By Bahattin Gonultas and Zeynep Akyil
By implementing more structural reforms, Turkey can send a clear signal for more foreign funding in the form of direct investment (FDI), Johannes Zutt, Turkey country director for the World Bank told Anadolu Agency on Sunday.
“The current macroeconomic environment and projected external conditions (rising energy prices, monetary tightening in the U.S. and Europe) will require monetary and fiscal discipline,” Zutt said.
Zutt said sound macroeconomic policies need to be accompanied by deeper structural reforms to ensure a more sustainable economic growth trajectory over the medium term for Turkey.
According to Zutt, key structural reforms include improving investment climate, deepening financial markets, strengthening public expenditure management, completing overdue labor market reforms and improving the quality of the education system.
“These could be critical to help improve the resilience of the economy and help private investment to pick up in the medium term. Rigorous progress in advancing structural reforms will be key to restoring investor confidence, mitigating vulnerabilities, enhancing productivity and supporting growth.”
The country’s new growth model should rely on stronger private investment, increases in firm level productivity, and better resource allocation, he said.
“Additionally, the structural reforms will not only improve the strength and resilience of the economy but also send a clear signal to markets, which will attract more foreign funding in the form of FDI as well as long-term loans to corporate and banking sectors. This is important to sustain Turkey’s impressive economic performance and continue progress towards high income status.”
“For Turkey, in the near term, sustaining macroeconomic stability will be a key challenge,” Zutt said. “This means avoiding second round effects from high inflation, maintaining exchange rate stability, and preserving fiscal and external buffers. These will require clear and credible commitment to tight fiscal and monetary policy.”
– Strong recovery in 2017
“Over the medium term, addressing longstanding structural weaknesses are central to accelerating growth and continuing the strong performance of the previous decade and a half. The quality of growth has weakened in the past few years, as productivity growth has stagnated and investment spending was mostly driven by construction,” he added.
Turkey has also experienced a strong recovery in 2017 after difficult domestic and external conditions in 2016, Zutt said.
According to the world bank country director, Turkey’s growth was supported by a substantial fiscal stimulus and an accelerating external demand in 2017. GDP grew by 7.4 percent year-on-year in the first nine months of 2017.
Zutt warned that increased protectionism and rising geopolitical tensions might negatively affect trade performance and economic activity in Europe Central Asia (ECA) including Turkey.
“Considering high dependency on energy imports, increasing oil prices might also put pressure on the energy bill, thus current account deficit and inflation,” he said.
On the positive side, significant positive momentum in the global economy is more likely to continue in 2018, according to Zutt.
“Strengthening growth particularly in the EU will help to sustain strong export performance and help Turkey to achieve a more balanced growth in 2018,” Zutt added.
Turkey’s gross domestic product grew at a blistering 11.1 percent in the third quarter, hitting its fastest expansion in six years, after growing 5.4 percent in the second quarter and 5.3 in the first, according to Turkish Statistics Institute on Dec. 11.
The country’s consumer prices in Turkey rose 12.98 percent in November on a yearly basis — the highest annual inflation this year — up from 9.22 percent at the beginning of 2017.
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