June 25, 2007	Monday	Jamadi-us-Sani 09, 1428

Turkmenistan

The economy continued to grow rapidly in 2006, but the exact figure was likely lower than the official estimate. The country is heavily dependent on exports of gas and oil, a situation unlikely to change soon. Growth in 2007 is seen coming in at 8.5pc, little changed from a year earlier. The key development challenges are to effectively channel oil and gas revenues toward productive investment, implement market-oriented reforms, and rebuild human capital.

The economic situation stayed very healthy in 2006, with GDP growth of over 20pc (based on official data). However, official statistics tend to overestimate growth, and actual rate was likely around 9pc, according to ADB staff estimates. Either way, growth was sustained by increased gas prices and exports.

While the gas and oil industry grew rapidly in 2006, the cotton crop experienced shortfalls for the sixth consecutive year. According to the International Monetary Fund, inflation moderated somewhat from 10.7pc in 2005 to 9.0pc in 2006. This was achieved through wage freezes, cuts in pension payments, price controls, and restrictions on cash withdrawals from banks, resulting in a situation of repressed inflation.

The fiscal surplus edged up from 0.9pc of GDP in 2005 to 1.1pc reportedly due to improved revenue collections, but the non-oil fiscal deficit as a share of non-oil GDP was estimated at 9.5pc in 2005. Another large surplus of $1.5 billion on the trade balance account was estimated due to booming oil and gas export revenues. Although both exports and imports grew in 2006, exports grew much faster, propelled by surges in both volumes and prices of natural gas.

The current account surplus was estimated to have grown to 5.7pc of GDP, while gross official international reserves were estimated at $6 billion, equivalent to some 15 months of merchandise imports. Although there are no official labour statistics, unemployment is likely to be high because many school graduates are unable to find jobs, as opportunities are few and they lack the necessary skills.

While there is currently some uncertainty about the likely direction of the post-Niyazov economy, it will likely maintain its heavy reliance on exports of natural gas and cotton, according to the Asian Development Outlook 2007. With potential discovery of new gas fields (though not proven), Turkmenistan would both increase exports of natural gas to the Russian Federation and Ukraine, at the same time as attempting to diversify its gas export destinations, to include, most likely, the People’s Republic of China and, possibly, Afghanistan, India, and Pakistan.

According to the ADB staff assessment, three growth scenarios can be formulated for 2007–2008. With political turmoil, growth could decelerate to 3–4pc. Without it, two possibilities emerge. Under a “no reform” scenario, GDP could grow by 8–9pc a year on the back of higher exports of natural gas with continued stagnation in agriculture.

Under a “with reform” scenario, growth could increase to 10–11pc. Reforms in this context would include liberalizing prices, eliminating subsidies, improving the business environment, revamping the education and health sectors, upgrading delivery of other basic services, and developing rural areas.Unemployment is likely to be high because many school graduates are unable to find jobs, as opportunities are few and they lack the necessary skills. A central element of the social protection system remains the provision to the entire population of basic consumer goods and utilities free of charge or at subsidized rates. While this enables people to meet a minimum subsistence level and alleviates income poverty, non-income poverty indicators continue to worsen.

Social services, including education and health, have been hit by under-financing, a shortened compulsory education period, excessive state intervention in school curricula, a reduction in the number of university students, and deteriorating health services.

Uzbekistan

Continued strong—but narrowly based—growth was driven by increased net exports, a pickup in workers’ remittances, and productivity gains in agriculture. According to the Asian Development Outlook 2007, major challenges over the medium term are to continue managing monetary and fiscal policies to cope with inflationary pressures, integrate the economy with the rest of the sub-region, advance structural reforms in banking, restructure state enterprises, and remove state controls hindering private development. Economic growth in 2007 is projected at somewhat higher than 7pc, a rate maintained for the past three years. Further diversification from commodities and energy would also help sustain growth.

The Asian Development Bank's latest report reveals that the economy has shown robust performance over the past three years, and continued to do so in 2006, turning in GDP growth of 7.3pc. Exports showed real vibrancy, fuelled by favourable price movements in international commodity markets, and to a degree, heady growth of non commodity exports.

Productivity gains in the agriculture sector also contributed. The transformation of large, agricultural cooperatives into private farms nearly finished, with 666 of them becoming 74,000 small private farms during the year. This change has improved the incentive structure for production—and so productivity—especially in fruits and vegetables.

Official data indicate that consumer price inflation has declined since 2004, with the official inflation rate estimated to be at 6.8pc in 2006. The central bank intends to limit broad money supply growth to about 30pc through sterilization and use of other indirect monetary instruments. The authorities intend, too, to maintain a prudent fiscal policy to combat inflation.

Despite their cautious fiscal stance, the authorities have to tackle the risk of higher inflation due to the mounting foreign exchange inflows and rapid reserves accumulation. In 2005, partial sterilization led to a sharp increase in broad money supply of over 50pc.

Vigorous export performance coupled with surging remittances has led to a huge current account surplus of 19.5pc of GDP. Gross official reserves are reported to be equivalent to 12-month of imports. International prices of the country’s major exports look favourable for the next couple of years.

Buoyant exports are seen boosting the economy. Growth in the forecast period is pencilled in at over 7pc.