Turkey should restore investor trust through transparency: OECD

Turkey’s central bank and the government need to be transparent to restore credibility about monetary and fiscal policy, the Organisation for Economic Cooperation and Development (OECD) said.

The transparency of the central bank’s policy instruments and accounts should be improved and tightening measures should be implemented more directly, if needed, the OECD said on Tuesday in its latest global economic output report.

Turkey’s central bank cut both its upper lending rate and interest costs on swaps earlier on Tuesday to 24 percent from 25.5 percent in a move that surprised economists and investors. The bank has refrained from raising interest rates this year to curb losses for the lira, which have reached about 13 percent after a decline of 28 percent in 2018.

The OECD said the government’s economic measures have also been unpredictable and there was uncertainty over their sustainability, reducing their impact.

“Publishing a regular fiscal policy report based on standard government accounts according to international norms would help implement countercyclical policies in a transparent way, provide that all quasi-fiscal activities are also covered,” the institution said.

Turkey’s government has introduced ad-hoc measures including tax cuts, loan guarantees, food price discounts and job subsidies to help reverse an economic contraction. At the same time, the budget deficit has widened, totalling 68 percent of a year-end goal in the first four months of 2019 alone.

The OECD welcomed government pledges to introduce loan restructuring vehicles for the foreign currency debts of real estate and energy companies, without its direct participation. Such plans, if implemented successfully, would reduce pressure on creditor banks, offset financial contagion risks and help improve confidence, it said.  

A slow economic recovery in Turkey is projected, but risks remain substantial, the OECD said.

“If current uncertainties continue to prevail and confidence remains fragile, Turkey would remain vulnerable to turbulences and headwinds, and GDP growth would be weaker,” the organisation said.

“The phasing-in of the structural reforms needed to enhance the rule of law in, and the level-playing operation of product and labour markets would improve confidence and help increase the potential growth rate,” it said.