Al Jazeera Net correspondents
Istanbul“The worst is behind us… We witnessed the highest level of annual inflation this month (May), which reflects the accumulated effects of the past 12 months. Thus the transition period in the fight against inflation has ended, and we are now entering the phase of gradual decline in inflation,” with these words. Turkish Minister of Treasury and Finance, Mehmet Simsek, announced that the Turkish economy has entered a new phase in its battle to curb inflation and control financial markets through the monetary tightening policy that was adopted nearly a year ago, stressing that the measures taken will contribute to stabilizing the economy and achieving sustainable growth in the near future.
The inflation rate in Turkey rose to 75.5% on an annual basis last May, exceeding expectations, while the Turkish Central Bank kept interest rates at 50% for the same period after it had raised them by 500 basis points last March.
For his part, Central Bank Governor Fatih Karahan confirmed, a few days ago, the continuation of the strict monetary policy, and said: “We expect the Turkish lira to gain real value, and we expect a significant decline in headline inflation during June.”
Positive indicators
Ankara expects – depending on Cevdet Yilmaz Turkish Vice President – The International Financial Action Task Force will remove Turkey from its gray list during this June, while the group announced that Turkey has largely completed its action plan to exit the gray list.
Official data issued last Friday showed that the Turkish economy grew by 5.7% in the first quarter of this year, driven by domestic demand, which is in line with expectations.
With this performance, Turkey ranked second in terms of growth rate among the G20 countries during the first quarter of 2024.
India came in the lead with a growth rate of 7.8%, while Russia ranked third with a growth rate of 5.4%, followed by China with a growth of 5.3%, then Indonesia with a growth rate of 5.11%.
In this context, Şimşek emphasized the following points:
- Türkiye achieved remarkable progress in financial and economic policies during the first year of implementing the medium-term economic program. He said: “Despite the increase in the budget deficit, the ratio of the deficit to the national product, excluding earthquake expenses, reached 1.6% in 2023.”
- Net external demand contributed to growth by 1.6 points, after 5 quarters of negative results.
- The annual current deficit decreased by $26 billion, with the government seeking to bring it to less than 2.5%.
- The rate of transferring external debts to banks increased from 96% to 153%, and to the real sector from 73% to 118%.
- Since the beginning of the year, banks have been able to obtain $4.1 billion in external financing similar to capital.
Positive indicators
- According to data from the Turkish Ministry of Commerce, Turkish foreign trade in lira increased by 52.9% during the first five months of this year, compared to the same period in 2023, recording 437 billion and 445 million liras ($13.6 billion), and reached 164 countries.
- According to the data, Turkish exports last May amounted to $24.1 billion, the highest monthly level in the country’s history.
- Turkish President Recep Tayyip Erdogan confirmed last Tuesday that the Central Bank’s foreign exchange reserves increased in the past year by about 44 billion dollars, and the total exceeded 142 billion dollars.
- According to the Institute of International Finance report, Turkey’s stricter policies helped reduce the country’s current account deficit from $24.6 billion in the first quarter of 2023 to $10.9 billion in the first quarter of 2024, and enabled it to attract a large proportion of funds.
Pending crises
Despite the positive indicators witnessed by the Turkish economy and government efforts to improve the economic situation and enhance financial stability, high inflation and the decline in the value of the local currency remain among the most prominent challenges facing Turks in their daily lives.
This affects purchasing power and increases the cost of living, making the biggest challenge how to achieve a balance between economic growth and controlling inflation to ensure improving the standard of living of citizens.
In the same context, 9 huge shopping centers in the city of Istanbul submitted a request to the authorities to reschedule their debts, in a step that comes as a precautionary measure to avoid bankruptcy, which threatens to close their doors to customers if a financial settlement is not reached.
In this regard, on May 23, the Turkish Parliament approved a new law aimed at preventing monopoly and raising prices, which may contribute to improving the business environment and increasing investor confidence in the Turkish economy.
The lethargy of the Turkish real estate market is highlighted as a reflection of the economic crisis and its impact on citizens, as real estate sales in Turkey declined by 11.8% last April compared to the same period in 2023, as the number of properties sold reached 75,569, according to data from the Turkish Statistics Authority.
For his part, economic researcher Muhammad Abu Alyan said that the medium-term economic program and the transformations in economic policies that Turkey has witnessed since Simsek took office contributed to sparing the country from the worst, especially with regard to high inflation rates and the continued deterioration of the value of the Turkish lira, and so on.
He pointed out that positive indicators, despite their importance, are not sufficient alone to confirm the improvement of the Turkish economy. These indicators bode well, but they are not sufficient to reflect an immediate improvement in the economic situation, and the country needs more structural reforms and shifts in economic policies to achieve sustainable results.
He stressed that judging the effectiveness of current policies requires additional time to see the impact of these economic policies and programs on the living and economic standard of people in the coming years.
Abu Alyan added that some indicators are positive and encouraging, but the biggest challenge lies in the fair distribution of income, so that all citizens feel the benefit of economic improvements. To achieve this, the government should focus on achieving a balance in the distribution of resources and income to ensure that all segments of society benefit from growth. Economic.
