Back Matter

APPENDIX I Turkmenistan: Statistical Issues

I. National Accounts. Price Indices. Wages and Employment

1. National accounts

The State Statistics Committee (Goskomstat) of Turkmenistan continues to publish statistics based on the statistical methodologies inherited from the Soviet Union. Due to a lack of staff trained in international statistical methodology and inadequate computer resources, Goskomstat has been forced to provide its statistics to international agencies with serious caveats, and has repeatedly requested technical assistance. The Fund has provided extensive technical assistance on national accounts and price statistics.

Goskomstat of Turkmenistan continues to compile two measures of output: Gross Social Product (GSP) and National Income Produced in the Material Sphere (NIP), i.e. indicators used under central planning. GSP includes all intermediate levels of production, while NIP is valued both including and excluding indirect taxes, less subsidies. Using monthly and quarterly volume of production indicators, data are first compiled in comparable prices (that is, current period expressed in the prices of the previous period). Data in current prices are then derived using wholesale and consumer price indices. Aggregate data for Gross Domestic Product (GDP) also are compiled in current prices but are not published. GDP estimates for 1992 and 1993 have been provided to the staff but the quality of these estimates is dubious.

NIP estimates are converted, by the staff, to GDP equivalents by means of a “translation key.” This methodology consists of adding on estimates of missing components to Goskomstat’s NIP measure. However, these estimates of GDP are unreliable given that the calculation of NIP suffers from methodological weaknesses in regard to data collection and lack of suitable price deflators. Turkmenistan is in an early stage of reform of its national accounts system and would benefit from technical assistance and training in all aspects of national accounts.

One major problem identified with the decomposition of national income utilized is the treatment of investment, described by Goskomstat as “accumulation.” An estimate is obtained from reports of enterprises, and includes both investment in new capital goods and revaluation of existing capital goods. It thus follows that even without any new investment, in an highly inflationary environment, asset revaluation alone will lead to very high estimates for accumulation as measured by Goskomstat. The authorities are now aware of this problem, and are attempting to decompose accumulation into revaluation and investment. The inclusion of revaluation of assets explains the jump to historically high reported shares of accumulation in 1992 and 1993 GDP.

2. Price indices

The main measure of inflation in Turkmenistan is the retail price index (RPI). The RPI is based on the standard Soviet methodology, and is a Paasche index based on a changing set of weights emanating from retail sales data. 1/ Prices are surveyed in the six largest cities of Turkmenistan, and the average individual commodity prices in each city are weighted by total sales to derive the average price for the country as a whole. Unfortunately, the RPI has extremely limited coverage of private kiosks and private exchanges of goods and services at established markets. The RPI reflects the inherited Soviet methodological concept of total coverage, instead of sample surveys, and comprises 2,500 goods and services, which has complicated the collection of price information.

Goskomstat initiated a pilot project to estimate a Laspeyres consumer price index (CPI), by using a constant set of weights (from retail sales) and price relatives from the regular RPI reporting network. The authorities are expected to move to the compilation of a fixed base Laspeyres type CPI index using information from the latest household budget survey. However, a complete lack of computer systems has precluded significant progress in this area.

Turkmenistan calculates a producer price index (PPI) as its measure of inflation on the producer level. The PPI is a fixed-weight index, with weights determined as the share of a particular industrial sector’s output in the total value of output during the preceding year. However, the fixed weights are changed each year and the index is based on a Sauerbeck methodology.

3. Wages and employment

Wage data are reported both as the average for the latest quarter and for the most recent month, based on the average wage bill and the average level of employment. Goskomstat prepares tables on wages and salaries by industry and by region, providing the number of full-time employees and their salaries. In addition, a monthly household income/expenditure survey is compiled, with information on non-wage income.

The provision of employment statistics is not centralized under one government agency in Turkmenistan. Rather, two different government agencies track employment and wages, using different definitions of such basic sectors as agriculture. Due to differences in scope and definition, the Government’s various data are only roughly comparable.

