Turkey in Focus

Outlook for

Mehmet ŞİMŞEK

Minister of Finance

March 19, 2015

1

Outline

2

Political Outlook Priorities & Reform Agenda

Macroeconomic Outlook

Long-Term Prospects

Political Outlook

3

4

Importance of Political Stability

Political Stability

Political Stability

5

15 Months

148 Months

0

20

40

60

80

100

120

140

160

Average Lifetime of Governments during 1950-2002 AK Party Governments Since 2002

1923-2002

Average Lifetime of

Governments: 17 months

2002-14

Political Stability

2023 Vision

Political Outlook

Local Elections (March 2014)

Presidential Elections (August 2014)

Parliamentary Elections (June 2015)

6

Source: GENAR, March 2015

AK PARTY: Justice and Development Party

CHP: Republican People’s Party

MHP: Nationalist Movement Party

HDP: People’ s Democratic Party

( %

)

7

4,9

8,9

13,4

25,1

47,7

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY

Which party would you vote for if the elections were held today?

7

Source: ANAR, January 2015





( %

)

8

6,2

7,8

14

25

47

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY


8

Source: Konda, January 2015





( %

)

9

5,6

10,6

15,1

23,3

45,4

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY


9

Source: ORC, January 2015





( %

)

10

6,4

8,2

13,5

23,3

48,6

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY


Source: ORC, February 2015





( %

)

11

4,4

8,9

13,9

23

49,8

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY


Source: ORC, March 2015





( %

)

12

4,9

8,4

13,5

23,2

50

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY


Source: Mak , January 2015





( %

)

13

5,2

6,8

14

25,4

48,4

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY


13

Source: Mak , February 2015





( %

)

14

5,3

8

14,3

24,8

47,6

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY


14

Source: Mak , March 2015





( %

)

