Despite Political Headwinds, Turkey’s Economy Remains Resilient

Despite Political Headwinds, Turkey’s Economy Remains Resilient

photo: Moyan Brenn

Key takeaway – Global and local tensions are taking a toll on Turkey’s political stability. The conflict in Syria, terrorist attacks, the refugee crisis, and President Erdoğan’s divisive efforts to transfer executive powers to the presidency are breeding instability. Over the past year, the investment climate has worsened. Investors’ confidence is diminishing. The Government needs to reduce uncertainty, boost competitiveness, and attract foreign direct investment (FDI). Investors demand an enhanced business framework, a uniform enforcement of regulations and a more flexible labour market. Yet, the economy remains resilient: over the next five years, Turkey’s growth will average 3.8 percent per annum. Over the course of 2016, a slowdown in exports and a decrease in tourist arrivals will constitute a drag on economic growth. Inflation will remain over 8 percent, above the Central Bank of Turkey (CBT)’s 5 percent target. The Turkish Lira (TRY) will remain under pressure, and depreciate against the US Dollar (USD) by a further 11.5 percent from current levels, to reach USD/TRY 3.242 by end-2020.

A. Global and local tensions disrupt political stability. Despite President Recep Tayyip Erdoğan’s firm grip on power, political uncertainty and security risks remain high. Turkey’s positioning in neighbouring Syria – where a proxy war is involving the US, Russia, Iran and Saudi Arabia – has enhanced regional tensions and increased the risk of terrorist attacks on Turkish soil. Erdoğan’s efforts to sideline his rivals and transfer executive powers to the presidency remain highly divisive. While anti-government media have suffered a severe crackdown, the outlawed Kurdistan Workers’ Party (PKK) has resumed violent activity. In the country’s south-east, social and political tensions are rising.

Internationally, regional tensions strained relations, brought terrorist attacks … Since the onset of protests in Syria in 2011, Turkey has opposed Syrian President Bashar al-Assad. As a result, Russia’s involvement in support of Bashar al-Assad has strained relationships between Ankara and Moscow. In November 2015, the downing on the Turkish-Syrian border of a Russian fighter-jet for violating the Turkish airspace has triggered Russian economic sanctions[1]. In August 2015, Turkey joined the US-led campaign against the Islamic State (IS), de facto increasing the risk of IS-led terrorist attacks [2]. At the same time, to avoid the creation of a Kurdish para-state in Syria and Iraq, the Government is opposing US support for Syrian-Kurdish forces.

… and fuelled a refugee crisis. Since March 2011[3], when protests erupted in Daraa, Syria’s civil war has brought into Turkey an influx of Syrian refugees. As of March 3rd, 2016, 56.5 percent (2.72 million) of total Syrian refugees had entered the country. In 2015, an estimated 885,000 migrants reached Greece via the Eastern Mediterranean route[4], to continue to the European Union (EU). To stem the flow, on March 19th, 2016 the EU and Turkey negotiated an agreement, likely to prove difficult to implement[5].

Turkey is redefining its foreign policy. Turkey’s geopolitical positioning is changing. Over the past 10 years, it had looked “East”, trying to forge alliances and trade-links with the Middle East[6]. The conflict in Syria and the ensuing refugee crisis have pushed Turkey towards the EU and NATO. Since 2013, Turkey has been seeking new strategic alliances: e.g. participating in the Transatlantic Trade and Investment Partnership (TTIP), new agreements – including free trade – with the EU and the US.

Domestically, President Erdoğan re-affirmed his power in the last elections … In the inconclusive June 2015 parliamentary elections, the Justice and Development Party (AKP) obtained 258 seats in the 550-seat parliament. After failed coalition talks, snap elections were held in November 2015. By winning 317 of the 550 available seats, the AKP regained absolute majority and is expected to remain in power until the next elections in 2019. In other words, President Erdoğan re-established his political dominance, and the appointment of a new team – headed by Mustafa Elitaş – in the Ministry of Economy, whose members enjoy Presidential support, is likely to enhance the harmony between the government and the President.

