Which issues stand out in the IMF’s report on Turkey?
IMF has published its report on Turkey within the scope of Article 4. The report addresses Turkey’s measures during the pandemic and lays out the country’s expectations from 2021. According to IMF, a 6 per cent growth is expected in the Turkish economy in 2021. The World Economic Outlook report of 2020 projected 5 per cent economic recession in the country.
Reminding that Turkey welcomed 2020 with pre-existing fragilities, the report mentions the country’s needs for external financing, high inflation rates and dollarization. However, it emphasizes that “Turkey distinguishes herself from counterparts in the emerging markets.”
It is underlined that the pre-pandemic levels had already been exceeded by the third quarter of 2020 thanks to the policies enacted during the pandemic. The report describes Turkey as “one of the countries projected to have recorded positive general growthin the last year.”
The report highlights that the policies have magnified the country’s exposure by saying that “the indications of post-pandemic recovery are clear; the significant risks remain nonetheless.” The report also warns that “the country’s lower foreign exchange reserves and dependence on higher external financing, together with the higher levels of domestic foreign exchange deposit may leave Turkey in a fragile state against potential shocks in the near future.”
“The tight monetary policy since the closing of 2020 have been received positively”
It is reminded that the loosening of the temporary regulatory measures and going slower on the state-owned bank loans have restricted the pressure on the Turkish Lira and re-established the trust. The report says, “combined with a wide range of reforms, including a monetary policy revision, the steps taken towards supporting the independence of the Central Bank will pave the way for a stronger lira and higher foreign exchange reserves.” It is further reminded that “the international net reserves remain positive; however, the net position turns negative once the Central Bank’s foreign exchange swaps are subtracted.”
What are the expectations for 2021?
It is expected that Turkey’s current deficit will fall to 3,5% of the GDP, due to the reduced volume of gold imports and the anticipated recovery in tourism.
For 2021, the inflation rate is projected to fall. However, it is expected that the inflation will stay higher than the target rate despite this decline. The report says, “the Central Bank should avoid loosening early to realize the inflation targets, maintain the capital influx, and eliminate the dollarization.”
What does the Report suggest?
The report suggests that struggling households and workers should be provided with more social welfare. On this note, the report advises that “the risks of the long-term negative effects of the pandemic brought on the labour markets and non-financial companies should be addressed with well-intended measures.” Furthermore, the report underlines the importance of continuing the financial support until the post-pandemic recovery is realized.
Reminding that Turkey has undertaken direct financial measures corresponding to 2,5% of her GDP in 2020, the report says, “it is highly likely that, in 2021, Turkey will have the financial facilities to provide those affected by the pandemic as much as the 1% of the country’s GDP.”
“A timely-prepared and well-detailed fiscal consolidation plan will support Turkey’s valuable financial anchor”
It is emphasized that the financial structural reforms will not only facilitate the restoration but also lower the financial risks. The report explains further, “a fiscal consolidation of 1,5% of the country’s GDP in the medium term will allow the debt to be reduced once again.”
On debt management, the report says, “the moves towards extending the maturity periods, and reducing the dependence on domestic foreign currency borrowing are welcomed.” It is said that the fiscal consolidation plan will help to incentivize the investments and ensure the effectiveness of spending.
Regarding the structural reforms, the report suggests, “the reforms should incorporate measures focusing on mitigating the risks of long-term negative effects caused by the pandemic, supporting the most vulnerable, encouraging flexibility on the labour market, and lowering the corporate debt.”
It is predicted that the policies promoting flexibility in the labour market will support the re-allocation of the resources and create employment. The policies increasing the participation of women in the workforce, reducing unemployment and unregistered employment are particularly emphasized in the report.
Underlining “flexible and enterprising structure of the Turkish economy”, the report provides suggestions, concluding that the country may be able to adapt to the new economic conditions of the post-pandemic world.