Overview

  • Country Context

    TURKEY

    2017

    Population, million

    80.3

    GDP, current US$ billion

    850.7

    GDP per capita, current US$

    10, 592

    Life Expectancy at Birth, years (2017)

    75.4

    Turkey’s performance since 2000 has been impressive. Macroeconomic and fiscal stability were at the heart of its performance, enabling increased employment and incomes and making Turkey an upper-middle-income country. Poverty incidence more than halved over 2002-15, and extreme poverty fell even faster. During this time, Turkey urbanized dramatically, opened to foreign trade and finance, harmonized many laws and regulations with European Union (EU) standards, and greatly expanded access to public services. It also recovered well from the global crisis of 2008/09.

    Although Turkey’s growth prospects are reasonably robust, with an expected 4.7% growth rate for 2018 and the medium term, it faces challenges to moving into high-income status. Turkey’s macroeconomic achievements are also being tested by an uncertain outlook. Domestic challenges and a deteriorating geopolitical environment have negatively impacted exports, investment, and growth.

    The influx of more than 3 million Syrian refugees in 2016-17 created new social, economic, and political demands, particularly in urban centers where most refugees have settled. The Government will need to take strong measures to revitalize private investment, boost growth, and resume Turkey’s convergence with Europe. Most notably, new momentum is needed to improve the quality of education and boost productivity through greater innovation.

    Last Updated: Apr 17, 2018

  • Strategy

    Number of active projects

    12

    Net IBRD commitments

    $3.9 billion

    Trust fund portfolio

    $484 million

    Turkey and the World Bank Group (WBG) have a strong partnership that is outlined in the recently prepared Country Partnership Framework (CPF), the Bank’s strategy for FY18–21. The CPF articulates the main areas of WBG engagement, both technically and financially. 

    The CPF proposes a mix of instruments, drawing on the strengths of the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and Multilateral Investment Guarantee Agency (MIGA). The WBG investment portfolio and pipeline support a range of sectors, with programs both underway and planned in the energy sector, financial and private sector development, urban development, transport, social protection, labor market development, and health care. IBRD financing for FY18-21 is estimated at US$5–7.5 billion, while IFC’s own-account investment program is expected to be US$600–800 million p.a.

    Turkey values the WBG’s analytical and technical knowledge work. An extensive range of knowledge products aim to inform policy discussions in various areas (education, labor, finance, competitiveness, transport, forestry, land, and energy) and are the Bank’s primary instrument for broadening engagement with all stakeholders in Turkey. Recently, the increased Trust Fund portfolio enabled the preparation of detailed and broader coverage in education, labor market development, energy, disaster risk management, and urban development.

    Key Engagement

    Implementation of the current CPF (FY18–21) is progressing well. There is an expected US$1.1 billion in financing of new projects to be delivered during the remainder of FY18 (Sustainable Cities II project, US$91 million; Gas Storage Expansion project, US$600 million; and Inclusive Access to Finance project, US$400 million).

    One key engagement involves helping the Government to respond to the large number of Syrian refugees in Turkey. The WBG is partnering with the EU’s Facility for Refugees in Turkey (FRiT) and  providing support in the areas of social support and adaptation, labor markets and the economy, and education, as well as in the cross-cutting areas of data collection, measurement, and monitoring.

    In addition to the FRiT funds, the portfolio is also supported by a broad set of Trust Funds, including most notably the Clean Technology Fund (CTF), EU Instrument for Pre-Accession Assistance (IPA) funds, the Global Environment Facility (GEF), and Swedish International Development Cooperation Agency (SIDA) Gender Funds.

    In FY17, the first Reimbursable Advisory Service agreement between the Bank and the Ministry of Development on strengthening the Government of Turkey`s capacity to manage public-private partnerships (PPPs) became effective.

    The Bank is Turkey’s key partner in providing financing and advice for the country’s high-priority and complex infrastructure and services improvement projects. The Bank is also playing a key role in maximizing finance for development (MFD) through leveraging partnerships with other international financial institutions (IFIs) and catalyzing commercial financing. A recent example of the Bank’s successful role in mobilizing financing is the Trans-Anatolian Gas Pipeline Project (TANAP).

    The Bank’s financing of US$800 million and due diligence for the entire project helped to leverage US$1.2 billion from MIGA to support guarantees for commercial borrowing and attract co-financing of over US$1 billion from the Asian Infrastructure and Investment Bank (AIIB) and the European Bank for Reconstruction and Development (EBRD).  The Bank also helps counterparts to access climate funds and attract grant co-financing for various investment projects in the municipal, energy, irrigation, transport, and other sectors.  

    Last Updated: Apr 17, 2018

  • Economy

    RECENT ECONOMIC DEVELOPMENTS

    Turkey experienced a strong cyclical recovery in 2017, with 7.4% growth. Demand in 2017 was stimulated by fiscal measures and a Credit Guarantee Fund for small and medium enterprise (SME) financing. Total consumption accounted for over two-thirds of growth in this period. Strong demand resulted in high consumer price inflation, which averaged 11% in 2017.