15

3,7

9,1

14,2

25,3

47,7

0 10 20 30 40 50 60

Others

HDP

MHP

CHP

AK PARTY


15

Political Stability Structural Reforms

Time to Deepen & Broaden the Reform Agenda

Preparation Phase

2013-14

No Elections for the Next Four Years

Implementation Phase

2015-19

16

A Comprehensive Reform Program

25

Transformation Programs

1,300 +

Micro Reforms

17

Strong Political Ownership

Reforms aimed at avoiding middle-income trap

This is NOT a wish list; it has strong political ownership

Programs are designed with the input of all relevant ministries

Process is supervised by the Economic Coordination Council

18

Cross-Cutting Programs

Rationalization of Public Expenditure

Enhancing Quality of Public Revenue

Developing Statistical

Infrastructure

Combating Informal Economy

Improving Institutional

Capacity at Local Level

19

Enhancing Human Capital Stock & Creating a Strong Society

Supporting Basic & Occupational Skills

Attracting Qualified Human

Resources

Conservation of Family & Dynamic

Population Structure

Supporting Healthy Life & Mobility

Structural Transformation of

Healthcare Related Industries

Developing Health Tourism

20

Higher Sustainable Growth

Enhancing Productivity

Increasing Domestic Savings &

Avoiding Waste

Improving Business & Investment

Climate

Commercialization of R&D

Developing Tech. & Dom. Production

thru Public Procurement

Increasing Labor Market Flexibility

Deepening Capital Markets

Transformation from

Transportation to Logistics

Reducing Import Dependency

21

Sustainable Environment

Improving Energy Efficiency

Enhancing Efficiency of Water Use in Agriculture

Supporting Local & Renewable Energy

Competitiveness & Social Cohesion, Enhancing Urban

Regeneration

22

International Cooperation & Development

Improving International Cooperation for Development

23

Priorities & the Reform Agenda

24

Improving Macroeconomic

Performance

Improving Quality of Institutions

Addressing Kurdish Issue

Enhancing Human Capital Stock

Improving Infrastructure

Increasing Access & Quality of Health

Services

Enhancing Competition



Investing in Local & Renewable Energy

Enhancing Technological Readiness & Innovation

Combatting Shadow Economy

25

Priorities & Reform Agenda to Boost Productivity

Improving Macroeconomic Performance

26

Higher & sustainable

growth

Lower inflation

Lower current account deficit

Maintaining fiscal

strength

Maintaining a healthy banking sector

Higher labor participation

& employment


27

Source: Ministry of EU Affairs 28

EU Accession Process

14

20

0

5

10

15

20

25

Opened Remaining

Progress in almost all chapters

Adopted over 2,000 pieces of legislation to align with

EU standards

The European Commission report (Oct-2014):

• Turkey’s alignment level is quite ‘high’ in many areas

• Progress has been achieved in various levels in 30/33 negotiation chapters

• Turkey has reached ‘advanced’ level of alignment in 26 chapters

Formally, only 14 chapters have been opened

But, 26-27 chapters would have been opened if politics

of enlargement was favorable

EU Accession Process (Chapters)

29


Corruption Perception:

2014: 64th in 175

2002: 65th in 102

Ease of Doing Business:

2014: 55th in 189

2006: 84th in 175

Global Competitiveness: 2014: 45th in 144

2005: 71st in 117 Source: WB, WEF, Transparency International 30


31

Kurdish Issue

Human Toll: nearly 40,000 people

Economic Costs:

• 360 billion TL: cost of combatting terrorism

• 500 billion TL: economic losses

32


A cessation of hostilities for the past 2 years

Never before have negotiations progressed so far

The recent call for disarmament is a significant step forward

Prospects of a lasting settlement remain high

33

Addressing Kurdish Issue: Economic Peace Dividends

Settlement could boost GDP growth by as much as 1 ppt annually for a couple of decades

Regional energy deals could reduce Turkish CAD by as much as 1 ppt annually

34

Enhancing Human Capital Stock

35

Education matters

36

LU

SG

NO

CH

US

HK

NL

AU

AT

DE

SE

CA DK

IS

BE

Finland

France

Japan

UK

Italy

Korea

NZ IL

ES

CY

SI

Czech

SK

EE

PT

LT

Greece

RU PL

HU

Malaysia

Kazakhstan

Latvia

Ar

Libya

Croatia

Uruguay

TR

VE

Belarus

Romania

MX

Lebanon

AZ

Bulgaria

Brazil Thailand

Algeria

Colombia

Serbia

China

Peru

Tunisia

Albania

BA

Ukraine

Georgia

Armenia

ID

6,5

7,0

7,5

8,0

8,5

9,0

9,5

10,0

10,5

11,0

11,5

12,0

12,5

13,0

13,5

3,7 3,9 4,1 4,3 4,5 4,7 4,9 5,1

mea

n y

ears

of

sch

oo

ling

(A

du

lts*

)

log ppp per capita (current international dollar)

Source: HDI Reports Data, IMF WEO Database *25 years and older

9

19

8

10

12

14

16

18

20

2002 2015

Source: Ministry of Finance

Share of Education within Budget (%

)

37

Gross Schooling Rates

11,7

96,5

80,8

35,8 38,0

110,4

103,3

97,1

10

30

50

70

90

110

130

Preschool (age of 4-5) Primary School Secondary School Higher Education

2002-03 2013-14

Source: Ministry of Development 38

(%)

39

Enhancing Human Capital Stock: PISA Results

Source: OECD

Ga

p b

/w T

urk

ey &

OEC

D

76 74

45

65

47

51

29

42,3

38

46

21

35

15

25

35

45

55

65

75

85

Science Maths Reading Average

2006 2009 2012

Other Initiatives

Building skills

Investing in Life-Long Learning

PPPs for on-the-job training for the unemployed

40

Improving Infrastructure

41

Infrastructure Fuels the Economy

Infrastructure development has the potential to*

• Promote growth

• Increase equity

• Reduce poverty

1% increase in road network may increase productivity by

0.5ppt**

42 * Calderon and Serven 2010. ** Infrastructure Fedderke and Kaya (2013)

