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Turkey reforms should remain "priority"

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  • Turkey reforms should remain "priority"

TURKEY - Reform of the Turkish public pension system should "continue as a matter of priority", according to the OECD. Organisation for Economic Co-operation and Development (OECD).

In its 2008 Economic Survey of Turkey, the OECD revealed that recent reform of the social security system had stalled since 2006, when the Constitutional Court ruled that earlier government proposals were unconstitutional.

The Turkish parliament passed a revised version of the Social Insurance and Health Reform Law in April 2008. However, the OECD warned Turkey should continue the reform of the social security system "as a matter of priority".

In particular, it pointed out that the fiscal implications and reconciliation mechanisms of government plans to significantly reduce social security contribution rates and increase the role of voluntary saving schemes in financing the social security system would require "additional measures".

Despite having a very young population and a low age dependency ratio, the Turkish pension system has experienced "increasingly high deficits", particularly in the 1990s, which had to be covered by budgetary transfers.

As a result, the OECD warned that without pension reforms the annual social security deficit of 3% of GDP would continue until 2030, at which point the debt would increase to 6-7% of GDP over the long term.

The rejected 2006 reforms, which were designed to attain a better balance between contributions and benefits over the medium term, would have resulted in an annual deficit of more than 2% of GDP until 2025, after which it would gradually decline while remaining in deficit.

However, if the April legislation is implemented the social security deficit will gradually decline to 2% of GDP by around 2030, and will eventually "level off" at around 1% of GDP in the long-term.

That said, OECD medium-term fiscal projections for Turkey revealed public spending on pensions would fall from 5.6% of GDP in 2008 to 3.3% of GDP in 2035.

Meanwhile, the OECD survey showed Turkey allocates a "significantly smaller share of its public resources to social security and welfare" at just 7.4% of GDP, compared to the OECD average of 15.9%.

The report suggested the low level of spending - 22% of government resources compared to the OECD average of 34.5% - reflected the "favourable" demographics of the country, and also the "still-functioning alternative social safety networks".

That said, the OECD noted that "the authorities consider that these figures may underestimate the true level of social spending in Turkey and are making progress on improving the transparency of public spending in this area".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

 

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