Country Report Turkmenistan July 2008

Outlook for 2008-09

The president, Gurbanguly Berdymukhamedov, is not expected to liberalise significantly the authoritarian political system of his predecessor. He will preserve his predecessor's statist economic policies, albeit with greater willingness to contemplate minor reforms and with greater emphasis on improving education, housing, transport and utility provision. Russia will remain Turkmenistan's main foreign partner, but stronger ties with other countries will be pursued in the interests of developing the hydrocarbons sector. External conditions will be favourable for the economy in 2008-09, despite the expected slowing of world growth, and the current account will remain in surplus. Real GDP growth is forecast to slow to 4% in 2008, before rising to 10% in 2009.

The political scene

Foreign leaders, including from the EU, the US, Russia and Asia, have continued to court Mr Berdymukhamedov with a view to securing access to Turkmenistan's natural gas reserves. The West has welcomed the apparent rapprochement between Turkmenistan and Azerbaijan. EU officials have reported that a deal has been reached with Turkmenistan on supplying 10bn cu metres of gas from 2009, and co-operation with NATO is increasing. However, Russia remains the country's main foreign partner. Proposed constitutional changes to enhance the role of the parliament appear cosmetic.

Economic policy

The authorities have unified the official and commercial exchange rates at Manat14,250:US$1 from May 1st, a move welcomed by the IMF. Mr Berdymukhamedov has replaced the governor of the Central Bank of Turkmenistan. The government has said that there were no wage arrears in January-April 2008. Transport costs have risen sharply recently.

The domestic economy

Real GDP growth was officially reported at 6.5% year on year in January-May 2008. However, natural gas extraction fell by 7% and the cereal crop fell by 40%. Officials said that gas exports to Russia could soon rise to 70bn-80bn cu metres a year from around 50bn cu metres a year currently; there are negotiations on the price of these exports in 2009. Gas exports to Iran have resumed.

Foreign trade and payments

The authorities reported a 50% year-on-year increase in the trade in goods surplus, to US$2.2bn in January-April 2008, supported by the higher price of gas exports. According to the Bank of International Settlements (BIS), Turkmenistan's net external position rose by US$1bn quarter on quarter, to US$8.7bn at the end of September 2007.