Economic Policies
#37Key Findings
As it struggles with a currency-driven economic crisis, Turkey falls into the bottom ranks worldwide (rank 37) with regard to economic policies. Its score on this measure has declined by 0.7 points relative to its 2014 level.
Turkey entered the pandemic at a point of economic fragility. Due to decreasing confidence in the sustainability of the country’s debt, the foreign capital flows crucial to financing liquidity requirements had diminished. Gross national debt rose to nearly 37% of GDP in 2020, with small increases thereafter.
Nonetheless, GDP increased by 1.7% in 2020, followed by very strong growth in 2021. The unemployment rate in August 2021 was 12.1%, with a labor-force participation rate of just 42.2%. The rate of unregistered employment was 31.4%. Refugees without job security are displacing native workers.
The value of the lira fell substantially against the dollar in 2021, and inflation rates were high. The depreciation of the lira since 2018 has put the country’s payment obligations at risk. Very large public-private partnership projects have exposed the state to further fiscal risks. The country has been categorized as a potential site of money laundering.
Turkey entered the pandemic at a point of economic fragility. Due to decreasing confidence in the sustainability of the country’s debt, the foreign capital flows crucial to financing liquidity requirements had diminished. Gross national debt rose to nearly 37% of GDP in 2020, with small increases thereafter.
Nonetheless, GDP increased by 1.7% in 2020, followed by very strong growth in 2021. The unemployment rate in August 2021 was 12.1%, with a labor-force participation rate of just 42.2%. The rate of unregistered employment was 31.4%. Refugees without job security are displacing native workers.
The value of the lira fell substantially against the dollar in 2021, and inflation rates were high. The depreciation of the lira since 2018 has put the country’s payment obligations at risk. Very large public-private partnership projects have exposed the state to further fiscal risks. The country has been categorized as a potential site of money laundering.
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How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?
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9
9
Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
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6
7
6
Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
5
4
3
4
3
Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
2
1
1
Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Before the onset of the pandemic, Turkey’s economy was already vulnerable to internal and external shocks. More specifically, as a result of decreasing confidence in the sustainability of Turkey’s external debt, foreign capital flows, which have been crucial to financing the country’s liquidity requirements, have dried up. At present, the country’s trade and current account balances are unsustainable. According to the Ministry of Treasury and Finance, Turkey’s gross external debt stock totaled $450 billion at the end of 2020, amounting to 62.8% of its GDP. The country’s net foreign debt was $268.9 billion, amounting to 37.5% of its GDP. In addition, the short-term external debt stock had reached $126.9 billion as of August 2021. The short-term debt of the public sector was $25.5 billion, while that of the private sector was $74.4 billion. These numbers indicate that the private sector accounts for most of the debts.
The inflation rate is soaring again. The head of the Central Bank, Naci Ağbal, who replaced Murat Uysal in November 2020, increased the interest rates from 10.25% to 19% within four months. Ağbal was then replaced by Şahap Kavcıoğlu four months later. From September to October 2021, the interest rate was cut by 3 percentage points, and further reduced to 15%. As a response, between September 2021 and December 2021 alone, the exchange rate with the U.S. dollar rose from TRY 8.5 to TRY 18. The inflation rate, on the other hand, is expected to approach an annual rate of 40% in the first quarter of 2022. Due to deteriorating indicators, Minister of Treasury and Finance Lütfü Elvan resigned, and Nureddin Nebati was appointed in his place.
The government’s rescue plan responding to the devaluation of the Turkish lira included using Treasury funds to offer compensation for possible losses against foreign currencies over periods of three, six, nine and 12 months. Experts argue that this new model creates serious risks for the public budget. Shortly after the announcement of the new plan, the dollar dropped sharply to TYR 11, a decrease of almost 40%. However, the exchange rate is far from being stabilized, as high levels of volatility persist in the capital market.
Despite this deteriorating picture, Turkey’s GDP increased by 0.9% in 2019 and 1.7% in 2020. According to the three-year program crafted in 2019, the Turkish economy was expected to grow by 9% in 2021, 5% in 2022 and 5.5% in 2023 and 2024. However, these estimates are unrealistic. For example, the OECD (2021) expects that even in an absence of external shocks, the GDP growth would remain at 5.7% in 2021 and 3.4% in 2022, as the post-pandemic recovery continues. The biggest obstacle to sustainable growth has been the dynamics of the growth itself, which previously centered on the expansion of the construction sector. As construction became costlier due to inflation and the rise of credit interest rates, the economic growth rate declined. September 2021 numbers indicated that mortgage-based house sales had dropped by 16.4% on an annual basis.
