Turkey to prioritize inflation, current account: Deputy PM Şimşek

ANKARA

Turkey will prioritize lowering inflation to single digits and keeping the current account deficit under control while advancing reforms to boost growth and make the economy resistant to shocks, Deputy Prime Minister Mehmet Şimşek has told Reuters. 

“We believe that the inflation rate will decrease to single-digits again this year. Both the Central Bank and the government have been working to reach this goal and will do so in the upcoming period,” Şimşek said in an interview late on Feb. 13.

He said the increase in domestic demand would be “moderate” this year, adding that there were “four or five factors” impacting the inflation rate.

“One of these factors is the parity. If no additional foreign shock is seen, Turkey’s assets are attractive at this real effective foreign exchange index … From the foreign perspective, Turkey’s assets are attractive in terms of valuation. We do not see any worsening in the foreign balance. On the contrary there is a recovery. If there is no foreign shock, we can say it would be highly probable for this side to support our inflation,” Şimşek added.

The second factor affecting the inflation rate is food prices, he added: “Increases in food prices have been on the road to become modest. On the one hand, we took several structural measures. On the other hand, we have been taking measures. On the condition that there would not be any parity risks, we do not expect any inflationary impact on this side as well.”

According to Şimşek, the third factor will be oil prices.

“Oil price have increased to $70 but are now decreasing to $60 levels. As long as this remains at the $60-70 level, we will not witness any negative impact,” he said.

“The fourth factor is about expectations. The Central Bank has a tightening stance and focuses on decreasing the inflation rate to single digits,” Şimşek added.

“The fifth factor will be public pricing adjustments. We have been highly sensitive on this point. We will adopt disinflationary steps here if possible,” he said.

Şimşek also noted that there was a “high probability” that growth in 2017 exceeded 7 percent and the government stood by its medium-term program target of 5.5 percent growth in 2018.

Foreign demand ‘to play key role in GDP growth’

The deputy prime minister cited domestic consumption, foreign demand and investments as the motors of Turkey’s growth going forward.

“The rapid growth trend in Europe, the robust recovery in Turkey’s tourism, and some rebound in Turkey’s neighboring countries thanks to positive developments in commodity prices will be of great importance in improving Turkey’s growth dynamics … We also expect a strong rise in investments over this year,” he said.

The government has passed many reforms aiming to raise the resilience of the Turkish economy against shocks and to lure global direct investments, Şimşek said.

“We will continue to make reforms. There are some key reforms on the parliament agenda right now. One of them covers the steps to improve the investment climate. The second reform is focusing on the reconstruction of the Scientific and Technological Research Council of Turkey [TUBİTAK]. In addition, a significant reform is set to be made in the VAT system,” he added.

“First of all, the capacity utilization rate is quite high now, up to 80 percent in the export sectors ... There is a need for investment. We have introduced many incentives to support such investments,” Şimşek said.

The Treasury, which he oversees, was seeking to diversify borrowing both geographically and in terms of instruments, looking particularly at the Chinese and Russian markets, he added.

Regarding the Iran sanctions-busting trial in the U.S., Şimşek stated that the U.S. Justice Department and the U.S. Treasury had not made any requests other than to Turkish state lender Halkbank, after a New York court found one of its executives guilty of facilitating sanctions evasion.