Page 11 - EBRD_newspaper_May2017

May 14, 2015 Central Asia bne IntelliNews Daily 11
Turkmenistan being pushed out of its comfort zone
Chris Weafer of Macro Advisory
Turkmenistan is still some way off from opening up to portfolio investors, although this country of almost 5.5mn people with a PPP-based GDP per capita of almost $13,000 has been on the radar of many of the world’s major corporations for some time. Finally the winds of change are building in Central Asia’s last closed economy.
A number of economic and geopolitical events are making it less easy, and much less comfortable, for the government in Ashgabat to remain as isolated as it has been in the past. The mixture of energy price weakness, contagion from the Russian ruble’s collapse and the possible rehabilitation of Iran is starting to have an impact on Turkmenistan.
Turkmenistan has been able to sustain double-digit headline growth for many years and has a macroeconomic profile
Social and security spending appear to be exempted from the cuts. State sector wages, pensions and some social programmes will see a 10% increase in expenditure this year as the government tries to protect people from the impact of higher inflation and to limit the risk of protests if the economy deteriorates or inflation accelerates. Security spending is also expected to rise (no public data) as the country responds to growing radical Islamism in the region, such as IS and the Taliban, which is threatening the whole Central Asia region.
Still, the economy is still expected to expand by 9.5% this year, down marginally from last year's 10.3% growth. Retail sales may again see double-digit growth (due to base effects and higher salaries/ pensions) and the industrial sector is expected to post above 10% expansion.
Ahead of the headlines –
for over 20 years
“The winds of change are building in Central Asia’s last closed economy”
GREAT
that compares favourably with others in the region and other frontier economies. That growth, and the relative economic stability, has mostly come from the steady growth in gas revenues. Initially, revenues came from the higher price Russia's Gazprom was willing to pay, while in recent years China has taken Russia's place as the growth market.
But lower gas and oil prices has been a bucket of cold water over the head, made worse by the near 50% devaluation of the Russian ruble during the last quarter of 2014. The value of gas export revenues is expected to fall by approximately 25% this year, as both Russia and Iran cut back further on purchases and China pays a lower price even as it raises import volumes.
Spending cuts
Budget revenues are down and the government has had to rethink its spending plans. The president has ordered a 10% cut in spending for this year with particular emphasis on cancelling, delaying or stretching the time-line on large infrastructure projects. At the same time, the government took the surprising step of devaluing the manat by 19% against the US dollar on January 1 in order to force a reduction in imports and to help limit the loss of domestic competitiveness against ruble-priced imports.
Inflation will be higher this year due to the
currency devaluation and social spending
programmes. However, the expected 7.5%
The Putinisation increase is still modest in regional terms.of Europe
Gas panic again!
Ending fuel and energy subsidies for the general population is also a factor, and is another reason for concerns over social unrest and, hence, another factor pushing up security costs in the budget.
The country’s balance sheet is in relatively good shape: sovereign debt/GDP is around 20% and financial reserves are sufficient for approximately 22 months, according to a recent state report. The fact that exports are expected to decline faster than imports is one reason why the current account deficit is expected to nearly double to 7.5% of GDP this year. The budget reported a surplus equal to 0.8% of GDP last year, but despite the president’s order to achieve a balance in 2015, we are factoring in a deficit equal to 2% of GDP. Nevertheless, in general the country is in good financial shape, and ready to ride out the external energy and ruble contagion for several years.
Chris Weafer is Senior Partner at Macro Advisory, which offers bespoke Russia-CIS consulting.
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