republic of turkey pre-accession economic · 2020. 9. 25. · pre-accession economic reform program...

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R EPUBLIC OF TURKEY

PRE-ACCESSION ECONOMICREFORM PROGRAM

JANUARY 2020

2020-2022

PUBLICATIONS OF PRESIDENCY OF T STRATEGY AND BUDGET ARE FREE OF CHARGE AND CANNOT BE SOLD.

GENERAL DIRECTORATE OF ADMINISTRATIVE SERVICESDIVISION OF KNOWLEDGE MANAGEMENT AND DOCUMENTATION

January 2020

Necatibey Cad. No: 110/A 06570 ANKARA Phone: +90 (312) 294 50 00 • Fax: +90 (312) 294 52 98

ANKARAJANUARY 2020

PRE-ACCESSION ECONOMIC REFORM PROGRAM

2020-2022

REPUBLIC OF TURKEY

This publlication is printed 50 copies.

Their use as a publication or reference does not require the permission of Presidency Of Strategy And Budget.

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CONTENTS

1. POLICY FRAMEWORK AND OBJECTIVES ................................................................................................ 1 2. IMPLEMENTATION OF THE POLICY GUIDANCE ................................................................................... 4 3. MACROECONOMIC OUTLOOK .................................................................................................................. 11

3.1. Recent Economic Developments ......................................................................................................... 12 3.1.1. Real Sector ........................................................................................................................................ 12 3.1.2. Inflation, Monetary and Exchange Rate Policies .............................................................................. 15 3.1.3. Financial Sector ................................................................................................................................ 18 3.1.4. Balance of Payments......................................................................................................................... 19 3.2. Medium Term Macroeconomic Scenario ............................................................................................ 20 3.2.1. Real Sector ........................................................................................................................................ 21 3.2.2. Inflation, Monetary and Exchange Rate Policies .............................................................................. 27 3.2.3. Balance of Payments......................................................................................................................... 28 3.2.4. Financial Sector ................................................................................................................................ 29 3.3. Main Risks in Projections .................................................................................................................... 33

4. FISCAL FRAMEWORK ................................................................................................................................... 35 4.1. Fiscal Policy Strategy and Medium-Term Objectives ......................................................................... 36 4.1.1. Revenue Policies ............................................................................................................................... 36 4.1.2. Expenditure Policies ......................................................................................................................... 37 4.1.3. Public Borrowing Policies ................................................................................................................ 37 4.1.4. Public Financial Management and Audit .......................................................................................... 38 4.2. Budget Implementations in 2019 ......................................................................................................... 39 4.2.1. Developments in the Central Government Budget Revenues and Expenditures .............................. 39 4.2.2. Developments Regarding General Government Revenues and Expenditures .................................. 43 4.3. Medium Term Perspective ................................................................................................................... 44 4.4. Structural and Cyclical General Government Balance ........................................................................ 45 4.5. Debt Levels and Developments, Analysis of Below-the-Line Operations and Stock-Flow

Adjustments ................................................................................................................................................ 50 4.5.1. Current Situation ............................................................................................................................... 50 4.5.2. General Government Debt Stock Projections for 2020-2022 Period ................................................ 52 4.5.3. Contingent Liabilities ....................................................................................................................... 52 4.5.4. Repayment Guarantee ....................................................................................................................... 53 4.5.5. Investment Guarantees ...................................................................................................................... 54 4.5.6. Debt Assumption Commitments ....................................................................................................... 54 4.5.7. Treasury Receivables ........................................................................................................................ 54 4.6. Sensitivity Analysis and Comparison with the Previous Programme .................................................. 55 4.7. Sustainability of the Public Finance .................................................................................................... 56 4.7.1. Public Finance Risks......................................................................................................................... 56 4.7.2. Sustainability Analysis ..................................................................................................................... 56 4.8. Fiscal Governance and Budgetary Frameworks .................................................................................. 57

5. STRUCTURAL REFORMS (2020-2022) ......................................................................................................... 59 5.1. Identification of Key Obstacles to Competitiveness and Inclusive Growth ........................................ 59 5.2. Summary of Reform Measures ............................................................................................................ 60 5.3. Analysis by Area and Structural Reform Measures ............................................................................. 64 5.3.1. Energy and Transport Markets ......................................................................................................... 64 5.3.2. Agriculture, Industry and Services ................................................................................................... 70 5.3.3. Business Environment and Reduction of the Informal Economy ..................................................... 81 5.3.4. Research & Development and Innovation and Digital Economy ..................................................... 90 5.3.5. Trade-related Reforms .................................................................................................................... 100 5.3.6. Education and Skills ....................................................................................................................... 103 5.3.7. Employment and Labor Markets .................................................................................................... 121 5.3.8. Social Protection and Social Inclusion ........................................................................................... 130

6. INSTITUTIONAL ISSUES AND STAKEHOLDERS INVOLVEMENT................................................... 133 ANNEX TABLES ................................................................................................................................................. 135

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TABLES

Table 3.1: GDP Growth by Sectors and Demand Components ................................................................................ 12 Table 3.2: Labor Market Developments ................................................................................................................... 14 Table 3.3: Demand Components of Growth ............................................................................................................. 22 Table 3.4: Developments in Factors of Production ................................................................................................... 24 Table 3.5: Investment-Saving Balance ..................................................................................................................... 26 Table 3.6: Labor Market Developments ................................................................................................................... 26 Tablo 3.7: Balance of Payments Forecasts ............................................................................................................... 29

Table 4.1 Central Government Budget Balance 2019 .............................................................................................. 39 Table 4.2: Central Government Budget Revenues 2019 ........................................................................................... 40 Table 4.3: Central Government Budget Expenditures 2019 ..................................................................................... 41 Table 4.4: Central Government Budget Balance ...................................................................................................... 41 Table 4.5: General Government Revenues and Expenditures-1 ............................................................................... 43 Table 4.6: General Government Revenues and Expenditures-2 ............................................................................... 45 Table 4.7: General Government Balance Analysis1 .................................................................................................. 46 Table 4.8: Fiscal Stance and Output Gap ................................................................................................................. 47 Table 4.9: EU Defined General Government Debt Stock ......................................................................................... 50 Table 4.10: Central Government Debt Stock ............................................................................................................ 50 Table 4.11: Central Government Debt Stock by Interest Rate Type ........................................................................ 51 Table 4.12: Average Time to Maturity of Central Government Debt Stock ............................................................. 51 Table 4.13: EU Defined General Public Debt Stock Estimations ............................................................................. 52 Table 4.14: Projection of Treasury-Guaranteed Foreign Debt Service ..................................................................... 54 Table 4.15: Loans Subject to Debt Assumptions ...................................................................................................... 54 Table 4.16: Stock of Treasury Receivables .............................................................................................................. 55 Table 4.17: Sensitivity of the EU Defined General Government Debt Burden ........................................................ 55

Table 5.1: Summary of Reform Measures ................................................................................................................ 63

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FIGURES

Figure 3.1: GDP Developments ................................................................................................................................ 13 Figure 3.2: Industrial Production Indicators ............................................................................................................. 13 Figure 3.3: Unemployment Rate and Labor Force Participation Rate (Percent) ...................................................... 14 Figure 3.4: Agriculture, Industry and Services Sector Employment (Thousand People) ......................................... 14 Figure 3.5: Target and Actual Annual Inflation (CPI, %) ......................................................................................... 16 Figure 3.6: CPI and Core CPI (Annual % Change) .................................................................................................. 16 Figure 3.7: Annual Loan Growth (%) ....................................................................................................................... 18 Figure 3.8: Annual Loan Growth (Exchange Rate Adjusted, %) .............................................................................. 18 Figure 3.9: Developments in Exports and Real Exports ........................................................................................... 19 Figure 3.10: Contribution to GDP Growth ............................................................................................................... 23 Figure 3.11: Value Added by Sectors ....................................................................................................................... 23 Figure 3.12: Output Gap ........................................................................................................................................... 25 Figure 3.13: Nonperforming Loan Ratio (%) ........................................................................................................... 30 Figure 3.14: Capital Adequacy Ratio (%) ................................................................................................................. 30

Figure 4.1: General Government Balance ................................................................................................................ 48 Figure 4.2: Primary General Government Balance ................................................................................................... 49 Figure 4.3: Cyclical General Government Balance .................................................................................................. 49 Figure 4.4: Average Time to Maturity and Cost of Domestic Borrowing ................................................................ 52 Figure 4.5: Sustainability Scenarios ......................................................................................................................... 57

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BOXES

Box 1.1: The Framework of Eleventh Development Plan (2019-2023) ..................................................................... 3

Box 2.1: Trusteeship Operations of the Savings Deposit Insurance Fund .................................................................. 7

Box 4.1: Central Government Budget Provisional Realizations (2019) ................................................................... 42

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ABBREVIATIONS

ASDEP

AES

BIST

BREXIT

BRSA

BOTAŞ

CAR

Family Social Support Program

Automatic Enrollment System

Borsa İstanbul

Act of Leaving by the United Kingdom from the European Union

Banking Regulation and Supervision Agency

Petroleum Pipeline Company

Capital Adequacy Ratio

CBRT

CEF

CİMER

CPI

DAP

DG

DGRR

DOKAP

EBRD

ECB

ECOFIN

EFTA

EPİAŞ

ERP

Central Bank of the Republic of Turkey

Center of Excellence in Finance

Communication Center of Presidency

Consumer Price Index

The Eastern Anatolian Region Project

General Directorate

General Directorate of Railway Regulation

The Eastern Black Sea Region Project

European Bank for Reconstruction and Development

European Central Bank

Economic and Financial Affairs Council

European Free Trade Association

Energy Exchange İstanbul

Economic Reform Program EU

EURATOM

ESA

EUROSTAT

FED

FSRU

FTA

FX

European Union

European Atomic Energy Community

European System of Accounts

Statistical Office of the European Communities

Federal Reserve System

Floating Storage and Regasification Units

Free Trade Agreement

Foreign Exchange Rate

GDP

GGB

GHG

Gross Domestic Product

General Government Balance

Greenhouse Gas

ILO

IMF

ISAS

ISGEM

İŞKUR

IT

KOP

KOSGEB

LCR

LP

MEGİP

MENR

MERCOSUR

MoNE

MoAF

MFLSS

International Labour Organization

International Monetary Fund

Integrated Social Assistance System

Business Development Center

Turkish Employment Organization

Information Technologies

The Konya Plain Region Project

Small and Medium Enterprises Development Organization

Liquidity Coverage Ratio

Limited Partner

Vocational Training and Skills Development Cooperation Protocol

Ministry of Energy and Natural Resources

Common Market of South America

Ministry of National Education

Ministry of Agriculture and Forestry

Ministry of Family, Labor and Social Services

MTP

MWh

NFC

NGO

NPL

NPP

OECD

OIZ

OMO

Medium Term Program

Megawatt hour

Non-Financial Companies

Non-governmental organizations

Non-performing loans

Nuclear Power Plant

Organization for Economic Co-operation and Development

Organized Industrial Zones

Open Market Operations

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OPEC

PISA

PPP

PPS

R&D

SAIS

SASF

SAYEM

SCT

SEEs

SMEs

SOEs

STI

Organization of Petroleum Exporting Countries

Programme for International Student Assesment

Public Private Partnership

Private Pension System

Research and Development

Social Assistance Information System

Social Assistance and Solidarity Foundations

The Industrial Innovation Networks Mechanism

Special Consumption Tax

State Economic Enterprises

Small and Medium Sized Enterprises

State Owned Enterprises

Science Technology And Innovation

TCDD

TDZ

TEİAŞ

TEYDEB

TEKMER

TEMSAN

TGNA

TFP

TIMMS

TL

TMSF

TOBB

TRL

TTO

TURKSTAT

TÜBİTAK

UNDP

UNICEF

UNWTO

VET

VAT

WTO

YEKA

YOIKK

Turkish State Railways

Technology Development Zones

Turkish Electricity Transmission Corporation

TÜBİTAK Technology and Innovation Funding Directorate

Technology Development Center

Turkish Electromechanic Industries Corporation

Grand National Assembly of Turkey

Total Factor Productivity

Trends in International Mathematics and Science Study

Turkish Lira

Savings Deposit Insurance Fund

The Union of Chambers and Commodity Exchanges of Turkey

Technology Readiness Level

Technology Transfer Offices

Turkish Statistical Institute

The Scientific and Technological Research Council of Turkey

United Nations Development Programme

United Nations International Children's Emergency Fund

United Nations World Tourism Organization

Vocational Education and Training

Value Added Tax

World Trade Organization

Renewable Energy Resources

The Coordination Council for the Improvement of the Investment Environment

Implementation of the Policy Guidance

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1. POLICY FRAMEWORK AND OBJECTIVES

Turkey, as an acceding candidate country of European Union (EU), has been preparing

the Pre-Accession Economic Reform Program (ERP-Formerly Pre-Accession Economic

Program) and has been submitting to the European Commission since 2001, responding to

the request of the Economic and Financial Affairs Council (ECOFIN Council) dated 26/27

November 2000. In line with the framework requested by European Commission, Economic

Reform Program (2020-2022) has been prepared under the coordination of Turkish

Presidency, Presidency of Strategy and Budget with the contributions of relevant ministries

and institutions and approved by the President.

Pre-Accession Economic Reform Program was prepeared based on New Economy

Program announced under the Medium Term Program (MTP, 2020-2022). The

macroeconomic framework of ERP 2020 was formed by taking into account recent domestic

and external political and economic developments, risks and expectations. Rising trade and

geopolitical tensions have increased uncertainty about the future of the global trading system

and international cooperation more generally, taking a toll on business confidence,

investment decisions, and global trade. On the other hand, financial flows to emerging

markets are expected to surge due to increase in global risk appetite driven by balance sheet

expansion of central banks in developed economies to stimulate global activity. Our country

will likely benefit from this positive development.

The main purpose of this program is to maintain as well as enhance the gains in price

stability, financial stability and current account balance acquired over the past year, and to

accomplish a change and transformation in the economy focusing on production and

productivity, and oriented towards sustainable growth and fair share.

The objectives of the NEP (2020-2022) which takes the Eleventh Development Plan as

a reference, have been determined within the framework of an export-oriented stable growth

model that focuses on productivity and leading role of the industrial sector. In order to ensure

technological transformation in industry, especially in the priority sectors underlined in the

Plan period and to increase the value added that will enable the establishment of a more

productive and competitive economic structure, enhancement of physical and human capital

that will motivate private sector investments will be ensured in the allocation of public

investments during the Program period. Private sector investments will be directed to priority

areas through investment and incentive policies.

With the strong support of the government and leading role of the private sector, the

capital accumulation and industrialization process will be speeded up, efficiency levels will

be raised in all fields, domestic savings and productive investments will be scaled up; and

production investments will be converted into export-oriented, innovative and less import-

dependent structure. Political stability, macroeconomic stability, the rule of law,

democratization and strong business and investment environment will constitute the most

important driving factors in achieving the Program objectives thus the confidence and

stability environment will increase investment, production, employment and exports. The

competencies of the labor force and their harmony with the business environment will be

improved with better quality education and disseminated vocational and focused training


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opportunities. As a result of productivity-oriented growth transformation, sectoral

transformation in employment, led by minimizing employment losses in relatively low

productivity areas, will be given the priority.

The public fiscal discipline will be maintained in a way that will support the quality

growth path that does not generate inflation and the expenditure policy will be implemented

in a way that will utmost affect the plan targets.

The policy framework based on price stability and financial stability in monetary policy

will continue and inflation will converge gradually to the 5 percent target under the

strengthened policy coordination. Accordingly, while the floating exchange rate regime is

maintained, all available instruments will continue to be used decisively in order to ensure

the price stability for reaching the target.

ERP 2020 constitutes six main chapters. Second chapter presents the realized activities

regarding the policies recommended in Joint Conclusions of the Economic and Financial

Dialogue between the EU and the Western Balkans and Turkey report. In the third chapter,

recent economic developments in the Turkish economy which are evaluated by considering

the developments in the world economy, and then the macroeconomic forecasts for the 2020-

2022 period are presented. In the forth chapter, fiscal policies are put forward together with

forecasts and analyses regarding budget and debt management. In the fifth chapter,

assessments on developments in structural reforms, budgetary impacts and reform agenda are

provided. In the last part, developments with the participatory organizations that play a role

in both the policy framework and the more effective implementation of the reforms will be

represented.


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Box 1.1: The Framework of Eleventh Development Plan (2019-2023)

Eleventh Development Plan (2019-2023), the first development plan prepared under the Presidential Government

System, lays down development vision of our country with a long-term perspective and will serve as a basic roadmap

in meeting the fundamental values and expectations of our nation, raising the position of our country in international

rankings and improving the welfare level of our people. Preparations of the Plan started in 2016 and a holistic approach

adopted to bring together every aspects of different parts of the society. Presidency of the Strategy and Budget

coordinated the harmonization of these valuable contributions from the agents of the society. The Plan presented by

the President at the Grand National Assembly of Turkey right after last contributions from line ministries to the draft

document and published with the approval of Assembly on 18 July 2019 after the negotiations. Policies and measures

represented in the Eleventh Development Plan are binding for all public institutions and guiding for private sector.

The Plan aims at transforming the economic structure, to maintain stability and sustainability in the long-term,

while boosting human capital through a breakthrough in education as well as technology and innovation capacities

through a breakthrough in national technology.

The Plan adopts the principles of supremacy of law, fundamental rights and freedoms protected and enhanced by

strong democracy as the pillars of development efforts, while its priority objectives include economic stability and

sustainability, improved and more fairly shared welfare and a continued orientation towards development in the fields

of human, social and spatial development.

The Development Plan focuses on facilitating competitiveness and efficiency increase in all fields. The Plan has

five fundamental pillars; namely, “Stable and Strong Economy”, “Competitive Production and Productivity”,

“Qualified Human and Strong Society”, “Livable Cities and Sustainable Environment”, and “Rule of Law,

Democratization and Good Governance”. All these pillars aim at achieving the ultimate vision of “a stronger and more

prosperous Turkey that produces more value and shares more fairly”.

Building on this approach, the Plan aims at boosting domestic production and accelerating industrialization

particularly in priority sectors identified in the manufacturing industry which are pharmaceuticals-medical devices,

machinery-electrical equipment, automotive, electronics, and rail system vehicles.

Additionally, horizontal policy areas that focus on functioning of priority sectors are identified in the Plan. These

horizontal policy areas are grouped under three headings in the Eleventh Development Plan, namely accelerator,

ecosystem reformative and sustainability provider policies. Accelerator policies aims at establishing strong financial

structure and digital transformation, while ecosystem reformative policies offers concrete actions to improve business

and investment climate, logistics and energy infrastructure and high institutional capacity. Policies regarding human

resources, R&D and innovation and critical technologies are bundled under sustainable provide policies. In addition

to the approaches of sectoral prioritization in the manufacturing industry, agriculture, tourism and defense industry

are identified as priority development areas in the Plan.

As it is mentioned before the Plan sets on five pillars. Under the pillar of “Stable and Strong Economy”; the Plan

lays down a basic framework and principles governing the monetary, fiscal, revenue and foreign trade policies as well

as macroeconomic targets to reinforce these policies. The pillar of “Competitive Production and Productivity” covers

policies to achieve competitiveness and productivity increase in the economy and to support the structural

transformation in production as well as the improvement in welfare. Under the pillar of “Qualified Human and Strong

Society”, the Plan sets out policies to strengthen human capital, explicitly implement the inclusive growth approach

and scale up welfare across all sections of the society. Under the pillar “Livable Cities and Sustainable Environment”,

the Plan includes goals and policies aimed at protecting the environment, improving the quality of living in urban and

rural areas and reducing regional development disparities in line with the goal of enhanced economic and social

benefit. The pillar of “Rule of law, Democratization and good governance” covers goals and policies aimed at

reinforcing the application of the principles of rule of law and democratization across all institutions and organizations

making up the state, strengthening inclusiveness, transparency and accountability at all levels in public administration.

In order to efficiently implement the policies and measures envisaged in the Plan, medium term programs, annual

programs of the Presidency, regional development and sectoral strategies, institutional strategic plans will be prepared

on the basis of the Development Plan. The Development Plan has particularly considered the budgetary aspects of all

policies and measures to be implemented, in order to strengthen the linkages between the Plan and budget. Public

institutions will set their policies, investment and current expenditures, institutional and legal arrangements in

compliance with the targets and resources envisaged in the Plan.


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2. IMPLEMENTATION OF THE POLICY GUIDANCE

Policy Recommendation 1:

Fiscal policy has been mildly expansionary in 2017-2019 period helping to cushion

some of the economic slowdown. It has played an important countercyclical role.

Government debt stock remains at manageable levels, around 30 percent of GDP.

Maintaining the strong fiscal anchor across the cycle is of key importance. In the programme

period, fiscal policy has been designed in a way that it does not contribute to inflation while

not hurting supply side of the economy and employment. In NEP (2020-2022), a moderate

and gradual fiscal consolidation in general government balance is programmed. General

government balance to GDP ratio is expected to improve by 0.4 point from 2019 to 2022.

Automatic Enrollment System (AES), which was introduced in 2017 for the purpose of

generalizing Private Pension System (PPS) and making it noticed by a wide populations, had

been completed by January 2019. Thereby, involvement of all public and private employees

in the system had been achieved. After partial exit of participators, the number of remaining

participants is about 5.4 million as of January 3, 2020. Number of participants in the PPS

increased by 29,000 persons during 2019 and reached 6.9 million people in 2019 December.

Relatedly, total amount of funds in the PPS increased by 27 billion TL and reached the level

of 119 billion TL.

To increase savings, in addition to the AES, works on updating the list of luxury goods

and/or products with high import concentration and revision of associated tariffs are in

progress.

In line with the perspective of canalizing savings to investments in economically more

productive areas using taxes and macro prudential measures, Valuable House Tax has been

published in the official gazette in December 7, 2019. Accordingly, residential properties with

value of 5 million TL or above will be subjected to Valuable House Tax. Nevertheless,

additional considerations and adjustments on this regulation are still in progress.

Works on altering consumption and saving habits of households, in particular

incentivizing saving based expenditure against debt based expenditure, is continuing with the

purpose of boosting household savings. With the introduction of “Regulation About House

Account and State Subsidy” in 2016, it has been aimed to support Turkish citizens with their

first and only house purchasing, by giving state subsidy to the house accounts that will be

opened in banks. Some revisions were made in this regulation in October 2019. According to

the new version of the regulation:

Participants cannot open more than one account, and the house account will not be

allowed to be transferred from one bank to another.

The system has been made more flexible by the new adjustment that allows partial

withdrawal of cash from house account. According to this adjustment, the excess

deposit that occurred between account opening date and withdrawal date above the

minimum deposit amount is allowed for withdrawal. The right to withdraw from the

account can be used up to two times in a period.


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Efforts continue to make liabilities originating from PPP projects transparent. In line

with the measure “PPP projects will be planned and implemented considering public

liabilities and budget balances and will be preferred when value for money is ensured” which

is in the New Economic Programme, works to rationalize PPP stock have been initiated.

Within this framework, 10 city hospitals have been decided to be evaluated within the Public

Investment Program. Preparations for legislation has also begun to revise the payment

mechanisms of city hospitals to ensure more efficient risk sharing. The short, medium and

long term projections of liabilities are made based on the information provided by the

institutions through Public Investments Information System and the appropriations

transferred each year are included in the Investment Program and the Budget and Medium

Term Financial Plan. On the other hand, the completion of a study on secondary legislation

regarding the accounting of PPP implementations, financial reporting and estimation of future

period risks in accordance with international standards is also stipulated in the 2020

Presidential Annual Program.


In September 2019, Banking Regulation and Supervision Agency (BRSA) published a

public statement entailing the results of its asset quality review. In particular, the order of

transferring loans amounting up to 46 billion TL to non-performing category is made to

enhance the transparency of banking sector balance sheets and to capture a sounder picture

about credit risk. Even with the abovementioned additions to NPL accounts, the sector’s NPL

ratio is projected to stabilize in the upcoming period on the back of recovery in economic

activity, elevated loan growth rate and restored expectations. It should also be noted that, as

of September 2019, capital adequacy ratio of Turkish banking sector stands around 18.5

percent showing that the sector has adequate capacity to absorb credit risk-related shocks.

In August 2018, BRSA altered the calculation method for risk-weighted assets

proposing the use of fixed exchange rate for the valuation of FX assets only for a few months.

In spite of this, regulatory authorities kept monitoring capital adequacy ratio (CAR) with and

without the impact of the methodological change between August and December 2018. The

values of the CAR ratios of banks (i.e. ignoring the methodological change) realized above

regulatory and target levels in the abovementioned period.

Apart from avoiding legal processes that could take a longer time to resolve, loan

restructuring enables firms to continue business operations without causing any systemic

shocks to their functioning. Bankruptcy would hinder employment creation and adversely

affect economic activity. Furthermore, it is not efficient to press for bankruptcy during

temporary liquidity crunches that may arise as a result of occasional financial shocks as long

as the effects of the shock are mitigated and taken under control in a reasonable time frame.

Restructurings are also capable of strengthening the interaction between the banking sector

and the real sector via aligning expected stream of cash flows with financing expenses. Recent

data suggest that the amount of restructured loans has increased throughout the year.


6

From another and more widely used point of view which takes restructuring to be a

tried and gainful practice within the banking industry globally, loan restructuring has enabled

companies to align the repayment of their financial debt affected by financial shocks with

expected cash flows generated from operations. As stated in the “Restructuring Agreement”

published by Bank Association of Turkey, the main purpose of the agreement is to preserve

the contribution of real sector firms to employment, trade and economic activity via extension

of maturities, renewal of existing facilities and reduction of receivables arising from loan

relationships. Overall, this type of agreements also serves to enhance the interaction between

real and financial counterparties, instead of just transferring the risks to banking sector.

Within the framework of the same, it is aimed to apply to debtors intended to pay back

their outstanding debt but failed to do so because of the imbalances in income-expense stream.

Initially, abovementioned agreement has been applied for firms with outstanding debt

exceeding 25 million TRY. In the second step announced in November 2019, the firms with

outstanding debt below 25 million TRY are also included in restructuring framework.

Moreover, banks continue to utilize sales to asset management companies as an alternative

way of handling NPL balances. Finally, the amendments made to Decree No. 32 Regarding

the Protection of the Value of Turkish Currency explained in item No.10 above have helped

contain FX-borrowing related risks in the real sector, by linking FX-borrowing under a certain

limit – for mainly smaller firms – to FX revenues. In a far-sighted policy implementation,

households have been banned from borrowing in FX since 2009.


Article 20 of the Law No. 7155 on the Procedure for Starting the Follow-up of Monetary

Receivables Arising from Subscription Agreements (Article 5/A has been added to the

Turkish Commercial Code no. 6102), which entered into force on 1 January 2019, has been

regulated as a condition of application for mediation which is one of the alternative dispute

settlement methods in some commercial lawsuits.

Considering the defective aspects of the Execution and Bankruptcy Law in force, the

Science Commission was established to carry out legislative work on finding problems and

proposals for solutions with the Minister approval dated 3 October 2018 in accordance with

the provisions of Article 64 of the Presidential Decree No. 1 on the Presidential Organization.

In order to determine the deficiencies of the Law of Civil Procedure and to find a

solution, to review the preliminary examination institution, to make the proceedings more

functional, to make effective use of alternative dispute resolution methods in legal

proceedings and to remove the obstacle elements out of the system, the Science Commission

was established with the Minister approval dated 3 October 2018 in accordance with the

provision of Article 64 of the Presidential Decree No.1 on the Presidential Organization.

Special education programs for judges and prosecutors such as commercial law,

constitutional law, bankruptcy laws and taxation issues have arranged by the Justice Academy

of as part of pre-vocational training programs.


7

Box 2.1: Trusteeship Operations of the Savings Deposit Insurance Fund

Pursuant to the Decree-Laws issued under State of Emergency following the failed coup attempt, firms

have been put under the control of trustees due to their affiliation, cohesion, or connection to the terrorist

organizations, Savings Deposit Insurance Fund (TMSF) has acted as trustees of these firms.

Pursuant to the same state of emergency decree-laws, in the case that the current status of the relevant

firms is found to be unsustainable due to the poor financial situation, partnership structure, other problems

or market conditions, the Minister responsible for the TMSF may conclude that these firms or their assets or

property assets referred to in the tenth paragraph of Article 128 of the Law No. 5271 are sold or dissolved

and liquidated. The power of the Minister responsible for the TMSF was transferred to the TMSF on October

11, 2017. Since then, the sale and liquidation procedures of the companies are carried out by the board of

directors of the relevant companies or TMSF.

In case that the firm or its assets or property assets are sold within the framework of the legal criteria for

the protection of the property rights, the sales amount is kept in blocked accounts until the case is concluded.

A financial status report indicating that financial situation of the firm is not sustainable is prepared for the

sale and as a result of evaluations sale decision is made.

When the case is over if defendants are found not guilty, either the firms will be returned to their owners

or sale price/balance at liquidation together with its interest will be paid.

To date, Turkish courts/judges have removed trustees for 368 companies, which were earlier placed under

trusteeship of TMSF based on the court/judge decisions.

The mandate conferred upon TMSF is to run companies as prudent merchants, in compliance with

commercial practices and under TMSF’s supervision.

Hence, TMSF’s primary objectives for these companies are to prevent employees of such companies

from being suffered and to avoid negative impacts on employment; to ensure that companies are managed

prudently in compliance with Commercial Code, Articles of Association and their own targets and policies;

in this respect TMSF aims to protect and control these companies by identifying their assets and liabilities

accurately; to promptly finalize urgent issues and operations of companies; to protect rights of third parties

having legal relation with these companies; to ensure continuity of operations of such companies by

enhancing efficiency and productivity and as a result, to make sure that the companies with positive value

start to contribute to national economy again.

Apart from above explanations, future status of these companies will be determined by independent

courts with respective decisions to remove trustees or to confiscate companies. This procedure is completely

within the jurisdictions of independent judicial authorities.

As of 30 October 2019, 848 companies based in 37 provinces across Turkey with a total asset value of

₺59.96 billion (EUR 9.4 billion) and a total of 41,234 employees had been seized or had a trustee appointed

since the coup attempt.

Household budget survey that compile household consumption expenditures and

administrative records are used in determining the goods and services to be included in the

CPI basket. New items and type of items that gain importance are included in the index,

whereas items that lose their importance are removed from the basket annually in every

December. Goods and services that have has more than 1/1000 weight in the household

monetary expenditures, are included in the CPI basket. This is consistent with the rule set by

European Statistical Office (EUROSTAT) and this methodology is used also for the CPI

index for European Union.


8

In this respect, it is not possible to deliberately reduce the share of products in the CPI

basket whose prices are directly or indirectly controlled by the government. Main policy

about inflation in the 11th Development Plan and NEP is to set the price increases of these

aforementioned goods and service to be in line with the inflation target. With this policy, it is

aimed to eliminate the increases in those goods and services prices to be a risk factor for

inflation targeting regime.


Social Security Institution is currently collecting data of the professional information

of individuals in the transactions carried out by banks, other public institutions and

organizations in accordance with the provisions Article 100 and Paragraph 7 of Article 8, of

the Law No. 5510. These data are used to perform cross-audits and insurance checking. In

this context, protocol studies are being carried out with banks and public institutions and

organizations. Protocols have been signed with 9 institutions / organizations so far. At the

end of this process, it is aimed to obtain employment-based data from all relevant public

institutions/organizations and detect insurance status by cross-checking.

Regarding control mechanism, the number of inspection is increasing day by day

because of the opportunity for the citizens to be able to apply to the Social Security Institution

easily through numerous communication channels such as Alo 170, Communication Center

of Presidency (CİMER) and direct petition.


In order for all children to benefit from the pre-school education service, education

service has been provided free of charge for children who receive education only and whose

nutrition is not provided from the school.

Conditional Cash Aids continue to be provided to 48-66 month-old children who attend

pre-school education institutions.

Within the scope of the Mobile Teacher Class Application, a preliminary report and a

final report were received from the provinces where the pilot program was held in the

previous year, and a workshop was organized with the participation of teachers, school

principals and branch managers who participated in the application, and the principles of

implementation were updated in line with the outcomes of the pilot program. In the 2018-

2019 academic year, a mobile teacher class pilot application was completed with 848 children

by going to 148 villages in 23 districts with 37 teacher.

In the 2018-2019 academic year, pilot implementation of the "Transport Center

Kindergarten" models, in which only preschool children were moved, with a vehicle that

helped children to access education in villages and sub-villages where there were not enough

children to open classes, was started. Within the scope of the application, 367 children

received pre-school education in 29 settlements in 10 districts.

Alternative access models are included in the legislation by adding the following

statement to the Regulation on Preschool Education and Primary Education Institutions of the

Ministry of National Education;


9

ARTICLE 82 - (10/7/2019)

(1)”In order to provide access to pre-school education for children in settlements

where the branch population cannot be opened due to the low pre-school education age

population, and in residential areas where the age population is dense and the physical

conditions are insufficient; mobile teacher class, mobile class, transport center kindergarten

and similar flexible time and time education access models can be applied, mobile teacher

can be assigned. In the different access models that will be applied, at least 200 activity hours

of training per year. Training in one day cannot be less than 2 (two) hours of activity. The

procedures and principles regarding access to education models are determined by the

Directive.”

The “Preschool Activity Book” and the 3 volume “Hand in Hand to Preschool

Education” evaluation book related to the activity book were distributed free of charge to all

preschool education institutions.

A summer education plan has been created for regions with a high concentration of

Syrians. In this context, a 45-day draft training flow, which supports language and social

adaptation skills, was prepared in the workshop, and the content prepared was distributed to

schools where summer education was implemented in the 2018-2019 academic year. In the

summer term of 2018-2019 academic year, 47,000 children, 17,000 of whom are foreign

nationals, who will start primary school next year, received pre-school education, these

children were provided with equipment, materials, stationery and nutritional support, and

teachers and school principals were trained.

The content preparation studies of the preschool education material set, which is

planned to be distributed to the families of disadvantaged children, have been completed and

the pilot application has been started by distributing to the families of 500 disadvantaged

children who will not attend pre-school education in the 2019-2020 academic year.

The e-School system is also opened to non-MEB institutions and it is aimed to register

all children who benefit from this education.

It is ensured that each school registers children who will start primary school next year

in the address registration area first by adding the following statement to the Regulation on

Preschool Education and Primary Education Institutions of the Ministry of National

Education;

ARTICLE 6 - (10/7/2019) In preschool education institutions;

a) “It is essential to conduct normal training for 6 activity hours of 50 minutes a day,

including the time of starting the day, playing, feeding, cleaning, activity, resting and

evaluating the day. However, it is compulsory to make dual education in the schools where

there are children who have not been registered in the school.”

Within the scope of preparations for transition to compulsory education, it is planned

to hold 4 two-day informative meetings with 540 provincial / district for discussing the

policies of Ministry of National Education, things to do, problems and solutions.


10

“Transport Center Main Class Pilot Application” was carried out with approximately

400 children in 29 settlements in 10 districts in 2018-2019 academic year with the allowance

provided from the central budget. The practice continues in the 2019-2020 academic year. In

order to support children and families with unfit conditions workshops were organized with

the support of UNICEF, a material set and a written material were prepared and distributed

to 500 families. It is planned to increase the number of families reached in the following

academic years.

Skills, qualifications, values and intermediate (cross) disciplines were included in the

curriculum prepared on the basis of transdisciplinary skills that will provide 21st century

skills to secondary school students. In this context, the themes and learning areas were

determined and the contents of the curriculum were created and the values to be included in

the curriculum, attitudes and behaviors of these values and intermediate disciplines were

determined.

Preparatory work for the 9th grade curriculum started. It is planned to complete the

draft curriculum for the 9th Grades, which is the first level of the curriculum prepared by the

gradual, by the end of December 2019. For this purpose, three 9th grade draft curriculum was

finalized.

Macroeconomic Outlook

11

3. MACROECONOMIC OUTLOOK

In 2019, increasing tensions in trade wars were the main determinant of global

economic performance. In the first half of the year, the steps taken by the US and China

towards protectionism have had negative effects on global growth, especially in China and

the periphery countries. As a matter of fact, the International Monetary Fund (IMF) lowered

its global growth forecast for 2019 from 3 percent to 2.9 percent, the lowest level since the

global financial crisis, in January 2020 due to the increasing risks. Although the trade

negotiations between the US and China have improved in the last quarter of 2019, global

economic activity remains weak.

Advanced economies displayed a positive outlook for growth at the beginning of 2019

but in the second half of the year, the slowdown in growth rates, especially in the Eurozone,

became more pronounced. With the decelerating global trade volume and weakening

industrial production especially in the Eurozone economies, the average growth rate of

advanced economies is expected to be 1.6 percent in 2020. The central banks of advanced

economies have started to use expansionary monetary policy to stimulate the economy in

2019 due to the slowdown trend in global economic activity. Fed made three successive

interest-rate cuts in 2019 and set the benchmark interest rate in the range of 1.5-1.75 percent.

In 2020, the current monetary policy stance is expected to remain unchanged. European

Central Bank (ECB) continued its zero interest-rate policy in 2019 and resumed its asset

purchasing programme as from November.

Growth rates of emerging markets and developing economies decelerated, and in many

countries, central banks cut policy rates in order to support economic activity in 2019. The

IMF estimates that emerging markets and developing economies, which grew 4.5 percent in

2018, will grow 3.7 percent in 2019 and 4.4 percent in 2020. The slowdown in China as a

result of increasing tension in trade wars and weak foreign demand is an important factor in

this growth down. The Chinese economy, which grew by 6.6 percent in 2018, showed the

lowest growth performance of the last 30 years in 2019 with 6.1 percent. On the other hand,

the determining factor in the downward revision of the IMF 2020 global growth forecast is

the lower than expected level of economic performance in some developing countries,

especially India.

The increase in global trade volume, which displayed a strong outlook at 5.7 percent in

2017, continues to weaken due to the protectionist policies, particularly in the form of

increased tariffs. The increase in global trade volume, which was 3.6 percent in 2018, is

expected to decline to 1.0 percent in 2019.

Attacks to oil production facilities in Saudi Arabia in September 2019, OPEC’s decision

to limit production and the slowdown in US oil production growth had an upside effect on oil

prices. On the other hand, uncertainty in global trade and the unfavorable outlook for global

economic activity throughout the year were the main factors pushing oil prices downward.

By the end of 2019, while geopolitical uncertainty remained high, progress in US-China trade

disputes led oil prices to fluctuate around 60-67 dollar. The IMF estimates that in 2020, the

oil price per barrel will be around 60 dollar.


12

Despite the progress in the trade negotiations between the US and China and the

synchronized loosening of the global monetary policy stance, downside risks to the global

economic outlook remain. The continued weak economic activity in the Asian region, the

repression of corporate spending caused by trade wars, social unrest and elevation of

geopolitical tensions are among the main risk factors in the coming period. Despite the

progress in the Brexit process and the supportive stance of the ECB during the year, the weak

demand in the Eurozone, the weak economic activity in the countries that are the drivers of

global economic growth such as China and increasing tensions in the Middle East region

stand out among the downside risks.

3.1. Recent Economic Developments

3.1.1. Real Sector

3.1.1.1. Growth

Economic growth was realized as 2.8 percent in 2018 as a result of slowing domestic

demand following a rapid rise in inflation and interest rates since the second quarter of 2018.

Contribution of net exports increased throughout the year and realized as 3.6 percent.

Contribution of changes in stocks was negative 1.5 percentage points in this period.

After the contraction in the last quarter of 2018, recovery trend has begun led by public

and private consumption expenditures in the first half of 2019. This trend is confirmed by the

upward movement of seasonal and calendar adjusted GDP index (Figure 3.1). This recovery

was disseminated to all components of the expenditure as of the third quarter of 2019. Sectoral

tax reductions and employment incentives were influential in this development. Additionally,

fall in inflation and interest rates supported confidence with reducing economic uncertainties.

