Above board and covert expressions in NEP

F U T U R E – L O O K I N G medium-term programs are not very interested in the present day. While looking at the goals of the new economic program for the 2021-2023 period and listening to the statements and evaluations, I felt like this: Nothing for today, a fancy set of promises for tomorrow!

Pandemic incentives that the Minister of Treasury and Finance Berat Albayrak expressed in his New Economy Program (NEP) presentation cannot be considered and evaluated within the scope of the new economy program, whether they are sufficient or not. These incentives were for an extraordinary moment.


Looking at the targets of the new economic program for 2021-2023 and the estimates made for this year is customary. Let us look at what they say…

But first, I have to emphasize that we are in such a critical period that it isimpossible to look one or two months ahead, let alone a few years. Because of the pandemic, things can suddenly turn upside down. For example, the target for the next three years in travel revenues, which are estimated to remain at USD 10.3bn this year, is USD 19.8bn, USD 29.8bn and USD 35bn, respectively. But there may be factors that will cut this increase to USD 35 billion in 2023. And this has nothing to do with Turkey taking the right or wrong steps because the pandemic is a problem confronting all of humanity. If countries that send the most tourists to Turkey decide to close the doors, we will stand by with folded arms.

Similar problems may arise for foreign trade and transportation. Fortunately, there are not too many securities that the foreigner can sell anymore, so there is not much foreign currency to be taken out of the country. But if we cannot withdraw portfolio investment, we will not be able to get rid of the foreign exchange shortage and we will fall far beyond the level of exchange we assume.

If we cannot find foreign exchange, where do we find the source for the growth we hope to increase to 5.8 percent in 2021 and continue at 5 percent afterwards? This question remains unanswered.

>> Is USD target for year-end possible?

When you have some data to take as a baseline, it is of course possible to extrapolate.. In the new economic program, a value for the dollar is not mentioned but it is very easy to calculate. There is a level of GDP in terms of TRY according to current prices and a level in dollar terms. You can get a dollar rate assumption when you divide these two figures. According to the NEP, the default average rate for the whole of this year is 6.91. The initial estimate for this year was TRY 6, but now the estimate has been revised up.

But is it possible to hit 6.91? Of course not. The average dollar rate for the first nine months of the year was 6.71. Completing the year at the level of 6.91 means the average of the remaining three months has to be 6.51. This is hardly possible. The average rate for 2021 for the dollar is estimated to be 7.68. In other words, if the 6.91 assumption for this year turns out to be true, there will be an 11.1 % increase next year.

>> Two scenarios for growth…

The basic scenario for this year’s GDP is based on 0.3 % growth. However, it was also stated that a 1.5 % contraction is expected in the economy as a pessimistic second scenario with the possibility of the pandemic emerging again. Let’s look at what to expect in the second half of the year based on these two assumptions.

Turkey’s economy shrank 9.9% in the second quarter after growing 4.4% in the first quarter. Thus, contraction in the first half was 3.1%. In this case, closing the year with 0.3% growth depends on achieving 3.2% growth in the second half. In case of a 1.5 percent shrinkage, which is the second scenario, it means that there will be a rate of zero (0.1% shrinkage) in the second half of the year.

>> 10.5% target in CPI impossible

The NEP estimates that the CPI will be 10.5 % this year. This prediction is almost impossible to realize. CPI increased 7.29% in the first eight months. Staying at 10.5% is possible by keeping the increase in the last four months at 2.99%. But the past years show us that it is not easy to stay at this rate in the last four months. Over the last 18 years, the average increase in the September- December period was 4.02%.

Considering that the effect of the exchange rate in the last period will be increasingly reflected in prices, 2.99% appears to be a miracle rate. Our estimation is that there will be at least a 4% price increase in total in the last four months of this year, thus we will close the year between 11.5% and 12.0% CPI.

>> A brief note on unemployment

It is clear that current labor statistics are far from accurate on unemployment. Therefore, I think it is important to touch on unemployment briefly. The rate of unemployment, which is estimated to be 13.8% this year, and the rate predicted to be 12.9% for 2021, is of little importance.

Because of the quirk of the measurement system, and as a result of those not covered, it doesn’t matter if unemployment rises at 10%, 15% or even 20%. Unemployment in Turkey at the moment is flying high at somewhere around 30%, and even higher in some calculations.

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