Amid global uncertainty and a broader regional slowdown, Central Asia continues to stand out as the fastest-growing subregion within the World Bank’s Europe and Central Asia (ECA) economic forecast. According to the World Bank’s latest Economic Update for Europe and Central Asia, growth in Central Asia is projected at 4.7% in 2025–26, well above the ECA average of 2.5%. However, the report cautions that without deep structural reforms, this momentum may be difficult to sustain.
While the report does not offer any country-specific data or analysis on Turkmenistan’s economy or reform trajectory, it is included in the analysis as part of the Central Asia region. Below are the key findings relevant to Central Asia, including Turkmenistan.
Strong Growth Driven by Remittances and Investment
Central Asia’s growth – 5.6% in 2023, declining to 4.4% in 2026 – is being powered by robust public investment and resilient remittance inflows. In 2024, remittances rebounded by 3%, with Uzbekistan alone receiving nearly $15 billion, largely from Russia. In Tajikistan and the Kyrgyz Republic, remittances account for 40% and over 20% of GDP, respectively.
Public investment, especially in energy and infrastructure, remains a growth engine. Central Asia leads the ECA in investment intensity, with a median investment share of 26% of GDP compared to under 22% in the broader region.
Shifting Investment Sources
The foreign direct investment (FDI) landscape is evolving. The EU’s share of FDI in Central Asia nearly halved by 2023, while China, Russia, and Türkiye increased their footprint. Kazakhstan, in particular, has become a major intraregional investor, channeling capital into Tajikistan and Turkmenistan.
Structural Barriers to Productivity and Private Sector Growth
Despite headline growth, the report underscores persistent weaknesses in firm-level productivity, innovation, and employment generation across Central Asia. The business environment is dominated by many small, low-productivity firms and a striking absence of mid-sized or “superstar” firms.
Medium and large firms account for only 40-50% of employment in Central Asia, far below the 75% seen in advanced economies like Germany or the U.S. Productivity levels are also lagging; for example, a typical firm in Kyrgyzstan generates only 10-40% of the value added per worker compared to Germany.
These gaps stem from poor access to long-term capital, underdeveloped credit and equity markets, and weak management practices. Many firms rely on reallocating resources rather than innovation for growth.
The Missing Middle and Innovation Gap
The World Bank describes a “missing middle” phenomenon: a lack of dynamic, growing firms capable of scaling up, innovating, and competing globally. This is compounded by the outsized role of state-owned enterprises (SOEs), which often dominate strategic sectors and stifle competition.
The report stresses that policies focused on blanket SME support have led to a proliferation of small firms but not the emergence of productive, job-creating enterprises. Instead, efforts should target young, high-potential firms with access to research and development (R&D) incentives, venture capital, and global expertise.
Key Recommendations for Central Asia
To sustain growth and transition to high-income status, the World Bank calls on Central Asian countries to:
- Promote firm-level innovation and technological adoption through targeted R&D support and human capital investment.
- Foster private sector dynamism by reducing reliance on SOEs and enabling high-growth firms to scale.
- Expand access to long-term financing, including venture and equity capital.
- Encourage competition by easing product market regulations and allowing market entry.
- Leverage regional and global expertise to help firms reach global productivity frontiers.
According to the World Bank it will take roughly around 30 years for Turkmenistan to reach high-income status.
Overall, Central Asia’s relative economic outperformance masks deep-rooted challenges in its private sector ecosystem. Without reforms that promote competition, innovation, and firm growth – especially beyond resource-heavy sectors – the region risks stagnation. For countries like Turkmenistan, the evolving FDI landscape signals opportunities, but progress will depend on improving the broader environment for private sector-led growth.
