Turkey announces landmark new economic reform package

Image Description

Macroeconomic and structural policies will form the backbone of Turkey's new economic road map, the country’s president announced Friday, vowing to further improve fiscal discipline and prioritize lower inflation.

In a speech to unveil a keenly awaited economic reform package, President Recep Tayyip Erdoğan pledged on Friday (March 12) that his government would increase Turkey’s potential growth through productivity, driven by investment, employment and exports.

Ensuring growth based on these constitutes will be the core of the road map that will shape the economy’s future, Erdoğan told a meeting in Istanbul.

He added that the package was drafted in consultation with the private sector and nongovernmental organizations.

“We will increase potential growth through efficiency, and we aim for a national and domestic economy where imports are lowered, and with added-value exports,” the president said.

Turkey was one of only a few countries to avoid an economic contraction in last year’s coronavirus fallout. The gross domestic product (GDP) grew 5.9% in the fourth quarter and 1.8% in 2020 as a whole, according to official data.

“Despite the coronavirus pandemic, the Turkish economy grew 1.8% in 2020 and ranked second only to China among G-20 countries,” Erdoğan said.

The president vowed to support plans that ensure stronger public finance that will guard against risks, with fiscal discipline being the top priority.

As part of macroeconomic stability, he said the country is focusing on the areas of public finance, inflation, the financial sector, the current account deficit and employment.

Efforts will be particularly boosted to curb the current account deficit, an ongoing issue for the economy.

Erdoğan named three policies that he said will be followed regarding the issue.

Namely, the country will focus on the structural current account deficit, encourage small and medium-sized enterprises (SMEs) that have never made exports before and support green transformation in the industry sector.

On the structural policies side, Erdoğan said, “Strengthening the institutional structure, encouraging investments, facilitating internal trade, competition policies, market surveillance and supervision have been included in the scope of our reform.”

Reforms also include policies that cover issues such as spending discipline, public debt management, tax regulations, public procurement tenders, public-private collaborations and state-owned enterprises.

What’s more, the president emphasized that efforts would be ramped up to decrease foreign exchange’s share of total debt stock to reduce sensitivity to external shocks.

“Savings will be expanded in public administration such as limiting vehicle rentals and hospitality costs,” Erdoğan noted.

Below are some of the details of the economic reform package:

·        The participation finance sector will be gathered under a single roof to step up its improvement

·        Turkey is working on creating the economic, technological and legal infrastructure for digital currency

·        The Software and Hardware Industries Presidency will be established to gain global competitiveness and encourage youth employment

·        The Economic Coordination Council will be established under Vice President Fuat Oktay

·        The Financial Stability Council will be launched under Treasury and Finance Minister Lütfi Elvan

·        Some 850,000 small tradespeople will be exempted from income tax

Reforms to fight against inflation

The country’s priority will be fighting against inflation, with the aim of reaching single-digit inflation, Erdoğan stressed.

He said the rise in inflation has structural and periodical reasons.

He particularly vowed that the fight against inflation and fiscal discipline were among the priorities of the proposed economic reforms, announcing the formation of a price stability committee.

He said the committee will increase the effectiveness of the fight against inflation, while public sector price hikes will be based on targeted inflation.

“Priority agenda point is the battle with inflation. The goal is single-digit inflation,” Erdoğan said, adding that an “early warning system” was being developed for food prices.

“We are establishing the price stability committee. We believe this committee, in which the finance and treasury, and technology and energy ministers will be involved, will increase the effectiveness of the fight against inflation,” he said.

Inflation reached 15.61% in February, its highest since mid-2019, pressuring the Central Bank of the Republic of Turkey (CBRT) to raise what is already the highest policy rate in any big economy.

The inflation has been stuck in double digits for most of the last four years and has edged higher in the last four months despite sharp interest rate hikes late last year.

The central bank has already lifted the policy rate from 10.25% with hikes in November and December. The benchmark rate was held steady in January and February meetings.

Based on DS