It may sound new but the New Economy Program fails to address the core issues, again
1 Emphasis on fiscal policies
The inflation rate should ideally be lowered below 5 percent, Berat Albayrak said during his presentation of the new program in the capital Ankara. “We revised our inflation forecast for 2019 to 12 percent, down from 15 percent in our previous target. Under these targets, the priority will continue to be given to the coordination of monetary and fiscal policies,” Albayrak said, adding that the government will back the Central Bank in its efforts against inflation. On the fiscal discipline side, the minister noted that a 2.9 percent budget deficit-to-GDP ratio is targeted for the next two years while 2.6 percent is set for 2022. “The current account balance will continue to be one of the main issues on the political agenda,” Albayrak said, expressing that this year will end with a current surplus.
2 Structural transformation
The minister said the structural transformation steps will be taken to increase competitiveness and efficiency in the goods and services markets. Turkey’s year-end economic growth is expected to be 0.5 percent in 2019, according to Albayrak. Stressing the government’s will to get rid of the middle income trap, Albayrak said Turkey aims for healthy and sustainable growth rather than high growth rates. “The new program targets 5 percent annual growth rate for next three years each,” he said.
3 Construction sector to increase employment
Albayrak said growth will also generate around one million new jobs per year during the 2020-2022 period to reduce the unemployment rate gradually. Developments in the construction sector and improving borrowing conditions will make a positive contribution to employment in the short term, he added. “After closing 2019 with an unemployment rate of 12.9 percent, we aim to reduce the figure to 11.8 percent next year, 10.6 percent in 2021 and 9.8 percent in 2022,” he said.
4 Emre Alkin: “A down-toearth document”
The program announced last week is much more down-to-earth than the previous one. However, we need to understand that some goals are aspirational and some goals are necessary. It is pleasing, for example, that growth is not projected to be more than 5 percent, because we have seen what Turkey has turned into with rapid growth. I find the unemployment predictions quite realistic. Unless we change the current economic model, it is very difficult for unemployment to fall below the 9.5 percent plateau. According to the program, we won’t hit that even in 2022.
5 Alkin: “Budget and current account deficit are creating question marks”
It is obvious that we are entering a period in which we should be extremely careful in terms of the ratio of budget deficit to national income. We see that the Ministry of Finance has declared that it will give a budget deficit well above the targets in the previously announced program. However, in 2022, the ratio of budget deficit to national income seems to fall below 2 percent. In the meantime, the 3 percent level is determined to be the red line.
6 Nevzat Saygilioglu: “Low dollar rates predicted”
As the tables indicate, the average exchange rate is taken as TRY 5.70 for 2019, 6 for 2020, 6.41 for 2021 and 6.74 for 2022. This is consistent with the minister’s rhetoric of moving away from dollarization, but completely incompatible with the reality of life. Therefore, GDP per capita is estimated to rise to the $10,000 band in the next three years.
7 Saygilioglu: “Unrealistic steps in tax policies”
According to the budget, interest expenses, which was TRY 74 billion in 2018, will increased by more than TRY 100 billion in 2022 to TRY 176 billion. Therefore, the portion of tax revenues going to interest will rise from 15.4 in 2019 to 18.3 percent in 2022. That is, almost one fifth of tax will go to interest, reminiscent of the 1990s. It is clear that very realistic steps will not be taken regarding tax policies.
8 Alaattin Aktas: “Growth is difficult this year, 2020 is easy”
According to Albayrak, this year’s growth rate is estimated to be 0.5 percent. Our growth rate target for the following years is five percent. The 5 percent growth target for 2020 and beyond is incompatible with the current account deficit target of those years. Five percent in 2020 can be realized largely due to the low rate this year. Therefore, the more difficult five percent will be in the following years.
9 Aktas: “Tourism will not compensate for the foreign trade deficit”
The foreign trade deficit, which is expected to be $26.4 billion this year, is expected to rise to $47 billion in 2022, an increase exceeding $ 20 billion. The expected increase in tourism in this period is $17.5 billion. It is assumed that tourism revenue, which will be $29 billion this year, will reach $46.5 billion in 2022. In other words, the foreign trade deficit is not expected to covered by the tourism sector.
10 Aktas: “Unemployment forecast is not realistic”
To keep the unemployment at 12.9 percent annually, the rates in August and November should be 12 percent. It is unclear how unemployment, which is 13.8 percent in the first half, will remain at 12 percent in the second half, going in the opposite direction of the general trend.