Fitch Upgrades Turkmenistan’s Credit Rating Despite Persistent Economic and Governance Challenges.
In August 2024, Fitch Ratings upgraded Turkmenistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BB-‘ from ‘B+’, with a Stable Outlook. Fitch’s rating scale ranges from “AAA” (highest) to “D” (lowest). The upgrade follows some fiscal improvements despite ongoing economic and governance challenges.
Fitch resumed ratings for Turkmenistan in 2021, after a pause since 2005, when it was rated “CCC-.” Since 2021, Fitch’s ratings have been:
- 2021 and 2022: “B+” rating with a Stable Outlook
- 2023: “B+” rating with a Positive Outlook
- 2024: “’BB-” with a Stable Outlook
Positive factors include a strengthened sovereign balance sheet, increased external reserves, very low public debt, and a sizable fiscal buffer. However, these are tempered by weak governance, an unconventional exchange rate policy, a challenging business environment, and high dependence on gas exports. Despite improvements, significant data gaps persist in fiscal, macroeconomic, and other official statistics, especially regarding the balance of payments, where the government does not release official figures on international reserves or net errors and omissions.
Low debt: Turkmenistan’s general government debt is expected to decrease to 2.9% of GDP by end-2026, down from 3.8% at mid-2024 and 10.6% in 2021, the lowest in the “BB” peer group (median 53.1%). Debt remains entirely foreign-currency denominated, following the government’s 2022 prepayment of all domestic debt. Fitch projects the Turkmenistan Stabilization Fund, in local currency, to reach nearly TMT 32 billion (11% of GDP) by end-2024, up from TMT 26.6 billion at end-2022, partly due to increased revenue from state-owned enterprises. The information on how the reserves of the Stabilization Fund is managed and its size are not publicly available.
Modest Growth and Limited Diversification: Fitch forecasts GDP growth to increase slightly to 2.2% in 2024 from 2.0% in 2023, based on IMF data, which is lower than the government’s 6.3% estimate. Stronger public investment and lending are expected to offset weaker gas production. Average GDP growth is projected at 2.1% for 2025-2026, with limited progress in diversification, despite some advances in downstream energy and transportation. Fitch did not observe any significant economic policy shifts since President Serdar Berdimuhamedov took office in 2022.
Dual exchange rate and weak governance: A large gap persists between the official exchange rate, fixed at 3.5 TMT per US dollar since 2015, and the parallel rate, stable at just above 19 TMT since mid-2022 despite sharp improvement in external reserves. Fitch’s forecast through 2026 assumes the official rate will remain unchanged. Turkmenistan ranks in the 11.5th percentile on the WBGI (Worldwide Governance Indicator), meaning it performs better than only 11.5% of countries, indicating centralized power and low scores in voice and accountability, regulatory quality, rule of law, and corruption control.
Inflation: Fitch forecasts inflation to average 4.1% in 2024 and 6.5% in 2025, above the “BB” median of 3.7%, due to higher food prices, stronger credit growth, and fading disinflationary factors. The economy saw deflation in 2023, averaging 1.7%, due to reopened borders, easing supply-chain disruptions, and lower international prices. Historically, Turkmenistan has had high inflation (11% over the past five years) due to its rudimentary monetary policy focused on state-directed lending.
