Treasury and Finance Minister Mehmet Şimşek on Tuesday said no significant deviations are expected in Türkiye’s economic program amid recent domestic and global developments and that the disinflation path remains on course.
Türkiye's economy is relatively resilient to global uncertainty due to domestic demand and investments, according to Şimşek, who said the country’s growth perspective was strong in the medium term. Still, economic activity might experience some slowdown, but the government plans to adopt supply-side measures to support the economy, he told broadcaster Habertürk.
Recent weeks have seen Türkiye’s central bank reverse its easing cycle amid market volatility that saw the lira and other assets plunge following the detention of Istanbul Mayor Ekrem Imamoğlu.
Imamoğlu was arrested in late March on corruption charges. Assets recouped some losses after authorities acted to stabilize markets.
Globally, U.S. President Donald Trump's push to redesign world trade by imposing tariffs on all imports has sent shock waves through financial markets, wiping out trillions of dollars in stock market value, and has shaken investors' confidence in U.S. assets as a safe haven, including the dollar.
Şimşek said the government's road map was clear in aiming to bring down inflation regardless, and it will continue its economic program with strong political support, doing whatever is necessary.
During a visit to the United States last week, he said he was asked by investors about the resilience of the medium-term program in light of domestic political developments.
“We have a clear road map: reducing inflation is our top priority, and our determination on this front remains unchanged,” he said.
Investors also addressed trade developments and asked about Türkiye’s resilience in the face of these challenges. "There are global turbulences ... The decline in global risk appetite triggers capital outflows from us. We've already experienced this ... To a large extent, these developments, both domestic and international, have been reflected in the reserves," Şimşek said.
As an example of these outflows, he pointed to foreign investors halving their TL 700 billion ($18.21 billion) share in Türkiye’s domestic debt stock. "Like other countries, we have also gone through this process with capital outflows. We might have been slightly more affected there. Domestic developments also compounded the situation," he added.
He still expressed optimism, stating that once the situation stabilizes, Türkiye’s significant advantages will become evident.
"The greatest remedy against global protectionism is regional integration. Türkiye has substantial advantages in terms of regional integration. The integration process with the European Union could strengthen, as the conditions demand it," Şimşek noted.
Şimşek went on to emphasize that both domestic and global developments contain dual factors that drive inflation up and pull it down.
"However, in the end, inflation will remain within the central bank's target path. Why? There's only limited deterioration in expectations – true. There's limited depreciation in the lira – these are factors pushing inflation upward. But the decline in oil prices is very clearly disinflationary," he explained.
Annual inflation slowed to 38.1% in March. It marked the lowest since December 2022 and extended the fall from a peak of around 75% last May. The central bank's year-end inflation midpoint estimate currently stands at 24%, in a forecast range of 19% to 29%.
"As of today, the central bank still believes it can comfortably achieve 24% inflation by the year's end," said Şimşek.
"Because oil prices will pull inflation down. Tightened domestic financial conditions will bring inflation down ... Limited depreciation in exchange rates – and I emphasize limited – along with weak demand, will lead to weak pass-through effects from currency. Therefore, we have no doubts whatsoever regarding inflation."
Şimşek also noted that the decline in oil prices will positively impact not only inflation but also the current account deficit, which he said will be lower than forecasted in the medium-term program.
The program has been in force since mid-2023 and has seen authorities deliver aggressive interest rate hikes to curb inflation. As inflation eased, the central bank kick-started its easing cycle in December but reversed it on April 17 with a surprise policy tightening amid recent market volatilities. It delivered a 350-basis-point interest rate hike to 46% and signaled renewed commitment to tackling inflation.
Discussing the effects of local and global developments, Şimşek said there is a risk of a slowdown in economic growth and the government would respond to this by supporting employment and investments.
"Of course, there might be a slowdown in growth. Why? Because there is a deterioration in expectations. Secondly, domestic financial conditions are tighter. Thirdly, global growth is likely to be slower," he said.
Şimşek added, "We will take and are taking supply-side measures," and mentioned that they would redirect budget resources to productive and more efficient areas. He emphasized, "There is a risk of slowdown in growth, and we will not just stand by and watch." He also stated that the steps they take must be disinflationary.
"If the slowdown exceeds our projections, there might be weaknesses in the revenue side," he added and stressed, "At this stage, spending discipline is more important to us than additional measures."
Türkiye will support technology and manufacturing investments, while the central bank and Eximbank aim to increase support for exporters, he added.
Şimşek again noted that the temporary reflections of reduced risk appetite have been significant in Türkiye. However, he stated, "Once the dust settles, they will look back to see which countries are advantageous ... Türkiye is laying the foundations for healthy growth. Although growth may temporarily slow down, our medium-to-long-term growth perspective is strong," emphasizing that Türkiye will stand out in this regard.
"If inflation decreases due to slowing domestic demand, but our tax revenues are affected for the same reason, it leads to the same outcome – we achieve the same results."
He also mentioned that international development banks offer financing opportunities exceeding $40 billion over the next three years, with maturity of 10 years or longer at lower costs compared to market interest rates. He said this financing would be utilized for structural transformation.
