The IMF emphasized in its forecast for Turkey that inflation and unemployment will decrease.

The new economic policies of Turkey are bearing fruit. The policies aimed at achieving single-digit inflation are also attracting the attention of international economic authorities. The International Monetary Fund (IMF) has also conducted an assessment of Turkey.

In a statement from the IMF, it was noted that the 4th Article consultation with Turkey was completed on September 27. The statement expressed that the decisive changes in economic policies throughout the past year have tightened Turkey's overall policy stance. It was stated that the tax and spending measures supported efforts to restore fiscal prudence, and the commitment to stronger revenue policies was emphasized as strengthening credibility.

IMBALANCE HAS DECREASED, CONFIDENCE HAS RECOVERED

The statement indicated that the policy shift has reduced economic imbalances and revived confidence.

It was pointed out that headline inflation has fallen due to tightening financial conditions putting pressure on domestic demand, and market sentiment has sharply improved as local and foreign investors have turned towards TL-denominated assets. The low commodity prices, robust exports, and decreasing gold imports have supported a significant improvement in both gross and net reserve positions, strengthening the current account.

"INFLATION IS EXPECTED TO FALL FURTHER"

The statement used the expression, "Inflation is expected to fall further within the framework of the gradual policy adjustment by the authorities." It was noted that the risks regarding expectations are significant and downward, including stronger-than-expected wage and price inertia, a reversal of capital flows, rising global energy prices, and escalating geopolitical tensions. The statement highlighted that significant financial and external vulnerabilities persist, and the gradual approach to combating inflation extends the period during which risks may arise.

RECOMMENDATION FOR FISCAL CONSOLIDATION

The statement also included assessments from the IMF Executive Directors' Board, where Turkish officials were commended for their decisive policy tightening since mid-2023, which has significantly helped reduce macroeconomic imbalances and risks. The statement pointed out that inflationary pressures remain high and significant downward risks exist, calling for coordinated fiscal, monetary, and revenue policies to anchor inflation expectations and ensure macroeconomic stability. The statement suggested greater and more front-loaded fiscal consolidation to support efforts to combat inflation and further strengthen buffers.

"TIGHT POLICY SHOULD CONTINUE"

The statement indicated that transitioning to determining wages in line with inflation expectations could significantly help reduce inflation, calling for a tight, data-driven monetary policy to be maintained until inflation approaches target levels. It was noted that the Central Bank of the Republic of Turkey should be ready for further tightening if necessary to ensure that the path to reducing inflation remains on track. The importance of vigilance and further reforms to maintain financial stability was emphasized, and Turkey's exit from the Financial Action Task Force's gray list was commended. The statement called for advancing structural reforms to achieve more inclusive, greener, and higher medium-term growth.

2025 INFLATION EXPECTATION

The statement also included economic forecasts, indicating that the Turkish economy is expected to grow by 3% in 2024, 2.7% in 2025, 3.2% in 2026, 3.4% in 2027, 3.7% in 2028, and 3.9% in 2029. It was expressed that the unemployment rate is expected to gradually decrease after a slight increase next year, with projections of 9.3% this year, 9.9% in 2025, and declining to 9.2% in 2029. The year-end inflation expectation was also stated to be 43% for this year, 24% in 2025, 17.2% in 2026, 15.3% in 2027, and 15% in both 2028 and 2029. It was reported that the current account deficit is expected to be 2.2% of gross domestic product this year and to decrease to 1.9% by 2029.