PARIS, Nov 30 (AFP) - Turkey, recovering from a major recession, must use its exceptionally strong growth to manage its public debt burden and rein in a widening current account deficit, the OECD warned in a report on Tuesday.
Even though Turkey has made a firm recovery from a severe economic crisis in 2000-2001 and should achieve 10-percent growth at the end of 2004, it should watch out for a significant increase in its current account deficit, the Organisation of Economic Co-operation and Development said.
The deficit reached more than seven percent of the GDP in the first half of 2004 and was unlikely to fall below five percent of GDP for the year, the OECD said.
"Its financing continues to be based on debt creation, generating concerns about its sustainability, while foreign direct investment remains weak," it warned.
"In future, the authorities should devote the additional revenue gains from stronger growth to government debt reduction, in order to improve debt sustainability and keep a firm fiscal stance," it added.
Such a move would help tame the strong growth rate and lessen any additional pressures on the current account and domestic prices.
The OECD praised Turkey for its success in bringing down chronic inflation, which is expected to dip below the 12-percent year-end target, and a burgeoning economic environment, buoyed by signs from the European Union that it may open membership talks with Ankara.
But it also urged the government to stick to tight fiscal and monetary policies in order to offset a possible supply shock that would lift capital inflows, investment, consumption and GDP growth if EU leaders decide next month to invite Turkey to accession negotiations.
"Should domestic and international confidence falter, higher risk premia, weaker currency and declining sentiment would push the economy onto a less favourable path," the report said.
11/30/2004 10:39 GMT - AFP