On May 26, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Turkmenistan.
Turkmenistan, a major natural gas producer, continues to adjust to a difficult external environment, including 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 has widened to 21 percent of GDP.
The authorities have initiated policy adjustment to lower oil and natural gas prices. The measures adopted over the past couple of years include public investment cuts, step devaluation of the currency, and a one-time increase in utility tariffs. The administration has also intensified its efforts to develop a local production base. Ambitious plans have been put in place to increase natural gas production, build new pipelines, develop petrochemical industries, expand mining and processing of non-hydrocarbon natural resources, and support private sector development.
Macroeconomic performance of the Turkmen economy 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, and the state budget is expected to stay close to balance. However, the external deficits are projected to remain sizable, at about 11 percent over the medium term, amid continued low hydrocarbon prices and very high levels of public investment.
Executive Board Assessment [2]
Executive Directors commended the authorities for the policy measures implemented over the past two years to facilitate steady growth and an adjustment to an adverse external environment, especially lower oil and natural gas prices. However, Directors noted that the external imbalances remain sizeable and stressed the need to pursue additional policy adjustment to reduce the current account deficit, while implementing reforms to secure strong, sustainable, and inclusive growth.
Directors considered a reduction in the current account deficit as the near-term priority. They concurred that a policy package consisting of cuts in public investment spending, slower credit growth, and exchange rate devaluation would help facilitate the needed adjustment. Directors stressed that the vulnerable segments of the population should be protected as the policy adjustment proceeds. 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, while paving the way for modernizing the monetary policy framework. Eliminating the exchange rate restrictions on current international transactions would help increase economic efficiency.
Directors emphasized that low hydrocarbon prices call for structural reforms to support continued economic diversification and private sector development. They encouraged further 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, and continued focus on social protection and human capital development. More generally, they considered that the role of the state in planning and coordinating economic activity should gradually be scaled down.
Directors looked forward to the planned financial regulatory overhaul which would 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, and raising awareness of the exchange rate risk, while enhancing bank governance and risk management.
Directors encouraged the authorities to address data gaps and broaden the dissemination of the country’s fiscal, financial, and external sector statistics. This would help improve the understanding of macroeconomic trends and policy intentions among all stakeholders, boost foreign investment, and ease access to global financial markets.
Turkmenistan: Selected Economic Indicators, 2015–18
|
Est. |
Est. |
Proj. |
||
|
2015 |
2016 |
2017 |
2018 |
|
|
Output and prices |
(Annual percentage change) |
|||
|
Real GDP |
6.5 |
6.2 |
6.5 |
6.3 |
|
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) |
7.4 |
3.6 |
6.0 |
6.2 |
|
Investment and savings |
(In percent of GDP) |
|||
|
Gross investment |
47.0 |
47.0 |
42.0 |
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 |
(In percent of GDP) |
|||
|
State budget balance |
-0.7 |
-1.3 |
-0.7 |
0.2 |
|
Revenue |
16.5 |
12.8 |
12.4 |
13.1 |
|
Expenditure |
17.2 |
14.1 |
13.1 |
12.9 |
|
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 |
9.4 |
9.3 |
7.0 |
|
Real effective exchange rate |
0.5 |
9.3 |
… |
… |
|
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 |
6.2 |
4.5 |
3.6 |
|
Total public sector external debt |
19.4 |
23.9 |
24.3 |
27.6 |
|
Sources: Turkmen authorities; and Fund staff estimates and projections. |
||||
[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.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
