Türkiye’s economy chief on Wednesday reflected on his first year in office, highlighting the progress made in implementing the government's medium-term economic program and reiterating commitment to achieving ambitious fiscal and growth targets.
"The program is working, and the progress we have made in our policy priorities indicates that we are on the right track," Treasury and Finance Minister Şimşek wrote on social media platform X, formerly Twitter.
But he acknowledged there is still more work to be done.
Şimşek took the helm of the economy after the presidential and parliamentary elections last May and spearheaded a major overhaul in economic policies in a reversal of years of loose monetary policy.
His appointment was followed by aggressive monetary tightening aimed at reining in stubbornly elevated inflation, replenishing foreign exchange reserves, and the inflow of foreign capital at a record pace.
But growth in price gains remains the biggest challenge. Inflation reached an annual 75% in May, in what is said to mark the peak before a series of interest rate hikes and a relatively stable Turkish lira bring relief.
The Turkish central bank has raised its policy rate by 4,150 basis points since June last year and has pledged to tighten it more if there is "a significant and persistent deterioration" in the outlook.
Şimşek said the worst has been left behind, stating that a period of significant and sustainable decline in inflation is underway.
"Although reducing inflation to single digits is challenging, we will succeed by implementing our program with determination. We are committed to achieving all our goals," Şimşek said.
He noted that market expectations for inflation stand at 33.2% after 12 months and 21.3% after 24 months.
Last month, the central bank raised its year-end inflation forecast to 38% and said it would "do whatever it takes" to prevent the outlook from deteriorating further.
Şimşek emphasized the importance of maintaining fiscal discipline and acknowledged the high budget deficit, which widened last year due to vast spending after devastating earthquakes struck Türkiye's southeastern region.
He still said the gap, excluding earthquake-related expenditures, was kept at 1.6% of national income in 2023.
"We will continue to implement a fiscal policy focused on spending discipline, savings, tax equity, and efficiency," he affirmed.
He expressed a goal to reduce the budget gap to below 5% in 2024 and below 3% in 2025.
Addressing growth imbalances, Şimşek pointed to the contribution of net external demand to growth, which turned positive after five quarters with a 1.6 percentage point contribution in the January-March period.
He stressed the ongoing efforts to address macroeconomic imbalances stemming from strong domestic demand.
On the current account deficit, Şimşek highlighted the decline of $26 billion in the annual gap.
He emphasized the acceleration of structural reforms aimed at lowering the current account deficit to below 2.5% of gross domestic product (GDP), which is crucial for external debt sustainability.
"With a narrowing deficit and reduced external financing needs, we will achieve sustainable reserve accumulation," Şimşek stated.
Regarding external financing access, Şimşek noted the improvement in banks' external debt rollover ratios. He said banks' ratios have increased from 96% to 153%, while that of the real sector rose from 73% to 118%.
He also highlighted lenders' access to $4.1 billion in quasi-capital external financing since the beginning of the year.
"The focus remains on increasing long-term, equity-like external financing," Şimşek emphasized.
On reserve accumulation, Şimşek reported an increase of $44 billion in the Central Bank of the Republic of Türkiye's gross reserves, surpassing $142 billion.
He also stressed that net international reserves, excluding swaps, have moved into positive territory, marking the first time since early 2020.
The growth in reserves began at the start of May, attributed to heightened foreign interest and reduced demand by local citizens for foreign currency.
Şimşek went on to reiterate the goal to gradually reduce the massive foreign exchange-protected deposit scheme.
The program, known as KKM, was launched in late 2021 to help reverse dollarization and support the lira. It sought to encourage people to keep their savings in lira through guarantees to compensate for losses from decline against hard currencies.
Şimşek said the stock under the scheme has declined by 1.2 trillion (around $37 billion). The KKM accounts totaled about $72.8 billion as of April, according to the central bank data.
He also highlighted the increase in the share of lira in total deposits by 16.2 percentage points.
"We will continue to gradually reduce KKM stock," Şimşek affirmed.
Highlighting the improvement in investor confidence, the minister pointed to the 440-basis-point decline in credit default swaps (CDS) – instruments used to insure exposure to an issuer against default.
He also noted recent upgrades in Türkiye's credit rating and the positive outlook.
Among others, Türkiye is hoping to be delisted from the "gray list" of the Financial Action Task Force (FATF), a global financial crimes watchdog. The list includes countries that the watchdog suggests have taken insufficient action to prevent money laundering and terrorist financing.
Şimşek said that technical studies, which would ensure the country's removal, have been completed, an on-site inspection has been conducted, and the technical report is positive.
"We are committed to combating money laundering and terrorist financing," he emphasized.
Regarding structural transformation, Şimşek highlighted the implementation of a new industrial policy and the acceleration of the twin transformation, digital and green.
He also expressed the goal of attracting more international direct investment by improving the investment climate.
"Ultimately, the program is working, but we still have a way to go."