Istanbul:Türkiye is prioritizing macro-financial stability and maintaining a tight fiscal policy to mitigate the impact of global shocks, as stated by Turkish Treasury and Finance Minister Mehmet Simsek.
According to Anadolu Agency, Simsek made these remarks during the Istanbul Economic Forum's opening ceremony. The forum, organized by the Central Bank of the Republic of Türkiye, gathered central bank governors and high-level policymakers from around the world to address global economic policy challenges, including representatives from the US and the UK.
Simsek highlighted several global structural headwinds facing Türkiye, such as conflicts, trade protectionism, high levels of indebtedness, unfavorable demographics, potential climate disasters, and advancements in artificial intelligence. He underscored the country's plan to increase defense spending by 229% in the 2027 budget compared to the Central Bank's 21% inflation target for the following year. This increase is aimed at bolstering national deterrence.
The minister also pointed out that the value of research and development in defense projects had exceeded $100 billion, involving approximately 1,400 defense products and projects. Türkiye aims to become a top 10 exporter in this sector. Additionally, he noted that Türkiye ranks among the top three globally for official development assistance and its diplomatic footprint.
Simsek shared that Turkish Airlines flies to the most destinations worldwide compared to other carriers. Furthermore, the government has invested in an $8 billion railway project crossing the Bosphorus in Istanbul, which aims to connect Beijing to London. Türkiye is also encouraging neighboring countries to invest in additional corridors to enhance connectivity and resilience.
In terms of energy, Türkiye has invested in natural gas and oil pipelines to ensure energy supply availability and increased the share of renewables in electricity generation to nearly 60%. The country has set an ambitious electrification target of 35%, up from 23%, as the host of COP31.
To combat global trade protectionism, Türkiye is expanding its free trade agreements, with 54 pacts already in place and ongoing negotiations with Japan, Indonesia, the Gulf Cooperation Council, and Canada. Simsek mentioned that tourism revenue has increased ninefold over the past 25 years, positioning Türkiye among the top five global tourist destinations.
Türkiye has over 50 internationally accredited healthcare facilities, attracting medical tourists for cosmetic treatments. The country is the world's third-largest exporter of soap operas and ranks second to London in the gaming ecosystem for startups and unicorns. It's also second to China in the global league of contractors and aims to aid in regional reconstruction, which requires at least $1 trillion over the next decade.
Simsek highlighted that Türkiye hosts the sixth-largest number of international students at its universities. Despite the challenges, the country's total indebtedness remains at 91%, compared to a 230% average for emerging market peers, with public debt to GDP at 22%. The government targets a 3.1% deficit this year, well below the global emerging markets average of 5.8%, and has reduced current expenditures from 4.6% of the budget to 2.9%.
The administration plans to strengthen its fiscal position through investments in public procurement, state-owned enterprise governance, and tax reforms. Simsek noted that the working-age population will continue to grow over the next decade, and reforms are planned to boost women's labor force participation rate.
Investments have also been made in 5G+ technology, fiber capacity expansion, and plans for nuclear power plants, including small modular reactors, to power AI. The government is aiding small and medium-sized enterprises in boosting productivity to leverage AI's potential benefits.
Türkiye is investing in irrigation and climate-resilient agriculture to address global warming. Simsek remarked on the country's resilience in recovering from difficulties and adapting policies despite challenges. Delivering price stability remains the primary goal of the medium-term economic program while maintaining fiscal discipline.
Simsek acknowledged that external imbalances remain manageable despite deterioration due to the war. The economy's real convergence continues, growing slightly more than 3%, surpassing the 1.5% growth of trading partners, with historical growth over the past 25 years closer to 5.5%.
The Central Bank governor has utilized quantitative and selective credit-tightening tools, while the government is adjusting its fiscal policy to make support more selective and targeted. Recent stress in the asset management sector remains contained, and Türkiye maintains sufficient policy space to respond to shocks.
On the disinflation process, Simsek admitted it stalled this year due to the war but affirmed the commitment to continue efforts. He noted that this year's deficit could have been closer to 2.5% if fiscal space wasn't used to mitigate the impact of crude prices on final products.