…however, his intentions to broaden his executive powers are creating severe political tensions. Despite AKP’s comfortable majority, Erdoğan’s intentions to: a) enact constitutional reforms; b) adopt a presidential system; and c) increase his executive powers – are openly resisted by all opposition parties. While AKP is short of the supermajority[7] required to initiate constitutional changes, Erdoğan remains determined to transfer executive powers to the presidency. Prime Minister (PM) Ahmet Davutoğlu’s stance against Erdoğan’s ambitions has strained relations and increased political instability. The perception of rising authoritarianism is likely to create political frictions with the opposition and the civil society. The weakening of democratic institutions is likely to create political headwinds in the Parliament, constraining and delaying policy-making.

In the predominantly Kurdish south-east, tensions will remain high. Further terrorist attacks are likely. After the collapse of the Kurdish peace process[8], the relationship between the Government and the PKK worsened, leading to Kurdish-led terrorist attacks. Going forward, social and political tensions will continue in south-east Turkey.

Political risks are on the rise … Over the next few years, the presidential system is likely to be established. If – as expected – the agreement is achieved at the cost of further acrimonious polarization, the country’s politics will suffer further fragmentation. In the unlikely event of political accord and reconciliation with the Kurds, risk will subside.  In 2014, Turkey ranked 189 out of 215 countries (12th percentile) in the Political Stability and Absence of Violence indicator of the World Bank’s Worldwide Governance Indicators. Yet, Turkey displays a moderate political risk in the short term, as indicated by a risk score of 3 out of 7 (7 being the worst) by Delcredere (a Belgian public credit insurer).

… if unresolved, political instability is likely to hinder economic performance. In the short term, regional and domestic instability will constrain growth: i) the war in Syria and Iraq has affected investors’ sentiment; in order to attract essential FDI, the Government needs to present Turkey as a modern, democratic, and Western-oriented country; ii) the economic deceleration in the EU[9] – the main trade partner, with over 50 percent of Turkey’s total exports – will reduce trade flows; iii) Russia’s economic sanctions will negatively impact 2016 growth by 0.15 to 0.90 points[10], via a reduction of export of goods[11] and services – mostly tourism[12] and construction; iv) tourism will also be affected by the recent wave of terrorist attacks[13]: summer bookings of German tourists[14] have dropped by 40 percent year-on-year (y-o-y); v) since November 2015, business and consumer confidence have dipped, reflecting rising concerns about the rising geopolitical threats.

B. The investment climate is worsening, and the confidence in Turkey is diminishing. For long-term investors betting on fundamentals, Turkey is attractive: i) its strategic geographic location at the crossroads of Europe, the Commonwealth of Independent States (CIS), the Middle East, and Asia, makes it an appealing global destination; ii) with 42.3 percent of the population under 24 years of age, the growth prospects of the domestic market remain robust. However, short- and medium-term investors are starting to shy away: between 2007 and 2015, FDI dropped from USD 22bn to an estimated USD 12.5bn. Rating downgrades and negative outlooks highlight further risks[15].

In 2015-2016, competiveness and economic freedom have worsened, and doing business is more difficult. In the 2015-2016 World Economic Forum (WEF)’s Global Competitiveness Report, Turkey is ranked 51st out of 140 countries, dropping six positions y-o-y. In the same report, institutional quality fell to the 75th place; labour market efficiency fell to 127th, constituting a drag on productivity and holding back private investments. According to the World Bank, the share of high-tech goods in Turkish manufactured exports has remained at 2.0 percent since 2002. In the 2016 Heritage Foundation‘s Index of Economic Freedom, Turkey dropped nine positions and ranks now 79th out of 178 countries and 34th among the 44 European countries; the assessments on rule of law, government spending, labour and trade freedom worsened. Finally, Turkey also dropped four positions in the 2016 World Bank Group’s Doing Business ranking, and is now 55th out of 189 economies: the country ranks in the three lowest quintiles in areas such as starting a business, dealing with construction permits[16] (98th out of 189 economies), resolving insolvency, and getting credit.

