Economy

Growth rate projections for tightly controlled Turkmenistan are almost certainly going to be unreliable as they would necessarily be based on the official gathering and presentation of statistics—and they always amount to an illusion of an expansion that hardly ever shrinks. Thus the observer is typically left sorting through forecasts that can only attempt to predict the general trajectory of the Turkmen economy and anecdotes (when you hear of people asked to present their passport for a purchase of bread or having to travel to Uzbekistan to obtain hard currency you know things are not quite as rosy in the garden as the guardians of the regime portray).

Turkmenistan, GDP growth. Source: World Economic Outlook, IMF DataMapper.

In the January 2020 edition of its Global Economic Prospects report, the World Bank settles on 5% for its estimate of GDP growth in Turkmenistan in 2019, down from 6.2% in 2018. In the previous edition of the report, issued in June last year, it was predicting 5.6%. For 2020, the World Bank is now forecasting 5.2%, 0.1 pp more than it was anticipating six months ago. The data was put out by the international financial institution with a paucity of statistics to back it up. It’s not hard to imagine why. In one reference to Turkmenistan the report refers to “data limitations [that] prevent the forecasting of GDP components”.

Is President Berdimuhamedov sitting on a catastrophe? (Photo source: Kremlin.ru).

Assessing how dire things are for ordinary Turkmen citizens right now is thus quite the challenge (in July last year British think tank Foreign Policy Centre painted the direst of pictures, saying Turkmenistan was “teetering on the edge of catastrophe” and warning investors that they should be careful about associating themselves with the isolated nation), but their country is essentially still experiencing a budgetary crisis that began in 2015-2016 when weak and volatile prices began plaguing the hydrocarbons sector and Turkmenistan’s gas export-dependent economy. Shortages of basic goods and ATMs that won’t dispense cash appear commonplace. Fights with neighbouring Iran and Russian behemoth Gazprom over the pricing of Turkmen gas exports and alleged historical supply debts worsened the extent of the country’s economic plight as known to (but not relayed by) President Gurbanguly Berdimuhamedov’s beancounters. The Gazprom row led to the suspension of all Turkmen gas exports to Russia. They were only restarted last year.  

The Asian Development Bank (ADB) sees Turkmenistan’s 2019 growth as coming in at 6%, while it has pencilled in 5.8% for 2020, according to its Asian Development Outlook (ADO) 2019 report. A further recovery in the hydrocarbons account was expected to have helped Turkmenistan’s industry expand by 6%–7% on the supply side, the ADB added. This was seemingly supported by gains in agricultural processing, light industry, food products, construction materials and chemicals—all targets of the government’s import substitution policies.

The government, meanwhile, has announced state support for farmers. It should trigger an expansion in agriculture. The ADB forecasts Turkmen agricultural expansion at 4% for both 2019 and 2020. The country’s agricultural sector is also expected to benefit from raised government procurement prices for wheat and cotton. They were increased by 100% and 50%, respectively, in January 2019.

The ex-Soviet state’s service sector is projected to grow by 5%–6% annually.

The ADB expects Turkmenistan’s inflation rate to decelerate slightly but remain near double digits, due to foreign exchange shortages and related price adjustments. Turkmenistan’s external position is seen as deteriorating in 2019-2020 while still benefiting from the expected gradual re-expansion of natural gas exports. Ashgabat, it is also thought, will continue to combat inflation by limiting foreign exchange conversion, supporting import substitution and maintaining a fixed exchange rate and administrative price controls.

Turkmenistan’s inflation rate, according to official figures, registered at 9.4% in 2018 and was regarded thereafter as trending towards 7%. The much higher real inflation rates being experienced by the consumer out there is an entirely different matter. “Official” remains the watchword.

In the World Bank’s Europe and Central Asia Economic Update for autumn 2019, the slowing growth in Turkmenistan was partly attributed to projected declines in natural gas prices and softening global demand for energy resources, with the global economy, including China and Russia, projected to decelerate across 2019-2020. 

“Policies aimed at fostering private sector development and economic diversification should be prioritized to promote non-hydrocarbon sectors and contribute to inclusive growth,” the World Bank has said. “Inflationary and exchange rate pressures are expected to remain as hydrocarbon earnings decline. The authorities are likely to adhere to the exchange rate peg. Considerations to adjust the national currency will largely depend on the evolution of public sector foreign liabilities.”

Another growing worry when it comes to Turkmen growth is climate change. Some analysts see vast areas of the country turning arid. Central Asia is one of the world's most climate vulnerable regions and preliminary reports have indicated that the annual economic growth of Turkmenistan, as well as that of regional neighbours Tajikistan and Kyrgyzstan, could not so long from now fall significantly due to natural disasters.

