The Turkish economy is expected to produce a lower public debt to gross domestic product (GDP) ratio and lower budget and current account deficits, Deputy Prime Minister Ali Babacan said on Thursday.
Announcing his government’s Medium-term Economic Program (OVP) together with Finance Minister Mehmet Şimşek in Ankara, Babacan also said they expect the country’s economic growth to become sustainable at 5 percent after next year.
According to the OVP, Turkey’s current account deficit (CAD), one of the few issues the country faces for most observers, is expected to be 8 percent of GDP next year, and the CAD to domestic output ratio will drop to 7.5 percent in 2013 and to 7 percent in 2014. “We see the government making a plan to focus on sustainable growth, fiscal discipline and the reduction of the CAD,” said Süleyman Yaşar, former vice president of the Privatization Administration (ÖİB), speaking to Today’s Zaman.
Turkey’s export volume reached $114 billion last year from below $100 billion in 2009. In addition, the country is set to earn $135 billion from exports this year; however, despite such a rise in export revenue, its CAD spiked to nearly 9 percent of GDP due to the rising energy bill and industry’s dependence on foreign intermediate goods to produce merchandise to be sold overseas.
Presently, Turkey is seeking to find oil and natural gas in the Black and Mediterranean seas as well as on mainland Anatolia, its territory located on the Asian continent. At the same time, it has also introduced incentives to encourage investors to develop renewable energy projects to reduce the amount of money it spends on purchasing energy from overseas, nearly $50 billion each year. However, those efforts have not proved effective as it could not find a major oil or natural gas reserve and much of its renewable energy potential remains idle. At this point, Yaşar believes the government deserves some credit because what is necessary is not so easy to be done politically. “There should certainly be more emphasis on renewable energy such as sun and wind but because purchasing natural gas from overseas is currently the cheapest option in the short term and because there are some environmental concerns when it comes to building hydroelectricity and thermal power plants, the government needs an understanding that the alternative costs may sometimes be too high in politics,” he said. The government also expects a lower budget deficit for the next two years.
Babacan said the difference between the central government’s earnings and expenses will be equal to 1.7 percent of GDP by the end of this year and decline to 1.5, 1.4 and 1 percent in 2012, 2013 and 2014, respectively. The budget deficit saw a 25 percent year-on-year reduction and was realized below all expectations at $39.6 billion, or 5.4 percent of GDP in 2010. For Yaşar, the success Turkey shows in almost balancing its budget is also a strength as it fights the current account gap. “We have to also remember that a significant portion of Turkey’s savings are kept abroad and that also facilitates the financing of this deficit,” he said.
The OVP also points to a continuously diminishing public debt-to-GDP ratio till 2015. According to that plan, this ratio will be 39.8 percent by the end of this year and drop to as low as 32 percent in 2014. It was 42.2 percent last year. “Fiscal discipline is the key to success in public finances, and we see the government plans no escape from that,” Yaşar said.
The sizes of their public debt are now pushing a number of countries in the European Union, which Turkey aspires to join, to the verge of default. According to official statistics, 14 out of 27 countries in the union had a public debt exceeding 60 percent of their GDPs at the end of 2010. Eurostat, the union’s official statistics body, said in late July that the ratio of government debt-to-GDP across all 27 member states increased from 74.4 percent in 2009 to 80.0 percent in 2010.
5 pct sustainable growth
As part of his announcement on Thursday, Babacan also said they expect the economy to grow by a noteworthy 7.5 percent this year and another 4 percent in 2012. The economic expansion, he underlined, is expected to be sustainable at a rate of 5 percent from 2013 on.
The GDP has grown by over 5 percent in the past nine years and accelerated its growth to 10.2 percent in the first half of this year, becoming the world’s fastest growing economy in the January-July period.
When asked to comment on the projected 4 percent growth for 2012, Babacan said this does not mean Turkey faces a major setback in its pursuit of high and continuous growth. “Our economy is not contracting. We have been going in fifth gear and are now downshifting to fourth gear. That is all,” he said.
For Yaşar, 5 percent economic growth is less than what Turkey could and “obviously” should do to meet the targets it set for the year 2023, the centennial of the foundation of the Turkish Republic from the ashes of the Ottoman Empire. Turkey aims to be one of the world’s top 10 economies and to have an export volume of $500 billion then. The former ÖİB vice president points to a dilemma: Turkey needs to grow more than 5 percent a year to be where it wants to be 12 years from now, but faster growth has the potential to produce a higher CAD unless it finds oil or natural gas or the prices of those two essentials decrease dramatically. He, however, also underlines that none of these are totally unlikely, so “Turkey may make a leap forward on that front as well.”
In line with continuous economic growth, unemployment is expected to remain below 10 percent till 2015. Two years ago, unemployment hit the staggering 15 percent level because of the global financial crisis triggered by the credit crunch in the United States. Thanks to the government’s emphasis on creating more jobs for Turkey’s young population through incentives given to private enterprises as well as the country’s swift recovery from that turmoil, the unemployment rate dropped to as low as 9.2 percent in May according to the latest official data.
In earlier remarks, Şimşek said the fiscal policy’s focus this year will be on increasing employment across the country through easing employment costs on the part of employers as the state’s ability to collect taxes increases. Turkey has in recent years intensified audits to fight tax evasion and also adopted a policy of increasing the rate of tax collection. The Justice and Development Party (AK Party) government collected 85 percent of the tax it was supposed to collect last year.
Gov’t raises taxes, expects $3 bln revenue
The Justice and Development Party (AK Party) government on Thursday raised the private consumption tax (ÖTV) on cars and mobile phones as well as tobacco and alcohol products, setting to collect TL 5.5 billion ($3 billion) in extra revenue per year. The tax hikes came as measures to curb imports of certain products while also increasing the government’s revenues at a time of intensifying global risks. According to the decision Şimşek announced on Thursday, the ÖTV on vehicles that have an engine volume of between 1600 cc and 2000 cc was raised to 80 percent from 60 percent. This alone is expected to increase the related cars’ prices by as much as 12.5 percent. Those who want to buy a vehicle with an engine of over 2000 cc now have to pay 130 percent ÖTV rather than the previous 84 percent. The tax hikes are also expected to have an impact, albeit smaller, on cigarette and mobile phone prices as the related ÖTVs were increased from 63 percent to 69 percent and from 20 percent to 25 percent, respectively.
13 October 2011, Thursday / MUSTAFA EDİB YILMAZ, İSTANBUL