Previous Quarterly Editions
Expropriation Risk: 75 75 74 74 ► Political Violence Risk: 48 48 49 49 ► Terrorism Risk: 44 42 42 43 ▲ Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ► Sovereign Default Risk: 47 47 47 47 ►
TREND ►
Turkmenistan, as a border nation of Afghanistan, has been one of the first nations directly affected by Taliban’s takeover of Afghanistan. In July, the Taliban took over the town of Toghundi, which borders on Turkmenistan, and seized control of the customs point and rail crossing with Turkmenistan. In response, the Turkmen government significantly increased its military presence in its border regions, most notably in the south-eastern Mary region. In an attempt to limit security concerns, the Turkmen government has also engaged with the Taliban, holding at least three bilateral meetings in the last six months.
Aside from maintaining security, Turkmenistan has several strategic economic objectives related to Afghanistan: it wishes to continue the limited cross-border trade as well as its sales of electricity to Afghanistan’s northern provinces. Longer term, Turkmenistan hopes to diversify its gas exports with a natural gas pipeline to Pakistan and India via Afghanistan. The urgency for the TAPI pipeline has only increased in the last year as natural gas exports to China have fallen due to increased competition from liquified natural gas. However, while the Taliban has expressed support for the TAPI pipeline, given the security concerns there is little chance that India and Pakistan will commit to the project.
The fall in gas sales to China, Turkmenistan’s largest single export, has deepened a long-running economic crisis in the country that has hit Turkmen living standards. Shortages of food and hard currency, exacerbated by a COVID-19-related collapse in trade, have raised the possibility of hunger among some at-risk groups. Furthermore, the entire Central Asia region is facing a serious drought, which has seen the death of thousands of head of livestock, suggesting that food prices will only increase in coming months.
Turkmenistan also appears to be facing a spike in COVID-19 cases, likely driven by the virus’s delta variant; independent media reports suggest that some hospitals are overwhelmed. Despite the government denying the presence of the virus, the government has pursued a vaccination programme, although the type and availability of vaccines is uncertain.
Amid this crisis, President Gurbanguly Berdymukhamedov, who has ruled since 2006, appears to be preparing for a dynastic succession, potentially due to health concerns. In September 2020, a bicameral parliament was created following constitutional reform and, in March 2021, Berdymukhamedov was elected to the Senate, the upper chamber. At the same time, his son, Serdar Berdymukhamedov, has experienced a meteoric rise through government ranks and, in February, was appointed Deputy Prime Minister -- a post which comes with a seat on the Security Council -- and Head of the Audit Chamber. In July, he retained his Deputy Prime Minister role, but took on the profile for economic and banking issues. Serdar turns 40 in September 2021, constitutionally the minimum age at which he can assume the presidency.
In the face of growing economic hardship, the government has in recent years sought to engage with the international investment community, most notably international financial institutions. The focus has been on securing capital investment to upgrade production capacity in key sectors such as energy and agriculture.
A major victory for Turkmenistan was the completion of an agreement on the joint development of the Dostluk oil field in the Caspian Sea in January 2021 with Azerbaijan, a contract area which had been the subject of a long-running dispute between the two countries.
However, the investment climate remains highly risky for investors, who are unable to receive clear policy decisions or official data from the government and are largely dependent on the ruling clique’s whims. This year, both the International Monetary Fund (IMF) and World Bank refused to use the government’s official economic statistics in their own calculations, confirming that, despite Turkmenistan’s efforts to engage with the international community, the Turkmen government is unable to provide investors with even basic transparency.
The Turkmen population is experiencing its most severe economic crisis since the early 1990s. Nevertheless, there is little suggestion that the population has the inclination or organisational capability to protest the government’s economic management. Last summer saw some of the largest protests in Turkmenistan’s 30-year history after a series of devastating storms left many homeless.
Independent media continue to report small, spontaneous protests -- usually over the availability of food or hard currency. However, there is no sign that they have triggered a wider protest movement. These protests are quickly dealt with, usually by placating participants. While the authorities have typically exercised restraint, they will be prepared to use violence to quell any serious escalation in political unrest.
TREND ▲
The fall of the Afghan government to the Taliban has again raised concerns of the threat of terrorism in Central Asia. Turkmenistan has been at an increased level of alert since Islamic State’s collapse in Syria and Iraq in 2017, which saw many survivors of the movement relocate to Afghanistan, seeking safe haven. Consequently, terrorism has been one of the few areas where the Turkmen government has sought to engage with the international community.
The US withdrawal from Afghanistan has also caused an almost unprecedented level of cooperation between Central Asian states, a major mark of regional progress. Turkmenistan’s government has also been engaging with the Taliban, to secure the border. Currently, the Taliban appears inclined to address Turkmenistan’s concerns as part of its wider effort to secure international legitimacy. However, it remains to be seen if the Taliban is willing and able to deliver on these promises.
The government exercises tight control of the national currency, the manat, maintaining the official exchange rate at 3.5 to 3.75 manat to the US dollar since 2015. However, there is little doubt that the currency is undergoing a crisis, with black market rates peaking at approximately 40 manat to the dollar. A primary cause of the fall in the exchange rate is the collapse in gas exports to China, which make up 85% of Turkmenistan’s exports, with the closure of borders to trade due to COVID-19 being another leading factor.
In response, the government has further tightened its currency restrictions, both for state-owned enterprises and the wider economy, for example by setting up an extremely inefficient electronic payments system. While the economic crisis has been subtly hinted at during government meetings, there is little sign the Berdymukhamedov administration will change its approach to the economy or currency.
The IMF and World Bank decision to reject the Turkmen government’s statistics is confirmation of what the analytical community has long suspected: that the government has provided an inaccurate account of the economy. According to the IMF’s April 2021 World Economic Outlook, Turkmenistan experienced growth of 0.8% in 2020, radically lower than the government’s reported level of approximately 6%, which it reports each year.
There is no end in sight for Turkmenistan’s economic woes. The government appears incapable of making the reforms necessary to increase domestic production and attract investment and there is little sign that demand for natural gas from China will recover in the near term. 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.
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