Table 3.1: GDP Growth by Sectors and Demand Components (Chained Volume, Annual Percentage Change)

Annual 2018 2019

2017 2018 I II III IV I II III

9

Months

GDP 7.5 2.8 7.4 5.6 2.3 -2.8

-2.3 -1.6 0.9 -0.9

Agriculture 4.9 1.9 8.1 -0.9 2.4 0.3 2.7 4.2 3.8 3.7

Industry 9.2 1.3 7.7 4.5 1.1 -6.7 -3.9 -2.6 1.6 -1.7

Manufacturing 9.2 1.1 8.1 4.4 1.2 -7.7 -4.2 -3.3 1.4 -2.0

Services1 7.8 3.9 7.6 6.7 3.1 -0.9 -1.2 -1.1 0.1 -0.7

Construction 9.0 -2.1 6.8 1.5 -6.3 -7.8 -9.2 -12.4 -7.8 -9.8

Total Consumption 6.0 1.2

5.8 3.9 1.7 -5.1

-2.8 -0.2 2.5 -0.1

Public 5.0 6.6 4.9 9.5 6.9 5.3 6.6 3.4 7.0 5.6

Private 6.2 0.0

6.0 2.7 0.7 -7.7

-4.9 -1.0 1.5 -1.4

Gross Fixed Capital Form. 8.2 -0.6 10.4 6.1 -4.4 -11.6 -12.1 -22.4 -12.6 -15.9

Change in Stocks 1,2 0.4 -1.5

3.4 -0.1 -4.4 -3.9

-6.0 -0.1 2.8 -0.9

Final Domestic Demand 6.6 0.7 7.0 4.6 -0.1 -7.0 -5.4 -6.9 -1.7 -4.6

Total Domestic Demand 7.2 -0.8

10.9 4.6 -4.4 -10.7

-11.4 -7.2 1.2 -5.7

Exports of Goods and Serv. 12.0 10.3 0.9 4.5 14.3 10.7 8.9 8.1 5.1 7.2

Imports of Goods and Serv. 7.8 -7.8 15.3 0.2 -16.3 -24.3 -29.4 -17.0 7.6 -14.0

Source: TURKSTAT

(1) The Presidency of Strategy and Budget Calculations (2) Contribution to GDP growth


13

As of the third three quarters of 2019 where the economy contracted by 0.9 percent, the

contribution of private consumption and total fixed capital investments to growth was realized

as negative 0.8 percentage point and negative 4.7 percentage points, respectively. In this

period, growth was supported by the contributions of public consumption with 0.7 percentage

point and net exports with 4.7 percentage points. With the economic recovery, the

contribution of net exports turned negative in the third quarter.

Scrutinizing the production side, industrial sector contracted by 1.7 percent and

contributed to growth negative 0.3 percentage point in this period, despite the deceleration of

the effects of slowdown in economic growth in the first three quarter of 2019. Meanwhile,

service sector contracted by 0.7 percent and contributed negative to growth by 0.5 percentage

point. On the other hand, agricultural value added increased by 3.7 percent and contributed

by 0.2 percentage point to economic growth and diverged positively from other sectors in this

period.

Having looked at the leading indicators of growth, significant increases were observed

in industrial production and capacity utilization rates since the first quarter of 2019, while

they still have not reached to their pre-2018 levels.

Figure 3.1: GDP Developments Figure 3.2: Industrial Production Indicators

Source: TURKSTAT

Source: TURKSTAT and CBRT

3.1.1.2. Labor Market

Unemployment rate in 2018, which was estimated as 11.3 percent in ERP (2019-2021),

increased by 0.1 percentage point compared to the previous year and was realized as 11

percent. The influences of economic rebalancing, which started in the second half of the year,

in the labor market has been effective in the nondecreasing unemployment rate. With

contribution of the increase in female labor force participation, the labor force participation

rate in 2018 was realized as 53.2 percent with an increase of 0.4 point compared to the

previous year. In the same period, the employment rate increased by 0.3 percentage point to

47.4 percent due to the employment incentives implemented during the year.

In the first three quarter of 2019, labor force participation rate decreased in spite of the

increase in female labor force participation rate. As a matter of fact, in the January-September

period of 2019 the labor force participation rate for women was realized as 34.5 percent with

an increase of 0.3 percentage point compared to the same period of the previous year while

the total labor force participation rate decreased by 0.2 point and realized as 53.1 percent. In

this period, unemployment rate increased due to the increase in labor force supply and

60

80

100

120

140

160

180

200

-20

-15

-10

-5

0

5

10

15

2009

Ç3

2010

Ç3

2011

Ç3

2012

Ç3

2013

Ç3

2014

Ç3

2015

Ç3

2016

Ç3

2017

Ç3

2018

Ç3

2019

Ç3

GDP Annual Growth Rate, % (Left Axis)

Seasonal and Calendar Adj. GDP, QoQ, (Left Axis)

Seasonal and Calendar Adj. GDP, Chained Volume Index (Right Axis)

65

70

75

80

85

75

85

95

105

115

125

135

2014-1 5 9

2015-1 5 9

2016-1 5 9

2017-1 5 9

2018-1 5 9

2019-1 5 9

Industrial Production Index, 2015=100 (Seas and Calendar Adj., Left Axis)

Capacity Utilization Rate, % (Right Axis)


14

decrease in total employment in the industry and construction sectors. The seasonally adjusted

unemployment rate was 13.9 percent in September 2019 (Figure 3.3).

Table 3.2: Labor Market Developments

(15+Age, People)

Annual 2018 2019

2017 2018 I II III IV I II III

Working Age Population 59,894 60,654 60,415 60,571 60,733 60,896 61,101 61,342 61,591

Labor Force Part. Rate, % 52.8 53.2 52.2 53.3 54.3 53.0 52.5 52.9 53.9

Labor Force 31,643 32,274 31,520 32,274 32,989 32,295 32,084 32,426 33,180

Employment 28,189 28,738 28,166 29,138 29,318 28,314 27,355 28,269 28,529

Unemployed 3,454 3, 537 3,354 3,136 3,670 3,981 4,730 4,157 4,650

Employment Rate, % 47.1 47.4 46.6 48.1 48.3 46.5 44.8 46.1 46.3

Unemployment Rate, % 10.9 11.0 10.6 9.7 11.1 12.3 14.7 12.8 14.0

Non-Agriculture, % 13.0 12.9 12.5 11.6 13.2 14.3 16.9 15.0 16.7

Youth, % 20.7 20.3 19.0 17.8 20.8 23.6 26.1 23.3 27.4

Sectoral Distribution of Employment

Agriculture 5,464 5,297 4,983 5,480 5,697 5,023 4,687 5,173 5,603

Non-Agriculture 22,725 23,441 23,182 23,658 23,621 23,290 22,668 23,096 22,926

Industry 5,383 5,675 5,627 5,669 5,730 5,656 5,387 5,546 5,550

Services (Inc. const.) 17,341 17,769 17,555 17,989 17,891 17,635 17,280 17,550 17,375

Source: TURKSTAT

According to the seasonally adjusted series, the negative impact of the economic

rebalancing process and slowing economic activity, which started in the second quarter of

2018, on industrial sector employment became apparent at the end of 2018. The positive

effect of the measures taken on employment in the industrial sector began to be observed at

the beginning of 2019. As a result of these developments, industrial employment gradually

increased in January-September 2019 period. Services sector (excluding construction),

demonstrated relatively strong increase in the January-September period of 2019. On the

other hand, the employment in the agriculture sector contracted in the same period (Figure

3.4).

Figure 3.3: Unemployment Rate and Labor

Force Participation Rate (Percent)

Figure 3.4: Agriculture, Industry and Services

Sector Employment (Thousand People)

Source: TURKSTAT Source: TURKSTAT

43.0

45.0

47.0

49.0

51.0

53.0

55.0

7.0

9.0

11.0

13.0

15.0

1.0

9

9.0

9

5.1

0

1.1

1

9.1

1

5.1

2

1.1

3

9.1

3

5.1

4

1.1

5

9.1

5

5.1

6

1.1

7

9.1

7

5.1

8

1.1

9

9.1

9

Unemployment Rate

Labour Force Participation Rate (Right Axis)

Seasonally Adjusted

10 000

11 000

12 000

13 000

14 000

15 000

16 000

17 000

3 900

4 300

4 700

5 100

5 500

5 900

1.0

9

10.0

9

7.1

0

4.1

1

1.1

2

10.1

2

7.1

3

4.1

4

1.1

5

10.1

5

7.1

6

4.1

7

1.1

8

10.1

8

7.1

9

Agriculture Industry Services (Right Axis)

Seasonally Adjusted


15

3.1.2. Inflation, Monetary and Exchange Rate Policies

3.1.2.1. Inflation

Annual consumer inflation, which reached approximately 25 percent in October 2018,

stood at 20.30 percent by the end of 2018, and remained above the uncertainty band around

the inflation target. The rise in inflation was mainly driven by the sharp depreciation of the

Turkish lira, accompanied by the deterioration in producer prices and pricing behavior.

However, in the final quarter of 2018, inflation started falling on the back of the appreciation

of the Turkish lira and the decline in oil prices as well as weak demand conditions and

temporary tax adjustments in certain durable goods.

Closing the year 2018 at 25.11 percent, food inflation rose to around 30 percent in the

first quarter of 2019 mainly due to adverse supply conditions in fresh fruits and vegetables.

However, annual food inflation dropped in the second quarter of the year as a result of the

high base effect from the previous year and favorable supply conditions. Nevertheless,

exchange rate developments and deferred cost hikes in certain products had palpable impacts

on prices. In the second half of the year, food inflation decelerated due to the high base effect

from the previous year as well as the increase in the supply of agricultural products, fresh

fruits and vegetables in particular, that was driven by favorable weather conditions. By the

end of the year, annual food inflation stood at 10.89 percent, constituting one of the drivers

of the fall in consumer inflation in 2019.

Annual energy inflation, which had been 20.82 percent at end-2018, declined in the first

half of 2019 as the price fluctuations in this group were contained by the cuts in administered

electricity, water and natural gas prices as well as by the sliding-scale tariff in fuel prices.

Although the increase in administered electricity and natural gas prices put a pressure on

energy inflation in the third quarter, annual inflation remained on a downtrend due to base

effects. Annual energy inflation trended upwards in the final quarter of the year as a result of

the low base effect, and became 10.98 percent in December.

Led by durable goods that have high and relatively fast exchange rate pass-through,

core goods inflation rose throughout 2018 and completed the year at 24.67 percent. Annual

core goods inflation continued to decrease in the first half of 2019 on the back of the stable

course of Turkish lira and the weak domestic demand but it provisionally increased due to

the expiry of temporary tax cuts in July. The following period was marked by the high base

effect caused by the depreciation of the Turkish lira in the previous year as well as by the

stable course of the Turkish lira and the moderate course of domestic demand conditions.

Annual core goods inflation rose in the final quarter of the year due to the base effect and

stood at 7.48 percent in December. Hence, the core goods group became another main driver

of the fall in consumer inflation.

Services inflation, which was 14.46 percent in 2018, remained elevated throughout the

first half of 2019 despite weak economic activity, due to the implications of cost factors such

as exchange rate, real unit labor costs and food as well as buoyant tourism demand. In the

third quarter, while developments in transport prices were influential in the outlook of


16

services prices, annual services inflation declined on the back of the mild course in food prices

and domestic demand despite lagged price hikes and upward effects driven by backward

indexation. Services inflation stood at 12.30 percent as of December. Meanwhile, price

adjusments in tobacco products contained the fall in consumer inflation in 2019.

Core inflation indicators also presented a favorable outlook throughout the year and

annual inflation, which was around 20 percent at end-2018, fell in B and C indices to 10.76

percent and 9.81 percent, respectively, at end-2019. In sum, the inflation outlook and the

underlying trend improved significantly in the second half of the year in particular, and the

improvement in inflation expectations contributed to the disinflation process. In addition to

falling inflation expectations, the medium-term inflation uncertainty has also posted a

noticeable decline in the recent period. Thanks to the stable course of the Turkish lira as well

as the developments in domestic demand conditions and producer prices, core inflation

indicators have displayed a mild trend. Against this background, annual consumer inflation

decreased by 8.46 points to 11.84 percent at end-2019 compared to end-2018 (Figure 3.6).

Figure 3.5: Target and Actual Annual Inflation

(CPI, %)

Figure 3.6: CPI and Core CPI (Annual %

Change)

Sources: CBRT, TURKSTAT Source: TURKSTAT

3.1.2.2. Monetary and Exchange Rate Policies

In response to the rapid depreciation in the Turkish lira in August 2018, the CBRT

delivered a strong monetary tightening by increasing the policy rate to 24 percent in

September, and underlined that the tight stance in monetary policy would be maintained

decisively until the inflation outlook displayed a significant improvement. With the help of

coordinated policies implemented since the last quarter of 2018, exchange rates stabilized and

inflation expectations started to recede, all leading up to a significant improvement in

inflation dynamics.

In 2019, the CBRT determined its monetary stance by taking into account the indicators

regarding the underlying inflation trend, and set the degree of monetary tightness in a way to

ensure the sustainability of disinflation and its consistency with the targeted path. The

CBRT’s inflation forecasts and the underlying trends implied by these forecasts play an

important role in the CBRT’s decision-making process. In the first half of 2019, the CBRT

kept its one-week repo rate at 24 percent and took supportive steps regarding liquidity

management. As a result of the tight monetary policy stance and the strong policy

coordination, the accumulated effects of exchange rates decreased and domestic demand

displayed a moderate trend, all leading up to a significant improvement in inflation dynamics.

35,0

20,0

12,0

8,0

5,04,0 4,0

7,56,5

5,5 5,0 5,0 5,0 5,0 5.0 5.0 5.0 5.0

29,7

18,4

9,3

7,7

9,78,4

10,1

6,5 6,4

10,4

6,27,4

8,28,8 8.5

11.9

20.3

11.8

0

5

10

15

20

25

30

35

40

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Target Realization

0

5

10

15

20

25

2007 5 9

2008 5 9

2009 5 9

2010 5 9

2011 5 9

2012 5 9

2013 5 9

2014 5 9

2015 5 9

2016 5 9

2017 5 9

2018 5 9

2019 5 9

CPI C


17

On the back of the improved inflation outlook, the CBRT delivered gradual rate cuts in July,

September, October and December, eventually bringing the policy rate down to 12 percent.

In the Monetary Policy Committee meeting held in January 2020, the policy interest rate was

decreased by another 75 basis points to 11.25 percent.

Besides these policy decisions, the CBRT enhanced its set of tools throughout 2019 to

ensure the efficient functioning of the markets and to support the transmission mechanism in

the face of exchange rate volatility and unhealthy price formations. Accordingly, with the aim

of limiting the adverse effects of the supply and demand imbalances that occurred in the

offshore swap markets in the last week of March, the CBRT gradually raised the total volume

of outstanding swap sales transactions at the Turkish Lira Currency Swap Market. Banks have

intensively used the CBRT’s swap facilities. In this regard, since the majority of the funding

need of the system was provided by the swap facilities of the CBRT, funding via net open

market operations gradually declined. In 2019, funding via OMO was mostly done by one-

week repo auctions; however, weekly repo auctions were suspended twice during the year

due to developments in financial markets. In both episodes of suspension, the entire CBRT

funding was carried out over the CBRT overnight lending rate, and overnight repo rates at

the BIST converged to the upper bound of the CBRT interest rate corridor. As of 17 June

2019, Primary Dealers are allowed to obtain liquidity with an interest rate 100 basis points

below the CBRT’s policy rate within the framework of OMO. The liquidity offered in this

way has had a limited share within the funding need of the system.

Some changes have been made in reserve requirements to allow to use this facility in a

more flexible and effective way as a macroprudential tool to support financial stability. With

an amendment made to the Central Bank Law in July 2019, not only the liabilities, but also

on and off-balance sheet items of banks and other fiscal institutions deemed appropriate by

the CBRT became subject to the reserve requirement implementation. Accordingly, the

reserve requirement ratios for Turkish lira liabilities and the remuneration rates for Turkish

lira-denominated required reserves have been linked to the annual growth rates of the total

of banks’ Turkish lira-denominated standardized cash loans and cash loans under close

monitoring, excluding foreign currency-indexed loans and loans extended to banks. In

December, the reserve requirement regulation was revised again departing from the idea that

a reserve requirement practice that will underpin financial stability by encouraging the

channeling of loan supply to production-oriented sectors rather than consumption-oriented

ones would be more beneficial. The objective of the revision was to encourage long-term

commercial loans with a strong relation with production and investment, as well as long-term

housing loans that have a weak relation with imports.

The CBRT’s official reserves stood at 106.3 billion dollars on 27 December 2019. Out

of this total amount, 25.1 billion dollars were composed of gold reserves and the remaining

81.2 billion dollars was composed of gross FX reserves. In 2019, total reserves increased by

14.3 percent. The rise in gross reserves was mainly driven by the Turkish lira currency swap

transactions that were introduced by the CBRT in 2019 with the aim of enhancing flexibility

in Turkish lira and FX liquidity management, the increment in FX reserve requirement ratios

and the export rediscount credits. In line with the floating exchange rate regime, direct net

FX purchases, export rediscount credits and the ROM facility have helped to increase gross


18

FX and gold reserves since 2001. Seasonal fluctuations may appear in gross FX reserves.

Currently, rediscount credits are the most important means of permanent reserve

accumulating item. FX sales through FX selling auctions have not been held since 28 April

2016. The CBRT will maintain its policy to increase reserves as long as the market conditions

allow. The current level of the CBRT's reserves is sufficient in terms of the short-term risk

criteria.

3.1.3. Financial Sector

In Turkish financial sector, the most of the financing is provided by banks, and bank

loans to GDP decreased from 64.3 percent in 2018 year-end to 61.6 percent in the third quarter

of 2019. In this contraction of credit volume, the increase in the funding costs of banks and

the weakening of their risk appetites were effective in the supply side while the slowdown in

the economy, the rise in interest rates and the weak course of investment appetite limited the

demand for credit.

In 2019, the average deposit interest rates of the banking sector declined in line with

the 12-point interest rate cut by the CBRT from July to the end of the year. As a matter of

fact, the average deposit interest rate, which was 22.2 percent at the end of 2018, declined to

10.7 percent at the end of 2019. The loan interest rates, which increased significantly in 2018

due to the rising risk perception, declined faster than deposit rates in 2019. Consumer loan

interest rates, which were 33.1 percent at the end of 2018, decreased to 15.6 percent at the

end of 2019 whereas commercial loan interest rates decreased from 28.3 percent to 14

percent.

Figure 3.7: Annual Loan Growth (%)

Figure 3.8: Annual Loan Growth (Exchange Rate

Adjusted, %)

Source: CBRT, BRSA and PSB Calculations

Loan growth rates, which have been decreasing since the second half of 2018,

maintained this trend until the third quarter of 2019. As a result of the recovery in the economy

and the decline in loan interest rates, TL loans started to increase in the last quarter of 2019.

Moreover, the association of required reserve requirements with credit growth1 encouraged a

1 With the required reserve regulation announced in August 2019, a lower reserve requirement ratio and a higher interest rate were

introduced to the banks whose TL cash loan growth rate remained within the reference range of 10 percent to 20 percent. This policy aims

to prevent macro-financial risks related to credit growth by determining the upper and lower limits of TL-denominated loan growth. There

emerged a need to amend this regulation due to the decline in policy rates and the revival in loan demand particularly in the third quarter as

well as the ongoing economic rebalancing process. In this context, the CBRT amended the regulation in December 2019 and associated the

required reserves with real annual credit growth.

16,8

-7.6-10

-5

0

5

10

15

20

25

30

12.2

01

5

03.2

01

6

06.2

01

6

09.2

01

6

12.2

01

6

03.2

01

7

06.2

01

7

09.2

01

7

12.2

01

7

03.2

01

8

06.2

01

8

09.2

01

8

12.2

01

8

03.2

01

9

06.2

01

9

09.2

01

9

12.2

01

9

TL Loans

FX Loans (Exchange Rate Adjusted)

10.1

18.2

-5

0

5

10

15

20

25

12.2

01

5

03.2

01

6

06.2

01

6

09.2

01

6

12.2

01

6

03.2

01

7

06.2

01

7

09.2

01

7

12.2

01

7

03.2

01

8

06.2

01

8

09.2

01

8

12.2

01

8

03.2

01

9

06.2

01

9

09.2

01

9

12.2

01

9

Commercial Consumer


19

more widespread TL credit growth. On the other hand, FX loan growth turned negative in

2018 because of the restriction on FX loans, decreased investment appetite and increased

exchange rate awareness (Figure 3.7).

Owing to the increased risk perception, the FX demand of depositors remained high

throughout 2019. However, due to the decline in risk perception and the retreat in inflation in

the third quarter, the annual growth rate of FX deposits started to decrease. The annual growth

rate in TL deposits is observed to accelerate thanks to both the desire of catching higher

interest rates and the inflation-based deposit instruments introduced since April.

Consequently, the dollarization rate, which hovered above 50 percent during 2019, fell below

this rate in the last quarter.

The recovery in consumer loans is stronger than in commercial loans. It is considered

that significantly lower interest rates triggered the deferred retail loan demand. Negative

growth in FX loans, which has a significant share in commercial loans, and relatively high

loan loss rates are the factors limiting the loan growth in commercial segment. Commercial

loans are expected to gain momentum as the economic recovery accelerates in the upcoming

period (Figure 3.8).

3.1.4. Balance of Payments

In the January-November period of 2019, exports increased by 1.8 percent compared to

the same period of the previous year and amounted to 156.9 billion dollars with the impact of

production and export support, despite the decline in the EU's external demand. The concerns

of trade war in the global economy limit the increase in exports. Due to decreasing demand

in the same period, imports decreased by 11 percent and realized as 183.7 billion dollars. In

addition to these developments, the annualized current account surplus as of November was

realized as 4.3 billion dollars due to the improvement in the tourism sector.

In the January-November period of 2019, real exports increased by 6.8 percent while

real imports decreased by 7.3 percent. In the same period, export and import prices decreased

by 4.7 and 4 percent, respectively.

Figure 3.9: Developments in Exports and Real Exports

Source: World Trade Organization, IMF, TURKSTAT

In the first eleven months of 2019, exports to the EU decreased by 0.9 percent compared

to the same period of the previous year and became 76.8 billion dollars due to the partial

economic slowdown in the EU countries. Russia, Germany and China maintain high levels

-25

-20

-15

-10

-5

0

5

10

15

20

25

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Turkey World

Expots (% Change)

-15

-10

-5

0

5

10

15

20

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Turkey World

Real Exports (% Change)


20

of imports by country. While the share of imports from Russia in the first eleven months of

2019 slightly increased, the shares of other countries declined.

In the first eleven months of 2019, travel revenues increased by 15.8 percent compared

to the same period of the previous year and were realized as 27.8 billion dollars. The number

of tourists in the same period increased by 15 percent and was realized as 42,791 thousand

people. Despite increase in number of tourists, average per capita expenditure has a similar

value in 2019.

In 2018, capital inflows were realized through net errors and omissions. In 2018, net

errors and omissions were 19.2 billion dollars, while direct foreign investments were 9.4

billion dollars. On the other hand, net outflow to portfolio investments were 3.1 billion

dollars, while other investments were 8.8 billion dollars.

In the first eleven months of 2019, net foreign direct investment inflows decreased by

3.5 billion dollars compared to the same period of the previous year and was realized as 5

billion dollars. In this period of 2019, a net outflow from portfolio investments was recorded

to 0.2 billion dollars. The net outflows from other investments amounted to 2.9 billion dollars.

In the January-November period of 2019, reserve assets increased by 6.9 billion dollars.

3.2. Medium Term Macroeconomic Scenario

In line with 11th Development Plan (2019-2023) and NEP (2020-2022), the main

objective of ERP (2020-2022) is to maintain as well as enhance the gains in price stability,

financial stability and current account balance acquired over the past year, and to accomplish

a change and transformation in the economy focusing on production and productivity and

oriented towards sustainable growth and fair share.

While preparing the MTP, ministries and institutions within the economy

administration come together to discuss the necessary policies for macroeconomic targets and

work on alternative scenarios. In order to create a coherent macroeconomic target set,

demand-side medium-sized macroeconometric model that focus on consumption and

investment, supply-side macro-econometric model focusing on production and efficiency, as

well as input output analysis and general equilibrium models that concentrate on monetary

and fiscal policy are taken into account. Attention is paid to ensure the scenario results are

coherent, consistent and supporting.

The macroeconomic scenario for the ERP 2020 period is based on five main pillar:

price stability, public finance, growth and employment, current account balance and financial

stability.

One of the main targets is to bring inflation down to low single digit levels permanently

through the coordination of monetary and fiscal policies and structural transformation steps

to increase competitiveness and productivity in goods and services markets. By reducing

inflation, predictability will increase, uncertainty-driven risk premiums will fall, productivity

will improve, and thus economic and financial stability will be strengthened.

Fiscal discipline will be continued with determination during the program period. In

order to increase the revenue performance of the budget, it is aimed to increase the efficiency


21

of tax collection with continuous and permanent sources of income and to reduce informality

in the economy. Thus, public indebtedness will be kept at low levels.

One of the main objectives is to achieve a growth path focusing on productivity gains

and breakthrough in industry and export in line with the transformation strategy in production

set out in the Eleventh Development Plan after economic rebalancing in 2019. Accordingly,

steps will be taken to improve the quality of growth and business and investment

environment, increase the productivity of labor and resources, and focus on selected

manufacturing industry sectors (chemical, pharmaceutical and medical equipment,

machinery-electrical equipment, electronics, automotive and rail system vehicles). The

growth rate is expected to be around 5 percent throughout the program period and production

is expected to converge to the potential at the end of the period. The strong recovery in growth

is supposed to be driven by deferred consumption and investments, improvement in financial

conditions, diminished financial volatility and uncertainties, continued inflation gains, and

recovery in consumer and investor confidence.

During Program period it is aimed to increase exports of high value-added products,

reduce dependence on imports through enhancing competitiveness and increase service

exports significantly especially tourism revenues. Thus, a permanent improvement in the

current account balance will be achieved, the need for external financing will be reduced, and

a balanced and sustainable growth trend will be maintained.

In order to strengthen financial stability during the program period, it is aimed to reduce

dollarization, increase savings and hence reducing vulnerabilities stemming from external

financing, increase resource allocation and pricing efficiency through reforms to fill

information gaps in financial markets, and strengthen the capital markets pillar of the

financial system.

Within this framework, during the ERP 2020 period, which involves the exit process of

Turkish economy from the rebalancing period, fiscal and monetary policy will continue to

take the necessary measures in a counter-cyclical manner without disturbing price and

macroeconomic stability.

3.2.1. Real Sector

3.2.1.1. Composition of Growth

Slowdown in economic growth that began in 2018 during rebalancing process has lost

its pace since the first three quarters of 2019. Leading indicators related to the last quarter of

2019 imply a recovery in economic activity. Thereby, the economy is expected to grow by

0.5 percent throughout 2019 in line with the Commission’s expectations.2 Reduction in policy

rate of the CBRT following the decline in inflation, stabilization in the exchange rate and

technical reasons like base effect are thought to be influential in this recovery. The

contributions to growth throughout 2019 are expected mainly to stem from net exports by 2.8

percentage points and public consumption by 0.6 percentage point. Depreciation of domestic

2 European Commission, European Economic Forecast, Autumn 2019.


22

currency, rise in tourism revenues as well as fall in imports due to contraction in domestic

demand were influential in this contribution of net exports.

Total output is aimed to converge its potential at the end of the Program period, by

realizing 5 percent growth rate on average throughout the period. Realization of economic

growth under its potential due to weak performance of economic activity in 2018 and 2019

will contribute economy to converge its potential without deterioration of the balanced

outlook during the Program period. Declined financial volatilities and uncertainties,

postponed consumption and investment expenditures, maintaining price stability and

improved consumer and investor confidence in are expected to be influential in the strong

recovery of growth. Additionally, expansionary monetary policies in advanced countries are

thought to support growth in the following period.

Table 3.3: Demand Components of Growth (2009=100 Chained Volume, Percentage Change)

Forecast

2018 2019 2020 2021 2022

Total Consumption Expenditure 1.2

0.9 4.6 3.1 3.3

Private 0.0 0.2 4.9 3.2 3.5

Public 6.6

4.3 3.0 2.4 2.5

Total Investment Expenditure -6.1 -11.8

10.2 10.3 8.6

Gross Fixed Capital Formation -0.6

-10.0 9.3 9.0 8.1

Change in Stocks1 -1.5 -0.1 -0.1 0.0 -0.1

Exports of Goods and Services 7.8

6.0 6.2 6.5 5.8

Imports of Goods and Services -7.8 -6.5 10.6 5.9 4.5

Gross Domestic Product 2.8

0.5 5.0 5.0 5.0

Domestic Demand -0.8

-2.3 5.9 4.8 4.7

Domestic Final Demand 0.7 -2.1 5.8 4.6 4.6

Source: Realization TURKSTAT, Presidency of Strategy and Budget and Ministry of Treasury and Finance (1) Contribution to GDP growth

In 2020-2022 period, economic growth is expected mainly to stem from domestic

demand. In this period, private consumption and total fixed capital investments are expected

to contribute growth by 2.3 percentage points of each. Contribution of net exports is expected

to be 0.1 percentage point.

With respect to public investments; priority manufacturing sectors in the 11th

Development Plan, horizontal areas like R&D, digitalization, human resources, logistics and

energy that strengthen human and physical infrastructure towards these sectors as well as

agriculture, tourism and defense industry areas will be given priority.


23

Figure 3.10: Contribution to GDP Growth

Source: Realization TURKSTAT, forecast Presidency of Strategy and Budget

By this means, a widespread sectoral recovery is envisaged in 2020. Moreover, for

2021-2022 period, it is expected that upward trend in tourism revenues will continue, exports

will preserve its strength, the rise of industrial value added will reaccelerate based on

productivity-focused policies in the coming period, and agricultural value added will display

a better performance than its historical path following the measures taken. In line with this,

the increase in value added for industrial sector is expected to be 6.8 percent for industrial

sector, 4.6 percent for service sector and 3.4 percent for agricultural sector on average

throughout the Program period. Capital accumulation and employment will be the major

drivers of growth together with positive gains in total factor productivity after rebalancing

process.

Figure 3.11: Value Added by Sectors

Source: Realization TURKSTAT, forecast Presidency of Strategy and Budget

-7

-4

-1

2

5

8

11

14

17

20

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

Percent

Final Domestic Demand Change in Stocks Exports Imports

Forecast

-3.0

0.0

3.0

6.0

9.0

12.0

15.0

18.0

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

Agriculture Industry Service GDP

Forecast

Percen

tag

e C

ha

ng

e


24

3.2.1.2. Sources of Growth

Scrutinizing the sources of growth in Turkish economy, capital accumulation has been

the main driver of growth while the contribution of employment to growth has displayed

stable pattern. However, it is observed total factor productivity (TFP) has not contributed

enough to growth except for the period 2002-2007 (Table 3.4).

Domestic demand weakened due to the cost pressure caused by the depreciation of TL

as of the second half of 2018 and growth was observed 2.8 percent throughout the year. In

this period, partial losses were observed in all components of production factors due to the

tight financial conditions and weak labor market outlook. The contribution of capital

accumulation to growth declined significantly as a result of weak investments. In this context,

while capital accumulation contributed 1.6 points and employment contributed 1.2 points to

the 2.8 percent of growth, TFP remained ineffective.

The economic contraction, which started in the last quarter of 2018, turned to a recovery

as of 2019 and positive economic growth rate was recorded as of the third quarter. Leading

indicators for the last quarter of the year indicate a relative recovery in economic activity.

Factors such as interest rate cuts, declining inflation rates, relatively low exchange rate

fluctuations and the positive base effect from the second half of 2018 are the main

determinants of recovery. Although indicators for the rest of the year point to a relative

recovery, employment and investment losses are expected to continue to some extent

throughout the year compared to the previous year. While capital accumulation and TFP

contributed to growth by 1.2 points and 0.3 point, employment is expected to decrease growth

by 1 point.

Table 3.4: Developments in Factors of Production (2009=100 Chained Volume Index, Percentage)

Growth Rates Contribution to Growth

Period GDP Capital

Stock

Capital

Stock* Emp. TFP

Capital

Stock Emp. TFP

1998-2018 4.5 6.9 6.6 2.0 0.7 56.0 27.9 16.1

2002-2018 5.6 7.2 7.7 2.4 1.2 52.3 26.9 20.9

2002-2007 7.1 7.4 9.8 1.0 2.7 53.0 8.3 38.7

2010-2018 6.4 7.3 9.0 3.8 0.6 53.8 36.5 9.7

2020-2022 5.0 5.6 6.1 3.7 0.4 46.8 45.6 7.6

Source: Presidency of Strategy and Budget calculations

* Capital stock increase corrected by capacity utilization rate.

After the rebalancing in Turkish economy, recovery will be more pronounced during

the program period; capital stock, employment and TFP are estimated to increase by 6.1

percent, 3.7 percent and 0.4 percent annually on average, respectively. Within the framework

of the macroeconomic structure envisaged in the program period, the contribution of capital

stock, employment and TFP to growth is expected to be 46.8 percent, 45.6 percent and 7.6

percent, respectively.

3.2.1.3. Potential Output and Output Gap

Analyzing the output gap indicators estimated by alternative methods for evaluating the

demand-side pressures on inflation and the growth cycles of the economy, the production

level has exceeded the potential level due to demand-driven policies after the abhorrent coup

attempt in 2016. Following the period in which total demand was inflationary, domestic


25

demand weakened significantly due to exchange rate shocks; volatility in financial markets;

rise in loan rates and uncertainty in the second half of 2018. The economy entered a rapid

cooling down process as a result of decrease in demand pressure. During this period, demand

developments affirmatively contributed to the reduction in inflation.

Throughout the program period, growth will accelerate following the rebalancing and

growth rate is expected to be 5 percent annually on average. It is foreseen that the potential

growth rate will increase as a result of strong investment growth and productivity gains.

Within the framework of the macroeconomic scenario which envisages more efficient use of

production factors, it is projected that production level will converge to its potential gradually.

In other words with the projected growth path, the increase in demand is not expected to cause

inflationary pressure.

Figure 3.12: Output Gap

Source: Presidency of Strategy and Budget calculations

GAP_PF: Output gap calculated by production function method GAP_HP: Output gap calculated by Hodrick-Prescott method

3.2.1.4. Investment-Saving Balance

Following the significant decline in the value of Turkish Lira, precautions taken by the

government to ensure macroeconomic stability led to significant decreases in external trade

deficit and investment-saving gap in 2019. On the other hand, investments declined in line

with the deceleration in economic activity. It is expected that the ratio of fixed capital

investment to GDP to be 27.4 percent while the ratio of total investment expenditures to GDP

to be 26.8 percent in 2019.

While it is expected that the ratio of domestic savings to GDP to be realized at 27

percent in 2019, the foreign saving usage is expected to recede to -0.2 percent of the GDP in

line with the rebalancing in the economy.

-10

-8

-6

-4

-2

0

2

4

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

GAP_PF GAP_HP

Percentage Difference From Potential Forecast


26

Table 3.5: Investment-Saving Balance

(As a Share of GDP, Percent)

Forecast

2017 2018 2019 2020 2021 2022

Total Investment 31.0 29.6 26.8 28.1 29.3 30.6

Fixed Capital Formation 30.1 29.9 27.4 28.7 29.7 30.6

Change in Stocks 0.9 -0.3 -0.6 -0.6 -0.4 0.0

Total Savings 31.0 29.6 26.8 28.1 29.3 30.6

Domestic Savings 25.4 27.0 27.0 27.0 28.5 30.6

Foreign Savings 5.6 2.6 -0.2 1.1 0.8 0

Source: Realization TURKSTAT, forecast Turkish Presidency Presidency Strategy and Budget.

Within the framework of NEP (2020-2022), it’s aimed that the ratio of domestic savings

to GDP to rise to the level of 30.6 percent. One of the main pillars of the current program is

the decline in the need for foreign financing. Accordingly, foreign savings will decelerate in

line with the contracting current account deficit. On the other hand, the policies and subsidies

that will be implemented in line with the prioritization framework of the Eleventh

Development Plan, will accelerate industrialization and decrease import dependency. The

private sector is predicted to be the driving force for the capital accumulation. Within this

scope, while the foreign saving requirement is expected to fall down steadily, it is aimed that

investment expenditures to exceed 30 percent. Thus, the domestic resources will become

more prominent in undertaking the financial burden of investments during the program

period.

3.2.1.5. Labor Market

The rebalancing process in the economy has been the main determinant of the recent

developments in labor market. Due to the rebalancing process, employment losses have been

realized and unemployment rate has increased.

Table 3.6: Labor Market Developments

(15+ Age)

Realization

Forecast

2017 2018 2019 2020 2021 2022

Working Age Population (Thousand Person) 59,894 60,654 61,482 62,294 63,181 64,143

Labor Force Participation Rate (%) 52.8 53.2 52.8 53.4 54.0 54.5

Labor Force (Thousand Person) 31,643 32,274 32,479 33,263 34,105 34,929

Employment 28,189 28,738 28,275 29,327 30,493 31,514

Agriculture 5,464 5,297 5,071 5,163 5,264 5,277

Non-Agriculture 22,725 23,441 23,204 24,164 25,229 26,237

Unemployed 3,454 3,537 4,204 3,936 3,612 3,415

Employment Growth (%) 3.6 1.9 -1.6 3.7 4.0 3.3

Agriculture 3.0 -3.1 -4.3 1.8 2.0 0.2

Non-Agriculture 3.8 3.2 -1.0 4.1 4.4 4.0

Employment Rate (%) 47.1 47.4 46.0 47.1 48.3 49.1

Unemployment Rate (%) 10.9 11.0 12.9 11.8 10.6 9.8

Source: Realization TURKSTAT, Forecast Presidency of Strategy and Budget

In the period of 2020-2022, the increase in non-agricultural employment is expected to

accelerate with the foreseen economic recovery and converge to its long-term average and

the non-agricultural employment is expected to grow 4.2 percent on average annually.

Agricultural employment is expected to decline slightly in the upcoming period. It is


27

estimated that the unemployment rate, which is expected to be in a decreasing trend starting

from 2020, will be 9.8 percent in 2022. The expected high increases in labor supply especially

among women, will limit the unemployment rate decline to some extent. The labor force

participation rate, which is forecasted as 52.8 percent at the end of 2019, is expected to reach

54.5 percent at the end of the Program period.

3.2.2. Inflation, Monetary and Exchange Rate Policies

The primary objective of the CBRT is to achieve price stability. To this end, the CBRT

uses all the available instruments. Monetary policy decisions are based on inflation

expectations, pricing behaviors and the developments in all other factors affecting inflation.

The inflation target has been kept at 5 percent as per the agreement reached with the

Government and the uncertainty band around the target at 2 percent in both directions as in

past years. Monetary policy will be set so as to bring inflation to the target gradually. In

periods of significant deviation from the inflation target, inflation forecasts presented in the

CBRT’s Inflation Reports act as interim targets. Therefore, the reference values that will

guide economic units regarding the future trend of inflation will be the inflation forecasts in

the short term and the inflation target for the medium term. The primary objective is to bring

down the inflation to single digits, and then gradually reduce inflation further to stabilize it

around 5%. The final aim is to bring down the inflation rate to levels that are compatible with

the Maastricht criteria.

The CBRT will continue to use all policy instruments at its disposal effectively in

pursuit of the price stability objective throughout 2020. To contribute to banks' TL and FX

liquidity management, the CBRT will, as it did in 2019, remain as a stabilizing actor and

support financial stability as required by the market conditions. One-week repo auctions will

continue to be the main policy instrument of the CBRT in 2020.

The floating exchange rate regime will continue. Under the current regime, exchange

rates are not used as a policy tool. Economic fundamentals, the monetary and fiscal policies

in force, international developments and expectations are the key determinants of the supply

and demand for foreign exchange. The CBRT has no nominal or real exchange rate target.

