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Turkmenistan

Turkmenistan

Population 5.9 million
GDP 7,674 US$
D
Country risk assessment
E
Business Climate
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 6.3 0.8 4.6 3.9
Inflation (yearly average, %) 5.1 10.0 10.0 10.0
Budget balance (% GDP) -0.3 -1.4 0.4 0.1
Current account balance (% GDP) 5.1 0.5 0.4 -0.1
Public debt (% GDP) 32.8 30.9 26.7 25.5

(e): Estimate (f): Forecast

STRENGTHS

  • Fourth-largest natural gas reserves in the world (nearly 10% of the total)
  • Strategic position in Central Asia and between China on the one hand, and Russia and Europe, via the Caspian Sea, on the other
  • Healthy public accounts and a moderate level of debt
  • Obtained observer status at the World Trade Organisation (WTO) in July 2020, with the intention of commencing accession negotiations by 2025

WEAKNESSES

  • High dependence on hydrocarbons (90% of exports, of which 83% gas)
  • High dependence on China, which receives nearly 85% of gas exports
  • Small private sector, anticompetitive market structures (state monopolies dominate the economy, management of credit and investment)
  • Difficult business climate: strict trade, price and foreign exchange restrictions and controls hamper FDI
  • Poor infrastructure (especially transport and health) and underdeveloped regional connectivity
  • Weak governance (corruption, authoritarianism, repression, politicised judiciary, opaque statistical system)
  • Porous border with Afghanistan (presence of the Taliban) and weak military resources

RISK ASSESSMENT

Growth driven by gas purchases by China and Russia

The double shock of the health crisis and the decline in world hydrocarbon prices, exacerbated by more muted Chinese demand, depressed growth in 2020. The rebound that began in 2021 will continue in 2022 on the back of increased demand for oil and gas and improved global prices, which should stimulate hydrocarbon production and exports. Moreover, record wheat harvests gave a boost to the agricultural sector, and cotton will likely meet government production targets. On the demand side, the negative effects of inflation on real household income dampened private consumption (20% of GDP) and services growth. Even so, both components are expected to recover in 2022, with each growing by 5% thanks to the lifting of pandemic-related restrictions. Public investment (50% of GDP) and net exports (25% of GDP) will continue to support growth. The trade surplus expected in 2021 will tend to shrink in 2022 as import growth accelerates due to a relaxation of import controls.

 
In July 2019, Gazprom, Russia's state-owned gas monopoly, announced a contract with the Turkmen government to import 5.5 billion m³ of natural gas per year in 2019-2024. In August 2021, China's state-owned energy company, CNPC, said that China would receive an additional 17 billion m³ of gas from Turkmenistan per year for three years in exchange for the installation of three new wells in the Galkynysh field. However, these plans to increase exports to China will be difficult to achieve without the rapid delivery of the fourth leg ("Line D") of the Central Asia-China gas pipeline, which is not expected to be completed until 2023. Diversification of Chinese supplies, particularly with Russia, could impact the terms of trade and will be offset only to a limited degree by the diversification of Turkmenistan's customer base. The Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, which is expected to double exports, is not going to come onstream until 2023, after several disputes over gas prices, difficulties in completing financing, and construction delays in Afghanistan. However, oil production and export capacity could increase with the extension until 2028 of the contract with Russia's Tatneft to increase extraction in the Goturdepe field.

 

Resilient public accounts and strict exchange controls

With increased gas export revenues, the budget balance will be in surplus in 2021 and 2022, with a current account surplus in 2021 and a small deficit in 2022. These strong performances should allow for the timely repayment of obligations relating to the country’s external debt, almost all of which is sovereign. Furthermore, the government is focusing on its programme to digitalise public services by 2025, which should ensure higher tax revenues.

 
The parallel exchange rate, which is much weaker than the official exchange rate, appreciated slightly in June to TMT 32.7: USD 1 from TMT 39: USD 1 in April, so the gap between the rates has slightly narrowed. Import restrictions and the resulting shortages continue to drive inflation, particularly for foodstuffs. The government will continue to be able to control inflation by limiting the amount of cash in circulation and maintaining the official exchange rate at TMT 3.5: USD 1, together with price controls and the distribution of some foodstuffs at subsidised prices. Access to foreign currency will continue to be severely restricted, which could increase the black market rate. The authorities also plan to restrict international payments and prevent private companies from exchanging manat-denominated assets. State-owned enterprises must pay 100% (previously 50%) of their foreign exchange earnings to the sovereign wealth fund. These earnings are exchanged at the official rate.

 

Strengthening the president’s grip on power

While the security policy was already extremely harsh, the pandemic was used as a pretext to restrict political freedoms. President Berdymukhamedov, who has been in power since 2006 and was re-elected for seven years in February 2017, retains complete control over the country’s institutions with his Democratic Party of Turkmenistan. The decision to move from a unicameral to a bicameral parliament in January 2021 was adopted in late 2020. Berdymukhamedov unexpectedly ran for (and won) a seat on the "People's Council" (the new upper house of parliament) on 28 March 2021. His election flouts the constitutional ban on the president holding a seat in parliament and strengthens the already impregnable power of the executive over the legislature. In addition, the upper and lower houses are required, respectively, to automatically approve the president's nominees for key positions and to approve bills put forward by the president. While the president presented this reform as a measure to strengthen the legislature, it is primarily a strategy to consolidate his power and perhaps one day ensure the succession of his son, who was promoted to deputy prime minister in February.

 
The return of the Taliban to power in the region could lead to increased migration flows in the coming months. This situation could also undermine investor confidence.

 

Last updated: February 2022

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