Mehmet Şimşek, Minister of Treasury and Finance, said that the winds blowing against Turkey will reverse direction starting from the second half of 2024. Stating that the current account deficit will decrease and the exchange rate stabilized thanks to the capital inflow, Şimşek said, “This will also positively affect inflation and expectations.”
Şimşek stated that the first tranche of the investments promised by the Gulf countries will enter Turkey this year. Expressing that they have taken measures to ensure that the budget deficit is in line with the Maastricht Criteria, Şimşek stated that there is great interest in Turkey judging by the meeting he held with investors in Istanbul. Şimşek’s statements are as follows:
Capital inflows will increase steadily
Our aim is to bring inflation down permanently after a transition period. As you can see from the forecasts of the Central Bank, inflation will continue to increase in the next few months due to some temporary factors. There are some tax hikes we have initiated to improve our budget balances and to heal the wounds of the earthquake. Of course, these tax arrangements are inflationary, but this will not happen again. This is a one-time arrangement. Again, this year, there were serious wage increases to compensate for the losses of our citizens and different segments of the society against past inflation.
We believe that predictability will increase with the program we implement. Capital inflows to Turkey will increase; and as uncertainty decreases and the current account deficit narrows in the upcoming period, I believe that we will move towards a relative stability in the exchange rate. This will positively affect inflation and expectations.
WE STARTED OUR QUEST WITH COUNTRIES WITH A CAPITAL SURPLUS
In the last 2 months, we have made an effort to supply the external funding that Turkey needs within the framework of bilateral relations with the Gulf countries. If we look at the context of the Middle East, especially the Gulf countries, they do not only export oil and natural gas. They have a surplus of capital that they cannot absorb in their own economy. And, we need capital imports.
That’s why we started with countries with surplus capital and established bilateral dialogues with them. Our President has very good relations with Gulf leaders at the highest level. We wanted to turn our President’s excellent political relations into an opportunity in terms of trade and foreign investment for the economy.
FIRST SLICE OF PROMİSED FUNDS THIS YEAR
We have very productive dialogues with the Gulf countries, the most concrete indication of this is the 51 billion dollar investment package signed with the UAE. We expect that some of these investments will trickle in this year. These are the funds that can be brought to Turkey quickly, both for long-term financing for the healing of earthquake wounds and for the financing of exports. For example, energy investments, renewable energy investments may take time. The dialogue with the Gulf countries will continue strongly.
The pessimistic scenario is low probability, which is the expansion of the war to the regional arena, but this commands very low probability. The limited global economic growth also limits the risk appetite.
Since developing countries like ours are considered risky, risk appetite shrinks a little during periods of slowdown in global growth. I believe that starting from the second half of 2024, the headwinds blowing today will turn into tail winds. Because the Fed reached the peak in interest rate hikes. Most likely, the market will start talking about interest rate cuts from the second quarter of 2024. The global economy is currently weak. Therefore, a recovery, albeit a small one, has a significant impact on the risk appetite. In the meantime, local elections will be out of the way. We will enter a period when Turkey’s economic agenda is redrawn, where there is a long-term program encompassing structural reform.
“There is great interest in Turkey”
There was great interest in the meeting we held in Istanbul hosted by JP Morgan. I used to work in this industry for many years. Generally, fund managers from Europe do not attend such events in August. August is mostly a holiday month.
The interest is huge because after a long time, a disinflation program to control inflation and the current account deficit is in effect. Türkiye is a country with huge potential that foreigners should always be interested in.
I told that to investors in my presentation. At that meeting I asked, “Can you name me how many countries in the world with a population of 85 million and a per capita income of 10 thousand dollars are there?”. They said, “There are 5 countries except Türkiye”. USA, China, Russia, Mexico and Japan… You cannot count the 6th country. The 6th country is Türkiye. Therefore, Türkiye is a country with great potential and market size. If we follow rules-based policies in line with world norms, there will be no problem in securing resources to Turkey (to grow and finance external deficits). There was definitely potential in our talks. Most are in a wait-and-see mode, believing that the right steps should be taken. Will this attitude continue? Stock investors are not like that. There have been net inflows to the stock market for 8 weeks in a row, that is, there is a net inflow of funds from outside.
State-owned companies are not on the sales block
Our country experienced a great earthquake disaster. It is important in terms of macroeconomic balances that we meet the financing need arising as a result of this earthquake with external resources and extend rebuilding costs to the long term. With Gulf countries, the financing of exports is an important topic. In the bilateral negotiations, we gave priority to the issues regarding the financing of the earthquake and exports and attracting investment to our country. Half of the deal in the case of the UAE is probably investments in the energy sector. These will reduce Turkey’s current account deficit. The rest are important issues such as the financing of the earthquake and the financing of exports. As our President also stated, we did not even bring up the sale of any public company.
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