The IMF report and the real problem of the Turkish economy: Have we grown, or have we developed?

The International Monetary Fund’s (IMF) 2025 Article IV Consultation Report reveals that the Turkish economy has entered a process of controlled recovery in the short term. The decline in inflation is supported by the simultaneous implementation of fiscal discipline and tight monetary policies; positive signals are being observed in some macro indicators. However, in light of the report, the fundamental question that must be asked remains unchanged: Is Turkey truly strengthening structurally and increasing social welfare, or does the growth merely present a numerical and fragile picture?

A careful analysis shows that the assessments are largely shaped within the traditional IMF policy framework; the growth structure dependent on external financing, the limitations in production transformation, and the deepening income distribution problems are not sufficiently placed at the center. Today, the fundamental issue for Turkey is no longer whether the economy is growing. The real issue that needs to be discussed is why the resulting growth cannot transform into social welfare, an increase in productive capacity, and economic resilience, and why it does not target sustainable development. In other words, the problem is not so much the temporary improvement in macro indicators, but the widening gap between growth and development.

THE IMF’S 2025 TURKEY ASSESSMENT: Controlled Recovery or Fragile Balance?

One of the most comprehensive international assessments regarding the disinflation program implemented in the Turkish economy was presented with the IMF’s published 2025 Article IV Consultation Report. While the report acknowledges that current economic policies have begun to produce certain results in the short term, it also indirectly reveals that the improvement achieved is not yet based on a permanent structural transformation.

According to the IMF, the simultaneous implementation of tight monetary policy, fiscal discipline, and income policies played a decisive role in the decline in inflation. Indeed, the fact that annual inflation fell from 49.4 percent in September 2024 to 30.9 percent by the end of 2025 shows that the policy mix implemented can be effective in the short term. It is projected that if the program is maintained, inflation could fall to around 23 percent by the end of 2026, and economic growth could proceed on a more balanced path of around 4 percent.

However, when the general framework of the report is examined, it is seen that the optimistic picture that emerges is based on a very delicate balance. The growth performance of the Turkish economy still largely maintains its dependence on global financial conditions and external capital flows. Increasing uncertainties in global trade, geopolitical risks, fluctuations in energy prices, and climate-induced supply shocks stand out as the main areas of vulnerability that could easily disrupt the disinflation process.

One of the most striking topics in the report was the assessment regarding wage policies. The IMF emphasizes that wage increases should not be indexed to past inflation in the fight against inflation, and suggests that the minimum wage and public salaries should be determined in line with targeted inflation rather than realized inflation. This approach, which technically aims to combat inflation inertia, raises an important question in economies like Turkey, where real wages have been declining for a long time and income distribution has deteriorated: Which segment of society will bear the burden of the fight against inflation?

An economic structure where wages are suppressed but wealth accumulation continues unabated may remain insufficient to strengthen social welfare even if price stability is achieved. For this reason, it is becoming increasingly critical for disinflation policies to consider not only macro balances but also the dimension of social justice.

The second important emphasis of the IMF report focuses on monetary policy. While it is stated that a tight monetary policy stance should be maintained until inflation targets are reached, it is noted that credit growth keeps domestic demand alive and that financial conditions have not yet fully tightened. In this context, the message is given that the policy rate may be kept at high levels for a long time. This approach is a continuation of the classic IMF perspective that prioritizes price stability over short-term growth costs.

However, the report also clearly reveals that the structural vulnerabilities of the Turkish economy persist. The high rate of dollarization, the foreign currency debt of the real sector, debates regarding reserve adequacy, and the disinflation pressure on the financial system are among the sensitive areas of the economy. As the IMF also indirectly points out, permanent stability cannot be achieved solely with monetary policy tools. The predictability of the law, the improvement of education quality, production transformation based on productivity, and especially the strengthening of SMEs' access to finance stand out as the fundamental elements of sustainable development.

Another element that draws attention in the report is the IMF’s emphasis on social policy, which has become more visible in recent years. Proposals regarding tax support for households with children, wage subsidies for low-income workers, and care services that will increase female employment show that the relationship between economic stability and social resilience is now being acknowledged more clearly.

