Medium Term Program (2014-2016) October 8, 2013 WORLD ECONOMY 2 - - PowerPoint PPT Presentation

October 8, 2013

Medium Term Program

(2014-2016)

WORLD ECONOMY

2

3

3.6 4.1 2.9 3.6 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 2013 2014

October 2012 Forecast October 2013 Forecast

Global Growth Forecasts (% change)

Source: IMF World Economic Outlook Report

4

US Growth Forecasts (% change)

Source: IMF World Economic Outlook Report

2.1 2.9 1.6 2.6 1.4 1.8 2.2 2.6 3.0 3.4 2013 2014

October 2012 Forecast October 2013 Forecast

5

Eurozone Growth Forecasts (% change)

Source: IMF World Economic Outlook Report

0.2 1.2

• 0.4

1.0

• 0.8
• 0.4

0.0 0.4 0.8 1.2 1.6 2013 2014

October 2012 Forecast October 2013 Forecast

6

Emerging Markets Growth Forecasts (% change)

Source: IMF World Economic Outlook Report

5.6 5.9 4.5 5.1 4.0 4.5 5.0 5.5 6.0 2013 2014

October 2012 Forecast October 2013 Forecast

7

Source: IMF World Economic Outlook Report

4.5 4.7 3.1 4.1 2.8 3.2 3.6 4.0 4.4 4.8 5.2 2013 2014

October 2012 Forecast October 2013 Forecast

Emerging Markets Growth Forecasts - excl. China (% change)

8

World Trade (% change)

Source: IMF World Economic Outlook Report

4.5 5.8 2.9 4.9 2.6 3.2 3.8 4.4 5.0 5.6 6.2 2013 2014

October 2012 Forecast October 2013 Forecast

Source: Bloomberg

US 10 Year Bond Yield (%)

1.0 1.5 2.0 2.5 3.0 3.5 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 9

10

Source: IIF

Private Capital Flows to Emerging Economies (net, $ billion)

1,215 1,062 1,029 700 800 900 1,000 1,100 1,200 1,300 2012 2013* 2014*

(*) Forecast

30 60 90 120 150 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 5 7 9 11 2013-1 3 5 7 9 2014 2015 2016

Crude Oil (Brent, US Dollars per barrel)

Source: Reuters Note: 2014 and onwards reflect MTP assumptions.

11

MEDIUM TERM PROGRAM

12

13

Main Priorities of Medium Term Program

Main Priorities of Medium Term Program;

 Reducing current account deficit,

 Increasing domestic savings  Allocating existing resources to productive areas  Increasing economic efficiency

 Decreasing inflation,  Maintaining strong fiscal stance,  Increasing growth and employment.

3.6 4.0 5.0 5.0 1 2 3 4 5 6 2013 2014 2015 2016

GDP Growth (% change)

14

Unemployment Rate (%)

9.5 9.4 9.2 8.9 8.8 9.0 9.2 9.4 9.6 2013 2014 2015 2016

15

Inflation Rate (%)

6.8 5.3 5.0 5.0 4 5 6 7 2013 2014 2015 2016

16

7.1 6.4 5.9 5.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 2013 2014 2015 2016

Current Account Deficit / GDP (%)

17

18

Public Sector Primary Balance (Program Defined) / GDP (%)

0.9 1.0 1.2 1.3 0.0 0.5 1.0 1.5 2013 2014 2015 2016

Central Government Budget Deficit / GDP (%)

1.2 1.9 1.6 1.1 2.2 0.0 0.5 1.0 1.5 2.0 2.5 2013 2014 2015 2016

Program Forecast

19

20

EU Defined Public Debt / GDP (%)

35 33 31 30 25 29 33 37 2013 2014 2015 2016

21  Monetary, financial sector, fiscal and incomes policies will be implemented in a

coordinated manner.

 Achievements to date on the fiscal policy side will be maintained and the strong fiscal

stance will be continued.

