1TUREA2023001

IMF Country Report No.
23/303
REPUBLIC OF TÜRKİYE
2022 ARTICLE IV CONSULTATION—PRESS RELEASE;
January 2023 AND STAFF REPORT
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions
with members, usually every year. In the context of the 2022 Article IV consultation with
the Republic of Türkiye, the following documents have been released and are included in
this package:
• A Press Release summarizing the views of the Executive Board as expressed during its
January 18, 2023 consideration of the staff report that concluded the Article IV
consultation with the Republic of Türkiye.
• The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on January 18, 2023, following discussions that ended October 26, 2022,
with the officials of the Republic of Türkiye on economic developments and policies.
Based on information available at the time of these discussions, the staff report was
completed on December 21, 2022.
• An Informational Annex prepared by the IMF staff.
The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.
Copies of this report are available to the public from
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Washington, D.C.
© 2023 International Monetary Fund

PR23/289
On January 18, 2023, the IMF Executive Board Concluded the

2022 Article IV Consultation with the Republic of Türkiye
Washington, DC – August 18, 2023: On January 18, 2023, the Executive Board of the
International Monetary Fund concluded the 2022 Article IV Consultation with the Republic of
Türkiye.1 This press release summarizes the views of the Executive Board as expressed
during its January 18, 2023 consideration of the 2022 Article IV and the 2022 Financial
System Stability Assessment staff reports.
Türkiye made impressive economic gains over the past two decades. In the early 2000s,
broad-based macroeconomic and structural reforms supported income catch-up towards
advanced economies, poverty reduction, and marked disinflation. This moved Türkiye firmly
into the upper middle-income bracket, while lifting nearly 30 percent of the population out of
poverty. In recent years, however, as reforms waned, productivity gains slowed, and growth
became increasingly dependent on externally-funded credit and demand stimulus. The newly-
adopted Türkiye Economic Model—comprising low interest rates as well as a complex set of
regulatory measures to direct credit to selected sectors and promote greater use of the lira in
the economy—has exacerbated vulnerabilities.
Driven by the lagged effects of an outsized credit impulse in 2020, the relaxation of mobility
restrictions, and robust external demand, Türkiye’s output rebounded by more than 11 percent
in 2021—a much stronger recovery from the pandemic than in most countries—and robust
growth carried over into the first half of 2022. GDP is now significantly above its pre-pandemic
trend and the rates of unemployment and labor force participation have more than fully
recovered.
Despite strong growth and inflation four times above target, policy rates were cut aggressively
in late 2021, leading to significant pressure on the lira, which was relieved only through large
foreign exchange intervention and the introduction of an FX-protected deposit scheme. These
moves were followed by an increasingly distortionary and complex set of macrofinancial
measures to encourage the holding of lira assets. Inflation has accelerated sharply, reaching a
24-year high of 85 percent in October, among the highest in large EMs. External imbalances
have widened, aggravated by the war in Ukraine, and reserve buffers remain low, despite
increasing somewhat in recent months. Public debt declined to under 40 percent of GDP, but
spending pressures and fiscal risks, including from contingent liabilities from Turkish Lira FX-
protected deposits and exposure of public debt to FX shocks, are rising. Financial risks are
also high and rising owing, among other things, to a strong FX liquidity nexus between the
central bank and the banks, while the recent credit slowdown is driven by increasingly
distortionary measures. Non-financial corporations showed resilience through the pandemic,
but leverage and FX mismatches remain large.
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial information, and discusses with officials the country's economic developments
and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2
Reflecting lower growth carryover, weaker external demand, especially in Europe, binding
external financing constraints, and squeezed real incomes, growth is expected to decline to
3 percent in 2023 from about 5.5 percent this year. Inflation is expected to fall to about
70 percent by end-2022, and to fall further, to 36 percent, by end-2023—driven by fading
exchange rate passthrough, favorable base effects, and expected lower commodity price
pressures. But inflation is expected to remain much higher than the target and than in peer
countries, given loose policies, inflation inertia, and un-anchored inflation expectations. Near-
term growth may surprise on the upside, as unexpected sources of external financing could
allow the continuation of pro-growth policies and a wider current account deficit, but, overall,
risks are skewed to the downside and, with limited buffers, vulnerabilities remain acute. On the
domestic front, doubling down on pro-growth policies without enough external financing could
weigh on confidence and fuel pressures on the lira, hurting bank and corporate balance
sheets, with spillovers to the public sector. Meanwhile, external risks have also intensified,
including from larger- or faster-than-expected tightening by advanced market central banks,
escalating geopolitical tensions, higher commodity prices, higher global risk aversion, and
weaker global growth.
Türkiye’s FSSA found that financial stability risks are high and growing. In particular, FX
liquidity risks have risen given the tightening bank-central bank nexus and scarce readily
available central bank FX reserves. Also, banks could face capital adequacy pressure should
rapid credit growth resume, and uncertainty over banks’ asset quality and capital adequacy
remains. The authorities’ idiosyncratic macrofinancial policy mix has introduced distortions in
financial price formation, with some measures working at cross purposes or diverging from
international standards. Operational autonomy has been eroded in key agencies, while policy
and resource pressures have resulted in banking supervisory practices and a regulatory
framework that require critical enhancement. Several gaps in the crisis management
framework identified in the last FSAP remain.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They commended Türkiye for
its remarkable recovery from the pandemic, noting the contribution of stimulative policies and
a dynamic private sector. However, the policies that buoyed growth also exacerbated
vulnerabilities. Directors noted that the policy rate cuts in late 2021 led to significant pressure
on the lira, and measures to relieve those pressures, while helping, did not address the root
causes of Türkiye’s economic problems, with the lira remaining under pressure for much of
2022, inflation reaching multi-year highs, and core reserves remaining deeply negative. The
spillovers from Russia’s invasion of Ukraine also exacerbated Türkiye’s external imbalances
and added to inflation pressures.
With high inflation at risk of becoming entrenched, Directors stressed that prompt and sizable
interest rate hikes are needed, complemented with steps to strengthen central bank
independence. They also emphasized the importance of carefully phasing out regulatory
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:
http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
3
measures, allowing the policy interest rate to act as the primary monetary policy instrument.
Directors welcomed the authorities’ aim to replenish international reserves as conditions allow.
Directors acknowledged that Türkiye’s public debt burden remains low and commended the
authorities’ commitment to fiscal discipline. Nonetheless, Directors cautioned against rising
fiscal risks from growing spending pressures and contingent liabilities, including from FX-
protected schemes. They recommended maintaining a tight fiscal stance to preserve buffers
and contain domestic demand, while focusing on targeted measures to support the most
vulnerable. Directors welcomed the authorities’ progress in enhancing fiscal governance but
encouraged further steps to increase transparency and strengthen debt management more
durably.
In the financial sector, Directors underscored the importance of phasing out regulatory
measures to minimize distortions to price formation and capital allocation, while reducing the
role of the state in credit provision. They shared the emphasis on strengthening prudential
standards and encouraged reversing regulatory forbearance measures to improve asset
quality and capital adequacy transparency. Directors recommended integrating crypto assets
into the supervisory framework, while taking any further required steps to fully implement the
FATF action plans. Directors also broadly supported recommendations in the FSSA, in
particular, the importance of increasing attention to FX liquidity monitoring and contingency
planning. They underscored the need to strengthen banking supervision, including by
adequately resourcing supervision activities. Directors also encouraged reforming the
emergency liquidity assistance framework and strengthening the crisis management
framework.
Directors called for targeted structural reforms to foster stronger sustainable growth and
increase the economy’s resilience to shocks. They welcomed the focus of the consultation on
female labor force participation and climate change. Improving the business and regulatory
environment, labor market flexibility, and the quality of human capital will be important, as well
as closing labor market gender gaps. A comprehensive strategy would help meet Türkiye’s
climate goals.
Background: IMF Executive Board Concluded the 2022 Article IV Consultation with Türkiye
on January 18, 2023.
4
Table 1. Türkiye: Selected Economic Indicators, 2021–27
Population (2021): 84.7 million

Per capita GDP (2021): US$9,654
Quota: SDR 4,658.6 million
2021 2022 2023 2024 2025 2026 2027

Proj.
Real sector (Percent)
Real GDP growth rate 11.4 5.5 3.0 3.0 3.0 3.0 3.0
Contributions to real GDP growth
Private consumption 8.7 8.4 2.0 2.0 2.1 2.1 2.0
Public consumption 0.4 0.4 1.6 0.4 0.4 0.4 0.5
Investment (incl. inventories) -4.1 -4.8 0.9 0.2 0.5 0.5 0.6
Net exports 6.4 1.5 -1.4 0.3 0.1 -0.1 -0.1
Output gap 1.5 2.2 1.7 1.2 0.6 0.1 0.0
GDP deflator growth rate 29.0 83.3 51.7 24.1 19.3 18.5 18.2
Inflation (period-average) 19.6 72.1 50.6 24.0 20.2 20.0 20.0
Inflation (end-year) 36.1 70.0 36.0 21.3 20.0 20.0 20.0
Unemployment rate 12.0 10.8 10.5 10.5 10.5 10.5 10.5
(Percent of GDP)
Fiscal sector
Nonfinancial public sector overall balance -2.5 -4.4 -5.3 -5.0 -4.9 -4.8 -5.0
General government overall balance (headline) 1/ -2.6 -3.9 -4.7 -4.5 -4.5 -4.4 -4.6
General government gross debt (EU definition) 41.8 35.6 35.4 36.6 38.4 39.8 39.6
External sector
Current account balance -0.9 -6.0 -3.4 -2.5 -2.2 -2.2 -2.2
Gross external debt 54.8 57.8 48.6 47.7 46.9 46.1 45.6
Gross financing requirement 21.2 26.2 24.7 23.4 23.2 23.4 23.3
Sources: Turkish authorities; and IMF staff estimates and projections.

1/ Headline (or authorities' definition), which includes items excluded from the IMF 'program' definition.
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
December 21, 2022
KEY ISSUES
Context. Türkiye’s recovery from the pandemic has been remarkable and reflects outsized
stimulative policies and a dynamic private sector. But the same policies that buoyed
growth also exacerbated vulnerabilities by lowering reserve buffers and increasing
dollarization. A new policy model, introduced in the Fall of 2021, aims at further
supporting growth and at lowering inflation by eliminating Türkiye’s current account
deficit. The model relies on low interest rates and on measures to reduce dollarization,
financial volatility, and overall credit growth, while directing lending to selected sectors.
Successive policy rate cuts led to a run on the lira in December 2021, which was only
relieved by large FX intervention and a new FX-protected deposit scheme. Since then,
increasingly distortionary and complex macrofinancial and regulatory measures have been
put in place to limit the lira decline. Meanwhile, inflation reached multi-decade highs, at
85 percent in October 2022. While Türkiye’s public debt burden is low compared to peers,
fiscal risks have grown—notably from quasi-fiscal operations, contingent liabilities, and
the exposure of public debt to FX shocks—and spending is expected to rise ahead of the
upcoming elections. Spillovers from Russia’s war in Ukraine have added to Türkiye’s
economic strains and have exacerbated external vulnerabilities, notably through a wider
current account deficit.
Outlook. Growth is expected to fall and inflation to remain high—and much higher than
in peer countries—in 2023. Although near-term upside risks to growth are non-negligible,
medium-term downside risks have increased because of rising economic distortions and
vulnerabilities. Near-term risks to inflation are on the upside.
Policies. While risks and vulnerabilities have increased, and buffers have fallen further,
Türkiye’s challenges are not insurmountable. Addressing them requires a policy shift that
should include:
• First and foremost, prompt, sizeable, and credible policy rate hikes combined with
moves to strengthen central bank independence, as well as transparent and predictable
reserve accumulation as conditions allow;
• Close monitoring of systemic FX liquidity risks, careful unwinding of the distortionary

and complex set of regulatory measures, strengthening of prudential standards and
phasing out of regulatory forbearance;
• Tight fiscal policy combined with targeted assistance to the most vulnerable and
fiscal governance reforms to limit quasi-fiscal risks; and
• Targeted structural policies to promote more inclusive and sustainable growth

through higher productivity and labor force participation, and through well-targeted
investment.
2 INTERNATIONAL MONETARY FUND

Approved By Discussions took place in Istanbul and Ankara during October 14–26,
Laura Papi (EUR) and 2022. The team consisted of Messrs. McGettigan (Head), Guzzo,
Maria Gonzalez (SPR) Pienkowski and Ms. Domit (all EUR), Mr. Di Vittorio (SPR), Ms. Hong
(FAD), Mr. Piontek (MCM), and Messrs. Sadikov, Çeçen and
Ms. Kesimal (Senior Resident Representative Office). Ms. Fernando
(LEG), Mr. Nelmes (MCM), and Mr. Parry and Ms. Zhunussova (both
FAD), and Messrs. Azal and Akben (OED) also participated in the
mission. The mission met with Deputy Minister of Treasury and
Finance Zaman, Deputy Central Bank Governor Duman, other senior
officials, and private sector representatives. Mses. Kumar, Lee, and
Mengüç assisted with the mission and with the preparation of the
staff report.
CONTENTS
CONTEXT—A NEW ECONOMIC MODEL ________________________________________________________ 5
RECENT DEVELOPMENTS—RECOVERY, INFLATION, AND RISING GLOBAL TENSIONS ______ 6
OUTLOOK AND RISKS—A FRAGILE BALANCE ________________________________________________ 14
POLICIES—A U-TURN IS NEEDED _____________________________________________________________ 16

A. Monetary Policy—A Credible Regime Switch is Needed ______________________________________ 18
B. Fiscal Policy—Tight Fiscal Policy, with Support for the Most Vulnerable _______________________ 20
C. Financial Policies—Allowing Market Forces to Drive Credit Allocation ________________________ 23
D. Structural Policies—Promoting More Inclusive and Sustainable Growth ______________________ 27
STAFF APPRAISAL _____________________________________________________________________________ 28
BOXES
1. FX-Protected Deposit Scheme _________________________________________________________________ 32
2. The Economic Costs of High Inflation _________________________________________________________ 33
3. Net Errors and Omissions _____________________________________________________________________ 35
4. The Authorities’ Medium-Term Projections____________________________________________________ 36
5. Crypto Assets in Türkiye _______________________________________________________________________ 37
FIGURES
1. Poverty and Inequality ________________________________________________________________________ 38
2. Key Spillovers from the War in Ukraine ________________________________________________________ 39
3. Inflation Developments in an International Context ___________________________________________ 40
4. Household Balance Sheets ____________________________________________________________________ 41
INTERNATIONAL MONETARY FUND 3

5. Financial Markets __________________________________________________________________________________ 42

6. Real Sector Developments_________________________________________________________________________ 43
7. Labor Market Developments ______________________________________________________________________ 44
8. Financial Sector____________________________________________________________________________________ 45
9. Fiscal Stance _______________________________________________________________________________________ 46
10. Fiscal Financing __________________________________________________________________________________ 47
11. External Sector ___________________________________________________________________________________ 48
12. Credit Growth Developments ____________________________________________________________________ 49
TABLES
1. Selected Economic Indicators, 2018–27 ___________________________________________________________ 50
2. Summary of Balance of Payments, 2018–27 _______________________________________________________ 51
3. External Financing Requirements and Sources, 2018–27___________________________________________ 52
4. Public Sector Finances, 2018–27 ___________________________________________________________________ 53
5. Financial Soundness Indicators, 2012–21 __________________________________________________________ 54
ANNEXES
I. External Sector Assessment ________________________________________________________________________ 55
II. Public Debt Sustainability _________________________________________________________________________ 57
III. The Health of Non-Financial Corporations ________________________________________________________ 65
IV. Risk Assessment Matrix ___________________________________________________________________________ 68
V. External Debt Sustainability _______________________________________________________________________ 71
VI. Implementation of Past Fund Advice _____________________________________________________________ 74

CONTEXT—A NEW ECONOMIC MODEL

1. Türkiye made impressive economic gains over the past two decades. In the early 2000s,
broad-based macroeconomic and structural reforms supported income catch-up towards advanced
economies, poverty reduction, and marked disinflation, following decades of inflation around 70–80
percent. This moved Türkiye firmly into the upper middle-income bracket, while lifting many
households out of poverty.
Real GDP Per Capita Absolute Poverty

(PPP international dollars) (Percent of Population below US$5.50 a day (2011 PPP))
60000 40
LICs
EMs 35
50000
AEs 30
TUR
40000 25
30000 20
15
20000
10
10000
5
0 0
1990 1994 1998 2002 2006 2010 2014 2018 2022(e) 2002 2005 2008 2011 2014 2017 2019
Sources: IMF World Economic Outlook and IMF staff calculations. Source: World Bank.
2. In recent years, including through the pandemic, Türkiye’s growth model increasingly
relied on demand stimulus, exacerbating vulnerabilities. As reforms waned, productivity gains
slowed and growth became increasingly dependent on externally-funded credit and demand
stimulus. Progress on reducing poverty also stalled (Figure 1). As a result of outsized stimulative
monetary policy and rapid credit expansion, Türkiye was among the few countries to record positive
growth in 2020 and, unlike most peers, its output gap closed rapidly following the pandemic. But
the same policies that buoyed growth also exacerbated already-large vulnerabilities, notably in the
form of low and falling reserves and increased dollarization.
3. The new Türkiye Economic Model (TEM), adopted in late 2021, introduced a new
policy approach. The TEM identified Türkiye’s current account deficit—and the resulting
dependence on capital flows needed to finance CPI and Exchange Rate
90 20
it—as a major impediment to sustainable growth 80 CPI (y/y change)
18
TRY/USD (rhs)
and low inflation. The model comprises low 70 16
interest rates as well as a complex set of 60
14
regulatory measures to direct credit to selected 50

12
10
sectors (notably exporters) and to promote 40
8
greater use of the lira in the economy—the 30
6
“liraization” strategy. The TEM policies instead led 20 4
to significant market pressure on the lira in late 10 2

0 0
2021. This was followed by the war in Ukraine,
Jan-02 Aug-05 Mar-09 Oct-12 May-16 Dec-19 Oct-22
which added to pre-existing vulnerabilities. Sources: Bloomberg Finance L.P. and CBRT.

4. The authorities have since doubled down on TEM policies. As growth started to slow,
interest rates were cut further in the second half of 2022, in contrast with the ongoing global
tightening cycle, while the set of macrofinancial and regulatory measures has grown in size and
complexity.
RECENT DEVELOPMENTS—RECOVERY, INFLATION,

AND RISING GLOBAL TENSIONS
5. Türkiye’s recovery from the pandemic has been remarkable. Driven by the lagged effects
of an outsized credit impulse in 2020, the relaxation of mobility restrictions, and robust external
demand, output rebounded by more than 11 percent in 2021—a much stronger recovery than in
most countries. This growth momentum carried over into the first half of 2022, driven mainly by
strong consumption and net exports. As a result, the output gap turned positive in 2021 and has
since widened, while capacity utilization and the rates of unemployment and labor force
participation have more than fully recovered (including in the most affected segments of the
population, notably among female and young workers). And, unlike in most countries, GDP is
significantly above its pre-pandemic trend.
Remarkable Recovery from the Pandemic

G20 Real GDP Growth G20 Employment Growth 1/
(Percent; 2022Q2 vs 2019Q4, seasonally adjusted) (Percent; 2022Q2 vs 2019Q4, seasonally adjusted)
20 12
18
16 10
14 8
12
10 6
8
6 4
4
2 2
0 0
-2
-4 -2
-6
-8 -4
-10 -6
-12
ITA
MEX
RUS
EU
IDN 3/
TUR
ARG
AUS
GBR
KOR
ZAF
JPN
USA
CAN
BRA 2/
DEU
FRA
SAU
MEX
IDN
RUS
ITA
EU
IND
CHN
TUR
ARG
AUS
GBR
KOR
ZAF
JPN
BRA
CAN
USA
DEU
FRA
SAU
Participation and Utilization Real Gross Domestic Product

(Percent) (2019Q4=100)
56 80 125
Real GDP
120
54 2014-2019 trend
75 115
52 110
70 105
50
100
48
65 95
46 90
60 85
44 Labor Force Participation
Manufacturing Capacity Utilization, rhs 80
42 55 75
Aug-18 Mar-19 Oct-19 May-20 Dec-20 Jul-21 Feb-22 Sep-22 2014Q2 2016Q2 2018Q2 2020Q2 2022Q2
Sources: Turkstat; Haver Analytics; World Economic Outlook; and IMF staff calculations.
1/ China and India are omitted due to lack of data availability.
2/ Based on 3-month moving average.
3/ 2022Q1 vs 2019Q3.

6. Under the TEM, the Central Bank of the Republic of Türkiye (CBRT) cut rates
aggressively in late 2021, which led to significant pressure on the lira. The CBRT cut the policy
rate from 19 to 14 percent between September and December 2021, despite strong growth and
inflation of 20 percent, well above the central bank’s 5 percent target. Following the loosening of
monetary policy, the conversion of lira deposits into foreign exchange deposits accelerated sharply,
putting severe pressure on the lira, which lost half its value against the dollar in a matter of weeks.
7. Large foreign exchange intervention and macrofinancial and regulatory measures

relieved market pressures. Pressures on the lira were relieved by large foreign exchange
interventions and the introduction of a scheme protecting lira term deposits against currency
depreciation (Box 1). These moves were followed by an increasingly distortionary and complex set of
macrofinancial measures to encourage the holding of lira assets (overleaf text table).
Nominal Exchange Rate and Key Policy Developments

TRY/USD FX Surrender Requirement ->
19
FX-Protected Deposits ->
17
<- Securities
Requirements
on Lending
15 Rates
13
Reserve Requirements ->
on Loans and Conversion
11 Targets
Changes to ->
Collateral Management
9 <- TRY Loan
Macropru Measures -> Ban on NFC
on Consumer Loans FX Targets
7
Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Nov-22
Sources: Bloomberg Finance L.P.; CBRT; and Haver Analytics.

y Selected Macro-Prudential and Regulatory

g Measures
y
Reserve
Requirements/ Collateral Macroprudential
Capital Adequacy Other
Securities Management Policies
Maintenance
• 10% RR imposed on newly • Weight of TRY fixed-rate • Reduced maturity cap for • USD/TRY exchange rate used • One-week repo rate cut by
issued TRY commercial loans; securities in collateral pool general purpose loans over in FX risk-weighted assets 1,000 bps cumulatively
later increased to 20% RR; increased TRY 50,000 from 36 to 24 fixed at 2021 year-end level • TRY FX-protected deposits
and, finally, to 30% SM months
• 30% floor imposed on TRY- • Risk weight applied to introduced/NFC tax exempt
• 20% RR imposed on stock denominated collateral for • Reduced maturity cap for selected commercial TL loans • FX surrender requirements for
loan growth above 20% interbank money markets general purpose loans over and corporate cards raised exporters set at 25%; later
during Dec 21-May 22 and swap transactions TRY 100,000 to 12 months from 20-150% to 200% increased to 40%
• 100% SM imposed on stock • Floor later increased to 45% • Increased minimum monthly • Risk weight applied to loans • Export rediscount credit
loan growth above 10% and then 50% payment for credit cards from NFC engaging in linked to FX surrender
during Jul-Dec 22
• Haircut on inflation-linked, over TRY 25,000 from 20% to derivatives with offshore requirements
• Additional 500 bp RR for 40% counterparts raised to 500%
gold-backed and FX- • Loan ban for corporates with
banks with a conversion rate
denominated collateral • Differentiated LTV ratios FX cash assets above TRY 15m
from FX to TRY deposits
raised progressively from 5% introduced for housing loans or 10% of total assets; later
below 5%; 300 bp RR for
to 60% according to energy class 10m or 5% of assets
banks with a 5-10%
conversion rate and value • 90% SM for TRY loans with
rates 1.8 times compound
• 1.5% commission fee imposed
reference rate; 20% for loans
on RR for FX deposits with
with rates between 1.4-1.8
conversion rates below target;
times
later increased to 5%
• Lower mortgage rates if 50%
• 5% SM on FX deposits. 700 bp
of purchase through FX sale
SM for banks with TRY
deposit share below 50%; 300 • Tax for banking and insurance
bp SM between 50-60% transactions on consumer
loans increased from 5% to
10%
Sources: CBRT; BRSA; MoTF; and Official Gazette. Notes: RR = reserve requirement; SM = securities maintenance; LTV = loan-to-
value.
8. Spillovers from the war in Ukraine exacerbated existing vulnerabilities. Higher energy
import prices significantly widened the current account deficit and increased pressure on Türkiye’s
already-limited reserves, adding to lira weakness. Rising energy and food import prices also fueled
inflation, while spillovers through other channels were more limited (Figure 2).
9. Inflation has accelerated sharply, reaching a 24-year high of 85 percent, among the
highest across large EMs. While commodity price increases and supply-chain disruptions have
added to inflation, as in other countries, Türkiye’s EM Monetary Policy and Inflation
idiosyncratically high inflation is driven by 1500
1200
excessively loose monetary policy and the 900
IND RUS
MEX
resulting exchange rate depreciation and shifting PER HUN
(bps, change Aug-2021)
600 CHL
ZAF COL
of inflation expectations (Figure 3). High inflation 300 IDN PHL
CHN BRA POL
Policy Rate
0
has imposed large economic costs on the -20 -300 0
THA
20 40 60 80 100
country, particularly on the poor (Box 2). Despite -600
rising headline and core inflation, the CBRT cut -900

TUR
-1200
the policy rate further to 9 percent in November, CPI Inflation
(percent, deviation from target)
in the latest of a succession of cuts, setting it
Sources: Haver Analytics and IMF staff calculations.
further apart from peer central banks, which have Note: Excludes Argentina.
raised rates aggressively over the past year.

