Mar 31

Debating Turkmenistan’s ‘Economic Crisis’

A Response to Ronald Watson

At the end of 2016, we published a series of three articles on Turkmenistan’s economic crisis published by an analyst writing under the pseudonym Ronald Watson. Here, Isaac Scarborough, a PhD candidate in the Department of International History at the LSE, responds by arguing that the crisis may be less than portrayed and questions the call for political liberalization in Watson’s piece.

— John Heathershaw

Ronald Watson’s analysis of the Turkmen economy has much to recommend it, especially in its detailed history of Turkmenistan’s gas sector. Following the obtuse minutiae of contracts between the famously opaque Turkmen government and its many contractual partners is a monumental task, and the author helps to expand the very limited amount of information publically available about the Turkmen economy. Turkmenistan is all too frequently seemingly left off the map — a nation left behind in the Soviet past — and the more discussion that can be had about the country the better.

The macroeconomic indicators analyzed in Watson’s article — gas production, world gas prices, and monetary and banking policy — however, captures only a small picture within the broader canvas of the Turkmen economy and society. Here, I think, is where certain problems arise in his analysis. The Turkmen economy is seen to be in “crisis” or worse as the result of its monetary policy and gas revenue issues — and thus what little information arrives from Turkmenistan is interpreted through this very angle. To some degree individual facts of crisis may be true, but I would suggest that the overall picture is somewhat more complicated and less dire than Watson would suggest.

While I disagree with Watson’s depiction of Turkmenistan today, I too cannot claim any perfect or unlimited knowledge about the country. Turkmenistan is Turkmenistan, and receiving any information about life within its borders is a difficult task. My own knowledge of the country and its economic life derives from the two years I lived and worked in Yoloten, now the site of Turkmenistan’s largest natural gas field, Galkynysh, as well as the subsequent five years I worked with the Arzuw Foundation, a nonprofit dedicated to expanding educational opportunities for Turkmenistanis. I no longer work for Arzuw, and my direct links to Turkmenistan are today limited — but I do thankfully remain in contact with many of my former students and continue to watch Turkmenistan’s development.


For all of its detail, Watson’s articles make a relatively simple argument: falling gas revenues and backward monetary policy have crippled the Turkmen economy, leading to deficits and (probably) recession. Rather than scraping the barrel for revenue to prop up the Manat, the Turkmen government should instead float its currency, expand political and economic freedoms, and promote liberalization. While I think it is undeniable that (a) Turkmenistan is facing economic difficulties, I would suggest that we can question (b) the degree of economic crisis and (c) the link between crisis and the “need” for political liberalization.

Turkmenistan’s economic crisis, Watson argues, has been predicated on dropping gas revenues and misguided monetary policy. It is certainly the case that gas prices have dropped in the past five years, although in the past six months they have returned to what seems like a general five-year average. While export revenues for Turkmenistan will have dropped, it seems unclear to what degree. Watson also claims that China is currently not paying Turkmenistan for gas, insofar as Turkmenistan received massive loans to build a pipeline to China and now must repay in-kind — and that Iran only “barters” for gas. If this were true, then Turkmenistan would literally be starved for cash, but I think it may be worth questioning both points.

China loaned Turkmenistan $4 billion in 2009; it pledged another $4 billion in 2010-2011. Most reports on these loans did not imply that Turkmenistan would receive no payment from China until the value of the loans was covered — instead indicating that loan repayment would occur parallel to gas deliveries. Even if Watson is right, moreover, it would seem that since 2009 Turkmenistan would have delivered enough gas to China to cover the loan amount. Although the actual price of the gas delivered to China is unknown (thus our speculation), using rough estimates of yearly average market prices for natural gas and the volumes sent to China since 2010, we can calculate a rough estimate of the value over the period of 2010–2015. And in fact, already by 2013 Turkmenistan had delivered natural gas to China in an amount greater than $8 billion in market value. By the end of 2015 the total value should have been greater than $15.8 billion.[1] This is not even to include revenues from 2016. One way or another, it seems implausible that Turkmenistan would not be receiving at least some hard currency from China.

Just as equally, the idea that Iran only “barters” for gas from Turkmenistan is something I have never heard before, and contradicts most other accounts. This does seem to remain a source of revenue for the Turkmen government. It is also worth noting that Turkmenistan does retain other revenue sources, although they pale in size to the natural gas sector: oil revenues, electricity export, et cetera.

