IMF says politics, debt taking toll on Turkish economy

ISTANBUL

REUTERS photo

Increased political uncertainty, a fall in tourism, and high levels of corporate debt are taking their toll on Turkey’s economy, where growth is expected to fall to 2.9 percent this year, the International Monetary Fund said on Nov. 4.

The global lender also said Turkey’s current monetary stance, which balanced the need to contain inflation with a slowing economy, should be maintained without further easing.

“Favorable external conditions have helped so far, but external financing needs remain large and limit fiscal space. Nevertheless, some fiscal loosening is appropriate to support the economy. Macro-prudential measures should be strengthened to lower foreign exchange risk,” noted the IMF in a statement following consultations to assess its financial and economic state.

The IMF is the latest foreign institution to signal concern about the political situation in Turkey. 

“The Turkish economy has withstood several shocks. However, increased political uncertainty, a sharp fall in tourism revenues, and a high level of corporate debt are all taking a toll,” it noted.

The IMF said it expected economic growth to fall to 2.9 percent this year, citing weak business confidence and negative domestic and external shocks. 

“The unemployment rate is high and rising. Credit growth has slowed significantly. Uncertainty has increased due to geopolitical tensions, as well as the July 15 failed coup attempt and its aftermath,” it added. 

Macro-prudential measures should be strengthened to lower foreign exchange risk in the economy, according to the IMF. 

“The economic slowdown is increasing these risks. Moreover, macro-prudential measures should not be relaxed for demand management purposes,” it added. 

“The current monetary stance balances the need to contain inflation against the backdrop of a slowing economy, and should be maintained,” it said.

The IMF also said a moderate fiscal loosening was appropriate, noting that should be accompanied by a credible medium-term consolidation plan.

It said it expected inflation to remain well above the government’s 5 percent target.