Sun. Jun 16th, 2024

Finance Minister Mehmet Şimşek’s Comprehensive Evaluation After First Year in Office

By Haberyaz Jun5,2024

Finance Minister Mehmet Şimşek provided a detailed evaluation at the end of the first year of their economic program, highlighting significant progress in fiscal discipline, growth balance, sustainable current account deficit, access to external finance, reserve accumulation, exit from FX-protected deposits (KKM), disinflation process, confidence increase, exit from the grey list, and structural transformation.

**Fiscal Discipline**

Minister Şimşek reported that the budget deficit, excluding earthquake expenditures, stood at 1.6% of the national income in 2023. He underscored the continuation of fiscal policy focused on spending discipline, savings, tax fairness, and efficiency, aiming to reduce the budget deficit below 5% in 2024 and under 3% in 2025.

**Growth Balance**

Shifting to the topic of growth balance, Şimşek stated that the contribution of net external demand to growth turned positive by 1.6 points after five quarters. He also mentioned that they have addressed macroeconomic imbalances caused by strong domestic demand.

**Sustainable Current Account Deficit**

The annual current account deficit decreased by $26 billion. Minister Şimşek emphasized that they are accelerating structural reforms to target a current account deficit below 2.5% for external debt sustainability, which will lead to permanent reserve accumulation due to reduced external financing needs.

**Access to External Finance**

External debt rollover ratios for banks increased from 96% to 153%, and for the real sector from 73% to 118%. Banks accessed $4.1 billion of quasi-equity external funding since the beginning of the year. Increasing long-term, quasi-equity external finance remains a significant goal.

**Reserve Accumulation**

Central Bank’s gross reserves increased by $44 billion, surpassing $142 billion, and net reserves excluding swaps turned positive.

**Exit from FX-Protected Deposits (KKM)**

KKM stock decreased by 1.2 trillion TL, while the share of TL deposits in total deposits grew by 16.2 points. Şimşek noted that they will continue to gradually reduce KKM stock.

**Disinflation Process**

Annual inflation has reached its peak, with a significant and lasting decline expected. Market expectations for inflation are at 33.2% for the next 12 months and 21.3% for the following 24 months.

**Confidence Increase**

Risk premium CDS dropped by 440 basis points, credit ratings improved, and prospects turned positive.

**Exit from the Grey List**

Technical studies and on-site inspections have been completed, and the technical report is positive. Şimşek reaffirmed their commitment to combating money laundering and financing of terrorism.

**Structural Transformation**

They are implementing a new industrial policy, accelerating twin transformation, and aiming to enhance the investment environment to attract more international direct investments.

In conclusion, Minister Mehmet Şimşek asserted that the program is on the right path and emphasized their firm commitment to reducing inflation to single digits and achieving all targets.

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