Turkish economy on right track: World Bank country director

While the Turkish economy is moving in the right direction, showing positive signs noted by credit rating agencies and other financial institutions, seeing the full impact of the nation’s monetary policy will require patience, the World Bank’s director for the country has emphasised.

Speaking to Anadolu on the sidelines of the COP28 UN climate conference in Dubai, United Arab Emirates (UAE), Humberto Lopez said the World Bank was not alone in its support for Türkiye’s economic course under the current conditions.

“If you look at the credit rating agencies, some of them have already moved Türkiye’s outlook from negative to neutral,” he said, pointing to a decision last week by the New York-based S&P, which revised the country’s credit outlook from stable to positive last week.

“Some of the investment funds like Deutsche Bank or JP Morgan are saying that next year is going to be very hot in the bond market in Türkiye,” Lopez added.

He also noted that the rate for credit default swaps in Türkiye is now below 350 basis points, indicating a major improvement in the perceived risk level of the country from a level of more than 550 six months ago.

As the economy stabilises, this will have the potential to attract more financing, the World Bank official said, adding:

“One of the beauties of this is that you can enter into a virtual circle. On the one hand, you have investment that is coming because the situation is becoming stabilised. On the other hand, as the resources are coming, it would be easier to stabilise the situation.”

“I am pretty sure that if things continue right their way, we are going to end up in this situation."

Interest rate hikes

However, Lopez also stressed the need for perseverance and patience for the impact of the monetary to fiscal policy measures taken to fully materialise.

As the Central Bank has been fighting high inflation by raising interest rates, he said, “We have reached a point probably where markets would start thinking that the increase in the interest rate is going to reach the limit.”

The bank has been raising its policy rate, the one-week repo rate, for six months from a low of 8.5%. Last month’s hike was 500 basis points, up to 40% from the previous 35%.

“What we need is to be perseverant to ensure that once the effect of the depreciations (of Turkish lira) goes to inflation, the monetary policy and fiscal policy continue to start seeing inflation coming down to numbers that are a little bit more acceptable,” he said.

Türkiye's annual inflation rose to 61.98% in November, the highest so far this year, according to official data released Monday. The figure accelerated from 61.36% in October.

On the bank’s forecast for inflation in Türkiye, he said: “We are expecting that inflation figures will be peaking in the middle of 2024 and then it will start declining. We are thinking the inflation will be between 35-40% by the end of 2024 and drop to around 15% in 2025.”

“Clearly, this is all subject to what is also happening in the global economy,” he added.

Strategic planning for $18B financing

The World Bank is already implementing a $17 billion program in Türkiye for financing a range of projects in different realms, from climate change to export support and reconstruction after massive earthquakes in February.

“When you look at the pipeline, what the IBRD, the World Bank’s part that is working with the public sector, has in Türkiye for this fiscal year is $2.5 billion,” Lopez said, adding that 80% of this is estimated to be climate-related, including both mitigation and adaptation.

The bank is also working to mobilise the private sector, he underlined.

For the next three years, the bank group said it would provide Türkiye a tentative $18 billion financing, it announced in September. According to Lopez, about $12 billion of it will be going to the private sector.

“We are now starting the process where we call our strategic planning. This is what we are putting forward for the next three years,” he said, while noti ng that up to $750 million of the $18 billion total will be provided for electricity transmission projects in Türkiye.

Türkiye’s renewable energy growth plans ‘one of biggest’ in emerging economies

One of the major areas that is receiving investment in Türkiye is renewable energy, with the country aiming to boost its capacity significantly over the coming years.

“We are very excited to hear Türkiye’s plans to increase its renewable energy capacity by 60 gigawatts in the next 12 years, more or less 5 gigawatts per year. This is one of the biggest efforts in this area that the world has seen in emerging economies,” said Lopez.

Türkiye’s current installed capacity hit 106 gigawatts and the country aims to increase this to 190 gigawatts by 2030.

Renewables are expected to provide for most of this growth, which Lopez will require around $100 billion over 12 years, including $80 billion for generation, $10 billion for transmission, and $10 billion for distribution.

Of the total investment needed, $90 billion will have to come from the private sector, he added.

Moving toward the net zero emissions target by 2053 and building resili ence in the sector will need around $640 billion in net present value, Lopez explained.

“This is a pretty significant amount of money. And this is going to require both the private sector and the public sector and us to work together in order to mobilize this amount of resources.”​​​​​​​