turkish economy “recent developments” ekrem keskin november 2008

Turkish Economy

“Recent developments”

Ekrem Keskin

November 2008

Turkish Economy / November 2008 2

Turkey is an open economyTurkey is an open economy, c, capital flows are freeapital flows are free and there is n and there is no o exchange rate restrictionexchange rate restriction for residents and non-residents for residents and non-residents

There is nThere is no discretionary regulation for international investorso discretionary regulation for international investors

Current exchange rate regime is a Current exchange rate regime is a floating floating systemsystem

The Central Bank has been implementing a formal inflation-The Central Bank has been implementing a formal inflation-targeting framework since 2006targeting framework since 2006

Turkey and EU had an agreement of Turkey and EU had an agreement of the the “C“Customs ustoms UUnionnion”” in 1995 in 1995 and began and began accession negotiations for full membership.

The EU’s economic criteria The EU’s economic criteria regarded asregarded as the the nominal anchornominal anchor

SSovereign credit rating, currently overeign credit rating, currently is is BB-BB-


Population is about 72 million in which the group of 15-64 age has Population is about 72 million in which the group of 15-64 age has a share of 65 percent. a share of 65 percent.

Competitive human resources with well tCompetitive human resources with well trained young and rained young and dynamic populationdynamic population sustain strong domestic demand which sustain strong domestic demand which is the is the main force behind the growthmain force behind the growth..

Long term average growth rate is about 5 percentLong term average growth rate is about 5 percent. .

GNP is GNP is about USD 760about USD 760 billion, billion, 17th largest in the world, 6th 17th largest in the world, 6th in the in the EUEU; 2nd in the region after Russia. ; 2nd in the region after Russia.

Income per capita is around USD 11,000.Income per capita is around USD 11,000.

Unemployment rate is about 1Unemployment rate is about 100 percent percent


Services and industry have shares of Services and industry have shares of 6060 percent and 30 percent percent and 30 percent, , respectively.respectively.

Foreign trade volume to GForeign trade volume to GDDP isP is 55 percent. The main trade 55 percent. The main trade partner is the EU with 50 percent share. partner is the EU with 50 percent share.

Turkey, situated at the junction of Europe, Middle East, Caucasia Turkey, situated at the junction of Europe, Middle East, Caucasia and Mediterrenian is becoming a geo-strategic base for and Mediterrenian is becoming a geo-strategic base for international business as the regions account for 40 percent of international business as the regions account for 40 percent of the world’s GDP.the world’s GDP.

Turkey is a secular country and has close historical, cultural and Turkey is a secular country and has close historical, cultural and economic ties with the countries among the regions.economic ties with the countries among the regions.

Turkey outstands with its vast agricultural land and natural water Turkey outstands with its vast agricultural land and natural water recources.recources.


Macro economic policies in conjunction with a positive international environment led to economic performance to improve considerably since 2002.

Disinflationary monetary and tight fiscal policies supported by the structural reforms created an environment for higher growth led by the private sector.

Succesfully implemented free market principles encouraged private sector and foreign investment and increased the international competitiveness.

The start of accession negotiations has further reinforced the dynamism of Turkey to complete economic reforms to meet the EU directives.


High growth performance: Stable and strong growth, over the long term average of 4%, after 2002.

Annual GDP growth (at 1988 prices, TL, %)

0

2

4

6

8

10

91-01 avg 02 03 04 05 06 7 08 exp


A leading role of private sector: Acceleration in private sector’s fixed capital investment of new technology and expanding capacity

Fixed capital formation (as % GNP)

10

12

14

16

18

20

22

02 03 04 05 06 07 thm 08 prg

10

12

14

16

18

20

22

Total Private sector


The share of external borrowing in fixed capital investment

Private sector: Fixed capital investment and external borrowing (USD billion)

0

50

100

150

02 03 04 05 06 07 08

Fixed capital inv External borrowing


The share of external borrowing in fixed capital investment

Private sector: external borrowing/fixed capital investment (%)

0

5

10

15

20

25

02 03 04 05 06 07 08


Unemployment rate remained at 10% as wages increased slowly

Unemployment rate (%) and real wage index in private sector

Real wage index

(02=100)

Unemploymet rate (%)

6

7

8

9

10

11

99 00 01 02 03 04 05 06 07

%

80

90

100

110

120

130

140Indeks


Rapid disinflation: Inflation has declined to the historically lowest level during the free market economy, although it’s decending trend halted recently and has reversed slightly.

