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Following six years of very tight fiscal policies, Turkey is faced with a fiscal policy challenge: how to i) preserve a rigorous fiscal policy stance, while ii) both improving the quality and cost-efficiency of key public services and developing the country’s infrastructure, and iii) simultaneously reducing the most distortive aspects of the Turkish tax system. In response to this challenge the government is trying to develop a new pro-growth fiscal strategy. Turkey is in a strong position to move towards such a new strategy. Thanks to past fiscal restraint, public debt is on a robustly sustainable path, and a major law on Public Financial Management and Control has established a state-of-the-art institutional framework. However, important spending drifts occurred in 2007, and were identified only with some lag, giving a warning signal on the urgency of full implementation of the new framework. There is a case for shifting the anchor for fiscal policy to an expenditure rule with binding multiyear ceilings, supported by a primary surplus target (as at present) that is consistent with the long-term sustainability of public debt. Strong political commitment is also needed for clarifying Turkey’s functional spending priorities, shifting to more efficient supply arrangements in key public services and closing the most blatant tax loopholes and strengthening tax enforcement.