Turkmenistan
Recent Economic Developments
Author:
International Monetary Fund
Search for other papers by International Monetary Fund in
Current site
Google Scholar Close
Publication Date:
07 May 1996
eISBN:
9781451837216
Language:
English
Keywords:
ISCR; CR; exchange rate; foreign currency; broad money; commercial bank; gas export; balance of payments; current account; central bank; debt service; bank credit
Download PDF (8.6 MB)

This paper reviews economic developments in Turkmenistan during 1992–96. There was a general strengthening of centralized controls during 1993–95 to protect international reserves. Monetary and exchange rate policies were geared toward sustaining a network of implicit taxes and subsidies that helped promote selected areas of economic activity and provide social protection. Real GDP declined by nearly 19 percent in 1994, reflecting, for the most part, contraction of the gas and cotton sectors. Gas production declined continuously from 87.8 billion cubic meters in 1990 to 35.7 billion cubic meters in 1994.

Abstract

This paper reviews economic developments in Turkmenistan during 1992–96. There was a general strengthening of centralized controls during 1993–95 to protect international reserves. Monetary and exchange rate policies were geared toward sustaining a network of implicit taxes and subsidies that helped promote selected areas of economic activity and provide social protection. Real GDP declined by nearly 19 percent in 1994, reflecting, for the most part, contraction of the gas and cotton sectors. Gas production declined continuously from 87.8 billion cubic meters in 1990 to 35.7 billion cubic meters in 1994.

I. Background

Turkmenistan, which has a population of over 4 million people, is located in the southernmost part of the former Soviet Union (FSU). The country is well endowed with mineral resources, particularly natural gas. Its gas reserves are among the world’s largest, and it also has proven and recoverable oil reserves, although of lesser significance. Turkmenistan is among the top ten producers of cotton in the world. The economic structure reflects Turkmenistan’s role in the FSU, from which it gained independence in 1991. Turkmenistan inherited a highly specialized and trade-dependent economy, exporting gas and cotton, and importing a wide range of producer and consumer goods. Gas and cotton continue to dominate production and foreign trade.

Turkmenistan’s gain from the shift toward world prices for energy in recent years was partially eroded by the accumulation of arrears (principally by Ukraine) on payments for its gas exports. There was a general strengthening of centralized controls during 1993-95 to protect international reserves. Monetary and exchange rate policies were geared toward sustaining a network of implicit taxes and subsidies that helped promote selected areas of economic activity and provide social protection. In the face of declining revenue, expenditure compression was the major means of containing imbalances in government operations, narrowly defined to exclude a number of extrabudgetary funds and key ministries. Credit allocation by decree and maintenance of highly negative real interest rates fueled monetary expansion. In this setting, output declined for several consecutive years and inflation averaged over 1,000 percent annually in the recent period. Moreover, notwithstanding its large international reserves, in 1995, Turkmenistan incurred arrears to a number of non-FSU creditors (notably to the European Union) on the servicing of its external debt.

In this environment, there was limited progress in modernizing and reforming Turkmenistan’s economy toward a market-oriented system. In 1995, the Government substantially reduced the number of goods subject to price controls and adjusted agricultural procurement prices closer to world market levels. However, there was not much progress with privatization, including in agriculture, and strict control continued to be exercised over the economy. As a result, there was little incentive for the development of a private sector, and a heavily subsidized public enterprise sector continued to dominate the economy.

In recognition of the pressing need to address these problems, and create the conditions conducive to the development of a market-based economy, the Government of Turkmenistan adopted a comprehensive economic reform program on December 27, 1995. Most notably, the exchange rate was unified, credit allocation by decree was discontinued, interest rates freed, and further substantial measures toward price liberalization introduced, considerably strengthening Turkmenistan’s prospects for stabilization and growth.

II. The Real Economy and Systemic Reforms

1. Output and growth

a. Overview

Economic activity in Turkmenistan is highly concentrated in the gas sector, which accounted for half of GDP in 1995. Reflecting the legacy of the Soviet era, gas exports are mostly to the FSU countries. During 1993-95, as gas payments arrears to Turkmenistan accumulated, gas production and exports were cut back. This was the main factor underlying the cumulative decline in real GDP of close to 40 percent in this period. Cotton is the other dominant sector of the economy, accounting for about a sixth of GDP in 1995. Nearly all cotton is exported to non-FSU countries. There is also an increasing emphasis on grain production. Virtually all output is produced by public sector enterprises, and private sector activity remains very limited.

b. The national accounts 1/

Until recently, Turkmenistan retained the system of national accounting inherited from the Soviet era, in which net material product was the key concept. GDP on a Standard National Accounts (SNA) basis was estimated by adjusting these accounts for depreciation and the so-called “nonmaterial” sector, which essentially covers services. Beginning in 1995, the authorities started to calculate the national accounts (retroactive to 1993) on an SNA basis. Presently, these estimates are only for GDP on a production basis, and not on an expenditure or income basis.

The national accounts compiled by the authorities undervalue the contribution to GDP of the gas and cotton sectors. This results from the valuation of exports of gas and cotton at contract prices and their conversion into manat at a special or the official exchange rate, considerably below the market rate. 2/ To correct the undervaluation resulting from the use of the official exchange rate, the national accounts compiled by the authorities have been adjusted to reflect market exchange rates for exports in the gas and cotton sectors. 1/

In addition, indications are that the use of barter transactions, particularly in the cotton sector, may have resulted in lower implicit contract prices, thus reducing the contribution of these sectors to GDP, although no attempt is made to correct for this factor. Due to the deficiencies in compilation and the approximate nature of the adjustments made, the national accounts data should be treated as indicative only. The discussion in the following sections is based on the estimates of GDP adjusted as noted above.

c. Recent developments in GDP

Real GDP declined by nearly 19 percent in 1994, reflecting, for the most part, contraction of the gas and cotton sectors (Tables 1 and 5, and Chart 1). Gas production declined continuously from 87.8 billion cubic meters in 1990 to 35.7 billion cubic meters in 1994. The latter represented almost a halving of the previous year’s production level. Cotton fiber production declined by 9 percent in 1994, following a mixed performance in previous years. Most of the rest of the agricultural sector showed stable output, but wheat production rose, reflecting efforts to diversify agricultural production and move towards self-sufficiency in wheat. Given limited irrigation facilities, and the different seasonal irrigation requirements of grain and cotton, the authorities’ policy has been to distribute land between these two crops in such a way as to maximize the gains in output. Performance in industry and services was mixed, with activity in some subsectors showing moderate increases.

Table 1.

Turkmenistan: GDP by Sector, 1993-95

article image
Sources: Data provided by the Turkmen authorities; and staff estimates.
Chart 1
Chart 1

TURKMENISTAN: REAL SECTOR INDICATORS, 1993-95

Citation: IMF Staff Country Reports 1996, 030; 10.5089/9781451837216.002.A001

Sources: Data provided by the Turkmen authorities; and staff estimates.1/ Nominal wages deflated by consumer prices.

Real GDP is estimated to decline by nearly 14 percent in 1995. The downward trend in the gas sector has continued, with gas extraction for the first three quarters declining by 25 percent over the comparable period of 1994. Approximately the same decline is estimated for the year as a whole. The domestic consumption of gas has grown with increased gas service throughout the country and with the start up of more industrial plants. However, given that much of domestic consumption is either free of charge or is at low prices, the contribution to GDP of gas consumed domestically has remained small relative to exported gas. Cotton fiber production, although down by 7 percent in the first three quarters of 1995 compared with the same period of the previous year, is estimated to recover sharply in the fourth quarter (seasonally the most active) to bring about a 5 percent growth for the year as a whole. Wheat production is also estimated to grow in 1995, partly because of increased acreage, while vegetable production is estimated to decline and output in the animal husbandry sector to be approximately unchanged. The growth in construction in 1995 was relatively robust during 1993-95, reflecting work on large infrastructural projects such as a new airport and several new hotels.

2. Sectoral developments

a. Energy sector

Gas is the dominant sector in the Turkmen economy, with proven reserves officially quoted at over 3 trillion cubic meters (among the ten largest in the world) and annual output capacity approaching 90 billion cubic meters. Gas is produced primarily by domestic state-owned enterprises, with less than one percent produced by joint ventures with foreign companies. Until the beginning of 1996, gas was sold abroad through the Ministry of Oil and Gas.

In the period immediately following the break-up of the Soviet Union, the share of gas in GDP rose, reflecting valuation of exports at closer to world prices. However, subsequently such gains were partly offset by a decline in the volume of gas production in response to growing payment arrears to Turkmenistan by the major importing countries and loss of access to markets in Eastern Europe. 1/

Turkmenistan’s oil sector is not as significant as its gas sector. Official estimates for proven reserves are 980 million metric tons. While no crude oil is exported, over one million tons of oil products are sold abroad each year. Turkmenistan has two oil refineries, each with an annual production capacity of 6 million metric tons of products. The ability to develop oil extraction capacity is to some extent dependent on receipts from gas exports. There are plans to exploit offshore oil, with the participation of foreign firms. During the first three quarters of 1995, the production of oil and other petroleum products amounted to 3.7 million metric tons, which slightly exceeded the production in the comparable period of 1994.

b. Agriculture

The agricultural sector accounted for about two-fifths of employment, and an estimated fifth of GDP in 1995. Turkmenistan’s climate, soil and water resources are conducive to agricultural production, although the latter is highly dependent on irrigation. 1/ However, yields have been declining and the sector is in financial difficulties as many distortions continue to exist. Most agricultural output is purchased through state orders and trade takes place at state determined low procurement prices. The production and distribution of most agricultural products are still tightly controlled by the state. A portion of each year’s planned output is given to the state as payment for the use of land, and the rest sold at state procurement prices. Only output exceeding the planned level may be directly sold by the producer at market prices. Agricultural inputs (fertilizer, seeds, water, etc.) are also provided by the state at subsidized prices. Turkmenistan remains a net importer of food.

Cotton is the dominant agricultural crop, accounting for over 17 percent of GDP. 2/ The authorities are pursuing a policy of increasing land under grain cultivation. Cotton and grain are considered to be complementary crops, as water rather than land is in short supply, and the two crops have different seasonal irrigation needs. Grain requires less water and can be grown on land where the water table is unsuitable for cotton. At times, grain is used to prepare the soil for subsequent cotton production. Increased acreage has raised grain production from 500 thousand metric tons in 1993 to 712 thousand tons in 1994 and an estimated 900 thousand metric tons in 1995.

On June 1, 1995, the procurement prices for raw cotton, livestock, and milk were raised by 2-14 times; on July 1, the farmgate prices of wheat, corn and barley were raised significantly to levels closer to world-market prices. The authorities have indicated their intention to keep under review the minimum procurement prices for raw cotton, grain, livestock, and milk, with a view to adjusting these in the light of movements in world prices and production costs.

In June 1995, the existing structure of collective and state farms was replaced by peasant associations. Under the Presidential decree establishing the latter, the state owns the land and assets of peasant associations, but the associations are allowed to retain earnings in respect of production in excess of state orders. A subsequent Presidential decree, promulgated as part of the economic reform package announced at the end of 1995, provides for the leasing of land, livestock, and property of peasant associations for not less than ten years, beginning in 1996. The decree requires, however, that in key agricultural sectors such as cotton, grain, and livestock, lessees sell their production to the peasant associations at the official procurement price and in the volume necessary to meet state orders.

Turkmenistan is among the top ten cotton producers in the world. Cotton production, which is mostly exported, is gradually shifting from fibre to cotton fabrics, with two more cotton processing plants operational in 1995. However, cotton exports are still mostly unprocessed. Following a decline in 1994, cotton production is expected to rise by about 5 percent in 1995, with a similar increase in the volume of cotton exports. However, the sale of cotton under barter arrangements has, on average, constrained foreign exchange earnings from cotton exports to less than would have been realized at world market prices.

c. Other sectors

Following a 25 percent drop in 1994, gross industrial output decreased by a further 18 percent during the first three quarters of 1995 over the comparable period of 1994 (Tables 6 and 7). In addition to the developments in the gas and cotton sectors, described above, there was a contraction of about 25 percent in the output of food industries, reflecting mainly input shortages, including imported inputs. Output in heavy industry declined by about 21 percent, despite a sharp rise in the output of metals during the first three quarters of the year in response to demand in the construction industry. Output in light industry was approximately stable. Construction remained a relatively strong sector of the economy in 1995, reflecting continued investment in hotels and other infrastructure. Also, construction was initiated on the initial stage of the gas pipeline to Turkey through the Islamic Republic of Iran.

