New economic programme: pros and cons

All governments should to create a document to state in writing their opinions about GDP growth in the medium term. But, such documents should be drawn up on a realistic expectation basis.

No matter what anyone says, I think the new economic programme is based on much more realistic expectations compared to the former one. However, we should know that some of the targets included in the programme are drawn up on prediction basis while the others are just necessities. Here’s an example for you:

The fact that the government forecasted a GDP growth less than 5% is good news since we’ve all seen the huge problems Turkey had to face because of its rapid growth appetite. We went off the rails, not to mention moral decay. So, it’s very important that now Turkey will keep going at an acceptable pace and gladly the government happens to agree to it.

Interestingly, 2019 inflation target in the previous programme was way too high. According to the new programme, however, Turkey is expected to finish 2019 with an inflation rate of %12, 9. It is likely that Turkey may experience single-digit inflation in 2020 and an inflation rate below 5% in 2022. Well, we will have to wait and see about that.

Government released pretty realistic unemployment rate forecasts on as well. It’s quite unlikely that the unemployment plateau will fall below %9, 5 unless Turkey changes its current economic model. Besides, unemployment plateau will not fall below %9, 5 even in 2022 according to the new programme.

“Budget and Current Account Deficit causes raised eyebrows…”

We just entered an era where we should be extra careful about the central government budget deficit to the GDP ratio. Ministry of Finance has declared that the central government will run a budget deficit much larger than the previous programme targets. However, government budget deficit to the GDP ratio may fall below 2% in 2022. By the way, apparently the government set ‘3%’ as its red line.

Theirs is also the issue of current account deficit to GDP ratio. As you know, more than 85% of Turkey’s exports consist of raw materials, intermediate goods and investment goods. The only good news about the current account deficit this year is directly proportional to the shrinkage of gross domestic product. If we are to achieve a five percent GDP growth as indicated in the new programme, we will either produce our own intermediate goods to prevent current account deficit from growing larger or we will add value to our exports or we will pave the way for more foreign currency earning activities. If current account deficit to GDP ratio is expected to fall to 0% in 2022, in other words, if we aim at a zero current account deficit, it will take almost all institutions in Turkey to convene to brainstorm and come up with solutions to achieve this target. Otherwise, we will continue to suffer all our chronic problems for all eternity.

In short, although the new programme seems to be based on more realistic expectations than the previous one, it also puts forth some questions while describing well-intentioned yet “must” targets.

I would also like to remind you of the fact that some parameters in the previous programme that had attracted heavy criticism from everyone did actually come true. I just wish the government declared which of these heavily criticised parameters did actualize before releasing the new programme. Hope they’ll do it next time!