Government launches mid-term economic program

Turkey’s Economy Minister Ali Babacan recently announced the country’s much-anticipated medium-term economic plan, saying that the government expects growth to contract by 6 per cent by year end, a figure significantly higher than the 3.6 per cent contraction envisaged earlier, before experiencing a modest rebound to 3.5 per cent in 2010, four per cent in 2011 and 5 per cent in 2012. Babacan also said that unemployment was expected to recover modestly; however, it remains well above the 10.8 per cent levels enjoyed prior to the crisis. He said that unemployment was forecast to reach 14.6 per cent in 2010, close to this year’s expectation of 14.8 per cent, with the current account deficit set widen gradually from €11 billion to €18 billion. The government also expects the disinflation process to continue, with the annual rate of Consumer Price Index (CPI) inflation forecast at 5.9 per cent for 2009 and 5.3 per cent in 2010. Fiscal balances were also predicted to improve slowly over the three-year period, with the budget deficit declining from 6.6 per cent of gross domestic product (GDP) in 2009 to 4.9 per cent in 2010, and the public primary deficit to slip from 2.1 per cent to 0.3 per cent. The absence of any ambitious targets or projections for critical macro balances, primarily on the growth and fiscal sides, reveals a credible and sensible program, provided it is decisively implemented by the government, Banu Kivci Tokali, from the Macroeconomic Research department of Finance, wrote in a statement. Meanwhile, Rachel van Elkan, Mission Chief for Turkey at the International Monetary Fund (IMF), has indicated that the IMF welcomed Turkey’s new Medium-Term Programme. Elkan said in a statement: We are encouraged by the Turkish authorities’ announcement of a medium-term framework that aims to gradually reverse the deterioration in the country’s public finances, boost private sector activity and restore solid economic growth. Reflecting the considerable impact of the global crisis on Turkey, the authorities’ plan encompasses realistic macroeconomic projections and incorporates the appropriate goal of stabilizing the public debt-to-GDP ratio by 2011 and reducing it thereafter. We also welcome the planned introduction of a fiscal rule to establish prudent budgetary targets over the longer term. To meet the authorities’ goal of controlling the public debt burden, it will be necessary to adopt supporting measures and structural reforms, including policies to address key spending pressures. We look forward to continuing our policy dialogue with the Turkish authorities, van Elkan added.