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Turkey raised on Sunday its special consumption tax on fuels by 200%, which resulted in 21% more expensive gasoline and diesel at the pump, as Recep Tayyip Erdogan looks to raise budget revenues after massive spending for rebuilding from the February earthquake and for the May presidential elections that saw the Turkish President securing another five years in office.
Turkey’s public finances have deteriorated as the country has had to pay much higher prices for energy imports and has earmarked funding for rebuilding the areas hit by the devastating earthquake in Turkey and Syria in early February. Erdogan also splurged on spending ahead of the presidential election in May.
Overall, the rebuilding from the earthquake is estimated to cost Turkey around $100 billion.
The country, however, has been struggling with finances in recent years and has seen double-digit inflation rates, and even 85% inflation at the end of last year. Turkey has tried to prevent its currency from collapsing and has spent a lot of its foreign currency reserves to do that.
The fuel consumption tax, which was tripled this weekend, is the latest move to collect revenues for an increased budget.
This tax, together with the value added tax, will see gasoline and diesel prices for consumers surge by 21%, which would further stoke inflation.
In June, Turkey’s inflation rate was at 38.21% compared to June 2022, slightly lower than expected, but the collapse of the Turkish lira continues to be a concern for government finances.
Despite the soaring inflation, Turkey’s Erdogan insisted until recently to keep interest rates as low as possible, running in the May elections on a platform of low interest rates.
Days after he was re-elected, Erdogan replaced the central bank governor with an economist with U.S. finance background. In June, the central bank raised the key interest rate from 8.5% to 15%, as it decided “to begin the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior.”
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.