Press Release No. 18/81

IMF Staff Concludes Article IV Consultation Visit to Turkmenistan

March 9, 2018

An International Monetary Fund (IMF) mission led by Mr. Martin Sommer visited Ashgabat during February 19–March 6, 2018 to assess macroeconomic and financial developments and discuss economic challenges and policy priorities with senior government officials, representatives of real and financial sectors, and the diplomatic community. At the end of the mission, Mr. Sommer issued the following statement:

“The Turkmen economy continues to adjust to a challenging—although improving—external environment. Officially-reported growth was 6.5 percent last year, supported by rising natural gas exports, import substitution, and expansionary credit policies. Officially-reported inflation increased to 8 percent on average in 2017 due to subsidy reforms and monetary expansion to finance higher investments from the state budget. The overall investment rate in the economy has declined from high levels—from 47 percent of GDP in 2016 to 41 percent of GDP last year—amid completion of several large-scale projects. The current account deficit shrank from some 20 percent of GDP in 2016 to an estimated 11½ percent of GDP last year. Going forward, economic activity will be supported by the planned launch of gas-processing facilities and other large-scale projects.

“In the IMF staff’s view, the main near-term policy challenge remains taking action to reduce external imbalances. The recent reduction in public investments as a share of the economy is welcome. However, given the size of the external deficit, additional measures should be considered, including exchange rate correction and further fiscal and monetary tightening. Easing foreign exchange regulations on imports and other current international payments would be highly desirable. The pace and composition of policy adjustment should be designed to reduce the adverse impact on economic growth and vulnerable segments of the population.

“The new 7-year development plan presents an opportunity to deepen and accelerate structural reforms to foster sustainable and inclusive growth over the longer term, driven by a more diversified market economy. Real sector reforms should focus on significantly simplifying administrative procedures and regulations, accelerating reforms and privatization of the state-owned enterprises, and attracting foreign direct investment. The simplified framework for the free economic zones holds the promise of attracting new private investments, including from abroad, and any positive lessons should be applied across Turkmenistan more broadly.

“Based on the progress already made, Turkmenistan would benefit from additional fiscal, monetary, and financial reforms. Fiscal deficit reduction should be supported by continued streamlining of public investments, greater spending efficiency, and further subsidy reforms, while protecting the vulnerable. In the context of the authorities’ efforts to stimulate socially-oriented development, health and education expenditures could be increased further, thus supporting a rotation of public spending from accumulation of physical capital to human capital. In line with the international practices, it is recommended that the central bank reorients its participation in the government securities market from the primary auctions to secondary markets, while supporting monetary stability. Moving away from directed lending, broader use of risk-based loan pricing, and a stronger framework for financial regulation would help maintain financial stability over the medium term. Indeed, the authorities are planning to move toward medium-term budgeting, transition to GFSM2001 fiscal data reporting, and a financial regulatory overhaul which would introduce elements of Basel principles into local regulations. These reforms should be implemented as soon as feasible.

“Finally, broader dissemination and improving quality of macroeconomic and financial data would help enhance understanding of economic trends, attract foreign direct investment, and ease access to the global financial markets.

“The IMF stands ready to support the government’s reforms through policy advice and capacity building, including on macroeconomic forecasting and fiscal and monetary policy frameworks.