On 28 August 2024 the IMF issued a report following discussions with Turkey under Article IV of the IMF’s articles of agreement.

The economic policies followed by Turkey since mid-2023 have reduced crisis risks and raised confidence. There was a fall in the current account deficit to 2.7% of GDP in the first quarter of 2024; market sentiment has improved, international reserves have increased by USD 91 billion since April 2024; and Turkey’s sovereign risk rating has been upgraded. Headline inflation has begun to fall, though still remaining too high.

The IMF expects GDP growth to decrease in 2024 and 2025, owing to falls in domestic demand, with growth in 2024 projected to be around 3.4%. In 2025, growth is expected to further moderate to 2.7%, with further falls in inflation. In the medium term, with confidence increased by a further drop in inflation, growth would return toward its potential of 3.5% to 4%.

The IMF report notes that fiscal, monetary, and incomes policies will need to be coordinated. Although tighter policies could lead to a short-term fall in growth, rapid disinflation would be more likely to be sustainable with appropriate policies. This would strengthen medium-term growth and financial stability.

The report suggests that Turkey could focus on rationalizing tax expenditures and broadening the tax base as these can be done relatively quickly. Restricting government spending on non-essential capital projects and reforming the subsidies, while protecting vulnerable social groups, would also be beneficial. Unifying the value added tax (VAT), reducing the informal economy and strengthening compliance could improve fairness in taxation. Measures amounting to around 2.5% of GDP would support the effort to reduce inflation.

The report notes that medium term growth can be increased by strengthening policy frameworks, removing obstacles for small and medium enterprises (SMEs), improving the functioning of the labour market and accelerating the green transition. The priorities for the government should include reforms to reduce the informal economy, increase labour market flexibility and boost female labour force participation.

Reducing SME compliance costs and easing the tax burden they face would improve their efficiency. Simplification of compliance and regulatory burdens for SMEs, such as establishing a one-stop shop for business approvals and permits, would support innovation and boost growth.

By establishing a domestic Emission Trading System (ETS) that is aligned with the European Union would contribute to achievement of Turkey’s climate targets and could help to maintain competitiveness in relation to the EU.