IMF: Politics, debt taking toll on Turkish economy

ISTANBUL:

Increased political uncertainty, a fall in tourism and high levels of corporate debt are taking their toll on Turkey’s economy, where growth is expected to fall to 2.9 percent this year, the International Monetary Fund said yesterday. The global lender also said Turkey’s current monetary stance, which balanced the need to contain inflation with a slowing economy, should be maintained without further easing. The IMF is the latest foreign institution to signal concern about the political situation in Turkey. Rights groups and some of Ankara’s Western allies have been alarmed by the crackdown that followed a failed coup in July, saying President Tayyip Erdogan is using the failed putsch to stifle dissent.

“The Turkish economy has withstood several shocks,” the IMF said in a statement following consultations to assess its financial and economic state. “However, increased political uncertainty, a sharp fall in tourism revenues, and a high level of corporate debt are all taking a toll.” Turkish authorities yesterday ordered the co-leaders of Turkey’s pro-Kurdish opposition Peoples’ Democratic Party (HDP) to be arrested pending trial, court officials said, after they were detained in a terrorism-related investigation. The news drove the lira currency to a record low against the dollar and sent stocks tumbling.

The Fund said it expected economic growth to fall to 2.9 percent this year, citing weak business confidence and negative domestic and external shocks. It described unemployment as “high and rising” and said uncertainty had increased following the failed coup. That compares to 4 percent growth in 2015, a rate Finance Minister Naci Agbal told Reuters in September was unlikely to be matched this year. More than 110,000 civil servants, academics, judges, police and others have been suspended or dismissed following the failed coup, which Ankara blamed on followers of a US-based Muslim cleric, Fethullah Gulen. Gulen has denied the accusation and condemned the coup. Authorities have also stepped up a crackdown of those it accuses of having links to the outlawed Kurdistan Workers Party (PKK). Security concerns have hit Turkey’s revenues from tourism, a major source of foreign currency.

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The central bank last month kept interest rates on hold, citing weakness in the lira currency, pausing after seven straight months of cuts and repeated calls by Erdogan for cheaper credit. Erdogan, who wants low interest rates to spur spending and bolster the economy, has described himself as an “enemy” of interest rates. The IMF cautioned against further easing. “The current monetary stance balances the need to contain inflation against the backdrop of a slowing economy, and should be maintained,” it said. It also said a moderate fiscal loosening was appropriate, noting that should be accompanied by a credible mediumterm consolidation plan. The IMF said it expected inflation to remain well above the government’s 5 percent target. Consumer prices rose 7.16 percent in October, data showed this week, their slowest growth in five months. — Reuters