Turkmenistan, a Central Asian nation rich in natural resources, particularly natural gas, presents a paradoxical economic landscape.
While official reports often depict robust growth, the country’s lack of economic freedom and transparency casts doubt on these figures, warranting a cautious interpretation.
According to the Turkmen government, the country’s economy has been experiencing steady growth over the past few years. The State Statistics Committee reported a GDP growth rate of approximately 6.3 per cent in 2023, which it forecasts to increase to 6.5 per cent in 2024 before a slight moderation in 2025.
This growth is primarily driven by the country’s vast natural gas reserves, which account for around 70 per cent of its total exports. Turkmenistan boasts the fourth-largest natural gas reserves globally, and its strategic location facilitates energy exports to major markets, including China, Russia, and Iran.
Around half of Turkmenistan’s gas exports (which totalled some 80 billion cubic metres in 2022) currently go to China.
Infrastructure projects, such as the development of the TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline, further bolster the economic outlook. These projects aim to diversify export routes and reduce dependency on a single market, enhancing economic resilience.
It is expected that once it reaches full capacity, the TAPI gas pipeline will annually transport 33 billion cubic metres of natural gas along an 1,800-kilometre route from Turkmen Galkynysh, the second largest gas field in the world, to the Indian city of Fazilka, located near the border of India with Pakistan. However, while construction of TAPI first began in 2015, it has been stalled for years.
A more likely source of exports is the Caspian Sea. Just this week, Turkey’s Minister of Energy and Natural Resources, Alparslan Bayraktar, travelled to Ashgabat to discuss the purchase of Turkmen gas.
Including Turkmenistan in the Southern Gas Corridor through the Caspian Sea could allow Turkmenistan to transport natural gas to Turkey via TANAP, which connects the giant Shah Deniz gas field in Azerbaijan to Europe through the South Caucasus Pipeline and the Trans Adriatic Pipeline.
Last week, meanwhile, Turkmenistan, Azerbaijan, Georgia, and Romania announced plans to sign a quadrilateral intergovernmental agreement later in 2024 to establish an international transport route from the Caspian Sea to the Black Sea.
A lack of economic freedom
To fully capitalise on these new links, however, Turkmenistan must embrace significant reforms. The country’s tightly controlled political environment and restrictive economic policies have historically deterred foreign investment and stifled entrepreneurial activity.
Turkmenistan remains one of the most closed economies in the world. According to the Heritage Foundation’s 2024 Index of Economic Freedom, the country ranks 176th out of 177 countries, placing just above North Korea. The country’s economic freedom score is a mere 22.9 out of 100, reflecting severe constraints on various aspects of economic life.
The government maintains strict control over key industries, including energy, agriculture, and telecommunications. Private enterprise is limited, and foreign investment is subject to rigorous state oversight. This environment stifles innovation and competition, hindering the potential for sustainable economic growth.
The latest edition of the Bertelsmann Transformation Index (BTI), a measure of the development status and governance of political and economic transformation processes in developing and transition countries around the world, states that, “The foundations for fair competition in a market economy do not exist in Turkmenistan.”
Indeed, the economic system is characterised by central administration, a planned and command economy, an almost exclusively state-run banking system and widespread corruption.
While within the sector of small and medium-sized private enterprises, including individual entrepreneurs (tradesmen), there are some elements of economic competition, “even these economic entities can only develop within the framework of the Union of Industrialists and Entrepreneurs, which the state directs and controls”, the BTI report says.
Reliability of official data
A critical issue in assessing Turkmenistan’s economic health is the reliability of official statistics. Independent verification of economic data is nearly impossible due to the lack of transparency and restricted access for international observers.
The International Monetary Fund (IMF) and the World Bank have raised concerns about the accuracy of the reported figures, urging caution.
“Growth rates, like all other macroeconomic data (national and international), should be regarded with caution,” says the BTI report. “They tend to be overstated due to nontransparent survey methods and understated inflation. Additionally, the significant disparities between the official exchange rate and the parallel rate make an objective assessment impossible.”
Reports from expatriates and non-governmental organisations suggest that the actual economic conditions might be far less favourable than what official reports indicate.
Issues such as widespread poverty, unemployment, and food shortages are often downplayed or omitted in government communications.
The cotton sector, another key export, is beset with issues, not the least of which is forced labour. Cotton Campaign, which monitors the cotton sector in Turkmenistan, says that the government maintains complete control over the cotton production system, which is predicated on the coercion and exploitation of tens of thousands of tenant farmers, public sector employees, and others to produce and harvest cotton for the benefit of corrupt elites.
“Every year during the harvest, which takes place between August and December, the Turkmen government forces tens of thousands of public sector workers, including employees of schools and hospitals, to pick cotton or pay for replacement pickers under threat of penalty, such as loss of employment,” Cotton Campaign claims.
In its latest report, however, published in May, it did note that independent monitoring of the 2023 cotton harvest found that the Turkmen government took some steps to reduce forced labor in the annual harvest.
The report, Forced Labor in Turkmenistan Cotton: Critical Moment to Increase Pressure for Change, shows that several weeks into the 2023 harvest, public authorities stopped mobilising teachers and doctors or extorting them to pay for replacement pickers, although it continued to subject all other groups of state employees to forced labour.
Navigating the economic narrative
For businesses and investors considering engagement with Turkmenistan, a cautious approach is essential.
The apparent economic growth, driven by natural gas exports, presents opportunities but also significant risks due to the opaque regulatory environment and the potential for sudden policy shifts.
Diversifying investments and seeking partnerships with more transparent and stable regions might mitigate some of the risks associated with Turkmenistan. Additionally, stakeholders – especially in key industries such as gas production and cotton – should advocate for greater transparency and economic reforms to create a more conducive environment for sustainable growth.
Turkmenistan’s economy is characterised by a stark contrast between official growth figures and the underlying realities shaped by limited economic freedom and transparency.
While the government reports impressive GDP growth, the lack of reliable data and the heavily controlled economic landscape necessitate a cautious and critical perspective.
Understanding this complexity is crucial for any entity considering engagement with Turkmenistan, as the true economic conditions may diverge significantly from the official narrative.
