## IMF Executive Board Concludes 2024 Article IV Consultation with Türkiye

_IMF News, October 11, 2024_

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## Bibliographic details
- Published: October 11, 2024

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### 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.*

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## 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)
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_Source: https://www.imf.org/en/news/articles/2024/10/11/pr-24369-turkiye-imf-executive-board-concludes-2024-aiv-consultation_