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REFORM PROCESS IN TURKISH PUBLIC FINANCE MANAGEMENT and FISCAL POLICY

REFORM PROCESS IN TURKISH PUBLIC FINANCE MANAGEMENT and FISCAL POLICY. Z. Zeren ÇAKMAK Finance Expert DG Budget and Fiscal Control Ministry of Finance. Pre-Reform Status in Turkey.

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REFORM PROCESS IN TURKISH PUBLIC FINANCE MANAGEMENT and FISCAL POLICY

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  1. REFORM PROCESS IN TURKISH PUBLIC FINANCE MANAGEMENTandFISCAL POLICY Z. Zeren ÇAKMAK Finance Expert DG Budget and Fiscal Control Ministry of Finance

  2. Pre-Reform Status in Turkey • The Turkish economy came up against economic crises at more frequent intervals especially after the financial liberalization process in 1989. • With the crises in 1994,1999 and 2001, the "sustainable growth" discussions accelarated in our country. • The problems seen in the public finance management came along with the macro-economic problems such as unbalanced growth, not able to bring up the inflation to the desired levels and high public sector borrowing requirement.

  3. Problems in the Public Finance Management before the Reform • A medium and long term financial program could not be followed considering obtainable resources, • The General Accounting Law No:1050 which was put into force in 1927 and regulates the financial issues did not respond the needs of the era, • The financial discipline could not be ensured, • There was no sufficient link between the development plan and programs, and budgets,

  4. Problems in the Public Finance Management before the Reform • The budget implementations are limited to the fiscal year, • There is no multi-annual budgeting, • The top-down approach is dominant in the budget preparation, • The initial budget appropriations are not binding, • The efficiency cannot be ensured in resource allocation and usage.

  5. Reform Studies • The fact that a sustainable financial discipline cannot be ensured is the one of the main significant reasons for the problems in the macro-economic and financial area, which led the way for the reform studies.

  6. Reform Studies • In 1995, the "Public Finance Management Project" was carried out between the Ministry of Finance and the World Bank. • Further studies were carried out on the outcomes of the project with the World bank. • In the 8th Five Year Development Plan, the programs of 2001, 2002 and 2003 and the 58th Government Urgent Action Plan, the reform need has been emphasized.

  7. Reform Studies • At the end of 1999, within the framework of IMF 17.th stand-by agreement, IMF Fiscal Affairs Department prepared Fiscal Transparency ROSC. • In the report, after addressing to Turkey’s problems in its fiscal system, the important elements concerning the medium term expenditure framework were indicated among the measures to be taken by the government.

  8. Reform Studies • Within the scope of the reform efforts; • Say2000i system has been established, • The Law of Central Bank has been amended, • Public Procurement Law and Public Procurement Contracts Law have entered into effect, • Public Finance and Debt Management Law has entered into force, • Revenue Management has been restructured.

  9. Reform Studies • Funds have been removed substantially, • E-Budget system has been established, • Analytical Budget Classification system has been adoptedand • Public Finance Management and Control Law No. 5018 has entered into force,

  10. Law No. 5018 Changes brought by Public Finance Management and Control Law No. 5018 • Fiscal Discipline • Fiscal Transparency • Accountability • Accruals Accounting

  11. Law No. 5018 • Accounting Unity in the Public and Issue of Financial Statistics • Effective, Economic and Productive Use of Resources • Determination of Policies and Priorities • Internal Control • Internal Audit

  12. Law No. 5018 • Performance-Based Budgeting • Strategic Planning • Medium Term Spending Framework • Medium Term Program • Medium Term Financial Plan • Three-Year Budget Projection Involving Income and Expense Expectations of the Present Year and Following Two Years • Establishing Relations Between Planning and Budgeting

  13. Reforms and Fiscal Policy • As a result of these reforms made in the field of Financial Management, substantial achievements have been generated in this field in our country. • Within this context, fiscal discipline has been strengthened, transparency has been enhanced and accountability has come to the forefront.

  14. Fiscal Policy • Decreasing of budget deficit, • Following a strong primary surplus policy, • Acceleration of privization havebeenthe main elements of fiscalpolicyduringthelast 10 years.

  15. Fiscal Policy • Thanks to the prudent and steady financial policies implemented, the ratio of public debt stock to GDP has been reduceddramatically. • Again thanks to the fiscal discipline implemented determinedly, the ratio of interest expense to GDP decreased rapidly.

  16. Fiscal Policy • As a result of the political and economic stability and the macroeconomic and structural policies implemented, the ratio of budget deficit to GDP has substantially decreased since 2003. • Great importance is attached to the policy of having primary surplus while providing sustainability in public finance.

  17. Budget Deficit/GDP (%)

  18. Primary Surplus/GDP (%)

  19. Interest Expenditure/GDP (%)

  20. EU DefinedDebtStock/GDP(%) Maastricht Criteria: % 60 Medium Term Program Source: Treausry * MTP

  21. THANK YOU FOR YOUR ATTENTION zeren@bumko.gov.tr

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