What does Turkey's three-year austerity plan to curb inflation entail?
The plan is to increase the efficiency of the public sector through cost-cutting measures such as a ban on buying new vehicles for civil servants.
Turkey announced a three-year austerity program on Monday to cut public spending to tame inflation, which reached nearly 70% year-on-year in April and is expected to peak this month.
The wide-ranging plan includes budget cuts for “the entire public service,” including some that will require legislative changes that will be submitted to parliament, Finance Minister Mehmet Simsek said during the plan's rollout in Ankara.
"Our priority is to combat the high cost of living. Low single-digit inflation is essential for sustainable growth," he added.
"Directing investments toward productive areas will be crucial for this plan's success. We will expedite structural reforms and implement significant changes in public finances."
The government said that it will limit employment and transportation spending for civil servants, including a three-year ban on the purchase or rental of any public service vehicle. The only exception to this rule is if the vehicle is being bought for “mandatory requirements” concerning the health, security or defense sectors.
Simsek did not specify the government's policies on civil service salaries but said the number of new recruits will mirror the number of retirements.
The new measures are forecasted to reduce public spending by 100 billion liras ($3.1 billion). The funds allocated for state institutions' purchases of goods and services will be cut by 10% and those for investment will be reduced by 15%.
Simsek added that public servants will no longer use imported vehicles. There will also be a three-year suspension of the construction or purchase of public buildings, except for those built to reduce earthquake risks or those impacted by natural disasters.
The minister said that the fiscal policy aims to save resources by “improving efficiency in the public sector,” implementing cost-cutting measures in employment, energy, waste management and communications.
Simsek was brought in as economy czar in June 2023 after Turkish President Recep Tayyip Erdogan was reelected last year. The former Merrill Lynch economist was tasked with luring back foreign direct investment into Turkey amid high inflation and an acute cost-of-living crisis.
Annual inflation in Turkey reached 69.8% in April and is expected to peak at around 75-76% in May before falling to 38% at the end of the year, according to the latest forecast by the Turkish Central Bank.
Erdogan was previously known for defying economic orthodoxy by stubbornly keeping interest rates low despite high inflation. Since Simsek became finance minister last year, he has reversed this policy, raising interests rates by 41.5% to tame inflation.
Amid this economic U-turn, Turkey has also seen increasing interest and commitments from international investors.
