Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 66656-TR
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL FINANCE CORPORATION
MULTILATERAL INVESTMENT GUARANTEE AGENCY
COUNTRY PARTNERSHIP STRATEGY (CPS)
FOR
THE REPUBLIC OF TURKEY
FOR THE PERIOD FY2012 - FY2015
February 28, 2012
Turkey Country Unit, World Bank
Europe and Central Asia Region
International Finance Corporation
Europe and Central Asia Department
Multilateral Investment Guarantee Agency
Europe and Central Asia Department
This document is being made publicly available prior to Board consideration. This does not imply a
presumed outcome. This document may be updated following Board consideration, and the updated
document will be made publicly available in accordance with the Bank’s policy on Access to Information.
CURRENCY EQUIVALENTS
Currency unit: as of February 8, 2012
US$1 = Turkish Lira (TL) 1.74
FISCAL YEAR
January 1 – December 31
ACRONYMS AND ABBREVIATIONS
AAA Analytic and Advisory Activities
AKP Justice and Development Party
ALMP Active Labor Market Programs
APL Adaptable Policy Lending
CAD Current Account Deficit
CBRT Central Bank of the Republic of Turkey
CEM Country Economic Memorandum
CPS Country Partnership Strategy
CSO Civil Society Organization
CTF Clean Technology Fund
DPL Development Policy Loan
EBRD European Bank for Reconstruction and
Development
EC European Commission
ECE Early Childhood Education
EIA Environmental Impact Assessment
ESES Environmental Sustainability and Energy
Security
ESW Economic and Sector Work
EU European Union
EUR Euro
FDI Foreign Direct Investment
FCO United Kingdom Foreign and
Commonwealth Office
GDP Gross Domestic Product
HDI Human Development Index
HTP Health Transformation Program
IBRD International Bank for Reconstruction
and Development
ICAs Investment Climate Assessments
IDF Institutional Development Fund
IFC International Finance Corporation
IFIs International Financial Institutions
IMF International Monetary Fund
IPA Instrument for Pre-Accession
Assistance
ISKUR Turkish Employment Agency
ISMEP Istanbul Seismic Risk Mitigation and
Emergency Preparedness Project
JPPR Joint Portfolio Performance Review
KENTGES National Integrated Urban
Development Strategy
M&E Monitoring & Evaluation
MDG Millennium Development Goals
MIC Middle Income Country
MIGA Multilateral Investment Guarantee
Agency
M&E Monitoring and Evaluation
MOF Ministry of Finance
MOH Ministry of Health
MTP (Turkey’s) Medium-Term Program
MW Megawatts
NGOs Non-Governmental Organizations
ODA Official Development Assistance
OECD Organization for Economic
Cooperation and Development
PFM Public Financial Management
R&D Research & Development
SMEs Small and Medium Enterprises
SOE State-Owned Enterprise
SSI Social Security Institution
SSTF South-South Experience Exchange
Trust Fund
SWAp Sector-Wide Approaches
TA Technical Assistance
TCA Turkish Court of Accounts
TEIAS Turkish Electricity Transmission
Corporation
TL Turkish Lira
TOG Turkish Community Volunteers Fund
UN United Nations
UNDP United Nations Development
Programme
UNICEF United Nations Children's Fund
WBG World Bank Group
YOIKK Turkish Coordination Council for the
Improvement of the Investment
Environment
COUNTRY PARTNERSHIP STRATEGY (CPS) FY2012-FY2015
FOR THE REPUBLIC OF TURKEY
TABLE OF CONTENTS
EXECUTIVE SUMMARY ....................................................................................................................................i
I. COUNTRY CONTEXT..................................................................................................................................1
Country Background and Political & Social Context.........................................................................................1
II. ECONOMIC CONTEXT.................................................................................................................................2
III. VISION AND DEVELOPMENT CHALLENGES ......................................................................................5
The Challenge of Enhancing Competitiveness and Employment .......................................................................6
The Challenge of Improving Equity and Public Services ...................................................................................9
The Challenge of Deepening Sustainable Development ...................................................................................12
IV. TURKEY-WORLD BANK GROUP PARTNERSHIP..............................................................................14
Previous Country Strategy Partnership .............................................................................................................14
Lessons from the FY08-11 Country Partnership Strategy Completion Report.................................................15
Stakeholder Consultations and Client Country Survey.....................................................................................16
V. RESULTS AREAS.........................................................................................................................................16
Strategic Objectives of Country Partnership Strategy FY12-15 .......................................................................16
A Cross-Cutting Partnership Dimension: Sharing Turkey’s Experience – Results, Knowledge and Capacity 24
VI. IMPLEMENTATION...................................................................................................................................25
Implementation of the FY12-15 Partnership Strategy ......................................................................................25
VII. RISKS ...........................................................................................................................................................27
CPS-ANNEXES
Annex 1: Country Partnership Strategy FY12-15 Results Monitoring Framework
Annex 2: Macroeconomic Developments and Sustainability Analysis
Annex 3: Country Partnership Strategy FY08-11 Completion Report
CPS STANDARD ANNEX TABLES
Annex A2: Country At-A-Glance
Annex B2: Selected Indicators of Bank Portfolio Performance and Management
Annex B3 IBRD Indicative Financing Program, FY12-15
Annex B3: IFC Investment Operations Program
Annex B4 IBRD Indicative Non-Lending Program, FY12-15
Annex B5: Social Indicators
Annex B6: Key Economic Indicators
Annex B7: Key Exposure Indicators
Annex B8: IBRD Operations Portfolio
Annex B8: IFC Committed and Disbursed Outstanding Investment Portfolio
TABLES:
Table 1: Selected Macroeconomic Indicators (2005-2011) .................................................................... 3
Table 2: Medium-Term Macroeconomic Projections and Targets.......................................................... 5
Table 3: Projected IBRD Financing Program FY12-15 ........................................................................ 23
FIGURES:
Figure A: Turkey CPS FY12-15: Strategic Objectives and CPS Outcome Areas ..................................ii
Figure 1: Composition of Capital Inflows............................................................................................... 3
Figure 2: Diversification of Turkey’s Export Markets over 1997-2010 ................................................. 6
Figure 3: Turkey CPS FY12-15: Strategic Objectives and CPS Outcome Areas ................................ 17
BOXES:
Box 1: Implementing Governance to Underpin Economic Growth...................................................... 11
Box 2: Sharing Turkey’s Experience—Two Success Stories ............................................................... 24
Map No. IBRD 33501
IBRD IFC MIGA
Vice President Philippe Le Houérou Dimitris Tsitsiragos Izumi Kobayashi
Country Director Martin Raiser since January 1, 2012
Ulrich Zachau until December 30, 2011 Sybile Lazar Ravi Vish
Task Team Leader Ina-Marlene Ruthenberg George Konda Franciscus Linden
Country Operations Officer Benjamin Welch
This Country Partnership Strategy (CPS) was prepared under the guidance of Martin Raiser and Ulrich Zachau, current and
former IBRD Country Directors, and Sybile Lazar, IFC Associate Director, by a team led by Ina-Marlene Ruthenberg, Task
Team Leader and IBRD Country Program Coordinator for Turkey. The IFC team was led by George Konda, Principal
Economist, IFC Europe and Central Asia Department. MIGA participation was led by Franciscus Linden, Senior Risk
Management Officer.
The CPS team included: Benjamin Welch, Carlos Piñerúa, Cristobal Ridao-Cano, Florian Fichtl, Mara Warwick, Marina Wes,
and Tunya Celasin. Support to this team was provided by Michelle McCue and Zafar Ahmed (consultant).
The following members of the Turkey Country Team and other colleagues made important contributions to this strategy:
Adriana Jordanova Damianova; Agi Kiss; Ahmet Levent Yener; Alper Ahmet Oðuz; Aziz Bouzaher; Brian G. Bedard; Carla
Pittalis; Cevdet Çaðdaþ Ünal; Cristian Aedo, Donato De Rosa; Elif Ayhan; Elif Yonca Yükseker; Esra Arýkan; Fisun Altýnbaþ;
Funda Canlý; Isfandyar Zaman Khan; John Balafoutis; Jolanta Kryspin-Watson; Kamer Karakurum Özdemir; Kari Nyman;
Martha Lawrence; Mediha Aðar; Nathalie Weier Johnson; Naveed Hassan Naqvi; Özerk Aslan; Özgür Avcuoðlu; Paul Levy;
Pýnar Baydar; Rekha Menon; Salih Kemal Kalyoncu; Sameer Shukla; Seda Aroymak; Selma Karaman; Sergio Gonzalez;
Serkan Tekneci; Shinya Nishimura; Simon Davies, Steen Byskov; Stephen Karam; Tatyana Leonova; Ülker Karamullaoðlu;
Yeþim Akcollu; Zeynep Lalik from IBRD. Other members of the World Bank Group’s Turkey Country Team (including
IBRD, IFC and MIGA) also contributed.
Turkey Country Partnership Strategy FY2012-FY2015
i
EXECUTIVE SUMMARY
i. Turkey’s rapid growth and development over the last decade is one of the success stories
of the global economy. Today, Turkey is an upper middle income country with a population of 75
million and a gross domestic product of US$735 billion, making it the 16th largest economy in the
world. It is the Government’s stated intention that Turkey becomes one of the world’s 10 largest
economies by 2023, the 100th anniversary of the founding of the Turkish Republic. Turkey is an EU
accession candidate country, a member of the Organization for Economic Cooperation and
Development (OECD) and the G20, and an increasingly important donor of bilateral Official
Development Assistance (ODA). Turkey is one of the largest middle income partners of the World
Bank Group (WBG).
ii. Turkey faces significant economic risks going forward, including spillover from the
European debt crisis. With low domestic savings, Turkey’s economic growth relies on capital
inflows to finance investments and growth. The country’s large current account deficit and the
composition of its financing remain critical concerns. A weak outlook for global activity and more
severe international funding strains have the potential to spill over to Turkey. Turkey’s dependence on
external financing has left the country prone to boom-bust cycles, and the key challenge going forward
is to deliver a soft landing, from the high growth rates in 2010 and 2011.
iii. Other countries, notably in the Middle East and North Africa, are looking to Turkey,
with its gains in income and social outcomes in recent years, as an interesting development
model to emulate. Per capita income almost tripled in less than a decade and now exceeds
US$10,000. The Government’s 2023 ‘vision’ aims for per capita income to reach US$25,000. Poverty
decreased from 28.1 percent in 2003 to 17.1 percent in 2008, increasing by 1 percentage point to 18.1
percent in 2009 as a result of the global crisis. It is expected to have fallen since then as labor markets,
the main channel through which the crisis affected households, recovered quickly, with seasonally
adjusted unemployment at 9.1 percent and the employment rate at 45.4 percent in October 2011,
improving on pre-crisis levels. Economic growth and social policies are behind these achievements.
The results of the nation-wide Health Transformation Program launched in 2003, for example, include
remarkable gains in the health status of the Turkish people, particularly among women. At the same
time, regional, gender, and other disparities persist, and inequality remains a challenge.
iv. This Country Partnership Strategy (CPS) aims to contribute to Turkey’s goal of fast,
sustainable and inclusive growth that respects the environment. Its design reflects priorities
established in Turkey’s own development frameworks, notably the Ninth Development Plan 2007-
20131 and the 2012-2014 Medium-Term Program (MTP), and is intended to be flexible to adapt to
changes. The main criterion for WBG support in Turkey is its ‘strategic value-added’, through a
combination of financing, analysis and advice, implementation support to help address development
challenges, and the sharing of global experience to provide benchmarks and help inform the
development and implementation of policies and programs.
v. The CPS has three main strategic objectives and pillars: enhanced competitiveness and
employment; improved equity and public services; and, deepened sustainable development. In
pursuit of these objectives, the Turkish government, private sector, civil society and the WBG plan to
work together toward ten key outcomes during the four-year CPS period, as set out in Figure A.
vi. Strategic Objective 1: ‘Enhanced Competitiveness and Employment’. Planned CPS activities
include: (i) support for the adoption and implementation of the National Employment Strategy
1 The Tenth Development Plan starting 2014 is under preparation.
Turkey Country Partnership Strategy FY2012-FY2015
ii
currently under preparation with Development Policy Loan (DPL) financing and analytical and
advisory activities (AAA). The aim is to enhance productive employment, particularly the activation
of low-skilled youth and women into formal employment and the expansion of employment activation
programs, focused on skills upgrading; (ii) support for investment and business environment reforms
and the completion of the review of the national competition policy framework; and, (iii) provision of
medium and long-term funding to Small and Medium Enterprises (SMEs) and exporters.
Figure A: Turkey CPS FY12-15: Strategic Objectives and CPS Outcome Areas
vii. Strategic Objective 2: ‘Improved Equity and Public Services’. Planned CPS activities
include: (i) increasing financing for early childhood education (ECE); (ii) strengthening the Ministry
of Health’s stewardship functions (not its role as service provider); (iii) the development and
implementation of the private sector gender equity certification program; and, (iv) analytic and
advisory work on state-owned-enterprises (SOE) governance.
viii. Strategic Objective 3: ‘Deepened Sustainable Development’. Planned CPS activities include:
(i) policy advice and financing to address energy, environmental and climate change challenges in a
more integrated manner; (ii) support for the completion of a water basin management strategy; and
(iii) analysis, advice, and investment financing, by IBRD and IFC, for the Sustainable Cities Program,
which is grounded in Turkey’s Integrated Urban Development Strategy and Action Plan 2010-2023.
ix. ‘Sharing Turkey’s Experience – Results, Knowledge and Capacity’ is a dimension of the
CPS that cuts across all three objectives. Turkey and the World Bank are exploring avenues to
collaborate in sharing Turkey’s successful economic and social reforms. Two areas of particular focus
include: health sector policy, reform, and performance; and disaster prevention and mitigation. The
WBG intends to use its global network to work with Turkey in sharing these experiences and
successes with a wider international audience.
Fast, sustainable, equitable and inclusive growth that
respects the environment
Strategic Objective 1
Enhanced Competitiveness and
Employment
Strategic Objective 2
Improved Equity and Public Services
Strategic Objective 3
Deepened Sustainable Development
1. Sustained macroeconomic
and financial stability and
strengthened exports,
domestic savings and external
resilience
2. Increased employment and
reduced job informality,
especially for women and
youth
3. Improved investment and
business climate; deepened
and broadened access to
finance
4. Improved quality and coverage
of early childhood education
5. A more effective and
financially sustainable health
system; other countries
expressed interest to learn from
Turkey’s good experience
6. Progress made toward gender
equity
7. Improved public services and
governance
8. Improved supply of reliable
and efficient energy, increased
use of renewable energy and
climate actions under
implementation.
9. Strengthened
environmental management
and adaptation to climate
change
10. Improved sustainability of
Turkish cities
Cross-cutting : Sharing Turkey’s Experience – Results, Knowledge and Capacity
World Bank Group contributing to:
Turkey Country Partnership Strategy FY2012-FY2015
iii
x. While Turkey will remain a large-scale borrower during this CPS period, the role of
analytical and advisory activities will grow in relative terms. Knowledge services and technical
assistance add value through the provision of analysis, global experience, and hands-on
implementation support. Reflecting the Government’s ongoing demand for analytical and advisory
services, the share of AAA spending in IBRD’s total work program budget for Turkey steadily
increased over the last four years. Responding to the Government’s request for continued high levels
of IBRD financing, the CPS FY12-15 envisages an IBRD financing program in the order of up to
US$4.45 billion. IFC’s own-account investment program in Turkey is expected to remain in the range
of US$425-500 million a year or, US$1.7-2.0 billion for the CPS period.
xi. What we can learn from the past partnership with Turkey. The WBG is most effective
when it combines the skills of its three arms: IBRD, IFC and MIGA. Opportunities for mutually
complementary work are high in areas such as supporting SMEs, exporters, and energy efficiency
investments, which will continue to feature prominently in the new CPS. Lessons from the FY08-11
CPS include:
• The systematic development and maintenance of a policy dialogue in support of long-term
strategic goals, combining knowledge and lending operations, are vital to support reforms.
• The new engagement on environment and climate change, which started during the previous
CPS, illustrates the importance of identifying strategic entry points for policy dialogue and
seizing opportunities to strengthen engagement as country priorities evolve.
• An increased focus on monitoring and evaluation (M&E) during the last CPS period, welcomed
by the Turkish authorities, resulted in a deepening of the Turkey-WBG partnership.
• In a number of fields Turkey’s policies and reforms, some of which were conducted in
partnership with the WBG, have gained international recognition. This provides an opportunity
for Turkey and the WBG to work together in sharing knowledge and experience with countries
in the region and further afield.
xii. The outcomes of this CPS are subject to significant external economic risks. Increasing
global uncertainty and deteriorating prospects for economic growth and stability in Europe and other
developed economies create downside risks to global demand for Turkish exports, to output growth
and correspondingly fiscal performance, and to the availability of international private capital flows to
finance Turkish investments. The key to mitigating the most severe risks of further global economic
disruption lies in sound economic management – and in particular measures to contain and reduce the
current account deficit. Over the medium term, increased productivity, the expansion and
diversification of exports, higher domestic savings, and greater energy efficiency and diversification of
energy sources are the keys to reducing Turkey’s reliance on external finance. Turkey faces political
and economic risks to the effective implementation of complex and challenging reforms – which can
however be mitigated through systematic policy dialogue, participatory project preparation and
implementation and evidence-based analytic work. Turkey also faces significant risk of natural
disaster as the recent, tragic earthquakes in the Van region have shown.

Turkey Country Partnership Strategy FY2012-FY2015
1
I. COUNTRY CONTEXT
Country Background and Political & Social Context
1. Turkey’s rapid growth and development over the last decade is one of the success stories of
the global economy. Today, Turkey is an upper middle income country with a population of 75 million
and a gross domestic product of US$735 billion, making it the 16th largest economy in the world. Per
capita income almost tripled in less than a decade and now exceeds US$10,000. Standard & Poor’s
upgraded Turkey’s local currency credit rating to investment grade in September 2011.2 Turkey has
already met the Millennium Development Goals (MDGs) for maternal and infant mortality as well as
universal primary education, and is well on the way towards meeting its other MDGs by 2015. Turkey is
an EU accession candidate country, a member of the Organization for Economic Cooperation and
Development (OECD) and the G20, and an increasingly important donor of bilateral Official
Development Assistance (ODA).3 Turkey is one of the largest middle income partners of the WBG.
2. Economic growth has been aided by a long period of political stability. In June 2011, the
Justice and Development Party (AKP) won a mandate for a third-term of single-party government, with
327 seats in Turkey’s 550 seat unicameral Parliament. Constitutional reform is high on the agenda. The
Turkish people approved an earlier package of constitutional reforms by referendum in September 2010.
Parliament started work on a new constitution in October 2011 and expects to complete a draft by the end
of 20124. Approval of constitutional changes or a new constitution will require a two-third parliamentary
majority (367 votes or more), or a 60 percent majority (330 votes or more) and adoption in a public
referendum.
3. Turkey’s regional and global role is growing. Turkey has set out to strengthen relations with
countries in the region, broadening its engagement with the Middle East and increasing its presence in
Africa, the Balkans, the Caucasus, and Central Asia. Recent political developments in the Middle East
and North Africa have focused regional and worldwide attention on Turkey’s political and economic
system, inspiring other countries. Prime Minister Erdoðan acknowledged this interest in his June 2011
election victory speech, which outlined Turkey’s willingness to extend and deepen ties across the region.
4. Turkey made gains in social outcomes - supported by a decade of economic growth. Poverty
decreased from 28.1 percent in 2003 to 17.1 percent in 2008 (using the national poverty line), but
remained unchanged in rural areas. Extreme poverty has virtually disappeared. Inequality has declined
but still remains a challenge. The crisis affected households mainly through the labor market. It led to a
one percentage point increase in the poverty rate in 2009 according to official estimates. Although more
recent figures are not yet available, poverty is likely to have come down after the crisis, as labor markets
recovered quickly, with the seasonally adjusted unemployment rate falling to 9.1 percent and the
employment rate rising to 45.4 percent by October 2011, improving on pre-crisis levels. Economic
growth, social policies, and the nation-wide Health Transformation Program launched in 2003, are behind
these achievements. The health status of the Turkish people has improved, particularly that of women.
Maternal mortality fell from 29 deaths per 100,000 live births in 2005 to 16.4 deaths in 2010, while infant
mortality fell from 25 deaths in 2005 to 10.1 deaths in 2010, meeting the MDG targets for maternal and
2 S&P raised Turkey’s local-currency rating by one notch to BBB in September 2011 citing ‘continuing improvements’ in the
country’s financial industry and the expansion of local debt markets.
3 Turkey’s ODA increased almost 15-fold from US$67 million in 2003 to US$967 million in 2010 and is predominantly bilateral
(2010: US$920 million bilateral versus US$47 million multilateral). The largest bilateral recipients are Afghanistan, Kyrgyz
Republic, and Pakistan, followed by Kazakhstan and Iraq. Turkey’s contribution to International Development Association’s
(IDA) 16th replenishment was US$15.5 million, a share of 0.06 percent, the same as it was in IDA15.
4 The Parliamentary Commission charged with drafting a new constitution aims to complete a draft by 2012.
Turkey Country Partnership Strategy FY2012-FY2015
2
infant mortality. There has also been an increase in access to education, particularly among girls: Turkey
has virtually achieved universal primary education and increased secondary school enrollment to 69
percent.
5. European Union (EU) accession continues to be a priority. Turkey has a deep-rooted
relationship with the EU. The EU is Turkey’s largest economic partner, accounting for 46 percent of
Turkish trade in 2010. Turkey became a candidate for full membership in the EU at the Helsinki summit
in 1999. Accession negotiations began in October 2005 and continue to progress, albeit slower than
Turkey would like. Following the June 2011 elections, the Government upgraded the institution which
oversees EU accession into the new Ministry for EU Affairs. Negotiations on 13 chapters of the Acquis
Communautaire are currently open. One of the 35 Chapters (Chapter 25: Science & Research) has been
opened and provisionally closed. Turkey is determined to continue its reforms on the way to EU
accession, its strategic objective. Turkey has benefited significantly from deepening integration with the
EU through growing sophistication of both exports and imports and access to financing5.
II. ECONOMIC CONTEXT
6. While Turkey benefits from strong private and public sector balance sheets, an externallyfinanced
demand boom has recently weakened Turkey’s resilience. Strong growth over the 2010-11
period has led to a fast widening current account deficit. In the current uncertain external economic
environment, risks to growth (particularly in 2012) are significant. Recent economic developments are
discussed below, followed by a discussion of medium-term prospects and risks.
Recent Economic Developments
7. Turkey’s macroeconomic policies and structural reforms over the past decade have yielded
robust economic growth. Real GDP growth averaged nearly 7 percent during 2003-07, up from 4
percent during the 1990s. Growth resumed rapidly after the 2008-2009 global crisis, at 9 percent in 2010
and 9.6 percent in the first three quarters of 2011. Per capita income now stands at US$10,067. Public
sector primary balance averaged about 2.8 percent of GDP over 2004-10 and gross public debt as a
percentage of GDP fell from 73.4 percent in 2002 to 45 percent in 2010, in spite of a moderate increase
during the 2008-09 global crisis.
8. The credibility built with consumers, investors, and financial markets over several years
allowed the Government to adopt expansionary macroeconomic policies during the 2008-2009
global crisis. Turkey suffered from a short but sharp fall in GDP (4.8 percent) in 2009. Imports and
exports (which are concentrated in pro-cyclical goods) both declined in 2009. Foreign direct investment
slowed considerably from 2.3 percent of GDP (US$17 billion) in 2008 to 1.1 percent of GDP in 2009
(US$6.9 billion). Unemployment reached a high of 16.1 percent in February 2009, an increase of 4.2
percentage points compared with the same time in 2008. The authorities moved quickly to maintain
confidence and liquidity in the banking sector (including through a reduction in reserve requirements and
the reintroduction of a ‘blind-broker’ lending facility), and implemented a set of employment measures,
as well as fiscal stimuli. Between October 2008 and November 2009, the overnight interest rate was cut
by a cumulative 10.25 percentage points. The general government fiscal deficit increased sharply from
1.6 percent in 2008 to 5.5 percent of GDP in 2009, due mainly to the operation of automatic stabilizers
(such as the increase of approximately 1.8 percentage points of GDP in budgetary transfer to the Social
Security Institution (SSI)). Facilitated by expansionary policies, output is now almost 10 percent higher
than its pre-crisis peak, and the unemployment rate has fallen below 10 percent in April 2011 for the first
5 Golden Growth: Restoring the Luster of the European Growth Model (World Bank, ISBN: 978-0-8213-8965-2, 2012).
Turkey Country Partnership Strategy FY2012-FY2015
3
time since mid-2008, notwithstanding an increase in labor force participation. However, Turkey faces the
challenge of managing the financing of its high growth performance as well as increased inflation rates.
Figure 1: Composition of Capital Inflows
9. As rapid growth resumed in 2010-2011, Turkey’s current account deficit (CAD) rose from
an eight-year low in 2009 to historic highs during 2011, financed largely by short-term inflows. The
CAD widened from US$14 billion (2.3 percent of GDP) in 2009 to US$47.1 billion (6.4 percent of GDP)
in 2010 and US$77.8 billion as of November 2011 (9.8 percent of GDP) on a 12-month rolling basis.
Furthermore, the composition of financing of the CAD deteriorated with the share of FDI in total inflows
falling from 45 percent in 2007 to 18 percent in 2011 (Figure 1). Although energy accounts for a large
share of the trade deficit (nearly 5 percent of GDP on average in recent years), the non-energy balance
contributed significantly to the deterioration. The private sector accounted for the bulk of the CAD, and
private external indebtedness increased correspondingly, from US$188 billion in 2008 to US$202.2
billion in 2011. The high level and short-term nature of the financing of the current account deficit will
likely continue in the near future, with the associated risks of a significant growth slowdown should
Turkey be hit by growing risk aversion in global financial markets.
Table 1: Selected Macroeconomic Indicators (2005-2011)
2005 2006 2007 2008 2009 2010 2011Est.
GDP Growth (%) 8.4 6.9 4.7 0.7 -4.8 9.0 8.0
Investment (as % of GDP) 20.4 22.4 21.4 22.1 15.3 20.2 23.0
Domestic Savings (as % of GDP) 15.9 16.6 15.5 16.8 13.2 13.9 13.3
Unemployment Rate (%) 10.6 10.2 10.3 11.0 14.0 11.9 9.8*
CPI Inflation (%) (end-of-period) 7.7 9.7 8.4 10.1 6.5 6.4 10.5*
Public Sector Primary Balance/GDP, % 5.0 4.5 3.2 1.6 -1.0 0.8 1.2
Gross Public Debt/GDP1 54.1 48.2 42.2 42.9 48.9 45.0 40.2
Gross External Debt/GDP 35.3 39.5 38.5 37.8 43.6 39.5 41.3
CAD/GDP (%) 4.6 6.1 5.8 5.7 2.3 6.4 9.8
Reserves (billion US$) (including gold) 50.2 60.7 74.7 72.9 74.8 86.0 88.2*
Source: Undersecretariat of Treasury, Ministry of Development, CBRT, TURKSTAT, Bank Estimates for selected 2011 variables.
*actualized
-10000
0
10000
20000
30000
40000
50000
60000
70000
80000
2006 2007 2008 2009 2010 2011 (Jan-Oct)
million $
Short Term and Portfolio Inflows FDI Medium and Long Term Inflows and Net Error and Ommissions
Turkey Country Partnership Strategy FY2012-FY2015
4
10. High growth translated into continuing improvements in the headline fiscal balance, but
primary spending remains above pre-crisis levels. The general government fiscal deficit declined from
5.5 percent of GDP in 2009 to an estimated 1.2 percent in 2011 and, after a crisis-related increase in 2008,
the public debt to GDP ratio has resumed its downward trend. The decline in the fiscal deficit reflects the
strong cyclical nature of tax revenues, but a comprehensive tax restructuring program and a reduction in
the interest bill have also contributed. However, primary spending remains significantly above the precrisis
level, primarily due to higher capital investment, wage and pension spending. Adjusting for cyclical
factors, the underlying structural fiscal position has loosened, from a structural primary surplus equivalent
to 1.3 percent of GDP in 2007 to an estimated deficit of around 1 percent of GDP in 2011.
11. Facing difficult policy trade-offs, CBRT (Central Bank of the Republic of Turkey) has
implemented an ‘unorthodox’ policy, moving to a tightening stance in late 2011. A weak global
economy, the crisis in the Euro-zone, and the transition from large capital inflows and upward pressure on
the lira in 2010 to declining inflows and lira depreciation pressures in 2011 have created difficult
economic policy trade-offs. In late 2010, in response to surging capital inflows, CBRT adopted an
‘unorthodox’ monetary policy cutting overnight interest rates in an effort to discourage portfolio investors
from taking short-term ‘carry trade’ positions in lira assets, while at the same time increasing reserve
requirements to curtail domestic credit. The lira weakened significantly as a result, while credit growth
began to slow following the introduction of macroprudential measures by the Banking Regulation and
Supervision Authority in June 2011. Prompted by concerns about the global economy and early indicators
of a domestic slowdown, CBRT reduced the policy rate by 50 bps in early August. Since mid-October
2011, responding to an increase in inflation (primarily reflecting pass-through of the cumulative 30
percent nominal depreciation since November 2010), CBRT has tightened monetary policy, inter alia by
increasing overnight lending rates and engaging in large-sale foreign exchange selling auctions and direct
interventions. As a result, the interbank overnight rate increased from 6.5 percent in December 2010 to
11.2 percent in December 2011, and the benchmark government bond yield rose from 7.11 to 11.04
percent during the same period.
12. Turkey has moderate public safety net capacity and readiness in the event of a sudden
increase in needs. Social assistance spending is still low by international standards (1.2 percent of GDP
in 2010) but growing fast (a budget increase of 40 percent in 2012). Large programs, such as the Green
Card and the Conditional Cash Transfer Program, coexist with a multitude of small programs. These
programs are now better integrated thanks to the creation of a new ministry in charge of all social
assistance benefits and the introduction of an Integrated Social Assistance Information System (ISAIS).
The new system, along with efforts to develop a single and improved proxy-means test for targeting all
benefits, will enhance the responsiveness of the social assistance system to future crises by determining
eligibility automatically and objectively through a single proxy-means test.
Medium-term Economic Prospects
13. Growth is expected to slow down significantly in 2012, before recovering to about 5 percent
annually in the medium-term. On the back of slower credit growth and falling domestic and foreign
demand, a slow-down in growth in the last quarter of 2011 is expected, following 9.6 percent GDP
growth during the first three quarters of 2011. The annualized weekly credit growth rate declined to 23
percent in mid-December 2011, less than half its peak of 50 percent in January 2011. Annual GDP growth
for 2011 is expected to be around 8 percent and about 3 percent in 2012. The medium term
macroeconomic outlook beyond 2012 is more favorable and, in line with Government’s Medium-Term
Program, projects a GDP growth rate of around 5 percent per annum, driven largely by strong privatesector
led domestic demand. The projected growth is predicated on capital inflows financing a current
account deficit of 5-6 percent over the medium term.
Turkey Country Partnership Strategy FY2012-FY2015
5
14. The growth path projected in the MTP is predicated on continued progress on Turkey’s
unfinished structural reform agenda. Such reforms include the implementation of the new commercial
code and the code of obligations, the labor market reform, measures to bolster long-term fiscal savings,
and steps to reduce the dependency on imports of fuel through an expansion of renewable energy use in
electricity generation and improvements in energy efficiency.
Table 2: Medium-Term Macroeconomic Projections and Targets
2012 2013 2014 2015 2016
Growth (%) 2.9 4 5 5 5
CPI Inflation (%) (end-of-period) 7 5.2 5 5 5
Public Sector Primary Balance/GDP, % 1.3 1.1 1.4 1.7 1.9
Gross Public Debt/GDP1 38.4 37.0 35.2 33.2 31.2
Gross External Debt/GDP 42.6 43.0 42.6 41.8 41.1
CAD (billion US$) 63.7 66.0 66.4 64.9 61.1
CAD/GDP (%) 7.6 7.3 6.9 6.3 5.6
Reserves (billion US$) (including gold) 90.4 91.9 95.1 97.1 100.8
1 World Bank staff estimates for total public debt stock (consistent with EU defined general government debt stock reported in MTP) and gross
external debt stock.
Source: World Bank Staff Projections
15. Despite the benign outlook in the baseline scenario, a combination of external and domestic
factors pose significant risks going forward, including spillover from the European debt crisis. With
low domestic savings, Turkey’s economic growth relies on capital inflows to finance imports. The
country’s large current account deficit and the composition of its financing remain critical concerns.
Under a deepened crisis scenario in the Euro zone and a corresponding sudden stop of capital inflows to
emerging markets driven by a flight to safety, Turkey could possibly face a renewed recession. See Annex
2 for the sustainability analysis.
III. VISION AND DEVELOPMENT CHALLENGES
16. The Government of Turkey has set itself ambitious development goals. Turkey intends to be
one of the world’s 10 largest economies by 2023 – the 100th anniversary of the founding of the Turkish
Republic. The Government’s 2023 ‘vision’6 aims for a gross domestic product of US$2 trillion; a foreign
trade volume in excess of US$1 trillion; per capita income to reach US$25,000; and, unemployment to
decline to 5 percent. Turkey also aims to complete full membership negotiations with the EU; further
develop Istanbul as a leading international financial hub; and, become the leading manufacturing and
service provider both in the region and beyond 7.
