What is the NEP?

The Medium-Term Program has a new name. But is it any better than its predecessor?

1 Overall themes

Turkey’s economic roadmap for the next three years was announced on September 20 by Treasury and Finance Minister Berat Albayrak. Equilibrium, discipline and change were the the main themes of the program. Savings of TRY 76 billion are planned for 2019 along with ‘balanced growth,’ ‘reasonable levels in inflation’ and ‘public savings.’

2 By the numbers

The growth forecast was revised to 3.8 percent for this year and 2.3 percent in 2019. More realistic inflation targets were also set, at 20.8 percent this year, 15.9 percent next year, 9.8 for 2020 and 6 percent for 2021. The current account deficit/GDP ratio is targeted to be lowered to 4.7 percent this year, 3.3 percent in 2019, 2.7 percent in 2020 and 2.6 percent in 2021.

3 How to lower the current account deficit (CAD)?

Albayrak said Turkey would prioritize investments in the pharmaceuticals, energy, petrochemicals, machinery and equipment and software sectors to reduce its current account deficit. The program also proposes a petrochemical industrial zone integrated with large-scale industrial technology zones where high-tech products will be produced. The budget deficit expectation to GDP rate is expected to be 1.9 percent this year and to be lowered to 1.7 percent in 2021, according to the program.

4 How to lower inflation?

Thought short on details, Albayrak promised an “all-out war against inflation.” “We will reduce inflation to single-digits by the end of 2020 and to 6 percent in 2021 through things like CPI-based regulation and supply chain and product monitoring mechanisms,” he said.

5 Austerity measures for public finance

“The most important factor for the success achieved since 2002 has been the tight stance on public finance. In 2019 alone we will save TRY 76 billion,” Albayrak said, adding that investment projects for which the tender process has not been finalized will be suspended. “Mega projects will be implemented through foreign direct investment and international financing, and public-private cooperation will be implemented with financially efficient arrangements. Significant improvements will be made in tax processes and beyond this, we will gradually remove any exceptions, exemptions and discounts that have not been effective.” Albayrak also said Turkey would revise its social insurance schemes and restructure its incentive scheme for exports.

6 Increasing incomes and savings

The government will establish a Public Finance and Transformation Office, which will be responsible for the implementation of measures to increase incomes and savings. “This office will form an inter-ministry team that will work in concert, in contrast to the work habits of the public sector that we are used to,” Albayrak said. “It will lead the process and prepare roadmaps and prepare perfor- mance indicators. It will not be content with TRY 76 billion of austerity and implement structural reforms such as preventing wastage and improving revenues in the public sector that will be reflected in the efficiency of the financial results.”

7 How to save TRY 76 billion?

According to Albayrak: “Of the TRY 76 billion savings, TRY 31 billion will be from expenditures, TRY 13.7 billion from investments, TRY 10.1 billion from incentives, TRY 2.5 billion from social security, and TRY 2.7 billion from goods and services purchases. The figure will increase to TRY 76 billion with measures to increase income by TRY 16 billion.”

8 Increasing tax revenues

The government will collect deed fees and real estate taxes on real and fair values by establishing a real estate valuation system and complete a full real estate inventory. Albayrak emphasized that the restructuring process related to tax premiums and other public receivables will not be implemented in this period. However, a Big Data Tax Analysis Center will be established within the ministry to effectively manage processes. By collecting different data sources, this center will identify the informal sectors where tax may be collected and use advanced analytical methods to further improve the efficiency of collection and control processes.

9 Employment targets of the New Economy Program

After 2020, unemployment will decrease to 10.8 percent. During the program period, Turkey will continue to create additional employment. By 2021, the target is to create two million new jobs.

10 Strengthening the financial structure of the banking sector

According to Albayrak, a financial structure evaluation project has been initiated to determine the current financial structure and asset quality of banks. “Based on the results of these studies, we will strengthen the financial structure of the banking sector if necessary and thus enable the real sector to access loans with appropriate costs, restructure existing loans and put into effect a comprehensive policy set based on global best practices and the past experiences of our country,” he said.