Document of The World Bank Group FOR OFFICIAL USE ONLY Report No. 11096-TR INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP FRAMEWORK FOR THE REPUBLIC OF TURKEY FOR THE PERIOD FY18-FY21 July 28, 2017 Turkey Country Management Unit Europe and Central Asia The International Finance Corporation Europe and Central Asia The Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. CURRENCY EQUIVALENTS Exchange Rate Effective July 28, 2017 Currency Unit 1 TL = 3.56 US$ FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS ASA Advisory Services and Analytics IFC International Finance Corporation B40 Bottom 40 percent of the population IFI International Financial Institution BOTAS Boru Hatlari ile Petro Tasima A.S. IMF International Monetary Fund CEM Country Economic Memorandum IPA Instrument for Pre-Accession CLR Completion and Learning Review IPARD Instrument for Pre-Accession in Rural Development CPF Country Partnership Framework MIGA Multilateral Investment Guarantee Agency CPS Country Partnership Strategy MSME Micro, Small, and Medium Enterprises CTF Clean Technology Fund NBFI Non-Bank Financial Institution DP Development Program NCD Non-Communicable Disease DPL Development Policy Loan NPL Non-Preforming Loan DPO Development Policy Operation OECD Organization for Economic Co-operation and Development EBRD European Bank for Reconstruction and Development OIZ Organized Industrial Zones EC European Commission PforR Program for Results ECA Europe and Central Asia PISA Program for International Student Assessment ESMAP Energy Sector Management Assistance Program PLR Performance and Learning Review EU European Union PPP Public-Private Partnership EUR Euro RAS Reimbursable Advisory Services FDI Foreign Direct Investment SCD Systematic Country Diagnostic FSA Financial Sector Assessment SIDA Swedish International Development Agency FRiT Facility for Refugees in Turkey SOE State-Owned Enterprise FY Fiscal Year SORT Systematic Operations Risk-rating Tool FSRU Floating Storage and Regasification Unit SuTP Syrians under Temporary Protection GDP Gross Domestic Product TA Technical Assistance GEF Global Environment Facility TANAP Trans-Anatolian Pipeline GFDRR Global Facility for Disaster Reduction and Recovery TIMSS Trends in International Mathematics and Science Studies GHG Greenhouse Gas WB The World Bank IBRD International Bank for Reconstruction and Development WBG The World Bank Group ICT Information and Communication Technology IBRD IFC MIGA Vice President: Cyril E. Muller Dimitris Tsitsiragos Keiko Honda Director: Johannes Zutt Tomasz Telma Merli Baroudi Task Team Leader: Eavan O’Halloran George Konda, Aisha Gianfilippo Carboni Core Team Members: Ximena Del Carpio, Tamara Williams, Enrique Lora Sulukhia, Alper Ahmet Oguz, P. Facundo Cuevas, Tunya Celasin, Donato de Rosa, Pinar Yasar ii TURKEY COUNTRY PARTNERSHIP FRAMEWORK Table of Contents I. INTRODUCTION .................................................................................................................. 1 II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA ................................................... 1 II.1 Social and Political Context ................................................................................................. 1 II.2 Recent Economic Developments and Prospects .................................................................. 3 II.3 Poverty and Shared Prosperity ............................................................................................. 6 II.4 Development Challenges...................................................................................................... 7 III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK .................................................. 9 III.1. Government’s Program and Medium-term Strategy.......................................................... 9 III.2 Lessons from the CPS Completion and Learning Review (CLR) and Independent Evaluation Group (IEG) Evaluations ........................................................................................ 10 III.3. Proposed WBG Country Partnership Framework FY18-21 ............................................ 12 III.4 Implementing the FY18-21 Country Partnership Framework .......................................... 25 IV. MANAGING RISKS TO THE CPF PROGRAM .................................................................. 28 Annex 1. CPF Results Matrix ...................................................................................................... 31 Annex 2. CPS (FY12-FY16) Completion and Learning Review Report ..................................... 43 Annex 3. Selected Indicators of Bank Portfolio Performance and Management ........................ 70 Annex 4. Operations Portfolio (IBRD/IDA and Grants) .............................................................. 71 Annex 5. Statement of IFC’s Held and Disbursed Portfolio ........................................................ 72 Annex 6. MIGA Active Guarantees.............................................................................................. 75 Annex 7. Summary note of Country Gender Assessment 2016 ................................................... 76 Annex 8. Citizen Engagement Roadmap for Turkey CPF FY18-21 ............................................ 79 iii COUNTRY PARTNERSHIP FRAMEWORK FOR TURKEY (FY18-21) I. INTRODUCTION 1. This Country Partnership Framework (CPF) for Turkey covers the period FY18-21. It is aligned with the objectives of Turkey’s 10th Development Plan and is based on the findings of a World Bank Group (WBG) Systematic Country Diagnostic (SCD) that was finalized in February 2017. The CPF aims to help Turkey to achieve its development objectives through building on the foundations of the existing program and consolidating gains in key areas where the WBG is already active, as well as developing the program further in areas which target the WBG twin goals of reducing extreme poverty and boosting shared prosperity. The CPF puts forward a flexible approach for the WBG’s program that is appropriate for a middle-income country of Turkey’s size and takes account of the evolving country and regional situation. 2. The choice of CPF priorities and objectives was informed by a broad consultative approach undertaken both in the preparation of the SCD and of the CPF. The SCD was prepared following several rounds of discussions with Turkey experts, academia, private sector, investors, and civil society actors. The CPF benefited from strategic consultations with Government on the role of the WBG in Turkey for the CPF period that allowed for alignment of the program with client demand. It also benefited from discussions with a variety of stakeholders, private sector representatives and development partners whose feedback was incorporated into the design of the CPF. II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA II.1 Social and Political Context 3. Turkey has achieved commendable economic and social development results since the early 2000s, raising it to the world’s 17th largest economy and establishing it as a global presence. Macroeconomic stability, financial sector reform, closer economic ties with the European Union (EU), and a transformation of a significant part of the economy away from agriculture into manufacturing and services were core contributors to Turkey’s growth. Broad reforms supported a dynamic private sector, opened the country to foreign trade, incentivized significant infrastructure investments and resulted in higher incomes as well as increasing convergence of social indicators to OECD norms. Turkey’s GNI per capita rose from $3,115 in 2001 to $11,000 in 2015: poverty incidence more than halved and extreme poverty fell even more dramatically. Turkey’s development successes have been justifiably lauded , with many countries looking to its development model for inspiration. 4. Going forward, Turkey is facing political, security and economic challenges. In recent years, various commonly-accepted indicators of the quality of a country’s institutions (including Doing Business, the Corruption Perceptions Index, and the World Economic Forum’s Competitiveness Index) have shown that Turkey remains below the levels obtained in high-income countries, and that the distance from the frontier has been widening. Since early 2015, the country 1 has also experienced a series of political challenges, including a long election cycle (with parliamentary elections in both June and November 2015), a Cabinet reshuffle in May 2016, and a failed coup attempt in July 2016. Following the failed coup attempt, the government decreed a state of emergency to undertake what it has described as counter-terrorism measures, including the dismissal of civil servants and the transfer of assets of some entities that it has found to be linked with terrorist organizations. In April 2017, voters approved a set of constitutional reforms that will create an executive presidency and bring about important changes in the relations between Government branches. 5. Regional dynamics and impacts from the Syrian conflict are also imposing significant challenges. The government of Turkey is hosting about three million Syrians who have the status of Syrians under Temporary Protection (SuTPs). Turkey is providing for the SuTPs under its own laws and mostly at its own expense, including registration, freedom of movement, housing, health and education services and prospects for legal employment (less than ten percent of SuTPs are hosted in camps). Despite this commendable approach, the presence of such a large number of SuTPs is creating pressures on services and the labor market. At the same time, the geopolitical turmoil in the Middle East region and its implications for the east and south-east of Turkey have affected local economies in some regions, depressed tourism and discouraged investment. 6. Turkey’s relationship with the EU is characterized by peaks and troughs. It has benefited significantly from EU economic ties since the 1995 customs union agreement. In 2005, it initiated EU accession negotiations, which provided an anchor for its reform path and a strong positive indicator of its long-term aspirations. Although the EU negotiations have slowed down since the early 2010s, two new chapters in the accession process were opened in 2015/16. In late 2015, the crisis resulting from high numbers of SuTPs crossing from Turkey into Europe appeared to provide an incentive for quicker progress. Turkey agreed to work further with the EU to stem the transit of irregular migration to Europe, while the EU agreed to admit SuTPs from Turkey via a humanitarian admission scheme, accelerate the updating of the Customs Union, the EU negotiation process and the possibility of Turkish visa-free access to the EU. The EU also pledged €6 billion in assistance to host SuTPs in Turkey. While the irregular crossings from Turkey to Greece have greatly decreased and €3 billion in EU support was committed, progress on visa-free access to the EU Schengen Area for Turkish citizens and developing the Voluntary Humanitarian Admission Scheme for resettlement of SuTPs to the EU has remained slow. Even so, because the EU remains Turkey’s largest trading and development partner, taking about half of exports, harmonization to EU trade and investment standards will continue to dominate Turkey’s reform agenda. 7. Even within this challenging environment, Turkey’s development foundations remain sound. Sitting at the crossroads of Asia and Europe, with a dynamic private sector and young population, and access to the EU, Turkey continues to attract global investors. Strong macro- economic management enabled Turkey to weather the global financial crisis relatively well. But past achievements are no guarantee of future success. How well it copes with its current political, social and economic challenges will determine how much foreign and domestic investment it continues to attract, and when it will achieve its aspiration to become a high-income country. 2 II.2 Recent Economic Developments and Prospects 8. Turkey quickly rebounded from the 2009 global financial crisis, enjoying high growth rates until 2015, at the expense of large external and internal imbalances. Its GDP grew on average by 7.4 percent between 2010 and 2015, dwarfing the growth rates in peer countries. It experienced a sizeable current account deficit to keep the investment rate above 25 percent of GDP. While these investment rates helped it catch up, there is still room for improving the quality of investments as more than half of spending was in construction. Prudent fiscal management has been a cornerstone of Turkey’s good economic performance, but accommodative monetary policy has amplified the effects of cheap foreign finance, exacerbating internal and external vulnerabilities, with persistent current account deficits and an inflation rate above target. Table 1: Key Macroeconomic Indicators and Projections1 Indicators 2013 2014 2015 2016 2017f 2018f 2019f 2020f Real Economy Annual percentage change, unless otherwise indicated Real Gross Domestic Product (GDP) 8.5 5.2 6.1 2.9 4.0 3.5 4.0 4.0 Private Consumption Contributions (in percentage 5.0 1.9 3.4 1.4 3.0 1.9 2.2 2.1 points) Government Consumption Contributions (in 1.1 0.4 0.5 1.0 1.2 0.3 0.5 0.5 percentage points) Gross Fixed Investment Contributions (in percentage 3.8 1.5 2.7 0.9 0.9 1.1 1.2 1.4 points) Exports, GNFS, Contributions (in percentage points) 0.3 1.8 0.9 -0.5 1.3 1.2 1.2 1.1 Imports, GNFS, Contributions (in percentage points) -2.1 0.1 -0.4 -0.9 -1.0 -1.0 -1.1 -1.2 Consumer Price Index (average) 7.5 8.9 7.7 7.8 10.1 8.6 7.9 7.1 Fiscal Accounts Percent of GDP, unless otherwise indicated Total Revenues 34.6 33.8 34.2 34.7 34.3 34.1 34.3 34.2 Expenditures 35.2 34.3 34.3 36.3 36.4 35.8 35.7 35.4 General government balance -0.6 -0.5 -0.1 -1.6 -2.1 -1.6 -1.3 -1.2 Government Debt Stock 33.5 31.0 30.0 30.5 30.0 29.4 27.9 26.7 Balance of Payments Percent of GDP, unless otherwise indicated Exports Total 22.0 23.6 23.1 21.9 25.1 25.7 26.3 27.3 Imports Total 28.0 27.6 25.9 24.8 28.9 29.3 30.1 31.4 Primary and Secondary Income -0.8 -0.7 -1.0 -0.8 -0.9 -0.9 -0.9 -0.7 Current account balance (% of GDP) -6.7 -4.7 -3.7 -3.8 -4.7 -4.5 -4.6 -4.8 Net Foreign Direct Investment 1.0 0.6 1.4 1.1 1.1 1.2 1.3 1.4 Net Portfolio Investment 2.5 2.2 -1.8 0.7 1.8 1.8 1.8 1.9 Net Other Investment 4.1 1.6 1.6 0.8 0.9 1.5 1.5 1.6 Change in Reserve Assets -1.0 0.1 1.4 -0.1 0.9 0.0 0.0 -0.1 Net Errors and Omissions 0.2 0.2 1.2 1.3 0.0 0.0 0.0 0.0 Memorandum Item Nominal GDP (billion TL) 1,810 2,045 2,338 2,591 2,973 3,339 3,751 4,181 Source: WB and IMF estimates (February 2017), TURKSTAT, Ministry of Development, Central Bank of Republic of Turkey 9. Turkey’s GDP growth declined to 2.9 percent in 2016, amid geopolitical turmoil, unfavorable global developments and the failed coup attempt (Table 1). Following the failed coup attempt, households delayed spending (especially on durable goods) and corporates postponed key investments decisions, resulting in lower consumption and investment, which was only partly offset by higher government spending. On the external side, imports fell due to slower 1 Figures in this table reflect the decision taken in December 2016 to revise the methodology for national accounting to align with EU regulations (ESA 2010). The revisions increased 2015 GDP by about $140 billion to $851 billion, increased GDP per capita by $2,000 to more than $11,000, and annual growth rates increased: the average growth rate for 2002-07 increased from 6.8% to 7.9%, while the average growth rate for 2012-15 increased from 3.3% to 6.2%. 3 domestic demand, and exports contracted due to weaker external demand and volatility in economic ties with some trading partners. The non-agricultural unemployment rate rose from 12.1 percent in January 2016 to 14.3 percent in December 2016. 10. The current account deficit slightly increased to 3.8 percent of GDP in 2016, mostly due to falling tourism revenues and has started to widen in 2017 along with the rebound in global oil prices. The current account deficit declined from 6.7 percent of GDP in 2013 to 3.7 percent of GDP in 2015, thanks to cyclical factors, such as an increased gold balance and a smaller energy bill owing to the collapse of global oil prices. While the core balance remained mostly flat due to weaknesses in Turkey’s main trading partners, the services balance deteriorated due to substantially lower tourism revenues resulting from security concerns and Russian sanctions. This offset the improvement in the energy bill, increasing the current account deficit to 3.8 percent of GDP in 2016. In 2017, the energy and gold excluded trade deficit has started to narrow, thanks to strengthening growth in the EU. Going forward, possible rising energy prices are expected to lead to a larger current account deficit in the medium-term. 11. Portfolio outflows from the bond market accelerated in late 2016, due to domestic and external factors but recovering modestly in 2017. The result of the United States (US) presidential election and anticipation that the Federal Reserve will increase interest rates faster than originally expected decreased global risk appetite, triggering outflows from most developing countries. In Turkey, slowing GDP growth, rising inflation, a widening current account deficit and the unorthodox response of the Central Bank to a depreciating lira triggered investor concerns. Against this backdrop, outflows (non-residents) from the bond market amounted to $3.2 billion in Q4, while the equity market witnessed marginal inflows. The outflows increased the benchmark 2-year government bond yield by more than two percentage points, to 11.15 percent, while the lira depreciated by more than 25 percent between the end of Q3 and the end of January 2017. Improvements in global risk appetite have triggered capital inflows to developing economies in 2017, with inflows into the Turkish bond market amounting to $1.7 billion in January-April. 12. Monetary policy decisions in the past three years have allowed inflation consistently to exceed the central bank’s 5 percent target. A-sharp increase in food prices, persistent depreciation of the lira, and accommodative monetary policy kept inflation well above the target in 2014 and 2015. In 2016, inflation reached 8.5 percent, with lower food inflation offset by tax increases on cars and tobacco products and higher transport and energy prices. The foreign- exchange pass-through associated with rapid lira depreciation, higher global energy prices and unfavorable weather conditions fed into prices and pushed headline inflation to 11.9 percent and core inflation to 9.4 percent by April 2017. In May, headline inflation slightly declined to 11.7 percent. Inflation is likely to hover in low double-digit levels throughout the year 2017. 13. Rapid depreciation of the lira prompted the central bank to increase interest rates in 2016-17. The central bank started simplifying its complex unorthodox monetary policy framework in March 2016 and narrowed the width of its interest rate corridor by cutting the overnight lending rate by 250 bps through September, but it followed an expansionary rather than neutral approach. Following rapid depreciation of the lira in late 2016, it reversed course and increased the 1-week repo and overnight lending rates by 50 bps and 100 bps, respectively, over November to January, and also returned to its previous policy framework. In January 2017, avoiding an outright hike in 4 the policy rate, it ceased 1-week repo auctions and provided funding at the overnight lending rate at 9.25 percent and a late liquidity window rate at 11 percent in order to support the lira. The Central Bank further increased the late liquidity window rate to 11.75 percent in March and to 12.25 percent in April, taking into account the upward trend in inflation. Market watchers continue to seek a more orthodox policy framework to restore confidence, stem lira depreciation, and maintain price and financial stability. 14. Fiscal policy provided a considerable stimulus to growth in 2016 and 2017. While the Government maintained fiscal discipline in 2012-2015, with the central government budget deficit averaging 1.0 percent of GDP and the primary surplus averaging 1.5 percent, central government expenditures grew by 15.4 percent in 2016, due to increases in wages, transfers, and purchases of goods and services. A fall in capital spending and interest expenditures as a share of GDP helped to contain the increase in total expenditures. Despite lower economic activity, revenues grew by 14.8 percent because of tax restructuring and amnesties. As a result, the central government budget posted a moderate deficit of 1.1 percent of GDP in 2016, in line with fiscal targets. Expansionary fiscal policy will likely lead budget balances to exceed fiscal targets in 2017, while the growing PPP portfolio will warrant closer monitoring. 15. GDP growth is projected to increase to 4 percent in 2017 and remain at 4 percent in the medium term. In 2017, growth is expected to be driven by consumption (triggered by fiscal measures) and by net exports. As the fiscal stimulus is assumed to be temporary, GDP growth is expected to slow to 3.5 percent in 2018, before reverting to 4 percent in 2019 and 2020 on the back of reduced economic and political uncertainty. 16. Turkey’s growth model faces challenges that are likely to keep growth subdued in the medium-term. With an expected tightening in global liquidity in the medium-term, Turkey`s large external financing requirements pose downside risks to growth. The 2016 current account deficit of 3.8 percent is expected to rise to 4.7 percent of GDP in 2017, and external debt equivalent to almost 20.3 percent of GDP is coming due by early 2018. Turkey has lost its investment grade status from all three major ratings agencies, which is likely to impact financing costs, worsen investment and consumer sentiment, and curtail investment and consumption. In an adverse scenario of tightening global liquidity, a new round of lira depreciation would put more strain on corporate balance sheets, depressing private investment and lowering GDP growth. Although banks are not allowed to hold net open currency positions, defaults in the corporate sector could also have an adverse impact on the banking sector through credit risk channels. Despite trending upward, non-performing loans (NPLs) currently are low at 3.2 percent and well-provisioned, providing comfort in case of an additional deterioration in credit quality. That said, banks have limited resources to support further loan growth, since the deposit base grows slowly, uncertainty concerning global liquidity constrains foreign borrowing, and low profitability prospects might entail additional capital injection to prevent erosion in banks’ capital adequacy. Fiscal prudency will be important in reducing internal and external imbalances in the medium term. 5 II.3 Poverty and Shared Prosperity 17. Turkey has made significant progress in reducing poverty and boosting shared prosperity. Over 2002 to 2014, the poverty rate fell from 44 percent to 18 percent (under the regional poverty line of US$5/day) and extreme poverty (US$2.50/day) fell even more rapidly, from 13 to 3.1 percent.2 Despite macroeconomic volatility and productivity differences, both moderate and extreme poverty decreased in rural and urban settings. Rural poverty went down from 54 to 33 percent, and urban poverty from 37 to 11 percent in this period. The major driver for poverty reduction was economic growth, as opposed to redistribution, with growth accompanied by more and better income generation opportunities for the low income population. 18. Turkey’s prosperity has been shared, improving the wellbeing of those at the bottom of the distribution. Shared prosperity, measured by the growth in consumption per capita of the poorest 40 percent of the population (B40), has been significant in Turkey. The annualized growth of consumption per capita of the B40 attained 4.3 percent between 2007 and 2012, close to the growth rate in consumption of the entire population. This represents a good performance compared to peer countries – better than OECD peers Mexico and Chile but lower than Russia and Brazil. 19. Despite this progress, wide differences persist between regions. Most regions have seen a reduction in poverty over time, with a general convergence trend occurring: however, the pace of progress has varied depending on the region, with some falling increasingly behind others, resulting in regions that are becoming more heterogeneous over time. The gap in GDP and poverty remains large between the prosperous West and the more challenged Southeast Anatolia. The poorest regions of the south-east now host large numbers of SuTPs and other refugees from the conflicts in neighboring Syria and Iraq. Moreover, the poorest regions have also seen significant under-investment in their abundant natural capital which, through degradation, is eroding potential pathways out of poverty and delaying economic convergence. Several incentive programs were launched to stimulate investment in these regions and the impact is expected to be seen in the near future. 20. In addition, there are large inequalities across socio-economic groups and gender. Though growth has been progressive and prosperity shared, the average income of the richest 10 percent is 13.5 times higher than the average income of the poorest 10 percent of the income distribution. This ratio is among the highest in the OECD. Inequality fell significantly for most of the 2000s, but the trend was reversed after the 2008/09 financial crisis. Moreover, women’s participation in the economy is still severely limited. While it has increased steadily in the past few years, female labor force participation remains just 33 percent, the lowest in the OECD and ECA. Turkey ranks 130th among 145 countries in the Global Gender Gap. 2 Poverty and extreme poverty are measured using the thresholds that the World Bank adopts for countries in the Europe and Central Asia (ECA) region. The poverty line is set at US$5.00 per day, and the extreme poverty line at US$2.50 per day, both in terms of 2005 purchasing power parity (2005 PPP). An individual is considered (extreme) poor if his/her expenditure per capita per day is below the (extreme) poverty line. For Turkey, expenditure data comes from the Household Budget Survey (HBS), collected by Turkey’s National Statistics Office (TUIK). 6 Summary of 2016 Country Gender Assessment (Further details in Annex 7) Turkey has substantially narrowed gender gaps in access to productive endowments and thus to economic opportunity. Between 2008 and 2013 maternal mortality rates were cut by half, secondary and tertiary education enrolment rates among women and men moved further towards convergence, and female labor force participation increased steadily. These outcomes have been partly the consequence of improvements to the legal and institutional framework for gender equality. However, despite these commendable advances, women still show systematically poorer outcomes than men across significant dimensions, and Turkey lags behind countries with similar income levels and its neighbors in this regard. Turkey ranks 130th among 145 countries according to the World Economic Forum’s “Global Gender Gap Report 2016”. Aggregate figures mask substantial socioeconomic and regional disparities, with women from vulnerable backgrounds bearing the brunt of the existing gender gaps in access to endowments and opportunity. Turkey has one of the lowest female labor force participation rates among countries with similar income levels, with only 33 percent of Turkish women economically active, compared to 62 percent on average in upper-middle- income countries. Women are also under-represented in entrepreneurship and business ownership and management, a situation related to significant socio-cultural as well as economic barriers to enter and remain in those activities. In particular, the gap in financial inclusion between men and women remains comparatively large. As an example, in 2014, 70 percent of men had formal accounts compared to only 44 percent for women. Women´s agency remains comparatively weak. At 14.9 percent in 2015, the share of female Parliamentary representatives remains well below the ECA average of 25.7 percent. The proportion of women in ministerial positions is even lower, at 4 percent, and compares poorly with the average 21.8 percent registered in ECA for 2015. At the local level the picture does not change much: a mere 4 percent of the representatives in local governing bodies are women. II.4 Development Challenges 21. A recently-completed Systematic Country Diagnostic (SCD) identifies the key binding constraints to completing Turkey’s transition to a high income country, creating more and better jobs, reducing poverty and boosting shared prosperity sustainably. The analytical framework is structured along four main areas: (a) Solid Foundations, which looks into institutions, markets, economic and social stability; (b) Productive Individuals, which examines people’s access to skills, education, health, and economic opportunities across regions; (c) Dynamic Firms, which assesses firms’ access to financing, innovation, and investment opportunities; and (d) Public Assets and Resources, which analyzes connectivity, infrastructure, and protection of natural resources. . 22. The main challenges in the area of Solid Foundations are related to enhancing the quality of regulatory and accountability institutions; addressing the impact of geopolitical turmoil in the Middle East; developing capital markets; and mitigating macro-fiscal risks. Improving the quality of institutions will increase the ability to attract capital, promote innovation, and safeguard natural resources. A second key bottleneck is the geopolitical turmoil in the Middle East and its spillover impacts on southeast Turkey: a stable and safe environment is crucial to expand services, attract investment, create jobs and incentivize human capital accumulation. Capital markets that need deepening are a third bottleneck, contributing to gaps in formal saving and borrowing patterns, financial literacy and women’s access to financial ser vices, and constraining the ability of small firms to expand and innovate. Fourth, Turkey faces external vulnerabilities stemming from macro-fiscal risks, including particularly a dependence on foreign savings and roll-over needs for its large stock of short-term debt; in this context, increased global risk aversion may expose Turkey to accelerating capital outflows. 7 23. In the area of Productive Individuals, the main challenges are low educational achievements, limited female economic participation, and economic and social exclusion in lagging regions. Firms can move up the value chain more effectively when they can hire tertiary education graduates and when those graduates have benefited from good-quality lower levels of education (including preschool) that provide the right cognitive and behavioural foundations. Low female labor force participation constrains economic growth and inclusion, and presents a challenge where Turkey finds more room for improvement vis-a-vis high income countries. Limited supply of affordable care for children and the elderly, and cultural norms reinforcing the patriarchal structure of the family prevailing in some regions have been constraining more active participation of women. Finally, regional economic and social inequalities persist and outcomes in lagging regions remain slow to converge to more advanced regions. 