CPI Inflation Ex-Ante Real Policy Rate and Inflation 1/

(Percent, y/y change) (Percent)
90 100
Ex-ante real policy rate
Headline 80
75 Inflation
Core 60
60
40
45 20
30 0
-20
15
-40
IDN
CHL
COL
MEX
CHN
RUS
IND
POL
MYS
TUR
KOR
BGR
BRA
HUN
ROU
THA
CZE
0
Nov-19 Apr-20 Sep-20 Feb-21 Jul-21 Dec-21 May-22 Oct-22 1/ Ex-ante rates based on one year-ahead inflation expectations.
Source: Turkstat. Sources: Haver Analytics and IMF staff calculations.
10. External imbalances have widened, aggravated by the war in Ukraine. The spillovers
from the war in Ukraine doubled Türkiye’s 2022 energy import bill to a projected 10 percent of GDP
and contributed to a widening of the current account deficit to a projected 6 percent of GDP. The
higher deficit was financed mostly by unidentified inflows (errors and omissions), which have
become more persistent but remain an unreliable financing source (Box 3), as well as by large
foreign FX deposits relating to the Rosatom nuclear power project. Competitiveness gains from the
sharp lira depreciation have been, and continue to be, steadily eroded by rising inflation, particularly
at the producer level, such that the non-energy goods current account balance has not improved.
Tourism exports surpassed pre-pandemic levels, while gold imports have also increased. 1 On a
preliminary basis, Türkiye’s external position in 2022 is assessed to be weaker than the level implied
by fundamentals and desirable policies. Much of this gap would close if desired policies—the staff
recommended policy pivot, with an interest rate increase at its core—were implemented. While
there are large uncertainties over energy prices and the drivers of large net errors and omissions
and their impact on Türkiye’s external imbalances, the assessment is also supported by other
components such as the low level of reserves, large external financing needs, and the size and
composition of the NIIP, all of which contribute to external vulnerabilities (Annex I).
Current Account Current Account Deficit Financing

(Percent of GDP) (Percent of GDP)
10
10
5
5
0
-5 0
-10 Other Gold Other Inv. & FDI

Tourism & Transport Energy Balance -5 E&O
-15 Reserves (+ = drawdown)
Current Account Balance
Portfolio
-20 -10 CAD
2002 2006 2010 2014 2018 2022
2022 1/ 2002 2006 2010 2014 2018 2022
2022 1/
Sources: Haver Analytics and IMF staff calculations. Sources: Haver Analytics and IMF staff calculations.
1/ Based on available data through Q3. 1/ Based on available data through Q3.
1
Revisions to tourism exports, published in November 2022, decreased the current account deficit (and net errors
and omissions) by about 0.8 percent of GDP in 2022.

Selected EMs PPI, Latest Real Effective Exchange Rate

(Y/y percent change) (Index: 2003=100)
180 110 120
160 110
140 100
100
120
90 90
100
80 80
60 80 70
40 60
20 70
PPI-based 50
0 CPI-based (rhs)
60 40
COL
MEX
CHN
TUR
POL
CHL
PHL
RUS
ARG
HUN
ZAF
BRA
THA
Oct-11 Jul-14 Apr-17 Jan-20 Sep-22
Sources: Haver Analytics and IMF staff calculations. Sources: CBRT and Haver Analytics.
11. Reserve buffers remain low. Despite increasing in recent months, gross reserves remained
low at end-November, at around USD 123 billion or 88 percent of the Fund’s ARA metric, with the
CBRT’s “immediately available” hard currency reserves (i.e., gross reserves minus gold, non-hard
currencies, SDR holdings, and Treasury FX deposits) standing at around USD 37 billion. Moreover, a
measure of “core” reserves that excludes all central bank foreign exchange liabilities (including
external central bank swaps) remains deeply negative. While the private sector has reduced its
foreign exchange exposure, exchange rate risk has shifted from private to public sector balance
sheets.
Gross Reserves and Core NIR

Reserves, 2021
(Billions USD)
(Percent of ARA Metric) (Billions USD)
140
400 130
120 120
100 350 110
80 300 100
90
60 250 80
40 Start of easing cycle 70
200
20 Sep-21 60
0 150 50
40
-20 100 30
-40 20
Gross reserves 50
-60 10
Core NIR 0 0
-80
2018 2022M11
COL
MEX
IDN
RUS
IND
POL
CHL
MYS
TUR
BGR
KOR
ARG
BRA
HUN
ROU
ZAF
THA
Aug-19 Jun-20 Apr-21 Feb-22 Nov-22 SDR currencies

Sources: CBRT and IMF staff calculations. Other currencies
Note: Core NIR excludes FX swaps and Treasury FX deposits with the CBRT. Sources: CBRT and IMF staff calculations. Gold
12. Under-execution of the central government deficit contributed to a tightening of fiscal

policy for most of 2022. 2 The central government registered a 1 percent of GDP deficit through
October, much lower than the Medium-Term Plan full-year deficit target of 3.4 percent of GDP; this
resembles the execution profile observed in 2021, supporting staff’s projection of an expansionary
2
The assessment considers both cyclical factors (fiscal impulse of -1.9 percent of GDP, comparing the cyclically-
adjusted primary balance in 2022 up to October to the cyclically-adjusted primary balance in 2021) and a comparison
to the budget target for the full-year 2022. However, this assessment does not consider wider measures of the fiscal
stance, including the non-financial public sector and/or quasi-fiscal activities beyond this perimeter.

fiscal stance for 2022 as a whole (¶38, Table 4). Central Government Overall Balance Execution Through October
(Cumulative Jan-Oct Balance as a percent of Original or Revised
This strong performance was driven by Annual Target)
contained spending and still-strong revenues. 140
120
Public debt remains low and sustainable under
100
the scenarios considered in staff’s Debt
80
Sustainability Analysis (see Annex II). The
60
general government debt ratio declined to
40
under 40 percent of GDP by the second quarter
20
of 2022, assisted by higher inflation, while the
0
composition of debt improved as various 2016 2017 2018 2019 2020 2021 2022
macrofinancial and regulatory measures led to Sources: Ministry of Treasury and Finance and IMF staff calculations.
longer debt maturities and to a lower reliance on domestic FX borrowing. Meanwhile, foreign holdings
of public domestic debt fell to an all-time low of under 1 percent of overall holdings, with domestic
banks picking up the slack. Risks have increased, however, from rising contingent liabilities, quasi-fiscal
operations, and the large exposure of public debt to FX risks—notably from high external financing
requirements and the large share of FX in public debt—against the backdrop of a weak external
position.
EMs General Government Gross Debt, 2022 Forecast Average Maturity of Domestic Borrowing 1/
(Percent of GDP) (Fixed coupon bonds, monthly)
100 120
90 Flow
Stock
80 100
70
60 80
50
60
40
30 40
20
10 20
0
0
IDN
IND
CHN
COL
MEX
PHL
POL
CHL
TUR
RUS
ARG
BRA
HUN
ZAF
PER
THA
Jan-05 Oct-08 Jul-12 Apr-16 Jan-20 Oct-22
Sources: World Economic Outlook; MOTF; and IMF staff calculations.

1/ Total domestic fixed interest borrowing, cumulative average to date (latest observation, October 2022).
13. But spending pressures and fiscal risks are rising. Government spending is expected to
pick up sharply in the coming months, driven by shovel-ready investment projects and the financing
of energy state-owned enterprise (SOE) losses. 3 While some risks are recognized in the budget,
broader fiscal risks have grown, including through contingent liabilities from FX-protected deposits,
public private partnerships (PPPs), and state-owned banks. 4 However, the main near-term risk to
fiscal space relates to possible financing constraints.
3
State gas company BOTAS heavily subsidizes gas prices to households and SMEs. By the time the report was
prepared, BOTAS had received a capital injection of 120 billion TL in 2022, equivalent to 0.8 percent of GDP, reflected
in the budget.
4
For FX-protected deposits, staff estimates that every extra 10 percent depreciation would lead to an additional
0.4 percent of GDP cost in 2023 (see Box 1).

14. Financial stability risks are high and rising, mainly stemming from a strong FX liquidity
nexus between the CBRT and banks. Deposit dollarization and limited demand for domestic FX
loans have led to a large currency mismatch on banks’ balance sheets. The mismatch has been
closed through FX swaps with the CBRT and through sizable bank FX deposits at the CBRT. As a
result, more than half of banks’ FX liquid assets are held at the CBRT, and more than three quarters
of the central bank’s reserve liabilities are now owed to domestic banks, a claim larger than the
CBRT’s total reserve assets.
15. The recent credit slowdown is Total Credit Growth

(Percent, 13-week moving average, annualized)
welcome, but it is driven by increasingly 140
FX
120
distortionary and costly measures. Despite 100
TL
Total
sizeable interest rate cuts, credit growth slowed in 80
60
the second half of 2022, although it has picked 40
up more recently and it remains positive in real 20
0
terms for most segments, notably credit card and -20
-40
export loans (Figure 12). The slowdown in credit -60
growth has been driven by an increasingly Jan-18 Apr-19 Jul-20 Oct-21 Oct-22
distortionary and complex set of regulatory Sources: BRSA; Haver Analytics; and IMF staff calculations.
Note: Weekly EOP. FX adjusted by converting FX credit to currency
measures, leading to an inefficient allocation of basket (2017 base) before calculating the rate of change.
capital along with heightened financial and fiscal risks. The measures, for instance, include
requirements for banks to hold long-dated fixed-rate government securities when lending growth
exceeds certain thresholds. As a result, government bond yields fell sharply and the share of short-
term loans in total new lending increased as banks sought to address the increasing maturity
mismatch, with adverse implications for longer-term investment. Although new securities are mostly
classified as “held to maturity,” fixed-rate long-dated securities at artificially compressed yields
would, over time, other things equal, erode profits and weigh adversely on capital should interest
rates increase materially. By weakening the link between interest rates and credit provision, these
measures have also seriously undermined the role of the policy rate as the main monetary policy
instrument.
Turkish Local Currency and US Dollar Sovereign Bond Yields TRY Short-Term Loans 1/
(Percent) (Percent of Total TRY Loans)
35 65
Türkiye Nov. 2030 Local Currency Bond Yield Domestic Private Banks
30 Türkiye Jan. 2031 US Dollar Bond Yield 55 State-Owned Banks
Foreign Banks
25
45
20
35
15
10 25
5 15
Jan-17 May-18 Sep-19 Jan-21 Aug-22
May-22
0
Sources: BRSA; CBRT; and IMF staff calculations.
Jun-21 Dec-21 Jun-22 Nov-22
1/ Short-term loans are defined as loans with maturity of less than
Source: Bloomberg Finance L.P. one year.

Government Bond Yields and Key Policy Developments

27
FX Surrender Requirement ->
25
FX-Protected Deposits ->
23
<- Securities
21 Requirements
on Lending
19 Rates
17
Reserve Requirements ->
15
on Loans and Conversion
Targets
13
Changes to ->
11 Collateral Management
<- TRY Loan
9 Macropru Measures -> Ban on NFC
TRY Government Bond Yield (percent) on Consumer Loans FX Targets
7
Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Nov-22
Sources: Bloomberg Finance L.P.; CBRT; and Haver Analytics.
16. Regulatory forbearance continues to mask underlying asset quality problems. Reported
non-performing loan (NPL) ratios have fallen. At the same time, capital ratios have increased,
reflecting private bank profits and capital injections in state-owned banks. As noted in the FSSA,
however, capital would be materially lower, and much closer to regulatory limits without legacy
regulatory forbearance, which includes a fixed exchange rate in risk-weighted asset calculations.
Moreover, loans that have been refinanced and recorded as performing after benefiting from
regulatory forbearance have a higher default risk than regular performing loans.
17. Non-financial corporations showed resilience through the pandemic, but leverage and
FX mismatches remain large. A strong rebound in economic activity, a steady real wage bill, and
government pandemic support all helped with NFC profitability during the pandemic (Annex III). But
Turkish NFCs remain highly levered, and pockets of vulnerability are acute, including in the
accommodation and food, transportation, and real estate/construction sectors. While NFC FX-
denominated debt has halved in nominal terms since its 2018 peak, it remains high relative to
emerging market peers, while the real exchange rate depreciation in recent years increased the real
burden of this debt on NFCs.
Leverage by Industry Net Foreign Exchange Position
(Percent) (Billions USD, Inverted Scale)
120 -300
Negative equity Nominal
100 Adjusted by REER (Index, Mar' 18 = 1)
2019 2021 -250
80
60 -200
40
20 -150
0
-100
Info. & com.
Agriculture
Education
Other services
Real estate
Manufact.
Arts & rec.

Health/social
Trade
Admin/support
Transport
Construction
Elect. & gas
Professional
All sectors
Accom/food
Water…
Mining…
Peak Nominal FX burden

-50 (March 2018): -US$197bn
Sources: CBRT and IMF staff calculations. 0

Note: Leverage = non-equity liabilities/total assets using the CBRT company Mar-18 Nov-18 Jul-19 Mar-20 Nov-20 Jul-21 Mar-22
accounts database. Sources: Haver Analytics and IMF staff calculations.

OUTLOOK AND RISKS—A FRAGILE BALANCE

18. Policy settings are expected to remain too loose. The near-term outlook for Türkiye will
continue to be characterized by a tug of war between boosting growth ahead of the elections and
the constraints imposed by the large current account deficit, unfavorable external financing
conditions, and low reserves. Under the baseline, staff assumes that policy rates remain low. 5 Credit
growth is expected to remain positive in real terms, especially for targeted sectors. And while fiscal
policy remained tight through most of 2022, the fiscal impulse, based on the cyclically-adjusted
primary balance, is expected to turn expansionary, as spending pressures from high energy prices
and the electoral cycle increase.
19. Growth and inflation are expected to fall, but inflation is expected to remain high, and
much higher than in peer countries. Growth likely reached 5.5 percent in 2022, supported by a
large positive carryover from 2021 and strong first-half growth. Reflecting lower growth carryover
and staff’s assumptions about weaker external demand, especially in Europe, binding external
financing constraints, and squeezed real incomes, headline growth is expected to fall to 3 percent in
2023. That growth remains high, despite lower carryover and the constraints just noted, reflects
expected stimulus policies, including recent policy rate cuts (and still-positive real credit growth), and
an expected loosening of fiscal policy. Following recent declines in energy prices, the current account
deficit is expected to narrow to around 3.5 percent of GDP, but to remain high, reflecting slower
trading partner growth and domestic policy stimulus. Inflation is expected to fall sharply to
47 percent on average over the coming year—driven by fading exchange rate passthrough, favorable
base effects, and expected lower commodity price pressures—but to remain high, and much higher
than in peer countries, given loose policies, inflation inertia, and un-anchored inflation expectations.
Selected Economic Indicators, 2020–27

2020 2021 2022 2023 2024 2025 2026 2027
(Percent change)
GDP Growth 1.9 11.4 5.5 3.0 3.0 3.0 3.0 3.0
Inflation (end year) 15 36 70 36 21 20 20 20
(Percent of GDP)
Current account balance -4.4 -0.9 -6.0 -3.4 -2.5 -2.2 -2.2 -2.2
Fiscal balance 1/ -3.5 -2.7 -3.4 -4.2 -4.1 -4.1 -4.1 -4.3
Public debt 39.7 41.8 35.6 35.4 36.6 38.4 39.8 39.6
Source: IMF staff calculations.
1/
Central government overall balance, headline or authorities’ definition, which includes items excluded from the IMF
‘program’ definition.
20. Inflation could well exceed staff’s inflation forecast. The exchange rate is the critical
monetary transmission channel in Türkiye and the projected decline in inflation under the baseline
hinges on the assumption that lira depreciation will be moderate. Inflation would be significantly
higher if the lira were to depreciate sharply—for example, because of the diminishing effectiveness
of macrofinancial and regulatory measures in curbing depreciation pressures—or if inflation became
5
This is in line with market expectations at the time this report was prepared in early November.

more entrenched as expectations shift and contract-setting adjusts. 6

21. Near-term growth may surprise on the upside. As in recent episodes, unexpected sources
of external financing (e.g., in the form of new swaps with neighboring countries) could once again
allow the continuation of pro-growth policies and a wider current account deficit. Under such a
scenario, the real policy rate could remain deeply negative for longer, while credit and fiscal policies
would have room to turn decisively looser. While this would boost growth in the near term, it would
exacerbate vulnerabilities.
22. But, overall, risks are skewed to the downside and, with limited buffers, vulnerabilities
remain acute. Given the extent of vulnerabilities, the economy is susceptible to various shocks. On
the domestic front, doubling down on pro-growth policies given high and rising financial risks and
without enough external financing could weigh on confidence and fuel pressures on the lira, hurting
bank and corporate balance sheets, with spillovers to the public sector. Meanwhile, external risks
have intensified, including from larger- or faster-than-expected tightening by advanced market
central banks, escalating geopolitical tensions, higher commodity prices, higher global risk aversion,
and weaker global growth. Another COVID-19 wave at home or abroad is another risk (Annex IV).
Should these risks materialize, they could expose Türkiye’s vulnerabilities, notably its low reserve
buffers and domestic banks’ large claims on CBRT’s FX reserves.
Selected Vulnerability Indicators: GFC vs. Latest

External Public Sector Financial Sector Private Non-Financial
Gross Reserves General Government Return on Equity Interest Coverage
(Percent of ARA metric) Gross Debt (Percent) Ratio
120 (Percent of GDP) 25 8
EM Median 70
100 60 20
6
80 50
15
60 40 4
30 10
40
Turkey 20 2
20 5
10
0 0 0 0
GFC 2022M9 GFC 2021 GFC 2021 GFC 2021
External Debt/Exports Primary Balance Return on Assets NFC FX Denominated Debt

(Percent of Exports) (Percent of GDP) (Percent) (Percent of total NFC debt)
200 0 2.5 60
2.0 50
150
-1 40
1.5
100 30
1.0
-2 20
50
0.5 10
0 -3 0.0 0
GFC 2021 GFC 2021 GFC 2021 GFC 2021
External Financing Needs Public External Debt Loan-to-Deposit Ratio Non-Investment Grade Debt
120.0
30
(Percent of GDP) (Percent of GDP) (Percent of debt securities)
30
100.0 60
25 50
80.0
20 20 40
60.0
15 30
10 10 40.0
20
5 20.0 10
0 0 0.0 0
GFC 2021 GFC 2021 GFC 2021 GFC 2021
Worse Better
Sources: World Economic Outlook; Financial Soundness Indicators; and IMF staff estimates.
Note: GFC denotes 2008 or 2009 (whichever is worse).
6
Reduced effectiveness of macrofinancial and regulatory measures in curbing depreciation pressures could surface
from regulatory loopholes or reflect the tight FX demand-supply equilibrium under which the corporate sector is
operating.

23. Any marked worsening of the situation in Türkiye could have some regional spillovers.
Channels include trade links with neighbors (Azerbaijan), remittances (Bulgaria, Montenegro),
Trade Exposures to Türkiye, 2021 Financial Exposures in Turkey, 2021

(Percent of partner country's GDP) (Percent of partner country's GDP)
6 30
4 Bank lending
74.7
25 Direct investment
2
Portfolio investment
0 20
-2 15
-4
10
-6
-8 Exports to Türkiye 5
-10 Imports from Türkiye
Net Exports to Türkiye 0
-12
MKD
LBN
IRL
ITA
CHE
ND
KWT
GBR
BEL
LUX
ESP
MLT 1/
FRA
DEU
MDA
LBY
TKM
MKD
TJK
GRC
UZB
DZA
RUS
KAZ
BIH
AZE
BGR
BEL
HUN
ROM
LTU
UKR
GEO
KGZ Sources: BIS; IMF CDIS; IMF CPIS; and IMF staff calculations.
Sources: IMF DOTS; IMF WEO; and IMF staff calculations. 1/ Portfolio investment as of 2016.
financial exposures through portfolio flows (Bahrain, Luxembourg, Malta) and direct investment
(Azerbaijan). Exposure through bank lending is mostly linked to euro area financial institutions
holding equity stakes in Turkish banks (Spain), but these risks are seen as manageable. Overall, the
impact on other emerging markets will likely remain contained as Türkiye’s situation is largely
perceived as idiosyncratic.
POLICIES—A U-TURN IS NEEDED

24. The policy stance is too loose. Despite the recent slowdown in credit growth, the overall
policy mix remains stimulative. Real policy rates are deeply negative, credit growth remains high,
and the fiscal impulse is expected to turn more expansionary. Such an accommodative policy stance
is at odds with the large positive output gap, multi-year high inflation, and the large current account
deficit alongside external financing constraints and low buffers. 7
25. Tight policies are needed to rein in inflation and to reduce vulnerabilities. A decisive
tightening, with a higher monetary policy rate at its center—which should move towards achieving
firmly positive real rates—would help reduce inflation more durably, lower external financing risks,
underpin the lira and encourage more sustained "liraization," as well as allow reserve buffers to be
rebuilt over time. Coordination across all policy levers—monetary, fiscal, and financial policies—will
be crucial.
26. Prompt tightening would also contain adjustment costs and support competitiveness
and medium-term growth. The longer inflation remains so high, the more it risks becoming
entrenched, raising the economic cost of future disinflation efforts. In contrast, durably lower
inflation would benefit medium-term growth by helping re-anchor inflation expectations, thus
7Consistent with the positive output gap, capacity utilization in the manufacturing sector and labor force
participation have recovered to pre-pandemic levels, while the unemployment rate and broader measures of labor
market slack have fallen sharply, back to historical averages (Figure 8).

reducing the sacrifice ratio of monetary policy. 8 By durably lowering inflation and curbing ongoing
competitiveness losses, the recommended set of policies would also help strengthen Türkiye’s
external position. Similarly, prompt policy tightening would allow for a subsequent careful
unwinding of the complex set of existing macrofinancial and regulatory measures. The longer such
measures are allowed to persist and to evolve, the more costly it will be to unwind them, and the
greater the costs to medium-term growth.
27. A shift away from demand stimulus towards supply-side reforms would support the
authorities' policy goals more durably and would reduce vulnerabilities. Following the
pandemic, efforts should now focus on carefully-sequenced structural reforms to increase growth
potential rather than on continued demand stimulus. The benefits of such a move—which would
have prompt and sizeable interest rate hikes at its center—would include achieving low interest
rates in a more sustainable manner, a stronger lira, faster and more durable disinflation, higher
reserves, and, ultimately, stronger, more sustainable, and more inclusive longer-term growth.
Structural reforms, rather than cheap credit, would also be a more sustainable way of achieving the
TEM’s goal of promoting exports. Priorities should include reforms to improve the business and
regulatory environment, labor market flexibility, the quality of human capital, and increase the size
of Türkiye’s labor force through higher female participation. 9 Reforms could also help strengthen
Türkiye’s resilience to climate change and facilitate its transition to a low-carbon economy.
28. This policy shift would involve near-term trade-offs, highlighting the need for
targeted support to the most vulnerable. Tighter monetary, fiscal, and credit policies would
sacrifice some near-term growth in favor of stronger and more resilient growth over the medium
term. Some structural reforms may also involve near-term costs as resources are reallocated across
sectors, calling for careful reform sequencing. But the medium- and long-term benefits of a policy
shift from demand-driven to supply-driven growth would greatly outweigh its near-term costs. By
addressing vulnerabilities, these policies would also greatly reduce Türkiye’s exposure to downside
risks and bolster the country’s resilience.
Authorities’ Views
29. The authorities argued that policies were on the right track and were more sanguine
than staff on Türkiye’s economic outlook. They highlighted that the TEM’s primary objective was
to support growth while reducing the current account deficit and Türkiye’s resulting reliance on
volatile foreign capital inflows. They argued that monetary policy tightening had been implemented
through a set of tools in an integrated framework and that focusing on interest rates as a measure
of the policy stance was misleading, especially in an environment of volatile external conditions.
They noted that macrofinancial and regulatory measures had been effective in slowing down overall
credit growth, while directing affordable lending towards selected net exporting sectors. The
authorities stressed that fiscal discipline was a key pillar of Türkiye’s economy and they did not
8
Defined as the ratio of the total output loss to the associated reduction in trend inflation.
9 See also discussion in IMF Country Report No. 19/395, Türkiye, 2019 Article IV Consultation.

expect fiscal policy to turn expansionary ahead of the elections. They also disputed the need for
reducing the role of the state in credit allocation and the need for strengthening central bank
independence, which they saw as adequate. Finally, the authorities project materially higher growth
and lower inflation than in staff’s baseline and a smaller current acccount deficit (Box 4).
A. Monetary Policy—A Credible Regime Switch is Needed
Prompt, sizeable, and credible policy rate hikes are needed to lower inflation sustainably, stop high
inflation from becoming entrenched, underpin the lira, and allow reserves to be rebuilt over time. This
tightening should be accompanied by moves to reinstate interest rates as the primary monetary policy
instrument and to strengthen central bank independence.
30. High inflation is in danger of becoming entrenched. While inflation is expected to fall, it
is projected to remain high, and inflation expectations are expected to remain far more de-anchored
than in peer countries (Figure 3). Inflation inertia in Türkiye is high and the longer inflation remains
elevated, the more it risks becoming entrenched through more extensive indexation and shorter
gaps between wage agreements. This risk is aggravated by Türkiye’s long history of high inflation
which was brought to single digits only in the mid-2000s and only for a brief period. 10 The sooner
inflation expectations are re-anchored, therefore, the lower the output and employment costs of
future disinflation are likely to be.
EMs 3-year-ahead Inflation Expectations vs Target 1/ CPI Inflation

(Percent) (Y/y percent change)
16 160
3-year-ahead inflation expectations
TUR 140
12 120
100
8
(2022-Q2)
80
IND
ZAF
MEXRUS 60
4 PHL HUN BRA
COLIDN CHL
PER
POL 40
CHN
0 THA
20
0 4 8 12 16
Inflation target (2015-2021Q1 average) 0
Sources: Haver Analytics; Consensus Forecast; and IMF staff calculations.
Jan-70 May-78 Sep-86 Jan-95 May-03 Jan-20
Sep-11 Oct-22
1/ Excludes Argentina. Source: Turkstat.
31. Prompt, sizeable, and credible interest rate hikes are needed to lower inflation
sustainably. Integrated Policy Framework (IPF) policies are not suitable to achieve disinflation when
the monetary policy stance is not consistent with well-anchored inflation expectations. Hence, while
macrofinancial and regulatory measures have helped contain credit growth, they are no substitute
for interest rate hikes. Türkiye’s deeply negative real interest rates discourage savings, especially in
lira, and encourage moves towards FX, equity markets, and real assets (gold, real estate), and work
against durable disinflation. Türkiye’s deeply negative real interest rates also stand out
10 See IMF Country Report No. 19/395, Türkiye, 2019 Article IV Consultation for staff analysis on the degree of inflation
inertia in Türkiye.

