09 May 2024

As inflation afflicts the Turkish economy, MGI members comment in latest IAB edition

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"Runaway inflation rates are still hampering the Turkish economy. Local firms are struggling with its effects on fees and wages, and the government seems to be finally taking action," says the latest edition of the IAB. MGI Worldwide members Baycan Aksu, partner at MGI Bağımsız Denetim A.Ş., and İsmail Vefa AK, partner at Vizyon, join the conversation.

The Turkish government's recent decision to significantly raise interest rates reflects a concerted effort to tackle soaring inflation rates, although the effects may take time to materialise. Turkey's central bank surprised many by hiking its main interest rate to 50% in March 2024, citing concerns over the inflation outlook. Annual inflation soared to 68.5%, according to TURKSTAT data, and even higher according to the Inflation Research Group (ENAG), at 124.6%.

This sharp rise in interest rates marks a departure from years of unorthodox monetary policy, where keeping rates artificially low contributed to domestic inflation. However, uncertainties persist, with experts highlighting risks related to inflation reduction, budget deficits, and unclear inflation targets for the coming years.

While there is optimism over the government's actions to curb inflation, concerns remain regarding societal impacts and financial reporting standards as the business community grapples with the challenges of high inflation rates, eroded margins, and evolving customer perceptions. Additionally, the delay in implementing the IAS 29 reporting standard has added complexity to financial reporting practices.

Pressure on recruitment

Inflation is also putting pressure on fees and recruitment. Inflation is driving wages up so quickly that it has become almost impossible to find quality personnel at an affordable cost. 

Baycan Aksu, partner at MGI Bağımsız Denetim A.Ş. coments:

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“The demand for qualified independent auditors has really increased in private and public companies. But recently we have started to notice that the younger generation of auditors are not very committed to their companies. Once they get experience and knowledge, they can easily leave the company for a small wage increase. As competition in independent auditing drives down fees, this makes the wages less attractive to new graduates.”

Looking ahead

Cautious optimism prevails amidst expectations of gradual interest rate reductions and tightening fiscal policies. Economic activity may slow in the short term, but a return to growth is anticipated in the coming years, contingent upon effective inflation control and prudent fiscal management.

İsmail Vefa AK, partner at Vizyon,says:

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“I anticipate inflation in Turkiye will start to decrease, leading to gradual interest rate cuts.
The cooling economy in 2024 will gradually get back on track in 2025.”

To read the full article in the April edition of the IAB, members can click here (login to the MGI Worldwide member portal will be required).

For more information about our contributing member firms visit MGI Bağımsız Denetim A.Ş.s website or profile page and Vizyon's website or profile page.



MGI Worldwide is a top 20 ranked global accounting network and association with over 8,000 professionals, accountants and tax experts in some 400 locations in almost 100 countries around the world