OECD Economic Surveys:

Türkiye 2025
April 2025
Volume 2025/8
OECD Economic Surveys:
Türkiye
2025
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The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single
authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of
Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye
shall preserve its position concerning the “Cyprus issue”.

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The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The
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OECD Economic Surveys

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OECD Economic Surveys: Türkiye

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 3

Foreword

This Economic Survey was prepared by Gabriel Machlica, Sébastien Turban and Gizem Gergin under the supervision
of Pierre Beynet. Research assistance was provided by Gülen Devren Şahin and Eun Jung Kim, editorial assistance
by Elodie Lormel and Meral Gedik and communication assistance by Laura Fortin and François Iglesias.
This Survey is published under the responsibility of the Economic and Development Review Committee of the OECD.
The Committee discussed the draft Survey on 18 February 2025. The cut-off date for data used in the Survey is 1
April 2025.
Information about this and previous Surveys and more information about how Surveys are prepared is available at
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Table of contents

Foreword 3
Basic Statistics of Türkiye, 2023 7
Executive Summary 9
1 Staying the course on macroeconomic stabilisation 17
1.1. Macroeconomic policies are normalising 18
1.2. The tax and benefit system can become more efficient and inclusive 34
References 43

2 Removing the barriers to female labour market participation 47

2.1. Lifting labour force participation will be essential for future growth 48
2.2. Weak female participation hurts growth while having deep roots 49
2.3. Türkiye should continue its efforts to increase access to affordable high-quality childcare 51
2.4. Family and labour market policies that could help promote female participation 55
2.5. Promote equality between women and men into budgetary and decision-making processes 57
References 61

3 Steps towards green transformation in Türkiye 65

3.1. Achieving Türkiye’s ambitious climate change objectives requires a detailed strategy 66
3.2. Pricing carbon to signal the need for a green transformation 71
3.3. Greening and expanding electricity generation to reduce emissions and bolster energy security 73
3.4. Better managing Türkiye’s forests 79
References 83

4 Completing the transition to a competitive and innovative economy 89

4.1. Productivity will have to improve to continue the convergence process 90
4.2. Encouraging innovation and promoting the adoption of new technologies 92
4.3. Enhancing the skills of current and future workers 98
4.4. Buttressing business dynamism 106
References 126

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 5

FIGURES
Figure 1. The potential growth will slow as capital and labour accumulation weakens 10
Figure 2. Labour market outcomes of women lag behind other OECD countries 12
Figure 3. GHG emissions are likely to continue increasing in the next ten years 13
Figure 4. The economy concentrates on production with relatively lower value added 14
Figure 1.1. After years of strong growth, economic momentum slows 19
Figure 1.2. The affected region represents around one-tenth of Türkiye's GDP 21
Figure 1.3. Inflation remains high 21
Figure 1.4. Share of exports on goods, by type and trading partner, 2023 22
Figure 1.5. International tourism has rebounded to above the pre-pandemic level in 2023 23
Figure 1.6. The external position has improved 24
Figure 1.7. Monetary policy has become restrictive 26
Figure 1.8. Increased lending rates eased the demand for loans 27
Figure 1.9. Household and corporate debt is not particularly high 28
Figure 1.10. The fiscal position was weak over the past decade 29
Figure 1.11. Government debt is low, but its structure makes it prone to risks 30
Figure 1.12. Achieving fiscal consolidation targets will help to reduce public debt 31
Figure 1.13. Structural reforms can help increase standards of living and make growth sustainable 33
Figure 1.14. Public finances rely on consumption taxation and subsidies 35
Figure 1.15. Value added tax revenues are far below potential 37
Figure 1.16. Public finances do not redistribute much 39
Figure 1.17. The normal retirement age is low, the replacement rates are high and unequal, and pension contribution
rates are high 41
Figure 2.1. Labour market outcomes of women lag behind other OECD countries 49
Figure 2.2. Closing gaps between women and men in labour market participation would boost per capita GDP 50
Figure 2.3. Employment rates of mothers with children are low 51
Figure 2.4. ECEC enrolment rates are low 52
Figure 2.5. Public spending on early childhood education and care is low 53
Figure 2.6. The durations of paid leaves are short and unequal 56
Figure 2.7. The absence of child benefits discourages labour force participation of households with children 58
Figure 3.1. GHG emissions are likely to continue increasing in the next ten years 66
Figure 3.2. Emissions have decoupled from growth but the carbon intensity of energy supply is high 68
Figure 3.3. Türkiye is warming faster than other countries, increasing exposure to wildfire risks 68
Figure 3.4. Only few greenhouse gas emissions are priced 71
Figure 3.5. The supply of energy, including electricity, is mostly carbonised 74
Figure 3.6. Future power capacities are consistent across projected net zero pathways 75
Figure 3.7. The population is exposed to a high level of air pollution 76
Figure 4.1. The potential growth will slow as capital and labour accumulation weakens 90
Figure 4.2. Productivity is still low and the economy concentrates on production with relatively lower value added 91
Figure 4.3. R&D expenditure and innovation are weak in Türkiye 93
Figure 4.4. Government support for business R&D expenditures is at the OECD level 96
Figure 4.5. University-Industry R&D and international R&D collaboration is low 97
Figure 4.6. Türkiye's share of STEM graduates is low 99
Figure 4.7. Participation in lifelong learning is low 103
Figure 4.8. Türkiye’s attractiveness for highly skilled workers is low 105
Figure 4.9. Business dynamism is relatively low given Türkiye’s population 107
Figure 4.10. The use of services in exports is relatively low 110
Figure 4.11. The conduct of professional services is highly restricted 111
Figure 4.12. Services exports and FDI are low, focused on low-tech sectors, and tightly regulated 114
Figure 4.13. Tariff rates are relatively high, and non-tariff barriers have increased quickly 115
Figure 4.14. There is room to facilitate trade via streamlined procedures and cross-border cooperation 117
Figure 4.15. The insolvency regime could be more efficient 119
Figure 4.16. The corruption perception in Türkiye is high 123

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TABLES
Table 1. Macroeconomic projections 11
Table 1.1. Macroeconomic indicators and projections 23
Table 1.2. Tail risks that could lead to major changes in the outlook 25
Table 1.3. Illustrative fiscal impact of recommended reforms 33
Table 1.4. Recommendations 42
Table 2.1. Past OECD recommendations and actions taken for the higher labour market participation 48
Table 2.2. Recommendations 60
Table 3.1. Past OECD recommendations and actions taken for the green transition 69
Table 3.2. Main LTS targets by sector 70
Table 3.3. Recommendations 82
Table 4.1.Product market regulations are relatively tight 108
Table 4.2. Recommendations 124

BOXES
Box 1.1. The 2023 earthquakes in Türkiye and its effects on the economy 20
Box 1.2. Consolidation package 32
Box 1.3. Quantifying the impact of selected policy recommendations 32
Box 3.1. Developing the institutional framework for carbon mitigation strategies in OECD countries 69
Box 3.5. Türkiye’s Long Term Climate Strategy 70
Box 4.1. Türkiye’s innovation support system 94
Box 4.2. Performance indicators in funding – labour market outcomes 101
Box 4.3. Best practices in quality assurance in selected OECD countries 103
Box 4.4. The Türkiye Wealth Fund (TWF, Türkiye Varlık Fonu) 121

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 7

Basic Statistics of Türkiye, 2023

(Numbers in parentheses refer to the OECD average)
LAND, PEOPLE AND ELECTORAL CYCLE
Population (million) 85.3 Population density per km² 110.9 (39.2)
Under 15 (%) 21.8 (16.9) Life expectancy at birth (years, 2022) 77.3 (80.6)
Over 65 (%) 10.0 (18.2) Men (2022) 74.7 (78.0)
International migrant stock (% of population, 7.2 (13.9) Women (2022) 80.0 (83.2)
2020)
Latest 5-year average growth (%) 0.9 (0.4) Latest general election May-2023
ECONOMY
Gross domestic product (GDP) Value added shares (%)
In current prices (billion USD) 1 118.3 Agriculture, forestry and fishing 6.9 (2.7)
In current prices (billion TRY) 26 545.7 Industry including construction 32.0 (27.1)
Latest 5-year average real growth (%) 4.9 (1.7) Services 61.0 (70.2)
Per capita (thousand USD PPP)¹ 42.3 (59.0)
GENERAL GOVERNMENT (Per cent of GDP)
Expenditure 35.7 (42.4) Gross financial debt² (2021, OECD: 2023) 43.5 (113.0)
Revenue 30.9 (37.8) Net financial debt (2021, OECD: 2023) 25.9 (66.7)
EXTERNAL ACCOUNTS
Exchange rate (TRY per USD) 23.11 Main exports (% of total merchandise exports)
PPP exchange rate (USA = 1) 7.35 Machinery and electronics 15.9
In per cent of GDP Transportation 14.1
Exports of goods and services 31.9 (31.2) Textiles and Clothing 12.9
Imports of goods and services 34.4 (31.1) Main imports (% of total merchandise imports)
Current account balance -3.4 (-0.3) Fuels 19.1
Net international investment position -28.0 Machinery and electronics 19.0
Metals 12.2
LABOUR MARKET, SKILLS AND INNOVATION
Employment rate (aged 15 and over, %) 48.3 (58.0) Unemployment rate, Labour Force Survey (aged 15 9.4 (4.8)
and over, %)
Men 65.7 (65.5) Youth (aged 15-24, %) 17.5 (10.6)
Women 31.3 (50.8) Long-term unemployed (1 year and over, %) 2.0 (1.0)
Participation rate (aged 15 and over, %) 53.3 (60.9) Tertiary educational attainment (aged 25-64, %) 25.9 (41.0)
Average hours worked per year (2021, OECD: 1 732 (1 742) Gross domestic expenditure on R&D (% of GDP, 1.4 (2.9)
2023) 2021)
ENVIRONMENT
Total primary energy supply per capita (toe) 1.9 (3.7) CO2 emissions from fuel combustion per capita 4.6 (7.6)
(tonnes)
Renewables (%) 17.4 (12.5) Water abstractions per capita (1 000 m³, 2020) 0.8
Exposure to air pollution (more than 10 g/m³ of PM 99.8 (56.5) Municipal waste per capita (tonnes, 2022) 0.4 (0.5)
2.5, % of population, 2020)
SOCIETY
Income inequality (Gini coefficient, 2022, OECD: 0.427 (0.316) Education outcomes (PISA 2022 score)
latest available)
Relative poverty rate (%, 2022) 13.2 (11.7) Reading 456 (476)
Median disposable household income (thousand 13.0 (30.0) Mathematics 453 (472)
USD PPP, 2022, OECD: 2021)
Public and private spending (% of GDP) Science 476 (485)
Health care 4.2 (9.2) Share of women in parliament (%) 19.8 (32.8)
Pensions (2019) 7.6 (9.5) Net official development assistance (% of GNI, 2022) 0.8 (0.4)
Education (total spending, 2020) 4.7 (5.1)
Note: The year is indicated in parenthesis if it deviates from the year in the main title of this table. Where the OECD aggregate is not provided in the
source database, a simple OECD average of latest available data is calculated where data exist for at least 80% of member countries.
1. OECD aggregate refers to weighted average.
2. Gross financial debt refers to general government gross financial liabilities. Net financial debt is the total financial liabilities minus the total financial
assets.
Source: Calculations based on data extracted from databases of the following organisations: OECD, International Energy Agency, International Labour
Organisation, International Monetary Fund, United Nations, World Bank and Turkstat.

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Executive Summary

Key messages
Türkiye has been one of the fastest-growing economies in the OECD over the past decade, leading to a significant
improvement of labour market and social outcomes. Although improving, the income gap with OECD countries
remains large and women’s participation in the workforce is still low. Moreover, Türkiye’s traditional growth
drivers are set to lose steam. The contribution of working-age population growth is expected to steadily decline,
while investment levels are already high and have recently shifted towards less productive assets.
In this context this Survey contains four main messages:
• The prudent macroeconomic policy stance is helping to restore sustainable growth and should be
maintained. Over the long term, improving public finances will require more efficient consumption
taxes, a broader income tax base, and strengthened social assistance.
• Women's labour force participation remains significantly lower than in other OECD countries. Removing
barriers to employment requires expanding affordable early childhood education and care, promoting
a more balanced use of parental leave, and addressing the distinct impacts that regulations and policies
can have on women and men.
• Greenhouse gas emissions are relatively low but are growing fast. Efficiently reducing emissions to achieve
the 2053 net zero target will require higher effective pricing of greenhouse gas emissions and transitioning
away from coal for energy supply. Climate change adaptation policies should also expand, in particular to
address the increased risk of wildfires due to rising temperatures.
• Potential growth per worker in Türkiye has been slowing down and remains relatively low. To support growth
after the demographic dividend has phased out, the country needs to improve productivity in particular in
services sectors, by upskilling the labour force, enhancing innovation, and easing business regulations.

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10 

Ensuring sustainable growth

The fast economic growth over the last decade will be harder to sustain as Türkiye will no longer be able to rely on
its traditional drivers through factor accumulation. Moreover, the country will face long-term challenges such as
digitalisation and climate change. A credible and stable macroeconomic stance coupled with structural reforms will
be key to achieve the next step in Türkiye’s economic convergence.

Türkiye has been one of the fastest-growing quality has a large impact on the population’s health,
economies in the OECD over the past decade, with an for example.
average annual growth rate of 4.9%. The living
Those structural weaknesses will hinder Türkiye’s
standards of the Turkish population have increased
capacity to address future long-term challenges. With
approximately fourfold. Labour market and social
population ageing, growth potential through additional
outcomes have improved significantly. The labour force
labour is diminishing steadily (Figure 1).
participation rate for the population aged between 15
Simultaneously, shifts in labour market demand driven
and 64 has increased from around 50% in 2005 to 60%
by technological progress and digitalisation are
in 2023, and the poverty rate has been halved. Türkiye
accelerating, and require more flexible labour and
has made progress in relatively decoupling its strong
product markets in addition to adaptive skills policies.
economic growth from air emissions, energy use, waste
Türkiye will also face new constraints due to the
generation and water consumption.
significant rise in temperatures over the next decades.
However, significant structural weaknesses persist
Successfully pursuing economic convergence will
and the income gap with OECD countries remains
require structural reforms. Maintaining a credible and
large. Income inequalities are wide. The labour market
stable macroeconomic policy is essential to foster
outcomes of working-age women, migrants, and the
investment and growth. Easing barriers to labour
elderly are weak. Türkiye's workforce skills lag those of
mobility and business dynamism would enable Türkiye
other OECD countries, exacerbated by the emigration
to exploit its strong potential fully. The results would be
of high-skilled individuals. This contributes to its limited
widely shared among the population by expanding
productivity and competitiveness in high-skill
economic opportunities for all. A ramping up of the
manufacturing and services industries. Environmental
green transition would make this growth sustainable
issues are preponderant as greenhouse gas emissions
with large health co-benefits.
are still rising, albeit from low levels, and poor air

Figure 1. The potential growth will slow as capital and labour accumulation weakens
Contributions to potential output growth
% pts %
8 8
Labour efficiency Employment Working age population Capital Potential growth (RHS)
6 6

4 4

2 2

0 0

-2 -2
2000

2004

2008

2012

2016

2020

2024

2028

2032

2036

2040

2044

2048

2052

2056

2060

Source: OECD calculations based on OECD Economic Outlook No. 116 long-term database.

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  11

Macroeconomic stabilisation efforts need to be maintained

Economic activity is expected to moderate after years of strong growth driven by domestic demand which created
large imbalances and challenges to long-term sustainability. The new restrictive setting of monetary and fiscal
policies has helped to stabilise financial markets, boosted confidence, and reduced uncertainty. To fully leverage
the improving international sentiment, authorities should maintain prudent macroeconomic policies until inflation
is firmly on track to meet targets.

The economy grew by 5.3% in 2022 and 5.1% in 2023, Economic activity is expected to moderate over the
driven by expansionary fiscal and monetary policies. next two years (Table 1). Tighter financial conditions,
These boosted consumer spending growth to record and restrictive monetary and fiscal policies, are likely to
levels. However, these policies also led to significant curb household consumption. Investment and
imbalances, including rising inflation, a widening government spending are also expected to weaken,
current account deficit, negative net international particularly as post-earthquake reconstruction efforts
reserves, and a large depreciation of the Turkish lira. wind down. However, exports are projected to
gradually improve, supported by a better external
Following the May 2023 elections, the policy mix has
environment.
started to normalise. The new government has taken
necessary steps to stabilise the macroeconomic Maintaining tight monetary policy and fiscal discipline
framework and pull Türkiye’s economy back on to a will be essential until inflation is firmly under control.
sustainable path. The Central Bank has gradually raised Strengthening fiscal discipline will require structural
interest rates by a cumulative 41.5 percentage points, reforms to improve spending efficiency, expand tax
reaching 50% in March 2024, and the government is revenues, and promote inclusive growth.
planning a fiscal consolidation for the coming years.

Table 1. Macroeconomic projections

Projections*
Annual % change unless specified 2023 2024
2025 2026
Gross domestic product (GDP) 5.1 3.2 3.1 3.9

Consumer price index 53.9 58.5 31.4 17.3

Core consumer price index 58.5 59.8 31.2 17.3

Unemployment rate (% of the labour force) 9.4 8.7 8.8 8.3

General government fiscal balance (% of GDP) -4.8 -4.7* -3.0 -2.6

Note: * Projections for 2025 and 2026 are an update of EO116 based on the Interim Economic Outlook of March 2025.
Source: OECD (2025), OECD Economic Outlook: Statistics and Projections (database).

The efficiency of public finances should be Public finances could become more redistributive. The
strengthened. Comprehensive and transparent tax and benefit system barely reduces inequalities in
expenditure reviews integrated into the budget process market incomes. Non-pension social benefits are very
can improve spending efficiency and increase fiscal low, and revenues heavily rely on flat social security
space. Although public revenues rely comparatively contributions instead of a progressive income tax. To
more on less-distortive consumption taxes, the reduce income inequality, it will be crucial to expand
consumption and income tax bases could be both the coverage of income taxation and the social
broadened, and the structure of value-added tax rates safety net.
could be simplified.

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Boosting female labour market participation would support growth

Female labour force participation improved, but still remains significantly lower than in other OECD countries, with
women also facing higher unemployment rates than men (Figure 2). The underutilisation of women’s talents limits
Türkiye’s economic potential. Closing the gap between men and women could increase long-term GDP per capita
growth. Doing so requires a combination of tax policies, expanding pre-school education facilities and promoting
more equitable family policies.

A disproportionate share of unpaid care and domestic Promoting more equitable family policies could
responsibilities is a major barrier to women’s labour support greater workforce participation for both
market participation. Motherhood particularly affects parents. Türkiye does not currently offer non-
women’s workforce engagement in Türkiye, where 96% transferable parental leave reserved for fathers. Rigid
of mothers act as primary caregivers while only 2% of employment structures such as strict full-time
fathers do. Improving access to early childhood requirements, fixed hours, and limited opportunities
education and care (ECEC) is an essential part of this for remote or part-time work, fail to accommodate the
challenge. needs of women who require adaptable working
conditions due to caregiving roles. In addition, some
Expanding public investment in ECEC could increase
labour regulations can be eased as they can
capacity and affordability. In recent years, most ECEC
unintentionally act as a barrier to female labour
facilities in Türkiye have operated near full capacity.
participation. For example, granting severance pay to
Public funding for ECEC, at 0.3% of GDP, is significantly
women resigning upon marriage increases the long-
below the OECD average of 0.8%. Employer-provided
term cost for employers.
childcare remains rare. Additionally, the lack of
transportation and meal services in public ECEC Türkiye’s tax policies do not favour the labour force
programs adds extra costs for families, making childcare participation of parents by imposing a high tax wedge.
less affordable. Expanding the supply of high quality Türkiye does not provide child-related fiscal benefits in
ECEC should be a priority as it remains inaccessible for contrast to most OECD countries. Providing targeted tax
many low-income households, who would benefit the credits or cash benefits for parents would promote
most. labour force participation especially among women of
low income.

Figure 2. Labour market outcomes of women lag behind other OECD countries
A. Labour force participation B. Unemployment rate
15-64 years old 15-64 years old
% of population in same age group % of labour force in the same subgroup
100 15
2023 2013 2023 2013

80 12

60 9

40 6

20 3

0 0
Türkiye OECD Türkiye OECD Türkiye OECD Türkiye OECD Türkiye OECD Türkiye OECD
Women Men Total Women Men Total

Source: OECD (2024), OECD Labour force statistics indicators (database).

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Tackling climate change challenges requires a more decisive choice of policies

Greenhouse gas emissions are relatively low, but current policies are insufficient to reach the 2053 net zero target.
Achieving the country’s goal will require implementing carbon pricing as planned and a transition away from coal.
Rising temperatures due to climate change are weakening the decarbonisation capacity of Türkiye’s forests,
particularly by increasing the risk of wildfires.

