizing the process of loan selection.
- Raising awareness of the exchange rate risk.
- Enhancing bank governance and risk management.
- Data and transparency:
- Directors encouraged the authorities to address data gaps and broaden dissemination of fiscal, financial, and external sector statistics to:
- Improve understanding of macroeconomic trends and policy intentions among stakeholders.
- Boost foreign investment.
- Ease access to global financial markets.
IMF Executive Board Concludes 2017 Article IV Consultation with Turkmenistan — Press Release No. 17/226