Treasury and Finance Minister Mehmet Şimşek says it is 'one of Turkey's biggest problems'

Treasury and Finance Minister Mehmet Şimşek was the guest on the Special Interview program on tv100. Şimşek made the following statements regarding current issues:

Here are the key highlights from the statements of Treasury and Finance Minister Mehmet Şimşek:

"The fact that inflation came in at 5 percent in the first month of the year brought about a number of discussions. This inflation in January is the lowest January inflation in the last 4 years.

An inflation rate of more or less 3.5-4 was expected. There are figures here that can be called one-off. TURKSTAT changed the basket weights here, and additional inflation came from this. Again, there had been no change in examination prices in healthcare for a few years, which was worked on in the last quarter of last year; the changes here also had an effect of 0.6.

The increase made by municipalities in tap water has an effect of 0.4 points. When all these are taken into account, there is no change in the decline in the main inflation target. In other words, we foresee that inflation, which was 65 percent at the end of 2023, will fall to 44 percent last year and to 24 percent this year.

However, the decline in inflation should not be perceived as a decline in prices. It should be read as a slowdown in the rate of price increases.

When looking at basic goods, it is 24 percent, and if you include food, goods inflation is 33.6 percent. What is high here is services inflation. Generally, in all countries, services inflation falls with a delay. Because past inflation is always taken as a basis.

When looking at rent increases in January, it is over 100 percent annually, and the same is true for education. These items are high because they are based on past inflation. For this reason, we plan to reduce inflation below 30 percent this year by resolutely implementing our program in the coming period and to approach single digits next year. The decline in inflation will continue. January inflation did not affect our framework regarding the fight against inflation.

"WE WILL ENTER INTO A SERIOUS SOCIAL HOUSING MOBILIZATION"

The cost of living is the most important economic problem Turkey is currently facing. Approximately 82.7 percent of our population lives in cities. I think the most important component of the cost of living here is rent. The homeownership rate is around 56 percent. In recent years, with both the rapid rise in housing prices and the rapid rise in rents, what our citizens mean by the cost of living is rent. We are making a serious effort to increase housing supply here. On one hand, there is construction work in the earthquake zone. Apart from this, we are providing very serious support from the budget for social housing, on-site transformation, urban transformation, and all these issues. I believe that within a few years, we will enter into a very serious social housing mobilization. We are talking about housing supported by our state that our citizens can access very easily.

This is one of our most important topics in the fight against inflation. Another topic is food supply. We are good at agricultural production in Turkey, but there are exaggerated price increases as products go from the field to the final consumer. A lot of intermediary companies are being established and they are multiplying the prices. The issue is not just a matter of logistics and waste. The issue is that there are many intermediaries until it reaches the market from the field, and some of these are artificial, meaning these are done to inflate prices.

"WE PROVIDE SUBSIDIES ON ELECTRICITY AND NATURAL GAS"

Energy is another important component of inflation. As the state, we are currently providing a very serious subsidy on energy. The subsidy on electricity is around 60 percent, and on natural gas, it is around 63 percent. In other words, on average, if the electricity our citizen consumes costs us 100 liras, we sell it for 40 liras. We sell natural gas for 37 liras, and the treasury pays the difference. We are working on all these processes. Turkey is fighting against the cost of living on the supply side with energy on one hand, food on another, and housing supply on the other.

This year, the ratio of public expenditures and budget deficit to national income will decrease, which will pull inflation down.

Our citizens should rest assured, we are pursuing a root solution, and fighting inflation takes time all over the world.

After the pandemic, an increase in inflation was also seen in Europe and America. It took them more than 3 years to reduce inflation, which rose to 9-10 percent, to 2-3 percent.

Our disinflation program started in the second half of 2023 and has not yet completed its 2nd year. The decline in inflation will continue.

"WE HAVE MADE SERIOUS SAVINGS IN THE PUBLIC SECTOR"

Contrary to the criticisms, serious savings are also being made in the public sector. Let's go back to between 2013-2023. Before our program, the expenditure targeted as 100 liras ended up as 109 liras; this is the 10-year average. In 2024, public expenditure, which was projected as 100 liras, was realized as 97. We established expenditure discipline, made savings, and did not allow the budget to be exceeded in any way. The austerity measures we announced and implemented yielded very serious results, and we will continue this.

GAVE A FIGURE REGARDING THE BUDGET DEFICIT

When I say that our economic program is working, some segments are uncomfortable. Let's look together at whether the program is working or not. Before the program, especially with the effect of the earthquake, in 2023, that is... If you go to May or June of this year, the market expects a budget deficit of around 10 percent. This would be a very high deficit. Turkey could not manage this. We reduced this deficit to 4.9 percent. In other words, we pulled it below the market's expectation. This year, we will reduce the budget deficit to around 3 percent.

Another issue is Turkey's current account deficit. When we go to May 2023, our deficit was 55 billion dollars. The deficit before the program was around 5.5 percent relative to our national income, while now it is 0.7 percent. The current account deficit will expand slightly this year, but for us, these figures already mean manageable.

