In the recent years, Turkmenistan has impressed the world with its fast-growing economy. The country was a former member of the Soviet Union and was categorized as the poorest and least developed. However, from the year 2010 to 2014, the country recorded a double-digit growth rate. Precisely, the following are the data of the annual economic growth rate of Turkmenistan for five years. According to the reports, Turkmenistan recorded an annual growth rate of 9.2% in 2010, 14.7% in 2011, 11.1% in 2012, 10.2% in 2013 and 10.3% in 2014 (World Bank, n.d). The records provide insight into the high public investment and a strong performance from all production sectors. Besides, back in the history, the country once recorded 16.50% GDP annual growth rate in the year 1999, and it was the highest of all time. Similarly, in 1994, Turkmenistan recorded the lowest growth rate of -17.30. In 2015, the projected percentage change in the economic growth is 8.5% (International Monetary fund, n.d).
The economy of a country will grow positively if the government considers certain factors. The country has been on the verge of growing due to the roles played by the fiscal and monetary policies, foreign direct investment and the growth of capital, labor, and the overall economic productivity. The country’s economy highly depends on natural gas, oil, and cotton. It is clear that the country’s oil and natural gas production accounts for more than 60% of its GDP. On the other hand, the agriculture sector that primarily entails the production of cotton contributes 10% to the country’s GDP. Also, the agricultural sector employs 50% of Turkmenistan’s labor force.
The most important thing is that the country is the largest producer of cotton per capita in the whole world, and the government has implemented reforms in agriculture and the banking sector. The reforms have helped the farmers to access credit facilities from the financial institutions. Also, the interests charged on loans are favorable to the farmers hence they can produce more and support the economy of the country. Moreover, in 2010, the country’s export of natural gas and oil increased with additional pipelines capacity to China and Iran. Additionally, the country relies heavily on the rising prices of oil and gas. Therefore, it invested heavily in petrochemical and cotton processing, and this resulted in high economic growth. The productivity of the country was also supported by the reduction in taxes and tariffs on imports and exports.
In the year 2013, the country’s labor force was approximately 2.305 million. However, the labor force is dominantly in agriculture with an approximate rate of 48.2%. The labor force and service take 14% and 37.8% respectively and the country generates a lot of revenue from agriculture, industry and service. The economic growth of Turkmenistan was also boosted by the public investment and consumption. Similarly, the government established the socio-economic program that supported the capital investment in industrial and social infrastructure. The program was to run from 2012 to 2016; however, in 2012, the program comprised 46.7% of the country’s GDP. Ultimately, the consumption growth was propelled by the high public outlay and real income.
The country’s fiscal policy played a significant role in ensuring that the country attained a double-digit economic growth between the years 2010 and 2014. The tax revenue of the country mainly came from exporting hydrocarbon and therefore, the over-performance of revenue supported the economic growth. The government lowered the tax rate, and companies were exempted from paying taxes so long as they re-invest the profit. Similarly, all enterprises in the country were advised not to pay the profit tax until all the investors recover their initial investment. In 2012, the government raised spending on social programs while spending from extra-budgetary funds that were used for large-scale public investment remained significant. The country’s external debt to GDP 2014 was 16.80% that is a reduction from 20.6% in 2013. However, in 2012, the government’s total debt was 18.1% (Dept, I. M. F. M. E. C. A., 2014). The strong credit growth of the country has been due to the lending programs that are supported by the state. Also, the country experienced high external debt in 2013 because of the foreign loans that financed a large portion of the hydrocarbon infrastructure investment. The government directed the nationwide installation of the gas meter in 2014; therefore, the policy to reduce domestic subsidies by the government by limiting free gas to household helped reduce the government’s expenditure.
The monetary policy entails controlling the supply of money in the country by the central bank; however, the target elements include interest rate and the inflation rate. Turkmenistan’s monetary policy ensured that the country’s economic growth is achieved by maintaining macroeconomic stability. The tighter monetary policy reduced money supply from 35.6% in 2012 to 29.5% in 2014, and it was due to the increase in the rate of interest (Dept, I. M. F. M. E. C. A., 2014). The central bank of Turkmenistan increased the rate of interest, and this resulted in a decline in the growth of the public sector credit. Moreover, the inflation rate of the country also reduced. Precisely, in 2013, the inflation rate was approximately 6.8% and in the first quarter of 2014, the country recorded an inflation rate of about 4.42% (Central Intelligence Service, n.d). The CBT maintained a steady exchange rate to the US dollar and it was supported fully by the large foreign exchange reserves.
The foreign direct investment can be explained by the situation whereby a business ownership in certain country is controlled by foreign investors or entities from a different country. Therefore, Turkmenistan which depends mainly on oil and gas has continuously received the foreign direct investment of its resources. The foreign investors have invested in terms of exploration, development, services and equipment. According to information from the Central Intelligence Service (n.d), the country’s foreign exchange reserves as at 31st December 2014 were $27.04 billion. Similarly, the stock of foreign direct investment was $3.117 billion and $3.061 billion for 2012 and 2013 respectively (Central Intelligence Service, n.d). The large inflows of foreign direct investment propelled the economic growth of Turkmenistan and ensured the country attained a double-digit during 2010 and 2014. The country’s trade policies, labor force skills and also absorptive capabilities have made it benefit tremendously from foreign direct investment. Moreover, Turkmenistan has benefited from FDI through the large provision of capital and creation of jobs opportunities. Also, FDI influenced the economy by developing an efficient market, an inflow of technology and managerial know-how and market skills (Selaya, & Sunesen, 2012). Besides, the incentive provided by the government attracted more foreign investors, and this bolstered the economy.
Dept, I. M. F. M. E. C. A. (2014). Regional Economic Outlook, Middle East and Central Asia, October 2014. Washington: International Monetary Fund.
Central Intelligence Service. (n.d). Retrieved from https://www.cia.gov/library/publications/the-world-factbook/index.html
International Monetary fund. (n.d). Retrieved from http://www.imf.org
Selaya, P., & Sunesen, E. R. (2012). Does foreign aid increase foreign direct investment?. World Development, 40(11), 2155-2176.
The World Bank. (n.d). GDP growth (annual %). Retrieved from http://www.data.worldbank.org.
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