17. To achieve Turkey’s development goals and realize sustainable shared growth, the
Government is pursuing a wide range of economic policies and structural reforms, set out in its
Ninth Development Plan for 2007-2013,8
6 See Prime Minister Erdoðan’s Justice and Development Party’s (AK Party) election manifesto for 2011, called ‘Target 2023’.
2012-2014 Medium-Term Program, and annual programs.
Priorities include: (i) sound macroeconomic and related structural fiscal policies to maintain stability and
reduce short and medium term vulnerabilities; (ii) investment climate, labor market, and skills reforms to
increase competitiveness and create jobs, especially for women and youth; (iii) fundamental education
reforms and continuing health and social welfare reform to increase productivity and help share the gains
7 Turkish Economic Policies Research Center (TEPAV): ‘Turkey’s Growth Puzzle’, March 2011.
8 The Tenth Development Plan starting 2014 is presently under preparation.
Turkey Country Partnership Strategy FY2012-FY2015
6
from growth through equal opportunities; and, (iv) continuing energy and water sector reforms and
investments to increase energy efficiency, the use of renewable energy, improve energy security, help
reduce greenhouse gas emissions, and mitigate and adapt to climate change.
The Challenge of Enhancing Competitiveness and Employment
18. For the last decade the Government’s rolling multi-year programs have been grounded in
macroeconomic policies and financial reforms to support sustainable public and external debt
positions. During the 2001 banking crisis, GDP contracted by 5.7 percent and the country embarked on a
concerted path of structural reforms. These reforms included, inter alia, improving fiscal and public
financial management and revamping the framework for macroeconomic management, within which an
independent CBRT is now responsible for inflation-targeting and the lira floats freely against other
currencies. The effect of these reforms has been pronounced. The International Monetary Fund (IMF)
defined public sector primary balance averaged about 4.5 percent of GDP over 2004-07 and, after more
expansionary policies in 2008-2009 during the global crisis, the primary balance reverted to 1.6 percent in
2010. Gross public debt fell sharply from 73.4 percent of GDP in 2002 to 45 percent in 2010.
Strengthening private and public sector balance sheets in the aftermath of the 2001 crisis made Turkey
resilient when the global economic and financial crisis hit in 2008, but growing external imbalances
during the recovery have since eroded some of this resilience.
19. The overarching macroeconomic goal of the Government’s medium-term program for
2012-14 is to maintain robust growth and generate employment by improving competitiveness and
increasing and diversifying exports, thus helping to contain and reduce the current account deficit.
As Turkey’s openness to trade – measured as the share of imports and exports in GDP – increased
modestly over the last decade, one target is to achieve exports of US$500 billion by 2023, up from
US$114 billion in 2010. Meanwhile, the composition of exports by sector underwent changes with a
switch from textiles and garments to machinery exports. Turkey’s trade with the EU-27 also changed as
in particular Germany’s share of total exports fell from 20.7 percent in 1997-99 to 10.5 percent in 2007-
09. In 1997-99, the top five destinations for Turkey’s exports (Germany, the United States, the United
Kingdom, Italy, and France) accounted for 45.9 percent of total exports but in 2005 the top five
(Germany, the United Kingdom, Italy, France, and Iraq) accounted for only 40.4 percent of total exports.
Figure 2: Diversification of Turkey’s Export Markets over 1997-2010
Turkey: Export Destinations by Region, 1997-00 Turkey: Export Destinations by Region, 2007-10
55.1%
14.5%
9.7%
5.4%
1.1%
8.7%
5.5%
MENA
North America
Asia
Sub-Saharan Africa
Rest of Europe
Other
EU27
49.1%
23.6%
3.8%
6.1%
2.2%
10.8%
4.5%
MENA
North America
Asia
Sub-Saharan Africa
Rest of Europe
Other
EU27
Turkey Country Partnership Strategy FY2012-FY2015
7
20. Creating more and better jobs for Turkey’s young and growing population is the most
important medium-term challenge. Although the labor market adjusted flexibly after the international
financial crisis, it remains characterized by low activity rates and low labor productivity, especially
among women and youth. Less than half of the working-age population (15-64 year olds) is employed, 20
percent below the OECD average, and the employment rate of women is especially low (26.5 percent).
About 31.1 percent of youth (15-24 year olds), mostly women, are neither working nor attending
school—the highest share of inactive youth among OECD countries. Job informality (defined as jobs
without social security benefits) has fallen remarkably, but still affects 43.3 percent of workers (29.1
percent excluding the agricultural sector), contributing to Turkey’s lower labor productivity compared
with OECD and other peer countries. Urbanization, agricultural labor shedding and a still rapidly growing
working-age population (until 2020) will continue to put pressure on the labor market.
21. The Government’s prioritization of the labor market and jobs agenda will allow Turkey to
use its gradually closing demographic window and lay the basis for the creation of more and more
productive jobs as early as possible. The Government introduced an action plan to reduce informality in
2008. The 2008 labor reform reduced non-wage labor costs and opened Active Labor Market Programs
(ALMP) to all registered unemployed. Subsequently, the Government expanded the coverage and
increased the relevance of ALMPs, with a focus on vocational training. The 2011 Omnibus Law reduced
disincentives to part-time work and extended the program of subsidies to new employees (particularly
women and youth).
22. The Government is preparing a new National Employment Strategy, which will include a
focus on making labor markets more flexible while increasing the protection of workers. Policies
and reforms under discussion include: more flexible contracting, including reduced restrictions
or disincentives for part-time, fixed-term and temporary work; the introduction of pre-funded
severance accounts and an increased coverage of unemployment insurance; and an enhanced
enforcement of labor laws and awareness-raising to reduce informality. Also under consideration
are efforts to further scale up employment activation programs and services, particularly among
low skilled youth and women, in a cost-effective way through better targeting and profiling (so
that the package of services is adapted to the needs of the jobless) and linking the receipt of
social benefits to activation. The new National Employment Strategy will complement ongoing
and planned reforms to improve secondary education curricula to build job-relevant skills,
increase program choice and flexibility in secondary education, and raise quality assurance in
higher education.
23. Building skills for work, entrepreneurship, and innovation will enhance productive
employment. Half of the working-age population has less than basic education and this group
accounts for 64 percent of the jobless and 65 percent of informal workers. Younger workers are
better educated and skilled, but still lag behind their counterparts in OECD countries. Turkish
firms cite skills as the third most important constraint to business operations after credit
availability and corruption. The Government is focusing on challenges like building a strong
foundation through early childhood education, getting basic skills right through basic education,
and building job-relevant skills through high quality secondary and higher education, as well as
upgrading skills and reducing employment barriers particularly for low skilled youth and
women.
24. Continuing efforts to improve the business regulatory regime will also be important in
enhancing private sector competitiveness. Turkey has made strides to improve business regulation,
partly through closer consultation with the private sector. This has been most notably done through the
Turkey Country Partnership Strategy FY2012-FY2015
8
Committee for the Improvement of the Investment Climate (YOIKK) platform. However, challenges
remain with red tape continuing to impose a significant cost on businesses.9 The lead agency in regulatory
reform, the Prime Ministry, is addressing these challenges in the preparation of a national strategy for
regulatory reform. This is expected to focus on improving intra-government coordination, better
documentation of the many relevant laws and secondary regulations, and on a pilot project for
administrative simplification.10
25. Turkey has made progress in promoting more competitive domestic markets, and the
authorities have identified and set out to address remaining challenges, particularly in the area of
state-owned enterprises. Turkey has strengthened the application of antitrust and merger control
policies, achieving a high level of alignment with the EU. Since the early 2000s a significant privatization
program was launched reducing the share of SOEs net sales to 23 percent (2009) of the largest 500 firms.
The share will go down further as the energy privatization progresses. However, it remains a reform
agenda as government ownership is still prevalent in Turkey in some areas of the economy.11 Moreover,
these companies receive state support and often regulatory functions are not clearly separated. This risks
distorting the market and creating a non-level playing field for potential private entrants and investors.
26. The Government recognizes the importance of innovation to increase long term growth.
Innovation can serve as a ‘silent engine of prosperity,’ spurring sustained wealth and growth. It can lead
to the expansion of an internationally competitive SME sector to complement Turkey’s globally
integrated large corporations. Public and especially private sector R&D spending can help boost the
productivity of existing firms and stimulate the creation of new innovative businesses. While Turkey still
has ample scope to grow by adopting frontier technologies from abroad, it shares with many European
countries the challenge of promoting product and process innovation among its SMEs, which account for
27 percent of total output and 80 percent of employment.
27. Deeper and broader financial markets will promote investment and competitiveness.
Turkey’s financial system has deepened since the 2001 crisis, with financial system assets amounting to
105 percent of GDP in 2010. However, despite a relatively large number and variety of non-bank
financial institutions, the market share of the banking sector, already relatively high, has increased.
Moreover, despite recent gains, the maturity profile of both assets and liabilities remain short term in
nature, with the average maturity of deposits oscillating at around 45 days, and just about half of loans
bearing a remaining maturity of one year or less as of end-June 2011. Turkey is still relatively under
banked, with a credit to GDP ratio of about 50 percent.
28. Turkey’s financial services coverage is particularly low in rural areas and among femaleowned
enterprises. Expanding access to finance is critical for both farmers and agro-processing
companies–especially in the SME segment–to upgrade productive assets, compete with EU counterparts
and move towards compliance with European Union food safety standards. In Turkey, women-owned
businesses represent almost 40 percent of registered SMEs, of which only 15 percent have access to
finance. The banking environment does not encourage women to receive bank financing.
29. Productivity and competitiveness have been rising in agriculture and rural areas, but more
slowly than in other sectors and urban areas—and government policies and programs aim to
address the challenges of rural competitiveness; rural area job creation; and, rural-urban
migration. Although Turkey is a leader in the production of a number of crops with export potential,
9 According to the World Bank’s 2008-2009 Enterprise Survey, the share of senior management‘s time spent dealing with
requirements imposed by government regulations averaged 27 percent in Turkey compared to an average for Europe and
Central Asia Region of 15 percent.
10 Enhancing technical capacity in the area of impact analysis and better measure costs to businesses and citizens of regulation.
11 Source: Treasury SOE Statistics; Fortune 500 company list; and staff calculation.
Turkey Country Partnership Strategy FY2012-FY2015
9
limited technical and human capacity and non-compliance with EU food standards (the largest potential
market for Turkey’s agro exports) constrain the development of Turkey’s agri-business sector.
Agricultural polices aim to bring agriculture in line with EU standards, with a particular emphasis on agribusiness
modernization. The Government aims to develop policies toward measures that support private
investments in rural areas, including the agri-food sector, as well as in R&D and human resources to
create rural opportunities and help boost efficiency, competitiveness and improve market access. The
Government is in the process of strengthening water management to address energy, agricultural,
environmental, and climate challenges. Possible government interventions may include programs for
modernizing agri-food processing; an innovative rationalization of land consolidation; and, integrated
approaches to water basin management and strategic regional development.
The Challenge of Improving Equity and Public Services
30. While average social outcomes have improved, large inequalities persist, starting at a very
early age and reinforced in school. Turkey’s Human Development Index (HDI) has increased from
0.671 in 2005 to 0.699 in 2011, putting Turkey in the high human development group, although its index
remains below the OECD average. However, Turkey’s inequality-adjusted Human Development Index
(IHDI)—which adjusts for inequalities in health, education and income measures—is 23 percent lower
than its nominal HDI. A large share of this inequality is explained by factors outside of individuals’
control: one third of wealth inequality is explained by factors like birth place and parental education.
Inequality of opportunities transcends generations and thus appears from a very early age, limiting the
ability of poor children to succeed in life: 29 percent of 0-5 year olds in the low opportunity group suffer
from stunting (very low height for age, an indicator of malnutrition), compared to only 3 percent of the
high opportunity group.12 Similar differences can be seen in child care and preschool use. These
differences are reinforced by the school system, leading to differences in educational achievement and
learning outcomes.
31. The Government plans to expand early childhood education (ECE) to help correct
inequalities at an early stage by providing a strong foundation for all children. Adding one year of
pre-school education in Turkey could increase family incomes by 8 percent, reduce the number of poor
families by 11 percent, and increase female labor force participation by 9 percent. A plan is underway to
achieve universal enrollment of five-year olds by 2014.13 Building on this plan, the further expansion and
improvement of ECE could be supported by increased public funding; targeted resources for
disadvantaged children and lagging provinces; a quality assurance system, including education standards
and a mechanism for monitoring and enforcing them; and, reaching out to groups including the private
sector and NGOs to complement government efforts.
32. The Government aims to improve teacher quality and education service delivery in low
performing schools to help promote equal opportunities and provide all children with basic skills.
The average 15 year old in Turkey is still about one full school year behind the average OECD student.
However, performance varies across schools and regions: while students in Science and Anatolian high
schools perform at OECD levels, other schools (accounting for 75 percent of students) perform below.
These inequalities are partly rooted in the secondary education entrance exam and the system of private
tutoring centers that it has generated—a system that the Government is reviewing and targeting to
eliminate its demand. Efforts are under way to expand and improve in-service teacher training. Other key
challenges and opportunities for improving the education service delivery system and learning outcomes
12 The low opportunity group includes children who live in rural areas, with parental educational attainment of primary school or
less and households where the mother tongue is not Turkish. The high opportunity group includes children who live in urban
areas; where the mother has at least secondary and the father at least tertiary education, and where the mother tongue spoken at
home is Turkish. For further information, see Turkey: Equality of Opportunities and Early Childhood Development (World
Bank, Report No. 48627-TR, February 2010).
13 Turkey: Equality of Opportunities and Early Childhood Development (World Bank, Report No. 48627-TR, February 2010).
Turkey Country Partnership Strategy FY2012-FY2015
10
lie in developing a more objective and transparent education financing system that allocates funding
according to costs, providing additional resources to disadvantaged schools, and increasing school
financial autonomy and accountability at all levels.14
33. Gender equality has improved in education and health, but large inequalities remain in the
access to economic opportunities. There are virtually no differences in vaccinations and stunting
between 0-5 year old boys and girls. Maternal mortality has been sharply reduced. Virtually all girls and
boys attend primary schools and, in 2011, girls’ secondary enrollment rate of 66 percent lagged 6 percent
behind the 72 percent for boys. However, only about one quarter of women work (as opposed to 67
percent of men), 60 percent of women work in the informal sector (37 percent of men), and only 9 percent
of firms have a female senior manager. Even among youth, 48.1 percent of women neither work nor
attend school or training (21.6 percent of men). Improving women’s access to more and better jobs as
well as opportunities for entrepreneurship will increase total productive employment in Turkey. Indeed, a
6 percentage point increase in the proportion of working women might increase income by 7 percent and
reduce poverty by 15 percent.
34. Turkey’s Health Transformation Program has produced gains in the access to and quality
of health services since 2003, leading to cumulative improvements in aggregate health outcomes.15
The family medicine model is already operational nationwide and Universal Health Insurance covers
most of the population16. Both internal factors (increased social security and health service coverage) and
external factors (rising demand for new and expensive technologies, population ageing and the rising
incidence of non-communicable diseases) will drive up health care costs in the coming years. Global
expenditure caps have helped to contain health spending in the short term, but addressing the underlying
drivers of health spending could further strengthen the long term sustainability of the health system. To
sustain high performance, the Government is pursuing further reforms to increase the efficiency of health
spending, including: a review of the basic benefits package, improvements to the current provider
payment and cost containment mechanisms (through measures such as the expansion of diagnosis-related
group payments for hospital inpatient and outpatient services to all hospitals), strengthened
pharmaceutical policies, hospital autonomy, and the introduction of incentives for family medicine
providers to act as gatekeepers to the system, particularly in strategic areas like Non-Communicable
Diseases.
35. Turkey's 2008 social security reform improved the coverage of public pensions and is
expected to yield significant savings - but these are insufficient to ensure pension system balance
over the long term. Pension spending in Turkey is still modest in comparison to high income OECD
countries at around 7 percent of GDP, reflecting a relatively young population. However, more than half
of pension spending is financed through budget transfers. This is due to the high system dependency ratio
(fewer than two people contributing per beneficiary), unusual for a country with a young and growing
population, resulting from generous eligibility for public pensions (early retirement, low minimum years
of service). The 2008 reform adjusted pension parameters, gradually increasing the retirement age and
contribution period and reducing the accrual rate. But the adjustments are phased in over a period of
several decades, too slow to counter the effects of rising coverage and a maturing population on pension
system deficits which are expected to remain around 3 percent of GDP until the middle of the century. To
improve the long term sustainability of pensions, additional parametric adjustments of public pensions,
increased formal labor force participation, and expanded private pensions would be necessary. Current
14 School report cards may be one tool for increasing school accountability.
15 For example, maternal mortality fell from 29 deaths per 100,000 live births in 2005 to 16.4 deaths in 2010. Infant mortality
also decreased, dropping from 25 to 10.1 per 1,000 live births in the same period.
16 Starting from January 2012, the cost of health services provided to citizens covered by non-contributory health insurance
(formerly known as the Green Card Program) will be part of SSI’s balance and financed through the overall government
transfers to the SSI.
Turkey Country Partnership Strategy FY2012-FY2015
11
efforts to reduce social security deficits are focused on reducing informality through better monitoring;
enforcement and awareness; and, containing health spending.
36. The Government is taking steps to develop an integrated social assistance system and
expand targeted social assistance to help welfare recipients out of poverty. Social assistance spending
increased rapidly in recent years, but remains low by international standards (1.2 percent of GDP).
Coordination across social assistance programs has been limited in the past. After the June 2011 election,
the Government combined responsibility for all central government social assistance benefits under the
new Ministry of Family and Social Policies. The Government is implementing a new Integrated Social
Assistance Information System, with a single proxy-means test to target benefits more effectively. All
beneficiaries of social assistance who are able to work are required to register with ISKUR.
37. Building on the achievements in reforming the public financial management system, both in
sectors (like health and social assistance) and the central government at large, Turkey is now
focusing on implementation issues and an extension of the reforms to the rest of the public sector.
At the central level, the Government is planning to amend the Public Financial Management and Control
Law, drawing on five years of experience with the systems the law established. Strengthening the link
between plans, programs and budgets will be one priority for the Government—for example by moving
towards a program based budget classification that is compatible with the existing budget code. Other
areas include the full implementation of the new external and internal audit framework, the complete
integration of the internal audit function, and improvements in the commitment monitoring system. In
addition, the Government plans to broaden and deepen reforms in the public financial management and
accountability framework for local administrations, where progress has been lagging to date, in part due
to the weak capacity of many local administrations. The Government also plans to prepare a new
governance framework for state-owned enterprises (SOEs), with a view to improving the transparency,
accountability and efficiency of SOEs while promoting private sector entry and investment in markets
where SOEs participate.
38. The Government is planning to advance Turkey’s decentralization agenda, with a focus on
improving public service delivery while maintaining fiscal discipline. In its 2012 Annual Program, the
Government announced its intention to prepare new legislation on local administrations’ own revenues.
This will complement the previous efforts to reform intergovernmental fiscal relations.
Box 1: Implementing Governance to Underpin Economic Growth
Overall, Turkey is ahead of other upper middle income countries, as well as of countries in the Europe and
Central Asia region, in many governance indicators. Significant strides have been made in introducing an
appropriate legal framework to address governance challenges. However, implementation issues exist, as well as
more generally access and use of information by civil society1. This box provides a summary of governance
challenges in the public and private sector, focusing on areas where the authorities and the World Bank have
partnered in the past and intend to continue work during this partnership strategy:
Governance and the Public Sector:
• Public Financial Management Performance: A 2010 benchmarking study highlights areas for improvements in
downstream budget management, including internal control and audit systems and commitment monitoring. It
also indicates that the modernization of external audit has not kept pace with progress in other parts of the
public financial management system. The new Turkish Court of Accounts (TCA) Law, enacted in 2010,
expands the mandate of the TCA to cover the entire public sector, introducing financial and performance audits
in line with international standards and providing the legislative basis for improved control.
• Legal Framework against Corruption: A national Anti-Corruption Strategy and Action Plan were adopted in
2010, with a focus on preventative and awareness-increasing measures. The adoption of specific provisions in
the Criminal Code, and legislation on public procurement, public financial management, right to information,
and asset declaration strengthened the legal framework. Enforcement efforts have been enhanced through the
establishment of agencies such as the Public Procurement Agency, the Ethics Board, the internal Audit
Turkey Country Partnership Strategy FY2012-FY2015
12
Coordination Board and a more autonomous Revenue Administration Office. More streamlined procedures for
tax administration; customs; and business licensing have increased efficiency and reduced opportunities for
corruption. Judicial Reform and ‘Fight against Informality’ Strategies have been prepared, and action plans are
in place to follow through on implementation.
Governance and the Private Sector:
• Licensing Procedures: Turkey lags behind comparator economies in offering efficient and transparent licensing
procedures. OECD indicators of product market regulation show that administrative procedures in Turkey
remain opaque and continue to impose high entry barriers on new market players. Compared to EU countries,
for example, start-ups in Turkey have to undergo more mandatory steps, need to interact with more public and
private bodies, spend more time and money to complete registration requirements, with no single contact points
(‘one stop shops’) for obtaining information and for issuing licenses. Moreover, according to the World Bank’s
2008-2009 Enterprise Survey, the share of senior management’s time spent dealing with requirements imposed
by government regulations averaged 27 percent in Turkey, compared to an average for the Europe and Central
Asia region of 15 percent.
• Corporate Governance and Contract Enforcement: The implementation of a New Commercial Code (to
become effective in June 2012), together with additional steps to reduce red tape, will play a significant role in
improving corporate governance in Turkey. The main approach of the new Code is to introduce more
transparent corporate governance principles, with the aim of fostering trust in the financial positions of Turkish
companies and thus increasing their global competitive strength. The four main pillars of the code are:
Transparency, Accountability, Regulatory Innovation and Fairness. It is expected that Turkey would improve
its score in the ‘protecting investors’ indicators in the World Bank’s Doing Business ratings following this
reform.
1 A detailed report on governance in Turkey has recently been prepared by Global Integrity. Comparative data can also be found in annual reports
by Transparency International, the Bertelsmann Transformation Index and the World Bank Institute Governance indicators. The Business
Environment and Enterprise Performance Survey provide information on governance issues seen from the perspective of the private sector. This
box draws on these and other public sources.
The Challenge of Deepening Sustainable Development
39. Building on fundamental energy sector reform, which accelerated over the last decade,
Turkey is moving to develop an increasingly reliable and efficient energy supply, while seeking to
mitigate climate change. After a temporary slowdown during the global crisis, energy demand is
growing rapidly, particularly electricity demand (which grew by 7 percent in 2010), mirroring the
rebound in economic growth. Turkey has added significant new generation capacity - 11,400 MW
between 2008-11. Future demand growth however, is projected to be around 6.5-7.5 percent per annum,
and forecasts suggest that in the absence of continued large-scale investments in generation and under
average hydrological conditions, Turkey could begin to see supply shortages by 2015/16. Challenges
include:
i. Import dependency: Energy imports (mostly oil and gas) account for over 20 percent of Turkey’s
imports and about 50 percent of the current account deficit. Natural gas now accounts for almost half
of total electricity generation, and has the largest share of primary energy supply (at 31 percent,
followed by oil at 28 percent). Turkey's dependence on imported gas could therefore increase energy
security risks - in terms of both volume and price. Growing diversification of energy supply,
particularly through renewable resources, could help reduce this import dependence over time.
ii. Legal and regulatory framework strengthening for more hydro energy: Turkey’s target is to utilize its
estimated 140 TWh of economic hydro potential, of which about 40 percent has been exploited.
Further development requires addressing potential cumulative environmental effects and dam safety
issues.
iii. Transmission network investments for more wind energy: Turkey’s target is to reach a wind
generation capacity of 20,000 MW by 2023 from just above 1,300 MW in 2010. Wind generation is
decentralized, has a short construction period and produces electricity intermittently with substantial
variations. The challenge for the transmission system is therefore the large-scale implementation of
the still largely untested licensing and grid connection mechanisms like SmartGrid applications.
Turkey Country Partnership Strategy FY2012-FY2015
13
iv. Climate change mitigation through energy efficiency: Turkey’s economy is relatively energy
intensive – requiring 0.26 ton of oil equivalent (toe) for every US$1,000 of GDP, compared with the
OECD average of 0.18 in 2008. A recent World Bank study17 estimated that in industry and buildings
alone, the total energy saving potential is about 27 percent or 15.1 million tons; about 20 percent of
annual energy imports. The systematic pursuit of energy efficiency is therefore a priority and critical
for Turkey’s energy security, macro/fiscal stability, competitiveness, climate change mitigation and
environmental sustainability. The Government has taken many of the required legal,
regulatory/pricing and institutional measures to promote energy efficiency and is supporting the
financing of investments through specialized targeted credit lines.
40. The sustainable management of natural resources and nature protection are growing in
importance as long-term challenges for Turkey, along with climate change adaptation. Turkey’s
natural resources face increasing pressures from growth in energy use, industry, transport, tourism, and
agriculture resulting in water stress, soil erosion and pollution. At the same time, Turkey is also one of the
most vulnerable countries in Europe and Central Asia to climate variability and change because of its
location and the condition and sensitivity of its natural resource base. Issues include: water stress—with
Turkey already being considered a ‘water-stressed’ country by international standards;18 and severe land
degradation—with more than 59 percent of Turkey’s land area suffering from severe erosion, and forest
cover now at 26 percent, down from 70 percent originally. Turkey is already addressing a range of
regulatory and institutional reforms in the environment and forestry sectors and prioritizing investment
programs in infrastructure, pollution mitigation, and afforestation. Measures to address these challenges
are now becoming a priority for the Government. Negotiations on the EU Chapter on Environment were
opened in December 2009.
41. Cities are at the forefront of Turkey’s sustainable development agenda. The pace of
urbanization in Turkey has transformed what was a predominantly agrarian economy in the 1950s with
only 4 million Turks living in cities (25 percent of the total population) into a globally competitive
industrialized economy with over 70 percent of its population in cities. While cities enabled this economic
transformation, bringing human capital, innovation and know-how to urban centres, they have also
brought new sustainability challenges. For instance, motorization rates have increased more than ten-fold
over the past 30 years (15 vehicles per 1,000 persons to 190 vehicles per 1,000 persons), adding
congestion costs to growing metropolitan areas. Housing shortages have driven up rents, causing informal
settlement expansion in precarious locations with inadequate services and sub-standard housing
vulnerable to seismic risks. Longer planning horizons will be important for improvements in the
sustainability of Turkish cities–as will improved land-use planning and a shift to life-cycle costing of
investments, which may entail higher upfront capital outlays but reap better economic returns over the
long term. The Government’s newly issued National Integrated Urban Development Strategy (KENTGES
2011) reflects these progressive urban planning principles.
42. Turkey is vulnerable to natural disasters, particularly earthquakes. Within the nation’s
high-risk context, Istanbul is most vulnerable due to its seismic-prone location on the North Anatolian
Fault, and its high population and commercial/industrial densities. The Government has made progress in
strengthening the national emergency management system, and the local system in Istanbul. In addition,
a large program of seismic retrofitting of public buildings in Istanbul is an internationally respected
showcase. However, much remains to be done to replicate the experience of Istanbul in other high-risk
areas in Turkey, and to expand the current mitigation actions to include private and commercial buildings.
Disaster mitigation, including preparation for long-term effects such as climate change, remains a focus of
Turkey’s urban development agenda.
17 Tapping the Potential Energy Savings in Turkey (World Bank, Report No. 52210-TR, January 2011).
18 Turkey’s renewable water resources are estimated around 1,500 m3 per capita per year, expected to further drop in the future as
a result of climate change and resource exploitation.
Turkey Country Partnership Strategy FY2012-FY2015
14
IV. TURKEY-WORLD BANK GROUP PARTNERSHIP
Previous Countr y Partner ship Strategy
43. During the FY08-11 CPS, Turkey achieved substantial development results, while
weathering the impact of the global economic crisis, with the World Bank Group playing a catalytic
role. Sound government policies were at the heart of Turkey’s strong overall economic performance.
Policies, programs, and projects realized in partnership with the WBG produced concrete development
results. For example, electricity transmission and peak capacity increased by 60 percent between 2002
and 2010. The health system’s greater reach and efficiency improved health outcomes throughout the
country, and has gained international recognition. The progress made by Istanbul’s Governorship in
strengthening the city’s resilience against earthquakes, and disaster response preparedness, is considered
an international model. Most CPS milestones were achieved or partially achieved (see CPS Completion
Report, Annex 3).
44. Over the course of the previous CPS, Turkey’s partnership with IBRD, IFC and MIGA,
while strategically focused, grew in size, importance, and strength—with a timely scale-up of WBG
financial and knowledge services during the global crisis:
a) Increased financing: Turkey became IBRD’s second largest client, with US$12.9 billion in
outstanding commitments at the end of FY11. Total new IBRD financing commitments in the CPS
were US$7.6 billion, an increase of US$1.4 billion from the originally envisaged US$6.2 billion,
reflecting increased financial support to help address the impact of the global financial crisis. IFC
delivered US$2 billion in financing in 45 projects: 41 percent in the infrastructure sector; 38 percent
in the financial sector; and 21 percent in manufacturing, agribusiness and the health and education
sectors. Turkey is now MIGA’s second largest client, with a growth in gross exposure from US$671.8
million at the end of FY08 to US$951 million at end-FY11.
b) Extensive demand-driven knowledge and technical assistance: IBRD’s large program of analytic
and advisory (AAA) services focused on supporting Turkey’s policy and reform priorities. It featured
52 knowledge products, many of which were prepared jointly with Government and in collaboration
with other development partners. Topics included, inter alia, work on public financial management;
informality and savings; energy sector reform and regulation; food safety, and watershed
management, education quality, female employment and gender certification, and the (in)equality of
opportunities, the investment climate, competition and business regulation, and corporate bond
market development.
45. The CPS’ flexible framework enabled the World Bank Group to support Turkey in
attaining results beyond the strategy’s original scope. The WBG was able to respond to Turkey’s
request for additional support, and to adapt the composition and sequencing of analytical work and
financing to help address urgent new challenges, while keeping a focus on longer-term development
priorities. The CPS also permitted Turkey and the WBG to launch a new collaboration on climate change
and environmental management. The initial strategy had not elaborated program activities in the areas of
climate change and environment, but recognized and allowed for the possibility of developing
collaboration later. Such collaboration indeed developed later, including through both analytic work and
financing, and is expected to grow in the new CPS.
46. Leveraging the capabilities of the entire World Bank Group in strategic sectors
strengthened the partnership. Work on private sector development is a good example. IBRD was able
to focus on medium and long term policy issues, for example through investment climate assessments
(ICAs) and the preparation of a roadmap for the development of the Turkish corporate bond market. IFC
focused on infrastructure projects, mobilizing US$1.6 billion through private financial institutions, and
Turkey Country Partnership Strategy FY2012-FY2015
15
helped to strengthen firms’ competitiveness and international expansion including to the Balkans, Russia,
Georgia, Tunisia, and Egypt. Both IBRD and IFC scaled up financing for SMEs and exporters during the
global crisis when such financing was urgently needed—serving a broadly complementary customer base.
MIGA also supported the private sector, and assisted Turkish companies looking to expand abroad – there
were five active projects guaranteeing these sorts of investments at the close of the last CPS.
Lessons from the FY08-11 Countr y Par tner ship Str ategy Completion Report
47. Lesson 1: The systematic development and maintenance of a policy dialogue in support of
long-term strategic goals, combining knowledge and lending operations, are vital to support
reforms. Major policy and legislative reforms can take time to implement; therefore flexibility and
patience are critical for ensuring good results. Collaboration on the Commercial Code (seven years in
preparation) provides an example of the value of long-term engagement from the previous CPS. To
increase success, the full integration of combined analytical work and policy financing into national
development plans and medium-term programs is critical. The programmatic structuring of work, in the
form of modular interventions which build on each other sequentially, is particularly effective.
48. Lesson 2: The new engagement on environment and climate change, which started during
the previous CPS, illustrates the importance and value of carefully identifying strategic entry points
and seizing opportunities as country priorities evolve. Turkey and the WBG agreed not to use the
environment as a pillar in the CPS FY08-11, reflecting limited advancement of the environmental agenda
during 2004-2007 and a decision to consider a possible re-engagement, at Turkey’s initiative, during the
2008-2011 CPS period. Turkey’s accession to the Kyoto protocol and the opening of the Environmental
Chapter of the EU Acquis in 2009 provided the opportunity and strategic entry point for a new
engagement on this topic. This opportunity grew out of the Turkey-WBG partnership on energy. The
electricity DPL series was broadened into the Environmental Sustainability and Energy Security (ESES)
DPL series, with three components: energy, climate change, and environmental sustainability. This work
led to collaboration in preparation for the 2012 UN Sustainable Development Conference (Rio+20). IFC
used its support for Turkey’s liberalization program to secure low carbon solutions to meet growing
electricity demand.
