{
  "title": "Turkiye: 2024 Article IV Mission Press Release",
  "publication": "IMF News, August 28, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/08/28/pr24311-turkiye-2024-article-iv-mission-press-release",
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  "summary": "Washington, DC – August 28, 2024: An International Monetary Fund (IMF) mission, led by Mr. James P. Walsh, visited Türkiye during May 29 – June 11, 2024, to conduct the 2024 Article IV consultations. After virtual follow-up discussions during August 19 – 20, 2024, Mr.",
  "publishDate": "2024-08-28",
  "sections": [
    {
      "heading": "Mission and context",
      "content": "- IMF mission led by Mr. James P. Walsh visited Türkiye during May 29 – June 11, 2024, with virtual follow-up discussions during August 19 – 20, 2024.\n- End-of-Mission press release conveying preliminary findings; staff will prepare a report for the IMF’s Executive Board subject to management approval."
    },
    {
      "heading": "Key findings and recent developments",
      "content": "- A turnaround in economic policies since mid-2023 tightened Türkiye’s overall policy mix, sharply reducing crisis risks and raising confidence.\n- External and market developments:\n  - Current account deficit fell to 2.7 percent of GDP in 2024:Q1.\n  - International reserves (net of swaps and other liabilities) increased by US$91 billion since April.\n  - Credit rating upgrades by international agencies and CDS spreads have declined nearly 440 bp since mid-2023.\n- Inflation and financial sector:\n  - Headline inflation has started easing in the summer, but remains high.\n  - Financial and corporate sectors have so far weathered liberalization and policy tightening without visible stress."
    },
    {
      "heading": "Macroeconomic projections (under authorities’ announced policies)",
      "content": "- 2024:\n  - GDP growth: around 3.4 percent.\n  - Inflation (y/y) at end-December: around 43 percent.\n  - Current account deficit: around 2.2 percent of GDP.\n- 2025:\n  - GDP growth: 2.7 percent.\n  - Inflation: around 24 percent.\n- Medium term:\n  - Growth expected to rise back toward potential of 3.5-4 percent.\n  - Current account deficit: around 2 percent.\n  - International reserves: would stay above 100 percent of the IMF’s reserve adequacy metric."
    },
    {
      "heading": "Risks and scenarios",
      "content": "- Downside risks from a gradual disinflation approach:\n  - Prolonged exposure to shocks that could derail disinflation, including higher global energy prices, geopolitical tensions (conflict in the middle east or the war in Ukraine), or a reversal of capital flows.\n  - Slower growth may increase credit risks; FX borrowing and carry trade flows create FX liquidity risks.\n- Upside scenario:\n  - Rapidly falling headline inflation in 2024:Q3 could feed into backward-looking inflation expectations, easing price pressures."
    },
    {
      "heading": "Fiscal policy recommendations",
      "content": "- A larger and more front-loaded fiscal consolidation is needed to help reduce inflation.\n- Suggested measures (taken together, and front loaded to the extent possible) amount to around 2.5 percent of GDP over 2024-2025, including:\n  - Rationalizing tax expenditures and broadening the tax base.\n  - Limiting spending on non-essential capital projects while protecting earthquake-related spending.\n  - Reforming energy subsidies while protecting vulnerable households.\n  - Unifying VAT, reducing informality, and boosting compliance to support disinflation and improve fairness.\n- Assessment of public finances:\n  - Türkiye’s public debt is sustainable.\n  - The authorities’ medium-term deficit target of 3 percent provides appropriate fiscal space to address contingent risks from public-private partnerships and state-owned enterprises."
    },
    {
      "heading": "Monetary and exchange rate guidance",
      "content": "- Tight financial conditions will be needed until sequential inflation is firmly on a downward path and inflation expectations converge to the CBRT forecast range.\n- Policy actions and sequencing:\n  - Keep tight monetary policy stance until headline inflation and inflation expectations fall to the CBRT’s forecast range.\n  - If sequential inflation does not continue to fall toward a path consistent with the end-2025 target range, additional tightening might be called for.\n  - Capital inflows should continue to be fully sterilized to the extent possible to improve policy transmission.\n  - As the policy rate becomes the binding factor on credit growth, quantitative credit caps should be phased out.\n  - Continue smoothing temporary exchange rate volatility while avoiding undue real appreciation, and replenish reserve buffers opportunistically.\n  - As inflation falls and reserve buffers improve, scale back intervention and allow the exchange rate to act as a shock absorber. Intervening against persistent shocks should be avoided."
