Turkey’s Transformation Over the Last Decade

December 6, 2013

Mehmet Şimşek
Minister of Finance
1
Outline

Transformation &
Convergence Story

Priorities &
Structural Reforms

Long-Term
Prospects

2
A Convergence Story

3
Average Real GDP Growth Rates
6
5.5
5.1
5

%

4.5

4

3.1
3

2
1924-2002

1993-2002

2003-2012

2014-2018

Source: Turksta...
Real Convergence with AMs
65

60

Turkey / USA

55

Turkey /European Union

58.6

50

45

40

37.0
35.5
35

30

25

22.7

...
‹#›
GDP Per Capita

GDP Per Capita ($)
11 000

GDP Per Capita (PPP)
19 000

10 497

9 000

18 125
7 000

17 000
5 000

15 000
...
Source:TURKSTAT
2013-1

2012-1

2011-1

2010-1

2009-1

2008-1

Employment since 2007
(mn people s.a.)

Employment

26
25....
How did we achieve it?
Political
Stability

A MacroPrudential
Framework

Fiscal
Prudence

Improving
Quality of
Institution...
Political Stability

•17
months
1923-2002

2002-13

•AK
Party

10
Improving Quality of Institutions
Doing Business

OECD-FDI
Regulatory
Restrictiveness
Index

Corruption
Perception Index

...
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
20...
Solid Fiscal Position
12.0

10.8

Budget Deficit-to-GDP, %

10.0
8.0

7.9

5.5

6.0

Medium-Term Program
(2014-16)

4.1
4....
Lower Public Debt
75

74.0

70
67.7
65

Debt-to-GDP, %

60

Maastricht Criteria: 60%
59.6

55
52.7
50
45
40
35
30

46.5

M...
Public Sector Net Debt
70

Public Sector Net Debt (%, GDP)

60

61.5

50
35.4
40

30

20
14.7

26.2
10

18.9

0

-4.2

-10...
Net Creditor in International Markets
100 25.2

30

80

25

60

20
88.4

15

20

10

0

(%)

(Billion TL)

40

5

-20

-58...
Macro-Prudential Framework
Started banking sector stress tests in 2004
12% target CAR since 2006
Limits on dividend distri...
Priorities & Structural Reforms

18
Priorities & Strong Reforms
Enhancing
Democratic
Standards

Combatting
Shadow Economy

Improving Access
to & Quality of
Ed...
Enhancing Democratic Standards
Reconciliation Process
New Democratization Package

A Democratization Package
A New Constit...
Combatting the Shadow Economy

Action Plan for Fighting
Informality 2011-13
Strengthening Capacity of
Revenue Administrati...
Reducing Size of Shadow Economy
34

52

51.7

50
48

32.2

32

(%, GDP )

44
30
42
40
28
37.5

(%, Total Employment )

46
...
Education: Budget
19
18

(Education Budget, % of Total)

17

15

13

11
9.4
9

7
2002

Source: Ministry of Finance

2014

...
Education: Schooling Rates
130

107.6

110

96.8

(Gross Rates)

96.5
90

92.1

80.8

70

50

44.0

35.8
30
11.7
10
Presch...
Enhancing Human Capital Stock:
PISA Results, Gap b/w Turkey & OECD
55
51
50
47

46

45

40

38

35

30
science

math
2009
...
R&D Spending

2023 •3.00%
2018 •1.8%
2013 • 0.92%

2002

• 0.53%

Source: The Scientific and Technological Council of Turk...
Patent, Industrial Design and Trade Mark
Applications

Trade Mark
applications

Industrial design
applications

2012: 111,...
Deepening Capital Markets
A New Capital Markets Law
Restructuring Borsa Istanbul
Istanbul as a Finance Center
Incentives f...
Energy Import Bill
120

60

100
60.1

50

56.9
80

40
60
30
40

20

(Brent, $ pbl)

Energy Imports (Bn $)

70

20

10
9.2
...
Investing in Local & Renewable Resources

Building nuclear capacity

Increasing free market components
Improving energy ef...
Reducing Regional Development
Disparities
26 Development Agencies

GAP Action Plan
• 36.1 billion TL to GAP (2003-13)
• Re...
Improving Infrastructure
High Speed Railway Projects
Completed: 888 km
Under Construction: 1748 km
Planned: 1356 km

Airpo...
Dual Carriageway
Network
(January 1, 2003)
1,714 Km
Total of Motorways

4,387 Km
Total of State and
Provincial Dual
Carria...
Labor Market
Improving labor market flexibility
Increasing female labor-force participation

