Treasury and Finance Minister Nureddin Nebati on Monday said the government would continue to pursue policies that prioritize economic growth and jobs in 2023, a year he said would see a further drop in inflation and an increase in household income.
Türkiye has left behind what Nebati said will go down as one of the most challenging years of the last century, marked by historic global inflation and soaring shipping costs. Yet, he said the government’s "new economic model" helped the country "write a success story" and achieve success in almost all of the macroeconomic indicators.
Nebati was speaking at a meeting in Istanbul to evaluate 2022 and convey the government’s targets for this year.
He promised a continuation of policies that prioritize investment, employment, production and exports in 2023, part of the economic model that the government introduced in late 2021 that aims at flipping Türkiye’s persistent trade deficits, a major component of the current account.
The model relies on targeted loans and low interest rates and also aims at eventually helping reduce inflation, which hit a 24-year high in October but moderated over the last two months and is expected to decrease significantly this year.
Nebati said the main policy tools of the new economic model have been determined as encouraging Turkish lira savings, selective credit policy and improving the investment environment. He noted that they aim for balanced and sustainable growth with the effective use of these policy tools.
Authorities have sought to discourage foreign exchange use following the steep depreciation in the lira in 2021. The government adopted a scheme aimed at protecting lira deposits from depreciation versus hard currencies.
The initiative sought to keep dollarization at bay and curb demand for foreign currency by compensating depositors for lira losses against foreign currencies.
The budget payments into the state-backed scheme, known by its acronym KKM, reached TL 92.5 billion in 2022, official data showed Monday. The scheme attracted around TL 1.4 trillion in total, Nebati said.
The lira lost some 44% of its value against the dollar in 2021. It declined another 30% in 2022 but held mostly stable in the last quarter.
Robust growth
Nebati stressed multiple measures, including the KKM, which he said helped ensure stability in the foreign exchange rates in the second half of 2022 and boosted financial stability. He said they managed to ensure the highest decrease in foreign currency deposit accounts in the history of the Republic.
Nebati also cited Türkiye’s robust 6.2% economic growth in the January-September period of 2022, which he said came at a time marked by downward revisions in global forecasts and upgrades in estimates for Türkiye.
He also noted the record $254.2 billion in exports, despite the slowdown in global markets and foreign demand and the negative impact of foreign exchange parity. Some 60% of the gross domestic product (GDP) in the first three quarters last year stemmed from exports, along with machinery and equipment investments, he added.
The economy is expected to have expanded by 5% in 2022 but growth was set to cool toward the end of the year. The government still foresees a 5% growth in 2023 as well.
Last year, the country’s central bank slashed its benchmark policy rate by 5 percentage points to 9%, citing the signs of economic slowdown.
President Recep Tayyip Erdoğan says high rates cause inflation and he had called for single-digit rates by end-2022. He has said the government’s new economic model is expected to yield results in the new year.
"There is a clear picture emerging when we compare the performance of our country’s economy with other countries in the first three quarters. During this period, China has grown at a rate that is half of ours, while the U.S. and Germany have grown at a rate that is less than half of ours," Nebati said.
Per capita income to rise
The growth is seen helping GDP per capita exceed $10,000 in 2022, the minister noted, a figure that tops the government’s target set in the Medium Term Program (MTP).
"We predict that our per capita income will hopefully rise even higher and reach over $12,000 in 2023," Nebati said.
On tourism, he said around 51.5 million foreign visitors are expected to have arrived in Türkiye in 2022, while the tourism revenues are seen coming in at a total of $46 billion.
Nebati said the current account, excluding energy and gold, reached a $51.3 surplus as of November 2022, an increase of $14.3 billion versus 2021.
Nebati also cited the increase in global commodity prices that was experienced last year, the continuation of supply chain disruptions and high inflation.
He said that the downward trend in inflation that started in November would continue.
The consumer price index (CPI) in Türkiye decelerated at its steepest pace in more than a quarter century in December 2022.
Annual inflation fell sharply to 64.27% in December from the 84.39% reported in November 2022. The decline was driven mainly by the so-called favorable base effect and marked a second straight fall after inflation hit a 24-year high of 85.5% in October.
The decline is expected to become more pronounced in the first quarter of this year and is expected to drop to as low as 40% by mid-2023.
Subsidizing utility bills
The government announced a 55% raise in the official minimum wage for 2023. It has tripled the minimum wage in the past year, raised state salaries and hiked pensions for millions to ease the pressure on households stemming mostly from soaring inflation.
Erdoğan also announced a measure that would allow over 2 million citizens to retire early. He said the minimum wage may be hiked again throughout the year if necessary.
The government last year introduced several relief measures to help cushion the fallout from inflation, including a cap on rent increases, reduced taxes on utility bills and the unveiling of a major housing project for low-income families.
Nebati said Türkiye would continue subsidizing natural gas and electricity users this year as energy prices remain elevated due to Russia's invasion of Ukraine.
Nebati recalled that the government covered 80% of household users’ natural gas bills and 60% of their electricity bills in 2022. He noted that the government gave up TL 290.4 billion in tax revenues in favor of citizens last year.
He stressed that employment reached a record 31.6 million as of November, backed by an all-time high women participation rate of 36.4%.
Primary budget surplus
Meanwhile, Nebati also unveiled that the government budget posted a better-than-expected deficit of TL 139.1 billion in 2022.
The shortfall narrowed from 201.5 billion in 2021, the Treasury and Finance Ministry data showed on Monday. Budget revenues came in at TL 2.8 trillion, while expenditures amounted to TL 2.94 trillion, Nebati said.
Non-interest expenditures stood at TL 2.63 trillion and interest payments totaled TL 310.9 billion.
In December alone, the budget balance saw a deficit of TL 118.6 billion, decreasing 23.5% year-over-year. Revenues stood at TL 255.2 billion, while expenditures came in at TL 373.6 billion.
Nebati said the country registered a primary surplus of TL 171.8 billion in 2022.
"Therefore, while there were severe turbulences in the global economy, our country managed to return to a primary surplus in 2022 after four years," he said. "Thus, we have closed the year with a budget deficit that is TL 139.3 billion lower than our budget forecast and TL 322.1 billion lower than our MTP target."
The MTP estimated a primary deficit of TL 131.4 billion. "As we compensated for this deficit with the high budget performance in 2022, we also managed to register a primary surplus of TL 171.8 billion," Nebati said.
Despite all the challenges in 2022, Nebati said Türkiye achieved "one of the best budget performances of the last 20 years. This high performance is definitely a very important achievement."
He stressed Türkiye’s budget deficit in relation to GDP has performed much more positively in contrast to many developed and developing economies.
"This year, we not only reduced the budget deficit, but, contrary to some unfounded claims, we also reduced the share of interest expenditures in the budget. We reduced the share of interest expenditures in the budget, which was projected as 13.7% in the 2022 initial budget, to 10.6%," he added.