Infrastructure investment is hindered by strict regulation and international conflicts. Over the next seven years, the Government plans to increase infrastructure spending[17], to act as a catalyst for economic growth. In order to reach the 2023 targets for the infrastructure sector, USD 700bn need to be spent in infrastructure projects (of which USD 200bn are to be spent through PPPs). As of October 2015, Turkey’s construction sector employed 2.1 million people, representing 7.6 percent of the total labour force. While 43 of the top 250 international construction firms are Turkish, strict, multi-tier permit regulations hinder in-country activity. Bids for international contracts are likely to decelerate, hit by reduced infrastructure investment in Russia and the Middle East due to the drop in oil prices and Russia’s sanctions[18].

Geopolitical instability is negatively affecting the international perception on Turkey. Since June 2015, security risks have increased, due to the spillover into Turkey[19] of the conflict in neighboring Syria, IS terrorist activities and the stalemate of the Kurdish peace process. While the medium-term economic impact of the current Russian sanctions is likely to be minor, the short-term cost could reach USD 10bn[20], with tourism, textiles and food sectors being the most affected.  Russia is key in securing a steady energy supply, and an extension of Russia’s sanctions to the energy sector[21] would severely damage the economy[22]. As said, political stability is key to secure energy supply and attract FDI.

An uniform enforcement of regulations would reduce uncertainty. As investor confidence in the long-term direction of policies and regulations is being eroded[23], the business and investment regulatory framework needs to be improved. Furthermore, investors perceive the legislation management as not uniform, and too often left to arbitrary interpretation. If this perception is not addressed, investment will decline and bring about lower growth, hampering employment generation. A clear, uniform framework is needed.

A “one-stop shop” facility for construction companies would simplify licensing processes and secure a level playing field. A single, independent (or independently audited) body should deal with construction permits and large contracts. Infrastructure investment is a catalyst of economic activity; regulation needs to remain strict, but the licensing process needs to be simplified, with just one level of issuance. Higher infrastructure investment will translate into higher growth, and support employment generation.

C. During the past ten years, Turkey’s yearly growth averaged 3.8 percent; over the next five, it will remain at similar levels. During 2006–15, the country’s Gross Domestic Product (GDP) grew on average at 3.8 percent per annum, faster than peers[24]. Over 2016-2020, annual growth is expected to average 3.8 percent. Fundamentals support long-term growth: 49 percent of the population is under the age of 30 and urbanization, at 73 percent, is above the average (60 percent) of Europe and Central Asia. The short-term impact of: a) TRY weakness; b) sanctions imposed by Russia[25]; and c) lower tourist arrivals[26] are likely to be offset by low crude prices[27].

Unemployment remains above 10 percent, but the government is taking steps to reform the labour market. As of December 2015, the unemployment rate stood at 10.8 percent, due to a rise in both working-age population[28] and labour force participation[29]. In February 2016, the Government submitted to Parliament a draft law to introduce flexicurity – a combination of labour market flexibility and workers’ security. The aim is to boost employment by: a) shortening the length of job-seeking; b) increasing temporary work contracts; and c) reducing unregistered employment through flexible work models like home- and tele-working.

The minimum wage hike will widen the fiscal deficit, increase either unemployment or inflation, expand the informal economy, but will support consumption. In January 2016, the Government increased the minimum wage by 30 percent – from TRY 1,000 to 1,300 per month. The measure is expected to affect 8.5 million employees. To reduce implementation challenges and maintain private sector competitiveness, the Government announced that it would cover 40 percent of the 2016 cost increase. The measure is likely to have a significant impact on the economy: the fiscal deficit will rise, higher labour costs will either increase unemployment or (via pass-through) inflation, and expand the size of the informal economy. However, as low-earning labourers tend to have a lower-than-average propensity to save, consumption is likely to increase, and boost growth.

The informal economy is still sizable; a reduction would support growth and tax collection. Over 2006-2015, helped by robust economic growth and thanks to the Government’s push for the registration of businesses and informal workers, the size of the informal economy decreased from 30.4 to 27.8 percent of GDP. Still, Turkey’s informal economy is the third largest among 31 European countries[30], and the European countries’ average is 18.0 percent of GDP. A more flexible labour market would avoid an increase in informal sector employment. Also, if informal workers got higher wages, received employee benefits or training, and had more career progression opportunities[31], productivity would increase and economic growth would become more resilient. In 2014, the tax avoidance of the informal economy sector was 5.9 percent of GDP[32].

