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Türkiye Pledges Coordinated Policies for Price Stability, Healthier Growth

Türkiye’s economy chief on Tuesday highlighted the fundamental role of price stability, which he says is a prerequisite for achieving sustainable economic growth, stressing the government would harmonize monetary, fiscal and revenue policies in the period ahead.

“In our program and budget, we are implementing structural reforms to achieve macroeconomic stability, restore fiscal discipline, reduce inflation to single digits in the medium term and make these gains permanent,” Treasury and Finance Minister Mehmet Şimşek told Parliament’s Planning and Budget Commission.

Şimşek is the key technocrat in Türkiye’s new economy administration that reversed course after the May elections and has been pressing ahead with more conventional economic policies recently embraced by President Recep Tayyip Erdoğan to conquer inflation, rebuild foreign currency reserves and curb the chronic current account deficit.

The central bank raised its policy rate by 5 percentage points to 35% last Thursday after inflation climbed to an annual rate of 61.53% in September. Since new Governor Hafize Gaye Erkan took office, the bank has raised interest rates five straight times from 8.5% in as many months.

The monetary authority stressed its readiness to raise rates further as needed to curb soaring prices.

Şimşek on Tuesday stressed tightening in the central bank’s monetary policy aimed at lowering inflation sustainably and ensuring price stability. These efforts, he said, are also being supported by selective credit measures and quantitative tightening actions.

“In the period ahead, monetary, fiscal and revenue policies will be executed in coordination, alongside structural reforms aimed at enhancing production, competition and efficiency,” Şimşek noted.

Regarding inflation projections, Şimşek anticipated a decrease from the forecasted 65% at the end of this year to 33% in 2024, 15.2% in 2025 and 8.5% in 2026. “Price stability is a prerequisite for sustainable growth and lasting prosperity,” he noted.

Economic ‘rebalancing’

Addressing the need for economic “rebalancing” due to the current growth being driven mainly by domestic demand, Şimşek on Tuesday emphasized the goal of achieving a more balanced growth with positive contributions from net exports in the upcoming period.

“While targeting permanent price stability during this period, we continue prioritizing investments, employment, production and exports,” he added.

Şimşek acknowledged the challenges posed by the devastating earthquakes that struck Türkiye’s southeastern region in early February. He said exports fell by $6 billion due to the direct and indirect effects of the disaster.

“The measures taken to combat inflation, coupled with the anticipated rebalancing, the expected decrease in gold imports due to increased deposit interest rates and the decline in energy prices compared to last year, have led to a downward trend in the current account deficit,” Şimşek noted.

Highlighting Türkiye’s status as the fourth most-visited country globally in 2022, Şimşek attributed this success to diversification policies and promotional activities.

“Tourism revenues increased by 20% to about $42 billion in this January-September period,” he noted, citing the data released by the Culture and Tourism Ministry on Tuesday.

Tourism is a critical source of revenue for Türkiye, which has seen the number of foreigners arriving in the first nine months reach 39.2 million, a 12.6% increase compared to a year ago.

The government anticipates 60 million foreign arrivals and Şimşek said the income is expected to reach $55.6 billion this year and $59.6 billion in 2024.

Looking forward, the minister stressed plans to accelerate the green transformation, increase oil and gas production and introduce nuclear energy to reduce the current account deficit in the medium term.

Debt management

He also assured the robust health of the banking sector, emphasizing its strong capital structure, high asset quality and sufficient liquidity levels.

The data by the banking watchdog, the BDDK, on Monday, showed the sector’s net profit surged 53.5% year-over-year in January-September to nearly TL 440 billion ($15.55 billion).

The loans of the sector as of the end of September surged by 41.3% compared to the end of 2022, reaching TL 10.7 trillion. During the same period, assets increased 47.1%, reaching TL 21.1 trillion.

Regarding debt management, Şimşek said they decreased the refinancing risk of Treasury debt stock. He highlighted strategies such as limiting the share of variable interest bonds and conducting domestic borrowing primarily in Turkish lira-denominated securities, aiming to reduce the debt stock’s sensitivity to foreign exchange rate fluctuations.

Looking at the 2024 fiscal year, Şimşek projected a 71.1% increase in central government budget revenues to TL 8.44 trillion, a 73.5% rise in tax revenues to TL 7.41 trillion and a 56.2% increase in non-tax revenues to TL 1.03 trillion.

The budget deficit for this year is estimated at TL 2.65 trillion, equivalent to 6.4% of the gross domestic product (GDP), according to the draft central government budget law currently under consideration at the parliamentary committee stage.

Source: Daily Sabah