The World Bank in Türkiye

Country Context

Türkiye is the 17^th largest economy in the world with a GDP of $1.32 trillion as of 2024. It is a member of the OECD and the G20 and an increasingly important donor of official development assistance (ODA).

Türkiye enjoyed high growth rates between 2006 and 2017 supported by ambitious reforms, propelling the country to upper-middle-income status. Real GDP growth averaged 5.4% between 2002 and 2022 doubling income per capita (in real terms). Moreover, growth was accompanied by rapid poverty reduction: the poverty rate decreased from above 20% in 2007 to 7.6% in 2021.

For Türkiye to preserve and further its progress, it must navigate through significant challenges. Key among these is revitalizing economic growth in a post-COVID era marked by a challenging macroeconomic climate and a downward trend in productivity observed since the mid-2010s. Furthermore, although economic expansion has continued, the reduction in poverty rates has lost momentum since 2016, hindered by increasing inequality highlighting the need for interventions that contribute to job creation. Türkiye continues to address the effects of the earthquakes that hit the country in 2023. They caused more than 50,000 casualties, injured 107,000 people, damaged or destroyed 1.9 million housing units, and displaced 3.3 million people, of whom two million needed shelters. The assessments estimated the recovery and reconstruction needs at around $81.5 billion. Risks also remain high, with about 70% of the country’s population living in first- and second-degree seismic zones.

Following the May 2023 Presidential elections, an economic team launched a comprehensive policy set to address past macroeconomic imbalances, especially high inflation. Since then, Türkiye has been moving to normalizing its macroeconomic strategies. The country experienced a robust economic expansion of 4.5% in 2023 that moderated slightly to 3.2% in 2024. Growth is currently expected to remain broadly stable at 3.1% in 2025. Longstanding macro and structural challenges that undermine potential growth—including high inflation, low productivity growth, and weakening foreign direct investment—would require robust fiscal measures and ambitious structural reforms to help accelerate sustainable economic growth.

Last Updated: Apr 24, 2025

Strategy

The Türkiye Country Partnership Framework (CPF) is the World Bank Group strategy to deliver impactful solutions at greater scale and speed in Türkiye over FY24-FY28. The CPF is fully aligned with the World Bank Group’s mission of ending extreme poverty and promoting shared prosperity on a livable planet and with the government’s 12th National Development Plan (NDP) 2024-2028. The framework also aims to support recovery and reconstruction from recent shocks. The CPF outlines how the World Bank Group will further scale up impact in one of its largest country portfolios to meet priority country and global challenges.

A key focus of the CPF is to help the country mobilize private capital to address key emerging challenges on the growth, poverty and inclusion, and sustainability fronts.

During the CPF period, the World Bank Group will focus on selected challenges under three broad areas:

• High and sustainable productivity growth: The focus will be on promoting climate-smart agriculture to strengthen resilience against climate change and bolster food security; greening the industrial sector to reduce carbon emissions and maintain trade competitiveness; supporting economic recovery in areas affected by the 2023 earthquakes. High-sustainable productivity growth is key for employment creation.
• Inclusive services and jobs: To address income and other inequalities, the focus will be to improve jobs  vulnerable groups; reduce disparities in health and education access and quality; and support resilient municipal infrastructure and services.
• Strengthen resilience against natural disasters: To help protect Türkiye’s people and economy, the World Bank Group will prioritize disaster resilience and preparedness, management of natural resources and the expansion of domestic renewable energy generation.

The CPF also emphasizes the need to accelerate digitalization, vital for boosting productivity and public service delivery. The World Bank Group will work across many fronts to accelerate the use of digital technology, including improving the digital business ecosystem, supporting seismic and climate-resilient urban planning, extending hybrid education opportunities and improving financial inclusion.

There are 36 active IBRD operations amounting to $15 billion. The portfolio also includes one project financed by the Global Environment Facility (GEF) and six trust fund-supported projects, including almost $450 million in European Union trust. 

Key Advisory Services and Analytics (ASA) Activities: The ASA portfolio is strategically consolidated around  core and extended core ASAs including: Programmatic Public Finance Review, Growth and Jobs, the IMpact of AI on the job market, and AI in the fight for tax evasion..

Last Updated: Apr 24, 2025

KEY CONDITIONS AND CHALLENGES

The macroeconomic stabilization policies have reduced uncertainty and disinflation is advancing.  The Central Bank of the Republic of Türkiye (CBRT) started rate cuts with 250 bps in December, January and March, lowering the policy rate to 42.5 percent, before raising it with a 350bps hike in April to 46 percent in the context of domestic financial turmoil.

Price stability remains the primary policy objective, and monetary and fiscal policies are being oriented to advance disinflation while strengthening social policies to protect the vulnerable. Inflation is expected to reach the upper 20s by end-of-2025. Hence, tighter fiscal policy with tight monetary policy will be critical to re-anchor expectations and continue the disinflation. Removing structural barriers to faster productivity growth and economic performance is equally important.

RECENT DEVELOPMENTS

Alongside substantial monetary tightening, economic growth slowed from 5.1% in 2023 to 3.2% in 2024. Contracting in Q2 and Q3, economic activity picked up in Q4, as industrial production increased by 3.5% QoQ. The contribution of private consumption continued to drive growth while net exports significantly eroded in Q4. Growth momentum moderated in Q1-2025 as the PMI remains below the 50-threshold (47.3 in March) and capacity utilization is 75%. 