Fiscal policy will remain tight, monetary policy under political pressure. Over 2016-2020, the fiscal deficit is expected to average 1.7 percent, up from 1.1 in 2015. Fiscal policy will maintain a low level of public debt[33] and avoid fuelling a sharp increase in current account (c/a) deficit[34]. After the US Federal Reserve (Fed) raised its rate from 0.25 to 0.50 percent in December, the CBT – initially expected to follow the move – maintained interest rate at 7.5 percent. In 2016, to contain inflation, avoid further TRY depreciation and pre-empt further widening of c/a deficit, the CBT is expected to increase interest rates to 8.7 percent[35]. However, political pressure for maintaining or even cutting interest rates will provide a powerful balancing force.

In 2016, the economy will grow at 3.5 percent, with private consumption and investment as main drivers. In 2016, the individual components of GDP are expected to grow as follows: a) private consumption at 4.2 percent, up from 4.0 in 2015, reflecting the impact on household spending of the recent minimum-wage increase; b) government spending at 3.5 percent, down from 7.0 in 2015, when election-related spending contributed to strong government consumption growth; c) investment at 2.5 percent, up from 2.3 in 2015, largely depending on an improvement in business sentiment, a reduction of global financial volatility, and a reduction of security risks); d) net exports, at –2.7 percent, will contribute to the c/a deficit, which will grow to 4.8 percent[36], driven by imports of goods and services growing at 4.7, and exports at 2.0. Over the 2017-2020 period, exports growth[37] is expected to recover and outpace imports growth[38].

In 2016, inflation will remain above 8 percent … Currently at 8.8 percent; inflation is expected to slightly decrease to 8.4 by the end of 2016. Consumer price inflation has remained high as a weaker TRY – in both USD[39] and Euro (EUR)[40] terms – offset the effects of lower oil prices. Further TRY weakness, the minimum-wage increase and an expected (even if partial) recovery of oil prices will keep inflation above the official medium term target of 5.0 percent.

… and the TRY under pressure. Since June 2013, the TRY has lost 52.3[41] percent of its value against the USD40. This considerable weakening was due in primis to the Fed-induced “Taper Tantrum” – when the markets feared a reduction of the Fed’s quantitative easing (QE) – and regional geopolitical tensions. The expectations of higher US interest rates and a stronger USD, the ensuing liquidity squeeze in global capital markets, and continued regional tensions are expected to keep the TRY under pressure. During 2016–20, the TRY will keep depreciating against the USD to reach USD/TRY 3.242 by end-2020[42], representing an 11.5 percent increase from the current level of USD/TRY 2.870 (as of March 28th, 2016[43]).

Key economic risks are a delayed implementation of structural reforms and central bank monetary policy. Institution building is still slow, and recurrent government interventions have reversed progress made between 2003 and 2007. The government established last November needs to reassure investors about the strength of the legal and regulatory framework, including the handling of contracts, and the pace of implementation of needed reforms[44]. The appointment of the next CBT governor[45] is a key indicator of what lies ahead. While President Erdoğan believes that lower borrowing costs would curb inflation, fuel investment and boost growth, PM Davutoğlu and his deputy, Mehmet Şimşek, would prefer to grant the CBT the necessary independence and win investor confidence with orthodox monetary policy. Yet, the President needs to agree on the PM’s appointment[46], and – by overruling it – might further weaken the institution.

We thank Mert Yildiz for his comments and suggestions, PulsarKC for data collection. All errors are ours.


[1] Sanctions affect the import of Turkish fruit, vegetables, poultry and salt, the sale of charter holidays for Russians to Turkey, and the construction projects of Turkish firms in Russia (unless a special exemption is granted).

[2] Recent deadly incidents took place in Diyarbakir (June 5 and June 9 2015, October 2015,  February 2016), Suruç (July 2015), Siirt (August 2015), Mardin (October 2015), Ankara (October 2015, February 2016, March 2016), and Istanbul (December 2015, January 2016, March 2016).

[3] The first protests started on March 15, 2011; the first defections from the Syrian Army took place in April 2011; the Free Syrian Army (FSA) was formed in August 2011.

