UPDATE - Economy to remain top priority after Turkey referendum

UPDATES WITH MORE QUOTES FROM MINISTER, BACKGROUND

By Bahattin Gonultas and Muhammed Ali Gurtas

ANKARA (AA) - Economic development will continue to be the top priority after Turkey's referendum on April 16, Finance Minister Naci Agbal said on Thursday.

Speaking to Anadolu Agency’s Editors’ Desk in Ankara, Agbal said the government will discuss additional support and incentives to boost economic activities in the country.

"The economy will also have two main pillars: the first one is structural reform, the second is new support and incentives to further strengthen economic recovery," he said.

The measures will positively impact the exchange rate, interest rates, economic growth and capital inflow after the referendum, he said.

Millions of Turkish citizens will vote on Sunday in the referendum which calls for constitutional changes and handing wide-ranging executive powers to the president.

The minister said Turkish economy’s recovery in the last quarter of last year came at the back of government incentives and support.

The finance minister also said the government will maintain fiscal discipline in the coming months.

"We will never give up on fiscal discipline," he added.

Turkish economy expanded at a rate of 3.5 percent in the last quarter and 2.9 percent in 2016, according to the Turkish Statistical Institute.

About the government's budget performance, Agbal said a sustainable fiscal discipline had been observed in the last 14 years.

"The government's support to the economy through fiscal policies has been evaluated positively by the markets. We will apply temporary tax reductions until this September, and then we will end it," he said.

"The government ran a budget surplus of 4.6 billion Turkish liras [around $1.24 billion] in January-February this year. The budget is continuing to comply with our targets," he added.

This February, the government reduced by 6.7 percent the special consumption tax on white goods -- electronic goods that tend to be white in color such as refrigerators -- and cut 18 percent value-added tax on furniture to 8 percent for the next three months in a bid to support domestic demand.

Agbal said the impact of tax reductions on furniture and household appliances had been positive for markets; sales of white goods and furniture had increased by 40 percent and 15 percent, respectively.

Recalling the government's efforts to enhance the capacity of the credit guarantee fund (KGF) Agbal said: "Around 157,000 companies benefited from that guarantee and reached 114 billion Turkish liras [some $31 billion] finance through KGF."

Early this year, the parliament approved a bill to provide a collateral of up to 250 billion liras (some $69 billion) to boost bank loans for businesses by covering non-performing loans at up to 7 percent of all loans -- an increase from the current 3 percent.

"We provided a significant cash flow in favor of the economic growth through banking channels and fiscal policies," Agbal said.

The minister also said the government is taking the price stability issue very seriously since the inflation figures have been showing an upward trend in recent months.

"There is a high correlation between prices and foreign exchange rate fluctuations. The exchange rate effects will be eliminated in the coming months and then a downward trend in inflation will be observed," he added.

According to the Turkish Statistical Institute, Turkey's annual inflation rate rose 11.29 percent year-on-year in March from 10.13 percent in February.

The U.S. dollar/Turkish lira exchange rate was 3.02 on average last year while one dollar was traded for 2.71 liras in 2015.

The lira has witnessed harsh foreign exchange rate fluctuations in recent months. Dollar/lira rate saw a historic hike -- around 3.94 liras -- in mid-January this year.