Country Economic Memorandum
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Publication
Turkey’s Transitions : Integration, Inclusion, Institutions
(Washington, DC, 2014-12-01)Turkey has always been a country of strategic significance. Its geographic position as a bridge between East and West, its long and unique history of relations with the European Union (EU), and the particular rout the Republic of Turkey chose towards modernization after its foundation in 1923 have attracted the attention of historian and political scientists a like. More recently, Turkey’s economic success has become a source of inspiration for a number of developing countries, particularly – but no only – in the Muslim world. Over the last two years, however, questions have emerged over the lessons to be drawn from Turkey’s experience. Economic growth has come down to a modest 3-4% range - from well over 5% during 2002-2011 - and risks related to the country’s large external financing needs have not been banished. Critics have raised questions over the strength of Turkey’s legal and economic institutions, and economists are concerned that Turkey may remain ‘trapped’ in its current middle income status. This publication is addressed to policy makers both from other emerging markets and from Turkey itself. To the former, if offers lessons in how Turkey progressed towards international integration and increased social inclusion. To the latter, it offers a narrative of the country’s achievements and remaining challenges that may help define the reform agenda going forward. -
Publication
Turkey - Country Economic Memorandum (CEM) : Sustaining High Growth - The Role of Domestic savings : Synthesis Report
(Washington, DC, 2011-12)Domestic savings in Turkey declined significantly in the 2000s. The domestic savings rate declined from an average of 23.5 percent of gross national income in the 1990s to an average of 17 percent over the 2000-2008 period, and further to 12.7 percent in 2010. This decline was driven by the sharp fall in private saving, while public saving increased through most of the period. A strong fiscal adjustment underpinned the improvement in public savings in the post-2001 period. The adjustment was pursued to correct the fiscal expansion of the previous decade, and it led to a sharp reduction in the public debt to gross domestic product (GDP) ratio. This improved the public saving-investment balance and helped reduce the vulnerability of the economy to external shocks. With an expected increase in future investment needs, continued fiscal discipline will be vital for sustainable growth. The fall in private savings after 2001 was mostly a result of the decline in macroeconomic vulnerabilities. While the economy was growing fast, the positive impact of income growth on savings was overridden by an acceleration of private consumption stimulated by the increased availability of credit, fall in interest rates and previously postponed consumption. As the economy normalized and interest rates and inflation declined, so did household precautionary motives for saving. Eventually, however, continued economic stability and implementation of reforms discussed below should encourage saving by raising incomes. Structurally, Turkish households have a strong precautionary motive for savings. Macroeconomic vulnerabilities and the resulting unstable income streams, the risk of unemployment, and health risks are obvious reasons for household decisions to save. Declining interest rates (as in the 2000s) that reflected reduced risk premium and hence vulnerability reduced precautionary savings motives. Households where the head is an employer or self-employed rather than a wage earner tend to save more, while households where there is a green card holder (a non-contributory health program) save less, controlling for the income effect. -
Publication
Turkey - Country Economic Memorandum : Volume 2. Sustaining High Growth, Selected Issues
(Washington, DC, 2008-04)This Country Economic Memorandum (CEM), prepared in collaboration with the Turkish authorities, summarizes recent accomplishments in achieving high growth and analyzes remaining public policy challenges and options available to the authorities to meet these challenges. The country seeks to double the nominal per capita income of its population by 2013. It wants this rapid growth to be inclusive of all segments of society, regions, and economic sectors-especially through improved labor market performance leading to more and better jobs in the economy. At the same time, the authorities want to improve the quality of public services which they see as an important complement to economic growth in improving quality of life. They also believe that the potentially negative environmental consequences of the period of rapid growth ahead need to be managed so that the positive welfare gains from higher per capita income levels do not become eroded by environmental