World Bank - Turkmenistan Partnership Program Snapshot September 2012 RECENT ECONOMIC AND food price increases on global markets. The SECTORAL DEVELOPMENTS exchange rate policy remained unchanged, and the set fixed rate of the Turkmen manat was Growth and External maintained with high confidence in the background Performance of growing foreign exchange reserves. The trade surplus widened further in 2011, as The Turkmen economy recorded a strong growth exports grew by 73 percent and imports at a performance in 2011, expanding by 14.7 percent. relatively slower 38.5 percent compared to the With this impressive growth, Turkmenistan was previous year. This strong trade performance ranked as the country with the third-highest growth continued in the first half of 2012, with exports rate in the world after Qatar (18.8 percent) and and imports expanding almost at the same 48 Mongolia (17.3 percent). Preliminary outcomes of percent growth rate. The hydrocarbon cluster the current year’s economic developments remains the main driver of economic growth and demonstrate that the Turkmen economy remains also the core engine of the export performance. resilient to the global uncertainties stemming from The value added generated by the resource sector the Eurozone crisis. The double-digit growth rate grew by more than 40 percent in 2011, has been maintained and GDP grew by 11.1 commensurate with the increased volumes of percent in real terms in the first half of 2012. The extractions and export diversification to high growth rate was largely supported by nontraditional destinations such as China and Iran. hydrocarbon-led exports and bolstered further by The import dynamics continue to be driven by the public investments, while consumption remained growth of construction materials. relatively subdued. During the first quarter of 2012, capital Fiscal Performance investments from all sources of financing grew by The overall fiscal balance returned to a substantial 38 percent compared to the same period in the surplus in 2011, as a result of the overperformance previous year. This growth was supported by of the revenues and “savings” generated on the domestic public investments in social infrastructure expenditure part of the budget. Budget revenues and especially strong investments in physical during the first six month of the current year have infrastructure, which facilitated the further increased by about 60 percent compared to last expansion of the exportable (natural gas) sectors. year’s revenue performance in the same period. The growth contribution by non-hydrocarbon However tax revenues remain largely dominated by sectors of the economy has been diverse. Overall the proceeds generated from the export of the growth in the first half of 2012 in the agriculture extractive (hydrocarbon) sector. Total public sector was modest at 3 percent, while some investments funded from the consolidated budget subsectors of the manufacturing industry, namely of Turkmenistan have nearly doubled (94.8 percent the production of construction materials, fish growth) during the first half of 2012 compared to processing, and textiles, grew by 30, 48, and 10 the same period in the previous year. The growth percent on average, respectively. rate of investments in “productive” sectors (50 percent) substantially outperformed the investment High food prices kept inflation at 5.3 percent rate in the social sectors (20 percent). The (period average) in 2011. However, inflationary government maintains a large portfolio of social pressures eased in the first half of 2012. From the transfers and budget subsidies. Currently, all 17 beginning of the year to the end-June period, the subsidies have a universal character and are average consumer price index declined by 1.8 guaranteed until 2030, after which time the percent. These deflationary developments are government may decide to move to a more explained a) by the relatively good agriculture year, targeted public transfer policy. which increased the domestic supply of fruits and vegetables, and b) the high degree of self- Social indicators have showed improvements sufficiency in wheat, which helped Turkmenistan commensurate with the country’s economic to avoid the possible consequences of the current performance. According to the State Statistics Page 2 Committee of Turkmenistan, wages and salaries in term, generate additional sources of medium and large companies increased by 11.1 employment, and broaden the sources of percent during the first semester of the current year fiscal revenues. compared to the same period in the previous year. Taking into account that the average price level • The necessary steps for a successful remained almost unchanged (1.8 percent deflation diversification strategy involve the during the first half of 2012), this statistic on development of market institutions. The nominal salary growth may be interpreted also as a creation of an effective financial and real increase in the incomes of paid workers. banking sector will be required to create the necessary conditions for the growth of Medium-Term Outlook and Challenges the nonresource sectors of the economy and enhance Turkmenistan’s The medium-term outlook is favorable but competitiveness. In addition, investing in dependent on external demand for Turkmen oil human capital and strengthening products and gas. The baseline growth projection institutional capacities will be essential to of around 8 percent per year over the medium term facilitating private sector-led development. reflects the uncertainty caused by current global developments and the possible downside risks • The improvement of public financial associated with declining commodity prices in management and governance practices is international markets. The diversification of export critical to ensuring the efficient utilization routes to China diminished the risk of a spillover of revenues generated by the natural effect from the Eurozone crisis. However, the endowments. In addition to institutional projected slowdown of economic growth in China reforms, it will be necessary to develop a and the unresolved issues with Russia over the strategic framework to guide public volume