• Overview of the Economic Survey of Turkey
• Turkey: Exiting the crisis on a stronger growth path  presentation by Rauf Gonenc, Turkey Desk

With the recovery under way, a golden opportunity for structural reforms arises from the sharp drop in capital costs in the wake of the acknowledgement of Turkey’s solid fundamentals by international investors.

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Potential growth has been held back to date by high inactivity and not sufficiently broad-based productivity growth. The low capacity to create jobs is linked to excessive labour market regulation, which provides incentives for informal arrangements, which in turn hinder productivity growth. Skills mismatches are also serious.

Turkey should move forward with important regulatory reforms, and allow more experimentation with new rules on a voluntary basis, such as allowing regions to set minimum wages. Such measures should be closely monitored, and their results used to establish nationwide rules.

Product market regulations should be aligned with OECD best practices, so as to boost productivity growth and competitiveness.

The new draft law which introduces a fiscal rule is welcome. It has the potential of improving fiscal performance over time, as well as removing the current pro-cyclical bias of fiscal policy

To allow an effective implementation of the rule it is essential to produce consolidated general government accounts according to international standards, and to adopt the draft law on the Court of Accounts which prescribes comprehensive auditing.

Turkey has come close to completing this new fiscal architecture which would consolidate its low risk premia and real interest rates. If the existing institutional modernisation plans are applied additional positive leverage on the economy is to be expected.

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