Republic of Turkey Undersecretariat of Treasury RECENT DEVELOPMENTS IN TURKISH ECONOMY İbrahim H. Çanakcı Undersecretary of Treasury June 21-22, 2012
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 2
I. MACROECONOMIC PERFORMANCE IN 2010-2011 3
GDP Growth Rate (%) 12 9.2 8.5 9 5.9 6 3 0 -3 -4.8 -6 2003-2008 Average 2009 2010 2011 4 Source: TURKSTAT
Labor Market Indicators 16 25 15 24 14 13 23 12 22 11 10 21 9 8 20 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) 5 Source: TURKSTAT
Consumer Price Index (% change) 6 Source: TURKSTAT
Current Account Deficit/GDP (%) 12 10.0 10 8 6.4 6 4.7 4 2.2 2 0 2003-2008 Average 2009 2010 2011 7 Source: CBRT, TURKSTAT
Key Factors Affecting Current Account Deficit Domestic Demand Oil and Other Energy Prices Non-Energy Terms of Trade Real Exchange Rate Domestic Saving Ratio 8
Total Domestic Demand and Imports (%, YoY) 9 Source: TURKSTAT, CBRT
Credit Growth and Current Account Deficit (%) 16 14 12 10 8 6 4 2 0 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** (*) ratio of annualized CAD to annualized GDP (**) ratio of annual change in credit stock to annualized GDP 10 Source: TURKSTAT, CBRT, BRSA
Current Account Balance – Energy Impact (% GDP) 11 Source: TURKSTAT, CBRT
Terms of Trade (12-month average, $) 12 Source: TURKSTAT, Undersecretariat of Treasury
Real Exchange Rate (2003=100) 13 Source: CBRT
Domestic Savings Ratio (E) Estimation 14 Source: Ministry of Development
Savings-Investment Balance (% GDP) (E) Estimation 15 Source: Ministry of Development
II. POLICIES AND STRUCTURAL REFORMS TO ADDRESS THE CHALLENGES IN EXTERNAL BALANCE 16
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 17
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 of Catastrophe Insurance Scheme Financial Literacy Strategy New Turkish Commercial Law Strategy for fight against informal economy 18
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 19
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 of 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 20
Improving the Quality of Financing 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 overseas 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 21
III. RECENT MACROECONOMIC DEVELOPMENTS 22
Credit Growth (fx adjusted, annual % change) 23 Source: BRSA
Industrial Production Index (seasonally adjusted) (*) As of April 24 Source: TURKSTAT
Capacity Utilization Rate of Manufacturing Industry ( seasonally adjusted, %) 25 Source: CBRT
Medium Term Program Projections GDP Growth Rate (%) 6 5.0 5.0 5 4.0 4 3 2 2012 2013 2014 26 Source: Ministry of Development
GDP Growth Expectations for 2012* (%) (*) Median of the expectations Source: Forecast of International Institutions and Investment Banks 27
CPI (annual % change) 28 Source: TURKSTAT
Foreign Trade Developments (annualized, % change) 29 Source: TURKSTAT
Market Diversification in Exports (%) 100 90 80 41 46 46 46 48 56 57 56 56 58 58 70 60 50 31 25 40 25 28 28 15 18 18 19 17 17 30 07 11 09 07 07 08 09 12 10 10 20 10 05 05 05 05 05 10 10 07 08 06 08 11 10 09 09 08 07 05 05 06 07 05 05 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* Other Countries America Africa Other European Countries (Excluding EU) Asia EU 27 (*) Annualized as of April 2012 30 Source: TURKSTAT
Foreign Trade Deficit (annualized, billion $) 31 Source: TURKSTAT
Current Account Deficit (annualized, billion $) 32 Source: CBRT, TURKSTAT
Rebalancing of Demand (contribution to GDP growth, percentage points) 33 Source: TURKSTAT, Undersecretariat of Treasury
Medium Term Program Projections Current Account Deficit/GDP (%) 10 8.0 8 7.5 7.0 6 4 2012 2013 2014 34 Source: Ministry of Development
Financing Structure of Current Account Deficit (annualized, billion $) 70 60 50 40 30 20 10 0 -10 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 35 Note: Short term capital movements include short term credits and deposits of banks and non-bank private sector. Source: CBRT
Banking and Household Sector Indicators Banking Sector: Capital Adequacy Ratio in Selected Capital Adequacy Ratio (%) Emerging Markets (%, 2011) 35 28 30.9 24.7 28.2 30 24 25.1 23.7 25 20 21.9 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 20.6 18.9 19.0 18.0 20 16 16.5 16.4 15 12 10 8 4 5 0 Czech… 0 Belarus Malaysia Brazil Colombia Turkey Indonesia Malta Mexico Thailand Russia India Hungary Korea Chile Romania Poland 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-4 China Asset Quality (NPL Ratio, %) Household Liabilities (% of GDP) 70 Euro Area 2006-10 Average 24 21.2 60 20 50 16 11.5 40 12 7.6 30 6.0 8 5.3 4.7 3.7 3.7 3.7 19 3.5 2.7 17 20 4 3.3 15 1.5 14 0.8 12 0.8 0.6 0.9 0.5 0.4 10 0.6 0.6 0.5 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-4 0 2006 2007 2008 2009 2010 2011 Gross Net 36 Source: BRSA
IV. FISCAL POLICY 37
Fiscal Policy Performance (2001-2011) General Government Overall Deficit General Government Overall Deficit (excl. privatization, % GDP) (% GDP) 14 14 12.5 11.8 12 12 10.9 10.8 10 10 8.0 7.9 8 8 5.9 5.5 6 6 4.4 4.1 3.3 4 4 2.9 2.5 1.6 1.6 2 2 0.7 0.7 0.3 0.2 0.2 0.1 -1.4 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Central Government Budget Deficit (% GDP) IMF Defined Public Sector Primary Balance (% GDP) 14 7 12.8 5.7 5.5 11.6 6 12 4.8 4.7 4.5 5 10 8.8 4 3.2 3.2 8 3 1.9 5.5 1.6 5.4 2 6 0.8 1 3.6 4 0 1.8 1.6 1.3 1.3 2 -1 0.6 -1.0 0 -2 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 * 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* (*) Provisional 38 Source: Undersecretariat of Treasury, MoF, MoD, TURKSTAT
Public Debt/GDP Public Sector Net Debt Stock EU Defined General Gov't Gross (% GDP) Debt Stock (% GDP) 70 90 61.5 60 80 55.2 77.9 74.0 49.1 50 70 41.7 67.7 40 34.0 59.6 28.232.5 60 29.5 28.9 30 52.7 22.4 50 46.5 46.1 20 42.4 39.9 40.0 39.4 40 10 0 30 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 TL FX Denominated/Indexed 39 Source: Undersecretariat of Treasury, MoF, TURKSTAT
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