The unprecedented level of economic growth in Turkey during the
last decade have created an economy with a GDP person of USD$
10.000, an inflation rate cut down below the double digits, a
purchasing power more than quadrupled, capacity utilization ratio
of 75.6%, a government budget deficit below the Maastricht criteria
of 3% and a public debt to GDP reduced down to 36% of the GDP.
However despite such a glimmering performance, the problem of
current account deficit continued to haunt the Turkish economy and
the country's current account deficit has recently exceeded
USD$ 55 billion and the IMF forecast for the Turkish current
account deficit for the year 2014 is USD$ 61.5 billion.
The main problem with the current account deficit is that it is
intricately connected with growth of the Turkish economy because a
significant portion of this deficit is accounted for the energy
needs of the country which is heavily dependent on energy imports
due to lack of domestic energy resources that can meet the local
demand. That's why the country's economic growth or to be
more precise its energy needs to fuel this economic growth leads to
importing more energy which in turn contributes significantly to
the current account deficit. This problem is compounded with a
fluctuating exchange rate and low savings. The TL/USD exchange rate
stands at 2.17 as of January 7, 2014 and the national saving rate
hit the rock bottom to stand at a historically low level of 12% of
the GDP. The strategy adopted by the authorities is to increase
savings to deal with the current account deficit.
Tax Increases and The Spending Cuts
Higher level of savings can act as a cushion for the economy
burdened by such a level of current account deficit, to safely land
on in case of an economic emergency. Therefore to increase the
savings looks like an imperative for Turkey. However since the
energy consumption is a must for the economic growth of the
country, the spending cuts have to be directed to somewhere else.
The Turkish authorities have recently focused their attention to
consumer electronics, mainly the cell and the smart phones and the
automobiles and the new regulation which will be in effect on
February 2014 imposes new taxes, higher down payments and smaller
number of installments for such products. These two items are
contributing a substantial sum to the current account deficit. In
2013 almost 80% of the cars that the Turkish consumers have bought
were produced abroad, so added a burden to the current account
deficit. The sale of another import item, the smart and the cell
phones are on the rise as well. Last year during the first nine
months the sale of such phones have increased by 20%.
Hence the authorities are taking a reasonable measure by trying
to cut the spending and level of imports and to boost the savings
in a period when the expectations for the global economy are not
very bright and the abovementioned difficulties for the national
economy still lingers.
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