Mehmet Simsek promised more fiscal austerity and structural reform from Qatar Economic Forum. His speech witnessed the first admission that some growth may be sacrificed to attain low- stable inflation. According to Simsek, monetary tightening has done its job and the results will be visible in summer months. While Simsek was touring first Brussels, and then Qatar, his boss Erdogan wowed unqualified support for Turkey’s stabilization program.
Turk
ish Finance Minister Mehmet Simsek signaled the government is unafraid to sacrifice some economic growth as it tries to lower inflation under the watchful eye of President Recep Tayyip Erdogan.
Asked whether the Turkish leader would tolerate a period of economic stagnation or worse if price rises can be tempered, Simsek said those trade-offs are “worth living with”, according to Bloomberg.
According to Simsek, in the long run there are no trade-offs between growth and disinflation. “In fact, disinflation or low inflation is absolutely essential for sustainable, high growth,” he said.
Simsek said the monetary-policy course correction was “largely done,” though work is still underway on Turkiye’s fiscal plans. The minister announced a series of spending cuts and other measures earlier this week, though the adjustments fell short of investor expectations.
“Turkiye’s latest fiscal austerity measures, while complementing the central bank’s restrictive stance, are unlikely to be a significant factor in improving the country’s budget deficit. The cutbacks will help the central bank’s efforts to reign in runaway inflation — nearly a year after the monetary authority implemented a flip to its restrictive policies. We expect the impact on price gains to be drawn out over time, however,” says Selva Bahar Baziki, economist, Bloomberg Economics.
Speaking hours after Simsek made his remarks, Erdogan said fiscal discipline will help increase the effectiveness of monetary policy. “We’ll give strong support to fight against inflation,” he said.
According to pro-government daily SABAH, Simsek urged patience with inflation: Şimşek reiterated expectations for a steep downward trend this summer.
“Once the year-over-year inflation begins to come down, I’m absolutely convinced that domestic population and local actors in terms of businesspeople and others will come around.”
He said “it takes time” and that there is a “bit of inertia” in services, which he says is “understandable.”
“Income policies are going to be more supportive, but the key is structural reforms. Through structural reforms, we hope to boost productivity and enhance competitiveness.”
Earlier in the week, — A “ballpark figure” on savings to be attained by the govt’s public savings package announced on Monday may be provided late summer, when Turkey reviews the medium-term program, Treasury & Finance Minister Mehmet Simsek told Bloomberg in Brussels.
He added that Govt targets budget deficit/GDP ratio at “meaningfully below 5%”. He claimed Turkey’s been very successful in its gradual exit from FX-protected deposit accounts, “Compared to the peak, it’s down by
around $70b”. Turkey will exit such accounts without disrupting market, he finished.
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