3. Money incomes of the population

While national accounts are not compiled on an income or expenditure basis, data on the money incomes of the population provides partial information in this area (Table 8). In 1994, wages (including agricultural wages) comprised 80 percent of money incomes of the population, while nonwage-income, income from the sale of agricultural products, pensions, and other transfers accounted for the remainder. On the expenditure side, spending on goods accounted for two thirds of the total. The share of services has remained minimal, reflecting their limited availability. Only 12 percent of money expenditure in 1994 was invested in financial assets, down from 20 percent in 1993.

4. Price controls and developments

a. Price controls

Since 1992, there has been gradual price liberalization. On January 11, 1995, the number of goods and services subject to price controls was reduced from over 400 to 51, with the price of 10 essential foodstuffs fixed by Presidential decree, and the rest by the Ministry of Economy and Finance. On November 8, 1995, retail prices of most types of bread were raised by 10-30 times and selected energy prices were raised on average by 2.5 times, although domestic energy prices remained well below world market prices (Table 9). On December 13, fares on buses and trolleys were raised by a factor of 10; and taxi, air, and railway fares were increased by a factor of 2 to 5. While in principle the prices of other goods and services are free, limits are frequently specified on profit margins.

As part of an economic reform package announced on December 27, 1995, the authorities took further price measures to be effective from the beginning of 1996. A number of controlled prices were raised substantially, including a fourfold increase in the price of meat, a fivefold increase in the price of flour, and a doubling in selected energy prices (Table 10). Prices of flour, meat, infant formula and baby food, and sugar and tea will continue to be subsidized. The prices of bread, meat (for some qualities), milk, rice, and cotton seed oil, as well as prices and tariffs for electricity, natural gas, cement, mineral fertilizers, petroleum products, and passenger and cargo transportation within Turkmenistan will be set by the Cabinet of Ministers based on actual costs and specified rates of return. For bread, the profit margin is set at 20 percent, effectively liberalizing the bread price within this limit. However, the flour ration was increased by unifying the rations for urban and rural consumers at 8 kilograms, although the price was increased by a factor of 5 to manat 10 per kilogram. 1/ In addition, the program provides for the continued provision (up to specified limits) of free gas, electricity, and water to the population, and freezes the price of rent and heating.

b. Consumer and producer prices

During 1994, the consumer price index (CPI) increased by 1,328 percent, with monthly increases ranging from 15 to 39 percent (Tables 11, 12, and 13). 2/ The highest increases were in the nonfood and services sectors, where prices are not controlled. 3/ The monthly inflation rate rose to 47 percent in January 1995, reflecting rapid monetary expansion in the last quarter of 1994, the price liberalization measures discussed earlier, and increases in prices in the health sector. Inflation moderated in mid-1995, but following renewed rapid monetary expansion from mid-year, wage adjustments, and the impact of a large devaluation of the exchange rate in September, accelerated to a monthly rate of 33 percent by October 1995. The 12-month inflation rate through October rose to 771 percent from 694 percent in August.

The weights used to compile the producer price index (PPI) change frequently, making the interpretation of the index difficult and causing large differences with the CPI. 1/ The index is also affected by discrete changes in the flow of orders in sectors with relatively few producers and by marked seasonality in some sectors. In 1994, the index rose by over 900 percent, with the largest rises in forestry and woodworking, and food processing (Table 14). During the first nine months of 1995, developments in the PPI followed a similar pattern to those in the CPI.

5. Wages and employment

a. Wage policy

Until recently, wages in the government sector were determined by means of coefficients based on the minimum wage, with the latter adjusted discretely by Presidential decree. Wages in state-owned enterprises were freely determined, subject to the laws on the taxation of profits and wages. Prior to July 1995, the government imposed an excess wage tax at a rate of 25 percent on wages that exceeded a base, calculated as three times the minimum wage. Certain sectors were permitted a higher base. Notably, the oil and gas industry was allowed a maximum increase of 40 percent above the standard base. At the same time, the profits tax permitted the deduction of all wage costs in the calculation of net profits. In July 1995, the excess wage tax was abolished. However, this did not have much impact on wage setting as the definition of net profits was simultaneously adjusted to permit only a limited deduction of wage costs.

As part of the economic reform package announced on December 27, 1995, the authorities announced that for 1996, the average wage and salary level would be set by decree, and that a 50 percent excess wage tax would be payable on salaries in excess of the set level. Effective January 1, 1996, wages and salaries were doubled, with the economy-wide average wage set at manat 20,000. Wages and salaries in budgetary organizations were set at 80 percent of this amount. In this sector, wages are to range from 0.3-1.7 times the economy-wide average wage, with the structure of tariffs and bonuses to be worked out by the concerned ministries and agencies. In the private sector, wages and salaries can be determined on a contractual basis, but the 50 percent excess wage tax is applicable. However, tax-exempt remuneration is being introduced to attract personnel to priority sectors.

b. Wage developments

Nominal wage adjustments have not kept up with inflation in recent years, resulting in a sharp erosion of real wages. By the third quarter of 1995, average real economy-wide wages had declined to approximately 40 percent of their average 1993 levels (Table 15). The real decline in the minimum wage (1,000 per month in 1995, increased to manat 6,000 per month, effective January 1, 1996) was much more pronounced. 1/ Wages have generally been highest in the industrial sectors and lowest in the service sectors (Table 17). In 1995, wages were highest in geological and hydrocarbon prospecting (about two-thirds above the average wage), followed by construction. The lowest wages were in science and scientific services. Wages in the agricultural sector and in government administration were slightly below the average wage.

While real wages have declined sharply, it should be noted that Turkmenistan provides a wide range of benefits to its population free of charge or at nominal cost. (For a discussion of the Social Protection System, see Appendix III.) Rent in publicly available housing is one manat per square meter per adult; gas, water, and electricity are free up to generous limits, and at a nominal charge thereafter. In addition, meat, sugar, rice, tea, butter, and flour are still available at subsidized prices under a rationing scheme. Bread prices were also heavily subsidized until recently. In addition, income in cash or kind from the production of small plots supplements wage income, especially in rural areas.

c. Employment

The labor force in 1994 was slightly over 2 million persons (Table 18). 2/ Those employed numbered nearly 1.7 million, with the remainder representing students and those not officially employed (such as home makers), as well as the unemployed. Generally, the relative shares of employment by sector have stayed fairly stable in recent years. In 1994, agriculture accounted for the largest share of employment, at 44 percent, with this share having grown only slightly over the years (Table 19). 3/ Industry, including the gas sector, accounted for 10 percent of total employment, with education, and trade and catering accounting for another 10 percent. The shares of construction and education sectors averaged 10 percent and 11 percent, respectively, during 1990-94. While the shares of employment in science, research, and development institutes appear low, these exclude persons employed in such activities in agricultural and industrial enterprises. While the Government’s policy is to provide employment for all the population and open unemployment remains insignificant, there is considerable hidden unemployment and underemployment.

6. Privatization and land reform

Although the Law on Privatization was enacted in 1993, very little progress has been made in its implementation. In addition to the low priority attached to this, the absence of a capital market has made it difficult to finance privatization. Under the Privatization Law, 3,980 small enterprises (up to 100 employees) were planned for privatization. 1/ Mainly through buy-outs by personnel, ownership has changed in 1,652 enterprises, although in most cases, the Government has retained a majority share. Of the 730 (out of a total of 1,645 earmarked for privatization) medium-scale enterprises (100-500 employees), only 4 have been privatized. For another 19 enterprises, preparations for privatization are near completion, and for 300 enterprises, preparations are underway. Of the 90 (out of a total of 200) large-scale enterprises (more than 500 employees), only one has been privatized. These medium- and large-scale enterprises have been privatized by auction, but again with a continuation of a majority government share. Privatization of urban dwellings remains suspended pending preparations for a new law.

Little progress has been made on land reform. In rural areas, individuals have an option to lease or own up to 50 hectares of land, but the land cannot be freely sold. However, the creation of peasant associations in 1995, which has placed all farm enterprises under the same legal status, constitutes a starting point for privatization. In addition, many farms now operate on intra-farm lease-hold contracts; however, the provisioning of inputs and services, and the processing and marketing of the products remain in the hands of government organizations.

The Government continues to receive technical assistance for privatization from the World Bank and the European Union (TACIS—Technical Assistance to the CIS). In December 1995, the Government stated its intention to privatize 15 percent of state-owned enterprises in 1996, and requested each Ministry to submit by mid-February a list of enterprises for this purpose. In addition, a new privatization law is under preparation.

7. Environmental issues

Despite passage of environmental legislation, Turkmenistan continues to have a number of serious environmental problems. Among the most serious is the shrinking of the Aral Sea and the degradation of its water. As part of a program of upgrading the water quality of the Aral Sea, Turkmenistan and Uzbekistan are committed to providing 10 cubic kilometers of water to help to maintain the Aral Sea at its present level. In 1994, more than twice this amount was provided, but it was expected that much less water (as a result of climatic conditions) would be available in 1995. The quality of water from the Aral Sea is also being improved with the construction of desalinization plants in the most affected regions, and the construction of concrete-lined drainage canals to reduce the amount of water lost in transit.

Another problem is the rising level of the Caspian Sea. For Turkmenistan, this has caused extensive flooding in some regions near the eastern shore of the Caspian, including some industrial areas, as well as the pollution of some fresh waters in the region. The number of flooded sites is gradually being reduced, and some affected production units are being cleaned up and others relocated. In addition, there is a polluting effect on the Caspian Sea from secondary contamination from phosphorus runoff caused by animals, plants, and other natural factors, such as land erosion.

Lower activity in a number of sectors using water in production has resulted in some reduction in water pollution caused by the dumping of drainage water into canals and sand. Pollution is caused by pesticides and fertilizers, as well as naturally-occurring minerals in ground water. The scarcity of financial resources has constrained water treatment. Air pollution, mainly from internal combustion engines, has declined in the last year, reflecting the contraction in economic activity rather than environmental policy to alleviate the problem, such as higher gasoline quality, pollution filters on cars, and newer vehicles. In addition, at present there is no law on emission standards for imported cars, although the Government is considering a draft law that would regulate used car imports into Turkmenistan.

III. Public Finance

1. Overview

The dominance of gas production in GDP, combined with heavy taxation of the gas sector, 1/ has lead to strong reliance on gas exports as a basis for fiscal revenues. Prior to the emergence of payments problems for Turkmenistan’s gas exports, revenues from gas accounted for over 60 percent of total budgetary revenue. The mounting arrears on gas export payments, and the associated decline in gas production in the absence of markets outside the FSU, led to a substantial decline in the share of gas revenue in total budget revenue to under 20 percent in 1995. The decline in revenue from gas exports was the main cause of the substantial deterioration in budget revenue from over 40 percent of GDP in 1992 to 10 percent of GDP in 1995 (Tables 2 and 21). 1/ The Government has, however, succeeded in limiting fiscal deficits by sharply reducing expenditure. Nevertheless, the overall budget balance has moved from a surplus of about 13 percent of GDP in 1992, to an estimated deficit of 1.6 percent of GDP in 1995. Quarterly budgets have been implemented since 1994 to closely monitor fiscal developments, and expenditure-reducing measures have been taken as necessary to limit the bank-financing of the deficit to no more than 1 percent of GDP. During 1994-95, in addition to domestic bank financing, the Government received some foreign financing, mostly with short maturities. Moreover, in 1995, the Government incurred arrears on the servicing of external debt, notably on the repayment of a credit from the EU for US$58 million. The Government securities market remained limited, and Treasury-bill issues were taken up by commercial banks.

Table 2.

Turkmenistan: Summary of General Government Operations, 1994-96

article image
Sources: Turkmenistan Ministry of Economy and Finance; Central Bank of Turkmenistan; and staff estimates.

Official budget expressed in estimated prices of the fourth quarter of 1995, as approved by Parliament on November 24, 1995; excluding the impact of measures announced on December 27, 1995.

Excludes the revenues of the Voluntary Medical Insurance Fund, which is shown separately.

The categories affected the most by expenditure cuts were wages and capital spending. Capital spending fell from about 6 percent of GDP in 1992 to around 2 percent of GDP in 1995, and there are indications that maintenance programs may have been delayed. These cuts are likely to have resulted in a deterioration in infrastructure, with possible adverse medium-term growth implications. Delayed repairs may also require substantial reinvestment in infrastructure in the near future. In addition, subsidies captured in the budget have fallen from 9 percent of GDP in 1992 to around one percent of GDP in 1995, although this reflects, to a large extent, the shifting of subsidies off-budget.

Notwithstanding some progress with extending the coverage of the budget, large segments of the Government sector remain outside the budget, limiting its effectiveness in macroeconomic management. Since July 1, 1995, the Pension and Social Security Funds have been incorporated into the budget, and the subsidy on meat has also been accounted for on budget. The so-called “self-supporting” ministries 2/—including the Ministries of Agriculture and Food, and Oil and Gas—and at least part of expenditures from the Foreign Exchange Reserve Fund remain off-budget. The authorities explained that the manat equivalent of foreign exchange spending by budget ministries appeared under budgetary expenditures, but that any use of the FERF by off-budget ministries was not captured in the budgetary accounts.