Inflation (consumer price index,annual avg % growth)

01020304050607080

91-01avg

02 03 04 05 06 07 08 Oct


Substantial fiscal adjustment: One of the main reasons behind the positive outcomes was the tight fiscal policy which led to a substantial decline in PSBR and budget deficit

Public sector balance and budget balance (as % of GDP)

-15

-13

-11

-9

-7

-5

-3

-1

1

3

02 03 04 05 06 07 exp 08 prg

Public sector balance Budget balance


Reduced debt burden...

Public sector debt and loans (As % of GDP)

25

30

35

40

45

50

55

01 02 03 04 05 06 07 08 J

10

15

20

25

30

35

40

Public sector debt Loans


Jump in net capital inflows from an annual of USD 3 billion in the 90’s to USD 54 billion in 2008 September

Net capital flows (annual, USD billion)

0

10

20

30

40

50

60

91-01avg

02 03 04 05 06 07 08 Spt

Capital flows FDI


Rapidly widening current account deficit...

Current account balance (as % of GNP)

-10

-8

-6

-4

-2

0

91-01avg

02 03 04 05 06 07 08 target


Private sector borrowed heavily from external markets

External debt(USD billion)

Public CB Private Financial Non-financialSector Sector sector sector

02 64.534 21.999 43.165 10.179 33.59603 70.844 24.364 49.084 13.548 36.39304 75.668 21.401 63.761 21.191 43.47605 70.414 15.417 83.161 32.028 51.11306 71.590 15.678 120.241 47.409 70.87107 73.457 15.801 157.861 57.247 100.61108 June 77.650 16.204 190.549 65.860 124.689


Public sector debt in EU and Turkey

Public sector debt (As % of GDP)

01020304050607080

. '00 . . . . '05 . . '08

EU TR


Budget deficit in EU and Turkey

Budget deficit (as % of GDP)

-14

-12

-10

-8

-6

-4

-2

0

. '00 . . . . '05 . . '08

EU TR


Inflation in EU and Turkey

Inflation

0

0,5

1

1,5

2

2,5

3

3,5

4

. '00 . . . . '05 . . '08

0

10

20

30

40

50

60

70

80

EU TR (right)


Main issues are:

• Widening savings deficit in the private sector• Increased reliance on volitile foreign savings• Pressures on inflation mainly due to rising energy

prices• High degree of currency substitutions• Short term maturity of domestic savings• Small financial market with heavly depending on

banking sector


Financial institutionsPercentage share in total March 2008

Banks 88 Deposits 82 Development and investment 3 Paritipation banks 3Securities fund 4Insurance 3Leasing 2Factoring 1Others* 2

* less than 1 percentage point


Jump in loans...

Selected balance sheet itemsAs % of GDP 2002 2008 VI

Securities portfolio 25 19 TL 15 14Total loans 15 36 TL 7 26 Fx 8 9Total assets 61 69 TL 34 49 Fx 26 20


Loans to deposits ratio soared

Loans/deposits (%)

35

45

55

65

75

85

95

99 00 01 02 03 04 05 06 07 08 J


Banks and consumers discovered each other.

Breakdown of total loans (%)

02 07 08June

Corporate 87 66 67 SMEs 26 27Consumer+credit cards 13 34 33 Consumer 4 24 24 Housing 1 11 11 Automobile 1 2 2 Others 2 11 11Credit cards 8 9 9Total 100 100 100


Stronger shareholders’ capital and high capital adequacy

Shareholders' equity(USD million) 2002 2008 AguSectorShareholders' equity 15,673 67,560Free capital 3,417 49,623Permanent assets+NPL (net) 12,256 17,937

Capital adequacy ratio % 2002 2008 Agu

Sector 25.1 17.9State-owned banks 48.3 16.3Private banks 19.6 16.6Foreign-owned banks 32.8 15.4Investment and development banks 57.7 62.4


Significant growth potential in the banking sector and...

Selected banking sector indicatorsEU 27-Turkey AB TR

Total assets As % of GDP 334 65Total deposits As % of GDP 136 40Total loans As % of GDP 157 32 Housing loans As % of GDP 41 4 Consumer loans As % of GDP 7 7


Private sector’s share in capital markets

Selected financial indicators(2007, as % of GDP)

Sectors World EU Emerging Turkeyavg countries

Bank assets* 155 275 84 73Capital markets 266 274 161 77 Shares 119 94 118 44 Bills and bonds 146 180 44 33 State 52 56 28 33 Private 94 124 16 0Total 421 549 246 150

* Commercial banks

*Deposits, investment and development banks


Thank you.

turkish economy “recent developments” ekrem keskin november 2008

Documents