The labor market continues to be strong despite slowing growth, with February unemployment at 8.2%. Yet, the broad unemployment rate (including discouraged and underemployed) remains high at 28.4%.   

The current account deficit was $10 billion (0.8% of GDP) in 2024, easing from $39.9 billion in 2023 (3.6% of GDP), as the trade deficit narrowed 23% YoY despite the real effective exchange rate (consumer price index (CPI)-based) appreciating 21.6%. FDI flows were stable at $4.7 billion while portfolio flows doubled from 2023 to $12.0 billion.  

Inflation eased to 38% by March 2025 from a peak of 75% in May 2024. Food price inflation is lower and may soften the impact of growing prices on the most vulnerable.  

Tight monetary policy and macroprudential adjustments have strengthened bank profitability, capital adequacy, and financial stability. While high policy rates continue to constrain loan growth (35% nominal YoY in March), Turkish lira lending increased in recent months. High Turkish lira loan costs boosted FX loan demand. The FX-protected deposit scheme shrank, contributing to de-dollarization but this trend slowed down recently. Asset quality remains broadly stable; January’s NPL ratio was 1.9%. External borrowing conditions improved, and the banking sector has adequate capital buffers, high provisions, and managed interest rate and currency risks.  

The fiscal deficit, which stood at 5.2% of GDP in 2023, is expected to remain around 5% in 2024 as expenditure rose and revenues remained weak alongside slowing growth. General public debt-to-GDP remains at 24.7% as of Q4-2024. 

Financial markets experienced significant pressure following the detention of Istanbul Mayor Ekrem Imamoglu in mid-March.  The credit default swap (CDS) premium was around 250 until mid-March but increased to above 300 since then. Net reserves had increased to $65b excluding swaps in February (from –$46b in February 2024) but decreased to $38 billion as of end-March, as the CBRT intervened heavily to stabilize the exchange rate. As of mid-April, the lira depreciated by around 4% in nominal terms, and the stock market declined by 13%.  The economic situation now appears to have stabilized. 

Economic growth in Türkiye slowed from 5.1% in 2023 to 3.2% in 2024 due to significant monetary tightening. After contracting in the middle of the year, activity rebounded in Q4 as industrial production rose, though growth momentum moderated again in early 2025. While private consumption continued to support growth, net exports weakened. The labor market remained relatively strong, with headline unemployment at 8.2% in February, though broader unemployment remains elevated at 28.4%. Inflation peaked at 75% in May 2024, eased to 38% by March 2025, helped by a decline in food price inflation.

On the external front, the current account deficit narrowed significantly in 2024 due to a smaller trade gap and stronger portfolio inflows. Financial sector resilience improved with tighter monetary policy bolstering banks’ capital adequacy and profitability, despite subdued lending. The fiscal deficit remained around 5% of GDP as expenditure grew and revenues lagged. Market volatility spiked following the detention of Istanbul’s mayor Ekrem Imamoğlu in March 2025, leading to a rise in CDS premiums, currency depreciation, and a drop in stock market value. Despite these shocks, financial markets and economic conditions have shown signs of stabilization by mid-April. 

OUTLOOK

Economic growth in 2025 is currently expected to remain broadly stable at 3.1 percent, underpinned by the tight monetary stance, anticipated fiscal tightening, and subdued global growth due to heightened uncertainty, before strengthening to 3.6 percent in 2026 and 4.2 percent in 2027. Disinflation is projected to continue gradually, driven by tight monetary policy and fiscal tightening, reaching 29 percent by end-2025, 18 percent by end-2026, and 13 percent end-2027. The current account balance, which remained contained in 2025, is expected to widen in line with the projected growth trajectory to around 2 percent over the forecast horizon as REER appreciation continues despite declining commodity prices. In line with gradual fiscal consolidation efforts, the general government deficit is expected to decrease to 4.2 percent of GDP in 2025, and to 3.6 percent of GDP in 2026, primarily due to the decline in earthquake related spending.

The poverty rate declined from 7.6 percent in 2021 to an estimated 5.4 percent and 5.2 percent in 2023 and 2024, continuing the downward trend from 2019, and is projected to further decline to 4.9 percent in 2025. Wage income, boosted by minimum wage increases (30 percent in 2025) alongside strong labor market performance, is expected to continue to be the primary driving force of poverty reduction. However, given high broad unemployment rate and informality, individuals excluded from labor markets may not benefit from growth. Well-targeted and flexible social protection programs are needed to shield this group from the impacts of high inflation.

Risks remain tilted to the downside with significant uncertainty to the forecasts. Domestically, private consumption remains robust, potentially delaying the adjustment process. Continued TRY real appreciation, while essential for disinflation, could weigh on external demand. The delay of fiscal consolidation—particularly on the expenditure side—and slow progress on structural reforms could further stall disinflation. Externally, while lower commodity prices, notably oil prices, pose upside risks, enhanced global economic uncertainty poses negative risks to Türkiye’s growth outlook.

Last Updated: Apr 24, 2025