II. Fiscal Accounts

The statistical reporting of the financial operations of the Government is timely but somewhat incomplete. In particular, the budgetary accounts do not include any of the Government’s foreign currency transactions, including foreign financing, which have been, at least until recently, considerable. An economic or functional classification of expenditure has just started being prepared by the authorities but its reliability is still questionable. The Government has until recently relied upon monthly reporting of its revenue and expenditure by commercial banks. However, following technical assistance from the Fund which included the assignment of a Resident Advisor, a Treasury became operative on January 1, 1995.

There have been a number of shortcomings in the fiscal reporting process. Shortcomings have related mainly to the non-inclusion of the operations of several extrabudgetary funds in the fiscal reporting system, as well as certain off-budget outlays, the classification of financing items as revenues, and the lack of preparation of an economic classification of expenditures. However, for 1994, most of the transactions of the extrabudgetary funds have been included in the latest fiscal accounts and quarterly budget execution reports have incorporated a better presentation of important financing items.

Progress is still required in the areas of: (i) calculation of the outstanding debt of the Government; (ii) the inclusion of certain financing items as revenue items, thus understating the size of the deficit; and (iii) debt assumption operations that do not appear on budget, thus creating discrepancies in the magnitude of domestic banking financing reported by the CBT and the Ministry of Finance.

III. Money and Banking Statistics

Under a program of technical assistance from the Monetary and Exchange Affairs and Statistics Departments of the Fund, progress has been made in compiling monetary statistics from the existing bank accounting system. Work also has progressed, with the assistance of experts from the cooperating central banks, on the development of a new Chart of Accounts for the CBT and of accounting instructions, with implementation expected by early 1995.

The CBT, however, does not publish any monetary accounts and credit statistics. A monetary survey is currently prepared by EUR II Department with the assistance of the STA Department.

IV. Balance of Payments

In the third quarter of 1993, the source of merchandise data was changed from enterprise surveys prepared by Goskomstat to customs statistics compiled the newly created State Customs Office (SCO). While this step represented progress in putting in place the proper institutional arrangements, the customs statistics at present have substantial coverage and valuation problems arising from the weakness of border controls. Since the first quarter of 1994, a reporting system has been established, data collected and processed, and quarterly balance of payments statements compiled within the CBT. However, considerable work is required to bring Turkmenistan’s balance of payments to international standards and conformance with the Fund’s Balance of Payments Manual. The major shortcomings at present relate to: (i) the customs statistics used to compile the general merchandise account; (ii) the coverage of data for various balance of payments entries; and (iii) an excessive degree of decentralization of data collection.

Weaknesses in the coverage of data for various balance of payments transactions reflect incomplete implementation of recommendations by technical assistance missions to introduce surveys and poor responses by enterprises and official institutions. Arrangements for monitoring foreign direct investment and external debt are grossly inadequate. Data on humanitarian assistance received from abroad are not available. Transactions with foreign armed forces, embassies, and international organizations located in Turkmenistan are not recorded at present.

APPENDIX II Turkmenistan: A Note On Financial Crowding-Out

A financial crowding out may occur when either real lending rates are too high, or real deposit rates are too low in a situation of high inflation and (relatively) high reserve ratios. Under these circumstances, private investment would be strongly discouraged or private savings (in the form of loanable funds) would be severely limited. Although this form of crowding out has the same real effects as the traditional crowding out, which is usually associated with the extraction of real resources by the public sector, it differs from the latter in two important respects: first, it does not result from the interplay of market forces, but rather from government intervention in financial markets. Second, it may manifest itself not only through high lending rates (the traditional form of crowding out), but also through low, perhaps negative, deposit rates. In the latter case, disintermediation occurs and the development of the financial sector is severely hampered.

As such, financial crowding out is a more realistic possibility in FSU countries than traditional crowding out. It poses a capital market dilemma generated by inflationary public finance and government market intervention in the financial sector. This policy dilemma may be shown as follows:

For a typical commercial bank let

L=loansR=requiredreservesD=depositsil=nominallendinginterestrateid=nominaldepositinterestratep^=inflationrater1=1+il1+p^-1=reallendingraterd=1+id1+p^-1=ratedepositratem=requiredreserveratio

and π = profits.

