Citi Warns Turkey’s Credit Guarantee Revival May Undermine Economic Stability

Citi has issued a cautionary note regarding Turkey’s plan to reactivate its Credit Guarantee Fund (CGF), warning that the move could jeopardize the country’s fragile external economic performance. The Turkish government announced on May 22, 2025, that it aims to revive the CGF to stimulate economic growth, according to a report by Bloomberg.

Structural Shift or Temporary Balance?

In its detailed research, Citi evaluated whether Turkey’s recent ability to maintain a narrow current account deficit despite high growth rates reflects a permanent structural transformation or is the result of short-lived favorable conditions.

The findings revealed “insufficient evidence to conclude that the change in the external performance-growth link is a permanent shift,” raising concerns that the current economic stability may not be sustainable.

This distinction is pivotal for policymakers, as a misreading could lead to overreliance on expansionary measures that may worsen macroeconomic imbalances.

Stimulus Caution: Growth at What Cost?

Citi warned that fears of slowing economic momentum could prompt further stimulus initiatives in addition to the CGF revival. If the underlying balance is temporary, such interventions risk widening external deficits and intensifying domestic vulnerabilities.

“Policy measures aimed at stimulating activity should be employed judiciously,” Citi’s analysts emphasized, “as they could exacerbate both external and internal imbalances.”

Credit Guarantee Fund: A Double-Edged Tool?

The Credit Guarantee Fund, which underwrites loans to small and medium-sized businesses, played a central role in past stimulus efforts. While it can boost credit access and short-term growth, economists warn that it may also fuel import dependency and add pressure on foreign exchange reserves—especially if growth is not productivity-driven.

As Turkey prepares to revive its Credit Guarantee Fund to accelerate economic activity, Citi’s analysis urges caution, pointing out the risk of disturbing a potentially fragile economic equilibrium. With doubts over the permanence of recent improvements, policymakers are advised to balance stimulus with structural discipline.