49. Lesson 3: A strengthened focus on monitoring and evaluation (M&E), welcomed by the
Turkish authorities, became a vehicle for further developing the Turkey-World Bank Group
partnership. Turkey and the World Bank established a rolling programmatic Joint Portfolio Progress
Report (JPPR) to collaborate in strengthening monitoring and evaluation and the results focus of
government and WBG-supported programs. The World Bank also provided technical assistance on M&E
financed by the IDF, and Turkey and the World Bank were partners in many task-specific M&E activities
during the CPS period, including special efforts to include results frameworks in all AAA activities, with
the intention of strengthening the World Bank’s own approach to M&E.
50. Lesson 4: In a number of fields Turkey’s policies and reforms, conducted in partnership
with the World Bank Group, have gained international recognition. Examples include health, energy
market development, and disaster risk management. This experience provides a basis for further such
Turkey-WBG collaboration in this CPS. Turkey and the WBG plan to expand their partnership by
working together on enabling knowledge sharing and contributing to development with other countries
both in the region and globally.
Turkey Country Partnership Strategy FY2012-FY2015
16
51. The World Bank Group will continue to be most effective in its partnership with Turkey by
leveraging its three arms: IBRD, IFC and MIGA. Turkey and the WBG expect to continue the
approach to private sector support in the previous CPS—where all parts of the WBG provide
complementary financing and services to Turkish clients.
Stakeholder Consultations and Client Country Survey
52. The 2011 Client Country Survey, conducted in preparation for the new CPS, presented a
broad range of opinions on the World Bank Group’s work in Turkey. Development priorities for
Turkey-WBG partnership identified by respondents were education with an emphasis on skills;
environment and natural resource management; employment; energy; and disaster preparedness19. These
choices are broadly consistent with the priorities identified in this CPS and the analysis presented in the
CPS Completion Report. Development priorities were as follows: rural development, increased job
opportunities in the formal sector, enhancing opportunities for private sector growth and investment,
access to pre-school education, and economic growth. With the exception of rural development, these
sector priorities largely mirrored work carried out in the previous CPS. Less positively, respondents noted
the slowness and complexity of processes as the WBG’s greatest weakness in Turkey, and identified
interaction with stakeholders outside government as an area for improvement. Respondents also perceived
WBG work as not being particularly effective in reducing poverty in Turkey.
53. The World Bank Group undertook a number of formal consultations and workshops with
counterparts and civil society while preparing this CPS. Events were held in Ankara, Erzurum and
Istanbul, in addition to the WBG’s regular process of consulting with both government counterparts and
Turkish civil society. Overall, the feedback from all parties was encouraging and provided both a realistic
vision of the efficacy of the WBG’s work in Turkey to date, and provided valuable input on future
directions the partnership might take–both in the new CPS and beyond. In this CPS, to further strengthen
its partnership with Turkey and ensure that work carried out becomes increasingly responsive to client
demand, the WBG will continue to work with, and listen closely to, civil society and our broader range of
counterparts in Turkey.
V. RESULTS AREAS
Str ategic Objectives of Country Par tner ship Strategy FY12-15
54. The objective of this partnership strategy is to contribute to Turkey’s goal of fast,
sustainable, and inclusive growth that respects the environment. Turkey has a set of clear strategic
development frameworks that guide the implementation of its reform agenda. The most important
medium to longer-term programs are the Ninth Development Plan 2007- 201320, the Medium-Term
Program, and the Pre-Accession Economic Program 2011-13; these are complemented by the
Government’s Annual Programs. The CPS design reflects the priorities established in these programs and
is flexible to respond to changes. The main criterion for WBG support in Turkey is its ‘strategic valueadded’,
through the combination of financing support, analysis and advice, and implementation support to
help address particularly complex development challenges, and relevant international experience to
provide benchmarks and help inform the development and implementation of policies and programs.
55. The CPS has three main strategic objectives: enhanced competitiveness and employment,
improved equity and public services, and deepened sustainable development. In pursuit of these
19 The survey had a 32 percent response rate.
20 The Tenth Development Plan starting 2014 is presently under preparation.
Turkey Country Partnership Strategy FY2012-FY2015
17
objectives, the Turkish government, private sector, civil society and the WBG plan to work together
toward the following 10 outcomes during the four-year CPS period:
Figure 3: Turkey CPS FY12-15: Strategic Objectives and CPS Outcome Areas
56. A flexible CPS design. The results framework for the CPS defines the development outcomes of
the WBG partnership with Turkey for the entire four-year CPS period. These CPS outcomes are
contributions to concrete government targets. A number of specific milestones will serve to monitor
progress toward achievement of the CPS outcomes. These milestones mostly reflect the envisaged
partnership through analytic and advisory services and DPL financing and, as much as possible,
quantitative targets drawing on the planned implementation of WBG financed investments in some areas.
The coverage of milestones is focused on FY12-13. The CPS Progress Report will define milestones for
FY14-15, allowing for mid-term adaptation to respond to evolving priorities. This pragmatic approach is
expected to facilitate the formulation of realistic and verifiable milestones that enjoy the ownership of
implementing agencies.
57. A sizable program of analytical and advisory activities (AAA) will continue to be a central
feature of the Turkey-World Bank partnership. Knowledge services and technical assistance add
value through the provision of high quality analysis, global experience, and practical hands-on
implementation support. Reflecting the high value that the Government places on AAA, the share of
AAA spending in IBRD’s total work program budget for Turkey has steadily increased over the last four
years. In the next CPS, Turkey and the World Bank expect to identify and explore modalities, including
cost sharing options, for continuing a large and strong AAA program.
58. The World Bank Group financing program. Responding to the Government’s request for
continued high levels of IBRD financing, the CPS FY12-15 envisages an IBRD financing program in the
order of up to US$4.45 billion. The indicative financing program is set out in Table 3. Overall amounts
Fast, sustainable, equitable and inclusive growth that
respects the environment
Strategic Objective 1
Enhanced Competitiveness and
Employment
Strategic Objective 2
Improved Equity and Public Services
Strategic Objective 3
Deepened Sustainable Development
1. Sustained macroeconomic
and financial stability and
strengthened exports,
domestic savings and external
resilience
2. Increased employment and
reduced job informality,
especially for women and
youth
3. Improved investment and
business climate; deepened
and broadened access to
finance
4. Improved quality and coverage
of early childhood education
5. A more effective and
financially sustainable health
system; other countries
expressed interest to learn from
Turkey’s good experience
6. Progress made toward gender
equity
7. Improved public services and
governance
8. Improved supply of reliable
and efficient energy, increased
use of renewable energy and
climate actions under
implementation.
9. Strengthened
environmental management
and adaptation to climate
change
10. Improved sustainability of
Turkish cities
Cross-cutting : Sharing Turkey’s Experience – Results, Knowledge and Capacity
World Bank Group contributing to:
Turkey Country Partnership Strategy FY2012-FY2015
18
will depend, inter alia, on government demand and performance, country and global economic and
financial developments, and IBRD's financing capacity and demand by other borrowers throughout the
CPS period. The IBRD financing program for FY14-15 will be finalized at the time of the CPS Progress
Report. IFC own-account investment program in Turkey is expected to remain in the range of US$425-
500 million a year or, US$1.7-2.0 billion for the CPS period. IFC expects to invest US$200-230 million a
year in the financial sector, US$130-150 million a year in infrastructure, and US$90-120 million a year in
the manufacturing, agribusiness and services sectors. IFC’s advisory services will continue to focus on
sustainable energy and gender finance.
Strategic Objective 1: Enhanced Competitiveness and Employment
World Bank Group contributing to:
Outcome 1: Sustained macroeconomic and financial stability and strengthened exports, domestic savings,
and external resilience
Outcome 2: Increased employment and reduced job informality, especially for women and youth
Outcome 3: Improved investment and business climate; deepened and broadened access to finance
59. Outcome 1: Sustained macroeconomic and financial stability and strengthened exports,
domestic savings, and external resilience. The Government’s medium-term program projects robust
growth for the next four years, grounded in continued strong economic policies and reforms. However,
new vulnerabilities have emerged as a byproduct of strong growth. These are unlikely to abate in the near
term, and careful management will be important to avoid the boom-bust cycles of the past. Implementing
ongoing and planned reforms to bolster productivity, employment and to secure long-term fiscal savings
will be critical. These include: implementing the new commercial code and code of obligations; planned
second-stage labor market reforms; including severance pay reform and greater employment flexibility;
improvements to the business environment; and further privatization that will help gradually improve
corporate sector productivity and profitability.
60. Outcome 2: Increased employment and reduced job informality, especially for women and
youth. The World Bank plans to continue supporting the Government’s labor market reform and job
creation agenda, including in particular the implementation of the new, comprehensive National
Employment Strategy—with its expected focus on increased labor market flexibility and worker
protection, the market relevance of skills and education, the employability of vulnerable groups such as
youth and women, and reduced informality. The WBG intends to support government efforts to enhance
productive employment, particularly the activation of low skilled youth and women into formal
employment through the expansion of well-designed employment activation programs, with a focus on
skills upgrading. The program for the planned new programmatic DPL series around growth,
competitiveness, and employment is expected to include policy actions to increase labor market
flexibility, worker protection, and reduction of job informality. AAA is expected to support the
development and implementation of the National Employment Strategy; education and training initiatives
through studies (e.g., ESW on Labor, ESW on Programmatic Education); and, technical assistance (e.g.,
Programmatic Human Development TA). The WBG is also expected to continue to work with the
Employment Agency ISKUR on the effectiveness of vocational training programs.
61. Outcome 3: Improved investment and business climate, and deepened and broadened
access to finance. The main objective of the ongoing Second Access to Finance for SMEs Project (FY10)
is to broaden and deepen the access of Turkish small and medium enterprises to medium- and long-term
finance, with a view to ultimately contributing to an expansion of productive activities and job creation.
The Fourth Export Finance Intermediation Loan (FY08) supports exports by providing medium and longterm
working capital and investment finance to private exporting enterprises, and improves the ability of
Turkey Country Partnership Strategy FY2012-FY2015
19
the financial sector to provide financial resources to firms through development of financial
intermediaries. Proposed CPS milestones and activities that help achieve them are expected to include:
• The development and completion of a review of the national competition policy framework,
reflecting policy dialogue with the Turkish Competition Authority and through the planned
programmatic DPL in support of growth, competitiveness and employment.
• Introduction of simplified administration for licenses and permits, such as a ‘one stop-shop’, or
more broadly (under discussion): formulation of a national strategy for regulatory reform,
reflecting technical assistance (e.g., Investment Climate and Competitiveness TA). The regulatory
reform strategy would cover: (a) the formal use of Regulatory Impact Analysis for the
introduction of new regulations, (b) an increase in the transparency of the regulatory process,
including through formal consultation with stakeholders; and (c) the introduction of a welldefined
administrative simplification program for Turkey, with specific monitorable goals.
• Identification of regional dimensions of the challenges and opportunities facing the private sector
to inform future policy, reflecting, for example, the implementation and financing of regional
Investment Climate Assessments (ICA), building on the 2010 ICA.
• Development of policy options for a legal framework to help foster the commercialization of
public research and for rebalancing incentives for private research, reflecting policy dialogue,
analysis, and TA focused on reforms to help increase the efficiency of R&D expenditures and
enhance the role of the private sector in R&D21
• Improved SMEs’ and exporters’ access to longer-term funding, with an enhanced capacity of
intermediaries to appraise investment projects with longer maturity profiles: IBRD expects to
continue financing lines of credit for SMEs (including focus on specific sectors like agri-business
and micro enterprises) and exporters. IFC expects to invest more than US$800 million in the
financial sector during FY12-15 with emphasis on (a) financial inclusion by focusing on
underserved sectors and regions like upgrading agribusiness productive assets; (b) gender finance
by enabling banks to focus on women-owned SME’s; (c) development of new ideas and products,
including the development of the Turkish corporate bond market; and, (d) South-South
cooperation. If needed, IFC would be able to provide a rapid and coordinated crisis response in
Turkey that is demand driven and can be quickly rolled out with active coordination with other
IFIs.
.
• Enhanced financial sector effectiveness, reflecting technical assistance (e.g., Financial Sector
Development TA) on broadening the investor base for non-bank liabilities, enhancing the
capacity of bank regulators in evaluating system risks, and deepening financial intermediation.
62. Support provided to Turkey in governance and reforms of public financial management
systems is a part of the World Bank Group’s Governance and Anticorruption Agenda (GAC). The
Bank’s approach to governance aims both to directly improve the development effectiveness of its own
support to Turkey as well as strengthening Turkey’s country systems. As country ownership and
leadership are vital in the implementation of the World Bank’s GAC agenda, work in this area will
continue to be driven by client demand. In this regard, support for the Government’s new governance
framework for SOEs will be particularly important; and will complement work carried out in the previous
CPS.
21 Turkey has the goal for R&D expenditure to reach 3 percent of GDP and private sector R&D spending to reach 2 percent of
GDP by 2023 (Decree adopted in 23rd Meeting of Supreme Council for Science and Technology). In 2010 (latest available
figure) R&D expenditure was 0.84 percent of GDP.
Turkey Country Partnership Strategy FY2012-FY2015
20
Strategic Objective 2: Improved Equity and Public Services
World Bank Group contributing to:
Outcome 4: Improved quality and coverage of early childhood education
Outcome 5: A more effective and financially sustainable health system; other countries expressed
interest to learn from Turkey’s good experience
Outcome 6: Progress made toward gender equity
Outcome 7: Improved public services and governance
63. Outcome 4: Improved quality and coverage of early childhood education (ECE). Turkey
and the WBG plan CPS activities to contribute to an expansion in coverage and improvements in early
childhood education (ECE) toward the broader objective of equality of opportunities for all. World Bank
support for the development and implementation of a program to expand and improve ECE in Turkey will
build on current progress to achieve universal enrollment of five-year olds by 2014 and may include a
combination of programmatic analytic work, technical support and a financing operation. The
Government’s ECE program is expected to include a sound quality assurance system and, possibly,
targeted resources for disadvantaged children and lagging provinces.
64. Outcome 5: A more effective and financially sustainable health system; other countries
expressed interest to learn from Turkey’s good experience. The WBG plans to support the
Government’s Health Transformation Program (HTP) as outlined in the Ministry of Health’s (MOH)
Strategic Plan 2010-14, which aims to improve the coverage, effectiveness and financial sustainability of
health services in Turkey. The ongoing Health Transformation and Social Security Reform APL2 is
contributing to these results through support to increase the effectiveness of the Social Security Institute
(SSI) and the Ministry of Health (MOH) in formulating and implementing reforms in provider payments
and health systems performance, and piloting output-based financing for prevention and control of noncommunicable
diseases. CPS activities are expected to include capacity building support to the Ministry
of Health to carry out its stewardship functions, continued strengthening of the family medicine program,
improvements in provider payment systems, and a focus on pharmaceutical spending and the rational use
of drugs. Studies and technical support (e.g., Programmatic ESW on Health, including evaluation of the
family medicine model, impact evaluation of positive incentives, rational use of drugs, and evaluation of
benefits package and burden of diseases) are expected to be elements of WBG engagement. An operation,
potentially featuring results-based disbursements, is expected to support this agenda. The HTP is already
recognized as a global ‘good practice’ reform and under the CPS, modalities are expected to be explored
for sharing this experience in the region and beyond. The Turkish Ministry of Health’s ‘Health Care
Public Private Partnership Program’ and its strategic plan aims at providing affordable services beyond
major urban areas. IFC plans to support it with tailoring financing products for healthcare companies.
65. Outcome 6: Progress made toward gender equity. The CPS program plans to support
government efforts to increase women’s access to economic opportunities, particularly access to formal
employment and entrepreneurship. In the new CPS, Turkey and the WBG plan to build on the momentum
of debate among the public and policy makers partly fueled by a Female Labor Force Participation Study
in Turkey completed in 200922
22 Female Labor Force Participation in Turkey: Trends, Determinants, and Policy Framework (World Bank, Report No. 48508-
TR, November 2009).
. Analytical work and TA are expected to support efforts to help (i) low
skilled women find formal employment; (ii) increase access to affordable child care; (iii) improve gender
equity in the workplace; and, (iv) increase female entrepreneurship. The Government and the private
sector expect an expansion of employment activation programs for low skilled women. The ongoing
implementation of a WBG supported pilot gender certification program will promote the incorporation of
Turkey Country Partnership Strategy FY2012-FY2015
21
gender equity as an internal business practice for enhancing equal job opportunities. Completion of the
piloting and national expansion of the model is expected in the course of this CPS. In addition, work is
planned on gender equity in the private sector. IFC intends to encourage women to receive bank financing
to serve better women-owned businesses, which represent almost 40 percent of registered SMEs. In order
to promote ‘Banking on Women’ in Turkey, IFC will establish a platform for Turkish banks to scale up
their reach to women-owned SMEs. IFC will offer a package of investment and advisory services to
interested financial institutions, encouraging them to focus on women owned businesses.
66. Outcome 7: Improved public services and governance. The WBG plans to continue its
programmatic engagement in public expenditure and financial management with analytic studies and
technical assistance. WBG support includes policy recommendations for the transport sector in a Public
Expenditure Review (FY12), and continuation of the work on a Citizen Score Card system. The WBG
expects to also work closely with the Turkish Government to support its efforts to strengthen the financial
management and fiscal position of local administrations and improve SOE governance. In education
services, the CPS is expected to support government efforts to raise learning standards through improved
education access, quality and equity including stronger governance mechanisms. Studies and technical
assistance are planned to support efforts to (i) develop a more objective and transparent education
financing system that allocates funding according to costs (as opposed to inputs); (ii) provide additional
resources to disadvantaged schools; (iii) increase school financial autonomy; and (iv) increase school and
teacher governance accountability (e.g., through school report cards). The School Development Program
under the ongoing Secondary Education Project (FY05) is expected to deliver about 3,500 grants to
disadvantaged schools throughout Turkey. IFC will explore opportunities to play an increasing role in the
transport sector, given substantial funding gaps created by the current market dislocations and withdrawal
of many traditional project finance banks from the market. IFC expects to support private sector
participation in the financing and operation of motorways and bridges through debt and equity as well as
the mobilization of funds from other financial institutions.
Strategic Objective 3: Deepened Sustainable Development
World Bank Group contributing to:
Outcome 8: Improved supply of reliable and efficient energy, increased use of renewable energy sources
and climate actions under implementation
Outcome 9: Strengthened environmental management and adaptation to climate change
Outcome 10: Improved sustainability of Turkish cities
67. Outcome 8: Improved supply of reliable and efficient energy, increased use of renewable
energy sources and climate actions under implementation. During the FY12-15 CPS, Turkey and the
WBG will continue addressing energy, environmental and climate change in an integrated fashion—an
approach that has proved successful during the FY08-11 CPS. Milestones include: (i) improvements in
energy security, through the commissioning of at least 10,000 MW new generation capacity,
reduction/avoidance of electricity supply/demand imbalances, and/or conclusion of new gas import
contracts, (ii) expansion of renewable energy, through increased renewable energy investments, measured
by renewable electricity generation as a percentage of total generation, from 19 percent in 2009 to 30
percent or more in 2015, (iii) implementation of the Climate Change Action Plan with the help of
technical assistance, (iv) the adoption of an Energy Efficiency Strategy, and (v) the adoption of marketbased
mechanism for greenhouse gas (GHG) emissions. The Private Sector Renewable Energy and
Energy Efficiency Project (FY09) is helping to increase privately owned and operated energy production
from indigenous renewable sources, enhance demand-side energy efficiency, and thereby help reduce
greenhouse gas emissions. The ongoing Energy Community for South East Europe Project (FY11) will
increase the reliability and capacity of the power transmission system in Turkey and improve its ability to
Turkey Country Partnership Strategy FY2012-FY2015
22
integrate renewable energy into the system. Planned or possible energy sector CPS activities to help
achieve these milestones include:
i. Continued AAA with an emphasis on energy efficiency and renewable energy.
ii. A third operation in the Programmatic Environmental Sustainability and Energy Sector (ESES)
DPL series. The ESES DPL 3 program will revolve around further electricity and gas sector
restructuring, further electricity market development, renewable energy, the National Climate
Change Action Plan, and transposition of EU’s Large Combustion Plants directive.
iii. Investment financing to support energy security, greenhouse gas emissions limitation through
renewable energy development, energy efficiency in private firms, in the building sector, and in
electricity production; to help the Turkish Electricity Transmission Corporation (TEIAS)
integrate renewable energy into the national power system; and to help integrate renewable
energy generation to the distribution system; and/or to help ensure adequacy of funding for the
gas storage facility.
iv. Turkey’s participation in the World Bank-managed Partnership for Market Readiness provides
the opportunity to exchange views and learn from the experience of about 15 other middleincome
countries.
v. EU IPA (Instrument for Pre-Accession Assistance) grant support for complex energy sector
reforms and programs may draw on WBG managed analytical and TA support, possibly starting
in 2012 with initial funding of around EUR 11.8 million (subject to a satisfactory project fiche).
Such input will help maintain the reform momentum and strengthen institutional capacities in the
areas of power and gas market development, energy efficiency and renewable energy integration
as pointed out in the Multi-annual Indicative Planning Document as energy sector priorities.
vi. IFC also plans to emphasize financing for sustainable energy, renewable energy (e.g., geothermal,
hydro, and wind power), and gas distribution projects. IFC will focus on projects with high
development impact that cannot be achieved through alternative investments resulting in
significant GHG emission reductions and projects where IFC can play a mobilization role. IFC
will increasingly seek opportunities to invest in large ticket equity investments utilizing the Asset
Management Company and the new Global Infrastructure Fund.
68. Outcome 9: Strengthened environmental management and adaptation to climate change.
WBG support for sustainable and equitable resource management and environmental protection is
expected to focus on the implementation of EU environmental acquis, and exploring the options for
Turkey to invest in environmentally sustainable growth (including sustainable accounting, carbon
markets, climate adaptation in climate sensitive sectors such as agriculture and water management, and
forestry management, including completion of the National Basin Management Strategy). Using AAA,
the WBG plans to support the formulation of Turkey’s position at the Rio+20 Conference. The
continuation of the programmatic AAA on National Watershed Management is expected to include the
development of a methodology for integrating the cumulative impact assessment of water usage
installations in river basins in the current legislation, effective monitoring and evaluation tools, and more
effective targeting of investments using social, environmental, and economic criteria. The final operation
in the Environmental Sustainability and Energy Sector (ESES) Development Policy Loan series is
expected to cover the implementation of environmental policies—including, for example, further
harmonization with relevant EU legislation, strengthening the environmental permitting and enforcement
processes, and further development and use of economic instruments.
69. Outcome 10: Improved sustainability of Turkish cities. The CPS envisages support for
Turkey’s response to its urbanization challenge through the Sustainable Cities Program. Using the
Integrated Urban Development Strategy and Action Plan 2010-2023 as a basis, the sustainable cities
program is expected to provide an umbrella framework for partners in government, civil society,
Turkey Country Partnership Strategy FY2012-FY2015
23
financing institutions, among others, and the WBG to work together in a multi-sector manner to support:
(i) policy analysis and advice in areas of urban development such as urban transport, housing and land
markets, urban transformation including an assessment of risk, improving city management, fostering
agglomeration and regional development, improved urban/rural linkages, and financing of cities; (ii)
capacity building for government agencies, cities and domestic financing institutions to assess and
strengthen financial capacity of cities; (iii) the use of global experience for monitoring city sustainability
and livability; and (iv) investment financing, possibly through Iller Bank, for environmental and energy
efficiency investments in cities. As the Sustainable Cities Program develops over time, other areas and
mechanisms of engagement may be added. Along with the Bank, IFC will contribute to the Sustainable
Cities Program by providing support at the municipal level to build financial management capacity and
improve project preparation and implementation standards. IFC can draw on a wide range of products
including straight senior loans, both in EUR and local currency, channeling its funds through local banks
with a portfolio approach, and foreign exchange hedging for EUR denominated loans. IFC expects to seek
collaboration with local banks in expanding access to finance to underserved municipalities. The World
Bank and IFC/Public-Private Infrastructure Advisory Facility launched a joint initiative to provide
technical assistance to Turkey’s central government and local administrations in an effort to help improve
the financial and environmental sustainability and the efficiency of public service delivery at the
municipal level. The ongoing disaster mitigation and emergency preparedness program in Istanbul will
undergo a detailed evaluation. On the basis of this information, an expansion of Turkey’s disaster
mitigation program will be discussed.
70. The World Bank Group plans to explore with Turkish counterparts, over the CPS period,
the possible scope for collaboration in addressing selected rural development challenges. Areas to be
explored include: policies for strengthening rural competitiveness and managing rural-urban migration;
technical assistance and possibly financing for the development of innovative rural investments including
for the modernization of agri-business; and, technical assistance in areas such as basin management, land
consolidation, sustainable tourism to foster local economic development, and adaptation to climate
change in the agricultural sector. Building on the ongoing dialogue and analytic and advisory work, the
CPS Progress Report may identify further specific activities for inclusion in the FY14-15 CPS program.
Table 3: Projected IBRD Financing Program FY12-15
Project Name US$ (M) Project Name US$ (M) Project Name US$ (M) Project Name US$ (M)
Third Programmatic Environmental
Sustainability and Energy Sector DPL
600
Programmatic DPL Growth,
Competitiveness and Employment
600 DPL (tbd) 350 0
DPL Subtotal 600 DPL Subtotal 600 DPL Subtotal 350 DPL Subtotal 0
Private Sector Renewable Energy and
Energy Efficiency Additional Financing
500 Private Sector Energy Efficiency 200
SME Access to Finance (Food
Safety)
200
Project on Health 200
Allocation to be decided 100
INV Subtotal 500 INV Subtotal 700 INV Subtotal 700 INV Subtotal 1,000
Total 1,100 Total 1,300 Total 1,050 Total 1,000
Note: The IBRD Financing Program for FY14-15 is indicative and will be finalized at the time of
the CPS Progress Report
Total envelope US$: 4,450
Investment Financing
FY12 FY13 FY14 FY15
Development Policy Financing
Area of access to finance: SME or exporters
Areas of Sustainable Cities/Disaster/Watershed/Energy
Areas of Education/Employment
Turkey Country Partnership Strategy FY2012-FY2015
24
A Cr oss-Cutting Partnership Dimension: Sharing Turkey’s Exper ience – Results, Knowledge and
Capacity
71. Turkey’s development success and a number of its economic and social reforms have
attracted international interest and recognition. Turkey is also increasingly interested in expanding
and strengthening certain elements of its international development cooperation. Together, Turkey and the
World Bank are exploring avenues to collaborate in sharing Turkey’s experiences abroad. Areas of
particular interest include health sector reform and disaster prevention and mitigation (see Box 2). The
WBG’s ‘value-added’ in sharing development experience is the breadth and strength of its global
network, and its credibility as the premier global development institution and ‘honest broker’ in validating
international good practice. As one initial step, work has begun to explore trade relations between Turkey
and its neighbors. Teams from Turkey, the Middle East and North Africa, and the Caucasus identified
opportunities where the World Bank might support the regional sharing of Turkish success. Other World
Bank tools available include support from WBI, the South-South Experience Exchange Trust Fund
(SSTF), the Knowledge Platforms Initiative, and the Global Expert Teams.
Box 2: Sharing Turkey’s Experience—Two Success Stories
Effective Disaster Risk Mitigation and Management: Istanbul’s Experience
The Istanbul Governorship launched the Istanbul Seismic Risk Mitigation and Emergency Preparedness Project (ISMEP) in
2005 to help Istanbul prepare for potential earthquakes. The project pioneered an innovative approach of combining a focus on
preventative investments (especially the retrofitting or reconstruction of schools and hospitals) and programs (e.g., broad public
awareness campaigns) with disaster response investments (state of the art disaster management center with modern equipment
and communications) and supportive measures, such as for an improved enforcement of building codes and land use plans—as
well as, a first in Turkey, the development of a digital inventory for cultural heritage buildings and pilot designs for the seismic
strengthening of buildings. Initially supported with a US$550 million IBRD loan, the project has attracted a total financing of
Euro 969.8 million (about US$1.3 billion) from International Financial Institutions. The Istanbul Governorship, with the support
of the National Disaster Management Presidency under the Prime Ministry, and through the Istanbul Project Coordination Unit
(IPCU), is already sharing its experience with other countries in neighboring regions and globally, and plans to continue to
expand and strengthen these activities during the CPS period. Activities will include the dissemination of the project
methodology, guidelines, and publications; the provision of training through training modules, training materials, or training of
trainers; public campaign models; workshops, seminars and conferences; on-site surveys; and customized project design,
implementation, and dissemination activities based on needs assessments.
Health Sector Reform: Delivering Affordable Universal Health Insurance and Quality Health Care to All
The transformation of Turkey’s health sector and health service delivery systems through the implementation of the Health
Transformation Program (HTP) since 2003 has attracted many countries’ attention, and Turkey has already entered in a number
of cooperation agreements. One of the goals of the Strategic Plan of the Ministry of Health (MOH) is to share its successful
experience systematically and expand and strengthen the collaboration on the design and implementation of health policies and
delivery systems with other countries and national and international institutions. Specifically, the MOH aims to (i) increase the
number and quality of projects with international institutions, (ii) enter into new cooperation agreements, (iii) strengthen its own
efficiency and effectiveness in engaging with international institutions, (iv) implement projects and programs for third countries,
and (v) conduct training and research activities for and with foreigners who come to Turkey under the framework agreements.
Neighboring countries, countries in the Balkans and Central Asia, the Middle East, Afghanistan, Pakistan, African and other
interested countries are potential partners. Some initial priority areas for MOH in sharing its success story include health system
analysis, the development of training programs, and the preparation of presentation and training materials on the HTP and
specific topics
Turkey Country Partnership Strategy FY2012-FY2015
25
VI. IMPLEMENTATION
Implementation of the FY12-15 Par tner ship Str ategy
Managing the Program
72. Analytical and Advisory Services (AAA) are central to the Turkey-World Bank partnership
and are expected to grow further—programmatic multi-year; ‘discrete’ single-year; and, ‘just-intime’
AAA. In the new CPS, Economic and Sector Work (ESW) and technical assistance are expected to
be financed in two ways. While the World Bank’s core provision of AAA will continue, Turkey and the
World Bank will explore and complement the core AAA program with cost sharing activities. Cost
sharing, as an element of the Turkey-WBG partnership, is expected to enable the Government to select,
design, and pursue additional tasks.
73. The financing framework provides for up to US$4.45 billion in the CPS FY12-15 period.
Development Policy operations (DPL) have a proven record of combining policy advice and support and
flexible financing and are expected to continue to play an important role. At the same time, the proportion
of investment financing, as a constituent part of the overall lending envelope, is expected to increase.
Reflecting lessons learnt from the previous CPS, the timing and composition of IBRD financing is
expected to be managed flexibly, allowing for financing across instruments and areas of engagement in
response to evolving global conditions and country priorities within the overall envelope. During the next
CPS, Turkey and the World Bank also intend to explore the use of new investment financing instruments
like Program for Results.
74. IFC aims to tailor its program in Turkey to achieve maximum development impact.
Although IFC’s investment volume is not expected to increase, its strategy is flexible and consistent with
the WBG’s approach to MICs. IFC aims to adjust its areas of intervention, products and instruments to
the country’s needs – focused on its competitiveness agenda and employment creation. IFC expects to
target under-served segments of the economy, providing financing in areas including Micro, Small and
Medium Enterprises; energy efficiency and renewable energy; municipalities; and, poorer regions in the
country. IFC intends to continue promoting South-South investments and supporting Turkish companies
to invest in the region and further abroad.
75. The Turkey World Bank Group partnership covers only a small part of Turkey’s
development program. WBG financing therefore accounts for only a small fraction of Turkey’s total
external financing23. In the new CPS, the WBG’s contribution is targeted at providing mainly catalytic
support. Direct attribution will remain challenging, if not often impossible—although Turkey’s continued
high demand for WBG services may provide an imperfect, indirect indicator of their ‘value-added’. In
this assessment it is important to remember that demand for IBRD services continues to exceed already
high levels of new financing and knowledge services IBRD is able to provide, given financial risk
management considerations and budget limitations.
Loan Portfolio and Pipeline Management
76. IBRD’s portfolio is expected to remain concentrated and strategically focused. An effort to
concentrate and increase the focus of the lending portfolio has resulted in fewer, larger operations. The
average investment loan size increased from US$245 million in FY08, to US$339 at the end of FY11. As
of January 2012, the Turkey portfolio features 14 projects and US$5.56 billion in net commitments,
23 The scale of WBG financing, averaging US$1.9 billion in new commitments and US$1.71 billion in disbursements during
FY08-11, was very small when compared with Turkey’s total public debt, which was US$321.4 billion in 2010, and it
amounted to 23 percent of Turkey’s average public external borrowing (US$8.43 billion between 2007-2010) and less than 1
percent of its average total gross external debt per year (US$266 billion) between 2007-2009.
Turkey Country Partnership Strategy FY2012-FY2015
26
compared to 24 projects and US$5.67 billion at the end FY07. Portfolio quality has continued to increase,
supported by concerted efforts and joint management of the portfolio with the Government. A proactive
approach to implementation issues translated in a significant decrease in problem projects, from five at
end-FY09 to one in the first half of FY12. Good progress in project implementation is reflected in a
disbursement ratio of 31% at end-FY11, and of 20% during the first half of FY12.
