10th plan and its test with economy

10th plan and its test with economy

Except for a few articles, the 10th Five-Year Development Plan (2014-2018) was approved without the fanfare it deserves. The development plans that have been made since 1963 are actually a desire of the West so that its ally’s economy has some kind of a systemization. The first five-year plan was very well prepared with its foundations laid by famous Dutch economist Tinbergen and it was the most successful in reaching its targets. Later, Süleyman Demirel came out with his proverb “We do not need a plan we need pilav (rice)” and plans were not taken too seriously. Later Turkey was in such deep fluctuations that nobody was able to deal with plans.

In the previous plan, the low growth rate was not yet an important issue. Moreover, the Justice and Development Party (AK Party) government was struggling with the military tutelage and meanwhile the economy was managed well thanks to the fruits of the fiscal discipline; whereas now they have 2023 targets and a development plan of the government indeed should be in harmony with these targets.

On a TV channel where the 10th plan was being debated, I was asked whether it was a realistic figure that the 10th plan targeted a 5.5 percent growth. Also, another question of whether the targets of the plan were in harmony with 2023 targets. I answered as such: “I do not find it realistic but the targets are in harmony with 2023 targets.” We can also say this: Because the plan targets have to be in harmony with the 2023 targets, they are not realistic.

Two critical factors: Foreign exchange rate and domestic saving

Without too much wording, the short version is this: The targeted average growth rate is 5.5 percent. It is quite an ambitious target when compared to the current growth rater estimated to be around 3 to 4 percent. Well, how will this high target be achieved? Regarding demand components, domestic and external demands will increase in a balanced way, so much so that the current account deficit which is currently around 6 percent and has a tendency to increase will go back to 5 percent. But at the same time the Turkish Lira will slowly gain value, so much so that in 2018 we will reach a gross domestic product (GDP) of 11.3 trillion dollars. Of course from the point of macroeconomic equilibrium, for the current accounts deficit to drop to 5 percent, the domestic saving rate should increase from 14.4 percent to 19 percent.

In the plan, 1 point of this extraordinary increase is predicted to come from public saving. Yes, it might, but what about the remaining of the 4.6 points? The financial markets will develop, citizens will have huge advances in financial literacy and the state’s individual retirement incentives will be effective. That’s all. Meanwhile, foreign direct investments will increase to 28 billion dollars in 2018 and thus we will be able to sustain an already decreased current accounts deficit.

From the point of production factors, the most critical assumption is the contribution expected from total factor productivity to growth. A contribution of 1.1 percent is expected from this category. The number of researches has increased recently where the growth performance of Turkish economy is examined from the point of production factors. All of these researches tell us this: The biggest contribution to growth is from capital accumulation. This is natural but not adequate. For Turkey to close the gap of income per capita between itself and developed countries in a relatively swift way, or in today’s trendy phrase, for Turkey not to be caught in the middle income trap, it needs high productivity increases. High productivity increases are only seen in reform eras.

In the 10th plan, there is actually quite a rich reform agenda; however, I cannot pick up any reform scent in the air.

Seyfettin Gürsel is a columnist for daily Radikal in which this piece was published on July 10. It was translated into English by the Daily News staff.