{
  "title": "IMF Executive Board Concludes 2019 Article IV Consultation with Turkey",
  "publication": "IMF News, December 27, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/12/27/pr19491-turkey-imf-executive-board-concludes-2019-article-iv-consultation",
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  "summary": "Growth became increasingly dependent on externally-funded credit and demand stimulus after the global financial crisis, leading to an economy running above potential with a large current account deficit and high inflation.",
  "publishDate": "2019-12-27",
  "sections": [
    {
      "heading": "Macroeconomic developments and outlook",
      "content": "- Growth became increasingly dependent on externally-funded credit and demand stimulus after the global financial crisis, leading to an economy running above potential with a large current account deficit and high inflation.\n- These imbalances left the economy susceptible to a change in market sentiment that triggered sizeable lira depreciation and a recession in late 2018.\n- Growth resumed in 2019, driven by:\n  - Expansionary fiscal policy.\n  - Rapid credit provision by state-owned banks.\n  - More favorable external financing conditions.\n- External adjustment:\n  - Import compression and a strong tourism season contributed to a remarkable current account adjustment.\n- Inflation and monetary policy:\n  - Inflation peaked at around 25 percent in October 2018.\n  - The central bank cut policy rates by 1,000 basis points since July 2019.\n  - Subsequent drivers of inflation decline: strong base effects, relative lira stability, and a negative output gap.\n  - Inflation expectations remain well above target.\n- External and balance-sheet vulnerabilities:\n  - Reserves are low and external financing needs high.\n  - Non-financial corporate and bank balance sheets stressed by lira depreciation, higher interest rates, and lower growth.\n  - Public debt is low but the fiscal deficit has increased; uncertainty over contingent liabilities and potential debt rollover pressures limit fiscal space."
    },
    {
      "heading": "Executive Board Assessment — key findings",
      "content": "- Directors noted that stimulus-driven growth in previous years contributed to large economic imbalances.\n- The 2019 recovery is fragile; vulnerabilities include:\n  - Low reserve buffers.\n  - Large external financing needs.\n  - Stressed bank and corporate balance sheets.\n- Directors emphasized the need for prudent policies and a comprehensive package of reforms to secure stronger and more resilient medium-term growth."
    },
    {
      "heading": "Fiscal policy assessment and recommendations",
      "content": "- Fiscal anchor:\n  - Fiscal discipline has been a longstanding policy anchor but has been gradually weakening.\n  - Central government primary balance recorded a deficit in 2018, the first time in almost a decade.\n  - Fiscal stimulus continued in the first half of 2019, contrary to consolidation planned in the late-2018 New Economy Program.\n- Recommendations:\n  - Fiscal policy should remain a key policy anchor.\n  - Adopt a broadly neutral fiscal stance in 2020, combined with tight monetary and quasi‑fiscal policies.\n  - Undertake a modest consolidation over the medium term to keep public debt low and stable.\n  - Strengthen oversight and management of public-private partnerships (authorities' efforts welcomed)."
    },
    {
      "heading": "Monetary policy and reserves",
      "content": "- Directors' view:\n  - Monetary policy should focus on durably lowering inflation to permanently lower interest rates.\n  - Recent monetary policy easing has gone too far.\n  - Need for clearer monetary and intervention policy to bolster transparency and central bank credibility.\n  - Recommendation to rebuild international reserves as conditions allow."
    },
    {
      "heading": "Banking sector, credit growth, and financial stability",
      "content": "- State-owned banks:\n  - State-owned banks have supported rapid credit growth, particularly from early-2019, while private banks cut back lending.\n  - Directors emphasized vigilance regarding state-owned banks' rapid credit expansion.\n  - Encouraged steps to rein in credit growth.\n- Bank health and restructuring:\n  - Directors generally agreed on the need for a third‑party asset quality review and new stress tests to better understand bank health.\n  - Recommended reforms to improve the insolvency regime and out‑of‑court restructuring to release resources and restart productive lending.\n- Objective: Clean up bank and corporate balance sheets to support financial stability and more resilient growth."
    },
    {
      "heading": "Structural reforms and medium-term growth",
      "content": "- Directors called for focused and carefully sequenced structural reforms to enhance medium‑term growth and resilience:\n  - Improve product market efficiency.\n  - Increase labor market flexibility.\n  - Improve the quality of human capital.\n  - Increase female labor force participation to facilitate resource reallocation to productive sectors.\n  - Governance reforms to improve the investment climate and economic efficiency.\n- Directors commended Turkey for hosting a large number of refugees."