internationally, adding to pressures on the lira and fueling inflation. A prompt and sizeable increase
in interest rates, accompanied by a well-communicated and credible re-commitment to the central
bank’s price stability target, would increase incentives to hold the lira and would have a powerful
effect on inflation dynamics, especially through inflation expectations and the exchange rate channel.
The more credible and prompt the tightening, the less sizeable it would need to be.
32. Rate hikes should be complemented with policies to strengthen central bank
independence. The CBRT would benefit from measures to strengthen its independence, including by
restoring earlier arrangements for senior appointments (including minimum qualifications) and
introducing transparent procedures for dismissal, backed by law. Steps should also be taken to
strengthen the CBRT’s financial autonomy, by reviewing the rules governing profit transfers to the
budget.
33. Higher interest rates should also be accompanied by moves to carefully phase out
macrofinancial and regulatory measures, reinstating interest rates as the primary monetary
policy instrument. Should policy rates be increased credibly, the various FX-protected deposit
schemes could be phased out carefully, as could the many restrictions on banks’ balance sheets and
operations. The tightening of the export surrender requirements, an existing capital flow measure
(CFM), has served as a substitute for warranted macroeconomic adjustment and should also be
discontinued over time. Recent measures aimed at increasing bank holdings of government
securities should also be phased out to minimize risks to bank balance sheets and to minimize
distortions that weigh on long-term investment. Such phasing out should be carefully sequenced to
minimize market dislocation and financial stability risks.
34. Scarce FX reserves should be preserved and gradually rebuilt over time. FX intervention
to support the lira should be limited to the most extreme cases of exchange rate volatility,
undertaken only by the central bank itself (not state-owned banks). Once monetary policy tightening
is firmly underway, and as conditions allow, policies should aim at replenishing reserves over time,
preferably through preannounced FX purchase auctions.
35. The authorities were more sanguine than staff on the inflation outlook and on reserve
adequacy. They shared staff’s view that high inflation was being primarily driven by the sharp lira
depreciation, but argued that supply shocks and FX market dysfunction—rather than interest rate
cuts—were behind the exchange rate depreciation in late 2021. They also highlighted the role of
global inflationary pressures, which had been driven by global supply disruptions, and by energy
and commodity price spikes. The authorities argued that FX market dysfunction had amplified
exchange rate volatility in late 2021, but that it had been contained under the TEM, as evidenced by
the fact that more recent interest rate cuts had not led to pressures on the lira. The authorities'
inflation forecasts were more sanguine than staff’s, relying on inflation expectations falling sharply
as inflation falls. The authorities also took comfort from the recent moderation in monthly core
inflation. Separately, the authorities argued that FX needs could be covered in any downside
scenario with existing gross reserves and that the concept of negative net reserves was irrelevant for

assessing reserve adequacy. They planned to support the deepening of Türkiye’s FX market and to
strengthen reserves over time from higher exports and FX-protected receipts, rather than through
volatile portfolio inflows.
36. The authorities disputed the need for interest rate hikes. They argued that, despite
interest rate cuts, broader financial conditions had been tightened through macroprudential and
regulatory measures, while also allowing for directed credit to selected sectors at lower rates. In their
view, directing credit and keeping it under control was preferable to raising policy rates. The
authorities also deemed their policy framework to be consistent with the Fund’s Integrated Policy
Framework (IPF), stressing that the traditional approach where disinflation was achieved through
interest rate hikes had been tried extensively in the past, but that it had only attracted volatile
capital inflows, which amplified exchange rate volatility and, ultimately, fueled inflation. In their view,
interest rate hikes were a demand-management tool and would therefore be ineffective in lowering
inflation in an environment where Türkiye’s inflation was driven by large external supply shocks.
They also noted the adverse output and balance sheet implications of rate hikes. Finally, they
stressed that fiscal policy was also being used to support the disinflation process. Looking ahead,
the authorities stressed that the November CBRT monetary policy decision marked the end of the
recent rate-cutting cycle and that future decisions would continue to be data-driven. Because they
assessed macroprudential and regulatory measures to have been effective, the authorities did not
expect to unwind these policies in the short term.
37. They also disputed the need for central bank reforms. The authorities strongly disagreed
with the need for institutional reforms to enhance central bank independence, arguing that
tightening was being achieved (albeit through different tools), that neither debt monetization nor
central bank financing of the fiscal deficit were features of Türkiye’s economy, and that policy rates
were high compared to peers. They also argued that government bonds are only a small share of
the CBRT’s balance sheet and that this was another indicator of central bank independence.
B. Fiscal Policy—Tight Fiscal Policy, with Support for the Most Vulnerable
While Türkiye’s public debt burden remains low with some fiscal space (Annex II), rising spending
pressures and higher contingent liability, debt exposure to FX shocks, and quasi-fiscal risks—including
new liabilities from FX-protected deposit schemes—are eroding fiscal space and could undermine
investor confidence. A tight fiscal stance, combined with targeted measures to support the vulnerable,
would preserve fiscal space to deal with future shocks, while also containing domestic demand. Other
priorities include enacting fiscal governance reforms, achieving public debt management goals
through more durable means, and gradually replacing natural gas subsidies with better-targeted
mechanisms.

38. A tight fiscal stance is needed. Staff expects a modestly higher central government overall
deficit (4 percent of GDP) than the MTP’s 3.5 percent of GDP target for 2023, driven by spending
pressures from higher energy prices, lagged Fiscal Impulse1/ and Output Gap
(Percent of GDP)
inflation adjustments (e.g., to civil servant wages), 3
2
and broader election-related spending pressures, 1
as well as staff’s more conservative revenue 0
assumptions. Staff’s projections imply a modestly -1
-2
positive fiscal impulse. Given the positive output -3
Output gap
gap, high inflation, and rising quasi-fiscal risks, -4
-6.9
Fiscal impulse
staff recommends capping the fiscal deficit at 3 -5
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022 (e)
2023 (f)
percent of GDP in 2023, which would imply a
modestly negative impulse, help contain Sources: MOTF; Turkstat; and IMF staff calculations.
1/ Negative change in central government primary cyclically-adjusted balance,
domestic demand, and preserve investor excluding one-off CBRT revenues.
confidence.
39. Several options are available to deliver a tight fiscal stance, while providing targeted
support to the most vulnerable. First and foremost, better-targeted energy support measures would
provide an estimated fiscal saving of about 1 percent of GDP. A range of medium-term consolidation
measures could also be deployed to strengthen Türkiye’s fiscal position, notably streamlining VAT
exemptions and rationalizing ad-hoc subsidies (see text table).
Recommended Medium-Term Consolidation Measures

(Percent of GDP)
Estimated
Consolidation Measures
Yield
Revenue options
(i) Personal Income Tax reform (collection, progressivity) 0.1
(ii) Streamline VAT exemptions, raise and unify reduced rates 1.1
Expenditure options
(i) Eliminate backward-looking wage indexation 0.3
(ii) Contain net lending to public entities 0.2
(iii) Rationalization of ad-hoc transfers/subsidies 0.5
(iv) Rationalize investment incentives 0.3
Source: IMF staff estimates.
40. Energy subsidies should be replaced with better-targeted measures. Natural gas prices
for households are heavily subsidized in Türkiye. Soaring energy prices have therefore led to a
significant increase in fiscal costs, with the draft 2023 budget allocating around 2.5 percent of GDP

to energy subsidies. 11 These subsidies are Natural Gas Prices for Household Consumers, 2022H1
(Euro/MWh; all taxes and levies included)
expensive, inequitable (most benefits accrue to 120
Latest
wealthier households who consume more 100 2021H1
energy), and inefficient (since price signals 80
needed to spur energy savings are blunted). 60
Such subsidies should therefore be phased out 40
and replaced with measures such as block 20
pricing (where consumption is subsidized only 0
up to a certain subsistence level). 12
ITA
POL
TUR
SVK
BGR
ROU
HUN
CZE
SRB
DEU 1/
Sources: Eurostat and IMF staff calculations.
41. Public debt management should 1/ Latest data refers to 2021H2 due to lack of availability.
remain focused on lengthening borrowing maturities and limiting domestic FX borrowing,
but through more durable means. Macrofinancial and regulatory measures have helped artificially
extend debt maturities and lower borrowing costs. Going forward, debt management should aim to
achieve these same goals in a more durable manner: sustainably lower inflation would contribute
greatly to this.
42. Fiscal risks should be mitigated and carefully managed. Phasing out FX-protected
deposit schemes should be a priority, given potentially unbounded fiscal liabilities in the event of a
sharp lira depreciation. But such phasing out needs to proceed carefully and only once policy and
other conditions allow. Energy-related spending is also an important source of contingent liabilities
in the event energy prices increase materially. PPP-related contingent liabilities should also continue
to be carefully monitored. Finally, the risk of another recapitalization of state-owned banks has
increased as their lending practices are increasingly being driven by non-commercial objectives.
43. Fiscal governance reforms would increase transparency and help limit quasi-fiscal
risks. The oversight and management of PPPs should be strengthened, including through:
(i) publishing regular PPP monitoring reports, and (ii) finalizing the long-overdue draft 2019 PPP
legislation to manage PPP risks centrally. SOE financial statements are published regularly, but
regular timely publication of fiscal risk statements and of comprehensive and consolidated
information on the quasi-fiscal operations of all SOEs (including state-owned banks and BOTAS)
would improve the monitoring and assessment of fiscal risks. It is also important to integrate
investment and borrowing by the Türkiye Wealth Fund into the budget and to have its financial
statements audited by the Court of Accounts. Finally, continuing to strengthen budget execution,
including by introducing supplementary budgets when needed (as opposed to bypassing budget
targets) would enhance public financial management.
11
Budgeted energy subsidies include (i) duty losses and subsidies to energy SOEs, and (ii) payments of arrears
accrued by energy SOEs.
12
See IMF Note ”Fiscal Measures to Help Households and Firms Cope with the Energy Crisis in Europe: First
Principles and Policy Recommendations.”

44. The authorities reiterated their continued strong commitment to fiscal discipline. They
noted that such discipline was a longstanding strength in Türkiye, that the MTP targets were
consistent with preserving the fiscal anchor, and that spending pressures were unlikely to materialize
before the elections. They argued that various income and expenditure policy instruments were in
place to protect vulnerable households, and agreed with staff’s recommendation to increase
targeted support as needed. They also agreed that existing energy subsidies were costly, but they
did not envisage phasing them out in the near term.
45. The authorities also argued that fiscal risks were covered in the budget. The authorities
assessed fiscal risks to be contained given that the draft 2023 budget already made allocations for
possible contingent liabilities arising from SOEs, PPPs, and FX-protected deposit schemes and that
those provisions were unlikely to be spent. They also noted that fiscal risks had diminished following
the decline in global energy prices in late 2022, which could even lead to an overperformance
relative to budget targets.
46. The authorities agreed with the importance of prudent debt management and monitoring
of fiscal risks from SOEs and PPPs. The authorities noted that their upcoming 2023 debt strategy
would allow them to adapt as needed to changing market conditions and regulatory environments. The
authorities agreed there was room to improve the monitoring and managing of fiscal risks from SOEs
and PPPs, while noting their progress on integrating PPPs with the public investment management
framework and on publishing financial and non-financial information on SOEs.
C. Financial Policies—Allowing Market Forces to Drive Credit Allocation
Complex macrofinancial and regulatory measures should be phased out as this would help minimize
price formation and capital allocation distortions. Priority should also be given to strengthening
prudential standards and to phasing out regulatory forbearance, closely monitoring systemic FX
liquidity risks at an economy-wide level, and implementing an effective regulatory framework for
crypto assets. The authorities should also continue to improve Türkiye’s AML/CFT governance
framework to address the FATF grey listing.
47. The recent slowdown in credit growth from recent peaks is welcome, but it is driven
by increasingly distortionary policies. Despite deeply negative real policy rates, the authorities
have curtailed credit growth through a complex and growing set of measures, including
macroprudential policies, banking regulations, and systemic liquidity-management measures. These
measures have distorted price formation and capital allocation, while also increasing risks for banks,
notably operational, compliance, governance, and interest rate risks. In addition, the requirements to
hold government securities on bank balance sheets are leading to a significant shortening in the
maturity of new loans as banks try to minimize maturity mismatch as a result of increased holdings
of longer-term fixed rate government securities.

48. The state should reduce its outsized role in credit provision. The complex and growing
set of measures impairs banks’ ability to allocate credit on a fully commercial basis and should be
phased out carefully, as conditions allow. In addition, any non-commercial operations of state-
owned banks should be better defined and limited to areas of clear market failure. This should be
accompanied by strengthening risk management to mitigate contingent liabilities to the state.
State-owned banks should also be compensated directly from the budget for any losses incurred in
performing these non-market operations. Finally, the provision of state guarantees through the
Credit Guarantee Fund should be limited to clear cases of market failure, such as small firms that do
not have the collateral needed to access needed credit.
49. As recommended by the 2022 FSAP, prudential standards need to be strengthened

and regulatory forbearance measures phased out to improve asset quality transparency.
Regulatory decisions, often pre-dating the policy response to the pandemic, have contributed to
Turkish banks’ low non-performing loan and high capital adequacy ratios in recent years. In
particular, restructured stage 2 loans can still be reclassified as performing after a short 3-month
probation period, and loans were refinanced including through the Credit Guarantee Fund or state-
owned banks’ facilities while retaining their performing status. Despite the large stock of
restructured loans, there is limited information on the types of restructuring and the performance of
these loans. Finally, the use of a fixed exchange rate in risk weighted assets, along with zero-risk
weights for FX-denominated government exposures, result in overstated capital adequacy ratios. Re-
aligning regulatory and accounting practices with Basel and other international standards is critical,
alongside timely recognition of loan losses by drawing on capital buffers as needed. Strengthening
the operational autonomy and resources of the BRSA, as recommended by the FSAP, would be
instrumental in achieving these objectives. The monitoring of restructured loans needs to be
enhanced, while an independent third-party asset quality review would be an important way of
assessing, and improving confidence in, bank asset quality.

Türkiye: Main 2022 FSAP Recommendations

Recommendations Agency Time*
Systemic Risk and Macroprudential Policies
Rationalize heterodox and idiosyncratic policy measures while realigning financial incentives to
CBRT, BRSA ST
reduce distortions; activate countercyclical capital buffer.
Refocus the systemic risk monitoring framework to ensure clarity of financial stability as the primary
FSC ST
objective of the Financial Stability Committee (FSC)
Strengthen FX systemic liquidity analysis incorporating systemic FX availability, contingency
FSC (SRMG) ST
planning, and consider interlinkages when discussing macroprudential policy options
Banking and Insurance Supervision and Regulation
Amend the Banking Law to confirm financial stability as the primary objective of the BRSA and
enshrine policy independence, operational autonomy and adequacy of resources to provide a stable MOTF, BRSA MT
cadre of experienced staff and modern tools.
Restore and/or enhance, as applicable, the standards for intrusive, effective supervision for all banks,
notably for liquidity, FX, sovereign and concentration risk, credit risk, including problem assets and
BRSA ST
provisions, and interest rate risk in the banking book. Revisions must include aligning regulations
with international minimum standards, or higher.
Intensify supervisory engagement and monitoring using meaningful reporting practices,
BRSA ST
accompanied by robust, timely intervention and follow up with banks.
Enhance the risk-based, forward-looking perspective of CAMELS process, integrating Pillar 2
BRSA MT
assessments (ICAAP and SRP), off-site work, stress-testing and ICT/Cyber dimensions.
Set financial stability as the legal objective of insurance supervision, ensure transparency of the
Presidency,
nomination, appointment and dismissal processes of IPRSA’s board members; and introduce a MT
IPRSA
formal Own Risk and Solvency Assessment process.
Systemic Liquidity
Strengthen the CBRT’s operational autonomy, focus interest rate policy on inflation. Implement the
CBRT ST
interest rate corridor through monetary operations on the interbank money market solely.
Limit FX interventions to the most extreme cases of exchange rate volatility. Define a volatility-based
CBRT MT
FX rule. Build FX reserves over time.
Finalize review of the ELA framework. CBRT ST
Cyber Resilience
Ensure FSC discusses ICT/cyber risks regularly and facilitates coordination among member agencies. MOTF, BRSA,
ST
Integrate ICT/cyber risk supervision within overall supervisory process CBRT, CMB
Factor ICT/ cyber risks in the financial stability analysis, develop a crisis management plan to address
BRSA, CBRT MT
potential large-scale cyber-attack.
Financial Integrity
Take steps to exit the FATF grey list by demonstrating effectiveness and addressing all areas MASAK BRSA,
ST
identified in the FATF’s action plan, including with respect to politically exposed persons. CBRT
Monitor key financial integrity risks stemming from the grey listing, and other cross-border MASAK, MoTF,
MT
regulatory actions. BRSA, CBRT
Implement FATF Recommendation 15 to address virtual asset risks. MASAK, CMB ST
Crisis Management and Resolution
Introduce resolution planning and consider extending recovery planning to all banks; extend
SDIF, BRSA ST
recovery requirements to entire groups and foreign affiliates.
Enhance SDIF resolution powers in line with the FSB Key Attributes and empower SDIF to start
preparations in the run up to resolution. Introduce a full P&A concept beyond insured deposits for SDIF, MOTF ST
all banks regardless of SDIF shareholdership status.
End the use of SDIF funds for all loss coverage, liquidity, and recapitalization purposes and introduce
loss absorbance principles in line with the liquidation hierarchy. Introduce resolution funding and SDIF, MOTF ST
the least-cost concept for SDIF funds.
* Immediate (I) = within one quarter; short-term (ST) = within one year; medium-term (MT) = over one year
50. Close monitoring of systemic FX liquidity risks remains critically important. As in the
past, staff recommends focusing on the economy-wide interconnectedness of FX liquidity when

formulating policies, designing bank liquidity stress tests, and assessing liquidity coverage ratios,
with the Financial Stability Committee (FSC) playing a coordinating role. Given the potential systemic
implications, staff also recommends enhanced crisis management frameworks and contingency
planning across regulatory agencies.
51. Integrating crypto assets into the supervisory framework and closing data gaps are a
priority. The adoption of crypto assets has gained pace in Türkiye, raising consumer protection,
capital flow measure circumvention, and AML/CFT concerns (Box 5). Although regulations prohibit
banks from directly holding crypto assets, improved policies could help enhance oversight, risk-
management, regulation, and supervision of these assets, while also reducing their overall
attractiveness. Priorities include enhanced prudential standards, tackling data gaps and
standardization issues, and more effective legal and regulatory frameworks. 13
52. The authorities should continue to take steps to fully implement the Financial Action
Task Force (FATF) action plan. Türkiye’s grey listing by the FATF in October 2021 identified serious
weaknesses in the AML/CFT framework and exposes Türkiye to reputational and other risks. While
progress has been made in addressing the FATF action plan, continued efforts are required to
introduce enforceable legal measures and guidance for politically exposed persons and approving
the law on crypto assets. Continuing to implement targeted financial sanctions without delay is
critical. The authorities should also closely monitor the impact of bilateral foreign sanctions against
third countries (even if not legally applicable in Türkiye), to help mitigate any reputational risk.
53. The authorities were confident in their credit allocation strategy and in the health of
the banking and broader financial system. They disagreed that macrofinancial and regulatory
measures were distortionary, while stressing that the role of the state in directing credit and
supporting the transition to a more “liraized” economy was a key pillar of the TEM. The authorities
expected capital buffers and prudent loan-loss provisioning to be sufficient even under a potential
deterioration in asset quality and they did not see the need for a third-party asset quality review.
They were confident in the banking system’s ability to withstand a liquidity shock, but agreed fully
with the importance of monitoring FX liquidity closely on an economy-wide basis.
54. The authorities highlighted their progress in dealing with crypto and AML/CFT risks.
They noted the ongoing collaboration among supervisory agencies, the implementation of
international prudential standards, and the recent inclusion of crypto asset service providers in the
obliged parties list for AML/CFT purposes. They also highlighted ongoing work by the Capital
Markets Board on a new regulation for crypto investment platforms that would strengthen investor
protection. The authorities also stressed that Türkiye has made a high-level commitment to
strengthen the effectiveness of its AML/CFT system and has taken further steps in this direction,
which was also acknowledged by the FATF.
13
For example, the recently issued Basel Committee second consultation on the regulatory capital treatment of
direct bank holdings of crypto assets highlights the importance of risk management and indirect risk channels
generated by crypto asset activity. https://www.bis.org/press/p220630.htm

D. Structural Policies—Promoting More Inclusive and Sustainable Growth
Targeted reforms are critical to promote the necessary shift from demand stimulus to supply-side
policies. This shift would help achieve the authorities’ goals more durably, while also reducing
vulnerabilities and Türkiye’s exposure to downside risks. The 2019 Article IV consultation undertook a
broad diagnostic of structural reform needs, while the 2021 consultation focused on policies to avoid
pandemic-related scarring. This consultation focused on two other macro-critical structural themes:
female labor force participation and climate change.
55. Focused structural and governance reforms would help foster stronger, sustainable
growth and increase the economy’s resilience to shocks. Switching to a productivity-led growth
model calls for focused and carefully-sequenced structural reforms to improve the business and
regulatory environment, labor market flexibility, and the quality of human capital. 14
56. Closing Türkiye’s labor market gender gaps would boost medium-term growth and
make it more inclusive. Despite recent Gender Gap in Labor Force Participation
90
improvements, Türkiye’s low female labor force
Male-female labor force participation
World
75 TUR
participation and its high share of informal 60
(percentage points)
female workers stand out internationally. Policy 45
priorities to close these gaps include 30

15
improving the supply, targeting, and 0
affordability of childcare services; increasing -15
public spending on childcare and pre-primary -30

1990 1992 1995 2000 2005 2010 2015 2019
education (following a cost-benefit analysis); Sources: World Development Indicators and IMF staff calculations.
optimizing targeted childcare subsidies,

Note: The lower and upper lines of the box represent the first and the third quartiles
respectively; the upper and lower whiskers represent the highest and the lowest
transfers, and tax allowances/credits for low-

points, respectively; the line inside the box represents the median and the dot
represents the average. There are 187 countries included in these charts.
skilled mothers; assessing the impact of

existing personal income tax brackets on female labor force participation; and ongoing efforts to
enhance Türkiye’s gender-budgeting framework. Measures to reduce the cost of employment would
also benefit women by supporting job creation in the formal sector.
57. A comprehensive strategy, with carbon pricing at its center, would help Türkiye meet
its climate goals. The 2022 Country Climate and Development Report (CCDR) for Türkiye—the
World Bank’s first such diagnostic report—showed that the country is vulnerable to the impact of
climate change—and more so than most other OECD countries—and identified policy priorities to
reduce emissions and improve resilience. 15 In addition to challenges from its own transition to a
14
These three areas, as well as raising female labor force participation, were identified as reform priorities, in IMF
Country Report No. 19/395, Türkiye, 2019 Article IV Consultation.
15 See World Bank Group. 2022. Türkiye Country Climate and Development Report.

low-carbon economy (e.g., decarbonizing Climate Risk and Vulnerability in Türkiye
carbon-intensive industries), Türkiye needs to Agriculture, forestry, and fishing (% of GDP) 3 3 High
adapt to the carbon border adjustment Annual extreme heat days increase in 2050 3 2 Medium
Average annual risk to assets 3 1 Low
mechanism planned by the European Union, Average annual risk to wellbeing 3 4 No data
Türkiye’s main trading partner. Staff welcomed Forcibly displaced population 3
the authorities’ commitment to reach net zero Maize yield change in 2050 3
Poor population exposed (% of poor) 3
emissions by 2053 and presented a mitigation Population exposed (% of total) 3
strategy with a carbon price rising progressively Share of population exposed in 2050 2
Share of transport network exposed 3
to USD 75 a ton by 2030 to make progress
Source: World Bank CCDR (2022).
towards the net zero target. Revenues from the Note: Countries are rated using a benchmark approach: those rated at high
carbon price could be used to address its risk (red) are in the top third, medium risk (orange) are in the middle third,
and low risk (blue) are in the lowest third.
distributional effects, including through
targeted support to low-income families, lower labor taxes, and higher public investment.
58. The authorities welcomed the discussions on gender and climate issues. On gender,
they highlighted improvements made in recent years, as well as the fast recovery from the
pandemic, and hoped to make further progress in order to boost medium-term growth and make it
more inclusive. They noted their ongoing cooperation with UN-Women to enhance Türkiye's gender
budgeting framework and expressed an interest in continuing discussions with Fund experts. On
climate, the authorities highlighted their goal to achieve net zero emissions by 2053, while leaning
towards an Emissions Trading System (ETS) to achieve their climate mitigation goals. They took note
of staff’s recommendation to combine the ETS with a robust price floor to encourage private
investment and to auction emissions to raise revenue. Since the conclusion of the Article IV
discussions, the authorities announced at COP27 Türkiye’s updated Nationally Determined
Contribution, pledging to reduce emissions growth between 2020 and 2030 from around 70
percent, under the business-as-usual scenario, to roughly 30 percent. This is a bigger commitment
than under the previous target, which aimed at reducing emissions growth to 50 percent.
STAFF APPRAISAL
59. Türkiye's recovery from the pandemic has been remarkable. Türkiye was among the few
countries to achieve positive growth in 2020, followed by growth of more than 11 percent in 2021
and strong growth momentum in 2022, setting it apart from most countries, thanks to outsized
stimulative policies and a dynamic private sector.
60. But the same policies that buoyed growth also exacerbated pre-existing
vulnerabilities. These vulnerabilities included low and falling reserve buffers and an increase in
already-high dollarization.
61. A new policy model, introduced in late 2021, aimed at supporting growth and lowering
inflation by eliminating Türkiye's current account deficit. The new Türkiye Economic Model (TEM)

relied on interest rate cuts (despite high inflation and above-trend growth) and a complex set of
macrofinancial and regulatory measures to reduce dollarization and credit growth, while directing
lending to selected sectors. This new model represented a major departure from prevailing economic
orthodoxy.
62. But TEM policies, notably interest rate cuts, led instead to significant depreciation
pressure on the lira, as inflation reached multi-year highs. As conversion from lira to foreign
currency accelerated, the lira depreciated sharply in late 2021, falling by half against the US dollar in a
matter of weeks. These pressures were relieved by heavy FX intervention and a new FX-protected
deposit scheme that protected lira deposits against excessive currency depreciation. While these
measures helped initially, they failed to address the root causes of Türkiye’s economic problems. The
currency remained under pressure in 2022 and, as a result, inflation reached multi-year highs, at 85
percent in October, among the highest in large emerging markets. Despite increasing somewhat in
recent weeks, gross reserves remain below the IMF's recommended range. And "core” reserves are
deeply negative, after all central bank FX liabilities, including swaps, are factored in.
63. The war in Ukraine delivered a large negative terms-of-trade shock and exacerbated
already-high vulnerabilities. Spillovers from the war led to a wider current account deficit and
added to inflation, with the poor affected the most. Current policies and diminished buffers,
especially low international reserves, leave Türkiye vulnerable to shocks and changes in sentiment,
both at home and overseas, especially in the face of ongoing large gross external financing needs.
Meanwhile, preliminary estimates suggest that Türkiye’s external position was weaker than the level
implied by medium-term fundamentals and desirable policies in 2022.
64. Growth is expected to fall and inflation to remain high in 2023. Reflecting lower growth
carryover and lower external demand, growth is projected to fall to around 3 percent in 2023, despite
low interest rates, still-positive real credit growth, and an expected loosening of fiscal policy. This
forecast also assumes still-binding external financing constraints that limit the authorities’ ability to
continue stimulating growth. Inflation is expected to fall, mostly driven by fading exchange rate
passthrough. But inflation is also expected to remain high, and much higher than in peers, given
loose policies, inflation inertia, limited policy credibility, and un-anchored inflation expectations.
65. While near term upside risks to growth are non-negligible, downside risks to medium-
term growth have increased due to rising economic distortions and vulnerabilities. While
containing volatility and credit growth, increasingly distortionary and complex macrofinancial and
regulatory policies have blurred market signals, led to a misallocation of resources, constrained
private credit, weakened bank balance sheets, and increased bank compliance costs, all of which
undermine long-term growth prospects. Other downside risks include a doubling down of pro-
growth policies in the lead up to the elections given FX liquidity risks and absent sufficient external
financing, faster-than-expected tightening by advanced market central banks, escalating geopolitical
tensions, higher global risk aversion, weaker global growth, and another COVID-19 wave at home or
abroad. Upside risks to near-term growth are non-negligle—notably from unexpected sources of
external financing that allow for more aggressive pro-growth policies—while upside risks to inflation
from a weaker-than-expected lira remain high.

