80169 Turkmenistan: An Overview ECA PEG BRIEF SERIES 2012 PEG BRIEF: TURKMENISTAN Turkmenistan is a lower-middle income country that has substantial oil and gas reserves. Having a relatively closed economy, Turkmenistan was less affected by the financial crisis than other countries in the region, partly due to its isolation from global markets, but also due to substantial reserves that supported public investments and social programs. More recently, inflows of FDI have increased, particularly in CONTENTS: hydrocarbons. The main political economy drivers in Turkmenistan are Overview: 1 centralization of authority, geopolitical forces, and the politics of Basic Governance Facts: 1 natural resources. These resources, notably gas have fostered greater Governance at-a-Glance: 2 cooperation between Turkmenistan and partners such as China and the Political Economy EU. However, the abundance of power vested in the executive limits Background: 4 pluralism, the functions of local government, and appears to be affecting Key Governance Challenges: 5 service delivery; although data on poverty and other indicators are not World Bank Strategy published. Turkmenistan faces governance challenges including rule of and Activities: 6 law, voice, accountability and transparency, public participation, Notes: 6 administrative capacity, corruption, and private sector development. While World Bank engagement in Turkmenistan is limited, there may be emerging entry points to introduce governance reforms. This brief summarizes Turkmenistan’s performance on various governance indicators and summarizes recent developments in political economy along with a discussion of challenges identified by Bank Staff. BASIC GOVERNANCE FACTS Government Type: Table 1: Rankings for Key Governance Indicators Turkmenistan is nominally (Lower ranks indicate better performance) a presidential republic, but is characterized by EIU Doing Transparency Heritage WEF Global Democracy Business International Foundation Competitiveness authoritarian presidential Index Index Corruption Index Index rule, with little power 2011 2012 Perceptions 2012 2011 outside the executive (of 167 (of 183 Index (of 179 (of 142 1 branch. countries) countries) 2011 countries) countries) (of 183 countries) Administrative Divisions: Turkmenistan is a unitary Turkmenistan 165 NA 177 168 NA state characterized by a FSU-S Average 119.9 85.9 134.4 95.6 93.2 highly centralized 2 government system. It is EU-25 Average 24.7 36.3 32.4 40.1 33.9 divided into 5 regions ECA Average 80.6 72.4 93.1 78.8 72.6 (welayats) and an independent city (the 3 Capital city of Ashgabat). The 5 regions of the territorial-administrative structure are formed based on tribal district, and city levels. At the village level, directly elected legislative councils are characteristics. Local present, but they follow the lead of local governors who are directly appointed by the 4 government structures president, at all levels. The tribal characteristics and affiliations have strong political are comprised of people’s implications. councils at the regional, central government The Political Economy and Governance (PEG) Brief Series, developed by the governance team in ECSP4 and supported by the Governance Partnership Facility, aims to inform World Bank Country Teams on the governance, institutional, and political economy environmentFOR to the BANK WORLD relevant INTERNAL World Bank USE work in all ONLY sectors. . PAGE The 1 Briefs are classified for INTERNAL USE ONLY and are not to be cited, publically disseminated nor circulated. The information in this Brief is current as of September 2012 and is to be updated annually. For more information, please contact Jana Kunicova or Kimberly Johns, ECSP4. Constitution: Adopted in 1992, and amended in 2008. The SECTION 1: GOVERNANCE AT A GLANCE 2008 amendments dissolved the People's Council, a second, 2,507-member legislative body. The amendments also Turkmenistan is relatively closed society and on the expanded the number of deputies in the National Parliament governance indicators that are available, it ranks in the from 65 to 125. lowest percentiles. This section provides an overview of governance indicators for Turkmenistan. Executive Branch: Key Governance Indicators Head of State: President Gurbanguly Berdimuhamedow has been in power since February 14, 2007 and was re-elected for •Democracy Index (EIU 2011) 165 out of 167 a second term on February 12, 2012. The Democracy Index of the Economist Intelligence Unit measures democracy via five categories (electoral process Presidential Elections: The president is elected by popular and pluralism; civil liberties; functioning of government; vote for a five-year term and can be re-elected (there is no political participation; and political culture). Turkmenistan is limit on a number of terms in the office). The last election considered an “authoritarian regime� by the EIU . 