The World Bank in Turkmenistan

Country Context

Turkmenistan is a landlocked upper middle-income country in Central Asia with a GNI per capita of $8,250. It is one of the world’s top exporters of natural gas, possessing the fourth-largest proven natural gas reserves and the 44^th largest proven oil reserves globally. This resource wealth has driven substantial economic growth, positioning Turkmenistan as an upper-middle-income country. Despite this, the nation faces challenges in diversifying its economy, improving public resource management, and enhancing fiscal transparency.

The economy remains largely under state control, with significant foreign exchange and government revenue inflows from oil and gas exports ensuring a basic standard of living for much of the population. However, private sector development is critical for economic diversification and resilience but remains challenging. State-owned enterprises (SOEs) continue to dominate economic activity, accounting for 59.2% of total turnover in 2023.

Agriculture, employing 42.5% of the labor force, suffers from low productivity and faces increasing challenges due to water scarcity and deteriorating soil quality. Turkmenistan is also vulnerable to the impacts of climate change, including sharp rises in temperature and increased salinity.

As a landlocked country, connectivity is key to Turkmenistan's efforts to diversify its economy through increased trade. Investments in road networks, railways, and ports are crucial, but significant improvements in trade logistics are needed.

Strengthening governance, enhancing transparency, and improving accountability in government decision-making and reporting of macroeconomic data are essential for Turkmenistan's sustainable development.

Strategy

The World Bank and Turkmenistan

The World Bank Group's strategy for FY26-27 country engagement in Turkmenistan is built around two primary areas for future collaboration: (1) supporting Turkmenistan’s participation in regional initiatives related to global and regional public goods, and (2) providing advice and technical assistance to open and modernize Turkmenistan’s economy.

I. Addressing Global and Regional Challenges

• Water Security and Climate Resilience: Enhancing the efficient use of water resources, modernizing irrigation services, and introducing high-efficiency irrigation technologies. The World Bank Group has initiated a preliminary feasibility study for the modernization of the Karakum Main Canal.
• Energy: Supporting the Regional Electricity Interconnectivity and Trade Initiative (REMIT) to boost Central Asian energy cooperation and promote clean energy transition. The World Bank Group will help assist Turkmenistan in reducing methane emissions from its oil and gas industry.
• Enhanced Health Emergency Prevention, Preparedness, and Response: Building on the COVID-19 response experience, efforts will be supported to address food, health, and environmental risks through cross-sector collaboration.

II. Supporting Economic Transformation and Competitiveness

• WTO Accession: Providing technical assistance and advisory services on trade competitiveness diagnostics, tariff and trade agreements analysis, and trade potential modeling.
• Private Sector Development: Including Turkmenistan in initiatives like Business Ready and Women, Business, and the Law to address gender disparities and enhance policies supporting the domestic private sector and foreign direct investment.
• Financial Sector Development: Supporting risk-oriented supervision, investment assessment, and the development of new financial instruments. The WBG plans to assist in developing the securities market and enhancing statistical capacity for public policy making.

Implementation and Partnerships

The World Bank Group will collaborate closely with other development partners, including the Asian Development Bank (ADB), European Union (EU), Islamic Development Bank (IsDB), European Bank for Reconstruction and Development (EBRD), and various UN agencies, to ensure a coordinated approach to development assistance to Turkmenistan.

The strategy emphasizes the importance of stakeholder consultations and a participatory approach to ensure that interventions are aligned with the needs and priorities of the people of Turkmenistan. This collaborative effort aims to leverage the strengths and resources of each partner to maximize the impact of development initiatives in the country.

Economy

Recent Economic Developments

As of December 2024, Turkmenistan's economy has shown signs of recovery and growth, driven primarily by the hydrocarbons sector. The country's GDP growth rate is estimated at 4.2% for 2024, reflecting a rebound from the economic disruptions caused by the COVID-19 pandemic and global market fluctuations. This growth is supported by increased natural gas exports, particularly to China, and a rise in global energy prices.

The government has continued its efforts to diversify the economy, although progress remains slow. The non-hydrocarbon sectors, including agriculture and manufacturing, have seen modest growth. However, the economy remains heavily reliant on natural gas exports, which account for a significant portion of the country's revenue.

Inflation has been a persistent challenge, with the annual inflation rate estimated at 8.5% in 2024. This is driven by rising food prices and currency depreciation. The government has implemented measures to stabilize prices, including subsidies and price controls on essential goods.

Public financial management has seen improvements, with efforts to enhance fiscal transparency and efficiency. The government has also focused on reducing public debt and managing fiscal deficits. However, challenges remain in terms of revenue mobilization and expenditure management.

Overall, while Turkmenistan's economy is on a path to recovery, it faces significant challenges in achieving sustainable and inclusive growth. The World Bank continues to support the country's development efforts through technical assistance and advisory services, particularly in areas of economic diversification, governance, and climate resilience

Economic Outlook

The economic outlook for Turkmenistan in the near term remains cautiously optimistic, with projected GDP growth of around 4.0% in 2025. This growth is expected to be driven primarily by the hydrocarbons sector, particularly natural gas exports to China, which continue to be a significant source of revenue for the country. The global energy market's stability and favorable prices are likely to support this growth trajectory.

However, the economy faces several challenges that could impact its medium-term prospects. Inflation is expected to remain elevated, with an estimated rate of 7.5% in 2025, driven by persistent food price increases and currency depreciation. The government will need to implement effective monetary and fiscal policies to manage inflationary pressures and ensure economic stability.

Efforts to diversify the economy away from hydrocarbons are ongoing but have yet to yield significant results. The non-hydrocarbon sectors, such as agriculture and manufacturing, require substantial investment and structural reforms to contribute meaningfully to economic growth.

Public financial management improvements are crucial for maintaining fiscal health. The government aims to enhance revenue mobilization and manage public expenditures more efficiently to reduce fiscal deficits and public debt.

Overall, while Turkmenistan's economic outlook is positive, achieving sustainable and inclusive growth will require addressing structural challenges and diversifying the economy.