To combat mega-inflation, Turkey plans to implement austerity measures.
Turkey's president, Erdogan, is pushing the country towards a currency crisis with his low interest rate policy. After getting re-elected, he switched up the interest rate strategy. Now, the government is implementing a strict austerity program to bring down the sky-high inflation rate, which currently stands at approximately 70%.
Finance Minister Mehmet Simsek emphasized during the unveiling of the three-year austerity program in Ankara that their main focus is to combat the high cost of living. He pointed out the significance of having "low single-digit inflation" for sustainable growth in the country. The inflation rate for April was recorded at an astronomical 69.8%.
The Turkish government plans to cut back on state spending to combat the excruciating inflation in the country. "We want to fight the high cost of living," said Simsek. They plan to limit new hires in the civil service and transportation to the number of retirements. Purchases or leases of new vehicles for the public sector will be halted for three years, except for those deemed necessary in areas like healthcare, security, and defense.
Moreover, the construction or purchase of public buildings will also be halted for three years, with the exception of those built to minimize earthquake risks or those impacted by natural disasters. Additionally, there will be a 10% cut in budgets for the procurement of goods and services and a 15% cut in investments, except for those designated for regions impacted by the 2023 earthquake. The austerity measures will impact various aspects of the public sector, prompting legislative changes in Parliament. Simsek anticipates single-digit inflation by the end of 2025.
Turmoil in March Elections
Recently, Turkey experienced another surge in inflation rates. Despite the dramatic inflation, Erdogan had previously resisted higher interest rates from the central bank. Upon getting re-elected as president last year, he changed the economic policy leadership and initiated a shift in interest rates. The central bank bumped up the key interest rate from 8.5% then to 50%.
The repercussions of Erdogan's economic policy were evident in the local elections at the end of March. The opposition party, CHP, scored a historic victory against the AKP, Erdogan's Islamic-conservative party. Pundits attributed the outcome to the soaring inflation and the steep devaluation of the lira over the past year.
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The austerity measures announced by Finance Minister Simsek in Ankara aim to lower the Turkish lira's exchange rate, affected by Turkey's high inflation. Erdogan's low interest rate policy, favored since his re-election, contributes to the Turkish lira's instability. The monetary policy overhaul includes limiting new hires in the civil service and transportation, as well as halting vehicle purchases for the public sector, to curb inflation.
Source: www.ntv.de