7 was held on February 12, 2012; the next is to be held in Authoritarian regimes per the EIU have characteristics February 2017. including the absence of political pluralism, a disregard for civil liberties, and fundamental weaknesses of democratic Head of government: President Gurbanguly 8 institutions . Berdimuhamedow also acts as the head of the Cabinet of Ministers. • Global Integrity Index (GI 2011) NA This indicator is not available for Turkmenistan. Cabinet: Council of Ministers appointed by the President. • Government Accountability (GI 2011) NA Legislative Branch: Turkmenistan has a unicameral National This indicator is not available for Turkmenistan. Parliament (Mejlis), comprised of 125 seats. Members are elected by popular vote to serve 5 year terms. Elections were • Doing Business (2012) NA last held on December 14, 2008; and the next are to be held This indicator is not available for Turkmenistan. in December 2013. •ICRG Country Risk Ranking (2011) NA Major Political Parties: There are two political parties: the This indicator is not available for Turkmenistan. 5 Democratic Party of Turkmenistan or DPT and newly established Party of Entrepreneurs. Most of the members of •Transparency International Corruption Perceptions Index the national parliament are affiliated with the DPT. There are (2011) 177 of 183 several non-registered (in Turkmenistan) opposition parties in The levels of reported corruption are reflected in this ranking. exile: the National Democratic Movement of Turkmenistan Of ECA countries, Turkmenistan ranks last, tied with (NDMT), the Republican Party of Turkmenistan, and the 9 6 Uzbekistan. Watan (Fatherland) Party. • Freedom House Political Rights Index (2012) 7 out of 7 Judicial Branch and Legal System: The primary judicial body This indicator measures political freedoms based on an is the Supreme Court; however, there are also regional, evaluation of the electoral process, pluralism and functioning district and city courts. The Supreme Economic Court hears all of government. Turkmenistan is rated as “not free�. 10 commercial disputes and cases involving conflicts between state enterprises and ministries. There is no constitutional •Heritage Foundation Economic Freedom Rank (2012) 168 of court. All judges at all levels are appointed by the president. 179 Turkmenistan had an overall score of 43.8, which corresponds to a rating of “repressed�. From the previou s year, Turkmenistan improved on aspects of business freedom, fiscal freedom, and monetary freedom. However, it declined in 4 areas: freedom from corruption, labor freedom, 11 government spending and trade freedom. •Global Competitiveness Index (WEF 2011) NA This indicator is not available for Turkmenistan. • Bribe Frequency (BEEPS 2008) NA This indicator is not available for Turkmenistan. FOR WORLD BANK INTERNAL USE ONLY. PAGE 2 SUMMARY OF GOVERNANCE INDICATORS: • Bribe Frequency (BEEPS 2008) NA Turkmenistan This indicator is not available for Turkmenistan. Governance Indicator Score • Bribes are Frequent in Dealing with Taxes (BEEPS 2008) (source, year) NA This indicator is not available for Turkmenistan. Democracy Index (EIU 2011) 165 of 167 Global Integrity Index (2011) NA • Bribes are Frequent in Dealing with Customs (BEEPS 2008) NA Government Accountability (GI 2011) NA This indicator is not available for Turkmenistan. Doing Business Rank (2012) NA • Bribes are Frequent in Dealing with Courts (BEEPS 2008) NA ICRG Country Risk Rating (2011) NA This indicator is not available for Turkmenistan. Transparency International Corruption 177 of 183 Perceptions Index (2011) •Rule of Law (WGI 2010) 4.3 out of 100 Turkmenistan ranked in the 4th percentile on this indicator, Freedom House Political Rights Index 7 out of 7 below the ECA average of 47.1. This reflects limited (2012) confidence in the adherence to rules and laws, as well as Heritage Foundation Index Rank (2012) 168 of 179 limited separation of powers between the three branches of government. Global Competitiveness Index NA (WEF 2011) •Voice and Accountability (WGI 2010) 1.4 out of 100 Turkmenistan ranks in the 1st percentile on Voice and Bribe Frequency (BEEPS 2008) NA Accountability, due to the limits on political participation, and on news media in the country. Turkmenistan is on the Bribe Frequency: Dealing with Taxes NA Reporters’ without Borders list of Internet Enemies (2012), (BEEPS 2008) th and ranks 177 of 179 countries on the Press Freedom Bribe Frequency: Dealing with Customs NA Index. 