OECD ECONOMIC SURVEY OF TURKEY 2021
BOOSTING THE RECOVERY Paris, January, 14th 2021 http://www.oecd.org/economy/turkey-economic-snapshot/ @OECDeconomy
@OECD
The pandemic hit Turkey severely New daily cases per million inhabitants 7-day moving average 750
TUR
ITA
POL
PRT
HUN
625 500 375 250 125 0 07-Feb
07-Apr
07-Jun
07-Aug
07-Oct
Source: European Center for Disease and Prevention Control (ECDC) though Our World in Data.
07-Dec
2
Government support centred on massive quasi-fiscal credit stimulus Fiscal and quasi-fiscal support during the COVID-19 pandemic In % of GDP Additional spending and foregone revenue
Equity, loans, and guarantees
35 28 21 14
Source: IMF Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 pandemic.
DEU
JPN
GBR
FRA
CZE
ESP
TUR
BEL
KOR
DNK
FIN
POR
CHE
NOR
SWE
POL
SGP
NLD
CAN
NZL
USA
CHL
0
AUS
7
3
Domestic demand responded sharply Real GDP growth and its components Q-o-q growth in % (LHS), %pts (RHS)
%, Q-o-q growth
% pts
24
24
16
16
8
8
0
0
-8 -16 -24
Private consumption
Government expenditure
-8
Gross captital formation
Exports of goods and services
-16
Imports of goods and services
Real GDP growth (LHS)
2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
2020Q2
2020Q3
-24
Source: OECD (2020), OECD Economic Outlook: Statistics and Projections (database). 4
-8 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4
External imbalances increased Current account balance In % of GDP
4
2
0
-2
-4
-6
Source: OECD Economic Outlook: Statistics and Projections (database). 5
Recent monetary tightening and credit containment are welcome Consumer loan growth In %, annualised, 13-week moving average, FX adjusted 250
Private Banks
200
Public Banks
150 100 50
Source: Turkish Data Monitor.
Dec-20
Oct-20
Aug-20
Jun-20
Apr-20
Feb-20
Dec-19
Oct-19
Aug-19
Jun-19
Apr-19
Mar-19
Dec-18
Nov-18
Sep-18
Jul-18
May-18
Mar-18
-50
Jan-18
0
6
The recovery will be gradual and risks persists Macroeconomic projections Annual percentage changes, volumes (2009, prices)
Gross domestic product Private consumption Gross fixed capital formation Exports Imports Unemployment rate (%) Consumer price index
2021
2022
2.6 3.9 2.6 7.6 9.3 13.7 12.0
3.5 5.7 3.8 7.4 8.8 14.5 10.0
Source: OECD Economic Outlook 2020 Issue 2 projections for Turkey. 7
Recommendations for short-term support Use the room still available in public finances for transparent, temporary and targeted direct fiscal supports. Replace the concessional loans and one-off transfers to households at risk of poverty into a targeted direct allowance for a limited period. Resume fiscal tightening once the recovery is firmly underway. Continue to offer support to workers and fundamentally sound firms in temporarily affected activities (e.g. tourism). 8
SECURING LONGER-TERM MACROECONOMIC STABILITY
Risk premia are high EMBI spread Basis points
Basis point 900
Turkey
Chile
Mexico
Poland
750 600 450 300 150 0
2013
2014
2015
2016
2017
2018
2019
2020
Source: Refinitiv. 10
Public debt will rise substantially
90
% of GDP
Baseline
Public debt scenarios General government debt, in % of GDP Higher ageing costs
Structural reforms
Lower risk premia
75 60 45 30 15 0
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Source: OECD calculations.
11
Corporate debt is high Corporate debt Total liabilities in % of total assets
% 80
Micro
75
Small and medium
Large
Young startups
70 65 60 55 50
2006
2008
2010
Source: Entrepreneur Information System (EIS).
2012
2014
2016
2018
12
Without re-balancing, external debt will become unsustainable External debt scenarios Gross external debt, in % of GDP 200
160
Baseline
Interest rate shock
Current account shock
Exchange rate shock
Risk premium shock
120
80
40
0
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Source: OECD calculations. 13
Bad loans might rise again Non-performing loans In % of total cash loans
10
Banking sector
Domestic private
Public
Foreign
8 6 4
Source: Source: IMF (2020), IMF Financial Soundness Indicators Database and Banking Regulatory and Supervisory Authority (BRSA).