Nevertheless, if the exchange rates deviate significantly from economic fundamentals and

exchange rate movements permanently affect price stability or pose risk to financial stability,

the CBRT will not remain indifferent to these developments and respond with the instruments

at its disposal. The CBRT will continue to closely monitor exchange rate developments and

any risk factors related to it and will take necessary measures and use the relevant instruments

in accordance with the principles for the effective use of the CBRT reserves in order to make

sure that the FX market operates efficiently.

Fight against inflation calls for public accord and a holistic effort that incorporates all

stakeholders. Thus, in addition to an appropriate monetary and fiscal stance, it is also

important to reduce structural rigidities that delay or hinder the disinflation process.

Maintaining structural reforms that would curtail the inertia and volatilities in inflation will

significantly contribute to price stability and social welfare.


28

3.2.3. Balance of Payments

Downside risks emerges in the export partners’ economic activity due to protection

policies and geopolitical risks. However, comparative price advantage and export friendly

incentives are expected to lead exports to reach 172.5 billion dollars in 2019.

Oil prices, oscillated between 55 and 65 dollars throughout the year, demonstrated an

increase pattern at the end of 2019. Energy imports are expected to decrease to 41 billion

dollars compared to previous year owing to relatively limited domestic demand and implied

production capacity. Imports started to recover in the second half of the year thanks to

increase in economic activity. On the other hand, rebalancing process was dominant in 2019

so that imports are expected to decrease to 201 billion dollars.

Main focus of Eleventh Development Plan and NEP (2020- 2022) is to transform

production processes into export-oriented, innovative and less import-dependent structure. In

2019 when the first step of transformation in economy initiated, defined as rebalancing

period, Turkish economy is projected to achieve current account surplus after 18 years with

a 0.1 percent share to GDP.

The objectives of the Eleventh Development Plan have been determined within the

framework of an export-oriented stable growth model that focuses on productivity and

leading role of the industrial sector. On the basis of policies that increase competitiveness and

productivity, the solid foundations of export-oriented transformation that will enable more

exports with a production structure that is less dependent on imports will be revealed after

the rebalancing period in 2019.

The Export Master Plan will be prepared and put into practice with a target market and

target product-oriented approach, which will support the prioritized sectors defined in 11th

Development Plan and aims for sustainable export growth. Exports are projected to increase

to 206 billion dollars at the end of Program Period thanks to the economic recovery in trading

partners and the reduction in global uncertainty. Additionally, travel revenues which will

reach to 46.5 billion dollars at the end of 2022 with the holistic contribution of 2023 Tourism

Strategy of Turkey will contribute positively to current account balance.

In 2020, the main determinant of growth will be domestic demand. Imports are expected

to rise due to deferred demand, induced credits and confidence in economic activity, and

expected recovery in overall financial conditions. On the other hand, thanks to the policies

aiming to decrease the import dependency of economy, imports are expected to keep under

control and converge to same level as in 2018 at the end of 2020. Moreover, it is foreseen to

rise 8.1 percent on average during the program period and reached to 254 billion dollar at the

end of 2022.

Furthermore, energy imports are expected to reach 45.7 billion dollars at the end of the

period with an average increase of 3.7 percent owing to policies that reduce foreign

dependence on energy, the dissemination of sustainable energy resources, and measures to

bolster the use of natural resources.


29

Table 3.7: Balance of Payments Forecasts

(Billion Dollars)

Realization

Forecast

2017 2018 2019 2020 2021 2022

Current Account -47.3 -27.2 1.0 -9.6 -7.0 0.0

Balance on Goods -59.0 -41.9 -15.7 -28.9 -32.4 -34.4

Total Exports 166.2 174.6 180.9 186.8 201.1 212.5

Exports (fob) 157.0 167.9 172.5 182.0 195.0 206.0

Total Imports 225.1 216.5 196.6 215.7 233.5 246.9

Imports (cif) 233.8 223.0 201.0 224.5 241.0 254.0

Balance on Services 19.9 25.8 28.5 31.4 38.4 48.5

Credit 43.7 48.6 54.1 59.4 66.4 73.9

Travel Revenues 22.5 25.2 29.0 34.3 40.1 46.5

Debit 23.7 22.8 25.7 27.9 28.1 25.3

Primary Income -11.0 -11.9 -12.8 -13.4 -14.1 -14.8

Secondary Income 2.7 0.9 1.0 1.2 1.1 0.7

Workers’ Remittances 0.4 0.4 0.5 0.6 0.7 0.8

Source: Realization CBRT, Presidency of Strategy and Budget Forecast

The current account deficit will be significantly reduced with the contribution of

tourism revenues increase as well as exports that will increase by supporting sectors with

competitive potential and high foreign trade deficit. Within this context, current account

deficit as a share of GDP is predicted to converge to zero level which will, in turn, cause to

abate the financing need of the economy. Therefore, one of fragility element of the economy

is expected to perish.

3.2.4. Financial Sector

3.2.4.1. Risks Towards Banking Sector

Credit Risk

Non-performing loan (NPL) ratios have increased as a result of the weak course of

economic activity since the third quarter of 2018, reflected in the solvency, and the slowdown

in loan growth. NPL ratios of consumer loans increased slightly compared to commercial

loans. The fact that individuals cannot use foreign currency loans and the comprehensive

macroprudential regulations applied to consumer loans restrain the increase in NPL ratio of

this loan type.

It is observed that banks continue to manage their non-performing loans via writing off3

and/or selling to asset management companies. Asset quality review conducted by the BRSA

predicted that the NPL ratio of the sector could reach up to 6.3 percent by the end of 2019;

however, the realization remained at 5.3 percent. This ratio is still at a reasonable level when

compared to similar countries and the special loan loss reserves of banks can cover 66 percent

of non-performing loans.

As of September 2019, banking sector’s closely monitored loans ratio has reached to

11.3 percent. Although the recent rise is attributable to increases in restructured loans, the

3 With an arrangement made in July 2019, the deduction of non-collectible receivables has been facilitated.


30

significant rise in 2018 mainly stemmed from IFRS 9 accounting standard allowing banks to

use their subjective internal credit risk models as well as banks' prudent stance in credit

monitoring due to increased risk perception. This development has led to discrepancies in

classification between banks as well. A limited portion of these loans are expected to pass

into the NPL class.

After the Financial Restructuring Law, which contains articles on tax exemption,

embezzlement and write-off, in order to facilitate restructuring of firm debts was enacted On

19 July 2019, financial restructuring frameworks were established for both large and small

enterprises. Restructuring activities have recently limited the transition of performing loans

into NPLs through harmonizing firms' debt repayment projections with their cash flows. As

of November 2019, the restructured credit balance of large firms is around 145 billion TL and

small firms are also expected to participate in this process.

Figure 3.13: Nonperforming Loan Ratio(%) Figure 3.14: Capital Adequacy Ratio (%)

Source: CBRT, BRSA and PSB Calculations

Recently, some steps have been taken to contribute in the institutionalization of the real

sector. Within this scope, as of February 2019, independent audit report has been requested

from companies whose credit risk is above TL 500 million during the credit allocation phase

and as long as the credit relationship continues. In August 2019, this limit was reduced to TL

100 million and the Corporate Governance Principles Compliance Report was added to the

requested information. Besides, the works on establishing a national credit rating agency have

begun recently and this agency is expected to be active especially in the credit rating of local

companies.

Profitability and Capital Adequacy

Since the last quarter of 2018, net interest incomes, loan provisions and capital market

losses have been adversely affecting profitability. However, profitability ratios have been in

a horizontal trend in the last quarter of 2019. As of November 2019, annualized return on

assets and annualized return on equity of the banks were 1.2 percent and 11.1 percent,

respectively.

According to asset quality review conducted by the BRSA, the capital adequacy ratio

(CAR), which is projected to decline until 17.7 percent at the end of the year in the New

Economy Program (2020-2022), is 18.6 percent as of November 2019. This rate is well above

5.3

5.9

2,8

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

12.1

5

03.1

6

06.1

6

09.1

6

12.1

6

03.1

7

06.1

7

09.1

7

12.1

7

03.1

8

06.1

8

09.1

8

12.1

8

03.1

9

06.1

9

09.1

9

12.1

9

TOTAL

Commercial

Consumer

18.6

12

13

14

15

16

17

18

19

12.1

5

02.1

6

04.1

6

06.1

6

08.1

6

10.1

6

12.1

6

02.1

7

04.1

7

06.1

7

08.1

7

10.1

7

12.1

7

02.1

8

04.1

8

06.1

8

08.1

8

10.1

8

12.1

8

02.1

9

04.1

9

06.1

9

08.1

9

10.1

9


31

the target rate which is 8 percent according to Basel standards and 12 percent according to

BRSA.

The increase in CAR after the first quarter of 2019 can be attributed to the slowdown

in credit growth and strengthened equity structures of banks. Over the past year, the capital

has been positively affected by capital increases paid in cash, subordinated debt issuances

and the level of profitability, albeit less contributive recently. Subordinated bond issues since

early 2018 have improved banks' CARs by approximately 190 basis points while paid-in

capital transfers is estimated approximately 40 basis points.

Liquidity Risk

The liquidity coverage ratios (LCR), which measure the capacity of high-quality liquid

asset stock of banks to meet their net cash outflows for 30 days, were 165 and 293 percent

for total and FX in 2018, respectively. 4

Total liquid assets of banks are USD 41.1 billion as of September 2019. Also, there are

net FX resources of banks used for currency swap transactions amounting to USD 56 billion

and FX deposit limits of USD 50 billion allocated to banks by the CBRT. Consequently, the

total liquid FX buffers of banks are sufficient to cover all external debt repayments amounting

to USD 53.8 billion that will be due within one year.

The weak course of FX loan growth and the rise in FX deposits have reduced banks'

need for external funding; therefore, overdue syndicated loans were renewed around 80

percent. On the other hand, there has been a strong increase in the bond issues and

subordinated borrowings in the domestic markets. In 2019, banks issued TL 15 billion worth

of TLREF-indexed bonds5 at different maturities between three months and 10 years.

The credit-to-deposit ratio, which indicates the longer-term liquidity risk of banks, fell

below 100 percent and converged to the level in global financial expansion during pre-2013

period. As of November 2019, the mentioned ratio was 132.2 percent for TL and 64.6 percent

for FX. The difference between TL and FX in the said ratio opened due to the dominance of

FX demand in deposits and TL demand in loans. The recent acceleration in the annual

increase of TL deposits is expected to reduce this difference.

Interest and Exchange Rate Risk

Sudden changes in interest rates affect banks’ balance sheets since maturity structures

of assets and liabilities differ, and the value of securities in their trading portfolio changes as

interest rates change. 5 percent (2 percent) positive interest rate shock exposure on TL (FX)

on and off-balance sheet interest rate sensitive positions led to a probable loss of

approximately 12 percent (3 percent) of capital. Imposing a likely interest rate hike of up to

5 percent (2 percent) to TL (FX) securities, the probable loss/capital ratio was estimated to

be below 2 percent.

4 LCR was implemented as 100 and 80 percent for total and FX respectively for all banks excluding development and investment banks

through 2019. 5 In order to manage the medium and long-term interest rate risk of banks and to reduce the need for FX in interest risk management, a

risk-free interest rate based on daily transactions, TLREF, was generated and the issuances based on TFREF started in August.


32

Because of the excess level of FX liquidity, the banking system meets its TL liquidity

needs intensively through currency swap transactions; thus, the sector registers an on-balance

sheet FX open position and an off-balance sheet FX excess position. However, banks

maintained their cautious stance regarding their net FX position, proved by the sector's FX

net general position/capital ratio which is around 3 percent, well below the two-way legal

limit of 20 percent.

3.2.4.2. Private Sector Indebtness

Households

In Turkey, households’ excessive borrowing is restricted through macroprudential

measures such as loan/value ratio for mortgage and automobile loans, maturity limit for

automobile and general purpose loans, installment and credit limit for personal credit cards.

Also, households cannot borrow in terms of FX and at variable interest rates; thus, households

are not exposed to exchange rate and interest rate risks.

In terms of household indebtedness to GDP ratio, Turkey has quite a low risk when

compared to some other country groups. According to Bank for International Settlements

database, as of the second quarter of 2019, the ratio of household loans to GDP in Turkey is

13.9 percent and this level is significantly below the weighted average of developing

countries which is 42.3 percent. Furthermore, this level points to the lowest level of the

mentioned ratio since 13.5 percent in the third quarter of 2009.

Real Sector

As of September 2019, TL loans extended by Turkish banking sector to the real sector

increased by 6.4 percent compared to the same month of the previous year and reached TL

1.5 trillion, while FX loans decreased by 13 percent and reached USD 176.9 billion. 87

percent of FX loans belong to firms, and the remaining 13 percent belongs to SMEs. A

significant portion of the firms in FX loan portfolio (namely public-private partnerships6,

energy firms with price guarantees, exporting firms and tourism sector firms etc.) have natural

hedges while most of the other firms have derivative instruments protecting them against FX

and interest rate risks.

Following the stabilization in financial markets, restriction on FX loans installed in

20187, rising awareness on FX risk management, the weak outlook in FX loan supply and

restored economic confidence, non-financial companies (NFCs) entered a deleveraging

period. As of September 2019, FX liabilities of NFCs are around 299 billion USD, which

points out a significant decline compared to the previous year.

Throughout 2019, the FX position of the real sector was also improved. As of

September 2019, net FX deficit of NFCs decreased by USD 33.2 billion compared to the

6 The share of public-private partnership loans in FX loans is 12.5 percent. 7 The FX borrowing regulation entered into force as of 2 May 2018. Accordingly, companies with FX income but also with FX debt of less

than USD 15 million are allowed to borrow as much as only the total FX income of the last three years. If the credit balance exceeds this limit, the exceeding portion is recalled or converted to TL credit. The new regulation also prohibits foreign currency indexed loans. On the

other hand, companies owing FX loans exceeding USD 15 million are exempted from this restriction.


33

same period of the previous year and decreased to USD 178 billion, the lowest level after

May 2015. The short-term net FX position of these firms continued to yield a surplus and

increased by USD 6.2 billion to USD 10.6 billion compared to the same period of the previous

year.

According to Bank for International Settlements database, Turkey has a low risk in the

ratio of non-financial company loans to GDP, with 68.9 percent, in the second quarter of

2019. This is also the lowest realization since the end of 2017. In the same period, the

weighted average of this ratio in developing countries is 100.7 percent.

3.3. Main Risks in Projections

Medium term outlook in the Program carries some upward and downward risks based

on the developments beyond the assumptions regarding global outlook. In this context:

Trade wars between the US and China have a significant impact on global capital

investments, wages and demand by disrupting supply chains, weakening confidence

and increasing uncertainty. These developments pose downside risks on the export

performance of Turkey.

Uncertainties regarding the Brexit process cause volatility in global financial

markets and portfolio movements and this is still a downside risk to the global

economy, especially European Union. This case poses downside risks on the exports

and financing source of economic growth.

A possible slowdown in the US or European economies may create a downward

pressure on export demand.

Due to the stagnation observed in the global economy, orienting monetary policy of

developed countries, especially the US, to support economic activity is anticipated

to make a positive contribution to Turkish economy by improving global financial

conditions and risk appetite.

The revision of Customs Union agreement with EU would favorably influence

foreign trade of Turkey by overcoming existing problems and removing asymmetric

effects.

The course of geopolitical events and problems in the Middle East, which is an

important export market for Turkey, may create, positive or negative risks on

Turkish economy especially via trade channel.

Following four-year period in Turkish economy without election, provides an

opportunity window for ensuring the fundamental transformation and change

planned in the economy through structural reforms.

In the upcoming period, the ongoing slowdown in global growth, decreasing demand

and increasing of uncertainty in global trade pose downside risks to oil prices, while

rising geopolitical risks and maintaining slowdown in US rock oil production are the

upside risks on oil prices. Depending on the realization of risks, economic activity

may be affected positively or negatively.


34

The rise in foreign exchange demand for debt repayment and savings, and

accordingly the increase in currency substitution, poses downside risks to financial

intermediation and monetary policy effectiveness. However, the excessive fall in TL

assets will support possible foreign investments and improvements in global

financial conditions may support the financial structure.

In the case of looming risks on financial stability due to the divergence of the

exchange rate from economic fundamentals or an excessive volatilty, the necessary

actions will be taken. Furthermore, CBRT will give the necessary reaction by

shifting it’s monetary stance given that the excessive movements in the value of TL

threatens the stability of domestic prices.

Fiscal Framework

35

4. FISCAL FRAMEWORK

Turkish public finance is one of the strongest side of the Turkish economy and

preserving this strong public finance structure is the main aim in 2020-2022 period. In this

context, in the programme period resources will be used effectively, there will be savings in

determined areas, via structural changes fiscal discipline will be made permanent, the quality

of public revenues will be enhanced and public debt stock will be kept low.

A budgetary structure that addresses public services with a program approach will be

adopted, spending reviews will be conducted to ensure the efficient use of resources and to

create fiscal space for priority areas.

Tax revenues will be increased by reconsidering tax exceptions and exemptions in the

tax laws, increasing permanent revenue sources, simplifying tax code, enhancing tax

collection performance and fighting against informality.

Main fiscal aggregates in 2020 Pre-accession Economic Reform Programme regarding

general government balance and central government budget were prepared based on the New

Economy Programme (2020-2022) and 2020 Presidency Annual Programme.

The general government balance, produced by the Presidency of Strategy and Budget,

consists of central government budget, local governments, social security institutions and

general health insurance funds, revolving funds and Unemployment Insurance Fund. When

obtaining the total general government expenditure and revenue, SEEs are excluded,

transactions are accounted in gross amounts and revenue and expenditure items are not

subjected to any kind of netting operation.

Within the calculation process of expenditures and revenues of the sub-sectors of

general government; a revenue item is accounted as income only in the accounts of unit that

obtain the revenue at first hand, similarly it is accounted as expenditure only in the accounts

of the unit that makes the final spending by applying this methodology, possible double

counting problems in transfer transactions between sub-sectors are avoided. As a result of

this operation, the balance figures of sub-units may differ from the originally reported

amounts, but the consolidated general government balance is kept unchanged. Total general

government expenditure and revenue figures are produced through consolidation of sub-

units’ expenditure and revenue amounts calculated by using this methodology.

While obtaining general government revenue and expenditure figures according to this

methodology;

The tax shares of local governments and funds from the general budget tax

revenues and other transfers are deducted from the central government budget

revenues and displayed in the balances of respective local governments or funds,

The current transfers to the social security and general health insurance system

from the central government budget are subtracted from both expenditures of the

Fiscal Framework

36

central government budget and revenues of social security and general health

insurance system,

The amounts transferred to the central government budget from revolving funds,

extra budgetary funds and Unemployment Insurance Fund are deducted from the

central government budget revenues and expenditures of relevant units

respectively,

Financial operations among other sub-sectors of general government except the

central government budget are adjusted in a way to prevent double counting.

4.1. Fiscal Policy Strategy and Medium-Term Objectives

Fiscal policy, in conformity with monetary policy targets, will be implemented in a way

that it contributes to increasing growth potential of the economy, preserving economic

stability, keeping current account deficit at sustainable levels, increasing domestic savings

and supporting investments.

In this regard, main policy priorities in 2020-2022 terms are as follows:

4.1.1. Revenue Policies

Share of direct tax revenues in total tax revenues will be increased by rearranging tax

basis, scope and ratios.

All the incentive mechanisms, tax and cash based in particular, will be reevaluated in

order to make the system simpler, more efficient and holistic. Incentives will be in

harmony with general macroeconomic objectives and public finance feasibilities.

Temporary revenue sources generated by cyclical fluctuations and one-offs will not

be used to create permanent spending programs.

To broaden tax base, simplify tax system and enhance tax justice, ineffective

exemptions, reductions and exceptions will be abolished gradually.

Tax restructuring schemes will be avoided.

By establishing Tax Data Analysis Center, informality will be reduced and efficiency

in tax collection will be enhanced.

Tax compliance will be increased with more effective Taxpayer Services Center, all

tax related services provided online via Interactive Tax Office project and small

taxpayers keeping all their tax records electronically.

The list of luxury and mostly imported goods will be updated and taxation of these

goods will be modified.

Immovable asset inventory list will be completed by establishing immovable asset

valuation system and taxation of immovable assets will be redesigned in a way that

it ensures title deed fees and property taxes are imposed on fair values.

Fiscal Framework

37

4.1.2. Expenditure Policies

Spending reviews will be conducted to assess and prioritize public expenditures, to

ensure the efficient use of resources, to evaluate the performance of public

institutions and to perform healthy fiscal consolidation practices. Efficiency in

implementation of public expenditures programs will be improved and level of

expenditures will be kept under control.

Initiating permanent spending programs by using transient revenue sources will be

avoided.

Spending regarding housing, transportation and social facilities which are not directly

related to public service delivery will be contained.

4.1.3. Public Borrowing Policies

Ministry of Treasury and Finance executes debt management in line with the

borrowing limit determined pursuant to the Article 5 of the Law No.4749 on Regulating

Public Finance and Debt Management, enacted in April 2002.

This Law establishes the principles of public debt and risk management as follows:

To follow a sustainable, transparent and accountable debt management policy in line

with monetary and fiscal policies, considering macroeconomic balances,

To meet financing need at the optimal cost levels in medium and long term, in

accordance with the reasonable risk level determined considering cost factors,

domestic and foreign market conditions.

Net borrowing limit is described as the amount of difference between the initial budget

appropriations and estimated revenues specified in the budget law of the relevant fiscal year.

In line with the same article of the Law, this limit could be increased up to 5 percent within

the year by considering the needs and developments in debt management. In the cases where

such amount is not sufficient, an additional increase of five percent may be made only by

President’s decree.

Within the scope of accountable, transparent and sustainable borrowing policies which

are compatible with the monetary and fiscal policies, ensuring the optimal cost target in the

medium and long term at a reasonable risk level, strategic benchmarking policy has been

continued since 2003. Depending on the cost and risk calculations, to manage the public debt

efficiently against the liquidity, exchange rate and interest rate risks, the following strategic

benchmarks and debt indicators will be the main pillars of the borrowing policy in 2020-

2022 period:

To borrow mainly in TL,

To keep the share of debt maturing within 12 months and the share of debt stock with

interest rate refixing period of less than 12 months at a certain level, by taking into

account appropriate instrument and maturity composition to optimize interest

payments,

Fiscal Framework

38

To keep a certain level of cash reserve in order to reduce the liquidity risk associated

with cash and debt management,

To borrow in foreign currencies besides US dollar in international markets for market

diversification

issues will be implemented as the main elements of the borrowing policy.

In addition to the strategic benchmarking policy, within the scope of debt management

policies:

Switching and the buy-back auctions may be used to ensure a balanced debt

redemption profile and to increase the price efficiency of secondary market.

Policies towards ensuring an efficient secondary market yield curve and providing

liquidity in trading of Government Domestic Borrowing Instruments through re-

issuance strategy will continue to be implemented.

In order to expand the investor base of the government borrowing instruments, efforts

on development of new instruments will continue.

Primary Dealership System practices will be continued.

Information on borrowing such as financing programs, domestic borrowing strategies

and procurement announcements will continue to be announced on a regular basis.

In order to increase effectiveness of debt management and further strengthen the

communication with financial markets, DG of Debt Office was established within the

Ministry of Treasury and Finance on September 12, 2019 in Istanbul. Besides being

responsible for both internal and external debt financing; DG of Debt Office carries

out derivative transactions within the scope of liability management. Moreover, DG of

Debt Office conducts relations with investors and credit rating agencies.

Efforts to enhance investor base and diversify issuance markets are continued. In

addition to conventional US dollar and Euro markets, potential issuance opportunities

in Samurai, Panda, Ruble and Sukuk markets are explored.

In 2019, Turkey raised USD 11.2 bn external financing via bond and lease certificate

issuances in international capital markets. According to 2020 Treasury Finance

Program Turkey targets USD 9 bn external financing via bond issuance in international

capital markets.

4.1.4. Public Financial Management and Audit

Program based performance budgeting will be implemented which allows for a better

monitoring of public spending efficiency and increases transparency and

accountability.

SOEs will be restructured in a way that their efficiency increases and their fiscal

burden on public finance decreases.

Fiscal Framework

39

The scope of central government budget will be enlarged by decreasing the number

of revolving funds and special accounts, to contribute to fiscal discipline.

A standard for public private partnership practices will be prepared to ensure an

integrated, operationally and fiscally effective system.

Social insurance system will be restructured in order to ensure fiscal sustainability

and reduce its burden on public finances.

4.2. Budget Implementations in 2019

4.2.1. Developments in the Central Government Budget Revenues and

Expenditures

Due to macroeconomic and geopolitical developments and additional needs of public

institutions in the course of the year, budget expenditures are expected to be above the figures

presented in the Law whereas budget revenues are expected to be below the estimates.

Budget deficit to GDP ratio is expected to deviate 1.1 points from the budgeted figure.

Table 4.1 Central Government Budget Balance 2019

2019

(Billion TL) (GDP Ratio, %)

Central Government Budget Budget RE Budget RE

TOTAL EXPENDITURES 961.0 992.4 21.6 23.2

PRIMARY EXPENDITURES 843.7 889.3 19.0 20.8

INTEREST PAYMENTS 117.3 103.1 2.6 2.4

PROGRAMME DEFINED EXPENDITURES 843.6 889.3 19.0 20.8

TOTAL REVENUES 880.4 867.4 19.8 20.3

GENERAL BUDGET TAX REVENUES 756.5 667.6 17.0 15.6

OTHER REVENUES 123.9 199.8 2.8 4.7

PROGRAMME DEFINED REVENUES 841.4 763.2 18.9 17.9

BUDGET BALANCE -80.6 -125.0 -1.8 -2.9

PRIMARY BALANCE 36.7 -21.9 0.8 -0.5

PROGRAMME DEFINED BALANCE -2.2 -126.1 0.0 -3.0

RE: Realization Estimate

Source: Presidency of Strategy and Budget, Ministry of Treasury and Finance

In 2019, budget revenues which is expected to be 13 billion TL below the budget target

in nominal terms, is expected to be 20.3 percent of GDP, 0.5 points above the target.

Compared to budget targets, general budget tax revenues are expected to be 15.6 percent by

a 1.4 points decrease and non-tax revenues are expected to be 4.7 percent by a 1.9 point

increase.

In 2019, personal income tax and corporate income tax revenue collections are expected

to be close to budget estimates. Domestic VAT collection, on the other hand, is expected to

be 18.6 billion TL below the budget estimate and be 52.1 billion TL and 1.2 percent of GDP.

Referred decline mainly stems from increasing VAT rebates, decreasing domestic demand

and tax breaks and deductions. Taxes on foreign trade, adversely affected from decreasing

imports, is expected to be 3.4 percent as a ratio to GDP at the end of the year.

Fiscal Framework

40

Table 4.2: Central Government Budget Revenues 2019

2019


Budget RE Budget RE

Central Government Budget Revenues 880.4 867.4 19.8 20.3

General Government Revenues 867.3 838.7 19.5 19.6

Tax Revenues 756.5 667.6 17.0 15.6

Income Tax Revenues 171.9 163.9 3.9 3.8

Corporate Tax Revenues 74.2 77.4 1.7 1.8

Taxes on Foreign Trade 187.4 144.5 4.2 3.4

Domestic VAT 70.7 52.1 1.6 1.2

SCT 162.6 145.2 3.7 3.4

Petroleum and Natural Gas 67.4 60.1 1.5 1.4

Motor Vehicles 23.9 12.7 0.5 0.3

Alcoholic Beverages 15.3 15.2 0.3 0.4

Tobacco 45.7 51.0 1.0 1.2

Other Beverages 0.9 1.0 0.0 0.0

Durable Goods and Others 9.3 5.2 0.2 0.1

Other Taxes 89.8 84.6 2.0 2.0

Nontax Revenues 110.8 171.1 2.5 4.0

Special Budget and Regulatory and Supervisory Ins. 13.1 28.7 0.3 0.7

RE: Realization Estimation


Decreasing domestic demand in 2019 has affected special consumption tax (SCT)

collection on petroleum and natural gas, motor vehicles and durable goods adversely. Sliding

scale system in gasoline prices has also contributed to lower-than-expected collection of

SCT on petroleum and natural gas. On the other hand, SCT on tobacco is expected to be

above the budget estimate and 1.2 percent of GDP. This increase stems from the increase in

ad valorem tax rates on tobacco from 63 percent to 67 percent and price increases. SCT on

alcoholic beverages is expected to be close to budget estimates.

In 2019, exceeding budget estimates, non-tax revenues is expected to be 199.8 billion

TL, 4.7 percent of GDP. This increase is due to transfer of accumulated contingency reserves

of Central Bank to budget, dividend payments by Central Bank, receipts from zoning

amnesty.

With regards to tax restructuring receipts; until the end of November 2019; receipts from

Law No. 6736 that entered into force in 2016 have been 5.7 billion TL; receipts from Law

No. 7020 that entered into force in 2017 have been 1.1 billion TL; and receipts from Law

No. 7143 that entered into force in 2018 have been 9.7 billion TL.

Fiscal Framework

41

Table 4.3: Central Government Budget Expenditures 2019

2019


Budget RE Budget RE

Central Government Budget Expenditures 961.0 992.4 21.6 23.2

Interest Payments 117.3 103.1 2.6 2.4

Primary Expenditures 843.7 889.3 19.0 20.8

Personnel Expenditures 247.3 250.7 5.6 5.9

State Social Sec. Contributions 43.4 43.7 1.0 1.0

Current Expenditures 67.6 78.4 1.5 1.8

Current Transfers 391.3 397.1 8.8 9.3

Capital Expenditures 54.4 75.3 1.2 1.8

Capital Transfers 10.0 15.3 0.2 0.4

Lending 21.7 28.8 0.5 0.7

Reserve Appropriations 7.9 0.0 0.2 0.0


In 2019, central government budget expenditures is expected to exceed the

appropriation by 31.4 billion TL and to be 992.4 billion TL, 23.2 percent of GDP.

Total personnel expenditures, composed of personnel expenditures, state premiums to

social security institutions and reserve appropriations are expected to exceed appropriation

by 0.7 billion TL and be 294.4 billion TL at the end of 2019. General wage and salary

increases have been 4 percent and 5 percent in January and July respectively. In line with

the inflation realizations public personnel had 6.73 percent and 1.02 percent additional

increase in January and July respectively.

Table 4.4: Central Government Budget Balance

(GDP Ratio, %)

2017 2018 2019 2020*

Expenditures 21.8 22.3 23.2 22.5


Personnel Expenditures 5.2 5.4 5.9 5.8

State Social Sec. Contributions 0.9 0.9 1.0 1.0



Capital Expenditures 2.3 2.4 1.8 1.2


Lending 0.4 0.6 0.7 0.6

Reserve Appropriation 0.0 0.0 0.0 0.2

Interest Payments 1.8 2.0 2.4 2.9

Revenues 20.3 20.4 20.3 19.6

Tax Revenues 17.3 16.7 15.6 16.1

Non-Tax Revenues 2.5 3.3 4.2 3.0

Capital Revenues 0.4 0.2 0.2 0.3

Grants, Aids, and Special Revenues 0.2 0.1 0.3 0.2

Primary Surplus 0.3 0.0 -0.5 0.0

Programme Defined Primary Surplus -0.6 -1.5 -3.0 -1.3

Borrowing Requirement 1.5 2.0 2.9 2.9


* 2020 Presidency Annual Programme

Fiscal Framework

42

Realizations of expenditures on purchase of goods and services are expected to exceed

budget appropriation due to unforeseen needs of public administrations and increase in cost

of services. The main driver of the increase in current transfers is the increase in health,

pension and social assistance expenditures. Transfers to various line ministries and public

administrations have also contributed. Capital expenditures and capital transfers are

expected to exceed initial appropriations due to additional allocations for various investment

projects.

Lending is expected to exceed budget appropriation due to capital contribution to state

owned enterprises in energy and railway transportation sectors. Interest expenditures are

expected to be 14.2 billion lower than budget appropriation and be 103.1 billion TL at the

end of 2019. This decrease stems from exchange rate and interest rate developments.

Box 4.1: Central Government Budget Provisional Realizations (2019) As mentioned in the beginning of this chapter, central government budget figures for the ERP 2020 are

based on the NEP (2020-2022) and 2020 Presidential Annual Program. However, the realizations of central

government budget for 2019 were announced during the preparation of ERP (2020-2022). In this respect,

central government budget expenditures and revenues have been 999.5 billion TL and 875.8 billion TL,

respectively. The budget deficit which was foreseen as 80.6 billion TL in the budget of 2019 has been 123.7

billion TL. The announced provisional budget realizations are summarized below.

(Billion TL)

Total Expenditures 999.5

Primary Expenditures 899.5

Personnel Expenditures 249.9

Social Sec. Ins. Gov. Premium Exp. 43.0

Goods and Services Purchase Exp. 84.1

Current Transfers 400.3

Capital Expenditures 80.5

Capital Transfers 16.3

Lending 25.4

Interest Payments 99.9

Total Revenues 875.8

General Budget Revenues 848.4

Taxes 673.3

Property Income 93.7

Grants and Aids and Special Rev. 9.7

Interest, Shares and Fines 63.3

Capital Revenues 6.9

Collections from Loans 1.5

Special Budget Institutions 20.7

Regulatory & Supervisory Institutions 6.7

Borrowing Requirement 123.7 Source: Ministry of Treasury and Finance

Fiscal Framework

43

4.2.2. Developments Regarding General Government Revenues and

Expenditures

Increasing by 0.2 points in 2018 compared to 2017, general government revenues have

been 33.3 percent of GDP. It mainly stems from the increase in non-tax revenue collection

due to zoning amnesty and paid military services despite declining tax revenues due to

slower economic activity and temporary tax measures. Increasing by 0.7 points, general

government expenditures have been 35.6 percent of GDP in the same period. Current

expenditures have increased by 0.5 points in parallel with increases in current expenditures

of Unemployment Insurance Fund and extra-budgetary funds. Capital expenditures have

increased by 0.1 points following the increase in central government investments. GDP share

of current transfers have increased by 0.1 points. As a result, the GDP share of general

government deficit has increased by 0.5 points and become 2.4 percent.

Table 4.5: General Government Revenues and Expenditures – 1

(As a Share of GDP, Percent)

2015 2016 2017 2018

Taxes 17.9 18.0 17.7 17.0

Direct 5.1 5.3 5.3 5.9

Indirect 12.2 12.1 11.8 10.5

Wealth 0.6 0.7 0.6 0.6


Factor Incomes 4.8 5.0 4.7 4.8

Social Funds 9.1 9.5 9.0 9.1

Total 33.7 34.3 32.9 33.1

Privatization Revenues 0.5 0.4 0.2 0.2

Total Revenues 34.2 34.7 33.1 33.3


Investment Expenditures 3.5 3.5 3.7 3.8

Fixed Investment 3.5 3.5 3.7 3.8

Change in Stocks 0.0 0.0 0.0 0.0

Transfer Expenditures 15.5 16.2 15.8 15.9



Stock Revaluation Fund 0.0 0.0 0.0 0.0

Total Expenditures 34.3 36.1 34.9 35.6


Borrowing Req. Exc. Privatization Revenues 0.6 1.8 2.0 2.5


Primary Borrowing Requirement -2.2 -0.6 -0.1 0.3

Programme Defined Primary Surplus 0.5 -1.0 -1.1 -2.3

Source: Presidency of Strategy and Budget

In 2019, general government revenues are expected to be 33.3 percent by a 0.1 point

increase as a ratio to GDP. Tax revenues are expected to decline by 1 point due to sluggish

economic activity and non-tax revenues which were quite high in 2018 is expected to

decrease by 0.5 points. On the other hand, factor revenues are expected to increase by 1.5

points due to transfer of accumulated contingency reserves and dividend payments of Central

Bank to Treasury and social funds are expected to increase by 0.2 points.

Ratio of general government expenditures to GDP is expected to be 36.4 percent in

2019, by an increase of 0.7 points compared to 2018. Current expenditures are expected to

Fiscal Framework

44

increase by 0.7 points due to an increase in personnel expenditures; transfer expenditures are

expected to increase by 1.2 points in parallel with an increase in interest expenditures and

social security and Unemployment Insurance Fund transfers. On the other hand, capital

expenditures are expected to decrease by 1.1 points. As a result, the GDP share of general

government deficit has increased by 0.6 points and become 3 percent in 2019 compared to

previous period.

4.3. Medium Term Perspective

In the program period, general government revenues and expenditures are projected on

the macroeconomic framework presented in NEP (2020-2022) and the following

assumptions:

To ensure fiscal discipline, public expenditures will be contained, its effectiveness

will be enhanced and current expenditures will be restrained.

Construction and leasing of new public administrative buildings will not be allowed.

Wage and salary increases of public employees were determined as 4 percent and 4

percent respectively for January and July 2020.

Incentive schemes will be prioritized in accordance with accountability,

transparency, cost-effectiveness, flexibility, efficiency, clarity and predictability

principles and steered towards job creating, high value added and export stimulating

areas.

Tax base will be broadened by taking measures against tax losses and evasion and

reconsidering exemptions, reductions and exceptions.

Sustainability of public revenues will be enhanced by increasing the share of tax

revenues in total revenues.

Initiating permanent spending programs by using transient revenue sources will be

avoided.

Amnesty schemes will be avoided.

SOEs’ prices will be determined in line with the program targets.

Fiscal Framework

45

Table 4.6: General Government Revenues and Expenditures -2

(Percent of GDP)

2019 2020 2021 2022

Taxes 16.0 16.4 16.3 16.2

Direct 5.7 5.6 5.4 5.3

Indirect 9.7 10.2 10.3 10.2

Wealth 0.6 0.6 0.6 0.6


Factor Incomes 6.2 4.9 4.1 3.9

Social Funds 9.3 9.1 8.9 8.7

Total 33.2 32.2 31.1 30.6

Privatization Revenues 0.1 0.2 0.2 0.2

Total Revenues 33.3 32.4 31.3 30.7


Investment Expenditures 2.7 2.1 2.1 2.1

Fixed Investment 2.6 2.1 2.1 2.0

Change in Stocks 0.0 0.0 0.0 0.0

Transfer Expenditures 17.1 17.1 16.8 16.5



Stock Revaluation Fund 0.0 0.0 0.0 0.0

Total Expenditures 36.4 35.2 34.1 33.4


Borrowing Req. Exc. Privatization Revenues 3.2 3.1 3.0 2.8


Primary Borrowing Requirement 0.4 -0.1 -0.3 -0.4

Programme Defined Primary Surplus -3.4 -1.6 -0.8 -0.5


In 2020, general government revenues are projected to be 32.4 percent by a decrease of

1 points. Despite the projected increase in tax revenues, indirect taxes in particular, by 0.5

points thanks to economic recovery; general government revenues are projected to decline

due to the base effect stemming from factor revenues.

General government expenditures are programmed to be 35.2 percent as a ratio to GDP,

1.1 points lower than previous period. In 2020, transfer expenditures are programmed to be

close to 2019 level whereas capital expenditures and current expenditures are programmed

to decrease by 0.5 points and 0.7 points respectively. In this context, the GDP share of

general government deficit is projected to be 2.9 percent of GDP in 2020, by a 0.1 point

decrease.

4.4. Structural and Cyclical General Government Balance

Actual general government balance covers temporary effects resulted from economic

fluctuations as well as one-off measures taken. However, structural general government

balance, which has become crucial with adopting the multi-year budgetary process, reflects

the revenue and expenditure levels under the assumption that the economy was operating at

its potential level.