    },
    {
      "heading": "Key statistics (Table 1: Turkey: Selected Economic Indicators, 2017–24)",
      "content": "- Population (2018): 82 million\n- Per capita GDP (2018): US$9,405\n- Quota: SDR 4,658.6 million\n- Real GDP growth rate:\n  - 2017: 7.5\n  - 2018: 2.8\n  - 2019: 0.2\n  - 2020: 3.0\n  - 2021: 3.5\n  - 2022: (not shown)\n  - 2023: (not shown)\n  - 2024: (Proj.)\n- Contributions to real GDP growth (selected):\n  - Private consumption: 2017: 3.7; 2018: 0.0; 2019: -0.1; 2020: 2.6; 2021: 2.0; 2022: 1.9\n  - Public consumption: 2017: 0.7; 2018: 1.0; 2019: 0.1; 2020: 0.3; 2021: 0.5\n  - Investment (incl. inventories): 2017: 2.9; 2018: -2.4; 2019: -4.7; 2020: 2.2; 2021: 1.6; 2022: 1.3; 2023: 1.2\n  - Net exports: 2017: 4.2; 2018: 4.3; 2019: -1.8; 2020: -0.9; 2021: -0.5; 2022: -0.2\n- Output gap:\n  - 2017: 1.5\n  - 2018: -1.1\n  - 2019: -0.8\n- GDP deflator growth rate:\n  - 2017: 11.0\n  - 2018: 16.4\n  - 2019: 14.4\n  - 2020: 11.8\n  - 2021: 11.6\n  - 2022: 10.9\n  - 2023: 10.8\n- Inflation (period-average):\n  - 2017: 11.1\n  - 2018: 16.3\n  - 2019: 15.7\n  - 2020: 12.6\n  - 2021: 12.4\n  - 2022: 11.4\n- Inflation (end-year):\n  - 2017: 11.9\n  - 2018: 20.3\n  - 2019: 13.5\n  - 2020: 12.0\n- Unemployment rate:\n  - 2017: 13.8\n  - 2018: 13.7\n  - 2019: 12.9\n  - 2020: 12.3\n- Fiscal sector (Percent of GDP, unless otherwise noted):\n  - Nonfinancial public sector overall balance:\n    - 2017: -2.2\n    - 2018: -3.8\n    - 2019: -5.2\n    - 2020: -4.9\n    - 2021: -5.3\n  - General government overall balance (headline) 1/:\n    - 2017: -1.5\n    - 2018: -3.0\n    - 2019: -3.9\n    - 2020: -4.6\n    - 2021: -4.5\n  - General government gross debt (EU definition):\n    - 2017: 28.2\n    - 2018: 30.1\n    - 2019: 32.2\n    - 2020: 33.1\n    - 2021: 34.1\n    - 2022: 35.4\n    - 2023: 36.6\n    - 2024: 37.3\n- External sector:\n  - Current account balance:\n    - 2017: -5.6\n    - 2018: -3.5\n    - 2019: -0.6\n    - 2020: -1.3\n    - 2021: -1.7\n  - Gross external debt:\n    - 2017: 53.4\n    - 2018: 57.6\n    - 2019: 61.3\n    - 2020: 55.7\n    - 2021: 50.7\n    - 2022: 47.7\n    - 2023: 46.0\n    - 2024: 44.2\n  - Gross financing requirement:\n    - 2017: 25.0\n    - 2018: 26.8\n    - 2019: 23.5\n    - 2020: 22.3\n    - 2021: 21.5\n    - 2022: 21.0\n    - 2023: 20.2\n- Monetary conditions:\n  - Real average cost of CBRT funding to banks:\n    - 2017: 0.4\n    - 2018: 1.4\n    - 2019: …\n  - Growth of broad money (M2): 2017: 18.4\n  - Growth of credit to private sector: 2017: 14.1\n\nIMF Executive Board Concludes 2019 Article IV Consultation with Turkey — Press Release No. 19/491 (December 27, 2019).\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Republic of Türkiye and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/12/27/pr19491-turkey-imf-executive-board-concludes-2019-article-iv-consultation"
    }
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    "Published: December 27, 2019",
    "Growth became increasingly dependent on externally-funded credit and demand stimulus after the global financial crisis, leading to an economy running above potential with a large current account deficit and high inflation.",
    "These imbalances left the economy susceptible to a change in market sentiment that triggered sizeable lira depreciation and a recession in late 2018.",
    "Growth resumed in 2019, driven by:",
    "External adjustment:",
    "Inflation and monetary policy:",
    "External and balance-sheet vulnerabilities:",
    "Directors noted that stimulus-driven growth in previous years contributed to large economic imbalances.",
    "The 2019 recovery is fragile; vulnerabilities include:",
    "Directors emphasized the need for prudent policies and a comprehensive package of reforms to secure stronger and more resilient medium-term growth.",
    "Fiscal anchor:",
    "Recommendations:",
    "Directors' view:",
    "State-owned banks:",
    "Bank health and restructuring:",
    "Objective: Clean up bank and corporate balance sheets to support financial stability and more resilient growth.",
    "Directors called for focused and carefully sequenced structural reforms to enhance medium‑term growth and resilience:",
    "Directors commended Turkey for hosting a large number of refugees.",
    "Population (2018): 82 million",
    "Per capita GDP (2018): US$9,405",
    "Quota: SDR 4,658.6 million",
    "Real GDP growth rate:",
    "Contributions to real GDP growth (selected):",
    "Output gap:",
    "GDP deflator growth rate:",
    "Inflation (period-average):",
    "Inflation (end-year):",
    "Unemployment rate:",
    "Fiscal sector (Percent of GDP, unless otherwise noted):",
    "External sector:",
    "Monetary conditions:",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Republic of Türkiye and the IMF](http://www.imf.org/external/country/TUR/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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