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Focus areas

After the successful reunification and redenomination of the exchange rate, the financial sector needs to develop into a sustainable source of funding for the real economy. The entry of foreign strategic investors, a reduction of directed lending and the end of subsidised interest rates would help to meet this challenge. Private sector development depends on further improvements in the business environment, in particular the lowering of entry barriers, the reduction of the regulatory burden on existing businesses, continued price liberalisation and the abolition of production targets in agriculture and textiles. Although the establishment of the stabilisation fund is a welcome step towards creating a longer-term approach to public sector investment policy, the budgetary process and public sector finances need to be more transparent.

Liberalisation and privatisation

To further its target to increase the private sector share to 70 per cent of GDP by 2020, the government has taken several legislative initiatives. The new constitution adopted in October 2008 now the concept of a market economy with private property and independent enterprises. The new constitution complements the investment legislation passed in March 2008 that provides for long-term property leases and the repatriation of profits. In practice, however, the administrative burden on private businesses continues to constrain their development. The energy sector remains inefficient and a comprehensive energy reform has not yet been considered.

Sixteen other basic commodities (including water, salt and bread) remain highly subsidised and price controlled.

Infrastructure

Physical infrastructure outside the capital, Ashgabat, still suffers from years of underinvestment. The government has developed a regional development plan that envisages significant increases in investment in rural infrastructure. However, this programme is yet to be implemented. Efforts to improve regional transport infrastructure, have moved forward slowly. Disputes over the transit of electricity within central Asia have severely disrupted Turkmenistan’s exports of electricity, but recently negotiated terms may allow for the necessary investment.

Financial sector

Reform of the financial sector has progressed slowly and continues to be dominated by state-owned banks. Directed lending with subsidised interest rates remains endemic. The requirement for all banks to use International Financial Reporting Standards (IFRS) has led to initial improvements in accounting. The central bank has also lifted a ban on international banking operations of commercial banks. The government has launched consumer loans for educational purposes via the government-owned banks.

Social sector

The government approved a small budgetary deficit to allow an increase in public sector salaries and pensions as well as health allowances and scholarships. A new Labour Code is also being prepared, which will update the existing labour law that dates from 1993.

With the support of the European Union, ongoing work on reforming the budgetary process has started to improve the transparency of budget operations.


Last updated 21 April 2010

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