Turkmenistan: Risk Assessment
Country Rating1
Rating: D
Business Climate Rating1
Rating: D
Risk Assessment2
Increased and more diversified gas exports
The Turkmen economy resumed strong growth in 2010. The energy sector benefited first from the rebound of world hydrocarbon prices. Furthermore, although the volume of gas exported to Russia remained low in the aftermath of the dispute between the two countries in 2009 (about 10°billion cubic meters exported in 2010 compared to over 40 billion in 2008), the opening of two new pipelines to China and Iran has paved the way for increasing gas exports and has bolstered sector production. This will likely continue in 2011 with hydrocarbon exports growing and proving more diversified than they have been in the past. The non-energy sector, meanwhile, will continue to benefit from the huge investments made by the government in the country's infrastructure and will enjoy strong growth. The large FDI inflows since President Gurbanguly Berdymukhamedov took office in 2007 are also expected to continue.
Solid public and external accounts
Hydrocarbon export revenues fund relatively debt-free public finances. Although public debt will likely grow in coming years, it will not exceed the balance of assets in the Stabilisation Fund. And the new debt is associated with development of new gas fields that will generate revenues in foreign currency that will cover the debt service. Public financial accounts management - particularly opaque -is moreover expected to be overhauled in 2011. The many extrabudgetary revenues, especially a high proportion of the gas wealth, and expenses will henceforth be consolidated in the fiscal budget. Turkmenistan moreover has very large foreign exchange reserves that were relatively unaffected by the current account deficit in 2009 thanks to the massive capital inflows into the country.
State omnipresence and persistent governance shortcomings
Although the cult of personality exploited by former president Saparmurat Niazov has since been dropped, the political regime remains marked by centralisation. President Gurbanguly Berdymukhamedov maintains that he is in favour of making some progress on liberalisation. The Turkmen state remains very present, however, in all economic sectors via company ownership, price control, and still restricted access to foreign currencies. Almost all banks are state-owned and 80% of loans to the economy are directed lending including about 20% granted directly by the central bank. These practices generally tend to undermine economic efficiency and result in very poor quality assets, which could weaken the banking sector. Governance and the business climate moreover remain largely deficient: Turkmenistan is ranked no better than 198th of 212 countries on five of the six governance indicators used by the World Bank.
Strengths
- 4th largest natural gas reserves in the world
- Diversification of export channels with the opening of new pipelines to China and Iran
- Current surpluses and creation of a stabilization fund
- Low levels of indebtedness
- Very large foreign exchange reserves
Weaknesses
- Small-size enclosed economy
- Low economic diversification and dependence on Russian demand for gas
- Poorly developed banking sector
- State interventionism and difficult business environment, and poor governance indicators