Turkey is far from creating resource-efficient economic activity that might promote social well-being and economic empowerment in the future. The government rarely backs eco-friendly policies in practice. The most notable exceptions include Turkey’s investments in renewable energy and desire to produce its own electric car (TOGG). Turkey relies on imports for its energy needs. To reduce its import dependency, the government is now constructing the country’s first nuclear power plant in Mersin, with the help of Russia. It is also making efforts to identify natural gas deposits in the Black Sea and the Mediterranean, despite the high geopolitical risks associated with such activity.
Citations:
Anadolu Ajansı. “Turkey’s external gross debt stock at $450B end-2020.” March 31, 2021. https://www.aa.com.tr/en/economy/turkeys-external-gross-debt-stock-at-450b-end-2020/2193871
Anadolu Ajansı. “Turkey’s short-term foreign debt stock at $126.9B in August.” October 15, 2021. https://www.aa.com.tr/en/economy/turkey-s-short-term-foreign-debt-stock-at-1269b-in-august/2392843
Anatolian Agency. “Turkey projects 9% GDP growth this year, 5% in 2022.” September 6, 2021. https://www.aa.com.tr/en/economy/turkey-projects-9-gdp-growth-this-year-5-in-2022/2356625
OECD. 2021. Turkey Economy Snapshot: Economy Forecast Summary (December 2021). https://www.oecd.org/economy/turkey-economic-snapshot/
Anadolu Ajansı. 2021. “Türkiye’de Eylülde 147 bin 143 konut satıldı.” https://www.aa.com.tr/tr/ekonomi/turkiyede-eylulde-147-bin-143-konut-satildi/2390576
The inflation rate is soaring again. The head of the Central Bank, Naci Ağbal, who replaced Murat Uysal in November 2020, increased the interest rates from 10.25% to 19% within four months. Ağbal was then replaced by Şahap Kavcıoğlu four months later. From September to October 2021, the interest rate was cut by 3 percentage points, and further reduced to 15%. As a response, between September 2021 and December 2021 alone, the exchange rate with the U.S. dollar rose from TRY 8.5 to TRY 18. The inflation rate, on the other hand, is expected to approach an annual rate of 40% in the first quarter of 2022. Due to deteriorating indicators, Minister of Treasury and Finance Lütfü Elvan resigned, and Nureddin Nebati was appointed in his place.
The government’s rescue plan responding to the devaluation of the Turkish lira included using Treasury funds to offer compensation for possible losses against foreign currencies over periods of three, six, nine and 12 months. Experts argue that this new model creates serious risks for the public budget. Shortly after the announcement of the new plan, the dollar dropped sharply to TYR 11, a decrease of almost 40%. However, the exchange rate is far from being stabilized, as high levels of volatility persist in the capital market.
Despite this deteriorating picture, Turkey’s GDP increased by 0.9% in 2019 and 1.7% in 2020. According to the three-year program crafted in 2019, the Turkish economy was expected to grow by 9% in 2021, 5% in 2022 and 5.5% in 2023 and 2024. However, these estimates are unrealistic. For example, the OECD (2021) expects that even in an absence of external shocks, the GDP growth would remain at 5.7% in 2021 and 3.4% in 2022, as the post-pandemic recovery continues. The biggest obstacle to sustainable growth has been the dynamics of the growth itself, which previously centered on the expansion of the construction sector. As construction became costlier due to inflation and the rise of credit interest rates, the economic growth rate declined. September 2021 numbers indicated that mortgage-based house sales had dropped by 16.4% on an annual basis.
Turkey is far from creating resource-efficient economic activity that might promote social well-being and economic empowerment in the future. The government rarely backs eco-friendly policies in practice. The most notable exceptions include Turkey’s investments in renewable energy and desire to produce its own electric car (TOGG). Turkey relies on imports for its energy needs. To reduce its import dependency, the government is now constructing the country’s first nuclear power plant in Mersin, with the help of Russia. It is also making efforts to identify natural gas deposits in the Black Sea and the Mediterranean, despite the high geopolitical risks associated with such activity.