24. In the area of Dynamic Firms, a transition away from low-tech products is underway, but high-tech products currently provide only a small share of overall value-addition, and the share has been declining in recent years. Turkey has a number of well-funded programs to encourage private sector innovation. In 2016, the government adopted new legislation to provide further support, including a new R&D law, an investment climate law and an industrial property law. Nevertheless, there is room for improvement: Turkey’s low performance in technology absorption and innovation is especially visible in R&D and innovation indicators collected by the OECD. This constraint is linked with low educational achievement: poor human capital reduces the scope for innovation. It is also linked to the quality of regulatory and accountability institutions which should be improved to provide better incentives for private investment, innovation and entrepreneurship. Corporate governance as well as competition policy and its enforcement are additional crucial constraints that need to be strengthened for supporting the dynamism of Turkey’s firms. The Government has taken important steps by enacting a series of laws over the past year to incentivize R&D investment, improve the investment climate and align the industrial property framework with international standards. However, strengthening the regulatory and accountability institutions will be key to achieve success in effective implementation of these measures. 25. In the area of Public Assets and Resources, constraints relate to land, water, energy and congestion. Some cities (Istanbul and Kocaeli) are suffering from congestion, thus endangering the benefits of agglomeration which have contributed to growth and poverty reduction in the past. Financing and capital investment planning, consistent with territorial plans, is essential for sustaining urban growth. Connecting people and jobs efficiently at low environmental cost is essential for safeguarding competitiveness and sustainability. While water availability is generally sufficient now, projections for growth in water use may surpass availability by 2030 3 and this could put a brake on growth in agriculture and industry, while gravely affecting well-being. Improving the efficiency of energy consumption and reducing dependence on imported energy is also critical for competitiveness and sustainable economic growth. Inefficient land management affects city planning and financing of municipal infrastructure, as well as rural well-being. 3 Ministry of Forestry and Water Affairs, 2016: “Assessment of Climate Change Impact on Water Resources”, General Directorate of Water Management, Turkey. 8 III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK III.1. Government’s Program and Medium-term Strategy 26. Turkey’s overarching development goals are outlined in its 10th Development Plan (DP 2014-2018), which was launched in 2014. The 10th DP follows many of the same priorities that were pursued under the 9th DP, underscoring Turkey’s sustained commitment to a broad set of reforms and development programs. Implementation of successive DPs has been commendable. Respective DPs have traditionally formed the basis of the partnership between Turkey and the WBG, with the previous Country Partnership Strategy (CPS) (FY12-16) aligning its objectives with those of the 9th DP (covering 2007-13) and the CPS Progress Report (2014) allowing for alignment with the 10th DP objectives. 27. The DP diagnoses the key challenges that Turkey needs to overcome to escape the “middle income trap” and succeed in becoming a high-income country. It has four High Level Objectives (1) Innovative Production, Stable and High Growth (this targets macroeconomic measures, productivity improvements, energy, logistics, infrastructure and greater innovation and technological capacity); (2) Qualified Individuals and Strong Society (this focuses on social welfare, health, education, public services, and employment); (3) Livable Places and Sustainable Environment (this focuses on reducing regional disparities, promoting sustainable cities and services, and using natural resources responsibly); and (4) International Cooperation for Development (this focuses on sharing Turkey’s positive development experiences with other countries). Under the first three of these objectives is a set of 25 Transformation Programs that outline in more detail the reforms to be pursued and the types of investments to be made. Turkey also produces EU Pre-Accession Economic Reform Programs (ERP) that detail short- and medium-term policy actions and structural reform priorities related to EU accession. The last ERP covering 2017-2019 was issued in January 2017. 28. The Government remains committed to the 10th DP and its Transformation Programs. The reform path and investment priorities for these programs have been detailed and implementation is underway, with various degrees of progress depending on the program. At the same time, the WBG’s SCD shows a prioritization of development challenges that is closely aligned with DP objectives, even though the SCD is a fully independent diagnostic that did not seek alignment (see Figure 1). This confirms that the DP provides a solid foundation on which to build and, therefore, that the focus going forward should be on accelerating implementation. 29. Within the DP framework, the Government carefully considers which development partners it engages for which Transformation Programs and how that engagement is designed and delivered. With a large range of potential partners and access to financing on international markets, Turkey has traditionally engaged partners, including the WBG, in a deliberate manner, both for financing and advisory services. In preparing the DP, the government solicited the WBG’s advice generally, but requests for WBG financial support and inve stments have been much more selective (as noted in the Completion Learning Review -). This demand- driven approach will continue in Turkey. 9 Figure 1: SCD priorities (mapped to prioritized 10th DP transformation programs) III.2 Lessons from the CPS Completion and Learning Review (CLR) and Independent Evaluation Group (IEG) Evaluations 30. The CLR concluded that WBG engagement was effectively aligned with Turkey’s own development objectives. The alignment with the DP guided the CPS design. This, together with a strong sense of selectivity on the part of the Government with respect to where and how to engage IBRD financing, resulted in a smaller portfolio that was concentrated in the energy and financial sectors, and this contributed to IBRD’s achievement of intended results. Nevertheless, an important conclusion of the CLR is that the size of the Turkish economy relative to IBRD’s program meant there were challenges in demonstrating clear linkages between the WBG program’s contribution and country-level outcomes, and attributing results to WBG interventions will remain difficult. 31. A joint WBG CPS facilitated a coordinated strategy, and joint programs (involving sustained and sequenced interventions) generally achieved better results. In several instances (municipal development, energy, the financial and health sectors), IBRD supported policy reforms upstream (through DPLs) that helped establish stronger foundations, paving the way for IFC/MIGA engagement and private sector investment downstream (Figure 2 shows how this “Cascade”4 approach was achieved for the energy sector). Exploiting its convening and leveraging capacity, IBRD also deployed upstream policy advice and capacity building to enable non-WBG partners to step into a maturing and better-performing sectoral framework and finance investments. 4 The cascade approach implies an increased and more systematic emphasis on upstream reforms at the country and sector level (“mainstream the upstream”) and a renewed determination to focus concessional and public resources where they can have the greatest development impact (“shift the default”). 10 Figure 2: The cascade approach in action: sequenced WBG interventions in the power sector enhanced private sector investment and created a competitive market 32. Significant time and efforts are needed to develop new areas of WBG business, particularly for IBRD project financing. IFC’s success in growing its program in Turkey resulted largely from investing in long-term partnerships with companies and municipalities, facilitated by establishing an IFC hub in Istanbul, which is IFC’s largest office outside of Washington, DC, headquarters. IBRD success in energy and the financial sector similarly required long-term engagement to build trust, demonstrate value, establish commitment and build knowledge of working with World Bank procedures. The CLR recommends that the WBG program continue to focus on sectors where such relationships already exist, programming has been successful, and expressed client demand remains high. At the same time, the CLR concludes that broadening the program to address new development priorities should proceed, albeit with an approach that is deliberate because it will involve significant start-up costs, long gestation and uncertainty regarding future success. 33. Advisory Services and Analytics (ASA) is a cornerstone of the WBG’s program in Turkey but going forward it needs to be more responsive to client demand and ownership. To enhance the WBG’s development impact, ASA should engage strategically in sectors where the WBG has a comparative advantage, where policy or institutional reform is actively under consideration, where needed data is available, and where government counterparts with the power to make decisions know the WBG and seek to benefit from its knowledge. The WBG should continue to focus its ASA and consider developing further a Reimbursable Advisory Services (RAS) business where applicable and where there is client demand. In addition, there will remain space for more ASA in new areas that try to initiate a dialogue in a subject matter in line with the national development objectives of Turkey and the twin goals of the WBG. 11 III.3. Proposed WBG Country Partnership Framework FY18-21 34. The overall objective of the new CPF is to help Turkey to achieve more sustainable and inclusive growth. Turkey’s strong underlying fundamentals, its robust DP, and its long-standing partnership with the WBG provide a good framework for designing a WBG program that will help Turkey to reduce poverty and enhance shared prosperity. At the same time, geopolitical, security and economic developments are also challenging Turkey’s ability to maintain or consolidate some of its recent gains. In this environment, the WBG needs to adopt a flexible approach that remains focused on key medium- and long-term objectives, mostly in known work-programs, but that also responds to opportunities and makes midcourse corrections in the light of changing circumstances. Notably, lessons learned from the past WBG partnership in Turkey, e.g., in the energy sector, emphasize the need for a selective, persistent and supportive engagement with a view to building trust and demonstrating the WBG’s value in helping Turkey pursue its development goals. 35. Three selectivity filters are used to define the WBG program, both at the strategic level and at the objective level: 36. Selectivity filter 1: Alignment with the 10th DP. The CPF aims to support DP implementation by contributing to positive momentum and discouraging backsliding on articulated reforms. This involves assessing critically where the WBG can best add value to DP implementation, where it can deepen or accelerate positive change, and where it can help shape an appropriate response to specific issues (particularly those involving the WBG’s twin goals). 37. Selectivity filter 2: Focus on SCD priority challenges. The development priorities of the SCD and the DP are strongly aligned; together they guide the choice of CPF areas of intervention. In most cases, the SCD highlights areas where the WBG’s ongoing program is already providing support (e.g., macro-fiscal risks, financial markets, female labor force participation, regional differences, congested cities, energy, land management) and so these areas are obvious choices for continued engagement to consolidate and scale-up progress. That said, the CPF will not address all SCD priority challenges. For example, while terrorist-related insecurity is a major challenge, it is also one that lies beyond the WBG’s mandate and expertise. In addition, while the program necessarily focuses on the governance and regulatory framework in sectors where the WBG is active (i.e., energy, health care, the financial sector, and the business environment more generally), there are areas where it is not fully agreed how such issues can most effectively be addressed by the WBG, or where the issues are too distant from WBG expertise or engagement in Turkey to be an effective and constructive partner. In this context, an opportunistic approach will be adopted to stepping up the program where feasible. Finally, the SCD identifies several issues – namely, declining water availability, inefficient small-holder farming, and low performance in innovation and technology absorption – where the WBG has significant expertise that it could leverage but 12 where the future program is not yet clearly elaborated; hence WBG work in these areas will depend on an ability to achieve a common understanding and define an agreed work-program over the CPF period. 38. Selectivity filter 3: WBG comparative advantage: The CPF builds on strengths in the ongoing program where the WBG has a comparative advantage in four distinct ways through: (i) building on the already-fruitful relationships with government and the private sector in areas where partnerships are mature and which present obvious choices for continued engagement to consolidate and scale up progress. These strong partnerships, together with the fully-joint WBG nature of the CPF, allow for the cascade approach to be deployed effectively. Efforts will also continue to encourage the client to make broader use of all WBG instruments while recognizing that agreed areas will likely present opportunities for follow-up lending and consolidate results over a longer term. Capitalizing on its significant and long presence through its office in Istanbul and well established relationships with different stakeholders, IFC will continue to focus on areas where its interventions will contribute to create new markets and help boost Turkey’s private sector-led growth; (ii) exploration of other opportunities by selectively advocating for new engagement in areas that the SCD highlighted for accelerating poverty reduction and enhancing shared prosperity; (iii) continued coordination and collaboration with other development partners, notably the EU and other IFIs, to maximize the leverage of WBG support; and (iv) relationship building at central and municipal levels, with NGOs, academia and civil society to ensure the program has as broad a perspective as possible on country developments and events. 39. The CPF objectives are grouped into three focus areas with nine CPF objectives. Figure 3: CPF areas of engagement (mapped to SCD priorities) 13 40. Gender concerns are central to the program through being embedded in the CPF objectives. The CPF draws on the recent Country Gender Assessment for Turkey (Annex 7) and places gender issues squarely in four of the nine CPF objectives. The CPF objective on women’s increased labor force participation puts Turkey’s gender development challenge at center-stage. Two other CPF objectives, focused on access to finance and on education and health services, directly target interventions on women. In addition, the CPF objective on improving the sustainability and resilience of cities aims to ensure that service delivery in supported cities targets and monitors impact on female beneficiaries. 41. The results framework reflects the flexible approach of the CPF. The program design and expected results are more certain in the early years of the CPF, where client demand is already expressed and where the contribution of the WBG’s program can be more clearly defined. In the outer years of the CPF, the engagement will evolve in response to country circumstances and government requests for support; hence the definition of expected results for this later period will be provided in the PLR. Given the large start-up costs and long timeframe related to new areas of IBRD engagement, flexibility will be manifested in choosing areas of engagement, instruments, and timeframes, both of financing and knowledge work. Focus Area 1: Growth 42. The WBG will continue to support government efforts to address challenges with respect to fiscal management, the financial sector, competitiveness, and private investment. Turkey rebounded quickly from the 2009 global financial crisis, enjoying strong growth until 2015. Prudent macroeconomic and fiscal management has been a cornerstone of Turkey’s good performance, but resilience to external shocks has weakened and vulnerabilities have increased. At the same time, the changes in the political context, geopolitical tensions, rising oil prices and an anticipated rise in US interest rates have dampened investor and consumer confidence and impacted growth prospects. Turkey’s bank-centric financial sector is also under stress, constraining credit to households and firms. To return to a higher growth path and convergence to high-income economies, the Government needs to continue to strengthen fiscal management, deepen institutional reforms to strengthen the rule of law and arm’s-length market regulation, and create the environment for a more effective and inclusive financial sector. Turkish firms need to increase productivity by boosting innovation and technology to add more value and create more and better jobs. Several of the DP’s Transformation Programs target these issues: Productivity Growth, Increasing Domestic Savings, Rationalization of Public Expenditures, Technology Development, and Business and Investment Climate. The SCD also identified these challenges under its pillars of Solid Foundations and Dynamic Firms. These challenges form the basis for the choice of CPF objectives under this first Focus Area: (i) increased fiscal space; (ii) enhanced access to finance to underserved segments; and (iii) enhanced competitiveness and employment in select industries. CPF Objective 1: Increased Fiscal Space Results indicators for Objective 1 Share of direct tax revenues in total tax revenues Establishment of a monitoring system for internal controls in public administration 14 43. The WBG’s program aims to help the government to preserve fiscal space. This will involve a Public Finance Review (benchmarked against EU standards ) that will focus on fiscal management, possibly including areas such as income tax law, risk management, internal audit and the analysis of the distributional impacts of fiscal policy. The policy recommendations from this ASA will underpin a proposed DPL series which will be a core part of the IBRD program and which would begin in FY18. The series will have a crosscutting focus in support of key economic reform priorities and the size and frequency will depend on the country situation, the strength of the reform program and financing needs. Further details on the scope of the reform program supported by the DPL series will only become known during its preparation and will thus be provided in the future CPF Program and Learning Review (PLR). CPF Objective 2: Enhanced Access to Finance to Underserved Segments Results indicators for Objective 2 People, micro, small and medium enterprises (MSMEs) and exporters reached with financial services Increase in portfolio size of private pension investors/members 44. Turkey’s growth depends critically on a well-functioning and inclusive financial sector. This requires enhancing access to finance (especially for small and medium enterprises (SMEs), which account for 73.5% of jobs but receive only 24% of bank loans), expanding financial inclusion (40% of the population, mostly women, are unbanked), and deepening and diversifying financial and capital markets (e.g., developing long-term finance, increasing the size of institutional investors, diversifying corporate debt instruments, and expanding liquidity in the secondary market for corporate bonds). The banking sector overcame the recent global financial crisis without any state intervention, and exhibits good financial metrics; capital adequacy ratio at 15.6, non-performing loans at 3.2, return on assets at 1.50 and return on equity at 14.3 percent by the end of 2016. However, capital buffers, liquidity and profitability of the banks have been in a downward trend since the global crisis (although still remaining comfortably above the regulatory thresholds and there has been an increase in profitability recently) while there has been an upward trend in non-performing loans in recent years. The loan to deposit ratio has breached 123 percent, and banks have limited sources to support further loan growth due to: (i) low savings rates significantly limiting banks’ ability to attract new deposit, (ii) the uncertainty on global liquidity limiting foreign borrowing, and (iii) low profitability discouraging shareholders’ increase of capital. Going forward, Turkey needs to address concerns about financial sector risks and potential spillovers to the economy as a whole. The sector is vulnerable due to structural factors (high dependence on cross-border financing, high debt and savings held in foreign currency at short maturities) as well as cyclical factors (growing corporate leverage, rising corporate-bank and (contingent) corporate-sovereign exposures). While a recent IMF-WB financial sector assessment shows that banks’ capital buffers are resilient in the face of a short-term shock, a longer recession could force some to seek additional capital, which may be difficult in a context of possible future global liquidity constraints. 45. The WBG has a long engagement in many aspects of the financial sector and currently IFC, IBRD and MIGA deliver coordinated support through a portfolio of projects, investments and ASA. For the CPF period, this coordinated support will continue with a particular focus on stepping up finance to MSMEs and under-served segments and through robust ASA that will help inform government policy and underpin the DPL series. The ASA program 15 will be coordinated to cover critical issues such as financial sector diversification, pensions, capital market development (including WB-IFC support to develop municipal bond markets and to develop the Islamic finance market) and analysis of sector headwinds and how to respond to them. The ASA will inform any potential new financial sector investment operations as well as reforms to be supported through the DPL series (such as reforms on pensions). IBRD will continue to work with the state banks, development banks and other financial institutions to support their countercyclical and market-gap-filling functions, especially through providing long-term financial sources. New financial sector line-of-credit operations may be provided where they extend access to finance (e.g., to MSMEs, to female- or refugee-owned businesses), incentivize investors in key sectors (e.g., energy or technology innovators), and deepen and diversify applicable and client demand-driven instruments (e.g., leasing and factoring, corporate bonds, infrastructure bonds, Islamic finance, and risk-sharing facilities). In this context, a new operation – Long Term Export Finance – was delivered in early FY17 to help address lack of long-term finance: this operation targets support specifically to exporters and MSMEs. During the course of the CPF, should the financial sector show greater vulnerability to down-side risks, the program can be adapted accordingly. 46. Enhanced access to finance is a key IFC priority. IFC will continue to work with financial institutions and intermediaries to expand the availability of funding to MSMEs, with a focus on rural areas, women-owned enterprises, and agribusinesses. It will continue to support banks and non-bank financial institutions (NBFIs) with longer-term funds to help them scale-up support to the underserved and unbanked. To deepen and diversify financial markets and reach underserved segments, IFC aims to leverage diverse instruments and means of funding, including supply chain finance, digital financial services, NBFIs (leasing companies, insurance companies, and pension funds), and distressed asset resolution platforms. IFC will also support alternatives to bank finance by investing in capital market instruments such as covered bonds, diversified payment rights (DPRs), green bonds, municipal bonds, and PPP project bonds (both in euros and lira). In order to address currency risks facing Turkish borrowers, IFC will seek to maximize lira financing and offer currency hedging instruments for real sector clients, PPP investments and municipalities with large external exposures. Recognizing increased risks of capital erosion, IFC may also help banks to strengthen their regulatory capital. Finally, IFC will closely coordinate with MIGA to respond to commercial lenders’ increasing demand for risk guarantees to enhance municipalities’ creditworthiness. 47. MIGA will continue its support to Turkey’s Eximbank. Given the Eximbank’s strategic role, MIGA provided it with guarantees covering the non-honoring of the financial obligation of state-owned enterprises in 2015 and 2016, thus helping to strengthen the financial sector as a whole and to support lending activities to MSMEs and export-oriented companies. CPF Objective 3: Enhanced Competitiveness and Employment in Selected Industries Results indicators for Objective 3 Employment supported by IFC clients Employment supported by IFC-supported equity funds 48. To create the jobs needed to employ the rapidly growing labor force and raise it to a higher income level, Turkish businesses need to improve their competitiveness through 16 innovating, boosting productivity and moving up the value chain. The WBG program to date has focused its ASA on trade liberalization, competitiveness, the quality of exports, value chain progression in specified industries, the ability to attract foreign direct investment (FDI), and regional investment climates. This program is expected to be strengthened through analyzing past, and shaping future, efforts to improve the business environment, innovation and technology absorption (including through the links between FDI and local firms), subnational competitiveness, and trade in services, as well as to understand the drivers of competitiveness and productivity (as part of the upcoming Country Economic Memorandum (CEM)). Technical assistance (TA) is also planned to improve the regulatory environment and increase job opportunities in communities affected by SuTPs. TA on competitiveness, resource efficiency and cleaner production with a focus on Organized Industrial Zones (OIZs) will be delivered. Taken together, this ASA serves as a centerpiece of WBG dialogue in Turkey, feeding into the design of reforms, underpinning any relevant reforms that may be captured in the future DPL series, and helping target potential high- growth or innovative SMEs (which in turn could be targeted through the financial sector support pursued under CPF Objective 2 above). This stronger framework is expected to lead to enhanced private sector investment which IFC and MIGA could support. In later stages of the CPF period, IBRD may build on the ASA to step up lending in support of innovation, technology absorption, cleaner production and an improved business environment, should the client demand. 49. Boosting employment growth through support to entrepreneurship and innovation is IFC’s priority under this objective. Through financial intermediaries and direct engagements with real sector companies, IFC will help strengthen Turkish firms’ competitiveness (with new technology, innovation and improved governance) and support their regional and international expansion. IFC will continue investing in equity funds that promote local entrepreneurship, competitiveness and innovation, while also fostering employment in high-growth and high-value- added sectors (e.g., manufacturing, telecommunications, technology, agribusiness). It will continue with its Global Trade Finance program mitigating risks through guarantees to banks that deliver trade financing. IFC will also provide advisory services focused on corporate governance, and skills development that enable better linkages of SMEs with high growth value chains. IFC AS will contribute to improved competitiveness, productivity, and sustainability of Turkish manufacturers through (i) a set of greener manufacturing interventions in OIZs including resource efficiency, cleaner production, industrial symbioses, and green infrastructure, (ii) building business cases (cost-benefit analysis) at firm and OIZ levels to enable better detection of bankable projects, and (iii) helping develop a comprehensive national framework on Green OIZs for Turkey. Focus Area 2: Inclusion 50. WBG support in this area aims to consolidate Turkey’s success towards achieving the twin goals while also supporting efforts to reach those who are left behind. This implies realizing the demographic dividend by creating good jobs for increasing numbers of workers, which involves better integration of women, youth and SuTPs into the labor force, reducing persistent gender inequalities (particularly in access to economic opportunities), reducing regional labor-market disparities, and raising learning levels (including at the youngest ages, when development of the cognitive and behavioral skills required in the workplace is optimal). The WBG’s program to date in this focus area had a concentration on ASA which informs government- financed programming (and DPLs) and which the government wishes to remain at the core of the 17 engagement because of its role in providing knowledge for many of the reforms undertaken in this area. Broad issues of equity, vulnerability and regional disparities – that cut across the whole of the WBG program and not just this Focus Area – will continue to be the focus of in-depth ASA, possibly through a future CEM or other deep-dive diagnostic. An important evolution of the WBG program in this area has been the introduction in FY17 of new investment operations financed by the EU’s Facility for Refugees in Turkey (FRiT), which is the framework for the EU’s pledged assistance to Turkey for continuing to support hosting SuTPs; the FRiT funding has allowed the WBG to complement its ASA with more in-depth support through investment projects while strengthening cooperation between WBG and the EU. CPF Objective 4: Increased Effectiveness of Social Assistance Results indicators for Objective 4 Increased impact of social assistance on the poverty gap Increased availability of monetary and non-monetary indicators of welfare and inclusion. 