Turkmenistan

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.

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The economic outlook for Turkmenistan in the near term remains cautiously optimistic, with a slower real GDP growth in 2025, given projected lower global prices on hydrocarbons, particularly natural gas exports, which continue to be the main source of revenue for the country. Hydrocarbon exports growth is expected to gradually pick up over the medium term while non-hydrocarbon growth is expected to perform below its potential, given the challenging business environment for private sector, investment inefficiencies, and significant real exchange rate overvaluation.

Inflation is projected to pick up gradually over the medium term as the banking sector continues their directed lending to state-owned enterprises for import-substitution and export promotion resulting in loose monetary conditions and due to the announced fiscal policy of increasing public sector wages and pensions by 10% annually.

The trade balance is projected to gradually deteriorate, shifting from a surplus to a deficit in 2025 (if imports will not be reduced administratively) driven by lower hydrocarbon prices and an overvalued currency. 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, manufacturing, and services, require structural reforms to increase private entry and investment to achieve their potential for higher growth.

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

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Turkmenistan has been a member of World Bank Group's International Bank for Reconstruction and Development (IBRD) since September 1992, the Multilateral Investment Guarantee Agency (MIGA) since October 1993, and of the International Finance Corporation (IFC) since May 1997.

With the global outbreak of COVID-19, Turkmenistan requested a $20.0 million loan from IBRD to finance the COVID-19 Strategic Preparedness and Response Program, which was successfully completed in December 2023. Building on the success of that project, the Government of Turkmenistan has since requested to expand the World Bank Group program, which has resulted in a country engagement note for the period FY2026-2027.

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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.
• Energy: Supporting the Regional Electricity Interconnectivity and Trade Initiative (REMIT) to boost Central Asian energy cooperation and promote clean energy transition.
• Enhanced Health Emergency Prevention, Preparedness, and Response: Building on the COVID-19 response experience 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.
• 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.

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 Turkmen people. This collaborative effort aims to leverage the strengths and resources of each partner to maximize the impact of development initiatives in Turkmenistan.

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