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.