Looking at Turkmenistan’s external position, it is expected to deteriorate in 2019-2020 but still benefit from the mentioned forecast expansion of natural gas exports over the long term. 

Incentives for strong FDI flows cannot be expected in the near future due to insurmountable challenges associated with the expatriation of profits from Turkmenistan. A medium term fiscal consolidation by the government, on the other hand, can be expected as it seeks to rebuild depleted policy buffers.

“The expansion of public investment in strategic infrastructure using off-budgetary funds cannot be ruled out,” the World Bank noted. 

Turkmenistan (red) vs Central Asia & Caucasus, Current account balance, % of GDP. Source: World Economic Outlook, IMF DataMapper.

Turkmenistan's current account balance, according to official figures, was recorded at a deficit of $1.17bn in 2019, compared to the surplus of $1.39bn registered in 2018.

The country's external debt widened to $907mn in 2018, from $781mn in 2017. This upward trend is likely to continue in 2019 and 2020.

Business

As mentioned, Russia resumed importing natural gas from Turkmenistan last year following a three-year stoppage. The size of the imports outlined when they were started—in April—stood at 1.155bcm, accounting for supplies over a period of approximately three months.

In July, Russian gas producer Gazprom signed a five-year contract with state-run gas exporter Turkmengaz to purchase natural gas. According to the agreement, Turkmengaz is set to supply up to 5.5bcm of natural gas per year.

When Gazprom suspended Turkmen gas purchases in 2016, it was already only importing around 4bcm of gas per year from Turkmenistan. That compared as small to Turkmenistan’s annual gas exports to China. They currently stand at 40bcm. The 5.5bcm volume to be shipped by Turkmengaz may not prove as highly significant to the ailing Turkmen economy as pre-2015 flows. Back then, Russia was importing 10bcm per annum from Turkmenistan.

The restart of gas exports to Russia also does not address Turkmenistan’s economic over-reliance on China, by far the biggest importer of Turkmen gas. The Central Asian nation has been attempting to diversify its export destinations via several projects, chief among them being the much-delayed Turkmenistan–Afghanistan–Pakistan–India Pipeline (TAPI). 

Reports from December showed that Turkmengaz had hired Italian consultant RINA for the construction of its section of TAPI. RINA will act as a technical consultant under a $13mn contract for supervision and project support services for TAPI’s 214-km Turkmen gas pipeline section. RINA will also help with the construction of two compressor stations. Up to 50 RINA personnel will be working with Turkmengaz.

The $10bn TAPI project aims to provide up to 33bn cubic metres per year of gas from fields in eastern Turkmenistan to Afghanistan, Pakistan and India. Its Turkmen portion is expected to cost $1bn.

Though Turkmenistan formally broke ground on the pipeline in December 2015, only limited ground work appears to have taken place, despite claims to the contrary by Turkmen officials. The Turkmen-led TAPI operating consortium even announced in 2018 that the Turkmen section had been finished, with the bulk of the work moving to the Afghan section of the pipeline. Yet only in April 2019 did Turkmenistan award a contract to Russian pipe mill Chelpipe to supply the entire 214 km of pipes needed for the Turkmen section, casting doubt on official claims about the pipeline’s completion.

TAPI is due to reach its financial close in early 2020 and no evidence exists that Turkmenistan has been able secure the investors it needs. War-torn Afghanistan and geopolitical tensions between Pakistan and India make TAPI a testing project to carry out, though to everyone’s surprise in 2018 the Taliban expressed their support for the project, promising to help make it a reality in Afghanistan in exchange for jobs.

Turkmenistan, however, is known for lacking contractual sanctity. Several reports from recent years have indicated foreign companies waiting in vain for payment on completed projects. This makes any potential Turkmen projects seem increasingly less realistic in terms of attracting foreign involvement and support. 

Other reports from December revealed that Armenia was negotiating a purchase of natural gas from Turkmenistan as part of a gas swap deal with Iran. Such a proposed use of the swap system implies that the Turkmen would supply gas to northern provinces of Iran, which are not well connected to the Iranians’ domestic gas grid, while the Iranians, in turn, would supply gas to the Armenians. If the deal goes through, Turkmenistan may gain another destination to diversify its gas exports. 

