Press Release No. 15/510

Press Release: IMF Staff Concludes Visit to Turkmenistan

November 10, 2015

An International Monetary Fund (IMF) mission led by Mr. Björn Rother visited Ashgabat from November 4-10, 2015, to assess macroeconomic developments and discussed economic challenges and policy priorities with senior government officials, Parliamentarians, representatives of the private sector, and the diplomatic community. The visit also focused on identifying key themes for the 2016 Article IV Consultation mission, which is scheduled to take place in the spring.

At the conclusion of the mission, Mr. Rother issued the following statement:

“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 that enabled large-scale public investment, including in the social areas. Moreover, a large part of export receipts was saved as reserves, which in October 2015 stood at 30 months of import cover. At the same time, diversification and private sector development to create more productive jobs for the country’s young population and hence improve inclusiveness remain challenges that the government recently identified as policy priorities.

“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. As a result, the region has started to suffer from a significant slowdown of GDP growth, weaker current account positions, a series of exchange rate depreciations, and deteriorating health of many countries’ financial sectors.

“For Turkmenistan, the triple economic shocks are expected to lead to a decline in GDP growth from 10 percent in 2014 to about 7 percent in 2015 and 6 percent in 2016 mostly due to flat natural gas and oil production as well as reduced budgetary investment. Inflation should remain in the mid-single digits given weaker activity. As a result of lower revenues from hydrocarbon exports, the external current account as well as fiscal balances are expected to weaken.

“The Turkmen authorities’ initial policy response to the triple economic shocks has been determined. 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. In addition, the economic diversification strategy in combination with the January 2015 devaluation has already given strong impetus to some industries, in particular natural gas processing and agri-business.

“Going forward, substantial resources accumulated in the foreign reserve fund and the stabilization fund will allow Turkmenistan to adjust to the current challenges in an orderly and gradual way. The adjustment needs to further strengthen the country’s resilience to external shocks and help maintain high GDP growth rates—higher than elsewhere in the CCA region—over a likely multi-year period of lower energy prices. To this end, reforms should be consistent with market-based principles.

“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; maintaining adequate credit levels to the economy while avoiding excessive build-up of risks; preparing the infrastructure for a gradual move towards a more flexible exchange rate in the longer term; and improving communication of economic developments and policies as well as data dissemination. Maintaining high and inclusive GDP growth will require the continuation and acceleration of strong efforts in support of a more diversified economy with a dynamic private sector, in cooperation with external partners; phasing out directed lending over the next years and transition to more market-based monetary and financial sectors; and steps to strengthen the business climate and governance, notably for managing hydrocarbon revenues.

“The IMF stands ready to support the government’s reform efforts through policy advice and capacity building, including on macroeconomic statistics, monetary policy operations, and fiscal policy.

“The team would like to underscore the excellent, cooperative relationship between Turkmenistan and the IMF, and would like to thank the authorities and other counterparts for their warm hospitality and productive discussions.”