IMF warns Turkey of low reserves says its reserves decreased by $22 billion in Jan-May

INTERNATIONAL MONETARY FUND has published its 2020 Foreign Sector Report in which it evaluated the Euro zone’s external positions to include current accounts, real exchange rates, capital flows and international reserves under the title “global imbalances and the Covid-19 crisis”. In the same report the establishment also shared its findings and recommendations on the Turkish economy.

IMF has stated high external financing needs and low reserves may cause Turkey to be vulnerable to shocks reminding its gross reserves decreased by $ 22 billion in January-May period. The establishment advised Turkey to rein in credit growth, increase its reserves and strengthen the credibility of the Central Bank (CBRT) and lower inflation permanently. The establishment used the expression “High external financing needs and low reserves leave Turkey vulnerable to shocks” in its assessment of the Turkish economy.

The outlook for external positions of economies remains quite uncertain, the IMF said, adding that the second wave of crisis could restrict the scope of managing current account deficits for emerging economies, further lower the current account balance of commodity exporters and further deepen the decline in global trade.

IMF said in its report the country’s external position in 2019 was partly stronger than the level set out in medium-term fundamentals and desired policies, although uncertainties remained high. The report went on to say “Large external financing needs and relatively low reserves leave Turkey vulnerable to shocks. It was recommended that a policy package that would help maintain external stability and protect the most vulnerable, preferably through temporary financial support should be used to mitigate the effects of the Covid-19 crisis.

The IMF recommended reining in rapid credit growth, increasing reserves, strengthening the public balance sheet and improving the business environment. The fund shared its recommendation that monetary policy should also aim to strengthen the credibility of the Central Bank (CBRT) and permanently lower inflation.