Despite this, IMF assessments continue to define economic success largely through macro indicators such as inflation, interest rates, budget balance, and debt sustainability. Yet, Turkey’s experience in recent years reveals an important truth: Even if the economy grows periodically, this growth may not transform into permanent welfare gains for broad segments of society. Therefore, the IMF report is not just an assessment of stability, but also raises a more fundamental question: Is the Turkish economy truly strengthening structurally, or is it experiencing a fragile rebalancing process dependent on external financing conditions?

NOT A MIDDLE-INCOME TRAP, BUT A MIDDLE-DEVELOPMENT TRAP: Growth Exists, But No Sharing — The Deepening of Income and Wealth Inequality

Although discussions regarding the Turkish economy have been shaped around the concept of the “middle-income trap” for many years, the current picture reveals that the problem cannot be reduced solely to income level. In reality, the problem Turkey is facing is of a deeper, structural, and comprehensive nature: the middle-development trap.

The economy can record growth in certain periods, national income can increase, and temporary improvements can be observed in macro indicators. However, the same level of progress cannot be achieved in the fundamental elements of development such as education, health, technology, and transformation in the production structure, institutional capacity, and productivity. As a result, an image of an economy that is growing but not transforming emerges.

For this reason, economic growth in Turkey is often confused with development. Yet, development is not just numerical growth; it means the strengthening of high value-added sectors, an increase in production capacity, and a permanent rise in the welfare of broad segments of society. Today, however, the gains obtained from growth are not distributed equally to society, and economic progress cannot transform into social welfare.

This situation becomes more visible, especially with the deepening of income and wealth inequality. The increase observed in financial assets and the high-income group shows that economic prosperity is not spreading to the social base; on the contrary, it is creating a growing inequality and a fragile social structure. Although the rise in the number of millionaires is often presented as an economic success, most of this increase stems not from productive investments, but from financial imbalances and rises in asset prices.

In summary, there is growth in Turkey; but there is no sharing. When economic growth does not spread to society at large, the middle class weakens, the persistence of poverty increases, and wealth is concentrated only in a limited segment. The fundamental criterion of development, on the contrary, is the capacity of growth to spread social welfare.

In this context, another critical dimension to understanding the long-term fragility of the Turkish economy is to look at the structural nature of growth. The growth model implemented over the last forty years has progressed through a mechanism dependent on external financing and based on consumption; a development process based on production and strengthening technological capacity has often remained in the background. This has led to the formation of a cycle that cannot create sustainable welfare and resilience, no matter how much the economy grows.

At this point, the question that must be asked is clear: Will Turkey be an economy that only grows, or will it build a development model that centers on social welfare and structural transformation? The IMF report’s short-term, macroeconomic stability-focused recommendations are insufficient to solve this fundamental problem.

FRAGILE GROWTH MODEL DEPENDENT ON EXTERNAL CAPITAL

When the growth dynamics of the Turkish economy over the last forty years are examined, a distinct cycle emerges: The economy shows strong growth performance during periods when capital inflows from abroad accelerate; during periods when global liquidity tightens or financing conditions become difficult, growth slows down rapidly, and even crisis tendencies emerge.

This structure shows that the economy relies heavily on external financing rather than domestic savings, productive investments, and technological transformation. Even the smallest change in the global conjuncture can affect economic balances; currency volatility and financial fragilities deepen.

The growth model followed in the last twenty years has moved away from being based on production and productivity increases and has largely become a mechanism dependent on consumption and credit expansion. During periods of global financial expansion, capital inflows rapidly expanded domestic demand, and the economy achieved high growth rates. However, the same mechanism brought with it the risk of economic slowdown and crisis when financing conditions tightened.

For this reason, the Turkish economy has gradually transformed into a structure that “grows with capital inflows and becomes fragile with capital outflows.” In other words, growth has become finance-based, not production-based. While this model may create high growth in the short term, it deepens the current account deficit problem in the long term, increases the need for external debt, and leaves the economy vulnerable to external shocks.

