Last October, Türkiye’s inflation rate soared to 85%. On a year-on-year basis, Türkiye’s inflation rose 38.21% in the first 6 months of the year in 2023. The Turkish lira was last trading at 26.1 against the dollar at the time of publishing today. If last October was bad, things are about to get worse.
The Turkish government recently increased the value-added tax (VAT) on various sectors of the economy as Türkiye’’s budget deficit in the first four months of the year amounted to half the deficit projected for the entire year and is forecasted to reach 6% of GDP by year-end 2023. The deficit grew to $10.21 billion during the first five months of 2023, up from $4.78 billion in 2022.
Read: Türkiye Central Bank hikes interest rates by 6.5 percent, Lira falls
The Turkish VAT on certain cleaning products was raised from 8% to 10%, home appliances from 18% to 20%, and admin fees for various services were raised by 50%. It will cost 200% more or about $766 to locally register phones bought abroad Türkiye’’s Official Gazette.
To help lower inflation, Türkiye’s Central Bank raised interest rates from 8.5% to 15% last month.
Erdogan is expected to visit the UAE, Saudi, and Qatar in the coming days as Ankara hopes to attract up to $25 billion in investments from the Gulf, via privatization and acquisitions, according to Bloomberg.
impact of Turkish VAT on foreign trade unclear
Türkiye’s foreign trade volume in Turkish Lira jumped by 129 percent in the January-June period to 349.5 billion liras, Trade Ministry data showed.
Exports in the local currency amounted to 94.6 billion liras in H1 2023, against 254.9 billion liras for imports.
Exports in Turkish liras leaped 87 percent year-on-year in the January-June period and the annual increase in imports in local currency was 150 percent. It is not clear how the new Turkish VAT increases will impact trade.
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