Türkiye unveils a visionary medium-term economic programme

The Ministry of Treasury and Finance and the Presidency of the Republic of Türkiye, Presidency of Strategy and Budget, released its medium-term economy programme (MTP), covering the 2024-2026 period, in the first week of September.

Turkish President Recep Tayyip Erdogan has expressed hope that at the end of the three-year MTP, Türkiye will be able to join the group of high-income countries for the first time, by exceeding a GDP of US $1.3 trillion and reaching a per capita income of US $14,855.

During this period, the aim is to achieve a domestic product growth rate of 4.5 per cent — with a projected rate of 4 per cent for the next year, 4.5 per cent in 2025 and 5 per cent in 2026, said Vice President Cevdet Yilmaz.

To achieve the expected growth rates over this economic programme spanning three years, the past year presented a promising base, with the economy growing at 5.5 per cent year-on-year (y-o-y), reveals TurkStat data.

Experts emphasised that the expected figures in the programme seem realistic and consistent, and the programme is more comprehensive than the previous MTPs.

Finance Minister Mehmet Simsek said lowering inflation to single digits, fiscal discipline and reforms are the three main pillars of the programme.

In addition to these areas, disaster management is a new entrant in the programme, with ‘green’ and digital transition goals continuing to be part of the agenda.

Here’s what you need to know about the key takeaways of the MTP.

'Increasing interest by foreign investors'

President Erdogan, following his visits to India for G20 Summit and to the US for UNGA gathering, said that foreign observers also view the program positively

"We saw increased interest in the Turkish economy during the G20 meeting after announcing the Medium-Term Program. It's pleasing to see that this interest continues to grow in the United States," Erdogan said.

"Through fiscal discipline and structural reforms, we will make our economy resilient to any kind of storm. We've done it before, and we'll do it again. Another crucial aspect of our program is attracting foreign investment to our country," he said.

"Just preparing and announcing the program alone has already piqued the interest of foreign investors. With this tailwind, we will swiftly move toward our goals."

Fighting inflation

The programme estimates that by year-end, Türkiye’s inflation rate will reach 65 per cent, and further fall to 33 per cent by the end of next year, 15.2 per cent by end-2025 and 8.5 per cent by end-2026.

As August recorded 58.94 per cent annual inflation rate, these expected figures are very realistic, feel experts.

As pointed out by Derya Hekim, professor of economics at Uludag University, foreign institutions too have issued statements about their support for the MTP, whose expected inflation figures are above the estimates of the Central Bank.

Medium-term programmes always include the fight against inflation. What makes this programme different from previous ones is its prioritising of disinflationary policies. “Official statements consistently put disinflation at the forefront of the MTP,” Erhan Aslanoglu, professor of economics at Piri Reis University in Istanbul, tells TRT World.

Once the decisive and strong steps to fight inflation, as envisioned in the MTP, are realised, Aslanoglu believes Türkiye can once again move over to an annual growth rate of 4 per cent.

Mevlut Tatliyer, professor of economics at Istanbul Medipol University, also finds the target of 4-5 per cent growth rate is within reach and realistic under the current economic circumstances at home and in the world.

Export promotion

This year, Türkiye achieved its best sales figures for August, with its foreign trade gap shrinking by 21.2 per cent y-o-y, according to official data.

Compared to the last year, export volumes increased by 1.2 per cent, while total volumes reached US $253.5 billion.

According to the MTP, the new export target is US $255 billion for 2023, rising to US $302.2 billion for 2026.

At the core, fighting inflation requires a focus on export promotion and exchange rates. Here, the MTP provides a necessary balance between fighting inflation and export promotion through the exchange rate targets, according to Yasar Akgun, professor of economics at 29 Mayis University, Istanbul.

For macroeconomic stability, tourism revenues and exports will be very important in this process, says Aslanoglu.

Pointing out the recent developments viz updating the foreign trade agreement with the UK and the Customs Union agreement with the EU, he expresses how they can contribute to attracting foreign demand, and thereby to Türkiye’s growth potential.

Fighting inflation requires weakening domestic demand. In other words, austerity measures at home. But on the other hand, raising growth figures remains a target. This is why increasing foreign demand is necessary, Aslanoglu explains.

For this reason, the agreements with the UK and the EU are expected to contribute to the targets of the MTP.

“If we can deal permanently with inflation while showing that we can increase growth, we can attract serious foreign investment,” he adds.

At the point where inflation and exchange rate targets intersect, the estimated figures seem realistic as well, Aslanoglu feels.

Updating the Customs Union

As President Erdogan has expressed, the new programme will focus on efforts to update the Customs Union agreement with the EU, as well as its main target — boosting foreign demand.

The importance of the agreement lay in the fact that the EU is Türkiye’s biggest trading partner, and the updates in the agreement have the potential to increase trade volumes between the two.

Prioritising an updated Customs Union on behalf of Türkiye’s financial administration is important to the economic vision of the MTP, according to Aslanoglu.

Also, there are efforts to comply with EU norms through the targets and practices, which reveals the MTP’s economic vision, says Hakki Kutay Bolkol, professor of economics at Marmara University.

Earthquake relief

The new MTP has a separate earthquake management provision included in the macroeconomic targets and policies.

Earthquake relief efforts go hand in hand with fighting inflation, which is an important aspect of the programme, says Aslanoglu.

Public spendings to alleviate post-earthquake damages and to decrease the prospect of earthquake risk will be prioritised, while austerity will be implemented for other public spendings.

Having a special position among the other public spendings, the incentives will primarily go to disaster areas, through increasing social housing projects available to them.

“Increasing their number through incentives will make a significant contribution to disinflationary processes across the country,” says Hakki Kutay Bolkol, professor of economics at Marmara University.

Green and digital transformation

Although these two areas remain secondary to the main targets of the programme, they are important in the long term to meet the needs of the current economic world order.

“With the EU and many other countries having started investing heavily in order to achieve net zero carbon emission targets, increasingly, export capacities have to pass the ‘green’ test,” says Mevlut Tatliyer, professor of economics at Istanbul Medipol University.

Integrating these goals to its agenda would make Türkiye a part of the global system, Bolkol says.

Through Türkiye’s 2053 net zero emission target, President Erdogan emphasises the commitment to achieve green transformation in all areas of the economy.

In the green transformation section of the MTP, the efforts to adjust the national emissions trading system are framed to comply with the EU Carbon Border Adjustment Mechanism.

“Green transition is important because we need to move to a low-carbon production model, in order to maintain trade with our most important trading partner — the EU — and ensure sustainable growth,” Derya Hekim, professor of international economics at Uludag University tells TRT World.

Since the EU enforces the Green Deal and will start levying carbon tax from 2026, Türkiye also needs to move to a low-carbon model, she explains.

As Türkiye’s most significant trading partner, complying with EU norms will contribute to export growth of the Turkish economy.