Catalog

	Table of Contents
p. 49 of 77 BACK | NEXT Foreword, Acknowledgments, Acronyms and Abbreviations, Definitions I. Developing Asia and the world II. Economic trends and prospects in developing Asia East Asia Southeast Asia South Asia Central Asia Azerbaijan Kazakhstan Kyrgyz Republic Tajikistan Turkmenistan Uzbekistan The Pacific III. Promoting competition for long-term development Statistical appendix

Asian Development Outlook 2005 : II. Economic trends and prospects in developing Asia : Central Asia

---

Turkmenistan

Official statistics indicate that the economy continued to grow very rapidly in 2004. The ongoing expansion of energy production and exports will underpin economic activity and ensure reasonable growth in the medium term. However, more broad-based and equitable growth requires greater reliance on macroeconomic management and structural reforms.

Macroeconomic assessment of 2004

According to official statistics, gross output (used as a proxy for GDP) grew by 21% in the first 11 months of 2004, only slightly down from 23% in 2003. This contrasts with IMF’s estimate of 7.5% growth in GDP for the whole of 2004. The difference in growth rates exemplifies the difficulties in using available statistics for assessing economic development. Government figures showing the breakdown of gross output by main economic activity are not available for 2004. Figures for 2003 indicate that gross industrial output (including gas extraction, oil extraction, and oil refining) grew by 22.0%, agriculture by 20.2%, and services by 18.5%.

On the expenditure side, growth continued to be driven by domestic investment, which for the first 11 months of 2004 reached TMM15.6 trillion (15.6% of gross output), up by 15% from the same period of the previous year. The priority areas were, as before, oil and gas extraction, petrochemicals, electricity generation and transmission, textiles, and luxury housing. The share of foreign capital in total investment in the country increased from 6.0% in 2003 to 9.2% in 2004, due to the nearly fivefold increase in the amount of foreign credits in domestic investments.

The Government has not released inflation figures for 2004, although IMF estimates 5% for 2004 as a whole, which is in line with the ADO 2004 forecast. At end-December 2004, the official exchange rate remained pegged at TMM5,200/$1 (as it has been since 17 April 1998), but the parallel market rate rose to TMM24,500/$1 from TMM20,000/$1 in 2003, due to a scarcity of foreign exchange. This depreciation led to significant price increases for most imported goods.

The average monthly wage rose by 12% to TMM1.8 million (equivalent to $346 at the official rate of exchange) in 2004 due to improved conditions for activity outside the state sector and the development of private entrepreneurship (the private sector’s share of GDP is about 25% according to the European Bank for Reconstruction and Development). In industry, transport, and construction, the average wage increased to TMM2.0 million a month. Official unemployment figures are unavailable. However, there are indications that a rise has occurred in unemployment, reflecting a public employee retrenchment program begun in February 2003 that sought to reduce public sector spending.

The state budget deficit, according to official figures, amounted to TMM12.2 billion, equivalent to less than 1% of GDP. Of total expenditures in 2004, the bulk went to social and public services, mainly education (27.8% of total expenditures) and health care (12.5%). However, the budget does not capture the true scale of government operations, since many state spending commitments are carried out through extrabudgetary funds, which are not reflected in the official figures.

The total trade surplus for the first 11 months of 2004 narrowed to $546 million from $918 million in the same period in 2003. Exports rose to $3.4 billion, a 9% same-period increase, mainly due to high world prices for energy products and cotton fiber. There was a relative increase in the share of high-value exports, such as refined oil products, textiles, and cotton fiber, whereas the share of natural gas and crude oil in total exports declined. The commodity composition of imports changed little, with capital goods and raw materials accounting for 64% of total imports. Ukraine remained the largest trading partner (72% of all gas exports and 34% of total exports). A notable reorientation of trade away from countries in the Commonwealth of Independent States toward other countries was seen during 2004.

Determination of poverty is difficult, since there is no official poverty line and the figure for the subsistence minimum is kept strictly confidential. Nevertheless, income inequality appears to be the worst among the Central Asian republics, according to a recent living standards survey conducted by the National Institute of State Statistics, which indicates that the country has a Gini coefficient of 0.39.

Macroeconomic policy developments

Central planning and management persist. Production targets, mandatory state procurement, directed bank credits, foreign exchange restrictions, and intergovernment trade arrangements continue to be used by the Government. Key sectors, including oil and gas, remain in state hands. A central element of social protection is the provision to the entire population of basic services, goods, and utilities (e.g., electricity, gas, and water) free of charge, or at heavily subsidized prices.

The Government has now completed a full year of the implementation of its Strategy for Turkmenistan’s Economic, Political, and Cultural Development for the Period up to 2020. This 2020 Strategy sets ambitious production targets for all sectors of the economy, to be supported by state-led investments. Initial implementation results seem, however, mixed at best. On the production side, the Government appears to have achieved its wheat target under the strategy; however, only one third of the cotton production target was met. In an effort to revive the flagging agriculture sector, the People’s Council adopted new land and water laws in October 2004, though most observers believe that these new initiatives are unlikely to greatly improve the situation.

