The clues will be in the 2019 budget
While the new economic program (YEP) did not create the expected positive reaction, markets are now waiting to see how the program will be shaped in detail and how it will be implemented.
This need is expected to be answered largely by the 2019 draft budget that is supposed to come to parliament on Oct. 17.
This will be the first budget under the new administrative system. The budget, which will be prepared by the presidency, is required to come to parliament by Oct. 17 according to the laws.
Once the draft is made public, it will be possible to see in detail some of the main targets and measures that were written in the YEP.
The changes foreseen in taxing and spending items will come out more in detail in the budget. For instance, looking at the sub items in tax collection, one would be able to see whether or not the mechanisms in the fuel system that was recently endorsed would continue, which will enable market analysts to have more detailed calculation in the credibility of macroeconomic balances including inflation targets.
By the same token, seeing the reductions in investment and spending in the budget will enable to question more rationally whether these cuts will be feasible or not. Even though we would have to wait for the new year for all the exact spending details for investment projects, the investment items in the budget will improve the means for a better analysis.
In addition, the allocation in the personnel spending item will reveal the rates for wage rises for workers, civil servants and pensioners. That, in turn, will enable the markets to better see forward in terms of developments about domestic demand.
The criticisms toward the YEP concerning the banking sector and the measures that are needed to be taken has no relevance with the budget. For that we need to wait for the works on the financial situation of the banks and the debt levels of the real sector to finish. It is clear that these works should finish as soon as possible.
The details in the budget as well as the measures to be taken in the banking sector will influence to a large extent the credibility of the YEP. But one has to say that markets are not that hopeful on the urgent steps to be taken.
In fact, the data that come day by day show that the economic hardships are getting bigger and there is need for urgent steps in order to overcome difficulties.
According to data announced by the Central Bank on Sept. 24, business confidence among manufacturers slid 6.8 points to 89.6 points in September, its lowest since April 2009.
Manufacturing industry’s capacity utilization rate fell to 76.2 percent, its lowest level in 2.5 years, from 77.8 percent in August, Central Bank data also showed.
Similarly a statement from Fitch came on the same day saying “new data highlights Turkish banks’ Liquidity Risk.”
In sum, all this data show economic hardships are getting deeper each passing day, which requires speedy action.