Babacan announces Turkey’s mid-term economic program

Deputy Prime Minister Ali Babacan announced the three-year road map for the Turkish economy. Those in charge of the Turkish economy, who revised their targets for the 2015 to 2017 period, decided to continue with tight monetary policies. The Deputy PM stressed the main priority will be to fight inflation. Other goals will be decreasing the current account deficit, implementing structural reforms and continuing with the current growth strategy. Babacan stated that the current growth target is 3.3 percent for this year with a slight improvement of 4 percent expected next year. The government hopes growth will be consistent at 5 percent for 2016 and 2017.

Deputy PM Babacan He noted that they are trying to end this year with a 5.7 percent current account deficit hopefully lowered to 5.2 percent by the end of 2017. It was also announced that the end of year inflation rate is expected to be around 9.4 percent. "Next year we aim to lower the inflation rate to 6.3 percent and then 5 percent in the consecutive years of 2016 and 2017," Babacan said. Highlighting that the $160 billion (TL 366.18 billion) export target and a 3.3 percent growth rate were both lower than expected due to developments throughout the year, Babacan said, "After witnessing the Gezi protests the global press mentioned Turkey more than it has ever done before; but in a negative manner. The announcement of the Federal Reserve's decision to decrease asset purchases coincided with this. Then we went through the Dec. 17 coup attempt; the problems between Russia and Ukraine. Now there are troubles in Iraq and Syria which seem to be getting worse and the Fed will also be increasing interest rates, which might have negative consequences for Turkey." Babacan also stated that the policies applied after the 2008 financial crisis have not yet produced the expected results and globally, sustainable development and balanced growth targets have not been achieved.

Babacan said that while growth trends have slowed down in developed economies and the driver of the global economy now seems to be developing countries growth targets have also been revised downward according to the International Monetary Fund.

Touching on the economies of the U.S. and Europe, Babacan noted that any kind of development related with the U.S. economy is important for Turkey in terms of global liquidity and that while the unemployment rates have decreased in the U.S., the quality of employment is at risk. He further emphasized that improvement in the eurozone is still fragile and there is a risk of deflation.

According to the Medium-Term Program, per capita income is expected to be $10,537 by the end of this year with estimates it will reach $12,229 by the end of 2017.

Touching upon the unemployment figures, Babacan said that the female labor force participation rate has been increasing rapidly, adding, "Our economy is continuing to create more employment. Over the last 12 years we have seen an increase of 1.2 million people in employment. Considering the fact that the labor force participation rate is rising simultaneously, we estimate this year's average unemployment rate to be 9.6 percent. Taking gradual rises in the labor force participation rate into consideration, we expect unemployment to drop to 9.1 percent in 2017.

Babacan stated that they estimate the total ratio of the public sector balance to gross domestic product will be 0.4 percent. Babacan also stated that the countries that have noninterest surpluses are very few in the world and Turkey is among them.

Babacan stated that they aim to keep government spending to TL 472.9 billion for 2015. The Deputy PM also said the budget deficit is forecast to shrink from 1.9 percent to 1.4 for 2014.

"Until the period of 2008 to 2009, our tight fiscal policy's aim was guaranteeing the public sector's debt sustainability and we achieved this. However, we are still implementing this tight fiscal policy to bring down the current account deficit and to increase our aggregate savings.." he added.

Babacan also remarked that they aim to pull down the EU-defined debt stock to 33 percent of GDP by the end of the year. Moreover, it is expected to drop to 28.5 percent when the program is completed in 2017.

He said that this year's growth is more balanced than last years, continuing, "For 2014, we are talking about a growth which does not only depend on internal consumption but also mainly nourished through net foreign demand. Therefore, we are maintaining growth at a certain level and able to bring down the current account deficit at the same time." "We will be successful, improve Turkey's potential growth and solve the chronic problems to the extent that we actualize constructive reforms. For each economic action, we will determine a date by the end of 2018. So far, we have set the dates for seven programs out of a total of 25 preferential programs at the Economic Coordination Committee.