Outlook for
Mehmet ŞİMŞEK
Minister of Finance
March 19, 2015
1
Outline
2
Political Outlook Priorities & Reform Agenda
Macroeconomic Outlook
Long-Term Prospects
Political Outlook
3
4
Importance of Political Stability
Political Stability
Political Stability
5
15 Months
148 Months
0
20
40
60
80
100
120
140
160
Average Lifetime of Governments during 1950-2002 AK Party Governments Since 2002
1923-2002
Average Lifetime of
Governments: 17 months
2002-14
Political Stability
2023 Vision
Political Outlook
Local Elections (March 2014)
Presidential Elections (August 2014)
Parliamentary Elections (June 2015)
6
Source: GENAR, March 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
7
4,9
8,9
13,4
25,1
47,7
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
7
Source: ANAR, January 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
8
6,2
7,8
14
25
47
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
8
Source: Konda, January 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
9
5,6
10,6
15,1
23,3
45,4
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
9
Source: ORC, January 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
10
6,4
8,2
13,5
23,3
48,6
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
Source: ORC, February 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
11
4,4
8,9
13,9
23
49,8
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
Source: ORC, March 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
12
4,9
8,4
13,5
23,2
50
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
Source: Mak , January 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
13
5,2
6,8
14
25,4
48,4
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
13
Source: Mak , February 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
14
5,3
8
14,3
24,8
47,6
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
14
Source: Mak , March 2015
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: Nationalist Movement Party
HDP: People’ s Democratic Party
( %
)
15
3,7
9,1
14,2
25,3
47,7
0 10 20 30 40 50 60
Others
HDP
MHP
CHP
AK PARTY
Which party would you vote for if the elections were held today?
15
Political Stability Structural Reforms
Time to Deepen & Broaden the Reform Agenda
Preparation Phase
2013-14
No Elections for the Next Four Years
Implementation Phase
2015-19
16
A Comprehensive Reform Program
25
Transformation Programs
1,300 +
Micro Reforms
17
Strong Political Ownership
Reforms aimed at avoiding middle-income trap
This is NOT a wish list; it has strong political ownership
Programs are designed with the input of all relevant ministries
Process is supervised by the Economic Coordination Council
18
Cross-Cutting Programs
Rationalization of Public Expenditure
Enhancing Quality of Public Revenue
Developing Statistical
Infrastructure
Combating Informal Economy
Improving Institutional
Capacity at Local Level
19
Enhancing Human Capital Stock & Creating a Strong Society
Supporting Basic & Occupational Skills
Attracting Qualified Human
Resources
Conservation of Family & Dynamic
Population Structure
Supporting Healthy Life & Mobility
Structural Transformation of
Healthcare Related Industries
Developing Health Tourism
20
Higher Sustainable Growth
Enhancing Productivity
Increasing Domestic Savings &
Avoiding Waste
Improving Business & Investment
Climate
Commercialization of R&D
Developing Tech. & Dom. Production
thru Public Procurement