Investments in Infrastructure

Highways; 138,4

Railways; 41,9

Communication; 24,3

Airways; 11,7 Maritime; 3,3

43

About 220 billion TL investments during 2003-15

January 2003

1.714 Km

Total of Motorways

4.387 Km

Total of State and Provincial Dual Carriageways

6.101 Km

in Total

Highway Network

Source: Ministry of Transport

October 2014

2.244 Km

Total of Motorways

21.317 Km

Total of State & Provincial Dual Carriageways

23.561 Km

in Total

44

İSTANBUL

EDİRNE

ESKİŞEHİR

Polatlı

ANKARA

KONYA

İZMİR

SİVAS

AFYONKARHİSAR

KAYSERİ

BURSA

ERZİNCAN

ERZURUM

KARS

MERSİN ADANA

DİYARBAKIR

ELAZIĞ

MALATYA

ZONGULDAK SAMSUN

Bandırma

VAN

MUŞ

BİLECİK

ÇANKIRI

KIRIKKALE

TEKİRDAĞ

İZMİT

BALIKESİR

AYDIN

DENİZLİ BURDUR

ISPARTA

UŞAK MANİSA

KARAMAN

NİĞDE

OSMANİYE

K.MARAŞ

AMASYA

BATMAN

MARDİN

Yerköy

KARABÜK

Yenişehir

405 km

212 km

533 km

624 km

105 km

Completed (888 km)

Under Construction (1796 km)

Bidding Phase (454 km)

Project Phase (354 km)

GAZİANTEP

Çobanbey

45

High Speed Railway Projects

Future Railways Investments

By 2023 $ 45 billion worth of investment

10,000 km of new high speed railway network

4,000 km of new conventional line

46

# of Airports up to 53

from 26 in 2002

3rd Airport in Istanbul

• 150 million passengers

• An area of 90 million m2

• Construction Cost: €10 billion

• Lease (25 Years): €22.2 billion (excl. VAT)

47

Airports

Projects of the Century

48

First 3-Level Tunnel in the World Canal Istanbul

Projects of the Century

Tube Tunnel 3rd Bridge

İzmit Gulf Transit İstanbul-İzmir Highway High-Speed Train through Ankara-Bursa-İstanbul

49

Considerable Improvements in Mobile and Broad-Band Coverage

50

20

02

33.0 mobile

telephone subscriptions per 100 pop.

20

13

90.9

mobile telephone

subscriptions per 100 pop.

26.8 fixed telephone

lines per 100 pop.

0.03 broadband

internet subcribers/ 100

pop.

17.7 fixed telephone

lines per 100 pop.

12.6 broadband

internet subcribers/ 100

pop.

ICT INFRASTRUCTURE INDICATORS

Turkey

fixed broadband

internet subcribers in 2013 9.6

millions

69.7

millio

ns

mobile telephone subcriptions in 2013

Source: Turkstat

Turkey’s Rank in Logistics

51

0.1-0.5 % Growth

10 % Oil Prices

1 2 5 9 13

15 18 20

21 24 26 28 30 31 32 33 34 35 40 43 44

47 49 54

55 58 61 62 63 65

85 90

110

116

0

20

40

60

80

100

120

140

Ger

man

y

Net

her

lan

ds

Sin

gap

ore

Un

ited

Sta

tes

Fran

ce

Ho

ng

Ko

ng

Spai

n

Ital

y

Ko

rea,

Rep

.

Fin

lan

d

Po

rtu

gal

Ch

ina

Turk

ey

Po

lan

d

Cze

ch…

Hu

nga

ry

Sou

th A

fric

a

Thai

lan

d

Ro

man

ia

Slo

vaki

a

Gre

ece

Bu

lgar

ia

Sau

di A

rab

ia

Ind

ia

Cro

atia

Cyp

rus

Ukr

ain

e

Egyp

t

Serb

ia

Bra

zil

Leb

ano

n

Ru

ssia

n F

ed.

