{ "title": "Turkey: Staff Concluding Statement of the 2021 Article IV Mission", "publication": "IMF News, January 25, 2021", "sourceUrl": "https://www.imf.org/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission", "overlayPath": "/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission/index.md", "summary": "Pandemic inflicted a heavy human and economic toll on Turkey.", "publishDate": "2021-01-25", "sections": [ { "heading": "Mission Concluding Statement — key points", "content": "- Pandemic inflicted a heavy human and economic toll on Turkey.\n- Policy reaction focused on monetary and credit expansion, producing a strong rebound in growth after the initial shock but exacerbating pre-existing vulnerabilities and leaving the economy more susceptible to domestic and external risks.\n- Recent policy pivot away from rapid money and credit growth is welcome.\n- Rebuilding buffers could be faster if the pivot persists and is combined with:\n - additional pandemic-focused fiscal support that is temporary and targeted;\n - a credible plan for medium-term fiscal consolidation;\n - focused financial sector and structural reforms.\n- Structural reforms should mitigate long-term adverse pandemic effects and include:\n - targeted measures to support the most vulnerable;\n - measures to encourage labor market flexibility;\n - measures to facilitate corporate debt relief." }, { "heading": "The Covid-19 shock: impact and policy response — findings", "content": "- Pre-existing vulnerabilities entering 2020:\n - Growth over the past decade driven largely by externally-funded credit and demand stimulus.\n - Resulting vulnerabilities: elevated external financing needs, declining reserves, high inflation, and increasing dollarization.\n- Human and health impact:\n - \"Almost 25 thousand Turkish people have died and 2.4 million have been infected.\"\n- Initial policy response and macro outcome:\n - Early stimulus relied primarily on rapid monetary and credit expansion, including policy rate cuts, cheap and rapid lending growth by state-owned banks, and administrative and regulatory measures to boost credit.\n - Direct fiscal measures amounted to just 2.5 percent of GDP, mainly tax deferrals and some employment support.\n - Combined measures helped economic activity rebound strongly in Q3 2020 to above pre-pandemic levels; Turkey was among the few countries estimated to have posted positive overall growth in 2020.\n- Adverse side-effects of the initial response:\n - Inflation remains well above target, weighing on policy credibility.\n - Increased dollarization, relatively high imports, and financial outflows triggered large-scale foreign exchange intervention aimed at stemming lira depreciation.\n- Recent policy pivot (from late-2020):\n - Monetary policy tightening, easing of ad hoc regulatory measures, and marked slowdown in state-owned bank lending helped contain lira pressure and rebuild confidence.\n - Gross reserves have broadly stabilized but remain well below the recommended range and well below most peers.\n - Net international reserves (NIR) remain positive, but once central bank FX swaps are subtracted, the net position is negative." }, { "heading": "Outlook — projections and risks", "content": "- Growth:\n - \"Turkish GDP is expected to expand by about 6 percent in 2021.\"\n - From 2022 onwards growth projected to settle back to trend: \"about 3½ percent.\"\n- Inflation and current account:\n - Inflation expected to fall modestly by end-2021, and remain well above target.\n - Current account deficit expected to fall to \"3½ percent of GDP,\" driven largely by lower gold imports and modest tourism recovery.\n- Employment: expected to continue to recover slowly as the pandemic subsides.\n- Risks from low buffers:\n - Low foreign exchange reserves, high external financing needs, and high domestic FX deposits leave the economy vulnerable to shocks and changes in sentiment.\n - Under the current policy set, buffers will be rebuilt gradually." }, { "heading": "Policy recommendation overview — further shift needed", "content": "- A further sustained rebalancing of policies would underpin more durable medium-term growth.\n- Maintain a firm monetary stance while deploying additional pandemic-focused fiscal support that is temporary and targeted to achieve a broadly neutral but better calibrated policy stance.\n- Reforms should rebuild credibility and buffers while addressing pandemic-related human and economic needs." }, { "heading": "Monetary policy — actions to strengthen credibility and buffers", "content": "- Maintain a firm monetary policy stance; \"further measured monetary policy tightening likely needed should inflation expectations fail to stabilize.\"\n- Avoid premature easing; follow recent CBRT forward guidance to better anchor inflation expectations, sustain capital inflows, and address dollarization.\n- Actions would help achieve a stronger lira and higher reserves, especially when combined with broader reforms including:\n - steps to underpin CBRT independence;\n - a timely technical review of the monetary policy framework.\n- Develop and implement a transparent reserve accumulation strategy as conditions allow:\n - Reserve buildup should increasingly occur through transparent reserve purchase auctions and be accompanied by consistent and clear communication.\n - Gradual removal of remaining administrative measures designed to support the lira as conditions allow." }, { "heading": "Fiscal policy — addressing pandemic-related needs and medium-term consolidation", "content": "- Short-term fiscal support:\n - Deploy additional targeted and temporary fiscal support in 2021; Turkey has some fiscal space, \"possibly in the order of 1 percent of GDP.\"\n - Additional social transfers to vulnerable households and informal workers recommended; further support should be considered if economic conditions deteriorate.\n- Medium-term consolidation:\n - Outline a credible and detailed plan for fiscal consolidation now, to be enacted when post-pandemic recovery is well under way.\n - \"Consolidation of about 1.5 percent of GDP over the medium term should help put debt again onto a declining path.\"\n - Consolidation measures could be legislated now and enacted from 2022 onwards and might include:\n - streamlining VAT exemptions;\n - rationalization of ad hoc transfers and subsidies;\n - rationalizing investment incentives.