Transcript Slide 1

Turkey—Challenges in the
Period Ahead
Istanbul Forum
April 24, 2008
Fiscal consolidation has been strong…
8
8
Change in Actual and Structural Fiscal
Balances, 2003–07 (Percent of GDP)
6
6
4
4
2
2
0
0
-2
-2
Change in structural balances
Change in actual balances
-4
-4
Source: IMF.
Turkey
Croatia
Bosnia & H.
Poland
Czech Rep.
Hungary
Bulgaria
Serbia
Slovak Rep.
Russia
Lithuania
Romania
Ukraine
Estonia
-6
Latvia
-6
External debt is lower than
elsewhere…
160
160
External Debt, 2007
(Percent of GDP)
120
80
80
40
40
0
0
Russia
Turkey
Czech Rep.
Slovak Rep.
Romania
Bosnia & H.
Poland
Ukraine
Serbia
Lithuania
Bulgaria
Croatia
Hungary
Estonia
Latvia
120
Source: IMF, World Economic Outlook .
Turkish banks are less reliant on
external financing sources…
80
80
Foreign Liabilities of the
Banking System, 2007
(Percent of GDP)
60
40
60
40
Net
Gross
20
20
0
0
Latvia
Estonia
Lithuania
Hungary
Bulgaria
Slovak Rep.
Romania
Czech Rep.
S. Africa
Turkey
Brazil
-20
Indonesia
-20
Source: IMF, International Financial Statistics .
And FDI inflows have reached
unprecedented levels...
50
50
Net FDI and Capital Flows
(Billions of U.S. dollars)
40
40
Total capital
30
30
FDI
20
20
10
10
0
2002
2003
2004
2005
Source: Central Bank of Turkey.
2006
0
2007
Amid a less benign global
environment…
6
Prospects for World GDP Growth
(Percent change)
6
5
5
4
4
3
3
2
90 percent confidence interval
70 percent confidence interval
50 percent confidence interval
Baseline forecast
1
2005
2006
2007
2008
Source: IMF, World Economic Outlook .
2
1
2009
Domestic growth has slowed and is
expected at 4 percent this year…
12
12
Real GDP Growth
(Percent change)
10
10
Turkey
Euro area
U.S.
8
8
6
6
4
4
2
2
0
0
2004
2005
2006
2007
Source: IMF, World Economic Outlook .
2008
Inflation has risen again, mainly on
food and energy price shocks…
16
14
Inflation in Turkey and World Commodity
Prices (Year-on-year percent change)
Turkey CPI
Food (right scale)
Fuel (right scale)
80
60
12
40
10
20
8
0
6
2004
2005
2006
Sources: Turkstat; and IMF.
-20
2007
2008
The current account deficit is large
and likely to widen further…
12
400
Current Account Outlook
325
8
250
4
175
0
CA deficit (percent of GDP)
100
REER (2001=100; RHS)
-4
Oil price (2001=100; RHS)
2001 2002 2003 2004 2005 2006 2007 2008
Sources: Turkstat; IMF, World Economic Outlook ;
IMF, internal database; and IMF staff projections.
25
…at a time when global credit is
tightening and risk aversion high
40
35
350
Global Risk Aversion and EMBI+ Spread (Bps)
Global risk aversion 1/
EMBI+ composite (right scale)
300
30
250
25
20
200
15
150
10
5
2006
100
2007
2008
Source: Bloomberg.
1/ VIX: implied volatility of S&P 500 stock index options.
And there are downside risks…
• Public debt and risk premiums are still
high compared to CEE peers
• Reserve coverage of short-term external
debt remains low
• The corporate sector relies heavily on
external financing and has a large open fx
position
Severance pay requirements are high ...
20
20
Severance pay in OECD countries, 2006
(Monthly wages)
16
16
after 9 months
after 4 years
12
12
after 20 years
Slovak Rep.
Australia
Denmark
Ireland
Canada
UK
Czech Rep.
Source: OECD.
Japan
0
France
0
Greece
4
Spain
4
Turkey
8
Portugal
8
High labor taxes discourage employment and
promote tax evasion
50
40
50
Labor Tax Wedge Including Employer's Social
Security Contributions, 2005
(Average rate, percent) 1/
40
30
20
20
10
10
0
0
Ireland
Korea
U.S.
Australia
U.K.
Canada
Japan
Portugal
Slovak Rep.
Netherl.
Denmark
Czech Rep.
Spain
Greece
Italy
Hungary
France
Germany
Turkey
Sweden
Poland
30
Source: OECD Tax Revenue Database.
1/ Tax rate for a married household with two children,
where the principle earner earns the average wage and the
spouse earns 33 percent of the average wage.
Regulations inhibit temporary employment
5
5
Restrictiveness of Temporary Employment, 2003
4
3
3
2
2
1
1
0
0
Turkey
France
Spain
Greece
Portugal
Italy
Germany
Korea
Sweden
Denmark
Japan
Poland
Netherl.
Hungary
Australia
Ireland
Czech Rep.
Slovak
UK
Canada
US
4
Source: OECD Employment Outlook 1999 and 2004.
Mininum wages are high relative to average incomes
80
80
Minimum Wage, 2006
(Percent of GDP per capita)
60
60
40
40
20
20
0
Turkey
Korea
Australia
France
Belgium
U.K.
Netherl.
Slovenia
Poland
Ireland
Portugal
Canada
Greece
Spain
Hungary
Bulgaria
Japan
Czech Rep.
Slovak Rep.
U.S.
Romania
0
Sources: Eurostat; ILO; Australian Fair Pay Commission;
South Korea Bureau of Democracy, Human Rights, and
Labor; Japan Ministry of Health, Labor, and Welfare; and
IMF, WEO.
Growth has averaged above
7 percent p.a. until recently…
12
12
Real GDP Growth (Percent)
8
8
4
4
0
0
-4
-4
-8
-8
2001 2002 2003 2004 2005 2006 2007
Source: Turkstat.
, tobacco, unprocessed foods and gold.
0.5 x YTL/Euro + 0.5 x YTL/USD.
Inflation has fallen to single digits
and dollarization subsided…
70
60
60
Inflation and Deposit Dollarization
(Percent)
50
50
40
30
40
20
10
Inflation
Share of dollar deposits (right scale)
0
30
2001 2002 2003 2004 2005 2006 2007
Sources: Turkstat; and IMF staff calculations.
The public debt ratio has halved
and its composition improved…
100
100
Public Sector Gross Debt
Gross debt (percent of GDP)
FX share of gross debt (percent of total)
75
75
50
50
25
25
2001
2002
2003
2004
2005
2006
Sources: Turkish authorities; and IMF staff
calculations.
2007
The banking sector has normalized…
50
50
Capital Adequacy (Percent)
40
NPL ratio
CAR
40
30
30
20
20
10
10
0
0
2001 2002 2003 2004 2005 2006 2007
Source: BRSA.