77. A procurement review is planned to increase efficiency and help address challenges arising
from differences between national procurement laws and those of the World Bank Group. The
proposed review will help the Bank to recognize the debarment under national law within the framework
described in the January 2011 Procurement Guidelines as well as to understand the national rules. As the
national procurement law does not allow contracts to be awarded to nationally debarred firms not only in
national competitive bidding but also in international competitive bidding contracts, there is a danger that
procurement processes might create reputational and implementation risks which could prove difficult to
resolve. The planned Procurement Review is expected to explore this issue and seek to identify systemic
solutions. In anticipation of potential results-based projects in health and education sectors, the World
Bank will conduct a dialogue on procurement with the Government and undertake procurement
assessments to underpin project preparation and monitoring of such operations.
Working with Development Agencies and Partners
78. Good and broad relations with civil society remain an important part of the Turkey-World
Bank Group Partnership. Continuing with work begun in the previous CPS, where civil society
participated in the preparation and implementation of projects including the HTP and ISMEP, the World
Bank aims to broaden and deepen its relationship. The World Bank intends to continue using its
convening power: working with the Turkish Investment Advisory Council; Parliament; and, developing
new avenues for engagement with civil society, including organizations like TEPAV (Training and
Research Institute for Public Policy), as it looks to support Turkey in sharing knowledge and expertise
regionally and globally. Beyond consultations undertaken with civil society in developing this CPS, the
World Bank will also seek to ensure that it maximizes the effectiveness of its relations with academia,
think tanks, private sector associations and businesses, as well as NGOs.
79. A continued strong and good relationship with development partners. The World Bank aims
to continue working closely with the IMF, sharing expertise on macroeconomic and a broad range of
structural issues. It intends to continue its close working relationship with the UNDP and UNICEF in
Ankara. Turkey, the WBG and the European Union are working closely together to further strengthen
alignment on ‘Europe 2020’, while also seeking to strengthen their multi-lateral relationship. Regular
meetings are planned between the EU Commission and the World Bank’s Europe and Central Asia Vice-
Presidency; the first of which took place in October 2010 with the EU’s Directorate General for
Employment and second of which is planned in March 2012. A new phase of tripartite institutional
partnership may provide new opportunities for closer operational cooperation in important sectors
including energy. For example, working alongside the European Commission and Turkey’s ministries for
EU Affairs and Energy and Natural Resources, World Bank technical and analytical assistance on energy
is currently scheduled for 2012 EU IPA funding of about EUR€ 10 million. The WBG also expects to
look to further relations with bilateral partners – building on the pilot project run by the World Bank’s
private sector team (ECSPF) on the simplification of administrative procedures with the UK Foreign and
Commonwealth Office (FCO) in FY12. IFC intends to continue working closely with other IFIs,
including the European Bank for Reconstruction and Development, the Black Sea Trade & Development
Bank, and Kreditanstalt für Wiederaufbau Bankengruppe (German Development Bank).
Turkey Country Partnership Strategy FY2012-FY2015
27
VII. RISKS
80. The outcomes targeted by this CPS are subject to economic and external risks. Increasing
global uncertainty and, deteriorating prospects for economic growth and stability in Europe and other
developed economies create downside risks to the global demand for Turkish exports, to output growth
and correspondingly fiscal performance, and to the availability of international private capital flows to
finance Turkish investments. The main macroeconomic risk is a reversal of capital flows, which could
cause a significant growth slowdown, given the high level and the short-term nature of the financing of
the current account deficit. There is also a risk of further systemic disruption in the global financial
system, with potentially significant ripple effects on the Turkish economy. The key to mitigating the most
severe risks of further global economic disruption lies in sound economic management – and in particular
measures to contain and reduce the current account deficit. Over the medium term, higher productivity,
higher exports to more diverse markets, higher domestic savings, and greater energy efficiency and
diversification are the keys to reducing Turkey’s reliance on external finance.
81. Risks of natural disasters, while mitigated by some World Bank supported programs,
remain. Turkey is particularly vulnerable to earthquakes, and within the nation’s high-risk context,
Istanbul is most vulnerable due to its seismic-prone location on the North Anatolian Fault, and its high
population and commercial and industrial densities. As the recent, tragic, earthquakes in the Van region
have shown the preparation for and the mitigation of risks associated with seismic activity remain a
foremost development challenge for Turkey and the WBG and the Turkish authorities expect to maintain
ongoing dialogue on this issue over the course of the new CPS.
82. Implementation risks. Social consensus on the reform program and institutional capacity are
needed for the implementation of the CPS which supports the Government’s Ninth Development Plan.
The complexity and social impact of many elements of the reform program require consensus building
among all interested groups. This is a process which takes time and results in compromises. However, the
implementation of reforms would be more problematic without the careful application of such processes.
A systematic policy dialogue with country counterparts on World Bank supported project preparation and
implementation, and analytic and advisory work can support countries’ reform process. Institutional
capacity building, in particular in the area of monitoring and evaluation, strengthens the implementation
of policies and projects.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 1
1
Turkey – World Bank Group Country Partnership Strategy FY12-15: Results Framework
Strategic Theme 1: Enhanced Competitiveness and Employment
Country Development Outcomes to
which CPS Contributes Milestones and Outputs of the CPS Program World Bank Group Program
Country-level Indicators:
• Average economic growth of 4.5% through 2015.
• Employment rate increased from 43% in 2010 to 45% in 2015.
• Expand the coverage and increased relevance of ISKUR’s (Turkish Employment Agency) vocational training.
• OECD Product Market Regulation Indicator of Barriers to Entrepreneurship reduced from 2.44 in 2008.
• Business sector share in research and development expenditures increases from 43% in 2010.
• Loans to SME increased from 23% in 2010 & Size of financial investor base (assets of insurance, mutual funds and private pension funds) increased from 5.5% of GDP in 2010.
Outcome 1:
• Implementation of the Medium-Term
Program, including policies on
growth, employment, competitiveness
and savings.
Sustained macroeconomic
and financial stability and
strengthened exports, domestic
savings, and external resilience
through:
• Domestic savings rate increases from
13.9% in 2010.
• Non-agricultural job informality rate
reduced from 29.1% in 2010 (WBG
staff calculation).
• Public debt levels continue to decline.
. Development of policy options on trade competitiveness and regional
trade integration as identified in AAA, including trade outcome and
firm level analysis of constraints to trade.
. Government/WBG continued discussions and implementation of
policies to increase domestic savings as identified in the CEM
Savings (FY11), including a benchmarking survey on level of
household financial literacy in view of the national financial
education strategy under preparation by the Capital Market Board.
. Development of policy options for improving the efficiency of public
spending.
Indicative Financing:
• Programmatic Development Policy Loan - Growth, Competitiveness,
and Employment (FY13)
• Development Policy Loan – to be determined (FY14)
Ongoing and Indicative AAA:
• ESW Programmatic Public Expenditure and Financial Management 4 -
General Public Expenditure Review (FY12)
• ESW Country Economic Memorandum on Trade 1 & 2 (FY12 &
FY13)
• ESW New Country Economic Memorandum (TBD) (FY13)
• TA Financial Literacy (which is follow-up to Programmatic Country
Economic Memorandum on Savings) (FY12)
• Regional AAA: Regional Trade – Economic Integration in Turkey,
Caucasus, and the Mashreq Region (FY13)
Outcome 2
through:
: Increased employment and
reduced job informality, especially for
women and youth
• Increased share of youth and women
with less than high school education in
ISKUR vocational training from 21%
in 2011.
• Decrease in Turkey’s Employment
Protection Legislation Index score
from 3.46% in 2008.
• IFC’s real sector portfolio companies
will provide about 70,000 jobs.
. Support to the implementation of the National Employment Strategy,
including: (i) progress towards the introduction of pre-funded
severance accounts; (ii) increased unemployment insurance
coverage; (iii) reduced restrictions on disincentives to part-time,
fixed-term, and temporary work.
. Development of policy options for improving the cost-effectiveness
of employment activation programs for low skilled youth and
women.
. Expansion of employment activation programs for low skilled youth
and women.
. Implementation of renewed Informality Action Plan to reduce
informality, including measures to improve audit coordination.
Ongoing Financing:
• TF SIEF (Spanish TF for Impact Evaluation): Impact Evaluation of
Vocational Education Programs (FY10)
Indicative Financing:
• Programmatic Development Policy Loan - Growth, Competitiveness,
and Employment (FY13)
• Development Policy Loan – to be determined (FY14)
• Areas of Education/Employment (FY14/15)
• IFC Investments in the real sector and in the financial sector
Ongoing and Indicative AAA:
• ESW Programmatic Jobs 1: Managing Labor Markets through the
Business Cycle (FY13)
• ESW Programmatic Jobs 2: Activation of Low Skilled Youth and
Women (FY13)
• ESW Programmatic Jobs 3: Labor Mobility (FY14)
• TA Programmatic Human Development 1 & 2 (FY12 & FY13)
• Impact Evaluation of ISKUR’s (Turkish Employment Agency)
Vocational Training Programs (FY12)
• IFC Support for vocational education
Turkey Country Partnership Strategy FY2012-FY2015 Annex 1
2
Strategic Theme 1: Enhanced Competitiveness and Employment
Country Development Outcomes to
which CPS Contributes Milestones and Outputs of the CPS Program World Bank Group Program
Outcome 3
through:
: Improved investment and
business climate; deepened and
broadened access to finance
(a) Improved investment and business
climate:
• The number of days for a company in
the manufacturing sector to obtain an
operating license is reduced from 62
(2010 ICA).
• The Doing Business Strength of
Investor Protection Index increases
from 5.7 (2012 Report).
(b) Improved access to finance:
• Export growth in firms benefiting from
IBRD financing relative to sector
export growth is greater than zero.
• Sales growth in SMEs benefiting from
IBRD financing greater than zero
adjusted for inflation.
• Gross non-performing loans (NPL)
ratios for financial institutions
benefiting from IBRD financing do not
exceed the average for the banking
sector (2.7 percent as of end-2011,
BRSA).
• IFC estimates leveraging through local
financial intermediaries financing to
about 100,000 SME clients and
120,000 farmers.
(a) Investment and business climate:
. A one-stop shop simplified administration for licenses in place.
. Completion of functional review of the national competition policy
framework.
. Development of policy options for a legal framework to help foster the
commercialization of public research and for rebalancing incentives
for private research.
. Identification of regional dimensions of the challenges and
opportunities facing the private sector to inform future policy.
(b) Access to finance
. The capacity of the Bank Regulation and Supervision Agency to
monitor market risks has been enhanced.
. Capacity of intermediaries to appraise investment projects with
longer maturity profiles is enhanced.
. Policy actions to broaden the investor base for private securities
adopted /start implementation.
Ongoing Financing:
• First Access to Finance for Small and Medium Enterprises Project
(FY06)
• Fourth Export Finance Intermediation Loan (EFIL IV) (FY08)
• Second Access to Finance for Small and Medium Enterprises Project
(FY10)
• MIGA underwriting of financial sector project
Indicative Financing:
• Programmatic Development Policy Loan - Growth, Competitiveness,
and Employment (FY13)
• Development Policy Loan – to be determined (FY14)
• SME Access to Finance (Food Safety) (FY13)
• Area of Access to Finance: SME or Exporters (FY14/15)
• IFC Investments in the energy sector
• IFC Financing in the rural areas
• IFC Corporate bond market development
• IFC Use of securitization structure
• IFC Long-term financing to the banking sector for on-lending to
agribusiness and renewable energy projects
• IFC Support for South-South projects
• IFC Short-term financing and trade
• IFC SME funding support through financial intermediaries
• IFC Equity investments reducing systemic banking sector risk
• IFC Support for systemically important western banks’ subsidiaries in
Turkey
Ongoing and Indicative AAA:
• TA Investment Climate and Competitiveness including Regional ICAs
(FY12)
• TA Financial Sector Development (FY12)
• WBI Joint MENA/ECA/WBI cross-regional knowledge sharing
initiative on the ‘How-to of Technology Acquisition, Innovation and
Entrepreneurship’
Turkey Country Partnership Strategy FY2012-FY2015 Annex 1
3
Strategic Theme 2: Improved Equity and Public Services
Country Development Outcomes to
which CPS Contributes Milestones and Outputs of the CPS Program World Bank Group Program
Country-level Indicators:
• Increased preschool enrollment from 30% in 2011 to 70% in 2014
• Improvement in resource allocation for health by reducing Social Security Institution’s (SSI) drug expenditures as a share of total from 41.6 % in 2010 to 37.5 % in 2014
• Ministry of Health is reorganized and focuses exclusively on the health sector’s stewardship functions by 2015.
• Increase female labor force participation rate from 27.6 % (TUIK 2010).
• Significantly reduce the gender gap in secondary school enrollment from 6 percentage points (2010).
Outcome 4:
• Indicator to be defined based on
project design.
Improved quality and
coverage of early childhood education
(ECE) through:
. Development of a program for expanding and improving early childhood
education, informed by ESW.
. Introduction of quality assurance system for early childhood education,
including clear education standards and mechanisms for monitoring and
enforcing those standards.
. Introduction of mechanisms for targeting resources to disadvantaged
children and provinces with low early childhood education enrollment.
Indicative Financing:
• Areas of Education/Employment (FY14/15)
Ongoing and Indicative AAA:
• ESW Programmatic Education: Financing and Accountability 1
& 2 (FY12 & FY13)
Outcome 5:
• Ministry of Health is reorganized and
focuses exclusively on the health
sector’s stewardship functions by 2015.
A more effective and
financially sustainable health system;
other countries expressed interest to
learn from Turkey’s experience
through:
• All public hospitals organized in public
hospital unions and paid on the basis of
performance contracts within a global
budget.
. Increased capacity of the Ministry of Health to carry out stewardship
functions.
. Development/adoption of policy options for the provision of quality
health care while containing costs. Options could include: (i) revision of
mechanisms for setting global expenditure caps for Social Security
Institution health expenditure categories; (ii) diagnosis-related group
(DRG) payments for hospital inpatient and outpatient services in all MOH
hospitals; (iii) reduction of pharmaceutical spending and promotion of
rational use of drugs; and (iv) gradual introduction of incentives linked to
preventive interventions among family doctors.
. Sharing of Turkey’s health reform experience with other countries in the
region and beyond – under discussion with the Government.
Ongoing Financing:
• Health Transformation and Social Security Reform Project APL
2 (FY09)
• TF GPF (Governance Partnership Facility): Health
Transformation and Social Security Reform (FY09)
• TF IDF (Institutional Development Fund): Strengthening
Institutional Capacity for One Health Strategic Planning and
Economic Analysis (FY11)
Indicative Financing:
• Project on Health (FY13)
• IFC Support for healthcare companies
Ongoing and Indicative AAA
• ESW Programmatic Health 1: Family Medicine (FY12)
• Programmatic Health 2: Pharmaceuticals (FY13)
• WBI activities
Outcome 6
• At least 20 companies granted new
Gender Equity Certification by end of
2015. Baseline: zero in 2011.
: Progress made toward
gender equity through:
• Financial support tailored to additional
900 small and medium female-owned
enterprises.
• Contribution to increased female labor
force participation through support to
900 women owned SMEs through IFC
financed SMEs.
. Gender certification program to promote gender equality in the workplace
developed and implemented in 11 firms by July 2012.
. Development of policy options to increase female formal employment
through (i) flexible contracting; (ii) employment activation programs; and
(iii) access to child care.
. Obstacles for women in the investment climate are identified.
Indicative Financing:
• IFC Gender finance
Ongoing and Indicative AAA:
• ESW Programmatic Jobs 2: Activation of Low Skilled Youth and
Women (FY13)
• TA Gender Equity in the Private Sector 1 & 2 (FY12 & FY13)
• Impact Evaluation of ISKUR’s (Turkish Employment Agency)
Vocational Training Programs (FY12)
Turkey Country Partnership Strategy FY2012-FY2015 Annex 1
4
Strategic Theme 2: Improved Equity and Public Services
Country Development Outcomes to
which CPS Contributes Milestones and Outputs of the CPS Program World Bank Group Program
Outcome 7
• Turkey’s benchmarking against other
countries in the areas of education
financing, teachers policies, school
autonomy and accountability improved
as measured by the System
Assessment and Benchmarking for
Education Results (SABER). Baseline
will be developed in 2012.
: Improved public services
and governance through:
• Budget, transparency and
accountability improved based on
reviews like 2010 PEFA scores.
• Strong competition among public
institutions to receive higher rating
based on Citizen Report Card.
Baseline: 1 pilot municipality
(Manisa). Target: 6 municipalities.
• A new SOE framework legislation is
prepared to improve governance at
SOEs.
. Development of policy options to improve financial management and
governance of public institutions, with focus on:
o Education: (i) develop an objective and transparent education financing
system (ii) increase school financial autonomy; and (iii) increase
accountability at all levels of the education system.
o Local administrations’ financial management structure and fiscal
position.
o State-owned enterprises governance.
o Transport sector expenditures.
. Citizen Report Card format produced and municipality of Manisa selffinanced
its 2012 survey.
. New grants delivered under the School Development Program (SDP) to
3,500 disadvantaged schools by June 2012.
Ongoing Financing:
• Secondary Education Project (FY05)
• TF GPF (Governance Partnership Facility): Capacity Building
for the Parliament and Parliamentary Budget Office in the New
Public Financial Management Framework) (FY 09)
• TF IDF (Institutional Development Fund): Capacity Building for
Internal Audit
• TF SAFE (Strengthening Accountability and Fiduciary
Environment): Enhancing the Supreme Audit Function of the
Turkish Courts of Accounts
Indicative Financing:
• IFC Investments in transport logistics
• IFC Municipal finance
Ongoing and Indicative AAA:
• ESW Programmatic Public Expenditure and Financial
Management 3 – Transport Public Expenditure Review (FY12)
• ESW Programmatic Public Expenditure and Financial
Management 4 – General Public Expenditure (FY12)
• ESW Programmatic Education: Financing and Accountability 1
& 2 (FY12 & FY13)
• ESW Programmatic Public Expenditure and Financial
Management 4 continued (FY13)
• TA SOE Governance (FY12)
Turkey Country Partnership Strategy FY2012-FY2015 Annex 1
5
Strategic Theme 3: Deepened Sustainable Development
Country Development Outcomes to
which CPS Contributes Milestones and Outputs of the CPS Program World Bank Group Program
Country-level Indicators:
• Implementation of the 2011 National Climate Change Action Plan.
• Make progress toward increased energy efficiency through reducing primary energy intensity by 20% compared to 2011 by 2023 as a result of implemented and planned policies and measures.
• Improved adaptation to climate change through improved water resources management as part of a Water Law to be approved before 2013.
• Increased sustainability of Turkish cities; achievements to be measured by the Integrated Urban Development Strategy and Action Plan (KENTGES).
Outcome 8
• Improved supply of reliable and
efficient energy by adding at least
10,000 MW new generation capacity
by 2015.
: Improved supply of
reliable and efficient energy, increased
use of renewable energy sources and
climate actions under implementation
through:
• Renewable electricity generation as a
percentage of total generation
increased from 18% in 2009 to 30% or
more in 2015.
• IFC reached through its portfolio
companies about 6 million electricity
customers by FY15 Baseline: 2.6
million customers in FY11.
. Energy Efficiency Strategy adopted.
. Action Plan to increase energy efficiency in existing buildings
developed by 2014.
. Start implementation of the Climate Change Action Plan.
. Market-based mechanism for greenhouse gas emissions adopted.
. Policy options developed to implement Turkey’s vision of ‘sustainable
development’ through increased energy efficiency and renewable
energy, with ‘climate action’ as a possible focus.
Ongoing Financing:
• Gas Sector Development Project (FY06)
• Electricity Distribution Rehabilitation Project (FY07)
• Private Sector Renewable Energy and Energy Efficiency Project
(FY09)
• Energy Community of South East Europe (ECSEE) APL6 Project
(FY11)
• TF CTF (Clean Technology Fund): Private Sector Renewable
Energy and Energy Efficiency Project (FY09)
• TF IFC GeoFund (Geothermal Energy Development Program):
Technical Assistance (FY11)
• TF PMR (Partnership for Market Readiness): Carbon Markets
Initiatives
Indicative Financing:
• Third Programmatic Environmental Sustainability and Energy Sector
(ESES) Development Policy Loan (FY12)
• Private Sector Renewable Energy and Energy Efficiency Additional
Financing (FY12)
• Private Sector Energy Efficiency (FY13)
• IFC Sustainable energy financing
• IFC Financing for renewable energy projects (geothermal, hydro and
wind power)
• IFC Financing for gas distribution projects
Ongoing and Indicative AAA:
• TA Energy Efficiency and Renewable Energy (FY13)
• Regional AAA: Assessment of Prospects and Road Map for
Synchronization of Mashreq Electricity Networks (tbd)
Outcome 9:
• Fifty percent of all companies subject
to the ‘Regulation on Permits and
Licenses in accordance with the
Environmental Law’ employ certified
environmental officials.
Strengthened
environmental management and
adaptation to climate change through:
. EU-Environmental Chapter opened in 2009 and negotiations remain
underway.
. Transposition and implementation of Directive 85/337/EEC as
amended with 97/11/EC and 2003/35/EC on Environmental Impact
Assessment (EIA) into legislation.
. Transparency and public participation in environmental decision
making increased is being achieved through implementation of the
EIA regulation. EIA decisions are disclosed in Ministry of
Ongoing Financing:
• Anatolia Watershed Rehabilitation Project plus GEF Project (FY04)
• TF GEF3 Full-Sized Project: Turkey Anatolia Watershed
Rehabilitation Project (FY05)
• TF PROFOR (Program on Forests): Support for Targeting
Watershed Rehabilitation Investments in Turkey (FY09)
Turkey Country Partnership Strategy FY2012-FY2015 Annex 1
6
Strategic Theme 3: Deepened Sustainable Development
Country Development Outcomes to
which CPS Contributes Milestones and Outputs of the CPS Program World Bank Group Program
• Improved water basin management:
(a) Protection action plans prepared
for Turkey’s 25 river basins, taking
into account principles of the Water
Framework Directive.
Baseline: 4 in 2009; Target: at least
20 by end-2012. Status: 15 at the end
of 2011.
(b) Area of watershed rehabilitation
increased: Indicator to be defined
based on project design.
Environment and Urbanization website.
. An integrated system for environmental permitting, monitoring and
inspection in provincial directorates will be established.
. National Water Basin Management Strategy approved by the High
Planning Council and implementation started.
. Legislation updated to include cumulative impact assessment for water
usage installations in river basins.
Indicative Financing:
• Third Programmatic Environmental Sustainability and Energy Sector
(ESES) Development Policy Loan (FY12)
• Areas of Sustainable Cities/ Disaster/ Watershed/ Energy (FY14/15)
• IFC Equity investments with junior exploration companies in the
mining sector in frontier regions of Turkey
Ongoing and Indicative AAA:
• ESW Rio+20/Cleaner Production (FY12)
• ESW New Country Economic Memorandum (TBD) (FY13)
• TA Food Safety Programmatic TA (FY12)
• TA National Disaster Risk Mitigation (FY12)
• TA National Watershed Management (FY12)
Outcome 10:
through:
Improved sustainability
of Turkish cities
• An additional 420,000 people in the
four pilot cities under the Municipal
Services Project have gained access to
basic urban services, e.g., water supply,
garbage collection, sewerage, etc.
• Four pilot cities meet Sustainable
Cities Index performance targets by
increasing energy efficiency, reducing
carbon emissions, and/or improving
financial sustainability.
• At least a total of 750 public buildings
in the Istanbul Metropolitan Area
retrofitted/reconstructed to resist a
major earthquake compared to 595
building in 2011.
. Program on key urban areas developed and discussed to: (i) improve
urban transport and housing; (ii) expand cities’ capacity building,
including financial capacity; (iii) monitor city sustainability and
livability based on international experience; and (iv) finance
investment through Iller Bank, for environmental and energy
efficiency investments in cities.
. Policy options developed for supporting cities to adapt energy
efficiency standards into building permits and construction licensing.
. Real property cadastre and registry information systems modernized in
digitally accessible format for at least 4 million parcels in five priority
regions (Ankara, Antalya, Istanbul, Izmir and Gaziantep) by 2013.
. Support development of urbanization policy.
. Policy options developed to implement Turkey’s vision of shifting the
industrial sectors towards cleaner production.
Ongoing Financing:
• Municipal Services Project (FY05) plus Additional Financing
(FY10)
• Istanbul Seismic Risk Mitigation and Emergency Preparedness
Project (FY05) plus Additional Financing (FY10)
• Land Registration and Cadastre Modernization Project (FY08)
• MIGA underwriting of infrastructure projects including Istanbul
Metro
• TF GFDRR (Global Facility for Disaster Reduction and Recovery):
Disaster Mitigation and Preparedness (FY09)
• TF PPIAF (Public-Private Infrastructure Advisory Facility):
Sustainable Cities (Municipal Credit Ratings Transaction
Structuring)
Indicative Financing:
• Areas of Sustainable Cities/ Disaster/ Watershed/ Energy (FY14/15)
• IFC Municipal finance
Ongoing and Indicative AAA:
• ESW Sustainable Cities 1 & 2 (FY12 & FY13)
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
1
MACROECONOMIC ANNEX
Recent Economic Developments24
1. After a banking crisis in 2001, when GDP contracted by 5.7 percent, and an expensive
recapitalization of its banks, Turkey embarked on a path of concerted structural reforms. Reforms
were wide-spanning and aimed at improving fiscal and public financial management, strengthening
banking supervision, introducing a comprehensive social security reform, and revamping the framework
for macroeconomic management, within which an independent CBRT is responsible for inflationtargeting.
2. Turkey’s macroeconomic policies and structural reforms over the past decade have yielded
robust economic growth. Real GDP increased by 50 percent between 2001 and 2010 and the
average growth rate was nearly 7 percent during 2003-07, up from an average of 4 percent during
the 1990s. Growth resumed rapidly after the 2008-2009 global crisis, at 9 percent in 2010 and 9.6 percent
in the first three quarters of 2011. Per capita income almost tripled since 2002 and now stands at US$
10,067. Public sector primary balance averaged about 2.8 percent of GDP over 2004-10 and gross public
debt as a percentage of GDP fell from 73.4 percent in 2002 to 45 percent in 2010, in spite of a moderate
increase during the 2008-09 global crisis. Inflation came down from a high of around 70 percent to under
10 percent. Healthy export growth (13 percent per year over 2004-10) contributed to limiting external
vulnerability. On the back of strong reserve build up, improvements in the country’s prospects were also
signaled by upgrades post- 2008 and outlook revisions by all the main credit rating agencies. More
recently, in September 2011 S&P raised Turkey’s local-currency rating by one notch to BBB-. In
November 2011 Fitch changed Turkey’s sovereign debt rating outlook from positive to stable while
keeping the rating at BB+, reflecting increasing near term risks to macroeconomic stability (see below).
3. The Government adopted expansionary macroeconomic policies during the 2008-2009
global crisis. Turkey suffered from a short but sharp fall in GDP (4.8 percent) in 2009 reflecting a
strong deterioration of investor and consumer confidence and a drop in external demand and
capital inflows. The current account deficit narrowed significantly as imports reacted strongly to the
sharp slow-down in domestic demand while exports were less affected. Foreign direct investment slowed
considerably from 2.3 percent of GDP (US$ 17 billion) in 2008 to 1.1 percent of GDP in 2009 (US$ 6.9
billion). Unemployment reached a high of 16.1 percent in February 2009, an increase of 35 percent
compared with the same time in 2008. The authorities moved quickly to maintain confidence and liquidity
in the banking sector (including through a reduction in reserve requirements and the reintroduction of a
‘blind-broker’ lending facility), and implemented a set of employment measures, as well as fiscal stimuli.
Between October 2008 and November 2009, the overnight interest rate was cut by a cumulative 10.25
percentage points. The general government fiscal deficit increased sharply from 1.6 percent in 2008 to 5.5
percent of GDP in 2009, due mainly to the operation of automatic stabilizers (such as the increase of
approximately 1.8 percentage points of GDP in budgetary transfer to the Social Security Institution
(SSI)). Facilitated by expansionary policies, unemployment peaked by mid-2009 and output began to
recover by the last quarter of 2009.
4. Turkey recovered from the 2009 recession with a GDP growth of 9 percent in 2010 and 9.6
percent during the first three quarters of 2011, facilitated by rapid credit growth25
24 See Figures 2-15 for a graphical illustration of the recent economic developments.
and high capital
inflows on the back of global liquidity and healthy Turkish balance sheets. Output is now almost ten
percent higher than its pre-crisis peak. During the past two years, growth has been driven by domestic
consumption and investment demand from the private sector, fueled by historically low interest rates. In
25 Annualized weekly credit growth peaked at 50 percent in January 2011.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
2
2010 economic growth was 9 percent; of this, private consumption and private investment accounted for a
sizeable share (about 5 percentage points each, with net exports making a negative contribution; see Table
1). With very low domestic savings, and on the back of healthy Turkish balance sheets and quantitative
easing in some advanced economies, growth has relied on short-term, capital inflows (mostly mediated by
the banking system) to finance imports, while Foreign Direct Investment (FDI) has remained subdued.
This has in turn contributed significantly to the widening of the current account deficit.
5. High growth of imports (in particular of capital and intermediate goods) led to a rapid rise
in Turkey’s current account deficit (CAD), from an 8-year low in 2009 to historic highs during
2011. The CAD widened from US$ 14 billion (2.3 percent of GDP) in 2009 to US$ 47.1 billion (6.4
percent of GDP) in 2010 and 77.8 billion as of November 2011 (9.8 percent of GDP) on a 12-month
rolling basis. Furthermore, the composition of the CAD deteriorated with the share of FDI in total inflows
falling from 45 percent in 2007 to 18 percent in 2011 (Figure 1). Although energy accounts for a large
share of the trade deficit (nearly 5 percent of GDP on average in recent years), the non-energy balance
contributed significantly to the deterioration. The private sector accounted for the bulk of the CAD, and
private external indebtedness increased correspondingly, from US$ 188 billion in 2008 to US$ 202.2
billion in 2011. The reliance on high level and short-term nature of the financing of the current account
deficit will likely continue in the near future, with the associated risks of a significant growth slowdown
should Turkey be hit by growing risk aversion in global financial markets.
Figure 1. Composition of Capital Inflows
Source: CBRT.
6. Unemployment has fallen below pre-crisis levels, notwithstanding an increase in labor force
participation, but it remains high. After peaking at above 16 percent in February 2009, seasonally
adjusted unemployment has decreased steadily falling to 9.1 percent by October 2011, improving upon
pre-crisis levels. Nonetheless, open unemployment in Turkey remains high in absolute terms, and the
Turkish labor market is characterized by low activity rates and high job informality. The employment rate
of working age (15-64) women in 2010 is the lowest among OECD and Europe and Central Asia
countries. And about 40 percent of those employed are working in the informal sector, although job
informality has been decreasing somewhat.
-10000
0
10000
20000
30000
40000
50000
60000
70000
80000
2006 2007 2008 2009 2010 2011 (Jan-Oct)
million $
Short Term and Portfolio Inflows FDI Medium and Long Term Inflows and N.E.O
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
3
Table 1: Selected Macroeconomic Indicators (2005-2011)
2005 2006 2007 2008 2009 2010 2011
Est.
Growth (%) 8.4 6.9 4.7 0.7 -4.8 9.0 8.0
Contributions to Growth (percent)
Consumption 5.8 4.1 4.4 0.0 -0.8 5.0 6.3
o/w Private 5.6 3.3 3.8 -0.2 -1.6 4.7 5.5
Gross Fixed Capital Formation 3.9 3.2 0.8 -1.5 -4.5 6.0 4.8
o/w Private 3.1 3.1 0.6 -2.0 -4.4 5.4 4.4
Net Exports -1.4 -0.3 -1.2 1.9 2.7 -4.4 -3.0
Exports 1.9 1.6 1.8 0.7 -1.3 0.9 1.4
Imports -3.3 -1.9 -3.0 1.2 4.0 -5.2 -4.4
Change in Inventories 0.1 -0.1 0.6 0.3 -2.3 2.4 -0.1
GDP (billion US$) 481.5 526.4 648.6 742.1 616.7 734.9 791.5
Consumption (as % of GDP) 83.1 82.5 83.8 82.3 85.8 85.3 86.2
Investment (as % of GDP) 20.4 22.4 21.4 22.1 15.3 20.2 23.0
Domestic Savings (as % of GDP) 15.9 16.6 15.5 16.8 13.2 13.9 13.3
Credit Growth (%) 56.8 40.2 27.9 29.8 7.1 33.7 29.5
Unemployment rate (%) 10.6 10.2 10.3 11.0 14.0 11.9 9.8*
CPI Inflation (%) (end-of-period) 7.7 9.7 8.4 10.1 6.5 6.4 10.5*
General Govt. Rev./GDP, % 32.9 34.8 33.6 32.9 34.6 35.5 36.9
General Govt. Exp./GDP, % 33.0 33.4 33.8 34.6 40.1 38.4 38.1
General Govt. Bal./GDP, % -0.1 1.4 -0.2 -1.6 -5.5 -2.9 -1.2
Public Sector Primary Balance/GDP, % 5.0 4.5 3.2 1.6 -1.0 0.8 1.2
Gross Public Debt/GDP1 54.1 48.2 42.2 42.9 48.9 45.0 40.2
Gross External Debt/GDP 35.3 39.5 38.5 37.8 43.6 39.5 41.3
Export Growth (f.o.b.) 16.3 16.4 25.4 23.1 -22.6 11.5 18.5*
Import Growth (c.i.f.) 19.7 19.5 21.8 18.8 -30.2 31.7 29.8*
CAD (billion US$) 22.3 32.2 38.4 42.0 14.0 47.1 77.2*
CAD/GDP (%) 4.6 6.1 5.8 5.7 2.3 6.4 9.8
Reserves (billion US$) (including gold) 50.2 60.7 74.7 72.9 74.8 86.0 88.2*
Reserves (as months of imports) 5.2 5.2 5.3 4.3 6.4 5.6 4.4*
Source: Undersecretariat of Treasury, Ministry of Development, BRSA, CBRT, TURKSTAT, Bank Estimates for selected
2011 variables.
