TÜRKİYE
ECONOMIC
M O N I TO R
March 2024
ON THE
RIGHT
TACK
>
Contents
Executive Summary 10
I. Taking Stock 11
Türkiye’s economic policies built on low cost of borrowing, high investment, exports and employment
delivered strong growth performance initially, but had started losing steam and resulted in a widening 11
current account deficit and very high inflation.
The economy registered strong growth performance in 2022 but the growth rate slowed down in the
11
second half of 2022 and in 2023.
The current account deficit increased rapidly in 2022 and remained large in 2023 13
Monetary policy remained loose in 2022 and in the first half of 2023, despite high inflation and continuing
14
lira depreciation, only to be tightened starting from June 2023.
Base effects and policy measures helped inflation ease from its peak in October 2022 until June 2023, but
15
inflation has recently rebounded
Corporates faced rising production costs and working capital needs while enjoying lower cost of borrowing
18
in 2022 and in the first half of 2023
The financial sector, supported by the gradual simplification of macroprudential policies, remained
18
resilient amid challenges
The rising expenditures and earthquake related investment needs have implications on overall fiscal
20
balances
Robust employment and wage growth continue in 2023 with unemployment declining 21
II. Looking Ahead 24
A. A period of the normalization of macroeconomic policies 24
The recent steps taken towards normalization of macroeconomic policies are expected to boost
24
confidence, mitigate macrofinancial risks, and support the vulnerable
The policy normalization will likely initially result in a period of depreciated lira and slower economic
25
growth, as the economy corrects the imbalances of the recent past
Commitment to tight monetary policy until inflation expectations are anchored will support confidence,
27
but the disinflation will be challenging.
The gradual adjustment of financial sector policies to reconverge to international standards will
28
strengthen financial stability
Elevated investment needs and high inflation warrant a cautious and well targeted fiscal policy 29
A new window of opportunity to consider structural reforms 29
4 < TÜRKİYE ECONOMIC MONITOR
B. Several risks can affect the path of economic growth and poverty reduction 30
Fiscal risks accumulate on earthquake related expenditures, contingent liabilities, wages 30
External imbalances continue despite a recovery in reserves 31
Global economy is on a low-growth trajectory with amplified geopolitical tensions. 33
Slowing economic growth poses risks to poverty reduction in the medium term. 34
III. Special Topic 35
Corporate vulnerability in Türkiye and linkages to financial sector 35
References: 40
Annex 1: Medium-Term Outlook, Nominal 41
Annex 2: Medium-Term Outlook, Percent of GDP 42
>
Boxes
Box 1: Pass through of shocks to inflation 17
Box 2: Measuring the international reserve position of the CBRT 32
TÜRKİYE ECONOMIC MONITOR < 5
>
Figures
Figure 1: Economic activity remained robust in 2022H1, but slowed down since 2022H2 12
Figure 2: The momentum of growth is volatile 12
Figure 3: Services sector is the main driver of growth 13
Figure 4: Economic activity has slowed in 2023H2 13
Figure 5: The current account deficit widened 14
Figure 6: …on the back of higher gold imports and contracting merchandise exports 14
Figure 7: The Central Bank started increasing the policy rate in 2023 June after a long-lasted easing cycle
15
causing a rapid increase in inflation and a significant decline in real rates
Figure 8: CPI inflation peaked in October 2022, eased until June 2023, but started to increase again 16
Figure 9: The food and services inflation are particularly high 16
Figure 10: Exchange rate pass-through to CPI inflation 17
Figure 11: Pass-through of shock to CPI subcomponents 17
Figure 12: Corporates faced higher cost of production… 18
Figure 13: …while enjoying negative real cost of borrowing 18
Figure 14: CARs have improved recently 20
Figure 15: Sector level NPL ratio is low 20
Figure 16: Strong fiscal balance has been deteriorating… 20
Figure 17: …and primary surplus turned into deficit 20
Figure 18: Total employment is at record levels, while unemployment rates fell to lowest levels since mid-2013 21
Figure 19: Gross wages have increased more than CPI in yoy terms 21
Figure 20: Poverty continued to decline in 2021, income inequality has increased 22
Figure 21: The income growth of top 10 decile was relatively higher in 2021 22
6 < TÜRKİYE ECONOMIC MONITOR
Figure 22: Datt-Ravallion decomposition of poverty reduction (2020-2021) 23
Figure 23: The share of casual employment is declining 23
Figure 24: Domestic demand has been the main driver of growth, and to a lesser extent in upcoming years 25
Figure 25: Persistency of inflation has increased 27
Figure 26: Even 5-year ahead inflation expectations are not in single digits 27
Figure 27: Currency composition of government debt poses risks 31
Figure 28: The share of rigid expenditures in the budget is high 31
Figure 29: Swaps and FX required reserves make up a significant portion of foreign currency reserves 32
Figure 30: External financing needs are increasing in the coming months 32
Figure 31: Global IP slightly decreased in Q3 33
Figure 32: Euro area activity is still weak 33
Figure 33: Policy rates are rising in advanced economies 34
Figure 34: Oil price remain high 34
Figure 35: Interest coverage and profitability of corporate sector increased 35
Figure 36: Corporate sector has lowered its open position 35
Figure 37: Corporate vulnerability has declined… 36
Figure 38: …but to a different extent by size 36
Figure 39: The evolution of vulnerability differs by firm size 37
Figure 40: Exchange rate and loan rate shocks and corporate vulnerability 38
Figure 41: Cumulative response of corporate vulnerability to exchange rate and loan rate shocks by firm size 38
Figure 42: Cumulative response of the share of bad loans in total loans to corporate vulnerability shock by firm
39
size in manufacturing industry
TÜRKİYE ECONOMIC MONITOR < 7
The Türkiye Economic Monitor (TEM) periodically analyzes economic developments, policies, and prospects
in Türkiye. The TEM was prepared under the guidance of Humberto Lopez, Asad Alam, and Antonio Nucifora,
by a core team led by Mustafa Utku Özmen, and including Hans Anand Beck, Claire Honore Hollweg, Etkin
Ozen, Gunhild Berg, Elizaveta Perova, and Marie Sabine Lydie Albert.
The team is very grateful to the following colleagues for advice and technical input: Umut Kilinc, Efsan Nas
Ozen, Ibrahim Unalmis. The team is also grateful for the financial support from the Umbrella Facility for Trade
Trust Fund.
The team is very grateful to Bakhrom Ziyaev and Enrique Aldaz-Carroll for peer review comments and advice.
The team is very grateful to colleagues from the Ministry of Treasury and Finance, the Central Bank of the
Republic of Türkiye, the Presidency of Strategy and Budget, the Banking Regulation and Supervisory Agency
for very helpful discussions on economic developments and policy priorities. The team greatly appreciates
insights provided by business associations and the private sector during the preparation of the TEM.
The TEM is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions
expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank (or
the governments they represent), or the Government of the Republic of Türkiye.
>
Executive Summary
Türkiye’s economic policies played a crucial role in reserves, the improvements in the assessment of credit rating
facilitating a rapid recovery from the COVID pandemic. agencies, and a significant decline in the current account deficit.
However, the policy framework that ensured a strong Yet, in the short-term economic growth is expected to slow
economic performance during and in the aftermath of on the back of policy tightening, slow global growth, current
the pandemic also heightened macroeconomic risks and account and budget deficits, and the transition period required
created vulnerabilities. The policy framework introduced for stabilization, while the Medium-Term Program (MTP) also
during the pandemic was built on loose monetary policy, prudent outlines a shift in growth composition from private consumption
fiscal policy, and boosting exports and employment. As a result, to investments and exports. Therefore, maintaining this policy
the Turkish economy grew by 11.4 percent in 2021, and 5.5 stance will provide the foundations for sustainable strong
percent in 2022. Employment growth remained robust, and the economic growth in the medium to long term. This strategy calls
unemployment rate declined steadily. However, these policies -in for a careful tailoring of economic policies towards maintaining
addition to the rise in energy prices amid geopolitical tensions stability and confidence and protecting the vulnerable and
and the global monetary tightening cycle- also resulted in a very underscores the importance of tackling structural issues to
rapid increase in inflation, a widening of the current account strengthen economic performance.
deficit, and a decline in FX reserves, which in turn contributed to
a worsening of the risk perception and macrofinancial outlook in Several risks can affect the path towards faster economic
the run up to the May 2023 elections. With increased internal and growth and poverty reduction. The government’s fiscal
external imbalances, the growth momentum also slowed down position while strong, is vulnerable to rising borrowing costs,
starting from the second half of 2022. increasing rigidity of public expenditures, and pressing needs
to support vulnerable groups during the disinflation phase.
Following the May 2023 elections, the new government External risks were particularly elevated in the first half of 2023
started a process of normalization in macroeconomic with declining reserves and a rising current account deficit and
policies which can restore sustainable strong economic high external financing requirements. While there has been a
growth and price stability in the medium to long term. The substantial increase in FX reserves along with early signs of an
new macroeconomic policy framework is centered on tightening improvement in the current account deficit in the second half of
monetary policy to achieve disinflation, while maintaining 2023, external risks remain given the relatively low level of net FX
fiscal discipline, and a flexible exchange rate, and pursuing reserves and the high external financing requirements. Further,
structural reforms to support economic growth. This transition the global economy is recovering to a low growth path on the
to macroeconomic stability, however, involves a complex back of tight monetary policy stance, the stagnation in global
adjustment process, which needs to be gradually implemented. trade, and increased uncertainty due to geopolitical tensions.
So far, the strong monetary policy rate hikes, ongoing Also, the monetary tightening and slowing growth prospects
simplification in the macroprudential policy framework, and the may trigger vulnerabilities in the corporate sector which may
correction in the exchange rate since May 2023 have helped to have repercussions on the financial sector, as discussed in the
gradually rebuild confidence in the economy, while targeted tax special topic section of the report. Going forward there are also
increases have helped reduce the fiscal deficit. The impact of the opportunities that can support faster economic growth induced
new policy framework has started to be reflected in the reduction by higher productivity, such as the greening of the economy.
in risk premia, realignment of interest rates, strengthening in FX
10 < TÜRKİYE ECONOMIC MONITOR
>
I. Taking Stock
Türkiye’s economic policies helped quickly recover from the COVID pandemic. The policies being implemented since late
2021 were built on loose monetary policy, prudent fiscal policy, boosting exports and employment, and managed to deliver
strong GDP growth in 2022. These policies, -in addition to the rise in energy prices amid geopolitical tensions and the global
monetary tightening cycle-, however also led to a very rapid increase in inflation, a widening of the current account deficit
and the decline in the reserves which in turn affected investors’ risk perception adversely and increased macrofinancial
pressures in the run up to the May 2023 elections. As a consequence, the growth momentum also slowed down starting from
the second half of 2022. Following the elections, the new government started a process of normalization in macroeconomic
policies in 2023H2 with an emphasis on tightening monetary policy to achieve disinflation. The monetary policy rate hikes,
ongoing simplification in the macroprudential policy framework, and the correction in the exchange rate since May 2023
have helped to gradually rebuild confidence in the economy, and the tax hikes have helped reduce the fiscal deficit. The
impact of the new policy framework has started to be reflected in the reduction in risk premia, realignment of interest rates,
strengthening in foreign exchange reserves, and the improvements in the assessment of credit rating agencies.
Türkiye’s economic policies built on low cost of borrowing, high investment, exports and
employment delivered strong growth performance initially, but had started losing steam
and resulted in a widening current account deficit and very high inflation.
The economy registered strong growth performance in 2022 but the growth rate slowed down in
the second half of 2022 and in 2023.
The Turkish economy grew at 5.5 percent in 2022 thanks the erosion of price competitiveness gains, which was built up
to strong economic activity in 2022H1 (fueled by resilient due to depreciated Turkish lira, through high inflation. The robust
exports and private consumption); yet it started to moderate economic activity and private consumption also pushed the
since 2022H2, and the economy grew by 4.5 percent in import demand and imports grew by 11.7 percent yoy in 2023,
2023. The strong and robust contribution of private consumption despite a decline from 19.7 percent in 2023Q2. The momentum
continued to be the main driver of growth (Figure 1). Sizeable of growth in Türkiye is volatile. The seasonally and calendar
wage increases, the availability of low-cost credit and the front- adjusted qoq growth rate in the quarters of 2023 were -0.2, 3.6,
loading of spending (to hedge against high inflation) led private 0.3 and 1.0 percent respectively (Figure 2). In Q2, both private
consumption to grow by 18.9 percent in 2022, which moderated consumption and imports grew strongly by 4.6 and 4.3 percent,
to 12.8 percent in 2023. Meanwhile, exports have significantly respectively, while exports continued to contract. However, in
slowed down since 2022H2, as export growth came down from Q3, private consumption of resident households contracted for
18.8 percent in 2022Q2 to -9.4 percent by 2023Q2, only to recover the first time since 2020Q4, and exports have picked up by 5.2
to 1.2 percent in Q3. The loss of momentum in exports was mainly percent, following the monetary policy tightening started in June.
led by the slowdown in the growth of major export markets and However, in Q4, private consumption increased by 3.6 percent.
