A diversified economy, proximity to Europe, integration with European markets, the external anchor of EU accession, and a lengthy track record of solid economic management and structural reform are the drivers of Turkey’s long-run prospects.
Turkey’s high degree of integration with the world economy, through both trade and financial channels, made the country vulnerable to the impact of the global recession, with the economy contracting by 4.7 percent in 2009. However, the economy has now recovered to pre-crisis levels, with growth expected to reach 7 percent in 2010.
Population, total (millions)
Population growth (annual %)
Life expectancy at birth, female (years)*
Life expectancy at birth, male (years)*
GDP (current US$) (billions)
GDP growth (annual %)
GNI per capita, Atlas method (current US$)
Inflation, consumer prices (annual %)
Foreign direct investment, net inflows (% of GDP)
Unemployment, total (% of total labor force)
Time required to start a business (days)
Internet users (per 100 people)*
*2008 statistics from WDI 2009
The Turkey program continues to achieve impressive results; from the health sector reform to improved electricity supply security to strengthened public financial management. The World Bank has been supporting these through a number of projects and analytical work. Below are some of the highlights.
Transformation of the Health System:
Health Transition Project Adaptable Program Loan (APL) 1 and 2
In 2003, 24% of the poorest population decile had health insurance, vs. 82% in 2008.
Population enrolled with family medicine increased from zero in 15 pilot provinces in 2003, to 90% in 33 provinces in 2009.
Utilization of primary care services in provinces implementing family medicine increased: 2.45 outpatient visits per capita compared with 2 in non-family medicine provinces.
Patient satisfaction with health services in public hospitals increased from 38% in 2003 to 67% in 2009.
Social security systems were unified, and all hospitals transferred to the Ministry of Health, so people can choose where to be treated.
Comprehensive Energy Sector Reform: improved electricity supply security and reliability, efficiency of electricity market, private sector participation, environment impact
Renewable Energy project
Construction of 966 MW of renewable energy generation (hydro, geothermal, wind, land fill gas) capable of producing 3,810 Gwh of electricity per year.
Contributed to a reduction of greenhouse gas emissions by about 1.7 million tons per year.
Electricity Distribution Rehabilitation Project
Reduced number and duration of interruptions faced by consumers in the 8 regional companies targeted under the project
Collection efficiency improved in the 8 regional companies targeted under the project
New load served in targeted areas to meet increased demand
Energy Community of South East Europe (ECSEE)
A competitive wholesale electricity market went into operation in 2006 and continues to expand. Currently, approximately 400 private companies are participating in the power trading.
Electricity sold on the market as % of electricity transmitted increased from negligible levels in 2004 to 30% in 2009.
Peak demand carried by the system increased from 23.5 GW in 2004 to 30.5 GW in 2008
Fault indexes on 380 kV and 154 kV decreased from 6.8 and 10.1, respectively, in 2004 to 5.9 and 8.6, respectively, in 2008
Number of system accidents decreased from 21 in 2004 to 19 in 2008.
From Disaster Response to Preparedness:
Istanbul Seismic Risk Mitigation and Emergency Preparedness Project
418 public buildings were retrofitted or reconstructed
Additional 69 buildings, including hospitals, are being strengthened and the retrofitting of 110 schools is being tendered. The schools being retrofitted and reconstructed serve about 1 million students and have over 33,300 teachers. The hospitals serve over 25,000 patients daily, and this number may triple in the aftermath of a disaster.
The back-up Disaster Management Center is operational, and the construction of the Governorship’s main Disaster Management Center is ongoing.
SMEs and exporting firms having access to longer-term finance
Export Finance Intermediary Loan (EFIL) series
Exports of target firms grew by 117% under EFIL II and by 95% under EFIL III (vs. aggregate export growth of 81% in Turkey), and results data will soon be available for the ongoing EFIL IV.
Exports of EFIL III participating firms grew by 10.4% in real terms between 2005 and 2008, vs. 0% for comparator firms. EFIl III firms’ sales grew by 11.7% vs. 6.2% for comparator firms. Employment grew by 8.9% for EFIL III firms, vs. 2.5% for comparator firms.