51. This CPF objective has the goal of improving efficiency and effectiveness in social assistance and strengthening the evidence-base for policies aiming to narrow gaps between regions and ensure greater inclusion of vulnerable groups. The ASA program will continue to produce and disseminate monetary and non-monetary indicators of welfare and inclusion, including equality of opportunity and multi-dimensional poverty. The WBG will continue its support to the Poverty Reduction Strategy and Social Assistance Reform initiative of the Ministry of Family and Social Policies (MoFSP) for making the social assistance system more effective and efficient, especially towards vulnerable groups such as the disabled. The WBG’s Europe and Central Asia regional agenda on support to the Roma people will encompass Turkey through the framework of providing support to the recently-adopted policy of the Strategy for Roma in Turkey (2016-2021). CPF Objective 5: Increased Labor Force Participation of Women & Vulnerable Groups Results indicators for Objective 5 Increased female labor force participation Increased youth participation in the labor force Increased SuTP employability in the labor force (gender disaggregated) Direct employment supported by IFC manufacturing clients in south east regions 52. WBG support under this objective aims to bring more people – especially women and youth – into the formal labor market. This is critical for Turkey to reap the benefits of its demographic window and so to grow rich before it grows old. The importance of this challenge is recognized and reforms in the past have focused on different interventions. The Bank intends to continue its role of providing a comprehensive package of ASA that analyses the labor market’s supply and demand constraints (including jobs diagnostics, evaluations of labor policies such as minimum wage, pre-school and child-care policies, and social norm constraints) as well as assessments of individuals who are not in school, education, employment or training (NEET). The aim of these ASAs is to propose reform recommendations (e.g., on flexible work arrangements, tax incentives for pre-schools, maternity/paternity leave, and active labor market programs (ALMPs) incentivizing training and jobs for women and youth) which can guide Government 18 decision-making and could in turn be supported through DPLs. As part of the support to jobseekers, the WB will continue supporting the public employment services (ISKUR) institution to strengthen its capacity as well as its effectiveness helping jobseekers. 53. This objective seeks to improve the employability of other vulnerable groups. The influx of SuTPs has created new challenges among the labor force, particularly for those in the south- east which is hosting the concentration of SuTPs. This is exacerbating an already challenging environment for the people in southeast Turkey who have lower incomes, make less use of public services, and have less access to finance (for farmers, agribusinesses, and SMEs, particularly for women-owned enterprises). The WBG will help to address these issues through policy advice (supported by EU and SIDA trust funds) and project interventions. A FRiT-funded labor market inclusion project (€50 million, FY17) targets increased SuTP participation in the labor market through providing access to ALMPs. This is complemented by FRiT funding of €5 million for IBRD advisory work to support facilitation of employment and entrepreneurship opportunities in SuTP-affected regions. Further IBRD and/or EU investments will be considered where there is client demand and a link to the twin goals. The WBG is also providing support on migration issues more broadly as part of its global knowledge role in this subject. 54. IFC aims to invest in projects that promote greater equity in the access of vulnerable and underserved groups to services, jobs, and finance. IFC will scale up its SME financing targeted to women entrepreneurs and farmers and will leverage NBFIs to broaden access to finance of these groups. It will also invest in key manufacturing companies with presence in the south- east of Turkey with a view to support employment in the lagging regions. Aiming to help underserved populations access better urban services, IFC will pursue investment opportunities in commercially-viable urban infrastructure projects in second-tier, less developed regions. In addition, it will offer advisory services to Turkish corporates to help them develop gender programs that support women’s employment and entrepreneurship. CPF Objective 6: Strengthened performance of the education and health sectors Results indicators for Objective 6 Increased percentage of formal school enrollment of SuTP children between the ages of 6-18 Improvement of primary and secondary prevention of non-communicable diseases Number of patients served through IFC health sector clients 55. The focus in the health sector is on promoting healthy lifestyles. Turkey has already made enormous progress in reducing mortality and increasing life expectancy; now the challenge with the greatest potential impact is promoting healthy lifestyles through attacking behavioral risks. An ongoing IBRD-financed health project aims to enhance the capacity of the Ministry of Health (MoH) for evidence-based policy making, increase hospital management capacity, and improve the prevention of selected non-communicable diseases (NCDs). The project mainly aims to raise awareness about NCD risk factors (such as smoking, obesity and physical inactivity) and to promote behavior change; among other things, Turkey will be included in a global obesity study and its experience in tobacco control will be documented. In addition, IBRD will continue to support the second phase of the health transformation program through activities focusing on providing appropriate high-quality care by results-based interventions and payment reforms. This includes documenting the successes and challenges faced, and the political economy of the 19 transformation. IFC and MIGA will continue to support Turkey’s health sector through investments in specialized health service providers, and through financial innovation to help create alternative capital market solutions for health infrastructure financing. For example, IFC financed Turkey’s first PPP bond issuance under Elazig health PPP project, which was structured and supported by MIGA and EBRD through credit-enhancement products. IFC will invest in specialized services (e.g., bio-pharmaceuticals manufacturing), where it can play a role in bringing in strategic investors and building partnerships, which it can then support with financing. MIGA will remain open to supp ort investments into Turkey’s health PPP program by providing political risk insurance guarantees for the construction and operation of new health facilities. Similarly to IFC, financial innovation in Turkey’s health sector will remain a focus area to leve rage the use of MIGA’s credit enhancement products, as utilized on the recently closed Elazig bond transaction. 56. In the education sector, the CPF will step up ASA in response to the recent fall in PISA and TIMSS scores for Turkey. This ASA will support primary education and teacher training reform efforts, help inform and influence policies affecting the quality of education and the monitoring of education services. Given the time required to impact learning, results are likely to be modest and achieved beyond the CPF period. There are discussions underway with the Ministry of National Education (MONE) to support areas including life-long learning and distance education approaches where the WBG has global experience. IBRD will implement a FRiT- financed education project (€150 million) which aims to expand education service delivery and targets resources where SuTPs as well as host communities face capacity constraints. IBRD is also providing technical support to derive a strategy to integrate immigrant children into the education and vocational system. In addition, a new EU Instrument for Pre-Accession (IPA) -funded project targeting youth who are out of school is being prepared in areas where drop-out rates of Turkish youth is high and where SuTP youth are at risk of never entering school. Lastly, IFC will look for opportunities to invest in education service clients to promote private vocational training. Focus Area 3: Sustainability 57. The WBG’s program will help address the SCD-highlighted challenge of reorienting growth towards a more green, resilient and sustainable pattern. Economic growth and urbanization in Turkey are not yet decoupled from rising energy use, pollution and greenhouse- gas (GHG) emissions, so there is much potential for greater resource efficiency and pollution abatement. The challenges are to provide connectivity and agglomeration benefits in an environmentally, socially and financially sustainable way (particularly as regards reducing energy intensity and avoiding water scarcity). The program will build on the well-established IBRD and IFC collaboration in energy and urban/municipal services, where 75 percent of IBRD’s investment program and a sizeable proportion of IFC’s engagements are already concentrated: this provides an excellent opportunity for operationalizing the cascade approach to financing. The CPF proposes both to build on the on-going program and to encourage its evolution towards issues critical to Turkey’s future growth. It is consistent with the 10th DP Transformation Programs focused on increased energy efficiency and generation from local resources, urban redevelopment, improved access to potable water and wastewater services, effective use of water in agriculture, and sustainability in the use of natural capital. Within this focus area, the CPF objectives include (i) improved reliability of energy supply and generation of green energy; (ii) improved sustainability and resilience of cities; and (iii) increased sustainability of infrastructure assets and natural capital. 20 CPF Objective 7: Improved reliability of energy supply and generation of green energy Results indicators for Objective 7 Renewable electricity generation as percentage of total generation Value of loans provided by IFC clients to renewable projects Total power generation and distribution clients reached Increased capacity of gas storage Gas imports through Trans-Anatolian Pipeline (TANAP) 58. The WBG’s current program is heavily concentrated in the energy sector, with a cascade approach underway whereby IBRD policy advice and TA are paving the way for stepped-up private sector engagement supported by IFC and MIGA. The program aims to help Turkey to reduce its energy dependence (it imports 92 percent of its oil and 98 percent of its gas), support the energy reform agenda, diversify its energy generation (inter alia to include more renewables), and upgrade regional transmission and distribution networks. Harmonization with EU standards is also a key objective. ASA – supported by EU/IPA, ESMAP and CTF grants on rooftop solar programs, generation planning, gas sector restructuring, smart grid applications and distribution companies – will continue to deliver policy advice and just-in-time analysis of sector issues under government debate. IBRD, IFC, and MIGA will work closely together to help Turkey improve its PPP policy framework to stimulate further private sector energy investments, strengthen the energy regulatory environment, and increase long-term financing for renewable energy5. This ASA will also feed into the design of future DPLs, which could stimulate investments in renewable energy generation and transmission and the related climate change benefits. 59. The IBRD investment portfolio will continue to focus on improving Turkey’s energy security and mix, including by increasing the use of renewable resources (wind, solar, and geo-thermal). The CPF program encompasses: (i) increasing the percentage of renewable electricity generation and improving its integration into the grid through the ongoing Renewable Energy Integration, the Private Sector Renewable Energy and Energy Efficiency, the Geothermal Development and the EU/IPA Energy Sector TA Projects; (ii) enhancing energy security infrastructure and gas storage capacity through the on-going Gas Sector Development Project and the proposed Gas Storage Expansion Project; (iii) developing energy trading and restructuring of BOTAŞ through the EU/IPA Energy Sector TA Project; (iv) securing and diversifying Turkey’s gas supply, including gas imports from Azerbaijan through the TANAP Project – where $800 million in IBRD loans to Turkey’s BOTAŞ and Azerbaijan’s Southern Gas Corridor (SGC) leveraged $600 million from the Asian Infrastructure Investment Bank (AIIB) and the expectation of up to $1.2 billion in guarantees from MIGA; (iv) development of interconnections to ensure cross-border electricity and natural gas trading; and (vi) other areas to support sustainable energy sector development as agreed between the Government and the WBG, including increasing the grid capacity and smart grid technologies, distribution and transmission networks and systems. Given the comparative advantage of IBRD in the sector, further energy investments may follow, on client demand, observing the WBG’s cascade approach on leveraging private financing. 5 Support for the regulatory environment for renewable energy, for example, is being provided under the ongoing EU-IPA Energy Sector TA and the Rooftop Solar PV Assessment. Further work to improve the investment climate for the energy sector will be coordinated with the PPP RAS. 21 60. IFC aims to support Turkey’s energy security, and help rebalance its energy mix through selective and strategic engagements in the sector. IFC will focus on investments with high development impact that cannot be achieved through alternative investments as well as projects where IFC can play a mobilization role, particularly in the form of FDIs. Now that the electricity distribution network is fully privatized, IFC will focus on providing post-privatization financial support to strengthen the financial structure of distribution companies and to attract long- term financing to upgrade the distribution network, which has been under-invested during public ownership. IFC aims to help distribution companies address currency mismatches by offering suitable financing schemes to hedge their foreign exchange risks. IFC will seek investment opportunities in new technologies (e.g. smart meters) to help address some of the problems in the power distribution sector. In addition, IFC will look for opportunities to address shortages in gas supply through investments in gas infrastructure including import terminals and storage as well as gas distribution. MIGA remains open to supporting FDI in the renewable space through the provision of political risk insurance guarantees. CPF Objective 8: Improved sustainability and resilience of cities Results indicators for Objective 8 Improved service delivery and expanded access to digital land registry and cadastre information Number of additional people benefiting from improved urban infrastructure and municipal services Increased resilience of cities through increased number of disaster resilient public buildings and improved disaster preparedness. 61. Given the important role that urbanization has played in Turkey’s development success, the WBG program will continue to focus on helping cities to become more sustainable and resilient. High population growth in some Turkish cities has resulted in congestion and environmental degradation that can impact connectivity and agglomeration benefits. Turkey is responding to this challenge through a “Smart Cities” approach that focuses on cities’ needs to plan, build and provide services in more environmentally and socially sustainable ways. The WBG is providing support through the Sustainable Cities program that is putting in place a cascade approach through an investment coordination platform between IBRD and IFC. Under the Sustainable Cities program, the WBG aims to maximize financing through sustaining constructive dialogue with the central government on policy and regulatory changes that would help modernize the existing municipal financing and investment framework. This will involve supporting cities to become more credit worthy to access concessional finance and focus public funding where it is most needed. Policy advice, technical assistance and capacity building to cities and municipalities on issues of urban transformation (including housing) could pave the way for stepped-up private investment supported by IFC and MIGA. In particular, IBRD’s cooperation with Illerbank to support to municipalities in improving urban planning, infrastructure and capital investment planning, and efforts to strengthen municipal financial capacity (including creditworthiness) should enable the WBG to expand its support to second-tier cities, including in frontier and underserved regions, with the ultimate cascade goal of enabling them to secure financing directly from the capital markets for their crucial infrastructure needs. Expanding the availability of municipal finance options (including the bond market and FX hedging) and an effective municipal PPP framework are areas that require continuing WBG collaboration. Finally, support on low- carbon urban management, and related investment identification in major urban centers will be pursued, aiming to share global best practice. 22 62. IBRD’s lending portfolio will continue to target strategic investments that build on known areas of comparative advantage. The Sustainable Cities program, approved in late 2016, is envisaged as a series of projects, with new projects coming into the program based on the readiness of specific cities and their investment plans, and it will include EU-funded TA in planning and policy analysis to help cities address environmental, social and financial sustainability challenges. The design of the new projects will benefit from ASA recently carried out or underway: these include (i) a recent ASA on sustainable water supply and sanitation service delivery in urban areas, which analyzed and quantified additional efforts needed to reach compliance with EU standards, as well as opportunities for operations performance improvement for climate-smart approaches (water loss reduction, optimized wastewater sludge management and treated wastewater reuse); (ii) a study on housing the bottom 40 percent; (iii) improving municipal services such as urban transport through the EU Transport IPA and Sustainable Cities IPA; and (iv) Global Facility for Disaster Reduction and Recovery’s (GFDRR) -financed TA on disaster risk management and resilience of cities. An ongoing Land Registry and Cadastre Modernization project also contributes to improving local government financing through improving land valuation and enhancing service delivery to citizens through increased access to property market information. For improving the resilience of cities, the program proposes an investment project to strengthen critical public facilities for earthquake resistance and better enforcement of building codes and land use plans. 63. Focus areas for IFC and MIGA include direct engagement with municipalities to strengthen capacity for financial management, and for infrastructure project design, preparation and implementation. IFC’s Cities’ Platform includes long-term and municipal finance, tailored to creditworthiness, to support urban transportation, street lighting, waste-to- power, solid waste, waste water, and water management projects. IFC can leverage a wide range of products including long-term loans (both in euros and lira), municipal bonds, and hedging tools to help municipalities manage their foreign-exchange loans. Developing a municipal bond market, introducing foreign-exchange hedging instruments to municipalities, and improving the municipal PPP framework are areas that require continuing WBG collaboration to open up new opportunities at the municipal level. Building on successes in Istanbul and Izmir, IFC aims to help other fast- growing credit-worthy cities create a pipeline of bankable projects, providing direct senior loans (in euros or lira) or using a portfolio approach by channeling its funds to cities through local banks. CPF Objective 9: Increased Sustainability of Infrastructure Assets and Natural Capital Results indicators for Objective 9 Cumulative energy savings achieved through WBG-financed energy sector projects Annual greenhouse gas (GHG) emissions reductions 64. Increasing efficiency in the use of public assets and natural capital is highlighted in the SCD as a key development challenge, with positive impacts on climate change. The SCD found that improving the efficiency of energy consumption is critical for Turkey’s competitiveness and sustainable economic growth (while also supporting the energy security agenda under CPF Objective 7). The WBG’s progr am in energy efficiency is well developed, with ongoing IBRD investments through the SME Energy Efficiency project and the Private Sector Renewable Energy and Energy Efficiency project as well as a broad program of IFC financing for sustainable and 23 renewable energy. These projects will continue to be implemented with follow-on or scaled-up projects based on client demand. In addition, IBRD is supporting the development of carbon pricing instruments and markets through a grant-funded Partnership for Market Readiness (PMR) project. IBRD is seeking to develop sustainable financing mechanisms and implementation models to support energy efficiency in public buildings and may consider additional projects to develop new markets in the areas of energy efficiency financing. The ASA program includes a Forestry Note and a Socio-Economic Survey of Forest Communities (both recently completed) and future stepped-up engagement in this area could be envisaged. In collaboration with the Ministry of Development, a study is underway on how to finance Sustainable Development Goal (SDG) #12 which focuses on sustainable production and consumption. Finally, IBRD’s new social and environmental framework will serve as a solid ground for furthering dialogue and building in- country capacity on social and environmental social sustainability policies and analytical work. 65. IFC will continue to support private sector investments in manufacturing, SMEs, municipal and transport infrastructure, with a view to improving energy efficiency and reducing GHG emissions. IFC will provide long-term finance to intermediaries with portfolios focused on energy efficiency areas. It will seek direct engagements at the industrial level to help reduce energy intensity and pollution with a set of products such as loans, equity and green bonds, as well as to mobilize funds from other financial partners for these purposes. IFC will work with financial institutions to expand finance for green buildings through innovative instruments such as green bonds and mortgage-covered bonds. At the municipal level, it will seek opportunities to support energy-efficient public transport, municipal buildings, waste management and waste-to- power, and street lighting projects. In addition to financing, IFC will provide advisory support and training to key institutions and corporates to help introduce new energy efficiency practices to Turkey’s residential housing and industrial sectors. 66. MIGA remains open to expanding its support to municipal infrastructure with a view to improving energy efficiency and reducing overall emission levels. In this regard, MIGA could provide credit guarantees for major municipal infrastructure projects, similar to previous assistance to Istanbul and Izmir. 67. The WBG will also advocate a stepped-up program in areas identified in the SCD as important, such as the sustainable use of water and forest resources. This would support some of the most vulnerable groups in Turkey, namely, smallholder farmers and forest communities. In the water sector, a possible IBRD irrigation project is under discussion which could include components on modernizing the sector, increasing water productivity in agriculture, strengthening the capacity of water users associations, and exploring the options of private sector participation in irrigation. In the forestry sector, recommendations from the recent Forest Policy Note have led to discussions of a potential project that would focus on accelerating forest-sector SME growth to improve the forest value chain, with the goal of spurring regional convergence, reducing out- migration, and producing a sustainable supply of quality forest products for the construction and energy markets. Engagement in agriculture is also possible: e.g., analytic work on productivity and competitiveness (proposed under CPF Objective 3) could look at improving the efficiency of agri-food value chains and commercialization. Finally, the WBG is providing EU-funded TA on transport issues, such as a multimodal transport strategy, urban transport, and priority railway investments, and some of this work could lead to financing opportunities during the CPF period. 24 III.4 Implementing the FY18-21 Country Partnership Framework 68. The CPF will feature a mix of instruments, drawing on the strengths of IBRD, IFC and MIGA. IBRD financing for FY17-21 is estimated at $5-7.5 billion, although actual lending volumes will depend on client demand, choice of instrument, overall performance during the CPF, IBRD’s financial capacity, and demand from other IBRD borrowing countries. IFC’s own-account investment program is expected to be $600-800 million p.a., reflecting IFC’s current level of exposure (2nd largest exposure globally), the elevated economic and political risks in Turkey, and increased global risk aversion. IFC’s program can be further increased depending on Turkey’s progress with structural reforms as well as improvements in the economic fundamentals and political risks during CPF implementation. IFC will continue to provide a wide range of innovative and high-impact products and financial instruments with a focus on high-growth and high value- added investments, and areas such as PPP project bonds and municipal PPP projects. 69. The IBRD lending program proposes one DPL series, consolidates financing in on-going and agreed areas, and adopts a flexible approach for the choice of other investment operations (Table 2). The program will encompass one multi-sectoral DPL series, with the specific support to CPF objectives to be agreed during its design. The Government continues to signal the importance of the DPL in its program with the WBG, both for its support to a multi- dimensional reform plan and for the signal it gives to partners and international markets. As detailed in the CLR, Turkey has had good success with using DPLs as a binding instrument that can bring together different aspects of the program, that allows for a deeper engagement and follow-through on ASA recommendations, and that can remain flexible to respond to a changing country context. The proposed lending for FY18 provides support in existing and agreed areas, consolidating gains made in the previous CPS period. For the other years of this CPF (FY19-21), the program is flexible to allow for the partnership to evolve in areas where dialogue has been on- going but where the type of engagement still needs to be agreed. This flexibility means the program can adapt to the evolving country context, as well as align with the objectives of the future 11th Development Plan (for the post-2018 period) and with implementation on the ground. Table 2: FY17-21 Indicative Financing (by source) GROWTH INCLUSION SUSTAINABILITY DPL (IBRD, FY18) Long Term Finance (IBRD, Education (EU FRiT, FY17) Geothermal Development (IBRD and CTF, FY17) FY17) Financial Sector (IBRD, Labor Market Integration (EU FRiT, FY17) Trans-Anatolian Pipeline (IBRD, FY17) FY19) Innovation (IBRD, FY20) SuTPs Employment Support and Sustainable Cities Series of Projects (IBRD Entrepreneurship (EU FRIT, FY18) and IPA, FY17; FY18 and FY20) Education: Youth-at-Risk (EU/ IPA, FY18) Gas Storage Expansion (IBRD, FY18) Social Inclusion (IBRD, FY19) Disaster Risk Mgmt. (IBRD, FY19) Education Reform (IBRD, FY20) Irrigation (IBRD, FY19) Energy Efficiency (IBRD, FY19) 25 70. The ASA program will strategically respond to clear client demand and ownership in areas that underpin Turkey’s Development Plans and WBG financing engagements (Table 3). The overall aim is to deliver knowledge, informed by the WBG’s international experience and expertise, in areas where there is demand from decision-makers, active consideration of policy or institutional reform options, and sufficient engagement with government counterparts to guide the work and ensure ownership of its results. Where strategically relevant and needed, ASA will inform the DP, while also contributing knowledge pertinent to well-designed and -targeted IBRD lending, including particularly DPLs. Given that many of the development challenges facing Turkey are cross-cutting (such as equity, gender equality, inclusion, productivity, greening the growth model, etc.), diagnostics will typically be applicable to several CPF Focus Areas. Further work will be undertaken to develop the RAS program where applicable and where there is client demand. Finally, the WBG will pursue important global issues that are pertinent to Turkey, such as refugee-related issues, non-communicable diseases, and financing for climate projects. Table 3: ASA for World Bank GROWTH INCLUSION SUSTAINABILITY Country Economic Memorandum 2017 – Productivity and Competitiveness Country Economic Memorandum 2018 – Equity Poverty Analysis (including Regional Disparities) Financial Sector Programmatic ASA Education: (1) analysis of PISA and Energy Programmatic ASA, including WBG-IMF Financial Sector TIMS results; (2) teacher training and including EU-financed IPA Assessment (FSAP), pensions, capital primary education reform support; (3) markets migration management Governance Programmatic TA Poverty and equity lens on labor, Sustainable Cities TA education and nutrition Business Environment and Innovation Labor markets and skills: (1) quality of Support to SDG Implementation ASA and TA jobs, minimum wage and informality TA; (2) study on Not in Education Employment or Training (NEET); (3) Socio-Emotional Skills Justice Sector TA Syrian Refugee Crisis Response: Disaster Risk Management TA harmonization strategy, knowledge generation, impact studies Tax Policy Advice Poverty Reduction Strategy and Social Forest Sector Review Assistance Reform TA Distributional Impacts of Fiscal Health; (1) expenditure projection Sustainable, Efficient and Safe Policy actuarial model TA; (2) health reform Transport and assessment of the utilization of primary care; (3) obesity study Disability and Aging Study Rooftop Solar PV Assessment PPP Advisory and PPP RAS Housing Study 26 71. Citizen Engagement (CE): The CPF proposes to step up and mainstream CE activities into the program, particularly across the WBG’s investment lending portfolio. To date, several IBRD- supported operations in Turkey have relied on CE mechanisms such as consultations and grievance redress for safeguards compliance, and an increasing number have utilized beneficiary feedback surveys. For instance, as part of its objective to improve customer services in land registry and cadastre offices, the Turkey Land Registration and Cadastre Modernization Project has used beneficiary feedback surveys to monitor increases in customer satisfaction with cadastre services as well as the decline in the number of cadastre disputes pending in courts. In the upcoming CPF, CE mechanisms will be strengthened in all IPFs to achieve the 100 percent beneficiary feedback target. Technical assistance and capacity building will be provided to project teams in all sectors to identify entry points and relevant CE mechanisms. 