TURKMENISTAN MINISTRY OF FINANCE CLAIMS "ALL IS

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001575

SIPDIS

STATE FOR SCA/CEN; EEB;
ENERGY FOR EKIMOFF/BURPOE/COHEN
COMMERCE FOR DSTARKS/EHOUSE

E.O. 12958: DECL: 12/08/2019
TAGS: ECON PGOV EFIN EPET ETRD TX
SUBJECT: TURKMENISTAN MINISTRY OF FINANCE CLAIMS "ALL IS
WELL" WITH ECONOMY

REF: ASHGABAT 1507

Classified By: Charge Peter Eckstrom for reasons 1.4 (b) and (d).


1. (C) SUMMARY. Ministry of Finance Officials asserted that
the Turkmen economy is growing, and that the 2010 state
budget reflects overall economic growth despite a forecasted
deficit. Ministry officials acknowledged a deficit of
approximately $500 million for next year, adding that the
state budget usually allows for more money than is actually
spent in a given year. They also opined that the deficit was
relatively small and could be easily covered by the state
stabilization fund. The Ministry continues to stress the
importance of diversifying sources of revenue, admitting that
reliance on the country's hydrocarbon sector for the bulk of
the state budget has been threatened by the gas stalemate
between Turkmenistan and Russia, which has resulted in
billions of dollars in lost revenue. In addition to expected
revenue from new gas pipelines to China and Iran, Finance
Ministry officials cited growth in several other sectors
including construction, agriculture, and textiles and
increased foreign direct investment as additional sources of
future budgetary revenue. END SUMMARY.


2. (C) On December 7, EconOff met with Deputy Minister of
Finance Dovletgeldi Sadykov to discuss the 2010 state budget
and a deficit that was announced by the Turkmen President in
November (reftel). Sadykov explained that the anticipated
deficit was 1.5 billion Turkmen manats ($500 million),and
the state stabilization fund was created to cover such
deficits. He stated there had been budget deficits in
Turkmenistan at various times since the country gained
independence in 1991, so the recent deficit was really "no
big deal." He added that growth in both governmental and
private sectors would also provide additional revenues to the
state budget. He repeated the GOTX stance that the Turkmen
economy remains insulated from negative affects of the global
economic crisis, insisting that the Turkmen economy is
experiencing a period of deflation versus inflation. (Note:
Anecdotally, Turkmen citizens continue to tell us that food,
clothing, and overall prices are on the increase while
salaries remain the same, and many are seeking additional
jobs to make ends meet; it is more likely that the Turkmen
economy is experiencing lower levels of inflation versus
deflation. END NOTE.)


3. (C) The Deputy Finance Minister explained that the budget
process in Turkmenistan is very rigid. By law, the Ministry
of Finance must cooperate with other government agencies and
departments to prepare official budget projections by
September 1. Regional and local authorities are also
required to provide their projections at the same time. By
November 1, MinFin must submit a proposed budget to the
Cabinet of Ministers. The Cabinet then approves the budget
and sends it to the Parliamentary BudgetCommittee for review
and a full parliamentary vote, after which the President
signs off on it. Traditionally, Turkmen government budgets
for the upcoming year are approved by the end of November,
and the 2010 budget was signed by the Turkmen President on
November 21, 2009.


4. (C) According to Sadykov, the bulk of Turkmenistan's
revenue comes from the country's hydrocarbon sector. He
explained that the upcoming opening of the Central Asia-China
pipeline on December 15 symbolized a new revenue resource for
the GOTX. The pipeline would pump up to five billion cubic
meters (bcm) of Turkmen gas to China in 2010, with
expectations that volumes to China would eventually reach 40
bcm in a few years. He acknowledged that the GOTX had
received a $4 billion loan from the Chinese, which the GOTX

ASHGABAT 00001575 002 OF 002


would pay back in-kind with gas. He also noted that an
additional gas pipeline to Iran would also be operational by
the end of the year, which would allow the GOTX to sell an
additional 12 bcm of gas. At the same time, Sadykov hoped
that Turkmenistan and Russia would reach agreement on gas
purchases soon, asserting that gas price and volume were the
two sticking points, blocking a new agreement. (Note: over
the last few months many GOTX officials had suggested that
agreement was needed on volume only, not price. End Note.)
Moreover, he was confident that new gas revenues from sales
to China and additional sales to Iran would eventually
provide enough revenue to support subsequent budgets, adding
that if gas sales to Russia resumedl the GOTX would be
"pleasantly surprised by a budget surplus."


5. (C) Turkmen expenditures for construction represent the
largest share of the budget, according to Sadykov. He
explained that the Turkmen President's mandate for
revitalizing Turkmenistan included the high-quality
construction of hospitals, schools, government buildings, and
apartment buildings for all Turkmen citizens. He stressed
that government subsidies for housing, utilities, healthcare,
education, and even gasoline almost fully cover the total
costs for those services, with Turkmen citizens paying on
average only 1 percent of their salaries for social services.
He estimated that citizens in the West would pay up to 60
percent of their salaries to receive the benefits Turkmen
citizens receive "virtually for free." Sadykov also
highlighted that the GOTX has raised pensions over 10 percent
in the last 3 years.


6. (C) MinFin officials underscored that growth in the
non-government sector had grown from 9 to 15 percent in 2009,
with construction spearheading the growth. They also
asserted that foreign direct investment had increased
dramatically over the last few years, and had provided more
employment opportunities for Turkmen citizens. They claimed
that unemployment in the country was probably at five
percent, since only five percent of the population currently
claims unemployment benefits from the state. MinFin officials
suggested that rumors that unemployment in the country was in
the double digits were simply untrue, adding that some people
might claim they are unemployed to avoid paying taxes, but if
one simply looks around Ashgabat, "everyone is working."


7. (C) COMMENT. Ministry of Finance officials provided, for
the most part, the usual talking points -- everything is
going well in Turkmenistan, especially the economy. At the
same time, it appears that GOTX officials have realized that
depending on Russia for the bulk of its revenue was
imprudent. Over time, China and Iran will provide the
country with large revenue from gas sales, which could
prevent future budget deficits if the price and volumes
purchased are favorable. Although MinFin officials claim
that the GOTX has a very open policy toward increasing
foreign direct investment, U.S. companies continue to express
frustration over the GOTX's mixed signals, which to date,
have resulted in few signed deals for American firms. END
COMMENT.
ECKSTROM