IMF hails tighter fis­cal pol­icy stance pro­posed in 2013 bud­get in Turkey

The Pak Banker - - Front Page -


On Novem­ber 26, 2012, the IMF Ex­ec­u­tive Board con­cluded the Ar­ti­cle IV con­sul­ta­tion with Turkey. IMF says af­ter grow­ing well above trend in 2010 and 2011, the Turk­ish econ­omy has slowed to a more sus­tain­able 3 per­cent growth rate this year.

Growth has also be­come more balanced, as domestic de­mand and im­ports de­cel­er­ated on the back of tighter mon­e­tary and macro-pru­den­tial poli­cies im­ple­mented in 2011, while ex­ports con­tinue to per­form well thanks to suc­cess­ful di­ver­si­fi­ca­tion to­wards new mar­kets. In Novem­ber, Turkey was up­graded to in­vest­ment grade by one credit rat­ing agency.

Slower and more balanced growth is help­ing to un­wind im­bal­ances. The cur­rent ac­count deficit has shrunk sig­nif­i­cantly, by 33 per­cent year- on-year in the year to Au­gust. In­fla­tion, both head­line and core, is also coming down from its peak in early 2012, though re­cent in­creases in in­di­rect taxes and ad­min­is­tered prices have boosted it tem­po­rar­ily and could fur­ther un­der­mine com­pet­i­tive­ness.

The pri­mary bud­get sur­plus so far in 2012 has fallen sig­nif­i­cantly rel­a­tive to the same pe­riod last year. The bud­get tar­get for the year is ex­pected to be missed, notably be­cause of spend­ing over­runs in the ar­eas of per­son­nel, health, and cap­i­tal spend­ing. The bank­ing sys­tem re­mains well cap­i­tal­ized, with cap­i­tal ra­tios at more than 16 per­cent and well above reg­u­la­tory min­ima, and not ma­te­ri­ally im­pacted by the in­tro­duc­tion of Basel II and II. 5. Prof­itabil­ity is strong, and Non-Per­form­ing Loans (NPLs) re­main near his­toric lows de­spite a mi­nor uptick in re­cent months. Ex­ec­u­tive Direc­tors com­mended the Turk­ish au­thor­i­ties for set­ting the stage for more sus­tain­able and balanced growth in 2012, ac­com­pa­nied by de­clines in the cur­rent ac­count deficit and in­fla­tion.

Direc­tors noted that the out­look is clouded by ex­ter­nal un­cer­tain­ties, and that Turkey re­mains vul­ner­a­ble to shifts in mar­ket sen­ti­ment, given the coun­try's still large ex­ter­nal fi­nanc­ing needs. Pol­icy pri­or­i­ties thus need to re­main geared to­ward a con­tin­ued un­wind­ing of im­bal­ances.

Rais­ing domestic sav­ings and en­hanc­ing the econ­omy's po­ten­tial are im­por­tant ob­jec­tives over the medium term. IMF Direc­tors wel­comed the tighter fis­cal pol­icy stance pro­posed in the 2013 bud­get, turn­ing around the pro-cycli­cal stance of this year and con­tribut­ing to a more balanced pol­icy mix.

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