Turkey’s Recipe to Escape the Middle-Income Trap


By Gregorio Impavido and Uffe Mikkelsen

(Version in Türk)

Turkey is going through a time of economic transition, with slowing growth that risks the country being caught in a “middle-income trap,” unable to join the ranks of high income economies. 

The country grew at 6 percent per year on average in the period 2010-13, with policies supportive of domestic consumption. This has generated a large current account deficit, mostly financed by short-term capital flows. The reliance on consumption at the expense of investment, slow export growth, and sizable investment needs have hurt potential growth, with the economy already growing more modestly. Moreover, Turkey’s low domestic savings and competitiveness challenges have limited investment as well as exports, which have also suffered from the slow growth in Europe.

With current policies, Turkey’s economy is expected to grow only 3.5 percent annually over the next five years. Going forward, the economy must be rebalanced to make it more competitive and to restore output and employment growth.

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Acting Collectively: A Better Way to Restructure Government Debt


By Sean Hagan 

(version in Español)

To restructure or not to restructure? That is a question few governments would like to face. Yet, if a country does find itself with an unsustainable debt burden, one way or another, it will have to be restructured. And if that time comes, it is better for the debtor, creditors, and the entire financial system that the restructuring be carried out in a prompt, predictable, and orderly manner.

The global financial crisis ushered in a new wave of sovereign debt crises that has reinvigorated discussions over the current framework for sovereign debt restructuring. The experience with Greece’s debt restructuring in 2012 and the ongoing litigation involving Argentina, in particular, provide a salutary reminder that vulnerabilities remain.

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Now Is a Good Time to Invest in Infrastructure


By Abdul Abiad, Davide Furceri, and Petia Topalova

Infrastructure is the backbone of well-functioning economies. Unfortunately, that backbone is becoming increasingly brittle in a number of advanced economies. For example, there has been a decline in the overall quality of infrastructure in the United States and Germany (Figure 1; see the FT 2014 and ASCE 2013 for more in infrastructure in the U.S., and Der Speigel 2014 and Kunert and Link 2013 for Germany). In many emerging market and developing economies, the expansion of the backbone has not kept pace with the broader economy, and this is stunting the ability of these economies to grow.

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What a Drag: The Burden of Nonperforming Loans on Credit in the Euro Area


By Will Kerry, Jean Portier, Luigi Ruggerone and Constant Verkoren 

High and rising levels of nonperforming loans in the euro area have burdened bank balance sheets and acted as a drag on bank profits. Banks, striving to maintain provisions to cover bad loans, have had fewer earnings to build-up their capital buffers. This combination of weak profits and a decline in the quality of bank assets, resulting in tighter lending standards, has created challenging conditions when it comes to new lending.

We took a closer look at this relationship and the policies to help fix the problem in our latest Global Financial Stability Report because credit is the grease that helps the economy function.

The stock of nonperforming loans has doubled since the start of 2009 and now stands at more than €800 billion for the euro area as whole (see chart). Around 60 percent of these nonperforming loans stem from the corporate loan book.

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Banking on the Government


By Jesus Gonzalez-Garcia and Francesco Grigoli

(Version in Español)

Government ownership of banks is still common around the world, despite the large number of privatizations that took place over the past four decades as governments reduced their role in the economy. On average, state-owned banks hold 21 percent of the assets of the banking system worldwide. In Latin American and Caribbean countries, the public banks’ share is about 15 percent, with some of them showing very large shares, for instance, Argentina, Brazil, Uruguay, and Costa Rica are all over 40 percent (see Figure 1).

State-owned banks play an important role in the financial system. They fulfill functions that are not performed by private banks, provide financing for projects that benefit the rest of the economy, and provide countercyclical lending (lending more when the economy is weak). But public banks usually respond to the needs of governments owing to the state’s obvious involvement in their administration. As a result, government’s participation in the banking system may weaken fiscal discipline by allowing the public sector to access financing that they would not obtain from other sources.

In our recent study, we use a panel dataset for 123 countries to test whether a larger presence of state-owned banks in the banking system is associated with more credit to the public sector, larger fiscal deficits, higher public debt ratios, and the crowding out of credit to the private sector. 

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Reduced Speed, Rising Challenges: IMF Outlook for Latin America and the Caribbean


Alejandro WernerBy Alejandro Werner

(Version in Español and Português)

The prospects for global growth have brightened in recent months, led by a stronger recovery in the advanced economies. Yet in Latin America and the Caribbean, growth will probably continue to slow, although some countries will do better than others. We analyze the challenges facing the region in our latest Regional Economic Outlook and discuss how policymakers can best deal with them.

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The Future of the State Revisited: Reforming Public Expenditure


By: Sanjeev Gupta and Martine Guerguil

(Version in EspañolFrançaisРусский中文, and 日本語)

The global financial crisis brought to the fore the question of sustainability of public finances. But it merely exacerbated a situation that was bound to attract attention sooner or later—governments all over the world have been spending more and more in recent decades. Here at the IMF, we’ve been looking into the factors behind this increase in public spending, particularly social spending, and our latest Fiscal Monitor report discusses some of the options for spending reform.

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