Citations:
Anadolu Ajansı. “Turkey’s external gross debt stock at $450B end-2020.” March 31, 2021. https://www.aa.com.tr/en/economy/turkeys-external-gross-debt-stock-at-450b-end-2020/2193871
Anadolu Ajansı. “Turkey’s short-term foreign debt stock at $126.9B in August.” October 15, 2021. https://www.aa.com.tr/en/economy/turkey-s-short-term-foreign-debt-stock-at-1269b-in-august/2392843
Anatolian Agency. “Turkey projects 9% GDP growth this year, 5% in 2022.” September 6, 2021. https://www.aa.com.tr/en/economy/turkey-projects-9-gdp-growth-this-year-5-in-2022/2356625
OECD. 2021. Turkey Economy Snapshot: Economy Forecast Summary (December 2021). https://www.oecd.org/economy/turkey-economic-snapshot/
Anadolu Ajansı. 2021. “Türkiye’de Eylülde 147 bin 143 konut satıldı.” https://www.aa.com.tr/tr/ekonomi/turkiyede-eylulde-147-bin-143-konut-satildi/2390576
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How effectively does labor market policy address unemployment?
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9
9
Successful strategies ensure unemployment is not a serious threat.
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7
6
7
6
Labor market policies have been more or less successful.
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3
4
3
Strategies against unemployment have shown little or no significant success.
2
1
1
Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Turkey’s population and workforce are both growing rapidly. Turkey’s population had reached 83,614,362 by the end of 2020, representing an increase of 459,365 over the previous year. The annual population growth rate declined from 1.39% in 2019 to 0.55% in 2020. The average age increased by 0.3 to 32.7 in 2019 (for men it increased to 32.1; for women, it increased to 33.4).
The number of people in the working-age population (those aged 15 years old and over) increased from 61.8 million in November 2019 to 63.8 million in August 2021. The seasonally adjusted labor-force participation rate declined from 52.8% in November 2019 to 42.2% in August 2021. A total of 28.1 million people were officially employed in November 2019, a figure that increased to 28.7 million in August 2021.
High levels of unemployment highlight the failure to generate an efficient labor market policy. Still, with respect to the pandemic and its impact on many sectors, the Turkish labor market showed some resilience. In August 2021, the official unemployment rate was 12.1%, indicating a 0.9% decrease on an annual basis. The unemployment rate outside of the agricultural sector was 14.2%, indicating a 0.2% increase. Moreover, sector-specific employment figures point to growing dynamism in the Turkish labor market following the first shock of the COVID-19 pandemic. Employment figures reveal an increase of 190,000 jobs in construction, 731,000 jobs in the service sector, 787,000 jobs in the industry sector and 157,000 jobs in the agriculture sector during the same period. Displacement of native workers by refugees (who work without job security and for lower wages) is one of the factors driving this development.
The rate of unregistered employment, which stood at 31.4% in August 2021, represents one of the biggest problems in the labor market. Another challenge is the need to create more and better-paying jobs for Turkey’s young and growing population, since many young people (15 to 24 years old) are not in employment, education or training. In particular, the employment rate among young people decreased from 24.7% in August 2020 to 22.7% in August 2021. In contrast to this trend, the total number of children who were working declined from 893,000 in 2012 to 720,000 in 2019.
The Unemployment Insurance Law No. 4447 defines criteria in order to receive unemployment insurance benefits (e.g., paying the unemployment insurance premium for at least 600 days in the last three years). Turkey does not have a good collective agreement record. Only six out of 100 workers benefit from collective agreements, the lowest such rate among OECD members.
