Press Release No. 16/193

Press Release: IMF Staff Concludes Visit to Turkmenistan

May 2, 2016

An International Monetary Fund (IMF) mission led by Mr. Björn Rother visited Ashgabat from April 26–29, 2016, to assess macroeconomic developments and discuss economic challenges and policy priorities with senior government officials and the diplomatic community. At the end of the mission, Mr. Rother issued the following statement:

“Like other countries in the Caucasus and Central Asia region, Turkmenistan has been seriously affected by external shocks, including permanently lower energy prices. The combined effect of lower prices for oil and natural gas, the recession in Russia, the cooling of the Chinese economy, and a sizeable appreciation of the U.S. dollar has caused GDP growth in Turkmenistan to decline to 6.5 percent in 2015, which is still a higher rate than in most other countries in the region but a significant drop from 10.3 percent in 2014. 2016 could see another slight slowdown in growth on the back of a broadly stagnant hydrocarbon economy and slowing (albeit still massive) investment. In the short run, these negative factors can only partially be offset by strong growth in sectors benefitting from the authorities’ strategy to diversify the economy, strengthen the private sector, and put on-stream several major industrial projects linked to vertical integration from natural gas. As a result of lower energy revenues, and in spite of substantial import compression, the current account deficit is expected to widen to 13 percent of GDP in 2016 from an estimated 12 percent in 2015, while the state fiscal balance will change to a deficit of up to 2 percent of GDP from a broadly balanced position last year. Inflation should decline and remain contained in the low single digits, reflecting the cooling of the economy as well as early successes with import substitution.

“The Turkmen authorities responded to the worsened external environment pro-actively. They devalued the manat in January 2015, cut investment spending and subsidies, increased tax revenue from the non-hydrocarbon economy, and strengthened banking sector regulation and supervision. It is also encouraging to see a private sector response to the government’s export promotion and import substitution strategy, which could lead to a substantial increase in production over the next years across a broad range of industries.

“The outlook of persistently lower energy prices requires further policy adjustment, which can be phased in over time given sizeable international reserves, low debt levels, and the continuation of large FDI inflows. Priority areas include further efforts to limit the build-up of fiscal deficits and improve the quality of public spending, preparing the infrastructure for a gradual move towards a more flexible exchange rate in the longer term, further improvements in banking regulation and supervision to prevent the build-up of risks, and phasing out directed lending over the next years and transition to more market-based monetary and financial sector. Moreover, a fundamental re-orientation of the economy through a further acceleration of wide-ranging structural reforms, including in the areas of business climate and governance, as well as market-driven diversification, offers the best way to boost future growth rates and continuously increase living standards.

“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.

“During the visit, the team participated in a conference on competitiveness organized jointly by the government and the World Bank, and discussed key themes for the 2016 Article IV Consultation mission, which is scheduled to take place in the fall. The team would like to underscore the excellent working relationship with the authorities, and would like to thank the authorities and other counterparts for their warm hospitality and productive discussions.”