TÜRKİYE ECONOMIC MONITOR < 11
On the production side, the services sector was the main Purchasing Managers’ Index (PMI), which remained below 50
driver of economic growth in 2022 and in 2023, while for the majority of 2022, was in positive territory in 2023H1, but
manufacturing slowed down. The services value added fell below 50 in July 2023, only to recover to 50.2 in February
increased by 9.6 percent in 2022. The momentum of both 2024, and remain at the threshold level in March 2024 (Figure
services and industry further slowed down in 2023Q2 (Figure 4). The negative real interest rates and strong domestic demand
3). The loss of pace in the manufacturing value added growth kept the business sentiment strong in the 2023H1, but the start
was linked with the weakening external demand and rising cost of the tightening cycle of monetary policy pointed to a slowdown
pressures. The manufacturing, however, recovered in second in the economy.
half of 2023, while services continued to lose momentum The
> > > > > >
Figure 1: Economic activity remained robust in 2022H1, but Figure 2: The momentum of growth is volatile
slowed down since 2022H2
GDP (growth and contribution, yoy, NSA) GDP (growth and contribution, qoq, SA)
10%
25% 8%
20% 6%
15% 4%
10% 2%
0%
5% -2%
0% -4%
-5% -6%
-10% -8%
2021Q1
2021Q2
2021Q3
2021Q4
2022Q1
2022Q2
2022Q3
2022Q4
2023Q1
2023Q2
2023Q3
2023Q4
2021Q1
2021Q2
2021Q3
2021Q4
2022Q1
2022Q2
2022Q3
2022Q4
2023Q1
2023Q2
2023Q3
2023Q4
Priv. Consumption Gov. Consumption
Priv. Consumption Gov. Consumption
Investment Exports Investment Exports
Imports Stocks Imports Stocks
GDP GDP
Sources: Haver Analytics, TURKSTAT, WB Staff estimates. Sources: Haver Analytics, TURKSTAT, WB Staff estimates.
In parallel, consumer confidence followed an upward trend of the lira put a drag on consumer confidence which fell to 68.0 in
from the second half of 2022, peaking at 91.1 in May 2023, August with an improvement to 79.4 in March 2024. The decline
on the back of wage increases and the availability of cheap in consumer confidence from peak values also support the
credit boosting private consumption. However, in the second slowdown in economic activity in 2023H2 compared to first half.
half of 2023, the policy rate hikes, and the sizeable depreciation
12 < TÜRKİYE ECONOMIC MONITOR
> > > > > >
Figure 3: Services sector is the main driver of growth Figure 4: Economic activity has slowed in 2023H2
Gross Value Added (growth and contribution, PMI and Consumer Confidence
25% yoy, NSA)
20% 56 100
54 90
15%
52 80
10%
50 70
5% 48 60
0% 46 50
-5% 44 40
2021Q1
2021Q2
2021Q3
2021Q4
2022Q1
2022Q2
2022Q3
2022Q4
2023Q1
2023Q2
2023Q3
2023Q4
Ap r-21
Ap r-22
Jul-21
Ap r-23
Jul-22
Jul-23
Jan-21
Oct-21
Jan-22
Oct-22
Jan-23
Oct-23
Jan-24
Agriculture Industry
Construction Services PMI Consumer Confidence, rhs
Residual Gross Value Added
Sources: Haver Analytics, TURKSTAT, WB Staff estimates. Sources: Istanbul Chamber of Industry Türkiye PMI, TURKSTAT
The current account deficit increased rapidly in 2022 and remained large in 2023
After reaching US$49.1 billion in 2022 (from US$7.4 billion deficit has changed. An improving energy trade balance helped
in 2021), the current account deficit has remained large in offset rising gold imports and a deteriorating non-gold-or-energy
the first five months of 2023 on the back of increasing gold goods trade balance (Figure 6). Services balance also improved
imports and a worsening merchandise trade balance but in 2023, on the back of very strong tourism revenues which
narrowed in the remainder of the year due to policy shift in the increased by 12.1 percent and reached US$55.9 billion. The
economy and measures restricting gold imports to US$45.5 12-month cumulative current account deficit further narrowed to
billion in 2023. The current account deficit narrowed by around US$31.8 billion in February 2024.
US$4 billion in 2023 (Figure 5). However, the composition of the
TÜRKİYE ECONOMIC MONITOR < 13
> > > > > >
Figure 5: The current account deficit widened Figure 6: …on the back of higher gold imports and contracting
merchandise exports
Cumulative current account balance Trade balance
60 (billion USD, nsa)
(billion USD, nsa)
0 30
0
-20
-30
-40 -60
-90
-60 Gold balan ce Energy balance Non-gold or Service balan ce
Jan Feb Mar Ap r May Jun Jul Aug Sep Oct Nov Dec energy goods
balance
2021 2022 2023
2022 2023
Source: Authors’ calculations using data from CBRT. Source: Authors’ calculations using data from CBRT.
Monetary policy remained loose in 2022 and in the first half of 2023, despite high inflation and
continuing lira depreciation, only to be tightened starting from June 2023.
The CBRT started a long easing cycle of monetary policy The macroeconomic policy mix shifted after the May 2023
in late 2021. The CBRT initially cut the policy rate from 19 elections, as the CBRT started an aggressive tightening of
percent to 14 percent from September 2021 to December monetary policy. The CBRT has increased the policy rate in nine
2021, and from 14 percent to 8.5 percent from August 2022 meetings from 8.5 percent in May to 50 percent in March 2024
to February 2023. The rate cuts, which started when inflation (Figure 7). Moreover, in the July and November 2023 Inflation
was already high (19.25 in August 2021), had a significant Reports, the CBRT has increased the 2023 year-end inflation
impact on exchange rate, inflation, and inflation expectations. forecast to 58 and 65 percent, respectively, from 22 percent in its
They were accompanied by measures under the ‘Liraization April Report. The end-2024 inflation forecast is kept at 36 percent
Strategy’, including the introduction of the ‘FX protected in November 2023 and February 2024 reports. The MPC has put
deposit scheme’ to reduce the demand for FX and stabilize forward a clear message indicating that the level of the policy
the currency. However, a widening current account deficit and
1
tightness will be maintained until there is a significant decline
global monetary tightening continued to put pressure on the in the underlying trend of monthly inflation and until inflation
lira. In the first months of 2023 the pressure on the lira reached expectations converge to the projected forecast range. CBRT
very high levels, and the central bank’s net reserves fell to US$- also initiated a process to gradually remove the restrictions that
5.7billion in the first week of June. have been in place either to lower the cost of borrowing or to
curb the demand for FX (including the FX protected scheme).
1. For additional information on liraization strategy: https://tcmbblog.org/wps/wcm/connect/blog/en/main+menu/analyses/liraization+strategy;
on macroprudential measures:
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Announcements/Press+Releases/2022/ANO2022-36 ;
on FX-protected scheme:
https://tcmbblog.org/wps/wcm/connect/blog/en/main+menu/analyses/a+glance+at+fx-protected+and+standard+deposits+from+an+investor+perspective
14 < TÜRKİYE ECONOMIC MONITOR
> > >
Figure 7: The Central Bank started increasing the policy rate in 2023 June after a long-lasted easing cycle causing a rapid
increase in inflation and a significant decline in real rates
Inflation, Policy rate and Exchange rate
100 50
CPI
80 Inf. Exp. (12 m. ahead) 40
60 CBRT Policy Rate, rhs 30
USD/TL, rhs
40 20
20 10
0 0
Jan 20
20
May 20
July 20
Sep 20
Nov 20
Jan 21
21
May 21
July 21
Sep 21
Nov 21
Jan 22
22
May 22
July 22
Sep 22
Nov 22
Jan 23
23
May 23
July 23
Sep 23
Nov 23
Jan 24
24
Eyl-21
Eyl-22
Eyl-23
Kas-23
Eyl-20
Kas-20
Kas-21
Kas-22
Tem-22
Tem-23
Tem-20
Tem-21
Mar-24
Mar-21
May-21
Mar-22
May-22
Mar-23
May-23
Mar-20
May-20
Oca-23
Oca-24
Oca-20
Oca-21
Oca-22
March
March
March
March
March
Sources: CBRT, TURKSTAT, Haver Analytics.
Base effects and policy measures helped inflation ease from its peak in October 2022 until June
2023, but inflation has recently rebounded
Inflation rose to very high levels in 2022, peaking at 85.5 inflation came down to 38.2 in June 2023. However, the new
percent in October 2022, on the back of loose monetary round of depreciation of the lira post-elections, the significant
policy, depreciation of the lira, rising international tax hikes as part of the efforts to finance reconstruction of the
commodity prices, and strong domestic demand. Consumer earthquake-affected areas, minimum wage adjustments, and
price index (CPI) inflation exceeded 80 percent, reaching 85.5 the surge of international oil prices, all put extra pressure on
percent in October 2022, and domestic producer price inflation inflation, putting headline inflation to 64.8 percent in December
hit 158 percent (Figure 8). Following that, with the help of the 2023, and 67.1 in February 2024.2
base effects and relative stability in the exchange rate consumer
2. The increase in Value Added Tax rates (by 2 percentage points for most goods and services), coupled with a significant increase the Special Consumption
Tax on fuel, also had direct and indirect effects on inflation., which together with the depreciation of the lira explain about half of the surge in inflation since
June 2023. The central bank’s Inflation Report 2023-III provides a detailed analysis of the impact of tax and administered prices on inflation.
TÜRKİYE ECONOMIC MONITOR < 15
> > > > > >
Figure 8: CPI inflation peaked in October 2022, eased until Figure 9: The food and services inflation are particularly high
June 2023, but started to increase again
Inflation (yoy, % change) Inflation (yoy, % change)
160 160
140
120 120
100
80 80
60
40 40
20
0
0 -20
Jul-21
Jul-22
Jul-23
Apr-21
Apr-22
Apr-23
Oct-21
Oct-22
Oct-23
Jan-21
Jan-22
Jan-23
Jan-24
Apr-21
Apr-22
Apr-23
Jul-21
Jul-22
Jul-23
Oct-21
Oct-22
Oct-23
Jan-21
Jan-22
Jan-23
Jan-24
CPI Core Inf. - C Food Energy
PPI Inf. Exp. (12 m. ahead) Core Goods Services
Sources: TURKSTAT, CBRT. Sources: TURKSTAT.
Despite recent monetary tightening inflationary pressures inflation stuck around 60 percent and further increased to 94.4
are still alive, driven by the persistence of services inflation, percent, currently being the main subgroup with the highest level
the existing level of domestic demand and geopolitical of inflation as of February 2024 (Figure 9). Services prices are
risks; and medium-term inflation expectations remain sensitive to wage developments, food and energy inputs, and
above the CBRT forecasts. As of March 2024, the 12-month- exchange rate shocks, and constitute the stickiest portion of
ahead inflation expectation is at 36.7 percent, while the year- the CPI where shocks to prices occur slowly but persist longer
end inflation expectation is 44.2 percent, above the CBRT’s compared to other components. Therefore, services inflation
forecast for end-2024 of 36 percent. Similarly, 24-month ahead presents an important challenge for disinflation. Furthermore,
inflation expectation came down from 25.8 percent in October the rapid increase in inflation also distorts the pricing behavior of
2023 to 22.7 percent in March 2024, being higher than CBRT’s economic agents as increased backward looking pricing further
end-2025 forecast of 14 percent. Moreover, the slowdown in strengthens the persistence of inflation, and as high inflation
inflation observed from October 2022 to June 2023 has been and inflation uncertainty boosts the pass-through of shocks to
limited to goods inflation, while over the same period services inflation (Box 1).
