World Economy

OECD Tells Turkey to Implement Structural Reforms

OECD Tells Turkey to Implement Structural ReformsOECD Tells Turkey to Implement Structural Reforms

Turkey needs to invest more in education and research, deepen trade agreements and strengthen the rule of law if it is to boost productivity and increase the value of its exports, the OECD said on Friday.

In a broad survey, the Organization for Economic Cooperation and Development said low skills and high employment costs were slowing productivity growth and that Turkey’s low share of value-added exports was below its potential, Reuters reported.

But it said the Turkish economy, which grew a higher-than-expected 4.8% in the first quarter, had remained resilient under adverse conditions and that stronger growth was within reach if promised reforms were implemented.

“Turkey is no longer experiencing ‘boom-and-bust’ cycles, but external deficits expanded and the net external investment position has deteriorated somewhat over the past decade,” the OECD said in its survey.

“To achieve strong and sustainable growth, domestic saving should be increased and demand rebalanced between domestic and external sources,” it said.

Implementation of promised reforms was needed in areas including education, governance, labor market flexibility and taxation, the OECD said, noting many of these were already part of government plans but delayed by repeated elections.

“In a difficult political context and amid four national elections over 2014-15, implementation lagged,” the report said.

It also urged Turkey to strengthen the rule of law, judicial independence and the fight against corruption to improve the climate for investment.

  Bold Decisions

Finance Minister Naci Agbal told Reuters last month, shortly after being reappointed in a new cabinet, that Turkey would take “swift and bold” economic decisions this year and promised reforms to boost exports and employment.

But investors fear reform momentum will slow as Turkey gears up for another national vote, potentially as soon as late this year, on constitutional change to introduce the presidential system wanted by President Tayyip Erdogan.

The OECD, which last issued a survey on Turkey two years ago, said trade agreements to abolish tariffs on manufactured goods needed to be widened to include the liberalization of services, investment, competition, intellectual property and public procurement.

Among a raft of recommendations, it also said Turkey should continue to contain consumer credit and promote private pensions to try to boost domestic saving.

It urged the central bank to tighten monetary policy unless inflation declined faster than projected, and to simplify its policy framework to boost its credibility.

The bank has instead repeatedly cut interest rates in line with Erdogan’s calls for lower borrowing costs despite inflation remaining above target, although it has vowed steps to improve the transparency of its policy.