72. The World Bank’s approach towards mainstreaming CE is aligned with the priorities of the DP and Turkey’s steps towards achieving Sustainable Development Goal 16 6. The DP has prioritized strengthening the non-government sector by creating a convenient atmosphere for a strong, diverse, pluralist, sustainable civil society and opportunities for all segments of society to engage in social and economic development processes. The ASA portfolio will increase its focus on strengthening CE through documenting and disseminating Turkey’s good practices on CE and participatory public administration reforms. Engagement on CE will be deepened through the ongoing dialogue on open and accountable institutions to improve quality of service delivery and through further dialogue with selected ministries/departments, such as health, land administration, local government, and migration management, through greater focus on: (i) strengthening grievance redress systems; (ii) removing barriers to public participation, especially of women, on social and environmental issues; and (iii) engaging community institutions in disaster risk reduction and management. A Citizen Engagement Roadmap is detailed in Annex 8. Donor Coordination and Resource Mobilization The WBG program in Turkey is strongly positioned to continue to deepen cooperation with development partners and to utilize multiple channels to meet the WBG’s strategic goal of greater resource mobilization and leveraging of more financing for countries. Turkey already benefits from the strong example shown of the “cascade” approach in the energy sector of mobilizing private sector financing. In the same sector, IBRD led an exemplary IFI effort in support of securing and diversifying Turkey’s gas supply with gas imports from Azerbaijan through the Trans - Anatolian Pipeline (TANAP) Project, where $800 million in IBRD loans to Turkey and Azerbaijan leveraged $600 million from the Asian Infrastructure Investment Bank (AIIB), and the expectation of up to $1.2 billion in loan guarantees from MIGA. This effort helped raise part of the $2 billion in private sector financing for the project. The WBG’s due diligence and coop eration with other IFIs is aimed at leveraging further financing for this project from EBRD and EIB. These examples provide good practice for continuing donor coordination, leveraging of partners and broadening the cascade approach in other projects and sectors. While the Turkey EU Accession process is progressing slowly, the EU “anchor” on the economic agenda continues to be important and the EU remains a strong partner on socio-economic issues. This means that ensuring a good partnership between the WBG and the EU is an important aspect of the CPF. The EU’s Facility for Refugees in Turkey (FRiT) is a framework agreement between the EU and Turkey for the support that the EU has committed to Turkey to continue to host SuTPs and to deter their illegal crossing into the EU. As part of the FRiT, the WBG is administering three different operations in the areas of education, labor markets and entrepreneurship. 6 SDG16 - Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels 27 IV. MANAGING RISKS TO THE CPF PROGRAM 73. The overall risk to achieving the CPF objectives is moderate. This reflects the current complicated political and governance context, both domestically and regionally, as well as increased risks from macroeconomic vulnerabilities, including in the financial sector. Given the dynamic nature of the situation in Turkey, the risk assessment will be reviewed as part of the PLR. As an overall risk-mitigating measure, the CPF puts strong emphasis on a flexible program that can be adapted to respond to the country context and that regularly assesses implementation progress. Risks to the CPF have been assessed using the Standardized Operations Risk-rating Tool (SORT), as summarized in the table below. Risk categories Rating 1. Political and governance Substantial 2. Macroeconomic Substantial 3. Sector strategies and policies Low 4. Technical design of project or program Moderate 5. Institutional capacity for implementation and sustainability Moderate 6. Fiduciary Low 7. Environment and social Moderate 8. Stakeholders Moderate Overall Moderate 74. Turkey is facing a unique set of political and governance risks. Events within Turkey since the failed coup attempt of July 2016 have affected the domestic landscape and the planned constitutional amendments will change the system of government by introducing a presidential system. Government efforts to amend the constitution (through parliament and a referendum), and manage geopolitical tensions and their implications for the country, particularly in the east and south-east of Turkey, are absorbing much of the time and attention of senior government officials, with the risk that needed reforms may lag. Risk Mitigation: The WBG, together with other development and private sector partners, will continue to monitor these risks closely and modify support within the CPF to help address economic issues that arise out of this context, where its mandate and expertise warrant it. This is where the flexible nature of the CPF will come into play because the program can be adapted to respond accordingly, specifically through modifying how and where the WBG will deliver its financing. The proposed DPL series can be calibrated to the circumstances, both in volume and in policy content, with a view to securing a prudent macroeconomic environment and context- appropriate social and structural reforms. If the environment is considered not conducive for DPL support, the program can be more narrowly targeted to consolidating or expanding gains in mature areas of engagement (energy, financial sector, cities), as well as analyzing or administering investments that help vulnerable populations to reach the twin goals (as is being done with Syrians under temporary protection, with EU funding). 75. The difficult geo-political environment of the sub-region also poses challenges. Regional risks have become more complex, with difficulties in the euro zone as well as challenging debates about Turkey’s EU accession, continued conflict in Syria and spill-over terrorism risks, and dynamic Turkish relations with both Russia and the United States. These challenges may risk 28 negatively impacting political, economic and social issues. Adverse developments may also discourage private investment further. Risk Mitigation: Should these risks materialize, the WBG would moderate support in an appropriate manner. This could mean delaying the planned DPL, changing its content, and adjusting its volume, while also targeting project financing on investments that are responsive to the risks at hand. Capital outflows, whether resulting from adverse domestic conditions or attractive external ones that entice investment away from Turkey, could prompt greater government interest in WBG and IFI financing to compensate for poorer terms on international markets, and also possibly enable a productive dialogue in newly important topics. In all cases, enhanced WBG support for reforms aiming to improve the business environment and enhance resilience and inclusion will remain important, and a backbone of WBG work in Turkey. 76. Domestic and international challenges still pose risks to the macroeconomic outlook. In 2016, Turkey experienced stalling growth low FDI inflows (which were already low for a country of Turkey’s importance and potential), continued high current account deficits, and down-grades of its international credit ratings. Rising oil prices and U.S. interest rates, and depressed tourism revenues are likely to maintain pressure on the trade and current accounts. However, higher growth in the EU (Turkey’s main trading partner) and the depreciation of the lira will likely support trade and current accounts. Sub-regional crises (in Syria and Iraq) are making Turkey less attractive to investors, and the costs associated with hosting some three million SuTPs are adding to fiscal stress. Despite some monetary tightening, inflation remains above target. Fiscal policy, until recently a cornerstone of Turkey’s economic success is on an expansionary path with a recently introduced fiscal stimulus package and a rising contingent liability portfolio. Risk Mitigation: The WBG – together with the IMF – will monitor developments closely. In addition, the WBG will step-up its TA and advisory program to bolster macroeconomic resilience and help the government to respond to emerging vulnerabilities. In the short- to medium-term, Turkey’s main challenge is to avoid a recession, which could trigger deleveraging, and to make good use of external financing conditions to rebuild buffers, reduce inflation and address external balances. The DPL series will be carefully deployed here if necessary and appropriate. 77. There are increasing concerns about the vulnerability of the financial sector and its potential spillover effects on the economy as a whole. Turkey’s financial sector is experiencing headwinds with increasing stability pressures due to the slowdown in the economy, exchange rate volatility and the dynamic political context. The sector is particularly vulnerable due to structural and cyclical factors. Structural factors include the high proportion of savings and debt held in foreign currency and at short maturities, the dependence on cross-border financing, and the convergence in major banks’ business models. Cyclical factors include growing cor porate leverage, rising corporate-bank and (contingent) corporate-sovereign exposures, and deterioration in banks’ asset quality. The IMF-WB Financial Sector Assessment (FSA) shows that capital buffers in the banking sector are resilient to a short-term shock but increasingly under pressure in a longer recession, which might force some major banks to seek additional capital. This could be further exacerbated by potential growing global liquidity constraints. Risk Mitigation: The WBG can mitigate financial sector risks through implementation of the FSA’s recommendations through dialogue, technical assistance and possible DPL support, as well as through close coordination with the IMF (through its Article IV reviews). Ongoing operations in the financial sector can be restructured where relevant and feasible to address emerging issues 29 and new credit lines can be extended. Given expected increased pressure on the lira on the back of Turkey’s high external exposure, IFC will promote currency swaps for real sector clients, PPP investments, and municipalities with large open foreign-exchange positions. In addition, IFC will closely coordinate with MIGA to respond to commercial lenders’ increasing demand for risk guarantees. IFC will also stand ready to support banks to strengthen their regulatory capital. 78. Institutional capacity for project implementation and sustainability may be affected, due to coordination issues, institutional restructuring and weak ownership of projects by implementing agencies. This risk is assessed overall as moderate; however, these factors could exacerbate the intergovernmental coordination challenges, have an impact on policy direction, and create difficulties in reaching consensus on investment and other activities that have occasionally marred project implementation in the past. Risk Mitigation: The WBG would mitigate this risk through more intense capacity-building through its projects and ASA targeted at stronger coordination and monitoring. Clearer signs of up-front client commitment will be sought before the WBG expands its program in certain areas. A positive factor in this context is the government’s continued desire to implement its development plan, as evidenced in its current effort to tackle sensitive issues such as improving social programs, adjusting the pension regime, and increasing opportunities for vulnerable groups. The institutions with which the WBG works have traditionally been strong. However, institutional risks have recently resulted in hesitant decision-making. At the same time, the WBG needs to continue to show how WBG guidelines and policies in fiduciary and safeguards areas add value and result in improved development outcomes. The CPF could allow the program to be adapted to focus on areas of strength in the on-going portfolio and deliver additional financing and follow-on projects. 30 Annex 1. CPF Results Matrix FOCUS AREA 1: GROWTH Prudent macroeconomic and fiscal management has been a cornerstone of Turkey’s good performance, but resilience to external s hocks has weakened, vulnerabilities have increased, and investor and consumer confidence are dampened which collectively are impacting growth prospects. Turkey’s bank-centric financial sector is also under stress, constraining credit to households and firms. To return to a higher growth path and convergence to high-income economies, the Government needs to continue to strengthen fiscal management, deepen institutional reforms to strengthen the rule of law and arms’-length market regulation, and create the environment for a more effective private sector. Tackling Turkey’s reliance on short-term external finance requires, inter alia, broadening access to finance and improving financial inclusion through deepening and diversifying financial markets. Turkish firms need to increase productivity by boosting innovation and technology to add more value and create more and better jobs. These challenges form the basis for the choice of CPF objectives under this first Focus Area. CPF Objective 1: Increased Fiscal Space Intervention Logic: The WBG’s program aims to help the government through robust analytics, policy advice and DPL financing for reforms undertaken. The focus will be on preserving fiscal space through providing knowledge services on fiscal management, including income tax law, risk management guidelines, and an internal audit strategy, as well as analysis of the distributional impacts of fiscal policy. The policy recommendations from this knowledge work would underpin a proposed DPL series, which will be a core part of the IBRD program and will have a crosscutting focus in support of key economic reform priorities. The flexible approach of the CPF will be manifest in the design of the DPL series whose size and frequency will depend on the country situation, the strength of the reform program and financing needs. Further details on the scope of the reform program supported by the DPL series will only become known during its preparation and will thus be provided in the future CPF Program and Learning Review (PLR). CPF Objective Indicators Supplementary Progress Indicators WBG Program Share of direct tax revenues in total tax Improved income tax legislative framework through New lending: revenues. enacting a new law, which combines corporate DPL series Baseline: 29.2% in 2015 income tax and personal income tax legislations and ASA: Target: 40% in 2021 broadens the tax base. Tax policy advice (Note: the baseline represents the share of tax Baseline: No (2016) Programmatic governance TA on income and profit in total tax revenues.) Target: Yes (2017) Establishment of a monitoring system for Publication of a new risk management guideline for New lending: internal controls in public administration public administration DPL series Baseline: No monitoring software populated Baseline: No (2016) with information (2016) Target: Yes (2019) ASA: Target: 70% of central government Tax policy advice institutions data included in the monitoring Publication of a new internal audit strategy paper Programmatic governance TA software (2018) 2017-2019 ECA PFM TF Baseline: No (2016) Internal audit SAFE TF Target: Yes (2017) 31 CPF Objective 2: Enhanced Access to Finance to Underserved Segments Intervention Logic: Strengthening the financial sector is critical to achieve faster, private sector-led growth which requires addressing structural challenges, moving away from a bank-centric financial system, deepening and diversifying financial and capital markets and broadening access to finance to capture under-served segments (MSMEs and women). The focus of the CPF will be on delivering relevant ASA that will help inform government policy and underpin future investments by IBRD and IFC. The ASA program will cover critical issues such as financial sector diversification, pensions, capital market and analysis of sector headwinds and how to respond to them. IBRD will continue to work with the state banks, development banks and other financial institutions through new lending operations that provide long-term financial sources that extend access to finance, incentivize investors in key sectors, and deepen and diversify instruments. IFC will continue to work with financial institutions and intermediaries to expand the availability of funding to MSMEs, with a particular focus on rural areas, women-owned enterprises, and agribusinesses. It will continue to (i) support banks and non-bank financial institutions (NBFIs) with longer-term funds to help them scale-up support to the underserved and unbanked, (ii) leverage diverse instruments and means of funding; (iii) utilize interest rate and currency swaps for real sector clients, PPP investments and municipalities; and (iv) promote alternative debt instruments such as covered bonds, diversified payment rights (DPRs), green bonds, municipal bonds, PPP project bonds (both in Lira and hard currency). IFC will closely coordinate with MIGA to respond to commercial lenders’ increasing demand for risk guarantees to enhance municipalities’ creditworthiness and to support lending activities to MSMEs and export- oriented companies. CPF Objective Indicators Supplementary Progress Indicators WBG Program People, MSMEs and exporters reached with Enhancing extended loan maturities to firms Ongoing lending: IFC financial services benefiting from IBRD financial sector credit lines Innovative Access to Finance Baseline: 2.2 million people (2015) Baseline: N/A (indicator linked to WB financial SME III Target: 4.1 million (2019) sector credit lines starting implementation) Long Term Export Finance Of which women owned SMEs reached Target: >1 (number) New lending: Baseline: 27,000 (2015) Volume of outstanding MSME loan portfolio of DPL series Target: 28,500 (2019) IFC clients New Financial Sector project IFC Baseline: $30.5 billion (2015) MSMEs and exporters reached with IBRD IFC Target: $60 billion (2019) ASA: financial services Of which women owned MSMEs Financial sector deepening TA: Focus on sukuk and IBRD Baseline: 116,000 (2016) Baseline: $130 million (2015) alternative capital markets instruments to finance long IBRD Target: 232,000 (2020) Target: $220 million (2019) term infrastructure TA on FSA follow-up: Focus on financial sector Increase in number of private pension Volume of outstanding MSME loan portfolio and supervision, monitoring, systemic risk and crisis members export loan portfolio of IBRD Clients management to support resilience Baseline: 2016: 6.6 million IBRD Baseline: $14.5 billion (January 2016) Target: 2020: 7.5 million IBRD Target: $29 billion (2020) IFC lending: (Gender disaggregation data is being collected Capital market development - investments in municipal, and will be provided at the PLR) Increase in outstanding corporate debt securities eurobond and local currency bond markets. portfolio (US$ billion) 32 Baseline: 2016: US$58 billion Securitization products to increase depth and competition Target: 2020: US$70 billion in the banking sector. Hedging instruments to mitigate interest rate and Increase in number of firms quoted in the stock currency risk. Risk mitigation and capital relief tools for exchange domestic and international banks. Baseline: 2016: 381 Long-term finance to banks and NBFIs (leasing and Target: 2020: 450 factoring companies, and distressed asset platforms) to expand financing to under-served segments Increase in portfolio size of institutional investors Supply chain finance solutions Baseline: 2016: TL 105 billion IFC Advisory: Municipal bond market development Target: 2020: TL 150 billion (with IBRD) MIGA: Guarantee of non-honoring of a financial obligation of a state-owned enterprise (NHFO-SOE) for Turkish Eximbank CPF Objective 3: Enhanced Competitiveness and Employment in Selected Industries Intervention Logic: The SCD highlighted that Turkish businesses need to improve their competitiveness through innovating, boosting productivity and moving up the value chain. IBRD’s program will focus on a deep-dive diagnostic through a CEM in support of Government efforts on competitiveness, trade liberalization, the quality of exports, innovation, value chain progression, the ability to attract foreign direct investment (FDI), and regional investment climates. This will be complemented by TA to improve the regulatory environment and aspects of competitiveness related to resource efficiency and cleaner production with a focus on Organized Industrial Zones (OIZs). This ASA will underpin any relevant reforms that may be captured in the future DPL series, and will help target potential high-growth or innovative SMEs (which in turn could be targeted through the financial sector support pursued under CPF Objective 2 above). This stronger framework is expected to lead to enhanced private sector investment which IFC and MIGA could support. In later stages of the CPF period, IBRD may step-up lending in support of innovation, technology absorption, cleaner production and an improved business environment, as the client demands, and this will be reflected in the PLR. Through financial intermediaries and direct engagements with real sector companies, IFC will help strengthen the competitiveness of Turkish firms through investments that support new technologies, innovation and improved governance, as well as regional and international expansion. IFC will also continue investing in equity funds that promote local entrepreneurship, competitiveness and innovation, while also fostering employment in high-growth and high-value-added sectors (manufacturing, telecoms, technology and agribusiness). IFC will also expand the Global Trade Finance program which supports the capacity of banks to deliver trade finance by providing risk mitigation. IFC will provide corporate governance advisory services to Turkish firms, as well as technical assistance to improve linkages between SMEs and high-growth value chains. 33 CPF Objective Indicators Supplementary Progress Indicators WBG Program Employment supported by IFC clients Students reached by IFC clients: New lending: (manufacturing, telecom, technology, Baseline: 11,500 (2015) DPL series agribusiness) Target: 19,700 (2019) Innovation Project Baseline: 39,400 (2015) o/w Female Students reached Target: 59,000 (2019) Baseline: 6,200 (2015) ASA: o/w Female Employment supported Target: 8,800 (2019) CEM on productivity Baseline: 11,000 (2015) Business environment and FDI-local firm linkages Target: 12,000 (2019) Management quality, innovation and trade in Services Farmers reached by IFC agribusiness clients: Regulatory environment and job opportunities in SuTP- Employment supported by IFC equity funds Baseline: 5,400 (2015) affected regions investees (#) Target: 10,900 (2019) Enhancing competitiveness and greening OIZs Baseline: 15,000 (2015) IFC Corporate Governance advisory project Target: 17,000 (2019) IFC investments: Investments in manufacturing, telecom & IT, and agribusiness sectors. Support for vocational training. Investments in private equity funds and other collective investment vehicles focused on high-growth, high value- added sectors. Trade finance. FOCUS AREA 2: INCLUSION WBG support in this area aims to consolidate Turkey’s success towards achieving the twin goals while also supporting efforts to reach those who are left behind. This implies realizing the demographic dividend by creating good jobs for increasing numbers of workers, which involves better integration of women, youth and SuTPs into the labor force, reducing gender inequalities in access to economic opportunities, reducing regional labor-market disparities, and raising learning levels. The WBG’s program to date in this focus area had a concentration on ASA which informs government policy and DPLs. Broad issues of equity, vulnerability and regional disparities – that cut across the whole of the WBG program and not just this Focus Area – will continue to be the focus of in-depth ASA, through a future CEM or other deep-dive diagnostic. An important evolution of the WBG program in this CPF area has been and will continue to be the introduction of new investment operations financed by the EU’s Facility for Refugees in Turkey (FRiT) which has allowed the WBG to complement its ASA with more in-depth support through the design and implementation of FRiT projects. CPF Objective 4: Increased Effectiveness of Social Assistance Intervention Logic: This CPF objective has the goal of improving efficiency and effectiveness in social assistance and strengthening the evidence-base for policies aiming to narrow gaps between regions and ensure greater inclusion of vulnerable groups. In this context, the WBG will continue its support to making the social assistance system more effective and efficient. The ASA program will continue to produce and disseminate monetary and non-monetary indicators of welfare and inclusion, including equality of opportunity and multi-dimensional poverty, and provide technical assistance to the Poverty Reduction Strategy and Social Assistance Reform initiative of the Ministry of Family and Social 34 Policies (MoFSP). An assessment of the social support system of the disabled and aging population will also be undertaken to ascertain the adequacy of social assistance and support programs available to protect these relatively vulnerable populations. CPF Objective Indicators Supplementary Progress Indicators WBG Program Increased impact of social assistance on the New financing: poverty gap. DPL series Baseline: 9.9% coverage of poverty gap Social Inclusion project Target: 20% coverage of poverty gap ASA: Increased availability of monetary and non- Poverty Reduction Strategy and Social Assistance monetary indicators of welfare and inclusion Reform TA on Multi-dimensional poverty and inequality Baseline: No indicator available indicators Target: 10 different monetary/non-monetary Disability and aging study indicators available CPF Objective 5: Increased Labor Force Participation of Women & Vulnerable Groups Intervention Logic: WBG support under this objective aims to bring more people – especially women and youth – into the formal labor market. The Bank intends to continue its role of providing a comprehensive package of ASA and propose reform recommendations which can guide Government decision-making and could in turn be supported through DPLs. The influx of SuTPs has created new challenges among the labor force, particularly for those in the south-east which is hosting the largest concentration of SuTPs. The WBG will help to address these issues through continued policy advice (supported by EU and SIDA trust funds) and some project interventions. A FRiT-funded labor market inclusion project (€50 million, under preparation and expected to be approved in mid-2017) targets increased SuTP participation in the labor market through providing access to ALMPs. This is complemented by FRiT funding of €5 million for IBRD advisory work to support facilitation of employm ent and entrepreneurship opportunities in SuTP-affected regions. Further IBRD and/or EU investments will be considered where there is client demand and a link to the twin goals; one area under discussion is livelihood support for SuTPs in the agri-food sector. The WBG is also providing support to devise a comprehensive strategy for managing migration in the labor market. Under this objective, IFC aims to invest in projects that promote greater equity in the access of vulnerable and underserved groups to services, jobs, and finance. IFC will scale up its SME financing targeted to women entrepreneurs and farmers and will leverage NBFIs to broaden access to finance for these groups. It will also invest in key manufacturing companies with presence in the south east region with a view to support employment in the region. Aiming to help underserved populations access better urban services, IFC will pursue investment opportunities in commercially-viable urban infrastructure projects in second-tier, less developed regions. In addition, IFC will offer advisory services to Turkish corporates to help them develop gender programs that support women’s employment and entrepreneurship CPF Objective Indicators Supplementary Progress Indicators WBG Program Increased Female Labor Force Participation Early childhood education and care enrolment rates New financing: Baseline: 31.5% in 2015 Baseline: 1,209,106 (National Education Statistics, DPL series Target: 35% by 2018 (10th DP target), 41% Formal Education 2015/16) EU FRIT Labor Market Project by 2023 (National Employment Strategy Target: Increase of 10% over baseline EU FRIT Education Project target) Future EU-funded projects for SuTPs 35 EU/IPA Project for Youth At Risk Increased youth participation in labor force Number of youth in ALMPs Baseline: Youth (15-19) Not In Education, Baseline: 74,748 male and 76,172 female (15-24) ASA: Employment or Training (NEET): Male currently in ALMPs (2015) IPA for ISKUR, Jobs Trust Fund SIDA TF 11.3%, Female 21.9% (2015) Target: Increase of 10% over baseline Poverty and Equity lens on labor markets, including Target: Reduce NEET by 10% Regional disparities Migration management for education Increased rate for SuTP was have a work Syrian refugee crisis response permit among eligible SuTPs of work-age NEET study population (gender disaggregated) Pilot of SE Skills and Evaluation Baseline: 8,000 out of 900,000 (<1%) eligible Quality of Jobs: Minimum Wage and Informality SuTP work-age population has a work permit (2016) IFC: Target: 5% increase (2021), o/w 25% are IFC Gender Program women Financing women-owned companies Financing private sector companies which have footprints Direct employment supported by IFC in lagging regions. manufacturing clients in southeast regions Baseline: 38,000 (2015) Target: 43,000 (2019) (Gender disaggregated data being collected) CPF Objective 6: Strengthened Performance of the Education and Health Sectors Intervention Logic: The focus of the WBG’s program in the health sector is on promoting healthy lifestyles through attacking behavioral risks. An ongoing IBRD-financed health project aims to enhance the capacity of the Ministry of Health (MoH) for evidence-based policy making, increase the management capacity of hospitals, and improve the prevention of selected non-communicable diseases (NCDs). IBRD will continue to support the second phase of the health transformation program through activities focusing on providing appropriate high-quality care by results-based interventions and payment reforms. The ASA program will also focus on assessing the sustainability of health utilization, through the creation of modeling tools as well as assessing utilization patterns. Building on reforms implemented with IBRD support, and on its experience in financing Turkey’s first health PPP projects, IFC will continue to support Turkey’s health sector through investments in specialized he alth service providers, and through financial innovation to help create alternative capital market solutions for financing health sector projects. For example, IFC financed Turkey’s first greenfield infrastructure PPP bond issuance under the Elazig Health PPP project, which was also supported by M IGA and EBRD through credit enhancement products. IFC will support such innovative financial structures for social and other infrastructure projects on a selective basis. In addition, IFC will invest in specialized services (e.g., bio-pharmaceuticals manufacturing), where it can play a role in bringing in strategic