IMF forecasting tough days ahead for Turkey

Shaimaa Hefzi

The International Monetary Fund has issued a grim outlook for the Turkish economy, which suffers multiple difficulties at present.

It warned that the prospects of a sustainable recovery from Turkey’s currency crisis last year have dimmed.

In a concluding statement on Monday published after an annual visit to Turkey by IMF staff, the fund revised its forecast for full-year GDP growth in 2019 from -2.5 per cent to 0.25 per cent.

The report warned that “the current calm appears fragile,” citing concerns about bad debts in the corporate sector, low foreign currency reserves and the country’s heavy reliance on foreign financing as well as a growing fiscal deficit.

The IMF said Turkey “remains susceptible to external and domestic risks” adding that “prospects for strong, sustainable, medium-term growth look challenging without further reforms.”

The fund singled out some of the measures taken by the Turkish government for criticism.

It warned that the central bank’s decision to slash rates by 7.5 percentage points since July as “too aggressive” and suggesting a reduction in reserve requirements for banks that meet certain lending targets “should be revisited.” Efforts to expand lending, it said “should be limited and should also ensure that resulting credit is provided only to viable borrowers.”

Accumulating debts

Turkey’s debts keep piling up, affecting general economic conditions, and threatening the future prospects of the economy in general.

The general feeling among Turkish citizens is that an acute economic crisis is looming and that the times of economic prosperity are over already.

According to a report by Bloomberg in March this year, Turkey’s economic growth in the past months was mainly driven by pressures from Turkish President Recep Tayyip Erodgan. It added that the growth was accompanied by financial incentives which brought major capital inflows into the Turkish market.

These inflows, it said, stopped after the currency crisis and the diplomatic standoff with the United States.