Citations:
TURKSTAT. “The Results of Address Based Population Registration System, 2020.” February, 4 2021. https://data.tuik.gov.tr/Bulten/Index?p=The-Results-of-Address-Based-Population-Registration-System-2020-37210&dil=2
TURKSTAT.2021. “Labour Force Statistics, August 2021.” October 11, 2021.https://data.tuik.gov.tr/Bulten/Index?p=Isgucu-Istatistikleri-Agustos-2021-37490
European Commission. “Turkey Report 2021. Commission Staff Working Document.” October 19, 2021. https://ec.europa.eu/neighbourhood-enlargement/turkey-report-2021_en
Birgün. “Her 100 çalışanın yalnızca 6’sı Toplu iş sözleşmesi hakkından faydalanıyor: TİS mi oda ne?” August 16, 2020. https://www.birgun.net/haber/her-100-calisanin-yalnizca-6-si-toplu-is-sozlesmesi-hakkindan-faydalaniyor-tis-mi-oda-ne-312120.
The number of people in the working-age population (those aged 15 years old and over) increased from 61.8 million in November 2019 to 63.8 million in August 2021. The seasonally adjusted labor-force participation rate declined from 52.8% in November 2019 to 42.2% in August 2021. A total of 28.1 million people were officially employed in November 2019, a figure that increased to 28.7 million in August 2021.
High levels of unemployment highlight the failure to generate an efficient labor market policy. Still, with respect to the pandemic and its impact on many sectors, the Turkish labor market showed some resilience. In August 2021, the official unemployment rate was 12.1%, indicating a 0.9% decrease on an annual basis. The unemployment rate outside of the agricultural sector was 14.2%, indicating a 0.2% increase. Moreover, sector-specific employment figures point to growing dynamism in the Turkish labor market following the first shock of the COVID-19 pandemic. Employment figures reveal an increase of 190,000 jobs in construction, 731,000 jobs in the service sector, 787,000 jobs in the industry sector and 157,000 jobs in the agriculture sector during the same period. Displacement of native workers by refugees (who work without job security and for lower wages) is one of the factors driving this development.
The rate of unregistered employment, which stood at 31.4% in August 2021, represents one of the biggest problems in the labor market. Another challenge is the need to create more and better-paying jobs for Turkey’s young and growing population, since many young people (15 to 24 years old) are not in employment, education or training. In particular, the employment rate among young people decreased from 24.7% in August 2020 to 22.7% in August 2021. In contrast to this trend, the total number of children who were working declined from 893,000 in 2012 to 720,000 in 2019.
The Unemployment Insurance Law No. 4447 defines criteria in order to receive unemployment insurance benefits (e.g., paying the unemployment insurance premium for at least 600 days in the last three years). Turkey does not have a good collective agreement record. Only six out of 100 workers benefit from collective agreements, the lowest such rate among OECD members.
Citations:
TURKSTAT. “The Results of Address Based Population Registration System, 2020.” February, 4 2021. https://data.tuik.gov.tr/Bulten/Index?p=The-Results-of-Address-Based-Population-Registration-System-2020-37210&dil=2
TURKSTAT.2021. “Labour Force Statistics, August 2021.” October 11, 2021.https://data.tuik.gov.tr/Bulten/Index?p=Isgucu-Istatistikleri-Agustos-2021-37490
European Commission. “Turkey Report 2021. Commission Staff Working Document.” October 19, 2021. https://ec.europa.eu/neighbourhood-enlargement/turkey-report-2021_en
Birgün. “Her 100 çalışanın yalnızca 6’sı Toplu iş sözleşmesi hakkından faydalanıyor: TİS mi oda ne?” August 16, 2020. https://www.birgun.net/haber/her-100-calisanin-yalnizca-6-si-toplu-is-sozlesmesi-hakkindan-faydalaniyor-tis-mi-oda-ne-312120.
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How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?
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9
Taxation policy fully achieves the objectives.
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7
6
7
6
Taxation policy largely achieves the objectives.
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4
3
4
3
Taxation policy partially achieves the objectives.
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1
1
Taxation policy does not achieve the objectives at all.
The taxation system in Turkey can be divided into two categories: direct taxes (e.g., income tax on individuals and corporations) and indirect taxes (e.g., the value-added tax, the banking and insurance-transaction tax, the special consumption tax, and the telecommunications tax). In 2021, income tax rates for individuals ranged from 15% to 35%. The standard corporate tax rate was 20%, while capital gains were usually treated as regular income and taxed accordingly. Although the general value-added tax rate is 18%, a wide range of products are subject to 8% and some other products to a 1% tax rate.