 Structural and macro prudential measures will be taken to support increase in

domestic savings.

 To decrease the intensity of energy use in economy, efforts on energy efficiency will

be continued.

 The use of domestic coal and renewable energy sources in electricity production will

be given special importance, investing in nuclear power stations is to be continued without delaying and energy production based on domestic resources will be increased via rehabilitation of the power stations.

 Oil and natural gas exploration efforts at home and abroad are to be accelerated,

exploration and production of domestic resources such as lignite coal and geothermal will be maximized. Large-scale exploration of shale gas and other new technologies will be conducted.

Macroeconomic Policies and Structural Issues– I

22  Logistic centers will be established to meet the regional and global needs in important

production and consumption areas and to support the competitiveness of country’s main export sectors.

 In order to facilitate the foreign trade and reach the export goals of the country, a large

scale port capacity is to be built and railway and highway links of the ports will be completed.

 In tourism sector, a new structure, which improves quality of services, targets higher-

income segments via diversified marketing channels and focus more on those tourism types that are in line with Turkey’s competitive advantages, will be established.

 Existing incentive policies are to be maintained actively to facilitate new investments

especially in manufacturing industry, increase exports and technological development. By monitoring the outcomes of the policy implementation and sectoral developments, necessary revisions will be made in relevant fields of investment incentives system.

 The actions aiming at contributing to a more efficient and cost effective input supply in

export oriented production, to decreasing the dependency of production and exports on imports of intermediate goods and thus to enhance the sustainable competitiveness of exports will be implemented within the framework of Input Supply Strategy (ISS).

Macroeconomic Policies and Structural Issues– II

23  R&D based, innovative and high-value added production is to be supported. In this

direction, R&D and innovation activities will be increased in private sector and commercialization and branding process of outputs to be obtained will be accelerated.

 Internationalization levels of SMEs will be increased by enhancing their capacities for

R&D, innovation and export. SMEs will be promoted for branding, institutionalization, and development of innovative business models.

 For the allocation of public R&D spending, the priority will be given to channeling the

private sector investments into the high trade deficit sectors.

 Domestic and foreign direct investments will be increased by improving the functioning

• f markets and competitive environment, protecting intellectual property rights, and

creating a more attractive and predictable business and investment environment. Efforts for improving the business and investment environment will be oriented to common problem areas, and maintained in a more efficient and outcome-oriented manner.

Macroeconomic Policies and Structural Issues– III

24

Macroeconomic Policies and Structural Issues– IV

 Sufficient land creation will be facilitated in order to make appropriate land allocation

to investors, an inventory of lands, especially of public lands, which are suitable for investment will be taken and the allocation processes will be improved.

 Approach for enhancing business and investment environment will be broadened and

improved on a regional base and investors will be supported on a local base.

 In the education system, quality oriented transformation process which develops

individual personality and skills, strengthens compliance with the labor market within the framework of a lifelong learning approach and is based on equality of opportunity will be continued.

 Individuals are up skilled with basic and vocational capabilities compatible with the

demands of the labor market, professional and personal lives will be harmonized and active labor market policies on the basis of impact assessments will be implemented.

 Increasing labor force participation and employment rates will be continued, especially

for women, youth and disabled people, by carrying out effective and integrated employment policies.

25  Fight against informality will be effectively conducted. In this context, auditing capacity

will be increased and activated, institutions’ implementation capacity and the IT infrastructure will be improved, fight against smuggling, inter-institutional coordination and data sharing will be enhanced, and public awareness will be increased.

 Efforts to make Istanbul an international financial center will be accelerated.  Works aiming to develop the domestic bond market are to be continued.  Financial education that contributes to the healthy functioning of financial markets, to

conscious decision-making of individuals against a variety of financial products and to increase domestic savings will be widened.

 A regulation to resolve disputes in financial markets quickly and efficiently will be

made and implementation will be strengthened.

