Rodrigo Rato, IMF managing director warned that Turkey may risk losing its macroeconomic credibility. According to Rato, Turkey should stick to the economic program as the economy is still fragile given its high public sector debt. The IMF managing director added that cutting taxes is not an appropriate way to lower the public sector debt. The government recently decided to cut VAT on textile products to help the ailing textile sector. In addition, the government gave a pay rise to roughly 1.4 million civil servants. According to media reports, the IMF criticized both measures. 

Economy Minister Ali Babacan said that the IMF was disturbed with the VAT rate cut for textile products. Babacan said that Turkish officials discussed those issues with the IMF and submitted possible impacts of those measures on the budget to the Fund. Deputy Prime Minister Abdullatif Sener said that the pay increase for civil servants would bring a TRY2 billion burden on the budget and the TRY1.3 billion part of the burden had already been foreseen when the 2006 budget was prepared. The remaining TRY700 million will be met through the reserve appropriations; thus the pay rise would not result into a deviation from the budget, Sener said.