Türkiye's emissions trajectory is not in line with the Coal-fired power needs to be phased out, and Türkiye
country’s 2053 net zero target and requires continuing needs to expand and green its electricity generation.
improving the policy framework. Although emissions Coal fuels 30% of total energy supply and more than a
per capita are low, they are increasing fast, and are third of electricity. A majority is imported. In addition,
expected to peak only by 2038 (Figure 3). This is partly more than a fifth of electricity is generated by natural
explained by economic growth, but also by the gas. Shifting from coal to renewables would lower costs,
relatively slow decarbonisation of energy supply. A reduce energy dependency, and tackle air pollution.
detailed, long-term sectoral breakdown of emissions However, support will be needed for workers and
reduction plans and targets is needed and should be regions which are highly dependent on the industry.
accompanied by a comprehensive Climate Law. In that
Better forest management would enhance the
context, the draft Climate Law introduced in Parliament
capacity of forests to reduce emissions and address
in February is a step in the right direction.
wildfire risks. Türkiye’s forests have degraded and are
Reducing emissions will require carbon pricing. Türkiye absorbing a smaller share of emissions. Recent wildfires
is pricing carbon only indirectly for example through have contributed to the trend, and climate change will
fuel taxes, and at low levels. It needs to follow up on the amplify the risks. Subsidies and regulatory support for
implementation of an Emissions Trading System and preserving forests and for wildfire prevention are
transition away from its fossil fuel subsidies. Revenues needed. Broadening insurance coverage would make
are expected to be sufficient to support the required the exposed population less vulnerable to wildfire risks.
investments for the transition, help groups requiring
targeted policies, and reduce other distortive taxes.
Figure 3. GHG emissions are likely to continue increasing in the next ten years
Greenhouse gas emissions by sector and targets
Mt CO2 equiv.
1989.53

1991.53

1993.53

1995.53

1997.53

1999.53

2001.53

2003.53

2005.53

2007.53

2009.53

2011.53

2013.53

2015.53

2017.53

2019.53

2021.53

2023.53

2025.53

2027.53

2029.53

2031.53

2033.53

2035.53

2037.53

2039.53

2041.53

2043.53

2045.53

2047.53

2049.53

2051.53
800
Energy industries Manufacturing industries and construction Transport
Residential and other sectors Other energy use IPPU
Agriculture Waste LULUCF
600 Total including LULUCF
2030 target
400

200

0
Net-zero target

-200
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2052

Note: Sectoral shares based on the OECD database over 1990-2021. Breakdown and total for 2022 are estimated based on Türkiye’s Informative
Inventory Report (IIR) 2024. The historical data and target estimate on the total emissions are based on the IMF database.
Source: OECD (2024), Air & GHG emissions database; Ministry of Environment, Urbanization, and Climate Change (2024), 2053 Long Term Climate
Strategy; and IMF (2024), Climate Change Indicators Dashboard.

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Completing the transition to a competitive and innovative economy

The Turkish economy remains specialised in medium-technology sectors, and needs to boost competitiveness in
high-skilled manufacturing and services (Figure 4). Upward integration in global value chains will require
technological progress, workforce upskilling, and reducing barriers to business dynamism to enable companies to
gain a competitive edge in international markets. Türkiye will need to improve adoption of innovations among firms
by encouraging better research-business collaborations.

Despite recent progress, the performance of the The labour force requires upskilling. While
innovation system still lags that of the country’s OECD participation in tertiary education has increased
peers. One third of Turkish companies reported significantly, Türkiye lags other countries in its human
introducing an innovation in 2018-2020, compared to resources. Providing more information and incentives
around half on average in the OECD. Similarly, Türkiye's for universities should tackle mismatches between
performance in other intellectual property indicators, graduates and labour demand. Reducing barriers to
such as trademarks and design applications, is lower participation in high-quality lifelong learning would
than the EU average. improve the employability of older adults. Pursuing
recent initiatives to attract talented citizens back home
Türkiye needs to boost homegrown innovation. Public
would also boost skilled labour supply.
support to R&D is at the OECD average but needs to
become more targeted and efficient, in particular Significant barriers to business dynamism could be
through unified programme evaluations. More needs to lifted. Hurdles remain to firm creation. The
be done to promote links between research activities administrative burden on existing firms is heavy. The
and broader technology adoption, as today there is conduct of professional services activities is among the
limited diffusion of new technology among Turkish most regulated in the OECD, and hampers productivity
companies. Financial support to research-business along the value chains. Easing existing restrictions and
collaboration and performance contracts in higher regulations in services, including limits to foreign
education institutions would also help improve participation, would boost business dynamism, and
diffusion. services exports and FDI. The recent improvements in
simplifying the insolvency regime should also be
continued to facilitate business renewal.

Figure 4. The economy concentrates on production with relatively lower value added
A. Share of employment in high- and medium- B. Share of high-technology exports, 2022
high technology manufacturing and knowledge-
intensive services, 2023 % of manufactured exports
% of total employment % of total employment 50
8 40

40
6 30
30
4 20
20
2 10
10
0 0
EU EA TUR EU EA TUR
0
High and medium high-
FIN

ITA

ISL
IRL
JPN

SWE
TUR

CAN
GRC
DNK
DEU

KOR
PRT

COL
SVK

ESP

USA
MEX
FRA

AUS
NOR

GBR
OECD

Total knowledge-intensive
technology manufacturing services

Note: In Panel B, unweighted average of 38 countries for the OECD aggregate.

Source: Eurostat; and World Bank World Development Indicators.

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  15

MAIN FINDINGS KEY RECOMMENDATIONS

Maintaining a stable macroeconomic framework and improving the quality of public finances
Annual consumer price inflation remains stubbornly high, reached around Monetary policy should remain tight until inflation is sustainably on a
42% in January, and although inflation expectations have decreased in downward path towards the target.
recent months, they remain well above the inflation target of 5%.
The government debt-to-GDP ratio is relatively low and the deficit is Reduce the deficit in accordance with the government’s Medium-Term
expected to decrease to 2.6% in 2026. However, a premature relaxation of Program 2025-2027 to support macroeconomic stabilisation.
current macroeconomic policies could lead to renewed instability.
The VAT system is particularly complex due to the prevalence of special Once inflation is under control, reduce the scope of reduced VAT rates.
rates. Türkiye’s VAT revenue is low relative to potential.
The benefit system is among the least redistributive in the OECD, because Broaden social protection, including via additional social assistance benefits
it is narrow. and higher basic pensions.
Strengthening the labour force participation of women
Female labour force participation is the lowest in the OECD, mostly due to Continue increasing public spending on early childhood education while
a disproportionate share of unpaid care and domestic work. monitoring efficiency.
Introduce paid parental leave that is shareable and encourage its more
equitable sharing among parents by including non-transferable periods.
Türkiye does not provide adequate cash benefits for families with children, Increase direct cash benefits for children, targeted towards low-income
leading to one of the highest tax wedges for families in the OECD. families.
Supporting climate change mitigation and adaptation
Carbon is only taxed indirectly, mostly via fuel taxes. A fifth of emissions Implement an ETS as announced and provide support for green investment
are effectively priced above EUR 30 per ton. and social transfers to compensate groups vulnerable to the green
Fossil fuel subsidies remain significant, in particular for coal. transformation.
Transition away from fossil fuel subsidies, replacing them with targeted
social support, as necessary.
Two-thirds of energy consumption is based on energy imports, mostly from Develop and swiftly implement a plan to transition away from coal.
fossil fuels. Electricity is mostly powered by coal and natural gas.
The pace of solar and wind installations has slowed down. Wind and solar Focus on auction-based support schemes to support the deployment of
investment are incentivised by feed-in tariffs (FiTs). Price signals are better renewable energy, and replace FiTs by market-based instruments like FiPs
incorporated in feed-in premiums (FiPs) or contracts for differences (CfDs) or CfDs.
relative to FiTs.
Disaster-related insurance coverage in Türkiye is low and focused on Implement disaster-insurance coverage beyond earthquakes as planned,
earthquake risks. The government has announced plans to extend and increase the coverage threshold, while ensuring that premiums remain
compulsory insurance to other natural disasters. contained.
Lifting productivity and competitiveness
Despite relatively generous government support, there is only limited Expand further the programmes that promote research-business
adoption of new technology among Turkish companies. Only one-third of collaboration, and allow researchers to temporarily join the private sector
Turkish companies reported introducing an innovation in 2018-2020, and vice-versa.
compared to around half of the companies in the average OECD country.
The sharp increase in university graduates has resulted in a high likelihood Further enhance incentives for tertiary education institutions, including
of mismatch, especially among recent graduates. Türkiye has the largest funding to offer courses more aligned with labour market needs.
skills gap for workers with tertiary education among OECD countries.
Services are less knowledge intensive, and domestic services are used Reduce barriers to the conduct of activity in professional services by easing
less in exports than in OECD countries. Productivity gaps in manufacturing the regulation of fees, restrictions on advertising and marketing, limits on
firms appear in firms with services affiliates in more restricted sectors. firms' legal forms, and occupational licensing.
Restrictions on services trade and FDI reduce competition and hamper the Loosen foreign participation restrictions in services sectors where they have
development of services exports. hampered beneficial competition.
The Customs Union with the EU does not cover non-processed agricultural Support expanding the Customs Union to agriculture, services, and public
products, trade in services, and public procurement. procurement.
The insolvency regime appears particularly inefficient for services firms Provide a simplified insolvency system for SMEs.
where exiting firms tend to have higher productivity than remaining ones.
Transparency International’s perception of corruption index worsened in Establish a permanent and independent anti-corruption body.
2023. Türkiye’s now ranks 115th among 180 countries surveyed.

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16 

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  17

1 Staying the course on

macroeconomic stabilisation

The economy grew excessively fast in 2022 and 2023, driven by very expansionary
fiscal and monetary policies. This led to significant imbalances including historically
high levels of inflation. Following May 2023 elections, the policy mix has started to
normalise. Restrictive monetary and fiscal policies have helped to stabilise financial
markets, boosted confidence, and reduced uncertainty. To fully leverage the
improving international sentiment, Türkiye should maintain prudent
macroeconomic policies until inflation is firmly on track to meet targets. Long term
fiscal sustainability and the credibility of the government’s fiscal strategy will
require structural reforms to improve spending efficiency, expand tax revenues, and
promote inclusive growth.

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18 

1.1. Macroeconomic policies are normalising

1.1.1. Economic activity is moderating

Türkiye has been the fastest-growing economy in the OECD over the last two years (Figure 1.1, Panel A). The
economy expanded by 5.3% in 2022 and 5.1% in 2023. Strong support from expansionary fiscal and monetary
policies boosted consumer spending to historic highs. However, these policies led to unsustainable developments,
creating significant internal and external imbalances, as evidenced by rising inflation, a widening current account
deficit, a negative level of net international reserves excluding swaps (the difference between official gross reserve
assets and net short-term currency drains), and a decline in the value of the Turkish lira. Following the May 2023
elections, the government started a process of normalising macroeconomic policies to pull Türkiye’s economy back
onto a sustainable path. Fiscal and monetary policies have rightly become restrictive, which has contributed to the
economy’s slowdown in 2024. Year-on-year GDP growth dropped from 6.5% in the first quarter to 2.4% in the fourth
quarter of 2024. On the other hand, the more conventional policy approach has improved investor sentiment and
has eased the risks around the outlook, as imbalances have been reduced. The current account deficit has been
decreasing, the exchange rate has stabilised, and net international reserves excluding swaps turned positive for the
first time since early 2020. In addition, foreign-currency swaps with local banks have been fully unwound.
Before the macroeconomic normalisation, domestic demand had been the main driver of economic growth in 2022
and 2023 (Figure 1.1, Panel B). Real household consumption in this period grew at an unprecedented pace, by
around 15% annually, the highest growth rates in Türkiye's history. Sales of automobiles and durable goods
exceeded historical averages in 2023, as high inflation led some households to frontload their purchases. Consumer
spending in 2022 and 2023 was also supported by positive labour market developments. The number of people
employed reached an all-time high in 2024 while the unemployment rate fell below 9% in the second half of the
year, marking the lowest rates in a decade. While the number of workers in the manufacturing sector remained
stable, the services sectors benefited from improving labour market conditions (particularly in the construction
sector, tourism, and the information and telecommunication sectors), also partly reflecting structural adjustments
in the economy.
Wages increased alongside those significant employment gains, with average annual growth of 88% and 114% in
2022 and 2023 respectively, well above the inflation rate in these years (72% and 54%). This wage growth was
bolstered by substantial salary increases for public sector employees and significant hikes in the minimum wage.
The minimum wage – earned by around half of workers in non-agricultural sectors – has been raised five times
between 2022 and the end of 2024, reaching a level 459% higher in gross terms than in 2021 (against almost 400%
for consumer prices). Overall, real labour compensation per employee has increased by 43% between the last
quarter of 2019 and the last quarter of 2023 while the real minimum wage grew by 42% between May 2019 and
May 2024 (OECD, 2024[1]).
Besides the favourable labour market developments, supportive monetary and fiscal policy boosted household
spending. In 2023, the disposable income of households was supported by significant increases in pensions and
social transfers to compensate for high inflation and the consequences of the February earthquakes (see below). In
addition, loose monetary policy boosted loan growth, which in nominal terms in 2022 and 2023 was one of the
highest in history (see below). Elevated inflation expectations led to higher demand for loans, resulting in additional
hikes in money supply (CBRT, 2024[2]).
Investment grew considerably in 2023, making a significant contribution to economic growth. Beyond the increase
in investments in machinery and equipment, one reason for the higher investment activity was the reconstruction
following the earthquake that struck Türkiye at the beginning of 2023 (Box 1.1). A large share of post-earthquake
fiscal spending was allocated to investments, primarily to rebuild the housing stock. Additionally, machinery and
equipment investments were strong in 2023.
The effects of macroeconomic stabilisation policies implemented in the middle of 2023 began to take hold in 2024
as the effects of monetary tightening started to be more pronounced and household consumption slowed
considerably (Figure 1.1, Panel B). Credit growth slowed (see below) and an analysis by the Central Bank examining
credit card spending showed that consumption began to decelerate in the second quarter of 2024, particularly in
"optional discretionary items" such as jewellery, car rentals, and electronic goods. These categories were expected

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  19

to be more significantly and rapidly affected by monetary tightening (CBRT, 2024[2]). On the investment side, the
effects of the reconstruction process began to fade and financing conditions also tightened due to Central Bank
interest rate hikes, reducing investment activity in the first half of 2024 although construction investments
continued to show strong growth.
Figure 1.1. After years of strong growth, economic momentum slows
A. GDP per capita, volume change between 2021 and 2023
Index 2021 = 100
110

105

100

95

90

85

80
FIN
IRL

ITA

ISL
JPN

ISR

GRC
LUX

LTU

CAN
NOR
AUS
CHE

DNK
FRA
NLD
GBR

HUN
LVA
EST

CZE

DEU

SVK
NZL
CHL

AUT

POL

SVN
KOR
USA

MEX

TUR
BEL

COL

ESP

PRT
SWE

CRI
OECD B. Real GDP growth and its components
Y-o-y % change Contributions to real GDP growth % pts
40 40
Private consumption Government expenditure Gross capital formation

30 Net exports Real GDP growth (LHS) 30

20 20

10 10

0 0

-10 -10

-20 -20
2019Q1

2019Q3

2019Q4

2020Q1

2020Q2

2020Q3

2021Q1

2021Q2

2021Q3

2021Q4

2022Q1

2022Q2

2022Q3

2022Q4

2023Q1

2023Q2

2023Q3

2023Q4

2024Q1

2024Q2

2024Q3

2024Q4
2019Q2

2020Q4

Note: In Panel A, data are based on GDP in USD, constant PPPs (rebased, reference year 2020).
Source: OECD National Accounts Database; and OECD Economic Outlook: Statistics and Projections (database).

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Combined with the effects of the post-pandemic disruptions in global supply chains, strong domestic demand,
fuelled by supportive fiscal and monetary policies, along with currency depreciation and high energy prices, drove
year-on-year inflation beyond 80% in the second half of 2022 (Figure 1.3). In particular, the effective nominal
exchange rate fell by more than 50% between June 2021 and June 2022 and evidence from the pre-pandemic period
suggests that the pass through of exchange rate to inflation is significant with a large pass through to import prices
after a year (Akgündüz et al., 2019[3]). Although inflation began to ease due to base effects, consumption tax hikes
to finance earthquake-related expenses in the second half of 2023 (see below) contributed to keep inflation around
50%. Rising prices are disproportionately affecting households with lower incomes: for example, households in the
first income decile allocate about two thirds of their budget to food and housing—double the share typically spent
by households in the upper decile (World Bank, 2021[4]). Furthermore, robust demand and elevated inflation
contributed to a rise in external imbalances, and the public deficit increased substantially.

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20 

Monetary policy and other macroprudential policies appropriately became more restrictive and began to curb
domestic demand in 2024, helping to slow inflation and lower inflation expectations. Inflation expectations remain
significantly above the Central Bank's medium-term target of 5%, and core inflation has stayed persistently high,
driven by rising prices in services. Indeed, services inflation, particularly in rents, education, health, and catering
services has been relatively sticky. The empirical evidence in Türkiye indicates that persistence in services inflation
is more than twice as high as goods inflation due to prevalent backward-looking pricing behaviour across services
sectors (CBRT, 2024[2]).

Box 1.1. The 2023 earthquakes in Türkiye and its effects on the economy
On 6 February 2023, two large earthquakes hit 11 provinces in central and southern Türkiye. They affected an
area of 110 000 km2 and 14 million people or 16% of the national population (Figure 1.2). These earthquakes
and their aftershocks resulted in widespread damage and fatalities. It is one of the deadliest natural disasters in
Türkiye. The death toll exceeded 50 thousand people and around 3.3 million were displaced. The earthquake
wreaked damage on over half a million buildings as well as communication and energy structures and led to
significant financial losses.
• The government estimated that the total financial burden of the earthquakes for the country is around
9% of GDP (SBB, 2023[5]). The most prominent component (55%) is the damage to housing units, the
second largest source of damage (12%) is the destruction of public infrastructure and damage to public
service buildings. The earthquakes have also had significant damages on manufacturing industry,
energy, and other private sector activities (11%). Further damages involve losses to the insurance
sector, revenue losses of trade, and macroeconomic impacts.
• The disaster had also short-term effects on economic activity through the disruption of business
continuity, loss of labour and capital leading to production losses, disruption of supply chains, and a
decline in total demand, with retail and wholesale trade being interrupted. The impact on 2023 growth
was likely below 1% of GDP as the affected region only contributes a small share of GDP, and as part of
the slowdown was compensated by increases in investment due to the reconstruction activity (SBB,
2023[5]; IMF, 2024[6]).
• The fiscal burden of the earthquake amounts to approximately 8.3 percentage points of GDP over a 5-
year period. The amount of earthquake-related public spending was marked at 960 billion TL (around
3.6% of GDP) in 2023. Earthquake-related expenditures were realised at 1.9% in 2024, and the
earthquake-related budget allocations in the Medium-Term Program (2025-27) were marked at 0.9%
in 2025, 0.7% in 2026 and 0.6% in 2027.

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  21

Figure 1.2. The affected region represents around one-tenth of Türkiye's GDP
Share of the national population and economy of the region affected by two large earthquakes in February
2023
% of the corresponding total
18

15

12

0
Population GDP Exports Imports Employees Tax revenue

Note: The share of employees is based on the formal sector.

Source: Paterson, A., et al. (2023), "The Territorial Impact of the Earthquakes in Türkiye: Policy Note", OECD Regional Development Papers, No.
50.

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Figure 1.3. Inflation remains high

A. Contributions to y-o-y CPI inflation B. Consumer inflation expectation
% pts %
100 60
Energy Food All items non-food non-energy 12-month ahead expectations
80 24-month ahead expectations
50

60 40

40 30

20 20

0 10

-20 0
Sep-21

Sep-22

Sep-23

Sep-24
May-21

May-22

May-23

May-24
Jan-21

Jan-22

Jan-23

Jan-24

Jan-25
Jan-21

Jan-22

Jan-23

Jan-24
May-21

May-24
Sep-21

May-22
Sep-22

May-23
Sep-23

Sep-24

Note: In Panel B, data are based on the CBRT Survey of Market Participants that polls real and financial sector representatives and professionals.
Source: OECD (2025), OECD Consumer Price Index; and CBRT.