 The access of SMEs and entrepreneurs to financial funds will be facilitated through

improvement of the implementations in venture capital, business angels investments, credit guarantee fund and micro-credit facilities and of capital markets facilities.

Macroeconomic Policies and Structural Issues– V

SAVINGS – CREDITS – CURRENT ACCOUNT DEFICIT

26

12.6 10 11 12 13 14 15 16 17 18 19 20 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

27

Total Domestic Savings (% GDP)

Source: MoD (*) Estimate

49.7 33.1 32.4 32.3 30.2 28.8 23.8 23.3 21.6 20.2 17.7 16.2 13.4 12.6 5 10 15 20 25 30 35 40 45 50 28

Saving Rates in Developing Countries (2013, % GDP)

Sources: MoD, IMF Database

29

Source: MoD

DOMESTIC SAVINGS - INVESTMENT = CURRENT ACCOUNT BALANCE

(*) Estimates

• 4.8
• 4.1
• 1.0

2.8 4.2 2.4 1.7

• 0.8

1.5 3.7 2.9 2.9 18.0 18.0 19.8 20.4 22.4 21.4 22.1 15.3 19.8 23.8 20.6 19.6

• 5

5 10 15 20 25 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* Public Savings/GDP (%) Private Savings/GDP (%) Investment/GDP (%)

Current Account Deficit=7.1

26.2

10 15 20 25 30 35 40 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

30

Consumer Loans and Consumer Credit Cards Growth Rate (YoY, %, nominal)

Source: BRSA

31

Sources: TURKSTAT, CBRT, BRSA

Change in Credit Stock and Current Account Deficit

2 4 6 8 10 12 14 16 18 2 4 6 8 10 12 2007-Q1 Q2 Q3 Q4 2008-Q1 Q2 Q3 Q4 2009-Q1 Q2 Q3 Q4 2010-Q1 Q2 Q3 Q4 2011-Q1 Q2 Q3 Q4 2012-Q1 Q2 Q3 Q4 2013-Q1 Q2

Current Account Deficit*/GDP Change in Credit Stock/GDP (rhs) (*) Annualized

32

Macroprudential measures regarding the credit cards and consumer loans put into force recently:

 Inclusion of financing companies in the reserve requirements coverage  Determining credit card limits and limit increases on the basis of specification and

verification of the income of cardholder

 Assigning credit card limits as twice of the income for the first year and as 4 times of

the income for the second and subsequent years

 Restriction on limit increase in the case of existing cardholders’ application within the

limits mentioned above

 Capping on credit card limits with one thousand Turkish Lira for individuals whose

level of income cannot be specified

 Increasing the minimum payment ratios for credit cards (The minimum payment amount cannot be lower than 30 percent of term debt for credit cards with limit up to TL 15.000; and 35% of term debt for credit cards with limit from TL 15.000 to 20.000. These ratios will be reached gradually through a one year (27 percent and 32 percent) transition period)

Recent Macroprudential Measures - I

33  Confinement of limit increase and cash advances for credit cards of which minimum

payment is unpaid for three times in total within a calendar year until the term debt is completely covered

 Preclusion from use (both purchasing and cash advances) and confinement of limit

increase for credit cards of which minimum payment is unpaid for three times successively within a calendar year until the term debt is completely covered

 Increasing risk weights on loans granted for goods and service purchases or loans

provided in cash via credit cards and on vehicle loans in calculation of capital adequacy ratio

(Credit Cards: For installment payments with maturity of 1 to 6 months, risk-weight increases to 100% from 75%; for installment payments with maturity of 6 to 12 months, risk-weight increases to 200% from 150%; for installment payments with maturity of more than 12 months, risk-weight increases to 250% from 200%) (Vehicle Loans: For loans with maturity of 1 to 2 years, risk-weight increases to 150% from 75%; for loans with maturity of more than 2 years, risk-weight increases to 200% from 75%)  Extension of the definition of consumer loan by including credit cards and overdraft

accounts so as to charge higher general provision ratios for these loans along with vehicle loans