66. The risk of high inflation becoming entrenched has also increased. Türkiye has a history
of high inflation and, with no effective monetary anchor and limited central bank credibility, inflation
risks becoming entrenched at higher levels and increasing further over time. The longer inflation
remains so high, the more it risks becoming entrenched, including through more frequent and
automatic indexation of wages and prices, and the more difficult it will be to re-anchor inflation
expectations, raising the growth and employment costs of any future disinflation efforts.
67. Risks and vulnerabilities are rising and buffers remain low, but Türkiye's challenges are
not insurmountable. Tight monetary and fiscal policies, along with the careful normalization of
macrofinancial and regulatory policies would help promote macroeconomic and financial stability,
key pre-requisites for sustainable medium-term growth. Building on these policies, targeted structural
reforms would support a shift in focus on supply-side policies to boost potential growth. Taken
together, these policy shifts would help achieve the authorities' goals more durably, while also
reducing vulnerabilities and exposure to downside risks.
68. Prompt, sizeable and credible interest rate hikes are needed to lower inflation and
should be combined with reforms to strengthen central bank independence. Türkiye's deeply
negative real interest rates stand out internationally, adding to pressure on the lira and fueling
inflation. A prompt and sizeable increase in interest rates, accompanied by a credible commitment to
the central bank's price stability target, would help the disinflation process through the exchange rate
and inflation expectations channels. It is important that monetary tightening be complemented with
policies to strengthen central bank independence. FX intervention should be kept to a minimum and
reserves replenished in a transparent manner, as conditions allow.
69. Macrofinancial and regulatory measures should be phased out carefully, prudential
standards strengthened, and systemic FX liquidity risks closely monitored. The slowdown in
credit growth is welcome and should continue, but, as noted by the 2022 FSAP, heavy reliance on
increasingly complex macrofinancial and regulatory measures to manage credit provision needs to be
curtailed. This would help minimize price formation and capital allocation distortions, reduce the role
of the state in credit allocation, and reinstate interest rates as the primary monetary policy
instrument. The longer existing macrofinancial and regulatory measures are allowed to persist and to
evolve, the greater the economic distortions and the more costly it will be to unwind them. The role
of the Credit Guarantee Fund and the scope of non-commercial activities of state-owned banks
should be scaled back. Close monitoring of systemic FX liquidity at an economy-wide level remains
critically important. These policies should be accompanied by tighter prudential standards and an
unwinding of regulatory forbearance, as well as efforts to further strengthen regulatory, supervisory,
resolution, and AML/CFT frameworks.
70. A tight fiscal stance, with targeted assistance to the vulnerable, as well as fiscal
governance reforms, would help preserve fiscal space and limit quasi-fiscal risks. While
Türkiye's public debt burden remains low, fiscal space is being eroded—notably by rising spending
pressures and higher contingent liability, and quasi-fiscal risks, as well as the large debt exposure to
FX shocks in an environment of a weak external position—which could undermine investor
confidence. A tight fiscal stance, with targeted measures to support the vulnerable, would preserve

fiscal space, while also containing domestic demand. Other priorities include enacting fiscal
governance reforms to improve transparency and expand oversight and management of quasi-fiscal
activities and contingent liabilities, achieving public debt management goals through more durable
means, and gradually replacing natural gas subsidies with better-targeted mechanisms.
71. Focused structural reforms would help foster stronger sustainable growth and increase
the economy's resilience to shocks. Targeted supply-side policies could help boost long-term
growth through higher productivity, greater labor force participation, and higher investment.
Priorities include reforms to improve the business and regulatory environment, greater labor market
flexibility, raising the quality of human capital, and increasing female labor force participation.
Reforms can also help strengthen Türkiye's resilience to climate change and facilitate its transition to
a low-carbon economy that is less dependent on imported fossil fuel and based on a more
sustainable growth model.
72. It is recommended that the next Article IV consultation with Türkiye be held on the
standard 12-month cycle.

Box 1. FX-Protected Deposit Scheme

FX-protected deposit schemes were introduced in December 2021 to stem lira pressure and support
depositor confidence. Supported by large central bank FX interventions, these proved effective in helping
to stabilize the lira, and reversed some of its earlier losses.
By compensating for exchange rate risk, the schemes aim to encourage “liraization.” To qualify for the
scheme, deposits must have a fixed maturity of up to a year and earn interest, paid by banks, set at up to
300 basis points above the CBRT policy rate. Should the lira depreciate over the deposit term by more than
the set interest rate, the depositor receives compensation—namely the margin between the depreciation
rate and the interest rate—paid by either the MoTF or CBRT. The MoTF covers the FX-protected deposits
funded by lira deposits, while the CBRT covers FX-protected deposits funded by FX deposit conversion. The
schemes also benefit from attractive tax treatment.
FX-protected lira deposits have grown substantially. They rose to almost 1.5 trillion Turkish lira (original
face value) by end-October, accounting for 37 percent of lira deposits and 17 percent of total bank deposits.
Since the start of the schemes, the share of lira deposits (inclusive of FX-protected lira deposits) in total bank
deposits rose from 36 percent at end-2021 to 47 percent, pointing to significant deposit liraization, thanks
to the rise in FX-protected deposits.
FX-protected schemes present a significant fiscal risk and will be a challenge to unwind. Under the
scheme, the state has assumed most of the exchange rate risk, taking over from depositors. Staff estimates
its annual cost, total for the Treasury and CBRT, at 0.8 percent and 0.3 percent of GDP in 2022 and 2023
under baseline assumptions. The cost is subject to major uncertainty and could rise significantly if the lira
were to depreciate by more than expected, with every extra 10 percent depreciation leading to an estimated
additional 0.4 percent of GDP cost in 2023, everything else equal. To improve transparency and allow more
accurate assessment of contingent liabilities, staff recommends disseminating all relevant data (stock, flows,
costs) with a breakdown between household and corporate deposits split by MoTF and CBRT deposit
schemes.

Box 2. The Economic Costs of High Inflation

High inflation can create significant economic distortions, especially when macrofinancial and regulatory
measures inhibit full market adjustment. This box looks at how high inflation in Türkiye is affecting real
incomes and poverty and how it is distorting valuable price signals.
Real Income. Real wages, across all broad industrial sectors, have fallen steeply in 2022H1 as inflation has
eroded workers’ pay. Real wages are likely to recover with a lag, as workers demand higher nominal pay
rises, but this will only further entrench inflation persistence, increasing the cost of inflation normalization.
This lower real wage bill, as well as deeply negative borrowing costs and stimulus-induced growth, has
boosted private sector profits. And has had the effect of significantly reducing the labor share of GDP.
Average Hourly Real Wages Total Compensation of Employees

(Index, 2015=100) 130 35
150
Industry
140 Construction 120
30
Trade and services
130 All 110
25
120
100
110
20
90
100 Real total compensation of employees (2017=100)
Labor share of GDP (Percent), rhs
90 80 15
2015Q1 2016Q3 2018Q1 2019Q3 2021Q1 2022Q2 2017Q1 2017Q4 2018Q3 2019Q2 2020Q1 2020Q4 2021Q3 2022Q2
Sources: Turkstat; Haver Analytics; and IMF staff calculations. Source:s: CBRT; Haver Analytics; and IMF staff calculations.
Poverty. The poor are hit hard by inflation through two channels. First, a relatively rigid consumption basket
dominated by essential goods—such as food and housing—reduces the scope for expenditure switching as
prices rise. As these essential goods are difficult to substitute away from, any increase in prices can lead to
large welfare losses. Second, the poor are often less able to hedge any wealth they hold against price rises,
leading to the erosion of economic buffers in times of inflation. This is especially the case when
macrofinancial and regulatory measures constrain savers from switching to assets that have a better inflation
hedge. In Türkiye there is no data on the size or composition of wealth by income group. But beyond the
inference that low-income households are likely to hold less wealth, the composition of assets held is also
likely to vary. Low-income households are more likely to hold the limited wealth that they have in cash or lira
deposits, which historically have performed poorly in real terms. In contrast, the real return on gold and FX
deposits has been much stronger in Türkiye. More recently, real house prices have also risen dramatically,
increasing the net wealth of property owners, but generating affordability problems for new buyers.
Household Consumption by Income, 2019 Real Lira Return On Assets
(Percent of total consumption) (Index: Jan 2010=100)
100 400
Cash
TL deposits
80 FX deposit
300 Real estate
60 Equity
Gold
40 200
20
100
0
First Second Third Fourth Last CPI basket
quintile quintile quintile quintile quintile
0
Food and housing Transport Other
Jan-10 Dec-12 Nov-15 Oct-18 Sep-22
Sep-21
Sources: Turkstat and IMF staff calculations. Sources: CBRT; Haver Analytics; and IMF staff calculations.

Box 2. The Economic Costs of High Inflation (concluded)
Real House Price Gaps Residential Housing Price Misalignment Indices

(Percent) (Index: 2012Q1=100)
40 230
Real REIDIN Sales Property Index Gap Price-Rent-Ratio Index
Real CBRT Valuation Property Index Gap 210 Price-Income-Ratio Index
30
190
20 170
10 150
130
0
110
-10
90
-20 70
2008Q4 2011Q1 2013Q2 2015Q3 2017Q4 2020Q1 2022Q2 2011Q3 2015Q1 2018Q3 2021Q4
Sources: CBRT and IMF staff calculations. Sources: CBRT and IMF staff calculations.
Distorted Price Signals. Important business decisions, including on capital investment, hiring staff and
negotiating contracts, are also distorted by high inflation. Since late 2021, the dispersion of consumer prices
has grown significantly, making it more difficult for businesses to distinguish between relative and general
price changes, and making the allocation of resources across products more difficult. The price of
investment goods has also grown by significantly more than consumer goods, complicating investment
decisions.
Inflation Dispersion Deflator by Component

(Y/y percent change) (Percent deviation from GDP deflator)
160 150
Headline inflation 5th to 95th Private consumption Public consumption
140 percentiles of Investment Exports
individual items in Imports
120 100
the CPI basket
100
80
50
60
40
0
20
0
-20 -50
Feb-17 Apr-18 Jun-19 Aug-20 Oct-21 Sep-22 2014Q4 2016Q4 2018Q4 2020Q4 2022Q3
Sources: Turkstat and IMF staff calculations. Sources: Haver Analytics and IMF staff calculations.

Box 3. Net Errors and Omissions

Net errors and omissions (NEO) have surged to all-time highs. Inflows reached around USD 25 billion, or
2.9 percent of GDP, year-to-date through September 2022. These inflows helped finance more than 65 percent
of the current account deficit over the same period, alleviating pressures on foreign reserves and the lira.
NEO inflows have provided financing during recent episodes of external pressure. While NEO have
historically fluctuated around zero, inflows have tended to outstrip outflows on a more persistent basis in
recent years, reaching a cumulative USD 60 billion since 2008. A pattern has also emerged, where periods of
NEO inflows coincide with episodes of wider external financing needs (the pandemic being a notable
exception), helping relax external financing constraints, thereby limiting the drawdown of central bank reserves.
Cumulative Net Errors and Omissions 4-Quarter Rolling EFN and NEOs
(Billions USD) (Percent of GDP)
70 7.0
Enforcement of Fiscal Amnesties for
60 5.5
Unrecorded Assets Held Abroad
50 4.0 EFN
40 2.5 NEO
30 1.0
-0.5
20
-2.0
10
-3.5
0 (EFN=CAD+∑ Net Inflows of FDI, Portf Inv, Other Inv)
-5.0
-10 2005Q4 2009Q2 2012Q4 2016Q2 2019Q4 2022Q3
Jan-92 Mar-98 May-04 Jul-10 Sep-16 Sep-22
Sources: CBRT and IMF staff calculations.
Sources: CBRT and IMF staff calculations. Note: 2022Q3 GDP is IMF forecasted GDP.
Various factors could explain the particularly large NEO inflows in 2022. These include deposit
withdrawals and repatriation by non-bank residents from foreign banks not covered by the BIS data, as well as
broader repatriation of unrecorded foreign assets by Turkish companies and households, including in response
to tax amnesties. Anecdotal evidence also suggests that Türkiye experienced a higher-than-usual inflow of
physical cash in 2022, reportedly driven by Russian or neighboring citizens paying for real estate in cash.
Finally, Turkish companies and households withdrew sizeable amounts of foreign currency cash from banks
during the sharp lira depreciation in December 2021, resulting in a record NEO outflow of USD 10 billion that
month. Restrictions on lending introduced in 2022, combined with a more depreciated lira, could have
encouraged the return of this foreign currency into the banking system.

Box 4. The Authorities’ Medium-Term Projections

On September 4, 2022, the authorities published their ”Medium-Term Economic Programme (2023–2025),”
which laid out key economic projections for the medium term. These included growth of 5–5½ percent, in
line with the average over the last two decades, but significantly above staff’s estimate of potential growth
(closer to 3 percent). Despite strong growth, the authorities expected inflation to fall to single digits by 2025
and the current account deficit to shrink to 1 percent of GDP by 2025. This is consistent with the logic of the
TEM: that a lower current account will stimulate growth, stabilize the lira and bring down inflation. The
authorities also envisaged a strong improvement in the fiscal balance, with the debt-to-GDP ratio 5
percentage points lower than staff’s projection by 2025. However, measures to achieve this fiscal
consolidation were not articulated.
2022 2023 2024 2025 2022 2023 2024 2025
IMF Proj. MTP

Real GDP growth rate (Y/Y) 5.5 3.0 3.0 3.0 5.0 5.0 5.5 5.5
Inflation (EOP, Y/Y) 70.0 36.0 21.3 20.0 65.0 24.9 13.8 9.9
Current account balance (percent of GDP) -6.0 -3.4 -2.5 -2.2 -5.9 -2.5 -1.4 -0.9
Central government primary balance (percent of GDP) -1.0 -1.7 -1.0 -0.7 -1.0 -0.5 0.5 1.3
General government gross debt (percent of GDP) 35.6 35.4 36.6 38.4 36.7 35.2 33.6 32.1
Sources: Turkish authorities and IMF staff estimates.

Box 5. Crypto Assets in Türkiye

Crypto asset activity has increased in recent years in Türkiye, raising risks, and warranting continued close
monitoring.
Crypto asset activity has increased in Türkiye. Tether Trading Volumes Against Select Currencies
Türkiye has 37 active centralized crypto exchanges, (Share of total, percent)
100%
with an estimated 15 million client accounts, and the
largest share of crypto asset trading application 80%
adoption across advanced and emerging
60%
economies.1 Outside of the period of market stress
in December 2021, where crypto trading escalated, 40%
daily transaction volumes have averaged close to
20%
USD 1-2 billion a day, compared to the USD 3-4
billion average in Turkish lira FX volumes. Following 0%
Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jun-22
the recent failure of crypto asset exchange FTX,
Turkey (Lira) Ukraine (Hryvnia) Russia (Ruble)
Türkiye’s Financial Crimes Investigation Agency Brazil (Real) Nigeria (Naira) US (dollar)
(MASAK) initiated an investigation into the Sources: Bloomberg L.P.; CryptoCompare; and IMF staff calculations.
institutions related to FTX’s regional subsidiary. It
also noted that it had been monitoring FTX’s Turkish Lira Exchange Rate and Volumes Against Crypto Assets
18 14000
activities in accordance with the country’s AML laws. USD/TRY Exchange Rate (lhs)
16 12000
Some assets have seen outsized trading against Turkish Lira vs. Crypto Volumes in
14 Exchanges (Millions USD, rhs) 10000
the lira. Tether—the largest stablecoin—has seen
especially strong demand, with outsized trading 12 8000
against the lira compared to other EM currency 10 6000
trading. This likely reflects Turkish lira volatility in
8 4000
recent years.
6 2000
The increased role of crypto raises risks that
warrant careful monitoring. These include the 4 0
Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jun-22
possible entrance of new entities with weak controls;
Sources: Bloomberg L.P.; CryptoCompare; and IMF staff calculations.
the potential for crypto to circumvent capital flow
measures; and possible AML/CFT risks.2
________________________________________________
1 See November 2022 BIS Working Paper, Crypto trading and Bitcoin prices, evidence from a new database of retail adoption.
2 See 2022 IMF Fintech Note on Capital Flow Management Measures in the Digital Age: Challenges of Crypto Assets and October
2021 IMF GFSR Chapter 2: The Crypto Ecosystem and Financial Stability Challenges.

Figure 1. Türkiye: Poverty and Inequality

Average real income declined in recent years, with the While relative poverty fell from the early 2000s, progress
bottom decile especially volatile. has stalled more recently.
Real Income by Decile Poverty Rate
(Index: 2005=100) (Percent of population)
160 28
Total Below 60 percent of median income
1st (bottom) 26 Below 50 percent of median income
150
2nd
9th 24
140
10th (top)
22
130
20
120
18
110
16
100 14
90 12
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Inequality is similar to EM peers when taxes and transfers
…but it has increased of late.
are controlled for…
Gini Coefficient, 2018 Measures of Inequality
0.8 16 0.50
0.7
14
0.6 0.45
12
0.5
0.4 10 0.40
0.3
8
0.2 0.35
6
0.1 Before taxes and transfers Ratio of top over bottom income deciles
After taxes and transfers Gini coefficient, rhs
0 4 0.30
POL
MEX
RUS
CHL
LVA
TUR
HUN
BGR
EST
ROU
BRA
ZAF
LTU
CZE
CRI
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Poverty rates are particularly concentrated among the
… and in the eastern regions of Türkiye.
young …
Poverty Rate by Age Group* Median Equivalised Household Disposable Income*
(Percent of population) (Thousands TRY)
30 40
35
25 30
25
20 20
15
15
10
5
10
0
W. Anatolia
C. Anatolia
W. Black Sea
C.E. Anatolia
E. Marmara
Aegean
S.E. Anatolia
E. Black Sea
İstanbul
Türkiye
W. Marmara
Mediterranean
N.E. Anatolia
0
Total 0-17 yrs 18-65 yrs 66+ yrs
*50 percent of median income *Adjusted for household size and relative consumption
Sources: Turkstat; Haver; OECD and IMF staff calculations.

Figure 2. Türkiye: Key Spillovers from the War in Ukraine

Russia is an important trading partner Türkiye relies heavily on natural gas …
Share in TUR's Foreign Trade Energy Supply by Source, 2020
(Percent) (Percent of total)
12
Imports Coal
Exports Natural gas
10
Oil
8 Other
0
Russia Ukraine
… around half of which comes from Russia Russia is also a key source of Türkiye’s oil imports
Natural Gas, 2019 Oil Imports
(Thousand TJ-gross) (Millon tons)
2000 8
2021 Jan-Jun
7 2022 Jan-Jun
1500
6
1000 5
4
500
3
0 2
1
-500
0
Consumption 1/ Production Imports Exports
RUS IRQ KAX IND SAU NGA LBY NOR AZE Others
from Russia from Iran from Azerbaijan from Algeria Source: Energy Market Regulatory Authority.
Higher energy prices have nearly doubled Türkiye’s import

… and have swollen Türkiye’s current account deficit.
bill …
Energy Imports Current Account
(Billions USD) (Percent of GDP)
120 8
Natural gas
6
Oil and oil products
100
Coal 4
Total
2
80
0
60 -2
-4
40
-6
20 -8 Non-Energy Balance
-10 Energy Balance
0 Current Account Balance
-12
2021 2022 2002 2006 2010 2014 2018 2022 2/
Russia is also a major source of tourism revenues. But financial sector exposures are limited.
Russia's Share in Tourist Arrivals Turkish Banks' Exposures to Russia and Ukraine
(Percent) (Millions USD)
50 400 0.20
Russia
Feb-22
45 350 Ukraine
Percent of GDP, rhs
40
300 0.15
35
250
30
25 200 0.10
20 150
15
100 0.05
10
5 50
0 0 0.00
Sep-17 Jul-18 May-19 Mar-20 Jan-21 Nov-21 Sep-22 2018 2019 2020 2021 2022
Sources: Turkstat; Haver; Bank for International Settlements; IEA, and IMF staff calculations.
1/ Excludes deliveries for transformation and/or own use of the energy producing industries. 2/Cumulative sum of available data (Jan-Sep) divided
by IMF forecasted 2022Q3 GDP.

Figure 3. Türkiye: Inflation Developments in an International Context

Türkiye’s high inflation rates stand out.
Selected EMs CPI Inflation, Latest Selected EMs Core CPI Inflation, Latest
(Y/y percent change) (Y/y percent change)
100
Range around the target
Latest 80
80
60
60
40
40
20 20
0 0
COL
MEX
IDN
TUR
POL
CHL
RUS
IND
CHN
PHL
ARG
HUN
PER
ZAF
BRA
THA
IDN
TUR
RUS
POL
CHL
COL
MEX
IND
PHL
ARG
HUN
BRA
PER
ZAF
Unlike Türkiye, other EMs have tightened monetary … such that Türkiye’s deeply negative real rates stand out
policy aggressively … ex-post …
EM Monetary Policy and Inflation 1/ Ex-Post Real Policy Rate and Inflation
1500 (Percent)
100
1200 Ex-post real policy rate
RUS 80
INDMEX Inflation
900
60
(bps, change Aug-2021)
HUN
600 PER
CHL 40
ZAF COL
Policy Rate
300 IDN PHL 20

CHN BRA POL
0 THA 0
-20 0 20 40 60 80 100
-300 -20
-600 -40
-900 -60
TUR
-1200 -80
CPI Inflation
THA
CHN
CZE
MEX
IDN
IND
COL
CHL
POL
MYS
RUS
TUR
KOR
BRA
HUN
BGR
ROU
(percent, deviation from target)
… and ex-ante... ... as inflation expectations have de-anchored more than in
most EMs
Ex-Ante Real Policy Rate and Inflation EMs 3-year-ahead Inflation Expectations vs Target 1/
(Percent) (Percent)
100
16
Ex-ante real policy rate
3-year-ahead inflation expectations
80 Inflation TUR
60 12
(2022-Q2)
40
8
20
IND
RUS ZAF
0 4 MEX
PHLIDN HUN BRA
COL CHL
PER
POL
-20 CHN
THA
0
-40
0 4 8 12 16
CHL
COL
MEX
CHN
IDN
RUS
IND
POL
MYS
TUR
KOR
BRA
HUN
BGR
ROU
THA
CZE
Inflation target (2015-2021Q1 average)

Sources: Central Bank of the Republic of Türkiye; Consensus Forecasts; Country authorities; Eurostat; Haver Analytics; Turkstat;
and IMF staff calculations.
1/ Excludes Argentina.

Figure 4. Türkiye: Household Balance Sheets

Turkish households have very low debt levels relative to And they are the only sector to have a positive net FX
emerging market peers. balance sheet position.
Household Debt, 2021 Net FX Position
(Percent of GDP) (Percent of rolling 4-quarter GDP)
120 30
NFCs
Banks (on balance sheet)
100 20 Central government + CBRT
Households
80
10
60
0
40
-10
20
-20
0
TUR
RUS
POL
IRL
ITA
GRC
LVA
SVN
SWE
SVK
AUT
BEL
ROU
HUN
BGR
HRV
LTU
EST
CZE
MLT
ESP
LUX
PRT
FIN
NLD
DEU
-30
EMs AEs 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Real incomes recovered strongly after the pandemic but
Financial assets are dominated by FX deposits.
have since been eroded by high inflation.
Real Total Compensation of Employees Financial Assets
(MIllions TRY, 2017 prices) (Percent of GDP)
290 60
Transferable deposits Other deposits (inc FX)
280 50 Currency Shares and other equity
270 Other
40
260
30
250
20
240
230 10
220 0
2017Q1 2018Q4 2020Q3 2022Q2 2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1
… shifting resources to non-financial assets., such as
Nevertheless, net financial wealth has still been eroded by
housing, which has caused a steep increase in house
high inflation…
prices.
Household Financial Net Worth Real House Prices
(Percent of GDP) (Index: 2017=100)
80 195
Financial Liabilities
70 Financial Assets
Net worth 175
60
50
155
40
30 135
20
115
10
0
95
-10
-20 75
2017Q1 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1 Jan-10 Sep-12 May-15 Jan-18 Sep-20 Jun-22
Sources: CBRT; Haver Analytics; and IMF staff calculations.

Figure 5. Türkiye: Financial Markets

The Turkish lira has depreciated sharply in the last few
… muting local stock market gains.
years …
Exchange Rate vis-à-vis US Dollar

Local Stock Market Index
(Index: April 1, 2016=100)
120 (Index: April 1, 2016 =100, USD)
150
Other G-20 EMs
100 TUR
125
80
100
60
40 75
20 TUR 50
Other G-20 EMs
0
25
Apr-16 Oct-17 Apr-19 Oct-20 Oct-22
Apr-22
Apr-16 Oct-17 Apr-19 Oct-20 Oct-22
Apr-22
Türkiye’s CDS spread has widened significantly … … and so have its bond spreads...
5-Year Sovereign CDS Spread EMBIG Spreads on US$ Sovereign Bonds
(Basis points) (Basis points)
900 900
800 800
700 700
600 600
500 500
Turkey
400 400
300 300
200 200 Other G-20

EMs 1/
100 100
Jan-18 Apr-19 Jul-20 Oct-21 Oct-22 Apr-16 Oct-17 Apr-19 Oct-20 Oct-22
Apr-22
… as light portfolio outflows have continued. In contrast, local currency government bond yields have
dropped sharply on regulations forcing banks to hold
securities.
External Flows into Bond and Equity ETFs and Mutual Funds Government Bond Yields
(Billions USD) (Percent)
1.0 30 14
26 12
0.5
10
0.0 22
8
-0.5 18
6
-1.0 14
TRY 2Y 4
TRY 10Y
-1.5 10 2
USD 2Y (rhs)
USD 10Y (rhs)
-2.0 6 0
Mar-16 Feb-17 Jan-18 Dec-18 Nov-19 Oct-20 Sep-21 Aug-22 Jan-18 Apr-19 Jul-20 Oct-21 Oct-22
Sources: Bloomberg Finance L.P.; Haver Analytics; and IMF staff estimates.
1/ Excludes Russia.