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Export growth turned negative in 2023 and remained weak in the first half of 2024. Demand growth from Türkiye's
main trading partners slowed significantly. In addition, the relative stabilisation of the Turkish lira led to an
appreciation of the real exchange rate, and may have put downward pressure on competitiveness in some labour-
intensive sectors. Additionally, the earthquake affected export activities in the southern regions, which accounted

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22 

for nearly one-tenth of the country's export capacity (Box 1.1). Geopolitical factors also played a role in export
performance, as tensions in the Middle East contributed to weaken total exports growth in the first half of 2024.
The EU remains Türkiye’s largest export destination (Figure 1.4). In 2023, 41% of Türkiye's exported goods were
destined for the EU. In terms of products, manufacturing and machinery dominate Türkiye’s exports of goods.
Türkiye's manufacturing sector has shown notable progress, reflecting a positive shift toward higher value-added
production and exports. Despite efforts over the past decade, the share of high-technology goods in manufacturing
exports remains low (see Chapter 4), rising only from 3.1% in 2022 to 3.8% in 2023 against more than 16% on
average in the OECD. Meanwhile, low-technology exports still make up about one-third of overall manufacturing
exports.

Figure 1.4. Share of exports on goods, by type and trading partner, 2023
A. By trading partner B. By type of goods

Germany USA (5.8%) Vehicles

(8.2%) (12.1%)
Iraq (5.0%)
Mineral fuels
United Machinery including oil
Kingdom (9.9%) (6.4%)
Other (59.1%) (4.9%)
Other (56.1%)
Italy (4.8%)

Electrical
Russia (4.3%) machinery,
equipment
(6.0%)
France (4.0%)
Spain (3.8%) Precious stones,
metals, & pearls
Plastics, plastic (5.3%)
articles (4.1%)

Source: OECD calculations based on UN Comtrade.

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By contrast, services exports improved in 2023, driven by strong tourism revenues, which increased by 12.1%. Over
57 million tourists visited Türkiye in 2023 and 62 million in 2024, surpassing the pre-COVID level from 2019 by
around 10% and 20% respectively (Figure 1.5). An expanding number of tourists are visiting Türkiye for medical
reasons, including treatments and procedures related to dental care, cardiac operations, or cosmetic surgeries. The
share of health tourism revenue in total tourism income rose from about 1% in 2002 to 5.4% in 2023 and 5.0% in
2024 (Government of Türkiye, 2024[7]; TurkStat, 2024[8]).
Economic activity is expected to moderate in the next two years after years of strong growth primarily driven by
domestic demand, but which generated imbalances posing challenges to long term sustainability. The drivers of
growth will be more balanced, in line with government efforts, and the positive output gap from 2022-2024 is set
to turn negative. Tighter financial conditions, along with restrictive monetary and fiscal policies aimed at
rebalancing the economy in a sustainable way, will limit household consumption, while investment and government
spending are also expected to weaken, especially as the effects of post-earthquake reconstruction subside. Exports
are anticipated to gradually strengthen due to an improving external environment. Unemployment is expected to
to remain slightly below 9%. Efforts to contain inflation will have some impact, but inflation is still projected to
decline modestly throughout the forecast period to reach 17% in 2026.

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  23

Figure 1.5. International tourism has rebounded to above the pre-pandemic level in 2023
Index 2019 every month = 100
200
Tourism revenues Incoming tourists

160

120

80

40

0
Jul-20

Jul-21

Jul-22

Jul-23

Jul-24
Mar-20
Jan-20

May-20

Sep-20
Nov-20
Jan-21
Mar-21
May-21

Sep-21
Nov-21
Jan-22
Mar-22
May-22

Sep-22
Nov-22
Jan-23
Mar-23
May-23

Sep-23
Nov-23
Jan-24
Mar-24
May-24

Sep-24
Nov-24
Note: Data from January 2020 are based on the corresponding monthly data in 2019.
Source: TurkStat, "Visitor's tourism income, number of person and average expenditure per capita by months".

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Table 1.1. Macroeconomic indicators and projections

Annual percentage change, volume (2009 prices)

2021 2022 2023 Projections*

Current prices (TRY billion) 2024 2025 2026

Gross domestic product (GDP)¹ 7,256.1 5.3 5.1 3.2 3.1 3.9
Private consumption 4,008.7 18.5 13.5 3.8 2.3 3.1
Government consumption 939.3 4.3 2.5 0.8 1.4 2.2
Gross fixed capital formation 2,044.2 1.3 8.4 3.9 3.2 5.2
Stockbuilding² 234.5 -6.1 0.6 --0.7 0.2 0.0

Total domestic demand 7,226.8 4.8 10.6 1.4 0.8 3.8

Exports of goods and services 2,593.6 9.9 -2.8 0.9 0.9 3.9
Imports of goods and services 2,564.2 8.6 11.8 -4.1 -0.0 3.3
Net exports² 29.38 0.5 -6.1 1.7 0.3 0.2
Other indicators (growth rates, unless specified)
GDP deflator 96.5 68.3 58.4 30.5 19.1
Potential GDP, volume 4.4 4.4 4.1 4.1 4.1
Output gap (% of potential output) 0.3 0.9 0.0 -1.0 -1.2
Consumer price index 72.3 53.9 58.5 31.4 17.3
Core inflation index³ 57.3 58.5 59.8 31.2 17.3
Unemployment rate (% of labour force) 10.5 9.4 8.7 8.8 8.3
Current account balance (% of GDP) -5.1 -3.4 -0.6* -0.4 -0.5
General government financial balance (% of GDP) -2.1 -4.8 -4.7* -3.0 -2.6

1. Based on working-day adjusted series.

2. Contribution to changes in GDP. Stockbuilding includes statistical discrepancy.
3. Consumer price index excluding energy, food, non-alcoholic beverages, alcohol, tobacco and gold.
* Projections for 2025 and 2026 are an update of EO116 based on the Interim Economic Outlook of March 2025.
Source: OECD (2025), OECD Economic Outlook: Statistics and Projections (database).

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24 

1.1.2. Downside risks persist

The recent shift in the economic policy framework has improved investor sentiment. The perceived
creditworthiness of Türkiye has improved as evidenced by the fall in the value of Türkiye’s CDS (Figure 1.6, Panel
A). The country has gained confidence from international credit rating agencies, which upgraded their ratings in
2024. Due to the improvement in the country’s risk premium, banks' external borrowing costs have decreased and
access to international capital has become easier (CBRT, 2024[9]). The short-term volatility of the Turkish lira has
also fallen (Figure 1.6, Panel B), and the currency has remained more stable compared to the 2022-2023 period.

Figure 1.6. The external position has improved

A.Credit risk premia B. Volatility of exchange rate
Basis points 5-year CDS Monthly standard deviations based on daily TRY per USD
1000 2.0

800 1.6

600 1.2

400 0.8

200 0.4

0 0.0
Jul-22

Jul-23

Jul-24
Apr-22

Oct-22

Apr-23

Oct-23

Apr-24

Oct-24
Jan-22

Jan-23

Jan-24

Jan-25

Jan-22

Jan-23

Jan-24

Jan-25
Jul-22

Jul-23

Jul-24
Oct-24
Apr-22

Oct-22

Apr-23

Oct-23

Apr-24
C. Current account D. Gross international reserves
% of GDP USD billion
9 175
Primary and secondary income
Good and services 160
6 Current account
145
3
130
0
115
-3
100

-6 85

-9 70
Jul-21

Jul-22

Jul-23

Jul-24
Jan-21
Apr-21

Oct-21
Jan-22
Apr-22

Oct-22
Jan-23
Apr-23

Oct-23
Jan-24
Apr-24

Oct-24
Jan-25

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Note: In Panel A, data are presented as monthly data. The higher CDS value, the higher probability of a credit default.
Source: OECD (2025), Balance of Payments (database); CBRT; and LSEG.

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Türkiye’s large external financing needs have diminished. The current account deficit has been decreasing from a
relatively high level (Figure 1.6, Panel C) due to weaker domestic demand in 2024, falling energy prices, and lower
demand for gold, in parallel of a pickup in exports. Gross international reserves have been rising (Figure 1.6, Panel
D), and net international reserves, excluding swaps, turned positive for the first time since early 2020. The current
account deficit is expected to decline further, reflecting a slowdown in domestic activity but also an improvement
in foreign demand. However, potential risks remain. In particular, external debt maturing within a year amounted
to USD 226.6 billion in 2023, roughly 20.1% of GDP. Further fluctuations in the exchange rate could thus make debt
service payments more costly and unpredictable, impacting the economic decisions of both the private and public
sectors.
The risks to the outlook remain skewed to the downside. One downside risk could lie in an earlier-than-expected
relaxation of the macroeconomic policy stance, which could result in higher inflation and lira depreciation.
Moreover, if inflation expectations persist at elevated levels, additional monetary and fiscal tightening may be
required, which would dampen domestic demand and slow economic growth.
Table 1.2. Tail risks that could lead to major changes in the outlook
Vulnerability Possible outcomes
Dramatic escalation of the Middle East conflict, with the potential to Conflict escalation could increase food and energy prices, cause
spread to other countries. prolonged supply chain disruptions, and significantly reduce demand
from major trading partners. This would negatively impact exports,
potentially leading to job losses. Increased uncertainty could also restrain
business investment and consumer spending.
Earthquakes affecting more populated areas. An earthquake in a densely populated area could have a severe impact
on both the local population and the economy.
Prolonged and severe droughts disrupting agricultural production and Prolonged droughts could lead to sharp declines in crop yields, rising
water availability. food prices, and increased import dependency, straining the trade
balance. Furthermore, water scarcity could impact key industries like
energy, particularly hydroelectric power, and manufacturing, increasing
operational costs. These dynamics could exacerbate inflation and reduce
GDP growth.

1.1.3. Monetary policy has become restrictive

Following the May 2023 elections, a dramatic shift in the macroeconomic policy mix was initiated, led by the Central
Bank's tightening of monetary policy (Figure 1.7). Since then, the Central Bank of Türkiye (CBRT) has gradually raised
the policy rate (the one-week repo auction rate) by a cumulative 41.5 percentage points, reaching 50% in March
2024. Given falling inflation expectations (Figure 1.3) and increasing interest rates, the real forward rates turned
from negative to positive and increased significantly beyond potential GDP growth. At the same time, the CBRT has
widened the interest rate corridor to 300 basis points below and above the policy rate, allowing flexibility to adjust
rates as needed before policy meetings. To curb credit growth, the CBRT has lowered monthly growth limits for
loans in 2024, to 1.5% for foreign currency loans, and 2% for Turkish lira loans. In January 2025, the monthly growth
limit for foreign currency loans was further reduced to 1% and to 0.5% in March. The monthly growth limit for
Turkish lira commercial loans has been differentiated at 2.5% for SMEs and 1.5% for other commercial loans.
Reserve requirement ratios were also raised for Turkish lira and FX deposits. In December 2024, the Central Bank
cut the policy rate by 2.5 percentage points while maintaining a tight monetary stance given the decline in inflation
and inflation expectations while the interest rate corridor was narrowed to 150 basis points. In January and March
2025, the policy rate was cut further by 2.5 percentage points each time as expected, and lowered to 42.5%.

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26 

Figure 1.7. Monetary policy has become restrictive

%
100
Headline inflation (year-on-year) Policy rate

80

60

40

20

0
Jul-21

Jul-22

Jul-23

Jul-24
Jan-21

Mar-21

Nov-21

Jan-22

Mar-22

Nov-22

Jan-23

Mar-23

Nov-23

Jan-24

Mar-24

Nov-24

Jan-25

Mar-25
May-21

May-23
Sep-21

May-22

Sep-22

Sep-23

May-24

Sep-24
Source: CBRT; and BIS.

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The tightening of monetary policy has been a welcome departure from the period between 2021 and 2023, where
monetary policy was excessively accommodative. During that period, the CBRT had reduced its policy rate by 10.5
percentage points despite accelerating inflation, strong economic activity and a widening current account deficit.
The real long-term interest rate based on the private consumption deflator was -63% in 2022 and -44% in 2023. To
curb the ensuing dollarisation, the authorities introduced a foreign exchange-protected deposit scheme (KKM-FX
protected deposit) and tax incentives to participate in this scheme. In addition to KKM, exporters were required to
exchange 40% of their foreign currency revenues into liras – the share was initially set at 25% in January 2022 and
raised in April 2022, and has recently been lowered to 30% in June 2024. Despite these measures, the foreign
exchange reserves declined in the period of 2022-23. As the lira lost around 70% of its value vis-à-vis the US dollar
between the beginning of 2021 until mid-2023, the KKM-FX protected deposits resulted in high costs. The fiscal
costs related to the compensation of the KKM-FX holders reached almost 1% of GDP in the period of 2022 and 2023.
In addition to the higher interest rates, the CBRT has also recently simplified regulatory and macroprudential
measures, eliminating some policies implemented before mid-2023. Interest rate caps on loans, reserve
requirements based on the Turkish Lira (TL) share of total deposits, and the requirements for government bond
holdings have been removed. As part of the simplification process, the CBRT has begun phasing out the KKM FX-
protected scheme, including through the exclusion of KKM accounts from the TL deposit share target. Additionally,
as of mid-2024, KKM returns became subject to taxation, and the minimum interest rate was progressively lowered.
As a result, the share of KKM FX-protected deposit in total deposits has started to decrease from around 25% in
mid-2023 to 5% in January 2025 (Aydın and Sümer, 2024[10]). The CBRT has announced that simplification steps will
continue in 2025.
Confidence in the independence of the Central Bank has increased due to credible improvements in financial and
monetary policies, which have positively influenced investor sentiment (see above). However, building on those
successes, there is room to further strengthen confidence in the independence of the CBRT. According to the Central
Bank Independence Index, which evaluates de jure central bank independence for 155 countries, the rules governing
the appointment of the governor and central bank board members lag behind those of other OECD countries (CBI,
2024[11]). To address this, the appointment of the governor could be carried out by separate bodies rather than by
the executive branch. Additionally, the terms of office for the governor and board members could be extended
beyond the electoral cycle, and their reappointment could be limited.
The CBRT’s communication with the public has improved. The Central Bank has repeatedly emphasised its
commitment to maintaining a tight monetary policy until there is a marked improvement in the inflation outlook.
The CBRT provided clear guidance on the levels of monthly inflation and expectations that must be achieved before

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policy easing can begin. The CBRT is expecting that given tight monetary and fiscal policy, inflation will fall below
10% and close to the 5% target in 2027.
As a result of these measures, financial conditions have tightened. Deposit and lending rates are now more closely
aligned with the policy rate (Figure 1.8, Panel A), and lira-denominated commercial loan growth has slowed
(Figure 1.8, Panel B). Demand for housing and vehicle loans has weakened, and the use of credit card cash advances
has also declined (CBRT, 2024[9]). Additionally, portfolio inflows from abroad and swap transactions with non-
residents have increased rapidly. Inflation expectations have started to decrease.
Figure 1.8. Increased lending rates eased the demand for loans
A. Interest rates by types of loans
%, 4-week moving average
100
Commercial Personal Housing
Automobile CBRT rate Deposits (TRY)
80

60

40

20

0
24-Jul-20

21-Jul-23
07-Feb-20

16-Oct-20

02-Apr-21

25-Jun-21

10-Dec-21

04-Mar-22

11-Nov-22

03-Feb-23

28-Apr-23

13-Oct-23

29-Mar-24

21-Jun-24

06-Dec-24
01-May-20

08-Jan-21

17-Sep-21

27-May-22

19-Aug-22

05-Jan-24

13-Sep-24
B. Growth of Turkish Lira (TRY) total loans
Y-o-y % changes
100

80

60

40

20

0
07-Jul-23

19-Jul-24
01-Apr-22

28-Oct-22

14-Apr-23

26-Apr-24

11-Oct-24
07-Jan-22
18-Feb-22

13-May-22
24-Jun-22
05-Aug-22
16-Sep-22

09-Dec-22
20-Jan-23
03-Mar-23

26-May-23

18-Aug-23
29-Sep-23

22-Dec-23
02-Feb-24
15-Mar-24

07-Jun-24

30-Aug-24

03-Jan-25
14-Feb-25
10-Nov-23

22-Nov-24

Note: OECD calculations based on weekly data. The latest data point refers to 14 February 2025 in both Panel A and B. In Panel A, commercial loans
exclude overdraft accounts and credit cards.
Source: CBRT; Banking Regulation and Supervision of Agency, www.bddk.org.tr; and OECD calculations.

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1.1.4. Financial stability risks should be monitored closely

However, while current monetary and macroprudential measures are appropriate, this period of monetary
tightening may highlight areas of risk in the corporate and household sectors, which will require careful monitoring
by the authorities. On the corporate side, while corporate indebtedness is close to the OECD average (Figure 1.9),
profit margins have been declining since early 2023 (while remaining above historical averages) and the share of

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companies able to cover at least a quarter of their total debts with annual profits has also been on a downward
trend. The capacity to cover debt in foreign currency with export revenues has been improving overall (CBRT,
2024[9]). However, empirical evidence analysing the Turkish corporate sector suggest that micro firms are relatively
more affected by changes in interest rates than larger firms, standing out as the most vulnerable portion of the
corporate sector (World Bank, 2024[12]). Therefore, the fiscal policy measures undertaken to support vulnerable
businesses will play an important role in the upcoming period to maintain economic stability (see below).
On the household side, while the debt ratio remains well below that of other OECD countries (Figure 1.9), some
segments are more at risks. Retail loans, particularly those via credit cards, have been rising quickly (CBRT, 2024[9]).
The ease of use of credit cards and the relatively low level of credit card interest rates in a high inflation environment
from 2022 to mid-2023 contributed to a historically high level of credit card debt. During inflationary periods, credit
cards have provided easily accessible financing with instalment options for durable and semi-durable goods and
services. High limits granted to individuals led to spending behaviour and consumption demand that was
inconsistent with their incomes (CBRT, 2024[9]). The ratio of unpaid debt to total card balance has increased and
reached 13.7% in the first half of 2024. In response, authorities increased interest rates on credit card purchases
and cash advances, aligning them with other types of retail loans.
Overall, the banking sector’s liquidity position appears relatively strong, with short- and long-term liquidity
indicators above both legal minimums and historical averages (CBRT, 2024[9]). A strong preference for TL deposits,
combined with slower TL loan growth, has reduced the loan-to-deposit ratio, positively impacting the sector’s
liquidity outlook. The banking sector’s share of non-performing loans (NPL) has remained stable at a level below
historical averages, as a decline in the commercial NPL ratio has offset a slight increase in the retail NPL ratio, which
rose marginally following the tightening of financial conditions. Banks' medium- and long-term external debt
rollover ratios have increased, with the external debt rollover ratio well above 110% (CBRT, 2024[13]; CBRT, 2024[9]).
Still, banks’ asset quality could be affected by worsening economic conditions. Therefore, as was mentioned in the
previous OECD Economic Survey of Türkiye, publishing banking sector stress tests could help strengthen domestic
and international confidence (OECD, 2023[14]).
Figure 1.9. Household and corporate debt is not particularly high
A. Non-financial corporations' debt B. Household debt
% of GDP 2023 or latest year % of GDP 2023 or latest year
250 120

100
200

80
150
60

100
40

50
20

0 0
SVK

ITA

ESP

JPN

FIN
TUR
MEX

CZE

DEU

GBR

DNK
NLD
GRC

CHL

PRT

USA
FRA
POL
COL

SWE
OECD
ISR

ITA

FIN

JPN
SWE
MEX

GRC

GBR
COL

POL
SVK
CZE

ESP
TUR

DEU

FRA
NLD
PRT
USA

NZL
DNK
CHL
OECD

Note: According to the system of national accounts (SNA), debt is obtained as the sum of the following liability categories: special drawing rights
(AF12), currency and deposits (AF2), debt securities (AF3), loans (AF4), insurance, pension, and standardised guarantees (AF6), and other accounts
payable (AF8). Data refers to 2021 for Israel, to 2022 for Mexico and New Zealand. Unweighted average for the OECD aggregates with 37 countries
in Panel A and 38 countries in Panel B. In Panel B, the household sector includes non-profit institutions serving households (NPISH). The data is not
consolidated and thus include within-sector debt exposure.
Source: OECD (2024), OECD Financial indicators dashboard; OECD National Accounts database; and OECD Financial Accounts database.

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The current orientation of monetary policy with a tight policy stance taking into account the trajectory of inflation
expectations is appropriate. It should be maintained until inflation is sustainably on a downward path to target.
While measures such as caps on credit growth were appropriate to curb demand in order to slow inflation, they
also weaken the transmission mechanism of monetary policy. Therefore, when inflation is on a clear downward
path, the ongoing macroprudential framework simplification should continue. Notably, the credit growth caps could
be gradually removed and the requirements for exporters to exchange part of their revenues to TL could be
gradually dismantled.