1 Gross public debt as defined by the Undersecretariat of Treasury varies from the EU defined general government debt stock
definition. The difference arises from the following adjustment items for EU defined debt: (i) recording of zero coupon
securities at face value; (ii) inclusion of inflation variation for CPI indexed bonds; (iii) inclusion of coins in circulation issued
by Treasury; and, exclusion of the government securities held by different public sector institutions, (iv) exclusion of debt
stocks of SOEs. *actualized
7. High growth has translated into continuing improvements in the headline fiscal balance, but
primary spending remains above pre-crisis levels. The general government fiscal deficit declined from
5.5 percent of GDP in 2009 to an estimated 1.2 percent in 2011 and, after a crisis-related increase in 2008,
the public debt to GDP ratio has resumed its downward trend. The decline in the fiscal deficit reflects the
strong cyclical nature of tax revenues, but a comprehensive tax restructuring program and a reduction in
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
4
the interest bill have also contributed. However, primary spending remains significantly above the precrisis
level, primarily due to higher capital investment, wage and pension spending. There has been
structural loosening in recent years, from a structural primary surplus equivalent to 1.3 percent of GDP in
2007 to an estimated deficit of around one percent of GDP in 2011.
8. Facing difficult policy trade-offs, CBRT has implemented an ‘unorthodox’ policy, moving
to a tightening stance in late 2011. A weak global economy, and the transition from large capital inflows
and upward pressure on the lira in 2010 to declining inflows and lira depreciation pressures in 2011 have
created difficult economic policy trade-offs. In late 2010, in response to surging capital inflows, CBRT
adopted an ‘unorthodox’ monetary policy cutting overnight interest rates in an effort to discourage
portfolio investors from taking short-term ‘carry trade’ positions in lira assets, while at the same time
increasing reserve requirements to curtail domestic credit. The lira weakened significantly as a result,
while credit growth began to slow following the introduction of macro-prudential measures by the
Banking Regulation and Supervision Authority only in June 2011. Prompted by concerns about the global
economy and early indications of a domestic slowdown, CBRT reduced the policy rate by 50 bps in early
August 2011.
9. Since mid-October 2011, responding to an increase in inflation (primarily reflecting passthrough
of the cumulative 30 percent nominal depreciation since November 2010), CBRT has
tightened monetary policy. It has inter alia increased overnight lending rates and engaged in large-sale
foreign exchange selling auctions and direct interventions. As a result, the interbank overnight rate
increased from 6.5 percent in December 2010 to 11.2 percent in December 2011, and the benchmark
government bond yield rose from 7.11 to 11.04 percent during the same period.
10. Turkey’s EMBI spread has continued to outperform the aggregate emerging market index.
It fell from a post-crisis high of 889 (October 27, 2008) to 265 at end-November 2009, essentially back to
pre-crisis levels. By mid-November 2010, Turkey’s EMBI spread had dropped to 159 bps, but by end-
November 2011, they surged to 352 bps (although still below the 413 bps EMBI global spread for
emerging markets).
Medium-term Economic Prospects
11. Growth is expected to slow down significantly in 2012, before recovering to about five
percent per annum in the medium-term. The annualized weekly credit growth rate declined to 23
percent in mid-December 2011, less than half its peak of 50 percent in January 2011. On the back of
slower credit growth and falling domestic and foreign demand, growth is estimated to have slowed down
already in the last quarter of 2011, bringing the growth rate for the year at around eight percent. Real
GDP growth is expected to slow down to about three percent in 2012. The macroeconomic outlook
beyond 2012 is more favorable and, in line with Government’s Medium-Term Program (MTP), projects a
GDP growth rate of around five percent per annum, driven largely by strong private-sector led domestic
demand. The projected growth is predicated on capital inflows financing a current account deficit of 5-6
percent over the medium term.
12. This growth path is predicated on continued progress on Turkey’s unfinished structural
reform agenda. Such reforms include the implementation of the new commercial code and the code of
obligations, the labor market reform, measures to bolster long-term fiscal savings, and steps to reduce the
dependency on imports of fuel through an expansion of renewable energy use in electricity generation and
improvements in energy efficiency. The current account deficit is projected to narrow in the outer years
(on the back of structural reforms and enhanced competitiveness as well as a recovery in global growth)
and supported by higher domestic savings.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
5
13. The MTP envisages gradual improvements in fiscal balances. On the public sector side, Table
2 shows a shift from a 1.0 percent public sector primary deficit in 2009 to a 1.4 percent surplus by 2014,
with the general government balance shifting correspondingly from a 5.5 percent deficit in 2009 to a 0.5
percent deficit in 2014. Given current global economic uncertainties, the Authorities need to remain
vigilant and avoid fiscal policy slippages. This will help limit risks, which can rapidly increase in the
current volatile environment, strengthen investor confidence, and moderate aggregate demand.
14. The fiscal adjustment over 2012-14 will come mainly from expenditure measures. General
government expenditures as a share of GDP are projected to decline, from the 2009 level of about 40
percent, to about 36.8 percent by 2014, leading to a declining borrowing requirement. The decrease in
spending over the MTP period is driven by a decline in current expenditures, mainly cuts in goods and
services spending, and a decrease in current transfers to the Social Security Institutions (because of the
improvements in its balance).
Table 2: Medium-Term Macroeconomic Projections and Targets
2012 2013 2014 2015 2016
Growth (%) 2.9 4 5 5 5
Contributions to Growth (percent)
Consumption 2.5 3.2 3.6 3.4 3.3
o/w Private 2.3 2.9 3.3 3.3 3.2
Gross Capital Formation 1.0 1.7 2.2 2.3 2.3
o/w Private 0.8 1.2 1.9 2.1 2.2
Net Exports -0.5 -0.9 -0.8 -0.7 -0.6
Exports 1.7 1.5 2 2.1 2.4
Imports -2.2 -2.4 -2.8 -2.8 -3
CPI Inflation (%) (end-of-period) 7 5.2 5 5 5
General Govt. Rev./GDP, % 36.4 36.5 36.3 36 36
General Govt. Exp./GDP, % 37.4 37.2 36.8 36.5 36.4
General Govt. Bal./GDP, % -1 -0.7 -0.5 -0.5 -0.4
Public Sector Primary Balance/GDP, % 1.3 1.1 1.4 1.7 1.9
Gross Public Debt/GDP2 38.4 37.0 35.2 33.2 31.2
Gross External Debt/GDP 42.6 43.0 42.6 41.8 41.1
CAD (billion US$) 63.7 66.0 66.4 64.9 61.1
CAD/GDP (%) 7.6 7.3 6.9 6.3 5.6
Reserves (billion US$) (including gold) 90.4 91.9 95.1 97.1 100.8
1 World Bank staff estimates for total public debt stock (consistent with EU defined general government debt stock reported in MTP) and gross
external debt stock.
Source: World Bank Staff Projections
15. External financing needs will remain high in 2012-16 (Table 3). Turkey should be in a
position to attract further FDI given privatization efforts and the potential for mergers and acquisitions.
The baseline net FDI inflows are projected to rise from US$13 billion in 2012 to US$18.1 billion in 2016.
Similarly, net portfolio flows are assumed to be positive, consistent with continued Eurobond issuance
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
6
and the potential of the domestic capital market to raise financing. However, higher oil prices than
assumed here (US$100), for a sustained period, would create additional external financing requirements -
a risk that needs to be closely monitored going forward. A US$10 increase in oil prices would increase
the CAD by an estimated 0.4-0.5 percentage point of GDP, and would shave around 0.2-0.3 percentage
points of growth.
Table 3: External Financing Projections (US$ billion)
2008 2009 2010 2011 2012 2013 2014 2015 2016
Gross financing requirement 82.9 61.2 92.9 118.6 102.5 102.3 101.3 95.8 89.9
Current account deficit 42.0 14.0 47.1 77.2 63.7 66.0 66.4 64.9 61.1
Eurobond repayments 3.4 1.9 2.6 1.7 2.5 1.6 3.3 3.8 4.6
Medium and long-term debt
amortization
37.5 45.3 43.2 39.7 36.3 34.7 31.6 27.0 24.3
Public sector 5.4 3.9 5.3 5.7 5.2 4.0 3.9 3.3 3.2
Private non-bank sector 24.9 33.8 31.2 27.1 20.1 22.7 20.8 16.9 14.8
Banks 7.2 7.6 6.7 6.9 11.0 8.0 6.9 6.8 6.3
Capital Inflows 81.9 61.3 105.7 116.7 103.1 103.8 102.0 96.9 92.9
FDI (net) 17.0 6.9 7.6 13.4 13.0 16.5 17.1 17.8 18.1
Portfolio (net) -5.0 0.2 16.1 22.2 17.1 22.3 25.4 29.5 33.9
General Government 8.9 4.8 6.7 4.9 6.2 4.8 4.7 4.0 3.8
Private Non-Bank Sector (Medium
Long Term)
47.7 24.4 25.1 29.7 25.1 29.5 27.0 22.0 19.2
Banks (Medium and Long Term) 8.1 6.0 7.6 12.3 17.0 12.0 10.4 10.2 9.5
Net Error and Omissions 4.1 4.1 2.7 12.2 0.8 0.0 0.0 0.0 0.0
Short-term inflows (net) 1.1 14.9 39.8 22.1 23.8 18.7 17.4 13.4 8.4
Change in Reserves 1.1 -0.1 -12.8 1.8 -0.5 -1.5 -0.7 -1.1 -3.0
Rollover Ratios (%) Assumptions
Central Government 163.3 123.6 127.2 85.3 120.0 120.0 120.0 120.0 120.0
Corporate (MLT) 191.4 72.2 80.5 109.6 125.0 130.0 130.0 130.0 130.0
Banks (MLT) 112.9 78.6 114.1 177.6 155.0 150.0 150.0 150.0 150.0
Source: Undersecretariat of Treasury and CBRT (until 2011), World Bank Staff Projections
16. Despite the benign outlook in the baseline scenario, a combination of external and domestic
factors poses high risks going forward, including from the spillovers of the European debt crisis.
Turkey’s dependence on external financing has left the country prone to boom-bust cycles. The
weakening global economic outlook and increasingly severe international funding strains have the
potential to spill over to Turkey. Under a deepened crisis scenario in the Euro zone and a corresponding
sudden stop of capital inflows to emerging markets driven by a flight to safety, Turkey could possibly
face a renewed recession.
17. In such a scenario, unlike in the baseline scenario, public debt would rise. The public debt
sustainability analysis suggests that the risks to the sustainability of Turkey’s debt burden are moderate in
the baseline scenario. Under the baseline macroeconomic scenario, gross public debt is forecast to decline
from 45 percent of GDP at end-2010 to 33.2 percent of GDP by 2015. However, in the extreme downside
scenario described above the interest rate would go up, the exchange rate would depreciate and GDP
contract and fiscal performance would deteriorate. As a result, public debt to GDP ratio would rise to 44.4
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
7
percent (7.4 percentage points above baseline) in 2013 before resuming its downward trend and declining
to slightly below 39 percent by 2016.
Figure 2. Public Debt Sustainability
18. External debt dynamics are also vulnerable to a severe unfavorable shock. After declining
considerably from 56.2 percent in 2002 to 35.3 percent in 2005, external debt stood at 41.3 percent at end-
2011 and is forecast to increase to 42.6 percent by end-2012 before easing to 41.1 percent by end-2016 in
a baseline scenario. However, external debt sustainability analysis shows that, in the event of a sudden
stop of capital flows, the external debt to GDP ratio would rise from 41.3 percent to almost 48 percent in
2014 (5.3 pp higher than in the baseline) (Figure 3). The pace of increase in the external debt ratio would
slowdown thereafter, with external debt to GDP at 48.6 in 2016.
Figure 3. External Debt Sustainability
25.0
30.0
35.0
40.0
45.0
2011 2012 2013 2014 2015 2016
Baseline Downside
% of GDP
30
35
40
45
50
2011 2012 2013 2014 2015 2016
Baseline Downside
% of GDP
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
8
The 2000s Growth Story:
Fig 4. Turkey has had strong recent growth … Fig 5… supported by buoyant trade …
Fig.6 … and falling inflation. Fig.7. Growth also helped to reduce public debt.
Fig.8. Strong credit growth amongst other
factors … Fig.9 … led to a widening Current Account Deficit.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 2
9
Recovery from the Global Financial Crisis:
Fig.10. A temporary increase in government
spending … Fig.11 … a reduced policy rate …
Fig.12 … combined with renewed confidence in
the economy … Fig.13 … and increased credit growth …
Fig.14 … all helped to reduce unemployment to Fig 15… while the current account deficit increased
lower then pre-crisis levels sharply, increasing vulnerabilities.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
1
October 26, 2011
TURKEY: COUNTRY PARTNERSHIP STRATEGY COMPLETION REPORT
World Bank Group FY08-1126
Date of CPS: January 25, 2008 (Report No. 42026 TR). Board discussion on February 28, 2008
Date of CPS Progress Report: December 3, 2009 (Report No.51689-TR)
I. INTRODUCTION AND OVERVIEW
1. The FY08-11 Country Partnership Strategy (CPS) between Turkey and the World Bank
Group (WBG) was carried out against the backdrop of the global financial crisis. The global
downturn had a significant impact on Turkey, but the economy rebounded quickly and strongly. Turkey’s
robust growth before the global crisis, resilience during the global crisis, and renewed rapid growth after
the global crisis are grounded in sustained strong economic management and fundamental and systematic
structural reforms carried out since the economic crisis in 2001 and continuing today—all supported by
the WBG.
2. Turkey expanded and strengthened its partnership with the International Bank for
Reconstruction and Development (IBRD), the International Finance Cooperation (IFC), and the
Multilateral Investment Guarantee Agency (MIGA) during the CPS period. Total new IBRD
financing of USD 7.6 billion in this CPS—an increase by USD 1.4 billion over the originally envisaged
USD 6.2 billion, reflecting increased financial support to help address the impact of the global crisis—
meant that by June 2011 Turkey was IBRD’s second largest borrower, with USD 12.9 billion outstanding.
Total new IFC financing was USD 2.0 billion and its committed portfolio grew by 82 percent. Turkey is
MIGA’s 2nd largest client, as gross exposure grew by 42 percent, from USD 671.8 million in 2008 to
USD 951 million at end-FY11.
3. Turkey and the WBG adjusted the CPS at its halfway point. The modification, laid out in the
Country Partnership Strategy Progress Report (CPSPR), enabled the WBG to support Turkey in its
response to the financial crisis and the recovery of sustainable growth. The adjusted CPS centered on
macroeconomic resilience and stability; an increase in medium-term credit to the private sector, especially
small and medium enterprises (SMEs), which create around 80 percent of employment in Turkey; and
medium-term structural reforms to underpin sustained economic growth and job creation—with an
additional new focus (introduced through the CPS PR) on the environment and climate change. IFC
realigned its strategy to help its clients to survive the crisis and improve their competitiveness, while
conserving and creating jobs.
4. This self-evaluation argues that the FY08-11 CPS was successful. Both the program’s
performance in influencing CPS outcomes as laid out in the results matrix, and the WBG’s performance
in designing and managing the implementation of the program during the CPS period have been assessed
as satisfactory. The reasons for this are as follows:
• All CPS milestones were achieved or partially achieved (see Section III below for details). Sound
policies and reforms, supported by the WBG, contributed to Turkey’s strong overall economic
performance—rapid growth, interrupted for two years by the global crisis, macroeconomic and
financial stability, and increased employment. Moreover, policies, programs, and projects realized
with the support and partnership of the WBG produced concrete development results in key CPS
26 Prepared by Ina-Marlene Ruthenberg, Ben Welch and the Turkey Country Team. George Konda had the leadership for IFC
contributions, and Franciscus Johannes Linden for MIGA.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
2
areas. For example, electricity transmission and peak capacity increased by 60 percent between 2002
and 2010. The health system’s greater reach and efficiency improved health outcomes nationwide,
gaining international recognition. The progress made by the Istanbul Governorship in strengthening
the city’s resilience against earthquakes, and preparedness for responding to disasters is considered to
be an international role model.
• The open design, flexible mid-point adaptation, and effective implementation of the CPS helped
ensure that all goals and milestones were at least partially met even in the highly challenging
context of the 2008-2009 global financial crisis. Goals and milestones that were partially rather than
fully achieved are concentrated in areas particularly sensitive to the impact of the crisis, such as
increasing private investment, improving export competitiveness, and increasing employment.
• The CPS delivered results beyond its originally envisaged scope and goals. The WBG worked
closely with Turkey in responding to the global crisis. Support for Turkey’s energy reforms grew into
collaboration on renewable energy, energy efficiency, and climate change mitigation. Turkey became
the first country to access the Clean Technology Fund (CTF). The engagement on clean energy and
climate change and customized knowledge services on watershed management and the alignment
with EU environmental regulations led to consideration of a sustainability pillar in the FY12-15 CPS.
II. PROGRESS TOWARDS COUNTRY GOALS
Turkey emerged from the global financial crisis with an impressive rebound in GDP growth
The current account deficit remains a vulnerability
5. Turkey has made major advances towards achieving its development goals outlined in the
Ninth Development Plan27 and its Millennium Development Goals (MDG), as shown by its 2010 MDG
Report. Turkey’s per capita income almost tripled since 2002 and now exceeds USD 10,00028. Extreme
poverty has been eliminated; the primary education and maternal health goals have been achieved;
significant progress has been made in reducing infant mortality and improving environmental
sustainability; and Turkey is on its way to reach other outstanding MDGs by 201529. EU harmonization is
advancing, albeit slowly—with 13 chapters of the EU-Acquis opened and one (Science and Research)
provisionally closed. Turkey increased its net official development assistance from USD 67 million in
2003 to USD 967 million in 201030
6. Turkey’s economic stability is enhanced and its credit ratings have been upgraded,
.
31
27 Turkey’s Ninth Development Plan 2007-2013 lists these strategic objectives: increasing competitiveness, increasing employment,
strengthening human development and social solidarity, ensuring regional development, and increasing quality and effectiveness of public
services.
although the country’s current account deficit remains a critical vulnerability. After rapid economic
growth before the crisis averaging almost 7 percent during 2003-2007, GDP fell by 4.8 percent in 2009,
and unemployment peaked at 16.1 percent in February 2009 (29 percent among youth). Yet, in a rapid
and strong rebound, the Turkish economy grew by 9 percent in 2010 and by 10.2 percent in the first half
of 2011, and unemployment fell back to pre-crisis levels, at 9.2 percent, in May-August 2011. The quick
return to robust growth caps a decade of robust growth since 2010—a decade in which sound and prudent
macro-economic management, coupled with ambitious structural economic reforms, turned Turkey into a
leading international economy. EU defined gross public debt fell from 77.9 percent in 2001 to 42.2
percent in 2010 (even after the temporary increase during the global crisis). The government’s primary
surplus fell from 5.3 percent of GDP in 2006 to 0.7 percent in 2010, and the primary surplus is expected
28 According to TURKSTAT, per capita GDP was USD 3,492 in 2002 and USD 10,079 in 2010.
29 Other MDGs cover universal primary education (Goal 2), gender equality & empower women (Goal 3); child mortality (Goal 4); HIV/AIDs,
malaria & other diseases (Goal 6); ensure environmental sustainability (Goal 7); and a global partnership for development (Goal 8).
30 Source: OECD DAC statistics.
31 At end 2007, S&P, Moody’s & Fitch’s ratings were BB-, Ba3 and BB respectively. As of 17th August 2011, they had risen to BB, Ba2 & BB+.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
3
to increase in 201132
7. The financial sector proved resilient in the crisis, and financial markets are deepening
slowly, but medium and long-term credit remains scarce. Credit markets are stronger and the scope of
financial services is greater today than in 2007, at the beginning of the CPS period and before the global
crisis. Bank credit increased significantly after 2008-09; by 2010 the share of total credit in the economy
was 48 percent of GDP, up from 32 percent of GNP in 2006
. Despite broad success, challenges remain. The largest of these is the current
account deficit (CAD). The 12-month rolling CAD rose to USD 74.6 billion in June 2011, and the
annualized current account as of June 2011 reached 9.3 percent of GDP—not yet reflecting initial signs of
a cooling down of credit, import, and output growth. More than 60 percent of the CAD reflects Turkey’s
structural dependence on energy imports. The high CAD is a particular vulnerability, as about half of it is
financed by short-term capital inflows.
33
8. A business climate reform program is underway, but trade performance is improving
slowly after a steep decline in 2008-2009, in part due to weak external demand. Export growth
slowed in late 2010 and early 2011, held back by weak demand (particularly European)
. Nevertheless, while the maturity profile of
loan portfolios has improved, as of end-June 2011 about 50 percent of banks’ loans had a remaining
maturity of less than one year. Other forms of financing have expanded commensurately: leasing,
factoring and consumer finance assets grew by more than 80 percent, from TL 20 billion in 2006 to TL
36.4 billion in 2010. Bonds issued by banks have increased almost tenfold, with TL 14.3 billion of
corporate bonds outstanding in July 2011.
34. Foreign direct
investment flows also dropped dramatically during the crisis35
9. Employment and labour market reform is incomplete. The Government separated reforms
into two packages. The 2008 Labour Package reduced non-wage labour costs, cutting employers’ social
security contributions by 5 percent. This lowered tax loads, reduced the non-financial costs of providing
employment, and supported the expansion of Active Labour Market Policies (ALMP). The February 2011
Omnibus Law reduced disincentives for part-time work. The Government’s Medium-Term Program for
2011-2013 envisaged the adoption and implementation of a comprehensive new employment strategy,
including reforms to increase labour market flexibility and worker protection.
. Despite significant increases in 2010 they
have yet to return to pre-crisis levels. Business climate reforms, started before the crisis, have resumed.
Sweeping legislation to modernize the investment climate and further align it with EU regulation was
passed in 2010 and 2011—including a new Commercial Code, which fundamentally reforms and is akin
to a ‘new constitution’ for the corporate sector and commerce; a new Code of Obligations; a new Civil
Procedures Law; and a new Monitoring and Supervision of State Aids Law.
10. Turkey’s energy reforms yielded impressive results. Effective management and regulation
increased energy security and reliable supply to households and firms. Annual output increased from 176
TWh in 2006 to 210 TWh in 2010. Electricity tariffs have allowed for full cost recovery since 2008. The
private sector’s share of distribution grew from 3 percent in 2006 to 44 percent in 2010. Renewable
energy capacity and investments increased: electricity produced by privately owned renewable generation
facilities rose nine-fold, from 1,490 GWh in 2002 to 14,002 GWh in 2010; and the 2007 Energy
Efficiency Law gives further impetus to energy efficiency.
32 Source: CBRT General Government Balance.
33 TURKSTAT calculated GNP in 2006 and calculates GDP today.
34 MTP 2011-2013 revised targets to USD 127 billion in 2011, USD 143.5 billion in 2012 & USD 160 billion in 2013.
35 Gross FDI was: USD 22 billion (2007), USD 19.5 billion (2008), USD 8.4 billion (2009) & USD 8.9 billion (2010).
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
4
Social outcomes have improved
11. Health outcomes have improved. Access to education and to social security has broadened.
According to government data, maternal mortality fell from 28.5 deaths per 100,000 live births in 2005 to
16.4 in 2010, and infant mortality decreased from 25 to 10.1 per 1,000 live births in the same period—a
major achievement, although infant mortality remains high in comparison to other OECD members.
Access to education has improved substantially: primary education is now virtually universal, and
secondary education enrolments and completion are also on the rise (for details: paragraph 28). Preprimary
school enrolment, at 30 percent, is rapidly increasing, but remains below the level of countries
with similar income levels. Consumption(food and non-food)-based poverty36
Public sector management and service delivery are improving in quality and transparency
fell from 27 percent in
2002 to 17 percent in 2008 and, after a modest increase to 18 percent in 2009 during the global crisis, is
estimated to have been falling again in 2010-2011.
12. Public sector management has improved. Successful tools include medium-term projects and
budgets, strategic plans, and performance programs. Turkey’s systematic implementation of public
financial management (PFM) reforms has improved the comprehensiveness, transparency, accountability
and credibility of government budgets, especially at the national level. It has also strengthened the
capacity, transparency, and effectiveness of the public sector and public sector service delivery
throughout the central public administration.
13. Sustainable municipal development is key; improved disaster risk management is a success.
Turkey’s urbanization rate has reached at 65 percent. The Law on Iller Bankasý A.Þ., enacted in 2011, is a
major achievement in the development of municipal infrastructure financing and effective local financial
management systems. Turkey’s new Integrated Urban Development Strategy and Action Plan for 2010-
2023 lays out a comprehensive approach to city development, including spatial planning and
infrastructure prioritization. Turkey has made great strides in upgrading its disaster management system.
Istanbul’s Seismic Risk Mitigation and Emergency Preparedness Project is acknowledged as a leading
international example of work in the field.
III. DEVELOPMENT OUTCOMES OF THE COUNTRY PARTNERSHIP PROGRAM
Pillar 1
Macroeconomic stability and economic growth have been sustained
: Competiveness and Employment Opportunities
14. Turkey and the WBG responded to the global economic crisis by adapting the CPS to focus
on macroeconomic resilience and stability, maintaining medium-term credit to the private sector,
especially SMEs, and medium-term structural reforms to underpin growth and job creation. The
implementation of the CPS program supported and contributed to Turkey’s achievement of robust and
resilient economic growth, improved fiscal performance, and a decline in inflation, which fell to 6.2
percent in June 2011, the end of the CPS period.
15. Central to the WBG’s partnership with Turkey were four programmatic DPL series, and
accompanying parallel programmatic AAA, focused on competitiveness, employment, the public
sector, energy, environmental sustainability and crisis response37
36 In keeping with WBG practice in Turkey, this Completion Report uses the Turkish Government’s definition of poverty lines.
. The four DPL series provided total
37 Development Policy Lending during CPS period:
• Competitiveness and Employment DPL 2 (CEDPL2) for USD 500 million. (CEDPL 1 was part of the previous CAS.)
• Programmatic Public Sector DPL 2 (PPDPL) for USD 400 million (PPDPL 1 was part of the previous CAS.); Restoring Equitable Growth
and Employment (REGE) DPL 1 for USD 1,300 million; and REGE DPL 2 for USD 700 million. Responding to the global crisis, the
PPDPL series continued into the REGE series, which also incorporated key elements from the remaining CEDPL agenda.
• Programmatic Electricity DPL (PEDPL) 1 for USD 800 million and Environmental Sustainability and Energy Sector (ESES) DPL 2 for
USD 700 million. The name of the series changed (PEDPL to ESES) when it was broadened to include climate change and the
environment.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
5
IBRD financing of USD 4.4 billion. More importantly, the DPL series and parallel AAA were the key
vehicle for the WBG’s partnership and engagement with Turkey on macroeconomic policy and mediumterm
structural reforms. Economic growth was also supported by 11 IBRD and 45 IFC investment
projects.
Private investment, export competitiveness, and financial sector performance felt the impact of the
global financial crisis but proved resilient
16. Private sector credit, including financing for exporting firms and SMEs, has resumed
rapidly after contracting during the crisis. After remaining essentially flat in real terms in 2009, total
loans increased by 33.9 percent, and loans to SMEs increased by 50.6 percent, in 2010. During the entire
CPS period, credit to SMEs increased by 64 percent. The growth in total credit, and in particular SME
credit, during 2007-2010 is particularly noteworthy, because the global crisis sharply curtailed credit to
the private sector, especially to SMEs. However, lending remains mostly short-term although maturities
are gradually being extended, reflecting a dearth of longer-term financing. Indeed, the 2010 Investment
Climate Assessment showed that the majority of surveyed firms (especially SMEs) see themselves as
restrained by problems associated with access to finance. SMEs account for almost half of total
investments, two-thirds of total retail sales, and around 60 percent of total exports in Turkey. Both IBRD
and IFC financing helped the Turkish private sector maintain production, exports, and employment during
the crisis. IBRD lines of credit (LOC) provided targeted support to exporting firms and SMEs. The
IBRD AAA program included an evaluation of the results of the LOCs—showing that the two SME
LOCs contributed to the creation of an estimated 9,300 jobs and the exports of firms benefitting from the
second export finance intermediary LOC (EFIL II) increased by 117 percent during the CPS period. The
SME LOCs included a requirement that on average 25 percent of disbursed funds be provided to
underserved regions. IFC support included an emphasis on short-term trade finance and debt roll-overs,
risk diversification through exports, microenterprise and SME financing through portfolio financial
institutions and private equity investments, and the mobilization of long-term funds from other financial
institutions (USD 1.73 billion). IFC’s client banks provide more than USD 10 billion in loans to MSMEs
and its portfolio companies have 68,000 employees, including 16,000 women.
17. The investment climate, export competitiveness, technology use and innovation are
improving slowly; further advances are a priority. The CPS program included a substantial of
analytic and advisory services as well as policy based financing in support of business and investment
climate reforms—including investment climate assessments, Environment and Enterprise Performance
Surveys (BEEPS), a study of SME development, and financing under the Second Competitiveness and
Employment Development Policy Loan (CEDPL) and the Restoring Equitable Growth and Employment
Development Policy Loan (REGE DPL) series. The program helped sustain the momentum of investment
climate reforms through the global crisis. Significant progress has been made, including the adoption of
major reforms, such as the Commercial Code and the Monitoring and Supervision of State Aids Law,
supported by the WBG. However, the achievement of milestones has been slow. The final draft of a new
Public Private Partnership Law (PPP) was prepared in 2010 (in the meantime BOT Law no: 3996 was
amended in 2011 and the secondary legislation was revised accordingly to move forward with the BOT
highway projects), enforcement of the new Intellectual Property Rights (IPR) legislation has still to be
fully raised to EU standards and the Commercial Code will take time to become effective and be
implemented. Preparation for a new capital markets law is ongoing. IBRD and IFC are working together
in providing ongoing support to the Capital Markets Board on the development of a corporate bond
market. In the meantime, IFC financing has helped strengthen Turkish firms’ competitiveness with new
technology (e.g. energy efficiency and cleaner production) and on supporting Turkish companies’
regional and international expansion (15 projects in the Balkans, Russia, Georgia, Haiti, Tunisia, Egypt,
and Argentina with over USD 350 million in financing). MIGA worked extensively on this issue. In
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
6
Turkey 5 projects (4 infrastructure and 1 finance) 38
Turkey’s low employment rate and high informality remain a challenge
were carried out, with a total of USD 1.02 billion in
gross exposure. The first underground metro system on the Asian side of Istanbul was supported by
MIGA’s new guarantee product. MIGA added 1 guarantee supporting an investment sponsored by a
Turkish investor in a manufacturing project in Iraq, bringing the total gross exposure of MIGA guarantees
to Turkish investments outside Turkey to USD 29 million in 5 currently active projects.
18. Turkey’s low employment rates and high informality made policies to enhance productive
employment a top priority. A series of analyses, most joint with government and other development
partners, and advisory work led to key policy recommendations on labour taxes, informal economy,
female labour force participation, and youth employment. IBRD financing under the PPDPL-REGE DPL
series supported the first stage of Turkey’s labour market reform in 2008, which was focused on reducing
non-wage labour costs and improving skills. Technical assistance supported the preparation of a crisisresponse
employment package; the expansion and improvement of Active Labor Market Policies
(ALMP);39
Energy supply is more reliable and more efficient
and the development of the upcoming National Employment Strategy.