Even with ongoing influxes of currency, of course, it is undeniable that Turkmenistan would have felt the influence of the “global financial crisis” and the drop in commodity prices. Given what information is available, it does also seem clear that the government of Turkmenistan has been following a strict monetary policy in an attempt to hold up the Manat against world currencies, most notably the dollar. As Watson himself argues, this policy has helped to boost entrepreneurship and growth in Turkmenistan by lowering the factual cost of imports and inputs. This is also a similar policy to those followed in recent years by other Central Asian nations. Kazakhstan, it should be said, most likely allowed the Tenge to float not out of some desire to help the local market, but instead because it became too expensive to keep supporting it. (There is also the benefit — for the Kazakh government — that a weaker Tenge means functionally cheaper local entitlement and salary costs, insofar as the government receives export revenues in dollars but then pays local pensions, et cetera, in Tenge.) Tajikistan also implemented relatively draconian — although not as restrictive as Turkmenistan’s — measures on monetary exchange in 2016, which proved a generally successful measure to keep down inflation. Since stepping back from this policy in December 2016, moreover, the Tajik government has seen the Somoni drop in value against the dollar by 4–5% in a few months.[2]

No matter the case, it seems unclear if the Turkmen government should really be faulted for following a strict monetary policy or at least trying to retain control over the Manat. If this policy has helped local businesses, then there would seem much to recommend it. Watson appears to argue that the government is fighting a losing battle and should abandon its policy, which he supports with citations to the website Chrono-TM and similar publications highlighting “deficits” in Turkmenistan. These claims of economic collapse and massive deficits, which, it is implied, are linked to monetary policy, should probably be at least questioned.

First, there is the problem of reliability. The individuals behind Chrono-TM are well-intentioned, extremely hard working, and effective communicators. They do not, however, have the capacity to fact check in Turkmenistan and frequently publish information purporting to be a “trend” that is in fact a single and sometimes not representative case. When I was living in Turkmenistan it was not unusual to read about “massive deficits” or the complete collapse of the railway system on Chrono-TM (or the now apparently defunct “Gundogar” website), having just done one’s weekly shopping or taken the train to Ashgabat. Individual instances of economic hardship, however frustrating, do not necessarily imply national crisis — but this is unfortunately the picture that often is presented by the available internet sources.

This depiction of crisis based on the idea of commodity shortages also overlooks the particular structure of commodity distribution in Turkmenistan. In contrast to most other post-Soviet states, Turkmenistan has essentially retained the late Soviet retail structure it inherited in 1991. In other words, there are two parallel retail systems — private businesses, and state-owned and run stores. The latter, which to this day are frequently named “Dukan #6” (Store #6, in the Soviet fashion) or the like, sell exclusively state-produced goods: local oil, produce, water, bread, and other basic goods. Although prices do go up at these stores, increases are dictated by central state bodies, and thus do not react dynamically to market forces.

As a result, and also through a state program to subsidize basic goods (also inherited from the USSR), the goods sold in state stores are notably cheaper than in private businesses. This also engenders, much as it did in the USSR, “passive inflation” or deficits, insofar as consumers have an incentive to purchase more goods from the state stores than they need at any one particular time in order to take advantage of the low prices. The state frequently responds by instituting limits on purchases, although this sometimes also fails, and it is not uncommon for there to be periods of temporary deficits of basic goods. In Yoloten, for example, I often stood in line to purchase bread from the state bakery — it was cheaper than at the market. Sometimes it also ran out. As the example of the USSR demonstrated for decades, intermittent shortages and deficits are an unfortunate fact of life in any state-dictated distribution system. As best I can tell, these are the sort of deficits that Chrono-TM and other sources cite in their reportage.

This is not to defend Turkmenistan’s choice to retain a “mixed” consumer system, but to point out what may be some confusion in the interpretation of economic data. Deficits in state stores do not necessarily imply a deficit of basic goods in private businesses. State and private stores react differently to changes in monetary policy. Private businesses, benefitting from a strong manat, should be able to import more goods at more acceptable prices. State stores, however, bound by local production and price restrictions, will feel passive inflation: the same restrictions on exchange that have helped boost the manat will increase the available local currency in Turkmen citizens’ pockets, thus increasing demand for local goods. Thus the same monetary policy may lead on the one hand to deficits in one sector, but not in another. This, moreover, does not necessarily imply a nation-wide crisis. As Watson also notes, the total volume of state retail is far less than private retail: even when state goods may be in deficit, the market remains available to the majority of consumers.

