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.
“When international capital markets sneeze, Turkey can catch a cold,” Martin Raiser, country director for the World Bank, said at a conference to present the report. “Turkish growth is driven by foreign savings.”
Economic growth in the country of 75 million people, half of them under 30, was about 8.5 percent last year, Deputy Prime Minister Ali Babacan told the conference. The government aims to slow that to 4 percent this year, a rate that’s “more planned and more sustainable,” he said.
The government is planning steps to encourage saving and extend the maturity of credit markets, Babacan said. The measures will include encouraging the development of personal pension plans and incentives to draw unregistered assets into the financial system, he said.
An increase in savings would help develop Turkey’s financial markets and should come alongside an increase in the productivity of businesses, according to the report. At 164 percent of gross domestic product in 2009, the country’s markets are smaller than those in the rest of the Group of 20 major economies.
While Brazil has a similar savings rate to Turkey, its markets are 296 percent of output, the World Bank said in the report. The Turkish 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.