Figure 6. Türkiye: Real Sector Developments

Growth has remained robust, driven by private
… and, on a sectoral basis, by services.
consumption …
Contributions to Real GDP Growth Contributions to Real GVA Growth
(Percent, quarter-on-quarter) (Percent, quarter-on-quarter)
Consumption (private) Consumption (public) Agriculture, etc. Manufacturing Other industries
Fixed investment Inventories/discrepancy Construction Market services Non-market services
Net exports Real GDP growth 4
8
Real GDP growth
6 long-run average Real GVA
growth
4 2
2
0
0
-2
-4
-6 -2
Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22
Recent indicators have softened … … as has confidence among business in key sectors.
Retail Sales Volume and Purchasing Managers Index Sectoral Confidence Indicators
25 60 (Percent, difference from long-run average)
15
20
50
15
0
10 40
5 -15
30
0
-30
-5 20
-10 Industry
Retail sales volume (q/q -45 Services
10
-15 growth) Construction
PMI (50+ = expansion), rhs Retail
-20 0 -60
Mar-17 May-18 Jul-19 Sep-20 Nov-21 Sep-22 Mar-17 May-18 Jul-19 Sep-20 Nov-21 Sep-22
Loose monetary policy and higher commodity prices
… and further dislodged inflation expectations.
brought inflation to multi-year highs …
Consumer Price Index Inflation Expectations
(Percent, y/y change) (Percent)
90 45
80 40 1Y ahead
70
35
60
30
50
25
40
20
30
15
20
10
10
5
0 Inflation target
Jan-02 Jan-07 Jan-12 Jan-17 Jan-22
Oct-22 0
Oct-2019 Jul-2020 Apr-2021 Jan-2022 Oct-22
Oct-2022
Sources: Bloomberg Financial Markets L.P.; CBRT; Consensus Forecast; European Commission; Turkstat; and IMF staff calculations.

Figure 7. Türkiye: Labor Market Developments
The unemployment rate has fallen sharply … … as have broader slack measures.
Unemployment Rate Broader Labor Underutilization Measures
(Percent, SA) (Percent)
16 36
Total underutilization rate 1/
32 Unemployment and potential labor force 2/
15 Unemployment and time-related underemployment 3/
28 Unemployment rate
14
24
13
20
12
16
11
12
2017-2021
10 8
average
2018Q2 2019Q2 2020Q2 2021Q2 2022Q2
9
Aug-18 Aug-19 Aug-20 Aug-21 Aug-22 Note: Dashed lines are 2017-2021 average.
Labor force participation has broadly recovered … … across both male and female labor force participants.
Labor Force Participation Rate Labor Force Participation Rate
(SA, percent) (SA, percent)
54 80
70
52
60
Male
50 50 Female
40
48
30
46 20
Aug-18 Aug-19 Aug-20 Aug-21 Aug-22 Aug-18 Aug-19 Aug-20 Aug-21 Aug-22
Nominal wage growth has picked up sharply… … although real wages have been eroded
Nominal Wage Growth Real Gross Minimum Wage
(Y/y percent change) (Y/y percent change)
80 35
Gross minimum wage 30
70
Gross wage & salaries index 4/ 25
60
20
50 15
40 10
30 5
20 0
-5
10
-10
0
-15
-10 -20
-20 -25
2018Q3 2019Q3 2020Q3 2021Q3 2022Q3 2012Q4 2015Q2 2017Q4 2020Q2 2022Q2
Sources: Turkstat; Haver Analytics; and IMF staff calculations.
1/ Ratio of the sum of unemployed, time-related underemployment, and potential labor force to the sum of labor force and potential labor force.
2/ Ratio of the sum of unemployed and potential labor force to the sum of labor force and potential labor force.
3/ Ratio of the sum of time-related underemployment and unemployed people to the labor force.4/ Gross wages and salaries are defined as the
total remuneration, in cash or in kind, payable to all persons counted on the payroll (including home workers), in return for work done during the
accounting period, regardless of whether it is paid on the basis of working time, output or piecework and whether it is paid regularly.
4/ Gross wages and salaries are defined as the total remuneration, in cash or in kind, payable to all persons counted on the payroll (including home
workers), in return for work done during the accounting period, regardless of whether it is paid on the basis of working time, output or piecework
and whether it is paid regularly.

Figure 8. Türkiye: Financial Sector

… while headline deposit dollarization has slowed down,
Bank credit growth decelerated at the margin, but remains
especially for private banks, following the introduction of
strong …
TL FX-protected deposits.
Turkish Lira Loans FX Deposits
(Index: Jan-2016 = 100) (Index: Jan-2016 = 100)
690 1650
Domestic private Domestic private
State-owned 1450 State-owned
590 Foreign Foreign
1250
490
1050
390 850
650
290
450
190
250
90 50
Feb-17 Jul-18 Dec-19 May-21 Sep-22 Feb-17 Apr-18 Jun-19 Aug-20 Oct-21 Sep-22
Higher securities’ income from inflation-linked and FX- The net FX position of the banking system has remained
denominated bonds have contributed to wider margins, broadly balanced.
for now.
Net Interest Margins Net FX Position
(Percent of interest bearing assets) (Billion USD)
8 80
Domestic private
State-owned Off balance sheet
7 60
Foreign
40
6
20
5 Total
0
4
-20
On balance
3 sheet
-40
2 -60
1 -80
Feb-17 Apr-18 Jun-19 Aug-20 Oct-21 Sep-22 Apr-17 Mar-18 Feb-19 Jan-20 Dec-20 Nov-21 Oct-22
After rebounding on private bank profits and SOB capital
injections, capital ratios have fallen from their peaks on Non-performing loan ratios have declined steadily on
adjustments in regulatory forbearance, but have since strong loan growth and regulatory forbearance.
started to rise again.
Capital Adequacy Ratios Non-Performing Loans
(Percent) (Percent of total loans)
21 8
CAR Domestic private
20 7 State-owned
T1R
19 Foreign
6
18
5
17
16 4
15 3
14 2
13
1
12
Feb-17 Apr-18 Jun-19 Aug-20 Oct-21 Sep-22 0
Notes: Monthly EOP NSA. CAR= Regulatory Capital/RWA. T1R= T1 Capital/ RWA. Feb-17 Jan-18 Dec-18 Nov-19 Oct-20 Sep-21 Aug-22
Sep-22

Figure 9. Türkiye: Fiscal Stance

The central government budget overperformed in the first
…as spending execution is expected only in late 2022...
three quarters of 2022…
Central Government Fiscal Balance Central Government: Primary Expenditure Components
(Percent of GDP; 12-month cumulative, authorities' definition) (Percent of GDP)
4 3 30
Interest payments, rhs Personnel Goods & services
3 Overall balance Current transfers Capital exp.
Primary balance 25 Other Primary exp.
2
1 2 20
0
15
-1
-2 1 10
-3
5
-4
-5 0 0
Jan-15 Feb-16 Mar-17 Apr-18 May-19 Jun-20 Jul-21 Aug-22
Sep-22 2016 2017 2018 2019 2020 2021 2022 1/
But, lately, expenditure growth has overtaken revenue

…while revenues held up as a share of GDP.
growth.
Central Government: Primary Revenue Components Central Government: Primary Revenue/Expenditure
(Percent of GDP, program definition) (Percent, 12-month cumulative growth rate)
28 28 105
PIT CIT Primary revenue
95
24 VAT SCT 24 Primary expenditure
Non-tax Other 85
20 Primary revenues 20 75
65
16 16
55
12 12 45
35
8 8
25
4 4 15
0 0 5
2016 2017 2018 2019 2020 2021 Oct-22
Sep-17 May-18 Jan-19 Sep-19 May-20 Jan-21 Sep-21 May-22
Spending on goods and services has increased especially With strong nominal GDP growth, the central government
sharply. debt stock has fallen.
Central Government: Current Expenditure Central Government Debt Stock
(Percent, 12-month y/y growth rate) (Percent of GDP)
350 45
Wages
300 Goods and services 40
Current transfers 35
250
30
200
25
150
20
100 15
50 10
0 5
0
-50
Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22
Feb-20 Jul-20 Dec-20 May-21 Oct-21 Mar-22 Aug-22
Sources: Ministry of Treasury and Finance and IMF staff calculations.
1/ Entry for 2022 includes data through Q3.

Figure 10. Türkiye: Fiscal Financing

Domestic borrowing exceeded the cash balance, allowing Domestic borrowing has become less reliant on FX-
the accumulation of Treasury deposits. denominated debt and gold.
Deficit Financing Sources Domestic Borrowing
(Percent of GDP) (Percent of GDP)
8 8
Domestic borrowing Fixed rate
Foreign borrowing 7 Floating
6 TL lease certificate
Change in Treasury deposits (-'ve = accumulation)
6 Gold
4 Cash Balance
FX denominated
5
2
4
0 3
-2 2
1
-4
0
-6 2021 (Jan-Sep 2022 (Jan-Sep)
2008 2010 2012 2014 2016 2018 2020 2022 1/
Government borrowing rates have fallen for all tenors due

External borrowing declined sharply compared to 2021.
to macrofinancial and regulatory measures.
FX Gross Issuance TRY Government Bond Yield Curve
(Billion USD) (Percent)
14
External borrowing 30
13
12
11 FX-denominated domestic 25
10 borrowing
9
8 20
7
6
15
5
4
3 5/16/2022 6/6/2022
10
2
7/5/2022 10/6/2022
1
0 5
2021 (Jan-Sep) 2022 (Jan-Sep) 1Y 2Y 3Y 4Y 5Y 8Y 10Y
CBRT profit transfers to the MoTF remain small .2/
Profit Transfers from the CBRT to the MoTF

(Percent of GDP at year of transfer)
1.0
0.8
0.6
0.4
0.2
0.0
2018 2019 2020 2021 2022
Sources: CBRT; MOTF; and IMF staff calculations.

1/ Cumulative sum of available months (January – September).
2/ The CBRT’s exposure to the central government is limited. The central bank’s balance sheet currently comprises, on the asset side, only a small
Treasury securities portfolio of around TL 140 billion (just 4.7 percent of total CBRT assets or 1 percent of GDP) while, on the liability side, public
sector deposits amounting to around TL 420 billion.

Figure 11. Türkiye: External Sector
The current account deteriorated sharply … … driven by higher import prices…

Current Account Trade Volume and Price Index
(Billions USD, 12mms) (Index: 2010=100, SA)
90 165 190
Current account Excluding fuel Export volume (rhs) Import volume (rhs)
75 155
Excluding fuel & gold Excluding gold Export price Import price
60 145 170
45
135
30 150
125
15
115
0 130
105
-15
-30 95 110
-45 85
-60 75 90
Sep-20 Mar-21 Sep-21 Mar-22 Sep-22 Nov-18 Aug-19 May-20 Feb-21 Nov-21 Aug-22
Net errors and omissions are a significant component of
,,,that caused a large deterioration in the terms of trade.
the current account financing…
Terms of Trade Shock, 2022Q3 Current Account and Financing
(Percent change from 2021 average) (Billions USD; 12-month-moving-sum)
25 75 E&O, net
Currency & deposits, net
20
60 Portfolio, net
15 Reserves (+ = drawdown)
10 Loans, net
45 FDI, net
5 Current account deficit
0 30
-5 15
-10
-15 0
-20
-15
COL
IDN
IND 1/
CHN
MEX
CHL
MYS
TUR
KOR
ROU 1/
BGR 1/
POL 1/
BRA
CZE
HUN 1/
THA
-30
Sources: Haver Analytics and IMF staff calculations. -45

1/ Data refers to 2022Q2. Feb-19 Aug-19 Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 Aug-22
… while gross reserves remain below the ARA metric lower … and external financing needs continue to be high due to
bound … high short-term debt and a large current account deficit.
Gross International Reserves External Financing Needs
(Billions USD) (Percent of rolling 4-quarter GDP)
150 110 35
Gold
FX
Gross International Reserves (GIR)
125 GIR, net of liabilities to banks 100 30
GIR, % ARA (rhs)
External financing
100
90 25 needs
75
80 20 CA deficit
50
70 15 Short-term debt,
25
remaining maturity
0 60 10
Feb-19 Nov-19 Aug-20 May-21 Feb-22 Sep-22 2011 2013 2015 2017 2019 2021
Sources: CBRT; MOTF; and IMF staff calculations.

Figure 12. Türkiye: Credit Growth Developments

Lira credit growth has decelerated, until recently, across
Corporate and SME credit growth have both decelerated ...
bank types.
TRY Credit Growth TRY Credit Growth
(13-week moving average, w/w %, annualized) (13-week moving average, w/w %, annualized)
250 200
Domestic Private Banks
Corporate Loans
State-Owned Banks
200 Foreign Banks SME Loans
150
150
100
100
50 50
0
0
-50
Jan-18 Apr-19 Jul-20 Oct-21 Oct-22 -50
Sources: BRSA; CBRT; and IMF staff calculations. Jan-18 Apr-19 Jul-20 Oct-21 Oct-22
… including for export loans, albeit from elevated rates. But NFC credit growth remains positive in real terms.
TRY Credit Growth TRY Real Credit Growth
(3-month moving average, m/m %, annualized) (3-month moving average, m/m %, annaulized)
400 1600 200 800
Corporate Loans
Other Investment Loans 175
350 1400 SME Loans
Agriculture Cash Loans 150 600
300 1200 Export Loans (rhs)
Export Loans (rhs) 125
250 1000 100 400
200 800 75
150 600 50 200
100 400 25
0 0
50 200
-25
0 0
-50 -200
-50 -200 -75
2017 2018 2019 2020 2021 2022 -100 -400
Sources: BRSA; CBRT; and IMF staff calculations. Jan-17 Jun-18 Nov-19 Apr-21 Aug-22
In contrast with exceptionally strong credit card lending,

… with housing loans slightly negative in real terms.
housing and personal loan growth slowed sharply …
TRY Consumer Credit Growth TRY Real Consumer Credit Growth
(13-week moving average, w/w %, annualized) (3-month moving average, m/m %, annaulized)
200 175
Credit Cards 150
150 Housing Loans 125

100
Personal Finance and Vehicle
75
100 Loans
50
25
50
0
-25
0 -50 Credit Cards
Housing Loans
-75
Personal Finance and Vehicle Loans
-50 -100
Jan-18 Aug-19 Mar-21 Sep-22 Jan-17 Jun-18 Nov-19 Apr-21 Aug-22

Table 1. Türkiye: Selected Economic Indicators, 2018–27

Population (2021): 84.7 million
Per capita GDP (2021): US$9,654
Life expectancy (2019): 77.7 years
Gini index (2019): 41.9
Quota: SDR 4,658.6 million
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Est. Proj.
Real sector (Percent)

Real GDP growth rate 3.0 0.8 1.9 11.4 5.5 3.0 3.0 3.0 3.0 3.0
Final domestic demand 1.1 -2.1 4.2 11.4 10.5 4.7 3.3 3.3 3.2 3.1
Private consumption 0.6 1.5 3.3 15.3 15.3 3.4 3.4 3.5 3.5 3.2
Public consumption 6.5 3.8 2.5 2.6 2.8 13.1 3.2 2.8 3.0 3.5
Investment -0.2 -12.5 7.4 7.4 2.8 3.9 3.0 2.9 2.5 2.5
Exports 8.8 4.2 -14.4 24.9 9.8 5.5 8.0 7.6 6.3 5.7
Imports -6.2 -5.0 6.7 2.4 5.5 7.9 6.2 6.8 6.0 5.6
Contributions to real GDP growth 1/
Private consumption 0.3 0.8 1.9 8.7 8.4 2.0 2.0 2.1 2.1 2.0
Public consumption 0.9 0.6 0.4 0.4 0.4 1.6 0.4 0.4 0.4 0.5
Investment (incl. inventories) -2.4 -3.5 6.4 -4.1 -4.8 0.9 0.2 0.5 0.5 0.6
Net exports 4.1 2.9 -6.7 6.4 1.5 -1.4 0.3 0.1 -0.1 -0.1
GDP deflator growth rate 16.5 13.8 14.9 29.0 83.3 51.7 24.1 19.3 18.5 18.2
Nominal GDP growth rate 19.9 14.7 17.1 43.6 93.3 56.2 27.9 22.9 22.1 21.8
Inflation (period-average) 16.3 15.2 12.3 19.6 72.1 50.6 24.0 20.2 20.0 20.0
Inflation (end-year) 20.3 11.8 14.6 36.1 70.0 36.0 21.3 20.0 20.0 20.0
Unemployment rate 10.9 13.7 13.1 12.0 10.8 10.5 10.5 10.5 10.5 10.5
Output gap (percent of potential GDP) 1/ 1.1 -2.1 -4.4 1.5 2.2 1.7 1.2 0.6 0.1 0.0
(Percent of GDP)
Fiscal sector
Nonfinancial public sector
Primary balance -2.4 -3.0 -3.2 -2.6 -2.5 -3.2 -2.4 -2.0 -1.7 -1.6
Overall balance -3.9 -5.0 -5.1 -4.3 -4.4 -5.3 -5.0 -4.9 -4.8 -5.0
General government gross debt (EU definition) 30.1 32.6 39.7 41.8 35.6 35.4 36.6 38.4 39.8 39.6
External sector
Current account balance -2.6 1.4 -4.4 -0.9 -6.0 -3.4 -2.5 -2.2 -2.2 -2.2
Gross international reserves (billions of US dollars) 93.0 105.7 93.6 111.2 125.2 102.2 94.9 93.5 91.5 89.5
Ratio to ARA Metric for emerging markets (percent) 77.3 88.7 77.6 88.0 … … … … … …
Gross financing requirement 24.4 18.7 24.9 21.2 26.2 24.7 23.4 23.2 23.4 23.3
Gross external debt 2/ 54.7 54.7 60.1 54.8 57.8 48.6 47.7 46.9 46.1 45.6
Net external debt 35.7 33.2 40.1 33.7 35.8 32.5 33.0 32.9 32.9 33.1
Net international investment position -43.1 -40.8 -53.7 -31.3 -27.9 -26.4 -27.6 -28.3 -29.1 -29.9
Short-term external debt (by remaining maturity) 19.6 19.4 23.0 21.1 25.8 22.0 22.2 22.3 22.1 22.0
REER (CPI-based, 2003=100) 77.1 75.1 67.3 60.4 … … … … … …
Monetary conditions (Percent)

Real average cost of CBRT funding to banks 1.4 5.4 -1.7 -1.9 … … … … … …
Nominal growth of M2 broad money 18.4 27.3 33.9 53.0 … … … … … …
Memorandum items
GDP (billions of U.S. dollars) 780 759 720 818 850 1030 1086 1150 1210 1271
GDP (billions of Turkish lira) 3,759 4,312 5,048 7,249 14,012 21,885 27,981 34,392 41,991 51,143
Real effective exchange rate (year-on-year percent change) -14.4 -2.7 -10.3 -10.2 … … … … … …
GDP per capita US$ 9,508 9,133 8,612 9,654 9,925 11,888 12,385 12,976 13,518 14,054
Population (million) 82.0 83.2 83.6 84.7 85.7 86.7 87.6 88.6 89.5 90.5

1/ Staff estimates.
2/ The external debt ratio is calculated by dividing external debt in US$ by staff-estimated GDP in US$. GDP in US$ is calculated as GDP in TL divided
by the annual average exchange rate.

Table 2. Türkiye: Summary of Balance of Payments, 2018–27

(Billions of U.S. dollars, unless otherwise noted)
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Est. Proj.
Current account balance -20.1 10.8 -31.9 -7.3 -50.6 -34.8 -26.8 -25.8 -27.0 -28.6
Balance on goods and services -9.8 21.8 -23.5 2.5 -40.8 -24.1 -15.4 -14.1 -14.8 -16.0
Goods, net -40.7 -16.8 -37.9 -29.3 -88.5 -79.5 -62.3 -63.8 -67.6 -73.6
Exports of goods 178.9 182.2 168.4 224.7 255.4 246.0 276.2 294.8 312.7 328.9
Imports of goods 219.6 199.0 206.3 254.0 343.9 325.5 338.5 358.6 380.2 402.5
of which fuel imports 43.6 41.7 28.9 50.7 100.4 83.9 74.5 67.9 64.8 62.0
of which gold imports 11.3 11.3 25.2 5.5 14.0 8.5 8.5 8.5 8.5 8.5
Services, net 30.9 38.6 14.4 31.8 47.8 55.4 46.9 49.7 52.7 57.7
Credit 59.3 67.2 38.2 61.4 87.2 95.9 99.0 112.2 123.4 135.8
Debit 28.5 28.7 23.9 29.6 39.4 40.5 52.2 62.5 70.7 78.2
Primary income, net -11.0 -11.8 -8.6 -10.7 -9.4 -11.5 -12.2 -12.5 -13.0 -13.5
of which interest expenditure -7.8 -8.2 -6.1 -5.7 -5.0 -6.1 -6.4 -7.2 -7.6 -8.0
Secondary income net 0.8 0.9 0.2 0.9 -0.5 0.8 0.8 0.8 0.8 0.8
Capital account 0.1 0.0 0.0 -0.1 0.0 0.0 0.0 0.0 0.0 0.0
Errors and omissions 21.1 -5.8 -7.6 1.4 24.9 0.0 0.0 0.0 0.0 0.0
Financial account balance 1.1 5.1 -39.5 -6.0 -25.7 -34.8 -26.8 -25.8 -27.0 -28.6
Direct investment, net -8.9 -6.6 -4.6 -6.9 -6.1 -8.5 -8.3 -8.8 -9.1 -9.6
Portfolio investment, net 0.9 2.8 9.6 -0.8 11.5 2.9 -1.2 -2.5 -2.8 -2.9
of which government eurobonds, net -3.9 -6.8 -4.6 -3.9 -2.9 -0.5 -0.2 1.0 -1.1 -2.1
Other investment, net 19.4 2.6 -12.6 -21.7 -50.4 -6.2 -9.8 -13.1 -13.2 -14.1
of which short-term borrowings 7.8 4.1 -3.5 2.2 1.3 1.4 1.0 0.8 0.7 0.5
Reserve assets -10.4 6.3 -31.9 23.3 19.3 -22.9 -7.4 -1.4 -1.9 -2.0
(Percent of GDP)
Current account balance, of which -2.6 1.4 -4.4 -0.9 -6.0 -3.4 -2.5 -2.2 -2.2 -2.2
Nonfuel current account balance 2.3 5.8 0.1 4.3 3.9 3.5 3.3 2.8 2.3 1.9
Goods and services balance -1.3 2.9 -3.3 0.3 -4.8 -2.3 -1.4 -1.2 -1.2 -1.3
(Percent year-on-year)
Export value growth 6.8 4.7 -17.2 38.5 19.7 -0.2 9.7 8.5 7.1 6.6
Import value growth -2.7 -8.2 1.1 23.2 35.2 -4.5 6.7 7.8 7.1 6.6
Oil price (US$ per barrel) 66.2 61.2 41.8 69.4 98.2 85.5 80.2 76.2 73.3 71.0
Gross international reserves (USD bn) 93.0 105.7 93.6 111.2 125.2 102.2 94.9 93.5 91.5 89.5
Ratio to ARA Metric for emerging markets (percent) 77.3 88.7 77.6 88.0 … … … … … …
Net international reserves (USD bn) 30.2 40.6 13.5 8.1 27.4 4.5 -2.9 -4.3 -6.2 -8.2
Net international reserves (exl. govt. FX deposits) (USD bn) 27.1 35.1 1.6 -3.2 … … … … … …
Ratio of external debt service to exports (percent) 74.6 64.5 74.4 59.9 51.7 66.0 62.1 60.9 60.4 59.3

Table 3. Türkiye: External Financing Requirements and Sources, 2018–27

(Billions of U.S. dollars, unless otherwise noted)
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Est. Proj.
Gross external financing requirements 190.2 142.0 179.5 173.0 222.7 254.4 253.6 266.4 282.9 296.7
Current account deficit 20.1 -10.8 31.9 7.3 50.6 34.8 26.8 25.8 27.0 28.6
Government eurobonds (amortization) 3.8 4.4 4.7 6.1 8.0 7.5 10.8 12.0 9.9 8.9
Medium- and long-term debt amortization 56.3 54.9 46.3 45.7 42.5 48.4 49.4 50.5 51.9 53.6
Government 1/ 2.4 2.2 1.8 1.9 1.8 1.7 1.7 1.7 1.6 1.6
Banks 36.9 30.6 26.4 25.6 22.5 28.9 28.9 28.9 29.2 29.8
Other sectors 17.0 22.0 18.2 18.2 18.2 17.9 18.9 19.9 21.0 22.2
Short-term debt amortization 110.0 93.5 96.6 114.0 121.6 163.7 166.6 178.1 194.1 205.6
Government 1/ 2/ 1.8 5.9 8.5 21.3 26.1 36.0 36.0 36.0 36.0 36.0
Banks 65.1 52.4 52.4 57.2 51.4 62.8 65.1 68.5 81.0 87.5
Other sectors 43.1 35.2 35.8 35.4 44.1 64.9 65.4 73.5 77.0 82.1
Available financing 190.2 142.0 179.5 173.0 222.7 254.4 253.6 266.4 282.9 296.7
Sale of assets (net) 3/ -13.4 -15.1 -1.0 -15.7 -2.8 -4.0 -9.4 -11.4 -7.8 -8.1
Foreign direct investment (net) 8.9 6.6 4.6 6.9 6.1 8.5 8.3 8.8 9.1 9.6
Portfolio flows 3.9 8.0 -1.9 9.1 -0.7 6.7 14.3 16.8 15.2 14.4
Government eurobonds (drawings) 7.7 11.2 9.3 10.0 11.0 8.0 11.0 11.0 11.0 11.0
Domestically-issued government bonds (net) -0.9 -3.1 -6.4 1.1 -2.3 0.0 0.0 0.0 0.0 0.0
Banks' equity and bonds (net) -1.7 -0.1 -0.8 -3.2 -6.9 0.7 2.9 5.4 3.8 3.0
Other sectors' equity and bonds (net) -1.1 0.1 -4.0 1.2 -2.4 -2.0 0.4 0.4 0.4 0.4
Medium and long-term debt financing 53.4 42.5 36.5 50.7 48.3 53.6 54.9 56.6 58.9 61.3
Government 1/ 1.6 1.3 1.3 1.6 2.0 1.5 1.5 1.5 1.5 1.4
Banks 28.2 22.5 21.4 24.3 17.7 28.9 28.9 29.2 30.1 31.0
Other sectors 23.6 18.7 13.8 24.7 28.6 23.3 24.5 25.9 27.3 28.8
Short-term debt financing 4/ 93.5 96.6 114.0 121.6 163.7 166.6 178.1 194.1 205.6 217.4
Government 1/ 5.9 8.5 21.3 26.1 36.0 36.0 36.0 36.0 36.0 36.0
Banks 52.4 52.4 57.2 51.4 62.8 65.1 68.5 81.0 87.5 92.7
Other sectors 35.2 35.8 35.4 44.1 64.9 65.4 73.5 77.0 82.1 88.6
Official transfers 0.3 0.6 0.1 0.4 -0.9 0.5 0.5 0.5 0.5 0.5
Other 33.4 9.7 -4.5 23.8 27.5 0.0 0.0 0.0 0.0 0.1
GIR change ( - denotes increase) 10.4 -6.3 31.9 -23.3 -19.3 22.9 7.4 1.4 1.9 2.0
Memorandum items:
Net public sector financing (incl. IMF, excl. reserves) 7.5 9.0 17.2 8.8 12.3 0.8 0.5 -0.7 1.4 2.4
Government debt rollover rate (in percent) 192 167 214 129 137 101 100 98 102 104
Banks' loan rollover rate (in percent) 79 90 100 91 109 103 104 113 107 105
Other sectors' loan rollover rate (in percent) 98 95 91 128 150 107 116 110 112 113
Gross external financing requirements (percent of GDP) 24.4 18.7 24.9 21.2 26.2 24.7 23.4 23.2 23.4 23.3
International Investment Position (percent of GDP) -43.1 -40.8 -53.7 -31.3 -27.9 -26.4 -27.6 -28.3 -29.1 -29.9

1/ Includes CBRT and the general government, excluding eurobonds issuance.
2/ The increase in government amortization in 2021 largely reflects swaps held by the CBRT, which are assumed to be rolled over.
3/ Includes sales and purchases of portfolio assets by the government, banks, and other private sectors; and sale of assets
classified under Other Investments.
4/ Includes currency and deposits of non-residents.

