IMF Executive Board Concludes Article IV Consultation with Turkey

Press Release No.13/476
November 27,2013

On November 20, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Turkey.1

The Turkish economy achieved a welcome reduction of imbalances in 2012. In 2013, growth has accelerated significantly on the back of a monetary and fiscal policy stimulus. The economy is projected to expand by 3.8 percent this year with private consumption and public investment as the main contributors. With this rotation back to domestic demand-led growth, the current account deficit is widening again, while inflation remains above target.

The authorities are on track to meet their 2013 budget targets, despite rapid spending growth. As one-off factors boosted revenues beyond projection, the government made use of these windfalls to increase capital expenditure significantly beyond the budget ceiling, while maintaining its overall deficit targets. The banking system remains well capitalized, with capital ratios well above regulatory minima and non-performing loans (NPLs) remaining subdued, despite some uptick over the last year.

Executive Board Assessment2

Executive Directors noted the faster growth of the Turkish economy this year, due in part to policy stimulus. Nonetheless, they observed that the domestic demand-led growth is leading to a renewed deterioration in inflation and the current account deficit. In the period ahead, Directors encouraged the authorities to tighten their macroeconomic policies and step up structural reforms to strengthen external performance and bolster economic growth.

Directors considered a less accommodative monetary stance to be more appropriate in light of still-high inflation. Most Directors agreed that normalizing the monetary policy framework would help improve communications and strengthen monetary transmission. Some Directors noted the challenge faced by the monetary authorities in dealing with volatile capital flows and noted the improvements in inflation relative to the past. Directors suggested building up net foreign reserves through sterilized intervention when capital inflows resume.

Directors generally agreed that a tighter fiscal policy would help reduce external vulnerabilities and relieve pressure on monetary policy. They encouraged the authorities to contain current spending and save any revenue overperformance. They cautioned that discretionary stimulus should be reserved for a scenario of potential negative economic outturn. Over the medium term, fiscal consolidation would raise public saving and contribute to real exchange rate depreciation. Greater budgetary flexibility would be needed to allow greater spending on priority areas such as education and infrastructure.

Directors expressed satisfaction that the Turkish financial system is generally sound. They noted, however, that banks’ indirect exposure to foreign exchange risk requires careful monitoring. They considered that macroprudential measures should be targeted at household credit and corporate foreign exchange lending. Directors encouraged further efforts to address the deficiencies in the regime for anti-money laundering and combating the financing of terrorism identified by the Financial Action Task Force.

Directors noted the Turkish economy’s low saving rate and reliance on external financing. They underscored the importance of raising both private and public saving and stepping up structural reforms to raise competitiveness, attract foreign direct investment, and enhance growth while reducing external imbalances. The authorities’ efforts to decrease energy dependence, increase labor market flexibility, reduce the informal sector, and reform private pension are in the right direction. Further efforts to improve the business climate will also be important.

Turkey: Selected Economic Indicators, 2008-14

Population (2012): 74.9 million
Per capita GDP (2012): $10,527
Quota (2012): SDR 1,455.8 million

  2008 2009 2010 2011 2012 2013 2014

Real sector


Real GDP growth rate

0.7 -4.8 9.2 8.8 2.2 3.8 3.5

Contributions to GDP growth


Private domestic demand

-1.8 -8.3 12.6 9.5 -2.9 3.3 2.7

Public spending

0.6 0.8 0.9 0.4 1.0 1.5 0.7

Net exports

1.9 2.7 -4.4 -1.1 4.1 -1.0 0.1

GDP deflator growth rate

12.0 5.3 5.7 8.6 6.8 6.9 6.9

Nominal GDP growth rate

12.7 0.2 15.4 18.1 9.1 11.0 10.6

CPI inflation (12-month; end-of period)

10.1 6.5 6.4 10.4 6.2 8.0 6.0

PPI inflation (12-month; end-of-period)

8.1 5.9 8.9 13.3 2.5 6.9 6.0

Unemployment rate

11.0 14.0 11.9 9.8 9.2 9.4 9.5

Average nominal treasury bill interest rate

19.2 11.6 8.5 8.7 8.8

Average ex-ante real interest rate

12.3 2.8 1.9 1.0 1.7
  (Percent of GDP)

Nonfinancial public sector


Primary balance

1.7 -0.9 0.9 1.9 0.9 0.6 0.3

Net interest payments

4.3 4.5 3.7 2.7 2.8 2.7 2.5

Overall balance

-2.6 -5.4 -2.3 -0.8 -1.8 -2.0 -2.2

General government structural primary balance 1/

0.4 1.0 0.5 -0.6 -0.7 -1.2 -1.2

Debt of the public sector


General government gross debt (EU definition)

40.0 46.1 42.3 39.1 36.2 35.4 34.4

Nonfinancial public sector net debt

34.5 39.5 36.8 33.3 30.2 29.8 29.3

External sector


Current account balance

-5.5 -2.0 -6.2 -9.7 -6.2 -7.4 -7.2

Nonfuel current account balance

0.0 2.2 -1.8 -3.6 0.6 -0.9 -0.7

Gross financing requirement

16.8 18.1 18.9 24.6 21.6 25.2 28.0

Foreign direct investment (net)

2.4 1.2 1.0 1.8 1.1 0.8 1.4

Gross external debt 2/

38.5 43.8 39.9 39.3 43.0 46.4 47.7

Net external debt

21.3 24.2 23.8 23.9 24.0 28.3 31.1

Short-term external debt (by remaining maturity)

13.7 15.5 16.1 16.0 18.4 21.5 21.8

Monetary aggregates


Nominal growth of M2 broad money (percent)

27.5 12.9 19.0 11.5 10.3

GDP (billions of U.S. dollars) 3/

730.3 614.6 731.1 774.8 788.3

GDP (billions of Turkish lira)

950.5 952.6 1,98.8 1,297.7 1,415.8 1,571.0 1,737.6

Sources: Turkish authorities; and IMF staff estimates and projections.

1/ The structural balance is estimated using the absorption gap method and excludes one-off operations.

2/ The external debt ratio is calculated by dividing external debt numbers in U.S. dollars based on official Treasury figures by GDP in U.S. dollars calculated by staff using the average exchange rate (consolidated from daily data published by the CBRT).

3/ GDP in U.S. dollars is derived using the average exchange rate (consolidated from daily data published by the CBRT).

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


Media Relations
Phone: 202-623-7100