2024-07-26 12:29:17
* Vice-president of the EBRD: Investor confidence is returning
* The EBRD’s investment in Turkey in 2024 is expected to reach a record level of 2.5 billion euros
* The EBRD anticipates FDI to accelerate towards the end of 2025
ISTANBUL, July 26 – Turkey’s economic recovery is showing results, said Matteo Patrone, vice president of the EBRD, to Reuters on Friday, adding that the bank aims to match its record investment in the country this year.
Since June 2023, the government and the central bank have sought to reverse years of unorthodox policy by tightening monetary policy and coordinating fiscal policy.
Mr. Patrone, who met with government representatives, including Finance Minister Mehmet Simsek, during his visit to Turkey, expressed that he was “very impressed” by the economic program, the combined action of monetary and fiscal policies, and the support from the business community for these policies.
The central bank has raised its main interest rate from 8.5% to 50% since last June in an effort to reduce inflation, which economists and the government expect to fall to about 40% by the end of the year, down from the current 71.6%.
Speaking in the Istanbul offices of the European Bank for Reconstruction and Development (EBRD), Mr. Patrone stated that these forecasts align with the trajectory outlined by the government’s economic team.
“So it seems that the direction taken is the right one. Investor confidence is being strengthened,” said Mr. Patrone, vice president of the development lender.
When asked about the possibility of President Tayyip Erdogan changing his mind regarding current economic policies, Mr. Patrone stated that there is no alternative.
“Based on our conversations, I think there is cautious optimism about the completion of this (economic plan). Indeed, there is no alternative, and we are beginning to see the results.
Last year, the EBRD invested a record amount of 2.5 billion euros (2.71 billion dollars) in Turkey, thanks to green investments and spending related to the recovery after the devastating earthquake in February 2023. The bank plans to match this figure in 2024, after having invested nearly one billion euros since the beginning of the year, Mr. Patrone noted.
Part of this amount will be allocated to earthquake-related investments, focused on municipal infrastructure and support for small and medium-sized enterprises in the region.
“Our pipeline is broad and deep enough to allow us to think we should reach the level of last year. We are on track,” said Mr. Patrone.
In March, the Turkish Treasury signed a memorandum of understanding with the EBRD for 500 million euros in funding for the earthquake-affected region, and the bank committed to investing up to 1.5 billion euros over two years.
Ankara claims it wants to attract foreign direct investment and change the composition of economic growth by stimulating investment, production, and exports, while continuing efforts to reduce inflation that has eroded the purchasing power of Turks.
“Investor appetite is returning. This is true for portfolio investors but also for FDI,” Mr. Patrone said, adding that, anecdotally, foreign interest in Turkey is much greater than it was 12 or 18 months ago.
“This will likely materialize in the future. Let’s see what happens in 2025, but by the end of that year, I think it should accelerate.”
In May, Turkey announced a plan to restrict public spending, meaning that only essential state investment projects will be implemented, and stated that it is working on tax regulations to improve fiscal discipline and increase budget revenues.
The Turkish fiscal plan is likely to impact public-private partnership projects, Mr. Patrone said, but the necessary infrastructure development should continue.
“If the emphasis is on reducing the tax burden, it is also understood that the development of infrastructure in the country cannot stop,” he said. “There will certainly be changes. But I do not expect major changes in the direction taken.” (1 dollar = 0.9215 euro) (Reporting by Jonathan Spicer and Ezgi Erkoyun; Editing by Daren Butler and Tomasz Janowski)
Emerging Trends in Turkey’s Investment Landscape: A Forward Look
The outlook for foreign investment in Turkey is becoming increasingly optimistic, evidenced by the European Bank for Reconstruction and Development (EBRD) Vice President Matteo Patrone’s recent remarks. With the EBRD poised to match its record investment of €2.5 billion in 2024, the potential for growth in foreign direct investment (FDI) appears promising.
The Turkish government has made significant strides in reversing years of unconventional economic strategies. The recent tightening of monetary policy and supportive fiscal measures have fostered a more conducive environment for investment. As inflation rates are projected to decline from over 71% to around 40% by the year’s end, investor confidence is being restored, facilitating a more aggressive push for FDI.
Currently, the EBRD has already invested almost €1 billion in Turkey this year, with plans to support reconstruction efforts following the devastating February earthquake. Investments will focus on municipal infrastructure and small to medium-sized enterprises, signaling a commitment to sustainable and resilient recovery.
Patrone’s assertion that “the appetite of investors is returning” highlights an encouraging shift in market sentiment. As interest from foreign investors demonstrates a marked increase compared to the past year, the window of opportunity for Turkey’s economic recovery is becoming clearer. This renewed enthusiasm is expected to manifest more prominently by late 2025, coinciding with government initiatives aimed at enhancing the investment framework.
The Turkish Treasury’s plan to restrict public spending to essential investment projects reflects a strategic shift towards fiscal discipline. While this may impact public-private partnership projects, the emphasis on necessary infrastructure development remains intact. Such a delicate balance of fiscal restraint alongside essential growth initiatives is critical for maintaining momentum.
As Turkey navigates these economic reforms, the convergence of improved investor confidence and focused fiscal policies will likely cultivate a more vibrant investment landscape. Stakeholders should closely monitor these developments as they could redefine Turkey’s economic trajectory in the coming years.
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