The economic crisis that has been observable since autumn 2016 assumed increasingly dramatic proportions in the course of 2017 and worsened even further in 2018. According to a comprehensive and highly informative report, the situation worsened in 2019. The cause of the crisis is a combination of ineffective and generally anti-investment economic policies, delayed reforms, outdated infrastructure, outdated and monostructural industrial plants, a lack of economic diversification and international competitiveness, the increasing shortage of trained specialists, the dependence on gas exports and widespread corruption. The trigger is a contract concluded with China for the long-term supply of natural gas to China under conditions that are extremely unfavorable for Turkmenistan. The contract allows China to flexibly determine the amount of gas to be purchased, while at the same time the gas supplied to China will primarily serve to pay off the pipeline financed by China for a longer period of time. At the same time, Turkmenistan is bound by strict conditions to fulfill the treaty. It turns out to be particularly problematic that the Turkmenistan production capacities are insufficient to fulfill parallel contracts or to open up new sales markets, even if these would be significantly more lucrative in themselves.
Due to the complex initial situation and the government’s previous behavior in dealing with the crisis, observers around the world now consider it to be dangerous to the system. The government’s initial reaction to the first signs of the crisis was the search for scapegoats, which resulted in the restructuring of numerous ministries and agencies, particularly those in the energy sector, combined with the dismissal of the respective ministers and heads of agencies.
- Information on the dismissal of the Minister for Oil and Gas.
- Information on the dismissal of the energy minister.
The fact that this would not resolve the crisis became apparent in autumn 2016 at the latest when large parts of the country and the capital were increasingly affected by food shortages. In order to preserve the appearance of normality, queuing in front of grocery stores or the (only vaguely defined) buying empty shelves under threat of detention was forbidden. At the same time a system of waiting lists for the purchase of basic food was developed. The crisis worsened in 2017. Since February 2017, the government has not been able to meet the demand for eggs. Since the spring, effects have also been felt on the already fragile health system reports.
In the summer of 2017, a report appeared in the state media in which the government at least indirectly admitted the crisis. This report is a clear indication of the severity of the crisis, as it is also the first known report in the history of the state in which there was a clear deviation from the requirement to report exclusively positive news. Since summer 2017, the supply situation has been catastrophic in many parts of the country (with the exception of the capital). Even grain and rice are only available in small quantities and of poor quality, if at all.
Privileged sections of the population with access to subsidized goods and Turkmenistan Airlines tickets have tapped the sale of corresponding products (for example vodka, pickled cucumbers, bread) in Turkey as a lucrative source of income. Accordingly, the aircraft operated by Turkmenistan Airlines to Turkey, which is visa-free for Turkmen, are increasingly used by small traders who set off for Istanbul with large amounts of luggage and usually fly back with the next aircraft. Since it is primarily those population groups who benefit from this that are seen as elementary for maintaining the system, despite the cuts in the state budget announced for 2018, it is currently not to be expected that the corresponding benefits will be removed.
If the exchange rate, which can hardly be supported, is released and the manat is devalued, there is a risk of immediate and extensive impoverishment due to the import quota of more than 90% for food and, at the same time, the explosive worsening of the crisis. Since autumn 2017 more and more imported goods have been disappearing from the assortment of Turkmenistan grocers. The substitution with local products is not always reliable, both qualitatively and quantitatively. An example of this are the drinks from ” Coca Cola”: Since November 2017, these have only been available, if at all, as imports from Afghanistan, Iran or Uzbekistan that were sold at high prices. A spokeswoman for Coca Cola justified the situation with temporary challenges in the supply of raw materials as a result of new regulations for exchanging foreign currency imports fell by around 20% year-on-year in 2015. In 2016, imports went down by a further 13%, for 2017 and 2018 a further decrease of 25% and 30% respectively is expected. The total volume of imports is estimated at around USD 6.3 billion for 2018 (2014: USD 17.5 billion). GDP per capita has fallen since 2014 (USD 7,950) by 21% (to USD 6,300) to 34% (to USD 5,250), depending on the estimate. However, no reliable information is available on this, so that these estimates can only serve as a rough guide for the extent of the crisis.
