IMF Says Türkiye’s Disinflation Program Yields Progress

(MENAFN) The International Monetary Fund (IMF) declared Friday that Türkiye's economic stabilization efforts have delivered measurable results, though the institution cautioned that significant vulnerabilities persist as the nation pursues a delicate balance between controlling prices and maintaining expansion.

Completing its 2025 Article IV consultation with Türkiye, the IMF Executive Board released findings showing the country's anti-inflation strategy has gained traction amid a complex policy environment that "continues to balance disinflation with steady growth."

"Since the 2024 Article IV, Türkiye's disinflation program has shown successes," the fund stated, noting a dramatic shift in price pressures. "Inflation fell from 49.4% (y/y) in September 2024 to 30.9% in December 2025 on the back of strong fiscal consolidation, prudent income policies, and a tight monetary policy stance."

Economic momentum has persisted despite the aggressive policy tightening. Following a mid-2024 slowdown, GDP growth rebounded strongly and is projected to reach 4.1% for 2025, the IMF reported. "Turkish Lira demand has strengthened, bolstering international reserves, and the current account deficit remains adequately financed," the assessment added.

Gradual Disinflation Path Mapped Through 2026
Looking ahead, the IMF forecasts inflation will decline to 23% by end-2026 as restrictive monetary conditions, controlled wage increases, and fiscal restraint continue exerting downward pressure on prices. "Tight monetary policy, moderate wage growth, and broadly neutral fiscal policy are expected to support gradual disinflation," the statement outlined.

Robust domestic consumption is expected to fuel 4.2% growth in 2026, supported by anticipated policy rate reductions and improving business sentiment. The external financing picture should "remain adequately financed, while depositor confidence and strong gold prices would allow reserves to stay at around 80 percent of the IMF's adequacy metric."

However, the IMF flagged considerable hazards in Türkiye's gradual strategy. Global trade tensions and regional conflicts pose external threats, while domestic shocks could derail progress.

"The materialization of an adverse shock, like an increase of energy prices or a negative weather event, could further extend the period of still-high inflation. Moreover, the gradual approach to disinflation has weighed on the financial sector and slowed productivity growth," the institution warned.

Executive Board Urges Structural Overhaul
The board praised Türkiye's authorities for reducing macroeconomic imbalances and sustaining growth during the adjustment process, yet stressed that inflation remains far above target levels and the economy faces heightened shock sensitivity.

The IMF called for more aggressive policy tightening coupled with comprehensive structural reforms to cement disinflation gains, fortify external defenses, and enable sustainable long-term expansion that benefits all citizens.

Fiscal discipline drew specific commendation, with directors pushing for continued consolidation to reinforce price stability. "Directors emphasized the role of measures to broaden the tax base and improve compliance, together with further efforts to streamline expenditures through phasing out energy subsidies," the statement indicated.

The board advocated for strategically timed and transparent policy adjustments "to minimize second-round inflationary impacts while mitigating the impact on vulnerable households."

"As fiscal space expands, additional resources could be redirected to social priorities. Directors also supported full alignment of wage policies with inflation targets, as well as stronger oversight of PPPs and SOEs," the IMF stated.

Banking Sector Shows Resilience Amid Stress
Directors affirmed that the financial sector "remains robust," crediting swift regulatory action during periods of market turbulence.

Most board members advocated for tighter monetary settings to lock in sustainable disinflation, while stressing that rate decisions must remain responsive to incoming data and mindful of broader financial stability implications.

"To bolster policy credibility and strengthen transmission, Directors emphasized the importance of a simplified monetary policy framework firmly centered on the policy rate, with enhanced central bank independence and communication," the statement noted.

Continued monitoring remains essential, particularly regarding elevated foreign exchange liquidity risks. Directors endorsed ongoing efforts to enhance supervisory and resolution mechanisms, including stronger oversight of cryptocurrency assets.

The board underscored the critical need for structural reforms to boost productivity, economic resilience, and medium-term growth potential, identifying priority areas as "improvements in labor, education, and governance and legal frameworks, support for SMEs, and raising the share of renewables in the energy mix."

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