Improving the relation b/w ed...
Strong Long-Term Prospects

35
GDP

2050
$ 5 trillion

2002

2023
$ 2 trillion

2002
$ 230
billion

2012
$ 786 billion

Source: TURKSTAT, Medium-Term Pro...
GDP per Capita
2002

2050

$ 50,000
2023

$ 25,000
2012
$10,497
2002
$ 3,492

2050

Source: TURKSTAT, Medium-Term Program,...
Unemployment
11
10.3

0.9 pts

10
9.5
9.2

1.2 pts

Unemployment Rate (%)

9

8
7.2
7

2.2 pts
6
5.0

5

4
2002

2012

Sou...
Exports
600
500

500

(Bn $)

400
277

300
200

152

158

2012

2013

100
36
0
2002

Kaynak: TURKSTAT, MTP, Development Pl...
Fiscal Deficit
Gen. Gov’t Budget Deficit-to-GDP, %

12
10.8
10

8

10 ppts
6

4

2

1.0

1.0

2012

2013

0.5 ppt
0.5

0
2...
Determinants of Long-Term Growth

Quality of Institutions
Demographics
Productivity

41
Improving Quality of Institutions

Corruption
perception:
2013: 53rd in 177
2002: 65th in 102
Global
competitiveness:
2013...
Share of 15-24 year-olds in Total Pop. (%)

Favorable Demographics
Azerbaijan
Moldova
Turkey
Georgia
Macedonia
Iceland
Lit...
Annual Average Population Growth Rate
(%, 2001-11)

Growth Rate of Working-Age Population

Source: OECD, Eurostat, TURKSTA...
How is Turkey Positioned?
132.0

135
120

(FDI ınflows ,Bn $)

105
90
75
60
45
30
15

14.8

0
1980-2002

2003-2013 Septemb...
THANK YOU…
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Turkey’s Transformation Over the Last Decade

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  • Wehavecarriedoutbankingsectorstresstests since 2004.In2006, weinitiatedthe12% objectivecapitaladequacyratioapplication (Basel iI, 8%).In 2009, with the amendment made to Decision No. 32, we prevented the household to take currency risk by prohibiting foreign currency loans. We reduced the interest risk of the household.18 Haziran 2011(Resmi Gazete): Finansmanşirketleri Mart, Haziran, Eylül ve Aralikdönemleriitibariylakonut ve taşitkredisidişindakitüketicikredileriiçinkreditutarininyüzde 4’ü oraninda, anapara, faizveya her ikisinintahsilinde 30 gündenfazlaancak 90 gündenazgecikmeolanbuniteliktekikredileriçinkreditutarininyüzde 8’i oranindagenelkarşilikayirirlar.”
  • Turkey’s Transformation Over the Last Decade

