MTP 2014-16: And Then, a Miracle Happens…

TURKEY - In Brief 08 Oct 2013 by Murat Ucer

---

The Medium-Term Program for 2014-16 was announced today, somewhat earlier than expected.  The government revised down the growth rate for this year to 3.6% and for the next year to 4%, from previous MTP’s 4% and 5%, respectively.  Inflation is forecasted to end the year at 6.8%, vs. the 5.3% in the previous MTP and 6.2% in the latest CBT Inflation Report (of July 2013).  CAD is expected to end this year at 7.1% of GDP, before decelerating to 6.4% for next year – both better than the previous MTP, thanks to the 2012 base effect.  In the meantime, by IMF definition, the primary surplus of the central government is estimated to finish this year at 0.9% of GDP, 0.4% better than the previous MTP’s 0.5%.  The overall budget deficit is forecasted to end the year even better, at 1.2% of GDP, compared with the budgeted 2.2%. But all this owes to a better revenue performance, than expenditure restraint.  In fact, primary expenditure-to-GDP ratio is estimated to end the year at 22.8%, compared with the original 22.3% -- marking yet another year in which the (primary) spending target will have been breached.  And then, a miracle happens: beyond 2014, growth picks up to 5%, while inflation continues to decelerate to 5%, so does, pretty much, the CAD to GDP ratio (to 5.5%) – and voila, an economy of “5%’s” is achieved, even as the IMF-defined primary surpluses linger at a meager, less than 1% of GDP!We do not think this latter part, i.e. the miracle part beyond 2014, is worth commenting much on, simply because we find it very unlikely, given the current reform stance and the very lax policy framework.   As for 2013-14 forecasts, which are inescapably more realistic, we would point o...