Nov-20
Sep-20
Jul-20
May-20
Mar-20
Jan-20
Nov-19
Sep-19
Jul-19
May-19
Mar-19
Jan-19
Nov-18
Sep-18
Jul-18
May-18
Mar-18
0
Jan-18
2
14
The credibility of the inflation target should be restored Inflation expectations have risen In %, y-o-y growth rate
18
12-month ahead
15
24-month ahead
Target
12 9 6 3 0
2006
2008
2010
2012
2014
2016
2018
2020
Source: Refinitiv, and OECD Main Economic Indicators (database). 15
Recommendations to secure longerterm macroeconomic stability Outline and communicate a coherent macroeconomic policy framework encompassing fiscal, quasi-fiscal, monetary and financial policies. Restore the independence of the central bank. Maintain the real policy interest rate in positive territory as long as inflation and inflation expectations diverge from official projections and targets. Replenish foreign reserves as conditions allow and actively communicate on the foreign reserve position according to the information needs of financial markets. Re-evaluate and reduce the weight of government-owned financial institutions. Disclose the results of the stress tests of individual banks and of the banking system as a whole to the public.
16
UNLEASHING THE FULL POTENTIAL OF THE BUSINESS SECTOR
Turkey has a remarkably entrepreneurial population
70
%
Share of respondents who indicate that fear of failure would prevent them from setting up a business 2018, Percentage of 18-64 year-old population
60 50 40 30
10
TUR MEX CHL SVK POL EST SVN KOR NOR NLD DEU USA ESP AUT FRA SWE FIN GBR PRT IRL CHE LVA CAN HUN JPN LUX BEL ITA GRC
20
Source: Global Entrepreneurship Monitor (2019). 18
Entry and exit rates in the business sector are high % 16
Average entry and exit rates in international comparison In % of all firms in business sectors, average 1998-2015 Entry rates
12 8 4 0 -4 -8
Source: OECD Structural Analysis (STAN) Database.
JPN
ITA
ESP
FIN
SWE
BEL
NOR
CAN
PRT
HUN
NLD
AUT
TUR
-16
FRA
Exit rates
-12
19
Large firms are a lot more productive
Thousand 180
Productivity across firm sizes over time Real value added per employee, in Turkish Lira Micro
Small to medium
Large
Young startups
150 120 90 60 30 0
2006
2008
2010
2012
2014
Source: World Bank and the Central Bank of the Republic of Turkey.
2016
2018 20
Informality remains high Share of unregistered employment 2019, in % of total, by firm size
50 40 30 20 10 0
Total
Source: TurkStat (2020).
Less than 11
11-19
20-49
50 and more 21
The cost of capital of listed firms is high
10
%
A. Cost of equity 2018, in %
B. Cost of debt 2018, in % 10
8
8
6
6
4
4
2
2
0
CHL ESP ISR
ITA MEX PRT POL TUR
Source: OECD calculations based on Refinitiv.
0
%
PRT ITA ESP POL ISR CHL MEX TUR 22
Turkey is falling behind in digitalization 100
Adoption of basic and advanced ICT tools and activities Business economy, 2019 or latest year available Turkey
OECD
Best performing country
80
60
40
20
0
ERP
CRM
E-sales
Source: OECD ICT Access and Usage by Businesses database..