    1. 1. Turkey’s Transformation Over the Last Decade December 6, 2013 Mehmet Şimşek Minister of Finance 1
    2. 2. Outline Transformation & Convergence Story Priorities & Structural Reforms Long-Term Prospects 2
    3. 3. A Convergence Story 3
    4. 4. Average Real GDP Growth Rates 6 5.5 5.1 5 % 4.5 4 3.1 3 2 1924-2002 1993-2002 2003-2012 2014-2018 Source: Turkstat, Ministry of Development 4
    5. 5. Real Convergence with AMs 65 60 Turkey / USA 55 Turkey /European Union 58.6 50 45 40 37.0 35.5 35 30 25 22.7 20 2002 Source: IMF,OECD, Turkstat 2013 5
    6. 6. ‹#›
    7. 7. GDP Per Capita GDP Per Capita ($) 11 000 GDP Per Capita (PPP) 19 000 10 497 9 000 18 125 7 000 17 000 5 000 15 000 GDP Per Capita (TL, Real) 1 572 1 600 3 492 13 000 3 000 11 000 1 400 9 000 1 200 1 000 8 667 2002 2012 7 000 1 099 5 000 1 000 2002 2012 800 600 2002 Source: Turkstat 2012 7
    8. 8. Source:TURKSTAT 2013-1 2012-1 2011-1 2010-1 2009-1 2008-1 Employment since 2007 (mn people s.a.) Employment 26 25.5 25 24 23 22 21 20 8
    9. 9. How did we achieve it? Political Stability A MacroPrudential Framework Fiscal Prudence Improving Quality of Institutions Price Stability 9
    10. 10. Political Stability •17 months 1923-2002 2002-13 •AK Party 10
    11. 11. Improving Quality of Institutions Doing Business OECD-FDI Regulatory Restrictiveness Index Corruption Perception Index 2023 Global Competitiveness Index Human Development Index Past Source: WB, WEF, Transparency International, OECD Present 11
    12. 12. 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 6.2 6.8 5.3 5.0 5.0 (CPI, Annual, %) 120 125.5 140 100 99.1 107.2 Price Stability 80 60 40 20 0 Source: TURKSTAT, MTP (2014-16) 12
    13. 13. Solid Fiscal Position 12.0 10.8 Budget Deficit-to-GDP, % 10.0 8.0 7.9 5.5 6.0 Medium-Term Program (2014-16) 4.1 4.0 Maastricht Criteria: 3% 3.0 1.6 2.0 0.2 0.1 0.4 1.0 1.0 1.1 0.8 0.5 0.0 -2.0 -1.3 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Achieved Maastricht Criteria except 2009 Source: Ministry of Development 13
    14. 14. Lower Public Debt 75 74.0 70 67.7 65 Debt-to-GDP, % 60 Maastricht Criteria: 60% 59.6 55 52.7 50 45 40 35 30 46.5 Medium-Term Program (2014-16) 46.1 42.3 39.9 40.0 39.1 36.2 35.0 33.0 31.0 30.0 25 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Satisfying Maastricht Criteria since 2004 Source: Treasury 14
    15. 15. Public Sector Net Debt 70 Public Sector Net Debt (%, GDP) 60 61.5 50 35.4 40 30 20 14.7 26.2 10 18.9 0 -4.2 -10 2002 2003 2004 2005 2006 2007 Net TL Source: Treasury 2008 Net FX 2009 2010 2011 2012 2013 Q1 2013 Q2 Total Net 15
    16. 16. Net Creditor in International Markets 100 25.2 30 80 25 60 20 88.4 15 20 10 0 (%) (Billion TL) 40 5 -20 -58.1 -40 -3.9 -5 Public Net External Debt Stock (Left Axis) Source: Treasury 2013 Q2 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 -10 2002 -60 0 Public Net External Debt Stock/GDP (Right Axis) 16
    17. 17. Macro-Prudential Framework Started banking sector stress tests in 2004 12% target CAR since 2006 Limits on dividend distribution since 2008 A ban on HH FX borrowing since 2009 LTV ratio of 75% on mortgages since 2011 General provisions increased in consumer loans in 2011 17
    18. 18. Priorities & Structural Reforms 18
    19. 19. Priorities & Strong Reforms Enhancing Democratic Standards Combatting Shadow Economy Improving Access to & Quality of Education Investing in Local & Renewable Energy Deepening Capital Markets Moving up the Value-Chain Narrowing Regional Development Gaps Improving Infrastructure Increasing Labor Market Flexibility 19
    20. 20. Enhancing Democratic Standards Reconciliation Process New Democratization Package A Democratization Package A New Constitution 4th Judicial Reform Package EU Accession Process 20
    21. 21. Combatting the Shadow Economy Action Plan for Fighting Informality 2011-13 Strengthening Capacity of Revenue Administration & Tax Audit Board Income Tax Reform and Tax Procedural Law 21
    22. 22. Reducing Size of Shadow Economy 34 52 51.7 50 48 32.2 32 (%, GDP ) 44 30 42 40 28 37.5 (%, Total Employment ) 46 38 36 26.5 Shadow Economy (Left Axis) 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 34 2003 26 Informal Employment (Right Axis) Source: Schneider, 2013, TURKSTAT 22
    23. 23. Education: Budget 19 18 (Education Budget, % of Total) 17 15 13 11 9.4 9 7 2002 Source: Ministry of Finance 2014 23