[4] In 2015, some 885,000 migrants arrived in the EU via the Eastern Mediterranean route – 17 times the number in 2014, which was itself a record year. The vast majority of them arrived on several Greek islands, mostly on Lesbos. In 2015, most of the migrants on this route originated from Syria, followed by Afghanistan and Somalia. According to Frontex, many factors underpin the growing popularity of the Eastern Mediterranean route, both push and pull. People-smuggling has developed into an important industry in Turkey, with networks active not just in Istanbul but also in Izmir, Edirne and Ankara.

[5] The EU will return all new irregular migrants crossing from Turkey into the Greek islands, and for every returned Syrian citizen another one will be resettled from Turkey into the EU. In exchange, the EU has agreed to: i) accelerate visa issuance for Turkish citizens and eventually lift visa requirements by the end of June 2016; ii) open a new chapter – i.e., number 33 on financial and budgetary provisions – in Turkey’s EU accession negotiations; and iii) speed up the disbursement of the allocated EUR3 billion under the Facility for Refugees in Turkey. Once these resources are exhausted, and provided all other commitments are met, the EU will mobilize an additional EUR 3 billion up to the end of 2018. According to the United Nations High Commissioner for Refugees (UNCHR), the current estimated financing gap to meet the requirements of Syrian refugees in Turkey is USD 716mn.

[6] Between 2003 and June 2014, Erdoğan paid 58 official visits to Middle East countries: 12 to Saudi Arabia, 10 to Syria, 7 to Qatar, 5 to Egypt and Iran, 4 to Lebanon and Iraq, 3 to UAE, 2 to Jordan and Kuwait, and 1 to Bahrain, Oman, Palestine/Israel and Yemen. The current PM – and former Minister of Foreign Affairs Ahmet Davutoğlu, has invoked what political analysts call “Neo-Ottomanism” as the new order for the Middle East: in 2001, in his book Strategic Depth, Davutoğlu set out a new policy of engagement within the region, rebuilding ties along the lines of the former Ottoman empire. At the same time, Turkey lifted visa requirements for Middle Eastern countries like Qatar, Yemen, Syria, Jordan and opened real estate ownership to all the GCC countries. Turkey strengthened links with Saudi Arabia in construction sector and signed more than 15 cooperation agreements with Qatar.

[7] A two-thirds majority, i.e. 367 (or three- fifths, i.e. 330, if the reform is approved by referendum) of the 550 seats in the parliament. In the November 2015 elections, AKP won 317 seats.

[8] In the first three months of 2013, after nearly four decades of struggle and an estimated death toll of 40,000 lives, the Government began a peace process with the PKK. In July 2015, the process collapsed, with the resurgence of violent clashes between Turkey’s security forces and the PKK and the PM’s request to lift the immunity of senior MPs of the pro-Kurdish People’s Democratic Party (HDP).

[9] IMF forecasts an annual GDP growth of 1.7 percent for both 2016 and 2017 for the Eurozone.

[10] An Economic Policy Research Foundation of Turkey (TEPAV) study calculates that Russia’s economic sanctions will cost Turkey’s economy a (real) loss of USD 2.3 to 8.3 billion in 2016. Such a “Russian shock” will reduce economic growth of 2016 by 0.15 to 0.90 points.

[11] In January 2016, exports dropped by 66 percent from the levels of January 2015. According to Milliyet newspaper, in January 2016 exports dropped to USD107mn from USD 316mn in January 2015.

[12] In 2014, Russia ranked second in number of foreigners visiting Turkey, with 4.48 million visitors (12.16 percent of total).

[13] According to Hürriyet daily, citing sector representatives, in 2016 the revenue loss in the foreign tourism sector may reach USD 12bn: economic think-thank TEPAV had previously estimated the cost of the Russian travel ban on Turkey at around USD 8bn this year, including direct and secondary impacts. Turkey’s gross income from foreign tourism services reached USD 31.5bn in 2015, according to Turkstat data.

[14] In 2014, Germany ranked first in number of foreigners visiting Turkey, with 5.25 million visitors (14.25 percent of total).

