Turkmenistan should scale down state’s role in planning and coordinating economic activity — IMF

ASHGABAT (TCA) — Turkmenistan, a major natural gas producer, continues to adjust to a difficult external environment, including persistently low hydrocarbon prices and slower economic activity in trading partners, the Executive Board of the International Monetary Fund (IMF) said on June 15, after conclusion of the Article IV consultation with Turkmenistan.

Growth has been stable at above 6 percent over the past couple of years, supported by rising natural gas export volumes to China, expansionary credit policies, and industrial policies to substitute imports and promote exports. The state budget deficit was small at 1.25 percent of GDP last year, but the current account deficit has widened to 21 percent of GDP, the IMF said.

The Turkmen authorities have initiated policy adjustment to lower oil and natural gas prices. The measures adopted over the past couple of years include public investment cuts, step devaluation of the currency, and a one-time increase in utility tariffs. The Turkmen administration has also intensified its efforts to develop a local production base. Ambitious plans have been put in place to increase natural gas production, build new pipelines, develop petrochemical industries, expand mining and processing of non-hydrocarbon natural resources, and support private sector development, the IMF said.

The IMF expects that macroeconomic performance of the Turkmen economy will remain uneven over the next several years, with continued growth, moderate inflation, and a balanced budget, but persistent external pressures. Growth is projected to accelerate slightly from last year’s 6.2 percent to 6.5 percent in 2017. Inflation is forecast to remain moderate at about 6 percent, and the state budget is expected to stay close to balance. However, the external deficits are projected to remain sizable, at about 11 percent over the medium term, amid continued low hydrocarbon prices and very high levels of public investment.

The IMF Executive Directors commended the Turkmen authorities for the policy measures implemented over the past two years to facilitate steady growth and an adjustment to an adverse external environment, especially lower oil and natural gas prices. However, Directors noted that the external imbalances remain sizeable and stressed the need to pursue additional policy adjustment to reduce the current account deficit, while implementing reforms to secure strong, sustainable, and inclusive growth.

The IMF Directors considered a reduction in the current account deficit as the near-term priority. They concurred that a policy package consisting of cuts in public investment spending, slower credit growth, and exchange rate devaluation would help facilitate the needed adjustment. Directors stressed that the vulnerable segments of the population should be protected as the policy adjustment proceeds. While the fixed exchange rate regime remains appropriate for the time being, over the medium term greater exchange rate flexibility would support adjustment to external shocks and changes in the macroeconomic environment, while paving the way for modernizing the monetary policy framework. Eliminating the exchange rate restrictions on current international transactions would help increase economic efficiency.

Directors encouraged further improvements in the business and regulatory environment, a decisive push for reform and privatization of state-owned enterprises, downsizing and greater efficiency of public investment, and continued focus on social protection and human capital development. More generally, they considered that the role of the state in planning and coordinating economic activity should gradually be scaled down.

Directors encouraged the authorities to address data gaps and broaden the dissemination of the country’s fiscal, financial, and external sector statistics. This would help improve the understanding of macroeconomic trends and policy intentions among all stakeholders, boost foreign investment, and ease access to global financial markets.

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Times of Central Asia