ANKARA
The International Monetary Fund (IMF) praised the Turkish authorities’ policies delivering a welcome rebalancing in 2012 while maintaining positive growth and low unemployment, which in turn set the stage for the acceleration of economic activity in 2013.
An IMF team visited Turkey from September 18 to 30, 2013 for the annual evaluation of the economy as part of the regular consultations under Article IV of the IMF’s Articles of Agreement. The preliminary findings of the staff were issued by the Turkish Undersecretariat of Treasury on October 5.
"The rebound, led by private consumption and public investment, was driven by the policy stimuli since the second half of 2012. Unemployment stayed low, while household balance sheets remained relatively healthy, as leverage increased from a low base. With domestic demand gathering strength, full year growth is expected to come in at 3.8 percent. Under current macroeconomic policies, next year’s growth is forecast at 3.5 percent" IMF said.
IMF further said that Turkey was on track to meet the fiscal targets for 2013 with a strong revenue performance year-to-date. "As a result, the authorities are broadly on track to meet their 2013 budget deficit target, further reducing public debt from already modest levels." IMF said.
IMF also praised the performance of the Turkish financial system, but noted that risks remain: "Banks’ leverage and the level of non-performing loans are low relative to peers; the capital adequacy ratios remain high; loans are largely funded by deposits; and their open FX positions are not large. Still, risks are being taken in this period of rapid credit expansion, and so continued careful monitoring is needed."
Regarding domestic savings, IMF said that the Turkish authorities correctly identified the need to increase domestic savings. "Last year’s private sector pension reform has started to bear some results and is a positive initial step. However, the public sector must also lead the way with a sizeable contribution to raise savings," IMF said.
As for structural reform, IMF said that this should further boost competitiveness and growth. "Turkish private sector has demonstrated an ability to adapt to shocks. Further improvements in the business climate could enhance this resilience further and would attract more foreign direct investment—a stable source of external funding. Reforms to improve the functioning of the labor market could boost productivity and employment."
"In 2013, growth is accelerating and rotating back to domestic demand. With imbalances still high and the global financial environment less forgiving, reducing these vulnerabilities should be the overarching focus of short- and medium-term policies. In the short run, monetary policy needs to be tightened further to meet the authorities’ inflation target and provide an adequate nominal anchor. Fiscal policy should also be tightened to increase the structural primary surplus in 2014. In the medium term, the main challenges for Turkey remain raising domestic savings and pressing ahead with structural reforms. Both would serve to increase the long-term growth potential of the economy, while maintaining a sustainable external position." IMF concluded.
englishnews@aa.com.tr