Social media
Cloud computing
Fast broadband 23
Recommendations to unleash the full potential of the business sector Facilitate new equity injections in order to restore the investment capacity of non-financial firms after the Covid shock. Remove remaining obstacles to firms’ upscaling and transition to the formal sector. Implement the recently introduced arbitration, mediation and framework agreement measures for financial restructurings. Be prepared to phase in further measures to help courts to deal with insolvencies in case of need. Make progress, in collaboration with EU partners, with the extension of the Customs Union agreement to agriculture, services and public procurement. Develop a holistic strategy for digital skills and upgrade digital abilities in school curricula. 24
EMPLOYMENT GROWTH WITH HIGHER QUALITY JOB CREATION IS KEY FOR SOCIAL COHESION
Employment rates have fallen 90
Employment rate 15 year-olds over, in % of total working age population
%
Men
75
Women
54
Total (RHS)
50
Sep-20
Jul-20
May-20
Mar-20
Jan-20
Nov-19
Sep-19
Jul-19
May-19
Mar-19
Jan-19
Nov-18
Sep-18
Jul-18
30
May-18
0
Mar-18
34
Jan-18
15
Nov-17
38
Sep-17
30
Jul-17
42
May-17
45
Mar-17
46
Jan-17
60
Source: TurkStat (2020). 26
Labour market reforms would facilitate job creation Employment protection regulation 2019, Scale from 0 to 6 (most strict)
5.0
Temporary work agency contracts
Fixed-term contracts
4.0
3.0
2.0
1.0
0.0
CZE
POL
MEX
CHL
PRT
GRC
ESP
ITA
TUR
Source: OECD Employment Protection Legislation Database. 27
Digital skills are weak Individuals with basic or above basic overall digital skills 2019 or latest year available, in % 90 75 60 45 30
NOR
NLD
FIN
GBR
SWE
DEU
DNK
AUT
LUX
EST
CZE
BEL
OECDยน
FRA
ESP
LUT
SVN
IRL
PRT
GRC
HUN
POL
LVA
ITA
0
TUR
15
Source: Eurostat (2020). 28
Recommendations to improve employment and job quality Promote women’s labour force participation by increasing the provision and quality of early child care and education. Make fixed-term and temporary work contracts more flexible in the formal sector. Make statutory minimum wages more affordable for lower productivity firms by promoting enterprise level bargaining according to local conditions. Grant employer and employee social security cost exemptions for all young workers for a temporary period. Consider exempting employers from all or part of of health insurance contributions on a durable basis, by financing these cuts from other fiscal sources and savings. Develop a holistic strategy for digital skills and upgrade digital abilities in school curricula. 29
LARGE GAPS IN PUBLIC GOVERNANCE AND ENVIRONMENTAL SUSTAINABILITY
The rule of law and the independence of the judiciary should be improved Rule of law Overall score
Constraints on government power Government powers are effectively limited by the judiciary 1.0
1.0 0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0.0
0.0
TUR MEX POL ITA CHL PRT CZE KOR DEU DNK
TUR MEX POL CHL KOR ITA CZE PRT DEU DNK
Source: 2020 World Justice Project. 31
Fighting corruption should be a priority Corruption Perception Index Scale: 0 (worst) to 100 (best), 2019 90 75 60 45 30
NZL
DNK
NLD
DEU
CAN
BEL
JPN
USA
FRA
CHL
PRT
POL
CZE
SVK
HUN
TUR
0
MEX
15
Source: World Bank, Worldwide Governance Indicators. 32
Air quality is low 30 25
Annual mean concentration of particulate matter PM2.5 2017 Limit recommended by World Health Organisation
20 15 10 5 0
ESP
GRC
CZE
POL
Source: OECD (2020), "Air and Climate" and "Waste" in OECD Environment Statistics (database) and EEA (2020), Air pollution statistics.
TUR
33
Recommendations to improve public governance and environmental sustainability Improve public governance and rule-of-law, with special focus on the independence of the judiciary. Adopt a strategy of fight against corruption. Implement a carbon pricing policy. Prepare and publish daily local air quality indicators according to international standards in the entire territory and develop a holistic strategy to improve air quality. Consider tax reliefs for energy-saving investments in buildings. Prepare the business sector to the introduction of border carbon taxes by trade partners.
34
REFORMS ARE KEY FOR A BETTER FUTURE
Structural reforms and stronger economic institutions would boost growth Policies
Additional annual growth compared to a no policy baseline over the next 10 years
Scenario 1: Market reform package • • •
Improve product market regulations Improve employment protection regulation Decrease corporate income taxes and labour tax wedges
+0.4%
Scenario 2: Institutional and social progress package • •
Increase quality of education Increase rule-of-law
Scenario 3: Market reforms and institutional and social progress package
+0.5%
+0.9%
36
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