Turkey: On the road again

The paper states that economic growth is picking up in Turkey and the economy is on the road to recovery. It concludes that it is up to the Turkish policy makers to make sure that the countryu0092s economy will leave its grave problems behind and enjoy a bright future. Despite the recent positive developments, the situation remains fragile: an increase in the real interest rates as a result of an adverse shock to system, a significant real depreciation for the reasons mentioned above, and a slow down in the growth rate because of resource constraints would harm the economic recovery, increasing the required primary surplus. A glance at the budget figures reveals that the government is operating at the limit. The public investment expenditures are at their lowest level in real terms, signalling that the economic infrastructure is under great strain. Assuming no adverse shock to any of the variables, a 5-6% primary surplus for the next 2-3 years requires a significant cut in the public sector employment and/or real wages and salaries. Furthermore, the worsening trend in the social security system, in terms of large deficits, should be reversed immediately. Although the government has been compliant with its programme so far, forthcoming local elections, increasing pressure from the public for populist measures and a strong resistance to restructuring and reform process may easily result in a reversal of the sound fiscal polices of recent months. On this front, the government should give stronger assurances that its firm commitment to the program will endure.