Istanbul- In a move aimed at addressing growing economic challenges, the Turkish government has announced its new economic program for the period 2025-2027, which includes radical changes in inflation and growth forecasts.
These amendments reflect the government’s efforts to redirect the course of the economy in light of changing local and international circumstances, with a focus on enhancing financial stability and keeping pace with global transformations within the conservative approach to tightening monetary policy.
Financial stability and structural reforms
Turkish Vice President Cevdet Yilmaz announced that the new economic program aims to achieve a gradual decline in inflation rates, reaching single-digit levels, while enhancing opportunities for economic growth.
He pointed out that the programme focuses on enhancing productivity-based investment, increasing employment and production, within the framework of a comprehensive vision aimed at improving economic performance.
Yilmaz explained that the main goal of the program is to achieve a fair distribution of income among all segments of society, while raising the level of well-being in a balanced manner.
He said that integrated coordination between monetary, fiscal and income policies would be the cornerstone of this programme.
For his part, Treasury and Finance Minister Mehmet Simsek stressed that the top priority in the short term is to combat inflation and achieve price stability, and said that reducing inflation to single-digit levels will enhance sustainable growth and raise the level of welfare.
In this context, Turkish President Recep Tayyip Erdogan expressed his support for and confidence in his country’s medium-term economic program on Thursday.
“In parallel with our decisive fight against inflation, we trust and support our medium-term economic program that prioritizes investment, production, employment and exports,” Erdogan said.
Increased inflation and slower growth
The new program sets an inflation target of 41.5% by the end of 2025, compared to 33% in the previous program, with inflation expected to reach 17.5% by the end of next year and 9.7% the year after.
The program revealed a reduction in growth expectations for 2025 from 4.5% to 4%, while growth expectations for the current year will decline from 4% to 3.5%, and for 2026 from 5% to 4.5%, while the growth target for 2027 was set at 5%.
The national income at the end of this year was set at $1.331 trillion, and the per capita share at $15,550, an increase from $12,875 in the previous program.
Yilmaz said the budget deficit is targeted to reach 4.9% of GDP by the end of this year, while the previous estimate was 6.4%, and the budget deficit-to-GDP ratio was set at 3.1% for next year.
The new program expects the unemployment rate to fall to 9.3% in 2024, a significant decline compared to previous estimates of 10.3%. Yilmaz explained that this decline reflects the continued recovery of the economy and a partial recovery in the labor market.
In 2025, unemployment is expected to rise slightly to 9.6% as part of the economic rebalancing process, gradually declining to 9.2% in 2026 and 8.8% in 2027.
Shifts in exports and imports
The program estimates that exports will reach $264 billion by the end of this year, slightly down from the previous forecast of $267 billion. In contrast, imports have been estimated to fall significantly from $372.8 billion in the previous program to $345 billion.
The Turkish Vice President expected that exports would gradually increase to reach $319.6 billion by 2027, while imports would increase to $417.5 billion, which means that the external trade deficit will shrink over time, while strengthening the export-led growth strategy.
Regarding exchange rates, the program indicated that the average exchange rate of the dollar against the Turkish lira will be around 33.2 liras per dollar in 2024, and will continue to rise to reach 42 liras in 2025, then 44.4 liras in 2026, and 46.9 liras by 2027..
Rebalancing through austerity policies
Economic researcher, Muhammad Abu Alian, confirmed that the Turkish government’s new economic program for the period 2025-2027 is a continuation of the previous program (2024-2026), noting that the government saw the need to re-evaluate previous expectations due to the impossibility of achieving the goals and expectations set in the previous program.
Abu Alyan explained in an interview with Al Jazeera Net that the government is now seeking to focus on a policy of financial discipline alongside a tight monetary policy, with the aim of achieving a balance between them to ensure reaching the expectations of the new program, a policy that was not targeted in the previous program, especially after the government announced a reduction in public spending for the period 2024-2027.
He added that the re-evaluation of these expectations comes after the widening gap between the numbers actually achieved and the goals that were set, and here the government seeks to re-bridge the gap between expectations and the numbers actually achieved in an attempt to increase transparency and restore confidence in the future expectations of the overall economic indicators, given the positive importance of this for the economy as a whole.
Regarding the Turkish lira exchange rate, Abu Alian added that the continued deterioration in the lira’s price remains a challenge, but the government seeks to manage it and not leave it to the forces of supply and demand in an absolute manner, with the aim of achieving the goals set in the new program and keeping the exchange rate within the expected levels.
He stressed that addressing inflation requires continued monetary tightening and fiscal austerity, as well as greater intervention in and monitoring of markets, which will naturally lead to a decline in economic growth rates and an increase in unemployment rates. However, the program expects a decline in the unemployment rate, an ambitious goal that may be difficult to achieve in the short term.
Abu Alyan concluded his statements by stressing that the program, despite containing ambitious goals and conflicts between quantitative goals, could contribute to alleviating the severity of the economic crisis that Turkey is going through in the medium and long term, noting that achieving the goals may be possible if monetary and austerity policies continue at the same pace.
