WORLD BANK: TURKEY CAN ATTRACT INVESTMENT WITH REFORMS
Johannes Zutt, Turkey country director for the World Bank, suggested Turkey could send a clear signal for more foreign funding in the form of direct investment by implementing more structural reforms.
“The current macroeconomic environment and projected external conditions (rising energy prices, monetary tightening in the U.S. and Europe) will require monetary and fiscal discipline,” Zutt said. Sound macroeconomic policies need to be accompanied by deeper structural reforms to ensure a more sustainable economic growth trajectory over the medium term for Turkey, Zutt added. Key structural reforms include improving the investment climate, deepening financial markets, strengthening public expenditure management, completing overdue labor market reforms and improving the quality of the education system.
“These could be critical to help improve the resilience of the economy and help private investment to pick up in the medium term,” Zutt said. “Rigorous progress in advancing structural reforms will be key to restoring investor confidence, mitigating vulnerabilities, enhancing productivity and supporting growth.” The country’s new growth model should rely on stronger private investment, increases in firm level productivity, and better resource allocation, he said.
“Additionally, the structural reforms will also send a clear signal to markets, which will attract more foreign funding in the form of FDI as well as long-term loans to corporate and banking sectors. This is important to sustain Turkey’s impressive economic performance and continue progress towards high income status.”
“For Turkey, in the near term, sustaining macroeconomic stability will be a key challenge,” Zutt added. “This means avoiding second round effects from high inflation, maintaining exchange rate stability, and preserving fiscal and external buffers. These will require a clear and credible commitment to tight fiscal and monetary policy.”
“The quality of growth has weakened in the past few years, as productivity growth has stagnated and investment spending was mostly driven by construction.”
Turkey has also experienced a strong recovery in 2017 after difficult domestic and external conditions in 2016, Zutt said.