The initial stages of the introduction of the Treasury system have been completed successfully (under Fund technical assistance). All major regional offices are now linked by modem and computer to the central unit, permitting prompt reporting of expenditures by type of activity and ministry. 1/ During 1996, it is expected that an economic classification of expenditures will also be available through Treasury monitoring. The large number of accounts of budgetary spending units with commercial banks have been closed. Central government operations with commercial banks and the CBT are settled daily. Although over 5,000 off-budget accounts are still retained, there are plans to eliminate most of these during 1996. Local governments also maintain accounts with commercial banks, but the authorities intend to introduce a pilot scheme to replace these with treasury ledger accounts during 1996. The most pressing remaining issue is the need to bring the 29 self-supporting ministries into the budget under the Treasury system.

2. Budget revenues

Most budget revenue is derived from the profits tax, the value-added tax (VAT), and the natural resource tax. The basic rates are 25 percent for the profit tax, 20 percent for VAT on goods and services (including exports), and 22 percent of the value of energy resources net of VAT for the resource tax. Turkmenistan has set up free economic zones for foreign investment, in which companies are exempt from the profits tax, but not from VAT. These zones have so far attracted very little activity.

In the third quarter of 1995, the gas sector accounted for 16 percent of revenues from the profits tax, 27 percent of revenues from VAT 2/ and 97 percent of revenues from the natural resource tax. Prior to April 1994, a special export tax of 80 percent applied to hard-currency gas exports, but was subsequently replaced with a surrender requirement, which until February 21, 1995, was at a special exchange rate, 3/ considerably more appreciated than the official rate. Revenue from gas exports was negatively effected by the exclusion from profits of gas exported to cover transit costs, and by the low prices charged to domestic users of gas. Until 1996, Turkmenistan paid the transit fees—about one-third of gas exports—in gas. The value of these shipments was deducted as a cost in the calculation of net profits. Hence, gas exported to pay for transit fees was untaxed. The contribution of gas sold domestically to tax receipts has been minimal compared to that from exports, because of the heavy subsidization of domestic prices of gas.

Agriculture accounts for about 6.4 percent of the receipts from the profits tax. Cotton is almost the only agricultural commodity subject to the profits tax, 1/ and collective farms are exempt, from it. Despite exemptions from VAT on revenue from sales of crops and livestock to meet state orders, agriculture still accounts for about 34 percent of VAT revenues. 2/ Net transfers from the agricultural sector are difficult to estimate. Many inputs are heavily subsidized or free of charge, including water for irrigation. Procurement prices are controlled and diverge from world market levels. Agriculture is thus implicitly taxed through low producer prices, explicitly taxed primarily through the VAT, and implicitly subsidized through state provision of cheap inputs and the application of the official exchange rate to imports.

3. Recent changes in the tax system 3/

Until July 1995, individual incomes of permanent residents received in cash or kind were taxed at rates of 3,6, and 10 percent. Royalties were subject to higher marginal rates of 60, 70, 80 and 90 percent. Foreign nationals were subject to taxation at a flat rate of 20 percent of income earned from any source. In July 1995, a flat rate tax of 8 percent replaced this system, and was made applicable to all forms of income, including royalties, while exemptions were extended to include full-time students. 4/ The tax-free threshold was maintained at twice the minimum wage. 5/ As most taxpayers are employed by the Government or state enterprises and taxes are withheld at source, collection rates have been very high. 6/ In addition, there were changes in 1995 and early 1996 in the taxation of wages (and deduction of wage costs for profits tax purposes), as discussed in Chapter II, section 5a.

On January 11, 1995, excise taxes were introduced on gasoline and diesel at rates of 55 percent and 60 percent, respectively. 1/ Imports became subject to excise duties at customs clearance as of June 31, 1995. 2/ A toll payable in U.S. dollars for foreign vehicles entering Turkmenistan was introduced from July 1, 1995. As of the same date, charitable enterprises and donations were exempted from VAT. 3/

4. Budget expenditures

Expenditure compression was the major means of maintaining approximate fiscal balance in recent years, despite substantial falls in revenue. Total expenditure declined from 29 percent of GDP in 1992 to around 12 percent of GDP in 1995. Although wages were increased twice in 1995, these adjustments did not keep pace with inflation. The erosion of real wages helped reduce most spending categories, detailed below. 4/

a. National economy

Expenditures classified under the “national economy” fell from 18 percent of GDP in 1992 to about 5 percent of GDP in 1995, with price subsidies declining from 9 percent of GDP to just over one percent of GDP during this period. As noted earlier, the latter primarily reflected the shifting of subsidies outside the budget. The implicit subsidization that occurred when exporters surrendered foreign exchange at the highly appreciated official exchange rate for sale to importers of subsidized items at the same rate is not captured in the budget. The official or special gas exchange rate applied to surrenders on public sector exports and public sector imports, notably food items. The manat-denominated cost of such imports was thus lower than would have been if a market-oriented exchange rate was used. In addition, items received in barter transactions, notably by the Ministry of Oil and Gas, were sold locally at subsidized prices, with the resulting subsidies not captured in the budget.

Subsidies grew substantially in the second half of 1995. This reflected a sharp increase in food subsidies, as procurement prices for grains and livestock were raised in mid-1995 without a compensatory rise in consumer prices for flour, bread, and meat. Domestic energy and transportation prices continued to be heavily subsidized. Thus, total subsidies in the budget increased from manat 1.3 billion in the first half of 1995 to over manat 12 billion in the second half of the year (about 1.6 percent of estimated GDP for the period). During November-December 1995, prices of bread, energy, and public transportation were raised to reduce subsidies and ease the pressures on the budget. There were further adjustments in controlled prices in January 1996 (see Appendix III).

Capital expenditure has also been sharply curtailed, dropping from 6.2 percent of GDP in 1992 to 2.1 percent of GDP in 1995. However, there was capital spending (mainly on airport and hotel construction) outside the budget.

b. Other expenditures

Expenditures on education, culture, health, sports and science, included under socio-cultural expenditures, declined from about 8 percent of GDP in 1992 to under 3 percent of GDP in 1995. This reflected cuts in both real wages and capital spending. 1/ Defense and state administration expenditures remained broadly constant in relation to GDP during this period.

Effective January 1, 1996, the Government freed medicine prices and introduced the Voluntary Medical Insurance Fund. The Fund will reimburse 90 percent of the cost of medicines, within the limit of revenue from contributions, consisting of a voluntary payment equivalent to 4 percent of wages.

5. Local budgets

The local government budgets in Turkmenistan consists of three levels: regional or “velayat” budgets, subregional or “etrap” budgets, and rural budgets. The Central Government collects all country-wide taxes, such as the income tax, VAT, excises, and the natural resource taxes, and shares the revenue with the local governments, whose budgets are approved by the central authorities. In addition, the local authorities levy their own taxes (listed in Appendix VI). Although the Treasury System will provide detailed information on local government expenditures by category in the future, the most recent reliable data only permits comparison of aggregates and suggests that, for the first three quarters of 1995, local governments accounted for about a third of total government expenditure.

6. The 1995 budget outcome

Budget revenue stabilized in 1995 at just over 10 percent of GDP. There was some decline in revenues related to incomes, primarily due to a significant decline in real wages during the first three quarters of 1995. Revenues to the Pension and Social Insurance Funds fell from 2.4 percent of GDP in 1994 to an estimated 1.6 percent in 1995 and revenues from the personal income tax fell from 0.6 percent of GDP to 0.3 percent of GDP in the same period. In addition, new excise taxes were introduced, as noted above, which contributed to a slight increase in excise tax revenues. 1/ Expenditures are estimated to have remained virtually unchanged at around 12 percent of GDP in 1995, raising the budget deficit slightly to 1.6 percent of GDP from 1.4 percent in 1994. The only quarter in which a significant deficit emerged was the fourth quarter, which reflected the manat 15 billion onlending to agriculture in October. More than half of the annual budget deficit was bank-financed, with the remainder (plus external debt repayment) covered by a small amount of foreign borrowing and the accumulation of arrears to the European Union.

Capital investment rebounded from just over one percent of GDP in 1994 to a little over 2 percent of GDP in 1995. As noted above, subsidies for 1995 as a whole were substantially unchanged from their 1994 levels, although there were fluctuations during the year, and a sharp increase was observed in the third quarter of 1995. The decline in real wages was reflected in a drop in education expenditures from 2.2 percent to 1.5 percent of GDP, and health expenditures from 1.1 percent to 0.9 percent of GDP. The lower real value of pensions permitted a fall in expenditures from the Social Security and Pension Funds from 1.7 percent to 1.4 percent of GDP.

7. The approved 1996 budget

The 1996 budget approved by Parliament on November 24, 1995 is approximately balanced. The approved budget is based on estimated prices in the fourth quarter of 1995. In view of the unsustainability of the large increase in subsidies in the second half of 1995, the 1996 budget curtails the real value of subsidies. In addition, the budget assumes that the new joint venture with Gazprom (see Chapter V, section 2.a.) will permit a substantial increase in the volume of gas exports to 30 billion cubic meters in 1996. Moreover, the projections assume an 80 percent recovery ratio for gas export payments, compared to 66 percent realized during the first ten months of 1995. The effects of the economic reform measures announced on December 27, 1995—notably, exchange rate unification, interest rate liberalization, and wage increases—are not reflected in the approved budget, except for the curtailment of subsidies noted above. Subsidies are expected to be contained at 1.7 percent of GDP. The strongest expenditure increases are projected for capital spending, health and education. Bank financing of the Government is to be no more than one percent of GDP, with adequate provisions made for the servicing of external debt.

IV. Monetary Developments and Policies

1. Overview

The financial system of Turkmenistan reflects the dominance of the public sector in the economy and the slow progress with market-oriented reforms. The Government holds shares in nine of the fifteen commercial banks. State-owned enterprises account for more than 90 percent of commercial bank credit and deposits. Central Bank credit has long been a major source of commercial bank financing, and financial markets, including the interbank market, remain virtually nonexistent. The manat was introduced as the national currency in November 1993, replacing the ruble.

The Central Bank of Turkmenistan (CBT) has had little autonomy in the conduct of monetary policy, with decisions on the quantity and cost of central bank credit generally taken by the Government and enforced by Presidential decree. Monetary policy has remained geared towards providing cheap credit to state-owned enterprises, including the monetization of interenterprise arrears. In February 1995, the Government set a very low interest rate limit on commercial bank credit to state-owned enterprises, triggering a general decline in the already negative real interest rates in the economy.

As a result of these accommodating monetary policies, domestic monetary expansion remained high in 1994 and 1995, which, in the absence of free access to foreign exchange, increased pressures on domestic resources and resulted in high inflation rates and a loss of confidence in the manat. In 1994, broad money increased almost 10 times. Although monetary policy was tightened in early 1995, contributing to a dampening in inflation by mid-year, policies were later reversed. Broad money more than tripled between May and October, and monthly inflation rates exceeded 30 percent by September-October 1995. These developments, coupled with highly negative real interest rates, led to a decline in real money balances considerably in excess of the decline in production and a rapid depreciation of the manat in the parallel exchange market.

The reform program announced on December 27, 1995 indicates the Government’s intention to reverse the stance of monetary policy, and to use the latter as a main instrument of its macroeconomic stabilization effort. The CBT has been given more autonomy to implement a monetary policy aimed at reducing monthly inflation to low single digit levels by end-1996, including through control over its own lending operations. The maximum refinance rate was raised to 50 percent and is to become market-determined through credit-auctions to be initiated in early 1996. The 15 percent limit on interest on credit to state-owned enterprises was eliminated. Also, the Government announced the preparation of an auction system for treasury bills, which is expected to reduce dependence on CBT financing and encourage borrowing at market rates.

2. Monetary developments and policies

a. Money and credit

In 1994, CBT credit growth was largely responsible for an increase of almost eleven times in reserve money and of ten times in broad money (Tables 3, 22, and 23). Monetary expansion in 1994 was due primarily to the growth of credit to the Foreign Exchange Reserve Fund (FERF-see Section 4.a.), which increased by more than 7 times in relation to end-1993 reserve money, with most of the growth occurring in the last quarter of the year. CBT financing of the fiscal deficit contributed to monetary expansion by an amount equivalent to twice the end-1993 stock of reserve money. Although most of the increase in the CBT’s net foreign assets was offset by increases in the FERF and in other items (net), the remainder also contributed by about twice the end-1993 stock to the growth in reserve money.

Table 3.

Turkmenistan: Monetary Survey and Indicators, 1993-95

article image
Source: Central Bank of Turkmenistan.

