Oil price slump won't ease Turkey's budget discipline
Turkey will not deviate from fiscal discipline despite a recovery in its current account deficit, the country's deputy prime minister in charge of economic policy said Thursday Anadolu Agency reported
"Complacency is not an option in the face of declining oil prices. We will maintain the budget discipline, our efforts to improve savings rates and our will for reform like these prices never fell," Ali Babacan told The Anadolu Agency in New York, where he arrived Thursday to hold talks with investors, fund managers and market analysts.
Brent crude oil prices have declined for five months as weaker demand coupled with abundant supply push prices lower.
Prices fell to their lowest in five years Monday, hitting $68.54 a barrel. For almost four years crude prices had ranged between $90 and $110 until this summer when they began to slide.
Turkey depends on imports for most of its energy needs and has benefitted from lower crude prices. Its 12-month current account deficit dropped by more than a third in September compared to a year earlier to $2.22 billion, the lowest since 2011.
Babacan said Turkey's current account deficit and inflation narrow by 0.5 percentage points with every $10 drop in oil prices.
"We set our medium-term economic program assuming that the prices will be $102 per barrel. So, if they hit $72, this will yield a current account deficit and an inflation rate 1.5 percentage points lower than the estimations," he said.
Turkey's recently announced medium-term program envisages a narrowing current account deficit as a percentage of GDP and increased gross domestic product growth.
Despite these turn of events in its favor created by plummeting crude prices, Babacan reaffirmed Turkey's commitment to budget discipline, stressing that crude prices are subject to change.
"In combatting current account deficit, our structural reforms in the coming future will be very important. These reforms will reduce our dependence on energy imports and improve the savings rates of our country," he said. "We need to be cautious and never loosen our will for reform."
Babacan also weighed in on a planned free trade deal between the U.S. and the European Union.
"Exclusion of Turkey from such a huge trading structure is something unimaginable. We will put in every kind of effort to be a part of it," he said referring to the Transatlantic Trade and Investment Partnership agreement currently being negotiated between the U.S. and the 28-member EU.
He said there are deliberations on several options to ensure Turkey's inclusion in the deal. Turkey is not an EU member but in a Customs Union since 1995.
"One of these options is to create a separate free trade agreement between the U.S. and Turkey," he said. "Another option is the addition of Turkey to the 28-member European block as a 29th party."
One of the first countries to seek close cooperation with the European Economic Community, Turkey began full accession talks with the EU in 2005.
The EU and Turkey established a Customs Union in 1995, which is considered a stepping stone toward becoming a full EU member. The customs agreement removed some of the trade restrictions between Turkey and EU members.
The accession negotiations entered into a stalemate in 2007 because of the Cyprus issue and the opposition of the German and French governments.
Since 1974, the Cyprus island has been divided into a Greek south and Turkish noth zones. Turkey's European Union ambitions are entwined in a solution to the dispute over the future of island.
Babacan said Norway and Switzerland, which are not EU members, should also be included in the Transatlantic deal.
Turkish officials argue that future Free Trade Agreements signed by the EU with other countries, such as the U.S., would effectively open Turkey's market to exports from these states because Ankara is a signatory to the Customs Union agreement.
But, at the same time, it would also effectively block Turkish exports from benefiting from tax advantages in those same states, should Ankara not be a party to the free trade deals negotiated by the EU.