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Turkey Progress & Priorities

IPA 2010 CONFERENCE December 6, 2010. Turkey Progress & Priorities. Ulrich Zachau Country Director, Turkey, World Bank. Turkey: Progress & Priorities. 1 Messages 2 Macroeconomic Developments 3 Competitiveness 4 Institutions 5 Summary of Progress & Priorities

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Turkey Progress & Priorities

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  1. IPA 2010 CONFERENCE December 6, 2010 TurkeyProgress & Priorities Ulrich Zachau Country Director, Turkey, World Bank

  2. Turkey: Progress & Priorities 1 Messages 2 Macroeconomic Developments 3 Competitiveness 4 Institutions 5 Summary of Progress & Priorities 6 Closing: Turkey, EU, & WB

  3. Main Messages Economic management • Turkey has a strong track record, bolstering stability and growth • Focus now on fiscal qualityfor confidence and competitiveness Europe 2020/Competitiveness Agenda • Skills, education, and labor reformneeded to create good jobs • Clean, efficient, secure energy: much achieved; much to do; key for sustainability, along with stronger environmental management Institutions • Strong public expenditure, financial, debt management • Key challenge is limited capacity in key sectors and line agencies • e.g., agriculture, education, justice, environment • Opportunities for institution building in areas of government priority • Major WB engagement in e.g., energy, environment, health, food safety, labor Common Goals…

  4. Fundamental Strengths => Rapid Recovery (after a steep recession) percent percent Quarterly growth(% y/y, left axis) Inventory growth contribution(% y/y, left axis) Source: Turkish Statistical Institute

  5. External ImbalancesHave Returned… percent USD (log) Current Account Deficit (% of GDP, left axis) Oil Price per Barrel (log USD, right axis) Source: State Planning Organization, World Bank

  6. … Access to FX Has Been Robust, with Some Reliance on Short-term Inflows percent Share of Short-Term Flows in TotalCapital Inflows (previous 12 months) 43% short-term inflows short-term outflows Source: Central Bank of Turkey, World Bank

  7. “Medium Term Program +” Merits Support;“Fiscal quality” Remains Key Challenge percent percent Primary Expenditures(% of GDP) 2005-13 Total (left axis) Current transfers (right axis) Personnel (right axis) Investment (right axis) Est. MTP Targets Source: State Planning Organization

  8. Investmentclimate Building Global Competitiveness Employment Trade Exchangerates Education Agriculture Science &Technology Infrastructure Innovationand R&D

  9. Top 5 Obstacles toGrowth of Firms percent Proportion of FirmsCiting Severest Constraint as… Source: Investment Climate Assessment (ICA), 2010

  10. Informality Lowers Firm Productivity Productivity Simulation(services) ~20%productivitygains fromformalizing Proportion of firms (density) Firm Output (log scale) Source: World Bank Country Economic Memorandum, 2009

  11. Turkish Labor RegulationsAre among the Most Rigid weeks Redundancy Costs in Selected Countries(weeks of salary, 2009) Source: Doing Business 2010 Note: Redundancy costs are defined as the sum of severance payments after 20 years’ service and the cost of prior notification.

  12. Unemployment: Down after the Crisis,High Overall, Highest among Youth percent Feb ’09 Unemployment2005-2010 (%) 29% Youth Sep ’10 21% Overall Source: Turkish Statistical institute

  13. Female Labor Force Participation:a Large Untapped Potential percent Source: World Bank, State Planning Organization

  14. Education: the Long-Term Priorityfor Global Competitiveness OECD average score percent Math proficiency of 15-year olds(percent of children) Math scores by region Source: PISA, 2006

  15. Energy: a Near-Term Challenge … Electricity Demand (proj.) High Case Electricity Demand (proj.) Low Case Bottleneck? Electricity Supply (proj.) Source: Türkiye Elektrik İletim A.Ş. (TEİAŞ), (2009 data)

  16. … and a Sustainable Growth Priority:77% of GHG Emissions are from Energy 1. Russia 2. Albania • AN INDEX OF EXPOSURETO CLIMATE CHANGE • (Europe and Central Asia) 3. Turkey 4. Armenia 5. FYR Macedonia Source: World Bank, 2009

  17. Institutional Capacity Building:a Complex Landscape PrivateSectorGovernanceClimate

  18. Turkey Has Done Well on “Upstream” PFM Reforms Comparison with selectedupper MICs Source: World Bank/Treasury (PFMP)

  19. Food Safety: Huge Potential & NeedsFinancial & Institutional Number of Food Enterprises Estimated Support (€ billion) Source: World Bank, 2010 (GAP Analysis)

  20. Well Designed and Well Implemented Active Labor Market Programs Can Help Source: World Bank

  21. Turkey: Progress & PrioritiesSummary Turkey has made great strides in the last decade • Economic management now good practiceamong MICs Europe 2020 => the most immediate challenge • Labor markets, education/skills, and energyare macro-critical in the medium term • The World Bank is a close partnerwith government in key areas: e.g., energy, environment, health, labor, municipal infrastructure Institutional reforms => underpin competitiveness • The World Bank is a close partner of government on public administration & financial managementreforms • Capacity shortfall in line agencies. Long-term engagement crucial

  22. Sectors? Instruments? Timing...? Turkey-EU-World Bank Partnership

  23. Turkey, EU, World Bank:Alignment of Strategies

  24. Turkey-World Bank Group Partnership: Pillars and Financing Total IBRD 4-year financing: Up to $8.1bn CurrentIBRD Portfolio: $5.04 bn Current IFC Portfolio: $2.3 bn

  25. IBRD Program in Turkey Analysis, Advice, Technical Assistance - Examples

  26. IBRD Program in TurkeySupports Alignment with the EU

  27. Turkey, EU, World Bank:Ongoing Collaboration—Future Directions? Future Directions? • More analysis & advice to support policy making and EU Acquis alignment? • TA to strengthen capacity for absorption of IPA funds and EU accession? • Explore increased financial Turkey-EU-WB partnership: results-based lending, SWAps, budget support? • Explore scaling up WB support in Turkey’s priority areas for EU alignment - with pooling of funds, fee-based services, trust funds? Ongoing Collaboration: • Thematic working groups (TWG) • Policy dialogue: e.g. Procurement PFMC & TCA legislation; Education • Studies to support EU accession: e.g. Food Safety; Environmental Standards; Labor Market • EU TA complementing IBRD investment: e.g. Avian Influenza • Parallel investment financing: e.g. Istanbul Seismic Risk Mitigation: EIB, CEB; Electricity Distribution: EIB

  28. Thank You!

  29. Annex Further Analysis

  30. External Financing: Resilient… percent Monthly External Debt Rollover Ratioof the Corporate Private Sector (%) 238 6-month average 155 81 75 72 69 Source: Central Bank of Turkey

  31. … and during the Crisis thePrivate Sector Drew on Own FX Holdings Net External Repaymentsof Private Sector USD billion Net Errors andOmissions on BOP Oct 08-Sep 09: Correlation = 91% Oct 09-Sep 2010: Correlation = 28% Source: Central Bank of Turkey, World Bank

  32. Unemployment Is Improving butRemains a Persistent Challenge… Seasonally Adjusted Unemployment (%) Seasonal Factor (RHS) 3% Source: Turkish Statistical Institute

  33. …with Large Regional Variations percent 22% 19% Adana 17% Diyarbakır Istanbul 8% Çanakkale 6% Trabzon Source: Turkish Statistical Institute

  34. IBRD Financing in Turkey Total Lending by Sector: 2001-2011 (USD m) Total Lending by Instrument: 2001-2011 (USD m)

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