December 8, 2016 / 4:34 PM / 8 months ago

UPDATE 3-Turkey to tighten belt, offer easier credit as growth stalls

* PM vows no unnecessary government spending in 2017

* Easier credit for firms, banks can restructure loans

* Growth seen negative in Q3, lira has tumbled 20 pct (Recasts with steps announced)

By Ercan Gurses and Nevzat Devranoglu

ANKARA, Dec 8 (Reuters) - Turkey's prime minister said on Thursday the government would make no unnecessary spending next year but would offer easier credit for the private sector as he announced measures to boost a stalling economy and shore up the lira.

The steps outlined by Binali Yildirim include cheaper funding for companies, easier loan restructuring for banks, and a tighter lid on public spending.

"There won't be any unnecessary spending in 2017. No new buildings, no new car purchases, and no trivial trips by the government," Yildirim told a news conference, flanked by cabinet ministers.

The gloomy economic outlook marks a sharp turnaround for Turkey, once considered one of the world's most promising emerging markets thanks to its youthful population and years of rapid growth under the ruling AK Party.

Investors are no longer as optimistic. Third quarter growth figures due next week are expected to have turned negative for the first quarter since 2009.

Yildirim said 250 billion lira ($70 billion) in loans would be created to help struggling firms, while there would be additional incentives for investments in production and tax refunds on construction. Some social security premiums would be postponed for employers.

The banking regulator had also agreed to let banks restructure loans to the private sector, he said.

But he said the measures would not require any additional government borrowing or compromise budget discipline. No new state employees would be taken on next year, beyond around 60,000 mostly police and teachers already agreed.

Yildirim also announced a 7.5 percent cap on the deposit rate banks can offer government agencies, a bid to bring down the cost of borrowing, confirming a Reuters report.

"UNDERWHELMING"

The government's economic coordination committee has met several times in recent weeks in response to the lira's steep decline. The currency has fallen as much as 20 percent this year, hit by a strong U.S. dollar and concern about the crackdown that followed a failed coup in July.

President Tayyip Erdogan has said Turks should convert forex into gold or lira, a call heeded by some institutions and individuals. The lira has since recovered somewhat.

But Yildirim's steps left some economists unconvinced.

"Contrary to market expectations for measures to address currency weakness, the package was mostly about credit growth," said Nomura economist Inan Demir, describing the response to the lira weakness as "underwhelming".

Yildirim said state institutions would avoid contracts in foreign currency unless strictly necessary and said existing contracts would be converted to lira where possible. He said Erdogan's call was already paying dividends.

Turkey's postal service on Thursday converted $172 million into lira, following similar steps by the defence ministry, energy market regulator and stock exchange.

$1 = 3.4610 liras Additional reporting by Ece Toksabay, Humeyra Pamuk and Tuvan Gumrukcu; Writing by Nick Tattersall; Editing by Angus MacSwan

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