WB sees lower growth in Turkey

ANKARA – Turkey’s economic growth in 2008 is likely to be less than last year as global factors are less favorable than 2007, the World Bank’s country director told Reuters late on Tuesday. The director, Ulrich Zachau, also said Turkey’s corporate sector carries significant exposure to foreign currency risk because of a $51 billion net debt position in foreign currency. «Global economic factors are less favorable this year than last year and there will be an impact, in my view, on Turkey… Turkish economic growth will likely be less than last year,» he said. Turkey’s gross national product data for last year has yet to be published, but is expected to show a rise of 4-4.5 percent. The government expects at least 5 percent growth in 2008. «I do not think it will be dramatically lower but if I have to bet, I think it would not be higher than last year.» He said the government should press ahead with key reforms, such as social security and privatization to back growth. «What Turkey can do to back its growth is to continue implementing the reforms to maintain its attractiveness to foreign investors and therefore for international financial markets,» he said. Turkey attracted $22 billion foreign direct investment in 2007. Corporate debt Turkey’s corporate sector carries significant risk to sudden shifts in exchange rates due to its foreign exchange-denominated debt, he said. «What is a significant risk is the significant exposure of the Turkish corporate sector to foreign currency borrowing… The Turkish corporate sector as a whole is exposed to foreign currency risk,» he said, referring to a total $51 billion net position of the Turkish private sector. The net foreign exchange position of the corporate sector is calculated as the difference between the stock of forex-denominated assets held by the corporate sector and the sector’s forex-denominated liabilities. This debt risk is manageable because a large majority of foreign currency borrowing comes from medium- or long-term loans and the debt is held by large Turkish firms which have foreign revenues and are more likely to be able to bear the risk, Zachau said. Zachau said Turkey’s financial sector and the government were, however, much better placed than before to deal with global financial shocks. «The liquidity ratios of Turkish banks and asset-loan ratios are very solid. They meet essentially all Basel criteria in terms of capital adequacy ratios,» he said. The government is in very good shape because public debt as a share of gross domestic product has fallen dramatically to less than 40 percent from rates of over 90 percent, he said. The bank would allocate a big chunk of its latest $6.2 billion loan to Turkey for energy and labor market reforms, he said. The World Bank last week approved a four-year $6.2 billion financing program for Turkey, making it one of the largest recipients of the bank’s loans. Ankara has already identified some projects and asked for financial support from the World Bank, such as providing long-term loans to Turkish exporters to support their competitiveness and upgrading existing outdated power stations.

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