Moreover, this growth model is not sustainable in terms of social welfare either. The growth that emerges during periods of consumption-based expansion creates a temporary perception of welfare through increased indebtedness rather than improving income distribution. The fact that poverty becomes permanent while the economy is growing is the most concrete result of this structural problem.

In short, Turkey’s real agenda is no longer to increase the growth rate; it is to transform the quality of growth. An economic expansion model that is not based on production, productivity, technology, and human capital will inevitably continue to produce crises at certain intervals. Although the IMF’s recommendations aim to stabilize the economy, industrial policies and inclusive welfare mechanisms that will strengthen long-term development often remain limited.

At this point, the fundamental question that arises is clear: Will the Turkish economy remain in a fragile growth cycle dependent on external capital flows, or will it turn toward a development model based on production and technology?

HORMONED GROWTH MODEL: The Limits of a Consumption-Based Economy

The performance of the Turkish economy over the last twenty years makes the debate regarding the quality of growth increasingly important. Although economic indicators point to high growth rates in certain periods, it is observed that this growth does not transform into a development process that permanently increases production capacity, accelerates technological transformation, and spreads social welfare.

Over time, Turkey has moved away from a model based on production and productivity increases and has developed a growth structure largely based on consumption and external resource inflows. Increasing capital inflows during periods of global financial expansion increased credit volume, domestic demand expanded rapidly, and high growth rates were achieved in the short term. However, when financing conditions tightened, the same mechanism made the economy open to rapid slowdown and crisis risk.

This structure has transformed the economy into a model that “grows with capital inflows and becomes fragile with capital outflows,” and growth has gained a finance-based character rather than a production-based one. While it provides high growth rates in the short term, it increases the current account deficit and external debt burden in the long term, leaving the economy vulnerable to external shocks.

IMF reports generally evaluate this fragility within the framework of interest rate policy, budget discipline, and monetary policy; the transformation of the production structure, industrial strategies, and the strengthening of high value-added production remain in the background. Yet, the problem arises not only in macroeconomic balances but in the production composition of the economy. As long as production dependent on imported inputs, the weight of low-tech sectors, and limited value-added production continue, economic resilience will remain limited even if price stability is achieved.

More importantly, this growth model is not sustainable in terms of social welfare either. The growth that occurs during periods of consumption-based expansion often creates a temporary perception of welfare through increased indebtedness rather than improving income distribution. The fact that poverty becomes permanent while the economy is growing is precisely the result of this structural problem.

For this reason, the issue that needs to be discussed for Turkey is no longer the increase in the growth rate, but changing the quality of growth. An economic expansion model that is not based on production, productivity, technology, and human capital will inevitably continue to produce crises at certain intervals. Although the IMF’s policy recommendations aim to stabilize the economy in the short term, industrial policies, inclusive welfare mechanisms, and production-oriented strategies that will strengthen long-term development often remain limited.

At this point, the fundamental question that must be asked is clear: Will the Turkish economy proceed with a growth model dependent on external capital flows and open to short-term fluctuations, or will it turn toward a strategy focused on production, technology, and inclusive development?

GROWTH OR DEVELOPMENT? TURKEY’S REAL STRATEGIC CHOICE

Most of the discussions regarding the Turkish economy have been shaped around growth rates for many years. Yet, economic history clearly shows that high growth rates do not mean development on their own. The real issue is not how much the economy grows; it is to what extent this growth reflects on social welfare and whether it creates a sustainable production capacity.

The experience of the last forty years reveals that the problem Turkey is facing is not limited to the middle-income trap. There is a deeper, structural problem: the middle-development trap. Although the economy has reached a certain income level, the transition to high value-added production has remained limited, technological transformation has not been sufficiently achieved, and permanent leaps in the fields of education and institutional quality have not occurred. The gains of growth have not reflected equally on broad segments of society; income distribution has deteriorated, the middle class has weakened, and working poverty has increased.

In IMF reports, growth is mostly handled as a result of macro stability; it is assumed that economic balance will form spontaneously when price stability is achieved. However, from the perspective of development economics, this approach is insufficient. While macroeconomic stability is important, it is not enough on its own. Turkey’s fundamental need is not short-term financial stability programs, but a long-term, sustainable development strategy focused on production and technology.

