A minimum wage hike in Turkey could boost the Turkish economy, credit agency Standard & Poor’s said on Monday.
In an interview with Anadolu Agency, S&P credit analyst Aarti Sakhuja said: “Increasing the minimum wage could boost domestic demand, increasing household income, and so it would have an effect on tax revenues.”
The ruling Justice and Development party or AK Party, which won enough seats in the Turkish parliament to form a single-party government, promised, prior to the Nov.1 election, to hike the minimum wage to 1,300 Turkish lira ($446) per month from current minimum wage of 1,000 ($343).
Currently, around five million people in Turkey are minimum wage workers, while businesses that sign collective bargaining agreements establish “base wage” negotiations according to the level of the minimum wage.
According to Sakhuja, the new government will have the chance to enact further structural reforms, which have been previously outlined in the past, and which specifically address increasing economic growth and reducing the current account balance.
“If you look at the prospective reforms, for example, increasing the minimum wage, incentivizing household savings and reforms related to the participation of women in labor market, these all have a supply side effect, thus increasing Turkish economic growth. And, at the same time, such reforms can move the economy away from the dependence on external financing to more organic financing, generating income. If these are indeed implemented, we would see this as a credit positive,” Sakhuja said.
S&P forecasts the country’s GDP will grow just under 3% and that government debt will hold around 30% of GDP between 2015-2018.
