Macroeconomic performance

Economic growth remained strong at 10.2 per cent in 2013. Growth was driven mainly by increasing gas exports, thanks to alternative export routes to China and Iran, and high public investments contributing to non-hydrocarbon GDP growth. The industry sector, accounting for about half of GDP, expanded by 7.3 per cent in 2013, services grew by 13.9 per cent and agriculture expanded by 10 per cent. Capital investments from all sources increased by 7 per cent in 2013, while foreign direct investment remained broadly constant. Trade turnover increased by 2.4 per cent, while exports decreased by 5.7 per cent and imports rose by 13.8 per cent. In the first half of 2014 growth stood at 10.3 per cent. Overall production increased by 13.5 per cent and retail trade turnover grew by 18.3 per cent in the first half of 2014.

Inflation averaged 6.8 per cent in 2013. Inflation has since slowed to 2.4 per cent in the first quarter of 2014. The exchange rate continues to anchor monetary policy and remains firmly pegged to the US dollar, supported by large international reserves of around 90 per cent of GDP.

The fiscal position remains in surplus. This outcome was supported by the over-performance of revenues, with tax revenues mainly coming from hydrocarbon exports. Government external debt has increased to around 21 per cent of GDP in 2013 compared with 18 per cent in 2012. Strong credit growth (of around 30 per cent) has been driven mostly by state-supported lending programmes financed by stabilisation funds that have offset a slow-down in directed lending by the central bank. Nonetheless, credit to the private sector has also been growing rapidly, albeit from a very low base, partly due to state-subsidised lending programmes for small and medium-sized enterprises (SMEs) and agriculture.

GDP growth is likely to remain in the double digits in 2014. A new gas field is being developed in the country, contributing further to economic growth. The growth rate in 2015 and in the foreseeable future is expected to remain at the current level. The slow-down in Russia is expected to have an impact on GDP growth, but it is likely to be limited.

Major structural reform developments

Turkmenistan remains at an early stage of transition. The state continues to play a dominant role in all sectors of the economy. Private sector development is still constrained by the weak business environment, despite some recent deregulation. In particular, since October 2011 local private SMEs can open foreign currency accounts to conduct import/export operations without needing a licence or permission from the Cabinet of Ministers.

A commission on privatisation of state property was established. In August 2014 the Turkmen President signed a decree to establish a central committee at the Ministry of Economy and Development for the execution of the law on denationalisation and privatisation of state property. Under the decree, the Ministry was ordered to carry out the functions required to ensure control over the execution of denationalisation and privatisation contracts, and the purchase and sale of state property.

Parliament approved and adopted a draft law aimed at fighting corruption. Turkmenistan’s ranking in Transparency International’s Corruption Perceptions Index 2013 is very low, placing the country at 168th out of 177 countries. The new anti-corruption law, which was adopted in March 2014, sets out the main principles for fighting corruption, including the legal and institutional framework to identifying, warning against and combating it, as well as outlining the penalties for corruption offences.

Turkmenistan is taking further steps towards World Trade Organization (WTO) accession. In 2013 a state commission on joining the WTO was established to study WTO agreements and rules, analyse the potential impact of WTO accession on various sectors of the economy, prepare proposals and participate in WTO-led forums. Joining the WTO may require liberalisation of the current foreign investment regime as well as certain trade regulations. At the same time the country already has one of the lowest average tariff rates for imported goods.

IFRS were introduced in 2014, following a year of IFRS reporting by banks. This is a welcome move to a greater openness and transparency in corporate activities.

Efforts have been made to promote the use of credit cards. In accordance with the agreement between the State Bank for Foreign Economic Affairs of Turkmenistan and MasterCard (USA), designs for four different categories of MasterCard were approved in April 2014. Turkmenistan is also working on encouraging non-cash payments in trade and services, and the online sale of air and rail tickets.