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AKIPRESS.COM - Turkmenistan’s GDP growth rate is projected to increase marginally in 2017, with a moderate recovery in hydrocarbon prices and lessened exchange rate pressures, according to the World Bank.
While rising hydrocarbon prices are expected to narrow the current account deficit in 2017, it will remain elevated due to the slow import adjustment process, according to the latest Europe and Central Asia (ECA) Economic Update "Trade in Transition."
A further slowdown in net capital inflows may compel the authorities either to use additional official foreign exchange reserves to close the external financing gap, or to adjust the exchange rate peg. The authorities are expected to maintain a tight monetary policy stance to support the fixed exchange rate and ensure macro-economic stability, though this will likely have a negative impact on the economy. Fiscal consolidation is expected to continue, which should strengthen fiscal and debt sustainability.
However, a persistent balance of payments deficit could raise net public debt if the authorities choose to close the gap by borrowing or by spending its hydrocarbon revenue reserves.
GDP growth slowed marginally from 6.5 percent in 2015 to 6.2 percent in 2016, according to official data, as the continued decline of global hydrocarbon prices affected export revenue and domestic demand.
The Russian government’s decision to end gas imports from Turkmenistan, a contract dispute with Iran, and the ongoing slowdown of the Chinese economy appear to have also affected hydrocarbon output and exports. Meanwhile, a 36.8 percent reduction in public investment and a 27.6 percent drop in foreign direct investment (FDI) in large oil and gas projects slowed growth in the construction sector. Driven in part by increased government subsidies, consumption growth remained robust, and retail trade expanded. Turkmenistan’s external position continued to deteriorate in 2016, as falling exports widened the current account deficit.
To maintain the exchange rate peg at 3.5 Turkmen manat per US dollar, the authorities tightened restrictions on access to foreign exchange, while imports were slow to adjust. Combined with lower FDI inflows, the higher current account deficit may have created a balance of payments gap that required the central bank to tap its foreign exchange reserves.
The central bank focused on maintaining the currency peg by tightening liquidity and restricting the foreign exchange operations. Official statistics indicate that the annual inflation rate averaged 6 percent in 2016, supported by administrative price controls. The government maintained a tight fiscal policy stance (excluding off budget fiscal operations).
While falling hydrocarbon receipts reduced state budget revenues by 2.5 percent of GDP in 2016, lower capital outlays and the partial rationalization of social subsidies slashed public spending by 3.8 percent of GDP, yielding a modest budget surplus of 0.6 percent of GDP. The authorities do not publish information on the country’s six off budget funds, including the stabilization fund, and the government’s consolidated fiscal position remains unclear.
Turkmenistan does not release official statistics on living standards, and little is known about the labor market. Data constraints prevent a thorough analysis of the social impact of slowing economic growth.