Türkiye’s economic turnaround is yielding results, European Bank for Reconstruction and Development (EBRD) Vice President Matteo Patrone told an interview recently, adding that the bank aims to match its record investment in the country this year.
Since June last year, Turkish authorities have shifted their policymaking, adopting tighter monetary policy and coordinated fiscal policy.
Patrone, who met with government officials, including Treasury and Finance Minister Mehmet Şimşek during his visit to Türkiye, said he was “very impressed” with the economic program, the combined action of monetary and fiscal policies, and support shown by the business community for these policies.
The central bank has hiked its main interest rate to 50% from 8.5% since June last year to bring down inflation, which is seen by economists and the government as likely falling to around 40% by the end of this year from 71.6% currently.
Speaking to Reuters at the Istanbul offices of the European Bank for Reconstruction and Development on Friday, Patrone said such forecasts align with the trajectory foreseen by the government’s economic team.
Investors’ confidence
“So it seems that the direction of travel is certainly the right one and investors’ confidence is coming back because of that,” said Patrone, the development lender’s vice president for banking.
“From our conversations, I think there is a cautious optimism that this (economy plan) will be completed. Indeed, because there is no alternative, and because we have started seeing the results.”
Last year, the EBRD invested a record 2.5 billion euros ($2.71 billion) in Türkiye, driven by green investments and spending on the recovery from the devastating earthquake in February 2023.
The bank expects to match that figure in 2024, having invested almost 1 billion euros so far this year, Patrone said.
Part of that will be earthquake-related investments focused on municipal infrastructure and supporting small and medium-sized enterprises (SMEs) in the area.
“Our pipeline is wide enough and deep enough to give us comfort that we should reach the level of last year. We are on the right trajectory,” Patrone said.
In March, Türkiye’s Treasury signed a memorandum of understanding (MoU) with the EBRD to finance 500 million euros for the region hit by the earthquake. The bank pledged to invest up to 1.5 billion euros there over two years.
The EBRD is one of Türkiye’s key investors. More than 20 billion euros have been invested cumulatively since 2009 across 450 projects and trade finance facilities, and 93% of investments have been channeled to the private sector.
Earlier during the week, the EBRD’s managing director in Türkiye, Arvid Tuerkner, also reflected on the partnership with the local stakeholders, highlighting the vitality of the private sector as well as the improvement in investors’ confidence over the past year.
Ankara says it aims to attract foreign direct investment (FDI) and change the composition of economic growth by boosting investments, production and exports while continuing efforts to cool inflation.
“The investors’ appetite is coming back. This is true for portfolio investors and FDIs,” Patrone said, adding that, anecdotally, there was much more foreign interest in Türkiye than 12-18 months ago.
“It will probably materialize going forward. Let’s see what happens in 2025, but toward the end of 2025, I think that should gather momentum.”
In May, the government also announced a plan to rein in public spending, meaning only essential state investment projects would proceed, and said it worked on tax regulations to improve fiscal discipline and increase budget income.
Patrone said that the Turkish fiscal plan will likely impact public-private partnership projects (PPPs), but necessary infrastructure development should continue.
“While there is focus on reducing fiscal burden, there is also an understanding that the infrastructure development in the country cannot stop,” he said. “So certainly, there will be changes. But I don’t expect major changes in the direction of travel.”