Fiscal Framework

46

The actual general government balance analyzed in this section does not cover the

privatization revenues and one-off revenues and expenditures. In this way, the effect of

cyclical developments in economic activities is aimed to be seen clearly

Table 4.7: General Government Balance Analysis1

Output

Gap

(Y/Yp) 2

General Government Balance /

GDP

Primary General Government

Balance / GDP Cyclical

Balance /

GDP Actual Balance

Structural

Balance 3 Actual Balance

Structural

Balance 3

2010 -5.08 -3.24 -1.85 1.05 2.22 -1.28

2011 -0.37 -1.67 -2.49 1.46 0.63 0.82

2012 -1.08 -1.58 -1.50 1.60 1.65 -0.07

2013 1.40 -1.94 -2.46 0.91 0.43 0.49

2014 0.95 -1.63 -2.05 0.90 0.50 0.40

2015 1.56 -1.77 -2.36 0.57 0.03 0.55

2016 -0.30 -3.17 -3.44 -1.14 -1.42 0.28

2017 1.69 -2.96 -3.80 -1.02 -1.83 0.78

2018 0.05 -5.03 -5.20 -2.90 -3.07 0.17

2019 -3.29 -5.89 -4.90 -3.29 -2.39 -0.82

2020 -2.58 -4.18 -3.58 -1.14 -0.63 -0.50

2021 -1.99 -3.49 -3.11 -0.40 -0.08 -0.32

2022 -1.46 -3.14 -2.94 -0.06 0.10 -0.16 1 It refers to balance excluded public claims restructuring, 2B Revenues, privatization and other one-off revenues and expenditures. 2 Percentage difference from potential. The potential output is calculated using production function method. 3 Structural balance is ratio of potential GDP.

In 2018, the main determinant of the deterioration in actual and structural balances was

the decline in budget revenues, especially indirect tax revenues. Increase in expenditures

stemmed from basically items such as personal expenditures, lending and interest payments.

Thus, when diminishing surplus of unemployment insurance fund compared to previous year

and local government balance, whose revenues decreased more than their expenditures, are

added to budget deficit amounted to a substantial level, the ratio of actual general

government deficit to GDP deteriorated as 2.1 percentage points compared to previous year

and realized as 5 percent. In the same year, the ratio of structural general government deficit

to potential GDP increased to 5.2 percent with 1.4 percentage points deterioration compared

to previous year.

In 2019, the privatization fund is expected to generate 0.14 percent of privatization

revenue, as a share of GDP. The ratio of premium debts restructuring to GDP is estimated

to be 0.12 percent. On the budget side, in 2019, the ‘échelle mobile’ system’s reducing

impact of the budget revenues has been adjusted as well as in 2018. Moreover, when the

effect of revenues, such as tax amnesty, zoning amnesty, Central Bank’s profit and Central

Bank’s legal reserves, which are transferred to Treasury on July and on August, are added,

budget’s one-off revenues reach 2.6 percent, as a share of GDP. Thereby, it is seen that the

effect of economic fluctuations on general government balance was relatively limited,

however, the impact of the ratio of one-off measures to GDP, which increased compared to

previous year, reached 2.9 percent as a substantial level.

In 2019, rise in primary expenditures along with increase in items such as personal

expenditures and current transfers, and interest payments, have contributed to increase in

budget deficit, despite in particular decline in capital expenditures. On the revenue side, in

addition to decline in corporate tax, low performance in indirect taxes, particularly decrease

Fiscal Framework

47

in domestic VAT and SCT along with weakness in domestic demand, and VAT in imports

based on slowdown in imports, were determinant of the breakdown in budget balance.

Despite budget balance developments, when relative recovery in balances of funds and local

governments is added to unemployment insurance fund, whose surplus keeps also

diminishing in this year, the ratio of structural general government deficit to potential GDP

is expected to be 4.9 percent by a 0.3 point decrease and primary structural deficit is expected

to be 2.4 percent with 0.7 percentage points amelioration, compared to previous year.

Table 4.8: Fiscal Stance and Output Gap 1

(Change from the Previous Year )

Output Gap

(Y/Yp))

As a share of Potential GDP

Structural General

Government Balance

Structural Primary General

Government Balance

2010 2.88 1.29 0.34

2011 4.71 -0.63 -1.59

2012 -0.71 0.99 1.02

2013 2.48 -0.96 -1.22

2014 -0.45 0.41 0.07

2015 0.61 -0.31 -0.48

2016 -1.86 -1.08 -1.45

2017 1.99 -0.36 -0.41

2018 -1.64 -1.39 -1.24

2019 -3.34 0.29 0.68

2020 0.71 1.32 1.77

2021 0.60 0.47 0.55

2022 0.53 0.17 0.18

(1) Bold figures show pro-cyclical fiscal policy periods while unbolded ones show counter-cyclical fiscal policy periods.

Changes in the structural balance are a useful indicator in terms of fiscal policy

interpretation. Policy implementation either amplifies (pro- cyclical) or dampens (counter-

cyclical) the cycle. A positive association of the changes in the structural balances with the

changes in the output gap implies a counter-cyclical fiscal stance; however, a negative

association implies a pro-cyclical fiscal stance. When the period of 2020-2022 is examined,

it is seen that the mentioned relation will be positive, so projected policy implementations

will dampen the economic cycle.

In 2020, the general government balances are expected to begin to recover in line with

the main policies aimed at eliminating non-productive spendings and not creating permanent

expenditures against temporary revenue sources. Measures taken to increase tax revenues in

addition to decrease in primary expenditures, despite rise in interest payments, are expected

to cause a significant improvement in the central government budget balance. When social

security institutions, whose balance deteriorates to some extent, and unemployment

insurance fund, whose balance ameliorates, are added to this development in budget balance,

it is expected that the actual and structural general government balances have started to

display upturn trend as from 2020. Thus, the ratio of actual and structural general

government deficit to GDP and potential GDP consecutively, are expected to realize as 3.6

percent and 3.2 percent on average in the period of 2020-2022 (Figure 4.1).

Fiscal Framework

48

Figure 4.1: General Government Balance

Source: Presidency of Strategy and Budget GGB: General Government Balance Pot. GDP: Potential GDP

Similarly, it is expected that the actual and structural primary general government

balances, which are turned into a deficit in 2016, will be in upturn trend in this three-year

period, with the contribution of measures taken. Thus, it is estimated that structural primary

balance will have a surplus again in 2022 while the actual balance, which continue to have

a deficit, will go down significantly (Figure 4.2). The biggest contribution to the recovery in

primary balance comes from the central government budget. Consequently, it is forecasted

that both actual and structural primary general government balances to GDP and potential

GDP consecutively, which were estimated to be 0.8 percent and 1.2 percent on average in

the previous ERP period, will realize as -0.5 percent and -0.2 percent on average in 2020-

2022 period.

0.95

0.96

0.97

0.98

0.99

1.00

1.01

1.02

1.03

1.04

1.05

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

Po

t. G

DP

/ G

DP

Per

cen

t

Structural GGB / Pot.GDP (Left Axis)

Actual GGB / GDP (Left Axis)

Pot. GDP / GDP (Right Axis)

Forecast

Fiscal Framework

49

Figure 4.2: Primary General Government Balance


PGGB: Primary General Government Balance, Pot. GDP: Potential GDP

Cyclical general government balance is calculated by subtracting the structural general

government balance from the actual general government balance. Since the privatization

revenues and one-off revenues and expenditures are excluded in the calculations of structural

and actual general government balances, cyclical balance only reflects the impacts of

conjunctural developments.

Figure 4.3: Cyclical General Government Balance

Source: Presidency of Strategy and Budget GGB: General Government Balance

Pot. GDP: Potential GDP

It is observed that the cyclical effect has declined as from 2009 where it was

substantially high as a consequence of the divergence of GDP from its potential. During the

0.95

0.96

0.97

0.98

0.99

1.00

1.01

1.02

1.03

1.04

1.05

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

Po

t. G

DP

/ G

DP

Per

cen

t

Structural PGGB / Pot.GDP (Left Axis)

Actual PGGB / GDP (Left Axis)

Pot. GDP / GDP (Right Axis) Forecast

0.91

0.94

0.97

1.00

1.03

1.06

1.09

1.12

-3

-2

-1

0

1

2

3

4

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

Pot.

GD

P /

GD

P

Per

cen

t

Cyclical GGB / GDP (Left Axis)

Pot. GDP / GDP (Right Axis) Forecast

Fiscal Framework

50

ERP period, the additive effect of cyclical movements on the actual general government

deficit is forecasted to be limited together with the expected economic recovery (Figure 4.3).

4.5. Debt Levels and Developments, Analysis of Below-the-Line Operations and

Stock-Flow Adjustments

4.5.1. Current Situation

As a result of the ongoing economic program, fiscal discipline and efficient borrowing

strategies, considerable improvements were observed in the EU defined general government

debt stock. The ratio of EU defined general government debt stock to GDP, which was 76.1

percent at the end of 2001, declined to 30.4 percent at the end of 2018.

Central government total debt stock increased by 207.1 billion TL compared to its

2018 level and reached 1,274.2 billion TL by November 2019. The ratio of fixed rate debt

in the total stock decreased by 0.7 points compared to its 2018 level and realized as 74.6

percent by November 2019.

Table 4.9: EU Defined General Government Debt Stock

(Percent of GDP)

2010 2011 2012 2013 2014 2015 2016 2017 2018

EU Defined General Government Debt Stock

40.1 36.5 32.7 31.4 28.8 27.6 28.3 28.2 30.4

Source: Ministry of Treasury and Finance

Compared to its 2018 level, central government domestic debt stock increased by

136.1 billion TL and reached 722.2 billion TL by November 2019. When the ratio of the

respective stock to GDP is considered, it is seen that it descended to 15.7 percent in 2018,

from 17.2 percent in 2017.

Table 4.10: Central Government Debt Stock (Percent of GDP)

2010 2011 2012 2013 2014 2015 2016 2017 2018

Domestic Debt Stock 30.4 26.4 24.6 22.3 20.3 18.8 18.0 17.2 15.7

External Debt Stock 10.5 10.8 9.3 10.1 9.7 10.2 11.2 11.0 12.9

Total 40.9 37.2 33.9 32.4 30.0 29.0 29.1 28.2 28.7


The central government external debt stock has been 552.0 billion TL by November

2019. Considering the interest composition of external debt stock, the share of fixed rate

debt has been 90.4 percent by November 2019.

Fiscal Framework

51

Table 4.11: Central Government Debt Stock by Interest Rate Type (Million TL)

Domestic Debt Stock External Debt Stock Total Debt Stock

Fixed Floating Indexed

to CPI Fixed Floating Fixed Floating

Indexed

to CPI Total

2010 175,740 124,070 53,031 89,945 31,360 265,685 155,430 53,031 474,146

2011 192,358 112,118 64,302 115,172 35,120 307,530 147,237 64,302 519,070

2012 201,866 108,367 76,309 116,750 29,609 318,616 137,976 76,309 532,901

2013 212,007 94,760 96,239 148,477 34,708 360,485 129,469 96,239 586,193

2014 234,889 78,880 100,880 164,706 33,163 399,595 112,042 100,880 612,517

2015 256,394 84,281 99,450 202,237 35,884 458,631 120,165 99,450 678,246

2016 278,945 82,882 106,817 251,492 39,815 530,437 122,697 106,817 759,952

2017 348,401 67,482 119,564 298,329 42,717 646,731 110,200 119,564 876,494

2018 375,213 75,552 135,377 428,573 52,400 803,786 127,952 135,377 1,067,115

2019 Nov 451,130 114,866 156,211 499,259 52,721 950,389 167,587 156,211 1,274,187


(Share in Total Debt Stock, Percentage)

Domestic Debt Stock External Debt Stock Total Debt Stock

Fixed Floating Indexed to

CPI Fixed Floating Fixed Floating

Indexed to

CPI Total

2010 37.1 26.2 11.2 19.0 6.6 56.0 32.8 11.2 100.0

2011 37.1 21.6 12.4 22.2 6.8 59.2 28.4 12.4 100.0

2012 37.9 20.3 14.3 21.9 5.6 59.8 25.9 14.3 100.0

2013 36.2 16.2 16.4 25.3 5.9 61.5 22.1 16.4 100.0

2014 38.3 12.9 16.5 26.9 5.4 65.2 18.3 16.5 100.0

2015 37.8 12.4 14.7 29.8 5.3 67.6 17.7 14.7 100.0

2016 36.7 10.9 14.1 33.1 5.2 69.8 16.1 14.1 100.0

2017 39.7 7.7 13.6 34.0 4.9 73.8 12.6 13.6 100.0

2018 35.2 7.1 12.7 40.2 4.9 75.3 12.0 12.7 100.0

2019 Nov 35.4 9.0 12.3 39.2 4.1 74.6 13.2 12.3 100.0


Thanks to the decrease of short term securities’ share in debt stock through their

redemptions and issuance of long term securities in line with the strategic benchmarks,

average time to maturity of central government debt stock increased from 3.6 year at the end

of 2008 to 5.6 year by November 2019.

Table 4.12: Average Time to Maturity of Central Government Debt Stock

(Year)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Nov

Domestic Debt Stock 2.6 2.6 2.8 3.9 4.6 4.6 4.3 4.3 3.9 3.1

External Debt Stock 8.8 9.0 9.4 9.3 9.5 9.5 9.4 10.1 9.6 8.9

Total 4.1 4.4 4.6 5.6 6.1 6.3 6.3 6.4 6.4 5.6


Fiscal Framework

52

In the period of January-October 2019, the average cost of fixed rate TL borrowing

and the average maturity of cash domestic borrowing stood at 20.2 percent and 28.2 months,

respectively.

Figure 4.4: Average Time to Maturity and Cost of Domestic Borrowing

Source: Ministry of Treasury and Finance (*) Cumulative cost of fixed rate TL denominated borrowing is displayed.

(**) Cumulative maturity of cash domestic borrowing is illustrated.

4.5.2. General Government Debt Stock Projections for 2020-2022 Period

As a result of the prudent fiscal policies implemented, efficient borrowing strategies

and strong growth performance in the last decade, the ratio of the general government debt

stock to GDP has decreased significantly. General Government Debt Stock to GDP stood at

30.4 percent at the end of 2018. In the New Economy Program covering the period 2020-

2022, the EU-defined General Government Debt Stock is expected to realize at the level of

32.3 percent by the end of 2022.

Table 4.13: EU Defined General Public Debt Stock Estimations

(Percent of GDP)

2018 2019 2020 2021 2022

Realization* Forecast**

EU Defined General Government Debt Stock 30.4 32.8 33.2 32.5 32.3


*Ministry of Treasury and Finance **Medium Term Programme (2020-2022)

4.5.3. Contingent Liabilities

Contingent liabilities refer to obligations of which timing and magnitude depend on

the occurrence of some uncertain future event outside the control of the government.

Treasury guarantees and debt assumption commitments provided in the context of Public-

Private-Partnership projects are among the explicit contingent liabilities of the Treasury.

The Ministry of Treasury and Finance provides repayment guarantees for foreign

borrowing of public institutions (defined in Law No. 4749, Article 3) in order to minimize

0

5

10

15

20

25

20

09 4 7

10

20

10 4 7

10

20

11 4 7

10

20

12 4 7

10

20

13 4 7

10

20

14 4 7

10

20

15 4 7

10

20

16 4 7

10

20

17 4 7

10

20

18 4 7

10

20

19 4 7

10

0

10

20

30

40

50

60

70

80

Maturity (Left Axis)** Cost of Borrowing (Right Axis)*

Fiscal Framework

53

the investment financing costs, ensure sustainable growth and meet funding requirements of

multi-year investment projects of the mentioned institutions. Furthermore, based on and

limited with the provisions of the relevant law, The Ministry of Treasury and Finance

provides investment guarantees within the scope of Built-Operate-Transfer, Built-Operate,

Transfer of Operating Rights and similar financing models. As defined in Article 8/A of

Law No. 4749, The Ministry of Treasury and Finance can also provide debt assumption

commitments for Public Private Partnership (PPP) projects. According to this mechanism,

upon termination of the implementation contract and transfer of facilities to the relevant

administration, the credit facilities provided for the project, including relevant financial

obligations, can be undertaken.

Internal Credit Rating Model which considers the debt-receivable relationship

between the institutions and the Treasury and financial statements of these institutions, was

put into practice in 2006, in order to improve the management of contingent liabilities

confronting The Ministry of Treasury and Finance. In this context, the limit for Treasury

guarantees and on-lent foreign loans, guarantee and on-lent fees and partial guarantee ratios

are calculated using this model based on the expected losses from organizations in order to

alleviate risks arising from contingent liabilities.

In this context, the Guarantee and On-lent limit covering repayment guarantees,

investment guarantees and on-lent foreign loans to be provided under the Law No. 4749 is

set by Central Government Budget Law every year. This limit has been determined as 4,5

billion dollars for 2020. There is also a budgetary limit for the debt assumption commitments

provided for certain PPP projects and it was determined as 4,5 billion dollars for 2020.

In order to compensate for the losses that stem from the guaranteed/on-lent credits and

to share the risk with beneficiaries, a one-time guarantee/on-lent fee is applied up to 1

percent of the total credit amount. In the partial guarantee practice, credits except export

credits obtained from the international and regional organizations, foreign government funds

and foreign official export insurance agencies, are guaranteed up to 95 percent of the total

liabilities.

Risk Account has been set up in 2003 in order to eliminate the disruptions in the cash

and debt management caused by the amounts paid by the Treasury due to Treasury

guarantees and budget appropriation was started to be allocated every year as of this date.

As the repayments to the Risk Account is sufficient for the undertakings realized from the

account no budgetary allocations, which is one of the items of the revenues of the account,

has been used since 2009.

4.5.4. Repayment Guarantee

The repayment guaranteed debt stock has increased from its level of 13.9 billion

dollars in 2018 to 14.4 billion dollars by the end of the third quarter of 2019. Guarantees

provided to public banks and investment and development banks have the highest share

within the repayment guaranteed debt stock.

Despite an increasing guaranteed debt stock since 2007, the undertaking ratio

decreased in the same period and it was 1.7 percent by the end of November 2019.

Fiscal Framework

54

Taking into account the payment projection of the Treasury repayment guaranteed

foreign debt stock, an increase in parallel with the disbursements is observed in the medium

term.

Table 4.14: Projection of Treasury-Guaranteed Foreign Debt Service (*)

(Million Euro)

Principal Interest Total

2019 406 80 486

2020 1,493 251 1,744

2021+ 2,517 225 2,742

2022+ 8,718 1,454 10,173

Source: Ministry of Treasury and Finance *Based on drawings; as of September 2019, provisional

4.5.5. Investment Guarantees

In addition to repayment guarantees, The Ministry of Treasury and Finance has

provided investment guarantees to energy and infrastructure sectors. Since 1999 no

investment guarantee has been provided by the Treasury. The liabilities of the current

projects will finish by 2020 unless the Treasury grants a new investment guarantee.

4.5.6. Debt Assumption Commitments

As of 2019, Treasury provided debt assumption commitments for the external loans

provided for 7 PPP projects with an amount of 17.2 billion dollars. On the other hand, no

obligation has been undertaken by Treasury due to these commitments.

Table 4.15: Loans Subject to Debt Assumptions

Project Name PPP Model Debt Assumption

Agreement Date

Total Project

Cost (Million

dollar)

Loan Amount

(Million dollar)

Eurasia Tunnel Build-Operate-

Transfer 11.12.2012 1,239.9 960

Northern Marmara Motorway -

Odayeri-Paşaköy Section (including

Third Bosphorus Bridge)

Build-Operate-

Transfer

13.5.2014 3,456.2

2,318

11.3.2016 420

Gebze-Orhangazi-İzmir Motorway

(including the Izmit Gulf Crossing)

Build-Operate-

Transfer 5.6.2015 6,312.4 4,956.3

Çanakkale-Malkara Motorway

(including 1915 Çanakkale Bridge)*

Build-Operate-

Transfer 16.3.2018 3,159.7* 2,800.0

Ankara-Nigde Motorway* Build-Operate-

Transfer 7.6.2018 1,462.6* 1,310.7

Northern Marmara Motorway -

Kurtköy-Akyazı Section

Build-Operate-

Transfer 16.9.2019 3,661.7 2,840

Northern Marmara Motorway-

Kınalı-Odayeri Section

Build-Operate-

Transfer 16.9.2019 2,072.3 1,595

17,200.05

Source: Ministry of Treasury and Finance *Million Euro

4.5.7. Treasury Receivables

The stock of Treasury Receivables has been realized 17.8 billion TL by the end of

November 2019. The local administrations have 62.6 percent, SOE’s has 19.2 percent and

other institutions have 18.2 percent shares in the Treasury’s receivables stock.

Fiscal Framework

55

In January-November 2019 period, deductions from Municipalities’ general budget

tax revenues by the Ministry of Treasury and Finance and by Iller Bank (60.3 percent) have

the highest share within the collections. In the same period, cash payments of the institutions

were 29.1 percent.

Table 4.16: Stock of Treasury Receivables

(Million TL)

2011 2012 2013 2014 2015 2016 2017 2018 2019*

Local Governments 15,082 14,519 13,036 11,349 12,163 12,329 11,605 11,750 11,162

SOE's 4,842 3,282 3,168 2,129 2,375 2,432 2,744 3,307 3,432

Other Institutions 4,551 3,970 3,789 3,221 3,197 2,831 3,151 3,479 3,244

Total 24,474 21,771 19,994 16,699 17,734 17,593 17,500 18,536 17,837


(*) As of November 2019, provisional

4.6. Sensitivity Analysis and Comparison with the Previous Programme

Ministry of Treasury and Finance has executed debt and cash management by adopting

risk based approach since 2003. In this regard, risk exposure of central government debt

stock is regularly monitored and reported to the Debt and Risk Management Committee

which is the highest decision making unit of debt management. Sustainability and sensitivity

analyses are the most important tools for evaluation of the risk profile of the debt stock.

While sustainability analysis projects the probable trajectory of the debt to GDP ratio under

the changes in macroeconomic variables, sensitivity analysis puts forward the vulnerabilities

of debt stock to the risks by considering the current debt structure.

As a result of debt and cash management policies based on strategic benchmarks,

structure of debt stock has improved and thus the exposure of central government debt stock

to exchange rate, interest rate and liquidity risk has significantly reduced. In sensitivity

analysis, annual deviations of the EU defined general government debt stock to GDP level

from the baseline scenario are computed under real interest rate, growth rate, exchange rate

and primary balance shocks. Sensitivity of the general government debt burden to

macroeconomic shocks has a downward trend since 2001 when the first sensitivity analysis

was implemented. Borrowing by mainly in TL denominated with fixed rate instruments and

extending the borrowing maturities have significantly contributed to reduce in sensitivity of

debt burden to market risks. While 5 percent depreciation in TL would increase the general

government debt to GDP ratio by 2.1 percentage points in 2001, due to improvement in the

debt structure it would only increase by 0.7 percentage points in 2018. On the other hand,

500 basis points interest rate hike would increase general government debt to GDP ratio by

0.8 percentage points in 2018 whereas it would increase by 1.6 percentage points in 2001.

Similarly due to decrease in debt stock to GDP level, effects of growth shocks on EU defined

general government debt stock to GDP are diminished significantly.

Table 4.17: Sensitivity of the EU Defined General Government Debt Burden

2001 2018

Change in real exchange rate app/dep by 5 percent +/- 2.1 points +/- 0.7 points

Change in TL interest rate by 500 bp +/- 1.6 points +/- 0.8 points

Change in GDP growth rate by 2 percentage points +/- 1.6 points +/- 0.6 points


Fiscal Framework

56

4.7. Sustainability of the Public Finance

4.7.1. Public Finance Risks

Fundamental sustainability risks that might constitute obstacles to reach the

determined objectives in the public finance in the 2020-2022 periods are summarized below.

If macroeconomic targets including growth, foreign trade, employment and inflation

are missed, central government revenue performance would be affected adversely,

there would be upward pressure on expenditures and a possible increase in the

financing requirement.

If social security insurance premium collections will be lower than estimates due to

lower than expected growth rate and health-care expenditures could not be taken under

control, social security systems deficit and the transfers to the social security

institutions from the central government budget will be higher than expected.

Persistent upward trend of primary expenditures might both reduce the flexibility of

the budget and narrow down the fiscal space that could be used for discretionary

policies when required.

Monetary policy changes of FED and ECB might cause an increase in public interest

expenditures as well as a deviation of debt to GDP ratio from the projected levels due

to interest rate and exchange rate fluctuations in local and international markets via

capital flow reversals.

4.7.2. Sustainability Analysis

Sustainability analysis regarding the course of public debt burden against various

macroeconomic shocks in the period of 2020-2022 is presented below.

Figure 4.5 illustrates medium term course of EU defined general government debt to

GDP ratio under different scenarios. In these scenario analyses, impacts of 10 percent

upward shift in the exchange rates, 2 points downward shift in the real growth rate and 500

basis points upward shift in the real interest rates over the analysis period have been

separately and jointly assessed. Moreover, one time primary balance shock is applied to the

first year of the analysis period in addition to the combined shock scenario. In this scenario,

primary balance performs 1 percent lower than the baseline scenario as a share of GDP. By

doing so, possible risks such as contingent liabilities, which may lead to increase the

financing needs, are analyzed. Additionally, the interrelation between macroeconomic

variables has also been taken into account and secondary effects of each shock scenarios on

other variables are reflected into the analysis. In this context, the impact of growth shock on

primary balance and inflation, together with the effects of exchange rate shock on inflation

have been reflected to the analysis. Examining the scenarios stated above, compared to the

baseline scenario, it is evaluated that the debt burden will record an increase of 5.7 points

under the exchange rate shock; 2.9 points under the interest rate shock and 2.6 points under

the growth rate shock in 2022. In the combined shock scenario, in which all shocks are taken

into consideration together, it is expected that the debt burden may increase by 5.5 points

Fiscal Framework

57

compared to the base scenario. When primary balance shock is added to the combined shock,

the level of change rises to 6.7 points.

Figure 4.5: Sustainability Scenarios


4.8. Fiscal Governance and Budgetary Frameworks

Within the framework of the central harmonization role of the Presidency of Strategy

and Budget, in order to enhances the quality of public spending system, efforts are being

made to combine secondary legislation and other regulations related to strategic planning,

performance program and activity reporting under a single roof.

Strategic plan and performance programs have been prepared and implemented by

public administrations within the scope of central government, state universities, social

security institutions, municipalities with population of over 50 thousand, special provincial

administrations, and state-owned enterprises. The implementation of strategic plans and

performance programs have been monitored by accountability reports.

Within the scope of the Presidential 100-Day Action Plan ministries and affiliated

and related institutions prepared their draft strategic plans for the period of 2019-2023 and

submitted them to the Presidency of Strategy and Budget. These plans were examined in

terms of compliance with the high level policy documents and the procedures and principles

related to the legislation on strategic planning and the relevant administrations were given

feedback through evaluation reports.

Following the Eleventh Development Plan entry into force, The Corporate

Responsibility Table regarding the goals, objectives and policies included in the plan has

been prepared and the level of the Development Plan to guide the strategic plans of public

administrations was strengthened. Within this framework, the studies on updating the

33.232.5

32.3

38.0

32.7

34.9

32.7

35.2

37.8

39.0

26

29

32

35

38

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

Per

cent

Base Scenario ER Shock (%10)Growth Shock (2 Percentage Points) Interest Rate Shock (500 bp)Combined Shock Combined Shock + One Time FDF Shock ( %1 of GDP)

Fiscal Framework

58

strategic plans of the ministries and affiliated and related institutions for the period of 2019-

2023 in line with the Development Plan were completed.

As of December 2019, in the last one year a total of 121 strategic plans which belong

to central administrations, universities, SEEs and supreme councils were evaluated by the

Presidency of Strategy and Budget.

The Strategic Planning Guide for Municipalities was published in order to assist

municipalities in preparation, implementation, monitoring and evaluation stages of strategic

plans. Following the Local Elections held on March 31, 2019, studies were carried out by

municipalities with population of over 50 thousand, special provincial administrations, and

state-owned enterprises for preparations of strategic plans covering the period 2020-2024

and 2020 performance program.

To strengthen the linkages of administrative budgets with high level policy documents

and strategic plans and transform these documents that shows the performance of public

services, the transition process of the administrative budgets to the program budget has

started. In this context, arrangements were made for the preparation of 2020 performance

programs of central administrations and universities in line with the program budget.

Structural Reform Priorities

59

5. STRUCTURAL REFORMS (2020-2022)

5.1. Identification of Key Obstacles to Competitiveness and Inclusive Growth

The searches for power balance continue globally in geopolitical, military and

economic domains. This search has significant implications on the formulation of energy,

global trade, international investments, logistics and defense policies. The advantages to be

offered by accelerated technological transformation to countries, which take initial market

making steps going forward, will lead countries to take steps beyond market mechanisms

and shape up trade wars on technology grounds.

Coupled with political, economic and financial risks growing at the global level, the

rising tensions in the field of trade, growing technological competition and uncertainties

fueled by new protectionist trends lead to continued displacements in areas of conflict and

alliances, making it difficult for countries to take firm positions in certain areas.

Brexit, the weakening in transatlantic relations, and accelerated irregular migration

reduce the normative power of the EU and make it imperative to re-define its role particularly

in security terms. Volatile environment in our biggest trading partner causes deterioration in

foreign trade balance and deferment of investment decisions.

Our global economy is in transition. We are moving towards a world where trade

intensity in goods is declining, labor-cost arbitrage is falling, trade in services is rising,

global value chains are becoming more knowledge intensive, and intra-regional trade is

growing. While low labor cost arbitrage has been becoming no longer a selection criteria for

global value chains, countries with strong cognitive abilities increase their share in global

production. Starting from pre-school education, encouraging secondary and tertiary

education and spreading on-the-job trainings will enable the active working low-skilled

workforce to rise to upper income groups. At this point, Turkey’s young and dynamic

population structure creates a window of opportunity. However, that opportunity comes with

a cost which is the necessity of improving quality of current and future labor force in order

to transform the economy to higher value added production structure.

Turkey has limited capabilities in innovative technology development and productive

usage of these technologies compared to developed countries. In order to ensure the

adaptation of our country to technological transformation and to increase competitiveness of

our country, enriching qualified human resources in priority sectors, increasing the spread

of technology to enterprises, improving the organization and innovation capabilities of

companies, and ensuring effective mechanisms for financing innovation and research and

development (R&D) are the priority areas.

Strengthening quality and capacity in the context of education and technology will be

an important tool to improve competitive power of the economy. Given the weight of SMEs

in economy, policies focusing on SMEs will be the priority for enhancing competitiveness.

A judicial system, which is predictable, transparent, high-grade and efficient, is an

assurance for economic activity. The main purpose of the business and investment climate

in Turkey is to improve the competitive environment in the markets by ensuring


60

transparency, stability, reliability and predictability in business and investment climate

reforms and public policies and regulations, to strengthen the production structure by

applying effective incentive programs, and to make Turkey a regional manufacturing hub by

increasing foreign direct investments that will foster technological transformation in the

economy.

Informality significantly deteriorates the competitiveness and prevents the healthy

functioning of public finance structure. Within the scope of the fight against the informal

economy, an intensive activity is carried out both in terms of public revenues and

employment. Recording transactions via simplification as well as increasing the audits

constitute the main priorities regarding this challenge.

International migration is expected to flow from less developed countries with rapid

population growth to rapidly growing economies. Selective migrant policies increase the

competition for qualified labor force while uncertainties over the management of non-

qualified and poor population movements persist. The concentration of uncontrolled

migrants in low-skill jobs is leading to the deterioration of working conditions and causing

reactions among host communities.

Failure to adapt the migrant populations to urban life may both result in extensive

unemployment and poverty, and cause tensions among social sectors, destruction of the

sense of belonging and confidence, rise in crime rates and spatial distinctions between social

groups. Unfortunately, chaos in our neighbors still remains and its negative reflections on

our economy and social welfare of our society persists.

5.2. Summary of Reform Measures

ERP 2020 includes total of 26 measures. 15 of these measures are from last year and

11 new measures have been added to the Program. 5 measures in the previous ERP were

excluded from the Program for various reasons. Measure 8 in ERP (2019-2021) was

excluded from the scope of ERP since it was decided that it could not effectively fulfill its

key role in eliminating the problem. Measure 10 was excluded from the scope of ERP as it

was not a structural reform as mentioned in the Commission Assessment Report. Measure

18 was excluded from the scope of ERP due to lack of monitoring and follow-up process.

Measures 5 and 6 were excluded from the scope of ERP with the approval of the relevant

Ministries, considering that these are not sufficient programs that may have direct and

widespread competitiveness impact on enterprises operating in these sectors considering the

implementation area, budget and targeting a limited number of SMEs according to the call

issues determined on an annual basis.

The scope of Measure 13 in ERP 2020 (Enhancing the R&D and innovation activities

of SMEs) was extended with the contribution from TUBITAK (Measure 13b) and the related

measure in ERP 2019 (Measure 12) will be monitored by Measure 13a.

The scope of measure 17 in ERP 2020 (Increasing the reading culture) has been

extended to include the actions of both the Ministry of Culture and Tourism and the Ministry


61

of National Education. The main responsibility of the measure is the Ministry of Culture and

Tourism. The Ministry of National Education is responsible for section 17b of the measure.

The name and content of Measure 18 in ERP 2020 (Preparing digital content and skill

based programs according to curriculum) have been changed and become a narrower

measure. Some of its content has been transposed into the two new measures on vocational

training, measures 19 and 20.

Energy and Transport Markets Reform

1. Increasing share of renewable energy regarding electricity generation

2. Development of financial mechanisms regarding energy efficiency

3. Turkish Railway Transport Liberalization

Agriculture, Industry and Services

4. Improvement of data collection processes and increasing the capacity of

evaluation in agriculture statistics

5. Support mechanism will be established for the replacement of inefficient

electric motors used in industry with more efficient ones

6. Establishing Model Factories (SME Competency and Digital Transformation

Centers) and Innovation Centers to increase the efficiency of SMEs and their

digital transformation

7. Increasing tourism market share and brand value

Business Environment and Reduction of the Informal Economy

8. Establishment of SME Guidance and Counseling System

9. Creating guidelines for investment procedures in various sectors

10. Preparing new legislation for easing private sector investments

11. Reducing Unregistered Employment by Focusing on Increasing Audit

Capacity in Non-Agricultural Sectors

Research & Development and Innovation and Digital Economy

12. Increasing the number and efficiency of business development, incubation

and accelerator centers in order to support innovative entrepreneurship

13. Enhancing the R&D and innovation activities of SMEs

14. Supporting competent research infrastructures on a performance basis within

the new legal framework

Trade-related Reforms

15. Update of the Turkey-EU Customs Union

Education and Skills

16. Dissemination of pre-school education

17. Increasing the reading culture

18. Preparing digital content and skill based programs according to curriculum

19. Updating of curricula in vocational and technical education

20. Supporting applications for inventions, patents and utility models useful in

vocational and technical education

Employment and Labor Markets

21. Job Clubs

22. Mother at Work and Child Care Support

23. Vocational Training and Skills Development Cooperation Protocol (MEGİP)

Project

24. Courses Organized for Future Professions and On-the-job Training

Programmes


62

Social Protection and Inclusion

25. Social Assistance Plus (+)

26. Dissemination of Family-Oriented Social Services Models


63

Table 5.1: Summary of Reform Measures

Reform Measure Basis Institution ERP (2019)

Measure

Number

1. Increasing share of renewable energy

regarding electricity generation

Eleventh Development Plan, NEP (2020-

2022), Presidency Annual P.

Ministry of Energy and Natural Resources 1

2. Development of financial mechanisms regarding energy efficiency

Eleventh Development Plan, NEP (2020-2022), Presidency Annual P.

Ministry of Energy and Natural Resources 2

3. Turkish Railway Transport

Liberalization

Eleventh Development Plan, Presidency

Annual P.

Ministry of Transport and Infrastructure 3

4. Improvement of data collection

processes and increasing the capacity of evaluation in agriculture statistics

Eleventh Development Plan, Ministry of

Agriculture and Forestry Strategic Plan (2019-2023)

Ministry of Agriculture and Forestry 4

5. Support mechanism will be established

for the replacement of inefficient electric motors used in industry with more efficient

ones

Eleventh Development Plan Ministry of Industry and Technology,

KOSGEB

NEW

6. Establishing Model Factories (SME Competency and Digital Transformation

Centers) and Innovation Centers to

increase the efficiency of SMEs and their digital transformation

Eleventh Development Plan NEP (2020-2022)

Ministry of Industry and Technology, KOSGEB

NEW

7. Increasing tourism market share and

brand value

Eleventh Development Plan Tourism Agent 7

8. Establishment of SME Guidance and

Counseling System


2022), Industry and Technology Strategy

Ministry of Industry and Technology,

KOSGEB

9

9. Creating guidelines for investment procedures in various sectors

Eleventh Development Plan, NEP (2020-2022), YOİKK Action Plan

Presidency of Republic of Turkey Investment Office

NEW

10. Preparing new legislation for easing

private sector investments

Eleventh Development Plan, 2020

Presidency Annual P.

Presidency of Republic of Turkey

Investment Office, Presidency of Strategy and Budget

NEW

11. Reducing Unregistered Employment by

Focusing on Increasing Audit Capacity in Non-Agricultural Sectors


2022), SGK Strategic Plan

Ministry of Family, Labor and Social

Services, SGK

NEW

12. Increasing the number and efficiency of

business development, incubation and accelerator centers in order to support

innovative entrepreneurship

Eleventh Development Plan Ministry of Industry and Technology 11

13. Enhancing the R&D and innovation

activities of SMEs

Eleventh Development Plan, Industry and

Technology Strategy

Ministry of Industry and Technology,

KOSGEB, TÜBİTAK

12

14. “Supporting competent research infrastructures on a performance basis

within the new legal framework”

Eleventh Development Plan, 2020 Presidency Annual P.

Ministry of Industry and Technology 13

15. Update Of the Turkey-EU Customs Union

Brussels Turkey-EU Statement (2016) Ministry of Trade, Ministry of Foreign Affairs

14

16. Dissemination of pre-school education 2020 Presidency Annual P., Education

Vision Document

Ministry of National Education 15

17. Increasing the reading culture Eleventh Development Plan, Culture

Strategy Action Plan

Ministry of Culture and Tourism, Ministry

of National Education

16

18. Preparing digital content and skill based programs according to curriculum

2023 Education Vision Document Ministry of National Education

17

19. Updating of curricula in vocational and technical education


NEW

20. Supporting applications for inventions,

patents and utility models useful in vocational and technical education


NEW

21. Job Clubs Eleventh Development Plan,

National Employment Strategy Document


Services, İŞKUR

19

22. Mother at Work and Child Care

Support

Eleventh Development Plan,



Services, İŞKUR

NEW

23. Vocational Training and Skills Development Cooperation Protocol (MEGİP) Project

Eleventh Development Plan, National Employment Strategy Document

Ministry of Family, Labor and Social Services, İŞKUR

NEW

24. Courses Organized for Future Professions and

On-the-job Training Programmes

Eleventh Development Plan,



Services, İŞKUR

NEW

25. Social Assistance Plus (+) Eleventh Development Plan Ministry of Family, Labor and Social

Services

20

26. Dissemination of Family-Oriented

Social Services Models

Eleventh Development Plan Ministry of Family, Labor and Social

Services

NEW


64

5.3. Analysis by Area and Structural Reform Measures

5.3.1. Energy and Transport Markets

a. Analysis of Main Obstacles

Turkey attaches utmost importance and gives priority to realizing energy market

reforms and adapting the national energy legislation fully with the EU energy legislation. In

this context, fundamental sectoral laws were completed at great extent and efforts for

establishing a fully competitive energy market are ongoing. Efforts to liberalize the energy

market continued in 2019 as well.

The number of participants in Turkish energy market has increased as a result of the

private sector investments associated with the liberalization policies for the sector.

Electricity and natural gas markets were liberalized to provide the platform for the

commercial transactions. In order to ensure supply and system security, Ancillary Service

Market and Capacity Mechanism are included to electricity market activities.

EPİAŞ was established in 2015 to operate the organized wholesale electricity markets.

