Finance Minister: Budget Prepared Based On Fiscal Discipline

Finance Minister Mehmet Şimşek has said the government has hammered out the 2015 budget, one of economic stability within a scope of fiscal discipline, adding that they took into consideration the necessity of raising domestic saving levels while drafting the budget.

Şimşek presented the draft bill on the central administration budget for the coming year to the parliamentary Planning and Budgetary Commission on Thursday. In his speech, the minister underlined the obligation to reduce the saving deficit to achieve sustainable growth since low domestic savings compels the private sector, which has a lively investment appetite, to seek funds externally. This is one of the primary factors behind the current account deficit (CAD), he added.

The share of domestic savings over gross domestic product (GDP) was 13.4 percent in 2013 and the government's policy of moderate GDP growth to cool down the economy caused this rate to rise. According to estimations, the share of savings over the GDP will be slightly less than 15 percent by the end of this year. Domestic savings in emerging economies correspond to 32.6 percent of their annual GDPs on average.

Şimşek argued that the problem in Turkey stems from the low levels of savings of the private sector since the public sector has achieved a nearly 8 percentage point increase in savings between 2002 and 2014 from minus 4.8 percent to 3.2 percent, respectively.

Şimşek touched on the government's policy of subsidizing the individual retirement system (BES) by paying 25 percent of the premiums that new subscribers pledge to pay, a practice that has been in effect since Jan. 1, 2013 to raise domestic savings. The minister said there are now about 5 million members in the BES and the funds collected so far have reached TL 33.7 billion. The government has made payments of TL 2.6 billion in the form of contributing to the premiums of new subscribers thus far and has allocated another TL 2.4 billion for this year in the new budget.

In his presentation, the minister also talked about the expectations concerning the GDP for this year. Net exports will likely contribute 2 percentage points to the end-of-year figure whereas domestic consumption will be responsible for about 1.3 percentage points, he said. The recently announced Medium-term Economic Program (OVP) targets around 3.3 percent growth rate for 2014.

This modest target of 3.3 percent target in the OVP, which was revised downwards from an initially set 4 percent, is still a success for Turkey despite the slowing domestic demand due to a tight monetary policy and macro-prudential measures, the stagnation in the EU -- Turkey's largest trade partner, increasing geopolitical tensions and especially the civil war in Iraq, Turkey's largest export market, said Şimşek.

He claimed that the economy will likely grow by 4 percent in the coming year fueled by a possible recovery in the global economy, accelerating growth rates in Turkey's trade partners and a reinvigoration in the domestic demand.

Şimşek also asserted that fiscal discipline will continue to remain the “major anchor.” Three factors are particularly important for the continuation of fiscal discipline despite the budget deficits and public sector debt obligations, the minister said: “These are to lower the current account deficit, relieve the central bank in its fight against the inflation and provide financial resources to realize structural reforms.” (Cihan/Today's Zaman)

SHOTLIST
TURKEY, ANKARA, 23 OCT 2014

Minister Şimşek comes to the room
VAR of the meeting

DURATION: 02:33