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Turkey Warned of 'Middle-Income Trap'

Turkey Warned of 'Middle-Income Trap'Turkey Warned of 'Middle-Income Trap'

Without deeper reforms to its savings rate and competitiveness, Turkey risks lower medium-term growth that would leave it stuck in a "middle-income trap," the International Monetary Fund (IMF) warned in a report.

With policies as they are, Turkey's economy should grow only 3.5 percent over the next five years, limiting its ability to catch up with richer developed countries, the IMF said in its yearly assessment of Turkey's economy that was prepared in November, Gulf News reported Sunday.

The IMF also repeated calls for Turkey to keep its monetary and fiscal policies tight to limit inflation and boost domestic savings, taking advantage of continued capital flows to emerging markets.

"The current international environment provides a potentially brief window of opportunity for such adjustment, which should therefore not be delayed," IMF said.

Concern

Falling oil prices have taken some pressure off Turkey's stubbornly high inflation and current account deficit, but structural problems remain and analysts have voiced concern about political meddling in the economy ahead of a parliamentary election next June.

After raising interest rates sharply in January to halt a slide in the lira, the central bank cut rates in May, June, July and August, hurting its credibility, according to the IMF. It has left rates on hold since then.

Turkey's inflation continues to run above the central bank's target of 5% and consumer prices rose 9.15% year-on-year, data showed. The central bank now expects inflation to start falling next year.

The IMF said the main risk to Turkey's economic outlook would be a sharp decrease in capital flows to emerging markets, since its external gross financing needs make up more than a quarter of gross domestic product.

In a separate statement, Turkey's representatives on the IMF board said the country will have a break from the electoral cycle after June's elections, leaving a "window of opportunity for major structural reforms."

 

Financialtribune.com