Ashgabat, Turkmenistan, April 8
By Huseyn Hasanov– Trend:
The gross domestic product (GDP) of Turkmenistan will be 5.6 percent in 2019 and 5.1 percent in 2020 compared to 6.2 percent in 2018, Trend reports citing the WB Europe and Central Asia Economic Update.
Turkmenistan’s public debt in 2019 will be 31.2 percent of GDP, compared with 29.9 percent in 2018. According to the bank’s report, the inflation rate in the Caspian littoral country will decrease slightly in 2019 and will reach 6 percent compared to 7.2 percent in 2018 and 10.4 percent in 2017.
Improved terms of trade and continued strong Chinese demand for natural gas helped to sustain the strong rate of economic growth. Strong Chinese demand, coupled with surging natural gas prices (up by over 30 percent in 2018 year on year), boosted export earnings by almost 50 percent.
On the other hand, public and private investment fell sharply (by 26 percent) in the context of fiscal consolidation, lower inflows of foreign direct investment and weaker credit expansion.
Foreign investment continued to drop owing to challenges in the foreign exchange market and the economy’s weaker growth prospects. Throughout 2018, the authorities continued to impose tight foreign exchange controls on international trade and access to hard currency reduced in early 2018.
Although strong export earnings served to ease pressure on the exchange rate in mid- 2018, pressures remained elevated. Market trends suggest overvaluation of the official manat rate.
The official exchange rate of the Turkmenistan manat to dollar from January 2015 remains at the level of 3.50 Turkmen manats.
Ongoing high level talks with the Russian Federation may result in the resumption of natural gas sales to Russia.
Policies aimed at fostering private sector development and economic diversification could gradually promote non-hydrocarbon sectors and contribute to inclusive growth.
The authorities are likely to adhere to the exchange rate peg and considerations to adjust the national currency will largely depend on the evolution of public sector foreign liabilities.
External and domestic risks to the economy will remain elevated.
A sudden drop in hydrocarbons prices would significantly reduce economic growth prospects. Other external risks include the escalation of trade tensions or the tightening of global liquidity, which could result in a sudden deceleration in economic growth in Turkmenistan's trade partners.
Liberalizing business regulations and easing foreign exchange controls will be necessary to improve investor confidence.
The social consequences of the reform should be considered, and a distributional analysis performed, together with mitigating measures to protect vulnerable households through a well-targeted social protection mechanism.
Turkmenistan recently reversed a long-standing policy of providing free water, electricity, natural gas, and housing.
According to a report by British Petroleum (BP), Turkmenistan ranks fourth in the world in terms of natural gas reserves and currently exports it to China and Iran.
The country set a course for diversifying the local economy. The oil, gas, chemical, and building material industries are actively developing.