Türkiye would have faced stagnation and multiple related problems, in addition to inflation, had it not implemented its new economic model, the country’s treasury and finance minister said on Thursday.
Under the economic program, dubbed Türkiye Economy Model, the government prioritizes low-interest rates to boost exports, production and investments, aiming to lower inflation and flip the country’s chronic current account deficits to a surplus.
"If we had not implemented the new economic model, we would most likely have faced a stagnation and many related problems along with the inflation problem today," Nebati told the Economic Transformation and New Paradigms Summit in Istanbul.
Nebati said the main objective of the model, championed by President Recep Tayyip Erdoğan, is to enable the economy to enter a sustainable growth path and to avoid the so-called "middle-income trap," where economies stagnate without incomes reaching the levels of advanced nations.
In line with the model, Türkiye’s central bank cut its policy rate by 200 basis points to 12% in the last two months, surprising markets after inflation surged to a fresh 24-year high in August.
The bank had embarked on a rate-cutting cycle more than a year ago as it lowered its one-week repo rate by 500 basis points to 14%, where it had left it steady in the first seven months of this year.
The annual inflation topped 80% last month, driven mainly by soaring food and energy prices, which rocketed following Russia’s invasion of Ukraine. Yet the increase turned out to be smaller than in previous months, signaling that price pressure might be slowing.
"It is clear that fiscal policy alone will not be enough for the success of the model, and monetary policy should also be supportive," Nebati said.
Although the model had received biased criticism, Nebati said it has started to attract the attention of international economic circles.
"There can be no general set of policies to be applied to all countries. Türkiye does not have to act with the understanding imposed by someone," the minister said.
"The claims we put forward coincide with the reality of Türkiye. The Türkiye model will be an example."
Nebati stressed the government aims to overcome the middle-income trap by prioritizing domestic production, supporting strategic sectors and increasing exports.
"This is one of our priorities. Our determination to take this step is in line with the strategic needs of our country."
‘Türkiye’s century’
Separately, Erdoğan on Wednesday said the model would ensure continuous growth in Türkiye despite all the challenges that the global economy is facing.
He said this "century will be the century of Türkiye," referring to his ruling Justice and Development Party’s (AK Party) motto for the upcoming 2023 elections.
"You can see what the situation is in the world, but Türkiye has not experienced these problems. Global growth forecasts for 2022 are being revised downwards around the world," he told a televised interview with private broadcaster CNN Türk.
"Despite this, our Turkish economic model will prove the continuation of growth, let no one doubt this," he noted. "In this context, I predict that growth will occur at the level of 5% in 2022. It can turn out to be better, but not worse."
The Turkish economy expanded by a better-than-expected 7.6% year-over-year in the second quarter on strong domestic demand and exports. The rate made Türkiye the second-fastest growing economy in the G-20.
The country’s GDP had expanded by 7.5% on an annual basis in the second quarter. Last year, the economy bounced back strongly from the COVID-19 pandemic and grew by 11.4%, its highest rate in a decade.