IMF report: Turkey’s economy in trouble

The International Monetary Fund has released a new report on the situation in Turkey, confirming that Ankara’s economy is in trouble; as the risks remain because of the decisions of President Recep Tayyip Erdogan.

The IMF said on Monday that Turkey remains vulnerable to external and domestic risks, adding that it would be difficult to achieve strong and sustainable growth if the government does not implement further reforms.

“The current calm (in Turkish financial markets) seems fragile,” said the IMF, after a team of IMF experts visited Turkey. “Reserves remain low, while foreign debt to the private sector and external financing needs remain high.”

He explained that the biggest challenge for the Turkish economy is to shift the focus from short-term growth to medium or long-term growth, pointing out that Ankara can achieve this goal through several points, most notably:

– Tight monetary policy to strengthen the credibility of the central bank, and to support the lira, and reduce inflation, and this is what caused a dispute between Turkish President Erdogan and the Central Bank Governor, Murat Cetin Kaya;

– Steps to strengthen the financial situation in the medium term.

– Comprehensive assessment of bank assets and new tests of shock resilience of banks carried out by third parties with follow-up procedures, if needed, to enhance confidence in banks.

– Take additional steps to build on existing reforms to strengthen the bankruptcy framework and corporate restructuring.

– Concentrated structural reforms to support productivity growth and increase economic resilience.

The report pointed out that the average growth rates of the Turkish economy has reached about 5% in the last fifteen years, but interest rates and inflation rates jumped about 30% last year, after the Turkish lira fell against the US dollar; prompting domestic demand for foreign domestic products.

The report did not stop there, and noted that the Turkish economy contracted by about 1.5% during the second quarter of this year, the third quarterly contraction in a row; confirming the depth of the crisis experienced by the Turkish economy.

The report cited a request by the Turkish Banking Regulatory Commission to write off 46 billion TL by the end of this year as a way to demonstrate the worsening economic crisis.

On July 11, Turkish President Erdogan sacked Central Bank Governor Murat Chitin and appointed his deputy, raising questions about the future of the Turkish economy, which is falling apart after Ankara’s support for armed militias in the region. The Turkish army sacked Ismael Haqettinoglu from the presidency of the Central Bank in 1980.