Taxes accounted for 81.0% of central government revenue in 2020. Biased toward indirect taxes, Turkey’s taxation system does not take into consideration horizontal or vertical equity, which inhibits competition across classes. Income taxes accounted for 19% of the central government’s total tax revenue while corporate taxes accounted for 12.6% This system reduces fiscal stability and political credibility, particularly given the strong played by the special consumption tax, which accounted for 24.8% of total government revenue in 2020. Finally, there is no apparent incentive structure to promote ecological sustainability.
Citations:
Sözcü. “2020’de neye ne kadar vergi ödedik? Ozan Bingöl 15 soruda anlattı.” January 16, 2021. https://www.sozcu.com.tr/2021/ekonomi/2020de-neye-ne-kadar-vergi-odedik-ozan-bingol-15-soruda-anlatti-6213681/.
Taxes accounted for 81.0% of central government revenue in 2020. Biased toward indirect taxes, Turkey’s taxation system does not take into consideration horizontal or vertical equity, which inhibits competition across classes. Income taxes accounted for 19% of the central government’s total tax revenue while corporate taxes accounted for 12.6% This system reduces fiscal stability and political credibility, particularly given the strong played by the special consumption tax, which accounted for 24.8% of total government revenue in 2020. Finally, there is no apparent incentive structure to promote ecological sustainability.
Citations:
Sözcü. “2020’de neye ne kadar vergi ödedik? Ozan Bingöl 15 soruda anlattı.” January 16, 2021. https://www.sozcu.com.tr/2021/ekonomi/2020de-neye-ne-kadar-vergi-odedik-ozan-bingol-15-soruda-anlatti-6213681/.
Graph View
To what extent does budgetary policy realize the goal of fiscal sustainability?
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9
Budgetary policy is fiscally sustainable.
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7
6
Budgetary policy achieves most standards of fiscal sustainability.
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3
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3
Budgetary policy achieves some standards of fiscal sustainability.
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1
Budgetary policy is fiscally unsustainable.
According to the World Economic Outlook Database (2021), general government revenue as a percentage of GDP is expected to decrease from 29.2% in 2020 to 28.2% in 2021, before increasing slightly to 28.4% in 2022. General government expenditure as a percentage of GDP is expected to decrease from 34.6% in 2020 to 33.9% in 2021, then increase to 34.5% in 2022. The general government structural balance as a percentage of GDP, which was -3.3% in 2020, is expected to worsen to -3.4 % in 2021 before recovering again to -3.3% in 2022. The general gross debt-to-GDP ratio is expected to increase from 36.7% in 2020 to 37.1% in 2021, before rising to 38.8% in 2022.
From January to September 2020, tax revenues totaled TRY 578.7 billion. With the increase in the risk premium of the Turkish economy, TRY 107.8 billion of this was applied to interest payments. Due to the COVID-19 pandemic, budgetary expenditures increased to TRY 870 billion ($129.5 billion) for the first nine months of 2020. This amounted to a 17.6% increase on an annual basis. The New Economic Program of 2020-2022 initially anticipated that the budget deficit would be 2.9% of GDP. Due to the pandemic, however, this number was later revised to 4.9%. The budget expenditure in 2020 was TRY 1.20 trillion while revenues were TRY 1.03 trillion. The 172.7 billion lira deficit in 2020 amounted to a 38.5% increase in comparison to 2019.
The primary surplus that had persisted since 2002 fell back into balance in 2018 due to expansionary fiscal policies, and reverted to a primary deficit starting in 2019. The depreciation of the Turkish lira since 2018 put Turkey’s payment obligations at risk. Reuters sources estimated that the central bank of Turkey spent more than $100 billion to cushion the currency shock. TEPAV (2020) similarly indicated that expansionary fiscal policies harmed the budget. The government’s attempt to balance the budget by collecting one-time revenues rather than through implementing structural adjustments increased the share of interest expenses in the budget.
