Turkey’s president has sharply increased the country’s minimum wage to ease the cost of living for workers grappling with one of the world’s highest inflation rates.
The rise comes ahead of elections next year in which long-serving president Recep Tayyip Erdoğan faces his toughest battle yet to hold on to power.
Turkey’s minimum wage would be TL8,500, or $455 a month, in 2023, Erdoğan said in televised remarks on Thursday. The figure is double the rate it was at the start of 2022 and 55 per cent higher than it has been since July. He also signalled another rise may be in store in the coming months.
“If we see an unexpected situation, we will not hesitate to make an interim adjustment, as we did last year. As a government that has increased the income and welfare of our workers, we won’t allow anyone’s rights to be lost. We are here for our nation,” Erdoğan said.
Inflation in Turkey has been surging, hitting 84.4 per cent in November, as Erdoğan ordered his central bank to slash borrowing costs and boost the economy with cheap credit after two decades in power. Erdoğan subscribes to an unorthodox view that high interest rates fuel inflation.
However, cutting interest rates in the face of soaring inflation has undermined the lira, which has lost about half of its value since the bank began reducing rates in September last year.
Erdoğan said his efforts to expand the $800bn economy had paid dividends. “We have achieved the most tangible results of our efforts to grow through investment, employment, production and exports,” he said.
As soaring prices have made even basic goods such as food and fuel more expensive, unhappiness with the government has grown, with opinion polls showing support for the ruling party at historical lows.
The wage rise, along with increased fiscal spending, could help improve the ruling party’s electoral chances, say analysts. The government had in September revised its year-end budget deficit to TL461.2bn, or about 3 per cent of gross domestic product, after posting a roughly balanced budget in the first three quarters of 2022.
Presidential and parliamentary elections are due to take place in June, though political analysts have said Erdoğan could move those forward by a month or two to capitalise on the stimulus measures before their impact wanes in the face of stubborn inflation.
“The government thinks this wage hike is a good improvement and is willing to go even further” before the elections, said Ceyhun Elgin, a professor of economics at Boğaziçi University in Istanbul.
“However, in this high inflationary environment, the positive effect for workers will unfortunately dissipate within three or four months. It will also hurt Turkish industry, which relies on cheap labour, especially exporters,” he said.
Turkey’s central bank governor forecasts year-end inflation of 65 per cent while most economists say this will be exceeded.
At its latest monetary policy meeting on Thursday, the central bank left rates unchanged at 9 per cent, as expected. Interest rate cuts in late 2021 and again this autumn reduced the benchmark measure by a cumulative 10 percentage points, and Turkey now offers investors the world’s lowest real interest rates, when adjusted for inflation, at minus 75 per cent.