16 < TÜRKİYE ECONOMIC MONITOR
> > >
Box 1: Pass-through of shocks to inflation
Inflation in Türkiye has been subject to sizable shocks recently: Inflation has been fueled by the significant
depreciation of the Turkish lira, the increase in import prices following the post-COVID global recovery,
Russia’s invasion of Ukraine, and the strong domestic demand fueled by loose credit policy and minimum
wage increases. In addition, inflation expectations have increased, and pricing behavior has been distorted, adversely
affecting the pass-through of shocks to consumer inflation. A VAR analysis conducted with monthly data and including
import unit value index in USD, USD/TL exchange rate, minimum wage, industrial production, inflation, policy rate and
inflation expectations, has been estimated for January 2005 to June 2023. The results suggest that the pass-through
of an exchange rate shock on headline inflation is around 30 percent (Figure 10). One striking observation is the speed
of pass-through of an exchange rate shock: About half (two thirds) of the pass-through happens in two (three) months,
and the pass-through of the exchange rate shock is completed in around one year.
The sensitivity of inflation to shocks and the speed of transmission has considerably increased in recent
years making the disinflation foreseen by the authorities even more challenging. Comparing the pass-through
estimates (cumulative responses after 24 months) for 2005-2023 with those for 2005-2020 suggests that the exchange
rate, import price and minimum wage pass-through has increased in the recent period for almost all subcomponents
of the CPI (Figure 11). For instance, the exchange rate pass-through to core goods (services) has increased from 32
percent (6 percent) to 35 percent (20 percent); and the pass-through of minimum wage on food prices has increased
from 14 percent to 30 percent in the latest estimation sample. Especially, the notable increase in the sensitivity of
services inflation to shocks makes the disinflation period ahead more difficult than previous episodes of disinflation.
> > > > > >
Figure 10: Exchange rate pass-through to CPI inflation Figure 11: Pass-through of shock to CPI
subcomponents
Exchange rate pass-through on CPI Pass-through of shocks to CPI subcomponents
40% 60%
50%
30% 40%
30%
20%
20% 10%
0%
10% 2005/20 2005/23 2005/20 2005/23 2005/20 2005/23
Exchange rate Import prices Minimu m wage
0% passthrough passthrough passthrough
1 3 5 7 9 11 13 15 17 19 21 23
Sampl e: 01/2005-06/2023 Energy Core Goods Food Services
Sources: TURKSTAT, CBRT, WB staff estimations. In left panel, the horizontal axis represents months following the shock and
cumulative responses are reported. In the right panel, cumulative responses at the end of 24 months are used to calculate the
pass-through coefficients.
TÜRKİYE ECONOMIC MONITOR < 17
Corporates faced rising production costs and working capital needs while enjoying lower cost of
borrowing in 2022 and in the first half of 2023
Average cost of production increased significantly through increased working capital needs (Figure 13). Overall, despite
2022 on the back of lira depreciation and high inflation cost increases, corporates enjoyed a significant increase in their
but eased in 2023H1 before accelerating again in 2023Q3. sales and profits given the strong domestic demand. The recent
The significant depreciation of the lira caused a surge in cost increase in interest rates, however, has pushed the real interest
of imported inputs and the wage adjustments increased the rates into positive territory resulting in more stringent financing
cost of labor contributing to rising cost of production (Figure conditions for corporates which might increase corporate
12). Meanwhile, corporates enjoyed low cost of borrowing (with vulnerability (as will be discussed in section III).3
negative real interest rates), which helped them finance their
> > > > > >
Figure 12: Corporates faced higher cost of production… Figure 13: …while enjoying negative real cost of borrowing
Business Tendency Survey, Average Unit Cost Weighted Average Interest Rate on
(Balance, NSA, %) Commercial Loans (%)
80 60
60
30
40
0
20
Jan 20
20
Sep 20
Jan 21
21
Sep 21
Jan 22
22
Sep 22
Jan 23
23
Sep 23
Jan 24
-30
Eyl-20
Eyl-21
-20
Eyl-22
-21
Eyl-23
-22
-23
Oca-20
Oca-21
Oca-22
Oca-23
Oca-24
May
May
May
May
Jan 20
May 20
Sep 20
Jan 21
May 21
Sep 21
Jan 22
22
Sep 22
Jan 23
May 23
Sep 23
Jan 24
May
May
May
May
Oca-20
Eyl-20
Oca-21
Eyl-21
Oca-22
Eyl-22
Oca-23
Eyl-23
Oca-24
May-20
May-21
May-22
May-23
May
Average Unit Cost-past 3 months
Average Unit Cost-next 3 months
Nominal Real
Sources: Haver Analytics, TURKSTAT, CBRT. Sources: Haver Analytics, CBRT, WB Staff calculations.
Notes: Balance: Difference between percentage of “increase” and Notes: For calculating real rates, 12-month ahead inflation expectations
“decrease” responses are used.
The financial sector, supported by the gradual simplification of macroprudential policies,
remained resilient amid challenges
The financial landscape in Türkiye has undergone indirectly supported the domestic government bond market. Real
significant changes, driven primarily by policy interventions, credit growth declined mainly in private banks, while state banks
macroeconomic challenges, and market dynamics. Under continued to push their loan offerings at the expense of straining
the ‘Liraization Strategy’, the CBRT introduced measures aimed their capital buffers. As a result of lower credit growth compared to
at stabilizing the lira, and guiding selective credit growth, and deposit increase, the loan to deposit ratio decreased significantly
reducing FX demand. Notable interventions include the ‘FX- since the high of 121 percent at end-2017 to 88 percent at end-
protected TL deposit scheme’ and adjustments to reserve ratios. 2022 (108 percent end-2020). The uncertainties combined with
This regulatory approach impaired banks’ lending practices, and tight credit conditions increased corporate funding challenges,
3. The MPC argues that selective credit tightening may also lead to the improvement in the distribution of financing sources, which will have positive effects
factor productivity.
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Announcements/Press+Releases/2023/ANO2023-37
18 < TÜRKİYE ECONOMIC MONITOR
particularly for SMEs, and depreciation also increased banks State banks’ CAR stood at 15.7 percent in 2022 compared to
and corporates’ FX risks. In addition, high inflation eroded the 23.1 percent for domestic private commercial banks, reflecting
savings of households, pushing them towards FX, gold, real their stronger lending activity, intensified by sticky inflation and
estate, and other assets for genuine returns, which led to a lira depreciation. As of 2023Q3 CARs stood at 15.9 percent, 21.2
significant real increase in asset prices. percent and 19.9 percent for state banks, domestic private banks
and foreign banks respectively (Figure 14). Private banks saw
The new economic team has started to gradually unwind soaring profits thanks to wide net interest margins and inflation-
the complex network of macroprudential regulations of indexed government bond holdings, which allowed them to boost
the financial sector in Türkiye. Recently introduced monetary their capital reserves. Returns on Equity increased from 11.4
policy normalization and gradual easing of macroprudential percent to 49.9 percent between 2020 and 2022 for the whole
policies to improve the functioning of transmission mechanisms banking system, with private banks enjoying higher returns than
will provide buffers for banks’ profitability and capital adequacy. state banks (50.1 percent versus 27 percent in 2022). Additionally,
Banks have already started to ease their commercial lending banks are still using regulatory forbearance, allowing them to
conditions amid high demand for corporate finance despite use a more favorable exchange rate to calculate risk-weighted
rising loan costs. However, higher policy rates and still very high assets, though this relaxation is gradually being phased out.
inflation keep the loan growth contained. Despite the very high Removing or quickly tightening forbearance without a consistent
nominal rates, the real loan growth (yoy, adjusted by the annual decrease in macroeconomic and financial stability risks, along
CPI inflation) as of 2023Q3 for state banks, domestic private with stabilizing FX rate, might cause the capital ratios of some
banks and foreign banks was 5.1 percent, -16.8 percent and -9.5 banks to approach the minimum thresholds of 12% target ratio
percent, respectively. set by BRSA for Turkish banks.
The net FX position of the banking sector has improved Gradual monetary policy normalization will limit the potential
significantly following the monetary policy normalization. risks to asset quality. Nominal loan growth, largely driven by
Despite the slowdown in FX loan growth, the FX protected inflation, improved the NPL ratio (1.5 percent as of 2023Q3
deposit scheme and TL supportive required reserve policies compared to 4.1 percent in end-2020). Besides the credit growth,
supported the net FX positions of banks with the FX net position/ slow-down in new NPL inflows and increase in NPL collections
regulatory capital increasing from -1.1 percent in February 2023 also helped the decrease in NPL ratio. There remain concerns
to 4 percent in February 2024. Despite episodes of increased related to the high credit growth during the pandemic, the effect
uncertainty and volatility in the past years, banks were able to roll of depreciation on FX-exposed firms, the high but declining stock
over their external debt at above 100 percent during postelection of Stage 2 loans (8.0 percent, as of September 2023), and the
period, albeit at higher costs. Turkish banks’ short-term external rise of loan restructurings since 2018 (Figure 15). Corporate
debt stood at US$69.9 billion as of January 2024. Banks continue vulnerability has decreased, mainly driven by lower cost of
to show maturity mismatches along their historical averages with borrowing and strong domestic demand. However, the recent
a maturity mismatch of 9.3 months for TL assets and liabilities, tightening in the policy rate is translating into higher borrowing
and a mismatch for foreign currency assets and liabilities of 5.8 costs amid a slowing economy, which could negatively affect
months as of 2023Q3.4 FX liquid assets over FX short-term debt corporates financial soundness and lead to asset quality risks
ratio stood at 259% as of February 2024. for banks (see Section III). Since 2018 banks have restructured
their distressed assets5 (as 55% of Stage 2 loans) and have built
Banks’ reported capitalization is supported by solid free significant low NPL and free provisions to cover potential risks
provisions for reserve coverage of distressed loans. which can be further limited by the balanced and gradual policy
The capital adequacy ratio (CAR) across the banking sector normalization.
increased from 18.7 percent in 2020 to 19.5 percent in 2022.
4. Financial Stability Report, November 2023,
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Reports/Financial+Stability+Report/2023/Volume+37
5. Banks Association of Türkiye (https://www.tbb.org.tr/en/Content/Upload/Dokuman/1222/Classification_Of_Loans_September_2023.pdf)
TÜRKİYE ECONOMIC MONITOR < 19
> > > > > >
Figure 14: CARs have improved recently Figure 15: Sector level NPL ratio is low
Capital Adequacy Ratios 80,000 7
24 NPL Stock (TRY Mil) and NPL Ratio (%)
(%) 6
22 60,000 5
20 4
40,000
18 3
20,000 2
16
1
14 Sector Domestic Private 0 0
State Foreign
Jan 14
July 14
Jan 15
July 15
Jan 16
July16
Jan 17
July 17
18
July 18
Jan 19
July 19
Jan 20
July 20
Jan 21
July 21
Jan 22
July 22
Jan 23
July 23
Tem-14
Tem-15
Tem-16
Tem-17
Tem-18
Tem-19
Tem-20
Tem-21
Tem-22
Tem-23
Oca-14
Oca-15
Oca-16
Oca-17
Oca-18
Oca-19
Oca-20
Oca-21
Oca-22
Oca-23
12
Jan
Mar-23
May-23
Jul-23
Mar-20
May-20
Jul-20
Mar-21
May-21
Jul-21
Mar-22
May-22
Jul-22
Nov-22
Jan-23
Jan-20
Nov-20
Jan-21
Nov-21
Jan-22
Sep-22
Sep-23
Sep-20
Sep-21
State Domestic Private
Foreign Sector NPL Ratio, rhs
Sources: Haver Analytics, BRSA Sources: Haver Analytics, BRSA.
The rising expenditures and earthquake related investment needs have implications on
overall fiscal balances
The budget deficit remained manageable in 2022 with a positive issued, around one fourth of the size of the 2023 budget. In this
primary balance over the year. However, in 2023 the budget framework, significant tax increases were introduced, including a
deficit significantly widened with a primary deficit (Figure 16). 2-percentage point increase in VAT and a significant hike in fuel
The significant increase in expenditures stemmed from significant Special Consumption Tax (SCT). In spite of these tax increases,
increases in personnel expenditures, current transfers primarily to however the 12-month cumulative primary balance as of December
compensate for high inflation and current and capital transfers to remains in deficit, around 2.7 percent of GDP (Figure 17). The
support earthquake recovery. In July, a supplementary budget was budget deficit was largely financed with domestic borrowing in 2023.
