The Turkish government unveiled a comprehensive savings plan on Monday in a bid to tackle soaring inflation and enhance efficiency within the public sector, prioritizing only essential state investment projects in a fresh move to instill confidence in an economic tightening program.
The package, unveiled by Vice President Cevdet Yılmaz and Treasury and Treasury and Finance Minister Mehmet Şimşek, centers around three main pillars: savings in the public sector, budget discipline and efficiency in public investments.
The measures that include numerous budget cuts "for the entire public service," some of which will require legislative changes to be submitted to parliament, come as Türkiye strives to boost fiscal discipline and tackle inflation.
The annual inflation rate, currently running at nearly 70%, is expected to peak at 75%-76% in May before falling to 38% at year-end, according to the Central Bank of the Republic of Türkiye's (CBRT) forecast in its quarterly inflation report last week.
"By maintaining fiscal discipline, we aim to reinforce the effectiveness of our monetary policy and provide strong support for the fight against inflation," Şimşek said in a televised address.
"Our top priority is to eliminate the problem of the high cost of living and achieve single-digit inflation, which is indispensable for sustainable growth," he said, aligning the government's fiscal policies with the central bank's efforts to ensure price stability.
"The central bank is implementing measures within its own domain, including monetary policy, to reduce inflation and we will contribute to the disinflation process with fiscal policy measures," the minister added.
Following last year's presidential and parliamentary elections, Türkiye shifted course and moved away from years of easing monetary policy. The central bank embarked on an aggressive rate hike cycle, raising its benchmark policy rate by 4,150 basis points since last June.
The latest set of state savings measures will also include stringent monitoring, reporting and sanction mechanisms to ensure compliance.
Şimşek said public institutions' new vehicle purchases and rentals, as well as their purchase and construction of new buildings, except for those built to reduce earthquake risks or those affected by natural disasters, would be paused for three years.
"We want to strengthen the economic foundations of our country by ensuring fiscal discipline," he said.
"Directing investments to effective areas will be a critical element in this package. We will accelerate structural reforms and make many reforms in public finances."
In his remarks, Yılmaz said recent developments have underscored the need for broader measures in savings.
"With our Public Sector Savings Program, we aim not only to reduce nonessential spending but also to prioritize efficiency in public consumption and investment expenditures," he said.
The officials reiterated the government's commitment to maintaining essential services without compromising on expenditures related to last year's devastating earthquakes.
They highlighted the potential benefits, foreseeing reductions in budget deficits, public debt, and current account deficits.
"We expect tangible results from our medium-term program's inflation-reducing policies starting the second half of this year," Yılmaz said, expressing optimism about achieving single-digit inflation by 2026.
Savings will also be made in public sector employment, energy and waste management and communications, said Şimşek, without giving a figure for the value of the savings that would be made.
Türkiye's budget ran a deficit of about $45.5 billion (TL 1.47 trillion) in 2023, an 864% increase from 2022, mainly due to quake-related spending.
The budget deficit-to-GDP ratio ended last year at 5.2%, below market expectations. Yılmaz said they aimed for a similar or even smaller gap in 2024.
Last July, Türkiye raised petrol taxes and value-added taxes (VAT) to boost revenues after the sharp rise in spending related to the tremors that razed the southeastern region and the May presidential and parliamentary elections.
Şimşek said funds allocated for state institutions' purchases of goods and services will be reduced by 10%, and those for investment will be cut by 15%.
The minister did not specify the government's policies on salaries but said the number of civil service recruitments will be limited to the number of retirements.
"We are stopping the purchase and rental of new public vehicles for three years, except for mandatory needs in areas such as ambulance, defense and security," said Şimşek.
"We aim to save money by increasing efficiency in the public sector."
The minister said fiscal discipline was necessary for lasting price stability, to provide resources to meet the cost of last year's earthquakes and for green and digital transformation.
Şimşek announced plans for the consolidation of vehicles into a shared pool for interagency use. Additionally, personnel transport services in places with public transportation will be terminated.
The program will prioritize investments in infrastructure projects enhancing food supply and industrial zone connectivity.
"We will not accept new projects into the public investment program except in mandatory cases," said Şimşek.
Moreover, there will be an upper limit imposed on management board fees received by public servants, with any excess amounts being recorded as revenue for the budget.
The package also includes a three-year suspension on the procurement of furniture, furnishings, and office equipment, along with a ban on the sale of machinery and equipment before their economic life is completed.
"We are implementing a strong monitoring, auditing, reporting, and sanctioning model with this package," said Şimşek
He also mentioned forthcoming measures in public tender reform, tax justice, and combating the informal economy.
Şimşek emphasized that the savings package is not the final one and that, "We will take many steps in the upcoming period."
