IMF Raises Growth Forecast for Turkey, Points at Financing Risks
(Bloomberg) -- The International Monetary Fund raised its growth forecast for Turkey’s economy amid the coronavirus vaccine rollout, while warning the pandemic response worsened pre-existing financial risks.
Gross domestic product in Turkey is expected to expand by about 6% in 2021, the IMF said in statement after concluding its Article IV mission. The fund previously forecast 5% growth.
Elevated external financing needs, declining reserves, high inflation and increasing dollarization “set Turkey apart from many of its emerging market peers,” the Washington-based lender said. It welcomed the pivot to tighter monetary policy under the new economic management.
“A firm monetary policy stance should be maintained, with further measured monetary policy tightening likely needed should inflation expectations fail to stabilize,” it said.
President Recep Tayyip Erdogan’s decision to replace the central bank governor with an old ally, the resignation of his son-in-law as economy czar in November, and back-to-back interest-rate hikes spurred optimism among investors that the country had adopted a more conventional monetary policy path. The new Governor Naci Agbal, who inherited double-digit inflation, a tumbling lira and depleted foreign-currency reserves, pledged to keep policy tight, build up foreign currency buffers and prioritize price stability in 2021.
Inflation was 14.6% at the end of December, and the central bank’s estimate for 2021 is 9.4%.
The IMF sees Turkey’s current-account deficit dropping to 3.5% of GDP on lower gold imports and modest tourism recovery. The fund says the government should deploy additional fiscal support to address pandemic-related needs, saying it has fiscal space of about 1% of GDP.
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