Country brief 2007 Updated January 2008
Turkey is an upper&nash;middle income country, a member of the OECD, a regional power, a bridge between East and West, and a country which successfully recovered from a deep economic crisis in 2001. It is a dynamic emerging-market economy strategically located between Europe and Asia, bordering the Mediterranean, Aegean, and Black Seas. Over 73 percent of its 73 million people live in urban areas. Agriculture accounts for some 11 percent of its GDP, industry for 29.5 percent, and services for 59.5 percent1.
Turkey’s economy is among the world’s 20 largest, with a GDP of around US$ 400 billion. After surpassing the US$ 5,000 mark in 2005, GDP per capita reached US$ 5,482 in 2006. Extreme poverty is low, at about 1 percent, but poverty affects over 20 percent of Turkey’s population.
Turkey joined the World Bank in 1947 and the International Finance Corporation in (IFC) in 1956. The World Bank has helped Turkey overcome a series of economic crises, set the country on a path of sustained economic development, and contributed to improvements in the living conditions of its people.
Turkey is the World Bank's largest borrower in the Europe and Central Asia Region and it has been among the top three largest Bank borrowers each year over the past four years in terms of new commitments, which have totaled around US$ 6 billion during this time period.
12006 figures (Constant 1987 price)
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Economy
Recent Economic Performance
Working toward harmonization with the EU accession process has provided a key anchor for political and economic reforms for Turkey. Turkey signed a customs union with the European Union (EU) in 1995 and became a candidate for EU membership at the Helsinki Summit in December 1999. Turkey officially started negotiations for full membership in October 2005. As of October 2007, negotiations have been opened on four chapters and provisionally closed on one (science and research).
After the 2001 crisis Turkey entered a period of high growth and significant structural transformation. Annual growth averaged 7.5 percent and output increased by more than 40 percent in 2002-2006. This positive performance has been due in great part to the government's sustained commitment to sound economic policies, in combination with a favorable international economic environment. Despite fast growth, unemployment rates have remained around 10 percent during this period, and employment generation remains high on the government's agenda.
Strong fiscal discipline and tight monetary policies helped lower inflation to single digit levels and improve debt sustainability. Net debt as a share of GNP declined to 45 percent by the end of 2006, and its composition also improved. Substantial progress has been made in restructuring the financial sector, improving the business environment, and reforming the public sector. Sound policies, a favorable international environment and the prospects of EU accession have helped Turkey expand its export capacity and attract large capital inflows.
Challenges Ahead
Notwithstanding the good economic performance of the past years, macroeconomic vulnerabilities remain. Turkey has weathered the recent uncertainties and the ongoing market volatility originating from US sub-prime mortgage losses, demonstrating the much–improved resilience of the economy.
The country's widening current account deficit, one of the main sources of vulnerability, reached 8.2 percent of GNP in 2006, although its financing improved substantially as FDI and other non–debt creating flows financed more than 50 percent of the deficit. Inflation exceeded the target in 2006 and reached about 10 percent, mainly due to strong demand, persistence in services inflation, and global market volatility. Annual inflation in 2007 is expected to be around 8 percent2, still above the official 4 percent target. Other significant issues remain such as the comparatively high public debt burden and a recent loosening in the fiscal stance.
Overall Turkey's development agenda focuses on a vision of Turkey with stable growth, a more equitable income distribution, and increased global competitiveness, as the country transforms into an information society and completes EU harmonization. Development priorities are clustered around improved competitiveness and employment, equitable human and social development, efficient provision of high-quality public services, and energy security and efficiency, with an emphasis on the reduction of regional differences.
2CBRT Expectations Survey, November 22, 2007
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The World Bank has been a partner with Turkey in implementing crucial reforms, including in the banking sector, whose fragility was one of the root causes of the economic crisis of 2000-2001, as well as in the energy, telecommunications, and agriculture sectors.
In addition, major steps have been taken to promote investment in the economy and to help industries overcome crises, resulting in an increase in exports. In the social sector, World Bank support to education has helped increase enrollment in schools, especially enrollment of girls. The Bank also helped finance projects to protect the environment by upgrading the management of its natural resources and, in the process, increasing rural incomes. The Bank helped Turkey cope with the devastation after the Marmara earthquake in 1999 and is working to mitigate risks from such calamities in the future. Recent Bank analysis and advice and financing have also focused in areas such as social security, health, labor markets and municipal infrastructure.
Going Forward
In an effort to tackle poverty and improve living standards for the next generation, the Turkish government has helped tens of thousands of mothers cover essential child-rearing expenses.
Read moreTurkey and the World Bank Group will continue their strong partnership under the World Bank's new Country Partnership Strategy (CPS) during 2008-2011. The Turkish government and the Bank expect to finalize the new strategy—including analysis, advice, and financing at levels similar to those in the recent past—early in 2008.
The Partnership Strategy is grounded in Turkey's 9th Development Plan. It envisages close collaboration in achieving development results in three broad areas: (1) improving Turkey's competitiveness and creating more and better jobs; (2) further strengthening Turkey's health, education, and social security systems; and (3) ensuring the efficient provision of high quality public services. In this partnership, the strategy builds on the program of the 60th Government to sustain macroeconomic stability, promote an investment climate favorable for strong private sector development, enhance energy security and efficiency, and implement labor market, social sector, and public administration reforms.
NB: Lending is per fiscal year, July 1–June 30
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Tunya Celasin, External Affairs
Pelin Arslan, Public Information Center
The World Bank Office
Ugur Mumcu Caddesi 88,
06700 Gaziosmanpasa,
Ankara, Turkey
Tel: (+90 312) 459-8300
Fax: (+90 312) 446-2442
Email: turkeywebfdbk@worldbank.org
Website: http://www.worldbank.org/tr
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