Turkey's economy continues to exhibit vulnerabilities despite resuming growth following last year's recession, the International Monetary Fund (IMF) Executive Board said in a release on Friday upon concluding the 2019 Article IV consultation with Turkey
WASHINGTON (Pakistan Point News / Sputnik - 27th December, 2019) Turkey's economy continues to exhibit vulnerabilities despite resuming growth following last year's recession, the International Monetary Fund (IMF) Executive Board said in a release on Friday upon concluding the 2019 Article IV consultation with Turkey."The executive directors noted that stimulus-driven growth in previous years had contributed to large economic imbalances in the Turkish economy," the release said. "Following the recession in 2018, expansionary fiscal policy, rapid credit provision by state-owned banks, and more favorable external financing conditions led to a resumption of economic growth. Directors emphasized that the current calm remains fragile and that vulnerabilities persist."
The IMF said Turkey's vulnerabilities at present include low reserve buffers, large external financing needs as well as bank and corporate balance sheets.
"Against this background, directors underscored the importance of prudent policies to address weaknesses and highlighted the need for a comprehensive package of reforms to secure stronger and more resilient growth over the medium term," the release said. "Directors emphasized that fiscal policy should remain a key policy anchor. While the recent fiscal stimulus has helped the economy recover, the underlying deficit has increased significantly."
The IMF executive directors encouraged a broadly neutral fiscal stance in 2020, combined with tight monetary and quasi-fiscal policies, while also noted the need for a modest consolidation, the release said.
"Given still-high inflation expectations, Directors stressed that monetary policy should focus on durably lowering inflation, which would help permanently lower interest rates," the release said. "In this context, they noted that recent monetary policy easing has gone too far. Directors also called for clearer monetary and intervention policy to bolster transparency and central bank credibility. They recommended rebuilding international reserves as conditions allow."
The IMF executive directors also emphasized that vigilance is needed in view of the rapid credit growth of state-owned banks, encouraging Turkey to take steps to rein in credit growth and clean up bank and corporate balance sheets to support financial stability and stronger, more resilient growth.
"Additional reforms to improve the insolvency regime and out-of-court restructuring would also help release resources and restart productive lending," the release said.
In addition, the IMF urged Turkey for focused structural reforms to strengthen medium-term growth, and in particular taking steps to improve product market efficiency, labor market flexibility, the quality of human capital and female labor force participation.
"Governance reforms would also help improve the investment climate and economic efficiency. Directors commended Turkey for hosting a large number of refugees," the release said.
The visit of the IMF Executive Board to Turkey took place on December 9.