> > > > > >
Figure 16: Strong fiscal balance has been deteriorating Figure 17: …and primary surplus turned into deficit
CG fiscal balance and primary balance (share Central Government Budget and Primary
500
of GDP) Balances (12-m rolling. billion TL)
2% 0
0% -500
-2%
-1,000
-4%
-6% -1,500
Nov-22
Nov-23
Nov-20
Nov-21
Jul-22
Sep-22
Jul-23
Sep-23
Jul-20
Sep-20
Jul-21
Sep-21
Jan-23
Jan-24
Jan-21
Jan-22
Mar-21
May-21
Mar-22
May-22
Mar-23
May-23
Jan-20
Mar-20
May-20
De -2 0
De -2 1
De -2 2
De -2 3
Sep 20
Sep 21
Sep 22
Sep 23
M a 20
M a 21
M a 22
3
Jun 20
Jun 1
Jun 2
Jun 3
c-2
r-2
r-2
r-2
-
-
-
-
c-
c-
r-
c-
Ma
Budget Balance Primary Balance Budget Balance Primary Balance
Sources: MOTF. Notes: 2023Q4 value is WB staff estimate. Sources: MOTF
20 < TÜRKİYE ECONOMIC MONITOR
Robust employment and wage growth continue in 2023 with unemployment declining
The number of people employed reached an all-time high in mid-2013, before edging to 9.1 percent in January 2024. The
2022 and continued to increase in 2023 along with buoyant reduction in unemployment was more pronounced for men and
economic activity. As of January 2024, the seasonally adjusted for the youth. Yet, the youth unemployment remains high at 16.6
number of employed people reached 32.2 million (Figure 18). percent as of January 2024. Wages also continued to grow, with
Meanwhile, the strong employment growth also led to a decline gross wages and salaries index surpassing annual CPI inflation
in unemployment rates, as the total unemployment rate came in 2023Q3 (Figure 19).
down to 8.6 percent in October 2023, the lowest reading since
> > > > > >
Figure 18: Total employment is at record levels, while Figure 19: Gross wages have increased more than CPI in yoy
unemployment rates fell to lowest levels since mid-2013 terms
Employment (SA, Million) and Average gross wages and CPI
30 Unemployment rate (SA, %) 32 150 (yoy percent change)
25 31
30 120
20 29
15 28 90
10 27
26 60
5 25 30
0 24
0
Tem-20
Tem-21
Tem-22
Tem-23
Oca-20
Nis-20
Eki-20
Oca-21
Nis-21
Eki-21
Oca-22
Nis-22
Eki-22
Oca-23
Nis-23
Eki-23
Oca-24
Jan 20
20
July 20
20
21
21
21
21
Jan 22
22
July 22
22
Jan 23
23
July 23
23
Jan 24
Jan
Apr
July
Oct
Apr
Oct
Apr
Oct
Apr
Oct
-30
Emp loyment, rhs Unemp. rate 2018Q3 2019Q3 2020Q3 2021Q3 2022Q3 2023Q3
Unemp. rate (Male) Unemp. rate (Female) Industry Construction Trade an d Services CPI
Unemp. rate (Youth)
Sources: TURKSTAT. Sources: TURKSTAT. Note: Quarter averages are used.
Despite robust labor market performance and wage the wealthier segments of the population. First, with higher
increases, the poorest appear to have been hurt the most credit scores, they might have disproportionately benefited from
by inflation in a similar pattern observed across many effectively negative interest rates on consumer loans. Second,
countries. Inflation weighs more on the consumption of poorer imported goods might constitute a higher share of consumption
households because most of their income is spent on necessities. of the wealthier households, thus they may have also benefitted
For instance, the share of food and non-alcoholic beverages in more from the relatively stable lira (resulting from interventions
consumption basket went up to 35.8 percent in 2022, from 30.7 to limit pace of depreciation) until the May 2023 elections, which
percent in 2019 for the bottom quintile, while it only increased effectively subsidized prices of imports.
by 1.3 percentage points to 16.6 percent for the top quintile.
Coupled with the rapid increase in food prices (food inflation The poverty rate continued to decline while inequality has
being higher than headline inflation), it forced poorer households increased in 2021 in Türkiye. The latest available micro data
to spend a much higher proportion of their income on food items, reveals that the poverty rate declined from 9.8 percent in 2020 to
cutting back spending on other goods and services. The prior 7.6 percent in 2021, mainly driven by changes in labor earnings
loose monetary policy stance may also have been benefitting affected by the minimum wage hike in 2021 (Figure 20).6 At the
6. In 2021, 55% of observed decline in poverty is due to labor earnings. The second largest contributor is pensions (19%), followed by business income
(14%) – as per decompositions using Shapley value.
TÜRKİYE ECONOMIC MONITOR < 21
same time, income inequality widened. The Gini coefficient such as housing, and rents, and from the transfers of the FX-
increased from 43.2 to 46.0 (Figure 20). This dynamic of protected deposit scheme. Overall, income growth -rather
simultaneous reduction in poverty and increase in inequality is than redistribution- continued to be the main source of poverty
explained by two facts: first, the high growth rate in 2021 (11.4 reduction between 2020 and 2021 (Figure 22). While the bottom
percent) which more than offset the increase in inequality; and decile experienced the highest increase in labor income (26
second, the fact that the bottom and, particularly, the top deciles percent), the top decile benefitted the most from increase in
were the ones that benefitted the most from growth between business income. Some of the increase in labor income among
2020 and 2021 (Figure 21). Growth in incomes among the top the bottom decile may be attributed to improvements in the
decile significantly exceeded growth in all other income deciles, quality of jobs, potentially associated with the rebounding from
-a deviation from recent historical trends- further strengthening the COVID-19 pandemic in 2021 as the share of those working in
the income inequality. The macroeconomic indicators suggest casual employment declined and the share of full-time employees
that the income of the top deciles may have been growing at increased the most among the bottom decile (Figure 23).
disproportionally high rates due to the surge in asset prices
> > > > > >
Figure 20: Poverty continued to decline in 2021, income Figure 21: The income growth of top 10 decile was relatively
inequality has increased higher in 2021
25
Poverty and Income Inequality 47
Income growth incidence curves for
50% different periods
46 2009-2016
20
45 40% 2016-2020
Total Growth in Income (%)
2020-2021
15 44 30%
43
10 20%
42
5 41 10%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
0%
1 2 3 4 5 6 7 8 9 10
Headcount Poverty Rate (%)
-10%
Gini Coefficient, rhs Income Deciles
Source: WB staff calculations using SILC 2008-SILC 2022 data from the Sources: TURKSTAT SILC Data, WB staff calculations
TURKSTAT. Notes: Income reference periods are the previous calendar Notes: Using per capita income in PPP terms as welfare aggregate
year. Per capita income is used as welfare aggregate.
Absolute poverty line of US$6.85/day at 2017 PPP.
22 < TÜRKİYE ECONOMIC MONITOR
> > > > > >
Figure 22: Datt-Ravallion decomposition of poverty reduction Figure 23: The share of casual employment is declining
(2020-2021)
2009-2016 2016-2020 2020-2021 Share of Full-time and Casual Employment
100% 50%
1.04 0.34
-1.09 40%
-2.61 80%
Change in poverty 30%
-8.21 rate (in pp); -0.05 Change in poverty 20%
60%
rate (in pp); -2.26
10%
40% 0%
-2.00 Income growth 1 2 3 4 5 6 7 8 9 10
Change in poverty Redistribution
Full-time Em p. 2020 Full-time Em p. 2021
rate (in pp); -10.22 Causal Emp. 2020. rhs Causal Emp. 2021, rhs
Source: WB staff calculations using SILC data from the TURKSTAT. Sources: TURKSTAT SILC 2021-2022 Data, WB staff calculations.
Notes: Full time employment: worked in a full-time job at least 9 months.
Notes: Decomposition based on Ravallion et al. (1991).
Taking a long term perspective, the reduction in poverty rate 2010s should have contributed to lower inequality. Yet, inequality
is remarkable. The headcount poverty rate declined from 20 increased over this period. One potential explanation for the
percent in 2007 to 7.6 percent in 2021. Moreover, the downward rebound of income inequality might be linked with sectoral shifts
trend, which stagnated over 2016-2020, remerged with the latest in the economy and demand for different skills.7 The declining
available data. However, income inequality -measured by the Gini share of employment in agriculture (from around 20 percent in
coefficient- has followed a U shape over the last two decades, the mid-2010s to around 15 percent now), and in construction
declining until 2013, before picking up afterwards. Significant (from around 7 percent in the mid-2010s to around 6 percent
decrease in informality, increased participation of women in now) could signal a lower demand for low skilled workers, which
the labor force, and declining spatial inequalities since the mid- could then have implications on income inequality.
7. Other factors such as wealth concentration, tax policies, wage gaps, automatization, shrinking income share of the middle class and the disproportionate
income increase of the top decile could also play a role. Regarding the sectoral shifts, the move from labor-intensive sectors towards more technology-
driven industries might leave low-skilled workers behind, leading to stagnant wages and widening income gaps.
TÜRKİYE ECONOMIC MONITOR < 23
>
II. Looking Ahead
Türkiye’s normalization of macroeconomic policies after the elections introduces both opportunities and challenges. The
reorientation of monetary policy to restore price stability, the adoption of disinflation as a main policy target by the entire
administration, and the strong support for the Medium-Term Program, all contribute to stabilize the markets and build
confidence in the economy. Yet, in the near-term economic growth is expected to slow on the back of policy tightening
and slow global growth, while domestic (budget) and external (current account) imbalances persist with high inflation. The
current outlook therefore calls for a careful calibration of policies aimed at maintaining stability and confidence and protecting
the vulnerable and underscores the importance of tackling structural issues to strengthen the economic performance.
A. A period of the normalization of macroeconomic policies
The recent steps taken towards normalization of macroeconomic policies are expected to boost
confidence, mitigate macrofinancial risks, and support the vulnerable
After the May elections, the government started implementing the macroprudential measures require a cautious and calibrated
a new policy mix centered on reducing inflation while approach. For instance, a rapid exchange rate depreciation would
maintaining financial stability and keeping the economy feed into inflation; very strong rate hikes might hit corporates
growing. The policy mix includes tight monetary policy and and the financial sector; or a fast unwinding the complex web
selective fiscal tightening accompanied with income policies and of macroprudential measures might threaten financial stability.
a reform agenda. Given multiple challenges built up over the
past few years, a gradual process of policy normalization that New settings for monetary, fiscal, and income policies
allows for corrections appears appropriate, though this means have introduced a relative stability in the markets, boosted
that it will take time for the results to be evident. The strategy confidence and reduced uncertainties. The current tightening
of the government, which was outlined in the Medium-Term of the monetary policy and measures taken to improve fiscal
Program announced in September 2023, prioritizes (i) anchoring outlook helped improve the risk perceptions in the economy.
inflation expectations relying on a credible (and tight) monetary Reflecting greater investor confidence, CDS spreads have come
policy and on forward policy guidance, (ii) building back external down from 679 in mid-May, to under 300 in December, their
reserves to comfortably withstand external volatility, and (iii) lowest level in two years; and three major rating agencies have
keeping fiscal policy prudent and well targeted to protect the upgraded the outlook for the Turkish economy recently, with one
poor. The task is not easy given the complexity of the adjustment of them increasing the rating as well, raising the prospects for
needed to achieve macroeconomic stability. Adjusting the policy further upgrades in Türkiye’s sovereign ratings.
rate, assuring the flexibility of the exchange rate, and simplifying
24 < TÜRKİYE ECONOMIC MONITOR
The policy normalization will likely initially result in a period of depreciated lira and slower
economic growth, as the economy corrects the imbalances of the recent past
The current policy framework aims at correcting domestic lead to a moderate growth path over the coming years in the
and external imbalances to secure macroeconomic baseline scenario.
stability. Such a correction is expected to be gradual and to
Key Macroeconomic Indicators
2022 2023 2024 2025 2026
Real GDP Growth 5.5 4.5 3.0 3.6 4.3
Inflation (%, year average) 72.3 53.9 57.8 28.9 16.4
Inflation (%, end of period) 64.3 64.8 43.1 23.1 12.2
Current account balance (% of GDP) -5.4 -4.1 -2.8 -2.4 -2.5
General government balance (% of GDP) -1.0 -5.4 -5.4 -3.7 -2.4
Notes: 2023 general government balance and all 2024-2026 values are WB staff estimations.
> > >
Figure 24: Domestic demand has been the main driver of growth, and to a lesser extent in upcoming years
20 Growth (%), Contributions (percentage point)
10
0
-10
-20
2020
2021
2022
2023
2024
2025
2026
Private Consumption Government Spending Investment
Exports Imports Stocks
Source: TURKSTAT and WB staff calculations.