nuisances. Turkey has succeeded in restoring macroeconomic stability and rapid growth, it has been recovering from crisis in 2001 and grew at 7.5 percent per year on average during 2002-2006. In addition, certain dimensions of public sector governance are instrumental in improving quality of life and promoting competitiveness in Turkey including, for example, food safety and environmental protection. Further strengthening of the legal framework and institutions fighting corruption could improve the investment climate, the efficiency of the public sector, and popular support to further reforms, and continuous macroeconomic stability is a necessary (but not sufficient) condition for sustainable growth. Strong fiscal discipline and monetary policy have reduced chronic inflation to below 10 percent in 2005. Public debt has also been reduced and its sustainability has improved. Accordingly, the resilience of the Turkish economy to shocks has improved as demonstrated by the rapid recovery from turmoil in international markets in the summer of 2006 and, more recently, in the summer-autumn of 2007. -
Publication
Turkey - Country Economic Memorandum : Sustaining High Growth, Selected Issues, Volume 1. Main Report
(Washington, DC, 2008-04)This Country Economic Memorandum (CEM), prepared in collaboration with the Turkish authorities, summarizes recent accomplishments in achieving high growth and analyzes remaining public policy challenges and options available to the authorities to meet these challenges. The country seeks to double the nominal per capita income of its population by 2013. It wants this rapid growth to be inclusive of all segments of society, regions, and economic sectors-especially through improved labor market performance leading to more and better jobs in the economy. At the same time, the authorities want to improve the quality of public services which they see as an important complement to economic growth in improving quality of life. They also believe that the potentially negative environmental consequences of the period of rapid growth ahead need to be managed so that the positive welfare gains from higher per capita income levels do not become eroded by environmental nuisances. Turkey has succeeded in restoring macroeconomic stability and rapid growth, it has been recovering from crisis in 2001 and grew at 7.5 percent per year on average during 2002-2006. In addition, certain dimensions of public sector governance are instrumental in improving quality of life and promoting competitiveness in Turkey including, for example, food safety and environmental protection. Further strengthening of the legal framework and institutions fighting corruption could improve the investment climate, the efficiency of the public sector, and popular support to further reforms, and continuous macroeconomic stability is a necessary (but not sufficient) condition for sustainable growth. Strong fiscal discipline and monetary policy have reduced chronic inflation to below 10 percent in 2005. Public debt has also been reduced and its sustainability has improved. Accordingly, the resilience of the Turkish economy to shocks has improved as demonstrated by the rapid recovery from turmoil in international markets in the summer of 2006 and, more recently, in the summer-autumn of 2007. -
Publication
Turkey - Country Economic Memorandum : Towards Macroeconomic Stability and Sustained Growth, Volume 1. Summary Report
(Washington, DC, 2003-07-28)This report addresses key questions facing Turkish policymakers: how to sustain the economic recovery that began in 2002 following the deep crisis of 2001, how to ensure disinflation and public debt sustainability, and how to foster broad-based and equitably distributed growth in the future. After a brief review of the 2001 crisis and the Government response, the report analyzes the economic opportunities and challenges facing Turkey, and identifies policies to build on the economic recovery which began in 2002. The CEM develops a comprehensive four-point agenda for sustainable and more equitably distributed growth. The agenda encompasses: (i) macroeconomic stability, (ii) effective government, (iii) improved business environment, and (iv) stronger social policies. The report closes with medium-term macroeconomic projections to illustrate Turkey's prospects under a scenario of sustained reform and to highlight the risks to growth and macroeconomic stability should the economic program go off track. -
Publication
Turkey - Country Economic Memorandum : Towards Macroeconomic Stability and Sustained Growth, Volume 2. Main Report
