Turkiye President Recep Tayyip Erdogan is in full election mode as he decided to allow more than 2 million Turkish workers to retire early, a move that will swell the government spending to a record level at a time when the country’s economy is under severe pressure.
From a court decision of sentencing and banning his supposed rival to the latest move, it is clear that Erdogan is no mood to leave the office, showing everything thing is possible in politics.
Last week, a court sentenced Istanbul’s popular mayor, Ekrem Imamoglu, to around three years in prison and barred him from politics for allegedly insulting the judges in the Supreme Election Council for their decision of canceling the mayoral election results in 2019.
The decision comes six months ahead of the presidential and parliamentary elections in Turkey, and is widely regarded as Erdogan’s move to block Imamoglu from running against him as the rival candidate.
Meanwhile, allowing early retirement is meant to ease economic hardships in the run-up to tight elections with the inflation hitting the masses hard and Erdogan’s dwindling popularity.
So, the fiscal stimulus – also covering the minimum wage, gas bills and other areas – is seen directed at voters ahead of presidential and parliamentary elections that pose Erdogan’s biggest political test in two decades in power.
Opinion polls show the president and his ruling AK Party have shed support in recent years, as the currency tumbled and living costs rose. With inflation having touched a 24-year high, the vote in May or June is too close to call, the polls suggest.
These elections come at a time when Turkiye’s robust economic growth rate is expected to slow further despite Erdogan’s unorthodox policy programme of slashing interest rates to boost exports and spending.
The rate cuts sparked a lira currency crash a year ago and sent inflation soaring above 85 percent in October, leaving households struggling to afford basic needs such as food, energy and rent.
However, the lira has steadied in recent months, while inflation is expected to fall sharply next year, with Ankara forecasting end-2023 inflation of 24.9 percent. Economists and officials predict inflation of 40 percent at the time of the election.
Meanwhile, public finances are strong compared to Turkey’s emerging market peers, leaving plenty of room for stimulus. The 2023 budget includes 4.47 trillion lira ($239 billion) in spending and sees a deficit of about 3.5 percent of GDP for this year and next.
The record price tag for social aid accounts for 1.4 percent of the budget. Rollouts in the first days of 2023 will include winter energy subsidies, support for students, wage hikes for civil servants, a minimum wage increase and write-offs for some debt.
The raft of pre-election spending has been made cheaper by a slide in the government’s borrowing costs. A series of rules requiring banks to bulk up on treasuries drove 10-year yields down to single digits from a 26 percent peak.
Erdogan on Wednesday ditched an age requirement, enabling around 2.25 million people to retire immediately and delivering on a measure long sought by labour groups. It covers those who started working before September 1999 and who completed 20-25 years of social security-registered working life.
Bankers say they do not expect all those affected to retire immediately, and said the move could be inflationary.
Erdogan promised loan opportunities to help employers meet the cost of severance payouts, with the Treasury implementing a loan package backed by the state Credit Guarantee Fund.
Last week, the government raised the monthly minimum wage to 8,500 lira ($455) for 2023, up 100 percent from a year earlier.
The hike, intended to blunt the sting of inflation, raised employers’ concerns over increased costs and layoffs. But the industrialists say the move will result in increased prices and jobs cut.
Spending on energy subsidies – especially fuel, electricity and natural gas – would reach 530 billion lira in 2023, up from 200 billion in 2021, according to a finance minister presentation.
A total of 142.9 billion lira has been earmarked for 2023 spending in the farm sector on support programs and investment payments.
Spending on social aid in the 2023 budget was raised to 258.4 billion lira. Spending on education will be 650 billion lira, while 145.4 billion lira was set aside for support to the real sector.