IMF: Turkey’s Disinflation Program Shows Results

International Monetary Fund (IMF) has stated that Turkey’s ongoing disinflation program is delivering tangible results, noting that the current policy mix continues to strike a balance between lowering inflation and maintaining stable growth.

The IMF Executive Board concluded its 2025 Article IV Consultation with Turkey and released an assessment highlighting improvements in macroeconomic stability. According to the statement, inflation declined significantly from 49.4% annually in September 2024 to 30.9% in December 2025.

“Since the 2024 Article IV consultation, Turkey’s disinflation program has shown results,” the IMF said. It added, “The current policy mix continues to balance disinflation with stable growth.”

The Fund attributed the progress to strong fiscal consolidation, prudent income policies, and a tight monetary policy stance, which together have helped ease price pressures while preserving economic momentum.

Growth Remains Resilient Despite Slowdown

Following a temporary slowdown in mid-2024, Turkey’s Gross Domestic Product growth has remained robust. The IMF estimates that the economy expanded by 4.1% in 2025, signaling continued resilience despite tighter policy conditions.

The statement also pointed to increased demand for the Turkish lira, which has supported international reserves. At the same time, the current account deficit has continued to be adequately financed, helping stabilize external balances.

Looking ahead, the IMF expects tight monetary policy, moderate wage increases, and a broadly neutral fiscal stance to gradually support further disinflation.

Inflation to Decline Further in 2026

The IMF projects that year-end inflation will decline to 23% in 2026, even as domestic demand remains strong. Growth is expected to edge up slightly to 4.2% in 2026, supported by anticipated policy rate reductions and improving confidence.

The current account deficit is expected to remain sufficiently financed. The IMF noted that depositors’ confidence and strong gold prices should help keep international reserves at around 80% of the IMF’s adequacy metric.

However, the Fund cautioned that while growth is expected to remain solid and inflation to decline, the approach carries risks and trade-offs. External risks remain elevated due to ongoing uncertainty in global trade and regional conflicts.

The IMF warned that adverse shocks—such as rising energy prices or severe weather events—could prolong the period of elevated inflation. It also observed that the gradual disinflation strategy may weigh on the financial sector and slow productivity gains in the short term.

Call for Ambitious Structural Reforms

The IMF Executive Directors commended Turkish authorities for achieving significant progress in reducing macroeconomic imbalances and strengthening confidence while maintaining growth.

Nevertheless, the statement emphasized that inflation remains above target and that the economy is still vulnerable to shocks. To ensure lasting disinflation, further strengthening of external buffers, and inclusive medium-term growth, the IMF stressed the need for a tighter macroeconomic policy mix alongside ambitious structural reforms.

The Fund praised the strong fiscal effort over the past year but underscored the importance of maintaining fiscal tightening to support disinflation. Expanding the tax base and enhancing compliance were highlighted as key measures.

Additionally, the IMF emphasized the importance of gradually phasing out energy subsidies to rationalize spending. As fiscal space expands, additional resources could be directed toward social priorities.

The statement also supported aligning wage policies fully with inflation targets and strengthening oversight of state-owned enterprises and public-private partnerships.

Monetary Policy and Central Bank Independence

To achieve durable disinflation, the IMF called for maintaining a tight monetary stance while ensuring that policy rate adjustments remain data-dependent and mindful of macro-financial implications.

The Fund emphasized the importance of central bank independence and effective communication. It is recommended that foreign exchange interventions remain limited to smoothing excessive volatility. As inflation expectations become better anchored and reserve buffers improve, greater exchange rate flexibility should gradually be allowed.

The IMF also acknowledged that the financial sector has preserved its resilience, thanks to authorities’ swift and effective responses to episodes of market stress.

However, it urged continued vigilance regarding foreign exchange liquidity risks and supported ongoing efforts to strengthen supervisory and resolution frameworks.

Medium-Term Economic Outlook

The IMF’s projections indicate that Turkey’s economy will grow by 4.1% in 2027 and by 4% annually between 2028 and 2031.

Unemployment is expected to rise modestly to 8.3% in 2026, 8.7% the following year, and average 9.1% between 2028 and 2031.

Inflation is forecast to fall further to 19% next year and gradually decline to 15% by 2031. Meanwhile, the current account deficit is projected to average 1.4% of GDP between 2026 and 2028 and 1.5% between 2029 and 2031.