Increasing Labor Market Flexibility
Deepening Capital Markets
Transformation from
Transportation to Logistics
Reducing Import Dependency
21
Sustainable Environment
Improving Energy Efficiency
Enhancing Efficiency of Water Use in Agriculture
Supporting Local & Renewable Energy
Competitiveness & Social Cohesion, Enhancing Urban
Regeneration
22
International Cooperation & Development
Improving International Cooperation for Development
23
Priorities & the Reform Agenda
24
Improving Macroeconomic
Performance
Improving Quality of Institutions
Addressing Kurdish Issue
Enhancing Human Capital Stock
Improving Infrastructure
Increasing Access & Quality of Health
Services
Enhancing Competition
Increasing Labor Market Flexibility
Deepening Capital Markets
Investing in Local & Renewable Energy
Enhancing Technological Readiness & Innovation
Combatting Shadow Economy
25
Priorities & Reform Agenda to Boost Productivity
Improving Macroeconomic Performance
26
Higher & sustainable
growth
Lower inflation
Lower current account deficit
Maintaining fiscal
strength
Maintaining a healthy banking sector
Higher labor participation
& employment
Improving Quality of Institutions
27
Source: Ministry of EU Affairs 28
EU Accession Process
14
20
0
5
10
15
20
25
Opened Remaining
Progress in almost all chapters
Adopted over 2,000 pieces of legislation to align with
EU standards
The European Commission report (Oct-2014):
• Turkey’s alignment level is quite ‘high’ in many areas
• Progress has been achieved in various levels in 30/33 negotiation chapters
• Turkey has reached ‘advanced’ level of alignment in 26 chapters
Formally, only 14 chapters have been opened
But, 26-27 chapters would have been opened if politics
of enlargement was favorable
EU Accession Process (Chapters)
29
Improving Quality of Institutions
Corruption Perception:
2014: 64th in 175
2002: 65th in 102
Ease of Doing Business:
2014: 55th in 189
2006: 84th in 175
Global Competitiveness: 2014: 45th in 144
2005: 71st in 117 Source: WB, WEF, Transparency International 30
Addressing Kurdish Issue
31
Kurdish Issue
Human Toll: nearly 40,000 people
Economic Costs:
• 360 billion TL: cost of combatting terrorism
• 500 billion TL: economic losses
32
Addressing Kurdish Issue
A cessation of hostilities for the past 2 years
Never before have negotiations progressed so far
The recent call for disarmament is a significant step forward
Prospects of a lasting settlement remain high
33
Addressing Kurdish Issue: Economic Peace Dividends
Settlement could boost GDP growth by as much as 1 ppt annually for a couple of decades
Regional energy deals could reduce Turkish CAD by as much as 1 ppt annually
34
Enhancing Human Capital Stock
35
Education matters
36
LU
SG
NO
CH
US
HK
NL
AU
AT
DE
SE
CA DK
IS
BE
Finland
France
Japan
UK
Italy
Korea
NZ IL
ES
CY
SI
Czech
SK
EE
PT
LT
Greece
RU PL
HU
Malaysia
Kazakhstan
Latvia
Ar
Libya
Croatia
Uruguay
TR
VE
Belarus
Romania
MX
Lebanon
AZ
Bulgaria
Brazil Thailand
Algeria
Colombia
Serbia
China
Peru
Tunisia
Albania
BA
Ukraine
Georgia
Armenia
ID
6,5
7,0
7,5
8,0
8,5
9,0
9,5
10,0
10,5
11,0
11,5
12,0
12,5
13,0
13,5
3,7 3,9 4,1 4,3 4,5 4,7 4,9 5,1
mea
n y
ears
of
sch
oo
ling
(A
du
lts*
)
log ppp per capita (current international dollar)
Source: HDI Reports Data, IMF WEO Database *25 years and older
9
19
8
10
12
14
16
18
20
2002 2015
Source: Ministry of Finance
Share of Education within Budget (%
)
37
