RECENT DEVELOPMENTS IN TURKISH ECONOMY brahim H. anakc - - PowerPoint PPT Presentation

RECENT DEVELOPMENTS IN TURKISH ECONOMY

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

June 21-22, 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 Economic Developments
• IV. Fiscal Policy

V. International Capital Market Activities of Treasury

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• I. MACROECONOMIC PERFORMANCE

IN 2010-2011

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GDP Growth Rate (%)

5.9

• 4.8

9.2 8.5

• 6
• 3

3 6 9 12 2003-2008 Average 2009 2010 2011

Source: TURKSTAT

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Labor Market Indicators

Source: TURKSTAT

20 21 22 23 24 25 8 9 10 11 12 13 14 15 16 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 Unemployment Rate (Seasonally Adjusted, %) Employment (Seasonally Adjusted, million people - rhs)

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Consumer Price Index (% change)

Source: TURKSTAT

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Current Account Deficit/GDP (%)

4.7 2.2 6.4 10.0 2 4 6 8 10 12 2003-2008 Average 2009 2010 2011

Source: CBRT, TURKSTAT

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

2 4 6 8 10 12 14 16 2004 Q1 Q2 Q3 Q4 2005 Q1 Q2 Q3 Q4 2006 Q1 Q2 Q3 Q4 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 Current Account Deficit/GDP* Change in Credit Stock/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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Domestic Savings Ratio

Source: Ministry of Development (E) Estimation

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Savings-Investment Balance (% GDP)

Source: Ministry of Development (E) Estimation

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• II. POLICIES AND STRUCTURAL REFORMS

TO ADDRESS THE CHALLENGES IN EXTERNAL BALANCE

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

 Tax Incentives to Support 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



Tax support to Business Angels



Tax 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 MACROECONOMIC

DEVELOPMENTS

Source: BRSA

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Credit Growth (fx adjusted, annual % change)

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Industrial Production Index (seasonally adjusted)

Source: TURKSTAT (*) As of April

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Capacity Utilization Rate of Manufacturing Industry

(seasonally adjusted, %)

Source: CBRT

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Source: Ministry of Development

4.0 5.0 5.0 2 3 4 5 6 2012 2013 2014

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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CPI (annual % change)

Source: TURKSTAT

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Foreign Trade Developments (annualized, % change)

Source: TURKSTAT

11 09 09 08 07 05 05 05 05 06 07 05 05 05 05 05 06 07 10 08 08 10 07 07 07 08 09 10 12 11 10 10 09 15 17 17 18 18 19 25 25 28 28 31 57 58 58 56 56 56 48 46 46 46 41 10 20 30 40 50 60 70 80 90 100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Other Countries America Africa Other European Countries (Excluding EU) Asia EU 27

Market Diversification in Exports (%)

Source: TURKSTAT

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(*) Annualized as of April 2012

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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 4 6 8 10 2012 2013 2014

Current Account Deficit/GDP (%)

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• 10

10 20 30 40 50 60 70 2007-1 4 7 10 2008-1 4 7 10 2009-1 4 7 10 2010-1 4 7 10 2011-1 4 7 10 2012-1 4

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

Capital Adequacy Ratio (%) Banking Sector: Capital Adequacy Ratio in Selected Emerging Markets (%, 2011)

Banking and Household Sector Indicators

25.1 30.9 28.2 23.7 21.9 18.9 18.0 20.6 19.0 16.5 16.4 5 10 15 20 25 30 35

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-4

Source: BRSA

Household Liabilities (% of GDP) Asset Quality (NPL Ratio, %)

21.2 11.5 6.0 4.7 3.7 3.5 3.7 5.3 3.7 2.7 3.3 7.6 1.5 0.8 0.6 0.4 0.5 0.8 0.9 0.6 0.6 0.5 4 8 12 16 20 24 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-4 Gross Net

24.7 17.7 17.3 16.9 16.5 16.1 15.8 15.7 15.3 14.7 14.7 14.2 14.2 14.0 13.9 13.4 13.1 12.7 4 8 12 16 20 24 28

Belarus Malaysia Brazil Colombia Turkey Indonesia Malta Mexico Czech… Thailand Russia India Hungary Korea Chile Romania Poland China

10 12 14 15 17 19 10 20 30 40 50 60 70 2006 2007 2008 2009 2010 2011 Euro Area 2006-10 Average 36

• IV. FISCAL POLICY

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Fiscal Policy Performance (2001-2011)

12.8 11.6 8.8 5.4 1.3 0.6 1.6 1.8 5.5 3.6 1.3 2 4 6 8 10 12 14 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 *

Central Government Budget Deficit (% GDP)

12.5 10.9 8.0 4.4 0.7 0.2 1.6 2.5 5.9 3.3 0.7 2 4 6 8 10 12 14 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

General Government Overall Deficit (excl. privatization, % GDP) Source: Undersecretariat of Treasury, MoF, MoD, TURKSTAT (*) Provisional 38

11.8 10.8 7.9 4.1 0.1

• 1.4

0.2 1.6 5.5 2.9 0.3 2 4 6 8 10 12 14 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

General Government Overall Deficit (% GDP)

5.7 3.2 4.7 5.5 4.8 4.5 3.2 1.6

• 1.0

0.8 1.9

• 2
• 1

1 2 3 4 5 6 7 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

IMF Defined Public Sector Primary Balance (% GDP)

Public Debt/GDP

61.5 55.2 49.1 41.7 34.0 29.5 28.232.5 28.9 22.4

10 20 30 40 50 60 70 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Public Sector Net Debt Stock (% GDP)

TL FX Denominated/Indexed

Source: Undersecretariat of Treasury, MoF, TURKSTAT 77.9 74.0 67.7 59.6 52.7 46.5 39.9 40.0 46.1 42.4 39.4

30 40 50 60 70 80 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EU Defined General Gov't Gross Debt Stock (% GDP)

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Key Public Debt Indicators

25 50 75 100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 April

Currency Composition of Central Government Gross Debt (%)

TL Foreign Exch.