    24. 24. Education: Schooling Rates 130 107.6 110 96.8 (Gross Rates) 96.5 90 92.1 80.8 70 50 44.0 35.8 30 11.7 10 Preschool (age of 4-5 ) Primary School 2002-03 Source: Ministry of Development Secondary School Higher Education 2012-13 24
    25. 25. Enhancing Human Capital Stock: PISA Results, Gap b/w Turkey & OECD 55 51 50 47 46 45 40 38 35 30 science math 2009 2012 Source: OECD 25
    26. 26. R&D Spending 2023 •3.00% 2018 •1.8% 2013 • 0.92% 2002 • 0.53% Source: The Scientific and Technological Council of Turkey 26
    27. 27. Patent, Industrial Design and Trade Mark Applications Trade Mark applications Industrial design applications 2012: 111,143 2002: 36,429 2012: 41,220 Patent applications 2012: 11,599 2002: 1,874 2002: 20,302 27
    28. 28. Deepening Capital Markets A New Capital Markets Law Restructuring Borsa Istanbul Istanbul as a Finance Center Incentives for Global Fund Managers, VC & Biz Angels Increasing Savings: Private Pensions 28
    29. 29. Energy Import Bill 120 60 100 60.1 50 56.9 80 40 60 30 40 20 (Brent, $ pbl) Energy Imports (Bn $) 70 20 10 9.2 Energy Import 2013 Sep 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 0 2002 0 Oil Prices Source: TURKSTAT, Bloomberg 29
    30. 30. Investing in Local & Renewable Resources Building nuclear capacity Increasing free market components Improving energy efficiency 30
    31. 31. Reducing Regional Development Disparities 26 Development Agencies GAP Action Plan • 36.1 billion TL to GAP (2003-13) • Reduction of the unemployment rate to 12.4% in 2012 • Creation of 378 thousand new jobs over the last 5 years The Other Regional Development Projects (DAP, KOP, DOKAP) New Investment Incentives Scheme • Regional Incentives • In the 6th Region additional support for • The employee’s share of insurance premium • Income Tax Stoppage 31
    32. 32. Improving Infrastructure High Speed Railway Projects Completed: 888 km Under Construction: 1748 km Planned: 1356 km Airports avaible for civil aviation In 2003: 26 Airports In 2013: 52 Airports 32
    33. 33. Dual Carriageway Network (January 1, 2003) 1,714 Km Total of Motorways 4,387 Km Total of State and Provincial Dual Carriageways Total: 6,101 Km Dual Carriageway Network (September 30, 2013) 2,244 Km Total of Motorways 20,350 Km Total of State and Provincial Dual Carriageways Total: 22,594 Km 33
    34. 34. Labor Market Improving labor market flexibility Increasing female labor-force participation Improving the relation b/w education & employment Improving the relation b/w employment & social protection 34
    35. 35. Strong Long-Term Prospects 35
    36. 36. GDP 2050 $ 5 trillion 2002 2023 $ 2 trillion 2002 $ 230 billion 2012 $ 786 billion Source: TURKSTAT, Medium-Term Program,PwC 2050 36
    37. 37. GDP per Capita 2002 2050 $ 50,000 2023 $ 25,000 2012 $10,497 2002 $ 3,492 2050 Source: TURKSTAT, Medium-Term Program,PwC 37
    38. 38. Unemployment 11 10.3 0.9 pts 10 9.5 9.2 1.2 pts Unemployment Rate (%) 9 8 7.2 7 2.2 pts 6 5.0 5 4 2002 2012 Source: TURKSTAT, MTP, Development Plan 2013 2018 2023 38
    39. 39. Exports 600 500 500 (Bn $) 400 277 300 200 152 158 2012 2013 100 36 0 2002 Kaynak: TURKSTAT, MTP, Development Plan 2018 2023 39
    40. 40. Fiscal Deficit Gen. Gov’t Budget Deficit-to-GDP, % 12 10.8 10 8 10 ppts 6 4 2 1.0 1.0 2012 2013 0.5 ppt 0.5 0 2002 2018 Source: Ministry of Development, MTP, Development Plan 40
    41. 41. Determinants of Long-Term Growth Quality of Institutions Demographics Productivity 41
    42. 42. Improving Quality of Institutions Corruption perception: 2013: 53rd in 177 2002: 65th in 102 Global competitiveness: 2013: 44th in 148 2005: 71st in 117 Source: WB, WEF, Transparency International Ease of Doing Business: 2013-14: 69th in 185 2006: 84th in 175 42
    43. 43. Share of 15-24 year-olds in Total Pop. (%) Favorable Demographics Azerbaijan Moldova Turkey Georgia Macedonia Iceland Lithuania Montenegro Slovakia Latvia Poland Malta Ukraine Estonia Sweden Norway United Kingdom Denmark France Finland Netherlands Hungary Serbia Liechtenstein Austria Czech Republic Croatia Switzerland Luxembourg Bulgaria Ireland Slovenia Germany Portugal Spain Greece Italy Andorra 16.8 7 Source: Eurostat 9 11 13 15 17 19 21 43
    44. 44. Annual Average Population Growth Rate (%, 2001-11) Growth Rate of Working-Age Population Source: OECD, Eurostat, TURKSTAT 44
    45. 45. How is Turkey Positioned? 132.0 135 120 (FDI ınflows ,Bn $) 105 90 75 60 45 30 15 14.8 0 1980-2002 2003-2013 September Source: CBRT 45
    46. 46. THANK YOU…

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