NEWSROOM

In the Economics Monitoring Report 2023 and Monetary Policy report prepared by IKAM, which operates under the umbrella of İLKE Foundation, it is emphasised that the regulations introduced to combat inflation were not adopted by the market, leading to deterioration of expectations.

TURKEY - The issue of monetary policy and the general outlook of the economy, which have been much talked about in recent years, are analysed in the Economics Monitoring Report 2023 and Monetary Policy report prepared by IKAM of İLKE Foundation. While the Economy Monitoring Report 2023 discusses the Turkish economy from many perspectives, the Monetary Policy report evaluates the monetary policy implemented by the economic administration and the Central Bank in the recent period.

Economics Monitoring Report 2023: Outlook of the Turkish Economy and Monetary Policy report was prepared under the editorship of Assoc. Prof. Dr. Ömer Faruk Tekdoğan. The reports were introduced to the public at an event held in Istanbul on 4 June 2024. The Economic Monitoring Report 2023 analyses the economic uncertainties caused by the policies aimed at reducing inflation, the Russian-Ukrainian war, the genocide in Gaza and the disruptions in the Suez Canal, and in the case of Turkey, the economic effects of the 6 February Earthquake, general elections, Central Bank decisions and monetary policies and market movements. The Monetary Policy report analyses the liraisation strategy, the fight against inflation and monetary policy from the perspective of Islamic economics.

Anti-inflation policies affect middle and lower income groups

Stating that Turkey, which struggled with high and continuous inflation from the 1970s to the 2000s, solved this problem to a large extent with the policies implemented in the early 2000s, but this success was lost, Assoc. Prof. Dr. Ömer Faruk Tekdoğan made statements on the subject: "After the COVID-19 pandemic period, Turkey was more negatively affected by the global inflation wave compared to other countries. Considering that monetary and fiscal policies focused on reducing inflation may create an additional financial burden on the middle and lower income group and the problem of decreasing the purchasing power of the wage earners in the face of inflation, it would be appropriate to take measures to prevent deterioration in income distribution in the coming period."

Unemployment rate decreased

According to December 2023 data, there was a remarkable decline in the unemployment rate. Total employment reached 32 million, while the population included in the labour market exceeded 35 million. The labour force participation rate was 53.7%, while the employment rate increased by one point compared to the same period of the previous year to 48.9%. In this period, the number of unemployed decreased by about half a million, while the unemployment rate fell by 1.5 percentage points to 8.9%. Positive developments were also observed in the youth population, with youth unemployment falling to 15.3%, 4.7 percentage points lower than in the same period last year. In addition to the growth in the national economy, employment incentives for young people, On-the-Job Training Programmes and employment-guaranteed vocational courses run by the Turkish Employment Agency (İŞKUR) were effective in these developments.

Unregistered employment rate is decreasing

Improvements were also recorded in informal employment, one of the major problems of the labour market. The rate of unregistered employment, which rose to 33% when the effects of the pandemic were felt most intensely, decreased to 25.4% in the last quarter of 2023. The decrease in unregistered employment may be attributed to the regulation on those who are at retirement age (EYT) adopted by the Parliament. While approximately 2 million people applied for the regulation, it is stated that some of those who retire at an early age may prefer to work informally.

Budget expenditures are increasing

The increase in budget revenues remained significantly lower than expenditures and was recorded as 86.1 per cent. It is emphasised that the highest increases in non-interest budget expenditures were observed in personnel expenditures and current and capital transfers.

Turkish economy failed to solve its structural problems

After the 2008 global financial crisis, domestic expansionary policies continued for a long time, resulting in an economic structure that grew by borrowing. After 2013, productivity in the economy started to decline, while growth was tried to be supported by short-term approaches and demand shocks. As of 2017, inflation rose to double digits, price stability and budget discipline started to deteriorate. It is stated that these structural problems have not yet been resolved.

Rises in commodity markets boosted company profitability

Increasing profit margins in the commodity market caused costs to rise. This situation spread price pressure in sub-sectors or temporary monopolies formed due to bottlenecks pressurised prices upwards. In this process, the real wages of employees eroded and the decline in wages could not be compensated sufficiently, and even if it was, it was criticised on the grounds that it would cause inflation.

The increase in corporate profitability is an important factor in the rise in inflation

In 2023, declaration-based corporate tax collection increased by 2000% compared to the previous year. In the same period, the increase in the collection of income tax withheld at source was limited to 94.3%. Considering that the annual inflation rate announced by TURKSTAT is 64.77%, it is stated that there is no significant increase in the income tax collected through withholding tax.