Source: Undersecretariat of Treasury, MoF, TURKSTAT 9 12 15 32 35 44 45 65 34 28 28

10 20 30 40 50 60 70 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 2 1 1 2 1 2 *

Average Maturity of Domestic Borrowing (months)

8.2 9.5 10.1 12.2 9.9 17.6 16.5 22.4 14.2 14.8 9.1 20.6 20.2 5.0 6.6 15.8 8.6 7.0 10.0 10.0

5 10 15 20 25 30

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

Euro Dollar Yen Average Maturity of International Bond Issuance (years)

Interest Composition of Central Government Gross Debt (%)

48.8 53.8 50.1 54.0 55.7 56.9 53.4 56.0 59.2 59.1 51.2 46.2 49.9 46.0 44.3 43.1 46.6 44.0 40.8 40.9 25 50 75 100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 April Fixed Floating

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Fiscal Performance in 2010 and 2011

5.7 3.3 3.3 0.7 1 2 3 4 5 6 7 Target Outturn Target Outturn*

General Government Overall Deficit (excl. privatization % GDP)

2010 2011

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

4.9 3.6 2.8 1.3 1 2 3 4 5 6 Target Outturn Target Outturn*

Central Government Budget Deficit (% GDP)

2010 2011

49.0 42.4 40.6 39.4 35 40 45 50 55 Target Outturn Target Outturn

EU Defined General Government Gross Debt Stock (% GDP)

2010 2011

• 0.3

0.8 0.3 1.9

• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 Target Outturn Target Outturn*

IMF Defined Public Sector Primary Balance (% GDP)

2010 2011

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Source: Undersecretariat of Treasury, MoF, MoD

Structural Fiscal Position in 2010 and 2011

2.6 2.6 5.3 1.7 1.0 2.7 1 2 3 4 5 6 2010 2011* 2010-2011* (cum.) 2010 2011* 2010-2011* (cum.)

Change in General Government Overall Balance (excl. privatization) (% of GDP)

Headline Cyclically Adjusted

(*) 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)

1.5 1.4 1.0 0.0 0.5 1.0 1.5 2.0 2012 2013 2014

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1.1 1.3 1.5 0.0 0.3 0.6 0.9 1.2 1.5 1.8 2012 2013 2014 37.0 35.0 32.0 30 32 34 36 38 40 2012 2013 2014

Central Government Budget Deficit (% GDP) IMF Defined Public Sector Primary Balance (% GDP) EU Defined General Gov’t Gross Debt Stock (% GDP)

1.7 1.6 1.1 0.0 0.5 1.0 1.5 2.0 2012 2013 2014

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

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• V. INTERNATIONAL CAPITAL MARKET

ACTIVITIES OF TREASURY

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International Bond Issuances (billion USD)

2.60 3.85 3.75 4.00 5.50 3.00 4.00 3.75 4.00 2.00 3.50 0.69 1.42 2.00 2.49 1.52 1.63 2.70 1.08 2.19

1 2 3 4 5 6 7 8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

USD Euro (USD Equivalent) Yen (USD Equivalent)

(*) As of June 2012 Source: Undersecretariat of Treasury

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Spread on Turkey’s External Debt (bp)*

• 400
• 200

200 400 600 800 1,000 1,200 Dec-00 Jun-01 Dec-01 Jun-02 Nov-02 May-03 Nov-03 Apr-04 Oct-04 Apr-05 Oct-05 Mar-06 Sep-06 Mar-07 Aug-07 Feb-08 Aug-08 Feb-09 Jul-09 Jan-10 Jul-10 Dec-10 Jun-11 Dec-11 Jun-12 (EMBI+ Turkey) - (EMBI+) EMBI+ Turkey EMBI+

(*) As of June 18, 2012 Source: JP Morgan

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Comparative CDS Levels (5 years, bps)*

(*) As of June 18, 2012 Source: Bloomberg

982 680 619 555 551 520 429 384 335 296 277 264 248 244 222 199 184 180 134 125 119 117 104 84 73 64 250 500 750 1,000 1,250

Portugal (WD) Ireland (BBB+) Spain (BBB) Hungary (BB+) Italy (A-) Croatia (BBB-) Romania(BBB-) Slovenia (A) Bulgaria (BBB-) Latvia (BBB-) Lithuania (BBB) Belgium(AA) Slovakia (A+) Turkey (BB+) Poland (A-) France (AAA) Malta (A+) Austria (AAA) Czech Rep. (A+) Denmark (AAA) Netherlands (AAA) Estonia (A+) Germany (AAA) Finland (AAA) UK (AAA) Sweden (AAA) bp