Then, the profit maximization condition would be

maxπ=ilL-idD(1)
subjecttoL+R=D(2)
orL+mD=D(3)

Rewriting equation (3) as

L=(l-m)D(4)

and substituting (4) into (1), the profit equation for a typical commercial

bankisreducedtoπ=[il(l-m)-id]D(5)

The first order maximization condition then yields:

il(l-m)=id(6)

Equation (6) states that the effective interest revenue of the banking sector, i.e., interest income adjusted for the interest-free required reserve ratio m, should equal the interest cost of deposits.

In real terms, equation (6) may be rewritten as:

[(1+r1)(1+p^)-1][1-m]=(1+rd)(1+p^)-1(7)

which yields

r1=11-mrd+m1-mp^1+p^(8)

Thus, the profit maximizing real lending rate is a weighted average of the real deposit rate and the inflation rate, with weights of 11-m and m1-m respectively.

The wedge that inflation drives between the two interest rates is a function of the reserve requirement. The policy dilemma between a high lending rate or a low deposit rate, noted earlier, may be brought into focus by considering the following policy actions:

Case 1. Suppose that in order to mobilize savings the Government wishes to keep a minimum real deposit rate of zero. Then, equation (8) would yield:

r1=m1-mp^1+p^(9)

An example:

In Turkmenistan, the minimum reserve requirement is 20 percent; inflation in 1994 is running at an annualized rate of 1,000 percent; then, equation (9) implies that the real lending rate would be 23 percent, equivalent to a nominal rate of 1,250 percent. It is obvious that, under such conditions, all investment projects would be crowded out.

Case 2. Suppose that the Government decided to avoid a real lending rate higher than 10 percent, in support of all investment projects with a rate of return higher than 10 percent. In this case, the real deposit rate would be calculated from equation (8) as

rd=(1-m)0.10-m(p^1+p^)(10)

An example:

Using the same numbers for Turkmenistan as those in the previous example, equation (5) shows that the real deposit rate would be -10 percent. In other words, for the Government to achieve a 10 percent real lending rate, depositors would have to accept a substantially negative deposit rate; this would obviously have detrimental effects on the availability of capital funds.

Case 3. The Government could decide to distribute the burden of high inflation equally between lenders (savers) and borrowers. Setting r1 = -rd in equation (8) we obtain:

rd=-m2-m(p^1+p^)(11)

An example:

Under the same numbers for Turkmenistan, equation (11) would imply a real deposit rate of -10 percent and a real lending rate of 10 percent. As shown in the earlier case, the substantially negative deposit rate represents a serious burden for savers with adverse consequences for the availability of financial savings through the banking system.

In reality, the monetary authorities of Turkmenistan have opted to subsidize borrowers heavily, not only in absolute but also in relative terms. This is shown in the following Table, which presents the target and actual deposit and lending rates. By “target” we mean the rates implied by the inflation assumption and the opposite actual rate from equation (6).1/

For example, the target deposit rate is a function of the actual lending rate, and vice versa.

Turkmenistan: Target and Actual Interest Rates, 1994

(In percent)

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Sources: Original data from CBT; and staff estimates.

Lenders, notably public enterprises, are subsidized not only because the real lending rate is negative, but also because the actual rate differs from the “target” rate by more than the respective comparison of the deposit rate. According to the assumptions and calculations of the above Table, the actual real lending rate is “more negative” by 12 percentage points, whereas the actual real deposit rate is “less negative” by 10 percentage points.

The Table also shows what should have been the deposit and lending rates, if the monetary authorities had wished to equalize the burden (in real terms) between borrowers and lenders. It is shown that, compared with the target nominal rates, the current actual rates imply a subsidization of borrowers by 320 percentage points.

APPENDIX III Turkmenistan: Summary of Major Taxes as of December 1, 1994

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APPENDIX IV Turkmenistan: Real Wages with Allowance for Subsidies

1. Problems with simple measures of the real wage

Estimates of the real wage are typically obtained by deflating the nominal wage by some measure of the price level. In transition economies, however, such measures may miss a large part of the overall change in living standards. Governments of these economies often provide extensive subsidies for consumption. The way in which the simple measure of the real wage described above fails to capture the effect of these measures on real income may described in two ways, viz: (i) subsidized products have a lower weight in the RPI basket than would be the case if subsidies were removed; as a result, changes in the RPI tend to capture disproportionately more the impact of non-subsidized goods than subsidized goods and services. 1/ (ii) equivalently, the measured nominal wage is below the wage that would be received if subsidies were instead paid directly to workers.

