ISTANBUL

The International Monetary Fund (IMF) said Friday that Türkiye’s disinflation program has shown success, and the current policy mix “continues to balance disinflation with steady growth.”

The IMF Executive Board completed the 2025 Article IV consultation with Türkiye, it said in a statement.

“Since the 2024 Article IV, Türkiye’s disinflation program has shown successes,” said the fund. “Inflation fell from 49.4% (y/y) in September 2024 to 30.9% in December 2025 on the back of strong fiscal consolidation, prudent income policies, and a tight monetary policy stance.”

It noted that following a temporary deceleration in mid-2024, GDP growth has remained strong, with a forecast at 4.1% in 2025. “Turkish Lira demand has strengthened, bolstering international reserves, and the current account deficit remains adequately financed,” it added.

Tight monetary policy expected to support gradual disinflation

“Tight monetary policy, moderate wage growth, and broadly neutral fiscal policy are expected to support gradual disinflation,” it said, emphasizing that the current policy mix continues to balance disinflation with steady growth.

The statement said end-2026 inflation is expected at 23%, as domestic demand remains strong, and boosted by further policy rate cuts and rising confidence, growth is expected at 4.2% for 2026.

It also noted that the current account deficit would “remain adequately financed, while depositor confidence and strong gold prices would allow reserves to stay at around 80 percent of the IMF’s adequacy metric.”

While growth should remain solid and inflation will fall, the IMF said the approach bears risks and costs, noting that external risks remain elevated due to persistent global trade uncertainty and regional conflicts.

“The materialization of an adverse shock, like an increase of energy prices or a negative weather event, could further extend the period of still-high inflation. Moreover, the gradual approach to disinflation has weighed on the financial sector and slowed productivity growth,” the statement said.

Call for ambitious structural reforms

The statement included the executive board’s assessment, praising authorities for significant achievements under the disinflation program, which reduced macroeconomic imbalances, strengthened confidence and preserved strong growth.

Inflation remains well above the target and the economy is highly vulnerable to shocks, the IMF said, underscoring the need for a tighter macroeconomic policy mix and ambitious structural reforms to entrench disinflation, strengthen external buffers and support inclusive medium-term growth.

Authorities were commended for strong fiscal efforts last year, with the IMF urging continued fiscal tightening to reinforce disinflation.

“Directors emphasized the role of measures to broaden the tax base and improve compliance, together with further efforts to streamline expenditures through phasing out energy subsidies,” the statement said.

Directors also called for carefully sequenced and well communicated measures “to minimize second-round inflationary impacts while mitigating the impact on vulnerable households.”

“As fiscal space expands, additional resources could be redirected to social priorities. Directors also supported full alignment of wage policies with inflation targets, as well as stronger oversight of PPPs and SOEs,” the IMF said.

Financial sector remains robust

Directors stressed that the financial sector “remains robust,” supported by the authorities’ swift and effective response to market stress.

They generally urged tighter monetary policy to secure durable disinflation, while emphasizing the need for policy rate decisions should remain data-dependent and mindful of macro-financial effects.

“To bolster policy credibility and strengthen transmission, Directors emphasized the importance of a simplified monetary policy framework firmly centered on the policy rate, with enhanced central bank independence and communication,” the statement noted.

Directors also stressed that continued vigilance is warranted, particularly for still high FX liquidity risks, and supported ongoing efforts to strengthen the supervisory and resolution frameworks along with enhanced oversight, including of crypto assets.

The statement underlined that the directors urged structural reforms to foster productivity, resilience and medium-term growth, with top priorities including “improvements in labor, education, and governance and legal frameworks, support for SMEs, and raising the share of renewables in the energy mix.”

Economic indicators

According to IMF projections, Türkiye’s economy is expected to grow 4.1% in 2027 and 4% annually between 2028 and 2031.

The unemployment rate is forecast at 8.3% in 2026, 8.7% in 2027, and 9.1% during 2028-2031.

Inflation is projected to fall to 19% next year and then ease to 15% through 2031. The current account deficit is expected to equal 1.4% of GDP in 2026-2028 and 1.5% in 2029-2031.