WASHINGTON: The Intern-ational Monetary Fund called on Turkey to tighten its monetary and fiscal policies to reduce its external imbalances, which have been exacerbated by capital outflows from emerging markets.
“The market reappraisal of advanced economies’ monetary policies has exposed Turkey’s main vulnerability - its external imbalance,” the IMF said after a mission visit to Turkey.
“In this context and with gross external financing needs projected to remain high over the next few years, a weakening or a reversal of capital flows present a major challenge for the Turkish economy,” the Fund said in a statement on Friday.
The IMF said Turkey’s current account deficit should widen to 7 percent of its GDP this year and stay that way in 2014, in part due to more gold imports. And inflation should remain above the target of 5 percent this year and next, exacerbated by the depreciation in Turkey’s lira.
Turkey’s central bank governor, Erdem Basci, said last week the lira’s fall had worsened the outlook for inflation. He said the bank would implement additional monetary tightening in its complex money market operations if there were risks of price growth getting out of control.
The IMF said tighter fiscal and monetary policy should reduce external financing requirements and inflation, which would decrease the likelihood of further capital outflows. It also said Turkey should avoid selling its foreign exchange reserves as a substitute for monetary policy, and use the reserves only to address excessive volatility.
Reuters