13 (BEEPS 2008) Bribe Frequency: Dealing with Courts NA Chart 1: World Governance Indicators (2010) (BEEPS 2008) Scores for Turkmenistan (0-lowest, 100-highest) Rule of Law (WGI 2010) 4.3 out of 100 60 48.2 51.2 57.1 47.1 47.7 43.7 Voice and Accountability (WGI 2010) 1.4 out of 100 45 Political Stability (WGI 2010) 54.2 out of 100 30 Government Effectiveness 3.3 out of 100 (WGI 2010) 15 Regulatory Quality (WGI 2010) 1.9 out of 100 4.3 1.4 54.2 3.3 1.9 1.9 0 Control of Corruption (WGI 2010) 1.9 out of 100 Statistical Capacity (2011) 34 out of 100 •Heritage Foundation Economic Freedom Rank (2012) 168 of 179 Turkmenistan had an overall score of 43.8, which corresponds to a rating of “repressed�. From the previou s year, Turkmenistan ECA Average Turkmenistan improved on aspects of business freedom, fiscal freedom, and monetary freedom. However, it declined in 4 areas: freedom from corruption, labor freedom, 12 government spending and trade freedom. •Political Stability (WGI 2010) 54.2 out of 100 •Global Competitiveness Index (WEF 2011) NA Turkmenistan exceeds the ECA average of 47.7 for this This indicator is not available for Turkmenistan. indicator, which captures the likelihood that the government may be destabilized by unconstitutional or violent means. FOR WORLD BANK INTERNAL USE ONLY. PAGE 3 •Government Effectiveness (WGI 2010) 3.3 out of 100 the latter’s mountainous topography makes it more difficult This indicator captures perceptions of the quality of public to navigate. services, civil service, policy formulation and implementation and credibility of the government’s commitment to policies. Turkmenistan was formerly a lower-middle income country, Turkmenistan falls below the ECA average of 51.2. but experienced dramatic economic growth (nearly doubling the per capita GDP) from 2006 to 2011. In 2011, •Regulatory Quality (WGI 2010) 1.9 out of 100 Turkmenistan experienced a 14.7 percent growth in GDP, This indicator captures perceptions of the government’s resulting in a GDP per capita (in current US$) of $4500. The ability to formulate and implement regulations that promote key economic sectors in Turkmenistan are industry private sector development. Turkmenistan falls below the (stemming from oil and refining), textile/manufacturing ECA average of 57.1. (based on the local production of cotton), agriculture, and services. Gas and oil make up the majority of principal • Control of Corruption (WGI 2010) 1.9 out of 100 exports, but agriculture accounted for about 12% of GDP in st 2008. Turkmenistan only ranked in the 1 percentile for control of corruption, lower than ECA average of 43.7. There is not an abundance of data available for Turkmenistan •Statistical Capacity (2011) 34 out of 100 due to a low statistical capacity and limited access to Turkmenistan falls below the ECA average of 81 for this information. Economic information on balance of payments, indicator. external debt, monetary statistics and any detailed government budget data are not published. There is no data Summary available on issues such as poverty and unemployment. The indicators above highlight a number of opportunities for Although employment is formally guaranteed, there are few governance improvements in Turkmenistan. These include opportunities for employment outside the public sector. improving rule of law and judicial independence, transparency, voice and accountability, enhancing Centralization of Authority government effectiveness, combating corruption, fostering As the power structure centralizes authority in the executive, pluralism, and improving access to information. and the economy is mostly state-run, centralization of authority is the primary political economy driver in Further efforts to improve governance from the fiscal Turkmenistan. The current president has continued the management framework (in order to better manage revenues legacy of consolidated power that was present under from hydrocarbons and natural resources) to enhancing Niyazov’s leadership after Turkmenistan declared democratic principles are needed in Turkmenistan. More on independence. As the president, Berdimuhamedow has an governance challenges can be found in Section 3. abundance of power. He appoints all judges, and it is speculated that the