NEP… Again…

By popular demand and heavy criticism, once again I’m going to share with you my evaluation of the NEP along with exact figures this time.

First, I’d like to underline the fact that 2021 targets set forth in the previous programme have been changed in two aspects only before I discuss the details of the newly released economic programme: Significant modifications have been made to Budget Deficit and Current Account Deficit to GDP ratio.

Higher GDP growth targets have been set for 2020 compared to the ones indicated in the previous programme. GDP growth rate has been revised up to 5% while it remained at 3,5% in the previous one and the government forecast higher GDP growth every year until 2022. As a matter of fact, a GDP growth rate higher than 5% would scare me under the circumstances because Turkey aims at achieving a total national income around 1 trillion USD. Turkey doesn’t have billions of citizens that need to be fed such as in China or India. That’s why a GDP growth rate by 4% or 5% would be reasonable for Turkey as it would give us the opportunity to implement the change process without causing too much deterioration.

As for the inflation target, while the target for 2019 was set at %15,9, it has now declined to 12,9%. The single digit inflation target, which was included in the previous programme as well, is revised down from 9,8% to 8,5% in the new programme. As I mentioned earlier, the target for 2021 remains intact, with 6 percent. However, inflation is expected to fall below 5% in 2022 according to the new programme.

The government shows a similar approach about the unemployment rate as well, revising the previous unemployment target of 12,1% (2019) to 12,9%. The forecast for the next year is 11,8% with a minor modification. Just like the other parameters, the target for 2021 remains unchanged: 10.8%. We are likely to see single digit jobless rate in 2022, with 9,8 percent.

“Primary surplus and current account deficit is our Achilles’ Heel”

As for the Current Account Deficit/GDP ratio target, it seems like the governments consider it as rather a “must”. As opposed to a target of -3.3% in 2019 plan, the programme indicates that the ratio will achieve a positive figure due to the recent economic shrinkage. Good news is 2020 target is revised down from -2.7% to -1.2%. Similarly, 2021 target is drastically revised down from -2.6% to – 0.8%. The government even expects “zero current account deficit” in 2022. But the problem here is whether we will be able to reduce foreign dependency and increase the value of our producst or services while trying to achieve a GDP growth rate of 5%. That’s why I think the government’s current account deficit target must be a “must” not a “will”.

Budget Deficit/GDP ratio, on the other hand, is very realistically forecasted at – 2.9% for 2019 and 2020, and at -2.5% for 2021. It’s higher than the previous expectation by almost one point. Despite this fact, the new programme, in its entirety, seems to be drawn up in accordance with Minister Albayrak’s “3% is my red line” motto. The government aims to reduce this rate to 1,5% in 2022, which means we will need more time to rehabilitate finance and public expenditure. Although I have some objections to primary surplus targets, I think they will be revised in the process.