TÜRKİYE ECONOMIC MONITOR < 25
Economic growth is expected to moderate in 2024 and pick Monetary policy is expected to remain tight, and inflation
up in 2025 and 2026. After expanding 11.4 percent in 2021, 5.5 is expected to gradually decline after May 2024. The central
percent in 2022, and 4.5 percent in 2023, the economy is expected bank projects inflation to fall to 36 percent by the end of 2024
to grow at 3.0 percent in 2024 according to our estimates (Figure and to continue its downward trend, receding to 14 percent by
24). Economic activity has started to weaken in the second half the end of 2025. The monetary policy is expected to remain
of 2023, as inflation eroded the purchasing power of households, tight for a long period to achieve a sustained disinflation path.
slower consumer credit growth hampered the frontloading of In this perspective, inflation is expected to peak in May 2024,
consumption by households, and external demand weakened. followed by a sizable decline in 2024H2 on the basis of policy
Private consumption, which grew strongly in 2023H1 with the impact and the base effects. Inflation will however remain high,
help of sizeable wage increases and availability of cheap credit, with end-2024 inflation of slightly above 40 percent and with
was the main driver of growth in 2023. Nonetheless, the pace annual average inflation staying above 50 percent in 2024. In our
of private consumption appears to have moderated starting in baseline scenario of a period of moderate growth, the disinflation
the second half of 2023 due to the monetary policy tightening is expected to be gradual with average inflation staying in double
and the slowdown in credit growth, and it is projected to further digits in 2026 as well, while getting closer to single digit levels.
slowdown in 2024, and to recover moderately in later years.
The increased welfare effect felt by those who have benefitted The current account balance is expected to further improve
from the recent rapid increase in asset prices (i.e., house prices, starting from 2024, on the back of the change in growth
rents, stock market, FX-protected deposit scheme) may contain composition, relying less on domestic demand with a higher
the expected slowdown in private consumption. Government contribution of net exports. In this perspective, the current
consumption also had a significant contribution to growth in 2023 account deficit, which remained relatively high in 2023 (4.1
due to the stimulus measures and earthquake reconstruction percent of GDP), is expected to further narrow down in 2024 (2.8
related expenditures. However, going ahead the growth of percent) and onwards. Moreover, the exchange rate is expected
government consumption is expected to be much lower in line to continue its gradual depreciation pattern over the medium
with the expected fiscal consolidation. Meanwhile, investment term; increased net financial inflows are expected starting from
growth was strong in 2023 primarily due to negative real interest 2024H2 with increased confidence in the normalization policies
rates on credits which was observed in the first half of the year. and central bank reserves increasing accordingly.
However, with the impact of monetary tightening, investment
growth is expected to slowdown in 2024 before gradually The general government deficit is expected to be 5.4 percent
improving in 2025 and beyond. The contribution of net exports of GDP in 2024, as the earthquake reconstruction adds to
has been negative in 2023. The loss of competitiveness from pressures from a rising public wage bill and pensions, before
the appreciation of the lira and the slowdown in the major trade a stronger fiscal consolidation is observed in 2025 and 2026.
partners have put a strain on exports in the first half of 2023, and Given the expected slowdown in the economy, the revenue
despite the recent depreciation of the lira since May. Meanwhile, generation will be more constrained, and the tax revenues to
with a strong domestic demand, imports grew rapidly in 2023 as GDP ratio is expected to remain modest, despite an uptick due
well. In 2024 and onwards, however, the composition of growth is to tax rate hikes in 2023. Accordingly, the deficit is expected to
expected to be more balanced with lower contribution of private be covered by additional borrowing and the debt to GDP ratio is
consumption, and a positive contribution of net exports. expected to gradually increase in our baseline scenario.
26 < TÜRKİYE ECONOMIC MONITOR
Commitment to tight monetary policy until inflation expectations are anchored will support
confidence, but the disinflation will be challenging.
Disinflation has been set as the main target of the macro digits (Figure 26). Third, the pass-through of shocks to inflation
policy mix by the new economic team in the government has strengthened (Box 1). Therefore, the commitment to tight
and the CBRT. The MPC of the central bank have started a monetary policy until expectations are anchored to the inflation
cycle of aggressive increases in the policy rate, unquestionably path forecasted by the authorities is needed for disinflation to
reversing the earlier policy approach. The firm commitment of be successful, as also highlighted by the CBRT. The CBRT also
the government to disinflation has also been declared in the conducts liquidity measures to complement policy rate hikes.
MTP. Nonetheless, the disinflation process will be challenging. While these measures may help lower inflation in the short
First, the persistency of inflation, measured as the dependence term, continuation of a tight monetary stance with clear forward
of current inflation to lagged inflation, has increased considerably guidance will be essential to help avoid excessive volatility in the
recently (Figure 25). Second, despite a decline in medium term capital markets, address dollarization, ease pressure on the lira,
inflation expectations -primarily for 12 and 24-months ahead-, anchor inflation expectations, and reduce inflation.
even the 5-year ahead inflation expectations are not yet in single
> > > > > >
Figure 25: Persistency of inflation has increased Figure 26: Even 5-year ahead inflation expectations are not in
single digits
Rolling Coefficients of Lagged Inflation Inflation Expectations (%)
50 12-month ahead
0.8
0.6 40 24-month ahead
5-year ahead
0.4 30
0.2 20
0
10
-0.2
0
Oca…
JulyTe…
Oca…
Te…
Oca…
Te…
Oca…
Tem-13
Eki-15
Tem-16
Eki-18
Tem-19
Eki-21
Tem-22
Eki-09
Tem-10
Eki-12
Oca-18
Nis-20
Oca-21
Nis-23
Oca-09
Nis-11
Oca-12
Nis-14
Oca-15
Nis-17
Jan 09
09
July 10
11
Jan 12
12
July 13
14
Jan 15
15
July 16
17
Jan 18
18
July 19
20
Jan 21
21
July 22
23
21
Apr 21
21
Oct 21
22
Apr 22
July 22
Oct 22
Jan 23
Apr 23
July 23
Oct 23
Jan 24
Nis-21
Eki-21
Nis-22
Eki-22
Nis-23
Eki-23
Apr
Oct
Oct
Oct
Apr
Apr
Apr
Oct
Apr
Oct
Jan
Jan
Sources: TURKSTAT, WB staff estimates. Sources: CBRT.
Notes: The coefficient of past inflation in a regression where seasonally
adjusted CPI inflation is regressed on its own lag, controlling for
exchange rate, oil price, industrial production, and minimum wage
changes, is reported for rolling samples of 48 months. Last sample ends
in July 2023.
TÜRKİYE ECONOMIC MONITOR < 27
The growth-inflation tradeoff will likely kick-off starting in faster disinflation. Moreover, a frontloaded tightening also helps
the last quarter of 2024. After peaking in 2024Q2, inflation is prevent inflation from becoming stickier and costly to reduce to
expected to start falling in the second half of the year with the targeted levels in terms of forgone growth. On the other hand, a
impact of monetary policy tightening and with the help of base strong frontloaded tightening has initial contractionary impacts
effects. However, reducing inflation over the medium term (along on the economy and may raise financial stability concerns as
path outlined by the authorities) will entail a period of slower it may increase risks on corporate vulnerability, specifically for
economic activity (reflecting the tradeoff between growth and small businesses, (see section III). The central bank’s latest
inflation). The gradual approach considered in our baseline Inflation Report alludes to another intermediate scenario where
scenario outlined above, contains a moderate growth scenario in inflation reaches single digits in 2026, which comes at the cost
the medium term and therefore a gradual disinflation path. This of a sizeable output gap over the disinflation process pointing
approach of very gradual disinflation runs the risk of not effectively to a slower growth (but not a contraction) than in the baseline
controlling the inflation expectations, which could further extend scenario discussed above. Overall, all alternative policy choices
the duration of the disinflation process. An alternative scenario have pros and cons, and therefore a clear communication
would be a frontloaded monetary tightening, which is more strategy is needed to bring the support of all the economic
effective in anchoring inflation expectations and securing a agents to achieve a sustained disinflation.8
The gradual adjustment of financial sector policies to reconverge to international standards will
strengthen financial stability
The government and the central bank have already taken borrowing costs amid a slowing economy, which could negatively
steps to improve the macro financial regulatory environment affect corporates financial soundness and lead to asset quality
and continue converging with international norms. Policy risks for banks. Removing or quickly tightening forbearance
efforts have been aligned with the FSAP recommendations. 9
and faster monetary tightening without a consistent decrease in
The CBRT’s efforts to increase the Lira’s share in banking macroeconomic and financial stability risks, along with stabilizing
system and streamline access to credit and export loans are FX rate, amid high stock of FX deposits and the FX-protected
part of a broader strategy to enhance the monetary transmission deposit scheme might cause potential stress for the financial
mechanism. Simultaneously, the Banking Regulation and sector. Carefully planned and well-communicated approach to
Supervision Agency (BRSA) should enhance its ongoing process normalizing policies will help to reduce overall financial risk.
of realigning regulatory standards with international norms to
improve banking sector transparency. A significant focus is on Türkiye can benefit from the accelerating global trend
managing systemic foreign exchange (FX) risks, exacerbated by of investors seeking green investment opportunities.
the close relationship between the CBRT and domestic banks, Türkiye’s vulnerability to climate change necessitates significant
with a substantial portion of the CBRT’s FX liabilities tied to these investment in climate mitigation, adaptation, and resilience,
banks. This necessitates a more assertive supervisory approach, as highlighted in the World Bank’s Türkiye Country Climate
including contingency plans for FX shocks and enhanced liquidity and Development Report (CCDR).10 A projected investment of
risk monitoring. Clear policy communication, effective corporate US$165 billion is required from 2022 to 2040, in addition to the
insolvency, and debt resolution frameworks, coupled with a US$482 billion baseline in sectors like power, residential, and
financial policy framework aligned with international standards, transport. Accessible and affordable long-term finance will be
are vital for de-risking the corporate and financial sectors. needed for sustainable economic growth, the green transition,
and job creation. This underscores the financial sector’s critical
The policies follow a balanced approach to maintain role in mobilizing capital for Türkiye’s green transition, going
financial stability while addressing existing challenges. beyond the capacities of the public sector and banks, and
The recent tightening in the policy rate is translating into higher necessitating the involvement of private capital.
8. As also alluded by the CBRT, the current policy rate tightening cycle is approaching to its limits. Our estimations based on Taylor rule type of analysis suggests
that the current level of the policy rate is close to the levels consistent with reaching the disinflation path envisaged by the CBRT in 2024. Meanwhile, the
tightness of the monetary policy should be maintained until the inflation expectations are in line with the targeted disinflation path for later years.
9. The Financial Sector Assessment Program helps countries identify financial system vulnerabilities and appropriate policy responses. The most recent report
for Turliye is found here: https://www.imf.org/en/Publications/CR/Issues/2023/08/17/Republic-of-Trkiye-Financial-System-Stability-Assessment-538281
10. https://www.worldbank.org/en/country/turkey/brief/key-highlights-country-climate-and-development-report-for-turkiye
28 < TÜRKİYE ECONOMIC MONITOR
The development of a conducive environment for green identification, measurement, monitoring and control of climate-
finance is essential, particularly in anticipation of the related risks to which the banking sector may be exposed, and
growing financing demands due to the increasing frequency this guideline is planned to be put into practice by the end of 2024.
and severity of natural disasters. Regulators are at the forefront In the capital markets, the Capital Markets Board (CMB) issued
of greening the financial sector. The BRSA’s Sustainable Banking the “Guidelines on Green Debt Instruments, Sustainable Debt
Strategic Plan marked an early step in this direction, followed by Instruments, Green Lease Certificates, and Sustainable Lease
the collaborative effort with the Banking Association to develop Certificates” in 2022, promoting green capital market instruments
the Green and Sustainable Banking Guideline, aligning with and enhancing their capacity in sustainable and green finance
international best practices. Subsequently, the Green Asset Ratio analytics. This comprehensive approach aims to foster a robust,
Communique and Climate Risk Management Guidelines were inclusive, diversified, and sustainable financial system in Türkiye,
introduced last year. A Draft Guideline on Effective Management aligning with macroeconomic fundamentals and international
of Climate-Related Risks by Banks has been prepared for the banking standards, clarifying regulatory roles, and bolstering the
central bank and financial regulators’ operational independence.