1.1.5. Fiscal policy is set to tighten

The government is expected to significantly lower the deficit, which has increased substantially in recent years
mainly due to earthquake-related spending (Figure 1.10). The consolidation strategy involves a combination of
revenue and expenditure measures (Box 1.2). Larger deficit cuts will come from the expenditure side through
reduced capital and transfer spending as earthquake-related investments will largely decrease in 2025. On the
revenue side, improvements are expected from measures such as the introduction of a minimum corporate tax and
the removal of various tax exemptions, increases in withholding tax rates on deposits, funds, FX-protected deposits
and some securities, and higher tax collection performance while combating informality.

Figure 1.10. The fiscal position was weak over the past decade
Government net lending

% of GDP
1
Earthquake-related spending
0

-1

-2

-3

-4

-5

-6
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Note: The shaded area refers to projected data. OECD calculations on earthquake-related spending over 2023-26 based on the reports, "Inflation
Report 2024-IV" and "Medium Term Program (2025-2027)".
Source: OECD (2024), OECD Economic Outlook 116 database; CBRT, Inflation Report 2024 - IV (November 8, 2024); and Presidency of Strategy and
Budget and the Ministry of Treasury and Finance, Medium Term Program (2025-2027).

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The planned reduction in the deficit is appropriate for strengthening market confidence, for building fiscal buffers
to address potential future crises, and for stabilising the macroeconomy. With multipliers estimated at around 0.4–
0.5, the consolidation will have an impact on economic growth, which is expected to fall from 3.5% in 2024 to 2.6%
2025 (see above).
Achieving planned targets will be challenging in a high-inflation environment, as inflation-sensitive wages and
pensions account for a significant share of expenditures. The success of the fiscal plan will ultimately depend on
aligning fiscal policy decisions with the direction of monetary and structural policies. Effective coordination between
these policies is crucial to achieving a sustainable reduction in the deficit that is both economically sound and
politically viable.

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It is also important that the minimum wage setting (as well as public sector wage indexation) does not run counter
the macro-economic stance. Türkiye has a country-wide minimum wage set by the Minimum Wage Determination
Commission, an independent tripartite body encompassing representatives from the government, employer, and
employee organisations. In case employer and employee representatives disagree, the institutional set-up of this
Commission implies that the government sets the minimum wage. Independent expert commissions, as used to
determine wage increases in several OECD countries, are well placed to consider and make the necessary links
between minimum wages and policy areas.
Türkiye’s government debt-to-GDP ratio is relatively low compared to other OECD countries and maintain the
country at a low risk of sovereign stress in the short term, but its structure makes it vulnerable to shocks. Türkiye’s
higher interest rates make domestic borrowing more expensive, and debt servicing costs have risen (TMTF, 2024[15]).
Additionally, as of the end of 2024, 56.1% of the debt is denominated in foreign currencies, which could further
strain the debt trajectory if the Turkish lira depreciates, although this share has recently been on a downward trend
(Figure 1.11, Panel A). Finally, the average maturity has shortened recently form around five years to 4 years (TMTF,
2024[15]). It was already lower than the world median (more than 7 years) (World Bank, 2024[16]) and the average
maturity on new external debt commitments is among the lowest across large middle-income countries
(Figure 1.11, Panel B). This speeds up the passthrough of higher interest rates and exposes Türkiye to new variations
in funding costs and rollover risk.

Figure 1.11. Government debt is low, but its structure makes it prone to risks
A. Share of public debt in foreign currencies, 2023 B. Average maturity on new external debt
% of total debt Years commitments
75 30
2022 2010
25
60

20
45
15
30
10

15
5

0 0
BRA

IDN
TUR

ARG

ZAF
BGR

MEX
COL
BRA

IDN

TUR
ZAF

MEX

BGR

ARG
COL

Note: In Panel A, data are based on long-term debt (maturity more than one year) converted in USD at end-2023. See BIS for more details.
Source: BIS (2024), Debt Securities Statistics (database); and World Bank (2024), External Debt Statistics database.

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Moreover, contingent liabilities pose additional risks to fiscal policy, highlighting the need to strengthen the
framework for supervising and monitoring public-private partnerships (PPPs). Currently, the government provides
guarantees, including repayment guarantees and minimum revenue, which are included in the budget of related
institutions. While Türkiye discloses information on contingent liabilities according to the International Public
Accounting Standards, information on the size, structure, and risk composition of the overall PPP portfolio could
continue to be improved (IMF, 2024[6]; European Commission, 2023[17]; European Commission, 2023[18]). As
recommended in the previous OECD Economic Survey, closely monitoring contingent liabilities and improving fiscal
transparency further would help mitigate these vulnerabilities. Türkiye should publish a regular Fiscal Policy Report
to fully disclose risks related to public financial liabilities (OECD, 2023[14]).

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The importance of future fiscal policy, risks, and the potential of structural reforms can be illustrated by three
scenarios for the long-term trajectory of the public debt ratio (Figure 1.12):
• No Policy Change Scenario - The above-mentioned risks highlight the importance of government
consolidation efforts. If the government fails to meet its planned target, and the deficit remains at its 2024
level, the debt will rise significantly. In this scenario the deficit will remain at 4.7% of GDP, and in the
medium-term additional ageing-related spending will increase the debt even further.
• The MTP scenario - Meeting the government's targets outlined in the Medium-Term Program (MTP) will
help keep the public debt stable in the short term. The deficit will be reduced to 2.6% by 2026 also thanks
to the consolidation package (Box 1.2), which will help to keep the debt stable in the short term. However,
in the medium term, public debt is projected to increase further due to ageing-related spending, which is
expected to grow by around 2 percentage points between 2030 and 2040 (Guillemette and Turner,
2018[19]).
• The Reform scenario - Meaningful and sustained reduction in the debt-to-GDP ratio would require a more
comprehensive approach. This would include stronger fiscal reforms to make the deficit reduction
sustainable, coupled with structural reforms to boost economic growth 5 (Box 1.3). The reform scenario
would not only improve living standards, but would put debt on a downwards trajectory which is more
resilient to potential future shocks.

Figure 1.12. Achieving fiscal consolidation targets will help to reduce public debt

General government debt, Maastricht definition

% of GDP
120
Government's Medium-Term Program scenario

100 Reform scenario

No-policy change scenario
80

60

40

20

0
2016 2021 2026 2031 2036

Note: The no-policy change scenario assumes a deficit at the level of 2024 of 4.9%, with macroeconomic indicators based on the forthcoming OECD
Economic Outlook 116 database and the OECD long term database. The Government's Medium-Term Program scenario assumes that the deficit will
fall to 2.6% in 2026 in line with the Medium-Term Program. The reform scenario assumes higher growth based on the OECD Economics Department
Long-term Model and lower deficit, deriving notably from reforms proposed in this Survey (see Box 1.3).

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32 

Box 1.2. Consolidation package

Achieving the government’s fiscal target requires substantial consolidation contributing to a reduction of the
deficit of nearly 3 percentage points of GDP between 2023 and 2026. In this regard, the government already
implemented and proposed a number of measures both on the expenditure and revenue side:
On the revenue side, the contribution comes from the increase in tax rates.
Türkiye has introduced two major tax packages, one in 2023 and the other in 2024. Major changes involved:
• The VAT rates were increased. The intermediate rate was raised from 8% to 10% and the standard rate
was raised from 18% to 20%. The SCT rate on gasoline and diesel were raised significantly to 5 TL per
litre.
• The corporate tax rate applicable to financial institutions was increased from 25% to 30%.
• A minimum corporate tax of 10% is set on corporate income for all domestic companies.
On the expenditure side, savings will be achieved not only through cuts, but also through the effective and
efficient use of existing resources. Major changes involve:
• Restrictions on new public spending, including new hires, rents and purchases or leasing of vehicles.
• Efficiency in Public Investments: Public investment appropriations will be reduced by 15% and no new
projects will be accepted into the public investment program.
• A 10% cut will be applied to allowances for goods and services, except in areas related to earthquake
relief and other essential needs.
• Increasing the efficiency of expenditures on the Public Fleet by standardising the number and the use
of vehicles, and encouraging the inter-institutional use of public vehicles.
• Reducing expenditures on urban lighting through the use of LED.

Box 1.3. Quantifying the impact of selected policy recommendations

Table 1.3 presents estimates of the fiscal impacts of key reforms recommended in this Survey. Additional
expenditures arise from boosting green investment, and increasing expenditure on childcare services while
expenditure reviews provide efficiency gains. Additional revenues are obtained via more efficient VAT collection
and the taxation of carbon. The quantification is merely indicative and does not account for behavioural
responses.
In addition, tax revenues would increase by 0.3% of GDP by 2030 due to dynamic effects of reforms on GDP
growth (Figure 1.13).

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Table 1.3. Illustrative fiscal impact of recommended reforms

Fiscal savings (+) and costs (-), % current year GDP

2030
Expenditure measures -1.9
Bolstering childcare services1 -0.5
Social benefits reform2 0
Improving business regulations3 0
Boosting green investment4 -2.0
Improving efficiency through expenditure reviews5 0.6
Revenue measures 3.0
Reducing the VAT gap6 1.0
Increase environmental taxes7 2.0
Revenue gain from the recommended reform package via higher GDP8 0.3
Overall Budget impact 1.4

1. Bolstering childcare services: increasing spending in pre-school education to the level of OECD average (see Chapter 2).
2. Linking of retirement age to life expectancy and reducing the replacement rate, while increasing other social benefits (see below and
Chapter 2).
3. Improving business regulation: reducing by half the gap in the product market regulation index between Türkiye and the OECD average (see
Chapter 4).
4. Boosting green investment: Investment in new low-carbon electrical capacity, based on the OECD energy transition scenario (see Chapter 3
and Guillemette and Château (2023[20])).
5. Improving efficiency through expenditure reviews (see below): Annual savings at 0.13% of GDP comparable to the saving targets set in
expenditure reviews in New Zealand (Treasury of New Zealand, 2023[21]). The saving programme should take place throughout 5 years.
6. Reducing tax inefficiencies: Reducing the VAT gap to the OECD average (see below).
7. Environmental taxation: increasing the revenues from carbon pricing instruments by 2% of GDP (See Chapter 3 and D’Arcangelo et al.
(2022[22])).
8. Higher revenues due to higher GDP growth relative to baseline (see Figure 1.13).
Source: OECD calculations.

Figure 1.13. Structural reforms can help increase standards of living and make growth
sustainable
Cumulative difference from baseline GDP per capita (no policy change) scenario, by policy area
% points
20
Improving business regulation Labour market reform Pension reform
18
16
14
12
10
8
6
4
2
0
2030 2035 2040
Note:1) Improving business regulation: improvement of the PMR indicator to the OECD average by 2040; 2) Labour market reforms: reducing
the gap vis-à-vis the OECD in labour market participation by half by 2037; 3) Pension reform: Increasing the average effective retirement ages
by two thirds of life expectancy.
Source: OECD simulations based on OECD Economics Department Long-term Model.
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34 

Reforms mentioned in the Survey have significant potential to boost Türkiye’s economy. Simulations based on
the OECD long-term growth model (Guillemette and Turner, 2018[19]) suggest that an ambitious reform package
that would strengthen Türkiye’s regulatory framework, reduce the gap in labour market participation between
men and women, and increase the effective retirement age, could boost GDP per capita by more than 10% by
2040 (Figure 1.13). This reform package would help Türkiye’s economy in its convergence process towards other
OECD countries.

1.2. The tax and benefit system can become more efficient and inclusive
Achieving the stated fiscal targets in the short term is an important prerequisite to stabilise the economy and further
strengthen international market confidence while bringing the debt trajectory on a sustainable path. However,
OECD evidence indicates that the structure of Türkiye's expenditure and tax revenues could be improved to be more
conducive to long-term growth and reducing inequalities (Fournier and Johansson, 2016[23]) (Figure 1.14). Making
public finances more efficient and inclusive would make current fiscal consolidation more economically and
politically sustainable while providing additional fiscal space.
There is room to improve the efficiency of public finances. The structure of public spending, features a relatively
large role of public subsidies (see Chapter 3) and a lower share of expenditure on education (see Chapter 2) for
example, which is typically associated with worse growth outcomes (Fournier and Johansson, 2016[23]). More
generally, government effectiveness appears to have declined in recent years: for example, Türkiye fell from the
66th percentile to the 44th percentile in the World Bank’s Government Effectiveness Indicator between 2012 and
2022. To improve long-term welfare and ensure political sustainability, it is crucial that government expenditures
achieve their objectives at the lowest possible cost and that revenues and spending effectively promote economic
growth. Expenditure efficiency can be enhanced through comprehensive and transparent expenditure reviews
integrated into the budget process. Similarly, the efficiency of the tax system can be improved. While Türkiye relies
relatively more on consumption taxation than other countries, which is typically considered to be less distortive for
economic activity (Akgun, Cournède and Fournier, 2017[24]), tax revenues could be levied more efficiently by
broadening the tax base and simplifying the rate structure by reducing the scope and the number of special VAT
rates.
Enhancing the inclusiveness of public finances can address redistributive concerns while ensuring that the chosen
fiscal path remains politically sustainable. The tax and benefit system in Türkiye is hardly redistributive despite high
inequalities in market income. For example, the Gini coefficient on market incomes is the second highest in the
OECD and the coefficient on disposable income is the third highest. This is reflected in a structure of public finances
which is not conducive to inclusive growth, with a relatively low share of social benefits and a high reliance on flat
social security contributions in the taxation of labour income. To address these disparities, expanding the coverage
of income taxation and of the social safety net — two essential tools for reducing income inequality—is crucial.

1.2.1. Improving fiscal efficiency

Increasing the efficiency of spending

Improving the efficiency of public services and spending can create fiscal space to finance public priorities. A recent
analysis by the World Bank suggests that Türkiye’s performance in education and health services is significantly
below what other countries achieve with similar resources while the quality of infrastructure investment has also
deteriorated (World Bank, 2023[25]). Improving spending efficiency would also ensure the political acceptability of
taxation and public indebtedness. Today, beyond the low performance on government effectiveness indicators, the
Turkish population is among the least satisfied with public services (OECD, 2023[26]).

OECD ECONOMIC SURVEYS: TÜRKIYE 2025 © OECD 2025

  35

Figure 1.14. Public finances rely on consumption taxation and subsidies

A. Share of primary expenditures by function, 2022 B. Decomposition of tax revenues, 2022
% of total % of total
100 Other sectoral policies 100
Other
Defence and security
80 80 Excises
General public services

60 Education 60 Value added tax

Economic affairs Social security

40 40
contributions
Health
Corporate income tax
20 20
Social protection excl. old
age pensions Personal income tax
0 Old age pensions 0
Türkiye OECD Türkiye OECD

Note: In Panel A, data for Türkiye come from the Ministry of Treasury and Finance. Unweighted average of 29 countries with available data for the
OECD aggregate. “Other sectoral policies” include environmental protection, housing and community amenities, and recreation, culture and religion.
In Panel B, the Value added tax also includes other general taxes on consumption. Unweighted average of 35 countries with available data for the
OECD aggregate.
Source: OECD (2024), OECD Annual Government Expenditure by Function (COFOG); OECD Global Revenue Statistics; and Ministry of Treasury and
Finance.
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Türkiye should continue the recent implementation of a formal process of spending reviews. Spending reviews can
be an effective mechanism for identifying opportunities for efficiency improvements, cost savings, and resource
reallocation (Doherty and Sayegh, 2022[27]). Türkiye has officially started an expenditure review process in 2024.
While the Turkish Court of Accounts provides audit reports and information on expenditures in public
administrations, but the Ministry of Treasury and Finance should systematically review expenditures to eliminate
inefficient ones. The OECD has provided detailed guidelines on the best practices for spending reviews based on
country experiences (Tryggvadottir, 2022[28]).
The reviews must ensure broad coverage. In Slovakia and the Netherlands, targeted reviews are conducted, with
the focus shifting annually to different areas potentially leading to substantial savings. For example, Slovakia
achieved savings of approximately 8% from the total expenditure reviewed (Doherty and Sayegh, 2022[27]). Spending
reviews completed just in the year 2020 in that country identified potential savings amounting to 1.2% of GDP in
public employment and wages, defence, and IT spending (OECD, 2022[29]). Expenditure reviews in Türkiye could
include expenditures via state-owned enterprises, in particular those that have been transferred to the Türkiye
Wealth Fund (see Chapter 4).
The reviews should be integrated into the budget process. This integration enhances the relevance and impact of
spending reviews on fiscal decision-making. In this regard, setting clear strategic objectives at the start of the
process is important to ensure that the spending reviews are aligned with medium-term fiscal objectives and deliver
tangible results. For example, New Zealand integrates saving targets into its spending reviews before the budgeting
process begins. Ministries then conduct spending reviews to identify opportunities for achieving these savings
targets, ensuring that expenditures are focused on areas of the highest priority and efficiency (European
Commission, 2024[30]).
The review process should be transparent and inclusive. Terms of references, interim and final reports including
implementation report data, should be made available online for all completed spending reviews. The amount of
reallocation or savings made based on the findings of the Spending Reviews should also be publicly disclosed
(Tryggvadottir, 2022[28]). Currently, the audit reports from the Turkish Court of Accounts provide substantial
information to the Parliament on expenditures annually but the reports are not systematically debated (European
Commission, 2024[30]).

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36 

Making the tax system more efficient

The efficiency of the tax system could be improved to promote growth and to increase tax collection. Statutory
rates for the personal income tax, social security contributions, and VAT are broadly in line with OECD averages.
However, tax bases are relatively narrow and crippled by important exemptions. For example, the number of
registered income taxpayers is low (although some non-registered persons are taxed by way of withholding) and
the narrow base is the major factor behind low income tax revenues: while the exemption threshold is relatively
low compared to the average wage, and income tax rates are in line with OECD averages, less than 30% of the
population is registered as an active personal income taxpayer compared to 60% in OECD countries on average
(OECD, 2024[31]). As was outlined in the previous OECD Economic Survey of Türkiye, informal and semi-formal work
practices are widespread in Türkiye and contribute to the reduction in the tax base for corporate and personal
income taxes, and require reforms to the labour market to promote formal job creation going beyond direct fiscal
policy measures (OECD, 2023[14]). Reducing informality would also contribute to higher revenues from consumption
taxation, in particular via the value-added tax. The authorities have recognised, and emphasised, the importance of
reducing informality and tax evasion to broaden the income and VAT tax bases. In particular, inspections have been
intensified and broadened while leveraging the use of digital technologies and big data to improve targeting.
The design of consumption taxation in Türkiye is complex. Slightly less than 60% of consumption tax revenues (i.e.
all taxes on production, sale, transfer, leasing and delivery of goods and rendering of services) comes from a general
value-added tax (VAT). Around one third of consumption tax revenues comes from excise taxes – the highest share
in the OECD – due to Türkiye’s Special Consumption Tax (SCT) on four product groups: petroleum products, motor
vehicles, tobacco products and alcoholic beverages, and luxury products including durable goods. The VAT system
is particularly complex due in particular to the prevalence of special rates. The standard VAT rate is 20%, but there
are also two reduced rates for redistributive purposes and industrial support. A 10% rate applies, among others, to
some food products, healthcare services, pharmaceuticals and medical products, food catering, and cultural
services, while a 1% rate applies to food products, among others. Recent data indicate that about 67% of the tax
base is subject to the standard rate, around 18% to the intermediate rate, and around 15% to the 1% rate. This
complexity leads to a significant compliance burden for businesses: at over 95 hours annually, the time required to
comply with VAT regulations in Türkiye is the seventh highest in the OECD, where the average is 54 hours (PwC,
2019[32]).
Simplifying consumption taxes – in particular VAT – could increase revenue and reduce economic distortions. Due
to tax exemptions and special rates, Türkiye’s VAT revenue is low relative to its potential. The VAT revenue ratio
compares actual VAT revenues with what would theoretically be raised if VAT was uniformly applied at the standard
rate to the entire potential tax base and all revenue was collected. In 2022, it was the third lowest in the OECD
(Figure 1.15). This ratio dropped from 44% in 2013 to 34% in 2019, compared to 55% in the OECD during the same
period (OECD, 2022[33]). This low number reflects a combination of revenues forgone because of the deviations from
the standard rate, and non-compliance.

OECD ECONOMIC SURVEYS: TÜRKIYE 2025 © OECD 2025

  37

Figure 1.15. Value added tax revenues are far below potential
VAT revenue ratio, 2022

1.5

1.2

0.9

0.6

0.3

0.0
ITA

FIN
IRL

ISR
TUR

ISL

LVA
ESP

SVK
FRA
NLD

DEU

LTU
CZE

HUN

DNK
CHE

JPN

LUX

CAN
CHL
MEX

BEL

GBR

CRI

PRT
SVN

NOR

AUT

EST
KOR

NZL
COL

POL

SWE
Note: The ratio measures the extent to which a VAT regime collects the VAT on the natural base of the tax, i.e. on final consumption expenditure. It
is computed as total government revenues from VAT divided by the product of the VAT standard rate and final consumption expenditure.
Source: OECD (2024), OECD Tax Statistics, OECD Revenue Statistics; and OECD National Accounts Database.