One way to overcome this weakness of traditional real wage measures is to add the -per-capita subsidy 2/ to the simple nominal wage before deflating by the price level. How this correction would modify the results of the simple deflation approach is shown in the next section. 3/

2. Estimation of the real wage with allowance for subsidies

The table below shows the calculations of the minimum and average simple and broad wage between December 1993-December 1994; it also shows calculations of two alternative measures of the real wage: deflating the nominal values on the basis of, first, the RPI and, second, the minimum consumption basket.

a. The minimum wage

As an example of the importance of subsidies in assessing the change in real purchasing power, a broad real wage measure may be estimated in Turkmenistan for the period after the introduction of the manat, i.e., from December 1993 to December 1994. The nominal wage in December 1993 was manat 150, and was raised by 67 percent to manat 250 by December 1994. Prices during the same period rose by 1,074 percent, implying a fall in the simple real wage to 14 percent of the end-1993 level.

Subsidies in 1993 totalled manat 788 million. 1/ To obtain the value of subsidies in December 1993, it may be noted that the total annual subsidy (TAS) expressed in current prices is given by:

SJan.(1+PJan)+SFeb.(1+PJan).(1+PFeb)…+ SDec.(1+PJan).(1+PFeb)…(1+PDec), where Si is the subsidy in month (i) expressed in December 1992 prices.

Turkmenistan: Simple and Broad Wages, 1993-94

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Sources: Original data provided by Turkmen authorities; and staff calculations.

Comprised of manat 461 million from the budget and manat 327 million from the Ministries.

Deflated by RPI.

Deflated by the minimum consumption basket index.

October 1994.

If the real value of the subsidy is assumed to be constant during 1993, then:

TAS=S[(1+PJan)+(1+PJan)(1+PFeb)+(1+PJan)(1+PFeb)(1+PDec)].i.e.,S=TAS/[(1+PJan)+(1+PJan)(1+PFeb)+(1+PJan)(1+PJan)(1+PDec)].

Given monthly inflation estimates in Table 23,

s=78861.7

i.e., in December 1992 prices, S = manat 12.8 million

or in December 1993 prices, S = manat 137.2 million.

With a population of 3.714 million, the monthly per capita subsidy in December 1993 is manat 37 million, and the broad real wage is thus manat 187 at the end of 1993.

Turning to 1994, the latest available information is for the month of August. The Institute of Economy and Finance (IEF) has estimated the annualized cost of subsidies in August 1994 at manat 6.5 billion in August 1994 prices. The value of the per capita subsidy in December 1994 prices would thus be manat 1,078, implying a broad wage of manat 1,328. The rise in the nominal broad wage is thus 610 percent, implying that 60 percent of real-purchasing power as of end-1993 is retained.

The Turkmen authorities do not focus primarily on the RPI when considering the real value of the minimum wage. Rather, the minimum consumption basket (MCB) prescribed by the IEF is used as a basis for their calculations. 1/ Nonetheless, if the simple nominal minimum wage is deflated by the MCB, then by end-October 1994 2/, the implied simple real wage has fallen to 28 percent of its end-1993 level. If, however, the December 1993 subsidy estimate is added to the December 1993 minimum wage, and the IEF estimate for subsidies in August 1994, expressed in October 1994 prices, is added to the minimum wage in October 1994 before deflating by the MCB, then the real minimum wage in October 1994 is estimated to have actually increased to 138 percent of its end-1993 level.

b. The average wage

The simple nominal average wage increased 479 percent from manat 342 in December 1993 to manat 1979 in December 1994, and when deflated by the RPI has thus declined to 49 percent of the end-1993 level. Inclusion of subsidies implies a broad average wage of manat 379 in December 1993, rising by 707 percent to manat 3,057 in December 1994. The real wage measured in this way only falls to 69 percent of its end-1993 level.