competition between candidates for the parliamentary elections are limited. This arrangement limits SECTION 2: POLITICAL ECONOMY BACKGROUND political pluralism and voice and accountability (see Section 3). As a rather closed economy and country, there is limited While centralization of authority is high, there appears to be information available on which to base a political economy a social contract with the public which may lessen the analysis. However, it is clear that there are several key propensity for opposition and increase the acceptance of the political economy drivers in Turkmenistan which help shape status quo. While the government effectiveness indicators governance and economic outcomes, particularly show very low performance for Turkmenistan, the centralization of authority as the state controls much of the government provides 13 different subsidy programs which economy. However, progress has been made to increase are supported by the state budget which provide universal inflows of FDI, and as a result, geopolitical relations have access to utilities free of charge to the public, including gas, become more important to development. This section electricity, water, sewage and public transportation. The provides a brief background of these issues and describes budget guarantees access to health and education services some of the implications of these factors. free of charge (though the quality of these need to be upgraded substantially). These subsidy programs have been Background guaranteed until 2030. Turkmenistan borders Uzbekistan and Kazakhstan to the north, Iran to the south, and shares the longest border with Geopolitical Relations Afghanistan of the all Central Asian countries. The border Geopolitical relations with Russia, China, Iran and the with Afghanistan poses security considerations to both European Union are largely driven by the potential for Turkmenistan and its northern neighbors. Turkmenistan has hydrocarbon export and other natural resources and fewer check points and is more accessible than Tajikistan, as neutrality status of the country. According to official figures FOR WORLD BANK INTERNAL USE ONLY. PAGE 4 Turkmenistan has the fourth large gas deposits and the pipeline. More recently in 2012, Ukraine has recently voiced largest single deposit in the world. While Russia was the its support and willingness to fund a portion of the project 15 primary partner and focus of foreign policy, more recently under certain conditions. relations with China and Iran have been of growing importance. In 2009, Russia was the only buyer of Turkmen gas and decreased its imports due to reduced demand in SECTION 3: KEY GOVERNANCE CHALLENGES Europe. Turkmenistan as a result looked to other partners, and Turkmenistan has a unique policy environment, and given its negotiated a deal with China to construct a pipeline. China is natural resources and centralization of authority, there has providing substantial loans to Turkmenistan to further been little progress transitioning to a democracy. As a result, develop gas production for the Central Asia-China pipeline compared to other ECA countries, there are several which will be offset by future gas supplies. Although the gas governance challenges that emerge from the governance tariff paid by China is lower than that paid by Russia, it has data, including administrative capacity, fostering pluralism, allowed Turkmenistan to diversify its exports. Turkmenistan increasing accountability and transparency in government, has negotiated a similar agreement with Iran, and opened a improving voice and accountability and demand for good second gas pipeline to Iran that created the potential for governance, corruption, and promoting private sector increased interaction. development. Turkmenistan is also seeking other opportunities for Centralization of authority negatively impacts voice, diversification. Over the last two years another project was accountability, and transparency. Government decision under discussion: the Turkmenistan-Afghanistan-Pakistan- making is non-transparent. The population and civil society India (TAPI). The framework agreement has been signed and play almost no role in policy making, and there is no the discussions are ongoing with the potential investors. independent media. Accountability mechanisms are lacking at the local, regional, and national levels. Geopolitical Relations: Central Asian Context As a result of the gas saga of 2009 with Russia, Turkmenistan Further, there is limited transparency in policy and budgetary