The CBT reduced reserve requirements during 1994 (see Section 3.a.). While CBT credit to banks was reduced to its end-1993 level, following a sharp increase in the first quarter of 1994, the impact of this move on bank liquidity was partly offset by a lowering of the reserve requirement from 20 percent to 10 percent. This contributed to an increase in commercial bank (manat-denominated) credit to the economy by three times the end-1993 broad money stock (Table 24). 1/

Monetary expansion slowed considerably in the first quarter of 1995 as the CBT further reduced credit to banks and raised reserve requirements. Between December 1994 and May 1995, reserve money rose by only 14 percent, although broad money growth exceeded 40 percent as banks reduced excess reserves to accommodate continuing high credit demand, mainly to meet higher wage costs.

However, in February and April 1995, there was a substantial easing of monetary policy through Presidential decrees announcing a number of measures. In order to assist state-owned enterprises whose arrears to one another increased from manat 14 billion at end-December 1994 to manat 43 billion (134 percent of broad money) by end-May 1995, 1/ the announced measures included the capping of interest rates on credit to enterprises at 15 percent per annum. In addition, an interest-free CBT credit line of manat 20 billion (90 percent of end-1994 broad money) was authorized for enterprises under the Ministry of Agriculture and Food. In August 1995, the CBT provided an interest-free refinance credit of manat 5 billion to the Ministry of Oil and Gas. In October, the CBT lent manat 15 billion to the budget for onlending to state-owned enterprises, mainly in agriculture.

These measures led to a rapid acceleration in monetary expansion. Reserve money tripled during the third quarter. Boosted by low interest rates, rising costs from a second round of wage adjustments, and increases in producer prices, bank credit to state-owned enterprises grew sharply (sixfold between March and October 1995). Credit to the private sector, although relatively small, also rose rapidly in this period. 2/ 3/ The rapid increase in reserve money, combined with an increase in the money multiplier, resulted in broad money growth of 233 percent between May and October 1995.

High monetary growth and inflation undermined confidence in the manat. As was the case in 1994, demand for real money balances declined sharply through May 1995 (Chart 2), considerably exceeding the decline in real GDP. 4/ The increasingly negative real interest rates rapidly eroded the value of financial savings, resulting in a sharp real reduction in time- and savings deposits. Also indicating a flight out of the manat, foreign currency deposits increased sharply in 1995, although, due to restricted access to foreign exchange, their overall share in the money supply remained at under 7 percent. The velocity of broad money is estimated to have risen during 1995, also indicating reduced acceptability of the manat.

Chart 2
Chart 2

TURKMENISTAN: MONETARY INDICATORS, 1993-95

Citation: IMF Staff Country Reports 1996, 030; 10.5089/9781451837216.002.A001

Source: Date provided by the Turkmen authorities.1/ Reserve money and broad money deflated by the CPI.

b. Interest rates

Before February 1995, banks were generally free to set their deposit and lending rates although, reflecting the availability of cheap credit from the CBT, market interest rates were highly negative in real terms. The only administered interest rates were those of the state-owned Savings Bank which were set in coordination with the CBT. 1/ The February 1995 decree, which limited interest on loans to state enterprises (75 percent of total bank credit) to 15 percent per annum, severely restricted banks’ freedom in setting interest rates. This policy triggered a general downward trend in deposit and lending rates (Tables 26 and 27). Although deposit rates remain widely dispersed, the maximum reported deposit rate declined from 206 percent per annum in 1994 to 150 percent in the third quarter of 1995. During the twelve months through September 1995, the rate on short-term deposits (less than 3-months maturity) declined from 90 percent to a maximum of 50 percent. The Savings Bank lowered its interest rates on time deposits from 150 percent to 120 percent in February and to 70 percent in April 1995. In line with these moves, the interest rate on treasury bills 2/ was lowered from 150 percent to 60 percent in August 1995. Following the February 1995 Presidential decree, bank lending rates to state-owned enterprises fell from a maximum of 240 percent in the first quarter of 1995 to 15 percent in the remainder of the year. Lending rates for consumer purchases increased from 90 percent in 1994 to 100 percent in 1995.

3. Monetary policy instruments

In the absence of developed interbank and money markets and traded financial instruments, 3/ monetary management has been exercised principally through the regulation of commercial bank and CBT balance sheets. While the reserve requirement has constituted a key policy instrument, the CBT has reduced the effectiveness of this instrument by using it to promote household savings, rather than meet stabilization objectives. The management of the CBT’s own balance sheet has generally been outside its control.

a. Reserve requirements

The CBT’s main monetary policy instrument in 1994 and 1995 has been reserve requirements on bank deposits. With the introduction of the manat in November 1993, the CBT replaced its previous system of differentiated reserve requirements with a single requirement of 20 percent. However, banks had difficulties in meeting the requirement. The CBT, moreover, wanted to encourage household and longer-term deposits. As a result, a system of differentiated reserve requirements was re-introduced and reserve requirements were reduced during 1994-96 as follows:

article image

Initially, the reserve requirement could be met on an average basis. However, in order to simplify the banks’ administration, starting January 1, 1995, the reserve requirement is measured twice a month on the 1st and 15th of each month. The base of the requirement consists of all bank deposits, including foreign currency deposits and deposits of nonresidents. The reserves are held in a noninterest bearing deposit with the CBT. In case of noncompliance, banks have to pay a penalty rate of 0.2 percent per day on the shortfall; however, according to the CBT, in 1995, banks complied with the regulation and there were no penalties.

During 1994 and the first 10 months of 1995, the effective reserve requirement has generally remained below the maximum rate. 1/ In January 1994, the effective rate was slightly below the regulatory rate of 20 percent. Following the changes in the requirement in February and July, the effective rate declined to 8 percent by December 1994. As a result of the changes in reserve requirements in January 1995, the effective rate increased to 14 percent by March 1995, although thereafter it decreased again to 10—11 percent in the third quarter and in October as bank deposits shifted to categories with lower rates. As part of the announced reform package, the reserve requirement was unified at 11 percent as of January 1, 1996, at a level close to the effective rate at end-1995.

b. Central Bank refinance and credit facilities

Statutorily, the CBT can provide credit to the Government and to banks at rates it seas fit, normally at maturities not exceeding 6 months (for the Government) or 3 months (for banks). Credit to the Government has to be at market rates and the outstanding amount may not exceed 8 percent of annual Government revenue (10 percent in special cases). In addition to lender-of-last-resort support, the CBT can rediscount bank loans or provide credit to banks on the basis of adequate collateral. However, as a matter of policy, the CBT does not refinance bank credit to private enterprises. In practice all refinance credit has been provided to four major banks.

CBT credit to the Government takes the form of overdrafts—the difference between expenditure and revenue on Government accounts 2/—and of long-term debt (Table 23). During 1994 and the first ten months of 1995, overdrafts have generally remained small and temporary, while during the second quarter of 1995 the government current account was positive. Long-term loans are granted to clear overdrafts and for special financing purposes; they generally carry a low interest rate. In line with the small overall budget deficit, CBT long-term lending to the Government increased only slowly up to September 1995. However, in October 1995, the outstanding balance rose almost fourfold as the CBT provided a seven-month interest free credit of manat 15 billion—13 percent of estimated 1995 budget revenue—for onlending to the (off-budget) Ministry of Agriculture and Food to clear interenterprise arrears. 1/

The importance of CBT refinancing in overall bank credit decreased considerably in 1994 and 1995. The share of CBT refinancing in total manat-denominated bank credit declined from 80 percent in March 1994 to 12 percent by October 1995. This was mainly the result of CBT policy to discourage such refinancing, despite the substantial lowering of the maximum refinance rate to 15 percent by March 1995. Most refinancing is provided at rates below the maximum, and in September 1995, in addition to interest free loans, the CBT had loans outstanding at 3, 5 and 10 percent, and the weighted average interest rate on CBT refinance credit was only 1.5 percent, compared to 25.5 percent a year earlier.

In addition to financing for the budget and refinancing of commercial bank credit, in 1995 the CBT granted a large credit line outside its normal activities. The CBT has generally refrained from granting credit facilities outside the traditional areas of the budget and banks, and by early 1995 had completely eliminated such credit. However, in April 1995, the CBT opened a manat 20 billion credit line to the Ministry of Agriculture and Food for onlending to agricultural enterprises. By September, this credit line was fully disbursed; it is expected to be repaid in the first half of 1996 from receipts of the 1995 cotton harvest.

In its reform program announced on December 27, 1995, the Government indicated a major change in monetary policy, giving more autonomy to the CBT and moving toward market-determination of interest rates. Directed credits through Presidential decree were discontinued. The maximum refinance rate was increased from 15 to 50 percent, and by end-January 1996, CBT credit would be provided through credit auctions at market-determined interest rates. The amount of credit available in such auctions would be determined in line with the overall monetary policy objectives and the CBT’s financial program for 1996.

4. Institutional issues

a. The Foreign Exchange Reserve Fund (FERF)

In July 1993 the Government transferred its holdings of foreign exchange from the Vneshekonombank to the Foreign Exchange Reserve Fund with the Central Bank. In the accounts of the CBT, the FERF is treated as an (extra-budgetary) Government foreign currency deposit, and the counterpart of the balance in the FERF in the CBT’s foreign assets is earmarked for use against payments from the FERF. The latter, however, can only be authorized by the President and the reserves are thus not freely available to the CBT for sale to the economy. By October 1995, the FERF accounted for 98 percent of official gross foreign assets. 1/

Changes in the source of the FERF’s revenue, without appropriate changes in the way it is accounted for, have given rise to a special CBT credit. Originally, the FERF received revenue from an 80 percent tax on gas exports. Effective April 1994, this tax was replaced by a 60 percent surrender requirement on all gas export receipts, 2/ implying that the manat counterpart of the foreign exchange from the surrender requirement would be credited to the Ministry of Oil and Gas. However, the CBT continues to administer the surrender requirement as a tax, crediting both the FERF and the Ministry of Oil and Gas for the same amount in manat. This double-counting requires the CBT to advance the deposits into the FERF. Normally, this operation would not have a monetary impact, since the expansionary effect of the credit would be offset by the contractionary effect of an increase in FERF deposit, as long as the resources from the credit are not used for expenditure from the FERF. However, in 1994, almost the entire amount of the credit was spent (i.e. the FERF was drawn down) with strong monetary implications. Credit thus created accounted for about 75 percent of the increase in reserve money in 1994. By contrast, during the first ten months of 1995, the contribution of this factor to reserve money growth dropped to 12 percent.

b. The financial system

The financial system of Turkmenistan consists of the CBT and 15 commercial banks. The CBT licenses and supervises the banks. To ensure a sound banking system, the CBT has maintained a moratorium on new banks, which has allowed it to concentrate on the restructuring of the existing ones. Moreover, with the closure of banks that could not comply with prudential regulations, the number of banks has gradually declined. In 1995, the CBT liquidated seven smaller banks, but licensed three new ones. Of the existing 15 banks, two are fully state owned, seven are jointly owned by the Government and by nongovernment shareholders, four are fully nongovernment-owned banks, and two are foreign owned. Eight of the banks have a general license, allowing them to engage in both domestic and foreign banking activities. There are no nonbank financial institutions in Turkmenistan. 1/

By Presidential decree of March 10, 1995, the Government announced its intention to establish an Association of Daykan (small farmer) Banks, which are to gradually replace the Agroprombank as the main provider of credit to the agricultural sector. A total of 54 Daykan Banks are planned to be set up in the branches of the Agroprombank, of which two, including the head-office in Ashgabat, were licensed in 1995.

c. Bank supervision

In line with its responsibilities under the Law on Commercial Banks and Banking and the CBT Law, the CBT has issued a set of prudential regulations, including for: (i) capital adequacy: 8 percent of risk-weighed assets, increased from 6 percent in April, 1995; (ii) minimum capital: manat 100 million for small banks, manat 500 million for large banks; (iii) liquidity ratio: 30 percent of liabilities to be held in cash, deposits with the CBT, loans receivable within 30 days, or treasury bills. For liabilities with remaining maturity of less than a month, banks have to maintain assets of less than one month maturity; (iv) concentration risk ratio: loans to a single borrower are not to exceed 20 percent of paid-up capital (reduced from 25 percent in April 1995). This requirement is only applicable to private sector borrowers, as the CBT considers public sector enterprises fully guaranteed by the Government and thus risk-free. The penalty applied for exceeding this limit is equal to the interest earned by the bank on the excess over the limit; and (v) foreign exchange risk: banks’ open foreign exchange positions are limited. Turkmenistan does not have a deposit insurance scheme. However, deposits with the Sberbank are statutorily guaranteed by the President and deposits in the State-owned Vneshekonombank are also considered guaranteed by the Government.

In 1993, the CBT introduced a system of loan classification, requiring banks to make provisions for loans accordingly. However, this system has not yet been fully operational, as bank profits have remained too low to make the required provisions. In addition, the accounting system needs to be modernized to allow proper monitoring of loans, while the tax treatment of provisions against bad debt remains to be resolved.