[15] Standard & Poor’s credit rating stands at BB+ (negative), downgraded from BB+ (stable) in 2014. Moody’s rating for sovereign debt is Baa3 (negative), downgraded from Baa3 (stable) in 2014. Fitch is an exception: the credit rating has been kept at BBB- (stable) since 2012 when it was upgraded from BB+.

[16] The number of procedures involved – 18 – is higher than peers (12.4 in OECD, 14.8 in MENA).

[17] Most relevant projects under “Vision 2023” are: a third bridge and highway over the Bosphorus; a third airport for Istanbul– with the highest passenger capacity in Europe -; a tunnel under the Bosphorus; a canal – and a new city around it – to take shipping traffic away from the Bosphorus; and the Istanbul International Finance Centre (IIFC).

[18] Turkey’s international construction contracts declined from an all-time high of USD 30.2bn in 2013 to USD 27.1bn in 2014 (USD 8.2bn in the first 6 months of 2015). In 2014, of the total value of international contracts, the share taking place in Russia declined to 14 percent from a long term average of 20 percent during 1972-2014.

[19] Turkey is warring on both fronts: in July 2015, Turkish government began pursuing military action against IS in Syria and in October 2015, Turkey attacked Syrian Kurdish forces in Tal Abyad.

[20] According to Erhan Aslanoğlu, Economics Professor at the Marmara University of Istanbul.

[21] Current natural gas flows have not been stopped or delayed, although Russia has suspended work on TurkStream – a new Black Sea pipeline to boost Russian gas exports to Turkey.

[22] In 2015, Turkey received 27 billion cubic meters of Russian gas, 55 percent of Turkey’s total supply.

[23] In March 2016, the Economic Confidence Index (a composite index based on several surveys of business and consumer confidence) published by the Turkish Statistical Institute (Turkstat) increased to 78.3 points, up 9.5 percent from 71.5 points in February 2016 – the lowest value on record -, but still down 22.3 percent from 100.8 in December 2015.

[24] During 2006–15, the GDP of Emerging and Developing Europe grew at an annual average of 3.2 percent.

[25] In 2016, Turkey’s  GDP growth will be reduced by 0.3 – 0.7 percent due to sanctions imposed by Russia, according to the European Bank for Reconstruction and Development (EBRD). As of September 2015, Turkey’s construction industry had contracts worth around USD 10-12 billion outstanding in Russia, most of them for construction works related to the 2018 football World Cup.

[26] According to the Ministry of Culture and Tourism, in February 2016 foreign tourist arrivals in Turkey fell by 10.3 percent year-on-year to 1.24 million: rate of year-on-year decline accelerated from 6.4 percent in January 2016.

[27] During 2016, Brent prices are likely to hover around USD 40 per barrel (USD/bbl). As of March 28th, 2016, Brent crude oil price was 40.27 USD/bbl, an 8.2 percent increase year-to-date, and 1.5 percent above the pre-crisis (January 1998-June 2008) average of 39.66 USD/bbl. This price represented a 68.2 percent decrease as compared to the post-March 2009 peak level of 126.65 USD/bbl registered on April 8th, 2011, and 44.4 percent above the post-March 2009 trough level of 27.88 USD/bbl, registered on January 20th, 2016. According to Consensus Economics, the prices at the end of 2016 will decrease by 1.7 percent from the March 28th, 2016 level of 39.60 USD/bbl; however, through 2017, prices will increase by 33.2 percent to reach 52.75 USD/bbl. In 2015, Turkey’s  c/a deficit stood at 4.5 percent, down from 5.7 percent in 2014, largely as a result of lower energy  prices.

[28]In 2014, Turkey’s working age population (the share of the population considered able and likely to work, normally between 15-64 years of age) reached 67.88 percent, 379 basis points above the historical average (1990-2010) of 64.09 percent.

[29] In 2015, Turkey’s labor force participation (the proportion of the population between 15-64 years of age that is economically active) reached 56.10 percent, 261 basis points above the historical (1990-2010) average of 53.49 percent.

[30] The top 10 European countries are Bulgaria (30.6), Romania (28.0), Turkey (27.8), Croatia (27.7), Estonia (26.2), Lithuania (25.8), Cyprus (24.8), Malta (24.3), Latvia (23.6), and Poland (23.3).

