GROWTH, EXTERNAL BALANCE and FISCAL POLICY brahim H. anakc - - PowerPoint PPT Presentation

GROWTH, EXTERNAL BALANCE and FISCAL POLICY

Republic of Turkey Undersecretariat of Treasury İbrahim H. Çanakcı Undersecretary of Treasury

J.P. Morgan Investor Seminar London May 18, 2012

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Outline

I. Macroeconomic Performance in 2010-2011 II. Policies and Structural Reforms to Address the Challenges in External Balance

• III. Recent Developments in Growth and Current Account Balance
• IV. Fiscal Policy

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• I. MACROECONOMIC PERFORMANCE

IN 2010-2011

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GDP Growth Rate (%)

Source: TURKSTAT

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Unemployment Rate (seasonally adjusted, %)

Source: TURKSTAT

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Consumer Price Index (% change)

Source: TURKSTAT

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Current Account Deficit/GDP (%)

Source: CBRT, TURKSTAT

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 Domestic Demand  Oil and Other Energy Prices  Non-Energy Terms of Trade  Real Exchange Rate  Competitiveness  Domestic Saving Ratio

Key Factors Affecting Current Account Deficit

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Total Domestic Demand and Imports (%, YoY)

Source: TURKSTAT, CBRT

Credit Growth and Current Account Deficit (%)

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(*) ratio of annualized CAD to annualized GDP (**) ratio of annual change in credit stock to annualized GDP Source: TURKSTAT, CBRT, BRSA

Current Account Balance – Energy Impact (% GDP)

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Source: TURKSTAT, CBRT

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Terms of Trade (12-month average, $)

Source: TURKSTAT, Undersecretariat of Treasury

Real Exchange Rate (2003=100)

Source: CBRT

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Global Competitiveness Index

Source: The Global Competitiveness Reports, World Economic Forum

Year Number of Countries Turkey’s Rank Turkey’s Rank (Percentile) (*) 2004 104 66 63.5 2005 117 66 56.4 2006 125 59 47.2 2007 131 54 41.2 2008 134 63 47.0 2009 133 61 45.9 2010 139 61 43.9 2011 142 59 41.5

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(*) Ratio of Turkey’s rank to the number of countries in respective reports

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Product Diversification in Exports

Herfindahl-Hirschman Index (HHI, 1996=100)

(*) 2012 January–March period

Note: The Herfindahl–Hirschman Index (HHI) is a measure of the market concentration and an indicator of the level of competition. In this study, it is defined as sum of squares of n sectors’ shares in total exports of Turkey. If the total share of sectors are defined as 100, the HHI can be 10,000 at maximum (indicating a single sector/product based exports). Increases in the HHI indicate an increase in the concentration of exports on certain products/sectors, whereas decreases indicate the opposite.

Source: TURKSTAT, Undersecretariat of Treasury

10.9 9.0 9.1 8.1 7.4 5.2 4.9 4.8 5.3 5.9 6.2 4.7 4.5 4.7 4.9 5.3 5.6 6.9 9.9 8.2 7.7 8.4 7.2 7.1 7.1 8.0 9.3 10.1 11.9 11.1 10.0 9.6 9.7 14.5 16.5 16.6 18.0 17.8 18.9 24.6 25.4 28.0 28.3 28.7 56.6 58.0 57.9 56.3 56.0 56.3 48.0 46.0 46.3 46.2 44.7 10 20 30 40 50 60 70 80 90 100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* Other Countries USA Africa Other European Countries (Excluding EU) Asia EU 27

Market Diversification in Exports (%)

Source: TURKSTAT

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(*) Annualized as of March 2012

Market Diversification in Exports

Herfindahl-Hirschman Index (HHI, 1996=100)

Source: TURKSTAT, Undersecretariat of Treasury

17 30 40 50 60 70 80 90 100 110 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Export Concentration Ratio

(*) 2012 January–March period

Note: The Herfindahl–Hirschman Index (HHI) is a measure of the market concentration and an indicator of the level of competition. It is calculated as the sum of squares of the market shares of all firms within the industry. In this study, the HHI is the sum squares of the market shares of countries in total exports. If the total market shares are defined as 100, the HHI can be 10,000 at maximum (indicating all exports to a single country). Increases in the HHI indicate an increase in market concentration of exports, whereas decreases indicate an increase in the number of partner country or a decrease in market concentration.

Decreasing trend shows increasing market diversification.

Current Account Deficit and Saving-Investment Gap

PRIVATE SECTOR SAVING- INVESTMENT GAP PUBLIC SECTOR SAVING- INVESTMENT GAP

Current Account Deficit

= =

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Domestic Saving- Investment Gap

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Saving-Investment Balance (% GDP)

Source: Ministry of Development (E) Estimation (P) Projection

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Domestic Savings Ratio

Source: Ministry of Development (E) Estimation (P) Projection

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• II. POLICIES AND STRUCTURAL REFORMS

