Turkish Economic Developments in the Context of the Lisbon Strategy
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Turkish Economic Developments in the Context of the Lisbon Strategy “Recent Developments in T he Turkish Economy” Eve Paarendson & Ekrem Keskin Kayseri, July 2006. Economic Policy Framework Turkey is an open economy Capital flows are free, n o exchange rate restrictions for investors

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Turkish Economic Developments in the Context of the Lisbon Strategy

“Recent Developments in The Turkish Economy”

Eve Paarendson & Ekrem Keskin

Kayseri, July 2006


  • Economic Policy Framework Strategy

  • Turkey is an open economy

  • Capital flows are free, no exchange rate restrictions for investors

  • No discretionary regulation for international investors

  • The public sector has played a dominant role in the economy

  • Inflation is still high for implementing of free market economy efficiently

  • Despite the positive changes recently, long term stability is still concerned

  • Unemployment rate is notably high

  • Financial sector is small and has low degree of deepening; the state-owned banks account one-third of the market.


  • Main features of the economy Strategy

  • Population is 73 million, second largest in the EU

  • GNP is Euro 298 billion, seventh biggest in the EU

  • Income per capital is Euro 4,103, the lowest before Romania and Bulgaria

  • Foreign trade volume to GNP is 52

  • Trade with the EU accounts for 50 of the total

  • Trained young and dynamic population, skilled entrepreneurs using high technology

  • Strong ties and easy access with in the region which may be called “sleeping beauty”

  • Since 2001, developments have sustained confidence gradually, and led to better expectations


  • Main targets of the economic policy Strategy

  • Setting stable rules and institutions; eliminating discretionary measures for well functioning market economy

  • Undertaking fiscal responsibility, focusing to reduce debt to GNP ratio through primary surplus

  • Curbing inflation, sustaining price stability and financial sector stability for channelling sources to private sector, to reach an annual growth rate of 5 percent,

  • Improving fiscal transparency and ensuring better management in the public sector, increasing role of private sector and foreign capital inflows


  • Main targets of economic policy Strategy

  • Strengtheningfinancial sector

  • Reaching sustainable stability through structural reforms; shrinking thesize of the public sector, social security, widening tax base, bankruptcy law.

  • Meeting the EU main economic criteria by 2008

  • Improving sovereign credit ratings, currently BB-

  • Stronger institutions and rules for market economy.


Recent developments Strategy

  • 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 some the structural reforms created an environment for higher growth led by the private sector.

  • Capital inflow and foreign direct investment increased.

  • The start of accession negotiations further reinforces the dynamism of Turkey to complete economic reforms enhancing Turkey’s integration with the EU.



Inflation has came down historically, the lowest during the free market economy although declining trend halted recently and reversed slightly.


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


Public sector debt stock to gnp has declined steadily
Public sector debt stock to GNP has declined steadily the tight fiscal policy which led to a substantial decline in PSBR and budget deficit



Eased pressures on domestic sources and increased capital flows led to better environment for private sector investments


Sustainable growth over the long term average
Sustainable growth; over the long term average flows led to better environment for private sector investments




Private sector gave savings gap since 1986, while public sector’s gap narrowed further; total savings gap widened sharply.


As a result, current account deficit widened rapidly; mainly due to strong domestic demand fuelling for imports.


Cb fx reserves recovered substantially
CB fx reserves recovered substantially due to strong domestic demand fuelling for imports.


Although better economic performance created new jobs, unemployment rate has remained high due to labour force saving investment and rising participation rate.


  • Challenges for the near future unemployment rate has remained high due to labour force saving investment and rising participation rate.

  • Quick preparation for internal and external shock, elimination imbalances, keeping reform on track, stability seeking macro economic policies for growth, savings, investments and higher employment.

  • Confidence of households and investors depends solely on the success of disinflation.

  • Fiscal policies must target discipline in public finance

  • Wage increase should be forward looking and follow productivity.

  • Education and training of young generation

  • Higher spending on research and human resources.

  • Encourage investments in financial sector


  • Challenges for the near future unemployment rate has remained high due to labour force saving investment and rising participation rate.

  • Competitive taxation policy and fighting for unrecorded economy.

  • Regulation and implementation in line with international best practice, to sustain confidence, to encourage investment based on knowledge-based innovation, high technology, education

  • Increased competition in all areas of activities

  • Rules of law and better implementation of rules

  • Improve investment environment for domestic and foreign direct investors

  • Infrastructure investments in all regions to curb regional disparities


Thank you

Thank you. unemployment rate has remained high due to labour force saving investment and rising participation rate.


According to the government programme public sector deficit targeted to re duce to 3 of gdp by 2008
According to the Government programme public sector deficit targeted to reduce to 3% of GDP by 2008


Inflation is down 4 percent in 2008
Inflation is down 4 percent in 2008 targeted to re

Inflation

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