Reforming Turkey’s public expenditure management

Fiscal imbalances were a main cause for chronic high inflation and macroeconomic instability before the 2000/2001 crisis. Fiscal consolidation is the cornerstone of post-crisis stabilization. It has been quite successful over the past three years as sizeable primary surpluses have been sustained and the fall in interest rates has reduced the interest cost of public debt. Fiscal targets have been achieved chiefly by raising revenues which has increased the tax burden; greater emphasis should now be placed on the control of public expenditure. At the same time, core public services such as education, justice, infrastructure and rural development will need to be upgraded. Social security costs may also rise with the planned shift to universal health insurance, and the ambitious administrative decentralization project could cause upward pressure on local spending. Far-reaching rationalization of public expenditures is therefore required to meet the quantitative fiscal targets while achieving the intended improvement in public governance. Turkey has made important steps in this direction with new fiscal laws and regulations but an integrated strategy is necessary to harness their full benefits.

Paper by Rauf Gönenç, Willi Leibfritz and Erdal Yilmaz.