Türkiye’s top economy official used a trip to New York to reassure business leaders and investors that the country’s disinflation process had begun in earnest, while affirming that the government had no plans for additional taxes.
Treasury and Finance Minister Mehmet Şimşek pitched the progress of Türkiye’s economic program during a series of meetings with businesspeople and major investors this week on the sidelines of the United Nations General Assembly.
Addressing an event on Tuesday, Şimşek acknowledged that inflation was still high but reiterated expectations it would see a significant decline by 2025, as tighter monetary policy begin to show its delayed effects.
“The disinflation process has now begun in a sustained manner. On one hand, inflation will decrease significantly in 2025, supported by the delayed effects of monetary policy. On the other hand, fiscal policy and income policies will become more supportive,” said the minister.
Annual inflation dipped below 52% in August, compared to its peak of 75% this May. The government forecasts it will fall below 42% by year-end.
The central bank has lifted its key policy rate by 4,150 basis points since June 2023 to counter overheated demand, the main driver of inflation.
It has held the one-week repo rate unchanged at 50% since this March. Last week, it said it remained highly attentive to inflation risks but dropped a reference to potential tightening. The wording change provided the first guidance signaling that rate cuts will eventually come.
Şimşek said inflation is expected to fall to between 40%-42% this year, before dropping below 20% next year and to single digits by 2025.
“We have drawn a path for inflation this year, and even in a year marked by elections and geopolitical turbulence, we met many of our targets,” said the minister.
In his meeting with top executives from leading U.S. investment banks such as Goldman Sachs, Citigroup, and Morgan Stanley, Şimşek emphasized the government’s focus on fiscal discipline and tackling the informal economy without resorting to new taxes.
He also met with Nick Clegg, global affairs head of Meta Platforms, and Makhtar Diop, chair of the International Finance Corporation (IFC), to discuss further collaboration.
At a roundtable hosted by Goldman Sachs, Şimşek addressed 15 portfolio managers from some of the world’s largest funds, highlighting Turkey’s progress in reducing the current account deficit.
“Our current account deficit, once a source of fragility, has shrunk from $57 billion to under $20 billion due to the measures we’ve taken,” Şimşek said. He also noted that further steps would be necessary to permanently eliminate this concern.
Şimşek underscored that the government’s efforts to reduce the budget deficit were showing results, having brought it down to 5.2% of gross domestic product (GDP).
Looking ahead, he said the government would prioritize combating the informal economy to create a fairer business environment.
“From now on, rather than focusing on increasing tax rates, we will prioritize the fight against the informal economy. Informality means injustice. It prevents access to finance, keeps businesses small-scale, and leads to inefficiency,” Şimşek noted.
“Therefore, to ensure a fair, competitive environment, we will intensify efforts against informality. If you’re operating informally, know that sooner or later, the tax authorities will come knocking on your door.”
Şimşek also recalled improvement in the central bank’s foreign exchange reserves, which stood at around $95 billion as of last week.
“This improvement reflects the strong confidence in our program both domestically and internationally,” he stated.
“Türkiye has moved beyond seeing reserves as a source of concern.”
Şimşek also highlighted an improvement in access to external financing.
“We are solidifying the foundations for healthier, sustainable growth. While there is a temporary slowdown in growth, Türkiye’s structure will strengthen. Our ultimate goal is sustainable high growth in Türkiye, and we will steer back toward that path,” he said.
Şimşek stressed the government was initiating a structural transformation process to make the improvement in the current account permanent.
“The production of natural gas and oil in Türkiye will help reduce our current account deficit. Progress in this area, along with green transformation and new industrial policies, could potentially lead Türkiye from a current account deficit to a surplus,” he noted.
“We aim to significantly reduce not only inflation but also external vulnerabilities.”
