Previous Quarterly Editions
Expropriation Risk: 75 75 75 74 Political Violence Risk: 48 48 48 49 Terrorism Risk: 44 44 42 42 Exchange Transfer and Trade Sanction Risk: 64 64 64 64 Sovereign Default Risk: 47 47 47 47
TREND ►
Turkmenistan remains one of the few countries in the world to claim that there have been no cases of COVID-19 within its borders. However, independent media outlets and bloggers began publishing evidence of a significant outbreak beginning in June 2020 and continuing into 2021. These reports have been rejected by the government and coverage of any matter related to the pandemic has been heavily censored. The phones of medical workers are confiscated as they begin shifts and are also regularly checked for contact with journalists.
While a World Health Organisation delegation visit in July 2020 did not conclude that coronavirus was present in the country, it did note that the government should act as though it was present. The government began a vaccination programme in 2020 with an unknown vaccine and appeared to begin a new campaign with the Russian Sputnik V vaccine in February 2021. The pandemic, however, is not the only crisis that the country is facing.
In recent years, Turkmenistan has faced a growing economic crisis as its gas exports have fallen. COVID-19 has exacerbated this crisis for several reasons. As the crisis broke out, China severely cut its imports of natural gas from Turkmenistan, a critical source of income for the country. The closure of international travel- particularly to Iran and Turkey- has also halted much of the shuttle and goods trade critical to many households in Turkmenistan. The manat, Turkmenistan’s currency, which ostensibly trades at the official rate of 3.5 manat to the US dollar, is now often traded on the black market at 35 or 40 manat to the US dollar.
The crisis has led to food shortages and a rapid increase in poverty- scavenging in bins is a regular occurrence in the cities. While the government has at times admitted that the country is set to face economic challenges, it has largely sought to hide the impacts of the crisis by clamping down on negative media coverage as well as removing homeless people and beggars from the streets.
In the face of such difficult conditions there has been a small, but unprecedented, spike in anti-government sentiment. This spiked in May and June 2021, when a series of major storms in the east of the country left thousands of residents without basic amenities. However, there appears no direct threat to the government at this stage.
Amid this crisis, President Gurbanguly Berdimuhamedov, who has ruled Turkmenistan since 2006, appears to be preparing the groundwork for a dynastic succession, potentially due to health concerns. In September 2020, a bicameral parliament was created following constitutional reform and in March 2021, Berdimuhamedov was elected to the Senate, the upper chamber.
At the same time, his son, Serdar Berdimuhamedov, has experienced a meteoric rise through the ranks of government and, in February 2021, was appointed deputy prime minister (a post which comes with a seat on the Security Council) and Head of the Audit Chamber. Serdar turns 40 years of age in September 2021, the minimum age at which he can assume the presidency according to the constitution, suggesting that further developments are not likely until the end of 2021.
TREND ▼
Facing a mounting economic crisis, the Turkmen government has sought to engage with the international investment community, albeit in a very limited manner. However, with such an opaque and politicised investment climate, only investors with strong, long-established relationships, at the highest level, will consider Turkmenistan as an investment destination.
Indeed, the ongoing economic crisis is set to result in draconian and ill-thought-through short-term measures to secure greater revenue. This could increase the possibility that the government considers expropriation measures.
However, Turkmenistan did secure one victory in January 2021, when it resolved a long-running dispute with Azerbaijan to develop the Dostluk oil and gas field, which straddles the border between the two nations in the Caspian Sea. The field could provide a new source of revenue for Turkmenistan. However, opportunities for investors appear limited as Russia’s Lukoil has already been lined up to manage the project from the Turkmen side.
TREND ▲
The Turkmen population are not unfamiliar with economic hardship and have traditionally proven stoic in the face of such difficulties. However, the current crisis has reached an unprecedented level of deprivation. While it presents little threat to the regime, there is a small but notable rise in popular unrest. The protests in Turkmenistan’s north-east, following a series of devastating storms in May and June 2020, were easily the largest seen in Turkmenistan’s 30-year history as an independent country. However, these have not been repeated.
More common are sporadic protests at shops and local administrative buildings sparked by shortages of currency or goods. While the authorities have typically exercised restraint, they will be prepared to use violence to quell any serious escalation in political unrest.
Turkmenistan shares a land border with Afghanistan and is a conduit through which the drugs trade enters Eurasia and travels on to Europe. With the collapse of Islamic State (IS) between 2017 and 2019, there has been an exodus of IS fighters to northern Afghanistan.
For this reason, the Turkmen government continues to view terrorism as a potential threat to national security and this has been one of the few areas on which Turkmenistan has been willing to engage with the international community.
Nevertheless, there is little evidence of a domestic terrorism threat within Turkmenistan and the government has often exaggerated the threat, to justify its repressive law enforcement measures at home.
Despite the absence of reliable data, there is little doubt that the Turkmen currency is experiencing a
crisis. Already under pressure as the coronavirus crisis began, the collapse in gas exports to China, which previously accounted for 85% of the country’s exports, and the closure of borders and international flights, have seen the currency come under greater pressure.
While the government maintains the official rate of 3.5 manat to the US dollar, the black-market rate has plunged to as low as 40 manat to the US dollar. The crisis has caused the government to institute even more drastic currency controls, such as forcing all foreign exchange income from state-owned enterprises to be transferred into a central fund and moving retail outlets onto a state-run e-pay system. Individuals have also found themselves unable to access foreign currency and even, at times, the manat.
The true state of the government’s finances is extremely difficult to ascertain. Turkmenistan does not publish reliable data, nor does it engage with global capital markets or credit agencies. However, independent media reports attest to the impact that the economic crisis has had on the government budget and the wider country, particularly on the collapse of gas exports.
With global liquefied natural gas prices now competitive with natural gas, the country’s primary source of income is no longer guaranteed, particularly via the pipeline to China, causing Turkmenistan to seek alternate export routes. However, there is little prospect of a new route being secured in the near to mid term, suggesting the country is set to face a protracted economic crisis.
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