The fiscal deficit figures presented above do not account for fiscal risks arising from public-private partnership (PPP) projects. PPP projects in the transportation, energy and health sectors involve explicit minimum guarantees and components expressed in foreign exchange terms. According to one credible source, the PPP projects such as the Akkuyu nuclear power plant, the Yavuz Sultan Selim Bridge, the Istanbul Airport and city hospitals, most of which were sponsored by pro-government businessmen, amount to a total cost of TRY 150 billion. The immense cost of megaprojects such as the Canal Istanbul project are adding additional costs to the public budget. According to official estimations, the costs of the canal alone are projected at TRY 75 billion. Finally, the astonishing rise in expenditures by the President’s Office must also be noted. Since 2014, the first time Erdoğan was elected as president, these expenditures have increased by 1,506%.
Citations:
IMF. “World Economic Outlook Database.” 2021. https://www.imf.org/en/Publications/WEO/weo-database/2021/October.
IMF. “IMF Staff Country Report.” https://www.imf.org/en/Publications/CR/Issues/2021/06/11/Turkey-2021-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-50205
Anatolian Agency. “Turkey: Budget balance posts $20.9B deficit in Jan-Sept.” October 15, 2020. https://www.aa.com.tr/en/economy/turkey-budget-balance-posts-209b-deficit-in-jan-sept/2007235.
NTV. “Bütçe, 2020’de 172,7 milyar lira açık verdi,” January 15, 2021. https://www.ntv.com.tr/ekonomi/butce-2020de-172-7-milyar-lira-acik verdi,mLGQEs69LEyb974xQwV2bQ
TEPAV. “Merkezi Yönetim Bütçesinin Görünümü: COVID-19 Etkisi, 2020 ve Sonrasına Bakış.” November 2020. https://www.tepav.org.tr/upload/mce/2020/notlar/merkezi_yonetim_butcesinin_gorunumu_covid19_etkisi_2020_ve_sonrasina_bakis.pdf.
BBC. “Reuters: Türk Lirası’nı desteklemek için piyasaya geçen yıldan beri 100 milyar dolar döviz sürüldü.” July 16, 2020. https://www.bbc.com/turkce/haberler-turkiye-53433974.
Cumhuriyet. “Büyük kamu-özel işbirliği projelerinin hazırlanmasında bir defa değil bin defa dikkatli olunmalı.” July 27, 2020. July 27, 2020. https://www.cumhuriyet.com.tr/haber/buyuk-kamu-ozel-isbirligi-projelerinin-hazirlanmasinda-bir-defa-degil-bin-defa-dikkatli-olunmali-1754223.
Kanal Istanbul. 2021. “Kanal İstanbul’un Toplam Maliyeti.” https://www.kanalistanbul.gov.tr/tr/hersey/kanal-istanbulun-toplam-maliyeti
Birgün. “Saray’ın harcamaları 4.5 katına çıktı.” January 16, 2020. https://www.birgun.net/haber/saray-in-harcamalari-4-5-katina-cikti-284202.
From January to September 2020, tax revenues totaled TRY 578.7 billion. With the increase in the risk premium of the Turkish economy, TRY 107.8 billion of this was applied to interest payments. Due to the COVID-19 pandemic, budgetary expenditures increased to TRY 870 billion ($129.5 billion) for the first nine months of 2020. This amounted to a 17.6% increase on an annual basis. The New Economic Program of 2020-2022 initially anticipated that the budget deficit would be 2.9% of GDP. Due to the pandemic, however, this number was later revised to 4.9%. The budget expenditure in 2020 was TRY 1.20 trillion while revenues were TRY 1.03 trillion. The 172.7 billion lira deficit in 2020 amounted to a 38.5% increase in comparison to 2019.
The primary surplus that had persisted since 2002 fell back into balance in 2018 due to expansionary fiscal policies, and reverted to a primary deficit starting in 2019. The depreciation of the Turkish lira since 2018 put Turkey’s payment obligations at risk. Reuters sources estimated that the central bank of Turkey spent more than $100 billion to cushion the currency shock. TEPAV (2020) similarly indicated that expansionary fiscal policies harmed the budget. The government’s attempt to balance the budget by collecting one-time revenues rather than through implementing structural adjustments increased the share of interest expenses in the budget.
