IMF asks Ankara for high interest rates and low increases

As every year, the technical team of the International Monetary Fund (IMF) shared with the public the first statement after its visit to Turkey within the framework of the Article 4 negotiations.

The statement, which came after the team led by James P. Walsh held meetings with government officials between September 25 and 29, was posted yesterday on the IMF website.

In the statement, it was stated that the policy change implemented after the elections was welcomed by the IMF and the authorities were congratulated for the interest rate increases, while the Central Bank (CBRT) noted that recent steps towards The increase in the policy rate, the increase in taxes and the liberalization of some financial measures have reduced risks in Turkey and increased investor confidence and reserves.

GROWTH, INFLATION AND UNEMPLOYMENT FORECAST

According to the statement, the IMF delegation predicts that economic growth will decline to 4 percent in 2023 and 3.2 percent in 2024, and that official consumer inflation, which was 64.3 percent at the end of 2022 , it will be 69.1 percent at the end of 2023. and 46 percent at the end of 2024. The unemployment rate is expected to be 10.1 percent in 2023 and 10.5 percent in 2024.

The IMF predicts that the current account deficit relative to national income will be 4.1 percent in 2023 and 3.1 percent in 2024.

The IMF delegation called on Ankara for further interest rate increases, further liberalization of financial regulations and further measures to reduce the budget deficit.

The IMF delegation also recommended that wages and pensions should be increased in line with expected inflation, not past inflation, and that wage increases above inflation should be avoided.

This means that when raising wages, the much lower expectations for the end of 2024 are taken into account, not the high inflation at the end of the year, resulting in a real loss of wages.

Minister of Treasury and Finance Mehmet Şimşek, in his statement in early September regarding salary increases for civil servants and public workers, said: “From now on, salary regulations will be made in accordance with the inflation target.”

INTERNAL AND EXTERNAL RISKS

The statement states that the balance of risks is on the downside and the main risk is that the policy change currently underway loses its strong momentum, leading to a loss of confidence and creating demand for foreign exchange.

High commodity prices, slowing demand from trading partners and global systemic financial instability were cited as external risks.