Gross Schooling Rates
11,7
96,5
80,8
35,8 38,0
110,4
103,3
97,1
10
30
50
70
90
110
130
Preschool (age of 4-5) Primary School Secondary School Higher Education
2002-03 2013-14
Source: Ministry of Development 38
(%)
39
Enhancing Human Capital Stock: PISA Results
Source: OECD
Ga
p b
/w T
urk
ey &
OEC
D
76 74
45
65
47
51
29
42,3
38
46
21
35
15
25
35
45
55
65
75
85
Science Maths Reading Average
2006 2009 2012
Other Initiatives
Building skills
Investing in Life-Long Learning
PPPs for on-the-job training for the unemployed
40
Improving Infrastructure
41
Infrastructure Fuels the Economy
Infrastructure development has the potential to*
• Promote growth
• Increase equity
• Reduce poverty
1% increase in road network may increase productivity by
0.5ppt**
42 * Calderon and Serven 2010. ** Infrastructure Fedderke and Kaya (2013)
Investments in Infrastructure
Highways; 138,4
Railways; 41,9
Communication; 24,3
Airways; 11,7 Maritime; 3,3
43
About 220 billion TL investments during 2003-15
January 2003
1.714 Km
Total of Motorways
4.387 Km
Total of State and Provincial Dual Carriageways
6.101 Km
in Total
Highway Network
Source: Ministry of Transport
October 2014
2.244 Km
Total of Motorways
21.317 Km
Total of State & Provincial Dual Carriageways
23.561 Km
in Total
44
İSTANBUL
EDİRNE
ESKİŞEHİR
Polatlı
ANKARA
KONYA
İZMİR
SİVAS
AFYONKARHİSAR
KAYSERİ
BURSA
ERZİNCAN
ERZURUM
KARS
MERSİN ADANA
DİYARBAKIR
ELAZIĞ
MALATYA
ZONGULDAK SAMSUN
Bandırma
VAN
MUŞ
BİLECİK
ÇANKIRI
KIRIKKALE
TEKİRDAĞ
İZMİT
BALIKESİR
AYDIN
DENİZLİ BURDUR
ISPARTA
UŞAK MANİSA
KARAMAN
NİĞDE
OSMANİYE
K.MARAŞ
AMASYA
BATMAN
MARDİN
Yerköy
KARABÜK
Yenişehir
405 km
212 km
533 km
624 km
105 km
Completed (888 km)
Under Construction (1796 km)
Bidding Phase (454 km)
Project Phase (354 km)
GAZİANTEP
Çobanbey
45
High Speed Railway Projects
Future Railways Investments
By 2023 $ 45 billion worth of investment
10,000 km of new high speed railway network
4,000 km of new conventional line
46
# of Airports up to 53
from 26 in 2002
3rd Airport in Istanbul
• 150 million passengers
• An area of 90 million m2
• Construction Cost: €10 billion
• Lease (25 Years): €22.2 billion (excl. VAT)
47
Airports
Projects of the Century
48
First 3-Level Tunnel in the World Canal Istanbul
Projects of the Century
Tube Tunnel 3rd Bridge
İzmit Gulf Transit İstanbul-İzmir Highway High-Speed Train through Ankara-Bursa-İstanbul
49
Considerable Improvements in Mobile and Broad-Band Coverage
50
20
02
33.0 mobile
telephone subscriptions per 100 pop.
20
13
90.9
mobile telephone
subscriptions per 100 pop.
26.8 fixed telephone
lines per 100 pop.
0.03 broadband
internet subcribers/ 100
pop.
17.7 fixed telephone
lines per 100 pop.
12.6 broadband
internet subcribers/ 100
pop.
ICT INFRASTRUCTURE INDICATORS
Turkey
fixed broadband
internet subcribers in 2013 9.6
millions
69.7
millio
ns
mobile telephone subcriptions in 2013
Source: Turkstat
Turkey’s Rank in Logistics
51
0.1-0.5 % Growth
10 % Oil Prices
1 2 5 9 13
15 18 20
21 24 26 28 30 31 32 33 34 35 40 43 44
47 49 54
55 58 61 62 63 65
85 90
110
116
0
20
40
60
80
100
120
140
Ger
man
y
Net
her
lan
ds
Sin
gap
ore
Un
ited
Sta
tes
Fran
ce
Ho
ng
Ko
ng
Spai
n
Ital
y
Ko
rea,
Rep
.
Fin
lan
d
Po
rtu
gal
Ch
ina
Turk
ey
Po
lan
d
Cze
ch…
Hu
nga
ry
Sou
th A
fric
a
Thai
lan
d
Ro
man
ia
Slo
vaki
a
Gre
ece
Bu
lgar
ia
Sau
di A
rab
ia
Ind
ia
Cro
atia
Cyp
rus
Ukr
ain
e
Egyp
t
Serb
ia
Bra
zil
Leb
ano
n
Ru
ssia
n F
ed.
