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 4,7 in poverty with $2.2 income and income trillion distribution 1924-2002 2003-2017 2 Source: TURKSTAT, Strategy and Budget Directorate, MTF calculations
Strong Employment Generation Total Employment (million people) 28,9 10 million new jobs 28,2 10.3 pps increase in female labor force participation Positive discrimination against 18,9 women, youth and disabled 2002 2017 2018* * October 2018 Seasonally Adjusted 3 Source: TURKSTAT
Export Supports Growth Merchandise Exports (billion $) More than 4x increase in exports 168 157 # 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 36 from 9 to 34 YTD export growth exceeds import 2002 2017 2018* growth with significant increase in September, October and November * November 2018 Annualized 4 Source: TURKSTAT
Strong Banking Sector Significant increase in asset size of Asset Size of Banking Sector (% of GDP) banking sector 107 105 NPL ratio is 3.7% CAR is 18.2%, above the legal and 59 target ratios Banking sector has no open FX position. 2002 2017 2018* * November 2018 Annualized 5 Source : BRSA, TURKSTAT
Robust Public Finances 5 4,3 (General government deficit, 4 % of GDP, 2017) 3 Maastricht Criteria: 3% 2,2 2,0 1,8 2 1 0 EMs OECD AMs TURKEY 120 111,5 103,4 100 ( Gross public debt, % of GDP, 2017) 80 60 Maastricht Criteria: 60% 48,6 40 28,3 20 OECD AMs EMs TURKEY 6 Source: IMF, OECD, Directory of Strategy and Budget, Ministry of Treasury and Finance
Source: IIF (% of GDP, 2018Q2) (% of GDP, 2018Q2) 100 120 140 160 100 150 200 20 40 60 80 50 0 0 Lebanon Singapore Singapore Hong Kong Egypt Korea Brazil Chile Hungary UAE Ukraine China Thailand Ghana Czech Rep. Hong Kong Brazil India Malaysia Pakistan TURKEY Israel Financial Corporates Poland Kenya Hungary Argentina Government S. Africa S. Africa Mexico Poland Ukraine Malaysia Argentina Colombia Philippines China Russia Korea Indonesia Philippines Israel Czech Rep. Lebanon Mexico Egypt Thailand EM-30 Average: 33% EM-30 Average: 48% Colombia Indebtedness Indonesia India TURKEY Nigeria Chile S. Arabia Nigeria Ghana UAE Kenya S. Arabia Pakistan Russia (% of GDP, 2018Q2) (% of GDP, 2018Q2) 100 20 40 60 80 0 100 150 200 250 50 0 Korea Lebanon Hong Kong Hong Kong China Thailand Singapore Malaysia Lebanon Korea Singapore Chile China UAE Chile TURKEY Israel Israel Poland Malaysia S. Africa Hungary Czech Rep. Non-financial Corporates Philippines Colombia Czech Rep. Brazil Households Russia UAE Thailand Hungary Poland Indonesia S. Arabia Russia India Mexico Brazil TURKEY S. Africa Philippines Colombia S. Arabia Ukraine India Egypt EM-30 Average: 36% EM-30 Average: 95% Kenya Mexico Argentina Kenya Egypt Ghana Ukraine Indonesia Nigeria Pakistan Ghana Argentina Pakistan Nigeria 7
Our Priority is Combatting with Inflation CPI (end of year, % change) 29,8 Significant improvement in inflation since 2002 20,3 11,9 Rise due to exchange rate, food and energy prices in 7,4 recent period 2002 2013 2017 2018 8 Source: TURKSTAT
Inflation: Drivers and Expectations 32 Key Drivers of Inflation Inflation Expectations* 35 28 Inflation Expectations 30 24 (January 2019) 12 months 25 End year 16.45 20 12 months 15.91 20 16 24 months 12.00 15 12 24 10 months 8 5 4 Year End Target 0 0 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 -5 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 * CBRT’s Survey of Expectations as of January 2019. CBRT’s Survey of Expectations has been released once a month since January 2013 9 Source: TURKSTAT, CBRT