Tun

isia

Geo

rgia

LPI C

ou

ntr

y R

anki

ng,

20

14

Source: LPI Database

Note: In the chart, a smaller number indicates better performance

Increasing Access & Quality of Health Services

52

Healthcare Sector: Key Targets

Become one of the top 5 medical tourism destinations

Attract 750,000 international patients by 2017

Generate $5.6 billion in FX revenues

$3 billion revenue from thermal tourism

53

Healthcare Expenditures

Source: Ministry of Finance

54

Healthcare Indicators

Source: Ministry of Health 55

(Yea

rs)

72

77

70

72

74

76

78

2002 2013

Infant and Maternal Mortality Rate

(per

th

ou

san

d)

(per ten

tho

usa

nd

)

Life Expectancy At Birth

31,5

7,8

6,4

1,6

0

1

2

3

4

5

6

7

0

5

10

15

20

25

30

35

2002 2013

Tax Incentives for Healthcare Exports

18% VAT down to 8%

50% tax relief on CIT & PIT for exports in healthcare services

PIT and CIT exemption for 5 years on proceeds gained from operating rehabilitation centers

Regional Investment Incentives

56


57

Productivity Growth

0,7

2,1

3,0

3,6

3,9

0 1 2 3 4 5

Growth Markets Average

MENA Average

BRICS Average

TURKEY

EU Average

(GD

P p

er w

ork

er,

19

95

-20

11

)

Source: Penn World Tables 58

Labor Productivity

12

14

16

18

20

22

24

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GD

P p

er H

ou

r W

ork

ed

(USD

, co

nst

ant

pri

ces,

20

05

PP

Ps)

Source: OECD

Lost years

Labor Market Reform

Reducing labor market rigidities

Improving quality of education

Increasing the link b/w education & labor markets

Increasing female labor market participation rate

60

Employment Protection Legislation Index

Source: OECD,2013. 61

Source: TURKSTAT, Eurostat, WB

Female Labor Participation Rates

62

70

75

80

85

90

95

100

105

110

115

120

125

130

135

140

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

TURKEY Brazil China Hungary

Croatia India Indonesia Mexico

Poland Russian Federation South Africa

(20

04

=10

0)

Labor Participation Rate, Female

Source: Turkstat, OECD 63

Lab

or

Part

icip

ati

on

Ra

te b

y Ed

uca

tio

n

(20

14

)

OECD Average: 62.7

23,3

30,3

41,0

16,0

25,8

31,9

39,8

71,3

10

20

30

40

50

60

70

80

2004 Total 2023 Illiterate Less than highschool

High school Vocational highschool

Highereducation

Labor Participation Rate, Female

Source: Fraker, A. and D. Ozdemir, 2011, “Female Labor Force Participation How Does Turkey Compare?”, TEPAV

Fem

ale

La

bo

r Pa

rtic

ipa

tio

n R

ate

(%

)

Income per Capita (log)

64


65

66

Financial Market Depth Indicators

Source: World Bank, Turkey’s Transition, 2014

67

Financial Intermediation at Household Level is Lopsided

Source: World Bank, Turkey’s Transition, 2014

Borsa Istanbul Free-Float

Most Turkish companies are privately-owned

Source: Capital Markets Board, Central Securities Depository

27

70

10

20

30

40

50

60

70

80

Turkey EM Average

(%)

68

Deepening Capital Markets in Turkey

69

A New Capital Markets Law

Restructuring of Borsa Istanbul

Istanbul as a Financial Center

Incentives for

• Business Angels

• Global Fund Managers

• Venture Capital

• Private Pensions

77

68

63

45 44

42 40

20

30

40

50

60

70

80

Budapest Warsaw Prague Rio de Jeneiro Mexico ISTANBUL Buenos Aires

(20

14

)

