Turkey unveils package to rein in spending, boost efficiency

By Nevzat Devranoglu

ANKARA (Reuters) - Turkey will rein in public spending and boost efficiency under a savings plan announced on Monday, launching only essential state investment projects in a fresh move to build confidence in an economic tightening programme.

The steps, unveiled by Vice President Cevdet Yilmaz and Finance Minister Mehmet Simsek, come as Turkey returns to more orthodox policies, seeking to boost fiscal discipline and price stability after years of turmoil that fuelled soaring inflation.

Annual inflation climbed to 69.8% in April and is expected to peak at 75-76% in May before falling to 38% at year-end, according to the central bank forecast in its quarterly inflation report last week.

Under a policy U-turn since Simsek took office last year, the central bank has already pursued an aggressive rate hike cycle, raising its policy interest rate by 4,150 basis points.

In the latest move, a package of state savings measures, Simsek said public institutions' new vehicle purchases and rentals, as well their purchase and construction of new buildings, would be paused for three years.

"We want to strengthen the economic foundations of our country by ensuring fiscal discipline," Simsek told reporters.

"Directing investments to effective areas will be a critical element in this package. We will accelerate structural reforms and make many reforms in public finances."

Savings would also be made in public sector employment, energy and waste management and communications, he said, without giving a figure for the value of the savings that would be made.

Funds allocated for state institutions' purchases of goods and services will be reduced by 10% and those for investment will be cut by 15%, while the number of new public sector personnel would be limited to the level of those retiring.

"We will contribute to disinflation with the fiscal policy steps taken today," Simsek said. "We aim to save money by increasing efficiency in the public sector."

Simsek said fiscal discipline was necessary for lasting price stability, to provide resources to meet the cost of last year's devastating earthquake and for green and digital transformation.

(Reporting by Nevzat Devranoglu and Ezgi Erkoyun; Writing by Daren Butler; Editing by Nick Macfie)