The Government adopted an investment program covering the period mid-2004 to end-2005. Although specific details of the program are lacking (the Government considers it confidential), press reports indicate that the program included a total of 442 projects amounting to more than $6 billion for the 18-month period. In 2005, the program reportedly plans that 244 projects will be implemented, in the amount of $4.8 billion.

A balanced state budget was approved for 2005, with both revenues and expenditures set at TMM76 trillion ($15 billion at the official exchange rate). Under the budget, the Government continues heavily subsidized provision of basic services, goods, and utilities. Revenues from taxes contribute only a low share of government income--less than 25% in the 2005 budget--in part because of widespread tax exemptions for state enterprises, which in practice means the majority of the economy. Moreover, revenue collection measures are ineffective, with tax revenues in 2003 coming in at less than half of the amount targeted. The People’s Council approved a new tax code at its October 2004 session. This is intended to streamline the tax system, though the majority of commentators do not believe that this will be very successful in boosting revenue collection.

More job cuts are expected in the public sector, as an offset to plans to increase salaries by 50% in January 2005. This would be the third major job-cut drive in the last 4 years. Earlier redundancy programs concentrated on health care and education, while other areas of government remained relatively unaffected. This time the cuts appear to be across the board. The increase of salaries at the expense of jobs will add to unemployment, as the fledgling private sector will be unable to absorb the released workforce.

In terms of energy policy, the existing long-term intergovernment agreement on gas shipments to Ukraine was renegotiated in January 2005. Gas prices, previously fixed at $44 per 1,000 cubic meters (m³) and 50:50 barter/cash transactions, were increased to $58 per 1,000 m³. Although a similar long-term agreement is in place with the Russian Federation, negotiations to increase gas prices have been inconclusive. The current agreement stipulates a gradual increase of gas shipments from 5 billion m³ in 2004 to 80 billion m³ in 2028, though the throughput capacity of the old Central Asia-Centre (CAC) pipeline will be unable to accommodate the expected volumes of gas without the rehabilitation of the entire pipeline system. Even if upgraded and modernized in the future by Gazprom (the Russian company that has announced a rehabilitation of the CAC pipeline), the growing gas export potential of Uzbekistan could significantly impinge on the pipeline capacity that could be devoted to gas exports from Turkmenistan.

Thus the continued expansion of gas exports faces major constraints. Consequently, the Government has been searching for alternative ways to secure the export of its gas, including via Afghanistan, for example by participating in the Turkmenistan-Afghanistan-Pakistan (TAP) Natural Gas Pipeline Steering Committee. It is also concluding the certification of the Dauletabad gas field reserves, and the results will be an important factor in determining the final economic feasibility of the TAP pipeline.

Outlook for 2005-2007 and medium-term trends

Analysts share a general consensus that growth prospects will be quite good over the short run. ADO 2005 forecasts slowing GDP growth of 10.0% in 2005, 7.0% in 2006, and 6.3% in 2007. This reflects expected declines in world oil and gas prices, which are likely to more than outweigh the anticipated increase in the Government’s oil and gas production and exports, against a background of slowing export earnings that will limit investment and growth.

The Government has not released information on its new 2005 targets for natural gas and oil production. The Government’s 2020 Strategy has indicated that natural gas production should increase to 67 billion m³ in 2005, of which 53 billion m³ are for export. Likewise, crude oil production according to the 2020 Strategy should increase to 18 million tons. Many commentators consider these government targets somewhat ambitious. Nevertheless, the production and export of natural gas, crude oil, and petrochemicals products are likely to increase substantially in 2005-2007, as are the production and export of electricity. In contrast, agricultural production is likely to stagnate (in the case of cotton this is already the case), unless the Government initiates much-needed sector reforms, including the dismantling of the existing mandatory state procurement system.

Inflation is expected to be kept to about 5% by a combination of tight monetary policy, subsidies, price controls, and cash restrictions. The official exchange rate is likely to remain fixed at TMM5,200/$1, and the parallel market rate broadly stable at around TMM25,000/$1.

The total trade surplus is forecast to widen further in 2005. Exports will rise, mainly due to an increase in the volume of energy exports. Imports are also projected to strengthen, in part because most of the country’s natural gas is exported under the barter arrangements, and in part because of the ongoing construction of large-scale projects.

The anticipated rapid output growth, macroeconomic stability, and trade surpluses will have only a limited positive impact on the living standards of the majority of the population. The reason is that few new jobs will be created, while much of the additional national income will be invested in state-led projects of questionable economic and social value.

Furthermore, the economy will remain vulnerable to possible swings in world energy prices, bottlenecks in export routes, and possible delays in payments for deliveries of natural gas by its major trading partners. A sharp fall in world oil prices or constraints on increased exports of natural gas due to the limited throughput capacity of existing pipelines would have a major adverse impact on exports, output growth, and the Government’s fiscal position. Finally, growth based on exploitation of natural resources is likely to be short lived, if the experience of many other resource-rich countries is repeated. Therefore, in order to foster broad-based sustainable and equitable growth, the Government needs to rationalize public expenditures, halt--and then reverse--the negative developments in the country’s human capital base, and embark on structural reforms to diversify the economy.

Back Tajikistan	Next Uzbekistan