EFIL III participating firms were found more likely to introduce new products (58% vs. 29% for comparator firms), improve environmental management (79% vs. 47% for comparator firms), adopt new technologies to reduce costs (88% vs. 61% for comparator firms), export to new markets (69% vs. 48% for comparator firms), and expand their client bases (79% vs. 58% for comparator firms).
Small and Medium Size Enterprises (SME) loan
Access to medium term finance provided to over 500 firms across Turkey, with an emphasis on underserved areas such as the Eastern and Central regions.
Participating SMEs represent more than 20 sectors including printing, plastic processing, tourism and food processing.
From managing the impact of the global crisis to fiscal consolidation, shared growth, and employment
Restoring Equitable Growth and Employment Programmatic Development Policy Loan (REGE DPL)
Actions during the global credit crisis protected employment and household welfare:
Peak usage of blind broker function during the crisis was over US$1 billion per month
Take-up of extended short-time employment compensation was 40,000 in December 2009
Total credits to SMEs have increased from TL83.9 billion at end-2009 to TL103.6 billion in July 2010
ISKUR vocational training programs expected to reach 300,000 people in the two-year period 2009-10
Fiscal measures taken after the crisis have contributed to restoring fiscal balance while protecting the long-run financial sustainability of the health and social security system:
Universal Health Insurance has been extended to reach almost the entire population
Turkey is moving towards a new, unified administrative structure encompassing the previous three pension systems
The debt-to-GDP ratio is set to remain within the targets specified in the 2010-12 Medium Term Program, stabilizing at below 50 percent and falling over time towards 30 percent
Investment climate reforms have reduced time taxes:
Average days to clear customs are declining (from 15 in 2009)
Coverage of early childhood education has improved:
Preschool enrollment (children between the ages of 3 and 5) is increased by 22% in 2009-10 over the previous school year, as the Government started efforts in 2010 universalize kindergarten education and increase preschool enrollment.
Recent Economic Performance
After the 2001 crisis Turkey entered a period of high growth and structural transformation. Following a rebound in 2002, over the five years 2003-2007 annual growth averaged nearly 7 percent and public debt fell from 74 percent of GDP at end-2002 to 39 percent at end-2007. A strong, comprehensive reform program encompassed an exchange-rate float, financial-sector supervision, privatization, revenue administration, the investment climate, the energy sector, and social security. At the same time, reliance on imports of petroleum-related products for Turkey’s energy needs and intermediate inputs for Turkey’s exports, combined with the availability of high capital inflows, drove high current account deficits, which averaged 5.2 percent of GDP over 2004-08.
Turkey’s economy was hit by the global financial crisis of 2008-09 through trade and financial channels. In the first half of 2009 export earnings fell by a third. Private investment was similarly affected, falling by a third in the first quarter of 2009, as domestic financial intermediation and capital inflows both contracted. Unemployment exceeded 16 percent in the first quarter of 2009 (with more than one in four workers aged 25 and under unemployed).
Yet the underlying strengths of the Turkish economy – a highly capitalized and well regulated banking sector and well managed monetary policy, fiscal policy, and public debt – have minimized systemic effects. Turkey’s economy has now recovered, with year-on-year GDP growth of 11.4 and 10.3 percent in the first two quarters of 2010 and unemployment falling back towards pre-crisis levels around 10 percent. GDP growth is expected to reach 7 percent in 2010 and the fiscal targets in the Medium Term Program should be attained easily. Of concern in the medium term is the return to current account deficits of the order of 5 percent of GDP, about one-third of which have been financed with short-term capital inflows in the past year.
Turkey's development agenda focuses on a vision of 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 therefore clustered around improved competitiveness and employment, equitable human and social development, the efficient provision of high-quality public services, and energy security and efficiency, with an emphasis on the reduction of regional disparities.
In the short term the main challenge will be to continue to meet or exceed the fiscal targets set out in the Medium Term Program. This will not only bring down the public debt, but will also signal policy credibility to investors, important for longer run stability. The government has put forward draft legislation of a fiscal rule, which would help in this regard.
In the medium term Turkey’s main challenge is unemployment. Despite the rapid growth after 2002, unemployment remained steady at levels around 10 percent, and remains about 1.5 percent higher than pre-crisis levels. Unemployment is a particular challenge among young workers. The policies to tackle this include shifting protection from “jobs” to “workers” (e.g., reducing severance payments and broadening access to unemployment benefits) and addressing skills mismatches in the labor market through improved education and training.