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The effectiveness of these reduced rates should be reconsidered. They are an inefficient way to meet redistributive
or sectoral-support goals and tend to benefit wealthier households (Brys et al., 2016[34]; OECD, 2010[35]). A more
equitable and efficient approach would be to use direct lump-sum payments to households based on socio-
economic characteristics rather than using VAT for redistributive purposes (OECD, 2022[33]). Such targeting could
leverage Türkiye’s well-performing integrated social assistance system (see below, and (Adam et al., 2011[36])).
Reduced rates introduced to address social, cultural and other non-distributional goals are also hard to justify on
efficiency grounds: the social welfare gains of implementing such a system are unclear in practice given the potential
for mislabelling and the additional administrative costs of having multiple rates (Crawford, Keen and Smith,
2008[37]).
Non-compliance and fraud are also significant issues. In 2019, VAT revenues covered only 56% of expected tax
liabilities, whereas the equivalent number for the EU was estimated at 89% (World Bank, 2023[25]; European
Commission, 2023[38]). This “VAT compliance gap” has also worsened in recent years and is now over 10 percentage
points higher than a decade ago (World Bank, 2023[25]).
Harmonising VAT rates could reduce non-compliance by preventing misclassifications. Expanding the VAT base by
taxing more goods and services at the standard rate, while potentially lowering the standard rate, could reduce
economic distortions by lowering overall tax levels and removing incentives for behavioural optimisation and
avoidance. Further simplification could be achieved by revising the set of exemptions. Türkiye allows more
exempted transactions than a typical OECD country. The standard advice in VAT design is to have a short list of
exemptions, limited to basic health, education and perhaps financial services (OECD, 2022[33]).

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38 

Beyond the VAT, changes in excise taxes – namely, the SCT – also seem warranted. Excise taxes on energy products
are lower than EU minimum rates and none apply to coal, coke, or electricity (European Commission, 2023[17]). Like
the VAT, the use of SCT for redistributive purposes, e.g. via the progressive structure of the excise on motor vehicles
and the taxation of “luxury goods”, could be handled more efficiently by an improved income tax and benefits
system (see below). The SCT on tobacco products could also be increased progressively. Despite a relatively high
share of taxes, cigarettes prices are relatively low in Türkiye relative to other OECD countries, and in particular they
have become more affordable in recent years. This is in part because the SCT on tobacco (and other products) is
typically updated twice a year according to domestic PPI inflation. As a consequence, the increase in the tax-
inclusive price has tended not to compensate the increase in household income (TEPAV, 2020[39]; TEPAV, 2020[40]).
In parallel, smoking prevalence in Türkiye is the highest in the OECD (OECD, 2023[41]). Furthermore, tobacco is the
fourth cause of deaths in the country, and the country has one of the highest death rates from smoking in the OECD.
Tobacco contributed to a quarter of total losses of disability adjusted life years from diseases in 2021 (IHME,
2021[42]). Research indicates that increasing tobacco prices is the single most effective and cost-effective measure
for reducing tobacco use (WHO, 2021[43]). Increasing tobacco prices would benefit from the strong position of
Türkiye when it comes to non-pecuniary anti-tobacco measures. In particular, Türkiye was the first country to
implement all of the measures recommended by the WHO in its MPOWER guidelines for tobacco control.

1.2.2. Making fiscal policy more inclusive

The tax and benefit system is among the least redistributive in the OECD, because it is narrow. In the median OECD
countries, three quarters of the redistribution is done through transfers and the rest mostly through personal
income taxation (Figure 1.16 and Causa and Hermansen (2017[44])). Türkiye’s share and level of public expenditures
going to social protection is relatively low, in particular when excluding pensions. In 2019, the last year for which
comparable data on social expenditures are available, expenditures on pensions (including survivors’) were 7.5% of
GDP against 7.7% on average in the OECD. By contrast, Türkiye has the lowest old-age dependency ratio in the OECD
(measured as the number of individuals aged 65 or older per 100 persons of working age) at half the OECD average.
As shown in Figure 1.12 these expenditures will increase significantly as the population ages, since Türkiye has only
recently started its demographic transition. Pensions expenditures represented 60% of social expenditures in 2019
against 40% in the OECD. Indeed, expenditure on other social protection is particularly low. In the same year,
spending on incapacity-related, family, unemployment, and housing benefits, and other social policy areas including
benefits to low-income households and other social services amounted to 1.4% of GDP against 5.6% in the median
OECD country. This was the lowest level in the OECD (OECD, 2023[45]; OECD, 2024[46]). In parallel, the level of
personal income taxation (excluding, therefore, social security contributions) is also low. In 2022, Türkiye raised
2.4% of GDP from the income tax of individuals against 8.2% in the OECD, although levels in 2022 (and 2023) are
exceptionally low because of the delayed passthrough of inflation into income tax revenues: in 2019, revenues for
the taxation of income household amounted to 3.8% of GDP against 8.0% in the OECD. The low level of income
taxation in parallel with the small size of the social protection system explains the weak redistributive power of
public finances in Türkiye compared to other countries despite high inequalities in market income, i.e. before
redistribution.
Türkiye’s pension system is relatively generous, contributing to a high level of social contributions. The system
consists mostly of a statutory, defined-benefit contributory public system including a minimum pension. Such
pension systems can be broadly compared across countries on three dimensions: the contribution rate, the pension
level, and the retirement age. While Türkiye's contribution rates are slightly higher than those in OECD countries on
average, its parameters for replacement rates and retirement ages are notably generous ( (OECD, 2023[45]) and
Figure 1.17). Consequently, Türkiye has a relatively high tax wedge (in particular for families with children due to
the absence of child benefits in addition to relatively high SSCs, see Chapter 2), and its pension expenditures are
similar to those of other OECD countries with significantly less favourable demographics. The defined-benefit
system could be rebalanced by reducing contribution and replacement rates, and increasing the retirement age.

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  39

Figure 1.16. Public finances do not redistribute much

Income redistribution by the tax and benefit system, 2023 or latest available year

Reduction (% pts) in the Gini coefficient on

household income
30
Contribution of transfers Contribution of taxes
25

20

15

10

ITA
ISR

FIN
HUN

IRL
CHE
TUR
CHL

USA
AUS

CAN

LVA

NLD
LTU
LUX
SVK
ESP

JPN
DNK

DEU

FRA
CRI

NZL

GBR
EST

NOR

PRT
CZE
SVN

GRC
AUT

BEL
SWE

POL
Note: The contribution of transfers is computed as the difference between the Gini coefficient on market incomes and the coefficient on gross
incomes. The contribution of taxes is computed as the difference between the Gini coefficient on gross incomes and the coefficient on disposable
incomes.
Source: OECD (2025), OECD Income Distribution Database.

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Further increases in retirement ages could be considered as retirement ages for women and men are rather low in
international comparison. In 2022, the statutory retirement age for men was 52 years, against 64.4 in the average
OECD country. For women, it was 49 years against an OECD average of 63.6 years – close to the average for men
since only nine countries feature a difference between women and men. As a consequence, the effective age of
labour market exit was the fourth lowest in the OECD in 2023 for both men and women at 61.5 and 60.2 years
respectively. In addition, the employment rate for 55-64 year olds in 2023, at 36%, was the lowest in the OECD and
30 points below the OECD average. Importantly, retirement ages are scheduled to increase over the next 25 years.
Male workers entering the labour force in 2022 will be able to retire after a full career at age 65. However, this will
remain among the lowest in the OECD and below the OECD average of 66.3. In addition, the age requirement was
withdrawn in 2023 for workers who entered the labour force before it was put in place, increasing significantly the
number of pensioners in the foreseeable future (see above). Türkiye is also still among the few countries which do
not provide a bonus for late retirement (and which do not provide early retirement options, including after the
phase in of the age reform). Finally, like for the retirement age, the nominal accrual rate has been decreased to 2%
per year in a recent reform, but the effective accrual rate remains the third highest in the OECD after Colombia and
Austria. While further increases in the retirement age are warranted, they should be carefully linked to life
expectancy. In particular, despite low effective and normal retirement ages today, Türkiye’s lower life expectancy
implies that the life expectancy at the (effective) labour market exit age for men is in line with the OECD (but one
year above the OECD average for women) (OECD, 2023[45]).
Despite high replacement rates, Türkiye’s pension system is relatively unequal and does not adequately protect the
elderly from poverty, although it provides better protection against poverty for pensioners relative to employed
persons. The net replacement rate for high earners is the highest in the OECD, and the second highest when
considering the average earner, which also results in some of the highest levels of net pension wealth. This is due
to high gross replacement rates which do not vary with income, and the absence of any taxation on pension income,
which also creates horizontal inequalities between workers and pensioners: Türkiye has the third largest gap in the
OECD between the taxation of pensioners and workers at average earnings. Furthermore, the ceiling for
pensionable earnings, at 4.24 times average earnings, is particularly high. A lower parameter typically makes other
OECD pension systems more redistributive. As a consequence of this structure, despite a relatively high income of
the elderly population on average compared to other OECD countries, large inequalities imply that income poverty

OECD ECONOMIC SURVEYS: TÜRKIYE 2025 © OECD 2025

40 

rates at old age are in line with the OECD average and the depth of poverty (measured by the distance to the poverty
threshold of the average income of poor households, where in turn poverty is defined as disposable income below
50% of the median household) is the highest in the OECD. This poverty depth is also linked to the low minimum
income for the elderly poor which is not eligible for pensions (European Commission, 2024[47]).
Other social benefits are relatively well targeted, but their scope is too narrow to effectively address inequalities
and poverty. As discussed above, non-pension social benefits are relatively low. Social assistance expenditure falls
below the average for any of the World Bank-defined country income groups. Those benefits are typically targeted,
more than in other countries. Türkiye can also rely on a well-developed e-government system, the Integrated Social
Assistance Service Information System (ISAS), which integrates administrative data from various government
ministries and agencies, and processes applications and payments for a large share of social protection programs.
However, there are still gaps in coverage when eligibility criteria go beyond income. More importantly, the low level
of benefits implies that they cover a smaller share of consumption for the poorest compared to other countries,
and do not contribute to a significant reduction in inequalities (World Bank, 2023[25]). Türkiye has made recent
progress in this area with the launch of the “Family Support Program” in 2022 which provides benefits based on
households’ income and number of children. The program has recently been extended but is still scheduled to
expire at the end of 2024. The program could be made permanent.
Broadening the income tax base would make the tax system more redistributive. In most countries, progressive
income taxation is the main tax instrument for redistribution through public finances. As discussed above, revenues
from labour income taxation in Türkiye are low mostly because of the high level of informality. In parallel, because
social contributions are high, the tax wedge is actually relatively high, encouraging informality and thus reducing
employment rates and the labour income tax base. Beyond broader policy measures to target informality such as
easing labour regulations and the severance pay system, reducing the high level of social security contributions
would thus contribute to broaden the labour income tax base. One possibility would be to lower pension
contributions, as discussed above, for low-income workers. This would support formal employment at low cost
since such reductions are likely to boost government revenues given the large elasticity of employment to its cost
at those levels in countries with relatively high minimum wages like Türkiye (L’Horty, Martin and Mayer, 2019[48]).
More generally, streamlining and simplifying the system of incentives, support measures and discounts on
contributions which are in place today to reduce the burden for employers stemming from SSCs would provide
room to reduce the tax wedge while safeguarding the financing of social security systems (OECD, 2023[14]).
Türkiye operates a dual income tax system which taxes capital income significantly less than labour income,
potentially contributing to inequalities (Hourani et al., 2023[49]). As in a majority of OECD countries, capital income
is often taxed separately from labour income in Türkiye. For example, interest income, dividend income, and capital
gains are subject to flat taxes which can vary e.g. depending on maturity. As a consequence, the effective taxation
of dividends is 25 points lower than wage income for high earners, and the gap is almost 40 percentage points for
long-term capital gains. After integrating the taxation of profits under corporate taxation, the effective taxation of
dividends is still 15 points lower than the effective taxation of wages. Those gaps are higher than most OECD
countries and can encourage income shifting while reducing horizontal and vertical equity, given the concentration
of capital income at the top of the distribution.

OECD ECONOMIC SURVEYS: TÜRKIYE 2025 © OECD 2025

  41

Figure 1.17. The normal retirement age is low, the replacement rates are high and unequal,
and pension contribution rates are high
A. Current and future normal retirement ages for a man with a full career from age 22, 2022
Age Age
80 80
Age
Future OECD:future OECD:current Current
75 75

70 70

65 65

60 60

55 55

50 50

E…
ISR

FIN

IND

IDN
SVN

CRI

LTU

IRL

ISL

ITA
CAN

JPN
GRC
LUX

TUR

ZAF
KOR

HUN
MEX
NZL
COL

CZE
LVA

FRA

CHE

DEU
GBR

NLD

DNK
AUT

CHL

POL
ESP

USA
AUS

NOR

SAU

CHN

ARG
BRA
BEL

PRT
SVK

SWE

EST
B. Net pension replacement rate, by income level 2022
%
150
Average earners Low earners High earners
120

90

60

30

0
JPN
ISR

FIN

ITA
LTU
IRL

CHE
CAN

LVA
ISL
EST

NZL

CHL

AUS
USA

POL
CZE
DEU

ESP
SVN
FRA
DNK

AUT

SVK

HUN
LUX

NLD

TUR
BEL

COL

PRT
KOR

NOR

GBR

MEX

CRI

GRC
SWE
OECD

C. Effective contribution rates for an average worker, 2022

%
35

30

25

20

15

10

0
OE…

FIN
IRL

ISL

ITA
JPN

ISR
MEX
LTU
KOR
CAN
AUS
USA

DNK

LUX

CHE

DEU
HUN

LVA
TUR

NLD
PRT
CHL

COL

SVK

NOR

GRC
FRA
CRI

BEL

POL

EST

AUT

SVN

CZE
ESP
GBR
SWE

Note: In Panel A, Normal Retirement Age (NRA): "current" and NRA: "future" refer to retiring in 2022 and entering the labour market in 2022,
respectively. For better visibility, the scale of this chart excludes the lowest observed values of 47 for both current and future ages in Saudi Arabia.
Credits for educational periods are not included. In Panel B, the net replacement rate is defined as the individual net pension entitlement divided by
net pre-retirement earnings, taking account of personal income taxes and social security contributions paid by workers and pensioners. "Low earners"
are defined as workers with half of average worker earnings and "high earners" as workers with twice the average worker earnings. In Panel C,
contributions include mandatory and quasi-mandatory pension schemes. See Table 8.1 in the source document for more details on country-specific
notes
Source: OECD (2023), Pensions at a Glance 2023: OECD and G20 Indicators.

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42 

Table 1.4. Recommendations

MAIN FINDINGS RECOMMENDATIONS (Key recommendations in bold)
Maintaining a stable macroeconomic framework
Annual consumer price inflation remains stubbornly high, reached Monetary policy should remain tight until inflation is sustainably on
around 42% in January, and although inflation expectations have a downward path towards the target.
decreased in recent months, they remain well above the inflation target
of 5%.

Introduced measures such as caps on credit growth have helped to ease As inflation progresses to a sustainable path, gradually dismantle the
inflation pressures, but they also weaken the transmission mechanism credit growth caps and requirements for exporters to exchange part of
of monetary policy. their revenues to Turkish Lira.

The CBRT has started simplifying the macroprudential policy framework

and announced that further steps will be taken in 2025.

Confidence in the independence of the Central Bank has increased due Continue improving confidence in the independence of the Central Bank.
to significant improvements in financial and monetary policies, which
have positively influenced investor sentiment.
Türkiye’s government debt-to-GDP ratio is relatively low compared to Reduce the deficit in accordance with the government’s Medium-
other OECD countries and the deficit is expected to decrease to 2.6% in Term Program 2025-2027 to support macroeconomic stabilisation.
2026.

However, a premature relaxation of current macroeconomic stabilisation

policies with higher deficits and looser monetary policy could lead to
higher risk premia and renewed instability.
Concerns on risks linked to contingent liabilities have been reduced Continue to improve the monitoring of contingent liabilities.
thanks to the stabilisation of the exchange rate and the phaseout of FX-
protected accounts.
Other contingent liabilities related to PPPs are included in the budget of
related institutions. However, information on the size, structure, and risk
composition of the overall PPP portfolio could continue to be improved.
Improving the quality of public finances
Türkiye has just recently started implement spending reviews. Systematise the process of comprehensive and public spending reviews
The efficiency of certain spending is low based on international studies. and integrate the results in the budget process.
The VAT system is particularly complex due to and the prevalence of Once inflation is under control, reduce the scope of reduced VAT
special rates. Türkiye’s VAT revenue is low relative to its potential. rates and use the revenues to support lower-income households
Achieving redistribution goals can be more effective by using direct with more targeted, direct support.
lump-sum payments to households based on socio-economic
characteristics rather than VAT for redistributive purposes.

Despite a clear decline in informality, the income tax base still has Pursue policies aimed at tackling informality to strengthen the
potential to expand when compared to other OECD countries. redistributive role of taxes. This could be done through easing labour
market regulations and targeted reductions in pension contributions.
Türkiye’s pension system is relatively generous in terms of pension Rebalance the pension system by linking the retirement age to life
replacement rates and retirement ages, contributing to a high level of expectancy, providing bonuses for late retirement, and reducing the
social contributions. It is also regressive. accrual rate and the contribution rates.

The benefit system is among the least redistributive in the OECD, Broaden social protection, including via additional social assistance
because it is narrow. benefits and higher basic pensions.

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  43

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TMTF (2024), Public Debt Management Report, Türkiye Ministry of Treasury and Finance, [15]
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2 Removing the barriers to female

labour market participation

Aging in Türkiye highlights the need to better utilise existing human resources,
particularly women, whose labour force participation is notably lower than in other
OECD countries. Promoting equal opportunities for women and men not only
enhances economic efficiency but also delivers significant economic benefits. In
Türkiye, women spend disproportionately more time than men on unpaid care and
housework and are less likely than women in other OECD countries to rejoin the
labour market after childbirth. Expanding access to early childhood education and
care is crucial, as limited availability prevents many mothers from re-entering the
labour market. Additionally, labour market policies such as improved tax
regulations and comprehensive parental leave that is aligned with early childhood
education and care policies could play a pivotal role in ensuring that women’s
earnings and employment outcomes do not diverge from men after the birth of a
child.

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2.1. Lifting labour force participation will be essential for future growth
Türkiye’s economy has been benefiting from a young and dynamic population over the past decades relative to
other OECD countries. Yet, this “demographic dividend” is set to gradually decline, slowing future potential growth,
even if Türkiye has put in place several policies, such as the creation of the Department of Family and Population
Policies to address demographic issues as well as the Council of Population Policies to monitor demographic changes
and develop related policies, which could slow down the expected decline. Future demographic challenges
underline the need to better leverage existing human resources, in particular women, whose labour force
participation is particularly low compared to other OECD countries. Equal opportunities for women and men would
also strengthen economic efficiency through better allocation of talent and bring major economic benefits (see
below).
The previous OECD Economic Survey of Türkiye focused on general barriers that prevent higher labour market
participation. Based on OECD indicators, employment legislation is relatively rigid with strict labour market rules
for regular workers driven by the costly severance pay system (OECD, 2023[1]). Combined with one of the OECD’s
highest minimum-to-median wage ratios, this results in comparatively high costs of formal job creation. In addition,
strict employment rules for fixed-term and temporary work agency contracts lead to the widespread use of informal
and semi-formal work practices. High labour tax wedges also discourage formal job creation as employee and
employer social security contributions and net average tax rates are higher than in other OECD countries. More
flexible labour markets should be part of a comprehensive reform programme that shifts job loss protection to a
broader-based unemployment insurance scheme, supported by well-designed activation policies.
Table 2.1. Past OECD recommendations and actions taken for the higher labour market
participation
Recommendations in previous Surveys Actions taken since previous Survey (Feb 2023)
Make permanent work more flexible and increase the scope for fixed- None, but authorities announced in their latest Medium-Term Program
term and temporary work contracts, while ensuring social protection of amendments to be made in the Labour Law in the first quarter of 2025 to
workers and access to reemployment services. improve the flexibility of the labour market, in particular regarding remote,
part-time, temporary, and platform work.
Shift social protection from the severance pay system to a broader-based None, but studies are carried out to evaluate the broadening of the
unemployment insurance. Introduce portable severance accounts. unemployment insurance system and the interaction with the severance
pay system.
Ensure that statutory minimum wages are affordable for firms, for None
example by setting a minimum wage floor at the national level and
promoting collective bargaining at the enterprise level.
Enhance up-to-date information on labour market outcomes for A new employment-focused program for vocational high school was
graduates from vocational education tracks, for example by extending implemented in February 2024 by The Ministry of National Education
the Career Counselling System. (MoE). MoE has decided to implement four new school programs,
namely "regional", "specialty", "intra-sector" and "integrated into the
sector", in order to facilitate the employment of vocational high school
students receiving education in every region of Türkiye.
The KALFA Program has been implemented and the Program aims to
"Provide Sustainable Qualified Human Resources" for the defense
industry. Young people who are included in the KALFA Program,
designed with an education-based development strategy, are provided
with employment opportunities in the defense industry after the program.

