Economy · June 23, 2022

The 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. Berdimuhamedov was president for 15 years, until February 2022 when his son, Serdar, rose to the presidency. Turkmenistan’s economy grew exponentially during the first part of Berdimuhamedov’s presidency from 2007 to 2014 due to a higher volume of gas exports, as well as record high gas prices, which helped generate billions of dollars. dollars from exports. The country’s economic production has declined significantly since 2015 due to lower natural gas prices and the disruption of gas exports to Russia and Iran. The second part of Berdimuhamedov’s presidency was characterized by economic crisis, inflation and dizzying black market exchange rates.

Macroeconomic Indicators

Turkmenistan’s nominal GDP under Berdimuhamedov’s presidency grew from $ 12.66 billion in 2007 to $ 45.23 billion in 2019, according to World Bank figures. GDP growth rates have not been updated on the Bank’s website since 2020 due to a lack of reliable data of adequate quality. GDP growth was uninterrupted from 2007 to 2014, then it decreased dramatically and only recovered in 2019.

There are two problems in analyzing Turkmenistan’s GDP. GDP growth in the country was heavily influenced by the growing volume of exports of natural resources (mainly natural gas), which was the country’s main export (86.3% of all exports). Natural gas is an extractive sector and does not require human capital, innovation or factory building through industrialization and does not employ many people. In addition, with the help of gas revenues, the government has spent billions of dollars on large unproductive projects such as the Awaza tourist zone, AIMAG (the Asian Indoor and Martial Arts Games), hotels and monuments, and currently the construction of a new administrative center for the Ahal region as well as the construction of the new city of Ashgabat. The government has reportedly spent about $ 2 billion on the Awaza project and $ 10 billion to organize AIMAG, and 2,500 construction projects are currently underway, which will cost the state budget over $ 37 billion. Since public spending is included in the GDP calculation, such large construction projects artificially increased Turkmenistan’s GDP without reflecting actually widespread economic growth. T.the Turkmen online newspaper Progres.online estimates that public spending accounts for nearly half of the country’s annual GDP.

Furthermore, Turkmenistan’s GDP is calculated in the local currency, the manat, and reported in US dollars based on the official exchange rate. Turkmenistan has two parallel exchange rates: the official exchange rate ($ 1 = 3.5 manat) and the black market exchange rate ($ 1 = 19.5 manat). Therefore, it can be assumed that the country’s actual GDP could be completely different – and much lower – if it were reported on the basis of the black market exchange rate.

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The good old drama about exchange rates

The black market exchange rate is not the product of Berdimuhamedov’s presidency, its advent dates back to the time of the first president, Niyazov (also known as Turkmenbashy, which means “the leader of the Turkmen”). The sale and purchase of foreign currencies was prohibited during the Niyazov era starting in 1998 and such restrictions were lifted in the second year of Berdimuhamedov’s presidency in 2008. Although with some restrictions on the amount of the dollar exchange, the exchange of currencies was largely allowed to all citizens. The exchange rate was set at a fixed rate, first at 2.8 manat / $ 1, and then at 3.5 manat / $ 1. As a result, the standard of living in the country has improved thanks to the economic exchange rate, which has helped the average citizen to afford cars, electronics and other imported goods.

However, the free trade of currencies has been severely limited since 2016 due to fewer hard currencies entering the country, due to falling natural gas prices and the disruption of gas exports to Russia and Iran. Restrictions on the free exchange of currencies have paved the way for the increase of another black market exchange rate in Turkmenistan, but this time under the presidency of Berdimuhamedov. The black market rate reached as high as 40 manat / $ 1 in April 2021, which was 11 times more expensive than the official exchange rate. It then started to decline slowly and reached around 19.5 manat at the time of writing, which is still five times more expensive than the official exchange rate.

Regarding wages, the minimum monthly wage in 2022 in the country is 1,050 manat and the average monthly wage is 2,040 manat. Using the official exchange rate, these figures equate to $ 299.69 and $ 582.26 respectively; but under the black market rate they are only worth around $ 54 and $ 105. That’s a big difference.

high inflation

As a result of the rising black market exchange rate, everything has become more expensive and inflation has soared in the country. Turkmenistan has not yet gone through full industrialization and domestic production is too low to meet consumer demands. Due to the cheap exchange rate in the first half of Berdimuhamedov’s presidency, the country largely imported most of its consumer products.

While the government does not publicly share any data on inflation rates in the country, information on inflation in Turkmenistan can be gathered from international organizations, academics, and alternative third-party sources. IMFthe country’s projected inflation rate ranges from 6% to 21% for the period between 2016 and 2021, while Steve Hanke of John Hopkins University estimated the inflation rate in Turkmenistan from 50% in 2017 to 350% in mid-2018 and back to 50% in 2021.Palaw Index”By Progres.online measures monthly inflation in Turkmenistan by tracking the price of ingredients for the famous Turkmen dish such as sunflower oil, beef, onions, carrots, rice and flour. According to the Palaw Index, year-on-year inflation was 45% in January, 20% in February and 16% in March 2022.

Source: Hanke inflation satellite

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Conclusion

The start of Berdimuhamedov’s presidency was characterized by high economic growth caused by high gas prices and higher export volumes until 2014. However, instead of investing the extra revenue gained through gas exports in those years in the health, education, and rigid infrastructure, the government wasted nearly all revenue on the construction of monuments, airports, luxury hotels, and the underused tourist area of ​​Awaza, as well as hosting the AIMAG. Despite high growth in the beginning, high inflation and a dizzying black market exchange rate became the legacy of Berdimuhamedov’s time in office.