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Draft Speech for
the Ministerial Dialogue between the
Economic and Finance Ministers of the EU
and the Candidate Countries
JULY 9, 2013
Distinguished Ministers, Dear Colleagues, Ladies and Gentlemen,
It is my great pleasure to be here with you for the ECOFIN meeting.
It is been more than five years since the beginning of the financial crisis and we are
still far from witnessing strong signs for a solid recovery. Recent experience proved that
economic growth does not happen without confidence and stability. Therefore, comprehensive
set of policies of both central banks’ and governments’ should be endeavored to enhance
In Europe, we welcome the steps taken to resolve the debt crisis and find these steps
encouraging to ensure stable economic growth. We believe our European colleagues will put
this crisis behind with stronger determination and solidarity.
The strong fundamentals of the Turkish economy along with the political will to
quickly adopt necessary economic policies helped us recover swiftly from the crisis. We
believe that prudent macroeconomic policies and comprehensive structural reforms that have
been implemented during the last decade were instrumental to transform Turkey into a stable
and better functioning market economy.
Turkish economy recovered quickly from the global crisis and growth rate was around
9 percent on average in 2010 and 2011.
However, such growth rates are above what can be financed with our current level of
domestic savings. On top, the weak external demand from Europe, our largest trading partner,
elevated level of energy prices, and the geopolitical tensions in the region led to a weaker
export performance. These resulted in current account deficit to soar up to around 10 percent
of GDP in 2011.
Therefore, and similar to some other emerging markets, we have changed our
economic policies to soften the growth rate of domestic demand. As a result, our economic
growth rate declined to 2.2 percent in 2012. Even though last year’s growth rate was lower
than our potential economic growth, we believe that the growth performance was noteworthy
considering the poor external economic environment. With that I am referring to the recession
in our largest trading partner, poor growth performance in major economies, elevated level of
risk perception in the global financial markets, and the geopolitical tensions in the region.
Furthermore, we have managed to control a domestic demand boom, maybe for the
very first time in the contemporary Turkish economic history. Last year, we reduced the
current account deficit to manageable levels without going through a balance of payments
crisis. Current account deficit as a share of GDP declined to 6 percent of GDP.
Similarly, with the cooling of the domestic demand, end 2012 inflation rate fell down
to 6.2 percent, the lowest rate seen over the past 44 years.
Despite a relatively lower growth rate, we became one of the job-creating champions
in the world. We have created almost net 5 million jobs since 2007.
Notwithstanding the growing working age population and rising labor participation
rate, we have reduced unemployment to 9.2 percent in 2012, the lowest rate seen over the past
Last, but not least, we continued the debt reduction path. Last year, EU defined debt
stock as a share of GDP fell to 36.2 percent, 24 points lower than the Maastricht Criteria and
less than one third of the OECD average.
This year we expect Turkish economy to grow around 4 percent. Economic indicators
in the first half of the year point to a pick-up in domestic demand.
Yes, there are downside risks to this outlook, such as,
• A fragile economic recovery in major advanced economies,
• Rising geopolitical tensions in the region, and
• A possible end to the QE cycle.
However, our flexible monetary policy setup along with our strong fiscal performance
will help us support growth. Last year, general government budget deficit as a share of GDP
was 1 percent, one third of the Maastricht criteria and less than one fifth of the OECD
average. In our 2013-15 Medium-Term Plan, we have foreseen budget deficit to be around 1.5
percent of GDP in 2013, but I can comfortably say that the risks are on the downside.
On top of strong public balances, Turkish banks, households and the real sector are
solid. Average capital adequacy ratio of the Turkish banks is 17.3 percent, twice the minimum
requirement of 8 percent. Household leverage is low at 21 percent of GDP, less than one third
of the EU average. Corporate leverage is moderate, at around 39 percent of GDP.
Last, there are some micro measures that will help support growth this year. These are
• Urban Renewal project
• Sale of 2B land
• Removal of Reciprocity
• Investment Incentives Scheme, and
• Investment Grade Credit Ratings
The low savings rate emerges as the key issue to be addressed in the medium-to
longer-term. And the major symptom arises as the high current account deficit.
And let me now tell you what we are doing to help improve on these aspects. We are
• Improving Access to & Quality of Education
• Enhancing Labor Market Flexibility
• Investing in Local & Renewable Energy
• Investing in Infrastructure
• Creating a level playing field
• Improving Legal Infrastructure
• Deepening Capital Markets
• Combatting Shadow Economy
• Investing in R&D and increasing incentives for the private sector R&D, and
• Narrowing Regional Development Gaps.
The policy framework to reduce the current account deficit was also determined within
the framework of these basic axes in the Tenth Development Plan (2014-2018).
Last, but not least, I would like to say a few words on what is happening in Turkey
regarding the reconciliation process.
As you may all know, we have suffered deeply from the internal war and terror over
the past 30 years. Around 40 thousand of our people lost their lives. It wasted the country’s
energy, contributed to inequality and regional developments gaps. It is economic cost has
been more than $350 billion directly, and more than $1 trillion considering the indirect
Our main objective throughout the reconciliation process is to create a first class-
democracy. We are working on a new constitution to help us achieve this endeavor, and I am
confident that we will achieve that.
I would like to end my words by highlighting that we are decisively committed to the
continuation of political and structural reforms in Turkey. This is of utmost importance to us.
In this context, structural reforms, of which main steps are outlined in Pre-Accession
Economic Program will be continued effectively.