Alvaro Pereira’s Insights on Turkey’s Economy and FATF Decision
On July 1, Pereira assumed the role of Chief Economist at the OECD and responded to questions regarding the Financial Action Task Force’s (FATF) decision to remove Turkey from its gray list and the potential impacts of this development on the Turkish economy.
Pereira described FATF’s decision to remove Turkey from the gray list as “very good news,” asserting that this decision confirms Turkey’s commitment to strengthening its anti-money laundering regime to fulfill international obligations.
Impact on International Confidence
“Turkey’s removal from the gray list may further enhance the improving confidence of international markets towards Turkey,” Pereira noted, recalling that Turkey’s five-year credit risk premium (CDS) has decreased and that international credit rating agencies have upgraded the country’s ratings.
Pereira pointed out that as of June, Turkey’s net international reserves, excluding swaps, turned positive for the first time since early 2020, stating, “Of course, being removed from the FATF list is only one step towards significantly improving foreign direct investment inflows.”
Despite the positive developments in the Turkish economy in recent months, Pereira acknowledged that significant challenges remain. He noted that while capital inflows have increased in recent months, the rise in foreign direct investments has been more limited.
Pereira reiterated that inflation remains high, emphasizing, “To fully benefit from the improving international perception, authorities must continue macroeconomic stability policies. A stable and predictable policy framework combined with a consistent macroeconomic environment has the potential to significantly increase international investment inflows.”
Importance of Economic Team’s Measures
Pereira stressed that monetary policy conditions need to remain tight and fiscal prudence should continue until inflation is on a solid path towards the target. He remarked:
“The fiscal consolidation measures already taken by Turkey’s economic team are crucial for placing the economy on a sustainable path. In this regard, restoring fiscal discipline is imperative. It is also encouraging that the Central Bank has indicated its determination to tighten monetary policy as needed until there is a noticeable improvement in the inflation outlook.”
He added that structural reforms could support current efforts to stabilize the macroeconomic framework and enhance potential growth in the long term, particularly mentioning that labor market reforms could facilitate the creation of higher quality registered employment.
Gradual Growth Expectations in Exports
Alvaro Pereira reported that the Turkish economy, which grew by 4.5% last year, is expected to grow by 3.4% this year and by 3.2% in 2025.
Pereira mentioned that restrictive monetary policy and inflation will moderate private consumption, noting that a certain cooling in the labor market is expected as growth slows.
He projected that investment activity is likely to remain strong mainly due to the reconstruction efforts following the earthquakes centered in Kahramanmaraş. “As a reflection of improvements in external markets, we expect Turkey’s exports to grow gradually,” he said.
Turkey’s Removal from the Gray List
During the meeting held from June 23-28 this year under Singapore’s presidency, the FATF Plenary, which operates within the OECD, decided to remove Turkey from its gray list. The Plenary made this decision based on the improvements Turkey made in addressing the deficiencies identified during previous assessments related to anti-money laundering and combating the financing of terrorism (AML/CFT).
Mohamed Daoud, Sector Practice Leader at Moody’s, noted that Turkey’s removal from the FATF gray list is a reflection of significant progress made by the government and various economic sectors in strengthening their efforts against money laundering and the financing of terrorism, adding, “This development is expected to enhance Turkey’s reputation internationally and potentially strengthen foreign investments and relations with European and U.S. institutions.”
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Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
