Turkmenistan

Public investment eases gas reform

Growth will be modest in 2024, as in 2025, and will mainly derive from public investment, as gas production, on which the economy is largely based, is expected to stagnate due to the saturation of gas pipelines to China. Furthermore, revenues will suffer from the erosion of world prices.

One of the government's main objectives remains the diversification of the economy through infrastructure development. In April 2024, a new motorway linking the towns of Mary and Tejen was inaugurated as part of the 370-kilometre network connecting the capital Ashgabat to Turkmenabat. In addition, the government's 2022-2028 socio-economic development programme provides for the construction of new health centres, schools, cultural centres and residential complexes, as well as the continued development of the new “smart” city of Arkadag, in partnership with the United Nations. Investment will continue to come mainly from the public sector. Domestic private investment is low, while foreign investment is concentrated mainly in the energy sector. Increased gas production and exports depend largely on foreign decisions.

Inflation is gradually returning to its usual high level after the exceptional deflation of 2023 related to reopening after lockdown. The import substitution policy, which reduces the volume of food imports, is causing shortages due to inefficient agricultural planning and poor weather conditions. Inflationary pressures are also fueled by the annual 10% increase in wages and pensions in the omnipresent public sector. Monetary policy, which is limited by the credit tap, is rudimentary and as such, the government will continue to control prices and provide food rations to the population. Households derive very little direct benefit from hydrocarbons. Consumption remains sluggish as it is curbed by inflation and also unemployment and low incomes.

Comfortable sovereign position

The current account should remain in surplus in 2024, as well as in 2025, due to the trade surplus generated by exports of hydrocarbons and their durably high global prices. However, the surplus is tending to decline with the downward trend in oil production, the erosion of hydrocarbon prices and the decline in expatriate workers' remittances. The situation is the result of Turkey's decision in September 2022 to cancel visa exemptions for Turkmen citizens. Turkey (which is the main destination for Turkmen migrants) introduced the measure at the request of Turkmenistan, anxious to reduce the activism of its nationals abroad in favour of respect for human rights in their country of origin. Notwithstanding the reduction in the current account surplus, the sovereign wealth fund will continue to grow, despite the fact that it already represents the equivalent of 55 months of foreign liabilities, or 55% of GDP.

Fueled by revenues from gas exports, the public accounts show a slight surplus. Despite the expected fall in world hydrocarbon prices and the increase in capital expenditure, notably linked to the development of the smart city of Arkadak, the surplus is expected to continue into 2025. Non-hydrocarbon revenues are increasing, while the authorities are showing a degree of prudence in spending, but which does not rule out lavish spending, for example on commemorative monuments. In May 2024, a new 80-metre bronze statue (the largest in the world) representing one of the country’s leading poets, was erected in Ashgabat. The country's near-balanced budget owes much to transfers from the Stabilization Fund (11% of GDP), which in turn is financed by the profits of numerous state-owned companies, notably in the energy sector. Public debt, which is denominated entirely in foreign currencies, will remain low.

Economic agents have limited access to foreign currency due to government restrictions on its sale, storage and transfer. These restrictions have led to the emergence of a parallel foreign exchange market, where the rate differs considerably (more than 5 times) from the official rate. Since May 2020, all foreign currency entering the country must be exchanged at the official rate and transferred to the Sovereign Wealth Fund, which represents nearly 55 months of current foreign payments. This ensures that the official rate is pegged to the dollar, but does not guarantee sufficient access to the dollar at this rate.

Autocratic regime keen to diversify its economic partners, but still dependent on China

Turkmenistan's main trading partner by far is China (representing 71% of exports). Turkmenistan supplies gas to China via the 1,833-kilometre Central Asia-China Gas pipeline network, which comprises three branches, A, B and C. A fourth, D, is currently under construction.

Turkmenistan is seeking to diversify its gas customer base. In July 2024, a contract was signed with Iran for the export of an additional 10 billion cubic meters of Turkmen natural gas per year, which Iran will then send to Iraq. In this context, Iran has announced the construction of a new 125-kilometre cross-border gas pipeline. In addition, in March 2024, Turkmenistan and Turkey signed preliminary agreements to strengthen their cooperation to transport gas to Europe via Turkey. Transport should take place via Azerbaijan and the Trans-Caspian Pipeline (TCP) project, although the latter, which has been planned for 25 years, remains uncertain due to logistical delays and Russian opposition. In addition, in July 2024, a Pakistani-Turkmen ministerial meeting was held to discuss speeding up the development of the Turkmenistan- Afghanistan-Pakistan-India (TAPI) gas pipeline, which is experiencing delays due to the lack of funding and the unstable security situation in Afghanistan. Turkmenistan is also on several major trade corridors, such as those linking China to Europe via the Caucasus and Turkey, or Russia to the Persian Gulf via Iran. Furthermore, at the summit of the Organization of Turkic States (OTS) in July 2024, Turkmenistan renewed its application to become a full member of the organisation, having joined as an observer in 2021. Last, Turkmenistan will continue to follow its traditional policy of strict neutrality while seeking to mitigate potential threats from Afghanistan, on which it depends for its water resources and the future passage of its gas to South Asia.

In 2022, Gurbanguly Berdymukhamedov, who had ruled Turkmenistan since 2007, handed his Presidency to his son Serdar as part of an orchestrated transition. However, the former president retains considerable influence over domestic policy due to the creation of the "Halk Maslahaty" or "People's Council", an unelected body which he heads, and which constitutes a centre of power parallel to the Presidential administration, thus weakening the authority of the current President. Last, the omnipotence of the state, the absence of civil liberties and repression continue, notwithstanding the discontent accentuated by the harsh living conditions illustrated by food rationing.

Last updated : August 2024