of gas exports pose challenges to investment decisions and ensure the Turkmenistan. With the aim of further diversifying efficiency of capital investments. Staff its trade partners, Turkmenistan is looking for new capacity will also need to be improved to export routes, such as a new pipeline to supply gas ensure that they are able to carry out the to Pakistan and India through Afghanistan (the in-house appraisal, screening, and selection TAPI project) starting in 2018. There are a number of priority public investment projects. of issues to be addressed, including security concerns, for the successful and sustainable • A more equitable allocation of budget operation of this important infrastructure project in resources may require amendments to the the region. It is expected that in the medium term, current principles of public spending inflation will stay at around 5 percent. It will be policy. The cost of the budget subsidies fueled by a further liberalization of utility and currently provided and the state aid transportation services in Turkmenistan, as well as programs may become too high and the inflationary pressures expected from the price fiscally unsustainable over time. Thus the transfer of imported foodstuffs. current practice of universally providing budget assistance to the entire population In the medium to long run, Turkmenistan will face should be replaced with targeted social several important challenges as its GDP and assistance programs only to those in need. income level increases: • The overreliance on hydrocarbons is a Turkmenistan will need a reliable and potential source of vulnerabilities. The comprehensive set of statistics to inform its policy high degree of dependence on decisions. The introduction of international hydrocarbons makes the economy standards in statistics, and the continuous vulnerable to a drop in prices for these improvement of the quality and reliability of the resources on the global market. The statistics it does produce will be required to better diversification of the economy will be inform public policy decisions. In addition, the necessary to sustain growth in the long Turkmen authorities should take the necessary Page 3 steps to make the existing statistics on the country’s economic and social development readily available to the public. To facilitate this process, staff capacities will need to be improved and new methodologies introduced in line with international practice. Health Sector Over the past three years, the Bank has been actively engaged with the Government of Turkmenistan on a project focused on avian influenza preparedness and control, and is A lab technician works in a laboratory refurbished currently pursuing discussions on the possibility of under a Bank project developing a project to strengthen the public health laboratory network. Under the Avian Influenza Transport Sector Preparedness Project, the country’s level of preparedness for a potential outbreak of avian The Government’s National Socio-Economic influenza or other infectious disease has been Development Program for 2011–2030 and the increased. National Rural Development Program focus on inclusive economic growth while preserving The project was successful in establishing economic independence, modernizing the mechanisms for intersectoral coordination between country’s infrastructure, and promoting foreign the ministries and agencies responsible for direct investment. The particular development zoonotic diseases; increasing public awareness of challenges and/or goals in the transport sector avian influenza risks and mitigation measures; outlined in the state development programs include strengthening institutional as well as disease (i) a significant planned increase in the contribution monitoring; and improving the of the transport sector to the GDP; (ii) the diagnostic/containment capacity of the country’s provision of access to domestic and world markets veterinary and health sectors. through a modern and well-managed transport infrastructure; and (iii) the accession and There has been significant progress in the implementation of international conventions in the capacity building and training of national staff field of transport and trade facilitation. across sectors. It should be noted that although this project is the Bank’s first engagement in Under the National Socio-Economic Development Turkmenistan for nearly nine years, the Program, the construction of 90 bridges and the Government of Turkmenistan has effectively rehabilitation of roughly 1,676 kilometers of state helped to promote the project’s development roads have been completed through force account objectives. as well as international contractors. There is a strong need to optimize investments in the road Government efforts under the project have been infrastructure to focus on demand and to address successful in ensuring an effective and strong the backlog of maintenance and its underlying collaboration among a number of ministries, causes. including the Ministry of Health and Medical Industry, the Veterinary Union, and the Ministry of The length of Turkmenistan’s railway network is Nature Protection. This coordination has been 3,080 kilometers (single track, nonelectrified). The critical to developing a sustainable systems Government’s priorities in the railway sector are approach to disease control at the human-animal- reflected in its development plan, which also needs environmental interface. For more information, to be supported by a well-formulated sector reform please see the “Projects” section at plan to increase the efficiency of the railways, cut www.worldbank.org/tm. costs, and improve the quality of service. The main Page 4 rail routes in Turkmenistan are the east-west line from Turkmenbashi to the Uzbekistan border near Turkmenabat (1,141 kilometers) via the capital Ashgabat; a branch line from Mary to Gushgy on the Afghan border; and another connecting this line to the Iranian network at Sarakhs, where there is a gauge change. A 540-kilometer-long north- south line from Dashoguz to Ashgabat was completed in 2006, and there is a long-term project for a new north-south line along the Caspian coast from Kazakhstan to