changed its CIS Membership to an Associate Member. processes. Detailed budget data is not published. Overall Turkmenistan almost de-facto de-linked from its CIS fiscal/budget management and resource-revenue affiliation. However, Turkmenistan remains relatively close to management require greater transparency and its Central Asian neighbors. Although many of these countries accountability. A large portion of fiscal revenues come from have ongoing or frozen conflicts with each other, notably the hydrocarbon sector but are kept in two separate accounts Uzbekistan and Tajikistan over water resources, - the Stabilization Fund and the Reserve Fund. Most of Turkmenistan has attempted to mediate. Although these investment projects are funded out of the Reserve fund efforts so far have failed, Turkmenistan is it is participating in which is not consolidated into the state Budget. the discussion. There are also no opportunities for citizens to voice Geopolitical Relations: The European Union opposition. Government NGOs (GoNGOs) and professional There is an opportunity for greater cooperation with the EU. associations in Turkmenistan can be created by the Currently the EU has an Interim Trade Agreement (ITA) in President's decree, but other NGOs are not. GoNGOs are place, but concerns over human rights have hindered the usually headed by a senior government official of a relevant ratification of a more comprehensive Partnership and organization (deputy-chair of Statistics Committee or Deputy- Cooperation Agreement (PCA).The EU-Central Asia Strategy Minister etc.) therefore cannot be considered non-partisan. for a New Partnership (2007-2013) provides national level These missing mechanisms for interaction between the programmatic funding to Turkmenistan to assist in areas such government and civil society hinder promotion of good as poverty reduction, regional and local community governance as well as pluralism. development, democratic development and good governance, and building administrative capacity among There is no formal mechanism for public participation in others. 14 government other than through elections. On the surface, public participation is noted as high. While officials report Geo-Political Relations: The Trans-Caspian Pipeline near 100% voter turnout, per Freedom House, electoral The desire of the EU and other nations to reduce their processes are not free from interference. Officials have reliance on gas imported from Russia has driven plans for the engaged in pressuring citizens and civil servants to vote, and 16 development of the Trans-Caspian pipeline from other irregular practices such as ballot stuffing. No Turkmenistan through Azerbaijan. This plan has been in place opposition parties are registered nor operate in since 1996 but has been actively blocked by Russia. In Turkmenistan. September of 2011, the EU began negotiations to build the FOR WORLD BANK INTERNAL USE ONLY. PAGE 5 Limited voice is further exacerbated by the lack of access to SECTION 4: WORLD BANK STRATEGY AND information. Detailed information on budgets, debt, poverty, ACTIVITIES and other indicators are unavailable or are not published. Currently all media is government run, and there are limits on The World Bank currently has limited engagement with foreign news: both print and online. Turkmenistan is on the Turkmenistan. The Bank has implemented projects in the past Reporters’ without Borders lists of Predators of Press in areas including public resource management, public 17 Freedom and Internet Enemies (2012). procurement and fiscal transparency, and in sectors such as transport, energy and water and sanitation. The last active While data on petty corruption is unavailable from sources project (Statistical Capacity Building Project) was closed in such as BEEPS, corruption remains an issue due to the April of 2012. patronage system of power. Turkmenistan falls in the last quintile of countries on Transparency International The Bank and the Government of Turkmenistan are Corruption Index, and Heritage Index of Economic Freedom. discussing the areas of future activities in the country through a number of different instruments (fee-for-service and Administrative capacity and government effectiveness are in technical assistance) to support the areas of potential need of improvement. The structure of the public engagement. The Interim Strategy Note for Turkmenistan is administration results in less effective and less responsive under preparation to provide framework for expansion of government. The centralization of