Just wanted to tell you about the YEP again…

3-year economic road map covering 2019-2021 was released last week. I must say that it was lot more realistic and solid than the last one.

Based on three key components; Balance, Discipline and Change, the New Economic Programme (YEP) sets modest yet realistic targets. For instance, GDP growth is projected at 3,8 percent for 2018 and 2,3 percent for 2019. As for the inflation rate, it is forecasted to stand at 20,8 percent for 2018 and 15,9 percent for 2019. The sad thing is everyone seems to be okay with this whole situation.

The New Economic Programme also includes some measures to soothe down the hunger for growth, which shows that, from now on, Turkey’s warranted growth rate will be between 3 and 5, not 5-7 as it was used to be.

As Government tries to bring especially public expenditure under control, I must say that we can expect a close monitoring of public revenues as well. However, the Government has not managed to offer a financial anchor yet while it continues to provide efficient supervision and operation of public finance. It is also a quite positive development that there is $60 billion savings target among the public finance goals. Another realistic target of the program involves unemployment rates. Apparently, the Government has finally come to the terms with the fact that unemployment rate will not fall below 10 percent. Therefore, I think we can consider the program quite realistic, seeking reasonable solutions to problems.

Here’s what I understand: 2018 is the year of rehabilitation while 2019 will be the year of recovery and 2020 the year of development

In the 1990s, Turkey was luring the investors with this motto: “We will grow at some ridiculously fast pace! Come and cut your slice of this fast growing cake!” This type of mechanism, however, led to some serious side effects including high inflation, devaluation and current account deficits. Turkey’s former growth model tried to achieve economic growth in the fastest possible way while neglecting to use resources efficiently. Accordingly, we may consider the new growth model, which was released yesterday, a model that promotes high value-added activities as well as the efficient use and control of resources and public finance.

“YEP in details….”

1- From now on, the Republic of Turkey will grow by creating a higher value-added economy.
2- Public sector will shrink and demand for less resources. These surplus funds will be allocated to private sector.
3- After this 3-year programme, Turkey will be transforming into a country with high quality human resources, a producer of brand, design, innovation and R&D and high technology.

Of course, I did not let go some obvious mistakes in the programme go unnoticed. Although I shared them with you in my last report, I’d like us to take one more look at the obvious: Despite the fact that the YEP does not directly include an exchange rate target, the programme’s expectations seem a bit unrealistic when we carry out a comparison between TRY-denominated GNP and USD-denominated GNP. A 4,90 GNP target for 2018 just doesn’t seem possible.

Also, isn’t keeping the primary surplus targets low while encouraging “public savings” a bit suspicious? Accordingly, the FDF (Primary Surplus) target must be kept higher. I just hope it was an honest mistake the bureaucrats made while dealing with the deadlines. But I’m sure that the attentive observers like myself didn’t let this error gets overlooked. For details, I suggest you to wait my monthly report.

In short, I think certain targets in the MTP, aka YEP, will need to be revised. I must also underline the fact that the Government sets realistic goals regarding unemployment, inflation and growth is quite important in terms of improving Turkish economy.

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