Lowest Saving in 30 Years Risks Turkish Growth, World Bank Says

Turkey must reverse a decline in the domestic savings rate to the lowest in three decades or risk unsustainable growth and dependence on volatile inflows of external financing, according to the World Bank.

The rate fell to 12.7 percent of gross domestic product in 2010, the lowest rate since 1980, according to the report prepared jointly with the Ministry of Development and released in Ankara today.

Savings have declined as slower inflation since Prime Minister Recep Tayyip Erdogan came to office a decade ago prompted a young population to consume. The result was a surge in imports and a record current-account deficit in 2011 of $77.2 billion, or 10 percent of GDP, that requires external financing and helped drive the lira 18 percent lower last year, the biggest decline globally.

“Increasing domestic saving is critical for promoting sustainability of growth in Turkey,” said the report, written by economists including Kamer Karakurum Ozdemir of the World Bank. “Dependence on foreign savings has exposed Turkey to the risk of capital reversal, with its attendant adverse impact on economic growth.”

Economic growth in the country of 75 million people, half of them under 30, was 8.5 percent last year, Economy Minister Zafer Caglayan estimated on Feb. 28. The government aims to slow that to 4 percent this year as central bank limits on credit growth rein in consumption and cut demand for imports.

An increase in savings would also help develop Turkey’s financial markets, the report said. At 164 percent of gross domestic product in 2009, the country’s markets are smaller than the rest of the Group of 20 major economies.

More Private Pensions

While Brazil has a similar savings rate to Turkey, its markets are 296 percent of output, the report said. The corporate bond market in particular accounts for less than 1 percent of total market value in 2009, “far smaller than in other major emerging market economies,” it said.

The report suggests tax incentives to encourage a growing private pension industry, development of the corporate bond market and an end to discrepancies between tax rates on holdings of funds and individual shares. Public campaigns to raise awareness of financial planning may also be useful, it said.

To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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