The fiscal deficit figures presented above do not account for fiscal risks arising from public-private partnership (PPP) projects. PPP projects in the transportation, energy and health sectors involve explicit minimum guarantees and components expressed in foreign exchange terms. According to one credible source, the PPP projects such as the Akkuyu nuclear power plant, the Yavuz Sultan Selim Bridge, the Istanbul Airport and city hospitals, most of which were sponsored by pro-government businessmen, amount to a total cost of TRY 150 billion. The immense cost of megaprojects such as the Canal Istanbul project are adding additional costs to the public budget. According to official estimations, the costs of the canal alone are projected at TRY 75 billion. Finally, the astonishing rise in expenditures by the President’s Office must also be noted. Since 2014, the first time Erdoğan was elected as president, these expenditures have increased by 1,506%.
Citations:
IMF. “World Economic Outlook Database.” 2021. https://www.imf.org/en/Publications/WEO/weo-database/2021/October.
IMF. “IMF Staff Country Report.” https://www.imf.org/en/Publications/CR/Issues/2021/06/11/Turkey-2021-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-50205
Anatolian Agency. “Turkey: Budget balance posts $20.9B deficit in Jan-Sept.” October 15, 2020. https://www.aa.com.tr/en/economy/turkey-budget-balance-posts-209b-deficit-in-jan-sept/2007235.
NTV. “Bütçe, 2020’de 172,7 milyar lira açık verdi,” January 15, 2021. https://www.ntv.com.tr/ekonomi/butce-2020de-172-7-milyar-lira-acik verdi,mLGQEs69LEyb974xQwV2bQ
TEPAV. “Merkezi Yönetim Bütçesinin Görünümü: COVID-19 Etkisi, 2020 ve Sonrasına Bakış.” November 2020. https://www.tepav.org.tr/upload/mce/2020/notlar/merkezi_yonetim_butcesinin_gorunumu_covid19_etkisi_2020_ve_sonrasina_bakis.pdf.
BBC. “Reuters: Türk Lirası’nı desteklemek için piyasaya geçen yıldan beri 100 milyar dolar döviz sürüldü.” July 16, 2020. https://www.bbc.com/turkce/haberler-turkiye-53433974.
Cumhuriyet. “Büyük kamu-özel işbirliği projelerinin hazırlanmasında bir defa değil bin defa dikkatli olunmalı.” July 27, 2020. July 27, 2020. https://www.cumhuriyet.com.tr/haber/buyuk-kamu-ozel-isbirligi-projelerinin-hazirlanmasinda-bir-defa-degil-bin-defa-dikkatli-olunmali-1754223.
Kanal Istanbul. 2021. “Kanal İstanbul’un Toplam Maliyeti.” https://www.kanalistanbul.gov.tr/tr/hersey/kanal-istanbulun-toplam-maliyeti
Birgün. “Saray’ın harcamaları 4.5 katına çıktı.” January 16, 2020. https://www.birgun.net/haber/saray-in-harcamalari-4-5-katina-cikti-284202.
Graph View
To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?
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9
9
Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
8
7
6
7
6
Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
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4
3
4
3
Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
2
1
1
Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
During the review period, the government continued to reinforce the country’s research and innovation capacity. The Scientific and Technological Research Council of Turkey (TUBITAK) is the leading agency for the management, funding, and conduct of research. According to TURKSTAT (2020), total public and private R&D spending as a percentage of GDP increased from 1.06% in 2019 to 1.09% in 2020. During 2020, commercial enterprises accounted for 64.8% of R&D expenditure, the largest single share. While universities accounted for 28.4% of spending on R&D, public institutions accounted for 6.8%. A total of 199,371 people worked full-time in the country’s R&D sector during 2019. Financial and non-financial corporations employed 65.3% of the country’s R&D personnel, while 29.9% of R&D personnel were employed in higher education. Public institutions accounted for a 4.7% share. Educational statistics reveal that 32.1% of R&D personnel hold a doctoral degree or equivalent, 33.1% a bachelor’s degree and 24.6% a master’s degree.
As of September 2021, Turkey had 1,260 R&D centers, 203 of which were owned by foreigners or foreign shareholders. These centers have carried out 59,935 projects and own 27,983 patents. In terms of sectoral distribution, machine and equipment manufacturing centers topped the list (174), followed by the automotive subsidiary industry (130) and software centers (116).
The Supreme Council for Science and Technology (SCST) is the highest-ranking science and technology policymaking body in Turkey. In recent SCST meetings, an emphasis has been placed on intensifying R&D efforts in the energy, health and biotechnology sectors. Additionally, the government has cooperated with 12 research universities in Turkey to create five new investment funds for techno-entrepreneurs and startups worth a total of €105 million. It also was supporting 85 technology development zones as of January 2020.
