Turkey has a large external imbalance because of a low private saving rate, the International Monetary Fund said in a report released on Friday.
Although the saving rate of the Turkish private sector averaged 18% between 1998 and 2003, that level fell to 9% in 2013, according to the fund, Anadolu Agency reported.
Economic stabilization, financial deepening, more public services becoming available in urban centers and bank credit increasingly available to a higher proportion of households have contributed to the decline.
Meanwhile, the IMF noted that Turkish authorities have taken steps toward raising the private saving rate in order to reduce external economic vulnerability including the introduction of a subsidized third pillar pension scheme, piloting an auto-enrollment funded pension scheme, and proposing to reform the severance pay scheme.
“Full and swift implementation of the pension and severance pay reform plans is key,” the IMF said as it urged that new policy efforts should begin quickly in order to reduce vulnerabilities.
“Domestic savings, private and public, no longer covered investment, opening up a large gap between savings and investments and hence a current account deficit, which averaged over 6.5% of GDP between 2010 and 2015,” the IMF said.
Non-Negligible Risks
Meanwhile, a sharp rise in migrant flows and related instabilities due to security dislocations in the Middle East are considered to be a “non-negligible” risk for Turkey and, the fund noted that increasing female labor force participation could help support growth in Turkey.
The IMF also noted that Turkey has seen a strengthening of domestic demand.
“Turkey is projected to turn in another year of strong growth. A 30% minimum wage increase and accommodative policies mean that both growth and external imbalances will be more elevated than previously expected,” the IMF said.
With accommodative macroeconomic policies and wage hikes, Turkey’s 2016 inflation has been revised up to 9.8% from 7.9%, the IMF said.
The fund also expects the current account balance ratio to GDP to be minus 3.6% in 2016, and total external debt to GDP ratio to be 57.2%.
Robust growth continues in most central and southeastern European economies and in Turkey, according to the bank.
“Accommodative macroeconomic policies, improving financial intermediation, and rising real wages have been behind the region’s mostly consumption-driven rebound,” it said. “In the near-term, strong domestic demand is expected to continue supporting growth amid continued low or negative inflation,” it added, noting that it expects countries in the region to grow around 3% to 4%.
Tighter global financial conditions, continued weakness in many emerging economies, political uncertainty and instability risks have been on the rise and are creating challenges for the region in the medium-term, the IMF warned.
