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(Bloomberg) — Turkey is weighing whether to raise electricity and natural gas prices, according to people familiar with the matter, as surging global energy costs risk increasing the burden of state subsidies.
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The increases could come as early as this month, the people said, asking not to be identified because the discussions are private. Deliberations, including on the scale of any potential increase are ongoing, they said.
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The Energy and Treasury ministries declined to comment. Any increase needs the approval of President Recep Tayyip Erdogan.
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The Turkish government has for several years subsidized electricity and heating bills for households. Higher utility prices would complicate Turkey’s disinflation program, which is a top priority for policymakers after years of soaring costs.
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Annual inflation slowed more than expected to 30.9% in March, but economists expect renewed pressure in the coming months.
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The immediate impact of higher oil prices on Turkish inflation is limited because fuel makes up only about 3% of the basket, wrote Selva Bahar Baziki of Bloomberg Economics. “The bigger threat will come from second-round effects, as firms pass higher energy costs as well as currency weakness into prices,” she added.
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“If oil prices remain at current levels, the total cost of the increase to Turkey’s budget could be around 620 billion liras ($14 billion) until the end of the year,” Energy Minister Alparslan Bayraktar said late last month.
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The country has also been constraining gasoline prices through tax adjustments, most recently reinstating a sliding-scale mechanism that cuts fuel taxes to “significantly limit” the impact on consumer inflation, Turkish central bank economists wrote in a report.
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Authorities are also considering changes to how natural gas subsidies are distributed, potentially linking support more closely to consumption levels and regional climates, the people said.
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—With assistance from Selcan Hacaoglu.
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English (US)