TO ADDRESS THE CHALLENGES IN EXTERNAL BALANCE

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Policy Measures



Macro Policy Measures



Monetary policy



Macro-prudential regulations



Fiscal policy



Structural Measures



Increasing domestic savings



Reducing import-dependency on energy



Increasing competitiveness and diversification of export markets and products



Improving the quality of financing

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Increasing Domestic Savings

 Maintaining fiscal discipline  Increasing private savings



Introducing matching state contribution in Private Pension System



Regulations to support insurance sector



Regulations to extend the scope and increase the operational efficiency

• f Catastrophe Insurance Scheme



Financial Literacy Strategy



New Turkish Commercial Law



Strategy for fight against informal economy

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Reducing Import-Dependency on Energy

 Renewable Energy

• Increasing the share of renewable energy sources in total electricity

production to at least 30% in 2023

 Energy Efficiency

• Utilizing significant energy saving potential in housing (~30%),

industry (~20%) and transportation (~15%)

 Nuclear Energy

• Raising the share of nuclear energy in total electricity production to

around 20% by 2023

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Increasing Competitiveness and Diversification of Export Markets and Products

 New Investment Incentive System  Input Supply Strategy



Preliminary studies on iron & steel, automotive, machinery, chemicals, textiles and agriculture sectors have been completed, implementation

• f actions plans is expected to take place in 2012.

 Diversification of Export Markets



Country Desk Strategy

 Supporting Services Exports  Further Improving the Investment Climate  R&D and Innovation Support Programs  Labor Market Reforms

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

Incentives for long-term savings

• Regulation on authorizing Council of Ministers regarding the differentiation of

withholding tax rate based on the maturity of deposits



Support to Business Angels



Support to Venture Capital Funds



Regulation on reducing the withholding tax rate to zero percent on trade of investment funds which have more than 75% of its portfolio in the form of stocks



Supporting portfolio investment companies established in Turkey managing

• verseas funds



Legislation on rental certificate issuance by Treasury



Promoting equity financing



New Capital Markets Law



Istanbul Finance Center Project



New regulation on real estate sale to non-residents

Improving the Quality of Financing

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• III. RECENT DEVELOPMENTS IN

GROWTH AND CURRENT ACCOUNT BALANCE

Source: BRSA

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Credit Growth (fx adjusted, annual % change)

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Industrial Production Index (seasonally adjusted)

Source: TURKSTAT

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Capacity Utilization Rate of Manufacturing Industry

(seasonally adjusted, %)

Source: CBRT

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Source: Ministry of Development

Medium Term Program Projections

GDP Growth Rate (%)

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GDP Growth Expectations for 2012* (%)

Source: Forecast of International Institutions and Investment Banks (*) Median of the expectations

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Foreign Trade Developments (annualized, % change)

Source: TURKSTAT

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Foreign Trade Deficit (annualized, billion $)

Source: TURKSTAT

Current Account Deficit (annualized, billion $)

Source: CBRT, TURKSTAT

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Rebalancing of Demand

(contribution to GDP growth, percentage points)

Source: TURKSTAT, Undersecretariat of Treasury

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Source: Ministry of Development

Medium Term Program Projections

8.0 7.5 7.0 2 4 6 8 10 2012 2013 2014

Current Account Deficit/GDP (%)

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10 20 30 40 50 60 70 2007-1 3 5 7 9 11 2008-1 3 5 7 9 11 2009-1 3 5 7 9 11 2010-1 3 5 7 9 11 2011-1 3 5 7 9 11 2012-1 3

Portfolio and Short-Term Foreign Direct Investment and Long-Term

Note: Short term capital movements include short term credits and deposits of banks and non-bank private sector.

Financing Structure of Current Account Deficit (annualized, billion $)

Source: CBRT

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• IV. FISCAL POLICY

Fiscal Policy Performance (2001-2011)

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Source: Undersecretariat of Treasury, MoF, MoD, TURKSTAT (*) Provisional

Key Public Debt Indicators

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Source: Undersecretariat of Treasury, MoF, TURKSTAT

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Fiscal Performance and Debt Management in 2010 and 2011

(*) Provisional Source: Undersecretariat of Treasury, MoF, MoD, TURKSTAT

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Source: Undersecretariat of Treasury, MoF, MoD

Fiscal Adjustment in 2010 and 2011

(*) Provisional

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Change in General Government Debt Stock and Budget Balance between 2007 and 2011

Source: IMF, Fiscal Monitor April 2012

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Fiscal Policy: Medium Term Program Targets (2012-2014)

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Central Government Budget Deficit (% GDP) IMF Defined Public Sector Primary Balance (% GDP) EU Defined General Gov’t Gross Debt Stock (% GDP) General Government Overall Deficit (excl. privatization,% GDP) Source: Ministry of Development

Recent Trends in Central Government Budget Balance

(annualized, billion TL)

Source: MoF, Undersecretariat of Treasury

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Structural Fiscal Reforms: Achievements



Improvement of Budgetary Procedures and Financial Management

• Public Financial Management and Control Law
• Public Finance & Debt Management Law
• Turkish Court of Accounts Law
• Laws on Local Governments
• Public Procurement Law
• Abolition of budgetary and extra-budgetary funds



Institutional Improvement

• Reforming Revenue Administration
• Modernizing debt management
• Restructuring public banks



Tax Reforms



Corporate Income Tax Reform



Personal Income Tax Changes



Social Security Reform



Comprehensive Privatizations

Structural Fiscal Reforms: Current Agenda

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

Personal Income Tax Reform



Strategy on Reducing Informality



SEE Governance Reform



Privatization