19. Turkey has an impressive track record in implementing reforms and improving energy
security. During the CPS period, Turkey updated its energy strategy; and introduced and implemented
cost recovery pricing. IBRD’s financing and knowledge activities supported tariff reform, privatization,
energy market liberalization and regulation, power generation rehabilitation and transmission
investments, and the strengthening of Turkey’s Electricity Transmission Corporation (TEIAS). IFC
invested around USD 2.2 billion (USD 560 million of its own financing and over USD 1.6 billion through
mobilization) in 5 power sector projects. The power sector represented the majority of IFC investments in
infrastructure, with syndication an important component of IFC financing. IFC investments focused on
supply security through private sector participation in power distribution, including one of Turkey’s first
two privatized distribution companies40, and new generation capacity projects, particularly clean energy
projects41
20. Increasing renewable energy use and energy efficiency is vital for Turkey. Renewable energy
and energy efficiency investments increase energy supply security; help contain energy imports and thus
the current account deficit; create jobs; and reduce greenhouse gas emissions and help mitigate climate
change. In short, they are a “quadruple win.” The Turkey-WBG partnership has included a major focus
on promoting renewable energy use and energy, and during the CPS period Turkey established a clear
legislative-regulatory framework for renewable energy, implemented energy efficiency legislation, and
included renewable energy and energy efficiency as key components in its new National Climate Change
Strategy. As a result, Turkey was able to attract substantial private investment for the development of
renewable energy, especially wind and small hydropower stations. Extensive IBRD knowledge services
and the PEDPL-ESES DPL series supported the new legislation and reforms. WBG financing included
IBRD credit lines, intermediated through local institutions, for renewable energy and energy efficiency
investments,
.
42
38 Bandirma Port (2 projects), the Otogar- Baðcýlar-Ikiteli-Olimpic Village and the Kadikoy-Kartal-Kaynarca metro projects in Istanbul.
especially in wind power and small-scale hydropower plants. IBRD and IFC partnered
with the Clean Technology Fund (CTF). IFC also undertook the first limited recourse wind farm
financing, laid the groundwork for private investment in new technologies like solar technology,
39 400,000 ALMP beneficiaries are expected in 2011, up from 33,000 in 2007.
40 Awarded “Best Power Deal in CEE” by EMEA Finance
41 Enerjisa was selected as 2008 “European Portfolio Power Deal of the Year” by Project Finance Euromoney Magazine, as well as “Best EMEA
power Deal for 2008” by EMEA Finance Magazine.
42 IBRD Credit Lines in this CPS were as follows: Fourth Export Finance Intermediary Loan (EFIL IV), 2008; Access to Finance for SMEs –
Additional Financing, 2009 ; Private Sector Renewable Energy & Energy Efficiency, 2009; Access to Finance for SMEs – Second Additional
Financing, 2010; Access to Finance for SME II, 2010; & Fourth Export Finance Intermediary Loan (EFIL IV) Additional Financing, 2011.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
7
facilitated JVs between international players and local partners, and in March 2011 published ‘Sustainable
Investment in Turkey’, as a part of IFC’s broader efforts to promote sustainable investment.
21. Addressing climate change is becoming a priority. Turkey became a party to the Kyoto
protocol on August 26th 2009, and the Government and the WBG have become partners in Turkey’s
efforts to mitigate and adapt to climate change. As the energy sector accounts for more than 70 percent
of Turkey’s greenhouse gas emissions, climate change mitigation is closely tied to “green and clean”
energy investments and reforms. This link is reflected in Turkey’s new National Climate Change Strategy
and forthcoming National Climate Change Action Plan. The World Bank has supported the National
Climate Change Strategy and Action Plan with advisory services and through the Environmental
Sustainability and Energy Sector (ESES) DPL II. IFC supported its client companies to invest in new
technologies with a focus on energy efficiency and cleaner production. Also, IFC’s investments in the
energy sector were focused on renewable energy projects43. As Turkey is expected to be among the
countries most affected by climate change in the Europe and Central Asia region, climate change
adaptation will continue growing in importance over the medium term.
Pillar 2
Social security has been strengthened and become more equitable
: Equitable Human and Social Development
22. Turkey’s health and social security reform (the Social Insurance and Universal Health
Insurance Law was enacted in 2006, amended in 2008 and most provisions of the Law took effect by
October 1, 2008) established universal health insurance, increased coverage for the poor, and
fundamentally reformed the pension system. The Green Card system, established in 1992, provides
free access to medical care for those who earn less than a certain minimum (defined by law) and are not
covered by public insurance. The Green Card program grew from 6.852 million beneficiaries in 2004 to
9.4 million in 2010 which, along with the introduction of universal health insurance, have significantly
increased the share of the population covered by some form of health insurance (an increase from 86
percent in 2005 to 96.2 percent in 2010). All Green Card holders are expected to be covered by 2012
according to the Law No: 5510 Provisional Article 12. The health and social security reform also put the
pension system on a path toward long-term fiscal sustainability and improved its equity, by better
aligning the pensions of civil servants, workers and the self-employed.
23. Some initial steps were taken to integrate social assistance programs. While social assistance
spending increased rapidly, it accounted for only 1.2 percent of GDP in 2009. A new ministry called the
Ministry of Family and Social Policies was created after the June 2011 elections, bringing all social
benefits under a single roof. An integrated social assistance information system has been developed and is
already operational.
24. The WBG has been a close partner with Turkey in supporting social security reform and in
efforts to improve equity and inclusion. The PPDPL and REGE DPL series and parallel policy
dialogue, analyses, and advisory services supported the social security and universal health insurance
reform, the accompanying administrative reform to unify existing social security schemes under the
Social Security Institution (SSI), and crisis response measures. The Second Privatization Social Support
Project (PSSP2) assisted the privatization program by mitigating the negative social and economic
impacts of the privatization of State-Owned Enterprises (SOEs). Analytical studies, technical assistance
and close policy dialogue included assessments of the welfare impact of the economic slowdown, labour
force activation policies, pensions’ and the Green Card program.
25. Two major studies, on female labour force participation (joint with the Government) and
on equality of opportunity, broke new ground on key social policy issues in Turkey, providing new
43 The Enerjisa project alone is expected to generate over 20,000 MWh of clean energy, representing nearly 10 percent of Turkey’s electricity
needs, and to reduce anticipated CO2 emissions by 1.15 million tons per year by 2014.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
8
analysis, advancing public debate, and helping inform policy. The female labor force participation
study found that an increase in female employment to 29 percent (the target rate in Turkey’s 9th
Development Plan), with new entrants assuming full-time jobs, could reduce the poverty rate to 15.5
percent. The equality of opportunity study found large demographic disparities in opportunity among
children from early ages and made the case for early childhood development as an effective means to
promote equal opportunities, strengthen growth, and reduce poverty. The studies’ findings were taken up
in a joint WBG/United Nations Children’s Fund (UNICEF) conference on Early Childhood Development
(ECD). A roundtable on Early Childhood Education (ECE) and a study exploring the expansion of the
provision of high quality ECE followed—in partnership with UNICEF and in support of the
Government’s priority program to roll out universal pre-school education.
Turkey’s health system has become more effective
26. Turkey’s Health Transformation Program (HTP) has improved healthcare. It increased
access, financial protection, service coverage and patient satisfaction. The roll-out of Family Medicine as
part of the HTP, completed in December 2010, improved patient satisfaction and access to health services
across the country. Average patient satisfaction in family medicine provinces rose from 69 percent in
2004 to 86 percent in 2008.
27. WBG support for the strong implementation of the HTP complemented the support for the
introduction of universal health insurance, improvements in health system performance, and fiscal
sustainability under the PPDPL-REGE DPL series. IBRD support for the HTP focused on increasing
health insurance coverage, expanding and improving family medicine, improving hospital autonomy, and
strengthening performance management. It included two Adaptable Program Loans—the Health
Transition Project and the Health Transformation and Social Security Reform Project—and
accompanying advisory services and technical assistance. A 2008 study jointly prepared with the
Organisation for Economic Co-operation and Development (OECD) assessed health system performance
and provided the analytical foundation for deepening reforms. The World Bank Institute (WBI) engaged
policy makers and stakeholders on health sector reform and sustainable financing. IFC supported private
sector participation with two investments totalling USD 50 million. Through a loan to a leading leasing
company in Turkey, IFC supported 550 SME healthcare projects. Additionally, through equity
investments in a distressed but significant healthcare provider, IFC enabled improved access to high
quality private healthcare services at affordable prices, including frontier and underserved regions.
The education system is expanding, reforming, and increasing its sensitivity to labor demand
28. Education reforms led to improvements in school access and educational achievements.
Primary education is now nearly universal (98 percent in 2010-2011). Secondary education enrolment
and completion rates increased significantly during the CPS period: enrolments increased from 57 percent
in 2006-2007 to 69 percent in 2010-2011, and completion rose from 45 percent to 51 percent in the same
period44. Pre-primary education enrolments are increasing rapidly, as the Government is rolling out its
program to implement universal pre-school enrolment of 5 year olds by 2014. Regional and gender
disparities remain significant. For example, 2010-2011 preschool enrolments varied between 13 percent
in Hakkarý and 59 percent in Amasya, and girls’ secondary school enrolments remain six percentage
points below boys’ (66 versus 72 percent). Turkey’s results in the Program for International Student
Assessment (PISA), which assesses the educational attainment of 15-year olds, improved significantly in
the 2009 round compared with the 2006 round, partly due to the new primary education curriculum.
However, the average 15 year old remains about one full school year behind the average OECD student.
44 Here the secondary completion rate is defined as the proportion of 20-24 year olds who have completed at least secondary education, data taken
from Labor Force Survey.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
9
29. Turkey’s partnership with the WBG in education focused on improvements in quality and
equity. The IBRD supported Secondary Education Project (SEP) included the development of a new
secondary school curriculum and a national career guidance and counselling system to improve the
quality and relevance of secondary education—along with the development of a national qualifications
framework for vocational education and training, and enhanced in-service teacher training. To improve
the quality of disadvantaged schools, the SEP introduced school grants and piloted a different way of
financing schools: funds are distributed in proportion to the number of students, and schools have
autonomy in the allocation of funds. Analytic and advisory services included studies on the quality and
equity of basic education and early childhood education.
Pillar 3
Public expenditure management system has improved; Public sector governance was strengthened
: Efficient Provision of High Quality Public Services
30. Turkey’s public sector increased in breadth, transparency, accountability and credibility,
according to the Public Financial Management Performance (PFMP) benchmarking in June 2010. Turkey
has reformed many central government institutions, systems and laws governing public sector
transparency and performance. The implementation of the 2006 Public Financial Management and
Control (PFMC) Law throughout the CPS period effectively delegated financial control and internal audit
to line agencies. Accordingly, financial controls and internal and external audit structures have
significantly improved. The enactment of the Turkish Court of Accounts (TCA) Law in December 2010
broadened the mandate of the TCA to audit the entire general government and aligned its structure with
the PFMC Law.
31. The Turkey-WBG partnership on public sector reform included both analytic and advisory
services and financing. Programmatic public expenditure and public financial management analytic
work and technical assistance, jointly implemented with the Government and also with Parliament, and
financial support under the PPDPL-REGE DPL series were closely integrated with the National
Development Plan. Their programmatic design proved effective in the support of complex public sector
legal and institutional reforms, which often require a number of years to fully implement and deliver.
Two examples are the establishment of strategy development units for financial control and internal audit
in all general government institutions, and the development of specific codes to allow the Ministries of
Finance and Health to track program expenditures under the HTP. The TCDD Railway Restructuring
Project met its development objectives, as operating revenues and the ratio of operating revenues to
expenses rose toward commercially viable levels. TCDD’s legal status is unchanged, although a draft law
is under preparation.
32. Progress on the judicial aspects of governance has been slower. A new Civil Procedure Code
was enacted in February 2011 and the Government plans to resubmit a draft mediation law to the Judicial
Commission of the Grand National Assembly. The judicial network project (UYAP) established online
connections in 100 percent of courts. The Judicial Reform Strategy and Action Plan was endorsed and
published in 2009. Regional Courts of Appeal have been established in 15 centers (Istanbul, Bursa, Ýzmir,
Ankara, Konya, Samsun, Adana, Erzurum, Diyarbakýr, Sakarya, Gaziantep, Antalya, Kayseri, Trabzon
and Van) but are not yet operational. However chief public prosecutors of all these courts have been
appointed by High Council for Judges and Prosecutors. The efficiency of judicial processes has been
reforming slowly, and Turkey’s demand for World Bank contributions was limited.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
10
Local service delivery and disaster preparedness have improved
33. Municipal reform has moved forward. Total budgetary transfers to local administrations as a
share of tax revenues increased from 9 percent in 2007 to 10 percent in 2010 (including BELDES and
KOYDES programs that support development at local level, the budgetary transfer to local
administrations increased from 10 percent to 11 percent during the same period). The Law on Iller
Bankasý A.Þ., enacted in 2011, was critical for municipal infrastructure financing and effective local
financial management systems. Progress was made on cadastre modernisation. Cadastre and Registration
Agency has started working on property valuation policy in-line with international practices and
standards, and 24 institutions now have on-line access to digital cadastre information, exceeding the target
of 18. Successful IBRD support for municipal infrastructure investments, through Iller Bank, led to
additional financing in 2010 to scale up results. IFC’s investment in the Istanbul Metro was the first
WBG financing in Turkey at a sub-national level without a sovereign guarantee and has become a
flagship project for private sector participation in the urban sector. It is considered a major step towards
greater financial strength and independence for municipal governments in Turkey. Beyond the original
CPS objectives, Turkey and the WBG started work on ‘Sustainable Cities’, and Turkey launched a new
Integrated Urban Development Strategy and Action Plan (2010-2023)—envisaging a comprehensive
approach to city development, including spatial planning and infrastructure prioritization.
34. Istanbul’s improvements in disaster preparedness are an international success story.
Investments have been made in seismic strengthening for public buildings, especially schools, hospitals
and dormitories. Of 1,576 public facilities identified, 496 had been completed by February 2011 through
combined World Bank, EIB and CEB financing. The Istanbul Seismic Mitigation and Emergency
Preparedness (ISMEP) Project includes collaboration with the Global Facility for Disaster Reduction and
Response and the World Bank Institute (WBI). A national-level Disaster and Emergency Management
Presidency was created in the Prime Ministry, unifying previously fragmented institutional
responsibilities.
IV. WORLD BANK GROUP PERFORMANCE
Country Partnership Design
35. The CPS was designed to be based on, fully aligned with, and adaptable to changes in
Turkey’s evolving development priorities. The flexible CPS design was tested and proved successful
during the global financial crisis, as the strategy was adjusted at the mid-term progress review (CPSPR).
DPL support expanded and focused on macroeconomic stability and medium-term structural reforms to
support economic growth and job creation (REGE DPL series)45
36. The CPS was designed to support Turkey’s Ninth Development Plan, with advisory services
geared to inform and support national policies and WBG financing contributing to large nationwide
programs and selected specific projects. Combined financing and knowledge services enabled
support to be delivered in a targeted, effective and timely manner. The extensive use of programmatic
AAA and DPLs allowed IBRD to provide customized and consistent yet flexible support for broad
development goals and programs over several years. The large volume of LOCs (6 WBG operations,
including 3 Additional Financings, totalling USD 2.35 billion) is a distinct feature of the CPS program,
. In response to client demand, IBRD
increased total financing over the CPS period was USD 7.6 billion, with USD 3 billion committed in
FY10. In parallel, in view of global credit restrictions, IFC focused on client companies rolling-over
short-term debt, provided much needed short-term finance such as trade finance, and mobilized long-term
funds from other financial institutions (USD 1.73 billion).
45 REGE-DPL focused on the transition from managing the impact of the global crisis to fiscal consolidation and shared growth and contributed
to the following objectives: (1) economic management; (2) public financial management; (3) affordable universal healthcare and improved
educational access; (4) employment; (5) improved investment climate; and (6) increased financial intermediation, especially to SMEs.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
11
facilitating the wide reach and rapid disbursement of WBG project financing.46 These design choices
reflect country demand and a shared assessment by Turkey and the WBG of the areas of maximum WBG
“value-added.” Naturally, the Turkey-WBG partnership covers only a small part of Turkey’s
development program, and WBG financing accounts for only a small fraction of Turkey’s total external
financing47
37. In general, the CPS results framework was a useful structure for measuring progress and
performance. Milestones in the results framework were largely met. A review of results against targets
must take into account that some original milestones and targets became less relevant as the crisis
changed country and program priorities. Thus, the CPS goal of enhancing the educational system and
increasing the sensitivity of education to labour demand (Pillar 2C) is assessed to have been substantively
achieved, albeit in a very narrow sense. Similarly, progress has been made towards the goal of increased
private investment, improved export competitiveness, and a deeper and broader financial sector (Pillar
1B), but major legislation to modernize the investment climate was passed only in late 2010 and in early
2011. As there is neither new Public Private Partnership (PPP) nor bankruptcy legislation, the
achievement of milestones was slower than anticipated, and the overall goals in this pillar are assessed to
have been partially achieved. At the same time, WBG support has contributed to the achievement of
additional outcomes, beyond those originally envisaged in the CPS. These are outlined above.
. The WBG’s contribution has thus been mainly catalytic, with direct attribution being
challenging if not often impossible, and with Turkey’s continued high demand for WBG services
providing an imperfect, indirect indicator of their value added. Demand for IBRD services continues to
exceed the already high levels of new financing and knowledge services IBRD is able to provide, given
financial risk management considerations and budget limitations.
CPS Implementation
38. IBRD’s portfolio is large, focused and considerably improved. Disbursement rates steadily
increased, rising from 20 percent in FY08 to 31 percent in 2011. With a realism rate of 94 percent, which
stood at virtually 100 percent over the majority of the CPS period, and proactive portfolio management
(67 percent), only one problem project remained at end FY11 (compared to 3 at end-FY10 and 4 in mid-
FY11). The one problem project was the Istanbul Municipal Infrastructure Project (Loan No. 4866-TU),
which was cancelled at the borrower’s request in July 2011.
39. IFC financing during FY08-11 was spread across 45 projects with USD 2 billion in
commitments, compared to USD 1.55 billion over 35 projects during FY04-07. IFC also mobilized
USD 1.73 billion through private financial institutions to assist the private sector. Targeted areas included
exporters, MSMEs, renewable energy, energy efficiency, cleaner production and energy security, health,
infrastructure, trade finance and support for Turkish companies investing in the region and beyond.
40. Implementation of an extensive program of analytic and advisory (AAA) services, focused
on Turkey’s key policy and reform priorities, was central to the success of the CPS. IBRD’s AAA
program featured 52 major knowledge products, many prepared jointly with the Government and in
collaboration with academia, UN institutions, and other development partners. Topics ranged from public
financial management, informality, and savings to energy sector reform and regulation, food safety, and
watershed management, to education quality, female employment and gender certification, and the
(in)equality of opportunities, to the investment climate, competition and business regulation, and
corporate bond market development. The program also included focused “just in time” analyses of draft
legislation and reform options and policy notes for the incoming Governments in August 2007 and June
46 The WBG’s Independent Evaluation Group (IEG) rated the outcomes of two export finance loans (EFIL II & III) as highly satisfactory.
47 The scale of WBG financing, averaging USD 1.9 billion in new commitments and USD 1.71 billion in disbursements during FY08-11, was
very small when compared with Turkey’s total public debt, which was USD 321,4 billion in 2010, and it amounted to 23 percent of Turkey’s
average public external borrowing (USD 8.43 billion between 2007-2010) and less than 1 percent of its average total gross external debt per year
[USD 266 billion] between 2007-2009.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
12
2011. Turkish counterparts’ persistent strong demand for these knowledge services is testimony to their
value-added, which is rooted in their demand driven selection and design, their collaborative preparation,
the extensive engagement on findings and conclusions with a broad range of stakeholders, and the
increasing use of results frameworks for knowledge activities.
41. Good relations with civil society. Civil society participated in the preparation and
implementation of projects, including HTP and ISMEP. The WBG works with academia, think tanks,
private sector associations and businesses, as well as a wide range of non-governmental organizations
including TUSIAD (Turkish Industry and Business Association) and KAGIDER (Women Entrepreneur’s
Association of Turkey). The WBG played a convening role: working with Parliament; supporting the
World Water Forum; and holding its 2009 Annual Meetings in Istanbul. A specific example of the
WBG’s convening power is the human development policy dialogue carried out jointly with the Middle
East Technical University, Ankara University, Sabanci University, and UNDP. In preparing this CPSCR,
the WBG met with civil society organizations to gauge opinions of work carried out during the CPS
period and seek inputs to the report.
42. Strong partnership with development partners. The WBG works closely with the International
Monetary Fund (IMF) on macroeconomic issues, sharing expertise on pension, energy sector, and a broad
range of other structural issues. It maintains a close relationship with the EU, UNDP and UNICEF in
Ankara. Of particular note was the success of the WBG private sector team (ECSPF) in mobilizing
£100,000 from the UK Foreign and Commonwealth Office to fund a pilot project to simplify
administrative procedures, a first for the WBG in Turkey. IFC increased its cooperation with other IFIs in
Turkey. Work included a country engagement plan with EBRD on the Clean Technology Fund;
syndicating a first loan with Black Sea Trade and Development Bank, based on IFC’s Master Cooperation
Agreement; coordinating with FMO to jointly sign a subordinated loan to a client bank; and cooperation
in two projects with KfW on energy efficiency and MSME financing.
43. The 2011 Country Survey presented a broad range of opinions of the work of the WBG.
With a 32 percent response rate, respondents identified education (skills), environment and natural
resource management, employment, energy, and disaster preparedness as key development priorities for
the WBG’s partnership with Turkey. This choice is broadly consistent with the CPS and the analysis in
this CPSCR. Sector priorities were as follows: rural development, increased job opportunities in the
formal sector, enhancing opportunities for private sector growth/investment, access to pre-school
education, and macroeconomic growth. With the exception of rural development, these largely mirror
work carried out in this CPS. Less positively, respondents noted the slowness and complexity of
processes as the WBG’s greatest weaknesses in Turkey and identified interaction with stakeholders
outside Government as a key area for improvement. Respondents also perceived WBG work as not being
particularly effective in reducing poverty.
V. KEY LESSONS LEARNED & RECOMMENDATIONS FOR MOVING FORWARD
44. The systematic development and maintenance of a policy dialogue in support of long-term
strategic goals, combining knowledge and lending operations, is vital to support reforms. Major
policy and legislative reforms can take time to implement; therefore flexibility and patience are critical
for ensuring success. Successful collaboration on the Commercial Code (seven years in preparation) is an
example of the value of long-term engagement. To increase success, the full integration of combined
analytic work and policy financing into national development plans and medium-term programs is
critical. Programmatic structuring of work, in the form of modular interventions which build on each
other sequentially, was particularly effective.
45. The story of engagement on environment and climate change: step back, identify strategic
entry points and seize opportunities that open as country priorities evolve. Turkey and the WBG
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
13
agreed not to use environment as a pillar in CPS FY08-11, reflecting limited advancement of the
environmental agenda during 2004-2007 and a decision to consider jointly a possible re-engagement, at
Turkey’s initiative, later during the 2008-11 CPS period. Turkey’s accession to the Kyoto protocol and
the opening of the Environmental Chapter of the EU Acquis in 2009 then provided the opportunity and
strategic entry point for a new engagement on environment and climate change. The new engagement
grew out of the Turkey-WBG partnership on energy. The electricity DPL series was broadened into the
ESES DPL series, with three components: energy, climate change and environmental sustainability. This
work led to collaboration in preparation for the 2012 UN Sustainable Development Conference (Rio+20).
IFC used its support for Turkey’s liberalization program to secure low carbon solutions to meet growing
electricity demand.
46. A strengthened focus on M&E and results has been welcome and useful. Turkey and the
WBG have collaborated in strengthening monitoring and evaluation and the results focus of government
and WBG supported programs - through the rolling programmatic JPPR, technical assistance on M&E
financed by the IDF and many other task specific M&E activities. A special effort was made to include
results frameworks in all AAA activities. One joint example of M&E and a strong results focus is the
work on vocational training with ISKUR.
47. Sharing success. A number of Turkey’s policies and reforms, conducted in partnership with the
WBG, are leading examples of work in their fields. These include: (1) the Health Transformation
Program; (2) energy market development, and (3) disaster risk management. This experience provides a
basis for further Turkey-WBG collaboration during the next, FY12-15, CPS in knowledge sharing and
contributing to development with other countries, regionally and globally.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
1
CPS Completion Report Results Matrix (October 26, 2011)
A cross-cutting finding from the implementation of the FY08-11 CPS is that Turkey has achieved international good practice results in key areas of the Turkey-WBG partnership,
with WBG support. Examples include: (1) the Health Transformation Program; (2) energy market development, and (3) disaster risk management. This experience provides a basis for
further Turkey-WBG collaboration during the next, FY12-15, CPS in knowledge sharing and contributing to development with other countries, regionally and globally.
Pillar 1: Competitiveness and Employment Opportunities
1A. Sustained Macroeconomic Stability and Sustained Economic Growth
National Key Outcomes & Indicators influenced by the CPS
(no consideration of possible WBG contribution)
Milestones/Indicators influenced by WBG during CPS Period
(consideration of possible contribution of WBG activities)
. Sound macro-policies leading to sustainable public debt and sound external
position.
. The general government fiscal deficit declined to 3.7 percent of GDP in 2010,
while gross public debt as a share of GDP fell further to 45 percent in 2010.
Due to the impact of the crisis, fiscal and public debt targets had to be revised
and the 2011-13 medium-term program envisages a general government fiscal
deficit of 1.1 percent of GDP and 36.8 percent of GDP EU defined public debt
by 2013.
. Effective economic policy dialogue, grounded in AAA findings.
. Achieved: Programmatic AAA (analytic and advisory work) facilitated an effective policy
dialogue. This included two programmatic Country Economic Memoranda (CEM): one on
Informality and the other on Savings and Growth. Programmatic Public Expenditure &
Financial Management studies were run over three years.
IBRD Portfolio & Financing Activities which contributed to this outcome:
• Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL). Approval Date: 03/23/2010.
• Second Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL II). Approval Date: 5/5/2011.
• Second Programmatic Environmental Sustainability and Energy Sector Development Policy Loan DPL (ESES II). Approval Date: 6/15/2010.
• First Programmatic Electricity Sector DPL. Approval Date: 06/11/2009. Closing Date: 08/31/2003. ICR: 08/31/2003.
• Competitiveness and Employment DPL (CEDPL). Approval Date: 06/28/2007. ICR: 03/16/2009. IEG outcome rating: Satisfactory.
• Second Competitiveness and Employment DPL (CEDPL II). Approval Date: 12/16/2008. ICR: 04/28/2010. IEG outcome rating: Satisfactory.
• Second Programmatic Public Sector Development Policy Loan (PPDPL II). Approval Date: 06/19/2008.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Country Economic Memorandum: Informality – Causes, Consequences and Policies. AIS sign off: 09/16/2008. Delivery to Client: 06/30/2009.
• Programmatic Country Economic Memorandum: International Experiences with Informality. AIS sign off: 11/01/2007. Delivery to Client: 06/30/2008.
• Country Economic Memorandum: Savings and Sustainable Growth. AIS sign off: 05/28/2010. Delivery to Client: 06/30/2010
• Country Economic Memorandum: Savings and Sustainable Growth II. AIS sign off: 10/21/2010. Delivery to Client: 06/30/2011
• Country Economic Memorandum II - Sustaining High Growth: Selected issues. AIS sign off: 04/04/2006. Delivery to Client: 11/26/2007.
1B. Increased Private Investment, Improved Export Competitiveness; Deeper and Broader Financial Sector
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
Private sector
. Increased export growth, to 11.2 percent p.a. Baseline for 2006 is 8.5 percent.
:
. Export growth was 25.4 percent, 23.1 percent, -22.6 percent and 11.6 percent in
2007, 2008, 2009 and 2010 respectively. Due to the impact of the crisis targets
have been revised in the MTP 2011-2013 to USD 127 billion for 2011, USD
143.5 billion for 2012, USD 160 billion for 2013.
. Sustained strong FDI inflow. Baseline: Target of USD 12.1 billion annually on
average. 2006 actual: USD 20.1 billion.
. Gross FDI was USD 22 billion (2007), USD 19.5 billion (2008), USD 8.4
billion (2009) and USD 8.9 billion (2010). FDI flows suffered by global
financial crisis. Government has not announced new targets.
. Expansion of R&D expenditures, from 0.71 percent of GDP per year in 2007 (0.8
percent of GDP per year in 2006) to 2 percent in 2013.
. 2009: R&D expenditures are 0.85 percent of GDP.
. Increased medium-term financing for exporting firms and SMEs.
. Achieved.
. In 2010 the annual growth rate of total loans was 33.9 percent, while those made to SMEs grew
by 50.6 percent. Note: The Turkish Banking Sector Chart of Accounts does not show a separate
line for financing to exporters.
Total loans to the Private Sector increased by 99.2 percent, and loans to SMEs
increased by 63.9 percent between 2007 to 2010. Note: The Turkish Banking Sector Chart of
Accounts does not show a separate line for financing to exporters.
. Effective PPP legislation, informed by Bank supported international dialogue, advisory work and
workshops.
. Partially Achieved. The draft law prepared in 2007 was reviewed by all concerned ministries in
2010 and a final draft was prepared. In the meantime BOT Law no: 3996 was amended in 2011
and the secondary legislation was revised accordingly (Council of Ministers Decree no:
2011/1807) to move forward with the BOT highways projects
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
2
Financial Sector
. Increase private sector access to finance in Turkey by strengthening credit
markets. Target: Expand the share of total credit in GNP from 31.7 percent in 2006
to around 35 percent by 2011.
:
. 2010: Share of total credit in GDP was 48 percent. Note: TUIK now calculates
GDP rather than GNP.
. Expand the scope of financial services in Turkey by developing non-bank finance
as measured by NBFI assets (leasing assets, and insurance firm assets/total
financial sector assets).
. Leasing, factoring and consumer finance assets increased from TL 19.7 billion
in 2006 to TL 36.4 billion in 2010. Insurance sector assets increased from TL
17 billion in 2006 to 36.6 billion by the end of March 2011.
. Development of Intellectual Property Rights legislation aligned with the EU Acquis.
. Partially Achieved: The legal framework is in place but enforcement needs to be raised to EU
standards, particularly in the area of Industrial Property rights. Key legal enforcement
institutions and the Patent Institute need capacity strengthening. Measures to improve
government-private cooperation and the commercialization of research are still needed.
. Implementation of investment climate reforms to facilitate entry and exit and remove obstacles to
the growth of surviving entrants, such as a) bankruptcy reform including legislation; b) approving
state aid legislation in conformity with EU and c) facilitating enterprise formalization by easing
doing business.
. Partially Achieved
IBRD Portfolio & Financing Activities which contributed to this outcome:
: Monitoring and Supervision of State Aids Law was approved in early 2011.
Government working jointly with the Bank on a TA program to develop regulatory reform
strategy to reduce “time tax.” Ministry of Justice has prepared draft amendments to bankruptcy
legislation to address some of the existing shortcomings, but there is no timetable for their
approval yet.
• Programmatic Electricity Sector DPL. Approval Date: 06/11/2009.
• Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL). Approval Date: 03/23/2010.
• Second Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL II). Approval Date: 5/5/2011.
• Competitiveness and Employment DPL (CEDPL). Approval Date: 06/28/2007. ICR: 03/16/2009. IEG outcome rating: Satisfactory.
• Second Competitiveness and Employment DPL (CEDPL II). Approval Date: 12/16/2008. ICR: 04/28/2010. IEG outcome rating: Satisfactory.
• Second Export Finance Intermediary Loan (EFIL II). Approval Date: 01/13/2004. ICR: 02/07/2008. IEG outcome rating: Highly Satisfactory.
• Third Export Finance Intermediary Loan (EFIL III). Approval Date: 05/17/2005. ICR: 12/23/2009. IEG outcome rating: Highly Satisfactory.
• Fourth Export Finance Intermediary Loan (EFIL IV). Approval Date: 05/22/2008.
• Fourth Export Finance Intermediary Loan Additional Financing (EFIL IV AF). Approval Date: 03/17/2011.
• Access to Finance for Small and Medium-size Enterprises. Approval Date: 06/08/2006.
• Access to Finance for Small and Medium-size Enterprises Additional Financing. Approval Date: 06/19/2007.
• Access to Finance for Small and Medium-size Enterprises Additional Financing. Approval Date: 12/09/2008.
• Access to Finance for Small and Medium-size Enterprises Additional Financing II. Approval Date: 12/15/2009.
• Credit Line Access to Finance for Small and Medium-size Enterprises II. Approval Date: 06/15/2010.
• Private Sector Renewable Energy and Energy Efficiency Project. Approval: 05/28/2009.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Promoting Gender Equity in the Private Sector. AIS sign off: 12/15/2010. Completion of first phase of the program - design and launching of the pilots: 06/30/2011.
• Investment Climate Assessment: From Crisis to Private Sector Led Growth. AIS sign off: 01/27/2009. Delivery to Client: 03/24/2010.
• Technical Assistance Follow up to the 2010 Investment Climate Assessment. AIS sign off: 09/27/2010. Delivery to Client: 06/29/2011.
• Corporate Debt Insolvency Framework. AIS sign off: 11/09/2009. Delivery to Client: 06/28/2010.
• Credit Lines Outcome Evaluation. AIS sign off: 08/16/2010. Delivery to Client: 06/28/2011.
• Corporate Bond Market Development--Priorities and Challenges. AIS sign off: 07/20/2010. Delivery to Client: 06/29/2010.
• Improving Conditions for SME Growth - Finance and Innovation. AIS sign off: 09/14/2009. Delivery to Client: 12/03/2010.
• The Impact of the Global Economic Crisis in Turkey's Corporate Sector. AIS sign off: 12/30/2009. Delivery to Client: 06/22/2009.