Currently, EPİAŞ operates the electricity and natural gas spot markets. EPİAŞ also carries

out the financial settlement of the balancing power market and ancillary services market

operated by the transmission system operator TEİAŞ and the settlement of imbalances in the

wholesale electricity and natural gas markets. In addition, EPİAŞ manages the Renewable

Energy Resources Support Mechanism.

Organized Wholesale Natural Gas Sales Market, allowing market stakeholders to

conduct competitive, transparent and reliable gas trading, was launched in September 2018.

Along with the Salt Lake Natural Gas Underground Storage project and Northern Marmara

Natural Gas Storage Extension project, the total natural gas underground storage capacity,

which is currently 3.4 billion m3, is expected to be increased to 11 billion m3 in 2023. In

addition, with the underground storage capacity increase and other investments, total natural

gas entry capacity of Turkey has exceeded to 330 mcm/day.

The dissemination of the Floating Storage and Regasification Units (FSRUs) is a

significant step towards ensuring the diversity of resources and routes in natural gas markets.

In this context, Hatay-Dörtyol terminal, which is second FSRU terminal of Turkey, has

become operational by BOTAŞ in February 2018. Thus, the regasification capacity of the

LNG has exceeded 120 mcm/day with the upgrades to the terminals.

TANAP has become operational in June 2018 and has started to supply natural gas to

Turkish natural gas transmission system. The gas flow to Europe will be accomplished by

2020. As of 19 November 2018, construction works for Black Sea off-shore component of

TurkStream Pipeline was completed. It is aimed that the line will be operationalized to

supply natural gas to Turkey pursuant to the land phase of the line will have been completed

by the end of 2019. It is planned to construction works for the second line which will

transport natural gas to Europe will be completed by the end of 2019. The gas flow to Europe

will be commenced by 2020.


65

As regards nuclear energy, construction of the first unit of Akkuyu Nuclear Power

Plant (NPP) was launched with the pouring of concrete for the sub-base foundation on 3

April 2018. Construction License for second unit was issued on August 2019.

Within the scope of Sinop NGS Project, technical and commercial feasibility studies

were completed and the feasibility report was submitted to the Ministry of Energy and

Natural Resources (MENR) in 2018 and review of the feasibility report was completed by

the MENR.

In addition to the Akkuyu and Sinop sites, site selection is ongoing to determine a third

NPP site.

A new independent Nuclear Regulatory Authority has been established as an

“associated organization” with the MENR for regulatory control and supervision of activities

and facilities by Decree Law No. 702. On the other hand, Turkish Atomic Energy Authority

has been reorganized as a research and development institution for nuclear energy and

radiation applications. Turkish Atomic Energy Authority has also be given the responsibility

of management and disposal of radioactive waste. Also, general provisions are identified in

decree regarding to nuclear safety, security and radioactive waste management. The duties

and responsibilities of Nuclear Regulatory Authority and Turkish Atomic Energy Authority

are defined on 15 July 2018 under Presidential Decree Number 4.

General provisions are identified in the context of spent fuel and radioactive waste

management in accordance to EU framework directive 2011/70/EURATOM. The

harmonization studies based on of the Council Directive 2013/59/Euratom laying down basic

safety standards for protection against the dangers arising from exposure to ionizing

radiation (BSS Directive) are still in progress. Draft Law on Third Party Liability in the Field

of Nuclear Energy has been prepared in accordance with the Paris Convention.

Although, Turkey's per capita energy consumption is lower than industrialized

countries, Turkey’s energy intensity is still high and this shows that Turkey has considerable

amount of energy savings potential in energy sector. Turkey’s primary energy density was

0.12 TEP per 1,000$ in 2018. Although this figure is lower than the World average of 0.18;

it is higher than the OECD average of 0.11. The National Energy Efficiency Action Plan

2017-2023 aims to reduce the primary energy consumption of Turkey by 14 percent by 2023.

The plan envisages a cumulative 23.9 MTEP savings by 2023 and an investment of 10.9

billion dollars for this savings.

Within the scope of development of financial mechanisms for energy efficiency, the

project "Supporting the Establishment of National Energy Efficiency Financing and Tender

Mechanisms"was initiated in 2019. With the completion of the project in 2020, a road map

for the legal infrastructure required for the establishment of energy efficiency financing and

bid mechanisms will be created.

Turkey aims to increase the share of domestic and renewable energy in the total power

generation. Large-scale Renewable Energy Resources Zone (YEKA) has been introduced

for this purpose. With the large-scale renewable energy resource zones model, renewable


66

energy resources will be utilized more effectively and efficiently in the public and private

property, renewable energy equipment will be manufactured locally, the technology transfer

will be realized. In 2019, a wind YEKA auction with a total capacity of 1,000 MW was held

in four different regions each for 250 MW.

Transport Market

High quality and widespread infrastructure investments are necessary for productive

investments and thus economic growth. In addition to being essential for production, with

the positive externalities created, infrastructure investments support economies of scale,

which is one of the main drivers for increasing productivity and economic growth.

Prominences of global demands for more secure, punctual, fast, and comfortable

transport have expedited development of transportation in recent years. In accordance with

this, new policies are needed to be implemented that highlight development of productive

and effective transport infrastructure by means of facilitating integrated operation of

transportation modes, focuse on human factor and minimize environmental damage.

With respect to railway sector, operating on a single-track rail line, low-standard rail

infrastructure and disregarding freight transport reduce the effectiveness of rail transport and

prevent the creation of a competitive transport market.

With the Law No. 6461 related to Turkey Railway Transport Liberalization,

restructuring process towards opening TCDD rail network to private operators and

establishing a competitive market was initiated.

b. Reform Measures

Measure 1: “Increasing share of renewable energy regarding electricity generation”

1. Description of measure: In order to increase the share of renewable energy in the

installed capacity of electricity, YEKA similar models will be implemented with the

necessary legislative arrangements. Current support mechanism is planned to be updated to

increase the share of electricity generation based on renewable energy sources.

i. Activities planned in 2020: Legislative preparatory work for the establishment of a

renewable energy support mechanism will be carried out. Additionally, YEKA tender will

be held in 2020.

ii. Activities planned in 2021: In order to increase the share of renewable energy in

the installed power of electrical energy, renewable energy resource areas (YEKA) -like

models that will contribute to the installed power development will be implemented along

with the necessary legislative changes. Additionally, YEKA tender will be held in 2021.

iii. Activities planned in 2022: Effects of the updated renewable energy support

mechanism to renewable energy based installed capacity will be monitored. Additionally,

YEKA tender will be held in 2022.


67

2. Results Indicators: Enactment of the legislation by publishing in the Official

Gazette.

Indicator Current 2020 2021 2022

YEKA and/or prelicense tender pieces 1 1 1 -

3. Expected impact on competitiveness: The current competitive environment in the

renewable energy sector is expected to improve further.

4. Estimated cost of the activities and the source of financing: Reform measure

includes regulatory procedures and renewable energy investments are made by the private

sector. Therefore there is no additional burden on the budget. On the other hand, within the

scope of the European Union Pre-Accession Assistance Instrument (IPA) 2015 “Renewable

Energy and Energy Efficiency Supply for the Municipalities” Project, it is envisaged to build

one 2.3 MW hydraulic power plant in Trabzon and 5 solar power plants with total 5.3 MW.

The cost of the plants will be provided with 85% by IPA grants and remaining 15% by

budgets of the co-beneficiaries with 2 partial payments.

Similarly, within the scope of IPA 2018 “Renewable Energy Equipment Procurement

for Municipalities” and “Renewable Energy Equipment Procurement for BOTAŞ and

TEMSAN” projects are ongoing. The cost of the projects will be provided with 85% by IPA

grants and remaining 15% by budgets of the co-beneficiaries with 2 partial payments. Budget

table for the IPA 2018 project cannot be provided since tender procedures are being

performed.

2020: 547,197 Euro + 5,168,022 Euro (Local Budget + IPA funds)

5. Expected impact on social outcomes, such as employment, poverty reduction,

equality and gender: The regulations will positively affect employment. This measure is

neutral in terms of gender equality.

6. Expected impact on the environment: Greenhouse gas emissions are expected to

decrease with the increase in electricity generation from renewable energy sources.

7. Potential risks: There may be difficulties in the integration of renewable energy

into the transmission system.

Measure 2: “Development of financial mechanisms regarding energy efficiency”

1. Description of measure: It is planned to make legislative arrangements regarding

the development and implementation of financial mechanisms for the purpose of increasing

energy efficiency.

i. Activities Planned in 2020: Legislation preparation

ii. Activities Planned in 2021: Legislation preparation

iii. Activities Planned in 2022: Implementation of the legislation and monitoring


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2. Results Indicators:

Indicator Current situation (2019) 2020 2021 2022

Establishment of

National Energy

Efficiency

Financing

Mechanism

Within the scope of "Supporting

the Establishment of National

Energy Efficiency Financing and

Tender Mechanisms" project

Project Financing training,

Stakeholder meeting were

realized and public institutions

related to the project were

visited.

Necessary

legislative studies

will be carried out

for the

establishment of

the financing

mechanism.

Completion of

the studies for

establishment of

a national energy

efficiency

financing

mechanism.

-

3. Expected impact on competitiveness: It is aimed to increase energy efficiency

with new financial models. Thus, it is expected that the reduction of unit energy input costs

and improvement in the price-based competition environment for the final products will be

achieved.

4. Estimated cost of the activities and the source of financing: Within the scope of

developing financial mechanisms for energy efficiency, the Project "Supporting the

Establishment of National Energy Efficiency Financing and Tender Mechanisms", funded

by the European Bank for Reconstruction and Development (EBRD). The total budget of

the project is € 163,000.

2020: 163,000 Euro (IPA Funds)


equality and gender: The regulations will positively affect employment. This measure is

neutral in terms of gender equality.

6. Expected impact on the environment: No significant effect on environment is

projected for the measure.

7. Potential risks: There is a risk that necessary coordination cannot be established

with all stakeholders and no necessary contributions can be made in preparing legislation.

Measure 3: “Turkish Railway Transport Liberalization”

1. Description of measure: Regulations will be completed under the Law on the

Liberalization of Railway Transport of Turkey dated May 1, 2013.

i. Realizations for 2019: The Railway Transport Statistics Circular has been published

in order to compile the statistical data in an accurate, impartial, reliable, timely, up-to-date

and expeditious manner to steer the railway sector and ensure a sectoral decision-making

process in line with the "By-Law on Authorization of Railway Operations". In step with the

said Circular, the transport data collected from railway train operators are monthly entered

into the statistics portal created by the Strategy Development Department of Ministry of

Transport and Infrastructure, where statistical data of all modes of transport are collected.


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Having been drafted to set and regulate the rights granted to the railway passengers

before, during and after railroading and those to which they are entitled after any accidents

and/or events affecting them, and the cases where the said rights can be exercised as well as

the obligations to be fulfilled by the service providers, the Regulation was published in the

Official Gazette on 8 March 2019 to improve the quality of services offered to the railway

passengers, taking into account the Directive 1371/2007 on the Railway Passenger's Rights

and Obligations.

Within the scope of strengthening the institutional structure of the Directorate General

of Railway Regulation (DGRR), a technical assistance project will be implemented by

utilizing IPA II (2014-2020) funds. The purposes of the project are to strengthen

administrative capacity as regards the safety, interoperability and regulatory functions for

the efficient harmonisation with the EU acquis for the railway sector in parallel to the

liberalisation process and to support the efficient harmonization and implementation of EU

acquis on railway sector. The stage of evaluation of proposals is going on for this project.

ii. Activities planned in 2020: Following the positive opinion of the European

Commission, the “Regulations of Interoperability” and “Assignment Communiqué of

Notified Bodies” will be published.

By-law on Tendering Procedure of Public Service Obligation in Railway Passenger

Transportation will be published.

By-law on Entity in Charge of Maintenance will be published.


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5.3.2. Agriculture, Industry and Services


Agriculture

Agricultural sector in Turkey constitute a significant proportion of domestic product,

exports and employment. Turkey is one of the top 20 countries with the largest economies

in the world considering the GDP (current $), besides being one of the top 10 countries with

the largest economies in the world considering the contribution of agricultural sector to GDP

(current $) according to 2018 data. Increasing efficiency and making more effective policies

in the agricultural sector, which has a significant impact on the main macroeconomic

indicators of our country, will be performed with the measures to be taken as a result of

evaluating the reliable data collected through a correctly built data architecture.

Being unable to detect unregistered data of production in agriculture and to reflect

them on the issued official statistics increase the importance of collecting accurate and

reliable data. Moreover, analysing and evaluation of data regarding agricultural products,

such as input, cost, cultivation area, production, yield, consumption, import and export, are

very important for our country’s agricultural economy.

There is a need to making description of agricultural holdings on legislation. There is

also a need to change the legislation to enable agricultural holdings to provide data on a

mandatory basis rather than voluntary basis. Besides these, the prices fluctuations in

agricultural products at international level and the current developments in the agricultural

sector on the international platform cannot be adequately monitored due to lack of awareness

of the Ministry Organization on statistics.

Industry

It is estimated that there are a total of 3,783,694 AC motors with a power rating of 7.5

kW and above currently used in industry and are considered to be inefficient (IE0, IE1, IE2

without variable speed drive).

The main obstacles to the sector are the insufficient motivation of the enterprises for

the motor replacement and low awareness on the energy efficiency of electric motors.

It is thought that decreasing energy intensity of SMEs will help saving resources and

increasing competitiveness.

Since 2001, centers providing practical training services under the name of “model

factory in various countries of the world have been able to respond to the needs of SMEs in

terms of flexible and agile production, productivity and competitiveness through various

applications on a real production system. In this context, Ministry of Industry and

Technology, General Directorate of Industry and Productivity conducted a needs analysis

for the establishment of model factory in Turkey, and did curriculum design, to investigate

opportunities for collaboration, uncovering the operating model of the model factory and the

necessary physical and financial resources (the place / space, machinery, equipment,

personnel, etc.). In 2015 Investment Program, Applied SME Productivity Training Center


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(Model Factory) Study Project” was implemented under the coordination of the General

Directorate of Productivity under the coordination of the United Nations Development

Program (UNDP). Competency and Digital Transformation Centers (Model Factory)

application studies were initiated in 2017. A total of 2 Competency and Digital

Transformation Centers started their operations in Ankara in December 2018 and in Bursa

in March 2019. By the end of 2022, the establishment of Model Factory and Innovation

Centers will be completed in Izmir, Adana, Mersin, Gaziantep, Konya, Kayseri, Tekirdağ,

Kocaeli and Denizli. Lean and digital transformation applications will be provided in the

Model Factories and trainings will be provided in the Innovation Centers on organizational

and product innovations. A total of 14 Model Factory and Innovation Centers will be

established by 2023.

Improving the knowledge and skills of employees and managers employed in SMEs

is an important issue in our country, which constitute a large proportion of enterprises, in

terms of increasing productivity, improving quality, improving working environments, lean

manufacturing, product development, problem solving and process improvement, and

improving operational performance for SMEs. In this context, in order to develop the

practical skills of the workforce, to enable them to learn better in experimental environments,

to gain new skills to the related parties in a quick way, practical training and physical

environments where these trainings will be offered should be established.

The model factory, which will provide services in the areas of lean transformation,

digital transformation, quality and product development, will primarily focus on lean

transformation (targeted to increase operational efficiency) and digital transformation

(targeted at the application of Industry 4.0 principles). The target group is planned to be

composed of SMEs, manufacturing industry companies, university students and

academicians. The project will also contribute to social integration as Syrian refugees will

be employed. It is envisaged that the model factory will provide awareness raising seminars,

experiential trainings, learning-return programs and the development of university-industry

cooperation projects. In particular, it is envisaged to be implemented in the form of learn-

and-transform programs including consultancy services as well as experiential training for

SMEs. First of all, it will be possible to expand the model factory infrastructure, which is

intended to provide services for discrete manufacturing sectors, to cover continuous

manufacturing sectors.

Energy Sector

For decreasing import dependency of Turkey as 93% in oil and 98% in natural gas,

studies on natural gas research, exploration, drilling and seismic studies will continue.

Within this context, the seismic data collection and drilling activities by our national seismic

and drilling vessels has been continuing in the Mediterranean and Black Sea. The exploration

of oil and natural gas resources especially in offshore areas will be accelerated.


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Tourism

In recent years, remarkable improvements have been achieved in subsectors of the

services sector. In tourism sector, a steady increase has taken place in international tourism

market and Turkey has been visited by an increasing number of tourists since the beginning

of 2000s. Although number of tourist arrivals in 2015 and 2016 declined due to the events

emerging recently in our region and political tensions between Turkey and our source market

countries, it started to increase again in 2017. According to the data provided by the United

Nations World Tourism Organization (UNWTO), in 2018 Turkey ranked 6th in terms of

international tourist arrivals and 14th in terms of international tourism receipts. In 2018

international tourist arrivals of Turkey grew by 21.7 percent and international tourism

receipts increased by 12.2 percent when compared to the previous year.

Turkey is an internationally recognized tourism destination with sea-sand-sun tourism,

but Turkey’s competitive advantage in the tourism sector is maintained on a low price basis.

For this reason, the increase in tourism income stays behind the increase in the number of

visitors, this situation affects the sustainability and service quality of the sector. On the other

hand, it is possible to develop other types of tourism with the existing historical, cultural and

natural values, but the diversity of tourism product supply has not yet reached the desired

level. This situation leads to different tourist segments and prevents visitors from high

income groups from visiting our country. In order to diversify tourism, spread it to whole

year and attract high income visitors to our country, Tourism Master Plan has been

developed and studies for different tourism types have started according to the Master Plan.

b. Reform Measures

Measure 4: “Improvement of data collection processes and increasing the capacity

of evaluation in agriculture statistics.”

1. Description of measure: In order to contribute to making more effective

agricultural policies to increase competitiveness, it is necessary to collect agricultural data

according to modern and scientific methods in line with international commitments.

Agricultural data are still collected from the field by non-scientific methods (via expert

opinion) and voluntarily. This situation directly affects the accurate decision-making

processes and causes disruptions in the implementation of policies. Within the scope of this

reform measure, it is aimed to develop a new data architecture and data collection and

evaluation methodology in line with Eurostat. In relation to its high policy documents and

national strategic documents, this measure can be linked to the policies and measures under

section 2.2.2.1 of the Eleventh Development Plan, draft Strategy Paper for improve the

Turkish agricultural statistics system and Strategic Plan (2019-2023) of the Ministry of

Agriculture and Forestry.

In 2019, data collection methodology was determined. After this stage, we will

carry out activities for evaluation of these data with scientific methods.


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Activities planned in 2020-2022

Statistical trainings will be organized for the implementation of the new

methodology developed at central and provincial level, and trainings will be extended to

increase institutional capacity in data collection, control analysis, evaluation and product

cost calculation.

Practical trainings will be organized to teach the use of statistical analysis programs.

Meetings will be held with relevant ministries, institutions (Presidency of Strategy

and Budget, TurkStat, Ministry of Trade, etc.), producer organizations and universities.

Activities will be carried out with the international organizations in the field of

statistics and trade to improve cooperation and increase the number of joint studies. Experts

from foreign countries will be invited to share their experiences in the workshops and/or

seminars we will organize.


Indicator Current 2020 2021 2022

Number of trainings and seminars aimed to teach

usage of system and analysis of data for MoAF

personnel in the headquarter

0 1 1 1

Number of trainings and seminars aimed to teach

usage of system and analysis of data for MoAF

personnel in the provincial and district offices

0 1 1 1

Number of pilot study with MoAF personnel in

the headquarter

0 1 0 0

Number of pilot study with MoAF personnel in

the provincial and district offices

0 1 0 0

3. Expected impact on competitiveness: There is a need for reliable information

obtained through scientific methods to measure the competitiveness of the sector's

stakeholders and to make public policies in order to improve the competitiveness at all levels

of the value chain of the agricultural sector from producer to consumer. By improving the

data collection and evaluation processes in agricultural statistics, current and reliable

information will be obtained and the competitiveness of the entire sector or any stakeholder

in the sector will be better analyzed.

4. Estimated cost of the activities and the source of financing:

2020: 272,727 Euro (Central Budget)




equality and gender: No impact is expected regarding the implementation of the measure.

6. Expected impact on the environment: No impact is expected regarding the

implementation of the measure.


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7. Potential risks:

Risk Probability

(low or high)

Planned mitigating action

The lack of willingness of stakeholders to

cooperate effectively in sharing information,

especially farmers' resistance to give

information because of tax and other concerns

High Legislative studies which

enable them to mandatorily

provide data will be carry out.

Measure 5: “Support mechanism will be established for the replacement of

inefficient electric motors used in industry with more efficient ones.”

1. Definition of the measure: Under the reform measure, the related activities of

“TEVMOT- Promoting Energy-Efficient Motors in Small and Medium Sized Enterprises

(SMEs) in Turkey” Project have been included. TEVMOT, a 5-year project covering 2017-

2022 period, has been carried out under the responsibility of the Directorate General of

Industry and Productivity in cooperation with UNDP Turkey Office. This project is funded

by the Global Environment Facility.

Within the scope of project, in addition to replacing the existing inefficient motors

used in industrial enterprises; activities will be carried out to ensure the efficiency of electric

motors and machineries equipped with these motors which will enter the market.

A financial support mechanism will be developed in scope of this measure in order to

ensure the replacement of inefficient electric motors currently used in manufacturing

industry. This financial support mechanism will be implemented through pilot projects

which will be held in 7 Organized Industrial Zones (Gebze OIZ, İzmir Kemalpaşa OIZ,

Antalya OIZ, Ankara Chamber of Industry Sincan 1.OSB, Uşak OIZ, Adana Hacı Sabancı

OIZ and Bursa OIZ). Prior to pilot projects, a survey will be conducted in order to measure

the current perception of industrialists about efficient electric motors for the cities in which

7 OIZs are located. Following the pilot projects, another survey will be conducted in 2022

to determine the changes in the perception of the industrialists.

The reform measure is line with the following measures in the 11th Development Plan

(2019-2023) “Measure 341: Energy efficiency in the manufacturing industry will be

increased”, “Measure 341.1: A support mechanism will be established to replace inefficient

electric motors used in industry with efficient ones” and “Measure 380.1: Replacement of

energy-efficient motors used in industrial facilities with more efficient ones”.

i. Activities planned in 2020: Establishment of Financial Support Mechanism,

Implementation of financial model through pilot projects and base line survey analysis.

ii. Activities planned in 2021: Dissemination of Financial Support Mechanism and

ensuring its sustainability.

iii. Activities planned in 2022: Impact evaluation of the pilot projects and end line

survey analysis.


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Indicator Current

Situation

2020 2021 2022

Establishment of Financial Support

Mechanism

0 1 1 1

Number of inefficient motors replaced 0 400 600 600

Annual Electricity Savings (MWh/year) 0 6750 10125 10125

Mitigation of GHG Emission (ton eq

CO2/year)

0 4080 6120 6120

Energy Efficient Motors Perception

Fieldwork

0 1 1 2

*All indicators are given cumulatively.

3. Expected impact on competitiveness

Within the scope of the reform measure; it is envisaged of

Increasing competitiveness of SMEs by reducing energy costs per unit product,

Improving capacity of domestic electric motor manufacturers and suppliers,

Facilitating process of becoming entitled to acquire ISO 50001 Energy

Management System certification and raising awareness about it.

4. Estimated cost of activities and the source of financing:

2020: 227,273 Euro + 245,455 Euro (Central Budget + Other Grants)


2022: 16,170 Euro (Other Grants)


equality and gender: Since the workload of the staff in the Energy Management Units of

the OIZs is expected to increase due to their contribution to the pilot projects, the need for

employment increase may arise. It is foreseen that employment will be increased in Energy

Efficiency Consultancy Companies that will carry out motor efficiency audits. The reform

measure is unbiased in terms of gender discrimination.

6. Expected impact on environment: The cost of the electrical energy consumed by

the electric motors corresponds to 97% of the total cost during their lifetime. Therefore,

replaced motors will contribute to the electricity savings, which will lead to a reduction in

greenhouse gas emissions.


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7. Potential Risks

Risks Probability

(Low/High)


Reluctance of SMEs to

replace inefficient motors

Low Awareness-raising meetings on energy

efficiency in electric motors will be held.

Inability of measuring

savings resulting from

replacement

Low Results will be supported by theoretical

studies.

Failure to ensure the

sustainability of the finance

model

Low By means of promotion activities of best

practice examples, success will be

expanded and sustainability of company

demand on efficient motors will be

promoted

Measure 6: “Establishing Model Factories (SME Competency and Digital

Transformation Centers) and Innovation Centers to increase the efficiency of SMEs and

their digital transformation”

1. Definition of the measure: Within the scope of the measure, Model Factories (SME

Competency and Digital Transformation Centers) will be established in order to increase the

efficiency of SMEs and contribute to their digital transformation, and a Training-

Consultancy Support Program will be launched. It is envisaged that the model factory will

provide awareness raising seminars, experiential trainings, learn-and-transform programs

and the development of university-industry cooperation projects. The trainers who will work

in the center will be trained by 2-stage trainings, and consultancy work will be carried out

for the selected companies. After the construction works of the center are completed,

machinery and equipment will be purchased and the learning line will be installed in the

workshops. Once the learning line is established, the training curriculum will be established.

Digital transformation capabilities will be gained in the existing line and digital

transformation trainings will be provided through this line. A training program will be

structured on a sample product without a commercial activity in the production environment

offered by the model factory. In principle, the model factory is foreseen to have a non-profit

structure and be managed with a structure in which public, private sector (membership-

sponsor) organizations, universities and non-governmental organizations are represented.

The reform measure is mainly supported by the following measures in the Eleventh

Development Plan (2019-2023) in addition to the measures 206, 207, 309.1, 309.3, 345.1,

345.5:

Measure 322.4: Innovation Centers will be established in OIZs to support companies

in the field of business development, public supports, project preparation, cooperation with

university, lean production, productivity, technology management, clustering and

digitization.

Measure 345.4: Competence and Digital Transformation Centers will be established

in OIZs and TDZs to provide experiential training and consultancy services in the field of


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digital transformation in priority sectors, conduct awareness studies and bring technology

suppliers and users together.

The reform measure is supported by the following action under the title of the “Local

and Innovative Production” in the New Economy Program (2020-2022):

Action: Digital Transformation Centers will be established in organized industrial

zones, industrial zones and technology development zones to contribute to the digital

transformation of the manufacturing industry.

i. Activities planned in 2020: Establishment of Model Factory and Innovation

Centers in İzmir, Mersin, Gaziantep and Adana. Implementation of Digital Transformation

and Learn-and-Transform programs at Model Factories in Bursa and Ankara.

ii. Activities planned in 2021: Establishment of Model Factory and Innovation

Centers in Konya and Kayseri. Implementation of Digital Transformation, Learn-and-

Transform programs and Mentorships in İzmir, Mersin, Gaziantep and Adana Model

Factories and Innovation Centers.

iii. Activities planned in 2022: Establishment of a Model Factory in Tekirdağ, Kocaeli

and Denizli. Implementation of Digital Transformation, Learn-and Transform and

Mentorship programs in established Model Factories and Innovation Centers.


Indicator Current

Situation

2020 2021 2022

Number of Competency and Digital Transformation

Centers (Model Factory) and Innovation Centers

2 8 12 14

Number of businesses served in the Competence

and Digital Transformation Center (Model Factory)

and Innovation Centers

100 500 600 750

Number of Turkish and Syrian citizens employed

under the project

1000 3000 6000 10000

* The annual targets of the indicators are cumulative.

3. Expected impact on competitiveness: Within the scope of the reform measure; it

is envisaged of

Increasing the awareness and competence of SMEs, large enterprises in lean

and digital production and innovation,

Increasing productivity of SMEs,

Increasing the competitiveness of SMEs.

4. Estimated cost of activities and the source of financing:

2020: 1,818,182 Euro + 11,515,152 Euro (Central Budget + Other Grants)

2021: 283,875 Euro + 2,554,877 Euro (Central Budget + Other Grants)

2022: 269,505 Euro + 3,773,064 Euro (Central Budget + Other Grants)


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equality and gender: It is foreseen that employment will increase due to the employment

of the personnel required by the project in the model factories and innovation centers and

project partners to be integrated. Under the employment component, a total of 4000 Turkish

and Syrian citizens will be employed. No gender distinction has been made concerning the

reform measure which is neutral in terms of gender.

6. Expected impact on environment: It is foreseen that there will be significant

improvements in the use of resources and waste production of the firms with the lean and

efficient production techniques learned in model factories. With the activities of Digital

Transformation and Innovation Centers, it will be possible to develop new technologies for

sustainable production as well.

7. Potential risks

Risks Probability

(Low/High)

Inadequate demand from enterprises for training and consultancy services Low

Inadequate competency of project partners in carrying out the activities and

adverse effects of conjunctural situations throughout the country on budget and

sustainability

Low

Measure 7: “Increasing tourism market share and brand value”

1. Description of measure: A various marketing strategy has been implemented in

order to promote Turkish tourism. To form this strategy, in addition to social media and

target marketing campaigns, promotional activities like art and cultural events, festivals,

exhibitions are focused on.

On the other hand, in addition to the well-known activities of tourism such as sea, sand

and sun (mass tourism), it is important to diversify these activities by highlighting different

ones such as culture, art, golf, congress, archeology, gastronomy, sports, winter, plateau,

nature, health, springs, faith, entertainment, international festivals and events, shopping and

cruise. Thus, the tourism season in our country will be extended to 12 months and throughout

the country.

In order to increase the number of visitors to our country, in addition to our main

markets, Germany, Russia and England, where the highest number of tourists come from,

Far East countries (China, Japan, South Korea, India), Middle and East Europe countries

which are our potential new tourist sources where tourism expenditures increase daily are

marked as priority.

With the promotion and marketing activities, it is aimed to increase the

competitiveness, market share and brand value of Turkey in the tourism sector.

This measure is related to Article 424/1, Article 425/1 and Article 426/1 of the

Eleventh Development Plan.


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This measure will be implemented by Tourism Promotion and Development Agency

of Turkey. Cost and financing of this structural measure will be prepared following the

transition of the measure’s responsibility to this Agency.

i. Activities planned in 2020: The restructuring of the brand of Turkey will be at

the center of tourism promotional activities in 2020. For this purpose, it is planned to show

advertisement films on primary channels of target markets abroad, conduct new Turkey logo

and brand identity and new website studies in different languages. Besides publishing

advertisements in printed, digital and social media for the upper income groups, conducting

public relation activities and hosting foreign media members and influencers in our country

and shooting new advertisement films to promote different tourism types are intended in

2020.

In addition to the promotional activities carried out towards the main markets of

Turkey, rising markets like Republic of China, India, South Korea and Japan will be focused

on.

In order to perform these activities effectively and reach the goals in tourism, Tourism

Promotion and Development Agency of Turkey was established on 15th of July 2019. The

Agency has been established to promote tourism opportunities of the country to the world,

to benefit from tourism potential in all aspects and enable them to contribute to the economy

of the country. Moreover, the Agency will realize activities to increase tourism investments,

the share of tourism in the country economy and service quality of tourism sector and to

provide support and fund. However, the Agency is planned to be in action as of June 2020.

The stakeholders of this measure are Ministry of Foreign Affairs, Radio and Television

Supreme Council, Turkish Airlines, tourism sector organizations, and media organizations.

ii. Activities planned in 2021: Works and activities related to the application of the

Tourism Master Plan containing tourism types like gastronomy, faith, convention, culture,

coast, health, winter, sports and plateau will continue. Tourism Master Plan aims to extend

tourism season and average accommodation period and spread tourism throughout the

country to 12 months of the year and increase expenditure per capita. Projects will be

developed in cooperation with local administrations in order to increase the arrival and travel

experiences of those travelling to Turkey specifically for gastronomic, hiking, cycling,

health and thermal purposes. Turkish Airlines, Tourism Sector Organizations, NGOs, Local

Administrations and Ministries are the main stakeholders.

iii. Activities planned in 2022: The advertisement and public relations activities that

are aimed to enable the new Turkish Tourism Brand (put forward in 2020 and 2021)

favourable in the target markets and to increase its brand awareness will be diversified.

Innovative promotional activities will continue based on the characteristic of the target

groups in these markets. The stakeholders of this measure are Turkish Airlines, tourism

sector organizations, and media organizations.


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2. Results Indicators

Indicator Current situation

2019 (estimation)

2020 2021 2022

Number of arrivals (million people) 52 58 63.5 69.5

Average expenditure per capita (Dollar) $ 656 $ 703 $ 756 $ 806

Number of arrivals from rising markets

(China, India, South Korea and Japan)

(thousand people)

909 1240 1570 1850

3. Expected impact on competitiveness: This measure is expected to increase the

income from the global tourism sector and the share of tourism revenues in the gross national

product and contribute to the decrease of the current account deficit. The restructuring of the

brand of Turkey will increase competitiveness in the global tourism market.

4. Estimated cost of the activities and the source of financing: No additional costs

are required to implement the reform measure.


equality and gender: This measure is expected to increase employment rate in Turkish

tourism sector.

6. Expected impact on environment: Since, this measure aims to spread tourism to

whole year and the whole country, it is thought to prevent seasonality.

7. Potential risks: Loss of tourism markets due to possible geopolitical tensions

around our country and in the world, negative political developments in foreign affairs and

breakdowns in bilateral political relations poses potential risks for this measure.


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5.3.3. Business Environment and Reduction of the Informal Economy


The main objective of business and investment climate reforms in Turkey is to improve

the competitive environment in the markets by ensuring transparency, stability, reliability

and predictability in public policies and regulations, to strengthen the production structure

by applying effective incentive programs, and to make Turkey a regional manufacturing hub

by increasing foreign direct investments that will foster technological transformation in the

economy.

According to the Doing Business Report, which analyzes the investment environment

of the countries prepared by the World Bank, Turkey was ranked the 33rd in 2019 while its

overall ranking was 43rd among 190 countries in 2018. As stated in the report, the reduction

in land registry fees in the same period with the VAT exemption for machinery and

equipment purchases by Law No. 7103 in 2018 was the main determinant factor of this

increase.

The Coordination Council for the Improvement of the Investment Environment

(YOIKK), which was established to improve the investment environment on a national level,

continued its activities in 2019 as well. The working principles and procedures of the

YOIKK were restructured by President Decision numbered by 818 following the transition

to the Presidential Government System. In this context, it was decided to conduct YOIKK

activities under the presidency of the Vice President and a high level of ownership was

established.

One of the major obstacles to the business and investment environment is the inability

to increase the competitiveness of SMEs, which are critical in the economy. In this context,

there are no guides and consultants authorized to enable SMEs to reach the guidance and

consultancy services they need in a qualified and sustainable manner. With the planned SME

Guidance and Consultancy System, production and management skills of SMEs will be

improved, their efficiency, export levels and their competition levels will be increased.

A predictable, transparent, high quality and effective judicial system constitutes the

most important guarantee of economic activities. In this direction, the new Judicial Reform

Strategy document shared with the public includes activities to improve the investment

environment through facilities of the law. Targets such as the dissemination of specialized

courts, the specialization of judges, the simplification of private legal proceedings, the

amendment of procedural provisions leading to the prolongation of proceedings, the

prevention of the abusing the right to access to justice and the dissemination of alternative

dispute resolution methods connected with the courts will contribute to economic life.

One of the other substantial obstacles to the business and investment environment is

informality. Informality has a significant impact on the competitiveness and it prevents the

healthy functioning of the public finance structure. Fighting against informality is of great

importance in order to prevent unfair competition in the economy, to pursue sound economic

developments and to establish a sound social security structure.


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Under the coordination of Turkish Revenue Administration, Action Plan of Strategy

for Fight Against Informal Economy 2008-2010, 2011-2013 and 2015-2017 period have

been implemented successfully with the responsibility and cooperation of public institutions

and organizations. Finally, Strategy Action Plan (2019-2021) was prepared and put into

effect as of April 2019 through the contribution of public institutions/organizations and non-

governmental organizations. The 39 actions included in the Action Plan consist of 5 main

components listed below. Every action has been reported quarterly and monitoring has been

carried out.

Increasing the Level of Voluntary Compliance

Strengthening the Audit Capacity

Reviewing and Regulating the Legislation

Enhancing Inter-Agency Data Sharing

Increasing Awareness for Every Segment of the Society

Struggling and prevention process against informal economy and unregistered

employment has already reached a certain point in Turkey. The unregistered employment

rate, which was 52 percent in 2002, decreased to 33 percent by the end of 2018. In non-

agricultural sectors, this rate is around 22 percent in the same period and it is targeted to be

decreased to 15 percent by 2023. In order to achieve this goal with faster and more effective

steps, it is vital to reorganize the audit mechanism by creating technical infrastructure in

accordance with the requirements of the age. In this context, the issue of reducing informality

has been adopted in cooperation with public institutions and organizations, non-

governmental organizations, banks and other relevant segments of the society. To combat

against unregistered employment, increasing the service quality, cross-audits based on data

/ information sharing, increasing the efficiency of the audit system, reducing the financial

burden on employers through incentives and informing&awareness raising activities are

carried out.

Social Security Institution is currently collecting data of the professional information

of individuals in the transactions carried out by banks, other public institutions and

organizations in accordance with the provisions Article 100 and Paragraph 7 of Article 8, of

the Law no. 5510. The collected data is used to perform cross-audits and insurance checking.

In this context, protocol studies are being carried out with banks and public institutions and

organizations. Protocols have been signed with 9 institutions/organizations so far. At the end

of this process, it is aimed to obtain employment-based data from all relevant public

institutions/organizations and detect insurance status by cross-checking.

Regarding the control mechanism, the number of transactions that have to be referred

to the inspection is increasing day by day because of the opportunity for the citizens to be

able to apply to the Social Security Institution easily through numerous communication

channels such as Alo 170, CİMER and direct petition. In order to cope with this situation,

the number of audit-authorized staff and the technical capacity of the audit should be

increased. In this context, the completion of the softwares “KADİM PERİ” (which will

enable cross-checking), and “Controller Automation Program” (which will increase the


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effectiveness of the audit process), will provide a major contribution to increase the audit

capacity of the Social Security Institution.

One of the prerequisites of using limited human resources more effectively is to

increase technological equipment. In this context, the effectiveness of the audit capacity can

be increased by paving the way of the Social Security Controllers within the body of the

Social Security Institution for conducting audits throughout the country to work more

efficiently to combat against unregistered employment.

b. Reform Measures

Measure 8: “Establishment of SME Guidance and Counseling System”

1. Description of measure: Under the reform measure; it will be provided that

analysing the current situation of SMEs, finding solutions to their problems, identifying their

needs, developing their skills and capabilities, will be able to compete in domestic and

foreign markets.

The relationship of the measure with the major policy documents/national strategic

documents is as follows:

11th Development Plan (309.2): The management consultancy sector will be

supported and local companies in this field will be enabled to operate at an

international level, and it will be prioritized that SMEs prefer such firms in state-

funded consultancy services.

11th Development Plan (600.3): In order to improve women's economic activities,

women entrepreneurs will be provided with consultancy and guidance services in

business development processes and women will be given priority in support in this

field.

Strategy of Industry and Technology (8.1): Companies will be supported to

develop their corporate governance skills.

Strategy of Industry and Technology (14.6): Corporate entrepreneurship trainings

and mentoring programs will be organized; support mechanisms will be prepared for

companies and employees.

“The regulation about SME Guidance and Technical Consultancy Services” within the

scope of the measure included in the ERP (2019-2021) was published in the Official Gazette

No. 30677 on 5 February 2019 and entered into force. Sub-legislation and software studies

related to the mentioned regulation and curriculum of SME Guidance Training are about to

be completed. After they are completed, authorization of SME Guides and Technical

Consultants will begin. However, as a result of slower progress than envisaged, the targeted

performance indicators of 2019 in the previous program period were updated by adding them

to the 2020 targets.

i. Activities planned in 2020: In 2020, it is planned to authorize 100 SME Guides and

1000 Technical Consultants. It is aimed that approximately 650 SMEs will benefit from the


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services to be provided by SME Guides and Technical Consultants. 1,000,000 TL is

expected to be provided to these enterprises.

ii. Activities planned in 2021: In 2021, it is planned to authorize 100 SME Guides and

1250 Technical Consultants. It is aimed that approximately 750 SMEs will benefit from the

services to be provided by SME Guides and Technical Consultants. 2,000,000 TL is

expected to be provided to these enterprises.

