TURKMENISTAN: THE LATEST CIS ECONOMIC TIGER?

According to data recently released by the national statistical office, Turkmenistan was by far the fastest growing economy in the CIS during the first half of the year (Sotsial’no-ekonomicheskoe Polozhenie Turkmenistana, Yanvar’-Yul’ 1999). GDP at mid-year was reported up a stunning 15 percent over mid-1998, and industrial output was up 18 percent. Foreign trade was even stronger, as first-half exports were three times larger than in the corresponding period of 1998.

These data suggest that Turkmenistan has become the CIS economic success story. However, the data are in many respects misleading, and Turkmenistan remains in many respects one of the CIS’s most troubled economies. This is because Turkmenistan’s successes in 1999 are due almost solely to a temporary revival of the natural gas industry. Turkmenistan is well endowed in natural gas: Annual export capacity estimated at over 90 billion cubic meters (bcm). Unfortunately, Ashgabat has been unable to find paying customers for its gas exports. Sales to debt-ridden CIS customers, most notably Ukraine, ceased over payment disputes in 1997, and gas production reached an all-time low of only 13.3bcm in 1998. A new export agreement negotiated with Ukraine last December for sales of 20bcm in 1999 then set the stage for resurgent growth this year. Unfortunately, Kyiv has reverted to form, and Turkmenistan’s gas exports to Ukraine in May ceased due to Ukrainian payments arrears. Gas production in May dropped almost 30 percent over April, and further output declines are certain to have occurred during the second half of the year.

The longer-term implications for Turkmenistan of the primacy of its gas sector are also troubling. Gas production generally accounts for 40-50 percent of industrial output. In the first half of 1999, gas sales accounted for almost 60 percent of Turkmenistan’s exports. Turkmenistan therefore relies heavily on gas revenues for balance of payments support and to prop up the national currency, the manat. Textiles and food processing are the only other sectors that comprise a significant share of total output. But these sectors’ development prospects have been hurt by the Niazov government’s slow economic reforms and erratic authoritarianism, which have kept foreign investment low. Given the risk of a downturn in world energy prices and the payments problems of Turkmenistan’s customers, the economy is more vulnerable to external shocks than countries with more diversified production. Developments during the second half of 1999 are likely to show that answers to Turkmenistan’s economic problems will require more than a temporary gas boom.

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