Economic Update on Turkey: Weathering the storm
Turkey’s deputy prime minister Ali Babacan recently spoke with OBG on the country’s economic performance and 2023 development objectives.
Turkey’s transformation over the past decade has been considered as an economic and democratic success story. What is also remarkable is that this transformation has continued despite the global financial crisis.
When we entered the 2008-09 crisis Turkey already had a strong banking system and excellent public finances, which limited the repercussions of the crisis on our economy. Yet, how we responded to the crisis was equally important. In 2009, when many countries were introducing fiscal stimulus programs, we introduced a 3 year fiscal consolidation program so as to build confidence in the state and its long-term financial policies.
Given Turkey’s strong position before the crisis, as well as its prudent response, we have seen the results. We achieved high growth rates in 2010 and 2011. Although we intentionally reduced domestic demand in 2012, our growth rate in that year was still among the highest in Europe. Moreover, our policies in 2012 promoted stability and confidence.
When we look at the unemployment rate in Turkey, we see that this is at the lowest level in 11 years. Inflation has been brought under control by the innovative policies of our central bank, which is not only looking at price stability-its number one priority- but also financial stability. Moreover, our budget deficit and public debt stock are quite low compared to many countries, and both monetary policy and macroprudential measures are being coordinated so that we can navigate these difficult times.
Another key element of our response to the crisis has been the implementation of medium-term programs, which are updated every year. The current medium-term program, which was announced in October 2012, covers the period until 2015 and is focused on achieving desired rates of growth and employment, as well as targets for price stability and the current account deficit. Meanwhile, by 2015 our public debt-to-GDP ratio is projected to go down to 31 percent. We don’t believe in growth through public spending, we believe in growth through private sector activity.
Looking to the future, our structural reforms up until the 2023 period will be very important. In particular, we aim to increase domestic savings and reduce our dependence on energy imports, while promoting greater research and development, innovation and value-added production. We also aim to improve the investment environment, and make the capital markets reforms necessary to transform Istanbul into a leading global financial centre. Indeed, Istanbul is already an important hub for commerce and logistics, as demonstrated by the fact that several multinational companies have already chosen Istanbul as a regional base of their operations.
Finally, I will focus on two additional areas that will help Turkey to make the transition from a developing country to an upper-middle income one: the judiciary and education. Regarding the judicial system, we have already made reforms to make our system more predictable and consistent. There is need even for more reforms in this area. In terms of education, we aim to ensure that our young and growing population has access to quality schooling that incorporates cutting-edge technology and pedagogical best practices. Given the huge changes that have occurred in Turkey over the past 10 years, we are eager to see what we can accomplish from the present until 2023.
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