Turkey needs higher growth, reforms to avoid middle income trap, says minister

BURSA

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Turkey needs growth higher than its current rate of around 3 percent if it is to avoid the “middle income trap,” and will need structural reforms to achieve it, the country’s finance minister said on March 14.

“We need to decrease the inflation rate below 5 percent. We need to strengthen the Central Bank’s hands in maintaining price stability. We need to make reforms,” Finance Minister Mehmet Şimşek said.

“The inflation rate is still above 5 percent due to the micro problems, I believe. After the June elections, Turkey will have four years with no election. We need to make the best of the following four years and to make robust structural reforms, just as we did at the beginning of the 2000s,” he said.

Speaking at the Uludağ Economy Summit, Şimşek also said macroeconomic fundamentals were more important than fluctuations in forex markets.

He said one of the main elements which determine the future success of a country is the quality of its institutions.

“The independence of the Central Bank is so important. When the central banks were not independent in the 1990s, they were printing money, causing governments with high budget deficits. This has changed fortunately,” he said.

He noted he doesn’t expect any change in Turkey’s rating by Fitch this week.

“The markets have recently been fluctuating in the whole world. In this vein, I won’t expect any change in Turkey’s credit rating by Fitch. The geopolitical risks around Turkey are not worse than they were last year. The European economy has been recovering, which is very good for the Turkish economy. There is not any change in Turkey’s roadmap. There are several discussions and controversies within Turkey, but such things happen in all countries. In this vein, I don’t expect any change in the country’s credit rating, although we couldn’t make precise predictions about the rating agencies’ decisions,” he said.

Turkey will be able to make significant steps to grow its GDP if the peace process is completed successfully, he said.

“If Turkey solves this problem, it will have the capacity to grow 1 percent more in the next couple of years. I am from the eastern province of Batman, which has a population of 550,000. Some 60 percent of the population is under the age of 25… With the peace process, the region will flourish, I believe,” he said.