A further challenge is Turkey’s persistent current account deficit. Aggregate saving in the public sector can be increased: reforms on the expenditure side can aim for higher-quality spending and protecting growth-enhancing investments, while limiting increases in expenditure. On the revenue side there is the opportunity to improve revenue collection, in particular by addressing the informal economy and tax evasion. In addition, reforms to the business environment, particularly relating to FDI and exports, can help generate growth that is sustainably financed.
Over the longer term, reforms to enhance energy efficiency and invest in alternative energy sources have the potential to reduce the Turkey’s dependence on oil and gas imports and thus its exposure to volatility through oil prices.
Finally, a strategy to reduce the carbon intensity of the Turkish economy could build on Turkey’s commitment, through its ratification of the Kyoto Protocol, to the United Nations Framework Convention on Climate Change.
The World Bank Supported Program
Endorsed by the Board in February 2008, the present WBG Country Partnership Strategy (CPS) covers the period 2008-2011 and is grounded in the Government of Turkey’s Ninth Development Plan, which aims to make Turkey "a country with an information society, growing in stability, sharing more equitably, globally competitive and fully aligned with the European Union".
The CPS document was prepared in partnership with the Government and in consultation with the business community and civil society. It provides for close collaboration in achieving development results in three broad areas:
improving Turkey’s competitiveness and employment opportunities;
strengthening equitable human and social development; and
ensuring the efficient provision of high quality public services.
Turkey aims to create more and better jobs through its recourse to policy and investment financing, as well as analytic and advisory services. The Government has set a target 10% unemployment rate by the end of 2010 and a new Employment Strategy is under preparation, which includes important measures to enhance labor market flexibility and strengthen active labor market policies. Turkey also aims to generate more and better jobs by increasing investments for export growth and attracting foreign direct investment.
There is a declining trend in unemployment. In May-July 2010 period unemployment fell to 10.5% compared to 13% in the same period of 2009 and 11% in previous month. Seasonally adjusted unemployment fell by 0.2% m/m to 11.7%, which is the lowest level since October 2008. The youth (ages 15-24) unemployment rate fell to 19.1% from 23.7% in this period.
In the social sectors, the continuous implementation of the Health Transformation Program has brought close to universal health insurance coverage (96%) and significant improvement in child and maternal health outcomes between 2003 and 2008. The rolling of family medicine in 2010 will further ensure further gains in the access to and quality of health services. In education, significant effort started in 2010 to increase preschool enrollment and thus improve the readiness for school, particularly among disadvantaged children.
Improved electricity supply security is already being achieved and will be further strengthened through better demand management and increased generation, as well as private sector investment in energy efficiency and renewable energy sources.
Tangible outcomes of public administrative reform include streamlined institutional responsibilities for disaster management, strengthened local financial management systems, and improved government services through dissemination and effectiveness of e-government applications.
"Turkey and the World Bank Group have a strong partnership. Our partnership includes analysis and advice, sharing international experience and expertise in Turkey and sharing Turkish experience and expertise abroad, as well as financing--in areas ranging from health care, social security, education, labor market and jobs, to effective public sector management and sound macroeconomic policies, to competitiveness and the investment climate, municipal infrastructure investments, and energy, environmental management, and climate change," said Ulrich Zachau World Bank Country Director for Turkey. "The goal of our partnership is to help improve the lives of people in Turkey. The World Bank is honored and proud to support programs in Turkey that do just that--helping more Turkish people have more opportunities and live better lives."
A CPS Progress Report (CPS-PR) endorsed in January 2010 took stock of progress to date and assessed the new challenges faced by Turkey in light of the recent global crisis. Selected adjustments were made to the CPS to support the transition from weathering the crisis to returning to sustainable private-sector led growth: analytical and advisory services on human and social development will be increased; the ongoing electricity program will be broadened to include a focus on climate change and environmental sustainability.
In addition to its financing and its analytical and advisory program, the World Bank also administers a modest trust fund portfolio, focused on clean technology, disaster reduction and recovery, energy sector management, governance and the environment. The World Bank also actively supports youth activities in Turkey.