• Measures planned as 2015 foreign investor outflow reached $10b
  • Turkish household savings rate among lowest in G20, IMF says

Turkey’s government is considering automatically enrolling all employees in the private pension system to increase savings and shield the economy from shifts in foreign capital flows, Turkey’s Development Minister Cevdet Yilmaz said in an interview in Ankara.

Turkey hopes to increase the ratio of savings to gross domestic product to 17.8 percent by end-2018 from 15.6 percent in 2015, which would help lower the nation’s current-account gap, Yilmaz said on Monday. Turkey has one of the lowest levels of household savings among the Group of 20 most industrialized nations, according to the International Monetary Fund.

The governing AK Party regained its parliamentary majority in November elections, ending months of political deadlock following inconclusive elections in June. Installed for a four-year term, it’s now determined to implement structural reforms to reduce the economy’s reliance on foreign capital by maintaining fiscal discipline and encouraging household savings, he said.

“Savings by the public sector has improved and the real issue is to increase the ratio of savings in the private sector,” Yilmaz said. “If you enroll all employees in the private pension system that would encourage savings.”

Deficit Narrowing

Turkey’s current-account deficit is set to narrow to 5 percent of gross domestic product this year, yet remains among the widest of the world’s major economies. The lira weakened 20 percent against the dollar last year as foreign investors sold about $10 billion net of Turkish stocks and bonds, the largest year-to-date outflow on record.

With Turkey’s government matching 25 percent of personal retirement contributions since the first half of 2013, any additional boost to savings could help workers direct cash toward longer-term assets such as bonds from short-term savings-account deposits favored by most households. The government has started pilot work on automatic inclusion in the pension system and capped fees from private pension savings to make the system more attractive.

Inflation, Growth

While Turkey sees a 30 percent increase in the minimum wage helping it reach its 2016 growth forecast of 4.5 percent, the increase “is likely to keep inflation above the target band,” World Bank economists Ulrich Bartsch and Ayberk Yilmaz wrote in an e-mailed report on Monday.

Without an appropriate monetary policy response to fight the inflationary impact, the “minimum wage hike could be deemed counter-productive with efforts to boost the savings rate in the country,” according to Cagdas Dogan, a banking analyst at BGC Partners in Istanbul. “This could again reduce real rates and disincentivize people from saving.”

Inflation accelerated to 8.8 percent in December, the highest year-end level since 2011, missing the central bank’s target for a fifth year. The government’s medium-term program increased its inflation prediction for this year by a percentage point to 7.5 percent.

“The increase in the minimum wage and pensions will make a certain contribution to growth in 2016,” the development minister said. “However, we don’t see a serious increase in domestic demand.”

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