A permanent solution is possible not only by increasing growth rates, but by transforming the structural nature of the economy:

• Transition to a production and technology-based growth model,

• Strengthening of industrialization policies,

• Investing in human capital,

• Activation of social state mechanisms,

• Implementation of inclusive policies that improve income distribution are mandatory.

Otherwise, the Turkish economy will continue to remain in a fragile cycle that accelerates with capital inflows and slows down with capital outflows; growing but unable to produce social welfare.

In summary, the defining question of the coming period is clear: Will Turkey settle for a narrow stability program that targets price stability, or will it turn toward a real path of development that centers on production, justice, and sustainable development? Because experience shows that no stability achieved without sustainable development is permanent.

BASIC CRITICISM OF IMF POLICIES

The IMF’s 2025 Turkey assessment shows that it may be successful in short-term goals such as reducing inflation and ensuring macro balances. However, Turkey’s main problem is that it is facing a growth model that remains far from ensuring structural development.

IMF policies focus primarily on price stability, fiscal discipline, and financial rebalancing. The quality of growth and the development dimension often remain in the background. Turkey’s need is not just a program that reduces inflation; it is a comprehensive development strategy that transforms the production structure, increases technological capacity, and improves income distribution.

The IMF approach, shaped within the framework of post-1980 neo-liberal policies and the Washington Consensus, saw fiscal discipline, price stability, liberalization of capital movements, and the strengthening of the market mechanism as the fundamental criteria for economic success. However, the picture that has emerged after forty years shows that these policies carry serious limitations in terms of development.

IMF programs often prioritized stabilizing the economy in the short term; goals such as transforming the production structure, increasing technological capacity, and improving income sharing remained in the background. As a result, while growth figures increased in Turkey, social welfare and structural resilience remained limited.

Today, the Turkish economy has a structure that grows when external capital inflows accelerate; and becomes fragile when global financial conditions tighten. This situation has distanced the economy from a production-based transformation and made growth dependent on financial flows. IMF reports, on the other hand, mostly handle this fragility in a way limited to the perspective of financial stability, and the production structure, industrialization strategy, and value-added problem, which are the sources of the problem, are not sufficiently discussed.

In short, IMF policies may provide short-term stability for Turkey; but they remain far from offering comprehensive solutions regarding long-term development, technology and production transformation, income justice, and social welfare. For this reason, Turkey’s real test lies in whether it can move beyond just stability programs and transition to an economic model focused on production and development.

CONCLUSION: The Real Question for the Turkish Economy — Stability or Development?

The IMF’s 2025 Turkey assessment points to a controlled recovery and a disinflation process underway in the short term. The decline in inflation, the strengthening of policy coordination, and financial rebalancing can be considered important developments from a technical perspective. However, when looking at the whole picture with a broad development perspective, the structural problems that the Turkish economy has carried for a long time still maintain their existence.

Today, Turkey’s fundamental issue is no longer just macroeconomic stability. The real question is why this stability cannot transform into sustainable development. The experience of the last forty years reveals an economic model that grows during periods when external capital inflows accelerate and becomes fragile when global financial conditions change. This structure distances the economy from production-based transformation and makes growth dependent on financial flows.

The current account deficit, foreign currency dependence, and the need for external financing continue to be the fundamental elements limiting the sustainable stability of the economy. IMF policies, on the other hand, mostly focus on the results of this fragility; leaving the need for structural transformation and social welfare in the background.

Disinflation strategies that foresee the suppression of wages may provide price stability in the short term; but they carry the risk of increasing social costs in an economy where income distribution has deteriorated. Achieving economic stability through the welfare loss of broad segments of society weakens both economic and political sustainability.

As a result, the critical choice facing the Turkish economy is as follows:

• To settle for a narrow stability program that only targets price stability,

• Or to turn toward a real path of development that centers on production, technology, human development, welfare, distribution, justice, and sustainable development?

Because history and experience show that permanent welfare is born from production power, not financial balances. Unless a model focused on production and development is adopted, the economy will continue to remain in a fragile cycle that grows and shrinks in every global liquidity cycle.