Turkey—Challenges in the Period Ahead Istanbul Forum April 24, 2008
Fiscal consolidation has been strong…
External debt is lower than elsewhere…
Turkish banks are less reliant on external financing sources…
And FDI inflows have reached unprecedented levels...
Amid a less benign global environment…
Domestic growth has slowed and is expected at 4 percent this year…
Inflation has risen again, mainly on food and energy price shocks…
The current account deficit is large and likely to widen further…
…at a time when global credit is tightening and risk aversion high
And there are downside risks… Public debt and risk premiums are still high compared to CEE peers Reserve coverage of short-term external debt remains low The corporate sector relies heavily on external financing and has a large open fx position
Severance pay requirements are high...
High labor taxes discourage employment and promote tax evasion
Regulations inhibit temporary employment
Mininum wages are high relative to average incomes Sources: IMD, World Competitiveness Online; Eurostat; and IMF, World Economic Outlook.
Growth has averaged above 7 percent p.a. until recently…
Inflation has fallen to single digits and dollarization subsided…
The public debt ratio has halved and its composition improved…
The banking sector has normalized…