The Executive Board of the International Monetary Fund (IMF) today completed the fifth review under the three-year SDR 6.66 billion (about US$10.05 billion) Stand-By Arrangement for Turkey, which was approved on May 11, 2005 (see Press Release 05/104). In this regard, the Board approved Turkey’s requests for waivers of nonobservance of the performance criteria pertaining to the end-September central government primary spending ceiling and the submission to parliament of legislation to reform personal income tax.
The completion of the review will enable Turkey to draw immediately an amount equivalent to SDR 749.5 million (about US$1.13 billion).
Following the completion of the Board’s discussion, Mr. John Lipsky, First Deputy Managing Director and Acting Chairman, made the following statement:
“Helped by Turkey’s sound policy framework, the economic consequences of the May-June turbulence were contained, with growth remaining robust and balance sheets proving resilient. Buoyed by the central bank’s decisive policy response, financial markets stabilized quickly. However, inflation remains well above target, the current account deficit continues to widen, and public debt remains high.
“In light of this, the authorities’ commitment to the 6.5 percent of GNP primary surplus target for 2007 is welcome. Achieving this target will require keeping spending under tight control, improving health spending efficiency, and preserving the tax base. Over the medium term, budget quality needs to improve, including by lowering distortionary taxes and increasing investment spending.
“Given the challenging inflation outlook, the central bank’s tightening bias is appropriate and should help bring inflation towards announced targets over time. The resumption of pre- scheduled daily foreign exchange purchase auctions will help increase reserves without interfering with the floating exchange rate regime.
“The authorities’ structural reform agenda will help sustain growth, maintain market confidence, and reduce vulnerabilities. On the fiscal side, efforts to improve tax revenue collection, including through the establishment of a large taxpayer unit by end-year, and timely implementation of social security reform legislation will be key to safeguard the medium-term fiscal position. In the financial sector, the regulatory framework is being further strengthened through the adoption of supporting regulations for the Banking Law and the introduction of stricter provisioning requirements. Passage of the mortgage law and privatization of state banks will help deepen financial markets, enhance the efficiency of the financial system, and strengthen the investment climate.
“Close adherence to the authorities’ policies under the Fund-supported program will be key to ensuring continued stable growth with lower inflation, and to reducing the vulnerability of the economy to any sudden shift in market sentiment. The authorities’ commitment to maintain tight monetary and fiscal policies and advance structural reforms deserves the support of the international community,” Mr. Lipsky said.