Turkish Economy: Rebalancing and Transformation Ministry of - - PowerPoint PPT Presentation

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Turkish Economy: Rebalancing and Transformation Ministry of - - PowerPoint PPT Presentation

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Turkish Economy: Rebalancing and Transformation Ministry of Treasury and Finance January 2019 1 Strong Growth Performance GDP growth (avg., %) 5,7 13 th largest Significant 3x increase in economy in improvement the world per capita

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1

Ministry of Treasury and Finance January 2019

Turkish Economy: Rebalancing and Transformation

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4,7 5,7 1924-2002 2003-2017

Strong Growth Performance

GDP growth (avg., %) 3x increase in per capita income Significant improvement in poverty and income distribution 13th largest economy in the world with $2.2 trillion

Source: TURKSTAT, Strategy and Budget Directorate, MTF calculations 2

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Strong Employment Generation

* October 2018 Seasonally Adjusted Source: TURKSTAT

18,9 28,2 28,9 2002 2017 2018*

Total Employment (million people)

10 million new jobs 10.3 pps increase in female labor force participation Positive discrimination against women, youth and disabled

3

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36 157 168 2002 2017 2018*

Export Supports Growth

Merchandise Exports (billion $)

* November 2018 Annualized Source: TURKSTAT 4

More than 4x increase in exports # of countries with an export of more than $1 billion surged from 8 to 34 # of products with an export of more than $1 billion increased from 9 to 34

YTD export growth exceeds import growth with significant increase in September, October and November

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* November 2018 Annualized Source: BRSA, TURKSTAT

59 105 107 2002 2017 2018*

Strong Banking Sector

Asset Size of Banking Sector (% of GDP)

Significant increase in asset size of banking sector NPL ratio is 3.7% CAR is 18.2%, above the legal and target ratios Banking sector has no open FX position.

5

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4,3 2,0 2,2 1,8 1 2 3 4 5 EMs OECD AMs TURKEY

Robust Public Finances

Source: IMF, OECD, Directory of Strategy and Budget, Ministry of Treasury and Finance

(General government deficit, % of GDP, 2017) Maastricht Criteria: 3%

6

111,5 103,4 48,6 28,3 20 40 60 80 100 120 OECD AMs EMs TURKEY (Gross public debt, % of GDP, 2017) Maastricht Criteria: 60%

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20 40 60 80 100 Korea Lebanon Hong Kong Thailand Malaysia Singapore China Chile Israel Poland

  • S. Africa

Czech Rep. Colombia Brazil UAE Hungary Indonesia Russia Mexico TURKEY Philippines

  • S. Arabia

India Kenya Argentina Egypt Ukraine Nigeria Ghana Pakistan

Indebtedness

50 100 150 200 250 Hong Kong China Singapore Lebanon Korea Chile UAE TURKEY Israel Malaysia Hungary Philippines Czech Rep. Russia Thailand Poland

  • S. Arabia

India Brazil

  • S. Africa

Colombia Ukraine Egypt Mexico Kenya Ghana Indonesia Pakistan Argentina Nigeria 20 40 60 80 100 120 140 160 Lebanon Singapore Egypt Brazil Hungary Ukraine Ghana Hong Kong India Pakistan Israel Kenya Argentina

  • S. Africa

Poland Malaysia Colombia China Korea Philippines Czech Rep. Mexico Thailand Indonesia TURKEY Chile Nigeria UAE

  • S. Arabia

Russia 50 100 150 200 Singapore Hong Kong Korea Chile UAE China Thailand Czech Rep. Brazil Malaysia TURKEY Poland Hungary

  • S. Africa

Mexico Ukraine Argentina Philippines Russia Indonesia Israel Lebanon Egypt Colombia India Nigeria

  • S. Arabia

Ghana Kenya Pakistan

7

EM-30 Average: 36% (% of GDP, 2018Q2)

Households

(% of GDP, 2018Q2)

Non-financial Corporates

EM-30 Average: 95% (% of GDP, 2018Q2) EM-30 Average: 48%

Government

(% of GDP, 2018Q2) EM-30 Average: 33%

Financial Corporates Source: IIF

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Source: TURKSTAT

29,8 7,4 11,9 20,3 2002 2013 2017 2018

Our Priority is Combatting with Inflation

CPI (end of year, % change)

Significant improvement in inflation since 2002 Rise due to exchange rate, food and energy prices in recent period

8

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  • 5

5 10 15 20 25 30 35 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Food Energy Goods excluding energy and food

4 8 12 16 20 24 28 32

Jan-03 Mar-04 May-05 Jul-06 Sep-07 Nov-08 Jan-10 Mar-11 May-12 Jul-13 Sep-14 Nov-15 Jan-17 Mar-18 May-19 Jul-20

