Previous Quarterly Editions
Expropriation Risk: 74 74 74 78 ▲ Political Violence Risk: 49 49 49 51 ▲ Terrorism Risk: 42 42 43 45 ▲ Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ► Sovereign Default Risk: 47 47 47 57 ▲
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Turkmenistan has taken only faltering steps to address climate change. As part of its Nationally Determined Contribution, the government has pledged to level off and reduce greenhouse gas emissions from 2030. This pledge was reiterated at the COP26 international climate meetings in 2021 by Serdar Berdimuhamedow, who was subsequently elected president of Turkmenistan in March 2022 (the former president is likely to continue to manage affairs of state with his son for the foreseeable future). Other than this broad commitment, the government has not set any specific goals for emissions reduction, nor has it set a net-zero emissions target.
Despite its small population of just 6 million people, Turkmenistan is a major contributor to emissions. According to the International Energy Agency, Turkmenistan is the fourth largest producer of methane in the world, after Russia, China, and Iran. According to one study, Turkmenistan accounted for 31 of the worst 50 methane releases at onshore oil and gas operations since 2019. These emissions are the result of a marked failure to upgrade any of the country’s oil and gas infrastructure.
This failure to upgrade the country’s industrial infrastructure is reflective of a wider economic crisis across the country. When in 2020 China cut its imports of natural gas from Turkmenistan,
the country’s economy experienced a severe downturn, resulting in some unprecedented signs of popular unrest. In the last two years, the government has sought to engage with international financial institutions and export credit agencies, in an attempt to finance upgrades to its industrial and agricultural hardware. However, this has seen mixed results. During his inauguration speech in March, Berdymukhamedov stated he would increase the country’s efforts to work with international financial institutions, a policy which could lead Ashgabat to take firmer steps towards emissions reduction.
While being a major contributor to emissions, Turkmenistan is also extremely vulnerable to climate change. The country is already water stressed and likely to see reductions in water resources in coming years. Last year, the country was subject to an extreme drought, which severely affected agricultural production. In the longer term, the country’s agricultural regions, which are already extremely arid, are at risk of desertification -- a major threat to food security.
Facing a severe economic crisis, Turkmenistan in the last two years has made efforts to engage with the international community to secure investment. The primary focus has been in improving productivity with new capital investment in agriculture and the oil and gas industry.
Many of these overtures have been made to international financial institutions and export credit agencies. During his inaugural speech in March, Berdymukhamedov stated that he would engage further with international financial institutions, including the International Monetary Fund (IMF). However, despite this apparent progress, the investment climate remains extremely challenging, with only the most favoured investors able easily to access opportunities within Turkmenistan.
Investors who do not enjoy a strong relationship with the state are likely to face considerable difficulties, including expropriation risk, at the hands of numerous government investigative bodies acting at the direction of the country’s leadership. Currently, there are four open international arbitration cases against Turkmenistan, largely in the construction sector.
Turkmenistan’s economic crisis rolls on, with shortages of food and hard currency widespread across the country. In the depths of the crisis in 2020, there were some nascent signs of protest across the country. However, these were largely spontaneous outbreaks of discontent, with no political agenda or wider organisation.
Nearly two years on, the situation remains dire. In February, now-former President Gurbanguly Berdimuhamedow- who had been president since 2006 - berated the country’s regional leaders for failures in preparing for the coming agricultural season, suggesting that there will be further shortages throughout 2022.
Conditions could be worsened by the crisis in Ukraine, which is likely severely to disrupt supply chains across the region. With neutrality written into Turkmenistan’s constitution, there is little chance of Turkmenistan becoming involved in the crisis. Nevertheless, the conflict places Turkmenistan in a difficult position, given that Russia is a key ally.
While Turkmenistan is likely to see numerous minor outbursts of popular anger, there is little possibility of a mass opposition force emerging. Protests are quickly dealt with, usually by placating the demands of specific participants. However, any signs of coordination between activists will be heavily cracked down upon by the government.
Throughout its history as an independent country, Turkmenistan has not been subject to any domestic terrorist attacks. Nevertheless, its proximity to Afghanistan has made the government extremely vigilant towards the risk of radicalisation by forces based in Afghanistan. For this reason, terrorism is one of the few areas where Turkmenistan actively coordinates with the international community.
The fall of Afghanistan to the Taliban in later 2021 has caused the government to become even more vigilant. However, there is little sign so far of attempts by the Taliban or other groups based in Afghanistan, such as Islamic State Khorasan, to spread their ideologies within Turkmenistan. Viewing Afghanistan as a potential export route and destination for exports -- including gas and electricity- the Turkmen government has sought to engage with the Taliban, one of the few foreign governments to do so.
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The national currency, the manat, is highly regulated by the government, making it extremely difficult to define a market value for the currency. For more than ten years, the manat has held at either 3.5 or 3.7 to the U.S. dollar, while the currencies of its regional partners and other commodity exports have declined significantly. The black-market rate within Turkmenistan, according to independent media outlets, continues to fluctuate at around 40 manat per U.S. dollar.
When gas exports to China declined dramatically, the government further tightened currency controls, leading to massive shortages of currency in the corporate sector and among the population. With the crisis in Ukraine further disrupting the economies of the former Soviet region, it is possible that the government will introduce further curbs to the currency market.
Regarding sanctions, no Turkmen entities are under sanction by the U.S. government.
The true state of the Turkmen government’s finances is unknown. Last year, the IMF and World Bank both decided no longer to rely on statistics provided by the Turkmen government, effectively stating that the government was either not able or willing to provide adequate data on its economy.
Currently, the IMF projects growth of 1.7% in 2022, considerably lower than the 6% claimed by the Turkmen government. Despite the absence of data, there are real signs that the Turkmen government is experiencing serious issues in repaying its debt.
In December 2021, the former President Berdymukhamedov gave all state-owned enterprises with debt to state banks a year’s reprieve, suggesting that the state-owned economy is in real difficulty. The government gave no explanation as to how the state will be able to finance such debt holidays.
With an absence of reliable economic data, yet all the signs of a domestic economic collapse, it appears Turkmenistan is not in a position to provide the guarantees required to take on sovereign debt. The economy has been mismanaged, resulting in what appears to be a decline in industrial and agricultural production and a significant rise in poverty.
Berdymukhamedov will seek to increase cooperation with Russia, including a restoration and potential expansion of gas exports. In the long term, Afghanistan has the potential to offer Turkmenistan an alternative export for its gas. For this reason, Ashgabat has sought to establish diplomat relations with Kabul, despite the potential security risks.
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