Treasury and Finance Minister Mehmet Şimşek said Türkiye’s medium-term program (MTP) has already proven effective despite being in the early stages and has attracted strong investor interest, but it requires time to show full results.

Şimşek’s remarks came late Monday on the sidelines of the Islamic Development Bank's (IsDB) Annual Meetings in the Saudi capital, Riyadh.

Türkiye has established a reliable fiscal framework to combat inflation, said the minister, stressing improving public finances despite the effects of the devastating earthquakes that struck the country’s southeastern region more than a year ago.

Reining in persistently elevated inflation and implementing structural reforms are the most critical parts of the MTP, a road map the government unveiled in September to help rebuild foreign exchange reserves and reduce chronic current account and budget deficits to surpluses.

In a pivot after last year's presidential and parliamentary elections, Türkiye departed years of easing policy. It delivered aggressive monetary tightening, mainly seeking to cool domestic demand, the main driver of inflation.

The depreciating Turkish lira makes imports more expensive, and price increases have plagued households. Inflation currently runs at 68.5%.

To curb it, the Central Bank of the Republic of Türkiye (CBRT) has increased its benchmark policy rate by 4,150 basis points since last June. Hikes, over time, lead to higher costs for home and auto loans, credit card borrowing and business loans.

To reassure the market, Fatih Karahan, the governor of the CBRT, earlier this month said the monetary authority would do "whatever it takes" to curb inflation and signaled further monetary tightening if needed.

Inflation is forecast to peak around 70% this quarter before falling in the second half of this year and through 2025.

Şimşek said monetary and fiscal policies can help achieve desired outcomes, "but making them sustainable requires structural adjustment."

"Therefore, our structural reform program aims to increase efficiency, enhance competitiveness, and thereby boost potential growth," he said.

"The (economic) program is quite robust, internally consistent, and reliable. Since we announced the program, there has been strong investor interest both domestically and internationally. The reactions from both home and abroad have been extremely positive," he noted.

The MTP is a two-year program, "so we need time to see full results," said the minister.

"The initial indicators suggest that the program is working and has what it takes to put Türkiye back on a sustainable path of high growth," he noted.

"I believe that by this time next year, we will be in a position to discuss the results."

Fiscal discipline, current account gap

Highlighting that fiscal discipline is a key component of the MTP, Şimşek said Türkiye's public debt-to-GDP ratio stands at 29.5%, which he says is less than half the average of emerging markets,

He also stressed the current account deficit has nearly halved.

The shortfall stood at around $3.26 billion in February, less than a market forecast for a deficit of $3.7 billion. The annualized gap has dropped to around $32 billion, compared to around $60 billion last May.

"The unemployment rate is at its lowest level in the past decade. We have reasonable growth, low unemployment, improving public finances, and a disinflation process," said Şimşek.

"We received a full credit rating upgrade, and all rating agencies have revised their outlooks on Türkiye from negative or stable to positive."

He stressed expectations for new rating upgrades in the coming period.

New trends in trade

Şimşek pointed out the fragmentation in global trade, stating that while it poses a significant obstacle to trade, it presents an advantage for Türkiye.

"Türkiye has an advantage because fragmentation, friend-shoring and near-shoring are becoming new trends," he noted, adding that Türkiye is probably one of the biggest beneficiaries of these.

The minister highlighted Türkiye’s trade relations with the EU and strong historical, cultural and trade ties with countries in the Middle East, North Africa and Central Asia.

"So, when you look at our immediate neighborhoods, which account for over 70% of Türkiye’s exports, our immediate neighborhood qualifies as friend and near," Şimşek explained.

"We think we could benefit from trade fragmentation, which is undesirable, of course," he added.

Underlining that good infrastructure is key for development and trade; the minister said Türkiye is investing heavily in infrastructure to enhance connectivity.

He recalled that Qatar, the United Arab Emirates (UAE), Türkiye, and Iraq have signed a deal on the Development Road, a landmark road and rail project.

Iraq launched the $17 billion project last year to link a major commodities port on its southern coast by rail and road to the border with Türkiye.

The 1,200-kilometer (745-mile) project aims to connect Asia and Europe with a link between Basra’s Grand Faw Port in Iraq’s oil-rich south and Türkiye in the north.

Through the project, "we are going to connect Basra Port to highways and railways, all the way to London," Şimşek said.

"Why start from Basra? Because I think one of the possible connectivity links that was missing, was from Basra to Türkiye and Europe," he stressed.

Mentioning the difficulties in Syria and other parts of the region, he said: "So you couldn't consider another alternative. And it seems like it was a perfect match because we already have connectivity through Georgia, Azerbaijan and Central Asia; there is a rail link."

Growing tourism

He said tourism is a critical sector for Türkiye, which was the fourth-largest tourism destination in the world last year after France, Spain and the U.S.

The cities of Istanbul and Antalya were among the world’s top 10 tourism destinations, he added.

According to Şimşek, Türkiye and Saudi Arabia can cooperate in tourism because their seasons do not overlap.

"We have great human resources, entrepreneurs and development capabilities. I know the Kingdom of Saudi Arabia has very ambitious tourism targets.

"So why don't we support each other? We bring you tourists, help you develop the resorts, help you manage resources because our seasons are different, we can also provide human resources during your high season," he noted.

Limited impact of conflicts

On the Ukraine and Gaza issues, Şimşek said so far, the impact of conflicts on the Turkish economy has been relatively limited.

Şimşek said the Russia-Ukraine war clearly had a big impact on energy prices initially, creating a bigger hole in the trade gap, but that it was temporary.

"When it comes to the human tragedy in Gaza, the impact so far has been negligible," he said.

He stressed that the impact usually comes in the form of a risk premium, but it has been contained because there was no escalation.

As long as there is no escalation, the ongoing conflicts will likely have negligible impact on Türkiye, Şimşek noted.