1. Fiscal Monitoring | June 2005 TEPAV | EPRI Ankara, 14 July 2005

2. Fiscal Monitoring | June 2005 Slide 2 Why Fiscal Monitoring? Budget data: an important tool in determining and evaluating fiscal policies Budget data: numerical details difficult to be followed by public (?) The need and lack of informing the public The budget monitoring mission of non- governmental organizations:  Control over governmental policies  Reference to the policy choices In Turkey tepav|epri takes an important pace to become a “budget watchdog”

3. Fiscal Monitoring | June 2005 Slide 3 January-May 2005 Developments Contuniation of current policies  achieving the target in primary surplus Improvement observed in May 2005 budget performance:  Income achieved from the interests of the bond exported to public banks and to the Saving Deposits Insurance Fund (TMSF) by the Treasury by non-tax revenues Risk in the expenditures: Rapid increase in social contribution transfers

4. Fiscal Monitoring | June 2005 Slide 4 Fiscal Monitoring Report-Content Developments in budget sizes Developments in budget finance and in the debt stock Developments in fiscal legislation

5. Fiscal Monitoring | June 2005 Slide 5 Fiscal Monitoring Report June 2005 Theme 1:  “Okey, fiscal dicipline, but what kind of fiscal dicipline?” Theme 2:  “what are we going to do with stability dividend? All right, but is there any stability dividend to mention?”

6. Fiscal Monitoring | June 2005 Slide 6 Fiscal Monitoring Report June 2005 Functions of public finance system:  To sustain fiscal dicipline  To manage public resources according to the priorities  To sustain operational efficiency

7. Fiscal Monitoring | June 2005 Slide 7 Fiscal Dicipline-1 The most important target indicator: Primary surplus (PS) 2005 target:  Consolidated Budget: %5  Public Section: %6,5 Is this performance permanent?  The quality and the sustainability of fiscal performance Average 2000-20042000-20022003-2004 Primary Surplus as a Share of GDP5,10%4,20%6,40%

8. Fiscal Monitoring | June 2005 Slide 8 Fiscal Dicipline-2 In between 2000-2004 precautions for once only in achieving Primary Surplus are significant. Type of Measure Average 00-0400 - 0202-04 Measures effective for one year 66.868.764 Measures economizing on expenditures 25.318.934.9 Measures increasing revenues 41.549.829.1 Measures effective for more than one year 33.231.336 Measures economizing on expenditures 3.51.86 Measures increasing revenues 29.729.430 TOTAL 100

9. Fiscal Monitoring | June 2005 Slide 9 Fiscal Discipline-3 The rate of the income generating measures is over %70 An important part of these measures are made by increasing indirect taxes. The Ratio of Direct and Indirect Taxes in Selected Countries 2002 (Except Social Security Payments) Country Direct Taxes Indirect Taxes U.S 76.323.7 Belgium 62.236.1 England 6039.4 Austria 55.544.1 France 53.746 Germany 50.748.9 Poland 4852 Korea 47.452.6 Czech Rep. 46.853.2 Greece 44.155.5 Portugal 42.557.1 Slovakia 39.960.1 Mexico 39.160.9 Turkey 34.465.6 OECD Total 55.444.6

10. Fiscal Monitoring | June 2005 Slide 10 Managing public resources to meet strategic priorities Strategic priorities are determined in a sound manner? Is there enough budget allocated for investing in human capital? Share of Expenditures on Education in Consolidated Budget Year1997199819992000200120022003 Ratio (%)15.62017.817.116.215.316.2 The Ratio of Education Expenditures in GNP (%) Year199920022003 Turkey 4.84.34.2 EU average 5.1

11. Fiscal Monitoring | June 2005 Slide 11 Operational Efficiency Falling short of sustainable expenditure reforms limits the role of the budget as an economic policy tool. Despite the decreasing expenditures on interests, the obligatory expenditures in the budget such as interests, personnel, transfers to social security system is increasing Share of Inelastic Expenditures in Consolidated Budget (%)