12 months 24 months

Inflation: Drivers and Expectations

9

Key Drivers of Inflation Inflation Expectations*

* CBRT’s Survey of Expectations as of January 2019. CBRT’s Survey of Expectations has been released once a month since January 2013 Source: TURKSTAT, CBRT

Year End Target

Inflation Expectations (January 2019) End year 16.45 12 months 15.91 24 months 12.00

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6,5 5,5 4,7 3 4 5 6 7 8 9 2011-Q1 Q2 Q3 Q4 2012-Q1 Q2 Q3 Q4 2013-Q1 Q2 Q3 Q4 2014-Q1 Q2 Q3 Q4 2015-Q1 Q2 Q3 Q4 2016-Q1 Q2 Q3 Q4 2017-Q1 Q2 Q3 Q4 2018-Q1 Q2 Q3 Q4*

Current Account Deficit

* Estimate Source: TURKSTAT, CBRT

(12 month rolling, % of GDP)

Current account deficit increased due to strong domestic demand and high commodity prices Strong exports and tourism in conjunction with rebalancing will diminish current account deficit Rebalancing started with current account surplus of USD7.4 billion during August-November period and exports covering 96% of imports in November

10

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New Economy Program

Balance-Discipline-Transformation 2019-2021

REPUBLIC OF TURKEY MINISTRY OF TREASURY AND FINANCE

11

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New Economy Program (NEP, 2019-21) Balance-Discipline-Transformation

Economic Balancing between 2018-2020 Fiscal Discipline accompanying economic balancing Transformation in manufacturing & exports with a ‘value-add’ perspective

3,8 2,3 3,5 5,0 2018 2019 2020 2021

GDP Growth (%)

12

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11,3 12,1 11,9 10,8 2018 2019 2020 2021

More Than 2 Million New Employment Target in NEP

Severance pay reform Flexible employment in public sector Reviewed and redesigned employment incentives Reducing informal employment Enhancing vocational training program

Unemployment Rate (%)

13

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Combating Inflation

Tight Monetary Policy Strong Fiscal Discipline Financial Stability and Development Committee (FİKKO) Product Monitoring Mechanism and National Agricultural Project Leasing contracts Inflation Target (%)

20,8 15,9 9,8 6,0 2018 2019 2020 2021

14

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Fiscal Discipline

Savings and revenue potential of TL76 billion in 2019 Prioritization in investment projects Mega infrastructure projects with foreign financing Rearrangement PPP practices Regulation of social insurance scheme Expanding tax base and ensure tax equity Improvement program in tax process

1,9 1,8 1,9 1,7 2018 2019 2020 2021

Budget Deficit Target (% of GDP)

15

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Reducing Current Account Deficit Permanently

Support for sector-oriented investment projects PPP models for technology and R&D investments Structuring of Export Incentive System Diversification in export Reducing import dependency in energy Increasing quality and diversity in tourism Current Account Deficit (% of GDP)

4,7 3,3 2,7 2,6 2018 2019 2020 2021

16

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Unique Aspects of NEP

Public Finance Transformation Office Measures for Banking and Real Economy Improvements in Taxation Practices Best Practices in Strategic Sectors Implementation and Monitoring

  • f NEP

17

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Public Finance Transformation Office

Structure

The Ministry of Treasury and Finance Teams within other ministries

Savings- and revenue- increasing initiatives will be identified Ministry level performance targets for each initiatives will be set Initiative roadmaps will be prepared and implemented

Progress against performance indicators will be monitored and reported

Operating Model Expected Impact (in 2019) BILLION TRY SAVINGS

60

  • 31 Billion TRY – Investments
  • 13.7 Billion TRY - Incentives
  • 10.1 Billion TRY – Social Security
  • 2.5 Billion TRY – Goods and Services
  • 2.7 Billion TRY – Others

BILLION TRY REVENUE INCREASE

16

Additional value potential is expected in following years

18

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Measures for Banking and Real Sector

Conducting financial health assessment studies of banking sector Implementation of a comprehensive policy set according to the results of the studies Restructuring of loans of real sector companies Restructuring of Development Bank of Turkey Restructuring of Real Estate Bank of Turkey

19

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Source: OECD, EUROSTAT, TURKSTAT

High Potential of Turkey

1,6 0,5 0,1 TURKEY OECD EU-28

Working Age Population Growth* (%)

* 2002-17 average, 15-64 years

Dynamic and young population Geopolitically strategic location Large domestic market Strong infrastructure