Current Account Deficit 9 Current account deficit increased due to strong domestic demand 8 and high commodity prices (12 month rolling, % of GDP) 7 6,5 Strong exports and tourism in conjunction with rebalancing will 6 5,5 diminish current account deficit 5 4,7 Rebalancing started with current 4 account surplus of USD7.4 billion during August-November period 3 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* and exports covering 96% of imports in November * Estimate 10 Source: TURKSTAT, CBRT
REPUBLIC OF TURKEY MINISTRY OF TREASURY AND FINANCE New Economy Program Balance-Discipline-Transformation 2019-2021 11
New Economy Program (NEP, 2019-21) Balance-Discipline-Transformation GDP Growth (%) Economic Balancing between 5,0 2018-2020 3,8 3,5 Fiscal Discipline accompanying economic balancing 2,3 Transformation in manufacturing & exports with a ‘value - add’ perspective 2018 2019 2020 2021 12
More Than 2 Million New Employment Target in NEP Severance pay reform Unemployment Rate (%) Flexible employment in public 12,1 sector 11,9 Reviewed and redesigned 11,3 employment incentives 10,8 Reducing informal employment Enhancing vocational training 2018 2019 2020 2021 program 13
Combating Inflation Inflation Target (%) Tight Monetary Policy 20,8 Strong Fiscal Discipline 15,9 Financial Stability and Development Committee (FİKKO) 9,8 Product Monitoring Mechanism and National Agricultural Project 6,0 Leasing contracts 2018 2019 2020 2021 14
Fiscal Discipline Savings and revenue potential of TL76 billion in 2019 Budget Deficit Target (% of GDP) Prioritization in investment projects 1,9 1,9 1,8 1,7 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 2018 2019 2020 2021 15
Reducing Current Account Deficit Permanently Support for sector-oriented investment Current Account Deficit (% of GDP) projects 4,7 PPP models for technology and R&D investments Structuring of Export Incentive System 3,3 Diversification in export 2,7 2,6 Reducing import dependency in energy Increasing quality and diversity in tourism 2018 2019 2020 2021 16
Unique Aspects of NEP Public Finance Measures for Banking Improvements in Transformation Office and Real Economy Taxation Practices Best Practices in Strategic Implementation and Monitoring Sectors of NEP 17
Public Finance Transformation Office Structure Operating Model Expected Impact (in 2019) BILLION TRY Savings- and revenue- The Ministry of Treasury and 60 increasing initiatives will be SAVINGS Finance identified • 31 Billion TRY – Investments Ministry level performance • 13.7 Billion TRY - Incentives targets for each initiatives • 10.1 Billion TRY – Social Security will be set • 2.5 Billion TRY – Goods and Services • 2.7 Billion TRY – Others Initiative roadmaps will be prepared and implemented BILLION TRY REVENUE 16 INCREASE Progress against performance indicators will Additional value potential is be monitored and reported Teams within other expected in following years ministries 18
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
High Potential of Turkey Working Age Population Growth* (%) 1,6 Dynamic and Geopolitically Large Strong young strategic domestic infrastructure population location market 0,5 0,1 TURKEY OECD EU-28 * 2002-17 average, 15-64 years 20 Source: OECD, EUROSTAT, TURKSTAT
Takeaways Economy is the key political priority 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 21
Thank you… 22
APPENDIX 23
Relative Growth Performance 250 237,6 231,3 210 (Real GDP, 2002=100) 187,6 178,5 170 130 124,9 90 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 World EU EMs excl China & India EMs TURKEY 24 Source: IMF
Source: OECD (GDP pc, PPP $ , Turkey/US) 20 25 30 35 40 45 50 24,2 2002 2003 2004 Narrowing per capita GDP gap btw Turkey and Advanced Countries 2005 2006 2007 2008 2009 2010 2011 Real Convergence 2012 2013 2014 2015 2016 2017 47,9 (GDP pc, PPP $ , Turkey/EU) 35 40 45 50 55 60 65 70 2002 37,1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 67,3 25
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