    },
    {
      "heading": "Price-setting, indexation, and inflation inertia",
      "content": "- Still-high inflation inertia needs to be tackled by:\n  - Setting prices, wages, and other contracts (such as rents) annually and according to forward-looking inflation to reset expectations and protect competitiveness.\n  - Once relative prices have adjusted, eliminating any backward-looking indexation.\n  - Aligning public sector administered prices with production and maintenance costs."
    },
    {
      "heading": "Financial stability and macroprudential recommendations",
      "content": "- Continued vigilance and further reform required to maintain financial stability.\n- Recommended actions:\n  - Macroprudential policies should focus on containing systemic risks.\n  - Simplify lira reserve requirements, improve money market functioning, and expand CBRT term deposits.\n  - Bring the supervisory framework in line with the Basel Framework, notably for FX, sovereign, credit, and interest risk, consistent with the 2023 FSAP.\n  - Strengthen the CBRT’s emergency liquidity assistance policies.\n- Note: Türkiye’s removal from the Financial Action Task Force (FATF) “Gray list” in June is welcome."
    },
    {
      "heading": "Structural reforms to boost medium-term and inclusive growth",
      "content": "- Priorities to boost medium-term growth and make it greener and more evenly distributed:\n  - Strengthen policy frameworks; address barriers to SMEs; improve labor market functioning; speed the green transition.\n  - Reduce informality, increase labor market flexibility, and boost female labor force participation.\n  - Simplify regulatory burdens on SMEs, for example by establishing a one-stop shop for business approvals and permits.\n  - Reduce SME compliance costs and their tax burden.\n  - Establish a domestic Emission Trading System aligned with the European Union (EU) to contribute to national climate targets and help preserve competitiveness vis-à-vis the EU."
    },
    {
      "heading": "Closing",
      "content": "- The IMF team expressed gratitude to the authorities and private sector counterparts for their hospitality and constructive discussions.\n\nInternational Monetary Fund — Turkiye: 2024 Article IV Mission Press Release, August 28, 2024\n\n---\n\n\n References\n\n- Republic of Türkiye and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- FSAP\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/08/28/pr24311-turkiye-2024-article-iv-mission-press-release"
    }
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    "Published: August 28, 2024",
    "IMF mission led by Mr. James P. Walsh visited Türkiye during May 29 – June 11, 2024, with virtual follow-up discussions during August 19 – 20, 2024.",
    "End-of-Mission press release conveying preliminary findings; staff will prepare a report for the IMF’s Executive Board subject to management approval.",
    "A turnaround in economic policies since mid-2023 tightened Türkiye’s overall policy mix, sharply reducing crisis risks and raising confidence.",
    "External and market developments:",
    "Inflation and financial sector:",
    "2024:",
    "2025:",
    "Medium term:",
    "Downside risks from a gradual disinflation approach:",
    "Upside scenario:",
    "A larger and more front-loaded fiscal consolidation is needed to help reduce inflation.",
    "Suggested measures (taken together, and front loaded to the extent possible) amount to around 2.5 percent of GDP over 2024-2025, including:",
    "Assessment of public finances:",
    "Tight financial conditions will be needed until sequential inflation is firmly on a downward path and inflation expectations converge to the CBRT forecast range.",
    "Policy actions and sequencing:",
    "Still-high inflation inertia needs to be tackled by:",
    "Continued vigilance and further reform required to maintain financial stability.",
    "Recommended actions:",
    "Note: Türkiye’s removal from the Financial Action Task Force (FATF) “Gray list” in June is welcome.",
    "Priorities to boost medium-term growth and make it greener and more evenly distributed:",
    "The IMF team expressed gratitude to the authorities and private sector counterparts for their hospitality and constructive discussions.",
    "[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/)",
    "[FSAP](https://www.imf.org/en/Publications/CR/Issues/2023/08/17/Republic-of-Trkiye-Financial-System-Stability-Assessment-538281)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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