Press Release No. 24/118

IMF Staff Completes 2024 Article IV Mission to Turkmenistan

April 15, 2024

• Turkmenistan’s economy slowed in 2023, following a post-pandemic bounce in the previous year. The main economic challenge is to translate hydrocarbon wealth into more diversified, sustainable and inclusive growth.
• Achieving this growth transformation will require a market-based diversification strategy, reforms to the monetary and exchange rate frameworks, increased public spending efficiency, and enhanced governance and transparency.
• Further improvements in the availability, quality, and reliability of economic statistics would help inform policy makers and increase transparency and credibility.

Washington, DC: An International Monetary Fund (IMF) mission led by Ms. Anna Bordon visited Ashgabat during March 27-April 9, 2024, to assess macroeconomic and financial developments, the economic outlook and risks, and policy measures to support diversified, inclusive, and sustainable growth. The mission met with senior government officials, representatives of the private and financial sectors, and the diplomatic community. At the end of the visit, Ms. Bordon issued the following statement: 

“Economic activity moderated in 2023 and inflation is picking up. IMF staff estimates that post-pandemic growth surged to 5.3 percent in 2022 before easing to 2 percent in 2023. Disinflation in 2022 temporarily turned to deflation in 2023 as world commodity prices subsided, monetary policy was tightened, and exchange rate pressures abated. Inflation began to pick up in the second half of 2023. The current account surplus narrowed from 7 percent of GDP in 2022 to 4.8 percent in 2023.

“Looking ahead the economy is expected to expand at around 2.3 percent in 2024 and over the medium term. Growth of hydrocarbon production would stabilize at around 2 percent while non-hydrocarbon growth is expected to remain subdued, given the challenging geopolitical and business environment, investment inefficiencies, significant real exchange rate overvaluation, and burdensome regulations by international standards. Inflation is projected to gradually rise to 8 percent due to the long-standing policy of increasing public sector wages and pensions by 10 percent annually and looser monetary conditions. The external position is expected to weaken over time due to both the overvalued exchange rate, lower hydrocarbon prices and oil export volumes. Risks to the outlook are mainly to the downside.

“The fiscal policy stance is broadly appropriate. However, spending efficiency should be improved. A neutral fiscal stance in 2024 would be consistent with the goal of containing inflation. Over the medium term, the deficit could be widened modestly. IMF staff analysis indicates that a non-hydrocarbon primary deficit (NHPD) of 2.7 percent of non-hydrocarbon GDP would balance the need to support investment now and the need to save for future generations, compared to a NHPD of 2.5 percent of GDP in 2023. To improve spending efficiency, Turkmenistan should enhance its targeting of social spending, move toward public wage increases based on performance, and enhance public investment management.

“Public financial management (PFM) and state-owned enterprise (SOE) reforms should be implemented without delay. This includes implementing the delayed 2014 Budget Code which calls for establishing a single treasury account, operationalizing medium-term budgeting, and improving fiscal reporting and transparency. The authorities should accelerate improvements in SOEs’ corporate governance, including enhancing independent oversight functions and increasing transparency through mandatory publication of audited financial statements.

“Turkmenistan would benefit from narrower central bank objectives. Significant lending by the Central Bank of Turkmenistan (CBT) to banks to meet development objectives has contributed to high inflation compared to other countries in the region, built pressure on the exchange rates, and exacerbated the real exchange rate misalignment, adversely affecting competitiveness. The CBT should focus on maintaining price and financial stability and be responsible for exchange rate policy. With inflation projected to rise by the end of 2024, tighter monetary and wage policies than under the current baseline would be required to rein in inflation pressures. The CBT should also modernize its central bank operations and accelerate its efforts to strengthen financial regulation, supervision, and crisis management.

“Unifying the exchange rates would reduce economic distortions and governance vulnerabilities. The authorities should consider a significant adjustment of the official exchange rate and keep macroeconomic policies sufficiently tight, supplemented by clear policy communication and enhanced social benefits to protect the most vulnerable. Exchange restrictions on current international transactions should also be eliminated. The adjustment measures and supporting reforms need to be sequenced carefully, while recognizing inherent uncertainties.

“The authorities are adequately focused on economic diversification. A more market-based economic diversification strategy would be preferable. Sustained macroeconomic stability is a pre-requisite for diversification, which importantly requires adjusting the exchange rate and eliminating exchange restrictions. Turkmenistan should gradually phase out administrative controls and reduce the footprint of the state in the economy. Turkmenistan also faces significant governance challenges which calls for greater transparency and accountability, particularly in areas that could lead to rent seeking (hydrocarbon sector, FX market). To address climate challenges, gradually and adequately pricing water and energy at cost recovery levels would create the right incentives to increase energy and water efficiency and invest in green technologies.

“Further improvements in the availability, quality, and reliability of economic statistics would help inform policy makers and increase transparency and credibility.   

“The IMF team is grateful to the authorities and other stakeholders for their warm hospitality and insightful and candid discussions.”