Publication: Turkey - Country Economic Memorandum (CEM) : Sustaining High Growth - The Role of Domestic savings : Synthesis Report
Date
2011-12
ISSN
Published
2011-12
Author(s)
World Bank
Abstract
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.
Citation
“World Bank. 2011. Turkey - Country Economic Memorandum (CEM) : Sustaining High Growth - The Role of Domestic savings : Synthesis Report. © Washington, DC. http://openknowledge.worldbank.org/entities/publication/ccfc78ef-de1e-50bb-80f9-257bc9d01f70 License: CC BY 3.0 IGO.”