Turkey unveils three-year austerity plan to slow high inflation

ANKARA — Turkey announced Monday a three-year austerity plan aimed at reducing public spending to calm inflation that reached heights of nearly 70 percent year-on-year in April.

The government said it will limit recruitment and transport spending for public servants, among other measures.

“Our priority is to combat the high cost of living. Low single-digit inflation is essential for sustainable growth,” Finance Minister Mehmet Simsek said during a presentation of the economic plan in Ankara.

The plan includes numerous budget cuts “for the entire public service” some of which will require legislative changes to be submitted to parliament, the minister said.

The purchase or lease of any new public service vehicle will be banned for three years, except for “mandatory requirements” concerning the health, security, and defense sectors.

The use of imported vehicles will also cease within the public service, the minister said.

Discipline spending

The construction or purchase of public buildings is also suspended for three years, except for those built to reduce earthquake risks or those affected by natural disasters.

READ: Turkey inflation hit 68.5% ahead of election

Other budget cuts are also planned to “discipline spending”, such as a 10 percent reduction in public budgets for the purchase of goods and services and a 15 percent cut in investments — with the exception of spending in regions affected by the February 2023 earthquake.

The minister did not specify the government’s policies on salaries but the number of recruitments in the civil service will be limited to the number of retirements.

In mid-April, Turkey’s Labour Minister Vedat Isikhan announced a freeze on the minimum wage, which is usually raised in July.

The net minimum wage was raised by almost 50 percent on January 1 to 17,002 Turkish lira ($528).

Inflation reached 69.8 percent year-on-year in April — up from 68.5 percent in March, according to official data published in early May.

Inflation forecast

Last week, the head of Turkey’s central bank, Fatih Karahan, estimated that inflation would start slowing in June and raised the year-end inflation forecast to 38 percent, up from a previous estimate of 36 percent.

READ: Turkey’s central bank raises inflation forecast

Simsek forecast a return to single-digit inflation at the end of 2025.

The staggering rise of consumer prices and the collapse of the Turkish lira against the US dollar and euro are deemed responsible for the severe electoral setback inflicted on President Recep Tayyip Erdogan and his AKP party in the March 31 municipal elections.

A group of independent Turkish economists, ENAG, estimated inflation at over 124 percent year-on-year in April — up five points month-on-month.