Statement at the Conclusion of an IMF Staff Visit to Turkmenistan
Monday 6 August 2012
WASHINGTON (IMF press service) – An International Monetary Fund (IMF) mission led by Mrs. Veronica Bacalu visited Ashgabat on July 18-25, 2012 to discuss recent economic developments, government policies, and prospects for the economy of Turkmenistan. The discussions paved the ground for the next Article IV Consultation, tentatively scheduled for spring 2013.
The IMF team met with senior central bank and government officials, and representatives of commercial banks and international financial institutions. The mission thanks the authorities for their cooperation and productive discussions. At the conclusion of the mission, Mrs. Bacalu issued the following statement:
The economy performed well in 2011 and the first half of 2012. Increasing gas exports to China and a surge in public investment enabled a strong gross domestic product (GDP) growth of 14.7 percent in 2011. With record growth in gas export volumes and prices, and a surge in oil prices, export revenue surpassed the pre-crisis level. The current account swung into surplus, and official reserves remained at a comfortable level, supporting the stability of the manat. Headline inflation increased from 4.8 percent (end-of-period) in 2010 to 5.6 percent in 2011, but moderated to 3 percent in June 2012.
In 2012−13, real GDP growth is projected to remain strong, at about 8 percent. Greater hydrocarbon exports would strengthen the external position further. Inflation is expected to remain in single digits. Direct economic spillovers to Turkmenistan from the euro area crisis are likely to remain limited.
Fiscal policy was somewhat loosened in 2011 as the non-hydrocarbon fiscal deficit widened by one percentage point to 48 percent of the non-hydrocarbon GDP, but is projected to improve slightly in 2012−13. High levels of public investment, while aiming at increasing productive capacity, continues to pose challenges to public finance management. Although the doubling of proven gas reserves implies that the non-hydrocarbon deficit would likely remain at sustainable levels even if gas prices halved, caution in public spending is needed to avoid inflationary pressures.
Improving both the use and management of growing hydrocarbon resources is key to maintaining macroeconomic stability and ensuring rapid sustainable growth. Decisive progress in managing hydrocarbon resources in line with international practices would support intergenerational equity and sustainable growth. Ensuring the efficient use of public resources is a priority that would entail improving the contract selection process, enforcing transparent bidding and procurement rules, and introducing adequate monitoring and audit practices. The mission welcomes progress on the new draft budget code, and encourages the authorities to speed up its adoption and secure its implementation in 2014 in line with international best practice, to include all hydrocarbon resource revenue. In addition, bringing the activity of the State Development Bank (SDB) in line with good international practices is also crucial to ensure efficient use of public resources.
If inflationary pressures arise, the central bank should stand ready to tighten monetary policy and maintain price stability. The mission welcomes the recent elimination of some central bank-directed lending under the government programs and encourages the authorities to phase it out.
The 2011 law on banking institutions and, to some extent the newly established SDB, could in principle help modernize banking operations, wind down the directed lending, and open up banks to private and foreign capital. This should be complemented by market-driven interest rates and lending activities.
Developing a dynamic private sector as envisaged in the national development program will require improving governance and the business climate and increasing the role of the private sector in resource allocation in the economy.
The mission commends Turkmenistan’s improvement of its anti-money laundering and combating the financing of terrorism regime and full compliance with the Financial Action Task Force requirements. In addition, the ongoing efforts to adhere to international statistics standards are encouraging and should aim at the adherence of Turkmenistan to the IMF General Data Dissemination System and opening a country page in the IMF’s International Financial Statistics.