2. Result indicators:

Indicator

Current

Situation 2020 2021

Number of enterprises with support

payments under guidance and

consultancy services

0 650 750

Number of Authorized SME Guides 0 100 100

Number of Authorized Technical

Consultants 0 1000 1250

3. Expected impact on competitiveness: The impact of the reform measure on the

competitiveness power is expected to be high.





equality and gender: An effect of the reform measure is not foreseen in the context of

employment and gender. Therefore, the measure is impartial in terms of employment and

gender discrimination.

6. Expected impact on the environment: An effect of the reform measure is not

foreseen in the context of environment. Therefore, the measure is impartial in terms of

environment.

7. Potential risks:

Risks Probability

(low or high)

Due to the fact that it will be the first SME Guidance and Technical

Consultancy System to be implemented in our country, it is not possible

to intervene in time for the problems that may occur in the system Low

Stakeholders do not fulfill their responsibilities in order for the system to

be put into operation and sustainable Low

Low demand for the system because SMEs' guidance and consultancy

service culture has not developed sufficiently Low


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Measure 9: “Creating guidelines for investment procedures in various sectors”

1. Description of measure: Guidelines for investment procedures in various sectors

which include permits, approvals and licenses for investments will be prepared. All

bureaucratic procedures including application documents, designated authority to apply,

procedural times, application costs will be declared in the guidelines.

The measure is also present on the 11th Development Plan (measure no. 326.3) and

2019-2020 Action Plan of the Coordination Council for Improvement of Investment

Environment (YOİKK).

i. Activities planned in 2020: Guidelines for investment procedures in various sectors

will be created by the Investment Office of the Presidency of the Republic of Turkey. The

guidelines will be published and made available for all investors.

ii. Activities planned in 2021: The guidelines will be updated upon revisions in the

investment procedures.

iii. Activities planned in 2022: The guidelines will be updated upon revisions in the

investment procedures.

2. Result indicators: Publishing the guidelines in 2020; updating the guidelines in

2021 and 2022.

3. Expected impact on competitiveness: The measure is expected to increase the

transparency and predictability in investment procedures, and to reduce the information

asymmetry. It is also projected that the investors will need less consulting services during

carrying out the investment procedures and bear less costs. The investment processes are

expected to be easier and faster through more transparent procedures such as permits,

approvals and licenses. It is projected that the measure will have a positive impact on

competitiveness of the firms through decreasing costs and increasing transparency and

predictability.






equality and gender: The measure is expected to have a positive impact on employment

through accelerate the investment processes. It is also projected to enhance the equality

among investors through increasing transparency and reducing information asymmetry. The

measure is neutral in terms of gender impact.

6. Expected impact on the environment: The measure is neutral in terms of

environmental impact.

7. Potential risks: There are no significant risks for the measure.


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Measure 10: “Preparing new legislation for easing private sector investments”

1. Description of measure: In addition to a fundamental legislation for easing private

sector investments, a comprehensive revision on regulations to enhance transparency and

predictability, increase investor confidence, remove the barriers for acceleration of the

investments and form an alternative mechanism for settlement of investment disputes will

be made.

The measure is also present on the 11th Development Plan and 2020 Presidential

Annual Program (policy no. 315). Within the scope of the legislation;

An investment ombudsman system will be established to settle potential investment

disputes between public administrations and investors.

In the relevant ministries, Investment Coordination Units will be established to

receive applications for transactions such as permits, licenses, and certifications

related to investments and to coordinate these processes, evaluate investor requests

and develop solutions.

The timelines for the conclusion of the transactions such as permits, licenses, and

certifications related to the investments will be determined and announced by the

relevant authority in advance.

It will be ensured that the legal amendments which affect investors, will be shared

with the public via an e-Government integration internet portal and if possible, a

transition process will be envisaged for the implementation of the legislation.

i. Activities planned in 2020: A draft legislation will be prepared by the Strategy and

Budget Authority and the Investment Office of the Presidency of the Republic of Turkey.

The draft legislation will be sent to the public and private stakeholders for gathering

institutional views and legislation preparation will be completed.

ii. Activities planned in 2021: Monitoring activities will be carried out by the

Strategy and Budget Authority and the Investment Office of the Presidency of the Republic

of Turkey to ensure the effective implementation of the new legislation.

iii. Activities planned in 2022: Monitoring activities will be carried out by the

Strategy and Budget Authority and the Investment Office of the Presidency of the Republic

of Turkey to ensure the effective implementation of the new legislation.

2. Result indicators: Preparing draft legislation in 2020; monitoring the new

legislation for an effective implementation 2021 and 2022.

3. Expected impact on competitiveness: The measure is expected to remove the

most of the barriers of bureaucratic procedures for private sector investments. The private

sector investments are projected to be increased. The increasing investments will have a

positive impact on GDP and exports.

4. Estimated cost of the activities and the source of financing: There is no

additional cost for implementing the measure.


equality and gender: The measure is expected to have a positive impact on employment


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through concrete improvements in the investment environment. It is also projected to

enhance the equality among investors through improvements in the investment environment.

The measure is neutral in terms of gender impact. The measure is expected to remove the

most of the barriers of bureaucratic procedures for private sector investments. The private

sector investments are projected to be increased and have a positive impact on employment.

The measure is neutral in terms of gender impact.

6. Expected impact on the environment: The measure is neutral in terms of

environmental impact.

7. Potential risks:

Risks Probability (low or high) Planned mitigating action

Inadequate support from

the stakeholders

Low

Contact meetings with the stakeholders will

be organized, and a participatory attitude

will be adopted to include all the relevant

stakeholders to have active roles during the

preparation of legislation.

Measure 11: “Reducing Unregistered Employment by Focusing on Increasing Audit

Capacity in Non-Agricultural Sectors”

1. Description of measure: Increasing the number of Social Security Controllers in

order to increase the audit capacity by the Social Security Institution, establishing electronic

audit infrastructure and ensuring the audits to be conducted in an electronic environment.

Many studies are carried out in order to reduce informal employment, which is a part

of the informal economy reflected in working life, in order to provide a more competitive

environment. In order to combat informal employment, the Social Security Institution

provides information and raises awareness on social security rights and obligations for all

segments of the society. Thus, it is aimed to secure the future of citizens. Also, audits carried

out by the audit staff can ensure the voluntary adaptation of the citizens in the transition to

formal employment faster. Therefore, increasing the audit capacity and ensuring the

effectiveness of audits have an important place in the fight against informal employment.

Action Plan for Combating the Unregistered Economy (2017-2019), which was carried out

by the Revenue Administration, 5,000 audit personnel were opened for Social Security

Controller. With the procurement to be made from year to year, this staff will be completed

and audit capacity will be increased. In addition, the use of laptops with internet connection

during the audit and completed software programs will increase the effectiveness of the

audits.

It is considered that the existing measure will benefit the process of increasing the audit

capacity of the Social Security Institution, which combines audit perspective with guidance

function within the scope of Social Security Reform, both numerically and technically.

This measure was also in 11th Development Plan, Medium Term Program (2020-

2022) and the Strategic Plan of the Social Security Institution.


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i. Activities planned in 2020

Recruitment of 400 Assistant Social Security Controller,

It is planned to complete the necessary technical studies in order to finalize and

put software programs into service throughout the country.

ii. Activities planned in 2021


It is planned to ensure that the controllers are conducted electronically by using

technical infrastructure.

Purchasing 3500 units of laptops compatible with the software infrastructure if

the resources of the institution are appropriate.

iii. Activities planned in 2022


It is planned to revise the software programs, which are put into service available

throughout the country, according to user needs through impact and efficiency

analysis.


Indicator Current

Situation

2020 2021 2022

Percentage of Reach to the Number of Social Security

Controllers Planned for Recruitment 0 100 100 100

Percentage of Completion of Software Programs 0 100 100 100

Percentage of Purchase of the Number of Laptops

which is Previously Planned 0 100 100 100

3. Expected impact on competitiveness: It is expected that public resources can be

used more efficiently thanks to the trainings of the controller staff in accordance with the

requirements of the age and ensuring that controllers benefit from the IT facilities at the

highest level during audits. Based on the available statistics, the number of duty orders is

around 190,000 and the number of denunciations and complaints increases day by day. In

addition to this, extension to the current workload, audit lists are sent to the local offices.

When the total number of controller compared with the number of these duties, it can be

seen that the workload per controller is quite high. Therefore, it will be possible to reduce

the existing workload to more reasonable levels by ensuring the effectiveness of the

controller and audit system.

4. Estimated cost of the activities and the source of financing: The cost of salaries,

products and services will be financed from the central budget for new assistant controllers.


2021: 3,501,885 Euro (Central Budget)



equality and gender: It is considered that rising public perception which is arised from the


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increase in the efficiency and capacity of public audits will enhance the citizens to be in

voluntary compliance against unregistered employment. In this way, premium payment

behavior, which is one of the prerequisites of sustainability of the social security system,

will be realized within certain patterns.

6. Expected impact on the environment: With the implementation of the measure,

the positive contributions of the completed and implemented programs will be seen in the

short term. In the medium term, the workload of the controllers will be reduced and the

workload will decrease. In the long term, the efficiency of the audit system will be ensured

with adequacy of the number of controllers recruited and the functionality of the software

programs.

7. Potential risks:

Risks Probability (low or

high)

Failure of the training process of the audit personnel to be recruited

due to the extension of the examination process

Low

Delays in completing the required software Low

Price increases during the procurement process Low


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5.3.4. Research & Development and Innovation and Digital Economy


The manufacturing industry is critical in terms of factors such as rapid and stable

growth, outflow from the middle income trap, reduction of the current account deficit,

permanent employment creation, technological development and innovation. Looking at the

global developments in the manufacturing industry, it is seen that the international

competition conditions became more difficult as technological transformation, digitalization

and innovation capacity increased.

In recent years, there has been a tendency towards a transformation to the medium

level technology sectors in the production structure of the manufacturing industry. However,

in the upcoming period, the need to continue the transformation of the manufacturing

industry into a higher value-added structure with a focus on technology, design and branding

and to increase investments in the medium-high and high-tech sectors continue. In the

competitiveness of manufacturing industry; being close to the markets, fast and small-party

production based on flexible production structure is of great importance.

In manufacturing industry structural issues such as; development of corporate

governance structures of firms, dissemination of clustering models where large-scale

enterprises, SMEs and universities have developed more effective cooperation, improvement

of supplier skills, prevention of informality, increased control system, supplying higher-

skilled workforce and development of technology generation, use of advanced technology

and dissemination of Industry 4.0 applications remain important.

SMEs have low production and export capacity in value-added and high-tech sectors.

SMEs cannot access to finance for investment in value-added and high-tech sectors.

Furthermore, skill levels of SMEs are not sufficient to operate in respective sectors. The low

technology and traditional manufacturing structure of SMEs limits the development of

international competitiveness.

SMEs have limited production technology of strategic products that are majorly

imported, therefore the domestic input utilization rate used in production is low. Imported

products are preferred in strategic sectors due to low production costs and low technological

production capabilities of small and medium-sized enterprises. SMEs' low capabilities on

high-tech production and the inability in the domestic supply of strategic products increase

the current account deficit and harm the general economic indicators.

Nowadays, the two most important factors needed to transform the ideas of

technological and innovative entrepreneurs into products and services are finding the source

of finance and access to required networks.

Subsidies and incentives, investors, tax exemptions and other exceptions can be seen

as a type of financial source. However, it is necessary to develop models to connect investors

with entrepreneurs and convince them to become partners of the companies. Although the

ecosystem in our country has reached a certain stage, it needs to be further developed.


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Although financing is important for the realization of ideas or the development of

products or services, access to networks is also important for commercialization of these

products. In this regard, it is also required to organize events for access to networks such as

finding customers and meeting with company representatives who have experienced these

processes before. In this way, the number of companies that provide value to the country's

economy will be increased with the help of well executed projects.

For entrepreneurs, meeting with national and international investors and developing

their products/services means the growth of their companies as competitive enterprises and

the growth of the country's economy as well. In this way, it is expected that developing

enterprises will have a positive effect on the number of employment.

SMEs hold more than 99 percent of businesses and play a critical role in economic and

social development in Turkey. However, technology-based and innovative SMEs, which are

expected to accelerate development, face many important issues that need to be addressed

by science technology and innovation (STI) policy makers. Some important issues are

difficulties in accessing finance, using mentorship, and collaborating with large enterprises.

TÜBİTAK Technology and Innovation Funding Directorate (TEYDEB) has the

mission of supporting business R&D and Innovation projects with the technology and

innovation grant programmes. In 2018 and 2019, TUBITAK took critical measures to

address the above-mentioned challenges and introduced new support mechanisms as well as

revision of some basic programs.

Dedicated schemes, specifically targeted to support innovation in SMEs facilitate the

interest and motivation of SMEs for application as observed by TÜBİTAK SME R&D and

Innovation Grant Programme. In the middle of 2019, a significant change was made in

TÜBİTAK Industrial R & D Grant Program, which is the oldest grant program in TÜBİTAK

business R & D supporting schemes. Following the change the Industrial R & D Grant

Program has become a programme in which only SMEs can be supported like SME R&D

and Innovation Grant Programme. The latter programme has the advantages of no limitation

to number of applications, longer duration and higher project budgets. SMEs just starting

R&D activities can choose to apply to SME R&D and Innovation Grant Programme while

the more experienced ones possibly go for the Industrial R & D Grant Program.

TÜBİTAK has started a mentorship programme with the aim of generating nation wide

mentoring services for SMEs. It is considered that the mentoring mechanism can be an

effective tool for SMEs in faster commercialization of project outputs, development of R&D

and innovation capacities and gaining competitive advantage in the market. The objective of

the mentorship programme is to increase the commercial maturity level and R & D and

innovation capacity of SMEs benefiting from TUBITAK R & D and innovation supports.

This objective is expected to be achieved through a mentoring mechanism to be implemented

by qualified intermediaries under this programme. Mentors may be selected by qualified

intermediaries from the TÜBİTAK Mentor Pool, which consists of mentors trained under

the previous mentor training call.


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Considering the smart specialization in industrial innovation hubs, in order to

strengthen the industrial innovation networks in Turkey; policy tools that are more target-

oriented, collaborative, focused on the long-term, and directed to high value-addition are

being put forth to strengthen aspects of smart specialization and inclusiveness in the local

ecosystem. Through the newly established “the Industrial Innovation Networks Mechanism

(SAYEM)” private sector firms, especially those that contain an R&D and product design

centre, will form a network with other firms including SMEs that take place in the value

chain of the targeted technology-based product together with end-users, technology

development zones and universities. As a whole, the network will have the opportunity to

take centre stage in the innovation system for co-creating high value-added products and

technologies for the market. The networks will be established in two phases. In the first

phase, the support grant will be directed to establishing models of cooperation and networks

based on a “product/commercialisation roadmap” that includes a business model. In the

second phase, the support grant will be provided to implementing the R&D and innovation

activities that take place in the product/commercialisation roadmap based on the strategic

milestones that have been put forth by the actors who are involved in the network for co-

creating high value-added products. The targeted Technology Readiness Level will be

between TRL 5 or 6 and 9, thereby targeting technological innovation that is closer to the

market.

Although technology based and innovative SMEs’ contribution to the economic and

social development of a nation is crucial SMEs mostly lack the required organization, skills,

infrastructure, ties to external resources and have a very disadvantageous position with

respect to large enterprises to commercialize their innovative ideas and products in the

market.

b. Reform Measures

Measure 12: “Increasing the number and efficiency of business development,

incubation and accelerator centers in order to support innovative entrepreneurship”

1. Description of measure: Within the scope of the relationship with the upper policy

documents/national strategic documents; New Economy Program, Priority Transformation

Program and strategic documents were taken into account. In addition, in order to involve

technology intensive start-up enterprises in advanced entrepreneurship ecosystems, their

participation to acceleration programs will be ensured and thus R&D and innovation projects

will be carried out in a healthy manner which will help them to transform into enterprises

that provide value to the country's economy.

There has been one project proposal call in the scope of the International Incubation

Center and Accelerator Support Program, which came into force in 2016, and support has

been given for the establishment and operation of two International Incubation Centers in

the United States. In addition, 6 accelerator programs were organized within the scope of the

International Accelerator Support Program and SMEs with technological ideas and products

were supported by KOSGEB. SMEs, universities, technology development zones and

technology transfer offices can benefit from the said program.


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In line with the know-how and experience gained within the scope of International

Incubation Center and Accelerator Support Program, İŞGEM/TEKMER Support Program

studies have been initiated and related program was put into effect as of April 2019. In this

respect, the activities to be carried out by entrepreneurs and SMEs within the national

incubators are supported.

The relationship of the measure with the major policy documents/national strategic


11th Development Plan (322.11): “Target and performance-oriented technology

development centers will be established for innovative entrepreneurs in the priority sectors

and digitalization areas.”

i. Activities planned in 2020:

Within the scope of promotional activities for İŞGEM / TEKMER Support

Program and International Incubation Center and Accelerator Support Program,

promotional activities will be conducted alongside face-to-face meetings with

potential target groups.

First applications will be evaluated within the scope of İŞGEM / TEKMER

Support Program.

ii. Activities planned in 2021:

The support process for the İŞGEM / TEKMER Support Program and the

International Incubation Center and the Accelerator Support Program will

continue.

Monitoring and evaluation system will be established.


Indicator Current

Situation

2020 2021

Number of new TEKMER supported

by its founded and operated 0 5 4

Number of new İŞGEM supported by

its founded and operated 1 0 1

Number of company supported under

the international incubation centers

and accelerator programs

15 20 25

3. Expected impact on competitiveness: In order to enhance the interaction between

entrepreneurs and SMEs, the culture of doing business together will be facilitated. Also,

introducing entrepreneurs to investors will increase their chance to access direct financing.

Furthermore, consultancy, training and mentoring services will be provided to all kinds of

activities that will contribute to the development of products / services.

In this context enterprises will go into digital transformation processes resulting

reduction in their costs and they will have a competitive position in international markets.


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Increasing quality and quantity of incubation centers, highlighting entrepreneurship

concept with R&D and innovation activities and strengthening public-private-NGO

partnerships will be ensured.




5. Expected impact on employment, poverty, equality and gender: Within the

scope of these support programs, personnel wages are supported for managers, experts,

technicians, janitors and security personnel to be employed in incubation centers. The effect

of the reform measure on gender is not foreseen. Therefore, the measure is impartial in terms

of gender discrimination.

6. Expected impact on environment: These incubators, which are generally

supported by entrepreneurs and enterprises in the field of information and communication

technologies, do not carry out any activities that may cause negative harm to the

environment. In addition, in case of a harmful to the environment activity, the relevant

incubators are audited within the framework of certain standards since they are located

within a university or technology development region. There is no environment risk for

established incubators abroad due to the heavy standards and sanctions of the country

concerned.

7. Potential risks

Risks Probability (Low /

High) Planned mitigating action

Worldwide economic fluctuations Low We will try to develop policies that will

support them more financially and morally.

Lower number of applications than

expected level

Low

Increasing publicity activities and

conducting interviews with the target group

for revising the program in line with the

feedback

Measure 13: “Enhancing the R&D and innovation activities of SMEs”

Coverage of this measure extended with contribution of TUBITAK (Measure 13b), in

line with the Commission’s suggestion. Measure 12 from ERP (2019-2021) will be

monitored as Measure 13a starting from this year.

Measure 13a: “Prioritizing technological product investments to increase the

technology level and export capacity of SMEs and supporting the commercialization of

R&D projects”

1. Description of measure: With the SME Technological Product Investment Support

Program, high technology will be spread to the base by domestic and national SMEs,

technological product investments and commercialization projects will be supported.


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The relationship of the measure with the major policy documents / national strategic


Industry and Technology Strategy (2023)

3. Ecosystem Understanding and Excellence Centers in R & D (3.5 Supporting

the branding of R & D products and opening them to the global market.)

8. Steps to Strengthen Exports and Institutionalization of Industry (8.8 Supporting

branding, product development, market access to increase added value in low and

medium-low technology sectors)

10. Technology-Oriented Industry Action Program (10.1 Supporting investments

within the Technology-Oriented Industry Action Program)

11. Improvement of Investment Environment and New Investment Incentive

System (11.5 Accelerating the commercialization steps of completed R & D

projects.)

i. Activities planned in 2020: With the SME Technological Investment Support

Program, SMEs' investment in technology fields and the production and commercialization

of products that will contribute to the current account account will be supported.

ii. Activities planned in 2021: With the SME Technological Investment Support

Program, SMEs' investment in technology fields and the production and commercialization

of products that will contribute to the current account account will be supported.


Indicator Current

Situation

2020 2021

Number of products in medium-high and

high technology areas 60 66 71

Number of products in medium-low and low

technology areas 40 50 50

Note: Number of enterprise supported with the Program refers to number of product and number of projects.

3. Estimated impact on competitiveness: It is aimed to commercialize new products

resulting from R&D and innovation activities in the priority technology fields, to create

value for the national economy and to increase the export of technological products by

having a competitive position in international markets. It is aimed to increase the

competitiveness of SMEs and contribute to inclusive growth by supporting the investments

of the products or services they will produce.





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5. Expected impact on employment, poverty, equality and gender: The measure is

expected to contribute to job creation. However, it is not foreseen that the measure will have

a direct impact on employment, poverty, equality and gender

6. Estimated impact on environment: It is not foreseen that the measure will have a

direct impact on the environment

7. Potential risks

Risks Probability (Low / High)

Economic fluctıations in markets Low

Increase in the cost of production inputs Low

Measure 13b: “Enhancing the R&D and innovation activities of SMEs; and the

development and implementation of mechanisms to encourage and facilitate technology-

based and innovative SMEs access to finance, participation in mentoring and cooperation

networks”

1. Description of measure: In order to enhance the R&D and innovation activities of

SMEs; mechanisms to encourage and facilitate technology based and innovative SMEs’

access to finance and mentoring and cooperation networks will be implemented. In this

context, with a reform in TÜBİTAK’s Industrial R&D Grant Program only SMEs will be

supported, mentoring programme for SMEs will be implemented. In the newly established

“Industrial Innovation Networks Mechanism (SAYEM)”, SMEs will take place in a network

with firms and universities and will contribute the development of high value added products

and technologies.

Within the scope of measures, that address “access to finance” problem TÜBİTAK

Tech-InvesTR Venture Capital Support Program (Tech-InvesTR) was established in 2018.

Tech-InvesTR Programme will support R&D intensive early-stage companies in need of

financial resources through the establishment of new funds to provide venture capital.

Creating a sustainable venture capital ecosystem in order to support early stage technology-

based initiatives and providing experience and resources in venture capital in Technology

Transfer Offices (TTOs) and Technology Development Zones (TDZs) are among the aims

of the program. TDZs and TTOs will participate as limited partners of venture capital funds

which are established with Tech-InvesTR Program. 50% of the contributions of TTOs and

TDZs for VC funds for investments will be supported by TÜBİTAK in the form of grants.

In addition, these organizations will receive extra support for up to 10% of their contribution

for general expenses. In order to ensure sustainable functioning of the program, a

cooperation agreement was signed between TÜBİTAK and the Ministry of Treasury and

Finance and it was agreed that the Ministry of Treasury and Finance will be a limited partner

(LP) in order to ensure that the funds to be formed is strong. Furthermore, third party

investors as commercial banks, investment banks, pension funds, angel investors, private

investors, private corporations, public institutions and other foreign institutions like EIF,


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EBRD, IFC, FMO will also participate in the funds as LP. Studies are being carried out

within the scope of Tech-InvesTR 2018 Call.

Within the scope of the measure's relation to the top policy documents/national

strategic documents;

• The Eleventh Development Plan “2.2.3.3. Entrepreneurship and SMEs”

• “High Technology and Innovation”, “Digital Transformation and Industry Move”

and “Entrepreneurship” sections within the scope of 2023 Industry and Technology Strategy

i. Activities planned in 2020: Within the scope of related programs of TÜBİTAK,

calls will be opened and projects / activities will be supported.

ii. Activities planned in 2021: Within the scope of related programs of TÜBİTAK,


iii. Activities planned in 2022: Within the scope of related programs of TÜBİTAK,


2. Result indicators

Indicator Current

Situation 2020 2021 2022

Share of SMEs in Project Applications (%) 56 66 67 67

Number of SME Supported Projects (pcs) 540 1310 1531 1739

3. Expected impact on competitiveness: SMEs will be able to better compete with

their strong competitors in the market with research and development and innovation

activities for which they need easier access for financing, mentoring services and

networking. In this respect, the above mentioned TÜBİTAK activities will create a positive

environment for SMEs to help them become more competitive. Especially SMEs can

increase their competence and skills to work with innovative partners and customers in

innovation networks so that they are able to be more competitive both at national and

international levels.





5. Expected impact on employment, poverty, equality and gender: The measures

listed above will enhance the R&D and innovation activities of SMEs which are expected to

result in significant increase in the number of qualified employees owned by the SMEs.

Nevertheless, a positive direct impact on gender issues is not expected, except that the more

effective support of SMEs’ research and innovation leads to greater participation of qualified

women in research and innovation activities.

6. Expected impact on environment: Environmental aspects of the projects

supported under technology and innovation grant programmes of TUBITAK are taken into


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consideration within the scope of “Conversion of Project Outputs into Economic and Social

Good” evaluation criteria.

7. Potential risks

Risks Probability Planned mitigating action

Negative effects of economic

fluctuations on TUBITAK support

budget

High Prioritizing high value-added projects.

Cooperation challenges between

SMEs and other (public/private)

institutions

Medium Awareness activities can be organized

between SMEs and other (public/private)

institutions

Measure 14: “Supporting competent research infrastructures on a performance

basis within the new legal framework”

1. Description of the measure: In the context of the Law No. 6550 on Supporting

Research Infrastructures, research infrastructures that have been certificated under the Law

will continue to be supported in a performance-based system and studies will be carried out

to introduce new research infrastructures into the system.

The relationship of the measure with the top policy documents / national strategic


In accordance with the policy no. 350.3 in the 11th Development Plan which

ensures that the research infrastructures with competence in the priority sectors will be

included in the Law No. 6550. and secondly the policy no. 441.3 as following “Regulations

will be made to monitor the output and impact-oriented performances of research

infrastructures within the scope of Law No. 6550 and to encourage them to work in line with

product missions in critical technology areas.”

Measure 350.3 in the 2020 Presidential Annual Program.

i. Activities planned in 2020: Competency evaluation studies will be conducted to

determine the research infrastructures to be included in the scope of the Law. R&D

performance of certificated research infrastructures will be monitored and they will be

supported. In addition, within the scope of support programs for such infrastructures such as

Centers of Excellence program, the infrastructures will be supported to carry out

technology/product development activities in cooperation with the industry.

ii. Activities planned in 2021: Preparatory work will be carried out in order to increase

the number of qualified research infrastructures. Infrastructures will be supported to increase

R&D activities in cooperation with industry.

iii. Activities planned in 2022: Preparatory work will be carried out in order to increase

the number of qualified research infrastructures. Infrastructures will be supported to increase

R&D activities in cooperation with industry.


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2. Result indicators

Indicator Current

Situation 2020 2021 2022

Number of new research infrastructures

supported under Law No. 6550 4 3 3 3

*The annual targets of the indicators are not cumulative; for each year is set separately.

3. Expected impact on competitiveness: R&D activities carried out in research

infrastructures have the potential to contribute to the country's national advanced technology

acquisition target. By achieving this goal, it will have a positive impact on the

competitiveness, growth and labor force of the country.






equality and gender: The measure is expected to contribute to job creation but it is not

foreseen that the measure will have a direct impact on gender.

6. Expected impact on environment: There is no expected impacts on

environment.

7. Potential risks:

Risks Probability

Adequate researchers may not be employed in research

infrastructures in terms of quality and quantity High

Increase of input costs High

General issues related to product commercialization High


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5.3.5. Trade-related Reforms


The instances that the World Trade Organization (WTO) regulations do not meet the

needs of today and the multilateral trade order is insufficient in terms of new market

openings have led the countries to make bilateral and regional trade agreements. On the other

hand, under the Customs Union, Turkey aligns its commercial policy with the EU’s Common

Commercial Policy. This alignment concerns both the autonomous regimes and preferential

agreements with third countries. Turkey, in line with the tendency in the world for

negotiating FTAs and its Custom Union obligation, negotiates and concludes free trade

agreements with third countries, in parallel with the EU.

So far, Turkey has concluded FTAs with 37 countries, 11 of which were repealed due

to the accession of these countries to the EU. Currently, Turkey has 21 FTAs in force8;

namely, EFTA, Israel, Macedonia, Bosnia-Herzegovina, Palestine, Tunisia, Morocco,

Syria9, Egypt, Albania, Georgia, Montenegro, Serbia, Chile, Mauritius, South Korea,

Malaysia, Moldova, Faroe Islands, Singapore and Kosovo.

Turkey has been conducting negotiations to extend the scope of its existing FTAs with

an aim to update and deepen their scope. To that end, Protocols extending the scope of FTAs

and revising agricultural concessions entered into force on 1 June 2019. Turkey also signed

revised arrangements with EFTA, Bosnia and Herzegovina and Montenegro and ratification

procedures of these arrangements are ongoing. Negotiations with Georgia and Malaysia will

be finalized in the near future. Moreover, it is aimed to start negotiations with Moldova.

Meanwhile, there are 16 countries/country blocs that Turkey has started FTA

negotiations. Turkey has been actively engaged in negotiations with 5 of them; (namely

Ukraine, Indonesia, Japan, Thailand and Somali) Turkey continues its efforts to speed up the

process for the remaining ongoing FTA negotiations with Peru, Colombia, Ecuador,

MERCOSUR, Mexico, Pakistan, Djibouti, Dem. Rep of Congo, Cameroon, Chad and Gulf

Cooperation Council.

Lastly, Turkey has established a Working Group with the United Kingdom due to

Brexit in order to sustain the current bilateral market access structure in the short term, and

to establish a deep and comprehensive FTA in the medium-long term.

The EU-Turkey Customs Union will be updated with a view to resolving structural

problems for the better functioning of the Customs Union and extending the EU-Turkey

preferential economic and commercial relations to new areas such as public procurement

and services.

8 Turkey-Jordan FTA was repealed on 22 November 2018. 9 The FTA between Turkey and Syria was suspended on 6 December 2011.


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b. Reform Measures

Measure 15: “Update Of the Turkey-EU Customs Union”

1. Description of measure: The Customs Union (CU) entered into force as a

transitional arrangement prior to Turkey’s full membership to the EU. However, Turkey’s

prolonged full-membership process has rendered the CU’s flaws such as Turkey’s absence

from the EU’s decision-making bodies pertaining to the CU, Turkey’s difficulties in

adopting the EU’s Free Trade Agreements (FTAs) and the road transport quotas that preclude

Turkey from being a full beneficiary of the CU, as structural problems.

On the other hand, due to the changing conditions in the world economy, the Customs

Union remains insufficient to meet expectations of the Parties. Both Turkey’s and the EU’s

new generation FTA’s include trade related areas such as services and public procurement

that encourage both sides to improve their economic and commercial relationship based on

this trend.

This situation brought the necessity for the update of the Customs Union. Accordingly,

the formal negotiations are expected to be initiated in 2020 after the European Commission

gets the mandate from the Council.

i. Activities planned in 2020: The negotiations will be initiated after the European

Commission gets the mandate from the Council. The Ministry of Trade, together with the

related public institutions, is responsible for the launch of update of the Customs Union

negotiations.

ii. Activities planned in 2021: Negotiations will be carried on and concluded if

possible. The Ministry of Trade, together with the related public institutions, is responsible

for the conduct of update of the Customs Union negotiations.

iii. Activities planned in 2022: Negotiations will be concluded and the agreement will

enter into force if possible. The Ministry of Trade, together with the related public

institutions, is responsible for the conclusion of update of the Customs Union negotiations.

2. Results indicators: Within the scope of the measure, there are no performance

indicators followed.

3. Expected impact on competitiveness: Further liberalization and bilateral market

opening in the areas of agriculture, services and public procurement are expected to increase

competitiveness in Turkish economy.






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equality and gender: A shift of labour force from agriculture to industry and to services is

expected.

6. Expected impact on the environment: As a result of further alignment with the

EU legislation, positive effects are expected on the environment.

7. Potential risks: The negotiations will be initiated after the European Commission

gets the mandate from the Council. Please note that by nature of negotiations, it is not

possible to give a concrete timetable.


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5.3.6. Education and Skills


All individuals have access to comprehensive and qualified education and lifelong

learning opportunities, have the ability to think, perceive and solve problems, have the

characteristics of self-confidence and responsibility, entrepreneurship and innovation,

assimilate democratic values and national culture, open to sharing and communication, art

and aesthetic feelings. The main purpose of our education system is to train strong,

productive and happy individuals who are prone to use technology.

There is a positive relationship between economic growth and the quality of education.

According to the PISA 2018 survey results Turkey literacy, science and math tests compared

to results of previous research showed a significant increase in all of the scores. However,

the average scores of students are still below the average of OECD countries. On the other

hand, although the increase in student ratios above the basic level of competence is a positive

development in terms of competitiveness, the extent of the differences in school types and

interregional achievement shows that inequality between schools and students is significant.

In this context, various activities are carried out in order to ensure continuity of education

for girls and poor students and to strengthen inclusive education.

In the coming period, individuals who are able to compete with the needs of the labor

market, can compete and renew themselves according to the conditions of the age will form

the basic building blocks of economic growth. As a reflection of recent developments in

secondary school enrollment rates, an increase in the number of students enrolled in

vocational and technical education is observed. However, despite the quantitative increase,

it is known that there are problems in terms of harmonization between vocational and

technical education and labor market. Employers have difficulties in finding suitable

personnel for the skills they are looking for, and vocational and technical education graduates

are employed in a different line of business than their graduates. For this purpose, protocols

are made in cooperation with the private sector in order to increase the quality in vocational

and technical education, and the studies for updating the curricula in areas required by the

sector are continuing. In addition, workshops and laboratory equipment aimed at

strengthening the physical infrastructure of vocational and technical high schools are

renewed in accordance with technological developments.

b. Reform Measures

Measure 16: “Dissemination of pre-school education”

1. Description of measure: Pre-school age is a critical period in which the concept

ego starts to form, neurobiological development pace reaches its climax and social norms

and values are formed. Thus the institutions which provide this education are accepted as

“the best places” to start life. In order to realize this Turkish Ministry of National Education

has implemented many projects in order to increase schooling rates in pre-school; fund have

been transferred for disadvantaged children, new pre-schools and pre-school classrooms


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have been built and educational services are provided without any fee for children who

benefit only from educational services (whose nutrition is not supplied by the school).

The primary aim of the Ministry is to ensure that every student starts compulsory

education followed by at least one year of pre-school education. There are also national

documents in which the following objectives are stated:

2023 Education Vision of Turkish Ministry of National Education: “Early childhood

education services will be scaled up”.

The 2019 Annual Programme of Presidency: It will be ensured that early childhood

education will be compulsory for the age of 5 and joint quality standards will be developed

in order to increase the quality of educational services of this stage during the following

period”.

11th National Development Plan: “Age 5 will be taken under the scope of compulsory

education and flexible, alternative early child education models will be formed; additional

classrooms will be built with this aim”.

Sub-Project 1: Mobile caravan pre-school

Children can not attend pre-school education in the regions which are overly populated

and in which there is no available land to build sufficient number of classrooms. Likewise

the children of seasonal agricultural workers, migrants and the children who live in villages

in which there is no pre-school institution can not benefit from this education. It is aimed via

2023 Education Vision that “Centers, workshops, and mobile bus classrooms will be

commissioned in the context of scaling up community-based early childhood services.

Mobile bus classes are currently being implemented. However there are several issues like

maintenance of the vehicles, insurance, fuel and driver which hinder the sustainability of this

activity. It is believed that a caravan which is designed accordingly can serve for the same

purpose, and the vehicle to pull the caravans will be provided via service procurement.

Caravans will be more suitable functionally and cost-effectively.

Sub-Project 2: Renovation of mobile center pre-school classrooms-

transformation of suitable spaces into pre-school classes

In 2023 Education Vision it is aimed that “Alternative early childhood education

models with flexible timing arrangements will be implemented for children in rural and low-

population settlement areas”. Children in the rural areas where there is not sufficient number

of children to form a group can not be schooled. Transportation of pre-school children to

distant schools reduce the quality of education as children need to get up very early and leave

their homes without breakfast. Thus it will be more functional to transport children from two

close areas to a mobile pre-school center located in one these areas city center. It is planned

to renovate an old inactive building or school and transform it into a pre-school classroom.

Many buildings in city centers can be renovated and used as pre-school classrooms.


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Sub-Project 3: Support for disadvantaged children and their families

In 2023 Education Vision it is expressed that “The early-childhood education

materials and equipment needs of children from disadvantaged households will be supplied”

and “Basic materials supportive of child development will be provided to poor households

as part of early childhood education”. In accordance with this aim educational family

materials will be developed, an online system will be designed, and early-childhood

education materials and equipment needs of children from disadvantaged households will be

supplied.

Sub-Project 4: Reducing the costs for the family and increasing the quality of

education

The cost of pre-school education is higher than other grades of education. Currently,

contribution fee is taken from the parents with respect to the rates determined by the

governorates. Most of this contribution fee is used for the employment of the teacher

assistants. Due to the sensitivity of this age it is necessary to employ teacher assistants.

However the number of permanent staff is very limited in these schools. Even though certain

number of staff is assigned for pre-schools, these staff are not qualified to work in these

schools. It is not only the cleaning staff that is required in these schools but also staff who

can support children’s development (hygiene, nutrition, dressing, assistance for activities) is

needed. Thus qualified staff who is at least a graduate of vocational high schools child

development must be employed and this employment should be done via İŞKUR.


Project:

Determining the settlements and the models of access to education

Conducting needs analysis (cost, technical specifications, tender document, etc.)

Completion of necessary purchases and repairments, delivery

The beginning of trainings in model classes

Sub-project 1:

Determining the settlements that are in need of caravans

Determining the standards and technical specifications of the caravan class to be

designed, preparing the tender documents

Completion of necessary procurement and service procurement of vehicles

Beginning of trainings in mobile classes

Sub-Project 2:

Determination of settlements in need of repair and determination of the approximate

cost

Making the necessary planning and completing the allowance procedures and

initiating the repairing process

Completion of repairs and supply of equipment


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Initiating the trainings in repaired classrooms

Sub-Project 3:

Determining the settlements and schools where the poor households are

concentrated, determining the educational materials and basic materials that will be

distributed to the household

Providing county and district based calculations and preparing necessary

allowances, sending the lists of allowances and tools to those provinces and districts

Setting up an online system for the distribution of family materials

Delivery of educational tools and equipment to the related schools

Initiation of the second pilot implementation of the materials developed for the

families

Sub-Project 4:

Making a protocol with IS-KUR on this issue

Determining the number of institutions and the number of personnel to be employed

Determining the qualifications and recruitment processes of the personnel to be

employed in these institutions

Starting the recruitment procedures

Recruitment of the staff


Project / Sub-Project 1 / Sub-Project 2:

Maintaining projects by making necessary purchases and repairments where

needed.

Sub-Project 3:

Resuming the distribution of educational materials to schools with poor families.

