Mehmet Şimşek gives date for single-digit inflation

Treasury and Finance Minister Mehmet Şimşek emphasized that the disinflation process is progressing in a comprehensive and permanent manner, while stating that they are prepared for potential risks and will not allow the decline in inflation to be interrupted.

Speaking to Reuters, Şimşek said, "We are maintaining our year-end inflation forecast; the necessary conditions for the disinflation process are largely in place. Disinflation is proceeding in line with our projected path."

"INFLATION WILL FALL TO SINGLE DIGITS IN 2027"

Stating that inflation will finish the year within the CBRT's forecast range of 19-29 percent, Şimşek noted that it will fall below 20 percent in 2026 and to single digits in 2027. He underscored that they will achieve these targets through the "coordination of monetary, fiscal, income, and supply-side policies."

Şimşek stated, "While monetary policy provides strong support to disinflation through demand, exchange rate, and expectation channels, the increasing coordination of fiscal policy complements this effort."

Defining oil prices, additional customs duties, and unprocessed food prices as "limited upside risks," Şimşek said, "We will prevent the interruption of disinflation by taking the necessary steps against possible shocks."

EMPHASIS ON "TEMPORARY SLOWDOWN"

Stating that economic growth this year may remain "slightly below" the 4 percent targeted in the Medium-Term Program (OVP), Şimşek said this means a "temporary slowdown" rather than a hard landing.

The Minister stated that the output gap will continue to remain in negative territory in the second quarter, and that this outlook will persist as of the end of the year.

Announcing that they will finish the year with a lower current account deficit than the OVP targets, Şimşek stated that the budget deficit will be higher than projected. He emphasized that budget revenues will fall below the target, but despite this, there will be no compromise on fiscal discipline in expenditures.

FINANCING TARGET EXCEEDING 40 BILLION DOLLARS

Stating that the amount of external resources provided under favorable conditions from international financial institutions for development-oriented projects reached a total of 17.4 billion dollars in 2023 and 2024, Şimşek reported that they have secured approximately 7 billion dollars in resources since the beginning of this year.

"We have established our medium-term cooperation framework with the World Bank, the Islamic Development Bank, and the Asian Infrastructure Investment Bank. With the contribution of other international financial institutions, we aim to provide over 40 billion dollars in external financing in the next three years," said Şimşek, noting that the effects of the reforms will become more apparent in the coming period.

Stating that they have taken concrete steps in industry, green transformation, and digital transformation, Şimşek said, "Our goal is to build a strong economic structure that ranks higher in global value chains, runs a current account surplus in the medium term, and focuses on sustainability."

"PROGRAM PASSED THE STRESS TEST"

Stating that they took office after the general elections about two years ago and placed economic policies on a rational basis, Şimşek said that the program implemented during this process has reduced external vulnerabilities and strengthened macro-financial stability.

Şimşek said, "This program has proven its success by passing a real stress test in the face of multiple and sequential shocks. We now have a solid foundation for permanent and sustainable high growth; the Turkish economy has entered a positive cycle."

UPWARD REVISION IN BUDGET DEFICIT

Stating that they expect a "downward deviation" in budget revenues compared to the OVP due to inflation accounting and the slowdown in growth, Şimşek said they do not foresee any deviation on the expenditure side.

"We have not allowed, and will not allow, even the slightest deviation from fiscal discipline on the expenditure side of the budget," said Minister Şimşek, adding, "The nominal expenditure ceiling determined in the 2025 Budget Law is an absolute limit for us, and we will absolutely not tolerate the exceeding of this limit."

Stating that they will remain below the ceiling in non-interest expenditures as they did last year, Şimşek said that the ratio of the budget deficit to national income for 2025 was projected at 3.1 percent, but it is estimated in the report published by the Presidency's Strategy and Budget Directorate that this ratio could rise to 3.9 percent by the end of the year.

Stating that the weak performance in tax revenues is the main reason for this deviation, the Minister expressed that it is possible for the budget deficit to exceed this ratio depending on the trend in nominal national income.