Bloomberg: Turkey to unveil fiscal austerity plans next Monday

According to sources familiar with the matter, Turkish authorities are preparing to unveil a set of fiscal actions as soon as Monday to reduce public expenditure in an effort to bolster the battle against surging inflation.

Unnamed individuals disclosed that Treasury and Finance Minister Mehmet Şimşek addressed a gathering of investors in Istanbul on Thursday, indicating that the government plans to introduce fresh fiscal measures and accelerate structural reforms to reinforce the economic agenda.

The Treasury and Finance Ministry refrained from providing a comment on the matter.

The announced measures underscore the urgent determination of policymakers to swiftly combat inflation, with projections indicating that annual inflation may soon reach around 75%. On Thursday, the central bank stated its expectation for inflation to conclude the year at 38%. Emphasizing its commitment, Central Bank Governor Fatih Karahan reiterated the institution’s readiness to take decisive actions, attributing the upward revision in the Consumer Price Index (CPI) forecast to heightened domestic demand.

Additionally, investors have responded positively to these developments. Turkey’s 5-year credit default swaps decreased by 9 basis points to 275 basis points, marking the lowest level since 2020. Lira bonds experienced a rally, with yields on 2-year and 10-year government bonds dropping to 72 basis points and 79 basis points, respectively.

Sources briefed on the matter revealed that the government’s cost-saving measures will entail a comprehensive review of expenditures, a moderation of certain public spending initiatives, and a reduction in investments across select sectors.

During the presentation to investors, priority areas for Turkey were outlined to include maintaining price stability, fortifying the fiscal position, narrowing the current account deficit, and implementing structural reforms.