Tun
isia
Geo
rgia
LPI C
ou
ntr
y R
anki
ng,
20
14
Source: LPI Database
Note: In the chart, a smaller number indicates better performance
Increasing Access & Quality of Health Services
52
Healthcare Sector: Key Targets
Become one of the top 5 medical tourism destinations
Attract 750,000 international patients by 2017
Generate $5.6 billion in FX revenues
$3 billion revenue from thermal tourism
53
Healthcare Expenditures
Source: Ministry of Finance
54
Healthcare Indicators
Source: Ministry of Health 55
(Yea
rs)
72
77
70
72
74
76
78
2002 2013
Infant and Maternal Mortality Rate
(per
th
ou
san
d)
(per ten
tho
usa
nd
)
Life Expectancy At Birth
31,5
7,8
6,4
1,6
0
1
2
3
4
5
6
7
0
5
10
15
20
25
30
35
2002 2013
Tax Incentives for Healthcare Exports
18% VAT down to 8%
50% tax relief on CIT & PIT for exports in healthcare services
PIT and CIT exemption for 5 years on proceeds gained from operating rehabilitation centers
Regional Investment Incentives
56
Increasing Labor Market Flexibility
57
Productivity Growth
0,7
2,1
3,0
3,6
3,9
0 1 2 3 4 5
Growth Markets Average
MENA Average
BRICS Average
TURKEY
EU Average
(GD
P p
er w
ork
er,
19
95
-20
11
)
Source: Penn World Tables 58
Labor Productivity
12
14
16
18
20
22
24
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GD
P p
er H
ou
r W
ork
ed
(USD
, co
nst
ant
pri
ces,
20
05
PP
Ps)
Source: OECD
Lost years
Labor Market Reform
Reducing labor market rigidities
Improving quality of education
Increasing the link b/w education & labor markets
Increasing female labor market participation rate
60
Employment Protection Legislation Index
Source: OECD,2013. 61
Source: TURKSTAT, Eurostat, WB
Female Labor Participation Rates
62
70
75
80
85
90
95
100
105
110
115
120
125
130
135
140
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
TURKEY Brazil China Hungary
Croatia India Indonesia Mexico
Poland Russian Federation South Africa
(20
04
=10
0)
Labor Participation Rate, Female
Source: Turkstat, OECD 63
Lab
or
Part
icip
ati
on
Ra
te b
y Ed
uca
tio
n
(20
14
)
OECD Average: 62.7
23,3
30,3
41,0
16,0
25,8
31,9
39,8
71,3
10
20
30
40
50
60
70
80
2004 Total 2023 Illiterate Less than highschool
High school Vocational highschool
Highereducation
Labor Participation Rate, Female
Source: Fraker, A. and D. Ozdemir, 2011, “Female Labor Force Participation How Does Turkey Compare?”, TEPAV
Fem
ale
La
bo
r Pa
rtic
ipa
tio
n R
ate
(%
)
Income per Capita (log)
64
Deepening Capital Markets
65
66
Financial Market Depth Indicators
Source: World Bank, Turkey’s Transition, 2014
67
Financial Intermediation at Household Level is Lopsided
Source: World Bank, Turkey’s Transition, 2014
Borsa Istanbul Free-Float
Most Turkish companies are privately-owned
Source: Capital Markets Board, Central Securities Depository
27
70
10
20
30
40
50
60
70
80
Turkey EM Average
(%)
68
Deepening Capital Markets in Turkey
69
A New Capital Markets Law
Restructuring of Borsa Istanbul
Istanbul as a Financial Center
Incentives for
• Business Angels
• Global Fund Managers
• Venture Capital
• Private Pensions
77
68
63
45 44
42 40
20
30
40
50
60
70
80
Budapest Warsaw Prague Rio de Jeneiro Mexico ISTANBUL Buenos Aires
(20
14
)
2009 72nd
2014 42nd
2018 25th
Global Financial Centers Index
Source: Global Financial Centres Index 16 70
Financial Development Index
Source: The Financial Development Report 2012
(20
12
)
71
44 43
42
37
35
32
25
27
29
31
33
35
37
39
41
43
45
Hungary Mexico Turkey Poland Czech Republic Brazil
2009: 44th (out of 55 countries)
2012: 42nd (out of 62 countries)
2018: 30th
Investing in Local & Renewable Energy
72
High Dependence on Energy Imports
74%
Total Energy
92%
Oil
98%
Natural-Gas
73
74
Ener
gy
Imp
ort
s (B
illio
n $
)
(Bren
t, $ p
bl)
Source: TURKSTAT, Bloomberg
Energy Import Bill