Distribution of family materials to designated poor families

Sub-Project 4:

Resuming the recruitment of staff in designated schools

iii. Activities planned in 2022:

Project / Sub-Project 1 / Sub-Project 2 / Sub-Project 3 / Sub-Project 4:

Continuation of the projects by making necessary purchases and repairs where

needed

Continuation of distributing educational materials to schools with poor families

Distribution of materials prepared for families to designated poor families

Continuing the recruitment of staff in designated schools


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Indicator 2018

Current status

2019

2020 2021 2022

5 years net enrollment rate (%) 66.88 68.30 70 80 90

3. Expected impact on competitiveness:

Project:

Children to be raised as an individual with all development areas supported in terms

of preschool education.

Eliminating inequality in access to education by contributing to the development of

children in disadvantaged areas

Sub-Project 2:

Utilizing existing idle areas in order to use the immovables with full capacity

Sub-Project 3:

Raising awareness of poor families






equality and gender:

Project:

Teachers and ancillary staff will be employed in the mobile and repaired

classrooms.

Sub-Project 1:

Teachers and assistant staff will be employed in mobile classes.

Sub-Project 2:

Teachers and assistant staff will be employed in the repaired classrooms.

Sub-Project 3:

21 thousand unemployed women, will be provided with jobs every year.

6. Expected impact on the environment: There is no direct impact of measure on

the environment is foreseen. Therefore the measure is neutral in terms of environment.


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7. Potential risks:

Risk Probability

(low/high) Planned mitigating action

In accordance with the subcontractor

law, there may be problems in the

employment of auxiliary personnel.

High The number of personnel assigned to

MoNE by İŞ-KUR should be increased.

The number of personnel requested by

İŞ-KUR may not be provided. High

The number of personnel assigned to

MoNE by İŞ-KUR should be increased.

There may be problems identifying the

poor households clearly. High

MoNE and the Ministry of Interior

should cooperate on data sharing.

Measure 17: “Increasing the reading culture” (The scope of this measure has been

extended to include the actions of both the Ministry of Culture and Tourism and the Ministry

of National Education. The main responsibility of the measure is the Ministry of Culture and

Tourism. The Ministry of National Education is responsible for section 17.b of the measure.)

Measure 17.a (Responsible Institution: The Ministry of Culture and Tourism, at

the same time the main responsible for the entire measure)

1. Description of measure: With the development of the reading culture, it is aimed

that all segments of the society will be individuals who read, interpret, question, learn and

access the correct information.

This measure takes reference from the 11th Development Plan, III. The National

Culture Council the Presidential 100-Day Action Plans and the Culture Strategy Action Plan

of the Ministry.

Within the scope of the 11th Development Plan, “Librarianship services will be

developed in order to create and expand the reading culture, and libraries will be restructured

spatially and functionally by taking advantage of new technologies and management

approaches in this field.

The mission to develop the reading culture has been given to the libraries. In Turkey,

the General Directorate of Libraries and Publications provide services on the development

and promotion of reading culture in society with 1176 public libraries and 54 mobile

libraries.

The library summer / semester programs enabled children and young people to meet

books with innovative works outside the school year. Through the Baby Libraries Workshop,

II. International Children's Libraries Symposium, Public Libraries Activity Guide

Workshop, it is aimed that the individual will be acquainted with the reading culture from

the moment of birth.

In addition to these, thematic libraries such as Istanbul Airport Library, Konya Train

Station Library, Urla Beach Library are also underway to ensure easy access to the book at

any time. Additionally, the protocols signed in 2019 with the Ministry of National Education


109

and the Ministry of Justice aimed at supporting the reading culture of individuals in their

spheres of influence.

Both the National Library and public libraries provide free and fast access to

information when the individual cannot come to the library through e-library services. For

the citizens who cannot come to the library, temporary services are taken to hospitals, police

stations, prisons and villages and similar activities are supported with mobile libraries.

Publication applications submitted to Ministry of Culture and Tourism to let readers

meet the documents of national culture produced through ideas, artistic and literary works

are evaluated by the Publication Projects Evaluation Committee. In line with the approved

decisions, publication programs are prepared for each year and the works are published

within the framework of allocated budget.

Within the scope of the “Supporting Literary Works Project” which aims to publish

new writers' works under more professional conditions and with the support of publishing

houses publishers are provided with the support of the “first work ". Financial support is

provided to publishers which publish literary works as “first” produced works.

As the coordinator of the Measure of Increasing Reading Culture, some meetings have

conducted recently with stakeholders who are working on the subject. Within the scope of

the measure, there are some projects carried out by the Ministry of National Education,

Ministry of Youth and Sports and the Ministry of Family Labor and Social Services, and

also there are some studies in the KOP (The Konya Plain Region Project), DAP (The Eastern

Anatolian Region Project) and DOKAP (The Eastern Black Sea Region Project) regions

which are referred to in 2019 Investment Program. These studies are briefly mentioned

below:

Projects carried out by the Ministry of Youth and Sports:

Book-Coffee Project

Within the scope of the Youth Projects Support Program, “Book-Coffee Project”

(Kitap Kahve Projesi) which contribute to the reading habits of young people are supported.

In the first call for 2016-1, the project started to be carried out in the provinces of Eastern

and Southeastern Anatolia. In 2018, the Project was expanded throughout the country. For

each project, at least 2,000 books are supplied and book coffees are provided with inventory

support up to %30 of the project budget. In 2016-1, 8,505,000 TL was paid for 87 projects

and 15,453,875 TL was paid for 178 projects. Support is expected to continue in the coming

years.

Book Reading Circles

With this project carried out in the Youth Centers, it is aimed to give young people the

habit of reading books, to enable them to think analytically, to interpret the events and facts,

to contribute to the raising of individuals who question, discuss and have national and

spiritual values.


110

In 2019, 8,451 circle were formed in all youth centers in 81 provinces and 59,360

young people participated in critical reading activity.

Book Publication and Distribution

With the project, the printed, periodical and visual publications produced in Turkey

and abroad for youth are monitored and the books published by the Ministry as a result of

the evaluation of the publication board are presented to the youth free of charge. 103,000

copies of 35 different books were published in 2018 and 86,750 of 34 different books were

published in 2019 (January-September). 13,830 works in 2018, and 105,779 works in 2019

(January-September) were distributed to youth centers, book cafes, schools, NGOs and

public institutions.

Project carried out by the Ministry of Family, Labor and Social Services:

Project for Creating Book Lists with Appropriate Content for 0-6 Years

Old Children

The project was initiated in January 2018 to create libraries for 0-6 years old children

who stay in the institution of the Ministry and in order to be guide for families and 0-6 years

old children for the purpose of examining the published works for children in terms of

content.

880 books were evaluated by the evaluation commission established within the scope

of the study, 367 of which were approved with their appropriate content and published on

the official website of the Ministry.

The selected works will be distributed to children's houses of the Ministry and other

institutions therefore it is aimed to create libraries with publications supporting the healthy

development of children.

Projects carried out by Regional Development Administrations:

Increasing The Reading Culture in The Konya Plain Region Project

(KOP)

It is a project initiated by the The Konya Plain Project Regional Development

Administration and covers the 2016-2021 period in order to improve the reading culture in

the Konya Plain Region. Within the scope of the project, a budget of 15,000 TL has been

allocated, by the end of 2018 10,000 TL has been spent and as of March 2019, an investment

of TL 3,050 has been made. Within the scope of the project, support is provided for opening

new libraries, strengthening existing ones and increasing the quality of library services.

Increasing The Reading Culture in Eastern Anatolian Region Project

(DAP)

This project has been initiated by the the Eastern Anatolia Project Regional

Development Administration in order to improve the reading culture in the Eastern Anatolia

Region and covers the period of 2016-2021. Within the scope of the project, a budget of

30,000 TL has been allocated, 18,000 TL of this amount has been spent until the end of 2018


111

and as of March 2019, an investment of 5,000 TL has been made in the project. Within the

scope of the project, the libraries of the districts are established and the studies such as

renovation and furnishing of the libraries in need are supported.

Increasing The Reading Culture in The Eastern Black Sea Region Project

(DOKAP)

It is a project initiated by the The Eastern Black Sea Project Regional Development

Administration for the development of reading culture in the Eastern Black Sea Region and

covers the period of 2018-2020. Within the scope of the project, 2,135 TL budget has been

allocated, 635 of this amount has been spent until the end of 2018 and as of March 2019, an

investment of 750 TL has been made in the project.


500 librarians will be recruited.

Establishment, updating and management of e-Publication Platform for Public

Libraries will be provided.

Within the scope of the protocol signed between the Ministry of National

Education and Ministry of Culture and Tourism, e-books will be shared for the

"Teacher Library Project".

Within the scope of "Digitization of Turkish Classical Works" Turkish Classical

Works will be published in the e-book format by Ministry of Culture and

Tourism.

e-book portal, “Ekitap.gov.tr” and e-book mobile application will be

implemented and the content will be harmonized and published in epub format

and copyright fee will be paid to the planned books.

Support will be given to publishers within the scope of “Supporting Literary

Works Project”

Within the scope of the protocol signed with MoNE, school-library, teacher-

student collaborations will be provided in the development of reading culture.

With the baby’s libraries, an incentive will be provided to meet the individual

from the moment of birth.

Library Activities will increase the usage rate of libraries.

In addition, the support of relevant institutions and organizations will be taken in

the development of services for disadvantaged groups.








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Works will be published in the e-book format by Ministry of Culture and

Tourism.





Works Project”

Library activities, the number of people participating in the activities, lending

rate, the number of users and members will increase.

The use of “Library in my pocket” application will become widespread.

Awareness of libraries will increase.

The number of cooperated institutions and organizations will be increased.








Works will be published in the e-book format by our Ministry of Culture and

Tourism.





Works Project”

Library activities, the number of people participating in the activities, lending

rate, the number of users and members will increase.

The use of “Library in my pocket” application will become widespread.

Awareness of libraries will increase.

The number of cooperated institutions and organizations will be increased.


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2. Result Indicators:

Indicator Current situation (2019) 2020 2021 2022

Number of Borrowed Library

Materials

6,623,260 (for the first 6

months)

14,450,000 16,750,000 19,250,000

Number of Library Members 3,049,244 (for the first 6

months)

4,335,000 4,985,000 5,732,000

Number of People attending

library activities

902,725 (01.01.2019-

01.11.19)

1,425,000 1,950,000 2,500,000

3. Expected impact on competitiveness: According to PISA, TIMMS test results, it

is aimed to approach the reading culture averages of developed countries and European

Union countries.

It is expected to improve the current competitive environment in our country in the

field of reading culture.

It is thought that the development of reading culture will contribute to the increase in

the knowledge and culture of individuals, to be more effective in society and consequently

to the social development.

The social development experienced as a result of increasing of reading culture will

also contribute positively to the economic competitiveness of our country with other

European Union countries and developed countries.


2020: 5,570,909 Euro + 45,455 Euro (Central Budget + Other Public Resources)




equality and gender: Public libraries are public institutions that serve all segments of

society without discrimination. Social and cultural development in the society will be

ensured by increasing access to the book and removing the barriers.

Increasing the library use of girls and women, especially in disadvantaged regions, will

increase awareness and increase the socio-cultural competence of new generations.

6. Expected impact on the environment: Awareness of environmental issues will be

facilitated by increasing the reading culture.

7. Potential risks:

Risk Probability


Lack of budget High

Increasing the share of libraries in the central

budget

Legislation Amendment (Transfer of

libraries to local administrations etc.) Low

Raising awareness on the issue

Lack of Personnel High

Support for the recruitment of a sufficient number

of librarians from the State Personnel Office


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Measure 17.b (Responsible Institution: Ministry of National Education)

1. Description of measure: Social and cultural development of students will be

supported by expanding reading culture at an early age.

Regarding with the country rankings in PISA results, it is clear that Turkish students

are lagging behind their peers in the countries participating in the study and that reading

habits should be given more importance in the education system in terms of comprehending

and using information.

11th Development Plan (2019-2023) emphasizes the social and cultural development

of students with many articles under policies related to children, youth, education and

culture.

“Article 607.1. Practices will be developed to encourage children to engage in sports,

artistic, cultural and scientific activities.”

“Article 619.3. Activities aimed at increasing the reading, understanding and thinking

and leadership skills of the youth will be expanded.”

“Article 633.1. Culture and art education will be provided from an early age in order

to develop culture and art as a habit of life.”

Article 633.2. Librarianship services will be developed in order to create and expand

the reading culture and libraries will be restructured spatially and functionally by taking

advantage of new technologies and management approaches in this field.”

In line with these needs, it is aimed to increase the number of schools with z-libraries.

In addition, measures will be taken to increase country ranking of reading skills in PISA and

the school community will be made aware of reading culture. Teaching activities on reading

culture and library use will be developed jointly with school teachers.


The number of schools with z-library will be increased in order to support the

social and cultural development of students and to boost the habit of reading

among pupils by making social, artistic and cultural activities in these libraries.

Studies will be carried out to increase the contribution of the school library to

the reading culture. Social and cultural activity-based use of Z-libraries will be

expanded.

Z-Library Guide will be prepared.

Guide for Reading Activities in Z-Libraries will be prepared.



social and cultural development of students and boost the habit of reading



115

Steps will be taken to achieve the average reading skills reflected in PISA testing

among OECD and European Union countries.

In-service teachers trainings related to reading activities will be realized.

Teaching activities on reading culture and library use will be developed jointly

with school teachers.

Reading activities in school libraries will be diversified and expanded.



social and cultural development of students and boost the habit of reading


A reading calendar will be created in schools.

Reading activities will be held in schools.


Indicator Current

situation (2019)

2020 2021 2022

Number of schools with z-library

established by MONE

1,583 240 245 250

Number of teachers trained - 200 200 200

Number of students benefiting from z-

libraries

1,000,000 150,000 160,000 170,000

* Indicator targets are set annually for each year.

3. Expected impact on competitiveness:

OECD PISA and TIMMS test results are expected to approach reading skills averages

of European Union countries.

In our globalized world, international test results are gaining importance in order to

determine the level of education in our country, the deficiencies that need to be overcome

and the measures to be taken, and to increase the education level of our country as an OECD

member.

Reading skill is expected to be an effective factor on competitiveness with European

Union countries in terms of improving the knowledge and potential of the students and the

more effective participation and contribution of the students to the society and country's

economy.






116


equality and gender: Reading ability is expected to be an effective factor in economic

growth as well as competitiveness with other European Union countries, when evaluated in

the context of students' knowledge and potential development, participation and contribution

to society more effectively.

6. Expected impact on the environment: There is no direct impact of measure on

the environment is foreseen. Therefore the measure is neutral in terms of environment.

7. Potential risks:

Risk Probability

(low/high)


The number of the z-libraries established by

MONE and the activities carried out in these

libraries depend on the budget to be allocated

High

Increasing the budget

allocated for z-libraries in

the central budget

Measure 18: “Preparing digital content and skill based programs according to

curriculum” (The name and content of this measure have been changed and become a

narrower measure. Some of its content has been transposed into the two new measures on

vocational training, measures 19 and 20.)

1. Description of measure: The curriculum will be ensured to comply with the

standards to be established in accordance with the skill sets, skills and qualification

definitions. In this context, the curricula will be updated by identifying students' skills and

needs according to school and program types, compulsory and elective courses will be

structured in line with the needs, Weekly course schedules will be organized by making

flexible arrangements related to the course hours.

In order to realize a more effective learning process, interactive applications related to

reading, listening and writing of the textbooks of foreign language courses in Science, Social

Sciences and Anatolian High Schools will be realized and textbooks will be made interactive

with digital content. These actions include arrangements to eliminate the need for

supplementary textbooks by means of textbooks that will be interactive to achieve the goal

of transforming academic knowledge into skills within the scope of the 2023 Education

Vision document.

Interactive boards were installed in our schools within the scope of Fatih Project.

Textbooks of Biology, Geography, Physics, Chemistry, English, Mathematics, History,

Turkish Language and Literature, Philosophy, French and German will be made interactive

according to the curricula updated according to interactive whiteboards. In addition, within

the scope of the 2023 Education Vision Certificate and Development Plan, digital contents

will be created in accordance with interactive whiteboards. The budget of these studies will

be met from our own resources.


117


To prepare the drafts of 9th, 10th, 11th and 12th grade curriculum.

Preparation of 9th grade teaching materials

To prepare pilot curriculum and education materials for the 9th grade in the 2020-

2021 academic year.


To complete 9th, 10th, 11th and 12th grade curriculum.

To prepare pilot curriculum and education materials for the 10th grade in the

2021-2022 academic year.

To apply 9th grade curriculum all of the country.


To prepare pilot curriculum and education materials for the 11th grade in the

2022-2023 academic year.

Pilot implementation in 2022-2023 academic year.

To apply 10th grade curriculum all of the country.


Indicator Current

situation (2019)

2020 2021 2022

Number of Curriculum Developed -- 36 26 --

3. Expected impact on competitiveness: Changes in the global trends of education,

science and technology, and the skills and competencies expected from the educated

individual are important topics for Turkey. It is expected that taking this issue into

consideration and reflecting it to the curriculum will have an impact on the country's

competitiveness and inclusive growth.





equality and gender: Gender inequality and discriminatory elements that might have

existed in education programs and textbooks will be identified and eliminated.

Thanks to the students equipped with skills and competencies, the quality of the people

employed is expected to improve. Thus, an increase in human capital will be provided.

Progress will be made towards achieving economic growth and development.

6. Expected impact on the environment: The measure is neutral in terms of gender

environment.


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7. Potential risks:

Risk Probability (low/high) Planned mitigating

action

Teachers may not participate in

commission work. Low

Effective process

planning should be done.

Program approval process may be

extended. High

Cooperation with the

approval authority

should be enhanced.

Commission members may change in

working process. High

Alternative process

designs should be made.

Field experts may not be available

during the curriculum development

and review process. High

Commission members

should be appointed for a

long time and creating a

expert pool.

Measure 19: “Updating of curricula in vocational and technical education”

1. Description of measure: VET is provided in 55 fields and 203 branches at

vocational and technical high schools and, 27 fields and 118 branches as well as 24

independent branch programs in vocational education centers. The programs will be updated

in 2019. Updating of the materials of the programs will also be carried out. This measure is

included in the 2023 Education Vision.

i. Activities planned in 2020: Five program development workshops are planned to

be carried out with the participation of internal and external stakeholder groups including

field teachers, sector representatives, academicians and program development experts, in

order to update the programs of 55 fields and 203 branches implemented in vocational and

technical Anatolian high schools affiliated to the General Directorate of Vocational and

Technical Education. As a result of this workshop, it is aimed to revise the vocational and

technical education programs in line with the current needs and to expand the employment

areas of the students.

ii. Activities planned in 2021: Vocational and Technical Education Centers, which

are connected to vocational and technical education and whose philosophy is based on

workplace-based vocational education, have 27 fields and 24 branch programs. As a result

of the development of vocational and technical Anatolian high school programs which are

planned to be updated within the scope of 2020 target, the program development activities

are foreseen to continue in 2021 in order to reflect these changes to the programs

implemented in the Vocational Training Centers.

iii. Activities planned in 2022: It is planned to develop the educational tools that

teachers and students will use together with vocational and technical education programs

that are planned to be updated in 2020. These training tools are individual learning materials

and textbooks that consist of business and transaction sheets associated with course

achievements.


119



(2019) 2020 2021 2022

Number of the revised

program 0 55 field

27 field and

24

independent

field

--

Number of the

updated material 0 300 material 300 material 300 material

3. Expected impact on competitiveness: Students who grow up with the new

knowledge and equipment required by the era will become more compatible with the

qualifications required by the labor market and will contribute to the increasing of

competitiveness in production in the medium term.






equality and gender: It is expected that unemployment will decrease with the employment

of graduates of the revised programs.


environment.

7. Potential risks:

Risk Probability


Failure of teachers and the sector to

participate in commission work for

various reasons

High

The number of participants for

commission work will increase.

Suggestions and opinions from

stakeholders during the program

approval process, prolongation of the

program approval process

Low

The number of stakeholder

institutions / organizations to be

consulted will be increased

Change of commission members in

the working process High

The number of participants for

commission work will increase.

Measure 20: “Supporting applications for inventions, patents and utility models

useful in vocational and technical education”

1. Description of measure: Projects in accordance with the invention, patent and

utility model will be supported in national and international competitions in vocational and

technical secondary education. Representatives, school administrators and teachers selected


120

in the provinces will be informed about invention, patent and utility model application

processes. This measure is included in the 2023 Education Vision.

i. Activities planned in 2020: Workshops and information meetings will be held to

inform students, teachers, administrators and provincial / district managers of vocational and

technical education schools and science and art centers about the process of invention, patent

and utility model application.

ii. Activities planned in 2021: Workshops and information meetings will be held to




iii. Activities planned in 2022: Workshops and information meetings will be held to





Indicator Current situation 2020 2021 2022

Number of the

invention, patent and

utility model

24 265 265 265

3. Expected impact on competitiveness: Awareness of R & D, which is one of the

main determinants of productivity, will be created from an early age and culture of business

doing and creating a useful model will be developed from the beginning of the education life

with the support to be given.






equality and gender: Employability of the students will be improved by developing their

entrepreneurship skills and they will be assisted in starting their own businesses.


environment.

7. Potential risks:

Risk Probability


Schools cannot provide

adequate guidance to students

on this issue

High

Providing information activities for students

directly by the Ministry of National Education

and Turkish Patent and Trademark Institution


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5.3.7. Employment and Labor Markets


The Turkish Economy has achieved a high and stable growth momentum. This trend

has brought a high employment expansion and an intense job creation process with it. During

that period the labor supply has been invigorated by institutional factors such as rapidly

expanding women participation and the social security system reform as well as the driving

force of the strong economic growth. For this potential to not to stay idle and be utilized

efficiently it’s crucial that the labor market works in a competitive and healthy way. On the

other hand, the promotion and creation of the job opportunities that will provide an

acceptable standard of living for the entire society and the assistance of the disadvantaged

groups in the labor market is also a priority. In this context, a reform infrastructure aiming

to reach a competitive and well-functioning labor market is adopted while also taking the

social inclusion into account. In line with this objective, the harmonization of social

assistance system with labor market dynamics and the elevation of disadvantageous groups

are desired.

The social assistance officers working in 1,002 Social Cooperation and Solidarity

Foundations distributed around each city and district of Turkey conduct around 3 million

household visits each year. Accordingly, the socio-economic data of nearly 3.2 million

households has been recorded in the Integrated Social Assistance System (ISAS). It will be

ensured that the beneficiaries that are available for work will be directed to active labor force

programs in order to enhance their productivity and to allow them to earn sustainable

livelihood. In this way, the strengthening of the tie between social assistance system and the

employment and the utilization of the workable population at maximum capacity is aimed.

Subgroups that require specialized policies are generally people who face with various

barriers for participation to labor force and to achieve a sustainable employment. The barriers

such as lack of experience and unrealistic expectations of the youth; the biologic, economic

and social hardships the women face; and the physical and social constraints disabled people

encounter with constitute a problem for an healthy labor market. At this point, it is aimed to

ensure the entry of these disadvantageous people into the workforce by harnessing the “Job

Clubs”. “Job Clubs” seeks rapid adaptation of subgroups that need special policies such as

women, youth, disabled, Gypsy citizens, long-term unemployed, immigrants and

unemployment beneficiaries to the labor market.

b. Reform Measures

Measure 21: “Job Clubs”

1. Description of measure: Job Clubs are intensive job and vocational counselling

programmes aiming to provide job seeking motivation and method support through

counselling services to people, who require specific policies, such as women, youth, the

disabled, long-term unemployed, immigrants. Currently Job Club activities continue in

Turkey in 39 provinces and 45 units. (Ankara, İstanbul (Beyoğlu, Bayrampaşa, Başakşehir,

Büyükçekmece, Ümraniye), İzmir, Bursa, Adana, Mersin, Trabzon, Sakarya, Elazığ,


122

Diyarbakır, Konya, Kırıkkale, Burdur, Isparta, Zonguldak, Denizli, Eskişehir, Yozgat,

Çanakkale, Manisa, Aydın, Kayseri, Samsun, Antalya, Hatay (Provincial Directorate and

İskenderun Service Centre), Yalova, Erzurum, Sivas, Adıyaman, Van, Edirne, Mardin,

Balıkesir, Malatya (2), Aksaray, Muğla, Nevşehir, Osmaniye, Şanlıurfa).

In 2019 Annual Programme of the Presidency, the phrase “The number of Job Clubs

will be increased to provide job seeking motivation and method support to groups who

require specific policies” has been included in Measure 125 under the title of “Employment

and Working Life”. In this scope, it is targeted to open 30 new Job Clubs 2019.

In Strategic Plan of Turkish Employment Agency (2019-2023) it has been aimed to

increase the number of Job Clubs and beneficiaries in order to deliver more qualified

counselling services for job seekers under the purpose of “improving qualified counselling

services for permanent employment in line with the needs of labour market”.

It is targeted that Job Clubs will be expanded across Turkey in 2020 and the studies on

expanding them will continue in 2021 and 2022.

i. Activities planned in 2020: It is aimed that the Job Clubs will be expanded to 14

provinces in 2020. Maintenance and repairment of the venues reserved for the Job Clubs

that will be established in 14 provinces will be made and office equipment will be procured.

"Job Club Leadership Training" will be given to the Job and Vocational Counsellors who

will work as Job Club Leader in newly opened Job Clubs. Also, it is planned that a workshop

will be held to exchange ideas and share the examples of good practice. Moreover, various

trainings will be organised to increase the qualifications of Job Club Leaders during the

year.

ii. Activities planned in 2021: Following the expansion of the Job Clubs across

Turkey in 2020, more Job Clubs will start to be established in the provinces that need.

Maintenance and repairment of the venues reserved for the Job Clubs to be established will

be made and office equipment will be procured. "Job Club Leadership Training" will be

given to the Job and Vocational Counsellors who will work as Job Club Leader in newly

opened Job Clubs. It is planned that various trainings will be organised to increase the

qualifications of Job Club Leaders during the year and a workshop will be held to exchange

ideas and share the examples of good practice.

iii. Activities planned in 2022: Following the expansion of the Job Clubs across

Turkey in 2020, more Job Clubs will start to be established in the provinces that need. In

this context, 10 new Job Clubs are planned to be opened in the provinces including the

metropolitan provinces with high potential. Maintenance and repairment of the venues

reserved for the Job Clubs to be established will be made and office equipment will be

procured. "Job Club Leadership Training" will be given to the Job and Vocational

Counsellors who will work as Job Club Leader in newly opened Job Clubs. It is planned

that various trainings will be organised to increase the qualifications of Job Club Leaders

during the year and a workshop will be held to exchange ideas and share the examples of

good practice.


123

2. Results indicators:


(2019)

2020* 2021 2022

Number of Newly Opened Job

Clubs 30 14 19 10

Number of Job Club Participants 29,702** 54,375 67,875 78,750

Number of Job Placements of

Participants 1,027** 1,900 2,400 2,750

* Job Clubs Project will end in 2020 and the existing Job Clubs will continue their activities under İŞKUR.

** It covers January-October 2019.

3. Expected impact on competitiveness: With regard to the measure, groups

requiring special policy in working life compose of the individuals who have difficulties

in getting a job or continuing in working life, and whose integration into labour markets is

more difficult. Therefore, job and vocational counselling to be offered to the individuals in

this group should be structured in a more different way and to develop a positive idea about

particularly provision of access to service and participation in employment. Raising

awareness is quite important in the counselling activities to be carried out within this scope.

Through the programme: Participants become motivated to seek a job, participants can

find the best possible job as soon as possible, participants gain the idea that there is a job for

anyone who wants to work, job seekers are informed about the ways of finding a job, self-

confidence of individuals increases.


2020: 454,545 Euro (Other Public Finance Resources)




equality and gender: It is aimed to increase the female participation in the labour market.

Job Clubs is an intensive job and vocational counselling programme that aims to provide

method and motivation support for the groups, which requires specific policies, such as

women, young people, the disabled, long-term unemployed, ex-convicts and drug addicts.

6. Estimated impact on environment: The measure is neutral in terms of gender

environment.

7. Potential risks:

Risks Probability

(Low/High)

Insufficiency in the number of staff in some provinces can prevent Job and Vocational

Counsellors as the Job Club Leader from focusing on club activities Low

Cooperation with State Institutions and Organizations in local is crucial in the

establishment stage of Job Clubs. That the State Institutions and Organizations are

away from cooperation and joint work culture can influence club activities.

Low

That Job Clubs cannot be promoted well can keep demand for the clubs low. Low


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Measure 22: “Mother at Work and Child Care Support”

1. Description of measure: Particularly women who receive social benefit or social

and economic support, women benefit from the institutions of Ministry of Family, Labour

and Social Services, which render services in combating domestic violence against women

and other women who are in groups determined by İŞKUR benefit from the project. Women

with children between the age of 0 and 15 can benefit from the project.

The women benefitting from the project firstly benefit from the Club activities in the

provinces in which Job Clubs exist. If there is no Job Club in their provinces they benefit

from job and vocational counselling services. Afterwards, they are referred to appropriate

vocational training courses and on-the-job training programmes with minimum 50%

employment guarantees.

In 2018, within the context of 1st 100 days action plan of our Government, “Project on

Supporting Women’s Employment with Mother at Work” entered into force. With the

project, women in the target group are directed to wage-guaranteed vocational training

courses or on-the-job training programmes organised by our Agency. Women benefiting

from the project are paid a daily allowance of 80 TL for the course or programme days.

Mothers who meet the required conditions are also paid childcare support of monthly 400

TL.

i. Activities planned in 2020: By the end of 2020, it has been targeted that 16,000

women will benefit from the Mother at Work Project and 500 Women will benefit from the

Child Care Support.

ii. Activities planned in 2021: It is targeted that the project will be implemented in

81 provincial directorates until the end of 2021, and 20,000 women will be ensured to

benefit from the Project. It will also be ensured that daily allowance of 80 TL paid for

women will be increased. In addition, it has been aimed that 1,000 women will benefit from

the Child Care Support in 2021.

iii. Activities planned in 2022: It is targeted that the project will be implemented in

81 provincial directorates in 2022 and 20,000 women will be benefited from the project. It

has also been aimed that 1,000 women will benefit from the Child Care Support in this year.


Indicator Current

Situation

2020 2021 2022

Number of Women Benefiting

from the Women at Work

Project

16,743 16,000 20,000 20,000

Number of Women Benefiting

from Courses and Programmes

within the Scope of Childcare

Support

281 500 1,000 1,000


125

3. Expected impact on competitiveness: With the project, socio-economic obstacles

that women face in the labour market are decreased and female labour force participation is

influenced positively. Women are referred to vocational training courses with employment

guarantee and on-the-job training programmes and their participation in labour market is

encouraged. Thus a contribution to their competitiveness with men in the labour market is

ensured. Through the project women create added value to country’s economy with

production.

Women who have difficulty entering the labour market due to care services in the

labour market will also be provided with vocational training courses and on the job training

programmes through İŞKUR. By this means, while the efficiency of public employment

services will be strengthened in terms of cost-benefit, employment of the women who are

disadvantaged in the labour market will be supported.






equality and gender: It has been expected that employment of women who cannot be

integrated into labour market due to care responsibility will be supported. In addition,

matching job vacancies of employers with compatible qualifications and skills in an efficient

way will also be supported by increasing promotion and operability of the said application.

6. Expected impact on environment: The measure is neutral in terms of gender

environment.

7. Potential risks:

Risks Probability (Low/High)

Inadequate demand by the women included within the

scope of the plan. Low

Difficulty in breaking the social roles Low

Measure 23: “Vocational Training and Skills Development Cooperation Protocol

(MEGİP) Project”

1. Description of measure: In order to organize the necessary vocational training

schemes to bring up the labor force possessing the qualities demanded by the labor market

the Cooperation Protocol on Vocational Training and Skills Development (MEGİP) is

implemented with the coordination of İŞKUR and TOBB.

Within the scope of the project; the Consultation Board consisting of relevant

institutions and Provincial Working Group consisting of provincial directorates and the

managers of boards and chambers have been established. In the context of the Cooperation


126

Protocol on Vocational Training and Skills Development (MEGİP) theoritical and practical

education is provided together. The quality labor force that employers need is raised by

schedule designed in line with the employer demands.

For professions that does not require any theoretical training, vocational skills

education is organized. Depending on the qualities of relevant job, theoretical and practical

training will either be conducted in a simultaneous manner to complement each other or in

an exclusive manner.

The daily time span of vocational training is between five to six hours and encompass

six days in a week at maximum. Trainees are provided with 77.70 TL per diem during a

specific vocational training program (which is limited to 160 days at max). Moreover, the

health and accident risks of trainees are covered by the general health insurance.

i. Activities planned in 2020: As of 2019, within the scope of public-private sector

cooperation, vocational skill trainings have been organised by Vocational Training and

Skills Development Cooperation Protocol (MEGİP) to include the combination of

theoretical and practical trainings in public-private cooperation in order to train the labour

force in the qualifications required by the labour market. A daily allowance up to 77.7 TL

is paid to those attending vocational training courses for maximum 8 months. As of 30

October 2019, a total of 21,761 people has participated in the training programmes under

the MEGİP. By the end of 2020, it is aimed that 20,000 people will benefit from the

vocational training courses to be organized under the protocol.

ii. Activities planned in 2021: By the end of 2021, it is aimed that 20,000 people will

benefit from the vocational training courses to be organized under the protocol.

iii. Activities planned in 2022: By the end of 2022, it is aimed that 20,000 people will

benefit from the vocational training courses to be organized under the protocol.


Indicator Current Situation 2020 2021 2022

Number of trainees benefiting

from Vocational Training and

Skills Development Cooperation

Protocol (MEGİP)

24,503 20,000 20,000 20,000

3. Expected impact on competitiveness: By improving cooperation in the labour

market, training of the labour force needed by employers will be provided through İŞKUR.

In this way, the effectiveness of public employment services will be increased in terms of

cost-benefit, while a contribution will be made to solve structural problem of supply-demand

mismatch.


2020: 9,204,545 Euro (Other Public Finance Resources)




127

5. Expected impact on employment and gender: It has been expected that

contribution will be made to the sustainable employment of individuals by increasing the

operability of this cooperation mechanism and to matching job vacancies of employers with

compatible qualifications and skills in an efficient way.

6. Expected impact on environment: Measure is neutral in environment.

7. Potential risks:


Failure to achieve the expected level of local cooperation Low

Measure 24: “Courses Organized for Future Professions and On-the-job Training

Programmes”

1. Description of the measure: It has become an important issue for our country to

meet the need for qualified labour force in the digitalised industry. Depending on the

requirements of the developing industry, new occupational fields emerge every day. With

Industry 4.0, significant changes have been expected in the definitions and types of jobs. The

most crucial prospect in this regard is that the labor force should be vested with

multidisciplinary skills and be able to carry out related tasks. Because of this reason,

individuals should acquire these necessary skills and be up to date with emerging skills

brought by Industry 4.0.

There will be a need for qualified workforce, especially in areas such as data

analysis, cyber security, robotics, digital work processes etc. In this regard, demand on

vocations as industrial computer programmer, wearable-tech designer, industrial interface

designer, cloud computing expert, mobile software development expert, mobile expert, game

development expert is expected to increase.

İŞKUR is developing specific policies and implementations to bring up the labor

force equipped with skills required by Industry 4.0.

In this context, İŞKUR organizes the relevant vocational and on-the-job training

programs demanded by employers.

i. Activities planned in 2020: Differently from other on-the-job training

programmes, in the on-the-job training programmes organised in 25 vocations determined

as “Future Professions” by İŞKUR in 2019, the duration of the programme can be up to nine

months for the 18-29-year-old participants and a daily allowance of 85 TL is paid to the

participants. Workplaces that operate in Technology Development Areas, that operate as

R&D centres, Technology Centre Enterprises and Design Centre primarily benefit from

these on-the-job training programmes. 1,337 people benefited from this programme in the

period of January-October 2019. Similarly, 2,156 people benefited from the vocational

training courses organised in these vocations in the period of January-October 2019. It has

been targeted that minimum 2,000 18-29-year-old young people will benefit from the On-

the-job Training Programme in “Future Professions” and minimum 1,000 people will


128

benefit from the Vocational Training Courses to train the Labour Force Needed in the frame

of Digital Transformation until the end of 2020.

ii. Activities planned in 2021: It has been targeted that minimum 2,000 18-29-year-

old young people will benefit from the On-the-job Training Programme in Future

Professions and minimum 1,000 people will benefit from the Vocational Training Courses

to train the Labour Force Needed in the frame of Digital Transformation until the end of

2021.

iii. Activities planned in 2022: It has been targeted that minimum 2,000 18-29-year-

old young people will benefit from the On-the-job Training Programme in Future

Professions and minimum 1,000 people will benefit from the Vocational Training Courses

to train the Labour Force Needed in the frame of Digital Transformation until the end of

2022.


Indicator Current

Situation

2020 2021 2022

The number of 18-29-year-old young

people who benefit from the On-the-job

Training Programme in Future

Professions

1,479 2,000 2,000 2,000

The number of people who benefit from

Vocational Training Courses to train the

Labour Force Needed in the frame of

Digital Transformation

2,279 1,000 1,000 1,000

3. Expected impact on competitiveness: It is an important issue for our country to

meet the need for qualified labour force in the digitalised industry. With Industry 4.0, it has

been foreseen that new occupations will emerge and the labour force need will increase in

some occupations depending on the information and communication technologies and the

change in technology and production processes developing in the field of R&D.

Furthermore, it is inevitable that we will face a different production and training process.

Most importantly, the need for qualified labour force will reach the highest level in this

process. It has also been predicted that Industry 4.0 will bring new career opportunities

together with economic growth.

The most critical qualification expected from the labour force is to have

interdisciplinary abilities and put into effect these abilities. For this reason, individuals

should gain necessary skills to deal with digital working environment and get ready for new

digital skills that emerge with Industry 4.0.

There will be need for qualified labour force especially in the fields such as data

analysis, software, cyber security, robotic applications and digital work procedures. In this

scope, it has been foreseen that the need for labour force will increase in vocations such as

Industrial Computer Programmer, Wearable Technology Designer, Industrial User Interface

Designer, Cloud Computing Expert, Cyber Security Expert, Data Analysist, ERP Expert,


129

Social Media Expert, Software Development Expert, Mobile Software Expert and Game

Development Expert.

Thanks to the active labour programmes of İŞKUR, the labour force that employers

need in the labour market will be trained. In this way, the efficiency of public employment

services will be increased in terms of cost-benefit and a contribution will be made to solve

the structural problem of supply-demand mismatch.






equality and gender: It has been expected that contribution will be made to the sustainable

employment of individuals by increasing the operability of this cooperation mechanism and

to matching job vacancies of employers with compatible qualifications and skills in an

efficient way.

6. Expected impact on environment: The measure is neutral in environment.

7. Potential risks:


Failure to achieve the expected level of local cooperation, Low

Failure to determine the vocations, Low

Failure to accurately determine the qualifications and skills

of the labour force needed in the sector, Low


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5.3.8. Social Protection and Social Inclusion


The absolute poverty rate has decreased significantly in the last decade in Turkey. The

relative poverty rate - the share of the number of people who fall below 60 percent of the

median income in the total population- has dropped to 21.2 percent in 2018 from 23.4 percent

in 2007. On the other hand, the Gini coefficient is recorded as 0.40 in 2018. The ratio of the

share that the richest 20 percent quantile gets from the total disposable income to that of the

lowest 20 percent quantile realized as 7.8 in 2018 which constitutes an improvement in the

same period.

In order to prevent intergeneration transmission of poverty, priority has given to the

education and health related social assistance programs. The share of social assistance to

GDP has increased in the last decade. On the other hand, the need for social services and

assistance still continue due to migration, urbanization, population growth, transformation

in the family structure and unemployment problems. In this perspective, the share of local

and central government’s social assistance expenditures to GDP realized as 1.03 percent in

2018 (institutions like Ministry of Family, Labor and Social Services (MFLSS), Ministry of

Education, General Directorate of Foundations, YURTKUR and municipalities).