Elevated investment needs and high inflation warrant a cautious and well targeted fiscal policy
Securing the disinflation requires support from fiscal policy Effective use of available fiscal space whilst maintaining
as well. The previous loose monetary policy stance had put much fiscal sustainability will be important going forward. In the
pressure on fiscal policy measures to compensate for the widening MTP, the government announced projections for the fiscal balance
external imbalances and to help ease the pressures on the lira (such with and without expenditures related to earthquake recovery. For
as with the introduction of FX-protected deposit scheme). With 2023, the budget deficit was predicted to be 6.4 percent of GDP
the normalization of the monetary policy stance, fiscal policy can including earthquake related expenditures (current and capital), and
now concentrate on the earthquake recovery related investments a lower 3.4 percent of GDP when earthquake related expenditures
needs, and on supporting vulnerable groups against high inflation, are excluded. Meanwhile, the realization was 5.2 percent of GDP
while keeping a prudent fiscal stance. To support the disinflation, including earthquake related expenditures, 1.6 percent of GDP
changes in administered price and public wage adjustments should when earthquake related expenditures are excluded. This suggests
be benchmarked against the predicted inflation path, rather than a deterioration in the fiscal performance compared to previous years.
historical inflation, as already been indicated in the MTP. Moreover, according to the MTP, the budget is expected to yield a
primary surplus only in 2026. This very gradual return to primary
surplus may reduce the effectiveness of the polices for disinflation.
A new window of opportunity to consider structural reforms
The period ahead also provides opportunities for tackling of the economy and competition, and to boost productivity, which
structural issues. In the 2024-2026 MTP, the government has in return will ease the output cost of achieving disinflation.
expressed its commitment to advance structural reforms over
the next three years on areas including growth and trade, human The greening of the economy stands out as an important
capital and employment, price and financial stability, public opportunity that could lead to both higher growth and
finance, disaster management, green and digital transformation, increased productivity. For example, the European Union’s
business and investment environment. For instance, reforms Carbon Border Adjustment Mechanism (CBAM), which will come
addressing structural issues related to price stability (such as into full force in 2026, is an opportunity for the Turkish industry.
backward-looking wage indexation), and to financial stability With geographical advantage, strong trade links with the EU and
(such as improving the macro financial regulatory environment), having started decarbonizing the power sector, Türkiye can be a
will make the transmission mechanism work better and thus first mover and use the comparative advantage by decarbonizing
help achieve macroeconomic stability faster. Reforms aimed at its industry, to secure competitiveness gains and boost productivity.
ensuring flexibility in the labor market, improving the business Also, in a broader context, addressing climate change challenges
and investment environment, enabling digital transformation, and constitutes an important opportunity for Türkiye in achieving a
deepening trade opportunities, will all help to increase the resilience sustainable and resilient future.11
11. Transatlantic Policy Quarterly, Addressing Climate Change in Türkiye: An Opportunity for a More Sustainable and Resilient Future - Vol. 22 · No. 3 · Fall 2023;
http://transatlanticpolicy.com/issue/90/addressing-climate-change-in-turkiye-an-opportunity-for-a-more-sustainable-and-resilient-future
TÜRKİYE ECONOMIC MONITOR < 29
B. Several risks can affect the path of economic growth and poverty reduction
While the new macroeconomic policy mix represents a position while strong, is vulnerable to rising borrowing costs, the
significant change in a positive direction, it is important high share of FX-denominated debt, growing current and capital
to remain committed to pursuing these policies. The new expenditures related to earthquake recovery, increasing rigidity
direction in macroeconomic policies following the May 2023 of public expenditures, and pressing needs to support vulnerable
elections has been welcomed by domestic and foreign investors, groups during the disinflation phase. Moreover, despite an
as reflected in the significant reduction in CDSs and the increase in FX reserves and a decline in the current account
change in the outlook by credit rating agencies, with one rating deficit in the second half of 2023, external risks still remain given
upgrade, which are important initial achievements. However, the the relatively high current account deficit and the high external
authorities’ commitment to these policies, which will determine financing requirements. Further, in a global context where the
the nature and duration of the necessary macroeconomic global growth is expected to further decelerate in 2024, the
adjustment will be crucial. Staying the course with the policy external demand will contribute to a domestic slow down due
normalization would further strengthen the confidence in the to the projected stagnation in global trade and the increased
economy. overall uncertainty associated with geopolitical tensions
(GEP January 2024). Also, the period ahead distinguished
Moreover, there are several downside risks in the near by monetary tightening and slowing growth prospects may
term. While the new macroeconomic policy mix will return the trigger vulnerabilities in the corporate sector which may have
economy to a macro sustainable path, vulnerabilities to domestic repercussions on financial sector (see Section III). Each of these
and external shocks remain elevated. The government’s fiscal areas of risk are elaborated below.
Fiscal risks accumulate on earthquake related expenditures, contingent liabilities, wages
Rising contingent liabilities and rigid expenditures may the burden of the scheme on the fiscal side. Also, steps taken by
increase fiscal risks going forward. The main priorities of the central bank helped the initiation of destocking of the scheme,
Türkiye’s debt management policies are the sustainability with the value of FX protected deposits falling to around US$90
and reduced sensitivity of the debt stock to macroeconomic billion at the end of 2023, from its peak of around US$140 billion
variables. Nonetheless, the high share of FX-denominated debt in August. Additional risks relate to wages of public servants
(64 percent as of December 2023) makes further depreciation and retirees, and to the changes in the retirement system. The
of the lira a major risk to the public debt burden (Figure 27). wage adjustments were expected to be in line with the expected
Rapid exchange rate movements can also adversely affect the disinflation path as mentioned in the MTP, however, together with
fiscal position through lending to SOEs to cover import bills the inflation differences, the wages increased by 49.3 percent
(primarily energy), PPP debt assumption commitments, and in January 2024. Moreover, in addition to the approval of the
PPP guarantees, for which the allocated appropriations in the early retirement scheme in 2023, the recent plans to shorten the
central budget law may fall short if the depreciation exceeds retirement eligibility criteria for self-employed will further increase
the projected level. The transfer of the FX-protected deposits the risks fiscal expenditures. Meanwhile, the expected slowdown
originating from TL deposits to the central bank helped reduce in economic activity will highlight the risks on fiscal revenues.
30 < TÜRKİYE ECONOMIC MONITOR
> > > > > >
Figure 27: Currency composition of government debt poses risks Figure 28: The share of rigid expenditures in the budget is high
Share in Central Government Debt Stock Rigid expenditures in Budget
100%
80%
80%
60% 60%
40%
40%
20%
20% 0%
2023*
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
0%
03
June 04
Sep 05
Dec 06
08
June 09
Sep 10
Dec 11
13
June 14
Sep 15
Dec 16
18
June 19
Sep 20
Dec 21
23
Eyl-05
Ara-06
Eyl-10
Ara-11
Eyl-15
Ara-16
Eyl-20
Ara-21
Mar-03
Mar-08
Mar-13
Mar-18
Mar-23
Haz-04
Haz-09
Haz-14
Haz-19
Personnel exp. Social security contr.
March
March
March
March
March
Purchase of g&s Current transfers
Capital expenditures Cap ital transfers
TL FX Lending Interest exp.
Sources: Ministry of Treasury and Finance. Sources: MTOF, WB Staff estimates.
*2023 first 9 months.
Moreover, the increase in the share of rigid expenditures around three-fourths of budget expenditures are considered
in the budget significantly reduces the flexibility of fiscal as rigid, significantly leaving a smaller room for reprioritizing
spending. Recent estimates suggest that, despite being close expenditures. In addition, capital expenditures, a large proportion
to historical averages, the rigidity of the budget expenditures of which is considered as flexible, will also exhibit additional
has increased in 2023, primarily due to heightened personnel rigidity in the near term due to earthquake related investments.
expenditures and interest payments (Figure 28).12 Accordingly,
External imbalances continue despite a recovery in reserves
Despite a modest return of capital inflows and recovering the central bank (Figure 29). There could be a risk of competing
reserves, Türkiye’s external balance sheet remains demand for FX between the Central Bank and commercial
vulnerable amid high external financing needs and banks in the event of a future shock. Moreover, gross external
continued lira depreciation. Non-resident net portfolio inflows financing requirements (GEFR) are expected to increase in
turned positive for nine consecutive weeks following the May 28 the coming months. Excluding foreign exchange currency, the
elections after a net outflow of US$1.6 billion between January deposits of non-residents, and trade credits, the monthly GEFR
and the elections, and have been volatile since, with net inflows is estimated at around US$8.9bn between up to October 2024
totaling US$5.5 billion since the elections (as of February 9 (Figure 30). A large proportion of debt maturing is expected to
2024). As a result, central bank net reserves have started to be rolled over, resulting in a much lower net external financing
recover, albeit slowly, reaching US$28.8 billion in early-February requirement. However, continued depreciation of the lira would
2024 from US$–5.7 billion in early June 2023. But swaps with put additional pressure on external balances, as according to
other central banks and domestic banks continue to make up the Central Bank’s March Survey of Market Participants, the lira
a significant portion of foreign currency reserves , as well as13
is expected to continue to depreciate over the next 12 months,
commercial banks’ FX-denominated required reserves held at reaching 42.8 TL/USD.
12. An approach to classify the rigid expenditures in Türkiye is proposed by Çebi (2015). Instead of classifying the expenditures by entire categories, the study
determines the share of flexibility of each major spending item in the budget. Using this approach, the rigidity in the budget has been calculated for the recent
period.
13. As well as other aggregate short and long positions in forwards and futures in currency markets.
TÜRKİYE ECONOMIC MONITOR < 31
> > > > > >
Figure 29: Swaps and FX required reserves make up a Figure 30: External financing needs are increasing in the
significant portion of foreign currency reserves coming months
International Reserves and Short-term Gross External Financing Requirement
Drains as of Feb. 9, 2024 (billion USD) (billion $)
200 20
Other
150 12m public 10
Other debt service
0
100 Gold FX required
reserves
-10
Şu Jan 25
24 24
4 24
M Apr 24
4 24
4 24
4 24
Aug 24
Ek Sep 24
Oct 24
50
M Feb
March
H May
TeJune
Ağ July
FX
4
24
4
4
24
Swaps
-2
l- 2
-2
-2
i-2
-2
-2
b-
i s-
u-
ar
ay
ca
m
az
Ey
N
O
- Non-interest CAB Fin. co rp. Non-fin. corp.
Assets Short-term drains
Government Pub lic b anks
Source: CBRT Source: CBRT, Ministry of Treasury and Finance, WB staff estimates
Notes: Other assets includes IMF reserve position and SDRs. Swaps and calculations.
include aggregate short and long positions in forwards and futures in Notes: Does not assume any changes in foreign exchange deposits and
foreign currencies vis-à-vis the domestic currency (including the forward excludes trade credits.
leg of currency swaps). FX required reserves include other contingent
liabilities. Other short-term drains include collateral guarantees on debt
falling due within one year and other accounts payable and receivable.
> > >
Box 2: Measuring the international reserve position of the CBRT
When assessing a central bank’s reserves, several terms are used to describe the nature and composition of
the reserves. These include:
• Gross reserves – Gross reserves represent the total holdings of foreign currency and gold (or other precious
metals) by a central bank as well as IMF reserve position and SDRs. Gross reserves are used to manage the value
of the domestic currency and to cover international debt obligations, among other purposes. In early-February
2024, gross reserves of CBRT amounted to US$134.9 billion.
• Net reserves – Net reserves are gross reserves minus short-term foreign currency liabilities and forward
commitments. In other words, net reserves show the amount of reserves that are readily available without any
impending liabilities, and thus is a more accurate measure of the ability to deal with external economic shocks. In
early-February 2024, net reserves amounted to US$28.8 billion.
• Liquid reserves – Liquid reserves, which refer to those assets that can be quickly and easily converted into cash
or other liquid assets without significant loss of value, usually consist of cash, Treasury bills, and other highly liquid
assets. These are crucial for countries and institutions to meet their short-term obligations and to intervene in the
foreign exchange markets if needed. In early-February 2024, liquid reserves are estimated by World Bank staff to
be US$41.1 billion.