2009 72nd

2014 42nd

2018 25th

Global Financial Centers Index

Source: Global Financial Centres Index 16 70

Financial Development Index

Source: The Financial Development Report 2012

(20

12

)

71

44 43

42

37

35

32

25

27

29

31

33

35

37

39

41

43

45

Hungary Mexico Turkey Poland Czech Republic Brazil

2009: 44th (out of 55 countries)

2012: 42nd (out of 62 countries)

2018: 30th

Investing in Local & Renewable Energy

72

High Dependence on Energy Imports

74%

Total Energy

92%

Oil

98%

Natural-Gas

73

74

Ener

gy

Imp

ort

s (B

illio

n $

)

(Bren

t, $ p

bl)

Source: TURKSTAT, Bloomberg

Energy Import Bill

Electricity: Installed Capacity

75

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

MW

Source: Ministry of Energy

Natural Gas Hydro Coal Renewables Other

76

Energy

2002-13 Change

Installed Capacity 101%

Electricity Production 85%

Renewable Energy Capacity 108%

Geothermal Energy Capacity 1600%

Wind Energy Capacity 145%

Hydroelectric Capacity 82%

Technological Readiness & Innovation

77

78 Source: Ministry of Development

Need to Move up the Value Chain

3,4

24,7

32,9

39,0

3,5

32,3

29,0

35,3

0

5

10

15

20

25

30

35

40

45

High-technology Medium high-technology Medium low-technology Low-technology

Production Exports

Manufacturing Industry Export

79 Source: CBRT

(USD

bn

)

34

141

Source: The Scientific and Technological Council of Turkey * % of GDP

R&D Spending*

80

2002

0.53% 2013

0.95% 2018 1.8% 2023

3.00%

Tax Incentives for R&D

R&D Expenditure

• Corporate income tax relief

• Personal income tax relief

• State contributions to social security premiums

• Exemption from stamp duty

• Capital support for young entrepreneurs

Strengthening the link b/w R&D and Commercial Activities

• 50% tax relief on commercial use of patents, trademarks…

• VAT exemption on patents, trademarks…

81

Since 2008, 155 R&D Centers

Patents, Industrial Designs & Trade Mark Applications

Patent applications 2014: 12,198 2002: 1,874

Industrial design applications

2014: 42,550

2002: 20,302

Trade Mark applications

2014: 110,641

2002: 36,429

82


83


84

Action Plan for Fighting Informality

Strengthening Capacity of Revenue Administration & Tax Audit Board

Income Tax and Tax Procedural Law

A New Action Plan

Target: 5ppt decline

• Informal economy as share of GDP

• Informal employment in non-farm sectors

85

Info

rma

l Em

plo

ymen

t (%

of

Tota

l Em

plo

ymen

t)

Informal Employment

Source:TURKSTAT 86

52,1 51,7

50,1

48,2

47,0

45,4

43,5 43,8

43,3

42,1

39,0

36,7

35,0

30

35

40

45

50

55

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Short-Term Economic Outlook

87

Macroeconomic Outlook

Growth is likely to pick up

Inflation is falling

Fiscal position remains strong

External balance is improving

88

Growth is likely to pick up

89

Outlook for Growth Remains Positive

90 Source: IMF, Medium-Term Program 2015-17

4,1

3,3

4,0

5,0

3,3

2,7

3,6

4,1

1,9

2,5

2,8 3,0

2,7

1,3

2,2

2,8

6,6 6,5

6,6 6,5

1,0

2,5

4,0

5,5

7,0

2013 2014 2015 2016

Turkey EM's Excluding China & India Emerging Europe Excl. Turkey

Latin America and the Caribbean Emerging and developing Asia

(%)

A more Balanced Growth

91 Source: TURKSTAT

(pp

t)