Parallel to significant increase in public social assistance expenditures, the activities

to improve the efficiency of the social assistance system still continue. Social assistance and

inquiry officers, who work in 1,002 Social Assistance and Solidarity Foundations (SASFs)

founded in every provinces and sub-provinces of Turkey, are making house visits to almost

3 million households in every year. After the integration of SAIS and Family Information

System, which is continuing to be studied by the MoFLSS, ASDEP personnel will see the

household information through the Integrated System and they will provide guidance for

disadvantageous people living in these households for accessing social services and other

public services such as nursing, rehabilitation and psychological support. Therefore, it is

targeted to remove the obstacles of social assistance beneficiary households accessing the

other public services. Currently; 24 public institutions, 47 municipal administrations and the

Turkish Kızılay systematically shares with each other their social benefit data.

b. Reform measures

Measure 25 “Increasing the scope of the Social Assistance Plus (+) and Family

Social Support Program (ASDEP) and enhancing the accessibility of other programs”

1. Description of measure: In order to increase the efficiency of social services and

benefits, the Family Social Support Program (ASDEP) will be enhanced and it will be

ensured that poor households can reach the social services such as rehabilitation, nursing and

psychological support. This measure is based on New Economy Program.

i. Activities planned in 2020-2021:

Consultancy services will be provided to individuals predetermined by the

ASDEP personel.


131


Indicator Current

situation (2019)

2019 2020 2021

Household visits realized in the extent of

ASDEP

1,155,554 1,000,000 2,000,000 3,000,000

Number of beneficiaries directed to social

services and other public services

--- --- 15,000 20,000

3. Expected impact on competitiveness: In order to establish equality of opportunity

social support system will be enhanced in a comprehensive and efficient manner by

considering needs of whole population.





equality and gender: The measure does not have any direct impact on employment and

gender.

6. Expected impact on environment: The measure is neutral in environment.

7. Potential risks: No risk is anticipated in order for putting the measure into effect.

Measure 26: “Dissemination of Family-Oriented Social Services Models”

1. Description of Measure: With the aim of reducing the number of children in

institutional care, the number of children benefited from the SED and the Foster Family

Service will be increased and studies will be carried out with the families and strengthen the

families and support the return of the children to their biological families.

Relation with national strategic documents, sector strategy documents and more

comprehensive reform efforts:

The 11th Development Plan contains the following policies and measures:

612: Family oriented services for children in need of protection shall be

developed and extended.

612.1: The utilization of family-oriented services for children in need of

protection will be increased and training, awareness raising and promotion

activities will be developed to strengthen and expand the foster family service

model.

In addition, the 2019 Presidential Annual Program includes the following measure:

Priority will be given to supporting children in need of protection alongside

their families. (M.73)


132

i. Activities planned in 2020: The number of children benefited from the SED

Service will be increased each year. The number of children benefited from foster family

service will be increased each year.

ii. Activities planned in 2021: The number of children benefited from the SED



iii. Activities planned in 2022: The number of children benefited from the SED




Name of Indicator Current

Situation

2020 2021 2022

Number of Children Benefited

from SED 126,016 146,000 161,000 177,000

Number of Children Benefited

from Foster Care 6,944 8,000 8,800 9,600

3. Expected impact on competitiveness: The measure does not have any direct

impact on competitiveness.


2020: 2,108,906,869 Euro (Central Budget)




equality and gender: It is considered that children cared for by their own families with

supporting SED Service and children benefitted from foster family service will contribute to

the employment by supporting their occupation in adulthood by providing them with the

support, social and financial needs and preparing them for the future.

6. Expected impact on environment: The measure does not have any direct impact

on environment.

7. Potential risks: Since the SED Service and Foster Family Service are supported by

the Government, there is no risk in implementing the measure.

Institutional Issues and Stakeholders Involvement

133

6. INSTITUTIONAL ISSUES AND STAKEHOLDERS INVOLVEMENT

Development Plans are the main policy documents that set forth the medium-long term

economic and social policies in Turkey. The preparations for the 11th Development Plan

(2019-2023) were started in 2016. Adhoc committees have always been important to get the

opinions and contributions of all stakeholders from different segments of the society during

the plan preparation periods. More than 3500 public officers, private sector representatives,

NGOs and academicians attended to 75 different adhoc committees and working groups

where economic and social policies, problems and suggestions for solutions were discussed

during the preparation period. Furthermore, opinions of different segments of the society

were taken through regional and provincial consultation meetings; meetings with sector

representatives; meetings with some think-tanks and NGOs and an online citizen survey.

All of these contributions were integrated by the coordination of Presidency of

Strategy and Budget; the draft Plan was shared with the public institutions; after consultation

with institutions the final draft was sent to the parliament by the President and after the

discussion in the parliament, the 11th Development Plan was approved by the TGNA on 18

July 2019. The policies and measures in the 11th Development Plan are obligatory for public

institutions and leading for private sector (Box 1.1).

ERP (2020-2022) was prepared in compliance with the 11th Development Plan and

relevant policy documents by taking the contributions of all relevant public institutions and

organizations under the coordination of the Presidency of Strategy and Budget and submitted

to the Commission after its approval by the President. The macroeconomic prospects and

policies and fiscal framework in the ERP (2020-2022) was prepared in line with the NEP

(2020-2022) and 2020 Presidential Annual Program which cover the same period and were

put into implementation as Presidential Decision and the budget proposal for 2020 which

was sent to TGNA. These three policy documents were prepared with the participation of all

relevant public institutions and organizations.

In addition to the current policy making and implementation process, the ERP

Guidelines updated by the Commission each year, the Commission's assessment documents

on the previous ERP, and the comments and suggestions at the meetings between the

Strategy and Budget Presidency and the Commission as ERP coordinator, are shared with

the relevant institutions.

In this context, after the publication of the New Economic Program (2020-2022), an

official letter, including the new guidance note, last year's ERP evaluation and last year's

policy recommendations, was sent to the relevant ministries and preparations for ERP (2020-

2022) were started. Each line ministries were asked to determine an ERP coordinator and to

send the developments about the existing measures and new measure suggestions if any,

considering the priorities in the Eleventh Development Plan. After gathering all

contributions to the structural reform section, on 13-14 November 2019 a workshop was

organized by Presidency of Strategy and Budget and CEF to discuss these measures. The

ERP coordinators and experts who are responsible of the ERP’s measures attended this

workshop. Following this workshop, measures were finalized with the works to improve the

Institutional Issues and Stakeholders Involvement

134

compatibility of the measures to ERP in communication between Strategy and Budget

experts and line ministries.

In order to include the latest macroeconomic developments in the ERP, the preparation

for macroeconomic parts was started in December 2019 with an official letter sent to relevant

institutions and contributions were gathered and finalized in January 2020.

The contributions of the institutions, including past realizations and commitments for

the future within the framework of the main policy documents, were all submitted to the TR

Presidency Strategy and Budget Presidency as an ERP coordinator in the aftermath. In this

way, all related institutions are actively involved in the ERP process and monitoring and

evaluation of commitments.

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ANNEX TABLES

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137

Table 1.a: Macroeconomic Prospects

ESA Code 2018 2018 2019 2020 2021 2022

Level

(Mil. TL) Rate of Change

1. Real GDP, Chained volume B 1 * g 1,742.0 2.8 0.5 5.0 5.0 5.0

2. GDP, at current prices B 1 * g 3,724.4

19.7 14.6 14.1 12.5 10.7

Components of Real GDP (Chained volume, Percentage Change)

3. Private Consumption Expenditure P3 1,025.4 0.0 0.2 4.9 3.2 3.5

4. Public Consumption Expenditure P3 245.6 6.6 4.3 3.0 2.4 2.5

5. Gross Fixed Capital Formation P51 501.2 -0.6 -10.0 9.3 9.0 8.1

6. Changes in Inventories and Net

Acquisition of Valuables* P52+P53 ---

-1.5 -0.1 -0.1 0.0 -0.1

7. Exports of Goods and Services P6 403.7 7.8 6.0 6.2 6.5 5.8

8. Imports of Goods and Services P7 374.6 -7.8 -6.5 10.6 5.9 4.5

Contribution to Real GDP Growth (Percentage Points)

9. Final Domestic Demand --- --- 0.7 -2.2 5.7 4.6 4.6

10. Changes in Inventories and Net

Acquisition of Valuables P52+P53

--- -1.5 -0.1 -0.1 0.0 -0.1

11. External Balance on Goods and

Services B11

--- 3.6 2.8 -0.6 0.4 0.5

* Contribution to growth

Table 1.b: Price Developments

Percentage Change, Yearly Average ESA Code 2018 2019 2020 2021 2022

1. GDP Deflator --- 16.4 14.1 8.7 7.2 5.4

2. CPI --- 16.3 15.1 10.8 6.9 4.9

Table 1.c: Labor Market Developments

ESA Code

2018 2018 2019 2020 2021 2022

Level Rate of Change, Percent

1. Population (Thousand, Mid-year) --- 80,407 1.4 1.2 1.2 1.2 1.2

2. Working Age Population (Thousands) --- 60,654 1.3 1.4 1.3 1.4 1.5

3. Labor Force Participation Rate (%)* --- 53.2 0.4 -0.4 0.6 0.6 0.5

4. Employment, Persons (Thousands) ** --- 28,189 1.9 -1.6 3.7 4.0 3.3

5. Unemployment Rate (ILO Definition) --- 11.0 0.1 1.9 -1.1 -1.2 -0.8

6. Labor Productivity Growth ---

0.9 2.1 1.2 1.0 1.6

* Represents percentage point increase with respect to the previous year.

** 15+ years-old.

Table 1.d: Balance of Payments

Percentage of GDP ESA

Code 2018 2019 2020 2021 2022

1. Current Account --- -3.4 0.1 -1.2 -0.8 0.0

- Balance of Goods --- -5.3 -2.1 -3.6 -3.8 -3.8

- Balance of Services --- 3.3 3.8 3.9 4.5 5.4

- Balance of Primary Income --- -1.5 -1.7 -1.6 -1.7 -1.6

- Balance of Secondary Income --- 0.1 0.1 0.1 0.1 0.1

2. Capital and Financial Account (Including Reserves) --- -1.0 -1.2 -1.2 -0.8 0.0

Statistical Discrepancy --- 2.4 0.0 0.0 0.0 0.0

Source: Realization CBRT, forecast Presidency of Strategy and Budget

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Table 1.e: GDP, Investments and Gross Value-Added

ESA Code 2018 2019 2020 2021 2022

GDP, Current Prices, Billion TL B 1 * g 3,724.4 4,269.4 4,872.5 5,483.9 6,070.0

Investment Ratio, Percentage of GDP, % --- 29.6 26.8 28.2 29.4 30.6

Value-Added by Sectors (Chained Volume, Percentage Change)

1. Agriculture --- 1.9 2.2 4.0 3.0 3.0

2. Industry --- 1.3 -0.1 6.0 6.8 7.5

3. Services --- 3.9 0.9 5.0 4.5 4.4

Table. 2: General Government Budgetary Prospects

(Percent of GDP) ESA Code 2018 2019 2020 2021 2022

Net Lending (B9) by sub-sectors*

1. General Government S13 2.4 3.0 2.9 2.8 2.6

2. Central Government S1311 1.5 2.0 1.9 1.9 1.7

3. Funds S1311 0.1 0.0 -0.1 -0.1 -0.1

4. Local Administration S1313 0.7 0.2 0.2 0.3 0.3

5. Social Security Fund S1314 0.4 0.9 1.0 1.0 1.0

6. Revolving Funds S1311 0.0 0.0 0.0 0.0 0.0

7. Unemployment Fund --- -0.3 0.0 -0.2 -0.3 -0.3

General Government (S13)

8. Total Receipts TR 33.3 33.3 32.4 31.3 30.7

9. Total Expenditures TE 35.6 36.4 35.2 34.1 33.4

10. Net Lending EDP.B9 2.4 3.0 2.9 2.8 2.6

11. Interest Payments EDP.

D41+FISIM 2.1 2.6 3.0 3.1 3.1

12. Primary Balance --- -0.3 -0.4 0.1 0.3 0.4

Components of Revenues

13. Taxes --- 17.0 16.0 16.4 16.3 16.2

14. Social Funds D61 5.9 5.7 5.6 5.4 5.3

15. Factor Incomes D4 4.8 6.2 4.9 4.1 3.9

16. Other --- 2.4 1.9 2.0 2.0 1.9

17. Total Receipts TR 33.3 33.3 32.4 31.3 30.7

Components of Expenditures

18. Total Consumption P32 16.0 16.6 16.0 15.2 14.8

19. Total Social Transfers D62+D63 7.0 7.5 7.5 7.4 7.2

20. Interest Payments EDP.

D41+FISIM 2.1 2.6 3.0 3.1 3.1

21. Subsidies (1) D3 0.5 0.5 0.5 0.6 0.5

22. Gross Fixed Capital Formation P51 3.8 2.7 2.1 2.1 2.1

23. Other --- 6.2 6.5 6.1 5.7 5.7

24. Total Expenditures TE 35.6 36.4 35.2 34.1 33.4

* (+) refers to deficit. (-) refers to surplus.

(1) Includes agricultural support, duty losses of SEEs and Support and Price Stability Fund.

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Table 3: General Government Debt Developments

ESA Code 2018 2019 2020 2021 2022

Percentage of GDP

1. Gross Debt --- 30.1 32.8 33.2 32.5 32.3

2. Change in Gross Debt --- --- 2.7 0.4 -0.7 -0.2

Contributions to Change in Gross Debt

3. Primary Balance --- 0.3 0.4 -0.1 -0.3 -0.4

4. Interest Expenditure EDP D.41 2.1 2.6 3.0 3.1 3.1

5. Current GDP Growth --- -5.9 -4.8 -4.7 -4.1 -3.5

6. Other --- 5.5 4.4 2.2 0.6 0.6

Table 4: Cyclical Developments*

2018 2019 2020 2021 2022

1. Real GDP Growth (2009=100 Chained Volume, %) 2.8 0.5 5.0 5.0 5.0

2. Net Lending of General Government / GDP (%)1** 2.4 3.0 2.9 2.8 2.6

3. Interest Expenditure / GDP (%) 2.1 2.6 3.0 3.1 3.1

4. One-off and Other Temporary Measures / GDP2 2.6 2.9 1.3 0.7 0.5

5. Potential GDP Growth (%) 4.5 4.0 4.2 4.4 4.4

6. Output Gap (Percentage Difference from the Potential) 0.0 -3.3 -2.6 -2.0 -1.5

7. Cyclical Budgetary Component / GDP (%) ** -0.2 0.8 0.5 0.3 0.2

8. Cyclically-adjusted Balance / Potential GDP (%) (2-7)** 2.6 2.1 2.3 2.4 2.4

9. Cyclically-adjusted Primary Balance /Pot. GDP (%) (8-3) ** 0.4 -0.4 -0.6 -0.6 -0.6

10. Structural Balance / Potential GDP (8+4)** 5.2 4.9 3.6 3.1 2.9

* General Government

** (+) refers to deficit, (-) refers to surplus. 1 Public Claims Restructuring, 2B Revenues and Other One-off Revenues and Expenditures Included General Government Balance 2 (+) A plus sign means deficit-reducing one-off measures.

Table 5: Divergence from Previous Update

2018 2019 2020 2021 2022

GDP Growth (Percent)

Previous Update 3.8 2.3 3.4 5.0 ---

Latest Update 2.8 0.5 5.0 5.0 5.0

Difference -1.0 -1.8 1.6 0.0 ---

General Government Net Lending (Percentage of GDP)

Previous Update 1.9 1.9 1.9 1.3 ---

Latest Update 2.4 3.0 2.9 2.8 2.6

Difference 0.5 1.1 1.0 1.5 ---

General Government Gross Debt (Percentage of GDP)

Previous Update 31.1 28.5 28.2 27.2 ---

Latest Update 30.4 32.8 33.2 32.5 32.3

Difference -0.7 4.3 5.0 5.3 ---

* Realization

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Table 6: Basic Assumptions on the External Economic Environment Underlying 2020 Pre-Accession

Economic Reform Program Framework

2018 2019 2020 2021 2022

Exchange Rates

Parity ($/Euro) 1.18 1.12 1.10 1.10 1.10

Real Exchange Rate (Percentage Change)* -11.67 -5.79 3.84 -1.30 -2.05

GDP Growth

Euro Area (Real, Percentage Change) *** 1.9 1.2 1.4 1.4 1.4

EU (Real, Percentage Change)** 2.2 1.5 1.6 1.7 1.6

World Trade (In Real Terms)***

World Trade Volume Increase (Percent) 3.6 1.1 3.2 3.8 3.8

International Prices

EU CPI (Percentage Change)** 1.8 1.2 1.4 1.5 1.7

US CPI (Percentage Change)** 2.4 1.8 2.3 2.4 2.3

Oil Prices ($/Barrel)** 68.3 61.8 57.9 55.3 54.6

* (+) refers to appreciation, (-) refers to depreciation.

** IMF, World Economic Outlook, October 2019

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Table 7a: Costing of structural reform measures

(Euro)

Year Fees Products and

Services

Subsidies and

Transfers

Capital

Expenditures Total


2020 5,175,220 5,175,220

2021

2022


2020 163,000 163,000

2021

2022

Measure 4: “Improvement of data collection processes and increasing the capacity of evaluation in agriculture statistics.”

2020 272,727 272,727

2021 255,488 255,488

2022 242,554 242,554

Measure 5: “Support mechanism will be established for the replacement of inefficient electric motors used in industry with more efficient

ones.”

2020 18,182 454,545 472,727

2021 212,906 212,906

2022 16,170 16,170

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Services

Subsidies and

Transfers

Capital

Expenditures Total

Measure 6: “Establishing Model Factories (SME Competency and Digital Transformation Centers) and Innovation Centers to increase

the efficiency of SMEs and their digital transformation”

2020 1,515,152 1,515,152 10,303,030 13,333,333

2021 425,813 425,813 1,987,126 2,838,752

2022 606,385 606,385 2,829,798 4,042,569


2020 151,515 151,515

2021 283,875 283,875

2022


2020 90,909 90,909

2021 21,291 21,291

2022 20,213 20,213

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Services

Subsidies and

Transfers

Capital

Expenditures Total

Measure 11: “Reducing Unregistered Employment by Focusing on Increasing Audit Capacity in Non-Agricultural Sectors”

2020 363,636 363,636

2021 357,683 3,144,202 3,501,885

2022 355,746 355,746

Measure 12: “Increasing the number and efficiency of business development, incubation and accelerator centers in order to support

innovative entrepreneurship”

2020 871,212 871,212

2021 1,003,499 1,003,499

2022

Measure 13a: “Enhancing the R&D and innovation activities of SMEs”

2020 27,121,212 27,121,212

2021 27,621,057 27,621,057

2022

Measure 13b: “Enhancing the R&D and innovation activities of SMEs”

2020 4,882,121 45,454,545 50,336,667

2021 4,783,865 130,980,811 135,764,676

2022 4,749,479 130,469,427 135,218,907

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Services

Subsidies and

Transfers

Capital

Expenditures Total

Measure 14: “Supporting competent research infrastructures on a performance basis within the new legal framework”

2020 20,015,606 20,015,606

2021 35,917,310 35,917,310

2022 46,206,562 46,206,562


2020 45,455 45,455

2021 45,420 45,420

2022 45,412 45,412


2020 113,846,617 3,383,459 117,230,076

2021 162,676,692 3,759,398 166,436,090

2022 271,218,045 4,511,278 275,729,323

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Services

Subsidies and

Transfers

Capital

Expenditures Total

Measure 17.a: “Increasing the reading culture”

2020 5,320,909 106,061 189,394 5,616,364

2021 5,483,021 63,872 248,391 5,795,284

2022 5,726,000 74,114 316,668 6,116,781

Measure 17.b: “Increasing the reading culture”

2020 3,030,303 3,030,303

2021 3,548,440 3,548,440

2022 3,368,807 3,368,807

Measure 18: “Preparing digital content and skill based programs according to curriculum”

2020 815,455 815,455

2021 551,711 551,711

2022

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Services

Subsidies and

Transfers

Capital

Expenditures Total


2020 227,273 227,273

2021 212,906 212,906

2022 134,752 134,752

Measure 20: “Supporting applications for inventions, patents and utility models useful in vocational and technical education”

2020 909,091 909,091

2021 851,626 851,626

2022 808,514 808,514


2020 454,545 454,545

2021 448,807 448,807

2022 448,995 448,995


2020 201,212 201,212

2021 363,360 363,360

2022 344,966 344,966

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Services

Subsidies and

Transfers

Capital

Expenditures Total

Measure 23: “Vocational Training and Skills Development Cooperation Protocol (MEGİP) Project”

2020 9,204,545 9,204,545

2021 8,622,709 8,622,709

2022 8,186,202 8,186,202

Measure 24: “Courses Organized for Future Professions and On-the-job Training Programmes”

2020 9,093,939 9,093,939

2021 8,519,095 8,519,095

2022 8,087,833 8,087,833

Measure 25: “Increasing the scope of the Social Assistance Plus (+) and Family Social Support Program (ASDEP) and enhancing the

accessability of other programs”

2020 223,540 223,540

2021 141,864 141,864

2022

Meausre 26: “Dissemination of Family-Oriented Social Services Models”

2020 2,108,906,869 2,108,906,869

2021 2,418,486,241 2,418,486,241

2022 2,762,216,753 2,762,216,753

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Table 7b: Financing of structural reform measures

(Euro)

Year

Central

Budget

Local

Budget

Other

National

Pub. Fin.

Resources

IPA Funds Other

Grants

Project

Loans

To be

determined Total


2020 547,197 5,168,022 5,175,220

2021

2022


2020 163,000 163,000

2021

2022

Measure 4: “Improvement of data collection processes and increasing the capacity of evaluation in agriculture statistics.”

2020 272,727 272,727

2021 255,488 255,488

2022 242,554 242,554

Measure 5: “Support mechanism will be established for the replacement of inefficient electric motors used in industry with more efficient

ones.”

2020 227,273 245,455 472,727

2021 212,906 212,906

2022 16,170 16,170

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Year Central

Budget

Local

Budget

Other

National

Pub. Fin.

Resources

IPA Funds Other

Grants

Project

Loans

To be

determined Total

Measure 6: “Establishing Model Factories (SME Competency and Digital Transformation Centers) and Innovation Centers to increase

the efficiency of SMEs and their digital transformation”

2020 1,818,182 11,515,152 13,333,333

2021 283,875 2,554,877 2,838,752

2022 269,505 3,773,064 4,042,569


2020 151,515 151,515

2021 283,875 283,875

2022


2020 90,909 90,909

2021 21,291 21,291

2022 20,213 20,213

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Year Central

Budget

Local

Budget

Other

National

Pub. Fin.

Resources

IPA Funds Other

Grants

Project

Loans

To be

determined Total

Measure 11: “Reducing Unregistered Employment by Focusing on Increasing Audit Capacity in Non-Agricultural Sectors”

2020 363,636 363,636

2021 3,501,885 3,501,885

2022 355,746 355,746

Measure 12: “Increasing the number and efficiency of business development, incubation and accelerator centers in order to support

innovative entrepreneurship”

2020 871,212 871,212

2021 1,003,499 1,003,499

2022

Measure 13a: “Enhancing the R&D, innovation and localization activities and to ensure that the low, medium low, medium high and high

technology is spread to the base by domestic and national SMEs”

2020 27,121,212 27,121,212

2021 27,621,057 27,621,057

2022

Measure 13b: “Enhancing the R&D and innovation activities of SMEs; and the development and implementation of mechanisms to

encourage and facilitate technology-based and innovative SMEs access to finance, participation in mentoring and cooperation networks”

2020 50,336,667 50,336,667

2021 135,764,676 135,764,676

2022 135,218,907 135,218,907

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Year Central

Budget

Local

Budget

Other

National

Pub. Fin.

Resources

IPA Funds Other

Grants

Project

Loans

To be

determined Total

Measure 14: “Supporting competent research infrastructures on a performance basis within the new legal framework”

2020 20,015,606 20,015,606

2021 35,917,310 35,917,310

2022 46,206,562 46,206,562


2020 45,455 45,455

2021 45,420 45,420

2022 45,412 45,412


2020 117,230,076 117,230,076

2021 166,436,090 166,436,090

2022 275,729,323 275,729,323

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Year Central

Budget

Local

Budget

Other

National

Pub. Fin.

Resources

IPA Funds Other

Grants

Project

Loans

To be

determined Total

Measure 17.a: “Increasing the reading culture”

2020 5,570,909 45,455 5,616,364

2021 5,795,284 5,795,284

2022 6,116,781 6,116,781

Measure 17.b: “Increasing the reading culture”

2020 3,030,303 3,030,303

2021 3,548,440 3,548,440

2022 3,368,807 3,368,807


2020 815,455 815,455

2021 551,711 551,711

2022

Annex Tables

153

Year Central

Budget

Local

Budget

Other

National

Pub. Fin.

Resources

IPA Funds Other

Grants

Project

Loans

To be

determined Total


2020 227,273 227,273

2021 212,906 212,906

2022 134,752 134,752

Measure 20: “Supporting applications for inventions, patents and utility models useful in vocational and technical education”

2020 909,091 909,091

2021 851,626 851,626

2022 808,514 808,514


2020 454,545 454,545

2021 448,807 448,807

2022 448,995 448,995


2020 201,212 201,212

2021 363,360 363,360

2022 344,966 344,966

Annex Tables

154

Year Central

Budget

Local

Budget

Other

National

Pub. Fin.

Resources

IPA Funds Other

Grants

Project

Loans

To be

determined Total

Measure 23: “Vocational Training and Skills Development Cooperation Protocol (MEGİP) Project”

2020 9,204,545 9,204,545

2021 8,622,709 8,622,709

2022 8,186,202 8,186,202

Measure 24: “Courses Organized for Future Professions and On-the-job Training Programmes”

2020 9,093,939 9,093,939

2021 8,519,095 8,519,095

2022 8,087,833 8,087,833

Measure 25 “Increasing the scope of the Social Assistance Plus (+) and Family Social Support Program (ASDEP) and enhancing the

accessability of other programs”

2020 223,540 223,540

2021 141,864 141,864

2022 Meausre 26: “Dissemination of Family-Oriented Social Services Models”

2020 2,108,906,869 2,108,906,869

2021 2,418,486,241 2,418,486,241

2022 2,762,216,753 2,762,216,753

Annex Tables

155

Table 8: Reporting on the Implementation of the Structural Reform Measures of ERP (2019-2021)

Measure 1: “Increasing share of renewable energy regarding electricity generation” Stage of reform

implementation (1-5)*

Activities planned

for 2019

Legislative preparatory work for the establishment of a renewable energy support

mechanism will be carried out. YEKA will be held with a minimum capacity of 1,000 MW.

Legislation on licensed and unlicensed electricity generation will be updated depending on

the implementation and developments.

3

Description of

implementation

and explanation if

partial or no

implementation

In 2019, a wind YEKA auction with a total capacity of 1,000 MW was held in four different regions each for 250 MW.

Measure 2: “Development of financial mechanisms regarding energy efficiency” Stage of reform


Activities planned

for 2019 Legislation preparation 3

Description of

implementation

and explanation if

partial or no

implementation

Within the scope of development of financial mechanisms for energy efficiency, the project "Supporting the

Establishment of National Energy Efficiency Financing and Tender Mechanisms"was initiated in 2019.

Annex Tables

156

Measure 3: “Turkish Railway Transport Liberalization” Stage of reform


Activities planned

for 2019

“By-law on Interoperability of the Rail System” and “Assignment Communique of Notified

Bodies” will be published.

The railway sector statistics portal will be launched by the DGRR and the statistical studies

will be started.

5

Description of

implementation

and explanation if

partial or no

implementation

“By-law on Interoperability of the Rail System” and “Assignment Communique of Notified Bodies” was published.

The railway sector statistics portal was launched by the DGRR and the statistical studies started.

Measure 4: “Improvement of data collection processes and increasing the capacity of

evaluation in agriculture statistics”

Stage of reform


Activities planned

for 2019

The current situation in our country and in the world will be determined regarding the

collection of agricultural data.

A new methodology for data collection and evaluation will be established in line with

country needs.

Testing and revision of the new methodology will be carried out.

By the end of 2019, the implementation of the new methodology will begin.

2

Description of

implementation

and explanation if

partial or no

implementation

The works for determining the current situation in our country and in the world regarding the collection of agricultural

data and developing a a new methodology for data collection and evaluation in line with country needs were advanced

(4). As testing and revision of the new methodology has not been carried out yet, the implementation has not begun (0).

Annex Tables

157

Measure 7: “Increase tourism market share and brand value” Stage of reform


Activities

planned for

2019

Preparatory work will be carried out for the establishment of the Tourism Master Plan and with

the participation of relevant stakeholders to ensure the transformation of the sector plan text and

the Action Plan will be introduced.

3

Description of

implementation

and explanation

if partial or no

implementation

In order to spread tourism to whole country and the whole year, studies for different tourism types in differenet ways will

continue.

Public opinion leaders, press members, sector representatives of the sector are hosted from rising markets (China, India,

Japan, South Korea) and sector representatives organizing MICE and wedding tourism in Indian market are hosted.

Tourism Master Plan has been released and the preparation of action plan is going on.


(ERP (2019-2021) Measure 9)

Stage of reform


Activities

planned for 2019

Preparations of Regulation on SME Guidance and Technical Consultancy Services and regulatory

sub-legislation will be completed and put into force. In this context, SME guides and technical

consultants will be authorized and SME’s benefiting from their services will be supported.

2

Description of

implementation

and explanation

if partial or no

implementation

The Regulation on SME Guidance and Technical Consultancy Services entered into force after being published in the

Official Gazette dated 5 February 2019 and numbered 30677. Sub-legislation and software studies related to the mentioned

regulation and curriculum of SME Guidance Training are about to be completed. After these processes are completed,

authorization of SME Guides and Technical Consultants will begin.

A new support program has been prepared as a draft to support the costs of the guidance and consultancy services that will

be received from SME Guides and Technical Consultants.

Annex Tables

158

Measure 12: “Increasing the number and efficiency of business development, incubation and

accelerator centers in order to support innovative entrepreneurship” (ERP (2019-2021) Measure 11)

Stage of reform


Activities planned

for 2019

- Regulations for İŞGEM / TEKMER Support Program will be completed.

- Software infrastructure will be completed in order to carry out all processes electronically better

serve the target group of İŞGEM / TEKMER Support Program.

- In addition to face-to-face interviews with potential target groups, promotional activities will be

carried out within the scope of promotional activities related to İŞGEM / TEKMER Support Program

and International Incubation Center and Accelerator Support Program.

- İŞGEM / TEKMER Support Program will be put into effect.

3

Description of

implementation

and explanation if

partial or no

implementation

In order to increase the efficiency of incubation centers and support their establishment, regulations studies have been carried

out and within this scope, a new model for incubation center support has been completed as İŞGEM / TEKMER Program

under the Entrepreneurship Development Support Program. The promotional activities of the support program are continuing

and the number of pre-applications, have been reached to 22 in total where 1 for ISGEM and remaining 21 for TEKMER.

Additionally, in the context of International Incubation Center Program, 2 incubation center was funded 2,088,632 TL where

17 enterprise received 519,298 TL under Accelerator Support Program.

Annex Tables

159

Measure 13a: “Prioritizing technological product investments to increase the technology level

and export capacity of SMEs and supporting the commercialization of R&D projects” (ERP (2019-2021) Measure 12)

Stage of reform


Activities

planned for 2019

Support process of the enterprises whose SME Technological Investment Support Program projects

started in 2018/2019 is ongoing. 4

Description of

implementation

and explanation if

partial or no

implementation

Within the scope of TEKNOYATIRIM Support Program, the evaluation process of the projects whose applications were

received in 2017-2018 was completed by the boards. As of the end of 2018, it was decided to support 73 projects. In addition,

in July 2019, there were 1 enterprise whose assessment was completed and the decision was made to support it. In this context,

the realizations for the Program for January-September 2019;

a) 53 out of 74 enterprises whose support decision was taken have started to receive support payments. The amount of support

payments realized during this period is approximately 48 million TL.

b) Following the revision made in TEKNOYATIRIM Support Program, it was reopened on 23.01.2019 and preliminary

evaluation and evaluation processes of 158 enterprises are continuing.

Annex Tables

160

Measure 13b: “The development and implementation of mechanisms to encourage and

facilitate technology-based and innovative SMEs access to finance, participation in mentoring

and cooperation networks” (ERP (2019-2021) Measure 12)

Stage of reform


Activities

planned for 2019

Within the scope of Tech-InvesTR 2018 Call, 23 university institutions' request for participation in 10

separate VC funds was approved and the decision was transferred to the Ministry of Treasury and

Finance by TUBITAK. Within the framework of Cooperation Agreement, the Ministry published its

announcement to participate to venture capital funds. The Ministry of Treasury and Finance completed

the evaluation process of the applications and announced the decision on 5 funds, which Ministry will

initiate the protocol processes in order to participate. Protocol processes are expected to continue until

the end of 2019

4

Description of

implementation

and explanation if

partial or no

implementation

After the Ministry of Treasury and Finance’s protocol processes Participation Protocols between The Ministry of Treasury and

Finance and the Funds will be signed. At the same time, TÜBİTAK and TTOs/TDZs will sign the Project Support Agreements.

After the establishment of these funds, it is aimed to start investments in order to commercialize the R&D results of early stage

technology based enterprises established in Turkey.

Technology road map preparation activities of 28 supported SAYEM networks will countinue and the first progress reports will

be submitted to TÜBİTAK.

The evaluation process of the applications recieved under the BiGG+ Mentorship Call is expected to be completed. Afterwards

following the agreements between TÜBİTAK and each of the awarded organization Mentorhip Program will be put into effect

1501 Industry R&D Support Program has been closed to the application of large-scale companies since July 2019, and it has

been a program that only SMEs can apply.

Annex Tables

161

Measure 14: “Supporting competent research infrastructures on a performance basis

within the new legal framework” (ERP (2019-2021) Measure 13)

Stage of reform


Activities

Planned for 2019

1. Evaluations regarding the inclusion of 10 new research infrastructures within the scope of the

Law in 2019 were made as of the end of 31.12.2019.

2. R&D performances of the four existing centers under the Law were monitored as of the end of

31.12.2019.

5

Description of

implementation and

explanation if partial

or no implementation

Within the planning, the process was carried out without interruption.

Measure 15: “ Update of the EU-Turkey Customs Union”

(ERP (2019-2021) Measure 14)

Stage of reform


Actions

planned for

2019

Turkey aimed to start formal negotiations for the Update of the EU-Turkey Customs Union in

2019. 2

Description of

implementation

and explanation

if partial or no

implementation

Turkey has carried out necessary internal consultation and preparation processes with the aim of starting the update of the EU-Turkey Customs Union negotiations in 2019. On the EU side, the European Commission, which will conduct negotiations on

behalf of the EU, asked the Council for a mandate on 21 December 2016 for the launch of formal negotiations. However, since the Commission has not received the mandate yet, formal negotiations could not be started.

The formal negotiations are expected to be initiated after the European Commission gets the mandate from the European

Council.

Annex Tables

162


(ERP (2019-2021) Measure 15)

Stage of reform


Activities

planned for

2019

Sub Project 1: Mobile caravan class

Sub Project 2: Repairment of transport center classes – converting suitable spaces to master classes

Sub Project 3: Supporting disadvantaged children and their families living under unfavorable

conditions

Sub Project 4: Reducing the cost for families and increasing the quality of education

3

Description of

implementation

and explanation if

partial or no

implementatİon

The first sub-project under the measure, which is planned to be completed in 2019, has not been realized due to lack of

necessary resources and 4th sub-project was not realized because the required cooperation protocol was not signed. Within

the scope of the 2nd sub-project, “Transport Center Main Class Pilot Application” was carried out with approximately 400

children in 29 settlements in 10 districts in 2018-2019 academic year with the allowance provided from the central budget.

The implementation is planned to be continued in 2019-2020 academic year too.

Under the third sub-project, workshops were organized with the support of UNICEF, a material set and a written material

were prepared and distributed to 500 families. The number of families reached is planned to be increased in the following

academic years.

Measure 17: “Increasing the reading culture”

(ERP (2019-2021) Measure 16)

Stage of reform


Activities

planned for

2019

1. In order to support the social and cultural development of the students and improve reading

culture, the number of schools with z-libraries will be increased to make social, artistic and

cultural activities.

2. Studies will be carried out to increase the contribution of the school library to the reading

culture.

3. Social and cultural activity-based use of school libraries will be expanded.

3

Description of

implementation

and explanation

if partial or no

implementation

In the period of 2019-2021, the responsibility for this measure was determined as the Ministry of National Education.

In 2019, the Ministry of National Education established 236 z-libraries. The total number of z-libraries is 1583.

There is an agreement on the determination of related General Directorate of Ministry of Culture and Tourism as

responsible institution in the period of 2020-2022.

Annex Tables

163


(ERP (2019-2021) Measure 17)

Stage of reform


Activities

planned for

2019

Preparation of transdisciplinary curricula that will provide 21st century skills to secondary school

students. 2

Description of

implementation

and explanation if

partial or no

implementation

Skills, competences, values and intermediate (cross) disciplines were included in the curriculum based on skills with a

transdisciplinary approach. For this purpose, indicators, standards and attitudes and behaviors were added to the

curriculum. The skills were divided into two groups as general skills and course specific skills. The themes and learning

areas were determined and the contents of the curriculum were created.

The creation of skill sets to be employed in the curriculum is completed.

Values and attitudes and behaviors related to these values were determined.

Interdisciplinary disciplines to be included in the curriculum were determined.

Preparatory work for the 9th grade curriculum started. It is planned to complete the draft curriculum for the 9th Grades,

which is the first level of the curriculum prepared by the gradual, by the end of December 2019. For this purpose, three 9th

grade draft curriculum was finalized.

The studies are progressing according to the following steps.

2020- Completion of 9th grade curriculum




Annex Tables

164

Measure 21: “Job Clubs” (ERP (2019-2021) Measure 19)

Stage of reform


Activities

planned for

2019

It’s aimed that job clubs will be expanded to 30 additional cities in 2019. The

maintenance of the assigned places will be conducted and necessary equipment will be

supplied to these institutions.

Individuals who are to be job club leader in recently founded job clubs will be provided

with “the Job Club Leadership Training”. Furthermore, a workshop on information and

experience sharing is also planned. And also, training activities to enhance the quality of

job club leaders will be conducted.

4

Description of

implementation

and explanation

if partial or no

implementation

Across Turkey, Job Clubs are already continuing their activities in 39 cities and 45 units. 8 additional job clubs have

come into service in 2019 (Balıkesir, Malatya (2), Aksaray, Muğla, Nevşehir, Osmaniye, Şanlıurfa). It’s expected

that 22 new job clubs will be opened in the remaining of 2019.

Measure 25: “Social Assistance Plus (+)” (ERP (2019-2021) Measure 20)

Stage of reform


Activities

planned for 2019 Activities to operationalize information infrastructure is proceeding. 1

Description of

implementation

and explanation

if partial or no

implementation

Activities to operationalize information infrastructure is proceeding.

* 0=no implementation; 1=implementation is being prepared; 2=initial steps have been taken; 3=implementation ongoing with some initial results;

4=implementation is advanced; 5=full implementation

PR

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R EPUBLIC OF TURKEY

PRE-ACCESSION ECONOMICREFORM PROGRAM

JANUARY 2020

2020-2022

PUBLICATIONS OF PRESIDENCY OF T STRATEGY AND BUDGET ARE FREE OF CHARGE AND CANNOT BE SOLD.

GENERAL DIRECTORATE OF ADMINISTRATIVE SERVICESDIVISION OF KNOWLEDGE MANAGEMENT AND DOCUMENTATION

January 2020

Necatibey Cad. No: 110/A 06570 ANKARA Phone: +90 (312) 294 50 00 • Fax: +90 (312) 294 52 98

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