Economists unimpressed by Turkey’s public savings programme

Turkey’s Government Announces Public Sector Savings Package, Investors and Economists Remain Skeptical

Turkey’s government unveiled a new savings package for the public sector on Monday, aimed at cutting costs and improving efficiency. However, the lack of detailed information and a clear price tag for the measures left investors and economists unimpressed.

The program, titled “The Public Savings and Efficiency Package,” will be implemented over the next three years. It includes measures such as a halt on purchasing or leasing new state vehicles, a freeze on the construction of new public service buildings, and restrictions on hiring new staff, with replacements only allowed for retiring employees.

Finance Minister Mehmet Simsek, who presented the package alongside Vice President Cevdet Yilmaz, highlighted additional cost-cutting measures. These include ending public personnel shuttle services, imposing salary limits for board of directors, and banning the use of foreign-made vehicles. The government also announced a 10 percent cut in goods and services purchase allowances and a 15 percent reduction in investment appropriations for the current year.

Despite these efforts, Turkey continues to grapple with high inflation, which reached 69 percent in April. The central bank raised interest rates to 50 percent in March to combat rising prices, following President Recep Tayyip Erdogan’s shift towards a tighter fiscal policy after the May elections.

While some economists welcomed the savings package, others expressed concerns about its effectiveness. Ugur Gurses noted the absence of specific details regarding the program’s cost, while Wolfango Piccoli criticized the lack of comprehensive reforms. Piccoli estimated that the measures might only yield savings of around 100-150 billion Turkish lira ($3-4.6 billion), which would have a limited impact on the overall budget deficit.

Coskun Cangoz, a former official at the Turkish finance ministry, echoed these sentiments, warning that the best-case scenario might still result in a budget deficit exceeding six percent of GDP. He highlighted potential risks from inflation and exchange rate fluctuations, which could further strain the country’s finances.

Despite the government’s efforts to rein in spending and improve efficiency, doubts remain about the effectiveness of the savings package. With Turkey facing economic challenges and high inflation, policymakers will need to implement more comprehensive reforms to address the underlying issues and restore investor confidence in the country’s financial stability.