If, instead, the simple nominal wage is deflated by the MCB, its purchasing power is found to have increased to 113 percent, and the rise for the broad measure to an even higher 157 percent of the end-1993 level.

APPENDIX V Turkmenistan: Technical Assistance

Substantial technical assistance and training has been provided to Turkmenistan in virtually every area of economic policy. In 1993 and the first eleven months of 1994, there were twenty-one technical assistance missions, provided by FAD, MAE, STA, and the Institute, not including visits by experts from cooperating central banks. Extensive technical assistance has been provided on strengthening monetary and fiscal institutions; enhancing the effectiveness of monetary, exchange rate and fiscal management; and improving the compilation of statistics. In addition to an intensive program of missions, the Fund has also stationed a resident representative in Ashgabat since October 1993 and has provided a resident advisor to the Central Bank and posted a resident advisor in Treasury Management at the Ministry of Economy and Finance. Other international agencies and governments—including the World Bank, EBRD, OECD—are also providing a wide variety of technical assistance. In general, the authorities have been receptive to the technical assistance that has been provided; however, the implementation of the recommendations has been limited by political constraints and the lack of skilled personnel.

1. Monetayy affairs

The technical assistance has included advice on banking legislation, central bank accounting and internal audit, payments system, central bank organization and management, foreign exchange operations and management, banking supervision, monetary research and analysis, currency issuance, and monetary operations and money market development. Four MAE missions, in June and December 1992, in May 1993, and in May 1994, focused on the modernization of the Central Bank and the banking system. Also, in October 1993, a mission was conducted to support the authorities’ introduction of a new national currency. A resident advisor has been posted at the CBT since February 1994.

2. Public finances

The Fiscal Affairs Department has given comprehensive advice to Turkmenistan in the areas of budgetary procedures and the establishment of a Treasury system. Four missions, in March and December 1992, in July 1993, and in January 1994, focused upon the establishment of a Treasury system and the improvement of public finance management. A resident advisor has assisted the Ministry of Economy and Finance in the setting up of the Treasury since January 1994. The Treasury is expected to be fully operational by early 1995. The development of a treasury system is aimed at achieving control of budget execution. Particular attention is to be given to cash management, debt management, and financial planning. The recommendations included the phased implementation of a computerized treasury system which would allow the Ministry of Finance to monitor, control, and adjust the receipt and spending of budgetary funds on a continuous basis.

3. Statistics

The Fund’s technical assistance program in statistics has focused on the development of the institutional framework appropriate to the needs of a market economy. The assistance has focused upon establishing procedures for collecting and compiling monetary, government finance, balance of payments, national accounts, and consumer price statistics in accordance with international standards.

A total of nine STA missions have been organized since May 1993, three in the area of money and banking statistics, two each in the areas of balance of payments statistics and the compilation of price indices, and one on the improvement of government finance statistics. An additional multitopic mission took place in July 1993.

4. Training

Besides the continuing strong participation of Turkmen officials in courses in Washington and at the Vienna institute in the areas of macroeconomic management, expenditure control, financial programming, taxation, statistics and other areas, the Fund’s Institute conducted two courses on macroeconomic and financial policies. Seminars and training sessions have also been conducted by MAE and STA technical assistance missions.

APPENDIX VI Ministries and Institutions

I. Ministries and Institutions Essentially Supported by the Central Budget

1. Ministry of Foreign Affairs

2. Ministry of Defense

3. Ministry of Social Security

4. Ministry of Economy and Finance

5. Ministry of Justice

6. Ministry of Health Care

7. Ministry of Public Education

8. Ministry of Culture

9. Ministry of International Economic Relations

10. State Customs Board

11. National Security Committee

12. State Statistics Committee

13. Physical Culture Committee

14. State Tourists Corporation “Turkmen siyakhat”

15. “History and Culture Monuments” Protection, National Exploration and Restoration Directorate

