The IMF report “A Confidence-Financial Inclusion Nexus in the Caucasus and Central Asia?” explores the link between public confidence in macro-financial stability and financial inclusion in the Caucasus and Central Asia (CCA). Financial inclusion means ensuring individuals and businesses have access to affordable and useful financial services – such as banking, credit, savings, and insurance – in a fair and sustainable way. Despite some progress, Turkmenistan lags behind global peers due to weak institutions, corruption, and a lack of transparent policies.
Using data from 1996-2021, the report groups CCA countries into two clusters: one with smaller financial inclusion and governance gaps (Armenia, Georgia, Kazakhstan) and another with larger gaps (Azerbaijan, the Kyrgyz Republic, Tajikistan, and Turkmenistan). The first cluster has implemented inflation targeting and fiscal rules, while Turkmenistan has only adopted fiscal rules. The report suggests that inflation targeting could improve financial inclusion, though its impact would take four to six years to materialize.
Turkmenistan ranks among the lowest in the region for financial inclusion, with confidence playing a crucial role. A one-unit rise in confidence improves financial inclusion by 0.7 units, and better governance could reduce the financial institution gap by 22%. Stronger inflation targeting, fiscal rules, and deposit insurance could further reduce this gap by 50%.
- Weak Governance & Regulatory Gaps: Poor governance, inadequate banking supervision, and corruption have led to financial mismanagement and limited depositor protection.
- Low Public Trust in Banks: Economic mismanagement and lack of accountability reduce bank deposits, hindering financial inclusion.
- Limited Financial Access: Weak financial institutions, lack of financial education, and inadequate credit access constrain businesses and individuals.
Recommendations for Turkmenistan
- Strengthen governance, transparency, and anti-corruption measures.
- Implement inflation targeting, fiscal rules, and deposit insurance alongside institutional reforms.
- Improve property rights and facilitate easier access to credit, especially for women and low-income households.
- Enhance banking regulations and financial safety nets.
- Ensure transparent policy frameworks and collaborate with international financial institutions on reforms.
In summary, improving governance, transparency, and financial confidence is essential for boosting financial inclusion in Turkmenistan. Establishing clear policy frameworks and regulatory oversight would strengthen public trust, attract investment, and support financial sector growth.