Again, I don’t mean to herald a defense of Turkmenistan’s mixed state-market retail system or even its monetary policy, but simply to point out that declarations of crisis in the country can often be premature. Over the past five years I have often heard dour speculation about the imminent collapse of the Turkmen economy and the lack of opportunities it presents. At the very same time, a great number of my former students — including many who had studied abroad in Russia, Malaysia, the US, and elsewhere — have found well-paying and rewarding jobs in Ashgabat, Yoloten, and elsewhere in Turkmenistan. Some of these students are from rural villages around Yoloten; many others are ethnic and linguistic minorities. They are hardly connected to the powers that be in Turkmenistan, and do not come from especially privileged families. These are students who in many cases did not always expect to return to Turkmenistan, but who ultimately did, and in large part because they were able to find solid employment. Their perspective has hardly seemed dire at all.


Watson ends his analysis of the Turkmen economy by arguing that the demands of self-preservation dictate that President Berdimuhamedow and the elite that support him liberalize — and not just economically, but politically as well. This, Watson argues, is the only way to guarantee long-term stability and growth.

It does seem inarguable that Berdimuhamedow and the Turkmen state have of late become more authoritarian, rather than less. But whether or not this is will inherently undermine economic growth, I think, is a more questionable claim. The idea that authoritarianism is unable to sustain economic growth should be called into question, I suspect, by the many authoritarian or semi-authoritarian states that have seen economic growth over the past decades while at the same time strongly controlling dissent, open discourse, or real political opposition. (I find Watson’s argument against the UAE un-compelling — it certainly has problems, but does have impressive decade-over-decade growth; while China’s multivariate society may today include elements of dissent, as Watson cites, this does not, I think, change the fact that the country remains — and is increasingly — a non-liberal state).

It seems extremely plausible for the Turkmen state to follow a path like Kazakhstan’s, or China’s, or any other regional state, where crack-downs on dissent can easily be accompanied by increases in economic growth and even standards of living. The alternative of partial liberalization — as most obviously evidenced to the Turkmen state by Kyrgyzstan — would hardly seem to lead to political self-preservation. On the part of the Turkmen leadership, there would seem ample reason to question the value of political liberalization and increased dissent.

One has to wonder, moreover, if arguments similar to Watson’s in favor of political liberalization aren’t simply a fig leaf for the more important prize — economic liberalization. After all, Kazakhstan is in many ways just as politically closed as Turkmenistan, but President Nazarbaev and his inner circle are far less frequently criticized. Is this unconnected to the fact that Kazakhstan has provided opportunities for Western business to invest on profitable terms, including the much sought-after profit sharing agreements (PSAs)? As Watson notes at the end of his analysis, “Recovering from the current economic crisis requires diversified energy exports and, more importantly, diversified economy supported by foreign investments”.

One has to wonder if this really isn’t the crux of the issue — in the current environment, Western business remains largely unable to access the lucrative Turkmen gas market, while non-Western businesses (Chinese, Arab, Korean, et cetera) have been successful. If this is the major issue — and there is an argument to be made in favor of wider economic liberalization and an influx of Western investment — then I think this should be made explicit. Political liberalization remains a questionable method for President Berdimuhamedow to help himself or even the standard of living enjoyed by his people. Increased economic liberalization, however, might hold some promise.

[1] These figures have been calculated using the annual export statistics provided by Annette Bohr in her recent (2016) report on Turkmenistan for Chatham House. Given annual export figures to China in cubic meters, I converted this figure into “mmbtus,” which is the unit of natural gas energy that is traded on futures markets. Creating rough annual estimates for yearly average prices for 1 mmbtu over 2010–2015 (see, for example, price data from the US Energy Information Administration), it was then possible to calculate the total market value of the natural gas exported to China for the same period.

[2] The Somoni stayed stable at approximately 7.8 to 1 dollar for nearly the whole of 2016, only starting to wobble late in the year. This was connected to a change in policy on the part of the Tajik government, which stopped supporting the Somoni through purchases of currency, as well as its choice to “save” problematic banks by flooding them with unbacked Somoni. (Based on the author’s conversations with Tajikistani bankers, July and December 2016.)