16. Committee on Protection of State Secrets in Press and Other Means of Information

17. Enterprise Support Department

18. Medicinal-Sanitation society

19. Plants Quarantine State Inspection

20. Institute of Economics

21. State Tax Inspectorate

22. Attorney General’s Office

23. Supreme Court

24. The Highest Economy Court

25. Main State Inspection on Standardization, Entrails of the Earth Protection and Safe Operation in National Economy

26. State Society “Jenet” (vocational training)

27. Patents Office

28. National Fund of Science and Technology

29. Scientific Production Society “Stomatology”

30. State Committee on Land Tenure and Land Reforms Execution

31. “Turkmenatlary” State Society (Horses)

32. National TV-Radio Company

33. State Cinema-Video Company

34. Ministry of Nature Use and Environmental Protection

35. Presidential Directorate for the Economy

Ministries and Institutions

II. Mainly Self-Supporting Institutions

1. Ministry of Oil and Gas

2. Ministry of Consumer Goods

3. Turkmen State Energy Corporation “Kuvvat”

4. Corporation “Turkmenavtohysmatsovda”

5. Turkmen State Scientific-Production Society “Turkmenderman”

6. State Society “Turkmenkhalibirleshic”

7. Production Furniture Society “Turkmenmebel”

8. Turkmen Sea Steamship Line

9. “Kopedag-Lada” Stock Company

10. Stock Commercial Banks and Insurance Companies

11. Non-State Sector Enterprises

12. Ministry of Autotransport

13. Ministry of Home Affairs

14. Ministry of Water and Land Improvement

15. Ministry of Construction and Architecture

16. Ministry of Agriculture and Foodstuff

17. Ministry of Communication

18. Ministry of Trade and Resources

19. Ministry of Bread

20. State Information Agency “Turkmen Press”

21. Fishery State Committee

22. National Board of Civil Aviation

23. State Railway

24. “Turkmen Consumers” Society

25. “Turkmenautoyollari” State Concern

26. “Turkmegeology” Production Society

27. Turkmen Aerogeodesic Enterprise

28. Turkmen River Steamship Line

29. Ministry of Construction Materials Industry

Table 12.

Turkmenistan: Conversion from NMP to GDP, 1988–93

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Source: Data provided by the Turkmen authorities.

Includes income from private activities less incomes of domestic servants.

Includes the expenditures of those services on social-cultural activities and entertainment.

Includes other depreciation adjustments for 1991.

Table 13.

Turkmenistan: National Income Produced and Utilized, 1988–94 1/

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Source: Data provided by the Turkmen authorities.

Data for 1992,1993 and 1994 are incomplete, because they do not include trade balance.

Also known as net material product.

Understates value-added by the natural gas sector.

Calculated as a residual within national income produced. Includes trade and distribution, other branches, and special earnings of foreign trade (except for 1992,1993, and 1994).

Turkmen authorities do not routinely calculate total national income utilized, due to problems with obtaining information on the trade balance.

National Income Produced minus sum of identified components of national income utilized.

In 1983 rubles for 1988–1992 data; subsequently, in prices of the preceding year.

Calculated as a residual within national income produced. Includes trade and distribution, other branches, and special earnings of foreign trade (except for 1992,1993, and 1994).

Table 14.

Turkmenistan: Value of Gross Industrial Output, 1988–94

(In millions of current manat)

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Source: Data provided by the Turkmen authorities.

Components for 1994 do not sum to totals due to missing observations.

Table 15.

Turkmenistan: Value of Gross Industrial Output, 1988–93

(In 1982 rubles)

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Source: Data provided by the Turkmen authorities.
Table 16.

Turkmenistan: Production of Selected Industrial Commodities, 1990–94

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Source: Data provided by the Turkmen authorities.
Table 17.

Turkmenistan: Agricultural Production, 1989–93

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Source: Data provided by the Turkmen authorities.
Table 18.

Turkmenistan: Production of Selected Agricultural Commodities. 1990–94

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Source: Data provided by the Turkmen authorities.
Table 19.

Turkmenistan: Energy Reserves, 1990–92

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Source: Data provided by the Turkmen authorities.
Table 20.

Turkmenistan: Energy Balances, 1988–94

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Source: Data provided by the Turkmen authorities.

Includes statistical discrepancies.

Mazut is a semi-refined oil product used for large vehicles and for heating.