At the same time, there is still no discernible strategy to overcome the crisis. The abolition of subsidies saves money, but the resulting increase in the cost of living for the population often living on the poverty line is capable of jeopardizing the fragile socio-political equilibrium in the short to medium term. The already high inflation rate has been in the area of ” hyperinflation ” since summer 2019 and is one of the highest in the world. There are now numerous reports of faminein large parts of the country. The ban on information about the crisis is part of the tradition of Turkmenistan dealing with challenges, but it is also not suitable for combating the causes. The same applies to the ban on standing in line in front of grocery stores. For this reason, observers familiar with the situation are initially cautiously referring to the worsening crisis and, since December 2017, they have been using increasingly clear words as potentially dangerous to the system.
The increase in the cost of living in 2017 as a result of the food crisis and the underlying economic crisis was downright dramatic and could no longer be absorbed by the expansion of subsistence farming and the possibility of unregulated cultivation of special crops on small private plots. Due to the increasingly catastrophic supply situation across the country, observers have been speaking of an ” looming humanitarian catastrophe ” since autumn 2017. To prevent voting with their feet, it became much more difficult for Turkmens willing to leave in the summer of 2018 to obtain the permits necessary to leave the country. Nonetheless, the ban on emigration, which has been pursued with repressive severity, is more of a measure to conceal the symptoms than suitable to combat their causes. The increasing desperation of the government is also clearly visible in the increasingly blatantly falsified economic data, for example with regard to harvest quantities.
According to clothesbliss, since the summer of 2018, the payment behavior of the Turkmenistan state towards foreign companies and therefore the security of investments has decreased further. There are increasing reports that it is becoming increasingly difficult to convince the Turkmenistan state of compliance with contractually agreed financial obligations. The political effects of the crisis are also becoming increasingly evident: in the wake of the economic upheaval, Turkmenistan, still formally conscious of independence and “neutrality”, has found itself in a position of extreme dependence on Russia and especially on China.
Despite obvious crop failures, the government announced – still following the traditional approach of denying a problem – ” great harvest successes ” in May 2019. Also the estimated number of around 2 million refugees(from a population of less than 6 million people) during the last ten years alone, the constant reporting of economic success reports seems unrealistic. The refugees are officially denied and or only referred to as “temporary migrant workers”. However, at the same time the publication of the revealing results of the latest census was prohibited by the President. At the same time, the government has further restricted opportunities to leave the country. Here, too, the primary approach is to deny the problem.
Against this background, the understanding of the construction of expensive representative buildings and prestige projects is likely to continue to decline, as is that of unattractive government action, even if the latter is caused by the crisis.
Examples for this are:
– The increase in the price for drinking water announced on October 12, 2017 and effective from November 1, 2017 by around 2,380% (from 0.006 ct to 14.3 ct per cubic meter of water)
– the collection of compulsory levies to finance “white elephants” such as the Asian Martial Arts Indoor Games in summer 2017
– the uninterrupted policy of expropriation and resettlement of the population, for example to build a new golf course.
In contrast, the president believes the crisis has been overcome and described 2017 as one of the glorious achievements, while in the coming year the people will be rewarded with generous harvests and prosperity. The President explicitly pointed out (contrary to reports to the contrary) that there were no difficulties in paying salaries.
On the Russian side, the worsening crisis arouses fears about the country’s development after a possible collapse of the ruling system. In order to prevent this collapse and also to achieve closer ties between the country and Russia, the Russian government signed a contract with the Turkmenistan in October 2018 to resume gas supplies to Russia that had been suspended for years. In accordance with the terms of the treaty, which are comparatively favorable for Turkmenistan, the first voices speak of an economic lifebuoy. The procedure corresponds to the tendency to be observed in other countries in the region of a significant increase in economic commitment in Central Asia. In 2019, analysts recognized the Russian government’s increasingly clearly recognizable offensive interest in maintaining the status quo in Turkmenistan and, accordingly, actively supporting intervention on the ground. In retrospect, the assumption made by informed analysts is confirmed, who already assumed in 2018 that the crisis would worsen despite Russian interventions.