Foreign reserves no longer a concern: Finance minister

ISTANBUL

Türkiye has witnessed strong capital inflows in the past months and foreign reserves are no longer a concern, Finance Minister Mehmet Şimşek has said, adding that capital inflows could accelerate further after Türkiye was removed from the Financial Action Task Force’s (FATF) “gray list.”

“For the time being we are trying to deal with how to manage these strong inflows, which pose some risks to disinflation,” Şimşek said in an interview with private broadcaster Habertürk on July 1.

“We need to withdraw this liquidity…The Turkish Lira has appreciated in real terms. The Central Bank has had to buy large amount of FX in the past months, with most of the demand [for the lira] coming from locals,” the minister said.

Due to the capital inflows, the Central Bank’s reserves increased by $78 billion since the end of March, according to Şimşek.

“This is unprecedented. The gross reserves climbed to a record $148 billion showed data released last week. We have reduced SWAPs with local banks to around $5 billion. Türkiye’s net reserve position has improved significantly,” the minister said.

Türkiye’s net reserves were down at around minus $60 billion at the end of March, but rose to positive $12 billion, he added.

“As long as we manage to bring inflation down, exchange rates, in nominal terms, will stabilize.”

  ‘No populist policies’

“We are explaining the economic program to domestic and international circles. One of the pillars of the program is the policies complying with international norms. This helps boost investors’ confidence and interest in the lira, which in return establishes stability,” Şimşek said.

They will not heed pressures to implement “populist economic policies,” the minister stressed.

“The program’s main priority is to ensure sustainable growth and to increase welfare.”

This time last year, the Turkish economy faced certain imbalances, including foreign trade deficit due to external shocks and elections, the minister added.

“The performance in the current account deficit has far exceeded our expectations. There is no doubt about it,” he said.

The current account deficit was $57 billion in May last year, when released the new data for May will probably show that the deficit will come in at $26 billion, Şimşek explained.

The government will continue to fight tax avoiders, the minister also said.

The draft tax package would impose a impose a minimum 15 percent corporate tax on multinational companies, Şimşek said, adding that the value-added tax will not be hiked this year.

“There will be no tax increases which will have inflationary effects,” Şimşek noted.