The CBT has made progress in improving its supervision and the restructuring of the banking system, but further action is needed. Absence of a functioning loan-classification system and the deficiencies in the accounting system complicate a proper evaluation of the health of banks. 1/ The fact that most bank loans are to state-owned enterprises and are considered to be Government-guaranteed, perpetuates inadequate credit analysis and monitoring procedures in the banks. As mentioned above, interenterprise arrears increased rapidly in 1995, and despite large support by the CBT and the budget, amounted at end-October 1995 to 42 billion, equivalent to almost 40 percent of broad money on that date or to 37 percent of estimated 1995 budget revenue.

V. External Sector Developments

1. Overview 2/

Turkmenistan’s balance of payments remains highly vulnerable to external shocks as only two products, gas and cotton, account for three-quarters of all exports. Due to the payments difficulties experienced by Turkmenistan’s traditional trading partners and the lack of access to alternative markets, gas exports fell from about 80 billion cubic meters in 1990 to an estimated 21 billion cubic meters in 1995. The stock of payments arrears and rescheduled debt for gas exports increased to almost US$1.5 billion by January 1, 1996. Barter and clearing trade arrangements prevented the realization of world market prices for most exports. Nevertheless, international reserves remained strong, rising to the equivalent of 10 months of imports by end-1995. This was achieved through a tightening of trade and exchange controls, which limited access to foreign exchange and severely compressed imports. In addition, short-term foreign borrowing increased sharply in 1994, raising the debt service ratio from a negligible level to almost 13 percent by end-1995 (Table 4 and 28, and Chart 3).

Table 4.

Turkmenistan: Summary Balance of Payments, 1993-95

article image
Sources: Central Bank of Turkmenistan; and staff estimates.

Exports do not reflect payments arrears. The current account captures all exports, regardless of whether payment has been received or not, with arrears on gas export payments recorded in the capital account and hence reflected in the overall balance. Transit charges are included in gas exports.

New arrears incurred to Turkmenistan and payment to Turkmenistan of arrears incurred previously.

Rescheduling of year-end gas arrears as medium -term loans.

Previous arrears repaid by Turkmenistan and new arrears incurred by Turkmenistan.

Current gas payments are current year’s gas exports (net of transit charges) minus new arrears on those exports.

Chart 3
Chart 3

TURKMENISTAN: SELECTED EXTERNAL INDICATORS, 1993-95 1/

Citation: IMF Staff Country Reports 1996, 030; 10.5089/9781451837216.002.A001

Sources: Data provided by the Turkmen authorities; and staff estimates.1/ Exports do not reflect payment arrears. The current account captures all exports, regardless of whether payment has been received or not, with arrears on gas export payments recorded in the capital account and hence reflected in the overall balance.2/ Transit charges are included in gas exports.

2. Developments in exports

a. Natural gas exports and pipeline projects

Turkmenistan’s natural gas is currently exported through a single pipeline system that stretches across Kazakstan, Uzbekistan, and Russia. The major importers are Ukraine (80 percent of volumes), Armenia (10 percent of volumes), Georgia (6 percent of volumes), and Azerbaijan (4 percent of volumes). Turkmenistan negotiated annual contracts with each of these countries, which also stipulated the shares of gas exports to be paid in currency and in goods. Shipments to Georgia were suspended during the second half of 1995 pending agreement on payments. Payments problems faced by these countries have reduced Turkmenistan’s gas exports to under 60 percent of total exports in 1995 from above 70 percent in 1991.

Turkmenistan’s gas export prices were increased during 1992-93, and approximated the world market price of gas in 1994, when a c.i.f. price of US$80 per 1,000 cubic meters was agreed. Ukraine, however, negotiated an f.o.b. price of US$55 per 1,000 cubic meters, and paid Russia for transportation. These prices were maintained in 1995; however, the majority of deliveries to Ukraine are now taking place directly with customers, at an average price of US$57 per 1,000 cubic meters, and no longer involve government guarantees. Gas transit charges were negotiated with Kazakstan, Uzbekistan, and Russia. Besides the supply of gas for the operation of compression stations, these countries received in-kind shipments of gas for the payment of transit charges. As a result, about 30 percent of gas exports in 1995 represented payment of transit charges, with the net price averaging only US$39 for 1,000 cubic meters, or less than half of the world market price. In 1995, the payment ratio on gas exports improved compared to 1994. Through November 1, 1995, about 66 percent (compared to 58 percent in 1994) of payments due on gas shipped during the first ten months of the year were received, while the remaining third was in arrears (Table 29). Hence, in this period, Turkmenistan’s effective net export price on total gas shipments averaged about US$27 per 1,000 cubic meters, of which only US$7 was paid in hard currency and the remainder in goods.

In November 1995, an agreement was signed to establish a joint-venture, Turkmenrosgaz, for the prospecting and exports of Turkmenistan’s gas, with ownership by Turkmenistan (49 percent), Gazprom of Russia (46 percent), and a U.S. company (5 percent). It was decided that this joint venture would undertake all gas exports from Turkmenistan in 1996 and pay a net price of US$42 per 1,000 cubic meters. The agreement set a gas export target of 30 billion cubic meters for 1996, with 23 billion cubic meters to be exported to Ukraine. 1/

By 1997, Turkmenistan intends to finalize construction of a gas pipeline to the northern part of the Islamic Republic of Iran, which would diversify its export markets and create an option for extending the pipeline to the West. The cost to Turkmenistan is estimated at US$400 million, and the initial volumes of gas exported through the pipeline projected at about 4 billion cubic meters per year. During a second stage (to be completed in 1999), the pipeline would be extended to Turkey. This would raise the flow capacity to about 15 billion cubic meters (mostly to be exported to Turkey), with a possible future capacity of 30 billion cubic meters once the pipeline is extended to Europe. The cost to Turkmenistan of the pipeline extension to Turkey is estimated at about US$2 billion, with financing not yet arranged. Alternative options under consideration include a pipeline through Afghanistan to Pakistan, a pipeline to China to ultimately supply Japan with liquified natural gas (LNG), and the construction of domestic LNG plants. However, all these are extremely costly projects that would require considerable foreign financing from so far unidentified sources.

b. Cotton exports

Cotton is the second largest export product, accounting for 24 percent of Turkmenistan’s total exports, or for 56 percent of its nongas exports in 1995. Since 1994, the majority of cotton exports has been channeled through the State Commodity Exchange. The Ministry of Agriculture has retained an effective monopoly on the export of cotton, and the Government determines the use of most proceeds. It is estimated that more than half of cotton exports in 1994 and 1995 were sold on a barter basis, partly to meet payments obligations under past contracts for the construction of cotton processing factories. It is estimated that under barter arrangements, in recent years, Turkmenistan has realized, on average, an effective price equivalent to less than 70 percent of world prices for its cotton exports.

c. Oil, electricity, and other exports

Oil derivatives are the third main export category of Turkmenistan, amounting to US$220 million in 1995, or about 11 percent of total exports. Oil exports are also constrained by the lack of transport facilities. Electricity exports to Kazakstan are estimated at US$67 million in 1995, a drop from 1994 levels due to higher domestic electricity production in Kazakstan. Other exports (US$88 million in 1995) include, for the most part, energy-based products (fertilizers), and cotton-based products (cotton seeds, carpets) (Table 30).

3. Developments in imports and services

Turkmenistan’s imports declined substantially in 1994 and 1995 due to a policy of import compression through a variety of trade and exchange controls. As import prices shifted to world market levels during 1994, overall values increased, although import volumes declined by about 10 percent. During 1995, import values declined by 13 percent, with an even larger decline in volumes. Consumer goods constituted 40 percent of total imports, with producer and industrial goods accounting for the remainder (Table 31).

Some US$82 million of construction items are recorded as services in 1995, which include factor-services to nonresidents. An additional US$80 million are reported as profits and dividends, which foreign-owned firms repatriated in 1995. The major service item in 1995, however, remained transit fees, estimated at approximately 30 percent of gas exports, or some US$347 million. Transit agreements have specified a variety of different rates, which are frequently re-negotiated, and the valuation of in-kind payments is not always consistent. It is expected that for 1996 all gas exports will be reported on a net basis (US$42 per 1,000 cubic meters as noted earlier), while transit charges would be directly settled by the importing countries. Interest income from earnings on foreign exchange reserves and from outstanding arrears to Turkmenistan is estimated at US$100 million in 1995. Interest payments on foreign loans of Turkmenistan are estimated at some US$35 million during 1995, so that a net interest income of about US$65 million is reported in the services account.

4. Trade structure

Turkmenistan conducts about 70 percent of its external trade with FSU countries (Table 32). Currently, all gas exports are to FSU countries. During 1995, contracts for gas exports specified two-thirds as barter or clearing arrangements, but actually close to 70 percent of the payments were in goods and 30 percent in hard currency through November 1, 1995. Significant valuation problems remain with regard to bartered products.

Nearly all cotton is sold to western markets, with a large proportion of cotton exports being bartered, including as payments for construction services (Table 33). Major trading partners include Turkey, Germany, Iran, the United States, the United Kingdom, and Italy. Moreover, some oil derivatives, chemicals, and carpets are exported to non-FSU markets. Imports mainly consist of construction items (Turkey, Iran), producer goods (Germany, Italy), and airport equipment (UK). Turkmenistan joined the Economic Cooperation Organization (ECO) in 1993, which promotes regional trade, investment, and economic cooperation among its members. The latter include five other central Asian republics, Afghanistan, Iran, Pakistan, and Turkey.

5. Capital account and arrears 1/

The net capital account improved during 1995, showing only a deficit of about one percent of GDP. The smaller net increase in arrears was the key factor behind this development. The arrears situation improved during the first three quarters of 1995 for which actual data are available. Payments of earlier arrears (including rescheduled amounts) rose from US$162 million in 1994 to about US$214 million during the first three quarters of 1995. New arrears of some US$274 million were incurred on shipments during the same period, compared to US$708 million during 1994. The net increase in these categories, therefore, slowed considerably from US$546 million in 1994 to US$60 million during the first three quarters of 1995, with Ukraine’s net position showing a marked improvement (Chart 3).

To make-up for the loss in export receipts, foreign borrowing increased sharply in 1994. Turkmenistan signed a number of foreign credit agreements, mainly on behalf of state-owned enterprises, with export credit agencies and bilateral creditors, including Austria, Belgium, China, the European Union, France, Germany, Islamic Republic of Iran, Israel, Pakistan, Turkey, the United Kingdom, and the United States (Table 34). As of November 1, 1995, signed official credit agreements totaled US$632 million—compared to US$478 million at end-1994—of which some US$267 million had been disbursed in 1994 and some US$199 million are estimated to have been disbursed during 1995. The majority of loans, carrying short maturities, have been contracted by individual ministries under government guarantees. Amortization payments are expected to total some US$226 million during 1995, indicating an average maturity of loans of about two years. Information on foreign direct investment in Turkmenistan is not very reliable, but the authorities report US$102 million of foreign investment in 1994 and some US$64 million in 1995, mainly in the energy and chemicals sectors.

6. Developments in debt and external reserves

Turkmenistan’s outstanding external debt rose from US$168 million in 1993 to US$469 million or 21 percent of GDP by end-1995. As a result of this rapid increase in foreign borrowing, with average maturity of less than two years, debt service payments increased from near zero in 1993 to over US$260 million during 1995. This was equivalent to about 13 percent of exports, or 56 percent of current gas receipts (Table 28).

Foreign exchange reserves exceeded US$1.2 billion at end-1995, equivalent to about ten months of estimated imports. However, Turkmenistan has experienced problems in servicing its external debt in 1995. Arrears of US$78 million were accumulated by the end of the year. Of this, US$58 million are owed to the European Union, and the remainder to a number of bilateral creditors. An agreement has recently been reached between the Government of Turkmenistan and the European Union for the payment of the US$58 million in quarterly installments during 1996.

VI. Exchange and Trade System

1. Exchange arrangements

Turkmenistan introduced the manat as its national currency in November 1993. Since then, multiple exchange rates have applied to different types of transactions. A special rate for gas transactions was in effect from April 1994 until February 1995. 1/ Until end-1995, an official rate was used for all Government transactions, including those with the Central Bank, and a commercial rate (also officially quoted), introduced in April 1994, was used for all other transactions, including those with commercial banks.

The official and commercial exchange rates were set at manat 75 per U.S. dollar in November 1994 (Table 35). In January 1995, the commercial rate was raised to manat 200 per U.S. dollar and lowered slightly to manat 195 per U.S. dollar in February, while the official exchange rate remained unchanged at manat 75 per U.S. dollar. On September 18, 1995, the official rate was devalued to manat 200 per U.S. dollar and the commercial rate to manat 500 per U.S. dollar. A parallel market also existed, with substantial premia on the rate: before the devaluation of the manat in September 1995, the parallel rate rose to manat 750 per U.S. dollar, subsequently declined to about the commercial rate, but rebounded to over manat 1,000 per U.S. dollar in October and to manat 1,500 per U.S. dollar by end-November 1995. The size of this market, however, remained relatively small.

