OECD Chief Economist evaluates Turkey's removal from the grey list

Organisation for Economic Co-operation and Development (OECD) Chief Economist Alvaro Pereira reported that Turkey's removal from the grey list could further increase the confidence of international markets in Turkey, which has been improving in recent months, and is a step that could significantly improve foreign direct investment inflows.

Pereira, who took over as chief economist at the OECD on July 1, answered questions from an AA reporter regarding the decision of the Financial Action Task Force (FATF) within the OECD to remove Turkey from the grey list and the potential effects of this development on the Turkish economy.

Evaluating the FATF's decision to remove Turkey from the grey list as "very good news," Pereira said that this decision confirms that Turkey has strengthened its anti-money laundering regime to fulfill its international commitments.

Stating that "Turkey's removal from the grey list could further increase the confidence of international markets in Turkey, which has been improving in recent months," Pereira recalled that Turkey's 5-year credit default swap (CDS) premium has fallen and international credit rating agencies have upgraded the country's rating.

Pointing out that Turkey's net international reserves, excluding swaps, turned positive as of June for the first time since the beginning of 2020, Pereira said, "Of course, being removed from the FATF list is only one step toward significantly improving foreign direct investment inflows."

Expressing that despite positive developments in the Turkish economy in recent months, significant challenges remain, Pereira noted that while capital inflows have increased in recent months, the increase in foreign direct investments has remained more limited.

Stating that inflation is still high, Pereira said, "To fully benefit from the improving international perception, authorities must continue with macroeconomic stability policies. A stable and predictable policy framework, combined with a stable macroeconomic environment, has the potential to significantly increase international investment inflows."

STEPS BY THE ECONOMIC TEAM ARE VITAL

Emphasizing that monetary policy conditions must remain tight and fiscal prudence must continue until inflation is on a solid path toward the target, Pereira noted the following:

"The fiscal consolidation steps already taken by Turkey's economic team are vital for putting the economy on a sustainable path. In this respect, the restoration of fiscal discipline is essential. It is also gratifying that the Central Bank has stated its determination to tighten monetary policy as necessary until a significant improvement in the inflation outlook is achieved.

Structural reforms can support current efforts to stabilize the macroeconomic framework and increase potential growth in the long term. In particular, labor market reforms could facilitate the creation of higher-quality registered employment."

GROWTH EXPECTATION

Alvaro Pereira reported that they expect the Turkish economy, which grew by 4.5 percent last year, to grow by 3.4 percent this year and 3.2 percent in 2025.

Stating that restrictive monetary policy and inflation will moderate private consumption, Pereira noted that some cooling is expected in the labor market as growth slows.

Pereira stated that investment activity is projected to remain strong, mostly due to post-earthquake reconstruction in Kahramanmaraş, and said, "As a reflection of the improvement in external markets, we expect Turkey's exports to grow gradually."

WHAT HAPPENED?

It was decided to remove Turkey from the grey list at the FATF Plenary, which is part of the OECD and was held this year from June 23-28 under the presidency of Singapore. The Plenary decided to remove Turkey from the grey list as it had addressed the deficiencies identified during previous evaluations regarding anti-money laundering and combating the financing of terrorism (AML/CFT).