Time for Structural Reforms in Turkey

Economist Arzu Karaarslan/ Mardin

Turkey’s GDP growth rate in 2014 (2,9%) was slightly over the expectations (2,7%) yet it is below the 2013’s increase (4.2%). Despite declining oil prices as well as depreciation of the Turkish Lira export between January-March 2015 dropped by 6,8%. There are many factors that have contributed to economy’s worsening numbers. Political uncertainty in the region, large current account deficits, decreased domestic demand, the EU’s economic struggle and volatility risks associated with capital flows all caused the GDP growth to lose momentum.

As I mentioned in my previous article structural reforms which are also stated in the National Development Plan 2014-2018 remain essential for the economy to overcome current account deficits and maintain robust GDP growth. And yet structural reforms don’t seem to be implemented any sooner. Since the current government’s agenda is expected to be focused on general elections that will be held in June 2015.
So is the government just sitting and waiting?

Of course no there are some actions have been taken by the government. The most recent action that has been announced by the government is Employment, Industrial Investment and Production Support Package. The 11 step package includes support for employers in private sector businesses to pay trainees minimum wage during a six-month vocational training period, a 50 percent rise in tax relief for enter prises which are making investmen ts and the owner’s equity will be encouraged through tax relief. The package is expected to create 120 thousand new jobs and boost private investments. Even though the stated incentives seem beneficial for the economy unfortunately it doesn’t give the impression to solve the structural problems that the economy faces today. Since similar incentives has been implemented for long time.

The following graph shows trend of private investments in Turkey. As seen from the graph there is a high increase during 2002-2007 when strong structural reforms were implemented by the government. Sharp drop in private investments during the Global Financial Crisis is clearly revealed as well. Although investments start to rise later on from 2011 to 2014 the investments started to decline again.

Tam ekran yakalama 4.4.2015 201457

Source: http://www.radik al.com.tr/yazarl ar/ugur_gurses/s orunlu_sisteme_c iliz_tesvik-1327 090

In order to maintain robust growth in terms of employment and investments structural reforms on country’s legal system, tax system, privatization policy, financial system and investment environment along with sustainable foreign policy actions are in need. In short, the time to implement necessary policies to catch up with Turkey’s 2023 goals has come a long ago.

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