ANKARA - Turkey's fiscal policy will have to be expansionary in 2009 given a shrinking economy, but fiscal deterioration if unchecked can add pressure on debt and long-term interest rates, an IMF representative said on Friday.
The International Monetary Fund expects Turkey's economy to contract by 5.1 percent this year due to the effects of the global economic crisis and the government has implemented stimulus measures, including tax cuts and higher spending.
"Fiscal policy has to be expansionary in 2009, there is no doubt about this," IMF Turkey representative Hossein Samiei told an economic conference.
But he warned: 'Fiscal deterioration, if unchecked, could put upward pressure on debt and long-term interest rates.'
Turkey and the IMF are engaged in negotiations over a loan deal. Protracted talks have failed to produce a loan accord, expected to reach $45 billion, due to differences on public sector spending and fiscal reforms.
Turkey's previous $10 billion IMF stand-by agreement expired in May 2008 and the current talks are aimed at a new three-year stand-by, but the government is increasingly reluctant to agree to the spending cut demands coming from the fund.
Samiei also told the conference there were signs of a pickup in Turkey's economic activity, but that this did not mean a recovery was under way.
He said difficulties may resurface with government borrowing and pointed to a significant fall in the average maturity of Turkey's government debt.
Samiei said he saw risk for the banking sector more on the credit side than on funding.