investors. MIGA will continue to invest in Turkey’s health PPP program through providing guarantees and credit enhancement. In the education sector, the CPF proposes to step up ASA in response to the recent fall in PISA and TIMSS scores for Turkey and also help the Ministry of National Education (MoNE) strengthen its life long learning, teacher training, and distance education approaches. Given the time required to impact learning, results are likely to be modest and achieved beyond the CPF timeframe. IBRD will implement a FRiT-financed education project 36 (€150 million) which aims to expand education service delivery and targets resources to vulnerable SuTP -affected areas through construction of new schools. IBRD is also providing technical support to derive a strategy to integrate immigrant children into the education and vocational system. In addition, a new EU/IPA-funded project targeting youth who have dropped out and are at risk of low education levels and vulnerable to poverty will be implemented in areas where drop-out rates of Turkish youth is high and where SuTP youth are at risk of never entering school. IFC will look for opportunities to invest in education service clients to promote private vocational training. CPF Objective Indicators Supplementary Progress Indicators WBG Program Increased percentage of formal school Number of additional schools rehabilitated or Lending: enrolment of SuTP children aged 6-15 constructed under EU FRiT-financed project Health Sector project (on-going) Baseline: 469,495 children accessing Baseline: 0 (2016) education (149,439 in formal education and Target: 56 (2020) New financing: 320,056 in temporary education centers: ratio FRIT Education project is 32%) Future EU-funded projects for SuTPs Target: 600,000 children accessing education (40% in formal education), 50-50 split of ASA: male-female children Turkey obesity case study Documenting Turkish experience in tobacco use control Improvement of primary and secondary Percent of households that receive from health Poverty and Equity lens on nutrition and education, prevention of non-communicable diseases workers counselling or education related to healthy including Regional Disparities (NCDs) living Disability and aging study Baseline (2015): 10% change of target Baseline: 10% in 2016 Health expenditure projection actuarial model TA population using services of Healthy Living Target: 11% in 2020 (at end of IBRD project) Political Economy of Health Reform and Assessment of Centers the Utilization of Primary Care Target: 50% Percent of users of Health Living Centers satisfied Analysis of PISA-TIMSS with ease of access to Healthy Living Centers Teacher training and primary education reform TA Number of Patients Served through IFC heath and/or responsiveness of services to users' sector clients individual needs IFC: Baseline: 0 (2015) Baseline: 50% in 2016 Investments in innovative financial structures such as Target: 14.0 million (2019) Target: 70% in 2020 health Project Bonds (Gender disaggregated data being collected) Supporting private sector healthcare companies, especially in specialized health services FOCUS AREA 3: SUSTAINABILITY Economic growth and urbanization in Turkey are not yet decoupled from rising energy use, pollution and greenhouse-gas (GHG) emissions, so there is much potential for greater resource efficiency and pollution abatement. The challenges are to provide connectivity and agglomeration benefits in an environmentally, socially and financially sustainable way (particularly as regards reducing energy intensity and avoiding water scarcity) as well as to ensure that cities are more disaster-resilient. The WBG’s program will help address the SCD-highlighted challenge of reorienting growth towards a more green, resilient and sustainable pattern. It will provide support by building on the well-established IBRD and IFC collaboration in energy and urban/municipal services, where 75 percent of IBRD’s investment program is already concentrated, and will encourag e evolution in the 37 program towards issues critical to Turkey’s future growth. This is consistent with the 10th DP Transformation Programs focused on increased energy efficiency and generation from local resources, urban redevelopment, improved access to potable water and wastewater services, effective use of water in agriculture, and sustainability in the use of natural capital. CPF Objective 7: Improved reliability of energy supply and generation of green energy Intervention Logic: The WBG’s current program is heavily concentrated in the energy sector, with IBRD policy advice and TA paving the way for stepped-up private sector engagement supported by IFC and MIGA. It encompasses: (i) increasing the percentage of renewable electricity generation and improving its integration into the grid through the ongoing Renewable Energy Integration, the Private Sector Renewable Energy and Energy Efficiency, the Geothermal Development and the EU/IPA Energy Sector TA Projects; (ii) enhancing energy security and gas storage capacity through the on-going Gas Sector Development Project and the proposed Gas Storage Expansion Project; (iii) developing energy trading and restructuring BOTAS through the EU/IPA Energy Sector TA Project; and (iv) securing an d diversifying Turkey’s gas supply with gas imports from Azerbaijan through the Trans-Anatolian Pipeline (TANAP) Project – where $800 million in IBRD loans to Turkey’s BOTAŞ and Azerbaijan’s SGC leveraged $600 million from the Asian Infrastructure Investment Bank (AIIB) and the expectation of up to $1.2 billion in guarantees from MIGA. Given the comparative advantage of IBRD engagement in the sector, further energy investments may follow, on client demand, observing th e WBG’s cascade approach on leveraging private financing as needed and appropriate. IBRD, IFC, and MIGA will work closely together to help Turkey improve its PPP policy framework to stimulate further private sector energy investments, strengthen the energy regulatory environment, and increase long-term financing for renewable energy. This ASA will also feed into the design of future DPLs, which could stimulate investments in renewable energy generation and transmission and the related climate change benefits. IFC aims to support Turkey’s energ y security, and help rebalance its energy mix through selective, and strategic engagements in the sector and will seek out investments where IFC can play a mobilization role, particularly in the form of FDIs. IFC will provide long-term finance to distribution companies to upgrade the distribution network. IFC also aims to help power companies address currency mismatches by offering suitable financing schemes to hedge their foreign exchange risks. IFC will seek investment opportunities in new technologies (e.g. smart meters) to help address some of the problems in the power distribution sector. In addition, IFC will look for opportunities to support shortages in gas supply through investments in gas infrastructure including import terminals and storage as well as gas distribution. MIGA remains open to supporting FDI in the renewable space through the provision of political risk insurance guarantees. CPF Objective Indicators Supplementary Progress Indicators WBG Program Renewable electricity generation as Installed renewable energy capacity financed Ongoing lending: percentage of total generation (%). through IBRD Projects (MW) Gas Sector Dev. Project Baseline: 31.5% in 2015 Baseline: 0 in 2016 Renewable Energy Int. Project Target: 33% in 2021 Target 116 MW in 2021 SME Energy Eff. Project Priv. Sector Renewable Energy & Energy Eff. Project Value of loans provided by IFC clients to Renewable energy generated through IBRD renewable projects (MWh/year) New lending: Baseline: $38m (2015) Baseline: 0 in 2016 TANAP Target: $66m (2019) Target: 200,000 in FY2017 Geothermal Development project New DPLs Gas Storage Expansion Project 38 Total power generation and distribution Wind energy generated from plants connected to New energy sector project(s) clients reached (IFC) (millions) substations funded under REIP (MWh/year) Baseline: 4.33 (2015) Baseline: 0 in 2016 ASA: Target: 6.89 (2019) Target: 1,743 in 2018 Rooftop Solar PV Assessment Discoms analysis Increased capacity of gas storage (bcm). Power generated (GWh) through IFC financial EU/IPA Energy Sector Technical Assistance Program Baseline: 2.8 bcm in 2016 services Target: 3.8 bcm in 2021 Baseline: 16,700 (2015) IFC: Target: 34,600 (2019) IFC financing for distribution, and gas infrastructure such Gas imports through TANAP (bcm/annum). as import terminals, storage, and distribution. Baseline: 0 in 2016 Restructuring of BOTAS IFC support for new financing instruments – local Target: 5 in 2021 Baseline: No in 2016 currency financing and currency swaps to mitigate Target: Yes in 2021 currency risk Improved and more transparent wholesale gas trading through the establishment of Gas Trading Platform Baseline: No in 2016 Target: Yes in 2021 Improved legal, regulatory and institutional environment in the Turkey gas market through the enactment of the amendment to the Natural Gas Market Law Baseline: No in 2016 Target: Yes in 2021 CPF Objective 8: Improved sustainability and resilience of cities Intervention Logic: The WBG integrated engagement will continue to focus on helping cities to become more environmentally and socially sustainable and resilient through supporting Turkey’s “Smart Cities” approach. Through the investment coordination platform b etween IBRD and IFC under the joint “Sustainable Cities Program”, the WBG will maintain a constructive dialogue with the central government on policy and regulatory changes to modernize the existing municipal financing and investment framework, thus paving the way for stepped-up private investment supported by IFC and MIGA. In particular, IBRD’s support to urban planning, infrastructure and capital investment planning, and efforts to improve municipal financial capacity should enable the WBG to expand its support to second-tier cities, including in frontier and underserved regions, with the ultimate goal of enabling them to secure financing directly from commercial investors and the capital markets for their crucial infrastructure needs. Expanding the availability of municipal finance options, improving creditworthiness and an effective municipal PPP framework are areas that require continuing WBG collaboration. Finally, advice on low-carbon urban management, climate change planning and related investment identification in major urban centers will be pursued, aiming to share global best practice. IBRD’s lending portfolio will continue to target strategic investments that build on known areas of comparative advantage. The Sustainable Cities program is envisaged as a series of projects, with new 39 projects coming into the program based on the readiness of specific cities and their investment plans, and it will include EU-funded TA in planning and policy analysis to help cities address environmental, social and financial sustainability challenges. An ongoing Land Registry and Cadastre Modernization project also contributes to improving local government financing and enhancing service delivery to citizens through increased access to property market information, including valuations. For improving the resilience of cities, IBRD could also deliver an investment project aiming to strengthen critical public facilities for earthquake resistance and to support better enforcement of building codes and land use plans. Focus areas for IFC and MIGA include direct engagement with municipalities to strengthen their capacity for financial management, infrastructure project design, preparation and implementation. IFC can leverage a wide range of products including long-term loans (both in euros and lira), municipal bonds, and hedging tools to help municipalities manage their foreign-exchange loans. Building on successes in Istanbul and Izmir, IFC aims to help other credit-worthy cities create a pipeline of bankable projects, providing technical assistance and capacity building, direct senior loans (in euros or lira) or using a portfolio approach by channeling its funds to cities through local banks. CPF Objective Indicators Supplementary Progress Indicators WBG Program Improved service delivery and expanded Pilots of mass property valuation completed and Ongoing lending: access to digital land registry and cadaster new property valuation policy Informed Municipal Services Project information Baseline: No (2016) Land Registry Project Increased customer satisfaction at national Target: Yes (2020) level New lending: Baseline: 85% in 2016 Improve planning capacity of and access to targeted Sustainable Cities 1, 2, 3 projects Target: 95% in 2021 municipal services through adoption of sectoral, Disaster Risk Management project spatial and capital investment plans in four New DPL series municipalities Number of additional people benefitting from Baseline: 0 in 2016 ASA: improved urban infrastructure through IBRD Target: 10 sectoral plans adopted in at least 4 Housing study and IFC financing (number in millions) municipalities by 2021 TA under the DRM GFDRR Grant Baseline: 3.3 (2015) EU/IPA Grant for Sustainable Cities Target: 4.7 (2019) Sustainable urban transport planning adopted in (Gender disaggregated data to be collected) selected cities/municipalities. IFC: Baseline: 0. Cities platform – advisory services Increased resilience of cities through number Target: 2 cities/municipalities Municipal infrastructure investments in metropolitan of disaster resilient public buildings Average travel time (min) in urban public cities including Istanbul, Izmir, Antalya, Bursa and retrofitted, reconstructed, or newly transportation (tramway and metro) (IFC) additional cities commensurate with their constructed through IBRD and FRIT Baseline: 45 (2015) creditworthiness financing Target: 25 (2019) Baseline: 0 Target: 110 by 2021 Urban waste water treated by IFC clients (Mm3) Baseline: 0 (2015) Target: 4,470,000 (2019) Urban solid waste treated by IFC clients (tons managed/year) 40 Baseline: 0 (2015) Target: 133,000 (2019) Turkey Disaster Management Strategy and Turkey Risk Reduction Plan adopted Baseline: No in 2016 Target: Yes CPF Objective 9: Increased sustainability of infrastructure assets and natural capital Intervention logic: Increasing efficiency in the use of public assets and natural capital is highlighted in the SCD as a key development challenge. In particular, improving the efficiency of energy consumption is critical for Turkey’s competitiveness and sustainable economic growth. The WBG’s program in energy efficiency has ongoing IBRD investments through the SME Energy Efficiency project and the Private Sector Renewable Energy and Energy Efficiency project as well as a broad program of IFC financing to sustainable and renewable energy. These projects will continue to be implemented with follow-on or scaled-up projects based on client demand, including support to energy efficiency in public buildings through a possible new investment operation. IBRD is also supporting the development of carbon pricing instruments and markets through a grant-funded Partnership for Market Readiness (PMR) project. The ASA program is supporting the efficient use of wood fuels (and future stepped-up engagement could be envisaged) and a study on how to finance Sustainable Development Goal (SDG) #12 which focuses on sustainable production and consumption. IBRD’s new social and environmental framework will serve as a solid ground for furthering dialogue and building in-country capacity on social and environmental social sustainability policies and analytical work. The WBG will also advocate a stepped-up program in areas identified in the SCD as important, such as the sustainable use of water and forest resources. This would support some of the most vulnerable groups in Turkey, namely, smallholder farmers and forest communities. In the water sector, a possible IBRD irrigation project is under discussion. In the forestry sector, recommendations from the recent Forest Policy Note have led to discussions of a potential project. Engagement in agriculture is also possible. Finally, the WBG is providing EU-funded TA on transport issues and some of this work could lead to financing opportunities during the CPF period. IFC will continue to support private sector investments in manufacturing, SMEs, municipal and transport infrastructure, with a view to improving energy efficiency and reducing GHG emissions. IFC will also provide long-term funding to intermediaries with portfolios focused on energy efficiency areas and seek direct engagements at the industrial level to help reduce energy intensity and pollution. IFC will continue to expand finance for resource efficiency both directly through investments in manufacturing, agribusiness and services sectors, and through financial institutions, e.g. through innovative instruments such as green bonds and mortgage-covered bonds. At the municipal level, it will seek opportunities to support energy-efficient public transport, municipal buildings, water and wastewater, and street lighting projects. In addition to financing, IFC will provide advisory support and training to key institutions and corporates to help introduce new energy efficiency practices to Turkey’ s residential housing and industrial sectors. MIGA remains open to expanding its support to municipal infrastructure with a view to improving energy efficiency and reducing overall emission levels. In this regard, MIGA could provide credit guarantees for major municipal infrastructure projects, similar to previous assistance to Istanbul and Izmir. CPF Objective Indicators Supplementary Progress Indicators WBG Program 41 Cumulative energy savings achieved through Carbon market policy options delivered to and Ongoing lending: WBG-financed energy sector projects (MWh). considered by the Government Renewable Energy Int. Project Baseline: 1,116,000 in 2016 SME Energy Eff. Project Target: 6,000,000 in 2021 The following indicators – or other relevant ones - Priv. Sector Renewable Energy & Energy Eff. Project could be considered at the time of the CPF PLR if EU/IPA Energy Project Annual GHG emissions either reduced or these areas are developed as part of the WBG avoided through the WBG program program: New lending: (tonnes/year) New DPLs Baseline: 40,000 in 2016 The National Intelligent Transport Systems (ITS) Irrigation Rehabilitation Project Target: 844,400 IBRD reduced, 373,000 strategy operationalized Possible future projects in support of Transport/Logistics reduced IFC, 600,000 avoided at country- Baseline: No and/or Sustainable Forestry Management level through adopting GB standards (2021) Target: Yes. ASA: Changes to the Forest Law, regulations or policies Forestry Study to promote greater private sector investment CEM on Productivity participation in harvesting and development of plantations. IFC: Baseline: Minimal IFC financing to support resource efficiency projects Target: 2 or more pilot areas covered IFC provision of long term loans to financial intermediaries to support RE/EE projects IFC investments and advisory in modern, energy efficient municipal infrastructure (public transportation, water, waste water, street lighting, energy efficient buildings etc) IFC advisory on green buildings and industrial zones 42 Annex 2. CPS (FY12-FY16) Completion and Learning Review Report CPS Board Discussion: March 27th, 2012 CPS Progress Report (Board Presentation): October 3rd, 2014 Period Covered by CPS Completion and Learning Review: FY12 – FY16 1. SUMMARY OF KEY FINDINGS 1. Turkey’s National Development Plans (NDPs) for 2007-2013 and 2014-18 formed the strategic underpinning of the CPS Objectives (FY12-15), which were: (i) Enhanced Competitiveness and Employment; (ii) Improved Equity and Public Services; (iii) Deepened Sustainable Development; and a cross- cutting objective of Sharing Turkey’s Experience – Results, Knowledge, and Capacity. In the CPS Progress Report (CPSPR, FY14), and in response to a Government request, the period of the CPS was extended to cover FY16 to allow for better alignment with the electoral cycle within Turkey. 2. Overall CPS program performance is rated Moderately Satisfactory. This rating is based on the Self Evaluation Framework, revised through the CPS PR, as most of 33 CPS outcomes indicators were either achieved or partially achieved. 3. Overall WBG performance in designing and implementing the CPS is rated Good. Collaboration within the WBG and with development partners was adequate, and the lending program was complemented by knowledge products. Combined IFC/IBRD total delivery reached $7.8 billion during the CPS period, and MIGA’s guarantee gross exposure grew to $1.695 billion in FY16. Turkey has become IFC’s second largest client globally as IFC’s own account investments in Turkey have far exceeded the ex pected FY12- 16 program of US$2.5-2.8 billion, reaching $3.58 billion in long-term finance for its own account. During the CPS period, MIGA`s guarantee gross exposure grew from $458 million in FY13 to $1.695 billion in FY16, making Turkey MIGA’s largest exposure country, with a good product mix of traditional political risk insurance as well as the non-honoring, credit guarantees. 2. CPS DEVELOPMENT OUTCOME 4. The CPS Development Outcome rating is Moderately Satisfactory. The program was built on three strategic objectives, eight thematic areas (revised down from ten in the CPSPR), and thirty-three outcomes, of which most were either achieved or partially achieved. A thematic priority, Sharing Turkey’s Experience, cut across the three pillars but there are no indicators associated to it and it is treated in this CLR as a thematic priority rather than a measureable objective. A. First Strategic Objective: Enhanced Competitiveness and Employment – Partially Achieved A.1 Thematic Area 1: Sustained macroeconomic and financial stability and strengthened exports, domestic savings, and external resilience 5. Thematic area 1 outcomes are partially achieved: one of two outcome indicators was met and the other was not. The first outcome indicator involved an increase in take-up of a new voluntary pension scheme: from a baseline of 3.1 million participants in 2012 there were, by end-FY16, 6.2 million 43 participants, reflecting a 100% increase. The second outcome involved a projected 10% increase in the number of tax payers filing income tax returns; it was not achieved, as it was linked to a proposed new income tax law, which has not yet been ratified. 6. The objectives of the WBG program under this result area were underpinned by a series of DPLs, albeit with delays. Two DPLs were delivered in the CPS period: the US$800 million Competitiveness and Savings DPL (FY13), and the first, US$500 million, operation of a planned two-operation Sustained Shared Growth DPL (FY15). The proposed second operation was not delivered, as two parliamentary elections (in June and November 2015) put DPL discussions on the back-burner until a new Government was in place. 7. The Bank also provided a broad knowledge program in support of Thematic area 1. Among many deliveries (listed in the results matrix), the most important were a Flagship report, Turkey’s Transitions (FY15), which was a comprehensive analysis of Turkey’s progress to the threshold of high income and contributed to the thematic priority of sharing Turkey’s experience globally, and a Country Economic Memorandum (CEM), which identified policy options and interventions to enhance Turkey’s trade performance and competitiveness. These reports were widely disseminated and unlocked a useful discussion on the importance of economic institutions for sustained growth beyond the high-income threshold. They also helped to inform the domestic policy debate, as the Government released a new batch of 25 Transformation Programs around the time that the reports were discussed in Turkey. Two technical reports also informed Government policy: a Public Expenditure Review analyzed Turkey’s fiscal policy over the previous decade and identified the broader macroeconomic implications of fiscal policy, notably with regard to supporting future economic growth; and a Customs Union Evaluation report provided quantitative and qualitative estimates of the effects of the Customs Union (CU) and demonstrated that the trade agreement has been highly beneficial for both Turkey and the EU. A.2. Thematic Area 2: Improved investment and business climate; deepened and broadened access to finance; increased employment 8. Thematic area 2 outcomes are partially achieved. Five outcome indicators were met, one partially met, one non-verified, and two not met. 9. The indicator linked to improved intellectual property rights was not achieved within the CPS period, but the law was ultimately ratified in December 2016. Sub-indicators on (i) targeting reduced entry barriers and improved intellectual ownership were not met because, by end-FY16, there were only 5,512 new patent applications (against a 2013 baseline of 5,600). The indicator on (ii) the number of registered companies in the company regulation system (MERSIS) could not be verified due to the non- public disclosure of data against a 2012 baseline of 204 companies registered. 10. By contrast, sub-indicators associated with improving access to finance by the private sector were mostly achieved. The sub-indicators (iii-iv) measuring the performance of firms benefitting from IBRD financing showed better performance of export and sales growth. Indicator (v), on the percentage of women saving at financial institutions in past years, exceeded the target value of 3.3%, reaching 5.5% by end-2015. However, (vi) a targeted increase in corporate bonds issuance was not achieved due to contraction in the market, and a sub-indicator focused on (vii) better performing non-performing loan (NPL) ratios for financial institutions (FIs) supported by IBRD had mixed results. At the same time outcome indicators linked to the IFC program were fully achieved as IFC (viii) reached about 760,000 SME clients and about 112,000 additional farmers and also generated about 66,000 direct jobs, against targeted 70,000. 44 11. The Bank delivered the 2013 and 2015 DPLs as well as a series of projects using credit lines as bridge funding to the banking sector to lengthen the maturity of funding and widen the range of instruments available to SMEs, exporters, and other target sectors (such as renewable energy and energy efficiency). Advisory Services and Analytics (ASA) informed the design of these projects and covered such issues as consolidated supervision and bank resolution, capital market development (jointly with IFC) on corporate bonds, mutual funds, pension funds, support for microfinance, financial inclusion, and financial sector infrastructure, especially in secured transactions and in the insurance sector to strengthen solvency supervision. 7 12. IFC’s contribution included the use of securitization structure to increase the depth and competition of the banking sector and to support corporate clients. In the previous CPS period (FY08- 11), IFC worked with Akbank to revive the Diversified Payment Rights (DPR) asset class in Turkey. After that first successful project, Finansbank, Yapi Kredi Bank, Denizbank and Garanti Bank launched similar programs supported by IFC, with the proceeds of the DPR issuances being used for on-lending to agribusiness, MSMEs and sustainable energy projects. DPRs have since become a critical instrument for raising long-term capital for Turkish banks due to their strong credit structure and reliance on offshore cash flows. IFC worked directly with Turkish corporates to help companies access capital market financing. It served as an anchor investor in the $450 million Eurobond issued by Mersin International Port, Turkey’s first single asset infrastructure Eurobond. 13. Knowledge on job creation and the investment climate was generated through programmatic TA on human development (FY12-13), a programmatic job series (FY12-15), competitiveness analysis (FY14), innovation and business climate (FY15), and a value chain trade, services, and logistics programmatic series starting in FY15. The Regional Investment Climate Assessment (RICA) project, funded by EU Instrument for Pre-Accession (IPA) funds as the first Reimbursable Advisory Service (RAS) related output in Turkey, also completed an enterprise survey at the regional level by September 2016 . A.3. Result Area 3: Improved governance through enhanced transparency to ensure a level playing field 14. This outcome was fully achieved. A Council of Ministers decision in March 2016 reduced the threshold establishing auditing requirements for companies. Thanks to the new threshold value, the number of firms with independent audits by end-2016 is expected to exceed 5,000, against a target of 3,500 (2013 baseline, 2,500). 15. The WBG supported this thematic area through DPLs and knowledge products funded through Trust Funds Relevant ASA (listed in the result framework section) included TA on building capacity for the Parliament; strengthening the public internal audit function; enhancing the supreme audit function of the Courts of Accounts, justice sector performance; and governance. In addition, the Bank completed a Transport Sector Public Expenditure Review. 16. In 2013, IFC collaborated with the Turkish Corporate Governance Association (TKYD), the only local provider of corporate governance-related services in the country. In particular, it helped three 7 These projects were Access to Finance for SMEIII (FY13), followed by the Innovative Access to Finance Project (FY15), and MSME and Large Enterprise Supply Chain Project (FY16); as well as energy sector credit lines for SME Energy Efficiency (FY13) and Additional Finance for Private Sector Renewable Energy and Energy Efficiency (FY12). The Long Term Finance Guarantee Project, proposed to be delivered in FY15, was dropped. 45 companies to assess their corporate governance systems practices; provided trainings to TKYD member companies; and helped TKYD to develop corporate governance advisory services as a commercial product. In addition, IFC helped 13 of its biggest investment clients to improve corporate governance. 17. Although the modest objective under this thematic area was achieved, engagement between the WBG and Turkey could have been broader. According to the SCD findings, weaknesses in corporate governance reduce firms’ ability to access new markets, technology, and finance. In particular, weak accounting standards constitute an important obstacle to accessing financing. Similarly, Turkey is losing ground to peer countries in indicators related to the business climate, as reforms have slowed since 2008. B. Second Strategic Objective: Improved Equity and Social Services - Partially Achieved B.1 Thematic Area 4: Improved quality and equity of social services 18. Result area 4 outcomes are fully achieved, as all three indicators were met . (i) The Ministry of Health was reorganized to focus exclusively on the health sector’s stewardship functions by 2015; and (ii) all public hospitals were organized under public hospital unions paid on the basis of performance contracts within a global budget. In addition, (iii) cervical cancer screening among women aged 20 to 69 increased by almost 83%, against a target of 30%. 