Country Risk Service Turkmenistan 2nd Quarter Updater

The sovereign risk score improved by 1 point to 61 in The Economist Intelligence Unit's January assessment, and the rating is on the cusp of the B and CCC bands. The score improvement was driven by increasing net foreign-exchange reserves, as well as by a return to surplus of the current-account balance and the external financing requirement.

The currency risk rating remained within the CCC band and the score was unchanged at 67. The positive trend in the current-account balance over the past 12 months and the increase in foreign-exchange reserves over the past six months support the rating. We maintain our view that the Central Bank of Turkmenistan will be able to manage pressures on the manat and maintain its peg to the US dollar. High inflation and the exchange-rate misalignment weigh heavily on the overall currency risk score.

The banking sector risk score has deteriorated by 2 points to 76, and the rating is at CC. The banking sector is poorly regulated and domestic debt markets are underdeveloped. Government-directed lending constrains financial soundness indicators and the estimated high ratio of non-performing loans also weighs on the rating.