By Muhammed Ali Gurtas
Turkey's Medium Term Program (MTP) -- intended to implement essential actions for higher economic growth, employment and better income distribution -- was introduced by on Wednesday.
Speaking at a news conference, Deputy Prime Minister Mehmet Simsek said the MTP's main objective is to catch sustainable growth performance by maintaining macro-economic stability and rising the quality of human sources and the labor force.
"In this respect, to boost high-value-added production, to improve business and investment environment, to increase the corporate quality of the public sector are the other requirements for solid growth," Simsek said.
He also said creating new jobs and providing fairer income distribution were targeted in the MTP along with fiscal discipline, lower inflation and an improved current account balance.
"Over the past 15 years the growth performance of Turkey's economy has soared significantly," Simsek said. "Economic indicators show that our economy will grow 5.5 percent this year. That ratio is also the MTP's target for the period of 2018-2020."
According to the Turkish Statistical Institute (TurkStat) Turkey’s annual growth rates were 6.1 percent in 2015 and 3.2 percent last year. The Turkish economy expanded beyond expectations in the first (5.2 percent) and second (5.1 percent) quarters of this year.
Simsek also stated that GDP per capita reached nearly $11,000 as of 2016, a climb from $3,500 in 2002.
"By the end of the MTP, we aim to hike the GDP per capita to over $13,000, which is above the threshold of $12,235 for the upper-income group, according to World Bank definitions," he said.
Continuing fiscal discipline
On the fiscal discipline side, Simsek noted that the current account deficit of Turkey is now at a manageable level -- 3.8 percent of the country's GDP in 2016.
The target current account deficit/GDP ratio is 4.6 percent for this year, 4.3 percent for next year, 4.1 percent in 2019 and 3.9 percent in 2020, as stated in the MTP.
"To improve the investment environment is our top priority to finance the country's current account deficit," Simsek said.
Turkey's annual current account deficit last year was around $32.5 billion, relatively stable compared to the 2015 figure of $32.1 billion.
According to central bank figures, the country's highest annual current account deficit in the last 20 years was $74.4 billion in 2011.
"Due to the measures taken to support the economy this year, we expect that the ratio of central government budget deficit to the GDP will temporarily increase to two percent," Simsek said.
Turkey’s public debt stock to GDP ratio was over 72 percent in 2002, and fell to 28.1 percent last year, Simsek noted, adding: "The government is expecting a progressive improvement in the central budget balance by increasing the quality of budget revenues, savings and efficiency of investments."
Earlier this year, the Turkish government reduced a 6.7 percent special consumption tax on white goods to zero, and lowered 18 percent VAT on furniture to eight percent for a specific time period, in a bid to support domestic demand.
In March, the government also introduced a new framework for a credit guarantee fund (CGF), which aims to help small and medium-sized enterprises obtain credit via banks by providing the Treasury with guarantees for losses from possible non-performing loans.
The budget deficit/GDP ratio was 1.3 percent last year, and it is expected to be 1.9 percent in 2018, 1.8 percent in 2019, and 1.6 percent at the end of the MTP period.
Inflation and unemployment
Simsek remarked that Justice and Development (AK) Party governments had provided over 0.9 million additional employment annually on average, and said: "We still have not reached the desired levels of unemployment due to the faster increase of the labor force participation rate."
According to TurkStat, the unemployment rate in Turkey stood at 10.2 percent in June, compared to same month last year, meaning 3.25 million people aged 15 and over were jobless.
"Since the beginning of this year, a gradual improvement in the unemployment rate has been observed thanks to the measures taken to create new jobs and the acceleration in economic growth," Simsek said.
The targeted annual unemployment rate at the end of 2017 is 10.8 percent, 10.5 percent for next year, 9.9 percent in 2019 and 9.6 percent in 2020.
Simsek also said permanent price stability is essential for sustainable economic growth and pointed to the goal of reaching five percent inflation in 2020.
"Inflation is predicted to be 9.5 percent at the end of this year, while it was 8.5 percent in 2016," he said. "Tight standing in monetary policy is expected until reaching targeted levels."
Over the past three months, annual inflation stood at 10.9 percent in June, 9.79 percent in July, and 10.68 percent in August, according to TurkStat.