Turkey’s fiscal tightening package, announced on May 13, appears to have gone down like a lead balloon with many analysts.
The presentation of finance minister Mehmet Simsek has come under fire for failing to address key points.
Economist Ugur Gurses, posting on social media platform X, drew attention to how specific information about the programme's price tag was absent.
Wolfango Piccoli, co-president of political risk advisory at consultancy Teneo, said Simsek’s announced measures could not be said to resemble a coherent package that could strengthen fiscal discipline within Turkey's bloated state apparatus, given that their impact would be limited considering past experiences.
"Some of the more eye-catching measures, such as a freeze on the purchase and hire of new vehicles and a limit on the recruitment of new personnel, will have a limited impact on budget expenditure for 2024," he said.
"However, it is expected that in the best-case scenario, the measures will yield savings of around 100-150bn Turkish lira [$3bn-$4.6bn]."
Piccoli observed that Simsek’s own medium-term economic programme indicates that the government will carry a 2024 budget deficit of around Turkish lira (TRY) 2.4 trillion ($74bn). The savings package would thus amount to little more than "a rounding error", he said.
Piccoli wants to see Turkey bring in important reforms, such as the removal of tax exemptions and savings from private-public partnership (PPP) schemes.
"Even if savings materialise, the 2024 budget deficit will be above six percent of GDP," he added.
The fiscal package was presented following concerns expressed by the finance industry that fiscal policy was not supporting the Turkish central bank’s widely praised monetary tightening cycle.
Erik Meyersson, chief emerging-markets strategist at SEB AB, was also critical of Simsek’s package. He was reported by Bloomberg as saying: “Even if the numbers floated in Turkish media turn out to be correct, it will likely be split across multiple years, With coming years’ expected budget deficits in the trillions of liras, it’s hard to see this making a real dent in aggregate statistics.”
Selva Bahar Baziki, an economist at Bloomberg Economics, said: “Turkey posted a lower-than-expected deficit in 2023—a surprise given the earthquake in February and the parliamentary and presidential elections in May. The smaller-than-expected shortfall in 2023 suggests post-quake rebuilding costs will spill into the coming years, suggesting a delay in the budget balance reverting back to pre-pandemic levels. We see the fiscal deficit improving beyond the trough it reached in 2023 as austerity measures take hold.”