On November 27, 1995, the commercial rate was abolished and authorized commercial banks 2/ allowed to transact in foreign exchange at freely-determined rates with a limit on sales of US$1,000 per transaction, but without limits on the total number of transactions per individual or enterprise. The size of this market, however, has remained relatively small, with total dollar sales of less than US$600,000 between November 27 and December 30, 1995. Effective January 1, 1996, a unified exchange rate was established on the basis of the rate at the interbank exchange market. 3/

The Foreign Exchange Regulation Law, which came into effect on November 1, 1993, provides freedom to make payments and transfers for current international transactions. In practice, however, there are several restrictions remaining on current international transactions: these include a comprehensive restriction, as noted above, on access to foreign exchange to US$1,000 per transaction for most current international transactions, including invisible transactions (such as travel allowances, 1/ interest, dividends, profits); mandatory approval by the CBT (and, since January 1, 1996, by the Foreign Exchange Committee) of all public sector import payment orders; restrictions on the transferability of manat proceeds received by nonresidents from current transactions, including those held in nonresident manat accounts. Moreover, the 1993 Law gives the Government the priority to acquire foreign exchange according to exchange arrangements established by the CBT. The use of foreign exchange reserves is controlled by the President of Turkmenistan.

2. Prescription of currency

On January 20, 1994, by a Presidential decree, domestic circulation of foreign currency was permitted until further notice, notably in sectors such as hotels, restaurants, and other services. However, on December 27, 1995, the above decree was declared invalid, indicating the Government’s intention to terminate domestic circulation of foreign currency notes.

In January 1994, the CBT issued a directive allowing commercial banks to re-establish correspondent accounts with banks in FSU and non-FSU countries. Previously, all payments were centralized through the accounts of the CBT. The vast majority of transactions with FSU states are subject to bilateral payments agreements. Most of these transactions, especially those associated with gas exports, are carried out as part of a barter or a clearing agreement. Currently, Turkmenistan has signed bilateral payments agreements with Russia, the Baltic states, and ten FSU countries. 2/ Transactions with non-FSU countries are carried out in convertible currencies, except for barter transactions. External payments must be made through authorized banks.

3. External payments and receipts

a. State Commodity Exchange

The State Commodity Exchange (SCE) was established by Presidential decree on September 27, 1994, according to which all products produced in and exported from Turkmenistan and all imports for public enterprises are to be channeled through the SCE, with the exception of gas exports which are directly traded by the Ministry of Oil and Gas. The SCE was set up with the dual objectives of regulating the country’s exports and imports and obtaining world market prices for exports. Originally, trade was conducted only in manat but subsequently in dollars, except for barter arrangements. Moreover, there have been some exceptions where trade for manat was allowed, with the conversion to world market prices effected at the commercial exchange rate (until end-November 1995). The SCE charges a commission of 0.2 percent on all transactions. Trade was effected with some 32 countries and the SCE strived to achieve world prices, which it monitored closely.

b. Proceeds from exports and invisibles

All goods may be imported and exported without restriction, except for those on a negative list, which include items such as arms, narcotics, and antiquities, whose trade is prohibited for national security reasons or to protect the national heritage. There are presently no export taxes, export licensing requirements, and advance import deposits.

As of December 27, 1995, foreign currency receipts are subject to surrender requirements of 70 percent for gas and oil exports and 50 percent for all other exports. Of the total amounts surrendered, 40 percent and 30 percent, respectively, for the two categories noted above, have to be deposited in the Foreign Exchange Reserve Fund (FERF), 1/ with the remainder to be transferred to the interbank foreign exchange auctions.

c. Payments for imports and invisibles

All imports are free of restrictions and import licenses are not required. However, restrictions on access to foreign exchange have constrained payments for imports and invisibles. Moreover, since December 1994, the CBT has to clear all import payment requests outside the private sector, although normally clearance is obtained within the same day. On December 27, 1995, a Foreign Exchange Committee was set up at the Office of the President to oversee foreign exchange transactions, including import payment requests of all public sector entities.

d. Capital movements

Both inward and outward capital transfers are subject to the approval of the CBT. The Law on Foreign Investment in Turkmenistan permits, in principle, foreign direct investment by juridical persons with foreign participation in all sectors. Foreign investment is protected from nationalization. The law also provides that, at the request of investors, for a period of ten years the law in force at the time of registration will be applied. After meeting tax obligations, profits may be reinvested in Turkmenistan, held in bank accounts in national or other currencies, or transferred abroad.

APPENDIX I: Turkmenistan—Statistical Issues

1. National accounts

Until recently, the State Statistics Committee (Goskomstat) of Turkmenistan estimated output by use of methodologies inherited from the Soviet Union. The resultant measure of National Income Produced in the Material Sphere (NIP) was imprecise due to weaknesses in both reporting by enterprises and in the measures of appropriate price deflators. Goskomstat provided an estimate of GDP from the production side, valuing exports of state enterprises at the official exchange rate. This rate was significantly overvalued in relation to the commercial rate, and even more so in comparison to the parallel market rate. The staff currently estimates GDP by adding in an explicit calculation of value-added in the gas sector, using an estimate for the market exchange rate. There are at present no official estimates of GDP from the expenditure side. One key problem remains that the Goskomstat measure of “accumulation” includes revaluation of the existing capital stock. A 1995 STA mission urged Goskomstat to produce a basic measure of GDP using currently available data based on the methodology described in the 1993 SNA.

2. Price indices

Until May 1995, Goskomstat measured inflation by use of a retail price index (RPI) with changing weights determined from retail sales data. Inflation is now measured by an annual chain-linked Laspeyres index, following extensive technical assistance provided by STA. However, the weights of the producer price index continue to be changed frequently. Turkmenistan has requested STA technical assistance in compiling price indices for imports and exports.

3. Government finance

An economic and functional classification of budget expenditures can now be constructed from Ministry of Economics and Finance (MEF) sources, but the estimates are imprecise. In addition, the coverage of this data is too limited to be a reliable record of government activity. After significant technical assistance from the Fund, the MEF is introducing a Treasury system, which should improve statistical reporting during 1996. Also, provision has been made for extending the term of the FAD Resident Advisor for Turkmenistan.

A government finance statistics mission visited Ashgabat during September 15-28, 1994, to reclassify the authorities’ budget accounts on a GFS basis. Data on considerable government activity outside the budget are not being reported.

4. Money and banking

In the past, efforts to compile monetary statistics on a routine basis were frustrated by the introduction of new accounts and the misclassification of the existing accounts. A STA money and banking statistics mission visited Ashgabat during the EUR II mission’s stay in November 1995, and worked closely with the authorities and the EUR II mission to reclassify the accounts of the CBT, and update the monetary statistics. On the basis of the recommendations of the STA mission, a system was established to compile monetary statistics that could be used by the authorities, EUR II, and STA. The STA mission also provided further training to the staff of the CBT in the methodology for compiling monetary statistics and discussed arrangements for regular reporting of monetary data to the Fund.

5. Balance of payments

Since the first quarter of 1994, reporting and processing of the balance of payments (BOP) within the CBT has permitted quarterly reporting. Problems remain in a number of areas, including the accounting for barter trade and the recording of transfers. The authorities have agreed to a STA proposal to assign a regional BOP advisor (to cover the Kyrgyz Republic, Turkmenistan, and Uzbekistan).

6. Reporting to the Fund

The status of reporting to the Fund of the core statistical indicators is shown in the attached table.

Turkmenistan: Core Statistical Indicators

(As of January 19, 1996)

article image

NMP estimates are available and published quarterly.

Explanation of abbreviations:

Frequency of data, reporting and publication: D-daily, W-weekly, M-monthly, Q-quarterly, A-annually, OR-on request, CH-when changed. Source of Updating: A-Central Bank of Turkmenistan, B-Goskomstat, C-Ministry of Economy and Finance. Mode of reporting: RR-by fax through Resident Representative. Confidentiality: CON-confidential.

APPENDIX II: Turkmenistan—Technical Assistance 1/

The IMF has provided substantial technical assistance and training to Turkmenistan, including in strengthening monetary and fiscal institutions, enhancing the effectiveness of monetary, exchange, and fiscal management, and improving the compilation of statistics. The Fund has stationed a Resident Representative in Ashgabat since October 1993 and has provided, since February 1994, two resident advisors to the Central Bank and the Ministry of Economy and Finance, respectively. Other international agencies—including the World Bank, EBRD, EU and OECD—and bilateral donors are also providing a vide variety of technical assistance to Turkmenistan. While the assistance has been veil received, implementation has been limited in a number of areas by the slow progress in structural reforms and lack of skilled personnel.

In November 1994 and November 1995, missions from the IMF’s Statistics Department (STA) assisted in the compilation and analysis of money and banking statistics, resulting in improved reporting on monetary developments. Further progress in this area depends on the introduction of a new system of accounts, under consideration by the Central Bank. STA recommendations concerning the compilation of a consumer price index have been implemented and a new index vas introduced in May 1995. Although some progress has been made in the area of compiling national accounts, recommendations towards implementing the internationally recognized System of National Accounts (SNA) remain to be implemented.

In January and September 1995, missions from the IMF’s Fiscal Affairs Department (FAD) made substantive recommendations for reform of the taxation system and the social safety net, respectively. These recommendations are under review by the authorities. With the assistance of the FAD Resident Advisor, considerable progress has been made in setting up a Treasury system, with new computerized reporting arrangements to be operational in early 1996.

In September 1995, a mission from the Monetary and Exchange Affairs Department (MAE) of the IMF reviewed progress in monetary and exchange reforms and made recommendations for further improvements. Substantial progress has been made in building an institutional and operational base consistent with modern central banking functions, and recent technical assistance has been directed mainly at reforms toward market-based monetary management.

Government officials continue to participate in IMF Institute courses and seminars, held at the Joint Vienna Institute and IMF Headquarters. In 1995, 23 officials from the Ministry of Finance and the Central Bank attended 14 different courses at the Joint Vienna Institute, covering a wide range of economic and statistical issues, and one official attended a seminar at IMF Headquarters for Senior Officials from Economies in Transition.

IMF Technical Assistance and Training

article image

APPENDIX III: Turkmenistan—Social Protection System

Turkmenistan implements an extensive system of social protection, consisting of guaranteed employment in state-owned enterprises and farms; subsidized prices for basic consumer goods, housing, health care, and other key consumption items such as gas, water, and electricity; and a system of pensions, family allowances, and unemployment benefits. The benefits have been provided through the budget, as well as by off-budget ministries and public agencies. The system, which is far from being transparent, has been costly to operate, with the benefits not always reaching the most vulnerable groups of the population.

Price subsidies operate through transfers from the budget to producers to cover the excess of production costs (including procurement of items the prices of which are set by the Government) over retail prices (also set by the Government for subsidized goods). A ration system—which includes basic food items such as flour, meat, rice, milk, butter, sugar, and tea—allows individuals to purchase fixed amounts of the rationed items at subsidized prices. Presently, under the ration system, the price of flour is set at manat 10 per kilogram, with a ration of 8 kilograms per month for rural and urban consumers. The price of bread ranges from manat 63 to manat 150 per kilogram, while meat is priced at about manat 150 per kilogram. Energy products are also subsidized, with octane-93 gasoline priced at manat 50 per liter. In addition, gas, electricity, water, and other utilities are distributed free of charge to household up to certain limits, although it is not possible to measure household consumption in the absence of meters. Rents on apartments are also highly subsidized at manat 1 per square meter, with an additional 50 percent rebate for single pensioners and low-income families.

The extent of overall price subsidization is unclear and difficult to measure. Some of the goods sold at subsidized prices are imported through barter arrangements, so that the cost of the implicit subsidy does not appear on budget, but is carried by the branch ministry concerned, often the Ministry of Oil and Gas. Moreover, domestic production costs are not accurate indicators of economic costs. Farmers are obliged to sell significant shares of their crops to the state at government-set procurement prices that are generally below world market levels, but have received inputs at subsidized prices and, until recently, cheap bank credits. The authorities are becoming increasingly aware of the need to substitute the present complex system by more transparent and direct means of social protection, and the recent measures to curtail price subsidies can be considered as first moves in this direction.

Family allowances provide for a single allowance for children under six, and a means tested allowance for children between the ages of six and sixteen, although in practice it is difficult to assess incomes other than from wages. As of November 1995 family allowances comprised a birth allowance of one month’s minimum wage, a monthly allowance equivalent to 15 percent of the minimum wage for every child under 16 (18 for students), paid to families with average per capita income below 30 percent of the minimum wage, and a monthly allowance (20 percent of the minimum wage for working mothers and 15 percent for non-working mothers) for mothers with children under 6. There are also death, disabled, and veterans benefits.

