IMF Executive Board Concludes 2024 Article IV Consultation with Türkiye
IMF News, October 11, 2024
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- Published: October 11, 2024
Policy shift and recent actions
- A decisive shift in economic policies over the past year has tightened Türkiye’s overall policy stance.
- The Central Bank of the Republic of Türkiye (CBRT) has brought the ex ante real policy rate into positive territory while reducing regulatory complexity.
- Tax and expenditure measures underpin efforts to restore fiscal prudence and the commitment to stronger incomes policies has strengthened credibility.
- Market sentiment has sharply improved, with domestic and foreign investors shifting into lira-denominated assets.
- Lower commodity prices, buoyant exports, and reduced gold imports have strengthened the current account, supporting a large improvement in both the gross and net reserves position.
- Credit default swaps (CDS) spreads are now at about half their mid-2023 levels.
Macroeconomic outcomes and IMF projections
- Headline inflation has fallen as tighter financial conditions are weighing on domestic demand.
- Under the authorities’ gradual policy adjustment, inflation is expected to further decline.
- Inflation is expected to be 43 percent this year and 24 percent in end-2025.
- Growth developments and projections:
- After a strong first quarter, growth has weakened and is expected to fall to 3 percent in 2024 and 2.7 percent in 2025.
- Growth is expected to recover toward 4 percent in the medium term.
- Disinflation and improved confidence will support:
- A narrowing of the current account deficit to about 2 percent of GDP.
- Reserves to around 100 percent of the IMF’s adequacy metric.
Risks and vulnerabilities
- Risks around the baseline are significant and tilted to the downside, including:
- Stronger-than-expected wage and price inertia.
- A reversal of capital flows.
- Higher global energy prices.
- Escalating geopolitical tensions.
- Significant financial and external vulnerabilities remain.
- The authorities’ gradual approach to fighting inflation prolongs the period during which risks might occur.
Executive Board assessment and policy recommendations
- Executive Directors agreed with the thrust of the staff appraisal and commended decisive policy tightening since mid-2023.
- Directors urged the authorities to press ahead with coordinated fiscal, monetary, and incomes policies to anchor inflationary expectations and entrench macroeconomic stability.
- Fiscal policy recommendations:
- A larger and more frontloaded fiscal consolidation to support disinflation efforts and further strengthen buffers.
- Strengthen tax administration, rationalize tax expenditures, broaden the tax base, and pursue energy subsidy reform.
- Limit capital spending to essential projects and enhance risk monitoring while protecting earthquake related spending.
- Address fiscal risks from contingent liabilities in state owned enterprises, public private partnerships, and pension costs.
- Incomes and labor market:
- Phase out backward looking indexation and shift toward setting wages in line with inflation expectations.
- Monetary policy recommendations:
- Continue tight, data dependent monetary policy until inflation converges to target levels.
- The central bank should stand ready to tighten further if needed.
- Further strengthen the monetary transmission mechanism, central bank independence, and communication.
- Exchange rate and capital flow management:
- Foreign exchange intervention should focus on smoothing potentially destabilizing exchange rate movements and be scaled back as inflation recedes.
- Capital flow measures should be discontinued gradually as FX liquidity risk and inflation recede.
- Financial stability and supervision:
- Ongoing vigilance and further reforms to maintain financial stability.
- Continue implementation of the 2023 FSAP recommendations and align the supervisory and regulatory framework with Basel III standards.
- Continue improvements to the AML/CFT framework and mitigate virtual assets risks.
- Structural reforms:
- Advance reforms to achieve more inclusive, greener, and higher medium-term growth.
- Further energy and labor market reforms, including measures to boost female participation.
Türkiye: Selected Economic Indicators, 2019−29 (selected entries)
- Population (2023): 85.4 million
- Per capita GDP (2023): US$13,243
- Quota: SDR 4,658.6 million
- Real GDP growth rate:
- 2019: 0.8
- 2020: 1.9
- 2021: 11.4
- 2022: 5.5
- 2023: 5.1
- 2024 (Proj.): 3.0
- 2025 (Proj.): 2.7
- 2026 (Proj.): 3.2
- 2027 (Proj.): 3.4
- 2028 (Proj.): 3.7
- 2029 (Proj.): 3.9
- GDP deflator growth rate:
- 2019: 13.9
- 2020: 14.8
- 2021: 29.0
- 2022: 96.0
- 2023: 68.2
- 2024 (Proj.): 60.0
- 2025 (Proj.): 31.4
- 2026 (Proj.): 20.4
- 2027 (Proj.): 16.6
- 2028 (Proj.): 15.3
- 2029 (Proj.): 15.2
- Inflation (period-average):
- 2019: 12.3
- 2020: 19.6
- 2021: 72.3
- 2022: 53.9
- 2023: 60.9
- 2024 (Proj.): 33.0
- 2025 (Proj.): 19.2
- 2026 (Proj.): 16.0
- 2027 (Proj.): 15.0
- Inflation (end-year):
- 2019: 11.8
- 2020: 14.6
- 2021: 36.1
- 2022: 64.3
- 2023: 64.8
- 2024 (Proj.): 43.0
- 2025 (Proj.): 24.0
- 2026 (Proj.): 17.2
- Unemployment rate:
- 2019: 13.7
- 2020: 13.1
- 2021: 12.0
- 2022: 10.4
- 2023: 9.4
- 2024 (Proj.): 9.3
- 2025 (Proj.): 9.9
- 2026 (Proj.): 9.6
- Nonfinancial public sector overall balance (Percent of GDP):
- 2019: -5.0
- 2020: -4.7
- 2021: -2.7
- 2022: -5.4
- 2023: -5.3
- 2024 (Proj.): -3.7
- General government overall balance (headline) 1/ (Percent of GDP):
- 2019: -4.0
- 2020: -2.6
- 2021: -0.8
- 2022: -3.5
- General government gross debt (EU definition) (Percent of GDP):
- 2019: 32.4
- 2020: 39.4
- 2021: 40.4
- 2022: 30.8
- 2023: 29.3
- 2024 (Proj.): 25.2
- 2025 (Proj.): 26.0
- 2026 (Proj.): 25.9
- 2027 (Proj.): 25.6
- Current account balance (Percent of GDP):
- 2019: -4.3
- 2020: -5.1
- 2021: -2.2
- 2022: -2.0
- 2023: -1.9
- Gross external debt (Percent of GDP):
- 2019: 54.5
- 2020: 59.8
- 2021: 50.5
- 2022: 45.2
- 2023: 41.3
- 2024 (Proj.): 39.8
- 2025 (Proj.): 40.9
- 2026 (Proj.): 39.9
- 2027 (Proj.): 39.3
- Gross financing requirement (Percent of GDP):
- 2019: 18.0
- 2020: 24.8
- 2021: 21.0
- 2022: 22.9
- 2023: 21.2
- 2024 (Proj.): 19.1
- 2025 (Proj.): 20.0
- 2026 (Proj.): 20.5
- 2027 (Proj.): 20.1
- 2028 (Proj.): 19.8
- Real average cost of CBRT funding to banks (Percent):
- 2019: 5.4
- 2020: -1.7
- 2021: -59.4
- 2022: -35.4
- 2023: …
- Growth of broad money (M2):
- 2019: 27.3
- 2020: 33.9
- 2021: 53.0
- 2022: 59.2
- 2023: 70.1
- Growth of credit to private sector:
- 2019: 10.9
- 2020: 34.7
- 2021: 37.0
- 2022: 54.7
- 2023: 54.0
Source: IMF Communications Department, October 11, 2024.