Economic legacy of Gurbanguly Berdimuhamedov – The Diplomat

Gurbanguly Berdimuhamedov became president of Turkmenistan in February 2007 after the death of the country’s first president, Saparmurat Niyazov. Berdymukhammedov served as president for 15 years, until February 2022, when his son Serdar became president. Turkmenistan’s economy grew exponentially during the first part of Berdymukhammedov’s presidency from 2007 to 2014 due to increased gas exports as well as record high gas prices that helped generate billions of dollars in exports. The country’s output has declined significantly since 2015 due to lower natural gas prices and the cessation of gas exports to Russia and Iran. The second half of Berdymukhammedov’s presidential term was marked by an economic crisis, inflation, and soaring black market exchange rates.

Macroeconomic indicators

The nominal GDP of Turkmenistan under Berdymukhamedov’s chairmanship rose from $12.66 billion in 2007 to $45.23 billion in 2019, according to The World Bank numbers. GDP growth rates have not been updated on the Bank’s website since 2020 due to the lack of reliable data of adequate quality. GDP growth was continuous from 2007 to 2014, then fell sharply and only recovered by 2019.

When analyzing the GDP of Turkmenistan, two problems arise. GDP growth in the country was greatly influenced by the growing volume of exports of natural resources (mainly natural gas), which was the main export commodity of the country (86.3 percent all exports). Natural gas is an extractive sector and does not require human capital, innovation, or building factories through industrialization, and there are not many jobs in it. Moreover, with the help of gas revenues, the government has spent billions of dollars on unproductive major projects such as the Avaza tourist zone, AIMAG (Asian Indoor and Martial Arts Games), hotels and monuments, and currently the construction of a new administrative center for Akhal velayat, as well as the construction of a new city of Ashgabat. The government reportedly spent about $2 billion on the Avaza project.10 billion per organization AIMAG, and there are currently 2,500 construction projects underway that will cost the state budget more than $37 billion. Because government spending is included in the calculation of GDP, such large construction projects artificially increase Turkmenistan’s GDP without reflecting real economic growth across the board. TTurkmen online magazine Government spending is estimated to account for almost half of the country’s annual GDP.

In addition, Turkmenistan’s GDP is calculated in the local currency, the manat, and is reported in US dollars at the official exchange rate. Turkmenistan has two parallel exchange rates: the official exchange rate (US$1 = AZN 3.5) and the black market rate (US$1 = AZN 19.5). Thus, it can be assumed that the country’s real GDP could be quite different – and much lower – if it were quoted based on the black market exchange rate.

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Good old exchange rate drama

The black market exchange rate is not a product of Berdymukhammedov’s presidency, but dates back to the era of the first president, Niyazov (also called Turkmenbashi, meaning “leader of the Turkmens”). The sale and purchase of foreign currency was banned during the Niyazov era starting in 1998, and such restrictions were lifted in the second year of Berdymukhammedov’s presidency in 2008. Although with some restrictions on the amount of dollars exchanged, currency exchange was basically allowed for all citizens. . The exchange rate was fixed, first at AZN 2.8/$1 and later at AZN 3.5/$1. As a result, the country’s standard of living improved thanks to a cheap exchange rate, allowing ordinary citizens to afford imported cars, electronics, and other goods.

However, since 2016, free currency exchange has been severely limited due to less hard currency flowing into the country, which was caused by lower natural gas prices and the cessation of gas exports to Russia and Iran. Restrictions on free currency exchange have paved the way for yet another black market exchange rate to rise in Turkmenistan, but this time under President Berdymukhammedov. The black market rate reached 40 manats/$1 in April 2021, which was 11 times more expensive than the official rate. Then it began to slowly decline and, at the time of writing, amounted to about 19.5 manats, which is still five times more expensive than the official rate.

As for wages, in 2022 the minimum monthly wage in the country is 1,050 manats, and the average monthly wage is 2,040 manats. At the official exchange rate, these figures are $299.69 and $582.26, respectively; but at the black market rate, they cost only about $54 and $105. This is a huge difference.

High inflation

As a result of the growing rate of the black market, everything became more expensive, inflation jumped in the country. Turkmenistan has not yet gone through full industrialization, and domestic production is too low to meet the needs of consumers. Due to the cheap exchange rate in the first half of Berdymukhammedov’s presidency, the country mostly imported most of its consumer goods.

Although the government does not publish any data on the inflation rate in the country, information on inflation in Turkmenistan can be obtained from international organizations, academics, and alternative third-party sources. IMFthe country’s projected inflation rate is between 6 percent and 21 percent for the period 2016-2021, while Steve Hanke from Johns Hopkins University estimated inflation in Turkmenistan from 50 percent in 2017 to 350 percent in mid-2018 and back to 50 percent in 2021.Palo index“From measures monthly inflation in Turkmenistan by tracking the prices of ingredients for the famous Turkmen palav dish such as sunflower oil, beef, onions, carrots, rice and flour. According to the Palaw index, annual inflation was 45 percent in January, 20 percent in February, and 16 percent in March 2022.

Source: Hanke inflation satellite

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The beginning of Berdymukhammedov’s presidency was marked by strong economic growth driven by high gas prices and large exports until 2014. spent nearly all proceeds building monuments, airports, luxury hotels, and the underutilized tourist area of ​​Avaza, as well as hosting AIMAG. Despite strong early growth, high inflation and a soaring black market exchange rate are a legacy of Berdymukhammedov’s tenure.