-10

-5

0

5

10

15

20

20

10

-Q1

Q2

Q3

Q4

20

11

-Q1

Q2

Q3

Q4

20

12

-Q1

Q2

Q3

Q4

20

13

-Q1

Q2

Q3

Q4

20

14

-Q1

Q2

Q3

Final Domestic Demand Net Exports

Change in Stocks GDP Growth

Overperformed EMEA & LatAm, but Underperformed Asia

92 Source: TURKSTAT, IMF

168,8

100,0

153,0

152,2

181,6

95

110

125

140

155

170

185

200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

TURKEY

EM Asia (excl. China & India)

LatAm

EM Europe

Upside

• Improving domestic financial conditions

• Lower commodity prices

Downside • Geopolitical tensions

• Slower European recovery

Risks to Growth

93

Is Turkey prepared for a Fed Rate Hike?

Volatility on the back of asset re-pricing appears inevitable

ECB easing should help somewhat mitigate the impact of the fallout from Fed hikes

There seems to be no excesses in Turkish real or financial sector

Turkey does not seem to be a crowded trade

94

Employment

95

Employment Growth

96 Source: Eurostat, OECD, Turkstat

* Latest data

5,7

-4 -3 -2 -1 0 1 2 3 4 5 6

Euro Area

Spain

Greece

Italy

Japan

Portugal

Ireland

Denmark

Slovenia

Slovakia

Chezch Rebuplic

Belgium

France

Hungary

USA

Russia

Poland

Germany

Brazil

TURKEYEm

plo

ymen

t si

nce

20

07

(m

n p

eop

le, s

.a.)

Unemployment & Labor Participation Rates

97

44

45

46

47

48

49

50

51

52

8

9

10

11

12

13

14

15

16

Jan

-08

Mar

-08

May

-08

Jul-

08

Sep

-08

No

v-0

8Ja

n-0

9M

ar-0

9M

ay-0

9Ju

l-0

9Se

p-0

9N

ov-

09

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0Ja

n-1

1M

ar-1

1M

ay-1

1Ju

l-1

1Se

p-1

1N

ov-

11

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2Ja

n-1

3M

ar-1

3M

ay-1

3Ju

l-1

3Se

p-1

3N

ov-

13

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Unemployment Rate Labor Force Participation Rate (rhs)

Source: Turkstat

(s.a., %

) (s

.a.,

%)

Inflation on a Downward Trend

98

Single-Digit Inflation (C

PI,

An

nu

al,

%)

99

Source: TURKSTAT, Medium-Term Program (2015-17) * CBRT estimate

0

20

40

60

80

100

120

140

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

*

20

16

20

17

100

Inflation is Falling

Source: Turkstat

(%)

0

2

4

6

8

10

12

14

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-12

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

No

v-13

Dec

-13

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-14

Dec

-14

Jan

-15

Feb

-15

CPI PPI

101

Upside

• TL Depreciation

Downside

• Weaker commodity prices • Normalization in food prices • Base effects

Inflation Outlook

Lower Energy Prices: Inflation

102

3

4

5

6

7

8

9

2013 2014 2015 2016 2017

Medium Term Programme $50 oil prices

(In

fla

tio

n, %

)

$10-decline in energy prices

0.4-ppt-decline in inflation

Source: Medium-Term Program, CBRT

Impact of Currency Depreciation on Inflation

10% currency depreciation

1.5ppt higher inflation

Source: Kara, Hakan and Öğünç F. (2011). "Effect of Exchange Rate and Import Prices on Inflation", CBRT, Economic Notes, No. 2011/14.