    The current account deficit widened from 3.8% of GDP in 2016 to an estimated 5.5% in 2017. A recovery in net portfolio flows helped finance half the current account deficit. Although fiscal outlays remained high, strong revenue contained the fiscal deficit at 1.7% of GDP in 2017. 

    The Central Bank raised the effective policy rate by 450 basis points (from 8.3 to 12.75%) over the past 12 months in response to price and exchange rate pressures. Growth in money stock (M3) moderated slightly though remained high at 16% in 2017, in line with strong demand driven by a 20% expansion in private sector credit. The Central Bank also introduced stricter regulations on foreign exchange debt for corporates to mitigate risks of high foreign exchange exposure.

    Strong growth stimulated the labor market in 2017. The unemployment rate fell by 1.8 percentage points from 12.1% in November 2016 to 10.3% in November 2017. Employment increased by 1.5 million persons in the same period, driven by services (54.6%), industry (19.2%), and agriculture (18.6%). The labor force participation rate for females rose to 33.8%, a 1.1 percentage point inter-annual increase, while the jobless rate for youth fell by 3.3 percentage points to 19.3%.

    ECONOMIC OUTLOOK

    For 2018, economic growth is projected to converge closer to its potential rate of around 4.5–5%. Recent surveys point to a moderation in consumer demand, weighed down by rising costs and declining real wages. Rapid credit expansion has squeezed the banking sector’s Turkish lira liquidity, increased the credit risk, and raised lending rates, pointing to a slowdown in credit growth in 2018. Nevertheless, the Credit Guarantee Fund has been extended by a further TL 55 billion for 2018. In addition, the 2018 budget, approved in December 2017, was supplemented by fiscal stimulus measures proposed in February 2018 to accelerate investment and employment.

    Given these developments, inflation is expected to remain at just above 10% in 2018. Core inflation, which remained elevated and has hit double digits in recent months, might push up headline inflation further. The current account deficit is projected to remain high at 5.2% of GDP. Despite continued export growth driven by the recovery in the EU, the import bill is likely to remain large, due in part to rising commodity prices.

    Turkey’s external vulnerability remains high. Further tapering of U.S. monetary policy in 2018 could negatively affect capital flows, raising interest and exchange rate risks for Turkey’s external debt. The private sector is particularly affected as it accounts for 70% of external debt. Though most of it is long-term maturity, a weaker lira and costlier external financing might hit corporate balance sheets.

    The current macroeconomic environment and projected external conditions will require monetary and fiscal discipline. Sound macroeconomic policies need to be accompanied by deeper structural reforms to ensure a more sustainable economic growth trajectory over the medium term.

    Last Updated: Apr 17, 2018

  • Highlighted Project

    Turkey Sustainable Cities Series of Projects

    The Turkey Sustainable Cities Program, which supports improvements in the environmental, financial, and social sustainability of Turkish cities, was designed as a series of projects to provide financing to a single borrower (IllerBank) for subnational lending to selected municipalities and utilities interested in improving public services. This approach allows IllerBank and the World Bank to expand the sustainable cities approach both sectorally and spatially.

    Sustainable Cities Project 1 (SCP1), with an IBRD loan amount of US$132 million for water and sanitation investments in the Muğla and Denizli municipalities, was approved by the Bank’s Board in December 2016 and is now under implementation.  Sustainable Cities Project 2 (SCP2), with a US$91.5 million IBRD loan amount for water and sanitation investments in Muğla and Antalya, was approved by the Board in April 2018.

    The Sustainable Cities sector series of projects provides investment financing for priority municipal investment projects to eligible municipalities for water, wastewater, solid waste, energy efficiency, and street lighting. It also provides technical assistance (funded by a €25 million EU IPA grant) to participating municipalities to help them i) prepare comprehensive integrated plans and capital investment plans and ii) prioritize investment financing plans with climate change in mind. This assistance is currently being provided to the cities of Antalya, Denizli, Muğla, and Kayseri.

    Turkey’s Sustainable Cities Program stands on a public-private investment coordination platform, which, in cooperation with IFC, targets the maximization of finance for development through interventions at the national and local levels. The local-level “leg,” jointly supported by the World Bank and IFC, assists cities in becoming more creditworthy to mobilize and leverage private finance.

    The technical assistance and investments enable the WBG to play a catalytic role in helping municipalities to secure financing directly from capital markets for their infrastructure needs, thus leveraging the private sector while focusing public funding where it is most needed and thereby optimizing the use of scarce public resources. At the national level, the program continues to sustain constructive dialogue with the central government to modernize the existing municipal financing and investment framework and to improve the environment for leveraging private sector participation.

    Last Updated: Apr 17, 2018


LENDING

Turkey: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments



STAY CONNECTED

Additional Resources

Country Office Contacts

Ankara, Turkey
Ugur Mumcu Cad. No:88 2nd Floor,
+90 312 4598300
turkeywebfdbk@worldbank.org