[31] About 60 percent of working women are informal workers.

[32] While this figure shows an improvement compared to 6.5 percent average for 2000-2014, since 2010 it has remained relatively stable.

[33] In 2015, Government Gross Debt was 32.6 percent of GDP, still low if compared to Emerging and Developing Europe average of 44.6 percent.

[34] The c/a deficit is expected to marginally expand from 4.4 percent in 2015 to 4.8 percent in 2016 and then decrease to 4.5 percent in 2020 as the impact of lower crude prices is expected to be offset by a weaker currency.

[35] Source: Consensus Economics forecasts as of March, 2016.

[36] In 2015, the c/a deficit stood at 4.4 percent which is above the pre-crisis (1998- 2008) deficit average of 2.7 percent; below the post-March 2009 peak deficit level of 9.6 percent registered in 2011 and above the post-March 2009 trough deficit level of 1.8 percent, registered in 2009.

[37] In 2015, exports of goods and services yearly growth stood at 0.9 percent, which is below the pre-crisis (1998-2008) average of 16.3 percent; below the post-March 2009 peak level of 18.5 percent registered in 2011 and above the post-March 2009 trough level of -22.6 percent registered in 2009; forecast for 2017-2020 shows an average export of goods and services yearly growth of 5.8 percent.

[38] In 2015, imports of goods and services yearly growth stood at -0.5 percent which is below the pre-crisis (1998-2008) average of 15.7 percent; below the post-March 2009 peak level of 31.7 percent registered in 2010 and above the post-March 2009 trough level of -30.2 percent registered in 2009; forecast for 2017-2020 shows an average import of goods and services yearly growth of 4.4 percent.

[39] As of March 28th, 2016, TRY had appreciated 1.7 percent year-to-date against USD to USD/TRY 2.870. This exchange rate is 198.6 percent above the pre-crisis (January 1998-June 2008) average of USD/TRY 0.961; 6.2 percent below the post-March 2009 peak level of USD/TRY 3.058 registered on September 14th, 2015 and 105.6 percent above the post-March 2009 trough level of USD/TRY 1.396, registered on November 4th, 2010.

[40] As of March 28th, 2016, TRY had depreciated 1.3 percent year-to-date against EUR to EUR/TRY 3.212. This exchange rate is 134.8 percent above the pre-crisis (January 1998-June 2008) average of EUR/TRY 1.368; 7.2 percent below the post-March 2009 peak level of EUR/TRY 3.461 registered on September 14th, 2015 and 68.4 percent above the post-March 2009 trough level of EUR/TRY 1.907, registered on June 6, 2010.

[41] Source: Bloomberg, 2016. Data as of March 28th, 2016

[42] Source: EIU, March 2016.

[43] Source: Bloomberg, 2016.

[44] In February 2016, the concluding statement of the IMF’s 2016 Article IV mission to Turkey state: “The authorities’ appropriately ambitious structural reform agenda is central to the goal of successful economic rebalancing. Specifically, reforms aimed at increasing funding of the private pension and the severance pay systems could significantly raise the private saving rate. Addressing the lack of flexibility in the labor market and further developing local capital markets would boost growth and improve competitiveness. The authorities’ reform plans should be implemented swiftly and fully”. Furthermore, in April 2015, PM Davutoğlu announced a new strategy to reform the judiciary in order to enhance judicial independence and impartiality, bring about accountability and transparency in judicial acts, speed up judicial processes, establish a human-focused judiciary and highlight a freedom-driven judiciary. This reform package is linked with Turkey’s EU accession process, in particular with the future opening of Chapter 23 (Judiciary & Fundamental Rights).

[45] The term of the current CBT governor, Mr. Erdem Başçı, expires on April 19, 2016.

[46] The PM proposes a governor to the President, who can agree or veto the nomination. Previous appointments to the top central bank job have also been contentious: in 2006, Erdoğan proposed Adnan Büyükdeniz, only to have the choice vetoed by then-President Ahmet Necdet Sezer. Sezer also vetoed Başçı, who was finally appointed governor under Sezer’s successor Abdullah Gül, a co-founder of Erdogan’s ruling party.