Fiscal Position Remains Strong

104

10,8

7,9

4,1

0,1

-1,3

0,2

1,6

5,5

3,0

0,4 1,0 0,7 0,7 0,5 0,2

-0,1

-2

0

2

4

6

8

10

12

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Maastricht Criteria: 3%

Satisfied Maastricht Criteria except 2009

Source: Ministry of Development

Sustaining a Solid Fiscal Position

105

Bu

dg

et D

efic

it (

%, G

DP

)

Medium-Term Program (2015-17)

http://www.google.com.tr/url?sa=i&rct=j&q=budget+deficits&source=images&cd=&cad=rja&docid=eDN8OcBl8SA0TM&tbnid=ak9nota8YAW6VM:&ved=0CAUQjRw&url=http://corteporlozano.blogspot.com/2011_12_01_archive.html&ei=Wq45UYSkDsTcswaC14CQDg&bvm=bv.43287494,d.ZGU&psig=AFQjCNEr3XWZmSVQQ4RDvmL0waOm-MQ9bw&ust=1362820694069257

Budget Deficit (2015) B

ud

get

Def

icit

(%

, GD

P)

Source: IMF, OECD, Ministry of Development

3,4

2,5 2,0

0,5

0

0,5

1

1,5

2

2,5

3

3,5

OECD EU-28 EMs TURKEY

106


74,0

67,7

59,6

52,7

46,5

39,9 40,0

46,1

42,3

39,1 36,2 36,2

33,1 31,8 30,0

28,5

25

30

35

40

45

50

55

60

65

70

75

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Lower Public Debt D

ebt-

to-G

DP,

%

Satisfying Maastricht Criteria since 2004


Source: Treasury, Ministry of Development 107

Medium-Term Program (2015-17)

http://www.google.com.tr/url?sa=i&rct=j&q=budget+deficits&source=images&cd=&cad=rja&docid=-4yU5tNDYFDdeM&tbnid=DrmIBSv3XuTyrM:&ved=0CAUQjRw&url=http://empowerednews.net/state-budget-deficits-could-linger-even-as-u-s-economy-strengthens/186315/&ei=Zq05Uaf2IYKHtAaTsID4Cg&bvm=bv.43287494,d.ZGU&psig=AFQjCNEr3XWZmSVQQ4RDvmL0waOm-MQ9bw&ust=1362820694069257

Public Debt (2015)

Source: IMF, OECD, Treasury

Deb

t-to

-GD

P, %

112,7

88,9

40,7

31,8

20

30

40

50

60

70

80

90

100

110

120

OECD EU-28 EMs TURKEY

108


109

104

0 50 100 150 200 250 300 350 400 450

JapanIreland

PortugalBelgium

NetherlandsGreece

SpainSweden

FransaItaly

UKUSA

KoreaHungaryMalaysia

CanadaChina

GermanySlovakiaPolonya

South AfricaCzech Rep.

BrazilIndia

TURKEYRomania

ColombiaIndonesia

MexicoRussia

PeruSaudi…

NigeriaArgentina

Relatively low leverage

Total Debt*

Source: McKinsey Global Institute, «Debt and (Not Much) Deleveraging», February 2015.

* Includes debt of households, non-financial corporations and government.

Deb

t-to

-GD

P (

Q2

-14

, %)

110

Upside

• Improving tax compliance

Downside

• Weaker than expected domestic demand

• Lower VAT revenue due to low energy prices

Fiscal Outlook

External Balance is Improving

111

C/A Deficit is Narrowing

Source: CBRT 112

(USD

bn

)

Financing of C/A Deficit is Improving

113 Source: CBRT

(12

Mo

nth

Ro

llin

g, U

SD b

n)

Upside

• Geopolitical tensions

• Sluggish European Recovery

Downside • Weaker than expected domestic demand

• Lower energy prices

Outlook for C/A Deficit

114

Exports to EU & European Growth

115

(Yo

Y, %

)

Source: TURKSTAT, Eurostat

(%)

Strong linkages with the EU

116

Exports (%)

Source: TURKSTAT, CBRT

2014

43,5 56,5

EU Others

75,5

24,5

EU Others

FDI (%)

49,9 50,2

EU Others

Tourists (%)

Lower Energy Prices: C/A Deficit

117

$10-decline in energy prices

0.5-ppt-improvement in CAD/GDP

2

3

4

5

6

7

8

9

2013 2014 2015 2016 2017

Medium-Term Program $50 oil prices

(CA

D/G

DP,

%)