\n - Complementary efforts to find efficiencies in spending are important.\n- Fiscal structural reforms:\n - Publish a fiscal risk statement and comprehensive information on quasi-fiscal operations of all SOEs to bolster transparency and credibility.\n - Finalize efforts to strengthen oversight and management of Public Private Partnerships (PPPs), including publishing a monitoring report and finalizing a new PPP law that integrates PPPs with the overall budgetary process (appraisal and authorization).\n - Continue strengthening budget execution.\n- Extra-budgetary institutions:\n - Carefully define and monitor the scope and role of extra-budgetary and other non-central government entities with maximum transparency and strong governance.\n - Refine Turkey Wealth Fund’s governance to limit potential conflicts of interest.\n- Debt management:\n - Continue strengthening debt management by lengthening borrowing maturities and lowering reliance on domestic FX borrowing; recent moves along these lines are welcome." }, { "heading": "Financial sector policy — reining in credit and strengthening balance sheets", "content": "- Credit normalization:\n - Continued normalization of credit growth is positive; credit growth has slowed as policy rates increased and lending-incentivizing regulations were removed.\n - Credit provided through the Credit Guarantee Fund (CGF) was expanded beyond SMEs during the pandemic; going forward such credit should be limited to SMEs in line with the CGF’s original mandate.\n- Bank balance sheet issues:\n - Legacy issues on banks’ balance sheets should be more fully recognized over time.\n - As the pandemic recedes, strengthen prudential standards to incentivize recognition of loan losses and proactively draw down capital and liquidity buffers.\n - Phase out forbearance measures and loan deferrals to encourage debt restructuring.\n - Conduct a comprehensive third-party asset quality review and ensuing stress tests to strengthen confidence and develop the market for distressed assets.\n - Avoid delays in proposed revisions to the Banking Law to strengthen BRSA independence and reform resolution frameworks.\n - Authorities intend to proceed with a new Financial Sector Assessment Program in 2021; this is welcomed.\n- FX risks:\n - Bank FX liabilities warrant careful monitoring even if regulatory requirements are met.\n - Continue to monitor FX liquidity risks carefully and strictly enforce regulatory limits on open FX positions." }, { "heading": "Mitigating long-term effects of the pandemic — labor markets and corporate distress", "content": "- Labor market policies:\n - Address risks to labor markets through targeted measures that support labor market flexibility while providing a sufficient safety net to aid resource re-allocation and job creation.\n - Emphasize female labor force participation, youth unemployment, and informality.\n- Corporate debt and restructuring:\n - Corporate debt distress is expected to increase; viable but temporarily-insolvent firms should be quickly restructured as 'going concerns' while unviable firms should be efficiently wound down.\n - 'Out-of-court' restructuring mechanisms are key in current circumstances.\n- Combined, these policies would help form the basis for a more durable and inclusive recovery.\n\nIMF Staff Concluding Statement — January 25, 2021\n\n---\n\n\n References\n\n- IMF COVID-19 Hub\n- Policy Tracker\n- Financial Assistance\n- Questions & Answers\n- Republic of Türkiye and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission/bundle-manifest.json)", "Published: January 25, 2021", "Pandemic inflicted a heavy human and economic toll on Turkey.", "Policy reaction focused on monetary and credit expansion, producing a strong rebound in growth after the initial shock but exacerbating pre-existing vulnerabilities and leaving the economy more susceptible to domestic and external risks.", "Recent policy pivot away from rapid money and credit growth is welcome.", "Rebuilding buffers could be faster if the pivot persists and is combined with:", "Structural reforms should mitigate long-term adverse pandemic effects and include:", "Pre-existing vulnerabilities entering 2020:", "Human and health impact:", "Initial policy response and macro outcome:", "Adverse side-effects of the initial response:", "Recent policy pivot (from late-2020):", "Growth:", "Inflation and current account:", "Employment: expected to continue to recover slowly as the pandemic subsides.", "Risks from low buffers:", "A further sustained rebalancing of policies would underpin more durable medium-term growth.", "Maintain a firm monetary stance while deploying additional pandemic-focused fiscal support that is temporary and targeted to achieve a broadly neutral but better calibrated policy stance.", "Reforms should rebuild credibility and buffers while addressing pandemic-related human and economic needs.", "Maintain a firm monetary policy stance; \"further measured monetary policy tightening likely needed should inflation expectations fail to stabilize.\"", "Avoid premature easing; follow recent CBRT forward guidance to better anchor inflation expectations, sustain capital inflows, and address dollarization.", "Actions would help achieve a stronger lira and higher reserves, especially when combined with broader reforms including:", "Develop and implement a transparent reserve accumulation strategy as conditions allow:", "Short-term fiscal support:", "Medium-term consolidation:", "Fiscal structural reforms:", "Extra-budgetary institutions:", "Debt management:", "Credit normalization:", "Bank balance sheet issues:", "FX risks:", "Labor market policies:", "Corporate debt and restructuring:", "Combined, these policies would help form the basis for a more durable and inclusive recovery.", "[IMF COVID-19 Hub](https://www.imf.org/en/Topics/imf-and-covid19)", "[Policy Tracker](https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19)", "[Financial Assistance](https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker)", "[Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19)", "[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)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission/index.md", "json": "/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2021/01/25/mcs012521-turkey-staff-concluding-statement-of-the-2021-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T00:06:12.140Z" }