Table 4. Türkiye: Public Sector Finances, 2018–27

(Percent of GDP)
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Est. Proj.
Nonfinancial public sector primary balance -2.4 -3.0 -3.2 -2.6 -2.5 -3.2 -2.4 -2.0 -1.7 -1.6
Central government -1.5 -3.0 -2.6 -1.6 -1.9 -2.5 -1.7 -1.4 -1.1 -1.0
Primary revenue 18.7 17.9 18.7 18.2 18.7 17.6 18.5 19.1 19.5 19.5
Tax revenue 16.5 15.6 16.5 16.1 16.6 15.5 16.4 17.0 17.4 17.4
Personal income taxes 3.7 3.8 3.1 3.0 2.2 2.5 3.4 3.8 4.1 3.9
Corporate income taxes 2.1 1.8 2.1 2.5 3.5 3.1 3.0 3.0 3.0 3.0
VAT 4.7 4.2 4.6 5.3 5.7 4.7 4.8 5.0 5.1 5.1
Special consumption tax 3.6 3.4 4.1 2.8 3.0 3.0 3.0 3.0 3.1 3.1
Other 2.4 2.4 2.6 2.4 2.2 2.2 2.2 2.2 2.2 2.2
Nontax revenue 1/ 2.2 2.2 2.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1
Primary expenditure, of which: 20.2 20.9 21.2 19.8 20.6 20.0 20.2 20.6 20.6 20.5
Personnel 6.3 6.8 6.7 5.6 5.6 5.6 6.2 6.3 6.3 6.3
Goods and services 1.9 2.0 1.9 1.8 1.8 1.8 1.8 1.8 1.8 1.8
Current transfers, of which : 8.7 9.3 9.9 8.9 8.7 8.4 8.2 8.2 8.3 8.3
Transfers to households 1.0 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
Social security institutions 4.0 4.5 4.9 3.7 2.9 2.7 3.0 3.1 3.1 3.1
Agricultural subsidies 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Transfers of revenue shares 2.6 2.3 2.5 2.4 2.5 2.3 2.5 2.6 2.6 2.6
Capital transfers 0.4 0.4 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Capital expenditure 2.3 1.9 1.9 1.8 2.0 2.0 2.2 2.4 2.6 2.6
Net lending 0.6 0.6 0.6 1.4 2.1 1.8 1.5 1.4 1.3 1.2
Rest of the public sector -0.9 0.0 -0.6 -1.0 -0.6 -0.7 -0.7 -0.6 -0.6 -0.6
Extrabudgetary funds -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Revolving funds -0.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Social security institutions 0.0 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Unemployment insurance fund -0.1 -0.2 -0.8 -0.6 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2
Local governments -0.5 -0.4 0.2 0.0 0.1 -0.1 0.0 0.0 0.1 0.1
State -owned enterprises -0.1 -0.2 0.0 -0.5 -0.5 -0.4 -0.4 -0.4 -0.4 -0.4
Nonfinancial public sector overall balance 1/ -3.9 -5.0 -5.1 -4.3 -4.4 -5.3 -5.0 -4.9 -4.8 -5.0
Interest expenditure (net) 1.5 1.9 1.9 1.7 2.0 2.1 2.6 2.9 3.2 3.5
Memorandum items:
Revenues excluded from IMF 'program definition' 1.5 2.5 1.8 1.5 1.3 0.8 0.7 0.7 0.7 0.7
Central government primary balance (headline) 2/ 0.0 -0.6 -0.8 -0.2 -1.0 -1.7 -1.0 -0.7 -0.4 -0.3
Central government overall balance (headline) 2/ -1.9 -2.9 -3.5 -2.7 -3.4 -4.2 -4.1 -4.1 -4.1 -4.3
Central government cyclically-adjusted primary balance (headline) 2/ 3/ -0.3 -1.6 -0.3 -0.8 -1.5 -2.1 -1.3 -0.8 -0.4 -0.3
Central government cyclically-adjusted overall balance (headline) 2/ 3/ -2.3 -3.8 -2.9 -3.3 -4.0 -4.7 -4.4 -4.3 -4.1 -4.3
General government primary balance (headline) 2/ -0.8 -0.4 -1.5 -1.0 -1.1 -2.0 -1.3 -0.9 -0.6 -0.5
General government overall balance (headline) 2/ -3.0 -2.9 -4.3 -3.6 -3.9 -4.7 -4.5 -4.5 -4.4 -4.6
General government cyclically-adjusted primary balance (headline) 2/ 3/ -0.8 -0.9 -0.4 -1.6 -1.7 -2.5 -1.6 -1.1 -0.6 -0.5
General government cyclically-adjusted overall balance (headline) 2/ 3/ -2.9 -3.3 -3.1 -4.3 -4.6 -5.3 -4.9 -4.7 -4.4 -4.6
General government gross debt 30.1 32.6 39.7 41.8 35.6 35.4 36.6 38.4 39.8 39.6

1/ IMF program definition which excludes several items from non-tax revenue and the primary balance, including privatization proceeds, transfers from CBRT, dividend payments
from Ziraat Bank and interest receipts.
2/ Headline or authorities' definition which includes items excluded from the IMF 'program' definition.
3/ The cyclically-adjusted balance adjusts for the economic cycle and excludes one-off CBRT revenues.

Table 5. Türkiye: Financial Soundness Indicators, 2012–21

(Percent of GDP)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 202210/
Capital Adequacy
CAR 18 15 16 16 16 17 17 18 19 18 19
CT1R 15 13 14 13 13 14 14 15 16 15 16
RWA / Assets 80 84 83 83 82 76 77 77 67 58 62
Asset Quality
NPLs / Gross Loans 3 3 3 3 3 3 4 5 4 3 2
Provisions / Gross NPLs 75 76 74 75 77 79 68 65 75 80 84
Profitability
Total Int. Income / Int. Bearing Assets (av) 1/ 2/ 9 8 8 8 8 9 11 11 8 10 9
Cost / Income (Efficiency) 3/ 73 71 74 76 72 73 77 78 - - -
ROAA 1/ 4/ 2 2 1 1 2 2 1 1 1 1 3
ROAE 1/ 4/ 16 14 12 11 14 16 15 11 11 15 34
Funding and Liquidity

Loan-to-Deposit ratio 103 111 118 119 119 123 118 103 104 92 85
Loan-to-Deposit ratio (TL) 113 127 133 142 134 148 138 130 152 151 117
Loan-to-Deposit ratio (FX) 82 84 92 89 99 90 96 78 64 60 57
Non-Core / Core Liabilities 5/ 44 52 55 56 56 57 57 47 51 53 42
Non-Core / Core Liabilities (TL) 5/ 26 29 30 32 29 32 33 28 41 49 29
Non-Core / Core Liabilities (FX) 5/ 91 103 113 101 106 101 94 71 62 57 57
Leverage Ratio 1/ 6/ 5 5 6 5 5 5 5 6 5 4 5
Liquid Assets / Assets 7/ 26 24 23 22 21 23 21 23 25 30 30
Assets / Liabilities (3 months, int. sensitive) 82 79 75 74 76 73 78 71 72 88 92
FX Risk
FX Assets / FX Liabilities (on-balance sheet) 6/ 94 91 91 91 94 88 91 88 86 89 91
NOP / Regulatory Capital 2 -1 -2 1 -1 1 3 0 4 6 6
NOP before hedging / Regulatory Capital -14 -29 -28 -30 -22 -43 -34 -41 -58 -57 -40
Balance Sheet (Percent of GDP)

Total Assets 87 95 97 100 104 104 103 104 121 127 107
o/w Gross Loans 50 57 60 63 66 67 64 62 71 68 56
Liabilities 75 84 86 89 93 93 92 93 109 117 97
o/w Deposits 49 52 51 53 55 55 54 60 68 73 66
Shareholders' Equity 12 11 11 11 11 11 11 11 12 10 10
Off-Balance Sheet (Percent of GDP)

o/w Commitments 109 89 83 88 94 103 95 93 99 106 84
o/w Contingencies 15 18 19 20 21 21 21 19 20 23 19
Miscellaneous
Deposit Interest Rate (Percent) 8/ 8 8 9 11 10 13 23 10 16 20 16
Loan Interest Rate (Percent) 9/ 12 13 13 16 15 18 32 15 22 26 30
Sources: BRSA data; and IMF staff calculations.

1/ Current year data are annualized using 12-month rolling sums.
2/ Net of NPL provisions.
3/ Other non-interest income added to expenses when <0.
4/ Net income as a share of average assets or equity over last 12 months.
5/ Core liabilities include deposits and shareholders' equity.
6/ Proxied by T1 Capital over last 2 months average balance sheet assets and average off-balance sheets exposures (> 3 percent).
7/ Liquid assets as reported by the BRSA in their liquidity position table.
8/ On TRY only, excluding sight and interbank.
9/ Consumer Loans (Personal+Vehicles+Housing).
10/ Data refer to 2022M09, except for deposit and loan interest rate data, which refer to 2022M10.

Annex I. External Sector Assessment

Overall Assessment: On a preliminary basis, the external position in 2022 is assessed to be weaker than the level implied by medium-term
fundamentals and desirable policies. While there are large uncertainties over energy prices and the drivers of large net error and omissions and their
impact on Türkiye’s external imbalances, the assessment is also supported by other components such as the low level of reserves, large external
financing needs, and the size and composition of the NIIP, all of which contribute to external vulnerabilities. The current account deficit widened
significantly in 2022, reflecting the sharp increase in imported energy prices. The degree of persistence of such price increases plays a critical role in
the 2022 external assessment and adds to already large uncertainties associated with the exercise. Türkiye’s negative NIIP position, while remaining
large, narrowed significantly as a result of a steep decline in equity liabilities due to valuation effects. Türkiye’s vulnerability to shocks remains high
amid still-elevated gross external financing needs. Over the medium term, the CA deficit is projected to narrow as the REER undervaluation feeds
through and as commodity price pressures ease. The final assessment for 2022 will be presented in the 2023 External Sector Report.
Potential Policy Responses: Türkiye’s external position is assessed to be weaker than the level implied by medium-term fundamentals and desirable
policies, and strengthening the policy framework would help underpin external sustainability going forward. Tightening of the monetary and fiscal
policy stance and the rebuilding of policy credibility would help contain demand and reduce imports, thus improving the current account. It would
also help support capital inflows and liraizaton, and allow for a needed buildup of reserves over time.
Foreign Asset Background. Türkiye’s NIIP averaged –44 percent of GDP over 2017–21. The NIIP increased to –27.5 percent of GDP in 2022Q3,
and Liability driven largely by a marked decrease in equity liabilities in dollar terms. External debt is expected to slightly increase from 55
Position and percent of GDP in 2021 to 58 percent of GDP in 2022. Almost 53 percent of Türkiye’s external debt is held by the private sector,
Trajectory while the public sector (General Government and Central Bank) holds the remaining 47 percent, and about a third of it is short-
term (on a remaining maturity basis).
Assessment. The size and composition of gross external liabilities, coupled with low reserves, increase Türkiye’s vulnerability to
liquidity shocks, sudden shifts in investor sentiment, and any global upswing in interest rates. While the FX exposure of
nonfinancial corporations is high, it has improved in recent years and the short-term net FX position is positive, providing some
liquidity buffer. The NIIP is expected to stabilize over the medium term because of a projected improvement in the current
account balance and hover around –28 percent of GDP through 2027, but unwinding of recent valuation effects could negatively
affect the NIIP trajectory. External debt is sustainable over the medium term but is subject to risks, particularly from a large REER
depreciation.
2022Q3(% GDP) NIIP: –27.5 Gross Assets: 36.0 Debt Assets: 16.7 Gross Liab.: 63.5 Debt Liab.: 48.2
Current Background. The current account deficit widened from 0.9 percent of GDP in 2021 to a projected 6 percent of GDP in 2022.
Account Higher commodity prices resulting from the war in Ukraine have significantly weakened the energy current account balance.
Assessment. The preliminary EBA CA model norm for Türkiye is estimated at –0.5 percent of GDP, with an estimated standard
error of ±0.7 percent of GDP. The CA deficit of 6 percent of GDP in 2022 narrows to a deficit of 3.4 percent of GDP after cyclical
and terms of trade adjustments are made, with the resulting EBA current account gap of -2.9 percent of GDP relative to the CA
norm. Adjusting for temporary pandemic-related shocks (transport:-0.5) results in an IMF staff assessed CA gap in the range of -
4.1 to -2.7, with a midpoint of -3.4. The large uncertainty surrounding large net errors and omissions and energy prices, especially
the extent of persistence of energy price increases, creates major uncertainties about the size of the cyclical adjustments, and
makes the EBA CA assessment even more uncertain than usual.
2022 (% GDP) CA: –6 Cycl. Adj. CA: –3.4 EBA Norm: –0.5 EBA Gap: -2.9 COVID-19 Adj.: -0.5 Other Adj.: -0.0 Staff Gap: -3.4
Real Exchange Background. The REER depreciated by an annual average of 9.4 percent over 2017–21. The average REER depreciated by 10.2
Rate percent in 2021, with an average nominal depreciation against the US dollar of 27 percent. As of October 2022, the REER was 8.2
percent below the 2021 average.
Assessment. Based on staff’s estimates of the CA model, and taking uncertainties into consideration, staff assesses the REER gap
to be overvalued with a range of 9.3, 14.1 and a midpoint of 11.7 percent (applying an estimated REER elasticity of 0.29). In
contrast, as the non-energy CA continues to adjust, the EBA REER models suggest the REER is undervalued in 2022 by around 47
to 57 percent, although uncertainty is exceptionally large and the explanatory power of the models is very weak for Türkiye. Also,
the gap between PPI and CPI has widened to historic highs in Türkiye, and a PPI-based measure would give a very different
outcome. The REER would be broadly fairly valued if far more weight is placed on the EBA CA model, but uncertainty about such
an assessment remains exceptionally high.
Capital and Background. Net capital inflows rebounded in 2022, but mainly on account of one-off flows, including large positive net errors
Financial and omissions of USD 24.9 billion. Positive net inflows were also driven by FDI, while net portfolio inflows weakened further over
Accounts: the year. In early 2022, among others, a new requirement for exporters to convert 25 percent of their export earnings withing 180
Flows days was introduced, which was later increased to 40 percent.
and Policy
Assessment. While net capital inflows continued to rebound in 2022, much of these were of unknown origin. With annual gross
Measures
external financing needs projected at about 24 percent of GDP on average over 2022–27 (26 percent of GDP in 2022), Türkiye
remains vulnerable to adverse shifts in global investor sentiment. CFMs should be phased out as conditions improve to increase
market liquidity and support de-dollarization.
FX Intervention Background. The de jure exchange rate is classified as free floating. Following the sudden depreciation of the lira in 2021Q4,
and Reserves gross reserves decreased sharply falling to about 100 billion US dollars in 2022Q2. Gross reserves have recovered somewhat
Level during 2022Q3 and they were at around USD123 billion at end of November 2022. This increase is partly explained by the inflows

of the Russian State Nuclear Energy Corporation, Rosatom, for the construction of a new power plant. Pressures on the lira were
relieved by large foreign exchange interventions and the introduction of a scheme protecting lira term deposits against currency
depreciation in December 2021.
Assessment. Gross reserves remain at 88 percent of IMF’s ARA metric as of end-November 2022, still below the floor of the
recommended 100 to 150 percent range. In addition, the quality of reserves remains an issue, with non-SDR basket currencies
continuing to account for a large share of the central bank’s FX reserves. Once monetary policy tightening is firmly underway,
significant non-borrowed accumulation of reserves is needed over time, as conditions permit. FX intervention to support the lira
should also be limited to the most extreme cases of exchange rate volatility, undertaken only by the central bank itself (not state-
owned banks).

Annex II. Public Debt Sustainability

Türkiye’s public debt ratio increased modestly, to around 42 percent of GDP at end-2021, from
40 percent at end-2020. 1 Public debt is projected to decline to around 36 percent of GDP in 2022,
driven by higher nominal GDP growth, but is expected to increase over the medium term to nearly
40 percent of GDP, as are gross public sector financing needs. The public DSA suggests that debt
vulnerabilities are rising in Türkiye, even though public debt remains below vulnerability benchmarks
over the medium term under the baseline. Public debt has become more sensitive to external shocks
because of contingent liabilities such as the FX-protected deposit schemes.
Baseline and Realism of Projections
1. Debt levels and composition. Türkiye’s General Government Gross Debt

(Percent of GDP)
debt-to-GDP ratio stood at 42 percent of GDP at 60
FX denominated debt
the end of 2021. Staff projects debt to decline to 50 Lira denominated debt
around 36 percent of GDP by end-2022, before 40
rising, to nearly 40 percent of GDP by 2027. The
30
share of FX-denominated debt has increased in
recent years, reaching nearly two-thirds of total 20
debt at end-2021. For the central government, 10
the share of fixed-rate and floating-rate bonds 0

for domestic debt is roughly equal, while fixed-
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
rate debt accounts for more than 80 percent of Sources: Turkish Treasury; Haver Analytics; and IMF staff calculations.
external debt. 2
2. Growth. A strong growth recovery following the pandemic helped boost revenues. Going
forward, real GDP is expected to moderate to around 3 percent in the medium term, as growth
converges to potential and the scope for further policy-based stimulus diminishes. Past forecast
errors show that desks’ projections have been biased to the downside (i.e., too pessimistic),
particularly in years of large economic shocks.
3. Inflation and the exchange rate. Significant jumps in inflation have eroded the real value
of (non-CPI linked) lira-denominated debt in recent years. High inflation is expected throughout the
projection horizon, which will continue to push down debt unless bond yields are allowed to adjust. 3
On the other hand, debt has become more sensitive to real exchange rate movements through two
channels. First, there is a traditional channel where real exchange rate depreciation will increase the
debt burden of existing FX-denominated debt. Second, the introduction of the FX-protected deposit
schemes means that a depreciation in Turkish lira will directly increase fiscal spending, and thus the
1
Türkiye’s debt figures follow EU standards (as per Maastricht criteria).
2
Limited information on such a debt breakdown is available for general government.
3
Bond yields have been compressed as a result of regulatory bond holding requirements introduced in 2022 under
the TEM.

level of public debt, as long as these schemes remain in place. Annex V contains a more detailed
discussion of external debt.
4. Sovereign yields. Türkiye’s external bond Turkish Local Currency and US Dollar Sovereign Bond Yields
(Percent)
yields have been steadily increasing and are over 35
Türkiye Nov. 2030 Local Currency Bond Yield
10 percent for the benchmark Eurobond. On the 30 Türkiye Jan. 2031 US Dollar Bond Yield
other hand, local currency bond yields have fallen 25

dramatically in recent months, as policies have 20
curbed normal financial market adjustment. 15
Taken together, the effective interest rate is 10
expected to rise to 13 percent in the near term 5
from 9.5 percent in 2021, then gradually decline 0
to 10 percent over the medium term. Given the Jun-21 Dec-21 Jun-22 Nov-22
large share of FX debt in the total, these yield Source: Bloomberg Finance L.P.
assumptions can vary significantly under alternative exchange rate scenarios.
5. Fiscal policy. The structural primary deficit of the general government (which adjusts for the
cycle and one-off revenue items) is projected to be 3.4 percent of GDP in 2022 and is expected to
stabilize at about 1.7 percent of GDP over the medium term.
6. Maturity and rollover. Maturity of domestic borrowing fluctuated in 2022. Following a

sharp decline from 48 months (at end-2021) to 29 months by end 2022Q1, borrowing maturities of
debt stock had lengthened to almost 62 months by August. The lengthening of borrowing maturities
is related to heterodox macroprudential policy requiring banks to hold longer-term government
treasuries (see Section C for detailed discussion). Domestic rollover ratios have also been volatile
throughout the year and with the most recent rollover rates just short of 100 percent in August.
7. Debt profile risks. External financing requirements and the shares of FX-currency in public
debt have risen compared to the last DSA assessment and now rank high relative to peers. 4 Such a
shift in the debt profile highlights increased vulnerabilities of Türkiye’s to external shocks such as a
sharp depreciation of exchange rates. And this is compounded by the fiscal exposure to currency
risk through the FX-protected deposit schemes.
Shocks and Stress Test
8. Interest rate, real exchange rate, and contingent liability shocks lead to a significant
increase in public debt while the primary balance shock does not affect the debt dynamics
substantially. Under a combined macro-fiscal shock, debt would reach 78 percent of GDP over the
medium term. The combined macro-fiscal-contingent liability shock would increase debt to 96
percent of GDP, with a sharp increase in gross financing needs to 26 percent of GDP by 2027.
4
The share of non-resident holdings in public debt rose in 2021, as shown in this DSA chart, but has since fallen
sharply (see paragraph 12).

• Primary balance shock. A 1 standard deviation deterioration in the primary balance for 2 years
starting in 2022 would increase public debt only moderately over the medium term. Under such a
scenario, sovereign borrowing costs are also raised by 25 basis points for each 1 percentage point
of GDP worsening in the primary balance. The impact on gross financing needs increases to about
10 percent of GDP over the medium-term.
• Growth shock. Real GDP growth rates are lowered by 1 standard deviation (5.7 percentage
points) for 2 years starting in 2022. The primary balance is also assumed to deteriorate initially
compared to the baseline (to 4.3 percent of GDP by 2024) as nominal revenues fall against
unchanged expenditures and recover over the medium-term as shocks phase out. This also leads
to higher sovereign borrowing costs. By 2027, the debt-to-GDP ratio would reach around
43 percent of GDP and gross financing needs will also rise to about 11 percent of GDP.
• Interest rate shock. The government’s interest bill is projected to reach an implicit average
interest rate of about 23 percent over the medium term under the shock scenario. By 2027, the
debt-to-GDP ratio would increase gradually to reach about 41 percent while gross financing
needs would climb to 11 percent of GDP from 35 percent and 7 percent in 2022, respectively.
• Real exchange rate shock. The real exchange rate is assumed to depreciate by 77 percent in
2023 under the shock scenario. As a result, public debt-to-GDP rises to around 48 percent of GDP,
with public debt as a ratio of revenues increasing to 184 percent in 2023. Gross financing needs
rise to 10 percent of GDP by 2027.
• Contingent liability shock. This shock could be seen as a materialization of contingent liabilities
related to the financial sector (including, as a result of the sharp increase in state-owned banks’
lending), PPPs, and non-financial SOEs. This shock is assumed to increase non-interest
expenditures by 10 percentage points of GDP in 2022. This is combined with a real GDP growth
shock (1 standard deviation for 2 years). Sovereign borrowing costs are pushed up (25 basis
points for each 1 percent of GDP worsening in the primary balance) while inflation declines (0.25
percentage points per 1 percentage points decrease in GDP growth). The debt-to-GDP ratio
would rise to about 49 percent of GDP under this scenario, with gross financing needs increasing
to 11 percent of GDP by 2027. Since the scenario does not include contingent liabilities from FX-
protected schemes, these estimates are a lower bound. Any unexpected lira weakness would
increase the fiscal costs of those schemes, adding to public debt and gross financing needs.
• Combined macro-fiscal shock. A combined macro-fiscal shock incorporates the largest effect of
the individual macro-fiscal shocks on all relevant variables. Under this scenario, public debt would
rise to around 78 percent of GDP over the medium term. Gross financing needs would also rise
sharply to about 19 percent of GDP over the medium term.
• Combined macro-fiscal-contingent liability shock. Under this extreme shock scenario

incorporating the largest effect of the above shocks, public debt would breach 79 percent of GDP
in 2023, reaching above 95 percent of GDP by 2027. Gross financing needs would also increase to
above 25 percent of GDP over the medium term.