Recent Macroprudential Measures - II

34

Issues on which impact analysis and evaluation studies have been continuing:

 Limiting number of installment payments for credit cards and some sort of consumer

loans according to type of good and services purchased

 Extending the implementation of debt to income ratio in credit cards to other individual

loans

 Extending the implementation of minimum down payment in mortgage loans to some

sort of other individual loans

Recent Macroprudential Measures - III

35

Regulations encouraging SME loans and export loans:

 CBRT’s increase of overall limit for export rediscount credits allocated to Eximbank by

CBRT to USD 11 billion from USD 5.5 billion and extending the maturity of these credits to 8 months from 4 months

 Identifying the export credit insurance policies provided by Eximbank as a risk reducing

collateral alike warranties ensured by the Central Government of the Turkish Republic.

 Decreasing general provision ratios for export loans and SME loans for both cash and

non-cash terms

(General provisions: 0 percent for export loans and 0.5 percent for SME loans)

Recent Macroprudential Measures - IV

TABLES

36

2012 2013 2014 2015 2016 GDP Growth (%) 2.2 3.6 4.0 5.0 5.0 GDP (Billion TL) 1,416 1,559 1,719 1,895 2,095 GDP per Capita ($) 10,497 10,818 11,277 11,927 12,670 CPI (end year, % change) 6.2 6.8 5.3 5.0 5.0

GDP AND INFLATION FORECASTS

37

2012 2013 2014 2015 2016 Export (Fob) 152.5 153.5 166.5 184.0 202.5 Import (Cif) 236.5 251.5 262.0 282.0 305.0 Foreign Trade Balance

• 84.1
• 98.0
• 95.5
• 98.0
• 102.5

Tourism Receipts 25.7 29.0 31.0 32.0 34.5 Current Account Balance

• 47.8
• 58.8
• 55.5
• 55.0
• 55.0

Current Account Balance (% GDP)

• 6.1
• 7.1
• 6.4
• 5.9
• 5.5

BALANCE OF PAYMENTS FORECASTS

($ billion)

38

2012 2013 2014 2015 2016 Employment (thousand) 24,821 25,692 26,257 26,901 27,525 Non-Farm Employment (thousand) 18,724 19,627 20,168 20,812 21,436 Employment Rate (%) 45.4 46.2 46.5 46.9 47.3 Labor Force Participation Rate (%) 50.0 51.0 51.3 51.6 51.9 Unemployment Rate (%) 9.2 9.5 9.4 9.2 8.9

LABOR MARKET FORECASTS

39

CENTRAL GOVERNMENT BUDGET FIGURES

2012 2013 2014 2015 2016

Total Expenditures 361.9 406.6 436.3 465.7 496.7 Primary Expenditures 313.5 356.1 384.3 412.7 445.7 Interest Payments 48.4 50.5 52.0 53.0 51.0 Total Revenues 332.5 387.2 403.2 436.2 473.7 Tax Revenues 278.8 325.1 348.4 379.0 413.3 Non-Tax Revenues 53.7 62.0 54.8 57.2 60.4 Budget Balance

• 29.4
• 19.4
• 33.2
• 29.5
• 23.0

(TL billion)

40

PUBLIC FINANCE

2012 2013 2014 2015 2016 Public Sector Balance

• 1.0
• 0.8
• 1.0
• 0.8
• 0.5

Central Government Budget

• 2.1
• 1.2
• 1.9
• 1.6
• 1.1

Rest of the Public Sector 1.0 0.4 0.9 0.8 0.6 Public Sector Primary Balance* 0.8 0.9 1.0 1.2 1.3 Central Government Budget 0.3 0.9 0.5 0.8 1.0 Rest of the Public Sector 0.5 0.1 0.5 0.4 0.3

(% of GDP)

41

(*) Program Defined