IMF’s support for Şimşek continues

Hayri Kozanoğlu

The IMF makes an inspection visit every year to member states under Article 4. The report prepared is published after approval by the IMF Executive Board. But before that the inspection team publicly announces the main points of its conclusions. This note in fact determines the tone of the report. This document appeared on the IMF site on 22 November 2025.

The IMF has backed Mehmet Şimşek’s austerity programme from the start. Because although this is not a programme implemented under a stand-by agreement signed with the IMF and does not require debt support, tight monetary and fiscal policies and the cutting of labour incomes carry all the features of the familiar Washington Consensus. As in 2023 and 2024 the 2025 assessment text also gives Turkey’s economy a pass. Turkey’s clearer orientation towards the Atlantic Alliance during the Trump period and its refusal of the membership invitation from the BRICS organisation also play a role in the IMF’s benevolent view of Turkey.

The introduction of the text stresses that prudent economic policies have achieved significant success. The pulling back of the budget deficit from 4.7% of GDP in 2024 to 3.6% is linked to cuts in spending and success in tax collection. The fall of inflation from 49% in September 2024 to 33% in October 2025 is taken as a success. It is stressed that the policy rate, despite recent cuts, still offers a real return and strengthens confidence in the TL. The 3.6% growth rate reached in the first half of 2025 is attributed to reconstruction activity in the earthquake zone and to the wealth effect created by rising gold prices. As gold prices rise, those with gold investments feel more confident and their demand for goods and services increases.

But as time passes it is said that the Central Bank’s anchoring of inflation expectations at a low level will be delayed and that any possible shock could raise the danger of reigniting inflation. It is stated that the profitability gap between big companies and SMEs has widened, that income and wealth disparities have deepened and that the rise in asset prices has disproportionately benefited high-income households. Inevitably this brings to mind the question “what part of a programme with so many drawbacks is actually successful?”

GENERAL OUTLOOK AND RISKS

Consumer inflation in 2026 is expected to be 22%, well above the 16% target in the Inflation Report. Growth is forecast at 3.5% for 2025 and at 3.7% for 2026 with the effect of a lower policy rate and less tight fiscal policy. In the medium term inflation is thought to stay in double digits and economic growth to remain below potential.

Risks such as energy prices, a jump in the exchange rate or a rise in global risk perception pushing inflation expectations up and triggering high inflation are mentioned. The possibility of savers turning to gold and companies having difficulty repaying their foreign currency debts are listed as other areas of fragility.

After saying that fiscal tightness is key to bringing down inflation it is argued that prudent income policies, higher real interest rates and flexibility in the exchange rate are the secret of success. So an even tighter austerity recipe is proposed that will further impoverish retirees and workers and please rentiers who rely on high interest. It is underlined that to reduce inflation demand must be weakened at the expense of slowing growth.

FISCAL POLICY

According to the IMF an additional tightening of 1% of GDP in 2026 and 0.6% in 2027 is needed. On this point we can also agree that tax reductions, exemptions and exceptions granted to capital under “tax expenditures” should be reduced. But then as expected proposals are made that go against the interests of the working population such as phasing out energy subsidies and reducing the government contribution to the private pension system.

Then as a kind of consolation prize for the public, cash transfers to needy families crushed under inflation and tax and subsidy changes to remove obstacles to women’s participation in the labour force are included under the heading “social aims”.

MONETARY AND EXCHANGE RATE POLICIES

The monetary policy framework of the policy rate, credit growth limits, de-dollarisation targets encouraging TL deposits and intervention in the exchange rate is praised. Then approval is given for the Central Bank’s move from inflation forecasting to inflation targeting. The IMF thinks that the relatively low levels of household and company indebtedness by international standards, especially given big firms’ opportunity to borrow in foreign currency, render monetary policy ineffective. But in individual loans even if the debt balance is not very high the extremely high real interest rates and short maturities have the potential to become a serious social problem. It is accepted that the real appreciation of the TL has had a limited positive effect on the sticky inflation in the services sector.

The Central Bank is advised to postpone interest rate cuts until inflation nears its targets. It is said that interest rate cuts should not be made without maintaining credit limits and practices relating to the composition of deposits. The familiar idea that reforms concerning Central Bank independence will increase the credibility of monetary policy is repeated.

WAGE DIRECTIVE ACCORDING TO THE INFLATION TARGET

Naturally the section concerning income policy is the one that most concerns the working population. It is claimed that wage adjustments including public sector wages should be set according to inflation targets rather than backward-looking indexation to reduce inflation inertia. It is suggested that administered and regulated prices under government authority should also be adjusted in this direction. Such a move would mean no share of growth for workers and retirees, no increase in the prices of basic goods above headline inflation and given the lack of confidence in TÜİK’s inflation data it would be “the final nail in the coffin”.

FINANCIAL POLICIES

The report states that banks are doing well. Profitability is in place, capital and liquidity ratios continue to remain adequate, appropriate provisions have been set aside for non-performing loans, foreign currency deposits have stabilised and the successful winding down of the foreign currency protected deposit scheme are listed as signs of a healthy banking sector.

It is said that the Central Bank’s gross reserves still remain below the Fund’s adequacy standard, that reserve requirements for banks should continue, that restrictions on short selling of the TL should stay in place and only the compulsory conversion of companies’ foreign currency can be cautiously relaxed, advising that vigilance should not be abandoned.

STRUCTURAL POLICIES

Aligning high school education incentives with labour market needs and expanding digital and vocational training come first among structural policy proposals. As is known vocational high schools, especially attended by children from low-income families, have become a cheap labour pool for companies. Actual working hours narrow students’ opportunities for basic education and further reduce their chances of continuing to university. Sensitivity regarding bankruptcy arrangements for SMEs and the protection of property rights are listed as other structural policy proposals.

In short the IMF is the IMF we know. So it naturally continues to stand behind a market-friendly austerity programme that creates lucrative windfall opportunities for finance capital and shifts the cost of economic problems onto the broad working population. If interest rate cuts speed up, if the programme is loosened under a so-called “election economy”, if some concessions are given to wage workers or if Şimşek’s team is replaced it is obvious that their tone of criticism will rise.

Note: This article is translated from the original article titled IMF’nin Şimşek’e desteği sürüyor, published in BirGün newspaper on November 26, 2025.