This chapter will discuss challenges specific to women's labour market participation. The first section describes progress
made in female participation, but also the long-standing factors that hinder more rapid improvements. The second section
discusses early childhood education and care (ECEC), as the availability of ECEC places is a major factor affecting women’s re-
entry in the labour market after childbirth. The third section assesses labour market policies that can be more supportive of
women’s employment. Finally, the last section concludes on using the practices and procedures of the budget cycle in a
systematic way to promote equality between women and men, which can provide the government with insights into how
tax and spending decisions affect equality between women and men.

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2.2. Weak female participation hurts growth while having deep roots
Türkiye’s women’s labour force participation remains weak despite progress over the last decade. In the last 10
years, female participation in the workforce was supported by a number of measures such as awareness campaigns
and labour law reforms. The labour force participation of women aged 15 to 64 years increased from 33.8% in 2013
to 40.9% in 2023. Nevertheless, women’s participation levels remain significantly below those in other OECD
countries where the same participation rate increased from 62.5 to 66.7% (Figure 2.1). In addition, when women
participate in the labour force, they face higher unemployment rates than men, which further discourages
participation.

Figure 2.1. Labour market outcomes of women lag behind other OECD countries
A. Labour force participation B. Unemployment rate
15-64 years old 15-64 years old
% of population in same age group % of labour force in the same subgroup
100 15
2023 2013 2023 2013

80 12

60 9

40 6

20 3

0 0
Türkiye OECD Türkiye OECD Türkiye OECD Türkiye OECD Türkiye OECD Türkiye OECD
Women Men Total Women Men Total

Source: OECD (2024), OECD Labour force statistics indicators (database).

StatLink 2 https://stat.link/jdtvzq
While women in Türkiye earn less than men, the wage gap is smaller than in other OECD countries (Gonne and
Trincao, [Upcoming][2]). This is likely due to a selection bias: many low-skilled women either stay out of the
workforce or work informally, while those who do participate tend to be better educated and highly skilled. Most
of the earnings gap in Türkiye is due to employment gaps, not wage disparities. In contrast, OECD countries like
Lithuania, Sweden, Estonia, and Finland see wage gaps as the main driver of earnings gaps, since their employment
and participation gaps are smaller (Ciminelli, Schwellnus and Stadler, 2021[3]). Therefore, policy efforts should in a
first stage focus on removing structural barriers that prevent women from joining the formal labour market.
Increasing female labour force participation could bring significant economic benefits for Türkiye (Cuberes and
Teignier, 2016[4]; IMF, 2024[5]). The underutilisation of women’s talents limits the country’s economic potential. An
OECD study estimates that closing gaps between women and men in participation and working hours by 2060 could
boost long-term GDP per capita growth by over 0.4 percentage points, increasing GDP by nearly 17% – one of the
largest potential gains among OECD countries (see Fluchtmann, Keese and Adema (2024[6]) and Figure 2.2). Building
a more inclusive labour market that fully utilises women’s skills can also enhance productivity (Hsieh et al., 2019[7]).
The weak participation of women in the labour market has long-standing causes. Women in Türkiye spend an
average of four more hours per day than men on unpaid care and housework, significantly higher than the OECD
average of two hours (Gonne and Trincao, [Upcoming][2]). This disproportionate involvement is a primary reason
for women's low labour force participation. A recent TurkStat survey found that 30% of inactive women cite
housework as their primary reason for not participating in the labour market, whereas no men gave this reason
(TurkStat, 2023[8]). Childcare responsibilities highlight this disparity further: 96% of mothers are primary caregivers
compared to only 2% of fathers, making childcare the most unequally divided household task (TurkStat, 2022[9]). In
contrast, in the EU, 30% of men share childcare responsibilities equally or take on a larger role than their partners
(Eurofound, 2017[10]).

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50 

Figure 2.2. Closing gaps between women and men in labour market participation would boost
per capita GDP
Estimated difference relative to the baseline in the projected average annual rate of growth in GDP per capita
over the period 2023-2060

% pts
0.5

0.4

0.3

0.2

0.1

0.0
FIN

ISR

ISL

POL

IRL

ITA

COL
LTU

LVA
SVN
LUX

JPN
CHE

NLD

TUR
EST

PRT

SVK
USA
FRA
HUN
CAN

DNK

CZE
NZL

ESP

AUS

DEU
NOR

BEL

CHL
GBR

KOR

GRC

AUT

CRI

MEX
SWE

OECD
Note: The simulation assumes that gaps in labour market participation and hours worked close by 2060. The figure shows the average yearly
difference in potential per capita output growth by the end of the projection period, relative to the baseline projection from the OECD Economics
Department Long-Term Model. Unweighted average of 38 countries for the OECD aggregate.
Source: Fluchtmann, Keese and Adema (2024), "Gender equality and economic growth: Past progress and future potential", OECD Social,
Employment and Migration Working Papers, No. 304.pers, No. 304.

StatLink 2 https://stat.link/ijkyqo
Deeply rooted societal attitudes hinder efforts to improve female labour force participation and promote equality
between women and men in Türkiye. Cultural norms continue to reinforce traditional roles, especially regarding
women’s work-home balance. 64% of the population considers being a housewife as fulfilling as paid work –
consistent with the OECD average. However, other beliefs are less in line with the OECD average (OECD, 2017[11]).
For example, 52% of the population believes men deserve more job opportunities than women (OECD average:
18%), and 48% thinks men are better business executives (OECD average: 18%). These perceptions not only reflect
traditional norms but also create barriers that limit women’s workforce participation. Additionally, 53% of the
population believes children suffer when mothers work, compared to 33% in OECD countries overall.
Women are likely to reduce engagement in the workforce after childbirth. Motherhood significantly affects
women’s workforce participation in Türkiye. Only 27% of mothers with children under age 3 were employed in
2023, compared to 58% of women without children (Turkstat, 2024[12]). Conversely, fathers are more likely to
participate in the labour force than men without children (Figure 2.3). The child penalty – defined as the average
reduction in women’s employment over the 10 years following the birth of their first child – is around 29% in
Türkiye. While slightly lower than the OECD average, it tends to persist over time. In urban areas like Istanbul, the
child penalty is even higher, reaching 61%, reflecting regional differences in job flexibility (Kleven, Landais and Leite-
Mariante, 2023[13]). Motherhood also drives women toward more flexible, often precarious jobs, such as informal
work, partly due to relatively low prevalence of supportive policies including childcare services (Akkan, Buğra and
Knijn, 2023[14]) (Dedeoğlu and Şahankaya Adar, 2022[15]). These impacts are most pronounced immediately after
childbirth but often extend into the long term (Berniell et al., 2021[16]). As discussed below, policies like improved
childcare services, tax incentives, and comprehensive parental leave aligned with ECEC policies can help mitigate
these challenges and support mothers’ workforce participation.

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Figure 2.3. Employment rates of mothers with children are low

Employment rate of people aged 25-49 with and without children, 2023

% of the surveyed
100
Türkiye EU27

80

60

40

20

0
with children without children with children without children
Men Women

Source: Eurostat (2024), EU Labour Force Survey.

StatLink 2 https://stat.link/ip8b96

2.3. Türkiye should continue its efforts to increase access to affordable high-
quality childcare
Improving access to early childhood education and care is key for supporting mothers and ensuring their
participation in the labour market. Research shows that affordable childcare significantly improves maternal
employment outcomes (Olivetti and Petrongolo, 2017[17]; Halim, Perova and Reynolds, 2022[18]). When
implemented effectively, expanded ECEC access can lead to multiple benefits by facilitating women’s labour force
participation and improving broader equality outcomes; enhancing well-being and early development of Turkish
children; and creating decent job and business opportunities in the paid care sector, particularly for women.
Türkiye has made notable strides in improving ECEC services, with enrolment rates rising significantly in recent
years. Between 2005 and 2022, the share of children aged 3-5 enrolled in ECEC or primary education has increased
sharply from 28% to 48% (OECD, 2024[19]). Enrolment for 5-year-olds showed the most progress and has become
almost universal like in other OECD countries: in particular, Türkiye had by far the largest increase, over the last 10
years, in enrolment rates of young children one year before the typical primary entry age (OECD, 2024[19]). Despite
these improvements, Türkiye’s ECEC enrolment rates still lag significantly behind other OECD countries where the
enrolment rate of 3-5 years old is 35 percentage points higher (Figure 2.4). This highlights significant gaps in early
childcare services, particularly for the youngest age group, where such services are virtually non-existent.

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Figure 2.4. ECEC enrolment rates are low

Enrolment rates in early childhood education and care services and primary education programmes

%
3-5 year olds, 2022 0-2 year olds, 2022 or latest year
100

80

60

40

20

0 FIN
IRL

ITA

ISL
KOR
MEX

GRC
GBR

JPN

NOR

ISR
TUR
CHE

USA

AUS

HUN
NLD

DNK

ESP

FRA
NZL
CRI

CHL
COL
SVK

CZE

LUX
AUT

POL

SVN
DEU
LVA

LTU
EST

PRT

BEL
SWE
OECD

Note: The OECD average includes all OECD member countries with data available for both age groups (data for Canada and the USA are missing for
0-2 year olds and data for Canada are missing for 3-5 year olds). Data for 0-2-year-olds generally include children enrolled in early childhood education
services (ISCED 2011 level 0) and other registered ECEC services (outside the scope of ISCED 0, because they are not in adherence with all ISCED-2011
criteria). Data for 3-5-year-olds include early childhood education services (ISCED 2011 level 0) and other registered ECEC services, as well as primary
education (ISCED 2011 level 1).
Source: OECD (2024), Education at a Glance 2024: OECD Indicators (data for 3-5 year olds); and OECD Family Database, Chart PF3.2.A (data for 0-2
year olds).

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2.3.1. Improving the labour market access of women through lower supply-side
barriers
In Türkiye, approximately 80% of ECEC services are publicly provided, with capacity heavily skewed towards children
in pre-primary school age. ECEC is not mandatory in Türkiye, but it is highly encouraged for 5-year-olds. ECEC
prioritises enrolment of 5-year-olds, as regulation mandates that younger children who are four or three years old
can only be offered places after accommodating all the older children who express demand. Most of the ECEC
facilities for five-year-olds operate at or close to full capacity and sometimes not all the 5-year-olds have been able
to be enrolled in the past (European Commission/EACEA/Eurydice, 2019[20]). This means places are rarely offered
to younger children. To address the demand for children aged 3–5, some publicly-owned childcare centres are
available but have limited capacity. Private centres also offer childcare, but their limited number and high costs
make them difficult to access for many families. Unlike many OECD countries, Türkiye does not have a legal
entitlement guaranteeing every child an access to ECEC services. This lack of a "place guarantee" exacerbates the
supply-demand imbalance. As a consequence, the quality of ECEC services tends to also be lower than the OECD
average even in the highest levels of ECEC: in 2018, there were 18 children by teaching staff in pre-primary
education (ISCED 02) compared to 14 in the OECD on average, while the ratio has not improved between 2013 and
2022 as opposed to most OECD countries (OECD, 2020[21]; OECD, 2024[19]). Addressing this issue would require
significant investments to expand infrastructure, increase public and private capacity, and ensure equitable access
for all families in need of childcare services (European Commission/EACEA/Eurydice, 2019[20])
Broadening access to childcare for children under 3 years old could have a significant impact on women’s labour
market participation. This age group shows the strongest link between childcare availability and mothers' ability to
engage in paid work, more than the ECEC enrolment rates of 3-5 years-old (OECD, 2018[22]). In Türkiye, however,
childcare options for children under 3 are limited. Crèches and day-care centres are almost entirely dependent on
private providers, which fail to meet growing demand. This has left many families without access to these essential
services in the past (European Commission/EACEA/Eurydice, 2019[20]). By contrast, countries like Denmark,

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  53

Luxembourg, Portugal, and Germany have implemented robust ECEC systems that ensure high enrolment rates for
children under 3. In Denmark, for example, every child is guaranteed a place in a day-care facility from the age of
26 weeks until school age. If public provision is unavailable, parents receive financial support for private childcare.
Germany introduced a legal right to childcare for children under 3 in 2013, significantly increasing capacity and
enrolment rates (OECD, 2018[22]).

Figure 2.5. Public spending on early childhood education and care is low
A. Public spending on early childhood education B. Expenditure per child on educational
% of GDP and care, 2019 or latest year USD institutions at pre-primary level, 2021
2.0 20000

1.6
15000

1.2
10000
0.8

5000
0.4

0.0 0
ISR

ITA
JPN

SWE
TUR

GBR
HUN
SVK
ESP

FRA
PRT

AUS

KOR

NLD
USA
DNK
DEU
BEL

AUT
OECD
ITA

JPN
GBR

ISR

KOR
TUR
USA
PRT
ESP

HUN
NLD
DEU

DNK
FRA
SWE
AUT

AUS
SVK

BEL
OECD

Note: In panel A, some countries local governments play a key role in financing and providing childcare services. Such spending is comprehensively
recorded in Nordic countries, but in some other (often federal) countries it may not be fully captured by the OECD social expenditure data. In panel
B, expenditure per child is based on headcounts rather than full-time equivalent students and is converted in current PPPs. Unweighted average for
the OECD aggregates with available data (35 countries for Panel A and 27 countries for Panel B).
Source: OECD Family Database Indicator PF3.1; and OECD (2024), Education at a Glance 2024: OECD Indicators.

StatLink 2 https://stat.link/o8ct9x
Türkiye has room to increase public funding for ECEC to expand capacity and supply. Türkiye allocates just 0.3% of
its GDP to ECEC, compared to the OECD average of 0.8% ( Figure 2.5). Increasing public investment in ECEC would
not only help meet rising demand but also provide substantial economic and social returns (Heckman et al.,
2010[23]). An OECD study estimated that achieving best-practice levels in pre-primary attendance could boost per
capita income in Türkiye by almost 6% (Égert, Botev and Turner, 2019[24]). Upfront fiscal costs could be offset by
long-term benefits, such as increased tax revenues from higher earnings and reduced spending on social
programmes or healthcare. Early childhood education programmes can yield high social returns, with some studies
finding returns up to 44 times the initial investment (Hendren and Sprung-Keyser, 2020[25]). Expanding ECEC capacity
also has immediate benefits, such as creating jobs in the education sector.
Strengthening the legal and regulatory framework for various childcare providers – including private businesses,
employers, local governments, and home-based care – could significantly enhance Türkiye’s childcare delivery
capacity. Municipalities already play a supportive role in addressing gaps in national programmes by offering early
education services tailored to local needs.
Employer-provided childcare in Türkiye remains rare. Turkish labour law mandates that workplaces with at least
150 female employees provide childcare facilities and those with 100 or more female employees offer breastfeeding
rooms. However, these legal requirements apply only to a small fraction of workplaces, as a large share of
employment in Türkiye is in micro and small enterprises with fewer than 50 employees (Turkstat, 2023[26]). More
generally, as this can provide large employers with strong financial incentives not to hire women, the authorities
could consider reviewing this mandate.
Türkiye should create incentives for smaller businesses to offer childcare options. Examples from other countries
can provide guidance. In Chile, small firms can pool resources to establish shared childcare centres near workplaces,
making this a cost-effective solution. In Japan, starting in 2025, employers will be required to support work-life
balance and childcare needs regardless of company size, including through measures such as teleworking or

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54 

reduced working hours. Another way forward can be to pursue the introduction of childcare centres in organised
industrial zones. Many countries, including Australia, Austria, France, Germany, Greece, Hungary, Italy, and
Switzerland, have improved their ECEC systems by increasing subsidies for local governments and private providers,
including employer-sponsored childcare (Alajääskö and Fluchtmann, 2023[25]).
Regulation requirements for childcare service providers could be eased. In Türkiye, private childcare providers
benefit from tax breaks, but inadequate accreditation standards and licensing costs can create barriers for
establishing new facilities (World Bank, 2015[28]; Batyra, 2017[29]). Accreditation requirements primarily focus on
building and infrastructure specifications, which can pose challenges in densely populated urban areas.
International best practices, instead, emphasise standards based on child development outcomes, staff
qualifications, and service quality rather than physical infrastructure (OECD, 2015[30]; Slot, 2018[31]).
Türkiye could address the lack of childcare availability, particularly for children under 3, by introducing a formal,
regulated home-based ECEC model. A well-regulated home-based system could help expand childcare access while
maintaining quality and reliability and expand the formal employment base (European
Commission/EACEA/Eurydice, 2019[20]). In this system, childminders care for a small group of children (typically 4–
5) in their homes, providing families with flexible care options. For example, Korea features licensed childcare
centres in a home setting for a small number of children in houses or apartment units, and those centres contributed
significantly to the enrolment rate of very young children (Ahn and Shin, 2013[32]). Currently, such system is at the
pilot stage in Türkiye. Home-based ECEC is especially beneficial for children under 3 and is widely used in countries
like France, where more children are cared for by childminders than in crèches. Other countries, such as Belgium,
Denmark, Germany, and the United Kingdom, also rely on home-based care, though centre-based care still
dominates. Implementing a home-based childcare system in Türkiye would require (i) Developing clear regulatory
frameworks to ensure quality and safety standards, (ii) establishing training and certification programmes for
childminders, and (iii) monitoring services to guarantee reliable care. In that context, Türkiye is currently
implementing a joint small project with the European Union in Ankara, Istanbul, and Izmir providing grants to 3 500
mothers of young children on the condition that they employ a certified caregiver, with the goal to both support
mothers’ employment and the professionalisation of childcare.

2.3.2. Demand-side barriers also hinder women’s labour market participation

In addition to limited supply, families in Türkiye face demand-side barriers when seeking suitable childcare options.
While childcare costs are relatively low compared to the average wage (Gromada and Richardson, 2021[33]; UNICEF,
2024[34]), high out-of-pocket costs can remain a significant challenge for some families and prevent them from
accessing ECEC services. Studies indicate that preschool care and education expenses are often beyond the financial
reach of low-income households (Dedeoğlu and Şahankaya Adar, 2022[15]; Pınarcıoğlu and Soyseçkin, 2018[35]). This
disparity was evident in enrolment rates in Türkiye in the past: among children aged 3–5 from the poorest income
decile households, only 16.4% attend preschool in 2012, and a mere 0.4% used daycare services. In contrast,
children from households in the wealthiest income decile have much higher participation rates – 28.4% for
preschool and 31.6% for daycare services (World Bank, 2015[28]). Today, disadvantaged children, who stand to
benefit the most from ECEC, are more likely to miss out on early educational experiences, potentially impacting
their future opportunities (Alajääskö and Fluchtmann, 2023[27]). To address this inequality, some countries have
introduced targeted measures. For instance, Lithuania mandates preschool education for children from families at
social risk, ensuring access to critical early education services (Alajääskö and Fluchtmann, 2023[27]). In Türkiye, 3%
of the capacity of certified day care centres is reserved for disadvantaged children who can then benefit from care
services free of charge, which has benefited around 3 000 children per year since 2017.
High ECEC costs in Türkiye are further exacerbated by the absence of supportive financial mechanisms, such as tax
incentives or subsidies for families. Currently, financial assistance to help families afford private childcare services
is sparse, although employer-provided nursery and daycare centres are exempt from income taxation. Ensuring
adequate financial support, such as fee discounts or subsidies, is essential to reducing barriers and enabling more
families to access childcare. Across OECD countries, various financial support programmes aim to lower the cost of
childcare, including childcare allowances, tax concessions, fee rebates, and increased entitlement to other benefits.
For example, Estonia caps childcare fees at 20% of the monthly minimum wage, Germany exempts low-income and
vulnerable households from ECEC fees. Norway limits childcare fees to a fraction of gross household income and

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  55

offers 20 hours of free childcare weekly for lower-income parents. In Quebec, Canada, capping childcare fees has
significantly increased maternal labour force participation (Alajääskö and Fluchtmann, 2023[27]). These strategies
ensure more equitable access to ECEC and promote broader participation, especially among low-income families.
Similarly, countries like Sweden and Germany provide generous subsidies and family benefits to reduce the financial
burden on parents, making childcare more accessible across all income levels. Adopting such measures in Türkiye
could significantly enhance affordability and access to ECEC services.
Operational challenges and hidden additional costs in public childcare services can reduce demand and accessibility
for parents. Public kindergartens and nurseries often face logistical limitations, such as not being open during the
summer and relying on a double-shift, half-day system, which does not meet the needs of parents working full-time
jobs. Additionally, the lack of transportation and meal services in public ECEC programmes adds extra costs for
families, making childcare less affordable and harder to access. Quality concerns also emerge when children of
different ages are grouped together in the same classroom due to capacity constraints, which can discourage
families from enrolling their children. Although private centres generally offer more flexibility and better services
to mitigate these issues, they are often more expensive, posing a significant challenge for low-income mothers who
might otherwise seek these services. All these factors create practical barriers that complicate access to affordable
and quality childcare.
Beyond costs and operational challenges, social norms regarding caretaking of young children could be reducing
the response of labour supply to better childcare access. Indeed, recent evidence suggest that cultural norms have
a significant impact on gaps between women and men in labour market outcomes in some OECD countries (Olivetti,
Pan and Petrongolo, 2024[36]). As discussed above, cultural norms in Türkiye continue to reinforce traditional roles
of women and men, including for childcare. In recent years, many OECD governments have tried to change
stereotypes through public awareness campaigns, which could help counter social norms (OECD, 2017[11]; Gonne
and Trincao, [Upcoming][2]). Several policies including mentorship, capacity-building programmes, and active
recruitment of women for leadership positions can help alter these expectations through creating role models
(André et al., 2023[37]). Recent evidence suggests that indeed, those policies can contribute to reduce gaps between
women and men as norms are transmitted not only by parents, but also via peer effects, teachers, and hierarchical
superiors for example (Olivetti, Pan and Petrongolo, 2024[36]). Finally, designing family and labour market policies
carefully, as discussed below, can help alter social norms. For example, they can incentivise the take-up of parental
leave by fathers. They can also take into account, via budgeting practices sensitive to equality between men and
women for instance, the indirect impact of nominally-neutral policy measures because of their interaction with
social norms, e.g. in the context of household taxation.

