Turkmenistan: IMF Forecasts Big Dip in Economic Growth
Turkmenistan is set to experience a notable slowdown in economic growth in the coming two years because of falling revenues from oil and gas sales, the International Monetary Fund said in a statement on November 10.
Ashgabat’s rosy self-assessments have long been echoed by reputable international bodies like the IMF, so the warning of an imminent change in fortunes could ring alarm bells.
The judgement followed a weeklong visit to Turkmenistan by the IMF, which was in the country for its regular assessment of economic developments and challenges ahead.
As is typical for the IMF, the statement began with the good news.
“Turkmenistan has experienced strong output growth over the past decade. The authorities used a period of high prices for oil and natural gas to more than double per capita income through well-planned development of the hydro-carbon sector,” the IMF mission chief Björn Rother said in the statement.
Turkmenistan has capitalized on its energy wealth to build up healthy reserves, which the IMF said allowed for 30 months of import cover.
Unsurprisingly, however, the economy lacks diversity and has a weak private sector, which is needed to create high-value jobs.
Those internal problems have been compounded by international developments.
“Since 2014, three shocks have led to a worsened external environment for Central Asian countries and will likely have long-lasting effects. Oil and natural gas prices have plummeted and are expected to stay at low levels over the longer term, economic activity in major trading partners including Russia and China has been slowing, and pressures on currencies have intensified,” Rother said.
Rother said that triple blow will cause economic growth to decline from 10 percent in 2014 to 7 percent in 2015 and then 6 percent in 2016.
“As a result of lower revenues from hydrocarbon exports, the external current account as well as fiscal balances are expected to weaken,” he said.
But the IMF hailed what it said was the government's determined policy response.
“The authorities have started to improve efficiency of budget execution and reduce spending in line with shrinking revenues and strengthened banking sector regulation and supervision, including on open foreign positions,” Rother said.
With a society as closed as Turkmenistan, it is hard to tell immediately where spending is being reduced the most, especially since government reports rarely publicize such decisions.
What is known is that the government is slowly moving toward weaning the population off the generous subsidy culture instilled by the late President Saparmurat Niyazov, who died of heart failure in late 2006.
In January last year, President Gurbanguly Berdymukhamedov spoke about the need to conserve natural gas and announced plans to install household meters. That followed a statement made by a public official some months earlier about the cost of free gas supplies to the country's citizens, which he said set Turkmenistan back $5 billion each year.
Utilities are still extremely cheap, but there are hints that further liberalization is in the offing and that the authorities will eventually abolish the free supply of electricity, cooking gas and water to households.
That is certainly an approach that would meet the IMF’s approval.
“Policy priorities to strengthen resilience comprise further consolidating fiscal spending and improving its quality, including through additional steps to reform energy subsidies while providing effective safety nets for the most vulnerable,” Rother said.
The recurring theme of the IMF’s statement is that Turkmenistan needs finally to open itself up to the private sector, in all spheres.
It advises gradually dropping the policy of directed lending, whereby enterprises are financed through government credit, and to make the “transition to more market-based monetary and financial sectors.”
On a related point, the IMF recommends taking “steps to strengthen the business climate and governance, notably for managing hydrocarbon revenues.”
The political aspect of this policy advice is something that the IMF does not dwell on, however. Adopting any such reforms would require a level of openness that Turkmenistan’s leadership, in its current form, is unlikely to countenance.