19. The outcomes of thematic area 4 were underpinned by the Bank’s Health Sector Reform Support project as well as IFC and MIGA financing of health campuses constructed through PPP schemes. The Bank delivered a follow-up health operation (US$134 million) in FY16. In addition, IFC invested US$172 million and mobilized US$256.5 million to support three pioneering PPP projects in the healthcare sector, aiming to build three modern health campuses (with a total capacity of 7,000 beds) and improve the service quality and efficiency of public health services. IFC also invested US$30 million in a leading company in molecular imaging and oncology treatment services. During the CPS period, IFC reached 3.2 million patients through its health sector portfolio companies. 20. The outcomes were supported by a wide range of ASA , including TA on pharmaceuticals systems management, economic sector work on performance-based contracting in family medicine and TA support on sharing Turkey`s health sector reform experiences with other countries. The engagement on the education sector was fully realized through TA on improving educational outcomes and promoting excellence in Turkish schools, plus the ongoing engagement on higher education sector efficiency and improvement. B.2. Thematic Area 5: Progress toward gender equality and inclusive labor markets 21. Thematic area 5 outcomes were partially achieved: although there was progress against all three outcome indicators, only one was met, one was partially met, and one was non-verified. IFC helped increase women’s labor force participation by supporting 2,600 women-owned SMEs and it also partnered with the International Women Directors Network to help increase the number of women on corporate boards. An indicator on helping at least 20 companies to achieve Gender Equity Certification was not fully achieved, though 17 were helped. Finally, it was not possible to verify improved access for social assistance (SA) beneficiaries to active labor market programs, as measured by the number of people enrolled in ISKUR programs, due to data collection shortcomings. 22. Country-level performance in this area included an increase in female labor force participation from 27.6% in 2010 to 31.5% in 2015, though it fell short of a target of 32.6%. At the same time, the 46 coverage of ISKUR`s vocational training rose from 210,000 in 2010 to 465,000 in 2012, but fell to 335,000 in 2015. Turkey’s medium-term challenge, to boost the participation of youth and women in the labor force, still remains, as the OECD average female labor force participation rate is 65 percent. 23. The objectives of thematic area 5 were mainly supported through ASA and the DPLs. The Sustained Shared Growth DPL I (FY15) helped to improve female labor force participation, but the delay in delivering the follow-up DPL hampered progress. The Bank mobilized a SIDA Trust Fund which supported a broad analytical program for increasing women’s access to economic opportunity, and it also provided TA to the Ministry of Development on subnational poverty dynamics. In addition, when Turkey began to flood with almost three million refugees (making it the largest host country in the world), the Bank analyzed the identification and quantification of their impact on urban areas in southeastern Turkey, government relations, labor markets, and pressures on public services and host communities. C. Third Strategic Objective: Deepened Sustainable Development – Partially Achieved C.1. Thematic Area 6: Improved supply of reliable and efficient energy, increased use of renewable energy sources and climate actions under implementation 24. Thematic area 6 outcomes were achieved. Four of five outcome indicators were met, and one was partially met. Turkey continued its solid energy sector reform program satisfactorily while expanding its renewable energy generation capacity. The supply of reliable and efficient energy was improved by reaching 73,000 MW generation capacity, representing a 24,000 MW increase since end-2010. The percentage of renewable electricity generation in total generation reached 31.5% by end-2015, against a target of 30%. Through its power generation/distribution portfolio companies, IFC reached about 7.5 million electricity customers, against a target of 7.2. Moreover, Turkey`s energy security improved, as the end-2016 target to increase gas storage capacity by 19% is being reached, thanks to satisfactory implementation of the IBRD-financed Gas Sector Development Project. Successful implementation of the Gas Sector Development Project prompted preparations for a new IBRD-financed project aiming to further expand Turkey’s gas storage capacity. 25. By contrast, cumulative energy savings, which aimed to reach 4,372 GWh or 1.5% of 2013 total annual demand by 2016 through IBRD-financed projects in SME Energy Efficiency (EE) and Renewable Energy (RE) credit lines, has reached just 3,772 GWh. Besides other reasons (such as low intermediary bank capacity on EE and an under-developed EE services market), failure to meet the target is due partly to an inability to capture EE investments under the intended credit lines: while some SMEs borrowed to buy machinery which is energy efficient, they did not use SME EE/PSREEE project funds in order to avoid the hassle of producing documentation to prove higher energy efficiency. 26. Achievements under this thematic area deserve particular attention. The WBG deployed almost all types of available instruments, achieved strong donor coordination, and mobilized substantial external finance. The Energy Sector Technical Assistance Program, financed by the EU/IPA, supported Turkey’s alignment with the EU Energy Policy. Clean Technology Funds (CTF) grants and concessional loans exceeding US$150 million co-financed IBRD lending operations. The Partnership for Market Readiness (PMR) project is supporting Turkey’s work on setting up a greenhouse gas monitoring, reporting and verification (MRV) system for the power and industrial sectors, and analyzing the various market-based and other GHG mitigation policy options that Turkey may introduce: Turkey was the first country to start implementing a PMR project and it has already shared its experiences on, e.g., its MRV system with peers in the PMR forum. 47 27. IFC`s private sector financing provided a significant contribution to achieving targets in this area, as it invested US$659 million in six power generation projects and US$163 million in one power distribution project, supporting generation of nearly 17,000 GWh per year. In addition, to reduce Turkey’s dependence on imported gas, IFC invested US$40 million in an emerging Turkey-based Oil-field Services Company expanding its operations domestically, and US$50 million in the largest private sector oil and gas producer in Turkey, to expand its oil and gas production from the frontier provinces in southeastern Turkey. Finally, through its financing in both financial and real sectors, IFC supported a number of climate change related projects. IFC provided roughly $300 million to FIs targeting renewable energy and GHG emissions: specifically, it provided US$96 million to Yapi Kredi Leasing in sustainable energy finance; US$150 million to the TSKB to finance projects that reduce GHG emissions, improve waste management practices, and increase efficiency of raw materials for processing and manufacturing; and US$35 million to Is Leasing, co-financed by CTF, to promote energy efficiency and renewable energy projects in various sectors in Turkey through a wholesale approach In the real sector, it financed EE projects including in the cardboard industry, textiles, agribusiness, and packaging film industry as well as solid waste and wastewater treatment, construction, public transport and healthcare campuses. In FY16, IFC invested $100 million equity in Akfen Enerji, a renewable energy platform company with a portfolio of operational hydropower and solar projects of 211MW and an additional 178MW under construction and development. 28. Like lending support, ASA was diverse and innovative while managing to mobilize external funds to finance the products. An Energy Reform Milestones and Challenges (FY15) report captured the success and lessons learnt through sector reform, not only supporting the Turkey program but also serving as a global knowledge product to share the Turkish experience. ESMAP funded an Institutional Review of Energy Efficiency (FY15), Social Monitoring of the Energy Sector (FY14), TA on the electricity market (FY12) and an ongoing analysis of distribution companies. It is important particularly to emphasize the EU/IPA-funded Energy Sector TA studies, under RETF modality for the first time introduced in Turkey, which helped the primary energy sector counterpart, MENR, to improve its analytical capacity as well as to receive high quality advisory services. C.2. Thematic Area 7: Strengthened environmental management and adaptation to climate change 29. Thematic area 7 outcomes were partially achieved, as two of three indicators were met and one was not. The indicator linked to (i) Improved Water Basin Management through preparation of protection action plans for Turkey’s 25 river basins, taking into account principles of the Water Framework Directive, was achieved through policy support provided under the ESES DPL. The CPSPR-introduced indicator (ii) targeting the completion of a draft Integrated Water Basin Management plan and establishment of a Basin Commission in a selected pilot basin, was achieved. However, the other indicator introduced at the CPSPR, viz. targeting the establishment of Natural Capital Accounts in two selected water basins, was not met as it was discovered that more support was needed for valuation of natural resources prior to establishing natural capital accounts. WBG support came through ASA and was fully devoted to valuation methodology and two case studies to prepare the foundation for establishing natural capital accounts at a later stage. Two World Bank publications - one on forest and the other on water valuation methods – were prepared with the support of MoFWA and delivered to relevant government agencies. As part of the umbrella TA on natural capital, the forestry component included the development of a Forest Policy Note (FPN) and socio- economic survey of forest villagers with the Directorate General of Forestry (DGF) in the Ministry of Environment and Water. 48 30. Country-level performance was impacted due to persistent delays in the ratification of the water law intended to improve adaptation to climate change through enhanced water resources management. Accordingly, River Basin Management Plans, including climate change adaptation measures for water basins, were not completed. However, it is noteworthy that a newly approved regulation on ‘Environmental Permits and Licenses’ sets the facilities to obtain an integrated ‘e-permit’ (2,394 issued as of 2012 and 3,222 by end 2013) as well as the hiring of an environmental officer who is responsible for the environmental permitting process for the facility. C.3. Thematic Area 8: Improved sustainability of Turkish cities 31. Thematic area 8 outcomes were partially achieved, with three of seven outcomes indicators fully met, three partially met, and one not met. A seismic risk mitigation target was achieved, as 806 public buildings in Istanbul were retrofitted or reconstructed to resist a major earthquake, compared to a target of 763. Likewise, the customer satisfaction rate for Land Registry services achieved 90% against a target of 85%. In addition, an additional 2,000,000+ people in cities financed under the Municipal Services Project gained access to enhanced urban services, e.g., water supply, sewerage, and solid waste management, against a target of 800,000. Finally, governance was improved in six municipalities through performance improvement efforts and competition among local public administrations to receive a higher Citizen Report Card rating, with the use of EU funds. 32. IFC linked outcome indicators were also partially achieved. Some 277,000 weekday riders benefitted from the new Istanbul Kadikoy/Kartal metro commuter link in the first half of 2016 (against targeted 419,000). While the Izmir electric tramway project and improved traffic management system are still under construction; they are on track to reach the target of enabling an additional 240,000 people to have access to transportation by 2018. Finally, the reduction of untreated wastewater discharge into the Aegean Sea through an expansion of the IFC-financed Izmir Waste Water Treatment Plant was not met, due to a delay in construction, but results are expected to be reached in 2017, as the project becomes operational by end-2016. in addition, the Bank completed implementation of a railways project while also supporting the de-bundling of TCDD (achieved in mid-2016). 33. A major driver of success under thematic area 8 was pre-CPS approved IBRD and IFC financing that disbursed relatively smoothly during the CPS period. However, there have been setbacks with successor projects; for example, the Sustainable Cities project was not delivered until mid-FY17and the National Disaster Risk Management project is still under preparation. 34. To improve development prospects for Turkish Cities, the WBG launched in 2015 a Joint Implementation Program (JIP) for sustainable cities. The objective was to promote provision of a seamless package of complementary IBRD-IFC advisory services and financing to encourage uptake of sustainable development solutions by Turkey’s cities. IFC’s work on sustainable cities has been a strong success. IFC invested in Izmir and Istanbul, both of which have strong credit histories and are in a position to access market-based finance at commercial rates, and developed strategic client engagement partnerships with these municipalities. IFC also launched the ECA Cities Platform, a first of its kind project development facility that is designed to help municipalities increase their pipeline of bankable projects, by funding technical studies on technology options, environmental and social risks and different financing options. IFC used this facility in Istanbul, Izmir, and Antalya to support infrastructure project development. IFC also invested in a novel green mortgage finance program with a commercial lender, Odeabank, through a credit line to promote the construction and sale of green residential properties; and it supported the construction 49 of green hospitals in Kayseri, Adana and Ankara. Lastly, IFC provided TA to Government and private sector actors in promoting green housing. 35. Bank support in this area was through ASA and Trust Funds. An Urbanization Review was prepared to share the successful urbanization process in Turkey and to provide policy recommendations that the Government is using for addressing critical challenges of city competitiveness, housing markets, urban transport, municipal finance, and interagency cooperation. The Bank also helped build the capacity of Turkey’s National Emergency and Disaster Management Agency (AFAD) through a US$1.5 million grant from the Global Facility for Disaster Reduction and Recovery (GFDRR) in 2015. In addition, a Municipal Credit Worthiness Academy was conducted with participation of 25 of 30 metropolitan municipalities, funded by PPIAF and Korean Green Growth Funds. Regarding the transport sector, Ministry of Transport as well as TCDD have prioritized (to be funded under EU/IPA funds) a TA program for urban transport, ITS and intermodal transport. D. Cross Cutting Thematic Priority: Sharing Turkey`s Experience – Results, Knowledge and Capacity 36. Knowledge sharing opportunities were developed in the second half of the CPS period. The Bank’s flagship report, Turkey’s Transitions, analyzed Turkey’s progress to the threshold of high income, identified the fundamental sources, unlocked a useful discussion on the importance of economic institutions for sustained growth and served as a useful means to share Turkey`s development story. Similarly, the urbanization review was used to disseminate Turkey`s vast experience on urbanization, triggering the Governments of Afghanistan, Morocco, and Tunisia to visit Turkey to learn more about its experience. In addition, health and energy sector knowledge products were able to capture milestones and challenges of successful sectoral reforms implemented in Turkey. 37. IBRD lending operations also triggered south-south cooperation between Turkey and other countries. The achievements of the Istanbul Seismic Risk Mitigation Projects were disseminated in more than 40 countries in various events. Land Registry and Cadaster Project achievements were introduced to more than 10 country missions to Turkey, and TKGM hosted (with Bank support) the World Cadaster Summit 2015 in Istanbul, which was a high-profile international event attracting some 3,300 cadastral and related professionals and organizations from 92 countries. 3. WORLD BANK GROUP PERFORMANCE 38. The World Bank Group’s overall performance is rated good. The assessment is based on (i) continued relevance of the CPS objectives with Turkey`s national development objectives, as well as effective use of mid-course revision through the CPS PR to align with the country`s evolving needs and challenges; (ii) robust and effective implementation of the program, through pro-active measures, which resulted in high disbursement ratios; (iii) the proactive and constructive dialogue carried out with Turkish authorities and other stakeholders to respond in a timely manner to evolving country needs and to mitigate risks as appropriate; (iv) strong internal coordination among WBG institutions; and (v) the successful focus on effective coordination with other IFIs and the EU to boost development impact. However, performance was also challenged by: (i) cancellations and delays in delivering key IBRD lending operations; (ii) delayed decision–making due to the 2015 electoral cycle; and (iii) uneven linking of operations with WBG outcomes under some thematic areas, making it difficult, in certain instances, to measure the impact of WBG support. 50 Design 39. The CPS objectives remained relevant to Turkey`s development agenda . The initial CPS objectives were aligned with the Ninth Development Plan (2007-2013) and remained highly relevant to Turkey`s Tenth Development Plan (2014-2018). The CPS pillars were mutually reinforcing and linkages across thematic areas were strong. 40. The WBG engagement was flexible, and the CPS PR was used as an opportunity to respond to evolving circumstances. The extension of the CPS during the CPS PR to cover FY16 was appropriate, given that 2015 was subject to a protracted electoral cycle that would impact implementation progress, and it was used effectively to enhance the focus on addressing remaining pockets of poverty and vulnerability. The CPS thematic areas were tightened from ten to eight at the time of the CPS PR. 41. The program maintained selectivity and focus on the lending side, albeit less so on the non-lending side. In line with the CPS objectives, the lending program remained focused on SME financing, renewable energy and energy efficiency, and urban development. In keeping with the Bank’s approach in Turkey (and many other MICs) of providing a broad knowledge program, the ASA program was designed to provide global knowledge to the Government in areas where there was demand for partnership, and also targeted at building the knowledge base in other areas to pave the way for future engagement. That said, the non- lending portfolio was spread quite broadly, potentially rendering the impacts less measurable. This implies more opportunities to improve cooperation with the government to design the future ASA program. 42. The CPS PR identified critical economic, political and regional risks that ultimately materialized to some degree. Mitigation measures, such as proactive portfolio management and enhanced communication and outreach strategies, helped manage risks so that their impact on realizing the CPS objectives was reduced. A CPS Steering Committee, chaired by the IBRD Country Director and the Undersecretaries of the Treasury and of the Ministry of Development, helped to guide the program, tackle implementation challenges, and take decisions that have significant bearing on the future of proposed projects. The risk that reform would lag was identified at the time of the CPSPR, and the delivery of the DPL series was adapted accordingly. Even unanticipated regional risks, arising from the large influx of Syrian refugees from 2012 onwards, were effectively incorporated into the program through the Bank providing knowledge support on the identification and quantification of the impact of the Syrian refugee crisis on host communities. 43. The CPS result matrix set out measurable targets. Thematic areas (such as energy, health and urban development) that were supported by lending operations tended to demonstrate clear linkages between WBG operations and outcomes realized. In result areas predominantly supported by ASA, the link was less directly apparent. In certain instances, WBG outcomes were expressed in terms of legislative acts of Parliament rather than the effects or changes those laws were intended to bring, and in some important cases the legislative acts had not been completed by the end of the CPS period (e.g., the proposed patent law, income tax law, and gas market law). Implementation 44. New IBRD lending reached US$4.3 billion. The original CPS target of US$4.5 billion for FY12-15 was revised upwards at the time of the CPS PR to US$6.5 billion for FY12-16, mainly because the single borrower limit had been lifted. However total IBRD delivery reached US$4.3 billion during the CPS period, 51 allocated in 12 projects, mainly because delays in reaching final decisions on new lending resulted in dropping or slipping operations. A proposed US$300 million Long-Term Finance Guarantee project and a US$50 Water Basin Management project were both dropped, and delays impacted the second DPL under the Sustained Shared Growth series (US$500 million), the Geothermal Development Project (US$250 million), and the Sustainable Cities Project (US$133 million). The main reason behind these slippages were three: i. Project designs that challenge the administrative and legal framework of the client and under- estimate the potential impact of such designs on future implementation. ii. Slow intra-governmental decision-making, mostly due to a protracted electoral cycle, but sometimes due to weak ownership of projects; iii. Poor alignment of Bank and Government administrative and procedural requirements for IPFs; and iv. Challenges in communicating the value-addition of IBRD financing in the face of ministerial ambivalence. This is because, from the perspective of a line ministry, an IBRD loan does not result in a real financial addition to the line ministry’s budget (IBRD funds generally substitute for budget that the Ministry of Finance would otherwise have provided to the line ministry) while IBRD lending adds complexity in the form of learning about and using IBRD procedures. IBRD aimed during the CPS period to increase the composition of IPF lending in the Bank’s program, where such partnership could be especially effective because IBRD could bring knowledge and implementation support in addition to financing. However, because IPFs proved difficult to prepare, the Government continued to show a preference for lines of credit and DPLs. New IPF lending for the past eight years has tended to be concentrated in additional financing and in sectors where IBRD is already active and well-known, since in these circumstances most implementation problems will already have been resolved. By contrast, efforts to exploit new lending opportunities tended to encounter multiple difficulties over time, and often ended without success. In some of these cases, IBRD’s project preparatory work (due diligence, project design, etc.) opened a path for other IFIs and partners to provide financing because those partners recognized the rigor and relevance of Bank project preparation and because the Government found the other IFIs had lower financing costs or less demanding requirements. This situation meant that IBRD played an important convening and leveraging role for other development partners, while sometimes not ending up as one of the financiers. 45. During the CPS period, IFC invested a record of US$4.55 billion - of which US$3.58 billion was for IFC’s own account and US$973 million in mobilization. During the CPS period, IFC`s financing, including mobilization, was allocated in 84 projects 8, focused on energy, municipal and transport infrastructure, financial institutions (with emphasis on energy efficiency), access to finance for SMEs and women entrepreneurs, deepening of capital markets, private health and education, and enhancing the competitiveness of Turkish firms including their expansion to other emerging markets. Through its investments IFC continued to offer longer maturity, higher environmental and social standards, better corporate governance and global knowledge. This strong performance was the result of increasing financing to both new and existing clients. In line with its strategy, IFC has focused its advisory services assistance to firm-level supporting the pipeline and portfolio companies. 8 27 projects in Financial Markets (US$ 1.59 billion), 19 in Infrastructure (US$ 1.54 billion), 29 in Manufacturing, Agribusiness, and Services (US$ 1.26 billion), and 9 in Media, Technology and Telecoms (US$ 169 million). 52 46. MIGA`s guarantee gross exposure grew from $458 million in FY13 to $1.695 billion in FY16. MIGA intervention helped mobilize foreign private financing in support of strategic areas of the economy, such as healthcare, the financial sector and the transport sector. Turkey is MIGA’s largest exposure cou ntry; the product mix includes traditional political risk insurance as well as the non-honoring, credit guarantee product. Joint IFC-MIGA business development resulted in MIGA's US$347 million in guarantees to five new projects, benefitting also from IFC's financing, in municipal infrastructure and healthcare. 47. IBRD portfolio implementation reached record high disbursement ratios throughout the CPS period. Intensive portfolio monitoring resulted in early detection of problems. The disbursement ratio, except for FY14 when it dipped to 20%, remained above 30% so that almost one-third of available IBRD resources was disbursed in each fiscal year, due in part to the application of a newly-established intensive follow-up mechanism in FY14. Table 1: Selected IBRD Portfolio Indicators for Turkey (FY12- FY16) FY12 FY13 FY14 FY15 FY16 Number of Active Projects 11 12 12 12 10 Net Commitments (US$ml) 4,742 5,763 5,078 4,310 3,899 Disbursement Ratio (investment) 36% 37% 20% 36% 31% Proactivity Index9 67% 100% 100% 100% 100% % Projects at Risk 6% 17% 17% 8% 0% % Commitments at Risk 7% 11% 14% 4% 0% % Problem Projects 9% 17% 8% 8% 0% 48. The IBRD portfolio became further concentrated while contracting almost 25% in volume. The joint impact of (i) delayed delivery of new operations and (ii) fast disbursement of active projects reduced the active portfolio from US$5.5 billion to US$3.9 billion. This concentration of the portfolio helped Bank and Government teams focus on implementation challenges while mobilizing timely and sufficient resources for critical issues in safeguards, procurement, and financial management. With experienced PIUs, additional finance to existing operations with retroactive financing emerged as a preferred option. 49. IFC’s committed portfolio at the beginning of the CPS period stood at US$2.3 billion (own account), while at the end it increased to US$3.8 billion. The portfolio is further diversified, with financial markets operations decreasing from 48% in FY12 to 41% in FY16, infrastructure increasing from 27% to 34%, manufacturing, services and agriculture portfolio falling from about 22% to 20%, and media, technology and telecommunications increasing from 3% to 5%. The quality of the portfolio also improved, as NPLs decreased from $68.6 million at the beginning of the CPS period to $15.3 million at the end of FY16 (or from 3.9 percent to 0.6 percent of the outstanding loan portfolio). 50. Analytical work allowed the WBG to provide knowledge in priority areas supporting a wide range of Turkey’s development challenges. The Bank responded to client demand for partnership in delivering global knowledge and analytical work. The need for further ASA prioritization was identified in the CPSPR and, as a result, programmatic ASA was introduced to keep strategic focus. Given Turkey’s size and progress towards high middle-income status, the development challenges are sophisticated and 9 The share of portfolio IBRD/IDA/RETF projects in “actual” problem status 12 months ago that had a proactivity action in the last 12 months, divided by the total number of problem projects from 12 months ago. 53 require deep, tailored, cross-sectoral analysis. This implies more resources to diagnose the situation and offer policy solutions. Moreover, a more compact, selective, and output-based ASA program determined in consultation with the Government will increase the value of Bank analyses and introduce significant cost benefits. Another challenge faced in ASA was uneven access to data: in some cases, analysis was based on publicly available data only while, in other cases, institutions were either not authorized to share data or did not share it because they believed it to be unreliable. 51. IBRD addressed resource constraints on the knowledge portfolio by mobilizing supplementary external resources. During the CPS period, innovative non-lending activities, including an EU/IPA-funded RAS on Regional Investment Climate Assessment (RICA, FY15), EU/IPA-funded RETF for Energy Sector Technical Assistance (FY15 and FY16), EU-funded TF for Customs Union Evaluation (FY14), and SIDA- funded TA on Women`s Access to Economic Opportunities were introduced to support new business lines. Also, EU/IPA-funding has been secured for a forthcoming transport sector BETF and a Municipal Sector RETF (both currently under preparation). RICA is the first example of a RAS output in Turkey, but because of its peculiar structure, it does not constitute a replicable model for all area and institutions. As a consequence, IBRD has not yet succeeded in developing a full-fledged RAS program in Turkey, though progress is being made to overcome IBRD and government differences over key provisions (related inter alia to official language, sole-sourcing, and dispute resolution). A draft RAS Framework Agreement prepared for the Steering Committee`s review, intended to resolve key provisions, was not able to proceed for approval. It is expected that the Bank will lead efforts to resolve pending legal complexities in the draft PPP RAS agreement. . 52. A Bank-IFC Joint Implementation Plan (JIP) on sustainable cities has not yet fully realized its intended results. On the IFC side, there was good progress in advancing investments in urban infrastructure, but on the Bank side delivery of the Sustainable Cities operation was delayed to end-2016, so the full impact of a joint IBRD-IFC approach has not yet been felt. However, joint energy sector interventions, although not designed through a JIP, have proven to be very satisfactory, suggesting the potential, going forward, for enhanced strategic engagement between IFC and IBRD. 53. Donor coordination was strong. Effective coordination with the EU while introducing BETF, RETF and RAS modalities (through the IPA instrument) represented an important milestone that offers significant potential for the next CPF period. The Syrian refugee work is a key focus of this strengthened partnership. Furthermore, cooperation established with EBRD on Energy Sector TA, AFD on the municipal sector, EIB and AIIB on the TANAP operation, GIZ on the PMR project, and SIDA on the gender agenda represent the new frontiers of Bank Group donor coordination in Turkey. 