Figure 1. Türkiye: Public Sector Debt Sustainability Analysis (DSA) – Baseline Scenario
(In percent of GDP, unless otherwise indicated)
1/
Debt, Economic and Market Indicators
Actual Projections As of November 9, 2022
2011-2019 2/ 2020 2021 2022 2023 2024 2025 2026 2027 Sovereign Spreads
Nominal gross public debt 30.4 39.7 41.8 35.6 35.4 36.6 38.4 39.8 39.6 EMBIG (bp) 3/ 490
Public gross financing needs 6.9 10.3 9.1 7.2 5.9 7.1 8.0 9.0 9.5 5Y CDS (bp) 621
Real GDP growth (in percent) 5.6 1.9 11.4 5.5 3.0 3.0 3.0 3.0 3.0 Ratings Foreign Local
Inflation (GDP deflator, in percent) 9.6 14.9 29.0 83.3 51.7 24.1 19.3 18.5 18.2 Moody's B3 B3
Nominal GDP growth (in percent) 15.7 17.1 43.6 93.3 56.2 27.9 22.9 22.1 21.8 S&Ps B B
Effective interest rate (in percent) 4/ 9.2 10.1 9.5 12.8 12.1 11.8 12.0 12.1 12.5 Fitch B- B-
Contribution to Changes in Public Debt

Actual Projections
2011-2019 2020 2021 2022 2023 2024 2025 2026 2027 cumulative debt-stabilizing
Change in gross public sector debt -0.8 7.0 2.2 -6.3 -0.1 1.2 1.8 1.4 -0.2 -2.2 primary
Identified debt-creating flows 1.9 5.4 4.4 -13.6 -5.4 -2.8 -1.8 -1.7 -2.2 -27.4 balance 9/
Primary deficit 0.3 3.2 2.2 2.0 2.8 2.0 1.6 1.3 1.2 10.7 -3.3
Primary (noninterest) revenue and grants 31.2 28.0 26.4 27.3 26.3 27.8 28.6 28.8 28.8 167.6
Primary (noninterest) expenditure 31.5 31.2 28.6 29.3 29.1 29.8 30.1 30.1 30.0 178.3
Automatic debt dynamics 5/ 1.1 0.8 1.5 -17.4 -10.0 -4.4 -3.3 -3.1 -3.0 -41.3
Interest rate/growth differential 6/ -0.6 -2.6 -10.2 -17.4 -10.0 -4.4 -3.3 -3.1 -3.0 -41.3
Of which: real interest rate 1.0 -2.0 -7.1 -16.2 -9.4 -3.6 -2.3 -2.2 -2.0 -35.8
Of which: real GDP growth -1.6 -0.5 -3.1 -1.2 -0.7 -0.8 -0.9 -0.9 -1.0 -5.5
Exchange rate depreciation 7/ 1.7 3.4 11.7 … … … … … … …
Other identified debt-creating flows 0.5 1.4 0.7 1.8 1.8 -0.3 -0.1 0.2 -0.3 3.2
General Government: Net Privatization Proceeds (negative) -0.4 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.5
Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
General Government: Financing: Net Acquisition of Financial Assets 0.9 1.5 0.8 1.9 1.9 -0.2 0.0 0.2 -0.2 3.7
Residual, including asset changes 8/ -2.7 1.6 -2.3 7.3 5.3 4.0 3.5 3.2 1.9 25.2
20 50
Debt-Creating Flows projection
15 (in percent of GDP) 40
30
10
20
5
10
0 0
-10
-5
-20
-10
-30
-15 -40
-20 -50
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 cumulative
Primary deficit Real GDP growth Real interest rate Exchange rate depreciation Other debt-creating flows Residual Change in gross public sector debt
Source: IMF staff.

1/ Public sector is defined as general government.
2/ Based on available data.
3/ EMBIG.
4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.
5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate;
a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.
7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).
8/ Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.
9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Figure 2. Türkiye: Public DSA – Composition of Public Debt and Alternative Scenarios
Composition of Public Debt
By Maturity By Currency
(in percent of GDP) (in percent of GDP)
45 45
Medium and long-term Local currency-denominated
40 40
Short-term Foreign currency-denominated
35 35
30
30
25
25
20
20
15 projection
15
10
projection
5 10
0 5
-5 0
2011 2013 2015 2017 2019 2021 2023 2025 2027 2011 2013 2015 2017 2019 2021 2023 2025 2027
Alternative Scenarios
Baseline Historical Constant Primary Balance
Contingent Liability Shock CL and combined macro-fiscal shocks
Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of GDP)
100 25
90
80 20
70
60 15
50
40 10
30
20 5
10 projection projection
0 0
2020 2021 2022 2023 2024 2025 2026 2027 2020 2021 2022 2023 2024 2025 2026 2027
Underlying Assumptions
(in percent)
Baseline Scenario 2022 2023 2024 2025 2026 2027 Historical Scenario 2022 2023 2024 2025 2026 2027
Real GDP growth 5.5 3.0 3.0 3.0 3.0 3.0 Real GDP growth 5.5 5.2 5.2 5.2 5.2 5.2
Inflation 83.3 51.7 24.1 19.3 18.5 18.2 Inflation 83.3 51.7 24.1 19.3 18.5 18.2
Primary Balance -2.0 -2.8 -2.0 -1.6 -1.3 -1.2 Primary Balance -2.0 -1.0 -1.0 -1.0 -1.0 -1.0
Effective interest rate 12.8 12.1 11.8 12.0 12.1 12.5 Effective interest rate 12.8 9.2 11.2 13.3 15.8 17.7
Constant Primary Balance Scenario
Real GDP growth 5.5 3.0 3.0 3.0 3.0 3.0
Inflation 83.3 51.7 24.1 19.3 18.5 18.2
Primary Balance -2.0 -2.8 -2.8 -2.8 -2.8 -2.8
Effective interest rate 12.8 9.2 8.9 9.5 10.4 11.0
Source: IMF staff.

Figure 3. Türkiye: Public DSA- Realism of Baseline Assumptions

Forecast Track Record, versus all countries
Real GDP Growth Primary Balance Inflation (Deflator)
(in percent, actual-projection) (in percent of GDP, actual-projection) (in percent, actual-projection)
Turkey median forecast error, 2013-2021: -0.42 Turkey median forecast error, 2013-2021: -1.85 Turkey median forecast error, 2013-2021: 2.60
Has a percentile rank of: 45% Has a percentile rank of: 14% Has a percentile rank of: 95%
8 4 20
Distribution of
pessimistic
6
forecast errors: 1/ 2
4 15
2 0
0 -2 10
-2
-4 -4 5
optimistic
-6 Interquartile range (25-75) -6

-8 Median 0
-8
-10 Turkey forecast error
-12 -10 -5
2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 2014 2015 2016 2017 2018 2019 2020 2021
Year 2/ Year 2/ Year 2/
Assessing the Realism of Projected Fiscal Adjustment Boom-Bust Analysis 3/

3-Year Adjustment in Cyclically-Adjusted 3-Year Average Level of Cyclically-Adjusted Real GDP growth
Primary Balance (CAPB) Primary Balance (CAPB) (in percent)
(Percent of GDP) (Percent of GDP) Turkey
14 12 8
Distribution 4/ 3-year CAPB adjustment Distribution 4/ 3-year average CAPB level
12 Turkey greater than 3 percent of Turkey greater than 3.5 percent of 6
10
has a percentile GDP in approx. top quartile has a percentile GDP in approx. top quartile
10 rank of 29% rank of 80% 4
8
8 2 Not applicable for Turkey
6
6 0
4
4 -2
2 2 -4
0 0 -6
More
More
Less
t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5
0
1
2
3
4
5
6
7
8
-4
-3
-2
-1
Less
0
1
2
3
4
5
6
7
8
-4
-3
-2
-1
Source : IMF Staff.

1/ Plotted distribution includes all countries, percentile rank refers to all countries.
2/ Projections made in the spring WEO vintage of the preceding year.
3/ Not applicable for Turkey, as it meets neither the positive output gap criterion nor the private credit growth criterion.
4/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.

Figure 4. Türkiye: Public DSA – Stress Tests
Macro-Fiscal Stress Tests

Baseline Primary Balance Shock Real Interest Rate Shock
Real GDP Growth Shock Real Exchange Rate Shock
Gross Nominal Public Debt Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of Revenue) (in percent of GDP)
60 200 14
180
50 12
160
140 10
40
120 8
30 100
80 6
20
60 4
10 40
2
20
0 0 0
2022 2023 2024 2025 2026 2027 2022 2023 2024 2025 2026 2027 2022 2023 2024 2025 2026 2027
Additional Stress Tests

Baseline Combined Macro-Fiscal Shock Contingent Liability Shock
Additional fiscal stimulus CL and combined macro-fiscal shocks
Gross Nominal Public Debt Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of Revenue) (in percent of GDP)
100 350 25
90
300
80 20
70 250
60 200 15
50
40 150 10
30 100
20 5
50
10
0 0 0
2022 2023 2024 2025 2026 2027 2022 2023 2024 2025 2026 2027 2022 2023 2024 2025 2026 2027
Underlying Assumptions
(in percent)
Primary Balance Shock 2022 2023 2024 2025 2026 2027 Real GDP Growth Shock 2022 2023 2024 2025 2026 2027
Real GDP growth 5.5 3.0 3.0 3.0 3.0 3.0 Real GDP growth 5.5 -0.2 -0.2 3.0 3.0 3.0
Primary balance -2.0 -3.6 -2.7 -1.6 -1.3 -1.2 Primary balance -2.0 -3.9 -4.3 -1.6 -1.3 -1.2
Real Interest Rate Shock Real Exchange Rate Shock
Real GDP growth 5.5 3.0 3.0 3.0 3.0 3.0 Real GDP growth 5.5 3.0 3.0 3.0 3.0 3.0
Primary balance -2.0 -2.8 -2.0 -1.6 -1.3 -1.2 Primary balance -2.0 -2.8 -2.0 -1.6 -1.3 -1.2
Combined Shock
Real GDP growth 5.5 -0.2 -0.2 3.0 3.0 3.0
Inflation 83.3 50.9 23.3 19.3 18.5 18.2
Primary balance -2.0 -3.9 -4.3 -1.6 -1.3 -1.2
Effective interest rate 12.8 13.7 10.5 13.9 17.0 19.4
Source: IMF staff.

Figure 5. Türkiye: Public DSA Risk – Assessment

Heat Map
Debt level 1/ Real GDP Primary Real Interest Exchange Rate Contingent
Growth Shock Balance Shock Rate Shock Shock Liability shock
Real GDP Primary Real Interest Exchange Rate Contingent

Gross financing needs 2/
Growth Shock Balance Shock Rate Shock Shock Liability Shock
External Change in the Public Debt Foreign

3/ Market
Debt profile Financing Share of Short- Held by Non- Currency
Perception
Requirements Term Debt Residents Debt
Evolution of Predictive Densities of Gross Nominal Public Debt

(in percent of GDP)
Baseline Percentiles: 10th-25th 25th-75th 75th-90th
Symmetric Distribution Restricted (Asymmetric) Distribution

60 60
50 50
40 40
30 30
20 20 Restrictions on upside shocks:

no restriction on the growth rate shock
10 10 no restriction on the interest rate shock
0 is the max positive pb shock (percent GDP)
no restriction on the exchange rate shock
0 0
2020 2021 2022 2023 2024 2025 2026 2027 2020 2021 2022 2023 2024 2025 2026 2027
Debt Profile Vulnerabilities

(Indicators vis-à-vis risk assessment benchmarks, in 2021)
Turkey Lower early warning Upper early warning
21%
49% 62%
577
bp
600 15 1 45 60
200 5 0.5 0.2% 15 20
Annual Change in
1 2 1 2 1 2 1 2 1 2
External Financing Public Debt Held Public Debt in

EMBIG Short-Term Public
Requirement by Non-Residents Foreign Currency
Debt
(in basis points) 4/ (in percent of GDP) 5/ (in percent of total) (in percent of total) (in percent of total)
Source: IMF staff.

1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not
baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.
2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock
but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.
3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark,
yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white.
Lower and upper risk-assessment benchmarks are:
200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15
and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.
4/ EMBIG, an average over the last 3 months, 11-Aug-22 through 09-Nov-22.
5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external
debt at the end of previous period.

Annex III. The Health of Non-Financial Corporations

Non-financial corporate (NFC) balance sheets proved resilient during the most intense period of the
pandemic. A strong rebound in economy activity, a stable real wage bill, and government support all
boosted profitability. However, pockets of vulnerability remain acute in some industries, including in
accommodation and food, transportation, and real estate/construction. 1 And the significant negative
net FX position, while declining in recent years, remains a major vulnerability to NFC balance sheets.
Income Flows 2
1. NFC operating profits reached a record high in 2021. In 2020, despite the pandemic, real
revenue growth remained positive. A decline in the real wage bill (through layoffs and high inflation)
and an increase in government subsidies pushed the growth of real operating profits to above the
pre-pandemic average. This trend continued in 2021: consistent with strong GDP growth, NFC real
gross value added was exceptional, increasing by 21 percent, yoy. Despite a recovery in the real wage
bill, mainly driven by stronger employment, real operating profits increased by a record amount. This
is consistent with the large increase (decrease) in the capital (labor) share of GDP witnessed in recent
quarters.
2. These profit developments supported gross saving, despite financial and tax outflows.
In 2020, despite the strong increase in real operating profits, real dividend payments remained
unchanged, as firms sought to enhance buffers. Real interest payments also declined, likely
associated with lower policy rates, high inflation, and financial sector policy support measures. These
factors reversed in 2021, with the real interest bill, dividend payments and higher corporate income
tax (CIT) payments all increasing. Nevertheless, these factors were more than offset by the high
operating profits, supporting a further increase in real gross saving.
Production Account Gross Saving After Financial and Tax Flows

(Percent change and contributions, constant prices) (Percent change and contributions, constant prices)
50
50
Government
subsidies
0
0
Growth of real
Subsidies on production interest bill,
Taxes on production -50 Interest Dividends dividends and CIT
Real wage bill (+'ve = decline) Recovery of the Other CIT
Real gross value added real wage bill Other transfers Operating profit
Operating profit Gross saving
-50 -100
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Sources: Turkstat and IMF staff calculations. Sources: Turkstat and IMF staff calculations.
1
This annex focuses on the evolution of corporate balance sheets in 2020 and 2021. For a longer perspective, see Box 4 of the 2021
Article IV Consultation for Türkiye.
2
Institutional sector accunts give a helpful way to link NFC real and financial flows with different sectors of the economy. It tracks
‘value-added’ growth through to financial balance sheets.

Balance Sheets
3. Leverage has been broadly stable in recent years but remains high relative to peers.
Despite high real gross saving in 2020-21, NFCs also increased real investment and built inventories,
resulting in higher net borrowing. As such, leverage increased only moderately, leaving an average
equity buffer of around 25 percent of total assets in 2021. 3 Nevertheless, NFC leverage in Türkiye is
high relative to OECD peers, leaving the sector vulnerable to shocks to profitability and interest
rates, as well as valuation effects, in particular from the exchange rate.
Leverage NFC Debt, 2021

(Percent) (Percent)
90 300
Average Debt (Percent of Equity) Debt (Percent of GDP)
Median sector 250
80 AEs
200 EMs
70
150
60 100
Interquartile range of
50 the 17 main industries 50
0
40
POL
RUS
TUR
GRC
SWE
DNK
ITA
LVA
SVN
AUT
BEL
SVK
BGR
HUN
ROU
HRV
NLD
ESP
EST
CYP
FIN
LTU
PRT
CZE
MLT
DEU
2009201020112012201320142015201620172018201920202021
Sources: CBRT; and IMF staff calculations. Sources: Haver Analytics and IMF staff calculations.
Note: Leverage = non-equity liabilities/total assets using the CBRT Note: Uses unconsoldiated financial accounts data, which involves different
company accounts database. acounting principles to the CBRT's "Company Accounts "database
4. Much of the recent NFC borrowing was used to build assets, especially cash holdings.
After stagnating in 2018 and 2019, real lending to NFCs increased significantly in 2020 and 2021,
consistent with economy-wide monetary and credit trends. But much of the borrowing was used to
build assets, rather than to cover pandemic-related losses. In particular, FX cash holdings and
inventories increased significantly, improving NFC liquidity indicators, providing an inflation hedge and
building an important buffer against temporary cash flow and exchange rate shocks.
Change in Balance Sheet, 2019-21 Liquid Assets 1/

(Billions TRY) (Percent)
6,000 26
24
5,000
Other Other 22
Intangibles
4,000 Tangible Loans 20
fixed Long-term
18
3,000 Other Other
16
Inventories
2,000 Trade debt 14
Short-term
Loans 12 Percent of total debt
1,000 Trade credit
Percent of short-term debt
Equity 10
Cash
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Assets Liabilities Sources: CBRT and IMF staff calculations.
Source: CBRT Company Accounts Database. 1/ Cash, deposits, checks received etc.
3
Based on the CBRT Company Accounts database, which covers more than 930,000 firms, across 17 sectors, over 2009-21. The
sample of firms appears broadly representative of all NFCs in Türkiye, although a comparison with OECD data suggests that micro
firms may be somewhat underrepresented.

Vulnerabilities
5. The NFC sector has shown signs of resilience, but some industries remain vulnerable.
In the transportation, real estate and accommodation and food sectors, leverage jumped
significantly, with average equity buffers near zero as of end-2021. And the interest coverage ratio
(ICR)—a measure of debt service risk—remains problematically low for these sectors. A strong
tourism season and modest recovery in real estate output have likely reduced vulnerabilities
somewhat in these industries in 2022. However, given the high nominal debt stock of some of these
industries, widescale corporate distress could quickly lead to financial stability problems.
Leverage by Industry Interest Coverage

(Percent) (Ratio)
120 2.5
Negative equity Elect. & gas Manufact.
100 2.0
Change in ICR, 2019-21

2019 2021
80 1.5
1.0 Accom/food
60 Trade
Deteriortaing ICR
40 0.5 Real estate
20 0.0
0 -0.5 Construction
-1.0
Info. & com.
Agriculture
Education
Other services
Real estate
Manufact.
Arts & rec.

Health/social
Trade
Admin/support
Transport
Construction
Elect. & gas
Professional
All sectors
Accom/food
Water…
Mining…
Size of bubbles
-1.5 Transport proportional to
-2.0 Professional nominal debt
Weaker level
Sources: CBRT and IMF staff calculations. -2.5
Note: Leverage = non-equity liabilities/total assets using the CBRT company 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
accounts database. Sources: CBRT and IMF staff calculations. ICR, 2021
6. Foreign currency denominated debt, whilst declining, remains a significant risk. As of

2022Q2, half of NFC debt (loans and bonds) was FX-denominated, higher than in most emerging
market peers. And FX-liabilities (including imports payable) represents around one-quarter of total
liabilities. Over the last 4 years, the NFC sector has undergone significant nominal FX deleveraging,
cutting the net FX position by around one-half. But the recent REER depreciation has undone much of
the progress of recent years, implying a continuing real FX burden on NFCs. Sector-wide liquidity risk
is mitigated by a positive short-term net FX position, which has increased by 40 percent since the
beginning of 2020.
Foreign Currency Denominated Debt, 2022Q2 Net Foreign Exchange Position

(Percent of total debt) (Billions USD, Inverted Scale)
70 -300
Nominal
60 Adjusted by REER (Index, Mar' 18 = 1)
-250
50
-200
40
30 -150
20 -100
10 Peak Nominal FX burden
-50 (March 2018): -US$197bn
0
0
CHN
IDN
IND
COL
MEX
RUS
POL
CHL
MYS
TUR
KOR
ARG
BRA
HUN
ZAF
THA
ISR
SAU
CZE
UKR
Mar-18 Nov-18 Jul-19 Mar-20 Nov-20 Jul-21 Mar-22

Sources: Haver and IMF staff calculations. Sources: Haver Analytics and IMF staff calculations.

Annex IV. Risk Assessment Matrix (November 1, 2022) 1

Risks Likelihood Economic Impact Policy Response
Global Conjunctural Risks
Intensifying spillovers from High. Export growth is likely to • Additional targeted fiscal support to
Russia’s war in Ukraine. remain limited as the economies of vulnerable households and viable
Further sanctions resulting major trading partners could face a firms.
from the war and related recession due to energy trade • Allow automatic fiscal stabilizers to
uncertainties exacerbate trade disruptions with Russia.
operate fully and provide further
and financial disruptions and
High targeted, temporary support as
commodity price volatility.
needed.
• Use exchange rate as a shock
absorber, strictly limiting FXI given
limited reserves.
Commodity price shocks. A High. Further pressure on CPI • Tighter fiscal and monetary policies
combination of continuing inflation may risk destabilizing to anchor inflation expectations and
supply disruptions (e.g., due to inflation expectations, generate limit second-round effects of
conflicts and export social unrest, and require a commodity price shocks.
restrictions) and negative stronger policy response.
• Increase transfers to vulnerable
demand shocks causes
High households as needed to alleviate
recurrent commodity price
the impact of higher inflation.
volatility and social and
economic instability. • Use exchange rate as a shock
absorber, strictly limiting FXI given
limited reserves.
De-anchoring of inflation High. Türkiye could face further • Tighter fiscal and monetary policies
expectations and stagflation. High currency depreciation and be to anchor inflation expectations and
Supply shocks to food and exposed to a higher risk of debt prevent second-round effects of
energy prices sharply increase distress. commodity price shocks.
headline inflation and pass-
• Increase transfers to vulnerable
through to core inflation, de-
households as needed to alleviate
anchoring inflation
the impact of higher inflation.
expectations and triggering a
wage-price spiral in tight labor
markets. Central banks tighten
monetary policy more than
envisaged leading to weaker
global demand, currency
1 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most
likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks
surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between
10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source
of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks
may interact and materialize jointly. The conjunctural shocks and scenario highlight risks that may materialize over a
shorter horizon (between 12 to 18 months) given the current baseline. Structural risks are those that are likely to
remain salient over a longer horizon. The RAM differs slightly from the FSSA RAM due to a more updated starting
point for the analysis.

depreciations in EMDEs, and

sovereign defaults. Together,
this could lead to the onset of
stagflation.
Abrupt global slowdown or Medium Medium. Lower trading partner • Use the exchange rate as a shock
recession. Global and growth and sharp tightening of absorber, strictly limiting FXI given
global financial conditions could limited reserves.
idiosyncratic risk factors
curb Türkiye’s growth and widen its • Additional targeted fiscal support to
combine to cause a external imbalances and risk
vulnerable households.
synchronized sharp growth premia.
slowdown, with outright
recessions in some countries,
spillovers through trade and
financial channels, and
downward pressures on some
commodity prices.
Global Structural Risks

Deepening geo-economic High High. Türkiye’s market access • Use the exchange rate as a shock
fragmentation and could be adversely affected, absorber, strictly limiting FXI given
geopolitical tensions. worsening balance of payments limited reserves.
Broadening of conflicts and pressures. • Tighter monetary policy.
reduced international
• Accelerate reforms to improve
cooperation accelerate
export competitiveness, diversify
deglobalization, resulting in a
markets, and support multilateral
reconfiguration of trade,
supply disruptions, rules-based trade system.
technological and payments
systems fragmentation, rising
input costs, financial instability,
a fracturing of international
monetary and financial system,
and lower potential growth.
Natural disasters related to Medium. Droughts could pose • Provide targeted assistance to
climate change. More challenges for the country’s water affected groups and sectors.
frequent natural disasters deal supply and directly affect the
severe damage to agricultural sector. • Prioritize public investment in
infrastructure (especially in
disaster-resistant infrastructure.
smaller vulnerable economies) Medium
and amplify supply chain
disruptions and inflationary
pressures, causing water and
food shortages and reducing
medium-term growth.
Domestic Risks
Disorderly macrofinancial High. Continued erosion of policy • Tighter monetary and fiscal policy.
cycle of deleveraging and buffers and monetary policy • Use the exchange rate as a shock
High
income compression. credibility, leading to erosion in absorber.
Possible triggers include confidence, capital outflows,

domestic policy mistakes accelerated dollarization, reserve • Allow automatic fiscal stabilizers to
(including an inadequate depletion, and pressure on operate fully and provide targeted,
policy response to reemerging currency. NFCs lose access to temporary support.
market pressures), domestic external finance. • Fast track third-party asset quality
political and social tensions,
review, followed by rigorous stress
and/or external financing
tests and follow-up measures as
pressures giving rise to rapid
needed.
exchange rate depreciation,
which weakens corporate • Promote out-of-court debt workouts.
balance sheets and worsens • Adopt a medium-term fiscal plan
bank asset quality, triggering that creates additional fiscal space to
sharp deleveraging and help with the fallout from the private
slowdown of economic sector.
activity.

Annex V. External Debt Sustainability1

External debt under the baseline is assessed to be sustainable over the medium term but it is high and
sensitive to shocks. External debt is expected to decline from about 55 percent of GDP at end-2021 to
46 percent of GDP by 2027, as the real exchange rate appreciates, but the external debt path remains
sensitive to lira depreciation. Large external financing needs of around 24 percent of GDP each year
expose the economy to liquidity risks, especially given low international reserves.
Background
1. External debt has increased in recent years. External debt has slightly increased from
about 53 percent of GDP in 2017 to 55 percent in 2021, and it is expected to reach about 58 percent
of GDP by the end of 2022. The private sector owes about half of it.
2. The share of short-term debt is set to increase, driven by the private sector, where capital
flows have shown a trend towards shorter maturities. Short-term debt is expected to grow from 27
percent of total external debt at the end of 2021 to about 37 percent of total external debt by 2027.
Longer-term non-debt creating inflows, mostly FDI, have slowed and are expected to remain below the
long-term average of 1½ percent of GDP.
Assessment
3. Türkiye’s external debt is sustainable under the baseline but it is vulnerable to lira
depreciation. After narrowing in 2021, Türkiye’s current account deficit is projected to significantly
worsen in 2022, mainly reflecting higher energy import prices. Türkiye’s external debt trajectory
improves under the baseline, as the current account deficit narrows and as the real exchange rate
appreciates. Standard stress tests suggest that the debt level could increase substantially under a
real depreciation shock given that most external debt is foreign-currency denominated. A
permanent lira depreciation of 30 percent over the baseline would push the external debt stock
temporarily to around 76 percent of GDP by end-2022, before subsequently falling to 60 percent of
GDP by the end of the projection period.
4. Türkiye’s external debt sustainability remains susceptible to liquidity risks. Around one
third of Türkiye’s private external debt is short term, although most comprises of large bank
deposits by non-residents and trade credit, which have historically been stable over time. Türkiye’s
gross external financing needs of about USD179 billion (22 percent of GDP) in 2021 will remain
elevated, with GEFNs averaging 24 percent of GDP over the projection period, creating both funding
and rollover risks because of the rising share of the short-term debt component.
1
This external debt sustainability analysis is based on the definition of external debt used by the authorities, covering
liabilities arising from loans obtained from nonresidents and liabilities related to bonds issued in international capital
markets. Government securities issued in Turkish lira are excluded, while Eurobonds held by domestic banks are
included in this presentation of external debt.

