|
- Improving
external balances, pulling down inflation and sticking to fiscal
discipline are the three policy priorities of the
MTP.
- The
targets on GDP growth, CAD and budget deficit are quite realistic
while inflation targets look overly optimistic
- The
government also announced some macroprudential measures to restrain
loan growth
The government’s
three-year medium term program (MTP) disclosed by Deputy PM Ali
Babacan provided no major surprises. We believe that with the
exception of inflation, all targets are realistic and achievable.
It is also encouraging that the government is seeing external
imbalances as the main risk and although it has come up with some
macroprudential measures aimed at curbing domestic demand, the
government is sober enough to expect no miraculous improvement in
the near term. Improving external balances, pulling down inflation
and sticking to fiscal discipline are the three policy priorities
of the MTP.
The government is
concerned by the low savings ratio and the resulting imbalances.
The savings ratio has dropped to 12.6% of GDP and despite the
gradual improvement observed this year and expected over the next
three years, the government acknowledges the fact that the CAD will
remain wide for some time. The government sees the CAD narrowing
from 7.1% of GDP this year to 6.4% of GDP in 2014 and further to
5.5% over the next three years. These are more or less in line with
the J.P.Morgan forecasts of 7.0% and 6.5% for 2013 and 2014,
respectively.
The government seems to
be working on reforms towards achieving a structural improvement
but sees that these reforms will bear fruit only in the medium to
long run. Concentrating on domestic energy production, improving
efficiency in energy production and distribution, incentivizing
infrastructure projects towards supporting exports, increasing the
value-added in tourism are some of these projects. More
realistically, the government has also come up with measures
towards curbing consumer lending and credit card usage in the short
term. Putting a ceiling on credit card limits (4 times the monthly
income of the user); increasing the risk weighting of credit cards,
increasing the minimum payment requirements for the credit cards
are some of these measures. Babacan also stated that these measures
could be broadened to other types of consumer lending in the coming
months. These measures will likely keep the external balances under
control. Provided that these measures are implemented and fiscal
discipline is maintained, we think that the government’s CAD
projections are quite realistic.
The second policy
priority is disinflation and here we must say that the targets are
overly optimistic. The government expects inflation to come down to
6.8% by the end of this year and further to 5.3% by the end of
2014. Importantly, the government hopes to reach these targets
under respectable GDP growth assumptions. The government sees
growth at 3.6% this year and at 4.0% in 2014. Interestingly, the
government’s growth assumptions are more or less in line with ours
while the inflation forecasts are well below ours. We see growth at
3.5% this year and at 3.8% in 2014. In this scenario, the inflation
is expected to fall to 7.6% by the end of this year and to 6.3%
next year.
The government is
seemingly constrained by the CBRT’s medium term inflation target of
5.0% and feels obliged to come up with targets in line with this.
Furthermore, neither the government nor the CBRT get punished by
the markets for not reaching their inflation targets. For instance,
we believe that the investors will be comfortable as long as
inflation remains below the 8% mark this year. This, in our view,
incentivizes the government to come up with such optimistic
forecasts.
Finally, it is
encouraging that the government is sticking to fiscal discipline
during an election cycle. Thanks to strong revenue collection (tax
revenues as well as privatization receipts), the 2013 central
government budget deficit target is reduced to 1.2% of GDP from
2.2%. The 12-month trailing budget deficit was already 1.3% of GDP
as of end-August. The new target suggests that the government has
no ambition to increase spending in the pre-election period. The
MTP has quite realistic fiscal targets for the next three years as
well. Because some of the privatization revenues collected this
year will be absent in 2014, the central government budget deficit
is expected to rise to 1.9% of GDP next year. The deficit is
expected to fall to 1.6% of GDP in 2015 and to 1.1% in 2016. Thanks
to continued fiscal discipline, the MPT sees the gross public debt
to decline to 30% of GDP from the current level of 35% over the
next three years. Again, we view this target as being quite
realistic.
|
