By Nick Mann | 12 July 2012
Turkey should maintain its overall public spending restraint and even consider tightening its fiscal policy more if necessary, the Organisation for Economic Co-operation and Development said today.
In its latest Economic survey for Turkey, the OECD noted that the country’s public debt currently stands at below 40% of gross domestic product and its deficit last year was 2.1%, both of which are better than in most other OECD countries.
Stronger-than-projected growth and sharp revenue increases helped the Turkish government to outperform the objectives of its 2010 and 2011 fiscal policy plans and it now expects to reduce its debt and deficit further by 2014 – to 32% and 0.4% of GDP respectively.
In particular, the OECD endorsed Turkey’s plans to stabilise public spending at around 33% of GDP. Additional spending needs are ‘very large’ in areas such as education and social services, but savings in other areas will need to be found before any more money is spent.
‘The present fiscal stance is broadly appropriate and it should remain right, not least to preserve room for action were the world economy to weaken,’ it said. ‘If warranted, stand ready to tighten the fiscal stance more.’
Turkey should also fix ‘enduring’ shortcomings in its general government accounts, the OECD said. Despite improvements which mean that local government and other institutions now report data directly to central government, standard government accounts ‘become available only with very long lags and are not yet fully compliant with international standards’.
Most significantly, the costs of the country’s expanding social security system require ‘close scrutiny’ to take into account alternative scenarios of growth, employment, revenues and pension and health spending.
‘Such scrutiny is particularly important as the ongoing demographic window will close in about a decade, and the old-age dependency ratio will start to increase rapidly, entailing growing ageing costs,’ the OECD said.
Turkey should also consider publishing a regular fiscal policy report and establishing an independent fiscal council. This body could monitor fiscal performance, help design a fiscal framework and develop new ways to estimate cyclical changes in government revenues.
