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Country Context

Turkmenistan is a landlocked upper middle-income country in Central Asia with a GNI per capita of $8,250. It is one of the world¡¯s top exporters of natural gas, possessing the fourth-largest proven natural gas reserves and the 44^th largest proven oil reserves globally. This resource wealth has driven substantial economic growth, positioning Turkmenistan as an upper-middle-income country. Despite this, the nation faces challenges in diversifying its economy, improving public resource management, and enhancing fiscal transparency.

The economy remains largely under state control, with significant foreign exchange and government revenue inflows from oil and gas exports ensuring a basic standard of living for much of the population. However, private sector development is critical for economic diversification and resilience but remains challenging. State-owned enterprises (SOEs) continue to dominate economic activity, accounting for 59.2% of total turnover in 2023.

Agriculture, employing 42.5% of the labor force, suffers from low productivity and faces increasing challenges due to water scarcity and deteriorating soil quality. Turkmenistan is also vulnerable to the impacts of climate change, including sharp rises in temperature and increased salinity.

As a landlocked country, connectivity is key to Turkmenistan's efforts to diversify its economy through increased trade. Investments in road networks, railways, and ports are crucial, but significant improvements in trade logistics are needed.

Strengthening governance, enhancing transparency, and improving accountability in government decision-making and reporting of macroeconomic data are essential for Turkmenistan's sustainable development.

Strategy

ľ¹ÏÓ°Ôº and Turkmenistan

The in Turkmenistan is built around two primary areas for future collaboration: (1) supporting Turkmenistan¡¯s participation in regional initiatives related to global and regional public goods, and (2) providing advice and technical assistance to open and modernize Turkmenistan¡¯s economy.

I. Addressing Global and Regional Challenges

• Water Security and Climate Resilience: Enhancing the efficient use of water resources, modernizing irrigation services, and introducing high-efficiency irrigation technologies. ľ¹ÏÓ°Ôº Group has initiated a preliminary feasibility study for the modernization of the Karakum Main Canal.
• Energy: Supporting the Regional Electricity Interconnectivity and Trade Initiative (REMIT) to boost Central Asian energy cooperation and promote clean energy transition. ľ¹ÏÓ°Ôº Group will help assist Turkmenistan in reducing methane emissions from its oil and gas industry.
• Enhanced Health Emergency Prevention, Preparedness, and Response: Building on the COVID-19 response experience, efforts will be supported to address food, health, and environmental risks through cross-sector collaboration.

II. Supporting Economic Transformation and Competitiveness

• WTO Accession: Providing technical assistance and advisory services on trade competitiveness diagnostics, tariff and trade agreements analysis, and trade potential modeling.
• Private Sector Development: Including Turkmenistan in initiatives like Business Ready and Women, Business, and the Law to address gender disparities and enhance policies supporting the domestic private sector and foreign direct investment.
• Financial Sector Development: Supporting risk-oriented supervision, investment assessment, and the development of new financial instruments. The WBG plans to assist in developing the securities market and enhancing statistical capacity for public policy making.

Implementation and Partnerships

ľ¹ÏÓ°Ôº Group will collaborate closely with other development partners, including the Asian Development Bank (ADB), European Union (EU), Islamic Development Bank (IsDB), European Bank for Reconstruction and Development (EBRD), and various UN agencies, to ensure a coordinated approach to development assistance to Turkmenistan.

The strategy emphasizes the importance of stakeholder consultations and a participatory approach to ensure that interventions are aligned with the needs and priorities of the people of Turkmenistan. This collaborative effort aims to leverage the strengths and resources of each partner to maximize the impact of development initiatives in the country.

Economy

Recent Economic Developments

As of December 2024, Turkmenistan's economy has shown signs of recovery and growth, driven primarily by the hydrocarbons sector. The country's official GDP growth rate was 6.3% in 2024, same as in 2023, reflecting a continued rebound from the economic disruptions caused by the COVID-19 pandemic and global market fluctuations. On the demand side, the GDP growth was supported by the domestic demand, i.e. increased investment (by 9.1% in nominal terms) and consumption (average wages increased by 10.6% in nominal terms), and on the supply side - by the growth in industry, agriculture, and services. Total export, however, was reduced by 8% in 2024, impacted by the lower production and lower global energy prices, while total import grew by 1.4% (machinery, equipment, cement, other construction materials and intermediary goods). Despite reduction in export of natural gas, oil, oil products, and electricity, non-energy exports continued to increase in 2024, including manufacturing goods (fertilizers, plastics, processed foods, cotton lint) and fresh fruits and vegetables (mainly tomatoes). IMF staff estimated that GDP growth slowed to 3% in 2024 from 4.5% in 2023, owing to weak hydrocarbon exports.

The main economic challenge is to translate hydrocarbon wealth into more diversified, sustainable, and inclusive growth. The government has continued its efforts to diversify the economy, although progress remains slow. The manufacturing value-added has seen modest growth. The economy remains heavily reliant on natural gas, oil, and oil products exports, which together accounted for 84.9% of total exports in 2024.

Inflation has been a persistent challenge, with the official annual inflation rate was 3.8% (year-on-year) in December 2024, i.e. higher than 1.4% (y/y) in December 2023. The government has implemented measures to stabilize prices, including subsidies and price controls on essential goods.

In 2024, budget revenue rose by 9.2% and accounted for 14.5% of GDP, and budget expenditures grew by 12.9%, reaching 13.7% of GDP. The budget surplus was 0.8% of GDP in 2024, i.e. lower than 1.3% of GDP in 2023. Taxes from the oil and gas sector represented 40.4% of total budget revenues, while taxes from non-state sector contributed only 10.8% of total budget revenues. Public financial management has seen improvements, with efforts to enhance fiscal transparency and efficiency. The government has also focused on reducing public debt as the domestic and external public and government-guaranteed debt has reduced to 3.6% of GDP in 2024 from 5.8% of GDP in 2023 (according to IMF¡¯s staff statement of June 10, 2025). However, challenges remain on revenue mobilization and increased public spending efficiency.

Overall, while Turkmenistan's economy is on a path to recovery, it faces significant challenges in achieving sustainable and inclusive growth and transition to a marked-based economy. ľ¹ÏÓ°Ôº continues to support the country's development efforts through technical assistance and advisory services, particularly in areas of economic reforms, governance, and climate resilience.

Economic Outlook

The economic outlook for Turkmenistan in the near term remains cautiously optimistic, with a slower real GDP growth in 2025, given projected lower global prices on hydrocarbons, particularly natural gas exports, which continue to be the main source of revenue for the country. Hydrocarbon exports growth is expected to gradually pick up over the medium term while non-hydrocarbon growth is expected to perform below its potential, given the challenging business environment for private sector, investment inefficiencies, and significant real exchange rate overvaluation.

Inflation is projected to pick up gradually over the medium term as the banking sector continues their directed lending to state-owned enterprises for import-substitution and export promotion resulting in loose monetary conditions and due to the announced fiscal policy of increasing public sector wages and pensions by 10% annually. The trade balance is projected to gradually deteriorate, shifting from a surplus to a deficit in 2025 (if imports will not be reduced administratively) driven by lower hydrocarbon prices and an overvalued currency. The government will need to implement effective monetary and fiscal policies to manage inflationary pressures and ensure economic stability.

Efforts to diversify the economy away from hydrocarbons are ongoing but have yet to yield significant results. The non-hydrocarbon sectors, such as agriculture, manufacturing, and services, require structural reforms to increase private entry and investment to achieve their potentials for higher growth.