The Medium-Term Programme was introduced last week. At every conference I attend, I get the same question, “Is it good to do a MTP?” Well, it is good as it helps the private sector and the citizens to see the economic expectations of the government for the next three years. But we need to lose one misconception.
Not all of the projections in the MTP are put forward as if they would definitely happen”. The people who prepare this programme rather act like a finance office in the private sector therefore reason as follows:
“Create reasonable projections for the near term, as for the long term, provide whatever will make the boss happy…”
No, I am not joking. In a world where we do not know what will happen the next minute, those who prepare such plans using the exact method I mentioned above, also include the following warning in them: “These figures cannot be better than this, you cannot achieve the next goals without achieving those that need to be achieved first…”
In short, what is submitted in the Medium-Term Programme is designed based on wishes, goals, and necessity.
For example, the 5% inflation target is no longer in the MTP, but the single-digit CPI target still is. Unemployment is also included in the programme and apparently that too preserves its single-digit expectation. Growth figures are not imaginary, they are indeed anticipated to be around 5%. Again, export, trade deficit, and current account are projected somewhat optimistically in the expectation of a winter recession in Europe. But problems that haven’t happened yet or there is not any indication as to whether they will really happen or not should not be taken into account when making plans.
But it’s better to meet the targets
This is the challenge of making a medium-term plan. When expectations are negative, they suddenly become positive, sometimes the opposite happens. In other words, after lots of mathematical calculations, you should allow yourself a little margin of error and leave the rest to God because no one can precisely know what will happen tomorrow.
It looks like the Government will make an intense effort to ensure that the CPI remains at 65% or below by the end of the year. As for the economic growth, I am expecting a figure between 5% and 5.5% since it is mathematically unlikely that Turkey’s GDP will remain below 4%. However, if the CBRT continues to cut interest rates, it may not be possible to keep the exchange rates stable. In this case, the gap between the perceived inflation and the CPI inflation would grow alarmingly, and the people’s confidence in official figures would drastically drop, then to top it all off, if Turkey’s credit rating is downgraded again, the targets in the MTP will be inevitably revised.
Nevertheless, the MTP is a roadmap for the private sector and the citizens in Turkey. However, some of the targets are hanging by a thread, while others say, “we have no other choice”. Therefore, the government must make sure that it had learned for the past mistakes before making the next moves to meet the targets, while avoiding clashing with the markets. For example, if the CBRT tries to cut interest rates, fired by the recent CPI rate, the efforts Turkey will have to make to fend off the negative side effects of such decision will jeopardize the 2023-2024 targets.
So, it is important to have ambitious yet consistent goals for a plan to pan out. However, the “correct and strong” steps to be taken to achieve these goals are more important than all.