New economic reform package between the lines

The new economy reform package, which was by President Recep Tayyip Erdogan last November, was revealed on Friday. Announcing the reforms at the Economic Reforms Introductory Meeting at the Halic Congress Center in Istanbul, “The package aims to grow the Turkish economy on the basis of investment, production, jobs, and exports,” said Erdogan. The package had a broad repercussion in the foreign media as well as supportive and critical reactions in Turkey. 

Turkey will raise its potential growth through boosting production efficiency thanks to this reform package, Erdogan noted. “We aim for a domestic and national economy which break export records with fewer imported input and more value-added production,” the president said. The government is determined to defeat the pandemic in 2021, while seeing the year as preparation for entering a period of quality growth in the medium term, Erdogan explained. “Turkey will definitely create sustainable, strong, and quality growth that will conform to its post-pandemic economic structure,” he underlined.

All policies will be implemented with a transparent and foreseeable government approach that will strengthen macroeconomic stability and support efficiency-based competitive investments and production, the president stated.

Focusing on public finance, inflation, the financial sector, current account deficit, and employment as part of macroeconomic stability, the President also said that macroeconomic and structural policies form the backbone of Turkey’s new economic reforms.

Here are the headlines from the package.

>> Stronger public finance

Turkey’s first target is setting stronger public finance structure to guard against risks, with fiscal discipline the top priority, the president stressed. “For this purpose, we will be implementing policies covering issues such as spending discipline, public debt management, tax regulations, public procurement tenders, public-private partnerships, and state-owned enterprises,” he noted.

>> Saving in public administration

The share of foreign exchange in the country’s total debt stock will be cut to reduce its sensitivity to external shocks, Erdogan said. He highlighted that savings in public administration will be expanded such as limiting vehicle rentals and hospitality costs, adding: “In addition to the central government, we aim to create a thrifty perspective in local administrations as well.”

The government will mainly borrow in local currency and use Turkish lira-denominated bills, he said, adding: “We are reinforcing policies that will lower our borrowing costs by lowering our country’s risk premium.”

>> Tax exemption for low-income tradesmen

Noting that the government knows of the difficulties small business owners have been struggling with during the pandemic, Erdogan said the reform package also includes a tax exemption for low-income tradesmen. “We will be exempting approximately 850,000 tradespeople who are subject to small business taxation rules, such as hairdressers, plumbers, haberdasheries, carpenters, lathe makers, tea shop operators, tailors, and repairmen, from income tax, and we will remove their tax filing obligations,” he said.

>> Easing taxes, public-private partnerships

A digital tax office will be established which will operate 24 hours a day, seven days a week to enable the public to carry out their transactions in the digital environment without personally visiting a tax office. “We have also included the tax problems faced by international investors within the reforms,” he noted, adding that the country is revising double taxation avoidance agreements to prevent possible problems that may arise.

>> Public-private cooperation law to be enacted

As the country has praised public-private partnership projects, exemplified by city hospitals, Erdogan said a public-private sectors cooperation law will be enacted. “This will enable us to ensure that investors deal with a single law, to strengthen the legal infrastructure of projects, to introduce priorities among sectors and projects, and to make processes more foreseeable,” he said.

Stressing that one of the priority agenda items will be the fight against inflation, Erdogan said Turkey aims to bring inflation down to single digits. An early warning system will be established that will ensure the flow of data in order for the Food Committee to form policy recommendations and ensure that the market operates effectively.

>> Advisory board for agriculture sector will be formed

In order to increase foreseeability in agricultural production and prevent price fluctuations, contractual agricultural mechanisms are being developed, he stressed. Turkey is preparing uniform legislation that will accelerate the development of the participation financing sector, he said, adding: “A Central Advisory Board for the sector will be set up while the participation financing sector will be gathered under a single roof.”

A participation financing arbitration mechanism at international standards will be established, he underlined.

>> Green bonds will be encouraged

Turkey is working on creating economic, technological, and legal infrastructure for digital currency, Erdogan said. “We will be making the relations between banks and their customers more transparent by establishing a surveillance mechanism that will protect consumers,” he explained.

The government will diversify financing opportunities for investments that are environmentally sensitive, the president stated. The issuance of green bonds will be encouraged to finance investments such as renewable energy, clean drinking water, and electric or hybrid vehicles that lower carbon emissions.

>> Bonds Guarantee Fund to be formed

The government will form a Bonds Guarantee Fund to encourage companies in the real sector to issue bonds at a lower cost, thus spurring investment demand.

Noting that the Individual Private Pension System is being expanded to a much broader segment of society, Erdogan said: “We are removing the barriers for children under age 18, who constitute 25% of our population, from entering the system.”

>> Healthcare Industries Presidency will be established

In order to develop an innovative and powerful healthcare industry, a Healthcare Industries Presidency will be established, he said. “This department will be in charge of the competitive development and production of many strategic materials, from pharmaceuticals to vaccines, from medical devices to biotechnological products, using domestic means,” Erdogan said.

>> Software and Hardware Industries Presidency to be established

Underlining the need for software technologies to become competitive in the economy, to access the right data, to analyze data and to develop the most suitable solutions, Erdogan said Turkey will establish a Software and Hardware Industries Presidency to gain global competitiveness and encourage youth employment.

“These two new structures will nourish the domestic ecosystem and bring a new edge to our country by helping boost rates of domestic goods and services in the fields of healthcare and software, just like the defense industry,” he said.

>> Lowering current account deficit

Stating that the government will also focus on the structural current account deficit and promote broad-based exports, Erdogan said effective implementation of policies that reduce foreign dependency in energy will continue as this is the main driver of Turkey’s current account gap. “Our third and final area is to support the green transformation of the industry,” he added.

>> Economic Coordination Council to be set up

As the first of the structural reforms is strengthening the institutional structure of the public sector, Erdogan said two new structures will be set up in order to closely monitor and manage all developments in the economy. “The first of these will be Economic Coordination Council under Vice President Fuat Oktay,” Erdogan said, while the second will be a Financial Stability Committee, which will work under Treasury and Finance Minister Lutfi Elvan. The new structures aim to strengthen communication mechanisms and increase transparency, foreseeability, and coordination in our economic and financial policies, he noted.

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