Overview

Country Context

Turkmenistan

2016

Population, million

5.4

GDP, current US$ billion

37.7

GDP per capita, current US$

6930

Life Expectancy at birth, years

66

Despite its upper-middle-income status, Turkmenistan is still at an early stage of transition. Indeed, its abundant natural resources have arguably masked the need for a change, delaying first generation reforms such as price and trade liberalization, privatization, and the creation of institutions for market regulation, which began only after 2007.

Tight administrative controls and the public sector’s large overall role in economic activity remain the key obstacles to private sector development in Turkmenistan. The public sector and state-owned monopolies continue to dominate the economy and the formal labor market. Foreign direct investment (FDI) remains limited outside the hydrocarbon sector.

Growth remains highly dependent on hydrocarbons and related sectors. After the successful diversification of natural gas export routes in 2009, China became the largest export market for Turkmenistan. Medium-term plans envisage a further increase in natural gas exports to China and other destinations in East and South Asia, while exports to Russia have come to a halt due to transit pricing disputes.

Exports of natural gas to Iran remain limited. In this context, a planned third pipeline to China and the proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, if they materialize, would more than double gas export capacity. Despite the ongoing and planned diversification of markets, Turkmenistan’s exports are increasingly dependent on a single large market (China) and continue to be dominated by a single product (natural gas), making the economy vulnerable to fluctuations in global prices beyond its control.

Strategy

On November 3, 2015, the World Bank Board of Executive Directors discussed the new Country Engagement Note (CEN) for the period covering FY2016–17. The program is centered on deepening collaboration in such areas as financial sector development and macroeconomic statistcs.

The engagement strategy focuses on sharing with the Turkmen authorities the World Bank Group’s international knowledge, experiences, and best practices in several areas relevant to Turkmenistan’s growth agenda and integration into the global economy. The strategy includes follow-up activities in the areas of ongoing engagement, as well as additional activities in new sectors.

The knowledge-based program, which is at the cornerstone of the CEN, is fully consistent with the Government’s strategic priorities and is being delivered primarily through the Reimbursable Advisory Services (RAS). The Government of Turkmenistan primarily funds this program, which is being supplemented by the World Bank Group’s other advisory and analytical services.

Through its own resources, the Bank complements activities under the ongoing program in such areas as the development of a welfare monitoring system, support for a regional water agenda, and others.

KEY ENGAGEMENT

Reimbursable Advisory Services Program

On October 7, 2016, the World Bank Group and the Turkmen Ministry of Finance signed a second RAS agreement, which is an integral part of the CEN for Turkmenistan.

The activities under the RAS agreement build on areas previously proposed by the Turkmen authorities in the framework of the first RAS agreement signed in 2013.

The RAS program is designed to support business model reform and corporate governance in the banking sector, the development of the credit reporting system, the conducting of national risk assessments in the area of money laundering and terrorist financing risk, and the strengthening of macroeconomic statistics. The entire program under the agreement is managed, delivered, and supervised by the World Bank Group in line with international best practices.

Results

The activities outlined in the Interim Strategy Note (ISN) FY14–15 and under the first RAS agreement were delivered as planned, and the results were considered broadly satisfactory by both the Turkmenistan authorities and the World Bank Group. In addition to the RAS program, the Bank-funded advisory studies were important in facilitating an initial policy dialogue on structural issues, such as banking system reform and private sector development. 

Economy

Recent Economic Developments

In February 2017, Turkmenistan’s president was reelected to a third term with 97.7% of the vote. As Turkmenistan is one of the most hydrocarbon-dependent economies in the world—with the hydrocarbon sector accounting for half of GDP, more than 90% of exports, and more than 80% of fiscal revenues—the administration will continue targeting a gradual transition toward a more diversified, market-driven economy.

The Government’s plan calls for continued public support to entrepreneurship and greater public investment in education and health. To improve social indicators, the country will attempt to leverage its natural resource wealth to increase real incomes and raise living standards.

GDP growth slowed marginally from 6.5% in 2015 to 6.2% in 2016, according to official data, as the continued decline of global hydrocarbon prices affected export revenue and domestic demand. The Russian Government’s decision to end gas imports from Turkmenistan, a contract dispute with Iran, and the ongoing slowdown of the Chinese economy appear to have also affected hydrocarbon output and exports.

Meanwhile, a 36.8% reduction in public investment and a 27.6% drop in FDI in large oil and gas projects slowed growth in the construction sector. Driven in part by increased government subsidies, consumption growth remained robust and retail trade expanded.

Turkmenistan’s external position continued to deteriorate in 2016, as falling exports widened the current account deficit. To maintain the exchange rate peg at 3.5 Turkmen manat per U.S. dollar, the authorities tightened restrictions on access to foreign exchange, though imports were slow to adjust. Combined with lower FDI inflows, the higher current account deficit may have created a balance-of-payments gap that required the central bank to tap its foreign exchange reserves.

The central bank focused on maintaining the currency peg by tightening liquidity and restricting foreign exchange operations. Official statistics indicate that the annual inflation rate averaged 6% in 2016, supported by administrative price controls.

Economic Outlook

Turkmenistan’s GDP growth rate is projected to increase marginally in 2017, with a moderate recovery in hydrocarbon prices and eased exchange rate pressures. Although rising hydrocarbon prices are expected to narrow the current account deficit in 2017, it will remain elevated due to the slow import adjustment process. A further slowdown in net capital inflows may compel the authorities either to use additional official foreign exchange reserves to close the external financing gap or to adjust the exchange rate peg.

The authorities are expected to maintain a tight monetary policy stance to support the fixed exchange rate and ensure macroeconomic stability, though this will likely have a negative impact on the economy. Fiscal consolidation is expected to continue, which should strengthen fiscal and debt sustainability. However, a persistent balance-of-payments deficit could adversely affect net public debt if the authorities choose to close the gap by borrowing or by spending the country’s hydrocarbon revenue reserves.

Projects

Since 1992, at the request of the Government, the Bank prepared a number of studies and extended three loans to Turkmenistan.

Other Bank activities in Turkmenistan included the Statistical Capacity Building Project, the Civil Society Fund Program, which is now being transformed into a Global Partnership for Social Accountability Program, the Avian Influenza Control and Human Pandemic Preparedness and Response Project.

At the Government’s request, the Bank also provided advice on a number of issues, including but not limited to, national wealth funds, an Accounting and Auditing Report on the Observance of Standards and Codes (ROSC), the modernization of the Hydromet agency, the anti-money-laundering/combating the financing of terrorism (AML/CFT) legal framework along with the International Monetary Fund (IMF), transport and logistics issues, and international experience in the ports sector.

ALL PROJECTS


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