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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007
STATE COMMODITY & RAW MATERIALS EXCHANGE OF TURKMENISTAN
ECONOMIC AND POLITICAL DEVELOPMENTS
Politic and Economic Environment
It is expected that the president, Saparmurad
Niyazov, will remain in power in 2007-08.
Prospects for the introduction of any kind of
political pluralism are negligible. The political
upheavals elsewhere in the former Soviet
Union over the past few years will have
reinforced Mr. Niyazov's belief that any
attempt at reform risks undermining his
position. He will continue to rely on the
practices that have sustained his rule until
now: guaranteeing basic welfare provision,
minimizing political freedom, and maintaining
an extensive patronage network to ensure
the support of the political elite. Although
Mr. Niyazov looks unchallengeable for the
moment, the frequent reshuffles of officials
on the grounds of corruption and
incompetence suggest that tension is rising
within the political system, and that the
president's patronage network could be
starting to unravel.
The focus of Mr. Niyazov's foreign policy will
be to ensure that the country's existing gas
export deals are maintained on favorable
economic terms, as well as to secure new
gas export deals and further inward
investment for the hydrocarbons sector. An
agreement reached with China in April 2006
provides for the construction of a new gas
pipeline linking the two countries, and
appears to have given Turkmenistan some
leverage in its export negotiations with
Russia-in September 2006 the Turkmen
authorities secured a 40% increase in the
price of gas exports to Russia.
We expect the government's economic
policies to remain broadly unchanged, with
the state maintaining the dominant role in all
sectors of the economy. Subsidies, price
controls and the free provision of utilities will
continue to underpin these policies. The
sustainability of this system will depend
mainly on Turkmenistan's ability to earn hard
currency from commodity exports. In view of
the development of the domestic oil-refining
sector, and the expectation of continued high
world energy prices, we anticipate that
export revenue will hold up sufficiently to
preclude any need for the government to
introduce economic reform.
Turkmenistan will continue to benefit from
strong demand in Russia and China for its
energy resources, and has already taken
advantage of the competition in the region
for gas supplies by negotiating a higher price
for its exports to Russia as of October 2006.
Even if world energy prices fall by more
than anticipated in the coming years,
Turkmenistan will retain bargaining power in
price negotiations. High world oil prices will
also work in its favor. Revenue from cotton
fibre exports will increase slightly, as rising
global prices are expected to offset
stagnating volumes. Global industrial raw
materials prices are forecast to weaken from
the record highs of recent years, thereby
easing pressure on Turkmenistan's import
costs.
Economic Performance
The hydrocarbons industry will remain the
principal engine of growth throughout 2007-
08, with construction also continuing to make
a substantial contribution to growth. Output
of natural gas is expected to rise, driven by
Turkmenistan's export contracts with Russia
and Iran; oil production will also post
moderate growth. Based on the expectations
for output growth for Turkmenistan's main
commodities–hydrocarbons, cotton and
grain–real GDP growth of around 8% in both
2007 and 2008 is expected. Official statistics
will continue to overstate output, probably
reporting growth rates of around 20%.
Recorded statistics for inflation mainly
indicate price trends in urban centers, as
Turkmenistan's rural areas are reported to be
virtually demonetized. Moreover, even those
official consumer price data that are rarely
available fail to capture price trends on the
black market, where most household goods
are obtained. Rises in public-sector wages
and benefits–funded in part by printing
money–are likely to exert inflationary
pressure, although the fact that these
payment increases are often not received in
full will diminish the impact. Consumer prices
will rise by around 11% per year in 2007 and
2008.
Large inflows of foreign currency from oil
and gas exports and restrictions on access
to foreign exchange will enable the Turkmen
authorities to maintain the official exchange
rate at Manat5,200:US$1. The black-market
rate is also expected to remain
comparatively stable-in part owing to a
shortage of currency in circulationdepreciating
only slightly in 2007-08 from its
2006 rate of around Manat25,500:US$1.
As a result, the manat's "estimated market"
rate (a weighted average of the official and
black-market rates) will depreciate by
around 3% over 2007-08. If the black-market
rate were to weaken more sharply, the
government would tighten monetary policy
in order to reduce even further the amount
of manat in circulation.
* The Economic Intelligence Unit Ltd., October 2006
1999-ORIGINS OF GROSS DOMESTIC PRODUCT (%)
Industry Agriculture & forestry
Construction Services
26.0
32.0
11.0
31.0
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