32 < TÜRKİYE ECONOMIC MONITOR
Global economy is on a low-growth trajectory with amplified geopolitical tensions
Global growth is expected to experience a significant but have deteriorated notably, reflecting weaker indicators for
decline in 2023, with a further slight downturn in 2024. The employment growth and order backlogs. While the United States
impact of tight monetary policy and weakened trade persists, experienced robust growth due to strong domestic demand, the
alongside the long-lasting damages from the COVID-19 crisis euro area growth remains sluggish, and economic momentum
and the shock from the Russia’s invasion of Ukraine. Over the weakened in emerging and developing economies (EMDEs).
past months, global activity has continued to slow with global Growth is expected to decelerate in advanced economies in
industrial production (excluding China) decreasing slightly at the 2024, while EMDEs aggregate (excluding China) is projected
end of 2023 Q3 (Figure 31). The manufacturing sector remains to rebound modestly from a cyclical low. However, the outlook
weak, with elevated financing costs and decelerating global goods remains challenging in many countries facing elevated financing
demand. PMIs for services sectors continue to signal expansion costs, high debt, and geopolitical conflicts.
> > > > > >
Figure 31: Global IP slightly decreased in Q3 Figure 32: Euro area activity is still weak
1.0
Industrial Production, percent change, 3- PMI and Industrial Production (percent
m average 58 change, 3-m av.) 3.0
0.5 54 1.5
50 0.0
0.0
46 -1.5
-0.5 42 -3.0
July 22
Sep 22
Nov 22
Jan 23
March 23
May 23
July 23
Sep 23
-1.0
May 22
July 22
Sep 22
Nov 22
Jan 23
March 23
May 23
July 23
Sep 23
Industrial production, rh s
May-22
Tem-22
Eyl-22
May-23
Tem-23
Eyl-23
Oca-23
Mar-23
Kas-22
Manufacturing PMI
Composit e PMI
Sources: Haver Analytics; World Bank. Sources: Haver Analytics; World Bank.
Sluggish euro area growth may restrain Türkiye’s export Despite the monetary policy tightening cycle approaching
performance. Growth decreased slightly by 0.1 percent (q/q to an end, global interest rates are likely to remain high
sa) in 2023Q3, and to the same extent in Germany, Türkiye’s for a longer period. Global headline and core inflation are
main export destination. Manufacturing activity in particular decelerating, reaching both 4.3 percent in October, in the context
remains lackluster, with manufacturing PMI in contractionary of a slow decline in commodities prices–but with levels still above
territory-below 50- as of November (Figure 32). The subdued the 2015-2019 average. Inflation remains above the targets in
growth outlook in the euro area puts risks on Turkish exports many countries. Higher-for-longer path of policy rates than was
and economic activity since the EU is the main trading partner of expected in June 2023 and lagged effects of the tight monetary
Türkiye and the income elasticity of exports to EU is higher than policy will continue to prevent a more dynamic recovery, most of
other main export regions. 14
the advanced countries continue to tighten (Figure 33). The tight
monetary stance in advanced countries both increases the cost
of external borrowing for Türkiye and limits the inflow of financial
funds putting pressure on Turkish lira.
14. Culha and Kalafatcilar (2014) find that the income elasticity of Türkiye’s exports to Euro area is higher than to other regions.
TÜRKİYE ECONOMIC MONITOR < 33
> > > > > >
Figure 33: Policy rates are rising in advanced economies Figure 34: Oil price remain high
Policy rates, percent of ccountries
100 Brent Crude Oil Spot Price
80 (USD/barrel)
150
60
40 100
20 50
0
0
22Q3
22Q4
23Q1
23Q2
23Q3
22Q3
22Q4
23Q1
23Q2
23Q3
Dec 18
June 19
Dec 19
June 20
Dec 20
June 21
Dec 21
June 22
Dec 22
June 23
Dec 23
24
Dec 24
Ara-18
Ara-19
Ara-20
Ara-21
Ara-22
Ara-23
Ara-24
Haz-19
Haz-20
Haz-21
Haz-22
Haz-23
Haz-24
June
EMDEs Advan ced economies
Increased Unchanged Decreased
Sources: Haver Analytics; World Bank. Sources: Energy Information Agency forecast, November 2023.
Overall, risks to the global economy are still tilted to the impacts on financial markets, trade, confidence, and commodity
downside. Stickier-than-expected inflation could trigger a further -primarily energy- prices (Figure 34). Other risks include financial
tightening of monetary policies and a potential reversal in risk stress related to sharp increases in long-term yields, lower-than-
sentiment in financial markets. The recent conflict in the Middle expected activity in China, trade fragmentation, and climate-
East, coupled with Russia’s invasion of Ukraine, has significantly related disasters.
heightened geopolitical risks, with potential adverse global
Slowing economic growth poses risks to poverty reduction in the medium term
Türkiye has made considerable progress in reducing that slowing growth may limit the government’s ability to protect
poverty, but recent developments pose challenges to the poorest due to lower fiscal revenues. More equitable
continuing sustained poverty reduction. First, economic growth and prioritizing income inequality reducing policies are
growth is slowing down. There will be less growth in incomes, needed to ensure sustained poverty reduction over the long
which has been a primary driver of poverty reduction until now run. The protective capacity of the fiscal policies in Türkiye are
(Figure 22). Second, increase in income inequality poses a risk to mainly channeled to protecting the vulnerable -through current
sustained poverty reduction. International evidence suggests that transfers- rather than directly targeting redistribution.16 Social
inequality deters poverty reduction.15 The recent policy changes assistance programs and pensions are well targeted, but should
– such as increase in minimum wages in 2022 and 2023 - may be scaled up to mitigate income inequality. Also, the significant
sustain poverty reduction in the short run, as in 2021. However, role of indirect taxes -which are regressive in nature- limits the
such a reduction may not be sustainable, especially considering potential benefits of taxation in correcting income inequality.
15. For instance, Lakner et al. (2019) find that reducing each country’s Gini index by 1 percent per year has a larger impact on global poverty than increasing each
country’s annual growth by 1 percentage point above forecasts.
16. According to OECD, redistribution plays a limited role in Türkiye compared to OECD averages.
https://www.oecd-ilibrary.org/economics/income-redistribution-across-oecd-countries_3b63e61c-en
34 < TÜRKİYE ECONOMIC MONITOR
>
III. Special Topic
Corporate vulnerability in Türkiye and linkages to financial sector
The corporate sector represents the dynamic part of the borrowing costs, and partly due to buoyant domestic demand
economy which has proved its resilience against various helping the corporates improve their profitability (Figure 35).
shocks over the years. Since the currency shock in 2018, the Concurrently, the corporate sector has significantly lowered its
corporate sector has enjoyed an improvement in its profitability open position to reduce the exchange rate risk in their balance
and capacity to cover interest payments, partly due to loosened sheets (Figure 36).17 These have helped strengthen the resilience
monetary policy and selective credit policies which lowered of the corporate sector.
> > > > > >
Figure 35: Interest coverage and profitability of corporate Figure 36: Corporate sector has lowered its open position
sector increased
Selected ratios of the corporate sector 300 Corporate sector open position 30
8
6 200 20
4
100 10
2
0 0 0
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Profit before interest and tax / Interest expenses
Net profit / Total assets (%) Billion USD
Net profit / Net sales (%) % of 4-quarter rolling GDP, rhs
Sources: CBRT Sectoral Accounts Sources: CBRT
A closer look at the soundness of corporates can be traced with corporate vulnerability for all firms, after declining in 2010 increased
corporate vulnerability indicators. Using the detailed sectoral in 2016 and peaked in 2018, both years featured an exchange rate
balance sheets provided by the CBRT, a corporate vulnerability shock and a contraction in the economy (Figure 37). Afterwards, the
indicator comprising of five subcomponents has been generated.18 corporate vulnerability has declined, more significantly in 2022 amid
The indicators are generated both for sectoral balance sheets strong economic activity and falling cost of borrowing, potentially
containing all firms, and for different firm sizes.19 Accordingly, the enabling firms to act countercyclically and to rebuild some financial
buffers.
17. In a recent study, Pienkowski (2023), investigating the exposure and interconnectedness of the FX balance sheets of sectors in Türkiye, argues that despite
considerable deleveraging pursued by non-financial corporations, they still play an important role in the FX network.
18. The corporate vulnerability indicator builds on the methodology used in the ECB Financial Stability Report, November 2020 by Gardó et al. (2020). The indicator
aims to track the time-varying impact of several driving factors of the financial soundness of the corporates. The indicator combines relevant factors under five
different components with the following sub indicators: Debt service capacity (interest coverage ratio and revenue generation); leverage/indebtedness (debt-to-
equity and net debt-to-EBIT ratios); financing/rollover (short-term debt-to-long-term debt ratio, quick ratio -defined as current financial assets/current liabilities-,
overall cost of debt financing and credit impulse -defined as the change in new credit issued as a percentage of GDP); profitability (return on assets and profit
margin); activity (sales growth, trade creditors ratio and change in accounts receivable turnover). The sub indicators are standardized with mean zero and standard
deviation of one. Then, for each component, the average of standardized indices is calculated for each sector. All the subcomponents are then equally weighted
and summed to produce the corporate vulnerability indicator for the sector. For the aggregate measures, sectoral level vulnerability indicators are aggregated by
weighting with the size of total assets. For the indicators, positive/negative values refer to an increase/decrease in the corporate vulnerability.
19. The sectoral accounts data provides an aggregate measure for sectors at different levels of disaggregation. For the sector total, three-digit NACE classification is
used. For the size disaggregation, sectoral classification at two-digit level is used. In the size breakdown, different aggregates for large, medium, small and micro
firms in each sector are available. The classification of firms into categories are as follows: Micro, small and medium firms have less than 10, 50 and 250 employees
respectively. Meanwhile large firms have more than 250 employees.
TÜRKİYE ECONOMIC MONITOR < 35
The evolution of the corporate vulnerability differed across reduction in corporate volatility in the last two years; meanwhile
firm sizes. Large firms have the least volatile corporate micro firms’ vulnerability has declined significantly only in 2022
volatility; large, medium and small firms have enjoyed a similar (Figure 38).20
> > > > > >
Figure 37: Corporate vulnerability has declined… Figure 38: …but to a different extent by size
2.0 Corporate Vunerability, All Firms Corporate Vulnerability by Size
2.0
1.0
1.0
0.0 0.0
-1.0
-1.0 -2.0
-3.0
-2.0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
-3.0
Large Medium Small Micro
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Sources: CBRT Sectoral Accounts, WB Staff calculations. Sources: CBRT Sectoral Accounts, WB Staff calculations.
By the construction of the indicator, it is possible to follow corporate vulnerability in micro firms has increased in 2021
the sources of the changes in corporate volatility for before declining in 2022 to a lesser extent than other firms.
different firm size groups. Large firms have enjoyed a steady The micro firms’ debt service capacity has improved over the
decline in corporate vulnerability backed by all subcomponents recent years despite their leverage/indebtedness remaining
in 2021 and 2022, while improved activity, debt service capacity as a constraint. Also, over the covid period of 2020-21, these
and profitability played a big role (Figure 39). Medium and small firms have experienced a significant drop in their profitability,
firms benefited from higher profitability only in 2022, where they contributing to the vulnerability. Looking at the earlier episodes,
have enjoyed the largest reduction in corporate vulnerability. while the corporate vulnerability peaked in 2016 in medium and
Overall, the widespread reduction in corporate vulnerability in small firms, large firms’ vulnerability has peaked in 2018, when
2022 was mainly driven by lower cost of borrowing backed by the open positions of the corporates reached a very high level
loose monetary policy and the strong domestic demand boosting (Figure 36).
activity and profitability of the corporate sector. Meanwhile, the
20. This methodology enables a comparison over time, detecting the episodes of vulnerability above or below the mean value for the time period considered.
Accordingly, the figure suggests that corporate vulnerability was 1.1 standard deviations higher than the sample mean in 2018, while 2.1 standard deviations
lower in 2022. A recent similar analysis for the Euro area shows that vulnerability was around 1.3 and 1.5 standard deviations higher than the sample average
in 2009 and 2020, respectively, while around 0.8 standard deviations lower in 2022 (ECB Economic Bulletin, Issue 2/2022).