Electricity: Installed Capacity
75
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
MW
Source: Ministry of Energy
Natural Gas Hydro Coal Renewables Other
76
Energy
2002-13 Change
Installed Capacity 101%
Electricity Production 85%
Renewable Energy Capacity 108%
Geothermal Energy Capacity 1600%
Wind Energy Capacity 145%
Hydroelectric Capacity 82%
Technological Readiness & Innovation
77
78 Source: Ministry of Development
Need to Move up the Value Chain
3,4
24,7
32,9
39,0
3,5
32,3
29,0
35,3
0
5
10
15
20
25
30
35
40
45
High-technology Medium high-technology Medium low-technology Low-technology
Production Exports
Manufacturing Industry Export
79 Source: CBRT
(USD
bn
)
34
141
Source: The Scientific and Technological Council of Turkey * % of GDP
R&D Spending*
80
2002
0.53% 2013
0.95% 2018 1.8% 2023
3.00%
Tax Incentives for R&D
R&D Expenditure
• Corporate income tax relief
• Personal income tax relief
• State contributions to social security premiums
• Exemption from stamp duty
• Capital support for young entrepreneurs
Strengthening the link b/w R&D and Commercial Activities
• 50% tax relief on commercial use of patents, trademarks…
• VAT exemption on patents, trademarks…
81
Since 2008, 155 R&D Centers
Patents, Industrial Designs & Trade Mark Applications
Patent applications 2014: 12,198 2002: 1,874
Industrial design applications
2014: 42,550
2002: 20,302
Trade Mark applications
2014: 110,641
2002: 36,429
82
Combatting Shadow Economy
83
Combatting Shadow Economy
84
Action Plan for Fighting Informality
Strengthening Capacity of Revenue Administration & Tax Audit Board
Income Tax and Tax Procedural Law
A New Action Plan
Target: 5ppt decline
• Informal economy as share of GDP
• Informal employment in non-farm sectors
85
Info
rma
l Em
plo
ymen
t (%
of
Tota
l Em
plo
ymen
t)
Informal Employment
Source:TURKSTAT 86
52,1 51,7
50,1
48,2
47,0
45,4
43,5 43,8
43,3
42,1
39,0
36,7
35,0
30
35
40
45
50
55
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Short-Term Economic Outlook
87
Macroeconomic Outlook
Growth is likely to pick up
Inflation is falling
Fiscal position remains strong
External balance is improving
88
Growth is likely to pick up
89
Outlook for Growth Remains Positive
90 Source: IMF, Medium-Term Program 2015-17
4,1
3,3
4,0
5,0
3,3
2,7
3,6
4,1
1,9
2,5
2,8 3,0
2,7
1,3
2,2
2,8
6,6 6,5
6,6 6,5
1,0
2,5
4,0
5,5
7,0
2013 2014 2015 2016
Turkey EM's Excluding China & India Emerging Europe Excl. Turkey
Latin America and the Caribbean Emerging and developing Asia
(%)
A more Balanced Growth
91 Source: TURKSTAT
(pp
t)
-10
-5
0
5
10
15
20
20
10
-Q1
Q2
Q3
Q4
20
11
-Q1
Q2
Q3
Q4
20
12
-Q1
Q2
Q3
Q4
20
13
-Q1
Q2
Q3
Q4
20
14
-Q1
Q2
Q3
Final Domestic Demand Net Exports
Change in Stocks GDP Growth
Overperformed EMEA & LatAm, but Underperformed Asia
92 Source: TURKSTAT, IMF
168,8
100,0
153,0
152,2
181,6
95
110
125
140
155
170
185
200
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
TURKEY
EM Asia (excl. China & India)
LatAm
EM Europe
Upside
• Improving domestic financial conditions
• Lower commodity prices
Downside • Geopolitical tensions
• Slower European recovery
Risks to Growth
93
Is Turkey prepared for a Fed Rate Hike?
Volatility on the back of asset re-pricing appears inevitable
ECB easing should help somewhat mitigate the impact of the fallout from Fed hikes
There seems to be no excesses in Turkish real or financial sector
Turkey does not seem to be a crowded trade
94
Employment
95
Employment Growth
96 Source: Eurostat, OECD, Turkstat
* Latest data
5,7
-4 -3 -2 -1 0 1 2 3 4 5 6
Euro Area
Spain
Greece
Italy
Japan
Portugal
Ireland
Denmark
Slovenia
Slovakia
Chezch Rebuplic
Belgium
France
Hungary
USA
Russia
Poland
Germany
Brazil
TURKEYEm
plo
ymen
t si
nce
20
07
(m
n p
eop
le, s
.a.)
