## Turkiye: 2024 Article IV Mission Press Release

_IMF News, August 28, 2024_

## Source details

**Canonical URL:** [Turkiye: 2024 Article IV Mission Press Release](https://www.imf.org/en/news/articles/2024/08/28/pr24311-turkiye-2024-article-iv-mission-press-release)

## Other formats

- [Markdown version](/en/news/articles/2024/08/28/pr24311-turkiye-2024-article-iv-mission-press-release/index.md)
- [Structured JSON version](/en/news/articles/2024/08/28/pr24311-turkiye-2024-article-iv-mission-press-release/index.json)
- [Bundle manifest](/en/news/articles/2024/08/28/pr24311-turkiye-2024-article-iv-mission-press-release/bundle-manifest.json)

## Bibliographic details
- Published: August 28, 2024

---

### Mission and context
- 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.

### Key findings and recent developments
- 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:
  - Current account deficit fell to 2.7 percent of GDP in 2024:Q1.
  - International reserves (net of swaps and other liabilities) increased by US$91 billion since April.
  - Credit rating upgrades by international agencies and CDS spreads have declined nearly 440 bp since mid-2023.
- Inflation and financial sector:
  - Headline inflation has started easing in the summer, but remains high.
  - Financial and corporate sectors have so far weathered liberalization and policy tightening without visible stress.

### Macroeconomic projections (under authorities’ announced policies)
- 2024:
  - GDP growth: around 3.4 percent.
  - Inflation (y/y) at end-December: around 43 percent.
  - Current account deficit: around 2.2 percent of GDP.
- 2025:
  - GDP growth: 2.7 percent.
  - Inflation: around 24 percent.
- Medium term:
  - Growth expected to rise back toward potential of 3.5-4 percent.
  - Current account deficit: around 2 percent.
  - International reserves: would stay above 100 percent of the IMF’s reserve adequacy metric.

### Risks and scenarios
- Downside risks from a gradual disinflation approach:
  - 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.
  - Slower growth may increase credit risks; FX borrowing and carry trade flows create FX liquidity risks.
- Upside scenario:
  - Rapidly falling headline inflation in 2024:Q3 could feed into backward-looking inflation expectations, easing price pressures.

### Fiscal policy recommendations
- 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:
  - Rationalizing tax expenditures and broadening the tax base.
  - Limiting spending on non-essential capital projects while protecting earthquake-related spending.
  - Reforming energy subsidies while protecting vulnerable households.
  - Unifying VAT, reducing informality, and boosting compliance to support disinflation and improve fairness.
- Assessment of public finances:
  - Türkiye’s public debt is sustainable.
  - 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.

### Monetary and exchange rate guidance
- 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:
  - Keep tight monetary policy stance until headline inflation and inflation expectations fall to the CBRT’s forecast range.
  - If sequential inflation does not continue to fall toward a path consistent with the end-2025 target range, additional tightening might be called for.
  - Capital inflows should continue to be fully sterilized to the extent possible to improve policy transmission.
  - As the policy rate becomes the binding factor on credit growth, quantitative credit caps should be phased out.
  - Continue smoothing temporary exchange rate volatility while avoiding undue real appreciation, and replenish reserve buffers opportunistically.
  - 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.

### Price-setting, indexation, and inflation inertia
- Still-high inflation inertia needs to be tackled by:
  - Setting prices, wages, and other contracts (such as rents) annually and according to forward-looking inflation to reset expectations and protect competitiveness.
  - Once relative prices have adjusted, eliminating any backward-looking indexation.
  - Aligning public sector administered prices with production and maintenance costs.

### Financial stability and macroprudential recommendations
- Continued vigilance and further reform required to maintain financial stability.
- Recommended actions:
  - Macroprudential policies should focus on containing systemic risks.
  - Simplify lira reserve requirements, improve money market functioning, and expand CBRT term deposits.
  - Bring the supervisory framework in line with the Basel Framework, notably for FX, sovereign, credit, and interest risk, consistent with the 2023 FSAP.
  - Strengthen the CBRT’s emergency liquidity assistance policies.
- Note: Türkiye’s removal from the Financial Action Task Force (FATF) “Gray list” in June is welcome.

### Structural reforms to boost medium-term and inclusive growth
- Priorities to boost medium-term growth and make it greener and more evenly distributed:
  - Strengthen policy frameworks; address barriers to SMEs; improve labor market functioning; speed the green transition.
  - Reduce informality, increase labor market flexibility, and boost female labor force participation.
  - Simplify regulatory burdens on SMEs, for example by establishing a one-stop shop for business approvals and permits.
  - Reduce SME compliance costs and their tax burden.
  - 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.

### Closing
- The IMF team expressed gratitude to the authorities and private sector counterparts for their hospitality and constructive discussions.

*International Monetary Fund — Turkiye: 2024 Article IV Mission Press Release, August 28, 2024*

---


## References

- [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)

_Source: https://www.imf.org/en/news/articles/2024/08/28/pr24311-turkiye-2024-article-iv-mission-press-release_