"RESERVES INCREASED FROM MINUS 61 BILLION DOLLARS TO 65 BILLION DOLLARS"

If we look at the reserves. Before the program, the Central Bank's net reserves excluding swaps were minus 61 billion dollars. Currently, Turkey's net reserves have exceeded 65 billion dollars. From minus 61 to plus 65... Gross reserves have also exceeded 166 billion dollars.

Another issue is the country's risk premium. Go to May 2023, Turkey's CDS had exceeded 700 basis points. It is now 254. The levels we saw as the best were around 118-120. Our current goal is to drop below 200. This is important because when our companies borrow from abroad, they take the interest rate of American or European bonds with similar maturities and add a risk premium on top of it.

"WE PULLED DOWN THE RISK PREMIUM"

In May 2023, the interest rate of our 5-year dollar-denominated bond had risen to 11 percent, now it is around 6.5 percent. Our external borrowing cost has fallen by almost half. Our risk premium has also fallen in the same way. Moreover, we have pulled the risk premium down 10 times more than countries similar to us.

"WE BECAME THE ONLY COUNTRY TO HAVE ITS CREDIT RATING INCREASED BY 2 LEVELS EACH"

Turkey's credit rating... Last year, we were the only country to have its rating increased by 2 levels each by 3 different credit rating agencies. If the program didn't work, how would we get these ratings?

Let us continue to implement the program; I believe we will continue to achieve successful results.

"WE HAVE MADE IT UNATTRACTIVE"

We are determined about the exit from the Kur Korumalı Mevduat (KKM - FX-Protected Deposit Scheme). In our consultations with the Central Bank, we will likely end the KKM practice for legal entities by the first half of this year at the latest.

We have already made KKM unattractive. In the past, companies had a full tax exemption. Now, we have removed their tax exemption. For individuals, there was 0 withholding tax; we increased this to 15 percent for up to 6-month maturities. There is no significant difference between the exchange rate and the market interest rate. Therefore, KKM no longer has any meaning in terms of return. We said we would achieve this exit process smoothly without disrupting the markets. All of these take time, but we are getting results. KKM has been falling uninterruptedly for 76 weeks. It has fallen below 30 billion dollars. If desired, steps could be taken today, but we preferred a soft transition; we will take these steps gradually.

"IT WILL NOT DIRECTLY AFFECT TURKEY"

Some practices of the US administration are creating great anxiety in the market. Predictability and rule-based trade are being set aside. However, direct risks for Turkey are very low. When we look at the last 20 years, there is a 78 billion dollar deficit in Turkey's trade with the US in favor of the US. We also do not have a free trade agreement with the US. The US is already applying a high tax on us. There is no reason to increase this further. Only 2 things remain. The first is that the US increasing customs tariffs could have indirect effects.

What remains are the steps to be taken politically. Our relations with the new US administration are also good. I believe that protectionist measures in trade against Turkey will not be developed. We have some concerns regarding Syria, but the messages received on this issue are also promising for now.

"INFORMALITY IS ONE OF TURKEY'S BIGGEST PROBLEMS"

Informality is one of Turkey's biggest problems. This is not just a matter of revenue loss. Instead of increasing tax rates in Turkey, we now want to reduce the budget deficit by fully registering businesses that operate informally. I want to announce that there will be no taxpayer whose door we will not knock on in 2025. The most important feature of this period is that we will be constantly in the field. We are carrying out our inspections regardless of scale.

We started this in 2024. We carried out 1.2 million inspection applications. We have also started to get results. We want to multiply this this year. Especially in the Finance Ministry, we will close some units, put our personnel there through training, and use them in the field. We will set up tents, so to speak, at the entrances and exits of all Organized Industrial Zones (OSB), wholesale markets, and industrial sites. We see informality in every sector without exception.

"THERE IS A JEWELER WHO DECLARED AN INCOME OF 16 THOUSAND 46 LIRAS PER MONTH IN 2023"

In 2023, for example, a jeweler declared that they earned 16 thousand 46 liras per month. With today's figures, it corresponds to a minimum wage. Self-employed lawyers declared an average monthly income of 17 thousand 805 liras. We saw that the average monthly income declared by self-employed doctors was again 27 thousand 376 liras.

Last year, the Parliament passed a law and gave us the opportunity to determine revenue. Teams will go to the establishment suspected of informality, stay there from morning to evening, and determine all the revenue. According to the law, we will now go to different establishments 12 times a year on different days and months to determine revenue, and then we will warn the business and ask for an explanation. What is in the favor of our taxpayers will be to correct their revenues before we arrive.

"WITH RENT INSPECTIONS, 326 THOUSAND NEW LANDLORDS FILED A DECLARATION FOR THE FIRST TIME"

Last year, we went to 425 thousand residences during rent inspections. By performing data analysis, we visited these residences that we thought were for rent but were not declared. We also sent messages to the landlords and warned them by conveying these findings of ours. Last year, 326 thousand new landlords filed a declaration for the first time. We continue to receive information from tenants.