Pensions, which are provided from the budget, are funded by a social tax of 30 percent on the gross wage bill of employers 1/ and one percent on employees. The retirement age in Turkmenistan is 60 for men and 55 for women. At present, the old age dependency ratio is declining, and the demographic implications of the age structure are not expected to pose a problem for several decades. The number of pensioners in 1994 was 420,020, of which 305,575 received old-age pensions, and the rest disability, service, and dependency pensions. The average pension in the third quarter of 1995 was manat 3,728 per month, 2/ about 43 percent of the average wage in the same quarter (Table 20). Pensions are not automatically linked to inflation, but adjustments are made from time to time. In 1994, average pensions doubled over 1993, while as part of the package of economic measures announced in December 1995, pensions and benefits were raised two to three times from the beginning of 1996.

There is an Employment Law specifying benefits for the unemployed. Benefits are available to those registering at the employment office and able and willing to work. 3/ Although the Employment Law provides for a payroll contribution of 2 percent to be paid to the Employment Fund by enterprises, this is not being collected.

APPENDIX IV: Turkmenistan—Ministries and Institutions

I. Ministries and Institutions Essentially Supported by the Central Budget

article image

II. Mainly Self-Supporting Institutions

article image

APPENDID V:

Turkmenistan: Summary of Major Taxes as of January 1, 1996

article image
article image
article image
article image
article image
article image
article image
article image
article image

APPENDIX VI: Turkmenistan—Local Taxes

Under Article 13 of the Law of Local Government of Turkmenistan, the following local taxes and fees may be introduced on the territory of the country:

1. Tax on construction of industrial facilities within resort areas, with rate not exceeding one percent of the declared construction cost.

2. Resort fee charged on private individuals using resort areas, with the rate not exceeding 5 percent of the minimum monthly wage pursuant to the Law. The list of resort areas shall be determined by the Cabinet of Ministers of Turkmenistan.

3. Fee for trading activities payable through purchase of a bill or temporary license. Annual rate for legal entities shall not exceed 10 minimum monthly wages pursuant to the Law; for private individuals, the annual rate shall not exceed 5 minimum monthly wages.

4. License fee for trading in wine and alcoholic beverages payable by legal entities and private individuals involved in retail sales of wine and alcohol at the following annual rates: 20 minimum monthly wages for legal entities, 10 minimum monthly wages for private individuals. In the case of temporary sales at parties and other social events, half of the minimum monthly wage shall be charged for each day of trading.

5. Targeted fees for police, territory arrangement, and other purposes charged on private individuals and enterprises, irrespective of ownership. The annual rate shall not exceed one percent of 12 minimum monthly wages for private individuals or one percent of the annual wage fund calculated per minimum monthly wage for legal entities.

6. Advertisement tax payable by legal entities and private individuals advertising their products at a rate not exceeding 5 percent of the advertisement agency service cost.

7. Fees payable by private individuals in possession of a dog (except service dogs) at an annual rate not exceeding 15 percent of the minimum monthly wage pursuant to the Law.

8. License fees for holding local auctions and lotteries payable by auction/lottery organizers at a rate not exceeding 10 percent of the auctioned goods or the value of lottery tickets.

9. Fee payable by private individuals upon issuance of a certificate to lodge in a flat at a rate not exceeding 75 percent of the minimum monthly wage, depending on the total space and quality of dwelling.

10. Tax for sales of second-hand cars, computing equipment and personal computers payable by legal entities and private individuals selling these goods at a rate not exceeding 10 percent of the contract value.

11. Fee for use of local symbols payable by producers of goods bearing local symbols (coat-of-arms, views of cities, localities, historical monuments, etc.) at a rate not exceeding 0.5 percent of the value of goods.

12. Fees for transactions effected at the exchange (except securities transactions provided for in applicable laws) payable by participants therein at a rate not exceeding 0.1 percent of the contract value. 1/

13. Fees for participation in horse races payable by legal entities and private individuals entering their horses for commercial contest, at a rate not exceeding three minimum monthly wages pursuant to the Law.

14. Fee for victory at the horse races payable by winners at a rate not exceeding 5 percent of the value won.

15. Fee for participation at the horse races payable in the form of interest to the participation charge at a rate not exceeding 5 percent of the charge.

16. Fee for parking payable by legal entities and private individuals parking their cars at specially equipped areas at a rate not exceeding one percent of the minimum monthly wage for each day.

17. Fee for TV and cinema shooting payable by commercial cinema and TV companies which undertake shooting requiring special organizational involvement by local government bodies (allocation of police forces, fencing of the territory etc.), at a rate of not exceeding one percent of the monthly wage fund calculated per established minimum monthly wage.

STATISTICAL APPENDIX

Table 5.

Turkmenistan: Production of Gas and Cotton, 1990-95

article image
Source: Data provided by the Turkmen authorities.
Table 6.

Turkmenistan: Index of Gross Industrial Output, 1990-95

(In prices of the previous year)

article image
Source: Data provided by the Turkmen authorities.
Table 7.

Turkmenistan: Production of Selected Mineral and Industrial Commodities, 1991—95

article image
Source: Data provided by the Turkmen authorities.
Table 8.

Turkmenistan: Money Incomes and Expenditures of the Population, 1991—94

(In millions of manat, period average)

article image
Source: Data provided by the Turkmen authorities.
Table 9.

Turkmenistan: Selected Goods, Products and Services for which Prices are Regulated by the State

(In manat per units indicated)

article image
Source: Data provided by the Turkmen authorities.
Table 10.

Turkmenistan: Energy Prices, 1992-95

(End-of-period)

article image
Source: Data provided by the Turkmen authorities.

Raised to manat 50 per litre and manat 40 per liter, respectively, as of January 1,1996.

Table 11.

Turkmenistan: Consumer Price Developments, 1993-95

article image
Sources: Data provided by the Turkmen authorities.
Table 12.

Turkmenistan: Monthly Percentage Changes in the Consumer Price Index, 1994-95

(Percentage change over the previous month)

article image
Source: Data provided by the Turkmen authorities.

Due to rounding, components do not add to 100.

Table 13.

Turkmenistan: Average Retail Prices of Selected Items, 1990-94 1/ 2/

(In manat per kilogram)

article image
Source: Data provided by the Turkmen authorities.

Average of prices paid in state retail stores, state rural “cooperative” retail outlets, and urban “collective” (free) markets. Data from the family budget survey.

Prices presented are average for the period.

The family budget survey classifies respondents based on occupation. Workers and employees may reside in both urban and rural areas, and include agricultural employees not classified as collective farmers.

Pork prices are not available for collective farmers.

Table 14.

Turkmenistan: Producer Prices in Industry, 1993-95

(Percent change over preceding period)

article image
Source: Data provided by the Turkmen authorities.
Table 15.

Turkmenistan: Nominal and Real Wages, 1993-95

article image
Source: Data provided by the Turkmen authorities.

Average economy-wide wages.

Table 16.

Turkmenistan: Minimum Consumption Basket and Minimum Wage, 1993-95 1/

(In manat, period average)

article image
Source: Data provided by the Turkmen authorities.

A per capita poverty measure reflecting the minimum income needed to sustain existence.

Table 17.

Turkmenistan: Wages by Sector, 1993-95

(In manat per month; period average)

article image
Source: Data provided by the Turkmen authorities.

Includes bonuses/premia.

Excludes collective farmers and those employed full -time on private plots.

Other branches of material production, includes miscellaneous activities such as hunting, trapping and printing.

Research and Development Institutes.

Local, Republican, and former all-Union government agencies.

Table 18.

Turkmenistan: Population, Labor Force and Employment, 1990—94

(In thousands of persons; end-of-period)

article image
Source: Data provided by the Turkmen authorities.

Defined as men between the age of 16 and 59 years and women between the age of 16 and 54 years.

Including consumer cooperatives.

Includes students over the age of 16 and people of working age not officially employed, (e.g. housewives)

Unemployment, inactive population, and total labor force data are derived from different sources, and are not directly comparable

Table 19.

Turkmenistan: Employment by Sector, 1990-95

article image
Source: Data provided by the Turkmen authorities.

Includes those employed in state and private agriculture.

Retail and wholesale trade.

Other branches of material production, includes miscellaneous activities such as hunting, trapping, and printing.

Research and Development Institutes.

Transportation and communication services for consumers and government (as opposed to industrial users).

Local, Republican, and former all-Union government agencies.

Table 20.

Turkmenistan: Wages and Pensions, 1994-95

(In manat per month; period average)

article image
Source: Data provided by the Turkmen authorities.
Table 21.

Turkmenistan: General Government Operations, 1994-96

(In millions of manat; unless otherwise indicated)

article image
Sources: Turkmenistan Ministry of Economy and Finance; Central Bank of Turkmenistan; and staff estimates.

Official budget expected in estimated prices of the fourth quarter of 1995, as approved by Parliament on November 24, 1995; excludes the impact of measures announced on December 27,1995.

Excludes the revenue of the Voluntary Medical Insurance Fund.

Arrears on the EU loan (US$58 million).

Table 21a.

Turkmenistan: General Government Operations in Percent of GDP, 1994-95

article image
Sources: Turkmenistan Ministry of Economy and Finance; Central Bank of Turkmenistan; and staff estimates.

Arrears on the EU loan (US$58 million).

Table 22.

Turkmenistan: Monetary Survey, 1993-95

(in millions of manat; end-of-period)

article image
Source: Central Bank of Turkmenistan.

Foreign currency deposits at the CBT corresponding to the part of foreign exchange reserves under control of the President, valued at the official exchange rate.

Table 23.

Turkmenistan: Balance Sheet of the Monetary Authorities, 1993-95

(In millions of manat; end-of-Period)

article image
Source: Central Bank of Turkmenistan.

Difference between Government revenue and expenditure on this account; a positive magnitude reflects an overdraft

Credit to the Central Government to clear overdrafts and finance projected budget deficits and special projects.

Foreign currency deposits at the CBT corresponding to the part of foreign exchange reserves under control of the President; valued at the official exchange rate.

Table 24.

Turkmenistan: Balance Sheet of the Commercial Banks, 1993-95

(In millions of manat; end-of-period)

article image
Source: Central Bank of Turkmenistan.
Table 25.

Turkmenistan: Bank Lending By Sector, 1993-95

article image
Source: Central Bank of Turkmenistan.
Table 26.

Turkmenistan: Banking System Interest Rates, 1991-95

(In percent per annum; end-of-period)

article image
Source: Central Bank of Turkmenistan.

Maturity of 3-months.

Table 27.

Turkmenistan: Bank Deposit Rates by Maturity, 1994-95

(In percent per annum)

article image
Source: Central Bank of Turkmenistan.
Table 28.

Turkmenistan: Consolidated Balance of Payments, 1993-95

article image
Sources: Central Bank of Turkmenistan, and staff estimates.

Transit charges are included in gas

Rescheduling of year-end gas arrears as medium-term loans

New arrears incurred to Turkmenistan and payment to Turkmenistan of arrears incurred previous

Previous arrears repaid by Turkmenistan and new arrears incurred by Turkmenistan

Table 29.

Turkmenistan: Arrears and Debt on Gas Payments as of January 1, 1996 1/

(In millions of U.S. dollars)

article image
Source: Data provided by the Turkmen authorities as of February 26, 1996.

This presentation is on the basis of information provided by the Turkmen authorities, which may not necessarily fully conform with information provided by the debtor countries.

Government guarantees through the budget of Ukraine were terminated as of January 1,1996. “Direct” transactions are effected through enterprises.

Amount owed by Ukrainian company ResPublica, which was fully paid by the Ukrainian Government (under guarantees) during 1995.

Represent the outstanding balance at end-January, following the payment of US$20 million by Ukraine. The outstanding amount remains under negotiation between the two sides.

The Turkmen authorities consider the rescheduling agreement signed with Georgia in January 1995 as valid, although in the view of the Georgian authorities this agreement has not been finalized. An Understanding between Georgia and Turkmenistan was reached in February 1996 to hold discussions for the rescheduling of the 1993-94 amounts (compatible with Georgia’s IMF supported adjustment program). The amounts shown include principal, interest for 1993-94, and penalties.

Total shipments gas during 1995 are higher by the amounts shipped to pay in-kind for transit fees. Through December 31,1995, these totaled 6.6 billion cubic meters.

Table 30.

Turkmenistan: Exports by Product, 1992-95

(in millions of U.S. dollars)

article image
Sources: State Customs of Turkmenistan; and staff estimates.

Total exports in 1995 do not exactly correspond with data obtained from the Central Bank, which are used in the balance of payments, due to statistical discrepancies.