• Innovation Note: Background Paper on National Innovation System. AIS sign off: 09/19/2007. Delivery to Client: 06/30/2008.
• Developing Policy, Institutional, and Legal Framework for Second Generation Public Private Partnership Projects: AIS sign off: 01/25/2007. Delivery to Client: 06/02/2008.
• National Innovation and Technology System: Recent Progress and Ongoing Challenges. AIS sign off: 07/21/2008. Delivery to Client: 06/29/2009.
• National Innovation and Technology Policy for Competitiveness 2. AIS sign off: 12/30/2009. Delivery to Client: 06/11/2010. Not yet published.
IFC work which contributed to this outcome:
• MSME financing of over $400 million (5 projects) with local banks; emphasis rural areas.
• Financing of about $200 million (7 local companies) for competitiveness and risk diversification through exports when the credit market drastically contracted.
• Financing of 3 local banks in trade finance and sustainable energy finance.
• Financed over $160 million (4 projects) in infrastructure sectors, including two container handling facilities, a private natural gas distribution network (first IFC’s TRY loan in
infrastructure sector) and a oil storage and jetty facility.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
3
• Support for Turkish companies investing outside Turkey: during FY08-11 IFC invested more than $350 million to support 13 projects with Turkish companies in the Balkans, Russia,
Georgia, Haiti, Tunisia, India, Egypt, and Argentina.
MIGA work which contributed to this outcome:
• 5 projects (4 infrastructure & 1 in finance) amounting to a total of USD 1.02 billion in gross exposure.
• One guarantee provided to a Turkish investor working outside Turkey (Iraq) bringing total gross exposure of MIGA guarantees to Turkish investments outside of Turkey to $29 million
in 5 currently active projects.
1C: Increased Employment
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
. Passage of labor market reform law that increases labor market flexibility and
improves the effective protection of workers.
Increased Employment:
. In 2010 and 2011 the government continued to expand Active Labor Market
Policies and introduced reforms to improve the quality and relevance of
vocational training. The so-called “Omnibus Law” of February 2011included
some changes related to flexible contracting and the extension of the targeted
subsidies to new hires. A comprehensive employment strategy, including
reforms to increase labor market flexibility and worker protection, has been
prepared.
. At least 3,000 workers made redundant by SOE privatization are placed in permanent employment
under Labor Redeployment Services during 2007- 11.
. Partially Achieved: Few workers are currently seeking support through Labor Redeployment
Services.
. Labor market relevant policies informed by Bank supported AAA.
. Achieved: Analytic studies have covered labor taxes, informal economy, female labor force
participation, and youth employment. The programmatic HD TA has provided advice on
ALMP, labor market regulations, employment-related crisis measures and capacity building on
impact evaluation. The findings and policy options in this work have helped inform policy
discussions among government and non-government stakeholders.
. Implementation of measures to reduce labor costs as well as increase labor market flexibility and
worker protection
. Partially Achieved
.
: First-stage labor market reforms reduced non-wage labor costs and nonfinancial
costs of employment for employers (e.g. those imposed by profession-specific
employment quotas and similar legal constraints has been partially achieved) and allowed for
the expansion of ALMP. Second-stage labor market reforms (to address issues of short-term
and part-time employment, unemployment insurance, severance pay, etc.) are pending, and a
comprehensive employment strategy including those reforms is in the making.
Beyond CPS Achievements
IBRD Portfolio & Financing Activities which contributed to this outcome:
: Government responded to the economic slowdown with several
employment packages, including the expansion of vocational training (from 30,000
beneficiaries in 2008 to around 210,000 in 2010) public works and wage subsidies. Continued
expansion and quality improvement of ALMP after the crisis (the Government expects 400,000
ALMP beneficiaries in 2011, up from around 33,000 in 2007; introduction of quality
assessment of vocational training providers). IBRD supported these programs.
• Restoring Equitable Growth and Employment Programmatic (REGE) DPL. Approval Date: 03/23/2010.
• Second Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL II). Approval Date: 5/5/2011.
• Competitiveness and Employment DPL (CEDPL). Approval Date: 06/28/2007. ICR: 03/16/2009. IEG outcome rating: Satisfactory.
• Second Competitiveness and Employment DPL (CEDPL II). Approval Date: 12/16/2008. ICR: 04/28/2010. IEG outcome rating: Satisfactory.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Vocational Training with ISKUR Technical Assistance. AIS sign off: 11/03/2010. Delivery to Client: 06/22/2010 and related Trust Fund AIS sign off: 02/19/2009. Delivery to Client:
02/16/2010
• Female Labor Force Participation in Turkey: Trends, Determinants, and Policy Framework. AIS sign off: 04/10/2008. Delivery to Client: 06/30/2009.
• Investing in Turkey’s Next Generation: The School-to-Work Transition and Turkey’s Development. AIS sign off: 07/01/2006. Delivery to Client: 02/06/2008.
• Estimating the Impact of Labor Taxes on Employment and the Balances of the Social Security Funds in Turkey. AIS sign off: 04/29/2008. Delivery to Client: 06/06/2008.
IFC & MIGA work which contributed to this outcome:
• All activities contributed to increased employment.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
4
1D: Reliable & Efficient Energy Supply
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
. Improved electricity supply security by better demand management and increased
generation. Baseline - 176 TWh annual outputs in 2006.
. Annual output was 198 TWh in 2008 and 210TWh in 2010.
. Achieved full pass-through of costs to electricity tariffs. Baseline - proportion of
electricity costs passed through to consumers: 91 percent in 2006.
. Since 2008 100 percent of costs have been passed through.
. Reduced distribution system technical losses from 15.1 percent in 2006.
. Distribution losses were reduced to 14.4 percent in 2008 then rose to 18.6
percent in 2010. This figure is higher than the original figure because the
remaining (not privatized) distribution companies are those with high loss &
theft ratios.
. Increased private sector participation in power distribution and generation.
Baseline: 3 percent of the market served by distribution companies and 55 percent
of generation output was private as of 2006.
. In 2010, electricity served by private distribution companies raised to
approximately 44 percent of the market and 55 percent of output came from
private generators.
(Note: Development of the Electricity Market. Baseline - Electricity Sold on the
market as percent of total electricity transmitted: zero percent in 2004)
. 26.5 percent of electricity was sold through the market in 2010.
. Tariff setting mechanisms revised to allow full pass-through of costs to intermediate and end-user
tariffs.
. Achieved: Mechanism approved in February 2008 and became effective in July 2008.
. Supply security measures informed by analytic work and energy program financing: e.g.,
improving supply and demand side energy efficiency; increasing renewable energy generation;
introducing capacity mechanisms during CPS period.
. Achieved: Government has been informed effectively by analytic work and energy program
financing focusing on increasing renewable energy generation and supporting energy efficiency
investments.
. Improve operational effectiveness of the Turkish electricity market and power systems, informed
by advisory services on market functioning and rehabilitation of generation, transmission, and
distribution networks, as measured by the approval of final market rules and their subsequent
implementation during CPS period.
. Partially achieved: Improved operational effectiveness is anticipated, informed by delivered and
ongoing advisory services. Market rules have been approved by EMRA. Day-ahead market has
already been tested, and is planned to be launched in on December 1st 2011.
. Implementation of the energy efficiency law commenced.
. Achieved: Implementation has started, wide-ranging regulations approved. Informed by
advisory services, main regulatory body, EIE’s mandate on EE is being strengthened and its
capacity is being strengthened. Bank investment loan is supporting EE in key industrial sectors.
. [Pilot of geothermal scheme to demonstrate heating efficiency. Indicator deleted at mid-term as
priorities changed – no longer CPS objective.]
IBRD Portfolio & Financing Activities which contributed to this outcome:
• Second Programmatic Environmental Sustainability and Energy Sector Development Policy Loan (ESES DPL II). Approval Date: 6/15/2010.
• Programmatic Electricity Sector DPL. Approval Date: 06/11/2009.
• Competitiveness and Employment DPL (CEDPL). Approval Date: 06/28/2007. ICR: 03/16/2009. IEG outcome rating: Satisfactory.
• Second Competitiveness and Employment DPL (CEDPL II). Approval Date: 12/16/2008. ICR: 04/28/2010. IEG outcome rating: Satisfactory.
• Private Sector Renewable Energy and Energy Efficiency Project. Approval Date: 05/28/2009.
• Renewable Energy Project. Approval Date: 03/25/2004. ICR: 3/10/2010. IEG outcome rating: Highly satisfactory.
• Second Energy Supply Security of South East Europe APL (ESCEE APL II). Approval Date: 04/04/2005. ICR: 08/04/2011.
• Third Energy Supply Security of South East Europe APL (ESCEE APL III). Approval Date: 03/24/2006. ICR: 08/04/2011.
• Sixth Energy Supply Security of South East Europe APL (ESCEE APL VI). Approval Date: 08/20/2010.
• National Transmission Grid Project. Approval Date: 06/11/1998. Closing Date: 12/31/2007. IEG outcome rating: Highly satisfactory.
• Electricity Generation Rehabilitation and Restructuring. Approval Date: 06/06/2006. ICR 04/28/2010.
• Electricity Distribution and Rehabilitation. Approval Date: 04/19/2007.
• Gas Sector Development Project. Approval Date: 11/29/2005.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Energy Efficiency Assessment: ‘Tapping the Potential for Energy Savings’. AIS sign off: 07/31/2008. Delivery to Client: 02/08/2010.
• Programmatic Energy Sector. AIS sign off: 11/20/2008. Delivery to Client: 06/23/2008.
• Programmatic Energy Sector Work (Turkey Energy Strategy). AIS sign off: 02/05/2008. Delivery to Client: 06/23/2008.
• Technical Assistance: ESMAP - Supporting Electricity Markey Operations. AIS sign off: 02/20/2007. Delivery to Client: 08/25/2010.
IFC work which contributed to this outcome:
• Energy supply security investments of about $560 million and mobilization of $1.6 billion in 5 projects supporting about 3,300 MW of installed capacity, including small-scale
hydropower plants and wind farms.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
5
Joint IBRD & IFC Portfolio & Financing Activities which contributed to this outcome:
• Clean Technology Fund (CTF)
Key Lessons Learnt and suggestions for next CPS:
The systematic development and maintenance of a policy dialogue in support of long-term strategic goals, combining knowledge and lending operations, is vital to support reforms. Major
policy and legislative reforms can take time to implement; therefore flexibility and patience are critical for ensuring success. Successful collaboration on the Commercial Code (seven years in
preparation) is an example of the value of long-term engagement. To increase success, the full integration of combined analytic work and policy financing into national development plans
and medium-term programs is critical. Programmatic structuring of work, in the form of modular interventions which build on each other sequentially, was particularly effective.
Pillar 2: Equitable Human and Social Development
2A: Increasing the Effectiveness of the Social Security System and Improving the Income Distribution, Social Inclusion and the Fight Against Poverty
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
. Long-term sustainability of the social security improves as evidenced by
successful implementation of new social security and universal health insurance
law.
. Legislation enacted and implemented. Long-term fiscal balance of pension
system will improve.
. Equity of pension system improves: pension parameters are unified for workers,
self-employed and new civil servants.
. Fully implemented.
. Effective financial protection of the poor in health: a new targeting system (such as
proxy means testing) is introduced for non-contributory health insurance, is
implemented, and reaches at least 50 percent of the vulnerable population in 2011.
. Technical discussions on targeting options have begun. According to Law No
5510 all green card owners will be covered by the universal health insurance
system by 2012 and their premiums will be paid by the government.
. A coordinated social assistance system under clear management authority with
adequate budgetary financing has been established.
. A new ministry of Ministry of Family and Social Policies was created, bringing
all social benefits under a single roof.
. Enactment and effectiveness of a revised social security and universal health insurance law.
. Achieved.
. Enactment of social assistance law creating a coordinated social assistance system.
. Partially Achieved: A social assistance law creating a coordinated social assistance system has
not been enacted, but two significant steps to develop an integrated social assistance system
have been taken: (i) all benefits are now managed under one roof in the newly created Ministry
of Family and Social Policies, and (ii) an Integrated Social Assistance Information System
(ISAIS) has been developed and is already operational.
. Increased coverage of health insurance among vulnerable groups.
. Achieved. As a result of the expansion in obligatory insurance schemes as well as the green
card program coverage among the poor, the percentage of population covered by some form of
health insurance has increased from 86 percent in 2005 to 96.2 percent in 2010.
. Effective proxy means testing system for green card holders developed and implemented.
. Partially Achieved
IBRD Portfolio & Financing Activities which contributed to this outcome:
. Although a proxy means test was not introduced during the CPS period,
from January 2012 the identification of beneficiaries of non-contributory health insurance will
be done using the proxy-means test developed by the new Ministry of Family and Social
Policies through the ISAIS. The Green card program is well targeted to the poor: 71 percent of
Green Card beneficiaries are in the poorest 25 percent of the population and administrative
controls have been established to discontinue benefits among non-eligible households.
• Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL). Approval Date: 03/23/2010.
• Second Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL II). Approval Date: 5/5/2011.
• Second Programmatic Public Sector Development Policy Loan (PPDPL II). Approval Date: 06/19/2008.
• Privatization Social Support Project 2 (PSSP 2). Approval Date: 06/14/2005. ICR: 04/29/2010. IEG outcome rating: satisfactory.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Programmatic Human Development Technical Assistance. AIS sign off: 10/20/2010. Delivery to Client: 06/24/2011.
• Programmatic Social Security and Labor Technical Assistance. AIS sign off: 11/20/2008. Delivery to Client: 06/22/2009.
• Programmatic Social Insurance Advisory Technical Assistance. AIS sign off: 11/06/2007. Delivery to Client: 06/02/2008.
• Programmatic Welfare and Social Policy TA Program. AIS sign off: 11/01/2007. Delivery to Client: 05/28/2009.
• Assessing the Social Impact of the Economic Slowdown. AIS sign off: 11/09/2009. Delivery to Client: 06/29/2010.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
6
2B: Making the Health System More Effective
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
. The technical and allocating efficiency of the health services improved. In
particular: (i) increased spending on preventive and primary health care services
increased, from around 25 percent of total public spending on health in 2006 to
around 30 percent or more in 2011; (ii) occupancy rate of hospitals increases by at
least 10 percent, from 64 percent in 2006 (corrected from 65 percent) to at least 75
percent in 2011.
. In 2009: (i) Spending on preventive and primary health care services increased
to 27 percent, and (ii) occupancy rate of hospitals remained nearly the same
with 63 percent in 2009.
. Family medicine and strengthened community health services implemented in at least 15 provinces
of Turkey.
. Achieved
.
: Family Medicine (FM) system has been implemented nationwide and covers the
entire population (72.5 million) of Turkey as of December 13, 2010. Maternal mortality fell
from 28.5 deaths per 100,000 live births in 2005 to 16.4 deaths in 2010 (already meeting the
MDG goal on maternal mortality), and infant mortality decreased from 25 deaths per 1,000 live
births in 2005 to 17 in 2008 (more improvements have been observed in 2009 and 2010).
Beyond CPS Achievements
IBRD Portfolio & Financing Activities which contributed to this outcome:
: Substantial progress in achieving universal health insurance:
percentage of population covered by some form of health insurance increased from 86 percent
in 2005 to 96.2 percent in 2010.
• Second Programmatic Public Sector Development Policy Loan (PPDPL II). Approval Date: 06/19/2008.
• Health Sector Transition APL. Approval Date: 05/20/2004. ICR: 07/14/2010.
• Health Transformation and Social Security Reform Project APL II. Approval Date: 06/11/2009.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Efficiency and cost containment in Turkey's health sector. AIS sign off: 09/22/2010. Delivery to Client: 06/9/2011.
• Programmatic Health. AIS sign off: 10/09/2007. Delivery to Client: 08/15/2008.
• Health Sector Institutional Fiduciary Assessment. AIS sign off: 02/23/2007. Delivery to Client: 03/05/2008.
• Pay for Performance in the Hospital Sector (TF). AIS sign off: 03/10/2008. Delivery to Client: 07/30/2009.
IFC work which contributed to this outcome:
• Support for private sector participation in the health sector with $50 million investment in two projects. Through loan to a leading leasing company IFC supported 550 SME healthcare
projects. Through equity investments to a distressed but significant healthcare provider, IFC improved access to high quality private healthcare services at affordable prices, including in
underserved and frontier regions of Turkey.
2C: Enhancing the Educational System and Increasing the Sensitivity of Education to Labor Demand
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
. Improved secondary schooling graduation/attainment rate to 50 percent (youth 20-
24): Baseline is 44.7 percent in 2006.
. In 2009 secondary schooling graduation/attainment rate reached 52 percent
(Labor Force Survey) exceeding the target set for the CPS period.
. Improved education quality and student performance: improvement in PISA result
between 2006 (baseline: average score 424) and 2009 as well as reduced
disparities between students.
. PISA scores have improved significantly between 2006 and 2009. Average
Reading score improved from 447 to 464; Math improved from 424 to 445;
Science improved from 424 to 454.The percentage of students below
competency 1 in reading has been reduced from 11 percent to 6 percent.
. Development and implementation of flexible, modular- and competency-based
lifelong learning strategy.
. Lifelong learning strategy published in June 2009. Revised secondary school
education curricula implemented in four main subjects for students in grades 9
to 12 under SEP.
. Revised secondary school education curricula implemented in four main subjects for students in
grades 9 to 12.
. Achieved.
. National career guidance and counseling system developed and implemented.
. Achieved. National career guidance and counseling system developed and implemented under
SEP.
. [Foreign language teacher training program designed, implemented and evaluated.
. Indicator deleted as priorities changed at CPS mid-term – no longer CPS objective –the
Secondary Education Project (SEP) was restructured and no longer includes a component on
foreign language training.]
. National debate is informed on education quality.
. Achieved. PISA score have improved significantly between 2006 and 2009. Average Reading
score improved from 447 to 464; Math improved from 424 to 445; Science improved from 424
to 454.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
7
IBRD Portfolio & Financing Activities which contributed to this outcome:
• Second Programmatic Public Sector Development Policy Loan (PPDPL II). Approval Date: 06/19/2008.
• Secondary Education Project. Approval Date: 03/15/2005.
• Basic Education Project APL 2. Approval Date: 07/16/2002. ICR: 02/29/2008. IEG outcome rating: Moderately unsatisfactory.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Programmatic Education: Early Childhood Education. AIS sign off: 11/02/2010. Delivery to Client: 06/30/2011.
• Programmatic Education: Improving the Quality and Equity of Basic Education in Turkey: Challenges and Options. AIS sign off: 01/31/2008. Delivery to Client:06/23/2010.
Key Lessons Learnt and suggestions for next CPS:
A strengthened focus on M&E and results has been welcome and useful. Turkey and the WBG have collaborated in strengthening monitoring and evaluation and the results focus of
government and WBG supported programs - through the rolling programmatic JPPR, technical assistance on M&E financed by the IDF and many other task specific M&E activities. A
special effort was made to include results frameworks in all AAA activities. One joint example of M&E and a strong results focus is the work on vocational training with ISKUR.
Pillar 3: Efficient Provision of High Quality Public Services
3A: Public Expenditures Management System Rationalized and Well Structured
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
. Turkish Court of Accounts given the mandate to audit entire general government
and do financial and performance audit.
. The Turkish Court of Accounts Law enacted in December 2010 broadens the
mandate of the TCA and aligns its structure with Public Financial Management
and Control Law.
. Efficiency and economic life of existing public capital stock increased.
. The total central government maintenance and repair expenditures increased
from 0.2 percent of GDP in 2007 to 0.3 percent of GDP in 2010.
. Effective implementation of Public Financial Management and Control Law
maintained.
. Fully implemented.
. Financial controls and internal and external audit structures improved.
. Implementation of the 2006 Public Financial Management and Control
(PFMC) Law delegates financial control and internal audit function from the
central government institutions to the line agencies. This is in full operation
now and constitutes significant improvement.
. TCDD (Railway Company) operating revenues increased toward commercial
operational viability.
. Operating revenue from traffic rose from TL 513 million in 2007 to TL 657
million in 2010. The working ratio (the ratio of operating expenses to operating
revenue) also marginally rose over the period, from 3.14 to 3.17.
. New law on Turkish Court of Accounts adopted and implemented.
. Achieved: Legislation enacted and started to be implemented.
. Strategy development units have become operational in all general government institutions and all
central government institutions have completed their strategic plans.
. Achieved: Strategy development units in charge of financial control and internal audit are
established and operational in all general government institutions. The strategic plans have not
only been completed in all of the central government institutions but also in local
administrations and SOEs.
. Specific codes to allow MOF and MOH to track the program expenditures applied under Health
Transition Program.
. Achieved.
. Legal and operational restructuring of TCDD (Railway Company) as commercial entity.
. Not Achieved
IBRD Portfolio & Financing Activities which contributed to this outcome:
. The legal status of TCDD has not changed during the CPS period as the draft
TCDD law has been under preparation. Under the project, steps have been taken by TCDD to
integrate commercial accounting and auditing procedures, and other institutional developments,
however, the effectiveness of these internal measures remains limited without the support of
legal reform. No further moves on commercialization have been made since the restructuring of
the project in 2009.
• Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL). Approval Date: 03/23/2010.
• Second Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL II). Approval Date: 5/5/2011.
• Second Programmatic Public Sector Development Policy Loan (PPDPL II). Approval Date: 06/19/2008.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Second Programmatic Public Expenditure and Financial Management Study. AIS sign off: 07/20/2009. Delivery to Client: 06/28/2010.
• Financial Management Technical Assistance to Parliament and Turkish Court of Accounts: AIS sign off: 02/09/2009. Delivery to Client: 04/12/2010.
• Municipal Financing and Regional Development Workshop. AIS sign off: 03/31/2008. Delivery to Client: 06/26/2008.
• Programmatic Municipal Finance and Regional Development. AIS sign off: 01/28/2008. Delivery to Client: 05/28/2009.
• Programmatic Public Expenditure and Financial Management Study. AIS sign off: 08/07/2008. Delivery to Client: 06/30/2009.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
8
3B: Public Sector Governance Strengthened
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
. Fast, fair and reliable operation of the judicial system through improvements in
the quality of judging process and legal and institutional structures.
. Judicial Reform Strategy and Action Plan were endorsed by the Cabinet and
both published.
. Legal disputes resolved in a fast, simple and effective manner with low costs and
reduced workload of judicial authorities through alternative dispute resolution
methods in the legal system.
. Draft Law on Mediation will be re-submitted to the Judicial Commission of the
Turkish Grand National Assembly.
. Increased efficiency in judicial services and accelerated judicial process through
the transfer of services into the electronic environment and sharing information
among judicial institutions and other public organizations.
. In the coming years the judicial network project UYAP and e-government
project are expected to be integrated.
. New Civil Procedural Code enacted.
. Achieved: New Civil Procedures Code was enacted on February 2011.
. At least 3 Regional Courts of Appeal have been established and are fully operational.
. Partially Achieved: Regional Courts of Appeal have been established in 15 centers (Istanbul,
Bursa, Ýzmir, Ankara, Konya, Samsun, Adana, Erzurum, Diyarbakýr, Sakarya, Gaziantep,
Antalya, Kayseri, Trabzon and Van) but are not yet operational. However chief public
prosecutors of all these courts have been appointed by the High Council for Judges and
Prosecutors.
. Implementation of the judicial network project (UYAP) establishes online connections of 95
percent or more of courts by end of CPS period.
. Achieved: Online connections have reached 100 percent of courts.
. Policy recommendations drafted for deepening judicial reform for faster and more efficient
judicial service provision with focus on courts.
. Achieved
IBRD Portfolio & Financing Activities which contributed to this outcome:
: Judicial Reform Strategy and Action Plan were endorsed by the Cabinet and both
published in 2009. The implementation of the action plan is moving forward in line with the
timetable. The Ministry has already started to update the strategy.
• Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL). Approval Date: 03/23/2010.
• Second Restoring Equitable Growth and Employment Programmatic DPL II (REGE DPL II). Approval Date: 5/5/2011.
• Second Programmatic Public Sector Development Policy Loan (PPDPL II). Approval Date: 06/19/2008.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Judicial Reform Technical Assistance. AIS sign off: 12/17/2008. Delivery to Client: 06/30/2010.
• Judicial System Technical Assistance. AIS sign off: 05/27/2009. Delivery to Client: 06/11/2009.
3C: Improved Local Service Delivery and Disaster Preparedness
National Key Outcomes & Indicators influenced by the CPS Milestones/Indicators influenced by WBG during CPS Period
Municipal Development
. Implementation of public expenditure management reforms such as adequate
operation and maintenance and targeted completion of priority infrastructure
projects that are economically feasible, to promote more efficient use of municipal
resources.
:
. Total budgetary transfers to local administrations as a share of tax revenues
increased from 9 percent of tax revenues in 2007 to 10 percent of GDP in 2010.
(Including BELDES and KOYDES programs that support development at local
level, the budgetary transfer to local administrations increased from 10 percent
to 11 percent during the same period).
. Local financial management systems consistent with international practice
standards in tracking resources, monitoring service levels, programming capital
investments in municipal and environmental infrastructure.
. The p assing of t he Law on Iller B ankasý A.Þ. i n 2011 is c ritical for municipal
infrastructure financing and effective local financial management systems. The
new law cements many of the internal reforms that Iller Bank has been
implementing for the previous 6 years.
. Reduce overdue receivables of local administrations to Treasury. (Estimated at TL
4.215 billion in 2007).
. Passing of Municipal Revenues Law establishing local financial discipline.
Municipal Development:
.Not Achieved: Legislation governing self-generated municipal activities not yet drafted
. New revenue sharing law for Special Provincial Administrations and municipalities enacted
resulting in increased revenue transfers from national government to local administrations.
. Achieved: Law enacted in July 2008. Total budgetary transfers to local administrations as a
share of tax revenues increased from 9 percent in 2007 to 10 percent in 2010. (Including
BELDES and KOYDES programs that support development at local level, the budgetary
transfer to local administrations increased from 10 percent to 11 percent during the same
period).
. Quality of municipal infrastructure improved in targeted municipalities as measured by the
expansion of water supply, sewerage and solid waste services to serve 2 million or more users.
. [Achieved: after correction of initially mis-specified targets]. The Municipal Services Project
has financed new connections for 870,000 people to water supply, has reduced losses in the
water system by up to 30 percent in some participating cities, and has increased coverage of
sewerage systems to more than 300,000 people. Two cities, with a combined population of
75,000 that previously did not have sanitary landfills, are fully served by new facilities.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
9
. Overdue receivables increased in nominal terms from TL 5.976 billion in 2007
to TL 7.790 billion in 2010. As a share of GDP, the receivables stayed flat at
0.7 percent.
. Increased private sector involvement in local services and financing to
municipalities to address problems of limited fiscal space.
. Increase in areas of operation and maintenance as some services such as billing
and collection, meter reading, and maintenance are outsourced to private
contractors.
Cadastre/land registration
. Fewer cadastre disputes in courts.
:
. The indicator remains under review in the context of the Cadastre and
Registration Agency’s (TKGM) Strategic Plan 2010-14. A mid-term review is
scheduled for June 2011. In April 2010, TKGM reported that the ratio of
number of disputed plots over total plots in the database reached 2.5 percent.
Improvements are due to several factors, including (a) increased coverage of
rural areas, including public lands; (b) better technology utilized in the
measurements; and (c) better information and consultation with communities
during cadastre renovations.
. Integration of real estate information into the overall e-government program.
. 24 institutions now have on-line access to digital cadastral information,
exceeding project expectations of 18 institutions (source: TKGM)
. Property valuation policy is in line with international practices and standards
achieved under Cadastre Modernization.
. TKGM has started working on property valuation policy in line with
international practices.
Disaster Preparedness
. Streamline institutional responsibilities for disaster management.
:
. The law consolidating functions and creating the National Disaster and
Emergency Management Agency was enacted in June 2009. Secondary
legislation and internal reorganization successfully completed. Agency
showing increased capacity to handle emergency situations.
. Targeted public facilities retrofitted to resist a major earthquake in Istanbul municipality.
. Indicator is no longer applicable as the Istanbul municipality decided not to pursue this work
with the World Bank – no longer CPS objective. Proposed seismic retrofitting of highway
infrastructure has not been implemented.
. Reduced number of cadastre disputes in courts, from 4 percent of properties in targeted focus areas
in 2007 to 2 percent by 2013.
Cadastre/land registration:
. Achieved: As of end 2010, the share of properties with cadastre disputes had fallen to 2.5
percent, well on track to reach the 2013 target.
. Automation of land administration allowing improved property valuation and taxation and urban
development.
. Partially Achieved: Several commissions comprising government, private sector, academia and
civil society have been established. The commissions completed their studies in (waiting for
update). Agreement on the institutional framework for valuation and taxation has been reached,
and clarified the role of TKGM. TKGM has initiated an extensive consultation procedure within
the government, and some exchange with foreign institutions has taken place. Progress on
policy development and pilot implementation needs to be expedited.
. Rural land parcels in 20 provinces have cadastral maps, titles of the documented owners and
electronic cadastre records.
. Achieved.
. 40,000 square km of base maps including orthophoto maps are produced.
.Achieved: Over 46,000 square km of base maps were produced. By close 2010, 78,397 square
km of base maps contracted, 80,000 to be completed by end 2011.
. At least 4 million parcels renovated/updated in digital format.
. Partially Achieved. 901, 205 parcels have been contracted at end 2010 and all to be completed
by end 2011. Majority parcels financed through TKGM budget. Additional parcels financed
using government’s own funds.
Disaster Preparedness
. Retrofitting of 400 schools and hospitals in Istanbul Province.
:
. Achieved
IBRD Portfolio & Financing Activities which contributed to this outcome:
. Investments have been made for the seismic strengthening of public buildings,
especially schools, hospitals and dormitories in Ýstanbul. Of the identified 1,576 public
facilities in need of strengthening, 496 (458 schools and 6 hospitals) have been completed by
February 2011 through a combination of World Bank, EIB and CEB financing.
• Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL). Approval Date: 03/23/2010.
• Second Restoring Equitable Growth and Employment Programmatic DPL (REGE DPL II). Approval Date: 5/5/2011.
• Second Environmental Sustainability and Energy Sector Development Policy Loan DPL (ESES DPL II). Approval Date: 6/15/2010.
• Second Programmatic Public Sector Development Policy Loan (PPDPL II). Approval Date: 06/19/2008.
• Istanbul Seismic Risk Mitigation and Emergency Preparedness. Approval Date: 05/26/2005.
• Istanbul Seismic Risk Mitigation and Emergency Preparedness: Additional Financing. Approval Date: 04/21/2011.
• Municipal Services. Approval Date: 06/23/2005.
• Municipal Services: Additional Financing. Approval Date: 05/06/2010.
• Istanbul Municipal Infrastructure Project. Approval Date: 06/28/2007.
• Land Registry and Cadastre Modernization Project. Approval Date: 05/01/2008.
• Agricultural Reform Implementation Project. Approval Date: 07/12/2001. Closing Date: 12/31/2008. ICR: 11/24/2009. IEG outcome rating: Moderately satisfactory
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
10
• Anatolia Watershed Rehabilitation Project. Approval Date: 06/01/2004. Closing Date: 06/30/2012. IEG outcome rating: Moderately satisfactory.
• Railways Restructuring Project. Approval Date: 06/09/2005.
• Avian Influenza and Human Pandemic Preparedness and Response. Approval Date: 04/24/2006.
• ODS Phase-out 2 Project under Montreal Protocol. 05/10/1995. Closing Date: 12/31/2007. ICR: 06/24/2008. IEG outcome rating: Satisfactory.
IBRD AAA & Knowledge Activities which contributed to this outcome:
• Sustainability Programmatic Technical Assistance/Environment and NRM Management. AIS sign off: 10/09/2009. Delivery to Client: 06/29/2010.
• Environmental Sustainability Programmatic Non-Lending Technical Assistance 2. AIS sign off: 09/09/2010. Delivery to Client: 06/29/2011.
• Programmatic Food Safety Technical Assistance. AIS sign off: 02/23/2009. Delivery to Client: 07/19/2010.
• Programmatic Food Safety Technical Assistance. AIS sign off: 09/02/2011. Delivery to Client: 06/30/2011.
• Water Dialogue: AIS sign off: 02/06/2009. Delivery to Client: 06/17/2009.
• Istanbul Finance Note. AIS sign off: 05/09/2005. Delivery to Client: 04/30/2008.
• Implementation of Safeguard Policies in Financial Intermediary and Programmatic Operations. AIS sign off: 09/27/2010. Delivery to Client: 06/30/2011.
IFC work which contributed to this outcome:
• Istanbul Metro investment; a flagship project as it is a first time sub-national level financing in Turkey without a sovereign guarantee.
Lessons Learnt and Suggestions for Next CPS:
The story of engagement on environment and climate change: step back, identify strategic entry points and seize opportunities that open as country priorities evolve. Turkey and
the WBG agreed not to use environment as a pillar in CPS FY08-11, reflecting limited advancement of the environmental agenda during 2004-2007 and a decision to consider jointly a
possible re-engagement, at Turkey’s initiative, later during the 2008-11 CPS period. Turkey’s accession to the Kyoto protocol and the opening of the Environmental Chapter of the EU
Acquis in 2009 then provided the opportunity and strategic entry point for a new engagement on environment and climate change. The new engagement grew out of the Turkey-WBG
partnership on energy. The electricity DPL series was broadened into the ESES DPL series, with three components: energy, climate change and environmental sustainability. This work led to
collaboration in preparation for the 2012 UN Sustainable Development Conference (Rio+20). IFC used its support for Turkey’s liberalization program to secure low carbon solutions to meet
growing electricity demand.
