Minister of Treasury and Finance Mehmet Simsek said that inflation will decrease to single digits in 2026. Simsek, “We will close the year with a current account deficit of $44-45 billion.”
Minister Simsek made a presentation on MTP and inflation targets at the closing of the 3rd Future of Finance Summit organized by Turkuvaz Media at Turkuvaz Media Center.
Pointing out that the MTP is a road map for the public and private sectors, Simsek reminded that fiscal discipline, balancing growth, sustainable current account deficit, reserve accumulation and structural reforms are among the main targets of the MTP.
Stating that price stability is a prerequisite for sustainable high growth and permanent welfare increase, and therefore the focus of the program is on reducing inflation, Simsek said:
“When we look at the program very quickly, there is a tightening in the traditional monetary policy. There is also a selective credit tightening. There is also a quantitative tightening. However, of course, there was also an approach related to the target inflation in the incomes policy leg. Thanks to this, we believe that inflation will fall to single digits again on an annual basis in the coming period by the end of 2026. Currently, inflation is around 65% for this year. Next year it will decrease to 36%, the next year to 14% and eventually to single digits.”
“The trend in core inflation is compatible with the 2024 year-end target of 36%.”
Stating that inflation on an annual basis will remain high for a while, Simsek continued as follows:
“But if you look at the core inflation on a monthly basis, there is a trend in the last 3 months. This trend is quite clear. There is a loss of momentum in monthly inflation, and for now I can easily say that the loss of momentum in inflation is on the same path as our 2024 year-end target. The trend in core inflation is compatible with the 2024 year-end target of 36%. Monetary policy works with a delay, the delayed effect of the steps we take today in monetary policy will come into effect next year, especially in the second half of the year…”
Minister Simsek stated that the expectations channel is also very important, that there has been an improvement of nearly 5 points in inflation expectations in the last 2 months, and that the market’s inflation expectations will be compatible with the target in the coming months.
Stating that with the achievement of disinflation, predictability will increase in Turkiye, macrofinancial stability will be strengthened and sustainable high growth will be achieved, Simsek noted that at the same time, permanent welfare increase will be achieved, capital markets will deepen, businesses will have access to long-term financing and Turkiye’s global competitiveness will increase.
“Expenditures for the earthquake exceeded 8 times the tax revenue collected”
Minister Simsek stated that the AK Party governments have proven themselves in fiscal discipline and said, “We went through a significant financial consolidation in July. I can easily say that we have now reached the end of December. Probably Turkiye’s budget deficit this year will be much lower than what we predicted in the MTP. Most likely, this year the budget deficit will be around 5.5%, and the deficit excluding earthquakes will be below 3%.”
Simsek explained that, in addition to maintaining macroeconomic stability with the fiscal space to be created, they will make room for structural reforms, be much more prepared against natural disasters, and ensure intergenerational justice with a sustainable debt framework. He said that the expenditures made to repair the damages caused by the earthquakes in the last 20 years are 1.6 times the collected taxes, and when the renovation and strengthening works are added, the collected tax revenue exceeds 8 times.
Minister Simsek continued his words by emphasizing that they support the real sector in order to make permanent the sustainable high growth focused on investment, employment, production and exports:
“We are giving up ₺2.2 trillion in taxes in 2024, we call this tax expenditure, and we do this for the development of our country. We also offer various tax supports to encourage the real sector to production and investment. We are giving up ₺530 billion in taxes in 2024 to encourage R&D activities and investments. The total cost of not collecting income tax on wages up to the minimum wage in 2024 is ₺630 billion.”
Simsek stated that they examined Turkiye’s foreign trade deficit and identified 284 products that play a major role in this deficit and are important items. He stated that they have also restructured the Investment Committed Advance Loan (YTAK) application for those who can produce these products, and a limit of ₺300 billion has been allocated for 3 years to provide loans with a grace period of 2 years, a maturity of 10 years, and affordable interest rates for investment projects exceeding ₺1 billion.
“I did not ask anyone for money during my travels abroad”
Minister of Treasury and Finance Simsek also touched upon global direct investments.
Stating that he believes that the ratio of global direct investments to national income will exceed 2%, Simsek stated that there will be an opportunity to finance the current account deficit with resources that do not create debt in the coming period.
Minister Simsek pointed out that the MTP worked successfully and made the following assessment:
“Look, our risk premium has decreased, this is very important. Currently, our country risk premium (CDS) is at the level of 284. Our goal is for our country risk premium to fall below 200 basis points next year. Exchange rate fluctuations have decreased, foreign investor interest in our country has increased, and foreign debt rollover ratios of banks and the real sector are increasing. With the decreasing current account deficit and increasing capital inflows, gross reserves increased by $44.1 billion compared to May. They told me, ‘You traveled to many countries, but no money came to Turkiye.’. And I said, ‘I did not ask for money from anyone during my travels abroad.’ We didn’t say, ‘Turkiye urgently needs external resources, come and give us money.’. I explained our program, ‘There will be digital transformation, come and invest.’. ‘There will be a green transformation, come and invest.’ we said. During my travels abroad, I talked about the growth potential of the Turkish economy and the opportunities it offers.”
“Credit rating agencies are behind the market”
Stating that both the gross and net reserves of the Central Bank increased very rapidly after political stability was strengthened and uncertainty decreased, that is, after the Presidential election, and have now reached around $142.5 billion, Simsek said:
“Net reserves are said to be negative. I would like to clarify this issue. If we take into account the calculation made according to international norms and subtract the swaps we receive from abroad, Turkiye’s net reserves are $17-18 billion plus. We will keep our reserves at strong levels permanently with the narrowing of the current account deficit, portfolio preferences and portfolio inflows from abroad.”
Pointing out that the market pricing of Turkiye’s foreign debt corresponds to a credit score that is 2 or 3 levels higher, Simsek said, “Credit rating agencies are behind the market. We will also see increases in the credit rating in the coming period.”
Source: Trthaber / Prepared by Irem Yildiz