20

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Takeaways

21

Rebalancing started

  • Increasing exports
  • Current account surplus in August 2018

Reducing inflation is the most important priority

  • Core inflation peaked in September
  • Reversal started in October

Fiscal discipline will be maintained

  • Budget deficit below 2% of GDP in 2018
  • Significant savings and incremental revenue

Relations with the US started to normalize

  • Diplomacy yielding results
  • Fostering stability in the region

Economy is the key political priority

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Thank you…

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23

APPENDIX

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178,5 124,9 187,6 237,6 231,3 90 130 170 210 250 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 World EU EMs excl China & India EMs TURKEY (Real GDP, 2002=100)

Relative Growth Performance

Source: IMF 24

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Real Convergence

Source: OECD

24,2 47,9 20 25 30 35 40 45 50 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (GDP pc, PPP $ , Turkey/US) 37,1 67,3 35 40 45 50 55 60 65 70 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (GDP pc, PPP $ , Turkey/EU)

Narrowing per capita GDP gap btw Turkey and Advanced Countries

25

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22,9 20,0 18,9 18,4 18,2 17,7 17,6 17,6 17,1 17,0 15,9 15,7 14,8 13,6 13,0 12,5 12 13 14 15 16 17 18 19 20 21 22 23 Indonesia Romania Colombia Poland TURKEY Brazil Czech Rep. Thailand Hungary Malaysia India Mexico Korea China Chile Russia (CAR, %, November 2018)

Source: BRSA, IMF-FSI Note: Latest available

Banking Sector Capital Adequacy Ratio

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13,6 13,2 12,4 12,1 11,6 11,1 9,9 9,7 9,7 9,7 9,5 9,2 8 9 10 11 12 13 14 India Israel Chile

  • S. Africa

China Romania Brazil Russia Mexico Poland Thailand TURKEY (Asset/equity, November 2018)

Source: BRSA, IMF-FSI Note: Latest available

Banking Sector’s Leverage

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10,7 10,3 5,6 4,8 4,0 3,7 3,2 3,1 2,9 2,6 2,1 1,9 1,9 1,9 1,6 0,5 2 4 6 8 10 12 Russia India Romania Colombia Poland TURKEY Brazil Thailand Hungary Indonesia Mexico Czech Rep. Chile China Malaysia Korea

Note: Latest available data Source: BRSA, IMF-FSI

(NPL ratio, %, November 2018)

Banking Sector’s NPL Ratio

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20,5 20,3 17,9 17,7 16,5 16,4 15,9 15,4 13,9 13,7 13,4 11,1 9,9 8,5 4,6

  • 1,6
  • 3

3 6 9 12 15 18 21 Mexico Hungary Chile Czech Rep. Indonesia Romania Colombia Brazil TURKEY China Malaysia Russia Thailand Poland Korea India (Return on equity, %, November 2018)

Source: BRSA, IMF-FSI Note: Latest available

Banking Sector’s Profitability

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  • 60
  • 40
  • 20

20 40 60 Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18 Dec-18 Net FX Position On Balance Sheet Off Balance Sheet (Billion $)

Banking Sector: FX Position

Note: As of December 2018. Source: BRSA 30

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Sensitivity of Debt Stock to Shocks

2001 2017

Change in real exchange rate by 5 percentage points 2.1 points 0.5 point Change in TL interest rate by 500 bps 1.6 points 0.8 points Change in GDP growth rate by 2 percentage points 1.6 points 0.5 points

Note: The effects of scenarios on “General Government Debt Stock/GDP” ratio (as defined by ESA standards) measured by deviations from baseline scenarios based on end-2001 and end-2017 stock realizations. Source: Ministry of Treasury and Finance 31

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Total Indebtedness

32 Source: IIF

100 200 300 400 500 600 Hong Kong Singapore Lebanon Korea China Malaysia Chile Hungary Brazil Thailand Israel UAE Czech Rep. Poland South Africa TURKEY Egypt Philippines India Ukraine Colombia Mexico Argentina Kenya Russia Pakistan Ghana Saudi Arabia Indonesia Nigeria Households Non-financial corporates Government Financial corporates EM-30 Average: 212% (% of GDP, 2018Q2)

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Decomposition of Total Debt

33 Source: IIF

(Total debt, % of GDP, 2018Q2) 59 36 16 92 95 72 86 48 30 80 33 27 317 212 146 50 100 150 200 250 300 350 World EMs TURKEY Households Non-financial corporates Government Financial corporates

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Non-financial Corporate Sector Indebtedness

34 Source: IIF

92 95 72 20 40 60 80 100 120 World EMs TURKEY (Non-financial corp. debt, % of GDP, 2018Q2)