authority hinders decision- cooperation between the Government and the World Bank making among front line staff, which results in delays as they Group. await guidance from upper staff. Turkmenistan’s self- isolation from the rest of the world has led to an increasing gap of technical competencies and capacity of the government and administrative staff. NOTES: Turkmenistan’s governance practices reflect its former soviet legacy. Ministries are weak and there is an unclear map of 1 responsibilities. There is a strong and centralized control Central Intelligence Agency, 2012. CIA World Factbook: system (multiple agencies) which review not only financial Turkmenistan. Available from: transactions (budget, etc.) but also technical reports https://www.cia.gov/library/publications/the-world- produced by different government agencies and proof-read factbook/geos/countrytemplate_tx.html 2 Freedom House: Nations in Transit, 2012: Turkmenistan. for political correctness. Available from Private Sector Development has been limited by a number of http://www.freedomhouse.org/report/nations- factors. The government controls most of the economy and transit/2012/turkmenistan 3 restricts foreign participation to a few sectors in which The provinces include: Ahal Welayaty (Anew), *, Balkan investment partners are chosen selectively and governed by Welayaty (Balkanabat), Dashoguz Welayaty, Lebap Welayaty project-specific presidential resolutions. The lack of an (Turkmenabat), Mary Welayaty Central Intelligence Agency, established rule of law, complex and arbitrary regulatory 2012. CIA World Factbook: Turkmenistan framework as well as incompliance with international https://www.cia.gov/library/publications/the-world- business practices have deterred private sector development factbook/geos/countrytemplate_tx.html 4 and FDI. Freedom House Nations in Transit 2011: Turkmenistan http://www.freedomhouse.org/sites/default/files/inline_ima The law on Foreign Investment adopted in 2007 has laid the ges/NIT-2011-Turkmenistan.pdf 5 groundwork for greater participation and investment by EIU Country Report 2012 http://www.eiu.com.libproxy- foreigners and companies. Formerly, all foreign investments wb.imf.org/report_dl.asp?issue_id=548753039&mode=pdf 6 had to be approved by the State Agency for Foreign Central Intelligence Agency, 2012. CIA World Factbook: Investment; the updated law provides for foreign ownership Turkmenistan. https://www.cia.gov/library/publications/the- of real estate and enterprises, and has increased foreign world-factbook/geos/countrytemplate_tx.html 7 investment in some sectors, especially the hydrocarbon Economist Intelligence Unit, 2011. “The Economist sector (e.g. gas pipelines to China and Iran). The government Intelligence Unit’s Index of Democracy�. Available from: has also introduced international tenders for some state http://www.sida.se/Global/About%20Sida/S%C3%A5%20arb contracts to increase competition; however, the process is etar%20vi/EIU_Democracy_Index_Dec2011.pdf 8 poorly managed and not transparent. Economist Intelligence Unit, 2011. “The Economist Intelligence Unit’s Index of Democracy�. Available from: http://www.sida.se/Global/About%20Sida/S%C3%A5%20arb etar%20vi/EIU_Democracy_Index_Dec2011.pdf FOR WORLD BANK INTERNAL USE ONLY. PAGE 6 9 Transparency International Corruption Perceptions Index 2011 http://cpi.transparency.org/cpi2011/results/ 10 Freedom House. Freedom in the World 2011 http://www.freedomhouse.org/template.cfm?page=363&yea r=2011&country=8161 11 Heritage Foundation 2012 Index of Economic Freedom. http://www.heritage.org/index/country/turkmenistan 12 Heritage Foundation 2012 Index of Economic Freedom. http://www.heritage.org/index/country/turkmenistan 13 Reporters Without Borders Press Freedom Index http://en.rsf.org/turkmenistan-turkmenistan-12-03- 2012,42069.html http://en.rsf.org/press-freedom-index- 2011-2012,1043.html 14 European Commission Development and Cooperation – Europeaid Turkmenistan http://ec.europa.eu/europeaid/where/asia/country- cooperation/turkmenistan/turkmenistan_en.htm 15 Oil &Gas Eurasia, “Ukraine Supports Trans-Caspian Gas Pipeline Project� 4.9.2012 available from http://www.oilandgaseurasia.com/news/p/0/news/14709/ 16 Freedom House Nations in Transit 2011: Turkmenistan http://www.freedomhouse.org/sites/default/files/inline_ima ges/NIT-2011-Turkmenistan.pdf pg.557 17 Reporters Without Borders for Press Freedom: Internet Enemies 2012. Available from: http://en.rsf.org/turkmenistan-turkmenistan-12-03- 2012,42069.html FOR WORLD BANK INTERNAL USE ONLY. PAGE 7