36 < TÜRKİYE ECONOMIC MONITOR
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Figure 39: The evolution of vulnerability differs by firm size
2.0 Large Firms 2.0 Medium Firms
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
-0.5 -0.5
-1.0 Activity -1.0 Activity
-1.5 Profitability -1.5 Profitability
Financing/rollover Financing/rollover
-2.0 Leverage/indebtedness -2.0 Leverage/indebtedness
-2.5 Debt service capacity -2.5 Debt service capacity
-3.0 Corporate Vulnerability -3.0 Corporate Vulnerability
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2.0 Small Firms 2.0 Micro Firms
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
-0.5 -0.5
-1.0 Activity -1.0 Activity
-1.5 Profitability -1.5 Profitability
Financing/rollover Financing/rollover
-2.0 -2.0 Leverage/indebtedness
Leverage/indebtedness
-2.5 Debt service capacity -2.5 Debt service capacity
Corporate Vulnerability
-3.0 Corporate Vulnerability -3.0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Sources: CBRT Sectoral Accounts, WB Staff calculations.
However, the upcoming period characterized by higher the macroeconomic stabilization policies envisage a change in
cost of borrowing, a depreciated Turkish lira and growth the growth composition by lowering the contribution of domestic
slowing down may pose challenges to the soundness of demand, limiting the possibility of passing through of cost
the corporate sector. Recent changes in the macroeconomic increases onto consumers.21
policy framework following the May elections, with the new
economy team prioritizing disinflation and reducing external Specifically, to investigate the sensitivity of corporate
imbalances, have been changing the rules of the game for the vulnerability to exchange rate and commercial loan interest
corporates. The monetary policy is now on the tightening cycle, rate panel VAR models are estimated.22 In this setting, the
the interest rate of commercial loans has been increasing in impact of exchange rate and commercial loan rate shocks are
parallel, and the depreciation of around 50 percent observed analyzed through the impulse response functions, which suggest
since the elections has further increased the cost of imported that both exchange rate and loan rate shocks significantly
inputs. In the meantime, economic growth is slowing down, and increase the corporate vulnerability across all sizes (Figure 40).
21. The recent targeted credit policies supporting the exporting firms’ access to finance, and incentivizing companies to export, and availability of companies’
liquid foreign currency assets and their ability to hedge themselves might alleviate some of the impact of the exchange rate shocks on corporate vulnerability.
22. The panel VAR includes USD/TL exchange rate, average commercial loan interest rates, corporate vulnerability, and controls for GDP growth, inflation, and
oil prices in USD, with all variables in stationary forms. The panel VAR allows for controlling for sector specific unobserved fixed effects. Moreover, lags of the
variables are used as instruments to alleviate endogeneity concerns, and the models are estimated with one lag, covering the period 2009-2022. The sectoral
accounts are available at yearly frequency. Separate models are estimated for sectoral information covering all, large, medium, small, and micro firms. When
sectoral data for different sizes are considered, the panel VAR models are estimated with two-digit level disaggregation.
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Figure 40: Exchange rate and loan rate shocks and corporate vulnerability
Sources: CBRT Sectoral Accounts, WB Staff estimations. Notes: The figures show the response of corporate vulnerability to exchange rate and
interest rate shocks for different firm sizes using panel VAR estimated at sectoral level estimated for 2009-2022.
The pass-through coefficients calculated from the large and medium firms, the impact of an exchange rate shock
impulse responses help gauge the impacts more easily. (10 percent depreciation) is higher than 10 percentage point
A 10-percentage point shock to credit loan rates increase the increase in the average loan rate.24 Meanwhile, especially for
vulnerability of large and medium corporates by 1.9 standard micro firms, the impact of the interest rate shock overweighs the
deviation, and that of small and micro corporates by 1.6 standard impact of exchange rate shock, suggesting that micro firms are
deviations. Meanwhile, a 10 percent depreciation of the lira relatively more vulnerable to interest rate shocks. Similarly, large
increases the corporate vulnerability by 2.2, 2.6, 1.5, and 1.2 and medium firms are more vulnerable to exchange rate shock.
standard deviations (Figure 41). 23
What is striking is that for
> > >
Figure 41: Cumulative response of corporate vulnerability to exchange rate and loan rate shocks by firm size
3.0 Response of Corporate Vulnerability to Exhange rate and Loan rate shocks
2.0
1.0
0.0
Large Medium Small Micro
10 pp increase in loan rate 10% depreciation of TL
Sources: CBRT Sectoral Accounts, WB Staff estimations.
Notes: The columns show the cumulative response of corporate volatility (in standard deviation units) to 10 percentage point increase in commercial
loan rates and to 10 percent depreciation in the USD/TL exchange rate, which are calculated by using the impulse response functions from the panel
VAR estimation described above.
23. Considering that the levels of corporate vulnerability range between -2.5 and 1.5, according to Figure 39, the estimated effects of these shocks are sizeable.
24. The finding that large firms are less vulnerable than medium firms to exchange rate shock could point to better ability of large firms to hedge themselves and
to reduce their open positions.
38 < TÜRKİYE ECONOMIC MONITOR
The changes in corporate vulnerability reflect the changes for medium, small and micro firms respectively (Figure 42).26
in the financial soundness of the firms which is directly Therefore, the corporate vulnerability shocks in manufacturing
related with their ability to pay back their loans. Therefore, industry more adversely affect the bad loans for micro firms.
an increase in corporate vulnerability is expected to have impact
on non-performing loans of the banking sector. To investigate With the tightening cycle of the monetary policy, a
this link, another set of panel VARs are estimated.25 The results depreciated Turkish lira and slowing down growth
suggest that one standard deviation increase in corporate perspective, corporate vulnerability is expected to be higher
vulnerability increases the share of bad loans in total by 0.4 in 2023 and 2024 compared to 2022 figures. Furthermore,
percentage points in the services sector and 0.9 percentage micro firms are relatively more affected by changes in the
point in manufacturing sector. interest rates, standing out as the most vulnerable portion of the
corporates.27 In addition, the increase in corporate vulnerability is
In the manufacturing sector, a corporate vulnerability shock likely to impact the non-performing loans of the banking system.
has different impacts by firm size. Specifically, one standard Therefore, the fiscal policy measures in support of vulnerable
deviation increase in corporate vulnerability increases the share businesses will be crucial in the upcoming period.
of bad loans in total loans by 2.5, 2.7, and 7.5 percentage points
> > >
Figure 42: Cumulative response of the share of bad loans in total loans to corporate vulnerability shock by firm size in
manufacturing industry
Response of the share of bad loans to corporate vulnerability shock,
10 Manufacturing industry
5
0
Large Medium Small Micro
One standard deviati on increase in corporate vulnerability
Sources: CBRT Sectoral Accounts, WB Staff estimations.
Notes: The columns show the cumulative response of the share of bad loans in total loans to a shock to corporate volatility (in standard deviation units).
25. This set of panel VARs include the non-performing loans calculated at the sectoral level (as the share of bad loans in total cash loans) and the corporate
vulnerability, controlling for the growth rate, inflation, and oil price as a proxy for external conditions. The models are separetely estimated for different sizes,
and for services and manufacturing sectors.
26. Assuming a normal distribution, estimation of the impact of one standard deviation increase in corporate vulnerability would be the impact for a sector with
average vulnerability being as vulnerable as a sector at the 84th percentile.
27. For instance, the average net debt to EBIT ratio -weighted by total assets- for the entire sample of micro firms is 22.3; meanwhile this ratio is 2.7, 6.2, and
12.4 respectively for the samples of large, medium, and small firms, over the analysis period. In manufacturing sector only, this ratio for the sample of large,
medium, small, and micro firms are 2.4, 5.1, 10.2, and 27.5 respectively.
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References:
Çebi, Cem. 2015. Budget expenditure rigidity. CBRT Research Notes in Economics, 2015/23.
Culha, Olcay and Kalafatcılar, Koray. 2014. A glance at income and price elasticity of Turkey’s exports: the importance of regional
disparities. CBRT Research Notes in Economics, 2014/05.
Filiztekin, Alpay and Kent, Oya. 2023. Income distribution and Richness in Türkiye. BETAM Research Note, 23/274.
Gardó, Sándor, Klaus, Benjamin, Tujula, Mika, and Wendelborn, Jonas. 2020. Assessing corporate vulnerabilities in the euro area.
ECB Financial Stability Review, November.
Lakner, Christoph; Mahler, Daniel Gerszon; Negre, Mario; Prydz, Espen Beer. 2019. How Much Does Reducing Inequality Matter
for Global Poverty. Policy Research Working Paper; No. 8869. World Bank, Washington, DC. © World Bank. https://openknowledge.
worldbank.org/handle/10986/31796 License: CC BY 3.0 IGO.
Pienkowski, Alex. 2023. Foreign currency balance sheets in Türkiye, Exposure and interconnectedness. IMF Working Paper, 23/132.
Ravallion, Martin, Gaurav Datt and Dominique Van de Walle. 1991. Quantifying absolute poverty in the developing world. Review
of Income and wealth, 37(4), 345-361.
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Annex 1: Medium-Term Outlook, Nominal
Key Macroeconomic Indicators
2020 2021 2022 2023 2024 2025
Population (mid-year, million) 83.4 84.1 85.0 85.8 86.3 86.7
GDP (current US$, billion) 717.1 807.9 905.8 1024.5 1188.9 1216.3
GDP per capita (current US$) 8600.4 9601.3 10659.1 13110.0 13782.7 14028.8
CPI (annual average, in percent) 12.3 19.6 72.3 53.9 57.8 28.9
Real Economy
Real GDP 1804.4 2010.8 2122.1 2217.9 2284.3 2366.6
Private Consumption 1076.0 1241.4 1476.1 1664.3 1702.6 1754.5
Government Consumption 259.0 266.9 278.2 292.7 300.0 306.4
Gross Fixed Capital Formation 473.2 507.4 513.9 559.5 575.9 592.8
Net Exports -6.6 84.2 98.1 32.4 37.7 44.8
Fiscal Accounts TL Billion, unless otherwise indicated
Total Revenues 1637.2 2239.5 4180.7 6429.3 10543.2 13808.3
12705.6
Total Expenditures 1835.4 2430.8 4300.8 7751.9 15740.4
General Government Balance -198.7 -191.4 -120.1 -1325.5 -2162.4 -1932.1
Primary Balance -56.7 -0.6 204.6 -607.2 -309.8 310.7
Monetary Policy TL Billion, unless otherwise indicated
Base Money (M2) 3325.0 5061.7 8218.2 13665.1 - -
Average Funding Rate (annual average, in
10.5 17.8 13.0 20.7 - -
percent)
Gross Reserves (in US$ Billion) 93.6 111.2 128.7 140.9 - -
o/w Gold Reserves 43.6 38.5 45.8 48.2 - -
External Sector US$ Billion, unless otherwise indicated
Current Account Balance -31.9 -7.4 -49.1 -45.5 -33.9 -29.0
Net Foreign Direct Investment 4.4 6.5 8.7 4.7 10.5 13.4
Source: TURKSTAT, CBRT, Strategy and Budget Presidency, WB Staff calculations.
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Annex 2: Medium-Term Outlook, Percent of GDP
Key Macroeconomic Indicators
2020 2021 2022 2023 2024 2025
Real Economy Annual percentage change, unless otherwise indicated
Real GDP 1.9 11.4 5.5 4.5 3.0 3.6
Private Consumption 3.2 15.4 18.9 12.8 2.3 3.1
Government Consumption 2.2 3.0 4.2 5.2 2.5 2.1
Gross Fixed Capital Formation 7.3 7.2 1.3 8.9 2.9 2.9
Exports -14.6 25.1 9.9 -2.7 4.5 5.2
Imports 6.8 1.7 8.6 11.7 3.7 4.2
Fiscal Accounts Percent of GDP, unless otherwise indicated
Total Revenues 32.4 30.9 27.8 26.4 26.2 26.2
Total Expenditures 36.4 33.5 28.6 31.8 31.5 29.9
General Government Balance -3.9 -2.6 -0.8 -5.4 -5.4 -3.7
Government Debt Stock 39.4 40.4 30.8 29.5 29.9 30.5
Primary Balance -1.1 0.0 1.4 -2.7 -0.8 0.6
Monetary Policy Percent of GDP, unless otherwise indicated
CPI (annual average, in percent) 12.3 19.6 72.3 53.9 57.2 28.9
Base Money (M2) 65.9 69.8 54.7 - - -
Gross Reserves 13.1 13.6 14.4 - - -
In months of merchandise imports 5.4 5.2 4.5 - - -
Percent of short-term external debt 83.4 93.6 86.4 - - -
External Sector Percent of GDP, unless otherwise indicated
Current Account balance -4.4 -0.9 -5.4 -4.1 -2.8 -2.4
Net Foreign Direct Investment 0.6 0.8 1.0 0.4 0.9 1.1
Source: TURKSTAT, CBRT, Strategy and Budget Presidency, WB Staff calculations.
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