IMF Staff Concludes Article IV Consultation Visit to Turkmenistan

IMF News, March 9, 2018

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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.
End-of-Mission press release conveys preliminary findings of IMF staff; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. A Board discussion is planned for April 2018.

Officially-reported growth was 6.5 percent in 2017, 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 declined from 47 percent of GDP in 2016 to 41 percent of GDP in 2017 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 in 2017.
Going forward, economic activity will be supported by the planned launch of gas-processing facilities and other large-scale projects.

Main near-term challenge: reduce external imbalances.
Recommended additional measures given the size of the external deficit:
- Exchange rate correction.
- Further fiscal tightening.
- Further monetary tightening.
- Easing foreign exchange regulations on imports and other current international payments.
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 is an opportunity to deepen and accelerate structural reforms to foster sustainable and inclusive growth driven by a more diversified market economy.
Real sector reform priorities:
- Significantly simplify administrative procedures and regulations.
- Accelerate reforms and privatization of state-owned enterprises.
- Attract foreign direct investment.
The simplified framework for the free economic zones could attract new private investments, including from abroad; positive lessons should be applied across Turkmenistan.

Fiscal policy:
- Reduce fiscal deficits through continued streamlining of public investments, greater spending efficiency, and further subsidy reforms, while protecting the vulnerable.
- In the context of socially-oriented development, health and education expenditures could be increased further to support rotation of public spending from accumulation of physical capital to human capital.
- Authorities are planning to move toward medium-term budgeting and transition to GFSM2001 fiscal data reporting.
Monetary and financial policy:
- Central bank should reorient its participation in the government securities market from primary auctions to secondary markets while supporting monetary stability.
- Move away from directed lending.
- Broader use of risk-based loan pricing.
- Stronger framework for financial regulation; planned financial regulatory overhaul would introduce elements of Basel principles into local regulations.
- These reforms should be implemented as soon as feasible to help maintain financial stability over the medium term.

Broader dissemination and improved 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.

Source: IMF press release, March 9, 2018.