Unemployment & Labor Participation Rates
97
44
45
46
47
48
49
50
51
52
8
9
10
11
12
13
14
15
16
Jan
-08
Mar
-08
May
-08
Jul-
08
Sep
-08
No
v-0
8Ja
n-0
9M
ar-0
9M
ay-0
9Ju
l-0
9Se
p-0
9N
ov-
09
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-1
0Ja
n-1
1M
ar-1
1M
ay-1
1Ju
l-1
1Se
p-1
1N
ov-
11
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2Ja
n-1
3M
ar-1
3M
ay-1
3Ju
l-1
3Se
p-1
3N
ov-
13
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Unemployment Rate Labor Force Participation Rate (rhs)
Source: Turkstat
(s.a., %
) (s
.a.,
%)
Inflation on a Downward Trend
98
Single-Digit Inflation (C
PI,
An
nu
al,
%)
99
Source: TURKSTAT, Medium-Term Program (2015-17) * CBRT estimate
0
20
40
60
80
100
120
140
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
*
20
16
20
17
100
Inflation is Falling
Source: Turkstat
(%)
0
2
4
6
8
10
12
14
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-12
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
Oct
-13
No
v-13
Dec
-13
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-14
Dec
-14
Jan
-15
Feb
-15
CPI PPI
101
Upside
• TL Depreciation
Downside
• Weaker commodity prices • Normalization in food prices • Base effects
Inflation Outlook
Lower Energy Prices: Inflation
102
3
4
5
6
7
8
9
2013 2014 2015 2016 2017
Medium Term Programme $50 oil prices
(In
fla
tio
n, %
)
$10-decline in energy prices
0.4-ppt-decline in inflation
Source: Medium-Term Program, CBRT
Impact of Currency Depreciation on Inflation
10% currency depreciation
1.5ppt higher inflation
Source: Kara, Hakan and Öğünç F. (2011). "Effect of Exchange Rate and Import Prices on Inflation", CBRT, Economic Notes, No. 2011/14.
Fiscal Position Remains Strong
104
10,8
7,9
4,1
0,1
-1,3
0,2
1,6
5,5
3,0
0,4 1,0 0,7 0,7 0,5 0,2
-0,1
-2
0
2
4
6
8
10
12
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Maastricht Criteria: 3%
Satisfied Maastricht Criteria except 2009
Source: Ministry of Development
Sustaining a Solid Fiscal Position
105
Bu
dg
et D
efic
it (
%, G
DP
)
Medium-Term Program (2015-17)
Budget Deficit (2015) B
ud
get
Def
icit
(%
, GD
P)
Source: IMF, OECD, Ministry of Development
3,4
2,5 2,0
0,5
0
0,5
1
1,5
2
2,5
3
3,5
OECD EU-28 EMs TURKEY
106
Maastricht Criteria: 3%
74,0
67,7
59,6
52,7
46,5
39,9 40,0
46,1
42,3
39,1 36,2 36,2
33,1 31,8 30,0
28,5
25
30
35
40
45
50
55
60
65
70
75
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Lower Public Debt D
ebt-
to-G
DP,
%
Satisfying Maastricht Criteria since 2004
Maastricht Criteria: 60%
Source: Treasury, Ministry of Development 107
Medium-Term Program (2015-17)
Public Debt (2015)
Source: IMF, OECD, Treasury
Deb
t-to
-GD
P, %
112,7
88,9
40,7
31,8
20
30
40
50
60
70
80
90
100
110
120
OECD EU-28 EMs TURKEY
108
Maastricht Criteria: 60%
109
104
0 50 100 150 200 250 300 350 400 450
JapanIreland
PortugalBelgium
NetherlandsGreece
SpainSweden
FransaItaly
UKUSA
KoreaHungaryMalaysia
CanadaChina
GermanySlovakiaPolonya
South AfricaCzech Rep.
BrazilIndia
TURKEYRomania
ColombiaIndonesia
MexicoRussia
PeruSaudi…
NigeriaArgentina
Relatively low leverage
Total Debt*
Source: McKinsey Global Institute, «Debt and (Not Much) Deleveraging», February 2015.
* Includes debt of households, non-financial corporations and government.
