While the Turkish economy is moving in the right direction, showing positive signs noted by credit rating agencies and other financial institutions, seeing the full impact of the nation’s monetary policy will require patience, the World Bank’s director for the country said in an interview with Anadolu Agency (AA).

Speaking to AA on the sidelines of the COP28 U.N. climate conference in Dubai, United Arab Emirates (UAE), Humberto Lopez said the World Bank was not alone in its support for Türkiye’s economic course under the current conditions.

"If you look at the credit rating agencies, some of them have already moved Türkiye’s outlook upward," he said, pointing to a decision last week by the New York-based S&P, which revised the country’s credit outlook from stable to positive.

"Some of the investment funds like Deutsche Bank or JPMorgan are saying that next year is going to be very hot in the bond market in Türkiye," Lopez added.

"These organizations see that things are going in the right direction," he said.

He also noted that the rate for credit default swaps (CDS) in Türkiye is now below 350 basis points, indicating a major improvement in the perceived risk level of the country from a level of more than 550 six months ago.

As the economy stabilizes, this will have the potential to attract more financing, the World Bank official said, adding: "One of the beauties of this is that you can enter into a virtual circle. On the one hand, you have an investment that is coming because the situation is becoming stabilized. On the other hand, as the resources are coming, it would be easier to stabilize the situation."

However, Lopez also stressed the need for perseverance and patience for the impact of the monetary to fiscal policy measures taken to materialize fully, referring to the tightening and implementation of policies of the new economic administration to counter inflation.

"We have reached a point probably where markets would start thinking that the increase in the interest rate is going to reach the limit," he said.

The bank has been raising its policy rate, the one-week repo rate, for six months from a low of 8.5%. Last month’s hike was 500 basis points, up to 40% from the previous 35%.

Türkiye’s annual inflation edged up to 61.98% in November, according to official data released Monday. The figure accelerated from 61.36% in October.

On the bank’s forecast for inflation in Türkiye, he said: "We are expecting that inflation figures will be peaking in the middle of 2024 and then it will start declining. We think the inflation will be between 35%-40% by the end of 2024 and drop to around 15% in 2025."

"Clearly, this is all subject to what is also happening in the global economy," he added.

In addition, Lopez also touched upon the financing program implemented by the lender in Türkiye, recalling that the bank group announced in September it would provide an additional $18 billion in funds over the next three years. According to Lopez, about $12 billion of it will be going to the private sector.

"We are now starting the process that we call our strategic planning. We are putting forward this for the next three years," he said, noting that up to $750 million of the $18 billion total would be provided for electricity transmission projects in Türkiye.

Renewable energy growth

One of the significant areas receiving investment in Türkiye is renewable energy, with the country aiming to boost its capacity significantly over the coming years.

"We are very excited to hear Türkiye’s plans to increase its renewable energy capacity by 60 gigawatts in the next 12 years, more or less 5 gigawatts per year. This is one of the biggest efforts in this area that the world has seen in emerging economies," said Lopez.

Türkiye’s current installed capacity hit 106 gigawatts and the country aims to increase this to 190 gigawatts by 2030.

Renewables are expected to provide for most of this growth, which Lopez said would require costs of around $100 billion over 12 years, including some $80 billion for generation, $10 billion for transmission and $10 billion for distribution.

He added that of the total investment needed, $90 billion will have to come from the private sector.

Moving toward the net zero emissions target by 2053 and building resilience in the sector will need around $640 billion in net present value, Lopez explained.

"This is a pretty significant amount of money. And this will require both the private and public sectors and us to work together to mobilize this amount of resources."