Turkmenbashi, and eventually to Iran. Map of Turkmenistan’s Railway network Modernization of the air traffic infrastructure and the national fleet has been on the agenda of the Government of Turkmenistan since independence. WORLD BANK PROGRAM IN A new airport with a modern air traffic control TURKMENISTAN system and a new runway was built in Ashgabat in 1994, and the construction of the international Past Engagement airport in Turkmenbashi was completed in May 2010. Turkmenistan needs to improve the At the request of the Government, the Bank operational efficiency of the sector by improving prepared a number of studies and extended three the provision of services and the competitiveness loans to Turkmenistan (for details, see box below). of Turkmenistan Airlines—and the sector in The Bank tried to help Turkmenistan to move with general. reforms in areas such as public resource management, through an Institution Building and Turkmenbashi is the largest port in Turkmenistan, Technical Assistance (IBTA) loan that closed on which handled 8.7 million tons of cargo in 2009. December 31, 2003; financial transparency, Three main complexes make up the facilities across through Institutional Development Fund (IDF) 10 designated berths within the primary port. The grants on Public Procurement, International cargo activities in smaller Caspian ports—Aladja Accounting Standards, and External Debt (which handled 1.4 million tons in 2008, almost all Management; the public transport system, through oil) and Ekerem (which handled 0.8 million tons in an Urban Transport Project; the energy sector, 2008, again, largely oil)—are reported under the through a sector review in 1999–2000; and the Port of Turkmenbashi, including general cargo water and sanitation sector, through the Water berths, rail ferry, and oil berths. The rail ferry Supply and Sanitation Project. traffic is mainly long distance freight from Europe/North America via Georgia and Recent Activities Azerbaijan to Ashgabat and the transit countries (Uzbekistan and Afghanistan). The State Service of Recent Bank activities in Turkmenistan included Maritime and River Transportation of the World Bank trust fund to finance the Statistical Turkmenistan (SSMRTT) under the Cabinet of Capacity Building Project (US$387,500), which Ministers has the overall responsibility for the closed on April 15, 2012, and the Civil Society policies, regulation, and management of the Fund Program, which is now being transformed maritime sector in Turkmenistan. The International into a Global Partnership for Social Accountability Maritime Port of Turkmenbashi (IMPT) is a port Program. The Avian Influenza Control and Human authority under the SSMRTT, which is responsible Pandemic Preparedness and Response Project for port operations. (US$1,970,000) was another recent project that closed with a satisfactory rating on December 31, 2010. At the Government’s request, the Bank also provided advice on a number of issues, including but not limited to, national wealth funds, an Page 5 Accounting and Auditing Report on the Once finalized, the Strategy document is expected Observance of Standards and Codes (ROSC), the to be presented to the World Bank Board of modernization of the Hydromet agency, the anti- Executive Directors by the end of 2012 for its money-laundering/combating the financing of consideration. terrorism (AML/CFT) legal framework along with the International Monetary Fund (IMF), transport International Finance Corporation and logistics issues, and international experience in the ports sector. Turkmenistan became a member of the International Finance Corporation (IFC), the New Partnership Program private sector arm of the World Bank Group, in 1997. Since then the IFC has worked with the The World Bank Group and the Government of Government of Turkmenistan on a number of Turkmenistan are currently working on the activities. Currently, the IFC is joining the efforts preparation of an Interim Strategy Note (ISN) that of the World Bank to assist the Government in will serve as a platform for expanded cooperation such areas as private sector development and pilot covering up to a two-year period (FY13–14). As privatization programs as part of the proposed part of the ISN preparation, in August 2012 the ISN. World Bank Group held a round of consultations on the new partnership strategy with Multilateral Investment Guarantee Agency representatives of Turkmen ministries and agencies, the international donor community, the The Multilateral Investment Guarantee Agency’s private sector, and civil society. (MIGA) outstanding portfolio in Turkmenistan consists of one project, issued to a Turkish investor The partnership Strategy is expected to cover such in support of the country’s manufacturing sector to areas as: private and financial sector development, expand and modernize a soft drink bottling facility macroeconomic management and climate change in Ashgabat. In 2011, MIGA issued an additional issues to support the Government’s long-term guarantee to the same investor. socioeconomic development program for the benefit of the Turkmen people. Page 6 SUMMARY OF PROJECTS IN TURKMENISTAN Loans to Turkmenistan • Institution Building and Technical Assistance Loan (IBTA) (IBRD, US$24.9 million) (2003) • Urban Transport Project Loan (IBRD, US$34.2 million) (2001) • Water Supply and Sanitation project Loan (IBRD, US$30.3 million) (2004) Analytic and Advisory Services Public Sector Management • Public Expenditure Review (1998) • Comments on Draft Tax Code (2000) Social Sector • Living Standards Survey (2000) • Dashoguz: Regional Development Priorities (1998) • Rationalizing the Health Sector (1997) • Water Supply and Sanitation: Needs Assessment (1995) Rural Development • Agricultural Sector Review (1997) • Farm Survey (2000) Energy and Infrastructure • Energy Sector Study (1995) • Energy Export Prospects (2000) • Energy Taxation (2000) Banking and accounting • Introduction of International Accounting Standards Grant (2004) • Advice on Modernizing the Payment systems (2008) • Accounting and Auditing Module of the Reports of Standards and Codes (A&A ROSC) (2010) For more projects, please visit: www.worldbank.org/tm Page 7