Citations:
TURKSTAT. “Research and Development Activities Survey, 2020,” October, 26. 2021.
https://data.tuik.gov.tr/Bulten/Index?p=Research-and-Development-Activities-Survey-2020-37439
Sanayi ve Teknoloji Bakanlığı. “AR-GE Merkezleri.”
https://www.sanayi.gov.tr/assets/pdf/istatistik/ArGeMerkeziIstatistik2021.pdf
European Commission. “Turkey Report 2021. Commission Staff Working Document.” October 19, 2021.
https://ec.europa.eu/neighbourhood-enlargement/turkey-report-2021_en
As of September 2021, Turkey had 1,260 R&D centers, 203 of which were owned by foreigners or foreign shareholders. These centers have carried out 59,935 projects and own 27,983 patents. In terms of sectoral distribution, machine and equipment manufacturing centers topped the list (174), followed by the automotive subsidiary industry (130) and software centers (116).
The Supreme Council for Science and Technology (SCST) is the highest-ranking science and technology policymaking body in Turkey. In recent SCST meetings, an emphasis has been placed on intensifying R&D efforts in the energy, health and biotechnology sectors. Additionally, the government has cooperated with 12 research universities in Turkey to create five new investment funds for techno-entrepreneurs and startups worth a total of €105 million. It also was supporting 85 technology development zones as of January 2020.
Citations:
TURKSTAT. “Research and Development Activities Survey, 2020,” October, 26. 2021.
https://data.tuik.gov.tr/Bulten/Index?p=Research-and-Development-Activities-Survey-2020-37439
Sanayi ve Teknoloji Bakanlığı. “AR-GE Merkezleri.”
https://www.sanayi.gov.tr/assets/pdf/istatistik/ArGeMerkeziIstatistik2021.pdf
European Commission. “Turkey Report 2021. Commission Staff Working Document.” October 19, 2021.
https://ec.europa.eu/neighbourhood-enlargement/turkey-report-2021_en
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To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?
10
9
9
The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
8
7
6
7
6
The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
5
4
3
4
3
The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
2
1
1
The government does not contribute to improving the regulation and supervision of financial markets.
Turkey’s integration into the global financial system has been put at great risk by recent developments. Most notably, it turned out that the U.S. embargo on Iran was breached by Halkbank after Iranian businessperson Reza Zarrab fled to the United States. Within the framework of the investigation, Halkbank Deputy General Manager Hakan Atilla was arrested and then sent to prison in the United States. Similarly, recent allegations by organized crime network leader Sedat Peker revealed that money earned by defrauding the state in the United States has been laundered in Turkey through businessperson Sezgin Baran Korkmaz. In line with these developments, a global anti-money laundering body added Turkey to its so-called gray list of jurisdictions along with Jordan and Mali, a designation that could potentially deter investors.
Erdoğan’s desire to lower interest rates has inhibited the flow of foreign capital flow Turkey. On several occasions, foreign intermediary institutions that hold short positions on the Turkish lira had to pay high-interest rates to close their positions through swaps. As a response, most of the major players have exited the market. The closing of swap channels increased Turkey’s risk premium, and put Turkey’s short-term debt obligations at risk.
Citations:
Bloomberg. “Turkey added to global money laundering watchdog’s ‘gray list’,” October 21, 2021. https://www.bloomberg.com/news/articles/2021-10-21/global-money-laundering-watchdog-adds-turkey-to-its-gray-list
Erdoğan’s desire to lower interest rates has inhibited the flow of foreign capital flow Turkey. On several occasions, foreign intermediary institutions that hold short positions on the Turkish lira had to pay high-interest rates to close their positions through swaps. As a response, most of the major players have exited the market. The closing of swap channels increased Turkey’s risk premium, and put Turkey’s short-term debt obligations at risk.
Citations:
Bloomberg. “Turkey added to global money laundering watchdog’s ‘gray list’,” October 21, 2021. https://www.bloomberg.com/news/articles/2021-10-21/global-money-laundering-watchdog-adds-turkey-to-its-gray-list