## IMF Executive Board Concludes 2017 Article IV Consultation with Turkmenistan

_IMF News, June 15, 2017_

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## Bibliographic details
- Published: June 15, 2017

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### 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*

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## References

- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Turkmenistan and the IMF](http://www.imf.org/external/country/TKM/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
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- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
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_Source: https://www.imf.org/en/news/articles/2017/06/16/pr17226-imf-executive-board-concludes-2017-article-iv-consultation-with-turkmenistan_