Early election in Turkey would prolong economic risk: Finance minister

ANKARA - Reuters

DHA Photo

Turkish economic growth would take a hit if talks to form a coalition government fail and a new election is called, Finance Minister Mehmet Şimşek said on July 15, warning that the uncertainty risked delaying private investment.

The ruling Justice and Development Party (AKP) lost its majority for the first time in a parliamentary election on June 7, forcing it to seek a junior coalition partner or face a re-run, and plunging Turkey into political instability not seen since the 1990s.

Coalition talks between the AKP and opposition parties entered a third day on July 15. They have until late August to agree on a working government or President Recep Tayyip Erdoğan could call a new election, an option he is seen favoring as a chance for the AKP to win back a majority.

“Everyone wants Turkey to have a strong coalition government,” Şimşek told a news conference in Ankara while announcing June budget developments.

“Having an election again is of course a negative scenario, because another election means in a sense facing uncertainty through virtually the whole of 2015,” he said.

In the weeks after the election, foreign investors’ bond portfolios fell $1.7 billion based on Central Bank figures, as investors fretted that an unstable government would be unable to deliver the structural reforms needed to revive growth.

The World Bank cut its growth forecasts for Turkey this month as the uncertainty exacerbated structural weaknesses and vulnerability to global liquidity tightening. Though it kept its 3 percent forecast for 2015, it warned of downside risks, and cut its 2016 and 2017 growth forecasts to 3.5 percent.

High credit growth but sluggish gains in private investment are one of the key challenges for the slowing Turkish economy, and Şimsek warned that if the political impasse drags on private investment could slow down.

Growth in the first quarter came in at 2.3 percent, and economy officials have said they expect growth of 2.0-2.5 percent this year, below a government target of 4 percent.

But Turkey’s fiscal position remains a bright spot, with the budget showing a surplus of 3.2 billion Turkish Liras ($1.2 billion) in June, a position Şimşek said had been helped by a 15.8 percent rise in tax revenues in the first half.

Inflation was likely to continue its fall in 2015 if oil prices remain low and a normalization in food prices continues, Şimşek said. 

He also welcomed Iran’s nuclear deal with world powers, saying it could reduce geopolitical tensions and help keep oil prices at a level beneficial to Turkey.