An economic program based on wishful thinking

Those administering public policy in economy shed light on the way forward with long-range headlights so that households and companies could look at the long-term. This is the function of the medium-term economic program released each year.

The gist of the medium-term economic program that was released last week is a wish along the lines that “citizens and private companies will increase their savings, will invest and that the economy will grow 5.5 percent uninterrupted for three years.”

Some 5.5 percent uninterrupted growth for three consecutive years, fall of inflation and a rise in foreign currency lower than the inflation is a largely “rosy” outlook.

In a country where the private sector has serious foreign currency debts, where in a foreign currency fluctuation the rise in rates reaches 15 to 20 percent, a hypothesis of a 13 percent rise in rates below inflation in the total duration of three years harms the general set of the projection. This is probably based on the assumption that each year there will be a generous flow of portfolio investment called “hot money.” This is a naïve dream in these global circumstances.

The macro projections in the medium-term economic program tell us those in Ankara said, “In the medium-term economic program, let’s have a growth target relatively above mid-level … We could certainly secure 4 to 4.5 percent growth but we need to add an additional hypothesis.” How would it be to introduce a hypothesis that would generate an appetite for private investment with no growth momentum?

Private savings will increase and public savings will decrease with a momentum of 6 percent. The private sector will invest with an increasing pace as of 2018.

With the projection of 5.5 percent uninterrupted growth for three consecutive years, in addition to the assumption of a 4 to 4.6 percent growth in consumption based largely on households, you also find the expectation of high growth of investment from the private sector in the long-term going as far as 2020.

It is a dream to have 6 percent growth in investment in the private sector under the conditions of the state of emergency.

In the program, it is estimated that private consumption will decrease from 4.6 percent in 2017 to 4 percent in 2018 but that private investments will increase from 4.8 percent to 6. With the tax raise introduced in 2018, the impact on the spending income of the middle class seems to have been taken into account and therefore, a drop to 4 percent in the private consumption is foreseen, which is consistent.

Instead of an increase in public savings, the figures in the medium-term economic program show decreasing numbers.

It is probably unfortunate the decrease in public savings will be financed by making the middle class pay additional taxes.

In fact, in the document presented as a reform during the tenure of Prime Minister Ahmet Davutoğlu, there was a pledge “to have an inventory of vehicles in the public and a renewal of the vehicle law.”

Unfortunately, instead of having this inventory and aiming for efficiency, the point we arrived at was to continue buying vehicles and paying the cost by the private sector, which has vehicles as well as citizens with taxes.

Another input in the program is the rate of the “current account deficit excluding gold.” When calculated as such, the impact of “gold exports” in the current account balance in 2017 is estimated to be $7.9 billion while this will go below one billion dollars in 2018 and after.

This estimate tells us the team that prepared the program knew why tons of gold moved between Turkey and the United Arab Emirates (UAE) in 2017. Let’s bring to mind that half of the $8.5 billion worth of gold imports and $12 billion worth of gold exports that took place in the eight-month period were realized by the UAE.