New economic targets regarded as optimistic

The government has announced its new economic targets covering the three-year period from 2016-2018. These targets were met with hesitation in the markets. For the markets to make a definite decision on the credibility of the program the details of the 2016 budget should be disclosed and monetary measures should be revealed. 

Local and foreign financial institutions have adopted a cautious stance over the targets of the Medium Term Program (OVP). We understand from the initial analyses of foreign banks that they regard these targets as ambitious. Some executives of local banks and financial institutions said they need more details to question the accuracy of these targets. 

Deputy Prime Minister Mehmet Şimşek said structural reforms will be carried out, public investments will grow while savings increase, unemployment will fall with an economic growth of 4.5-5 percent and inflation will drop during these three years. In this difficult global period, while so many geostrategic risks are accumulated, meeting all of these targets will naturally be called into question.     

Besides, up to now, it is known that the written targets in the OVM were not quite met. It should be considered natural that markets approach these targets with caution. 

Meanwhile, an aspect that market experts saw was the increase in inflation targets. It was only one month ago that the Turkish Central Bank announced the inflation target of 2016 as 6.5 percent; this week, the same target in the OVM was 7.5 percent. While some market experts consider this target “high but realistic,” other analysts interpreted as meaning “the fight against inflation will be relaxed; this target should be regarded as the minimum low.”

Also, figures such as growth and the budget deficit for 2016 were found by the majority of bank executives as optimistic.   

Detailed budget figures 

One of the key points here will be structural measures. Whether or not radical measures will be taken, how the practice will be carried out and whether new ones will be added to what currently seems to be inadequate structural reforms and micro reforms will be monitored. 

Meanwhile, the details of the 2016 financial year budget bill, which is expected to be debated next year, will be significant in questioning the accuracy of these targets. While budget spending increased intensely with the effect of election pledges, the budget deficit was not expected to remain at 1.3 percent of the national income. While the income from privatization that is predicted as more than 10 billion Turkish Liras for 2016 looks very difficult, the additional income that came in 2015 due to tax pardon will not be arriving this year, thus detailed income figures are needed because of this.    

It should be said that the monetary measures to be taken by the Central Bank and, within this framework, the interest rate decision of the Jan. 19 meeting also have huge significance in terms of confidence in the 2016 economic targets.