In January last year, it was reported that Turkmenistan had launched the construction of a four-lane, $2.3bn country-spanning highway aimed at generating more regional trade. The road will link the capital Ashgabat to Turkmenabat, a town bordering Uzbekistan. The 600-km highway across desert lands is expected to also connect, via Ashgabat, to another planned road stemming from the Caspian Sea port of Turkmenbashi. As neighbouring Uzbekistan is presently opening up its economy by removing barriers to foreign trade and investment, Turkmenistan will be in a position to offer it access to the sea port. Uzbekistan would be able to ship its commodities exports, mostly consisting of gold and cotton, via Turkmenbashi to ports in Russia, Iran and Azerbaijan.

The Turkmenbashi port infrastructure, launched in 2018, was reportedly set to boost Turkmenistan’s revenues from handling traffic on north-south shipping routes, tripling the country’s annual cargo handling capacity to 25mn-26mn tonnes.

Another notable project includes a railroad linking Tajikistan to Turkmenistan via Afghanistan. This project is attempting to connect Tajikistan to the Turkmen sea port. Joint Turkmen and Tajik projects are a rare sight, but with neighbouring Uzbekistan’s President Shavkat Mirziyoyev jump-starting attempts at fostering regional cooperation, the other “stans” have been more active attempting to interlink their economies.

Politics

No meaningful political changes are expected to take place in 2020 with President Gurbanguly Berdimuhamedov continuing to wield absolute power. Continuous changes made to the legislative branch have been little more than cosmetic under Berdimuhamedov, with the latest move being the announcement in September that the Khalk Maslahaty, a legislative body made up of community elders, will be converted into something akin to a senate. Any meaningful opposition in the country has been brutally suppressed.

The government’s latest big focus has been an anti-corruption campaign. But don’t strain your eyes looking for any genuine changes.

Underlining sensitivities in this area, there are reports that eyebrows were raised among the Turkmen establishment by the choice of the name “Turgistan” for a fictional country portrayed by the makers of Netflix action thriller “6 Underground”. It was premiered in New York in December and tells the story of an American tech billionaire who fakes his own death to form an anonymous vigilante squad that takes down criminals and terrorists that governments won’t touch. State symbols of Turgistan bear a striking resemblance to those of Turkmenistan, residents of Turgistan seem to speak Turkmen and have Turkmen names and the Turgistan leader's first name—Rovach—is the same as the favourite stallion of equine-mad Berdimuhamedov. Netflix is banned in Turkmenistan.

Several people in Turkmenistan, speaking on condition of anonymity, told RFE/RL last year that waves of sackings and imprisonments of government officials were “staged” in order to prove that the authorities were serious about fighting corruption. But in reality they proved nothing of the kind. It’s quite clear that Turkmenistan's economy started struggling after low world oil and gas prices set in and gas export contracts were lost. But officials have often shifted the blame for economic woes to outbreaks of corruption among out of favour peers.

The most recent cases of this included the conviction of former Turkmen interior minister Isgender Mulikov for the alleged abuse of his power and corruption. While Mulikov’s confession was shown on television, no actual details of any sentence Mulikov may have received were subsequently announced.

Berdimuhamedov has ordered the State Security Council and the Mejlis (parliament) to draft a new edition of the anti-corruption and anti-bribery programme, the State News Agency of Turkmenistan reported in October.

In a boost to the neverending procession of rumours that Berdimuhamedov, 62, is grooming his son, Serdar Berdimuhamedov, 37, to replace him as president, Serdar was appointed governor of Turkmenistan's central Ahal province in June. Serdar headed a parliamentary committee on legal affairs in 2017-2018 and was appointed as a deputy foreign minister in March 2018. No major developments are expected on the succession front in 2020, but speculation doesn’t go away. 

In this respect the rumour mill was fuelled last July when unofficial sources began to claim that Berdimuhamedov had died of “acute kidney failure” after the strongman appeared to go on holiday and then missed some relatively important events. Berdimuhamedov—said to be the only dentist throughout history who has been made the president of a country—turned out to be alive and well, but suspicions over him potentially needing increased medical attention continue to do the rounds. The government takes a dim view of this sort of thing. It has cracked down on anyone suggesting the president might be suffering from health issues. What officials might do with John Oliver’s Last Week Tonight show if they had jurisdiction doesn’t bear thinking about—it put together a blistering takedown of Berdimuhamedov and his cult of personality, taunting the lover of Guinness world records with the “world’s largest marble cake” frosted with an image of him being thrown from his horse.

Last year, the Washington-based Freedom House NGO assessed Turkmenistan as among the worst countries worldwide for political freedom and civil liberties, giving it a score of 2 out of 100 on a scale where 100 points signify the “Most Free” nations. So-called elections held by the republic are never deemed free or fair by Western monitors. Last time he went to the people, in February 2018, Berdimuhamedov won his third consecutive presidential term with 97% of the vote.