Turkey to set up €15mn sovereign wealth fund to support struggling economy

By bne IntelliNews August 17, 2016

Turkey will set up a sovereign wealth fund with an initial capital of TRY50mn (€15mn), Economy Minister Namik Zeybekci said on August 17. Ankara will target to raise the fund's size to $200bn at a later stage, Bloomberg reports.

The ruling Justice and Development Party (AKP) has already submitted a bill to parliament to create the sovereign wealth fund that it says will be used to finance infrastructure projects. Its strategic aim is to generate annual growth of 1.5% over the next 10 years. The creation of the fund would not threaten the country’s low budget deficit, Prime Minister Binali Yildirim has said. The fund may also be used to stabilise markets by buying Turkish assets if needed, according to Finance Minister Naci Agbal.

The fund will monetise domestic assets owned by state institutions and will also seek funding abroad, Zeybekci detailed, adding that the government will also be able to transfer cash to the fund from privatisation auctions.

The market would prefer more plain vanilla policy at this stage like commitment to continuation of prudent fiscal policies, orthodox monetary stance, and delivery on Deputy Prime Minister Mehmet Simsek's already detailed structural reform agenda, Tim Ash from Nomura Securities said in an e-mailed comment on August 17. “Make it simple - rather than embarking on grandiose schemes with questionable financing sources,” Ash says.

President Recep Tayyip Erdogan’s top economy aide Cemil Ertem said August 17 that commercial stakes held by state institutions will be a source of revenue for the fund, according to Bloomberg. The principal target of the fund is to increase overseas investments that domestic sectors would need and to pioneer domestic infrastructure projects that need financing, Ertem said, adding that the fund mechanism will be transparent and fully open to international supervision like the one in South Korea.

Along with the set up of the fund, the government in Ankara is working on a number of measures aimed at boosting economic activity and consumption in the wake of the failed coup attempt that officials say cost the country as much as TRY100bn.

The central bank is also supporting the government’s efforts to boost economic activity. The monetary authority has cut reserve requirements to inject more liquidity into the financial system. The move is expected provide up to TRY1.1bn and $600mn to the system.

The government’s GDP growth targets for this year and next are 4.5% and 5%, respectively.

GDP Growth Projections for Turkey  
(%) 2016
EBRD (May 2015) 3.0
European Commission (May 2016) 3.5
Turkish Government - Medium Term Programme (Jan 2016) 4.5
IMF (April 2016) 3.8
Turkish Central Bank survey (Apr 2016) 3.6
World Bank (June 2016) 3.5
OECD (June 2016) 3.9
Reuters Poll (September 2015) 3.0
Fitch (September 2015) 3.0
S&P (October 2015) 2.8
Moody's (March 2016) 3.4
Source: ebrd, ec, dpt, imf, tcmb, oecd, world bank, s&p, kap  

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