IMF concludes Article IV consultation with Turkey

WASHINGTON (A.A) - December 8, 2011 - The International Monetary Fund has said it had concluded an annual review of Turkey's economy in the context of the Article IV consultation.  In a statement posted on its website, the IMF said the Turkish economy had continued to grow strongly through the first half of 2011, however, growth was expected to slow sharply to 2 percent in 2012 due to weaker capital inflows.  "The current account deficit widened sharply to near 10 percent of GDP. Inflation is rising quickly, reflecting pass-through from a large nominal depreciation since late 2010, numerous tax and regulated-price increases, and underpinned by tight domestic supply conditions, and is forecast to reach 9.5 percent at end 2011," the statement said.  The statement said while the headline fiscal balance continued to improve and the public debt-to-GDP ratio was declining, fiscal performance had been supported by benign economic conditions at home and abroad.  IMF said Turkey's policy responses were insufficient to prevent the development of a large current account deficit and high inflation, adding that monetary policy had shifted to an unconventional mix of reserve requirements, the interest rate corridor, and the policy rate, which had failed to demonstrated it could deliver price- or financial–stability. "Growth is expected to slow sharply to 2 percent in 2012 due to weaker capital inflows, reflecting in part concerns about Turkey's large current account deficit. More limited foreign financing would constrain the current account deficit to about 8 percent of GDP and compresses imports," the statement said.  -Praise for Turkey's economic management - The statement said the fund's executive directors had commended the Turkish authorities for their "agile economic management" during the global crisis.  "Together with structural reforms undertaken earlier, the management had contributed to a rapid recovery. Going forward, Directors urged the authorities to rebalance the policy mix to ensure a soft landing, in view of volatile capital flows, a widening current account deficit, and an externally financed credit boom."  The statement said directors had noted the "strong performance" of the banking sector, but encouraged further efforts to address weaknesses in the financial sector, in particular its vulnerability to an external funding shock and possible deleveraging by banks in the region.