4. ALIGNMENT WITH CORPORATE GOALS 54. The revised CPS program is closely aligned to the WBG’s goals of supporting poverty reduction and boosting shared prosperity. Although the original CPS was prepared prior to the adoption of the WBG twin goals, its objectives partially focused on enhancing the socio-economic condition of key target groups through the labor market activation of women and youth (as part of Objective 1), as well as early childhood development and the development of the private sector gender equity certification program (as part of Objective 2). 55. The CPS PR provided a succinct analysis of the significant progress made in Turkey from 2003- 11 in tackling poverty, principally through increased employment and enhanced private sector 54 earnings. It also identified key remaining challenges associated, for example, with the adequacy of social protection in a context of economic volatility, the rural/urban divide, female participation in the labor force, and inter-generational inequality. The PR noted that these and other issues would merit closer study in the context of the forthcoming SCD and, as such, it committed to undertaking analytical work designed to fill information gaps to validate the alignment of the Bank Grou p’s activities with the twin goals over the remainder of the CPS. 56. During the CPS Design stage, the Strategic Framework for Mainstreaming Citizen Engagement (CE) in WBG Operations was not in place. However, after adoption, three of five new lending operations during the CPS period were CE-complaint. Among the existing CPS-level CE-linked indicators, “performance improvement efforts and competition underway among local public administrations to receive higher rating based on Citizen Report Card” and “Custome r satisfaction rate for Land Registry services improved” were fully met and even surpassed. 5. MAIN LESSONS LEARNT 57. The articulation of a WBG CPS facilitated a coordinated approach at the strategic level. The size of IFC in Turkey is very large relative to other countries so a coordinated WBG approach is naturally more important and tangible. The results achieved under the CPS were better in those areas where IBRD, IFC and MIGA worked in parallel, where results indicators were aligned to their operations, and where there is concentrated engagement in a sector utilizing a range of available lending and non-lending instruments. WBG success in the energy sector is demonstrative of the type of strategically focused, coordinated approach that will be likely to generate further success over the course of the forthcoming CPF. 58. CPS objectives were well aligned with Turkey’s development objectives, but the results framework could have been more robustly framed, and could have presented indicators that demonstrated clearer links between the program and planned outcomes. This is challenging, given the relative scale of the Turkish economy and the difficulties in attribution of the Bank Group’s program to results achieved. Going forward, enhanced efforts will be required more sharply to focus the results framework for Turkey’s new CPF and create clearer understanding of attribution to results of the program. 59. Success requires long-term engagement that has carefully sequenced interventions from different players. For example, the Bank’s knowledge and DPL work set the stage for the enabling environment and overall strategic framework for certain sectors (e.g., energy). This was then followed by a stepped-up IFC engagement with private sector partners in those sectors. Moreover, the Bank’s convening role was clearly effective, given that other financial partners were sometimes able to step into a maturing sectoral framework with support for the public sector, sometimes leaving IBRD out of the actual financing. 60. The IFC program showed the importance of building a longer-term relationship with the private sector. Transforming the Istanbul IFC office from a regional hub into IFC’s first operations center by centralizing senior staff and management in close proximity (including the Regional Vice President, the Regional Industry Directors and Managers and the head of Advisory) helped IFC to respond quickly to market opportunities in Turkey and generate strong investment and development results which paved the way for solid success. 61. Given that IBRD lending involves administrative complexity, does not increase ministerial budgets, and requires the extensive use of non-government (i.e., IBRD) systems, new IPF lending will 55 remain challenging in Turkey. The Government prefers to commit to operations that guarantee smooth implementation in terms of legislative compliance and make use of domestic procurement and financial management systems. Initiating new IPF lending in this environment necessitates a careful assessment and validation of government ownership during the early stages of project preparation. This implies that project preparation often involves considerable time. Overall, these constraints suggest a need for a selective, persistent, and supportive engagement with a view to building trust and demonstrating potential value added in pursuit of desired development outcomes. This also obliges the World Bank Group to understand very well the Turkish context and the client’s own budgetary and public sector management processes and laws. 62. Given the great effort required to develop new IPFs in Turkey, the Bank should focus on sectors where it is already engaged and on projects where expressed client demand is very high (e.g., TANAP). In the second half of the CPS period (FY14-16), IBRD delivered four IPFs, two of which used additional financing. Three other projects, which were planned for the CPS period, were approved with delays, within the six months immediately following the end of the CPS period. All of these deliveries were in sectors where the Bank was already active with an investment operation: The Bank was not able to deliver new IPFs in new sectors with new innovative approaches in the implementation process. While this experience resulted in a more selective lending program, it risks being too selective going forward. If the Bank wants to evolve its program in Turkey to address development priorities, it needs to recognize that there will be a significant up-front cost of engaging – selectively and deliberately – in new sectors through IPF and that the timeframe for delivery will be lengthy and ultimately will involve a high degree of uncertainty. At the same time, it will be important accurately and comprehensively to assess client demand and avoid a trade-off between design innovation and implementation to help reduce up-front costs and future uncertainty. It will also be important for IBRD to articulate to a proposed government partner what additional value IBRD brings when it participates in lending, why higher financing costs may be justified, and how IBRD safeguards may improve development outcomes over the longer term. That said, the Bank will not be able to make a convincing case for IBRD financing in all areas where the Bank would like to contribute to achieving development outcomes in Turkey, and so a concentration on analytical work, policy advice, DPLs and credit lines is likely to persist. The introduction of PforR in the Turkey portfolio to address the IPF procedural complexity may be part of the solution for the new CPF period. 63. The WBG needs more strategically to manage its knowledge and ASA agenda, such that it is demonstrably more demand-driven with proven ownership. The challenges encountered during the CPS as regards access to data and dissemination of reports show that there have been examples where the client was not fully on board with the knowledge work or did not want to commit publicly to World Bank recommendations. This could have been better managed through more carefully defining the scope of the work at the outset, based on strongly-agreed priorities and areas of focus, especially at higher levels of authority within the Government. In the future, the knowledge program could have a more concerted focus, perhaps through delivering fewer more targeted reports (whether they comprise deep-dive diagnostics or just-in-time analysis or policy advice), that are more likely to engage the appropriate level of attention. 64. The lessons learnt from the knowledge work highlight the need for a careful approach to the development of any future RAS business in Turkey. Any possible RAS would have to be explicitly linked to selective, strategic engagement in sectors in which the WBG has a comparative advantage or global knowledge above what Turkey can access directly. Securing any future RAS in Turkey naturally means having a clearer level of ownership that is agreed up-front and that should, in principle, allow for a better partnership on data sharing, diagnostic and dissemination. This requires a deepened understanding of and adaption to Turkey’s public sector processes. 56 CPS Results Framework FY 12-16 Pillar 1: Enhanced Competitiveness and Employment - Partially Achieved Thematic Area 1 : Sustained macroeconomic and financial stability and strengthened exports, domestic savings, and external resilience . – Partially Achieved WBG Outcome Indicators: Progress to Date: Financing: x DPL – Sustaining Shared Growth I (FY15) P146322 Outcome 1: Increased uptake of new Met. Number of participants increased x DPL - Competitiveness and Savings (CSDPL) (FY13) P127787 voluntary pension scheme. significantly and stood at 5.1 million at the x IFC long-term financing to increase competitiveness of private companies end of 2014. This number reached 6.2 Baseline: 3.1 mil participants in 2012. x IFC trade finance lines million in April 2016. Government also Target: No specific target was set. x MIGA guarantee covering Turk Eximbank (FY15) made the voluntary pension scheme `must` Knowledge: for the new private sector employees for x Country Economic Memorandum on Human and Physical Capital (Investments) the first two months of the duty. At the end (FY15) P148205 of the second month, the employee can opt x Turkey's Transitions: Integration, Inclusion, Institutions/Country Economic out from the system. Memorandum (FY15) (P133570) Outcome 2: New income tax law results Not Met. New Income Tax law has not x Public Finance Review (FY14) P130699 in increased number of taxpayers file been ratified. Therefore, there is no major increase in the number of taxpayers by end x Country Economic Memorandum on Foreign Trade (FY14) P129350 income tax. Baseline: 523,982 in 2012. 2016. x Customs Union Evaluation (FY14) P144290 TF European Commission: Target:10% increase by 2014 x TA Regular Economic Update (FY14) P146343 x TA Financial Literacy (which is follow-up to Programmatic Country Economic Memorandum on Savings) (FY12) P127354 Thematic Area 2: Improved investment and business climate; deepened and broadened access to finance; increased employment. --- Partially Achieved WBG Outcome Indicators: Progress to Date: IBRD Financing: x MSME Loan to HalkBank (FY16) Outcome 1: Increase in new patent Not Met. Due to the delay in ratification x DPL – Sustaining Shared Growth I (FY15) P146322 applications. of the New Patent Law the target was not x Innovative Access to Finance Project (FY15) P147183 plus TF015830 met. No targets were set against the x Competitiveness and Savings DPL (CSDPL) (FY13) P127787 Baseline: 5,600 in 2013. baselines provided; but by end-FY16, x Third Access to Finance for SMEs (FY13) P130864 there were only 5,512 new patent x Second Access to Finance for Small and Medium Enterprises Project (FY10) Target: No specific target was set. applications (against a 2013 baseline of P118308 5,600). x First Access to Finance for Small and Medium Enterprises Project (FY06) Actual: 5,512 in 2015. (Source: TPE) x Fourth Export Finance Intermediation Loan (EFIL IV) (FY08) P096858 57 Outcome 2: Implementation of Not Verified. No information available. integrated company regulation system Government does not publicly disclose the (MERSIS) leading to inclusion of all data. companies in all of the [238] registries across Turkey. IFC and MIGA Financing: x IFC Investments in the real sector Baseline: 204 companies registered in x IFC use of securitization structure to increase the depth and competition of the 2012. Turkish banking sector: Invested in long tenor structured products of several Target: No specific target was set. Turkish banks (covered bonds, green bonds, DPR securitizations). IFC also Outcome 3: Export growth in firms Met. Export growth by participating firms anchored Eurobond issuances of its clients from manufacturing and infrastructure benefiting from IBRD financing relative relative to sector export growth (median) sectors in Turkey. to sector export growth is greater than at the closing of EFIL IV project was 5.96 x IFC long-term financing to the banking sector for on-lending to underserved zero. in 2015. segments of the economy including female entrepreneurs, MSMEs and the poorer Target: Higher than sector average regions Outcome 4: Sales growth in SMEs Met. On average sales revenue of the x IFC Short-term financing and trade benefiting from IBRD financing greater SMEs benefitted from IBRD SME II credit x MIGA guarantee covering Orfin Finansman A.S. (FY15) than zero adjusted for inflation. line increased by 41.5 percent Knowledge: Target: Higher than sector average x Savings & Financial Sector Diversification (P159281) Outcome 5: Gross non-performing Partially Met. 3 out of 6 financial x TF: Strengthening Solvency Supervision (FY14) (P131766) loans (NPL) ratios for financial institutions recorded lower than sector x Country Economic Memorandum Human and Physical Capital institutions benefiting from IBRD NPL average. Ziraat, TSKB and Exim (Investments)(FY15) P148205 financing do not exceed the average for have been consistently under sectoral NPL x ESW Turkey’s Transitions: Integration, Inclusion, Institutions/Country Economic the banking sector (2.7 percent as of rates while Halk, Vakif and TKB have Memorandum (FY15) P133570 end-2011, BRSA). been above sectoral average. x TA Private Sector Development (FY15) P146494 Target: Lower than sector average x TA Financial Inclusion and Deepening (FY15) P146626 Outcome 6: IFC estimates leveraging Met. Reached about 759,000 SMEs total x ESW Reform for Competitiveness (FY14) P127856 through local financial intermediaries and 112,182 additional farmers. These x TA Financial Sector Development II (FY14) P132968 financing to about 100,000 SME clients indicators are calculated through IFC`s x TA Public-Private Partnership (FY14) P145352 and P148135 forward-going. and 120,000 farmers. investment portfolio intermediaries. x ESW on Value Chain Trade, Services and Logistics (programmatic beginning FY15) Outcome 7: Increase in corporate bond Unmet. Due to domestic and global x ESW on Innovation and Business Climate (programmatic beginning FY15) issuance. uncertainties in the markets issuances fell x TF: Trade Finance (PF015830) Baseline: TL 50.3 bn (2013). down significantly in the past 2 years. TL x Joint MNA/ECA cross-regional knowledge sharing initiative on the ‘How-to of Target: 50 bn (2015). 44 billion (2014), TL, TL 44.5 (2015) Technology Acquisition, Innovation and Entrepreneurship’ x Programmatic Jobs Series: Outcome 8: Percentage of woman saved Met. 5.5 % (Findex 2014 released in 1) Programmatic Jobs: Managing Labor Markets through the Business Cycle at a financial institution in the past year, September 2015. Findex is a global survey (FY12) P123771 female (% age 15+) and is not conducted annually but in 3-4 2) Programmatic Jobs: Activation of Low Skilled Youth and Women (FY14) Baseline 2 % (Findex 2011) year intervals). P131099 Target: 3.3% (Findex 2015) 3) Programmatic Jobs: Creating Good Jobs (FY15) P147432 58 Outcome 9: IFC’s real sector portfolio Mostly Met. 66,367 additional jobs x Impact Evaluation of ISKUR’s (Turkish Employment Agency) Vocational Training companies will provide about additional created. Programs (FY14) P120514 70,000 jobs. x TA Programmatic Human Development (FY13) P133668 x TA Programmatic Human Development (FY12) P 128493 x IFC Support for vocational education Thematic Area 3: Improved governance through enhanced transparency to ensure a level playing field. – Fully Achieved WBG Outcome Indicators: Progress to Date: Financing: x DPL – Sustaining Shared Growth I (FY15) P146322 Outcome 1: Increase in number of firms Met. The Council of Ministers decision x TF GPF (Governance Partnership Facility): Capacity Building for the Parliament with independent audit: published in the Official Gazette dated 19 (FY 09 – FY14) P131181 March 2016 further reduced the threshold x TF IDF (Institutional Development Fund): Strengthening Public Internal Audit Baseline: 2500 in 2013. establishing the auditing requirements for Function (P128662) companies. The number of firms with x TF SAFE (Strengthening Accountability and Fiduciary Environment): Enhancing Target: 3500 in 2015. independent audit by end 2016 is expected the Supreme Audit Function of the Turkish Courts of Accounts (FY 14) P128598 to exceed 5,000. Knowledge : x SOE Corporate Governance TA (P152468) x ESW Turkey’s Transitions: Integration, Inclusion, Institutions/Country Economic Memorandum (FY15) (P133570) x ESW Transport Public Expenditure Review (FY12) P123074 x TA: Public Financial Management and Governance (FY14) P147805 x TA Programmatic Public Financial Management (PPFM) Study. (FY13) P130537. x TA: Programmatic Governance (FY15/16) x IFC Corporate Governance advisory project x IFC, through its investments, will continue to offer corporate governance advice to its clients x TA Justice Sector Performance (FY14) P145480 Pillar 2: Improved Equity and Social Services – Partially Achieved Thematic Area 4: Improved quality and equity of social services - Fully Achieved WBG Outcome Indicators: Progress to Date: Financing in Health: 59 Outcome 1: Ministry of Health is Met. The x Health System Strengthening & Support (FY16) reorganized and focuses exclusively on reorganization of x Project in Support of Restructuring of Health previous name: Health Transformation and Social the health sector’s stewardship Ministry of Health has Security Reform Project APL 2 (FY09) P102172 functions by 2015. been achieved through x TF Governance Partnership Facility (GPF): Health Transformation and Social Security Reform (FY09) the Decree Law 663 x Adana Health Project (FY15), IFC's first PPP project in the healthcare sector and a first for Turkey. dated November 2011. The secondary x Etlik Health PPP and Kayseri Health PPP (FY15, IFC) – PPPs to build integrated health campuses. legislation has been x MIGA guarantee of equity investment into Adana Health PPP Project (FY15). approved by x MIGA guarantee of equity investment and debt financing into Yozgat Health PPP Project (FY15). November 2012. Knowledge in Health: Outcome 2: All public hospitals Met. The x Impact Evaluation HRBF Grant Health (programmed FY15/FY16) P130373 organized in public hospital unions and reorganization of x TA Pharmaceuticals (FY14) P133309 paid on the basis of performance Ministry of Health has x TA Support to Sharing Lessons in Health Sector Reform including policy notes on the political contracts within a global budget. been achieved through economy of health reform, hospital restructuring, and health financing. (FY14) P144940 the Decree Law 663 dated November 2011. x ESW Performance-based contracting in Family Medicine (FY13) P129248 The secondary x IFC’s investments to improve access to high-quality private health care services legislation has been Knowledge in Education: approved by x Programmatic work likely covering school autonomy and financing is planned for FY15/16. November 2012. x Improving Educational Outcomes (FY14) P132094 Outcome 3: Cervical cancer screening Met. By June 2016, x Promoting Excellence in Turkish Schools (FY 13) P129423 among women aged 20-69 increased. Cervical cancer x Improving the Quality and Equity of Basic Education (FY12) P122445 screening has among x School Based Management in Turkey (FY15) P148207 Baseline: 19% in 2012. women aged 20-69 Target: increase by 30% by 2016 increased 83.6% compared to 2012 baseline. Actual: 82% Thematic Area 5: Progress made toward gender equality and inclusive labor markets - Partially Achieved WBG Outcome Indicators: Progress to Date: Financing: x DPL – Sustaining Shared Growth I (FY15) Outcome 1: At least 20 companies Partially Met. x Increasing Women’s Access to Economic Opportunity P146215; TF SIDA granted new Gender Equity Gender Equity Certification has been x IFC support for women-owned SMEs through its portfolio banks Certification by end of 2015. received by 17 firms. Knowledge: Baseline: Zero in 2011. x ESW Programmatic Jobs: Activation of Low Skilled Youth and Women (FY14) Outcome 2: Contribution to increased Met. IFC reached 2,633 women owned P131099 female labor force participation through enterprises through its SME sector x TA Gender Equity Certification in the Private Sector (FY12 P129435 and FY13 P support to 900 women owned SMEs portfolio. 133741) through IFC financed SMEs. 60 Outcome 3: Improved access for Social Not Verified. ISKUR started registering x Impact Evaluation of ISKUR’s (Turkish Employment Agency) Vocational Training Assistance beneficiaries to Active Labor SA beneficiaries into the database but then Programs (FY14) P120514 Market Programs as measured by the stopped due to the quality of data. number of people enrolled in ISKUR Therefore, there is no available data to programs through social solidarity measure the progress so far. foundations (semi-autonomous public agencies) Baseline 2012: 9500 Target: 40000 by end FY15. Pillar 3: Deepened Sustainable Development – Partially Achieved Thematic Area 6: Improved supply of reliable and efficient energy, increased use of renewable energy sources and climate actions under implementation - Fully Achieved WBG Outcome Indicators: Progress to Date: Financing: x DPL – Sustaining Shared Growth I (FY15) P146322 x Gas Sector Development Project – Additional Financing (FY15) P133565 plus CTF Outcome 1: Improved supply of reliable Met. Generation capacity reached nearly x Renewable Energy Infrastructure (TEIAS) (FY14) P144534 and efficient energy by adding at least 73,000 MW be end-2015, with an x SME Energy Efficiency (FY13) P122178 and GEF contribution P132189 10,000 MW new generation capacity by increase of nearly 24,000 MW since end- x Private Sector Renewable Energy and Energy Efficiency Project – Additional 2015. 2010. Financing (FY12) P112578 Outcome 2: Renewable electricity Met. Electricity generated from x Third Programmatic Environmental Sustainability and Energy Sector (ESES) DPL generation as a percentage of total renewable energy resources constituted (FY12) P121651 generation increased from 19.7% 31.5 percent of the total energy generation x Energy Community of South East Europe (ECSEE) APL6 Project (FY11) P110841 (correction from 18%) in 2009 to 30% or in 2015. x Private Sector Renewable Energy and Energy Efficiency Project (FY09) P112578 more in 2015. x Electricity Distribution Rehabilitation Project (FY07) x Gas Sector Development Project (FY06) P093765 Outcome 3: IFC reaching through its Met. 7.5 million Customers reached power generation/distribution portfolio through IFC`s power x TF EU/IPA Energy Sector Technical Assistance I (FY14) companies about 7.2 million electricity generation/distribution portfolio. x TF EU/IPA Energy Sector Technical Assistance I (FY15) customers by FY15. x TF PMR (Partnership for Market Readiness): Carbon Markets Initiatives (approval Baseline: 4.1 million customers in FY14) P126101 FY11. 61 Target: 7.2 million in FY15. x TF CTF (Clean Technology Fund): Private Sector Renewable Energy and Energy Efficiency Project (FY09) x TF IFC GeoFund (Geothermal Energy Development Program): Technical Assistance (FY11) x IFC Sustainable Energy financing x IFC financing for renewable energy projects (geothermal, hydro and wind power) Outcome 4: Cumulative energy savings Partially Met. Cumulative energy x IFC financing for power distribution companies of 4,372 GWh or 1.5% of 2013total savings from PSREEE and SME EE x IFC financing energy efficiency projects annual demand by 2016 to be achieved Projects reached 3772 GWh by June Knowledge: through SME EE and RE credit lines. 2016. x Turkey`s Energy Transition – Milestones and Challenges (FY16) P149638 x Energy Reform Milestones and Challenges (FY15) P149638 Outcome 5: Increasing gas storage is Partially Met. Gas Sector Development x TA Energy Efficiency Institutions (FY15) P146501 critical for Turkey's energy security. Project is on track, and these indicators x TA Social Monitoring in Energy Sector (FY15) P147496 are expected to be achieved timely. x TA on Electricity Market (FY12) P114534 Baseline: 2.6 bcm in 2013 x TF Facilitating Energy Efficiency (ESMAP) (FY12) P130578 Target: 19% increase by 2016 and 38% increase by 2020 with the completion of phase 1 and phase 2 of the Tuz Golu gas storage project, respectively. Thematic Area 7 : Strengthened environmental management and adaptation to climate change – Partially Achieved. WBG Outcome Indicators: Progress to Date: Financing: x DPL - Third Programmatic Environmental Sustainability and Energy Sector (ESES) Outcome 1: Improved Water Basin Met. Achieved through policy support (FY12) P121651 Management: Protection action plans under the ESES DPL. x Anatolia Watershed Rehabilitation Project plus GEF Project (FY04) prepared for Turkey’s 25 river basins, x TF GEF3 Full-Sized Project: Turkey Anatolia Watershed Rehabilitation Project taking into account principles of the (FY05) Water Framework Directive. Knowledge: Baseline: 4 in 2009; x Sustainable Urban WSS (FY16) P150112 Target: at least 20 by end-2012. x ESW Rio+20/Cleaner Production (FY12) P127675 x TA Food Safety Programmatic TA (FY14) P145557 Outcome 2: Completion of draft Met. Draft Integrated Basin Management x TA Water Dialogue (FY15) P146361 Integrated Water Basin Management Plan for Buyuk Menderes basin and x TA National Watershed Management (FY12) P129244 plan and establishment of Basin establishment of basin commissions in all x Diagnostic of Natural Capital Saving and Sustainable Growth (FY15) P149686 Commission in selected pilot basin. 25 basins with a MoFWA circular dated May 25, 2015. x Environmental and Natural Resource Management Programmatic TA (FY15/FY16) 62 Outcome 3: Establishment of Natural Unmet. Valuation of natural resources Capital Accounts in two selected water before establishing natural capital basins. accounts prioritized. Therefore, the WBG focus was given to valuation methodology. Two reports on valuation methodology and case studies in the forest and water sectors were prepared and shared with the government. Thematic Area 8: Improved sustainability of Turkish cities. – Partially Achieved WBG Outcome Indicators: Progress to Date: Financing: x Land Registration and Cadaster Modernization Project AF (FY15) P106284 Outcome 1: An additional 420,000 people in four cities Met. Municipal Services project continued its x Municipal Services Project (FY05) plus Additional Financing under the Municipal Services Project have gained access satisfactory implementation throughout the CPS. (FY10) P081880 to enhanced urban services, e.g., water supply, Project investments helped to surpass the target x Istanbul Seismic Risk Mitigation and Emergency sewerage, and solid waste management. with over 2.5 million people. Preparedness Project (FY05) plus Additional Financing (FY10) P078359 x IFC Municipal Finance to improve municipal infrastructure x IFC Investments in transport logistics x MIGA credit enhancement of three non-shareholder loans - Outcome 2: Municipal governance: Performance Met Performance improvement efforts and parallel to IFC - to Metropolitan Municipality of Izmir for improvement efforts and competition underway among competition among local public administrations acquisition of new ferry boats, construction of electrified local public administrations to receive higher rating through measuring the Citizen Report Card have tramway, and acquisition of metro trains (FY13, FY14, based on Citizen Report Card. been disseminated into 6 municipalities by FY15). Baseline: 1 pilot municipality (Manisa). Target : 6 Turkish local governments in Manisa, Trabzon, x MIGA credit enhancement of non-shareholder loan to municipalities Antalya, Istanbul, Adana, and Malatya. Istanbul Ulasim A.S. for Uskudar-Umraniye-Cekmekoy metro commuter line (FY15) Knowledge: x Regional Development and Vulnerability Programmatic TA Outcome 3: New Istanbul Kardikoy-Kartal Metro Partially Met. The project is progressing. (FY16) P151079 commuter line. Additional 419,000 people benefit from Average weekday ridership reached to 277,000 x Turkey Creditworthiness Academy (FY16) P159176 improved services by 2016. people (first half of 2016). x IBRD-IFC Sustainable Cities JIP (FY16) P156161 Baseline: 150,000 people in 2013. 63 Outcome 4: Two new Izmir electrified tramway lines Partially Met. Construction on track to be x TF GFDRR (Global Facility for Disaster Reduction and and improved traffic management. completed by 2017; additional 240,000 people Recovery): Disaster Mitigation and Preparedness (FY09) will have access. [Note: measurable impact falls x TF PPIAF (Public-Private Infrastructure Advisory Facility): outside of CPS period] Expected to be Sustainable Cities (Municipal Credit Ratings Transaction operational in 2018. Structuring) (FY15) P133345 x ESW Turkey’s Transitions: Integration, Inclusion, Outcome 5: Discharge of untreated wastewater Partially Met. No reportable results yet: there Institutions/Country Economic Memorandum (FY15) reduction into the Aegean Sea through expansion of the was a delay in construction due to Izmir Muni (P133570) IFC financed Izmir Waste Water Treatment Plant. changing contractors, however the project is on x ESW Urbanization Review (FY15) P128606 Baseline: 605,000m3 /day treated in 2012 track to be operational by end-2016. x Environmental and Natural Resource Management Target: 821,000m3/day treated by 2016 Programmatic TA. Outcome 6: A total of 806 public buildings in the Met. ISMEP projects has been competed highly Istanbul Province retrofitted/reconstructed to resist a satisfactorily by reaching 806 public buildings major earthquake compared to 2014 target of 763 retrofitted/reconstructed. buildings. Outcome 7: Customer satisfaction rate for Land Met. Land Registry and Cadaster progresses Registry services improved. satisfactorily and customer satisfaction rate have Baseline: 40% in 2008. Target: 85% by end-2015. reached 90% as of December 2015. 