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
Planned Lending Program and Actual Deliveries: FY08-11
CPS FY08-11 Plans CPS FY08-11 Actuals
FY Project US$(M) US$(M)
IBRD IDA IBRD IDA
FY08
Development Policy Lending in one of three areas:
N/A
Development Policy Lending
N/A
• Programmatic Public Sector Development (PPDPL) • Second Programmatic Public Sector Development
(PPDPL II)
400
• Competitiveness and Employment (CEDPL) 500-800
• Energy
Investment Financing Options: Investment Financing
• Land Registration and Cadastre Modernization 200 • Land Registration and Cadastre Modernization 203
• Export Finance Intermediation Loan (EFIL) 300-500 • Fourth Export Finance Intermediation Additional
Financing (EFIL IV)
600
• Municipal Modernization II 300
Subtotal 1,300-1800 Subtotal 1,203
FY09 Development Policy Lending in one of three areas: Development Policy Lending
• Programmatic Public Sector Development (PPDPL) N/A N/A
• Competitiveness and Employment (CEDPL) 600-900 • Second Competitiveness and Employment (CEDPL II) 500
• Energy • First Programmatic Electricity Sector (PEDPL) 800
Investment Financing Options: Investment Financing
• Private Sector Renewable Energy & Efficiency • Private Sector Renewable Energy & Efficiency 500
• Energy Investment
• Energy Supply Security Sector Investment 900-1,200
• Health Reform & Social Security II/
Health (UHI Implementation)
• Health Reform & Social Security II 75
Additional Actual Projects:
• Access to Finance for Small & Medium Enterprises
(Additional Financing)
200
Subtotal 1,500-2,000 Subtotal 2,075
Subtotal FY08-09 2,800-3,900 Subtotal FY08-09 3,278
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
CPS FY08-11 Plans CPS FY08-11 Actuals
FY Project US$(M) US$(M)
IBRD IDA IBRD IDA
FY10 Development Policy Lending in 1 or both of 2 areas: Development Policy Lending N/A
• Restoring Equitable Growth and Employment DPL
1,500-2,000
• Restoring Equitable Growth & Employment
Programmatic DPL (REGE)
1,300
• Environmental Sustainability & Energy Sector (ESES) • Second Programmatic Environmental Sustainability &
Energy Sector DPL (ESES II)
700
Investment Financing Options: Investment Financing
• Access to Finance for Small & Medium Enterprises
(Additional Financing)
• Access to Finance for Small & Medium Enterprises
(Additional Financing II)
250
• Second Access to Finance for Small & Medium
Enterprises 3,000
• Second Access to Finance for Small & Medium
Enterprises
500
• Municipal Services (Additional Financing) • Municipal Services (Additional Financing) 240
• Energy Supply Security Sector Investment
• Social Protection Human Capital
Subtotal 2,000-5,000 Subtotal 2,990
FY11 Development Policy Lending in 1 or both of 2 areas: N/A Development Policy Lending N/A
• Restoring Equitable Growth and Employment
Programmatic DPL 700
• Second Restoring Equitable Growth & Employment
Programmatic DPL (REGE II)
700
• Environmental Sustainability & Energy Sector (ESES) II
Investment Financing Options: Investment Financing
• Fourth Export Finance Intermediation (EFIL IV)
Additional Financing
• Fourth Export Finance Intermediation Project (EFIL IV)
Additional Financing
300
• Energy Community of South East Europe (ECSEE)
APL 6 [Energy Supply Security Sector Investment] 722
• Energy Community of South East Europe (ECSEE)
APL 6 [Energy Supply Security Sector Investment]
220
• Municipal Services (Additional Financing)
• Social Protection Human Capital Additional Actual Projects:
• Istanbul Seismic Risk Mitigation and Emergency
Preparedness (ISMEP) Additional Financing
150
Subtotal 1,422 Subtotal 1,370
Subtotal FY10-11 2,000-3,000 Subtotal FY10-11 4,360
Total FY08-11 4,000-7,500 Total FY08-11 7,638
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
Planned Non lending Services and Actual Deliveries: FY08-11
CPS FY08-11 Plans CPS FY08-11 Actuals
FY08 Country Economic Memorandum (CEM II): Sustaining High
Growth
Country Economic Memorandum (CEM II): Sustaining High
Growth
Programmatic Country Economic Memorandum: International
Experience with Informality
Programmatic Country Economic Memorandum: International
Experience with Informality
Investing in Turkey’s Next Generation: The School-to-Work
Transition and Turkey’s Development
(planned as Youth Employment –JOBS & Policy)
Investing in Turkey’s Next Generation: The School-to-Work
Transition and Turkey’s Development
Health Sector Integrated Fiduciary Assessment Health Sector Integrated Fiduciary Assessment
Innovation Note: Background Paper on National Innovation
System (planned as Technology, adoption, research and
development and innovation)
Innovation Note: Background Paper on National Innovation
System
Istanbul Municipal Development Istanbul Financial Note
Programmatic Energy Sector Work TA Programmatic Energy Sector Work TA
Programmatic Social Security and Labor TA
(planned as (1) Programmatic Social Insurance and (2)
Programmatic Welfare and Social Policy)
Programmatic Social Security and Labor TA
Public Private Partnerships Advisory Work & TA Public Private Partnerships Advisory Work & TA (Developing
Policy Institutional and Legal Framework for Second
Generation PPP)
Policy Notes & Dialogue with Government TA Policy Notes & Dialogue with Government TA
(delivered but not recorded in SAP)
Municipal Financing Management & Regional Development
Workshop TA
Municipal Financing Management & Regional Development
Workshop TA
Investment Climate Assessment (delivered in FY10) Additional Actual Products
Education Quality (delivered in FY10) Estimating the Impact of Labor Taxes on Employment and
Balance of the Social Insurance Funds in Turkey
(planned as Labor Tax Study in previous CAS)
FY09 Country Economic Memorandum: Informality – Causes,
Consequences and Policies
Country Economic Memorandum: Informality – Causes,
Consequences and Policies
Female Labor Force Participation in Turkey Female Labor Force Participation in Turkey : Trends in Female
Labor Force Participation in Turkey
Reviews of the Health Systems in Turkey - joint with OECD
(planned as Health Sector Assessment)
Reviews of the Health Systems in Turkey - joint with OECD
National Innovation and Technology System: Recent Progress
and Ongoing Challenges
(planned as Programmatic Technology and Innovation)
National Innovation and Technology System: Recent Progress
and Ongoing Challenges
Programmatic Public Expenditure and Financial Management Programmatic Public Expenditure and Financial Management
Water Sector Dialogue/World Water Forum TA Water Sector Dialogue/World Water Forum TA
Programmatic Welfare & Social Policy TA Programmatic Welfare & Social Policy TA
Programmatic Energy Sector Work TA Programmatic Energy Sector Work TA
Judicial Reform TA Judicial Reform TA
Additional Actual Products
Life Chances in Turkey: Expanding Opportunities for the Next
Generation
Programmatic Social Security and Labor TA
Programmatic Municipal Finance & Regional Development TA
Turkey Country Partnership Strategy FY2012-FY2015 Annex 3
CPS FY08-11 Plans CPS FY08-11 Actuals
FY10 Growth CEM: Savings and Sustainable Growth I Growth CEM: Savings and Sustainable Growth I
Welfare Impact of the Economic Slowdown and Policy
Options for Jobs
Welfare Impact of the Economic Slowdown and Policy
Options for Jobs
Investment Climate Assessment: From Crisis to Private Sector
Lead Growth
(planned as Investment Climate Work and Enterprise Survey)
Investment Climate Assessment: From Crisis to Private
Sector Lead Growth
Programmatic Technology and Innovation Programmatic Technology and Innovation
Programmatic Education: Education Quality Improving the Quality and Equity of Basic Education in
Turkey: Challenges and Options
Programmatic Public Expenditure and Financial Management
TA
Second Programmatic Public Expenditure and Financial
Management Study (PPER2) TA and Financial Management
TA to Parliament and Turkish Court of Accounts
Judicial Reform TA Judicial Reform TA
Programmatic Human Development TA Programmatic Human Development TA
Vocational Training with ISKUR TA Vocational Training with ISKUR TA
Tapping the Potential for Energy Savings TA
(planned as Energy Efficiency Assessment)
Tapping the Potential for Energy Savings TA
Programmatic Energy Sector TA Capacity Building for Electricity Markets TA
Programmatic Food Safety TA Programmatic Food Safety TA
Corporate Restructuring /Insolvency Reform TA Discussion Background Note: Corporate Restructuring
/Insolvency Reform TA
Environmental Sustainability Programmatic TA: (i) sector
competitiveness and EU Aquis, (ii) National Watershed
Management
Environmental Sustainability Programmatic TA: (i) sector
competitiveness and EU Aquis, (ii) National Watershed
Management
Enterprise Survey to Assess the Impact of the Crisis TA Impact of the Global Economic Crisis in Turkey’s Corporate
Sector TA
Programmatic Municipal Finance TA (not delivered)
Promoting Small & Medium Enterprise Development
(delivered in FY11)
Additional Actual Products
Assessing the Social Impact of the Economic Slowdown
FY11 Country Economic Work: Savings and Sustainable Growth II Country Economic Work: Savings and Sustainable Growth II
Programmatic Education Programmatic Education: Early Childhood Development
Promoting Small & Medium Enterprise Development Promoting Small & Medium Enterprise Development
Programmatic Public Expenditure & Financial Management To be delivered in FY12
Vocational Training with ISKUR TA Vocational Training with ISKUR TA
Programmatic Human Development TA Programmatic Human Development TA
Environmental Sustainability Programmatic TA: (i) sector
competitiveness and EU Aquis, (ii) National Watershed
Management
Environmental Sustainability Programmatic TA: (i) sector
competitiveness and EU Aquis, (ii) National Watershed
Management
Programmatic Food Safety TA Programmatic Food Safety TA
Additional Actual Product
Corporate Bond Market Development – Priorities and
Challenges
Efficiency & Cost Constraint in Turkey’s Health Sector
Implementation of Safeguard Policies in Financial
Intermediary and Programmatic Operations TA
Investment Climate Assessment follow-up TA
Promoting Gender Equity in Private Sector TA
Credit Line Impact Assessment TA
Turkey Country Partnership Strategy FY2012-FY2015
CPS Standard Annex Tables
Annex A2: Country At-A-Glance
Annex B2: Selected Indicators of Bank Portfolio Performance and Management
Annex B3 IBRD Indicative Financing Program FY12-15
Annex B3: IFC Investment Operations Program
Annex B4 IBRD Indicative Non-Lending Program FY12-15
Annex B5: Social Indicators
Annex B6: Key Economic Indicators
Annex B7: Key Exposure Indicators
Annex B8: IBRD Operations Portfolio
Annex B8: IFC Committed and Disbursed Outstanding Investment Portfolio
Annex A2
Turkey Country Partnership Strategy FY2012-FY2015 Page 1 of 3
Annex A2
Turkey Country Partnership Strategy FY2012-FY2015 Page 2 of 3
Annex A2
Turkey Country Partnership Strategy FY2012-FY2015 Page 3 of 3
Turkey Country Partnership Strategy FY2012-FY2015 Annex B2
Turkey - Selected Indicators* of Bank Portfolio Performance and Management
As of January 2012
Indicator 2009 2010 2011 2012 f
Portfolio Assessment
Number of Projects Under Implementation a 21 18 16 14
Average Implementation Period (years) b 3.2 3.8 4.7 5.3
Percent of Problem Projects by Number a, c 23.8 16.7 6.3 7.1
Percent of Problem Projects by Amount a, c 21.8 13.3 5.9 1.9
Percent of Projects at Risk by Number a, d 23.8 16.7 6.3 7.1
Percent of Projects at Risk by Amount a, d 21.8 13.3 5.9 1.9
Disbursement Ratio (%) e 22.3 26.4 31.0 21.6
Portfolio Management
JPPR during the year (yes/no) Yes Yes Yes Yes
Supervision Resources (total US$000) 2,485 2,627 2,336 508
Average Supervision (US$000/project) 92 109 117 32
Memorandum Item Since FY 80
Last Five
FYs
Projects Evaluated by IEG by Number 127 14
Projects Evaluated by IEG by Amt (US$M) 17,505.8 2,998.9
% of IEG Projects Rated U or HU by Number 25.8 7.7
% of IEG Projects Rated U or HU by Amt 23.1 9.4
Notes:
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. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year:
Investment projects only.
e. As defined under the Portfolio Improvement Program
f. FY12 figures represent an incomplete fiscal year.
* 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.
Annex B3
Turkey Country Partnership Strategy FY2012-FY2015 Page 1 of 2
Turkey - Indicative IBRD Lending Program
As of February 2012
For the outer years, the program will be defined through the CPS Progress Report.
Notes:
Strategic Objectives (SO)
SO1 Enhanced Competitiveness and Employment
SO2 Improved Equity and Public Service Provision
SO3 Deepened Sustainable Development
Strategic Rewards and Implementation Risks
H: High; M: Moderate; L: Low
Strategic Implementation
Strategic IBRD Rewards Risks
Objective Project Title US$M (H/M/L) (H/M/L)
FY12 Projects 1,100
SO1, SO3 Third Programmatic Environmental Sustainability and Energy Sector DPL 600 H L
SO3 Private Sector Renewable Energy and Energy Efficiency Additional Financing 500 M M
FY13 Projects 1,300
SO1 Programmatic DPL - Growth, Competitiveness, and Employment 600 H L
SO3 Private Sector Energy Efficiency 200 M M
SO1 SME Access to Finance (Food Safety) 200 M M
SO2 Project on Health 200 H L
Other (to be allocated) 100
FY14-15 Themes for Projects 2,050
SO1 DPL - to be determined 350 H L
SO1 Area of Access to Finance: SME or Exporters M M
SO2 Areas of Education/Employment H L
SO3 Areas of Sustainable Cities/Disaster/Watershed/Energy M M
1,700
Annex B3
Turkey Country Partnership Strategy FY2012-FY2015 Page 2 of 2
Turkey - IFC Investment Operations Program
As of January 2012
2009 2010 2011 2012*
Original Commitments (US$m)
IFC and Participants 351.7 437.4 1,246.4 227.2
IFC's own accounts only 351.7 427.4 459.1 227.2
Original Commitments by Sector (%) - IFC accounts only
Accomodation and Tourism Services 3.9
Agriculture and Forestry 2.8
Collective Investment Vehicles 3.2
Electric Power 20.3 17.5 35.9
Finance & Insurance 4.0 64.8 55.1 100.0
Food & Beverages 3.6
Health Care 5.4
Industrial & Consumer Products 5.3
Nonmetallic Mineral Product Manufacturing 16.5
Primary Metals 8.5 0.6
Pulp & Paper 11.4
Transportation and Warehousing 22.2 4.7
Utilities 14.2
100.0 100.0 100.0 100.0
Original Commitments by Investment Instrument (% ) - IFC accounts only
Equity 2.9 15.8 9.4 1.4
Guarantee 4.0 5.1 8.4 43.6
Loan 71.8 76.7 71.3 55.0
Quasi loan 21.3 2.3 10.9 0.0
100.0 100.0 100.0 100.0
* Data as of January 01,2012
Turkey Country Partnership Strategy FY2012-FY2015 Annex B4
Turkey - Summary of Indicative Non-Lending Services
As of February 2012
Notes:
For the outer years, the program will be defined through the CPS Progress Report
For a list of recent completions, please see the CPS Completion Report (Annex 3)
Audience: Government (G); Donor (D); WBG (B); Public Dissemination (P); Other (O)
Objective: Knowledge Generation (KG); Public Debate (PD); Problem-Solving (PS)
Completion Audience Objective
Ongoing and Planned Activities FY
Economic and Sector Work (ESW)
Country Economic Memorandum on Trade 1 FY12 G, B, P, O KG, PD, PS
Programmatic Health 1: Family Medicine FY12 G, D, B, P KG, PD, PS
Programmatic Public Expenditure and Financial Management 3 - Transport PER FY12 G, B, P, O KG, PD
Programmatic Public Expenditure and Financial Management 4 - General PER FY12 G, B, P, O KG, PD
Programmatic Education: Financing and Accountability 1 FY12 GD, B, P KG, PD, PS
Rio+20/Cleaner Production FY12 G, D, B, P KG, PD
Sustainable Cities 1 FY12 G, D, B, P KG, PD, PS
Country Economic Memorandum on Trade 2 FY13 G, B, P, O KG, PD, PS
New CEM (tbd) FY13 G, B, P, O KG, PD, PS
Programmatic Health 2: Pharmaceuticals FY13 G,D, B, P KG, PD, PS
Programmatic Public Expenditure and Financial Management 4 continued FY13 G, B, P, O KG, PD, PS
Programmatic Jobs 1: Managing Labor Markets through the Business Cycle FY13 G, D, B, P KG, PD, PS
Programmatic Jobs 2: Activation of Low Skilled Youth and Women FY13 G, D, B, P KG, PD, PS
Programmatic Education: Financing and Accountability 2 FY13 GD, B, P KG, PD, PS
Sustainable Cities 2 FY13 G, D, B, P KG, PD, PS
Programmatic Jobs 3: Labor Mobility FY14 G, D, B, P KG, PD, PS
Technical Assistance (TA)
Programmatic Human Development 1 FY12 G PS, KG
Financial Literacy FY12 G, O PS
Food Safety Programmatic TA FY12 G PS
National Watershed Management FY12 G PS
Financial Sector Development 1 FY12 G, O PS
Investment Climate and Competitiveness including Regional ICAs FY12 G KG, PS
National Disaster Risk Mitigation FY12 G PS
Gender Equity in the Private Sector 1 FY12 O PS
SOE Governance FY12 G KG
Gender Equity in the Private Sector 2 FY13 O PS
Programmatic Human Development 2 FY13 G PS, KG
Energy Efficiency and Renewable Energy FY13 G, O PS
Impact Evaluation
Impact Evaluation of ISKUR's Vocational Training Programs FY12 G PS, KG
Regional AAA with Substantial Coverage of Turkey
Assessment of Prospects and Road Map for Synchronization of Mashreq Electricity Networks TBD G, B, P KG, PD, PS
Regional Trade - Economic Integration in Turkey, Caucasus, and the Mashreq Region FY13 G, D, B, P KG, PD, PS
Turkey Country Partnership Strategy FY2012-FY2015 Annex B5
Turkey Social Indicators
Latest single year Same region/income group
Europe & Upper-
Central middle-
1980-85 1990-95 2003-10 Asia income
POPULATION
Total population, mid-year (millions) 50.7 61.2 73.7 404.2 1,001.7
Grow th rate (% annual average for period) 2.5 1.7 1.3 0.2 0.9
Urban population (% of population) 53.0 62.1 76.3 64.0 74.9
Total fertility rate (births per w oman) 3.6 2.7 2.1 1.8 2.0
POVERTY
(% of population)
National headcount index .. .. 18.1 .. ..
Urban headcount index .. .. 8.9 .. ..
Rural headcount index .. .. 38.7 .. ..
INCOME
GNI per capita (US$) 1,250 2,720 8,720 6,793 7,502
Consumer price index (2000=100) 0 2 141 141 127
Food price index (2000=100) 0 6 336 .. ..
INCOME/CONSUMPTION DISTRIBUTION
Gini index .. 49.0 41.5 .. ..
Low est quintile (% of income or consumption) .. 4.9 5.6 .. ..
Highest quintile (% of income or consumption) .. 54.9 47.6 .. ..
SOCIAL INDICATORS
Public expenditure
Health (% of GDP) .. 1.8 6.1 3.9 3.8
Education (% of GDP) 1.8 2.3 4.0 4.1 4.3
Net primary school enrollment rate
(% of age group)
Total 85 89 98 92 93
Male .. 92 98 93 93
Female .. 86 98 92 92
Access to an improved water source
(% of population)
Total .. 89 99 95 95
Urban .. 95 100 98 98
Rural .. 79 96 89 86
Immunization rate
(% of children ages 12-23 months)
Measles 61 65 97 96 93
DPT 55 67 96 95 93
Child malnutrition (% under 5 years) .. 9 4 .. ..
Life expectancy at birth
(years)
Total 62 68 74 70 72
Male 60 65 72 66 69
Female 64 70 77 75 75
Mortality
Infant (per 1,000 live births) 85 52 19 19 19
Under 5 (per 1,000) 107 62 20 21 22
Adult (15-59)
Male (per 1,000 population) .. .. 149 286 201
Female (per 1,000 population) .. .. 83 123 122
Maternal (modeled, per 100,000 live births) .. 70 23 32 82
Births attended by skilled health staff (%) .. 76 95 97 96
Note: 0 or 0.0 means zero or less than half the unit show n. Net enrollment rate: break in series betw een 1997 and 1998 due to
change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months w ho received vaccinations before one
year of age or at any time before the survey.
World Development Indicators database, World Bank - 15 April 2011.
Annex B6
Turkey Country Partnership Strategy FY2012-FY2015 Page 1 of 2
Annex B6
Turkey Country Partnership Strategy FY2012-FY2015 Page 2 of 2
Turkey Country Partnership Strategy FY2012-FY2015 Annex B7
Turkey –Key Exposure Indicators
a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-term capital
b. "XGS" denotes exports of goods and services, including workers' remittances.
c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for
International Settlements.
d. Includes present value of guarantees.
e. Includes equity and quasi-equity types of both loan and equity instruments
f. IFC Committed Portfolio adjusted for world and regional project allocations as of end FY
Actual Estimated
Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total debt outstanding and 169,919 207,736 249,478 280,367 268,374 289,387 327,140 356,286 383,932
disbursed (TDO) (US$m)a
Net disbursements (US$m)a 9,316 27,811 36,149 26,487 -10,408 -688 1,598 22,995 20,778
Total debt service (TDS) 36,803 40,070 48,685 53,798 58,789 55,703 48,212 45,110 33,357
(US$m)a
Debt and debt service indicators
(%)
TDO/XGSb 155.0 166.6 164.2 152.2 179.9 180.4 180.6 177.7 169.1
TDO/GDP 35.2 39.2 38.5 38.1 43.6 39.3 41.3 42.8 43.1
TDS/XGS 33.6 32.1 32.0 29.2 39.4 34.7 26.6 22.5 14.7
Concessional/TDO 2.5 2.1 2.4 2.6 3.3 3.4 3.3 3.4 3.3
IBRD exposure indicators (%)
IBRD DS/public DS 4.7 6.0 6.0 6.4 7.8 6.6 6.7 6.7 7.5
Preferred creditor DS/public 47.1 51.0 40.9 25.3 19.7 29.4 33.1 27.6 20.8
DS (%)c
IBRD DS/XGS 0.9 0.9 0.7 0.5 0.6 0.5 0.5 0.5 0.5
IBRD TDO (US$m)d 5,829 6,854 7,541 8,046 9,769 11,563 11,835 12,259 12,891
Of which present value of
guarantees (US$m)
Share of IBRD portfolio (%) 5 6 7 7 9 11 12 12 12
IDA TDO (US$m)d 71 65 59 54 48 42 36 31 26
IFC (US$m)f 1,058 1,274 1,417 1,875 1,970 2,122 2,507 2,866 3,185
Loans 853 1,082 929 1,292 1,403 1,329 1,600 1,896 2,196
Equity and quasi-equity /c 205 192 488 584 567 793 907 969 989
MIGA
MIGA guarantees (US$m) 135 135 135 672 612 667 953
Projected
Annex B8
Turkey Country Partnership Strategy FY2012-FY2015 Page 1 of 2
Turkey - Operations Portfolio (IBRD/IDA and Grants)
As of January 2012
Closed Projects 168
IBRD/IDA a/ US$ Millions
Total Disbursed (Active) 3,189.2
of w hich has been repaid 167.3
Total Disbursed (Closed) 10,718.2
of w hich has been repaid 6,151.3
Total Disbursed (Active + Closed) 13,907.4
of w hich has been repaid 6,318.6
Total Undisbursed (Active) 2,414.5
Total Undisbursed (Closed) 6.2
Total Undisbursed (Active + Closed) 2,420.7
Active Projects
Project ID Project Name Development
Objectives
Implementation
Progress Fiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd
P070950 Anatolia Watershed Rehabilitation S S 2004 20.0 4.3 0.7 3.8
P075094 Anatolia Watershed Rehabilitation (GEF) S S 2004 7.0 0.7 0.3
P081880 Municipal Services S S 2005 515.0 257.9 -0.5 50.7
P077328 Railways Restructuring MS MS 2005 184.7 69.1 61.1 54.1
P066149 Secondary Education MS MU 2005 104.0 35.9 31.8 31.8
P078359 Istanbul Seismic Risk Mitigation and Emergency Preparedness S S 2005 550.0 188.6 6.7 20.3
P093765 Gas Sector Development MS MS 2006 325.0 243.0 206.3
P082822 First Access to Finance for Small and Medium Enterprises S S 2006 696.9 9.1 -450.3 -311.6
P096801 Electricity Distribution Rehabilitation MS MS 2007 269.4 177.4 129.6
P106284 Land Registration and Cadastre Modernization MS MS 2008 203.0 134.8 124.6
P096858 Fourth Export Finance Intermediation Loan (EFIL IV) S S 2008 900.0 356.9 -94.9
P102172 Health Transformation and Social Security Reform (APL2) S S 2009 75.1 50.4 5.2
P112578 Private Sector Renewable Energy and Energy Efficiency HS S 2009 1,000.0 529.1 -221.9
P118308 Second Access to Finance for Small and Medium Enterprises S S 2010 500.0 177.3 -214.4
P110841 Energy Community for South East Europe (ECSEE) APL6 S S 2011 220.0 184.3
Overall Result 5,563.1 7.0 4.3 2,415.2 -412.6 -154.8
a/ Disbursement data is updated at the end of the first week of the month.
b/ Intended disbursements to date minus actual disbursements to date as projected at appraisal.
Supervision Rating
Last PSR
Original Amount in US$ Millions Disbursements b/
Difference Between
Expected and Actual
Annex B8
Turkey Country Partnership Strategy FY2012-FY2015 Page 2 of 2
Turkey - IFC: Committed and Disbursed Outstanding Investment Portfolio
As of January 2012
(In US$ Millions)
* Denotes Guarantee and Risk Management Products.
** Quasi Equity includes both loan and equity types
Commitment Institution Committed Disbursed Outstanding
Fiscal Year Short Name Loan Equity **Quasi Equity *GT/RM Participant Loan Equity **Quasi Equity *GT/RM Participant
AKO 19.0 19.0
Akbank 150.0 150.0
Akenerji 65.0 10.0 65.0 10.0
Alternatifbank 25.0 50.0 25.0 50.0
Arkas Group 19.4 1.5 19.4
Assan Aluminyum 19.7 24.3 10.0 19.7 24.3 10.0
Atateks 25.0 25.0
Avea 30.9 60.4 30.9 60.4
Banvit 25.0 25.0
Delta Petroleum 36.0 36.0
DenizBank AS 65.9 65.9
Enerjisa 293.8 1,146.4 0.0 206.1 514.5
Eurasia Capital 13.2 1.9
Finans Leasing 46.4 46.4
Finansbank A.S. 142.6 142.6
Gunkol 4.6 0.0 4.6 0.0
IZGAZ 43.5 43.5
Intercity 0.9 0.9
Istanbul MMI 56.3 56.3
Kucukcalik 17.3 17.3
Kula 5.2 5.2
May Seed 7.2 7.2
Meteksan Sistem 1.7 1.7
Modern Karton 35.0 15.0 2.0 35.0 15.0 2.0
NASCO 0.0 0.0
Posuda 24.0 24.0
Rotor Elektrik 63.6 63.6
SEDAS 74.7 74.7 74.7 74.7
Sanko Group 50.0 36.4 50.0 36.4
Sarten 20.2 20.2
Seker Bank 82.9 37.6 37.5 82.9 20.4 37.5
Soktas 20.3 20.3
Standard Profil 16.7 3.8 16.7 3.8
TCE Ege 20.0 20.0
TSKB 50.0 50.0
Tamek Gida 14.1 8.5
Trakya Cam 28.0 30.0 19.6 30.0
Turk Ekon Bank 121.5 28.5 121.5 28.5
Turkish PEF 0.4 0.1
Turkish PEF II 33.1 28.1
UHG 25.0 25.0
Unitim 13.1 12.0 13.1 12.0
Uzel 3.8 1.6 3.8 1.6
YUCE 1.2 1.2
Yapi Kredi Lease 88.8 88.8
Yapi Kredi Bank 75.0 68.4 75.0 68.4
World and Regional projects allocations:
2004 BTC Pipeline 34.3 34.3
2010 Eurasian 2.6 2.6
2010 Kordsa Brasil 12.5 12.5
2010 Russian Hotel 1.4
2010 Rus Hotel Kali 3.2
2010 Rus Hotel Samara 4.1
2010 Rus Hotel Yaro 3.0
2009 TAV Tuni. Equity 7.0 7.0
Total Portfolio 1,342.6 267.7 615.5 107.4 1,360.0 1,318.2 232.5 527.8 105.9 728.1
2008
2003/ 04/ 10/ 11
2010
1999/ 2011/ 12
2008
2009/ 10
2012
1999/ 2000
2005
1997/ 98/ 2008/ 10/ 11
2007
2011/ 12
2007
1979/ 83/ 84/ 89/ 90/ 91/ 93/ 96/ 99/ 05/ 09
1995/ 99/ 2003/ 05/ 08
2002
2010
1964/ 67/ 69/ 72/ 75/ 77/ 80/ 83/ 90/ 93/ 2005/ 12
2011
2008/ 09/ 10/ 11/ 12
1998/ 2002/ 08
2006/ 07
2011
2006/ 07
2007/ 10
1992
2008
2009
2009
2004
1998/ 2002/ 06/ 09
2009
2007/ 08/ 09
1991/ 1998/ 2006
2002
2009
6/7/2005
2010
1997/ 98/ 2006/ 10
11/12/2007
2008
2011
2008/ 2011
2008
2006/ 07
2001/ 2007
Tuz
Hoyran
Gölü
Çoruh
Murat
Kura
Firat
Sakarya
Devrez
Kizil
Cekerek
Kizil
Seyhan
Göksu
Ceyhan
Kelkit
Kuzey Anadolu Daglari
Toros Daglar i
Karaman
Elazig
Erzincan
Bingöl
Bitlis
Diyarbakir Batman Siirt
Sirnak
Van
Agri
Igdir
Erzurum
Kars
Artvin
Rize
Gümüshane
Giresun
Tokat
Sivas
Amasya
Sakarya
Bolu
(Adapazari)
(Izmit)
Bilecik
Eskisehir
Kütahya
Bursa
Yalova
Tekirdag Istanbul
Edirne
Kirklareli
Çanakkale
Balikesir
Manisa
Izmir Usak
Aydin
Denizli
Burdur
Isparta
Afyon
Antalya
Mugla
Kirikkale
Çorum
Yozgat
Kirsehir
Adana
Osmaniye
Kahraman
Maras
Gaziantep
Kilis
Sanliurfa
Ardahan
ANKARA
Aras
Düzce
SYRIAN ARAB
REPUBLIC
IRAQ
ARMENIA
GEORGIA
BULGARIA
RUSSIAN FEDERATION
AZERBAIJAN
AZER.
To
To
To
To
Salmas
To
Oroumieh
To
Dahuk
To Damir
Kabu
To
Al Hasakah
To
Aleppo
To
To Burgas
Kurdzhali
Konya
Aksaray
Nigde
Nevsehir Kayseri
Malatya
Adiyaman
Tunceli
Mus
Mardin
Hakkari
Trabzon
Bayburt
Ordu
Samsun
Sinop
Kastamonou
Çankiri
Karabük
Bartin
Zonguldak
Kocaeli
Icel
(Mersin)
Hatay (Antakya)
ANKARA
ISLAMIC
REP. OF
IRAN
G RE E C E
GR E ECE
Gölü
Baysehir
Gölü
Aksehir
Gölü
Lake
Van
Tigris Euphrates
Black Sea
Mediterranean Sea
Sea of
Marmara
Gulf of
Antalya
Istanbul Strait
(Bosphorus)
Çanakkale
Strait
(Dardanelles)
Batumi
Kirovakan
Maku
To Ladhiqiyah
To
Komatini
Agri Dagi
(5166 m)
26°E 28°E 30°E 32°E 34°E 36°E 38°E
28°E 30°E 32°E 34°E 42°E 44°E
36°N
38°N
40°N
42°N
40°N
42°N
TURKEY
This map was produced by the Map Design Unit of The World Bank.
The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
Group, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries.
0 50 100 150
0 50 100 150 Miles
200 Kilometers
IBRD 33501R2
JULY 2008
TURKEY
PROVINCE CAPITALS*
NATIONAL CAPITAL
RIVERS
MAIN ROADS
RAILROADS
PROVINCE BOUNDARIES*
INTERNATIONAL BOUNDARIES
*Province names are the same as their capitals.