The loan agreement was presented as ‘good news’! Where will this money be spent? – Last Minute Economy News

Minister of Treasury and Finance Mehmet Şimşek announced that a financial cooperation program for the next 5-year period has been created within the scope of the strong cooperation with the World Bank.

Şimşek pointed out that an important program has been signed with the World Bank, which forms the basis of the financial and technical cooperation in the period covering the 2024-2028 fiscal years, and said, “Within the scope of our strong cooperation with the World Bank, a financial cooperation program for the next 5-year period has been created. The World Bank’s “The Country Partnership Framework (CPF) Program, which will provide an additional 18 billion dollars of financing to our country in the first three years, was discussed at the Board of Executive Directors of the Bank and came into force,” he said.

TOTAL AMOUNT 35 BILLION DOLLARS

Minister Şimşek stated that the World Bank, after the announcement of the Medium Term Program, decided to increase the amount of resources transferred to Turkey to 35 billion dollars by adding another 18 billion dollars to the ongoing 17 billion dollar program.

After Mehmet Şimşek announced the additional financing source, curious questions came to the fore.

Famous economist Mahfi Eğilmez answered the questions following Minister Şimşek’s statement via his social media account.

Eğilmez stated that most of the questions from people reflect the skepticism towards the projects recently, and some of them focused on the differences between World Bank financing and IMF support.

Mahfi Eğilmez shared the following on his X account:

“Many questions are coming about the additional support of 18 billion dollars announced to be received from the World Bank (WB). While most of the questions reflect people’s skepticism towards the projects recently, some of them focus on the differences with IMF support. Let me try to explain briefly.

WB gives loans to investment projects. The IMF provides general loans. So, for example, if a port is to be built, the World Bank will finance it. While doing this, it requires the implementation of its own tender methods and the purchase of international goods other than a certain proportion of domestic goods. Since the IMF lends money for balance of payments financing, it checks whether the conditions it sets (such as reducing the budget deficit to a certain rate) are met.

The place of use of WB loans is the relevant project, you can use IMF debt wherever you want. Therefore, it is not correct to conclude that money comes from the DB and we can spend it wherever we want.

“THEY WILL HAVE TO PAY ASTRONOMICAL INTERESTS”

WB checks whether the expenditures are related to the project and whether they comply with its specifications, and then releases the loan tranche. The IMF, on the other hand, only checks whether the conditions (performance criteria) it has set are met and then releases the relevant tranche of the debt.

The cost (interest) of the support provided by both institutions is lower than the market. As the amount of IMF debt increases, the cost also increases. On the other hand, a country either cannot get those increasing amounts of debt from the market or has to pay astronomical interest.

The repayment period of DB loans is long (10 – 15 years on average) and the IMF’s is medium term (average 3 – 5 years from the expiry date of the debt.)