Table 31.

Turkmenistan: Imports by Product, 1992-95

(in millions of U.S. dollar)

article image
article image
Sources: Goskomstat and State Customs of Turkmenistan.
Table 32.

Turkmenistan: Exports and Imports by Countries, 1994-95

(in millions of U.S. dollars)

article image
Sources: Central Bank of Turkmenistan; and staff estimates.
Table 33.

Turkmenistan: Trade by Type of Payment, 1993-95 1/

article image
Sources: Central Bank of Turkmenistan and staff estimates.

In percent of total exports and imports. The shares of the different types of goods are in percent of total exports or imports of the respective goods.

Table 34.

Turkmenistan: External Debt, October 1995

article image
Source: Central Bank of Turkmenistan.

Stock of amounts disbursed through October 1995.

Table 35.

Turkmenistan: Changes in the Exchange System, 1993-96

article image
Source: Central Bank of Turkmenistan.

In April 1994, the surrender requirements replaced a tax on gas exports.

Of which 40 percent and 30 percent, respectively, are transferred to the Foreign Exchange Reserve Fund and the rest placed under CBT control.
1/

Turkmenistan has received technical assistance on national accounts from the OECD and the Fund. The latter has tried to resolve the difficulties encountered in compiling national accounts on an expenditure basis, including problems relating to the valuation of capital stocks. Turkmenistan’s statistical issues are discussed in Appendix I and Fund technical assistance (including in the statistical area) in Appendix II.

2/

Between April 1994 and February 1995 the Government used a special exchange rate, considerably lower than the official rate, for the conversion of gas receipts. Thereafter, the official rate was used also for gas. In November 1995, the official exchange rate was manat 200 per U.S. dollar, compared with an officially-quoted commercial exchange rate of manat 500 per U.S. dollar and a parallel market rate of about manat 1,500 per U.S. dollar.

1/

The unification of the exchange rate as of January 1, 1996 will eliminate the need for such adjustments.

1/

The major markets for Turkmenistan’s gas exports in 1994 and 1995 were FSU countries, notably Ukraine, Georgia, Armenia, and Azerbaijan, whereas previously Poland, Hungary, Czechoslovakia, Yugoslavia, and Romania were also significant customers (taking 11 billion cubic meters in 1992). In order to expand export markets beyond the traditional FSU customers, construction has started on a pipeline to the Islamic Republic of Iran, with possible extension to Turkey; a number of other project; are under consideration (see Chapter V, section 2.a.)

1/

At present, only 2 million hectares of land are being irrigated, out of a total of 20 million hectares.

2/

Efforts are being made to increase value-added in the cotton sector by further downstream processing of cotton, e.g., greater production of textiles and clothes.

1/

Other increases in prices for rationed goods include butter, to manat 200/kg (from manat 30); sugar, to manat 150/kg (from manat 30); and tea, to manat 30/kg (from manat 5-10). The prices of vodka, cotton oil, and rice were also raised.

2/

As of May 1995, the CPI, a Laspeyres index using annual chain—linked weights, replaced the Retail Price Index (RPI), an index with frequently changing weights, as the official indicator for developments in consumer prices. The CPI has been calculated retroactively to the beginning of 1993, using data from the RPI.

3/

The items of which prices are controlled are basic necessities. Their weight in the CPI is 27 percent, and movements in the overall CPI are mostly determined by movements in prices of non-controlled items.

1/

The PPI is now being rebased.

1/

The minimum wage is intended to be sufficient for the purchase of certain prescribed basic commodities and services known as the minimum consumption basket (MCB). The MCB includes food and clothing, medical and sanitary goods, personal services, transport and communications, and other items, totaling 351 items at present. The cost of the MCB rose by over 700 percent in 1994, and by nearly 400 percent more in the first ten months of 1995 (Table 16). As indicated above, however, the real minimum wage has declined sharply in this period.

2/

The labor force is defined as men between the ages of 16 and 59 years, and women between the ages of 16 and 54 years.

3/

Employment statistics are available only on an annual basis.

1/

Data provided by the World Bank.

1/

The gas sector is subject to the profits tax, the value-added tax (VAT), and the natural resource tax.

1/

These comparisons should be treated with caution, since changes in some of the underlying fundamentals and in budget classification preclude accurate comparisons, and hence data from before 1994 are not reported in the tables describing fiscal developments.

2/

The 29 self-supporting ministries are listed in Appendix IV. Under the 1995 Budget Law, all self-supporting institutions were required to report their revenue and expenditure to the Ministry of Economy and Finance, although this did not compel these institutions to follow budgetary procedures.

1/

There are three main tiers of the Treasury in Turkmenistan: the central unit in Ashgabat at the Ministry of Economy and Finance; six major regional velayat offices; and 55 minor etrap offices.

2/

VAT is still levied on an origin basis.

3/

At the time of its discontinuation in February 1995, the gas exchange rate was manat 10 per U.S. dollar compared to the official rate of manat 75 per U.S. dollar. After this date, the official rate, which was increased to manat 200 per U.S. dollar in September 1995, applied to gas transactions.

1/

Silk cocoon and fur are also subject to the profits tax.

2/

Agricultural enterprises of all institutional forms were exempted from VAT on state-orders by an Executive Order of January 30, 1995.

3/

Turkmenistan’s major taxes as of January 1, 1996 are detailed in Appendix V.

4/

The changes were introduced by Executive Order No. 1596, July 31, 1995.

5/

As of January 1, 1996, the minimum wage is defined as 30 percent of the administratively set average wage. Given an average wage of manat 20,000 in January, this implies a tax-free threshold of manat 12,000.

6/

Self-employed individuals make quarterly advance payments and need to file an annual tax return There are about 2,000 self-employed tax payers in a total of 18 million.

1/

Executive Order 2062, January 11, 1995.

2/

Executive Order 2236 of June 31, 1995.

3/

Executive Order 2238, June 21, 1995.

4/

In the absence of an economic classification, the wage bill is not shown separately but is a part of each category discussed.

1/

Capital spending is also partially covered under social-cultural expenditures.

1/

During 1995, the ratio of other taxes and revenues to GDP fell and a new item, sale of clearing goods, appeared due to classificational changes associated with the accounting for goods shipments under intergovernmental debt rescheduling.

1/

Commercial bank credit to state-owned enterprises in foreign currency reflects the latter’s foreign borrowing. Foreign loans of state-owned enterprises are, under Government guarantee, taken up by the state-owned Vneshekonombank and onlent in foreign currency to the enterprises. The large increase in such credit in 1994 mainly reflected the devaluations of the manat in March and November, which is also reflected in the banks’ foreign liabilities.

1/

When state enterprises issue unfunded checks to one another, the bounced checks are registered as an interenterprise arrear and reported to the CBT. The latter, as far as possible, nets out the arrears; the total amount of outstanding arrears reflects those payments that could not be netted out.

2/

About manat 10 billion (19 percent) of the manat 53 billion increase in manat-denominated bank credit to state-owned enterprises during this period was directly related to efforts to reduce interenterprise arrears, which explains the increase in long-term debt after March 1995 (Table 25).

3/

In addition, the February decree limited bank profits to 4 percent of specified assets, providing an incentive to banks to increase their assets.

4/

Following the increases in wages and producer prices in June 1995, real money balances initially increased sharply. However, this was clearly more than what the economy was willing to hold and, after two months, the running down of real money balances resulted in a sharp acceleration in inflation.

1/

A limit of 0.3 percent over the refinance rate applied for loans refinanced with the CBT.

2/

A small amount of treasury bills were sold at par with a fixed yield, set by the Ministry of Finance and Economy.

3/

During August 1993-September 1994, the CBT provided assistance in organizing weekly auctions of interbank funds. However, since during the first three quarters of 1994 CBT refinancing was readily available, volumes transacted remained small, and virtually all funds came from the Savings Bank. Due to low activity, the auctions were discontinued in September 1994.

1/

The effective reserve requirement is calculated as the ratio between the banks’ actual required reserve deposits with the CBT and those deposits with banks that are included in the definition of the money supply. The effective requirement is equal to the regulatory requirement when: (i) the reserve requirement is the same for all deposits; (ii) the base of the requirement includes all deposits with banks, but no other deposits, included in the definition of the money supply; (iii) banks comply exactly with the requirement. In case of a differential requirement, but subject to conditions (ii) and (iii), the effective rate is the weighted average of the regulatory rates. Part of the deviations between the effective rate and the regulatory rate(s) are caused by retroactive revisions to the definition of the money supply and another part is due to the inclusion in the base for the requirement of bank deposits (such as non-resident deposits) that are not included in the definition of the money supply.

2/

In the CBT accounts, accumulated Government expenditure during the year is included as an advance, and accumulated reserve as a deposit. If expenditure exceeds accumulated reserve, the difference is treated as an overdraft from the CBT, otherwise the balance is treated as a Government current account deposit.

1/

The long-term loans outstanding at end-October 1995 were of unspecified maturity, with repayment generally linked to foreign receipts, and the interest rates were zero or LIBOR plus 1, 3, 6 and 10 percent per annum.

1/

Since the FERF is a dollar-denominated account, virtually all valuation changes in the CBT’s foreign assets have their counterpart in a change in the FERF, and not, as is usually the case in central bank accounts, in a special revaluation account. This not only complicates monetary analysis, but also entails the risk that the valuation gains are spent.

2/

With the reform package announced in December 1995, the surrender requirement on gas was raised to 70 percent of export earnings, with 40 percent transferred to the FERF and the rest to the CBT for auctioning at the foreign exchange market, thus lowering the amounts augmenting the FERF. Similarly, a 30-20 percent split was applied to the 50 percent surrender requirement on other exports, with 30 percent transferred to the FERF.

1/

Pensions are provided through the Government budget. There are a number of insurance companies, which, however, are only involved in short-term insurance.

1/

The CBT is considering a new accounting system, prepared with technical assistance from the IMF.

2/

Important weaknesses remain in data compilation for balance of payments, despite some improvement in recent years. The Fund is expected to station a regional balance of payments advisor to cover Turkmenistan and two other countries.

1/

A similar target of 32 billion cubic meters was set for 1995, of which only an estimated 21 billion cubic meters were actually exported.

1/

While the current account captures all actual shipments of goods, the non-payment for Turkmenistan’s gas exports is recorded in the capital account as arrears.

1/

The exchange rate for the surrender requirement on gas export receipts was set at manat 2 per U.S. dollar in April 1994, compared to the official exchange rate of manat 10 per U.S. dollar. In August 1994, the exchange rate for the gas surrender was increased to the official rate. However, following the devaluation of the latter to manat 75 per U.S. dollar in November 1994, the special rate for gas was maintained at manat 10 per U.S. dollar until February 1995. Thereafter, the special rate was discontinued and the official exchange rate was made applicable to gas transactions.

2/

Eight commercial banks are authorized to engage in foreign exchange transactions.

3/

Since January 1 was an official holiday, the unified rate was set at manat 2,400 per U.S. dollar on the basis of the interbank rate on January 2, 1996. An interbank foreign exchange auction system was reintroduced by a Presidential decree on January 2, 1996, and is expected to become operational in February 1996.

1/

Previously a limit of US$500 per trip applied to travel allowances (other than for business), which was reduced to US$200 per trip in June 1995.

2/

The ten countries are Armenia, Azerbaijan, Belarus, Georgia, Kazakstan, Kyrgyz Republic, Moldova, Tajikistan, Ukraine, and Uzbekistan.

1/

Previously, the surrender rates ranged from 30-60 percent, and all surrendered amounts were deposited in the FERF.

1/

A list of IMF technical assistance missions to Turkmenistan since December 1991 is provided at the end of this Appendix.

1/

Agriculture is taxed at 20 percent.

2/

Pensions are linked to average earnings of the last two years or over five years of any ten years. The pension is calculated as 60 percent of this amount plus 1 percent for each year worked over 25 for men and 20 for women, up to a maximum of 75 percent.

3/

Benefits depend on work records and earnings. The average replacement ratio for workers with a recent employment history is 50 percent for six months. Benefits cannot be higher than the average wage nor lower than the minimum wage.

1/

Paragraph 12 was declared null and void pursuant to the Presidential Decree of May 1, 1995.

Same Series

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Turkmenistan: Recent Economic Developments
Author:
International Monetary Fund
Volume/Issue:
Volume 1996: Issue 030
Publisher:
International Monetary Fund
ISBN:
9781451837216
ISSN:
1934-7685
Pages:
105
DOI:
https://doi.org/10.5089/9781451837216.002
Chart 1

TURKMENISTAN: REAL SECTOR INDICATORS, 1993-95
Chart 2

TURKMENISTAN: MONETARY INDICATORS, 1993-95
Chart 3

TURKMENISTAN: SELECTED EXTERNAL INDICATORS, 1993-95 1/