64 Table 1: CPS Period IBRD Lending Approvals CPS FY12-16 Planned IBRD US$ (M) CPS FY12-16 Actual IBRD US$ (M) Development Policy Lending: Development Policy Lending: Third Programmatic Environmental Sustainability Third Programmatic Environmental 600 600 and Energy Sector DPL Sustainability and Energy Sector DPL FY12 Investment Project Financing: FY12 Investment Project Financing: Private Sector Renewable Energy and Energy Private Sector Renewable Energy and Energy 500 500 Efficiency Additional Financing Efficiency Additional Financing Sub-total 1,100 Sub-total 1,100 Development Policy Lending: Development Policy Lending: Programmatic DPL Growth, Competitiveness and 600 Competitiveness and Savings DPL 800 Employment Investment Project Financing: Investment Project Financing: FY13 FY13 Private Sector Energy Efficiency 200 SME Energy Efficiency 201 SME Access to Finance (Food Safety) 200 SME Access to Finance III 300 Project on Health 200 Allocation to be decided 100 Sub-total 1,300 Sub-total 1,301 Development Policy Lending: Development Policy Lending: Development Policy Loan - tbd 350 (moved to FY15) Investment Project Financing: Investment Project Financing: FY14 Areas of Access to Finance: SME or exporters FY14 Renewable Energy Integration 300 Areas of Education / Employment 700 Areas of Sustainable Cities / Disaster / Watershed / Energy Sub-total 1,050 Sub-total 300 Sub-total FY12-14 2,701 Development Policy Lending: Development Policy Lending: Sustaining Shared Growth DPL- 1 500 Sustaining Shared Growth DPL- 1 500 Investment Project Financing: Investment Project Financing: Gas Sector Development (BOTAS) Additional Gas Sector Development (BOTAS) 400 400 Financing Additional Financing FY15 Innovative Access to Finance 250 FY15 Innovative Access to Finance 250 Water Basin Management and Rehabilitation 50 Geothermal Energy Development (plus CTF) 300 Sustainable Cities 300 Long Term Finance Gurantee - $300 m (tbd) Sub-total 1,800 Sub-total 1,150 Development Policy Lending: Sustaining Shared Growth DPL-2 500 (moved to FY17) Investment Project Financing: National Disaster Risk Mitigation 300 Health 100 Health System Strengthening & Support 134 FY16 FY16 MicroSmall&Medium Enterprise and Large Financial Sector Operation 300 200 Enterprise Supply Chain Finance Land Registration and Cadastre 91 Modernization Project Additional Financing Sub-total 1,200 Sub-total 425 Total Planned 6,450 Total Actual (as of June 2016) 4,276 65 Table 2: CPS Period IFC Long Term Commitments (FY12-16) Original Original Original Commitmen Commitmen Projec Commitment FY Industry Project ID and Name t Activity - t Activity Total t count Activity - B IFC Own Other Loan Account Mobilization 29413-Abank Sub Loan 0 27 27 31531-Finansbank RI II 1 3 0 3 31114-Fibabanka Women 1 30 0 19 49 FM Industry 31113-ABank-Women 1 25 0 15 40 Group 31112-TSKB Sustainable 1 75 0 75 2012 31085-YKB DPR 1 75 0 70 145 30579-Seker Bond 1 25 0 25 32197-UHG RightsIss II 1 6 0 6 MAS Industry 31929-UHG RightsIssue 1 1 0 1 Group 31474-MNT 1 30 0 30 28467-Tiryaki 1 30 0 30 CTT Industry 32659-Earlybird 1 25 0 25 Group 31623-Mediterra CP 1 20 0 20 33154-Deniz Covered B. 1 70 0 70 FM Industry 33143-TSKB Pol. Abatem 1 75 0 75 Group 32241-Is Leasing EE/RE 1 35 0 35 31274-Finansbank DPR 1 75 0 75 32902-Asyaport 1 75 0 75 Infra Industry 32503-Farcan ACWA 1 125 0 125 2013 Group 32078-Izsu Wastewater 1 36 0 36 31733-Izmir Muni 1 59 0 59 33711-Sisecam Bond 1 40 0 40 32583-Plato 1 6 0 6 32420-Sanko Tekstil 1 25 0 25 MAS Industry 32285-CPLF-ModernKarto 1 8 0 8 Group 32026-OzU 1 43 0 43 31983-Superfilm 1 45 0 45 31836-KKagit 1 50 0 50 CTT Industry 33645-Logo 1 13 0 13 Group 35153-Seker RI 1 1 4 0 4 FM Industry 33922-Seker Sub 1 50 0 50 Group 32915-Odea Bank SME 1 50 0 50 32669-Fiba Sub Loan 1 40 0 40 34457-Transatlantic 1 40 0 40 Infra Industry 34306-Izmir Tramway 1 76 0 76 Group 33943-Mersin Port 1 75 0 75 2014 32036-Viking Services 1 50 0 50 34764-Cimko II-B Loan 0 0 3 3 34448-Recordati Ilac 1 34 0 34 34061-Tiryaki II 1 30 0 30 MAS Industry 34009-OzU II 1 25 0 25 Group 33995-Elif Turkey 1 10 0 10 33753-Cimko Cement II 1 40 25 65 33528-Astra Dorms 1 10 0 10 32940-Chipita Turkey 1 15 0 15 36641-Mercury 1 15 0 15 CTT Industry 36631-ATF I 1 40 0 2015 40 Group 35939-Zenium 1 25 0 25 66 35828-Iyzico 1 3 0 3 36788-Sekerbank RI 2 1 1 0 1 36341-Sekerbank swap 1 1 0 1 36153-FinansL EE II 1 40 0 20 60 FM Industry 36017-Seker Bond Swap 1 17 0 17 Group 35827-Odeabank GrMortg 1 45 0 22 67 34488-Abank EE 1 50 0 45 95 33950-YKL Sustainable 1 64 0 32 96 36080-Izsu Sewerage 1 12 0 12 35395-ACWA Kirikkale 0 0 45 45 Infra Industry 35012-Izmir Railcars 1 25 0 25 Group 34552-HKA 0.5 31 0 17 48 34552-HKA 0.5 31 0 17 48 32258-Gama Enerji 1 165 0 38 203 36337-Adana Swap 1 4 0 4 36320-Adana B Loan 0 0 62 62 34669-Soda Sanayii 1 25 0 25 MAS Industry 34358-Adana Health 1 44 0 108 151 Group 33995-Elif Turkey 1 10 0 10 33677-Etlik Health 1 82 87 169 31029-Kayseri Health 1 38 0 38 CTT Industry 37661-Revo Capital 1 8 0 8 Group 34636-Taxim Capital 1 20 0 20 37925-Odeabank Equity 1 75 0 39 114 37112-DCM Finansb 1 100 0 100 DPR2 37063-DCM TSKB 1 75 0 75 FM Industry Climate Group 36318-Seker MSME 1 50 0 25 75 36167-Fibabanka Equity 1 40 0 40 35128-Burgan Turkey 1 40 0 20 60 35827-Odeabank GrMortg 0 0 0 25 25 38655-Karaca Swap 1 3 0 3 37872-Karaca Hydro 1 44 0 22 66 2016 37093-MMI Metro Line 1 65 54 120 Infra Industry 36827-HKA Hedge 1 5 0 5 Group 36772-Akfen Energy 1 100 0 100 36711-AkCez II 1 106 58 163 36326-UNIT Equity 1 143 0 143 34552-HKA 0.5 4 0 23 27 37310-Etlik Swap 1 3 0 3 36747-RHOL Equity 1 215 0 215 MAS Industry 35338-Trakya Cam VIII 1 40 15 20 75 Group 34552-HKA 0.5 4 0 23 27 31029-Kayseri Health 1 2 0 2 TOTAL FY12-16 3,579 348 624 4,552 67 Table 3: CPS Period IBRD Non-Lending Deliveries Fiscal Year Product Line Project Name CP Turkey CPS FY12-15 EV Turkey CASCR Review EW Third Programmatic Public Expenditure Review and PFM Study EW RIO+20 GREEN GROWTH POLICY PAPER EW Turkey: Managing labor markets through the economic cycle FY12 TA CAPACITY BUILDING FOR ELECTRICITY MARKET OPERATIONS TA Financial Literacy Task TA TR Promoting Gender Equity TA HD TA TI Turkey CT Workshop FY12 EW Education Study EW Family Medicine Study FY13 TA TR FSD TA (FSA follow-up, Capital Market Development) TA NATIONAL WATERSHED MANAGEMENT TA Programmatic Public Financial Management Study EW Programmatic Jobs--Activation EW Turkey CEM: Trading up to High Income EW Improving Educational Outcomes in Turkey EW Turkey PPER EW Turkey Regular Economic Report EW Turkey Customs Union IE Impact Evaluation of ISKUR Vocational Training Programs KP Corporate Risk Monitoring TA Programmatic Food Safety TA-3 TA Reform for Competitiveness FY14 TA Turkish Court of Accounts Strengthening Project TA TA Pharmaceuticals Study TA Turkey Public-Private Partnership TA Turkey Green Growth Follow-up TA TA TR - Second Financial Sector Development Technical Assistance TA Capacity Building for the Parliament and Parliamentary Budge TA Justice Sector Performance Measurement TA Support to Global Conference on Universal Coverage in Turkey TA Poverty Measurement and Monitoring TA TE Workshop on Procurement and FM (P148513) TA Turkey: Promoting Gender Equity in Labor Market and Entrepreneurship CP CPS PROGRESS REPORT EW School Based Management in Turkey EW Turkey Lessons Flagship EW TURKEY URBANIZATION REVIEW KP Social Compact in Electricity Privatization in Southeastern TA Programmatic Public Financial Management Study TA Turkey Water Dialogue TA FY15 TA Diagnostic Analysis of Natural Capital Saving and Sustainability TA Turkey #10269 Strengthening Solvency Supervision TA Private Sector Development TA TA Institutional Review of Energy Efficiency in Turkey TA Financial Inclusion and Financial Deepening TA Monitoring the Social Impacts of Electricity Privatization i TA Sustainable Cities Action Plan 68 EW Turkey's Energy Transition - Milestones and Challenges EW Defining the Bank's support to the Transport Sector in Turkey EW Policy Note Response to Refugee Crisis EW Regional Poverty Dynamics EW Fiscal Horizontal Disparities EW Regional Labor Market Dynamics EW Sustainable Urban Water Supply and Sanitation in Turkey IE IE of Refugees on Labor Markets FY16 KP Turkey Country Team Workshop 2016 PA Turkey Programmatic Jobs-Activation AAA PA Regional Development and Vulnerability PA Business Environment and Innovation Programmatic TA TA IBRD-IFC Joint Implementation Program for Sustainable Cities TA Savings & Fin. Sector Diversification TA SOE Corporate Governance Technical Assistance TA Turkey Creditworthiness Academy TA Turkey PPP FY15 69 Annex 3. Selected Indicators of Bank Portfolio Performance and Management As of July 29, 2017 FY14 FY15 FY16 FY17 Indicator Portfolio Assessment Number of Projects Under Implementation ᵃ 12.0 11.0 10.0 12.0 Average Implementation Period (years) ᵇ 5.1 5.7 5.2 3.7 Percent of Problem Projects by Number ᵃ˒ ͨ 8.3 0.0 0.0 25.0 Percent of Problem Projects by Amount ᵃ˒ ͨ 4.0 0.0 0.0 13.2 Percent of Projects at Risk by Number ᵃ˒ ͩ 16.7 0.0 0.0 25.0 Percent of Projects at Risk by Amount ᵃ˒ ͩ 14.0 0.0 0.0 13.2 Disbursement Ratio (%) ͤ 20.3 35.8 34.5 37.3 Memorandum Item Since FY80 Last Five FYs Proj Eval by OED by Number 149 7 Proj Eval by OED by Amt (US$ millions) 27,627.7 3,167.2 % of OED Projects Rated U or HU by Number 26.0 28.6 % of OED Projects Rated U or HU by Amt 16.4 6.7 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 70 Annex 4. Operations Portfolio (IBRD/IDA and Grants) as of July 29, 2017 Closed Projects 188 IBRD/IDA* Total Disbursed (Active) 1,597.46 of which has been repaid 243.68 Total Disbursed (Closed) 17,314.16 of which has been repaid 10,764.89 Total Disbursed (Active + Closed) 18,911.62 of which has been repaid 11,008.57 Total Undisbursed (Active) 1,508.34 Total Undisbursed (Closed) 0.00 Total Undisbursed (Active + Closed) 1508.34 Difference Active Projects Between Expected and Last PSR Actual Supervision Rating Original Amount in US$ Millions Disbursements ̷ͣ Development Implementation Fiscal Frm Project ID Project Name IBRD IDA Grants Cancel. Undisb. Orig. Objectives Progress Year Rev'd P093765 GAS SECT DEVT S MS 2006 725.0 0.0 0.0 110.3 -289.7 -289.0 P152799 Health System Strengthening & Support MS MS 2016 134.3 0.0 0.0 121.3 53.7 0.0 P147183 Innovative Access to Finance S S 2015 250.0 0.0 0.0 45.6 0.0 0.0 P106284 Land Regis & Cadastre Modernization Proj MS MS 2008 293.6 0.0 15.0 78.4 26.9 7.9 P156252 Long Term Export Finance S S 2017 300.0 0.0 0.0 249.3 -20.8 0.0 P157691 MSME & LESCF Project MU MU 2016 200.0 0.0 0.0 149.0 0.0 0.0 P144534 Renewable Energy Integration S S 2014 300.0 0.0 0.0 186.6 238.7 66.7 P128605 Sustainable Cities S S 2017 132.8 0.0 0.0 132.4 1.8 0.0 P130864 TR SME III MS MS 2013 300.0 0.0 0.0 107.6 0.0 20.6 P151739 Turkey Geothermal Development Project S MS 2017 250.0 0.0 0.0 219.4 -30.4 0.0 P122178 Turkey SME Energy Efficiency Project GEF MS MU 2013 201.0 0.0 0.0 105.9 0.0 61.7 P132189 Turkey SME Energy Efficiency Project GEF MS MU 2013 0.0 0.0 3.6 0.0 2.4 0.0 0.0 Overall Result 3,086.7 0.0 3.6 15.0 1,508.3 -19.7 -132.8 * Disbursement data is updated at the end of the first week of the month. a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. 71 Annex 5. Statement of IFC’s Held and Disbursed Portfolio as of July 29, 2017 (In USD Millions) Committed Disbursed Outstanding Commitment Institution Quasi- Risk IFC Quasi- Risk IFC Loan Equity GT Participant Loan Equity GT Participant Fiscal Year Short Name Equity Mngt TOTAL Equity Mngt TOTAL 2015 ACWA Guc 125.00 0 0 0 0 125.00 45.00 118.33 0 0 0 0 118.33 42.60 2016 AKCEZ 97.29 0 0 0 0 97.29 54.78 65.76 0 0 0 0 65.76 50.56 2015 Abraaj Turkey I 0 39.98 0 0 0 39.98 0 0 13.81 0 0 0 13.81 0.00 2015 Adana Health 39.91 0 0 0 4.88 44.79 57.01 35.71 0 0 0 4.88 40.59 51.02 2010/ 2017/ 2011/ 2003/ Akbank TK 250.00 0 0 0 0 250.00 0 250.00 0 0 0 0 250.00 0.00 2004 2016 Akfen Energy 0 100.00 0 0 0 100.00 0 0 49.96 0 0 0 49.96 0.00 1999/ 2014/ 2017/ 2011/ Alternatifbank 95.45 0 0 79.78 0 175.23 0 95.45 0 0 79.78 0 175.23 0.00 2015/ 2016/ 2012 2009/ 2010/ 2017 Assan Aluminyum 55.00 0 0 0 0 55.00 0 55.00 0 0 0 0 55.00 0.00 2014 Astra Dorms 0 7.50 0 0 0 7.50 0 0 7.50 0 0 0 7.50 0.00 2013/ 2014 Asyaport 50.32 0 0 0 0 50.32 0 50.32 0 0 0 0 50.32 0.00 2017/ 2016 Burgan Turkey 40.00 0 0 4.02 0 44.02 0 40.00 0 0 4.02 0 44.02 0.00 2011 DenizBank AS 11.40 0 0 0 0 11.40 0 11.40 0 0 0 0 11.40 0.00 2014 EAS Solutions 0 1.68 0 0 0 1.68 0 0 1.68 0 0 0 1.68 0.00 2013 Earlybird 0 25.00 0 0 0 25.00 0 0 10.86 0 0 0 10.86 0.00 2017 Elazig Health 91.22 0 0 0 0 91.22 0 47.67 0 0 0 0 47.67 0.00 2014/ 2015 Elif Plastik 12.00 0 0 0 0 12.00 0 12.00 0 0 0 0 12.00 0.00 2011/ 2008 Enerjisa 0 0 128.07 0 0 128.07 552.11 0.00 0 128.07 0 0 128.07 552.11 2015 Etlik Health 85.52 0 0 0 7.26 92.77 90.08 42.12 0 0 0 5.76 47.88 44.37 2010 Eurasia Capital 0 4.15 0 0 0 4.15 0 0 2.15 0 0 0 2.15 0.00 2013/ 2014/ 2017/ 2015/ Fibabanka 40.00 25.63 0 85.14 0 150.77 0 40.00 25.63 0 85.14 0 150.77 0.00 2016/ 2012 1997/ 2010/ 2017/ 2006/ Finans Leasing 91.82 0 0 0 0 91.82 0 91.82 0 0 0 0 91.82 0.00 1998/ 2015 2015 Gama Enerji 0 126.05 0 0 0 126.05 0 0 104.03 0 0 0 104.03 0.00 2017 Garanti Bankasi 150.34 0 0 0 0 150.34 0 150.34 0 0 0 0 150.34 0.00 72 Committed Disbursed Outstanding Commitment Institution Quasi- Risk IFC Quasi- Risk IFC Fiscal Year Short Name Loan Equity GT Participant Loan Equity GT Participant Equity Mngt TOTAL Equity Mngt TOTAL 2002 Gunkol 0 0 0.00 0 0 0.00 0 0 0 0.00 0 0 0.00 0.00 2015 Hepsiburada.com 0 11.18 0 0 0 11.18 0 0 11.18 0 0 0 11.18 0.00 2015/ 2016 Hexagon KA 50.00 20.00 0 0 4.15 74.15 0 34.14 0 0 0 0.77 34.91 0.00 2009 IZGAZ 3.80 0 0 0 0 3.80 0 3.80 0 0 0 0 3.80 0.00 2013 Is Leasing 10.00 0 0 0 0 10.00 0 10.00 0 0 0 0 10.00 0.00 2009/ 2016 Istanbul MMI 75.91 0 0 0 0 75.91 57.01 32.96 0 0 0 0 32.96 21.23 2017/ 2015 Iyzico 0 4.86 0 0 0 4.86 0 0 4.86 0 0 0 4.86 0.00 2013/ 2014/ 2015 Izmir Muni 117.35 0 0 0 0 117.35 0 77.44 0 0 0 0 77.44 0.00 2013/ 2015 Izsu 38.06 0 0 0 0 38.06 0 37.43 0 0 0 0 37.43 0.00 2015 Kayseri Health 39.91 0 0 0 3.54 43.45 0 27.06 0 0 0 1.96 29.02 0.00 2016 Kremna Elektrik 44.00 0 0 0 3.00 47.00 0 44.00 0 0 0 0.87 44.87 0.00 2015/ 2012 MNT 0 29.15 0 0 0 29.15 0 0 29.15 0 0 0 29.15 0.00 2017 Martur 0 31.92 0 0 0 31.92 0 0 31.92 0 0 0 31.92 0.00 2013 Mediterra I 0 4.77 0 0 0 4.77 0 0 3.89 0 0 0 3.89 0.00 2017 Mediterra II 0 16.91 0 0 0 16.91 0 0 2.83 0 0 0 2.83 0.00 2014 Mersin Port 47.72 0 0 0 0 47.72 0 47.72 0 0 0 0 47.72 0.00 1992 NASCO 0 0.00 0 0 0 0.00 0 0 0.00 0 0 0 0.00 0.00 2014/ 2017/ 2015/ 2016 Odea Bank 65.93 48.56 0 198.58 0 313.06 35.00 65.93 48.56 0 198.58 0 313.06 35.00 2013/ 2014 OzU 23.18 0 0 0 0 23.18 0 23.18 0 0 0 0 23.18 0.00 2013 Plato 0 0 2.00 0 0 2.00 0 0 0 2.00 0 0 2.00 0.00 2013/ 2007/ 2011/ 2016/ QNB Finansbank 115.00 0 0 0 0 115.00 0 115.00 0 0 0 0 115.00 0.00 2012 2014 Recordati Ilac 17.82 0 0 0 0 17.82 0 17.82 0 0 0 0 17.82 0.00 2016 Revo Capital 0 8.00 0 0 0 8.00 0 0 3.69 0 0 0 3.69 0.00 2016 Ronesans Holding 0 197.33 0 0 0 197.33 0 0 197.33 0 0 0 197.33 0.00 2009 Rotor Elektrik 33.22 0 0 0 0 33.22 0 33.22 0 0 0 0 33.22 0.00 2006/ 2014/ 2007 Sanko Group 22.89 0 0 0 0 22.89 15.79 22.89 0 0 0 0 22.89 15.79 2013 Sanko Tekstil 11.54 0 0 0 0 11.54 0 11.54 0 0 0 0 11.54 0.00 73 Committed Disbursed Outstanding Commitment Institution Quasi- Risk IFC Quasi- Risk IFC Fiscal Year Short Name Loan Equity GT Participant Loan Equity GT Participant Equity Mngt TOTAL Equity Mngt TOTAL 2009/ 2010/ 2013/ 2014/ 2017/ 2011/ 2015/ 2016/ Seker Bank 144.04 22.78 0 113.71 0.53 281.06 0 144.04 22.78 0 113.71 0 280.53 0.00 2008/ 2012 1997/ 2013/ 1993/ 2003/ Sise ve Cam 39.71 0 0 0 0 39.71 0 39.71 0 0 0 0 39.71 0.00 2002 2015 Soda Sanayii 0 24.52 0 0 0 24.52 0 0 24.52 0 0 0 24.52 0.00 2013 Superfilm 20.77 0 0 0 0 20.77 0 20.77 0 0 0 0 20.77 0.00 2010 TCE Ege 11.35 0 0 0 0 11.35 0 11.35 0 0 0 0 11.35 0.00 2005/ 2013/ 1969/ 1983/ 1993/ 2017/ 1977/ 1975/ TSKB 134.62 0 0 6.40 0 141.02 0 134.62 0 0 6.40 0 141.02 0.00 1990/ 1964/ 1967/ 1980/ 1972/ 2016/ 2012 2016 Taxim Capital I 0 18.93 0 0 0 18.93 0 0 3.36 0 0 0 3.36 0.00 2014/ 2012 Tiryaki 30.00 0 0 0 0 30.00 0 30.00 0 0 0 0 30.00 0.00 2005/ 2009/ 1999/ 1983/ 1993/ 1996/ 1979/ 1990/ Trakya Cam 30.09 0 0 0 0 30.09 11.10 30.09 0 0 0 0 30.09 11.10 1989/ 1984/ 2016/ 1991 2002 Turkven I 0 0.06 0 0 0 0.06 0 0 0.06 0 0 0 0.06 0.00 2005/ 1999/ 2017/ 1995/ Turk Ekon Bank 0 0 100.00 50.00 0 150.00 0 0 0 100.00 50.00 0 150.00 0.00 2003/ 2016/ 2008 2007 Turkven II 0 24.14 0 0 0 24.14 0 0 24.13 0 0 0 24.13 0.00 2007 Unitim 7.25 0 8.00 0 0 15.25 0 7.25 0 8.00 0 0 15.25 0.00 2016 Unit Investment 0 142.65 0 0 0 142.65 0 0 112.65 0 0 0 112.65 0.00 1997/ 2010/ 1998/ 2011/ Yapi Kredi Lease 49.78 0 0 0 0 49.78 0 49.78 0 0 0 0 49.78 0.00 2015/ 2008 2013/ 2014/ 2017/ 2015/ Yapi Kredi Bank 0 0 0 212.72 0 212.72 0 0 0 0 212.72 0 212.72 0.00 2016/ 2012 2015 Zenium 0 25.00 0 0 0 25.00 0 0 22.74 0 0 0 22.74 0.00 Total Portfolio 2,419.21 960.76 238.07 750.34 23.35 4,391.73 917.89 2,177.67 759.29 238.07 750.34 14.23 3,939.60 823.77 74 Annex 6. MIGA Active Guarantees (as of July 29, 2017) Project Investor Effective Expiry Business Gross Exposure Investor Country Name Name Date Date Sector ($USD) Orfin Finansman A.S. RCI Banque S.A. 12/31/2014 12/30/2021 Financial France 53,496,875 Norddeutsche Landesbank Turkish Eximbank 03/31/2015 03/28/2025 Financial United Kingdom 103,868,399 Girozentrale Turkish Eximbank Citibank Europe plc, UK Branch 03/31/2015 03/28/2025 Financial United Kingdom 193,150,363 Turkish EximBank II Citibank N.A. 06/30/2016 06/29/2026 Financial United States 609,645,368 Turkish EximBank II Citibank N.A. 07/01/2016 06/29/2026 Financial United States 233,088,047 Turkish EximBank II Citibank N.A. 11/09/2016 11/07/2026 Financial United States 35,811,552 Turkish EximBank II Citibank N.A. 11/09/2016 11/07/2026 Financial United States 116,015,663 Izmir Light Rail ING Bank, a branch of ING-DiBa AG 06/30/2015 05/31/2030 Infrastructure Germany 32,624,534 Izmir Metropolitan ING Bank, a branch of ING-DiBa AG 06/27/2013 05/12/2023 Infrastructure Germany 34,353,167 Municipality (IMM) Izmir Metropolitan ING Bank, a branch of ING-DiBa AG 06/27/2013 05/12/2023 Infrastructure Germany 11,797,894 Municipality (IMM) Izmir Tramway ING Bank, a branch of ING-DiBa AG 06/05/2014 02/26/2027 Infrastructure Germany 70,897,937 Kadikoy-Kartal-Kaynarca Wilmington Trust (London) Limited 04/21/2011 10/14/2020 Infrastructure United Kingdom 115,862,853 Metro Project Uskudar Metro BNP Paribas 02/12/2015 02/05/2028 Infrastructure France 185,508,624 Adana Integrated Health Meridiam Eastern Europe S.a.r.l. 12/18/2014 12/17/2034 Services Luxembourg 143,998,105 Campus Bursa Integrated Health Meridiam Eastern Europe S.a.r.l. 05/11/2017 05/10/2032 Services Luxembourg 107,941,451 Care Center Elazig Integrated Health Meridiam Eastern Europe S.a.r.l. 11/17/2016 11/16/2036 Services Luxembourg 74,325,307 Campus Elazig Integrated Health ELZ Finance S.A. 12/13/2016 12/12/2036 Services Luxembourg 263,846,337 Campus Turkey Gaziantep KDB Infrastructure Investments Korea, Republic 04/21/2017 04/20/2037 Services 60,637,075 Hospital BLT Project Asset Management Co., Ltd. of Yozgat Education and Meridiam Eastern Europe S.a.r.l. 06/19/2015 06/18/2035 Services Luxembourg 30,353,276 Research Hospital Yozgat Education and Siemens Bank GmbH 06/25/2015 06/02/2033 Services Germany 21,400,688 Research Hospital 2,498,623,515 75 Annex 7. Summary note of Country Gender Assessment 2016 Turkey has substantially narrowed gender gaps in access to productive endowments and thus to economic opportunity over the last years. Between 2008 and 2013 maternal mortality rates have been cut by half, secondary and tertiary education enrolment rates among women and men have further moved towards convergence, and female labor force participation has increased by 18 percent. These improvements have been partly the consequence of improvements to the legal and institutional framework for gender equality, which have led Turkey to the 35th position (out of 108 countries) in the OECD Social Institutions and Gender Index. However, and despite these commendable advances, women still show systematically poorer outcomes than men across significant dimensions, and Turkey lags behind countries with similar income levels and its neighbors in this regard. Disparities between men and women are particularly pressing given that, with falling fertility and mortality rates and a substantive young working-age population bulge, the country stands to benefit from a demographic dividend that can only be capitalized by raising the economic inclusion of its entire population. Moreover, the current situation of economic and social instability threatens to reverse the previous advances. Three central challenges stand out from the analysis: x Overall, women´s lack of participation in economic activity represents and economic and development loss, and may prevent the country from fully taking advantage of the current demographic window of opportunity. x Aggregate figures mask substantial socioeconomic and regional disparities, with women from vulnerable backgrounds bearing the brunt of the existing gender gaps in access to endowments and opportunity. x The comparatively weak agency of Turkish women, as evidenced by the high rate of arranged marriages or the poor political representation of women in institutions, needs to be adequately enforced through strengthening the legal and institutional framework. Turkey has one of the lowest female labor force participation rates among countries with similar income levels. The low female labor force participation of women is a major concern, especially considering the current stage of demographic transition in the country. Only 32 percent of Turkish women are economically active, compared to 62 percent on average in upper-middle-income countries. Moreover, Turkey is one of the few OECD countries where female labor force participation rates have decreased overall since the 1980s, albeit with fluctuations in the early 1990s and a more sustained increase after the mid-2000s. The main reason reported by women for not joining the labor force is household and family-related duties, and especially so among women with less than high-school education. Indeed, marriage and childbearing are key determinants for women to transitioning into inactivity. The weak labor market attachment of Turkish women may also be partly explained by skills mismatches and the availability of lower quality and/or unsuitable jobs for them. 76 Women are also underrepresented in entrepreneurship and business ownership and management. While the share of employers in the total employed in Turkey, at 6 percent, is high compared to the average among Eastern Europe and Central Asia (ECA) countries (3.2 percent), the gender gap is particularly large: 7 percent of men are employers compared to only 1 percent of women. The low rates of entrepreneurship among women appear to be related to barriers to enter and remain in those activities. In particular, the gap in financial inclusion between men and women remains comparatively large. As an example, in 2014, 70 percent of men had formal accounts compared to only 44 percent for women. In addition, and although the share of firms with some female ownership or management in Turkey is 33 percent (close to the average for the ECA region of 36 percent), only 5 percent of Turkish firms have women with 50 percent ownership compared to an ECA average of 27 percent. Similarly, only 5 percent of firms in Turkey have a woman among top management in contrast to 20 percent on average for ECA. Aggregate gaps are largely explained by especially wide disparities between women and men from disadvantaged socioeconomic backgrounds. Differences in educational outcomes between men/boys and women/girls are largely concentrated among the most vulnerable. For instance, gaps in educational attainment between men and women are the lowest in the urban and wealthier parts of the country including Istanbul and Ankara, while enrollment in higher education increases consistently by income quartile. In addition, a considerable part of the low female labor force participation of women in Turkey is explained by low-educated women migrants who used to be engaged in agriculture staying out of the market in urban areas. Education also decreases the gender gap in entrepreneurship in Turkey, since it has a much larger positive differential impact for females than males, and appears to be one of the critical protective factors against gender-based violence. Women´s agency remains comparatively weak. Despite the recent progress made in the legal, institutional and policy framework for the promotion of gender equality in the country, enforcement issues persist, traditional and patriarchal values and practices are widespread and resilient to social change, and women remain politically underrepresented. Although traditional views on the role of women in society are more common among older population groups, suggesting a generational change, one-third of the highly educated and over one-half of the wealthiest Turkish population still believe that women should marry young, and the majority of men and women do not find divorce justifiable. Moreover, traditional practices such as arranged and early marriages continue to be common and widely accepted, especially in rural areas. At 14.9 percent in 2015, the share of female Parliament representatives remains well below the ECA average of 25.7 percent. The proportion of women in ministerial positions is even lower, at 4 percent, and compares poorly with the average 21.8 percent registered in ECA for the year 2015. At the local level the picture does not change much: A mere 4 percent of the representatives in local governing bodies are women. Only two countries in Europe have a lower ratio of women as government ministers and a lower percentage of female local representatives than Turkey. Based on the diagnosis of the current gender gaps in the country, decisive action will be required to address these issues in the near future, and particularly on three main fronts: 1. Removing the barriers to women’s economic activity. 77 a. Given the low female labor force participation in the country in connection with household and childcare duties, the provision of quality and affordable childcare, and especially among the most vulnerable women, for whom it should be strongly subsidized, will be key. b. Other support policies include allowing flexible working times and improving maternity/paternity benefits in order to minimize potential discriminatory practices against women. c. Business-oriented education a nd financial inclusion will help reinforce women’s involvement in entrepreneurial activities. 2. Expanding women’s opportunities, especially for those from vulnerable backgrounds, and enlarging the overall economic process in Turkey. a. Facilitating a beneficial school-to-work transition by tailoring the content of higher education more closely to the needs of the private sector and thus making university education more relevant for the job market. b. Investing in active labor market progra ms tailored to men and women’s needs. c. Increasing the provision of vocational training for women with low education (e.g., low- skilled migrants living in urban areas); d. Providing scholarship programs for girls in tertiary education, where the gender gap is substantially higher among vulnerable women. 3. Continuing to strengthen women´s agency. a. Adopting decisive actions to curtail early and arranged marriages. b. Ensuring a better representation of women in political institutions, possibly through quotas in candidate lists. c. Continue developing the institutional and legal framework for gender equality and making sure that it is adequately enforced. 78 Annex 8. Citizen Engagement Roadmap for Turkey CPF FY18-21 Component Areas for Intervention Proposed Actions/Targets Outputs/Results Country Level • Dialogue with client on potential CE related x Incorporate CE Roadmap in CPF x Systematic approach to i) strategize and prior actions for upcoming DPOs - As part of annual portfolio reviews, compile and align CE interventions with country take stock of CE progress and challenges in developments and (ii) monitor compliance, collaboration with CMU quality and impact of CE interventions at - Take stock of proposed actions/targets in CE the country level Roadmap during PLR x Turkey emerges as an example of - Review progress on actions taken and targets systematic and effective CE mainstreaming achieved for CLR for WB, beyond an exclusive focus on - Undertake consultations with civil society and meeting corporate requirements for IPFs other stakeholders to inform CLR x Compile list of CE related prior actions in other DPOs CE that are i) relevant to Turkey’s context and ii) from Mainstreaming OECD countries across WB Project Level x Improve Compliance Portfolio • Monitoring of progress on CE corporate - Continue 100% compliance in all new projects x 100% compliance with CE corporate commitments FY18-21 on the 2 design oriented corporate CE requirements across country portfolio • Technical assistance to task teams to indicators x Increased awareness/ease of identify CE entry points, interventions and - Take steps to ensure 100% compliance reporting citizens/beneficiaries to access indicators; capacity building for PIUs as and on beneficiary feedback during implementation project/government feedback systems when needed in the ISR by FY18 x Increased alignment with Turkey’s existing x Improve Quality feedback systems, particularly for service - Allow for more than one channel for feedback delivery on any project related issue x Improved consistency and quality of - Align with transparency, awareness building and documentation on CE and safeguards other supply-side actions, if any - Align/institutionalize with(in) government systems where possible x Improve Implementation - Explore possibility of linking project level GRMs with BIMER and other similar feedback mechanisms 79 - Extend the mandate of GRMs set up for resettlement and other safeguards related issues to address all project matters - Include outreach, especially where GRMs and other feedback mechanisms are not used by beneficiaries x Improve Reporting - Project actions/results are consistently reported in AMs and ISRs - Disaggregate feedback provided by women in all reporting Examples: • BIMER, SABIM, CIMER, ALO 170, E- Nabız x Document at least 3 best practice cases from Turkey x Compilation of evidence and Turkey’s good Showcasing (e-pulse) (BIMER and E-Pulse and others as identified and/or practices to inform dialogue with the client Turkey’s Good • E-government Portal, SMS Information agreed by client) during First Year of CPF and other countries that have good System x Organize discussion with MoE and other relevant practices to share Practices on • White desks and Citizen Report Cards ministries to explore avenues for documenting Citizen Centric (CRCs) in municipalities Turkey’s experiences in disaster risk management, Service • Piloting model offices to improve land and/or other sectors as agreed Delivery & registry/cadastre service x Organize at least one event (workshop/round table) Public Sector by CPF Year 3 in collaboration with the client to Reform Mechanisms: thematic round tables; best showcase Turkey’s good practices on CE practice cases; study visits to Turkey from other countries • Engaging community institutions in disaster x Engage in discussion with MoH on enhancing quality x Launch 1-2 ASAs likely to be utilized by the risk reduction and management of services through better user feedback--based on client to further CE in specific • Using citizens’ feedback to deepen the review of MOH strategy and inputs of task areas/sectors (e.g. DRM, e- governance in Dialogue on quality of health service delivery teams/CMU Turkey, etc.) • Enhancing user awareness and incentives x Organize discussion with other ministry(ies) that are Opportunities to improve inclusiveness & trust in the e- extending disaster resilience in other sectors to for Demand- government platform explore avenues for community based risk systems Driven ASA • Benchmarking performance of service x Liaise with client and WB Open Data team (DEC) to delivery institutions on citizen-centricity explore possibility of feasibility study for Bank support in two target ministries– on ICT tools, e-participation and open data. 80