Figure 1. Türkiye: External Debt Sustainability: bound Tests 1/ 2/

(External debt in percent of GDP)
Baseline and Historical Scenarios Interest Rate Shock (in percent)
100 Gross financing 30 100
need under Baseline: 1.3
90 baseline (rhs) Historical 90
25 Scenario: 1.8
80 80 1.5
Historical:
20
70 68 70
60 15 60
i-rate
50 Baseline 46 50 shock 47
10
40 40 Baseline 46
5
30 30
20 0 20
2017 2019 2021 2023 2025 2027 2017 2019 2021 2023 2025 2027
Growth Shock Non-Interest Current Account Shock
(in percent per year) (in percent of GDP)
100 100
Baseline: 3.4 Baseline: -2.5
90 90
Scenario: 1.8 Scenario: -3.6
80 Historical: 5.2 80 Historical: -2.5
70 70
Growth 60
60
shock CA shock52
50
50 50
Baseline 46 Baseline 46
40 40
30 30
20 20
2017 2019 2021 2023 2025 2027 2017 2019 2021 2023 2025 2027
Combined Shock 3/ Real Depreciation Shock 4/

100 100
90 90
80 80
30 %
70 70
depreciation
60
60 Combined 60
shock 51
50 50
40 Baseline 46 40 Baseline 46
30 30
20 20
2017 2019 2021 2023 2025 2027 2017 2019 2021 2023 2025 2027
Sources: IMF staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. The shocks
to interets rate was increased to 2 standard deviation. Figures in the boxes represent average projections for the
respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also
shown.
2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to
project debt dynamics five years ahead.
3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.
4/ One-time real depreciation of 30 percent occurs in 2022.

Table 1. Türkiye: External Debt Sustainability Framework: 2017–27
(In percent of GDP, unless otherwise indicated)
Actual Projections
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Debt-stabilizing
non-interest
current account 6/
Baseline: External debt 52.5 54.7 54.7 60.1 54.8 57.8 48.6 47.7 46.9 46.1 45.6 -2.9
Change in external debt 5.8 2.2 0.0 5.4 -5.3 3.0 -9.3 -0.9 -0.8 -0.7 -0.5
Identified external debt-creating flows (4+8+9) 3.3 5.9 -1.5 6.6 -7.7 2.7 1.3 0.3 0.1 0.1 0.2
Current account deficit, excluding interest payments 3.9 1.6 -2.5 3.6 0.2 5.4 2.8 1.9 1.6 1.6 1.6
Deficit in balance of goods and services 3.7 1.3 -2.9 3.3 -0.3 4.8 2.3 1.4 1.2 1.2 1.3
Exports 26.0 30.6 32.8 28.7 35.0 40.3 33.2 34.6 35.4 36.0 36.6
Imports 29.7 31.8 30.0 32.0 34.7 45.1 35.5 36.0 36.6 37.3 37.8
Net non-debt creating capital inflows (negative) -1.3 -1.0 -0.9 0.0 -0.7 -0.3 -0.6 -0.8 -0.8 -0.8 -0.8
Automatic debt dynamics 1/ 0.7 5.3 1.9 3.1 -7.3 -2.3 -0.8 -0.8 -0.7 -0.7 -0.7
Denominator: 1+g+r+gr 1.0 0.9 1.0 0.9 1.1 1.0 1.2 1.1 1.1 1.1 1.1
Contribution from nominal interest rate 0.7 1.0 1.1 0.8 0.7 0.6 0.6 0.6 0.6 0.6 0.6
Contribution from real GDP growth -3.5 -1.7 -0.4 -1.1 -6.0 -2.9 -1.4 -1.4 -1.4 -1.3 -1.3
Contribution from price and exchange rate changes 2/ 3.5 6.1 1.3 3.3 -1.9 ... ... ... ... ... ...
Residual, incl. change in gross foreign assets (2-3) 3/ 2.5 -3.7 1.5 -1.2 2.4 0.3 -10.6 -1.2 -0.9 -0.9 -0.7
External debt-to-exports ratio (in percent) 202.0 179.1 166.7 209.5 156.6 143.6 146.4 138.0 132.4 128.1 124.9
Gross external financing need (in billions of US dollars) 4/ 194.6 190.2 142.0 179.5 173.0 222.7 254.4 253.6 266.4 282.9 297.1
in percent of GDP 22.7 24.4 18.7 24.9 21.2 26.2 24.7 23.4 23.2 23.4 23.4
Scenario with key variables at their historical averages 5/ 10-Year 10-Year 56.6 56.6 58.9 61.9 64.7 67.5 -0.8
Historical Standard For debt
Key Macroeconomic Assumptions Underlying Baseline Average Deviation stabilization
Nominal GDP (US dollars) 858.9 779.7 759.5 720.1 817.5 850 1030 1086 1150 1210 1271
Real GDP growth (in percent) 7.5 3.0 0.8 1.9 11.4 5.2 3.2 5.5 3.0 3.0 3.0 3.0 3.0
Exchange rate appreciation -17.2 -24.3 -15.1 -19.0 -20.9 -15.1 6.2 -46.2 -22.4 -17.6 -13.8 -13.8 -13.8
(US dollar value of local currency, percent change)
GDP deflator (change in domestic currency) 11.0 16.5 13.8 14.9 29.0 12.2 6.9 83.3 51.7 24.1 19.3 18.5 18.2
GDP deflator in US dollars (change in percent) -8.1 -11.9 -3.4 -7.0 2.0 -5.0 5.2 -1.4 17.7 2.3 2.8 2.2 2.0
Nominal external interest rate (in percent) 1.6 1.7 1.9 1.5 1.3 1.5 0.2 1.1 1.2 1.3 1.4 1.4 1.4
Growth of exports (US dollar terms, in percent) 12.0 6.8 4.7 -17.2 38.5 5.5 15.3 19.7 -0.2 9.7 8.5 7.1 6.6
Growth of imports (US dollar terms, in percent) 16.7 -2.7 -8.2 1.1 23.2 1.8 11.6 35.2 -4.5 6.7 7.8 7.1 6.6
Current account balance, excluding interest payments -3.9 -1.6 2.5 -3.6 -0.2 -2.5 2.3 -5.4 -2.8 -1.9 -1.6 -1.6 -1.6
Net non-debt creating capital inflows 1.3 1.0 0.9 0.0 0.7 1.1 0.5 0.3 0.6 0.8 0.8 0.8 0.8
Source: IMF staff calculations.

1/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e =
nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
2/ The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP
3/ fFor projections, line includes the impact of price and exchange rate changes.
4/ Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
5/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
6/ Long-run constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last
projection year.
Annex VI. Implementation of Past Fund Advice

1. Recent Fund advice focused on risks associated with externally-funded credit and
demand stimulus. The 2021 Article IV staff report recognized that Türkiye had experienced a
remarkable recovery from the pandemic, buoyed by large interest rate cuts, rapid credit provision by
state-owned banks, and extensive liquidity support. But those same policies had also exacerbated
pre-existing vulnerabilities and reduced buffers. Therefore, staff underscored the importance of
strongly committing to, and delivering, a firm monetary policy stance to bring inflation towards
target as well as strengthening central bank independence. However, current policies—centered
around low policy rates despite inflation well above target and a positive output gap—have further
departed from Fund advice.
2. Progress relative to the 2016 FSAP has been mixed. Partial progress has been made on
financial sector oversight, regulation, and macroprudential policy, while policies around systemic
liquidity risk management and crisis management and resolution remain insufficient. In particular,
the methodology for conducting risk assessments and inspections of the banking sector has been
broadened and corporate governance rules and enforcement of regulations have also improved.
Macroprudential policies to lower economy-wide FX risks have also been implemented. However,
systemic liquidity risk management remains a key deficiency, with little improvement in the
emergency liquidity capacity of the CBRT and with reserves still below the Fund’s Assessment of
Reserves Adequacy metric. On crisis management and resolution, no action has been taken on
coordinating arrangements in the event of a cross-border bank failure. For further details on
progress related to the implementation of outstanding 2016 FSAP recommendations see 2022 FSAP
Appendix II.

STAFF REPORT FOR THE 2022 ARTICLE IV
December 21, 2022 CONSULTATION—INFORMATIONAL ANNEX
Prepared By European Department
CONTENTS
FUND RELATIONS ___________________________________________________________________ 2
RELATIONS WITH THE WORLD BANK GROUP ____________________________________ 5
STATISTICAL ISSUES _________________________________________________________________ 7

FUND RELATIONS
(Data as of October 31, 2022)
There is no outstanding Fund credit.
Membership Status: Türkiye became a member of the Fund on March 11, 1947.
General Resources Account

SDR Million Percent Quota
Quota 4,658.60 100.00
Fund holdings of currency 4,545.83 97.58
Reserve position in Fund 112.78 2.42
SDR Department
SDR Million Percent Allocation
Net cumulative allocation 5,536.39 100.00
Holdings 5,508.24 99.49
Outstanding Purchases and Loans: None.
Latest Financial Arrangements
Approval Expiration Amount Amount

Date Date Approved Drawn
In millions of SDRs
Stand-By 05/11/05 05/10/08 6,662.04 6,662.04
Stand-By 02/04/02 02/03/05 12,821.20 11,914.00
Stand-By 12/22/99 02/04/02 15,038.40 11,738.96
Of Which: SRF 12/21/00 12/20/01 5,784.00 5,784.00
Projected Payments to the Fund 1
(In millions of SDRs; based on existing use of resources and present holdings of SDRs).
Forthcoming
2022 2023 2024 2025 2026
Principal -- -- -- -- --
Charges/Interest 0.13 0.77 0.77 0.77 0.77
Total 0.13 0.77 0.77 0.77 0.77
Safeguard Assessments: An assessment of the central bank’s safeguards framework was conducted
under the last SBA and completed on June 29, 2005. While it uncovered no material weaknesses in
the central bank’s safeguard framework, a few recommendations were made to address some
1
When a member has overdue financial obligations outstanding for more than three months, the amount of such
arrears will be shown in this section.

remaining vulnerabilities in the areas of internal audit and controls. Those recommendations have
been implemented.
Exchange Rate Arrangement: The currency of Türkiye is the Turkish lira, which replaced the new
Turkish lira on January 1, 2009. The de jure exchange rate arrangement is free floating; the de facto
exchange rate arrangement is floating. Türkiye accepted the obligations of Article VIII, Sections 2, 3,
and 4 of the Fund’s Articles of Agreement as of March 22, 1990 and maintains an exchange system
free of restrictions on the making of payments and transfers for current international transactions
except for those maintained solely for the preservation of national or international security and
which have been notified to the Fund pursuant to Executive Board Decision No. 144–(52/51).
Article IV Consultations: Board discussion of the last Article IV staff report took place on May 27,
2021. The Article IV staff report (IMF Country Report No. 21/110) was published on June 11, 2021.
FSAP: Financial stability assessments under the Financial Sector Assessment Program (FSAP), every
five years, are a mandatory part of Article IV surveillance. Three FSAP missions to Türkiye took place
in 2022, and the Aide Memoire was presented to the authorities. The FSAP findings are summarized
in the accompanying Financial System Stability Assessment (FSSA), which will be discussed at the
Board together with the 2022 Article IV staff report.
Resident Representative:
The IMF currently has a resident representative office in Ankara. Mr. Azim Sadikov has been the
senior resident representative December 2021.
ROSCs
Standard or Code Date of Issuance

Assessed Document Number
Fiscal Transparency June 27, 2000 N/A
Corporate Governance December 11, 2000 Prepared by the World Bank
Data ROSC 1/ March 14, 2002 Country Report No. 02/55
Fiscal ROSC November 25, 2003 Country Report No. 03/363
Fiscal ROSC March 24, 2006 Country Report No. 06/126
FSSA and related ROSC November 9, 2007 Country Report No. 07/361
Data ROSC September 3, 2009 Country Report No. 09/286
FSSA and related ROSC September 7, 2012 Country Report No. 12/261
BCP 2/ March 7, 2014 N/A
IAIS 3/ March 7, 2014 N/A
FSSA and related ROSC February 3, 2017 Country Report No. 17/35
BCP February 8, 2017 Country Report No. 17/46
CPMI IOSCO February 8, 2017 Country Report No. 17/45
IAIS February 8, 2017 Country Report No. 17/47
1/
Report on Observance of Standards and Codes (ROSC).
2/
Basel Core Principles for Effective Banking Supervision (BCP).
3/
International Association of Insurance Supervisors (IAIS).

Recent Technical Assistance
Dept. Timing Purpose

MCM February 2012 Stress testing framework for the financial sector supervisor
FAD September 2012 G–20 budget institutions
MCM October 2012 Early warning system and stress testing
FAD November 2012 Measurement of structural fiscal balances
STA January 2013 National account statistics
MCM December 2013 Stress testing
STA December 2013 Monetary and financial statistics
STA March 2014 Government finance statistics
STA March 2014 National accounts statistics
FAD April 2014 Performance-based budgeting
FAD May 2014 Tax revenue modeling
STA May 2014 Financial sector accounts
STA July 2014 Government finance statistics—public sector debt statistics
STA April 2015 National accounts statistics
FAD June 2015 Fiscal transparency evaluation
STA January 2016 Compilation system for independent annual estimates of GDP
STA April 2016 Government finance statistics—GFSM2014 and ESA10
FAD December 2017 Public-Private Partnerships (PPP)
FAD January 2018 VAT Policy Issues
MCM September 2018 Stress testing (follow up)
STA November 2019 Commercial Property Price Index
STA November 2019 Consumer Price Index

RELATIONS WITH THE WORLD BANK GROUP

A. International Bank for Reconstruction and Development (IBRD)
1. The partnership between Türkiye and the World Bank Group (WBG) is outlined in the
Country Partnership Framework (CPF). The CPF was initially designed to cover the FY18–21 period
but was updated and extended to include FY22–23 through the Performance and Learning Review
(PLR) in 2020. The PLR confirmed that CPF objectives remain valid and ensured continued alignment
with the Government strategies including the 11th Development Plan (DP, 2019–2023) and the New
Economic Program (launched in 2021). The WBG program continues to maintain a long-term focus
that maximizes opportunities to support Türkiye’s progression to high-income status.
2. There are 24 active IBRD operations for US$8.5 billion, placing Türkiye in the top five
IBRD countries by portfolio size. The portfolio also includes one Global Environment Facility (GEF)-
financed project and six trust-funded projects, including almost $600 million in European Union trust
funds through the Facility for Refugees in Türkiye. Portfolio indicators are strong with a low-level of
risk, high nominal disbursements, satisfactory closing of operations, no effectiveness lag, and no
disconnect with Independent Evaluation Group (IEG) reviews. The CPF proposed IBRD financing for the
FY17–23 period at US$7-10.5 billion and, to date, almost US$8.5 billion of this envelope has been
delivered.
3. The WBG Program for FY23 supports the Government’s goals on mobilizing climate
financing. The climate response related lending pipeline in FY23 is rich and is focused on climate
change adaptation or mitigation projects that are directly linked to the implementation of Türkiye’s
Nationally Determined Contribution (NDCs). As part of the recently-completed CCDR (which was the
first CCDR delivered), discussions are underway to step up the ambition under a revised NDC. The Bank
is providing assistance to this.
4. The WBG Program has supported the Government’s strategy to boost human capital,
expand opportunities for vulnerable youth and women, and prepare and respond to pandemics.
The WBG portfolio has expanded support to firm-led job creation in vulnerable regions impacted by a
high influx of refugees; mitigating learning loss through hybrid and online education to address COVID
and future shocks; and boosting the Government’s health system response to COVID. The Bank is in
discussions with authorities regarding boosting investments in green human capital, skills and jobs,
particularly for vulnerable youth and women.
5. As part of the EU’s response to the Syrian refugee crisis, the WBG was entrusted with
managing a total of US$650 million of the EU-funded Facility for Refugees in Türkiye (FRiT). In
the first tranche agreed in 2016, three projects for a combined total of US$205 million were targeted
towards education, employment and entrepreneurship. The second tranche (US$395 million) of the
FRiT supported socio-economic and municipal services projects. In addition, the Trust Fund portfolio

has increased with projects funded by Clean Technology Fund (CTF), EU Instrument for Pre-Accession
Assistance (IPA) funds, and GEF funds.
6. The ASA portfolio is strategically consolidated around core and extended core ASAs.
These include: Programmatic Public Finance Review, Pandemic Preparedness and Response and
Country Green Growth. Also, a new Systematic Country Diagnostic (SCD) is under preparation and
expected to be delivered in March 2023.
B. International Finance Corporation
7. IFC portfolio implementation continued to perform satisfactorily. IFC’s own-account

investment program reached US$3,813 million between FY17 and FY22 since the beginning of the
CPF which is in line with expected CPF deliverables. In addition, IFC mobilized a cumulative US$2,000
million during the same period, bringing IFC's long term finance commitments to $5,811 between
FY17 and FY22 (total Long Term Finance (LTF) commitments, FY17: US$1,348m, FY18: US$1,127m,
FY19: US$222m, FY20: US$973m, FY21: US$1,062, FY22: US$1,079). IFC also committed a cumulative
US$4.2 billion (FY17-FY22) to Turkish banks under its Global Trade Finance Program (GTFP),
broadening access to finance for companies. IFC continues to maintain a high level of exposure to
Türkiye at around US$4 billion at end FY22, representing its 3rd largest country exposure globally.
C. Multilateral Investment Guarantee Agency
8. Türkiye continued to be Multilateral Investment Guarantee Agency’s (MIGA) largest

country by gross exposure, representing about 9 percent of MIGA’s gross portfolio. As of end-
FY22, MIGA’s gross exposure in Türkiye totaled about US$2.235 billion across 16 projects (six in the
infrastructure sector, four in the financial sector, and six in the services sector). About two-thirds of
the portfolio stems from MIGA non-honoring guarantees to state-owned enterprises and sub-
sovereigns, with the remainder being political risk insurance guarantees, in support of PPPs in the
healthcare sector and electricity distribution.

STATISTICAL ISSUES
(As of October 31, 2022)
I. Assessment of Data Adequacy for Surveillance
General: Data provision to the Fund is broadly adequate for surveillance purposes, despite some
shortcomings especially in national accounts and government finance statistics.
National Accounts: Published data for 1998 onwards adheres to the standards of the System of
National Accounts 2008 (2008 SNA)/ European System of Accounts 2010 (ESA 2010). The Turkish
Statistical Institute (TURKSTAT) compiles and disseminates a comprehensive set of national
accounts series, including quarterly Gross Domestic Product (GDP) at current prices and in chain-
linked volume terms (production approach and expenditure approach); quarterly and annual GDP
at current prices (income approach); financial and non-financial sectoral accounts; government
accounts; regional accounts; and supply and use tables. In December 2016, TURKSTAT published
a new series of national accounts, with reference year 2009 and benchmark year 2012. Quarterly
national accounts are published within 2 months after the reference period. Since the end-2016
revision, annual GDP is estimated independently from the quarterly estimates and is published
within 9 months after the reference period.
The end-2016 dissemination of rebased national accounts led to a significant upward revision of
GDP, with many changes introduced, including improvements in methodology, the adoption of
the 2008 SNA/ESA 2010, and the use of new data sources.
Price Statistics: The consumer price index (CPI) and the producer price index (PPI) generally
conform to international standards. The CPI has 2003 as base year and the weights are based in
the Household Budget Survey conducted yearly by TURKSTAT. The PPI is compiled for mining,
manufacturing, and utilities. A separate PPI is disseminated for agriculture.
Government Finance Statistics: Coverage of the budget is largely complete. Data for some fiscal
operations conducted through extra budgetary funds are available only with some lags. Fiscal
analysis is further complicated by some quasi-fiscal operations carried out by state banks, state
economic enterprises (SEEs), and other public entities; and technical problems associated with
consolidating the cash-based accounts of governmental entities with the accrual-based
accounting of SEEs. It is difficult to reconcile fiscal data with monetary and BOP data, especially in
the accounting of external debt flows and central government deposits.
Data available for publication in the Government Finance Statistics Yearbook cover the general
government sector and its subsectors with coverage of both stocks and flows, including a full
general government balance sheet. Quarterly general government data on an accrual basis,
including revenue, expenditure, financing, and balance sheet data, are reported for publication in
International Financial Statistics (IFS).

Monetary and Financial Statistics: The Central Bank of Türkiye (CBRT) reports monetary
statistics for the central bank, other depository corporations, and other financial corporations,
using the standardized report forms (SRFs), which accord with the concepts and definitions set
out in the IMF’s Monetary and Financial Statistics Manual.
The CBRT reports data on some key series and indicators of the Financial Access Survey (FAS),
including the two indicators (commercial bank branches per 100,000 adults and ATMs per 100,000
adults) adopted by the UN to monitor Target 8.10 of the Sustainable Development Goals (SDGs).
Financial Sector Surveillance: The Banking Regulatory and Supervision Agency (BRSA) reports all
12 core FSIs and nearly all the encouraged FSIs on a quarterly basis.
External Sector Statistics: The CBRT compiles and disseminates balance of payments and
international investment positions (IIP) statistics on monthly basis in broad conformity with the
conceptual framework of the sixth edition of the Balance of Payments and International
Investment Position Manual (BPM6). The CBRT participates in the IMF coordinated surveys on
direct and portfolio investments, and reports data template on international reserves and foreign
currency liquidity and the currency composition of the IIP (beginning with 2016 data) regularly.
II. Data Standards and Quality
Türkiye has subscribed to the Special Data The latest Data ROSC was published in
Dissemination Standard (SDDS) since 1996. September 2009.

Türkiye: Table of Common Indicators Required for Surveillance

(As of October 31, 2022)
Date of Date Frequency Frequency Frequency of Memo Items:
latest received of of publication7/ Data Quality – Data Quality
observation data7/ reporting7/ Methodologic Accuracy
al soundness8/ and reliability9/
Exchange Rates Oct 2022 10/31/2022 D D D
International Reserve Assets and

Reserve Liabilities of the Sep 2022 10/20/2022 W W W
Monetary Authorities1/
Reserve/Base Money (narrow Sep 2022 10/31/2022 W/M W/M W/M
definition)
Reserve/Base Money (broad Sep 2022 10/31/2022 W/M W/M W/M
definition)
O, O, LO, O O, O, O, O, O
Broad Money Sep 2022 10/31/2022 W/M W/M W/M
Central Bank Balance Sheet Sep 2022 10/31/2022 W/M W/M W/M
Consolidated Balance Sheet of Sep 2022 10/31/2022 W/M W/M W/M

the Banking System
Interest Rates2/ Oct 2022 10/20/2022 D/W/M D/W/M D/W/M
Consumer Price Index Sep 2022 10/03/2022 M M M O, LO, O, LO O, O, O, O, O
Revenue, Expenditure, Balance

and Composition of Financing3/ Sep 2022 9/30/2022 Q Q Q
– General Government4/
O, LO, O, O O, O, LO, O, LO
Revenue, Expenditure, Balance
and Composition of Financing3/ Sep 2022 10/17/2022 M M M
Central Government
Stocks of Central Government
and Central Government- Sep 2022 10/20/2022 M M M
Guaranteed Debt5/
External Current Account Balance Aug 2022 10/11/2022 M M M
O, O, O, LO O, O, O, O, O
Exports and Imports of Goods Aug 2022 10/27/2022 M M M
and Services
GDP/GNP 2022Q2 8/31/2022 Q Q Q O, LO, O, O LO, O, LO, O, LO
Gross External Debt 2022Q2 9/30/2022 Q Q Q
International Investment Aug 2022 10/18/2022 M M M

Position6/
1/ Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to
a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those
linked to a foreign currency but settled by other means.
2/ Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
3/ Foreign, domestic bank, and domestic nonbank financing.
4/ The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local
governments.
5/ Including currency and maturity composition.
6/ Includes external gross financial asset and liability positions vis-à-vis nonresidents.
7/ Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).
8/ These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.
9/ This reflects the assessment provided in the data ROSC or the Substantive Update (published on September 3, 2009 and based on the findings of the
mission that took place during October 2016) for the dataset corresponding to the variable in each row. The assessment indicates whether international
standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO);
largely not observed (LNO); not observed (NO); and not available (NA).

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IMF Country Report No.

• An Informational Annex prepared by the IMF staff.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

© 2023 International Monetary Fund

On January 18, 2023, the IMF Executive Board Concluded the

Executive Board Assessment2

Table 1. Türkiye: Selected Economic Indicators, 2021–27

Population (2021): 84.7 million

2021 2022 2023 2024 2025 2026 2027

Sources: Turkish authorities; and IMF staff estimates and projections.

• Close monitoring of systemic FX liquidity risks, careful unwinding of the distortionary

• Targeted structural policies to promote more inclusive and sustainable growth

2 INTERNATIONAL MONETARY FUND

CONTEXT—A NEW ECONOMIC MODEL ________________________________________________________ 5

RECENT DEVELOPMENTS—RECOVERY, INFLATION, AND RISING GLOBAL TENSIONS ______ 6

OUTLOOK AND RISKS—A FRAGILE BALANCE ________________________________________________ 14

POLICIES—A U-TURN IS NEEDED _____________________________________________________________ 16

STAFF APPRAISAL _____________________________________________________________________________ 28

INTERNATIONAL MONETARY FUND 3

5. Financial Markets __________________________________________________________________________________ 42

4 INTERNATIONAL MONETARY FUND

CONTEXT—A NEW ECONOMIC MODEL

Real GDP Per Capita Absolute Poverty

regulatory measures to direct credit to selected 50

to significant market pressure on the lira in late 10 2

INTERNATIONAL MONETARY FUND 5

RECENT DEVELOPMENTS—RECOVERY, INFLATION,

Remarkable Recovery from the Pandemic

Participation and Utilization Real Gross Domestic Product

6 INTERNATIONAL MONETARY FUND

7. Large foreign exchange intervention and macrofinancial and regulatory measures

Nominal Exchange Rate and Key Policy Developments

Sources: Bloomberg Finance L.P.; CBRT; and Haver Analytics.

INTERNATIONAL MONETARY FUND 7

y Selected Macro-Prudential and Regulatory

rising headline and core inflation, the CBRT cut -900

raised rates aggressively over the past year.

8 INTERNATIONAL MONETARY FUND

CPI Inflation Ex-Ante Real Policy Rate and Inflation 1/

Current Account Current Account Deficit Financing

-10 Other Gold Other Inv. & FDI

INTERNATIONAL MONETARY FUND 9

Selected EMs PPI, Latest Real Effective Exchange Rate

Gross Reserves and Core NIR

Aug-19 Jun-20 Apr-21 Feb-22 Nov-22 SDR currencies

12. Under-execution of the central government deficit contributed to a tightening of fiscal

10 INTERNATIONAL MONETARY FUND

Jan-05 Oct-08 Jul-12 Apr-16 Jan-20 Oct-22

Sources: World Economic Outlook; MOTF; and IMF staff calculations.

INTERNATIONAL MONETARY FUND 11

15. The recent credit slowdown is Total Credit Growth

12 INTERNATIONAL MONETARY FUND

Government Bond Yields and Key Policy Developments

Sources: Bloomberg Finance L.P.; CBRT; and Haver Analytics.

Arts & rec.

Peak Nominal FX burden

Sources: CBRT and IMF staff calculations. 0

INTERNATIONAL MONETARY FUND 13

OUTLOOK AND RISKS—A FRAGILE BALANCE