(Washington, DC, 2003-07-28)This report addresses key questions facing Turkish policymakers: how to sustain the economic recovery that began in 2002 following the deep crisis of 2001, how to ensure disinflation and public debt sustainability, and how to foster broad-based and equitably distributed growth in the future. After a brief review of the 2001 crisis and the Government response, the report analyzes the economic opportunities and challenges facing Turkey, and identifies policies to build on the economic recovery which began in 2002. The CEM develops a comprehensive four-point agenda for sustainable and more equitably distributed growth. The agenda encompasses: (i) macroeconomic stability, (ii) effective government, (iii) improved business environment, and (iv) stronger social policies. The report closes with medium-term macroeconomic projections to illustrate Turkey's prospects under a scenario of sustained reform and to highlight the risks to growth and macroeconomic stability should the economic program go off track. -
Publication
Turkey - Country Economic Memorandum : Towards Macroeconomic Stability and Sustained Growth, Volume 3. Statistical Annex
(Washington, DC, 2003-07-28)This report addresses key questions facing Turkish policymakers: how to sustain the economic recovery that began in 2002 following the deep crisis of 2001, how to ensure disinflation and public debt sustainability, and how to foster broad-based and equitably distributed growth in the future. After a brief review of the 2001 crisis and the Government response, the report analyzes the economic opportunities and challenges facing Turkey, and identifies policies to build on the economic recovery which began in 2002. The CEM develops a comprehensive four-point agenda for sustainable and more equitably distributed growth. The agenda encompasses: (i) macroeconomic stability, (ii) effective government, (iii) improved business environment, and (iv) stronger social policies. The report closes with medium-term macroeconomic projections to illustrate Turkey's prospects under a scenario of sustained reform and to highlight the risks to growth and macroeconomic stability should the economic program go off track. -
Publication
Turkey - Country Economic Memorandum : Structural Reforms for Sustainable Growth, Volume 1. Main Report
(Washington, DC, 2000-09-15)This country economic memorandum shows that fiscal imbalances are key to understanding Turkey's inflation problem, and its volatile growth. Its findings suggest that the country's inability to sustain high growth can be closely linked, among many factors, to the lack of macroeconomic stability. Unsustainable fiscal policy, has put repeated pressure on its currency, and led to chronic, and high inflation. Thus, when facing crises, fiscal policy has been unable to withstand, or influence on the business cycle; instead contractionary policies have been implemented to achieve monetary stability, actually worsening the real impact of shocks. It is also suggested that previous attempts at stabilization, failed precisely because they did not address the structural sources of fiscal deficit. Following an analysis on Turkey's macroeconomic framework, the report reviews the reform agenda on the infrastructure, agriculture, and banking sectors, and the country's medium-term prospects, but emphasizes the influence of the policy environment on total factor productivity growth, as a key explanatory factor, recommending structural policies to generate at least a primary surplus of three percent of GNP, prioritize social security, and social assistance, and avoid unsustainable contingent liabilities, by deregulating energy and telecommunications sectors, and, pursue financial sector reform. -
Publication
Turkey - Country Economic Memorandum : Structural Reforms for Sustainable Growth, Volume 2. Statistical Annex
(Washington, DC, 2000-09-15)This country economic memorandum shows that fiscal imbalances are key to understanding Turkey's inflation problem, and its volatile growth. Its findings suggest that the country's inability to sustain high growth can be closely linked, among many factors, to the lack of macroeconomic stability. Unsustainable fiscal policy, has put repeated pressure on its currency, and led to chronic, and high inflation. Thus, when facing crises, fiscal policy has been unable to withstand, or influence on the business cycle; instead contractionary policies have been implemented to achieve monetary stability, actually worsening the real impact of shocks. It is also suggested that previous attempts at stabilization, failed precisely because they did not address the structural sources of fiscal deficit. Following an analysis on Turkey's macroeconomic framework, the report reviews the reform agenda on the infrastructure, agriculture, and banking sectors, and the country's medium-term prospects, but emphasizes the influence of the policy environment on total factor productivity growth, as a key explanatory factor, recommending structural policies to generate at least a primary surplus of three percent of GNP, prioritize social security, and social assistance, and avoid unsustainable contingent liabilities, by deregulating energy and telecommunications sectors, and, pursue financial sector reform.