Deb
t-to
-GD
P (
Q2
-14
, %)
110
Upside
• Improving tax compliance
Downside
• Weaker than expected domestic demand
• Lower VAT revenue due to low energy prices
Fiscal Outlook
External Balance is Improving
111
C/A Deficit is Narrowing
Source: CBRT 112
(USD
bn
)
Financing of C/A Deficit is Improving
113 Source: CBRT
(12
Mo
nth
Ro
llin
g, U
SD b
n)
Upside
• Geopolitical tensions
• Sluggish European Recovery
Downside • Weaker than expected domestic demand
• Lower energy prices
Outlook for C/A Deficit
114
Exports to EU & European Growth
115
(Yo
Y, %
)
Source: TURKSTAT, Eurostat
(%)
Strong linkages with the EU
116
Exports (%)
Source: TURKSTAT, CBRT
2014
43,5 56,5
EU Others
75,5
24,5
EU Others
FDI (%)
49,9 50,2
EU Others
Tourists (%)
Lower Energy Prices: C/A Deficit
117
$10-decline in energy prices
0.5-ppt-improvement in CAD/GDP
2
3
4
5
6
7
8
9
2013 2014 2015 2016 2017
Medium-Term Program $50 oil prices
(CA
D/G
DP,
%)
Source: Medium-Term Program, CBRT
118
Turkey's FX Position
Billion $ Assets Liabilities Net Position
Public Sector* 132,1 122,9 9,2
Banking Sector** 511,3 513,1 -1,8
Real Sector*** 98,1 281,4 -183,2
Short Term 79,0 91,7 -12,8
Household**** 191,0 0,5 190,5
Deposit**** 81,5
Source: CBRT, BRSA, Treasury * Assets: CBRT FX Deposits of Treasury+ CBRT Foreign Assets; Liabilities= Public gross external debt+CBRT Liabilities to Non Residents. Data from CBT dated 27 Feb., 2015; data from gross external debt stock as of Q3-14
** Data-Jan. 2015
*** Data-Oct. 2014 **** Data-Mar. 2013 **** Data-03.06.2015
Turkey’s Banks: among the Strongest in EMs
119 Source: World Bank, Turkey’s Transition, 2014
Corporate FX Exposure is Moderate
Source: CBRT *The data above have been calculated over 9,468 firms whose total turnover corresponds to 71% of GDP.
No FX Loans 63%
FX Loan w/ export earning 25%
FX Loan w/o export earning
12%
120
64
22
0 20 40 60 80 100 120 140
Denmark
United Kingdom
Portugal
Sweden
Spain
Greece
Euro Area
Malta
France
Luxembourg
Germany
Belgium
Austria
Italy
Estonia
Poland
Czech Republic
Slovakia
Slovenia
Hungary
Latvia
Lithuania
TURKEY
Low Household Leverage (H
ou
seh
old
Lia
bili
ties
, % o
f G
DP,
Ma
rch
20
14
)
121
No FX exposure
Source: CBRT, ECB Turkey’s data have been calculated based on household liabilities in September 2014 and GDP estimations in Medium-Term Program 2014.
Long-Term Prospects
122
Real GDP per Capita
Source: TURKSTAT, Medium-Term Program
123
50
60
70
80
90
100
110
120
130
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
(Rea
l GD
P P
er C
ap
ita
20
05
=10
0)
Lost years
Source: GFK
124
Purchasing Power Per Capita (2014)
Currently at 55% of EU average up from around 30%
Determinants of Long-Term Growth
Quality of Institutions
Demographics
Productivity
125
Favorable Demographics
Source: Eurostat * Turkey’s data belongs to 2014
Shar
e o
f 1
5-2
4 y
ears
old
in T
ota
l Po
p. (
%, 2
01
3)
16,5
7 9 11 13 15 17 19 21
Spain
Italy
Andorra
Slovenia
Greece
Portugal
Bulgaria
Germany
Czech Republic
Serbia
Switzerland
Ireland
Croatia
Estonia
Latvia
France
Austria
Hungary
Luxembourg
Finland
Netherlands
Ukraine
Poland
Denmark
Sweden
United Kingdom
Slovakia
Norway
Malta
Lithuania
Montenegro
Iceland
Macedonia
Georgia
Moldova
Turkey
Azerbaijan
126
An
nu
al A
vera
ge
Gro
wth
Ra
te (
15
-64
, %, 2
00
1-1
3)
Working Age Population Growth
Source: OECD, Eurostat, Turkstat
127
1,7
0,7
0,2
0
0,5
1
1,5
2
TURKEY OECD EU-28
Determinants of Productivity
128
Structural Reforms
Human Capital
Investment R&D and
Innovation
Ambitious Targets: GDP
Source: TURKSTAT, Medium-Term Program,PwC
129
Ambitious Targets: GDP per Capita
Source: TURKSTAT, Medium-Term Program,PwC
130
From upper middle income
To high income
Solidarity
The East & the West
The World
Meeting
Harmony
Innovation
Synergy
Growth
131
THANK YOU…
132