2.4. Family and labour market policies that could help promote female
participation

2.4.1. Parental leave policies could foster a more equitable sharing of leave between
parents
Incentivising a more equitable sharing of parental leave between parents would help to balance the share of unpaid
work and home care, enhancing women's engagement in the workforce. Maternity leave is more generous in
Türkiye than the median OECD country, as mothers are entitled to 16 weeks of paid maternity leave with a full
replacement rate (Figure 2.6). However, the absence of paid parental leave implies that total paid leave available
to mothers is relatively low compared to other OECD countries even in full-rate equivalent terms. Additionally,
mothers can take up to 6 months of unpaid parental leave following maternity leave, along with the option to work
half-time for 60 days (for the first child) up to 180 days (for the third and subsequent children), with a half-time
working allowance covering the non-worked hours. The difference between women and men in available parental
leave is wider than in the OECD. Fathers receive only 5 days of paid paternity leave (and no paid parental and home
care leave), also at full replacement rate, which is less than most OECD countries. Civil servants are eligible for up
to two years of unpaid parental leave, available to either parent, on top of paid maternity and paternity leave
entitlements.

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Inequalities between women and men in the take-up of parental leave can lead to women spending
disproportionately more time than men on unpaid care and housework, which negatively impacts their
employability and wages. Recent evidence suggests a correlation between fathers’ leave taking and higher
involvement in care and other unpaid work later on, which might be beneficial for mothers’ labour market outcomes
during and beyond the leave period (Fluchtmann, Keese and Adema, 2024[6]). Policies that encourage fathers’
uptake of paternity and parental leave could weaken the persistent bias between women and men regarding paid
and unpaid work eventually and improve family well-being by strengthening father-child relationships (OECD,
2023[38]). For example, evidence from Norway suggests that coworkers and brothers are significantly more likely to
take paternity leave if their peers are (exogenously) induced to take leave (Dahl, Løken and Mogstad, 2014[39]).
In recent years, policy reforms in many OECD countries have aimed to encourage fathers to take up parental leave
through earmarked months or bonus systems, while Türkiye does not currently offer non-transferable parental
leave that is exclusively reserved for fathers. Evidence indicates that introducing such measures can, in addition to
supporting women’s work, significantly boost their leave uptake and increase their involvement in childcare (OECD,
2023[38]). For instance, in Iceland, men accounted for only 3% of all parental leave taken before mother and father
quotas were introduced in the early 2000s. Today, men take approximately 45% of all parental leave. The number
of OECD countries offering some parental leave reserved for fathers rose from seven in 1995 to 34 in 2020 (OECD,
2022[40]; André et al., 2023[37]).

Figure 2.6. The durations of paid leaves are short and unequal
Paid leave duration, in full-rate equivalent, 2023

Number of weeks
100
Fathers Mothers
80

60

40

20

0
ISR

ITA

FIN

JPN
LVA
USA

AUS

TUR

IRL
CHE

HUN

FRA

ISL
LTU
NZL

CHL

CZE

CAN

COL

DNK
DEU
GBR

MEX

CRI

EST

ESP
LUX
SVK
BEL
GRC

AUT
POL

SVN

NLD
PRT

NOR

KOR
SWE
OECD

Note: Paid leaves include maternity or paternity leaves, and parental and home care leaves. Entitlements are reported in full-rate equivalent, i.e.,
paid at 100% of previous earnings. Unweighted average of 38 countries for the OECD aggregate.
Source: OECD Family Database, https://www.oecd.org/en/data/datasets/oecd-family-database.html.

StatLink 2 https://stat.link/g7ou1s

2.4.2. Changes in other family and labour market policies could enhance female
labour participation
The lack of flexible employment contracts in Türkiye significantly hinders women's ability to participate in the
workforce. Rigid employment structures – such as strict full-time requirements, fixed hours, and limited
opportunities for remote or part-time work – fail to accommodate the needs of women who require adaptable
working conditions due to caregiving roles. These inflexible arrangements often force women to either leave the
workforce entirely or turn to informal, less secure jobs that provide flexibility but lack stability, social security, and
career advancement opportunities. The previous OECD Economic Survey of Türkiye recommended expanding the
use of fixed-term and temporary work agency contracts, which are currently confined to seasonal and agricultural
sectors. Extending these contracts to other industries, such as business services, could facilitate women's transition

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  57

into formal employment (OECD, 2023[1]). Although reforms in 2016 introduced flexible work models like part-time
work, part-time employment remains underutilised in Türkiye, accounting for only 9.5% of the workforce compared
to the EU average of 16.5%. Increasing the availability of part-time roles and easing regulatory restrictions could
help more women participate in and remain in formal employment. Türkiye has also supported female
entrepreneurship: for example, it provides discounted social security premium payments for female workers in
trades and crafts activities performed outside a workplace, or capacity support programs and corporate income tax
exemption for Women-led Cooperatives. As a result, women entrepreneurship in Türkiye is in line with OECD
average, although the gap between men and women is relatively larger given the high rate of entrepreneurship in
the country (OECD/European Commission, 2023[41]).
Certain labour laws in Türkiye unintentionally discourage women from joining the workforce. For instance, Turkish
labour law grants severance pay to women who resign within one year from the date of marriage, potentially
increasing not only the long-term cost for employers, but also women’s incentives to resign and quit the labour
force. While the law prohibits discrimination between women and men in the labour market, this regulation –
specific to female employees – can indirectly contribute to employment disparities. Such regulations, while well-
intentioned, highlight the need to balance protective measures with policies that actively promote women’s
workforce participation.
Türkiye’s tax and benefits policies do not favour the labour force participation of households with children. Türkiye
does not provide significant fiscal benefits to such households’ members through advantageous tax treatments or
cash benefits, relative to OECD countries. For example, expenditure on family and children benefits in 2022
represented 550 purchasing power standards (PPS, an artificial currency unit which theoretically buys the same
amount of goods and services in each country) per population aged 18 or younger against between PPS 1500 and
PPS 12500 in EU countries. As a consequence, the average tax wedge on households with children is among the
highest in the OECD (Figure 2.7). For example, the tax wedge for a single person at 67% of the average wage is at
the OECD average for childless households, but twice the OECD average for a household with two children.
Importantly, those households tend to be headed by women: in 2023, three quarters of single parents with resident
children were women. Providing targeted tax credits or cash benefits for children, such as deductions or credits for
childcare expenses, would promote greater labour force participation especially among women. Indeed, evidence
also suggests that the elasticity of women’s labour supply is particularly high among women earning low incomes
and in countries where female labour participation is lower (OECD, 2024[42]). Since childcare costs are, today,
entirely out-of-pocket, the financial benefit of entering the labour force, particularly for low-income families, is
often outweighed by the costs associated with the induced childcare and transportation expenses, and the loss of
unpaid domestic labour. Direct benefits, in particular child benefits, targeted toward lower income households, can
increase the marginal tax wedge as the level of benefits is phased out with income. However, the average tax wedge
is the more relevant measure to consider when aiming to improve participation in the labour market, and a marginal
tax rate increasing with income would also enhance the progressivity of the tax system (see Chapter 1) (Paturot,
Mellbye and Brys, 2013[43]).

2.5. Promote equality between women and men into budgetary and decision-
making processes
Appropriate budgetary practices and procedures can provide governments with insights into how tax and spending
decisions affect equality between women and men. By analysing how resource allocation impacts men and women
differently, governments can make informed decisions that reduce disparities and prevent policies from
unintentionally disadvantaging women’s economic participation or reinforcing societal perceptions that discourage
women from working. Such budgeting practices are increasingly applied in OECD countries. To date, 23 OECD
member countries have integrated budgeting tools into their budgetary frameworks to promote equality between
women and men in a systematic way, with four more countries planning or actively considering its implementation
in the near future (OECD, 2023[44]).
Türkiye has been applying budgeting practices sensitive to equality between women and men since 2019 and has
progressively incorporated this approach into key fiscal reforms. The 2003 Public Financial Management and Control
Law laid the foundation for fiscal policies sensitive to equality women and men. In 2011, a formal commitment to
budgeting practices that consider these sensitivities was established. This commitment has since been reflected in

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strategic planning documents, such as development plans. By 2019, those budgeting practices became more visible
through performance indicators in Türkiye’s 11th Development Plan (Curristine et al., 2021[45]; OECD, 2023[44]).
Additionally, public investment projects are now required to address their differential impact on women and men
and contribute to women’s empowerment (Strategy and Budget Office, 2024[46]).
Such budgeting practices in Türkiye can be improved to better serve equality outcomes. Current efforts focus largely
on integrating new dimensions into performance budgeting but lack critical tools such as ex-ante and ex-post impact
assessments, and distributional analyses of budget measures according to their differential consequences on
women and men. Approximately 40% of OECD countries that implement budget practices promoting equality
between women and men use at least one of these tools to evaluate the impact of fiscal policies on equality
between women and men (OECD, 2023[44]). Adopting such practices in Türkiye would provide a more
comprehensive understanding of the impacts of fiscal decisions on equality between women and men, ensuring
that resource allocation effectively reduces inequalities. Additionally, while Türkiye’s legal framework allows for
such budgeting practices, it does not mandate it. In contrast, 65% of OECD countries have institutionalised those
budgeting practices through legal mandates, with some countries even embedding it in their constitutions (OECD,
2023[44]). Establishing legal requirements would strengthen integration of those practices across all sectors and
ensure consistent application. Moreover, budget allocations sensitive to equality between women and men in
Türkiye are currently limited to certain agencies, such as the Ministry of Family and Social Services. Supporting the
expansion of this approach across all line ministries would promote policy coherence and adopt a more
comprehensive strategy for enhancing women’s workforce participation and advancing equality between women
and men. The launch of the Planning and Budgeting Strategy and Action Plan for Equality Between Women and Men
for 2024-2028 is thus promising. The plan provides actions to be taken for the systematic integration of an equality
perspective into national and local policymaking and budgeting processes. It sets four main objectives: developing
statistics and analyses responsive to equality between women and men, mainstreaming this responsiveness in
planning and budgeting processes, building institutional capacity to conduct budgeting practices as discussed
above, and strengthening monitoring and auditing mechanisms.
Figure 2.7. The absence of child benefits discourages labour force participation of households
with children
Average tax wedge, by household type and wage level, 2023

% of labour costs
50 50
Türkiye OECD
40 40

30 30

20 20

10 10

0 0
Single (100 %) Married (100-67%) Single (67%) Married (100-0%) Married (100-67 %) Married (100-100%)
Household without children Household with 2 children

Note: Data are based on personal income tax plus employee and employer contributions (SSCs) less cash benefits to which each household type are
entitled. Married (100-60%) corresponds to the two-earner couple at the combined wage level of 100% and 60% of average wage. Married (100-0%)
corresponds to the one-earner couple at the wage level of 100% of average wage.
Source: OECD (2024), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner.

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Additional considerations in transport infrastructure investment can significantly influence inequalities in economic
outcomes between women and men. An International Transport Workers’ Federation survey revealed that 80% of
women feel unsafe on public transportation in both developed and developing countries (OECD, 2023[38]). Safety
concerns can discourage women from pursuing economic opportunities that require commuting in Türkiye (Beyazit
et al., 2023[47]; Özgür Keysan, Kaygan and Kaygan, 2022[48]). Challenges such as long travel times, poorly-lit streets,
and unreliable public transport schedules usually disproportionately affect women. They often face greater
difficulties using public transportation due to concerns over safety and accessibility, which restricts their ability to
travel to work, access social services, or engage in education and training opportunities. Incorporating sensitivities
to inequality between women and men into transport infrastructure investment can enhance the safety,
accessibility, and reliability of public transport, ultimately boosting women’s labour force participation, and good
practices could be pursued in Türkiye. For instance, Chile has implemented responsive transportation policies by
adapting routes, designing safer night services, and incorporating universal accessibility features for pregnant
women and mothers with children. Canada and Iceland have introduced programmes to improve public transport
safety, frequency, and accessibility, enabling women, particularly from low-income backgrounds, to participate
more actively in the workforce (OECD, 2021[49]).

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60 

Table 2.2. Recommendations

Main findings Recommendations
Female labour force participation is the lowest in the OECD, mostly due Continue increasing public spending on early childhood education
to a disproportionate share of unpaid care and domestic work. while monitoring efficiency.
Introduce paid parental leave that is shareable and encourage its
more equitable sharing among parents by including non-
transferable periods.
Currently, women who resign upon marriage are entitled to severance Introduce more inclusive regulations in survivor benefits, working
pay, potentially increasing the long-term cost for employers, but also conditions and head of household legislations.
women’s incentives to resign and quit the labour force. Abolish severance payments upon marriage.
Rigid employment conditions affect women disproportionately when Expand the availability of flexible working arrangements, such as fixed-
coupled with other structural barriers and drive them out of the workforce term contracts, to other industries, such as business services.
or to informal or precarious employment.
Fixed-term and temporary work agency contracts are confined to
seasonal and agricultural sectors
Türkiye does not provide adequate cash benefits for families with Increase direct cash benefits for children, targeted towards low-
children, leading to one of the highest tax wedges for families in the income families.
OECD.
While the budgeting process includes instruments sensitive to equality Establish legal requirements for the inclusion of budgeting procedures
between women and men, it lacks critical tools such as impact sensitive to inequalities between women and men, and improve tools and
assessments and distributional analyses of budget measures. More methods to understand how budget measures impact those inequalities
generally, Türkiye does not mandate that budgeting be sensitive to and could promote equality goals.
inequalities between women and men through legislation.

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3 Steps towards green

transformation in Türkiye

Türkiye faces sizeable climate mitigation challenges. Although emissions per capita
are relatively low and have been decelerating recently owing to enhanced
mitigation efforts, they are still growing faster than in other OECD countries because
of economic convergence and a carbon-intensive energy supply. The country has set
a net-zero emissions target for 2053, with emissions expected to peak in 2038. To
reach this target, Türkiye needs to take ambitious actions. In particular, Türkiye aims
to put in place a carbon price, which should be a key instrument to reduce emissions
and whose revenues could be used to support the environmental transition. Türkiye
has also developed long term strategies to reduce emissions in key sectors like
transport, buildings, and industry. A particular challenge will be to transition away
from coal towards low-carbon energy, including by investing further in renewables.
This would also provide significant side benefits, such as reducing air pollution and
strengthening energy security. Finally, by strengthening the management of its
forests, Türkiye can increase its greenhouse gas absorption capacity and better
protect its ecosystems against growing wildfire risks.

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3.1. Achieving Türkiye’s ambitious climate change objectives requires a detailed

strategy
Türkiye has recently made significant progress in addressing climate change mitigation and adaptation. A
directorate of Climate Change was established in 2021 as part of the Ministry of Environment, Urbanisation, and
Climate Change. The country ratified the Paris Agreement in 2021 and published a revised Nationally Determined
Contribution (NDC) in 2023. The NDC proposes to reduce greenhouse gas (GHG) emissions by 41% in 2030 relative
to a “business as usual scenario” and confirms the country’s long-term net zero objective for 2053 (Figure 3.1). In
2024, the country published two Strategy and Action Plans (SAPs) for emissions mitigation and climate change
adaptation through 2030. A 2053 Long Term Climate Strategy was published in November, which integrated the
previous action plans for mitigation and adaptation in a comprehensive strategy across sectors, and listed several
intermediate and sectoral targets for 2030, 2035, and 2053. Emissions have decoupled from growth: CO2 emissions
have grown less than GDP since 1990 because the carbon intensity of energy has fallen by 18% and the energy
intensity of GDP has fallen by 28%. Emissions per capita in Türkiye are 37% below the OECD average. However, the
rapid growth in GDP per capita is putting upward pressure on emissions. The carbon intensity of energy use has
declined, but less than in other OECD countries (Figure 3.2).

Figure 3.1. GHG emissions are likely to continue increasing in the next ten years
Greenhouse gas emissions by sector and targets
Mt CO2 equiv.
1989.53

1991.53

1993.53

1995.53

1997.53

1999.53

2001.53

2003.53

2005.53

2007.53

2009.53

2011.53

2013.53

2015.53

2017.53

2019.53

2021.53

2023.53

2025.53

2027.53

2029.53

2031.53

2033.53

2035.53

2037.53

2039.53

2041.53

2043.53

2045.53

2047.53

2049.53

2051.53
800
Energy industries Manufacturing industries and construction Transport
Residential and other sectors Other energy use IPPU
Agriculture Waste LULUCF
600 Total including LULUCF
2030 target
400

200

0
Net-zero target

-200
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2052

Note: The sectoral shares on GHG emissions are based on the OECD database over 1990-2021. The breakdown and total for 2022 are estimated by
using sectoral shares and the growth rate of total GHG emissions from Türkiye’s Informative Inventory Report (IIR) 2024. The historical data and
target estimate on the total emissions are based on the IMF database.
Source: OECD (2024), Air & GHG emissions database; Ministry of Environment, Urbanization, and Climate Change (2024), 2053 Long Term Climate
Strategy; and IMF (2024), Climate Change Indicators Dashboard.
StatLink 2 https://stat.link/p2qarl
Achieving the net zero target in 2053 under current policies could be challenging. In particular, GHG emissions would
rise by 30% by 2030. The country has committed to reach an emissions peak in 2038 “at the latest” (Climate Action
Tracker, 2023[1]). Ensuring an earlier peak in emissions in the short term would help make emissions mitigation
more feasible in the long term to achieve the final target. By contrast, emissions have increased relatively more
than other countries in recent years after adjusting for economic trends: as a consequence, the Yale Environmental
Performance Index ranked Türkiye 117th for its emissions trajectory over the last ten years and 155 th when
extrapolating those trends to 2050 (Block et al., 2024[2]). Türkiye’s reliance on coal, in particular, is not declining. In
2023, electricity generated through imported coal was at an all-time high. Türkiye is also increasingly vulnerable to
climate change risks. Temperatures have increased by more than 2°C during the last 100 years and the country is
warming faster than other OECD countries (Figure 3.3). Compared to other OECD countries, the country is
particularly exposed to forest wildfires, which have contributed significantly to the increase in emissions in 2021
(Maes et al., 2022[3]).