Source: Medium-Term Program, CBRT

118

Turkey's FX Position

Billion $ Assets Liabilities Net Position

Public Sector* 132,1 122,9 9,2

Banking Sector** 511,3 513,1 -1,8

Real Sector*** 98,1 281,4 -183,2

Short Term 79,0 91,7 -12,8

Household**** 191,0 0,5 190,5

Deposit**** 81,5

Source: CBRT, BRSA, Treasury * Assets: CBRT FX Deposits of Treasury+ CBRT Foreign Assets; Liabilities= Public gross external debt+CBRT Liabilities to Non Residents. Data from CBT dated 27 Feb., 2015; data from gross external debt stock as of Q3-14

** Data-Jan. 2015

*** Data-Oct. 2014 **** Data-Mar. 2013 **** Data-03.06.2015

Turkey’s Banks: among the Strongest in EMs

119 Source: World Bank, Turkey’s Transition, 2014

Corporate FX Exposure is Moderate

Source: CBRT *The data above have been calculated over 9,468 firms whose total turnover corresponds to 71% of GDP.

No FX Loans 63%

FX Loan w/ export earning 25%

FX Loan w/o export earning

12%

120

64

22

0 20 40 60 80 100 120 140

Denmark

United Kingdom

Portugal

Sweden

Spain

Greece

Euro Area

Malta

France

Luxembourg

Germany

Belgium

Austria

Italy

Estonia

Poland

Czech Republic

Slovakia

Slovenia

Hungary

Latvia

Lithuania

TURKEY

Low Household Leverage (H

ou

seh

old

Lia

bili

ties

, % o

f G

DP,

Ma

rch

20

14

)

121

No FX exposure

Source: CBRT, ECB Turkey’s data have been calculated based on household liabilities in September 2014 and GDP estimations in Medium-Term Program 2014.

Long-Term Prospects

122

Real GDP per Capita

Source: TURKSTAT, Medium-Term Program

123

50

60

70

80

90

100

110

120

130

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

(Rea

l GD

P P

er C

ap

ita

20

05

=10

0)

Lost years

Source: GFK

124

Purchasing Power Per Capita (2014)

Currently at 55% of EU average up from around 30%

Determinants of Long-Term Growth

Quality of Institutions

Demographics

Productivity

125

Favorable Demographics

Source: Eurostat * Turkey’s data belongs to 2014

Shar

e o

f 1

5-2

4 y

ears

old

in T

ota

l Po

p. (

%, 2

01

3)

16,5

7 9 11 13 15 17 19 21

Spain

Italy

Andorra

Slovenia

Greece

Portugal

Bulgaria

Germany

Czech Republic

Serbia

Switzerland

Ireland

Croatia

Estonia

Latvia

France

Austria

Hungary

Luxembourg

Finland

Netherlands

Ukraine

Poland

Denmark

Sweden

United Kingdom

Slovakia

Norway

Malta

Lithuania

Montenegro

Iceland

Macedonia

Georgia

Moldova

Turkey

Azerbaijan

126

An

nu

al A

vera

ge

Gro

wth

Ra

te (

15

-64

, %, 2

00

1-1

3)

Working Age Population Growth

Source: OECD, Eurostat, Turkstat

127

1,7

0,7

0,2

0

0,5

1

1,5

2

TURKEY OECD EU-28

Determinants of Productivity

128

Structural Reforms

Human Capital

Investment R&D and

Innovation

Ambitious Targets: GDP

Source: TURKSTAT, Medium-Term Program,PwC

129

Ambitious Targets: GDP per Capita

Source: TURKSTAT, Medium-Term Program,PwC

130

From upper middle income

To high income

Solidarity

The East & the West

The World

Meeting

Harmony

Innovation

Synergy

Growth

131

THANK YOU…

132

Economy & Finance

Turkey in Focus