It is quite difficult for Turkey to improve per capita income to the level of developed countries with the current savings rate.

I started to write this series a while ago and said that I will continue writing regularly on this issue as occasion serves. Until today, I did not have the chance to give a break and here comes the fourth commentary of the series. As you might remember, I kind of implied that I was not happy with this title. Since it is the fourth commentary of the series, however, the best is not to change it. So, please assume it says “need for a new long-term economic program” or “need for a long-term economic program” as we do not have an “old” one. I believe this would be a better title to convey my message.

You have read frequently on this column that Turkey’s savings are quite low and insufficient to fund investments that rapid growth necessitates. Turkey can increase its growth rate only if it can access external funds (borrowing).

Saving rate is low
This is the main factor underlying the phenomena for the Turkish economy I have attracted attention to during the second and third commentaries of the series. In other words, Turkey can increase the growth rate only if it can attract foreign savings, that it, if it has current account deficit. Higher the amount of foreign savings attracted, ceteris paribus, higher the growth rate will be.

I do not remember giving an international comparison about savings rates. I had compared tax revenues of selected countries on the basis of the OECD data, but I did not address comparison of savings rates. Let me do it today. Table 1 gives the average ratio of savings rate to gross domestic product (GDP) for five-year periods on the basis of World Bank online database (world economic indicators). Savings equal GDP minus consumption expenditures plus transfer revenues. Other than Turkey, the table involves middle and upper-middle income countries as well as the Eurozone average. Also, I have added Greece and Portugal to make a disastrous example. 

Savings rate around the average in the 1990s

Here are some points to address: First, in the 1990s, Turkey’s savings rate was above the Eurozone and world average. Second, during the 2000s, Turkey’s savings rate decreased gradually and fell significantly below the world average. Third, the rate was considerably lower compared to middle and upper-middle income countries throughout the entire period examined. In this line, the gap between the others and Turkey widened remarkably during the last decade.

Fourth, savings rates of Portugal and Greece have been going downhill, which is closely related to the problems they have been suffering from. It is quite difficult for Turkey to improve per capita income to the level of developed countries with the current savings rate. The savings outlook must be changed. This is another reason why Turkey needs a new economic program.

This commentary was published in Radikal daily on 29.11.2011