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Türkiye has made important progress in strengthening its institutional framework for climate change mitigation and
adaptation in order to achieve its green transformation goals. The Climate Change Mitigation Strategy and Action
Plan (2024-2030) has been developed as an implementation tool for the NDC and includes detailed sectoral actions
and strategies with the goal to achieve the NDC targets, although those are not connected directly to sectoral
emissions targets. A comprehensive Climate Law to implement Türkiye’s goals was announced in 2023 and is
expected to be approved by Parliament in 2025 after its introduction on February 20th 2025. Such legislation exists
in a majority of European countries and provides not only an opportunity to inscribe medium- and long-term
emissions targets in law, but also a framework for a regular update in climate plans, for performance monitoring
and for stakeholder participation, and finally can help establish independent expert advisory councils to support
policymaking and monitoring (Evans et al., 2023[4]; D’Arcangelo et al., 2022[5]). Without this type of legislation, there
are no legal requirements to incorporate climate objectives into policy processes, making it more complicated to
integrate climate considerations into infrastructure investments and cost-benefit analyses. Türkiye recently
adopted green budgeting in line with a majority of OECD countries, but the practice remains at an early stage. In
particular, the country has not implemented green budget tagging, and accountability and transparency is
weakened by the lack of reporting on implementation and the absence of an oversight institution (OECD, 2024[6]).
To improve the institutional framework governing its mitigation strategy, Türkiye can rely on the past experiences
of other OECD countries which have implemented a comprehensive policy mix to achieve well defined and detailed
intermediate targets with the help of independent bodies (Box 3.1). It will also benefit from the stakeholders’
coordination made possible by its well-implanted Climate Change and Adaptation Coordination Board (CCACB),
which gathers public and private institutions as well as observers from other organisations, academia and NGOs, to
determine, monitor, and evaluate the strategies and actions related to climate change.
Achieving a successful green transformation would help Türkiye address the main environment-related issues
identified in previous OECD Economic Surveys (Box 3.1). Previous Surveys emphasised concerns regarding the future
trajectory of GHG emissions given expected population growth and economic convergence, and the lack of detailed
sectoral objectives consistent with targets. The absence of carbon pricing in parallel of existing fossil fuel subsidies,
in particular, does not provide enough incentives to reduce emissions. In addition, the significant reliance on coal
not only prevents significant emissions reduction, but also contributes to the degraded air quality in the country,
identified in previous Surveys and the latest Environmental Performance Review of Türkiye (OECD, 2019[7]).
Reducing the health impact of air pollutants will also require a modal shift in private transportation away from
private car use, and better information via air quality indicators over all key sources of pollution in the entire
territory. Finally, previous surveys have also underlined how Türkiye’s economic growth has increased pressures on
natural resources and the environment. In particular, rapid urbanisation has led to urban sprawl encroaching on
natural areas. Continuing careful management and policy coordination between ministries, in particular via the
CCACB, would safeguard the ecological services provided by Türkiye’s natural asset base including the high
biodiversity in the country and its contribution to carbon mitigation and climate change adaptation.
This chapter discusses three important steps for Türkiye to ensure a successful green transformation in line with
those main challenges. While a comprehensive policy mix is required for effective decarbonisation strategies –
carbon pricing, incentives for the adoption of low-carbon technologies, standards and regulations, support for the
groups vulnerable to the transition process, etc. – this Chapter will focus on three particular elements:
• Firstly, the country needs to price carbon effectively to provide the right incentives to economic agents but
also address Türkiye’s exposure to the EU’s Green Deal and Carbon Border Adjustment Mechanism (CBAM).
• Secondly, it needs to expand and decarbonise electricity production in order to transition away from
imported fossil fuels and thus reduce the high contribution of energy production to GHG emissions. This
would not only help achieve Türkiye’s climate change mitigation objectives while improving energy
security, but also provide substantial health benefits considering the significant impact of the currently high
level of air pollution on premature deaths.
• Finally, Türkiye needs to improve the management of its forests which are already affected by increasing
temperatures and a changing climate.
It should be noted that the decarbonisation of energy production will support the greening of other sectors such as
transportation, buildings, and industry, which are also critical to reaching the climate objective, but that will not be

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discussed specifically in this Chapter. Türkiye has recently developed a detailed strategy and several action plans
for those sectors (see Box 3.2).

Figure 3.2. Emissions have decoupled from growth but the carbon intensity of energy supply is
high
Kaya decomposition of the change in GHG emissions between 2000 and 2022
% pts %
150 150
Carbon intensity of energy Energy intensity of production GDP per capita Population GHG emission growth
100 100

50 50

0 0

-50 -50

-100 -100

-150 -150
FIN

ITA

JPN

ISL
IRL
DNK

SWE

NLD

FRA
DEU

SVK
ESP
CZE
CHE
HUN

SVN
LUX
USA

LTU
CAN

LVA
AUS

TUR
GBR

GRC

PRT
BEL

EST

NOR
AUT
POL

NZL
Note: The black triangle is the growth in total GHG emissions excluding LULUCF between 2000 and 2022. Coloured bars represent the sum of annual
contributions to the change by source, approximated by the log-difference. The Kaya equation is a simple decomposition of the level of GHG
emissions into emissions per unit of total primary energy supply (“carbon intensity”), energy use per unit of real GDP (“energy intensity”), real GDP
per capita (in USD 2015 PPP), and population.
Source: OECD (2024), OECD Environment Statistics (database); Demography and Population Statistics (database); National Accounts Database; IEA
(2024), IEA World Balances (Energy).
StatLink 2 https://stat.link/sy75ch

Figure 3.3. Türkiye is warming faster than other countries, increasing exposure to wildfire risks
A. Mean annual surface temperature change, 2019- B. Forest and population exposure to wildfires
23 compared to 1981-2010 %
°C %
1.5 100 50
Forest exposure, 2022
Population exposure, 2017-21 (rhs)
1.2 80 40

0.9 60 30

0.6 40 20

0.3 20 10

0.0 0 0
ITA
JPN
IND

IDN
ARG

GBR
MEX

KOR
AUS

CAN

FRA
CHL
BRA
ZAF

CHN
COL

USA

SAU
DEU
HUN
TUR
OECD

EU

ITA

ISR
SVN

CRI
NZL
USA

NLD
CAN
GBR

DEU

KOR
FRA
HUN
AUT

POL
COL
SVK
CHL

AUS
LUX
GRC
ESP
TUR
MEX
BEL

PRT

Note: In Panel B, forest exposure refers to the share of tree-covered areas exposed to very high or extreme wildfire danger for more than three
consecutive days. OECD countries with a level of 0% have been excluded from the figure. Population exposure refers to the share of the population
exposed to at least one fire over 2017-21.
Source: OECD (2024), OECD Environment Statistics (database); and OECD (2022), "OECD Regions and Cities at a Glance 2022".
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Table 3.1. Past OECD recommendations and actions taken for the green transition
Recommendations in previous Surveys Actions taken since previous Survey (Feb 2023)
Make emission pricing more consistent across sectors, including by Institutional documents including the most recent Medium-Term Program
gradually scrapping various subsidies to coal and by raising the carbon discuss the implementation of an ETS in the proximate future.
price.
Replace coal subsidies for poorer households by means-tested income In November, Türkiye announced that starting on January 1st, 2025,
support programmes without linking aid to fossil fuel consumption. subsidies to electricity consumers beyond 5 000 kWh per year, and
industrial users beyond 15 000 kWh per year, would be removed.
Implement the recommendations of the 2019 OECD Environmental Two medium-term strategy and action plans for mitigation and adaptation
Performance Review of Türkiye. In particular, adopt a new National have been published in 2024 for the period 2024-2030. In November,
Climate Change Action Plan as planned by the authorities. Türkiye published a “2053 Long Term Climate Strategy” document.
Design a strategy to increase the share of renewable resources in The 2023 NDC provides numerical targets for the deployment of
primary energy production, drawing notably on the solar potential. renewables in 2030 and the 2022 National Energy Plan sets up targets
for 2035. At the end of 2024, Türkiye announced intentions to increase
renewable energy installed capacity. In particular, the country set a target
to quadruple wind and solar installed capacity target by 2035.

Box 3.1. Developing the institutional framework for carbon mitigation strategies in OECD
countries
A regularly-updated, detailed sectoral strategy of GHG emissions reductions can provide certainty
and ensure the credibility of long term targets
For example, France’s National Low-Carbon Strategy (SNBC) outlines short- and medium-term carbon budgets
and strategies to achieve sectoral targets in the long run, and carbon neutrality by 2050. In particular, it focuses
on decarbonising energy through the expansion and the greening of electricity, reducing energy consumption,
reducing non-energy emissions, and enhancing carbon sinks. The 2015 Law on the Energy Transition for Green
Growth requires that climate budgets are set for five-year periods via the SNBC.
An effective combination of governance and policy choices can support decarbonisation
For example, Denmark has been at the forefront of emissions reductions by articulating strong institutional
choices with proactive policies. This includes a comprehensive policy mix with a carbon tax, regulatory measures
such as a ban on new fossil fuel cars, public investment, and targeted policies to attract private investments
such as R&D support or streamlined planning processes. On the institutional front, it provided intermediate
ambitious, detailed, and quantifiable targets for example in its Climate Law, and promoted stakeholder
involvement e.g. via business-government partnerships and an advisory citizen assembly.
Independent advisory bodies can help design, strengthen and coordinate climate policies
An independent economic advisory body on climate change can provide technical advice and help coordinate
different policy interventions across public and governmental institutions. For example, the United Kingdom
established the Committee on Climate Change to provide independent analyses and to advise the Government
on setting legally-binding carbon budgets, to monitor governmental action, and to provide policy advice. In
Denmark, the Environmental Economic Council provides analyses and advice to policymakers, and the Danish
Council on Climate Change, a council of experts, provides annual recommendations to the Ministry of Climate,
both to achieve long-term mitigation targets. In addition, the latter Council provides an annual climate report
including ten-year projections and an analysis of the adequacy of current policies.
Source: (D’Arcangelo et al., 2022[5]; OECD, 2024[8])

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Box 3.2. Türkiye’s Long Term Climate Strategy

Türkiye’s Long-Term Climate Strategy (LTS) provides a comprehensive overview of targets and projected policy
interventions for long-term greenhouse gas emissions mitigation in the main economic sectors, in parallel of
strategies related to innovation, just transition, and climate finance.
In the energy sector, the strategy focusses on long-term improvement in energy efficiency and diversification
of supply with ramped up renewable and nuclear energy targets in particular. In industry, emissions reductions
ranging from 75% to 100% are planned for the hard-to-abate industrial sectors by 2053. In buildings, gradual
regulatory changes are proposed to bring emissions near zero along with efficiency savings. In transportation,
the plan foresees the gradual expansion of electrification and modal shifts and presents 2035 targets for the
number of electric vehicles and charging stations, and long-term targets for the electrification and the more
intense use of railways. In the waste and agriculture sectors, actions to reduce methane emissions are proposed
by enhancing the circular economy and sustainable agriculture principles. In land use, land use change and
forestry (LULUCF), the main focus is to improve forest management through research and development and
regulatory changes.

Table 3.2. Main LTS targets by sector

Energy Reduce energy intensity by 35% by 2035 compared to 2022.
Quadruple the solar and wind capacity by 2035, from 31 GW to 120 GW.
Increase nuclear energy capacity to 7.2 GW by 2035.
Increase electrolyser capacity to 70 GW by 2053.
Increase the share of renewable energy in primary energy from 17% to 50% by 2053.
Increase battery capacity to 2.1 GW in 2030 and 7.5 GW in 2035
Industry 80% reduction in HFC consumption by 2045.
93% emission reduction in the cement sector by 2053.
99% emission reduction in the iron and steel sector by 2053.
75% emission reduction in the aluminum sector by 2053.
100% emission reduction in the fertilizer sector by 2053.
Buildings New large buildings will need to meet Nearly Zero Energy Building standards starting from 2025.
30% energy savings in public buildings by 2030.
New buildings will require an Energy Performance Certificate Class A starting in 2033.
New buildings will be constructed as Net Zero Operational Carbon Buildings from 2043.
The emissions from the buildings sector will be reduced to near zero by 2053.
Transportation Increase electric vehicles to 4.2 million by 2035.
Install 347 000 charging sockets by 2035.
Electrification of railways will be completed by 2053.
Construct 7 000 km of High-Speed Train and Fast Train lines by 2053.
Raise the share of railways in logistics from 5% to 22% by 2053.
Waste The recovery rate of municipal waste will be increased to 70% by 2053.
Sending waste to landfills without segregation will be eliminated by 2053.
The reuse rate of treated wastewater will be increased to 20% by 2053.
Agriculture Consolidation of all fragmented lands will be completed by 2053.
At least 10% of agricultural land will be used for organic farming by 2053.
Irrigation efficiency rate will be increased to 65% by 2053.
Emissions from livestock will be reduced by optimizing feed rations and feed variety.
LULUCF Double project funding for R&D and innovation by 2030 compared to 2020 levels
The proportion of woody green areas in settlements will be increased.
Develop mechanisms in line with the EU Carbon Removal Certification regulations.
Circular economy components will be implemented in forests.

Source: Turkish authorities and Türkiye: 2053 Long Term Climate Strategy,
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3.2. Pricing carbon to signal the need for a green transformation

Türkiye needs to increase its carbon pricing as part of a broader strategy to reduce emissions. Pricing emissions is
the most effective way to reduce emissions, especially in the short run, and can raise significant revenues which can
be recycled (OECD, 2023[9]; Hahn et al., 2024[10]). Still, effective decarbonisation requires a broad policy mix,
combining carbon pricing with standards and regulations and complementary policies such as innovation support,
infrastructure investment, and compensatory measures for groups vulnerable to the green transformation.
The expected increase in revenues from carbon pricing tends to be more important in middle- and low-income
countries than in high-income countries, as they tend to be more carbon-intensive and with low or no direct carbon
taxation, going beyond the level of expenditure needed for the transition (Black et al., 2024[11]). Today, Türkiye only
prices carbon indirectly, mostly through fuel excise taxes in road transport. Effective carbon rates are thus relatively
low compared to other OECD countries, particularly in industry and buildings (Figure 3.4, Panel A). More than two-
thirds of energy use is not taxed (Figure 3.4, Panel B). Fewer than a fifth of emissions are priced above EUR 30 per
ton and almost none above EUR 60 per ton. In addition, the gap with the EU – Türkiye’s main trading partner – is
likely to widen as the region implements a second Emissions Trading System (ETS) in 2027 covering road transport
and buildings emissions.
Figure 3.4. Only few greenhouse gas emissions are priced
EUR per A. Effective carbon rates (ECR), 2023 EUR per B. Distribution of effective carbon prices across GHG
tCO2 equiv. tCO2 equiv. emissions, 2023
250 80
Carbon tax ETS permit price Explicit carbon price Fuel excise
200 Fossil fuel subsidy Fuel excise tax 60 Fossil fuel subsidy Net ECR
150
40
100
20
50

0 0

-50 -20
Türkiye

Türkiye

Türkiye
EU

OECD

EU

OECD

EU

OECD

0 10 20 30 40 50 60 70 80 90
% of CO2 emssions from energy use
Buildings Industry Road transport

Note: In Panel B, OECD calculations based on data on effective carbon rates by sector, fuel, and instrument (OECD, 2024), and the emissions base
refers to all GHG excluding land use change and forestry. The ECRs are available at the level of the sector, fuel, and instrument (e.g. excise tax, carbon
tax, ETS). Covered emissions are sorted by increasing level of the ECR that applies to them. Therefore, for a given point on the y-axis, the value on
the x-axis corresponds to the share of total emissions priced at or below this value.
Source: OECD (2024), OECD Net effective carbon rates (database); and OECD (2024), Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring
Emissions Down, OECD Series on Carbon Pricing and Energy Taxation.

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Türkiye should accelerate the implementation of a national ETS. The country has conducted several studies regarding
the pricing of carbon including an analysis of the most adequate carbon pricing mechanism and a mandatory emissions’
monitoring, reporting, and verification program (World Bank, 2022[12]). Following up on these analyses, the
government decided to adopt an ETS and planned to finalise the legal framework for it in its Medium-Term Program
(MTP 2025-2027). The details of the ETS, such as the scope, the emissions cap, and the schedule, have not been
specified yet but will be included as part of the enactment of the Climate Law in 2025 along with details regarding the
Carbon Market Board overseeing the system. The implementation of a pricing mechanism is urgent because the EU
will introduce a carbon border adjustment mechanism (CBAM) in 2026, which according to some estimates could cost
Türkiye EUR 2.5 billion per year. However, a carbon price of EUR 20 per ton in 2027 gradually increasing to EUR 50 per
ton in 2032 would reduce the costs for Türkiye by two thirds and allow the country to collect part of the revenue
initially raised by the EU (Long et al., 2023[13]).

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The government continues to directly support fossil fuels via tax expenditures and direct transfers. For example, in
2021, the Revenue Administration estimated revenues foregone from excise tax exemptions for fossil fuel use to
0.9% of GDP (World Bank, 2022[12]). Türkiye also provides substantial direct support for coal and other fossil fuels.
This includes capital transfers to the state-owned Turkish Hard Coal Enterprise (TTK) to compensate the company
for its high production costs which were more than three times its selling price in 2018. In addition, Turkish Coal
Enterprises (TKI) has been supplying coal in-kind to poor households using lignite for heating purposes (OECD,
2023[14]; World Bank, 2023[15]). While Türkiye has made efforts to expand its natural gas infrastructure to reduce
the dependence of households on coal, the country should phase out fossil fuel subsidies or replace them with
targeted support measures if needed.
Beyond this direct support, government guarantees supporting fossil fuels are also sizeable. An electricity capacity
mechanism, whereby power plants receive monthly capacity payments based on a regulated formula, applies to
coal and natural gas (it also applied to hydropower until last year). It has become partially competitive since 2022
where a mixed payment methodology with half of the capacity payments distributed at market clearing prices was
implemented (Korucan and Yardimci, 2023[16]). The goal of the mechanism is to ensure sufficient installed and
reserve generation capacity. It could be improved. For example, it does not feature emissions performance
standards or age limits for participating domestic plants while a 50% efficiency criteria applies to power plants using
imported fuels. Eligible firms are allowed to participate in the energy market, while in other countries these
mechanisms are typically put in place to bolster strategic reserves (Papandreou, 2023[17]; IEA, 2021[18]). A temporary,
competitive mechanism with emissions standards and oriented towards building strategic reserves, along with
boosting green electrification and improved grid interconnections, would provide better incentives more efficiently
while improving energy security (European Commission, 2016[19]).
Direct and indirect support, and the lack of carbon taxes, imply that fossil fuels are severely underpriced even before
accounting for externalities. Taking into account the social costs of fossil fuels, the IMF estimated that implicit and
explicit subsidies to fossil fuels amounted to 15% of GDP in 2022. In particular, the country provides the largest
benefit to coal and natural gas among G20 countries (Black et al., 2023[20]). More targeted support could be
beneficial. For example, in 2015 Indonesia reduced the share of fossil fuel subsidies in government expenditures by
60% and replaced them with increases in spending on social protection and infrastructure, which supported growth
and employment. It also reduced the budget’s vulnerability to risk coming from variations in commodity and
currency prices (OECD, 2024[21]). In addition to providing more targeted support in line with climate ambitions,
Türkiye could review tax expenditures based on their impact on the environment: today, 10 countries have included
such tax expenditures in the scope of their green budgeting (OECD, 2024[6]).
Pricing carbon efficiently could increase government revenues significantly. Increasing the effective carbon rate to
a floor of EUR 60-75 per ton by deploying an ETS and transitioning away from fossil fuel subsidies could reduce
emissions by more than 15% and raise 2% of GDP in extra revenues annually (Parry, Minnett and Zhunussova,
2023[22]; D’Arcangelo et al., 2022[23]). In parallel, the net zero pathway (NZP) developed by the World Bank and
consistent with Türkiye’s 2053 net zero target estimates that the additional public investment needs for the green
transition would amount to 0.9% of GDP per year. In its Twelfth Development Plan, and reiterated in the 2053 Long
Term Climate Strategy, the government estimated additional annual public investment needs of 0.7% of GDP, a
similar order of magnitude.
Carbon revenues could be recycled to support growth, facilitate green investment, and accompany groups requiring
special policies during the green transition. Increasing the price of carbon without compensatory policies would
increase inequalities and hamper growth: a recent estimate by the IMF suggests that a price of EUR 75 per ton
would reduce consumption in Türkiye by 3.4% for the lowest income decile and by 2.5% for the top decile (Parry,
Minnett and Zhunussova, 2023[22]). However, recycling a quarter of the revenues towards a targeted income
transfer to the bottom 40% of household and using the rest to reduce labour taxation would have a positive impact
on growth and be redistributive (Guillemette and Château, 2023[24]; Chateau, Jaumotte and Schwerhoff, 2022[25]).
These estimates do not take into account the environmental and social benefits of higher carbon prices. To address
the impact on domestic competitiveness, in particular for energy-intensive and trade-exposed industries, Türkiye
could in turn implement its own CBAM (which ensures that domestic purchasers have no carbon-price-related
reason to prefer domestic products over imports or vice versa), provide emissions-unrelated rebates to exposed
industries, or temporarily provide free allowances depending on an arbitrage between effectiveness and
administrative complexity (OECD, 2022[26]; OECD, 2021[27]; Parry, Minnett and Zhunussova, 2023[22]).

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3.3. Greening and expanding electricity generation to reduce emissions and

bolster energy security

3.3.1. Decarbonising energy production requires expanding electricity supply and

greening its sources
Energy consumption is relatively carbon intensive in Türkiye. While the share of renewables in primary energy and
electricity supply is at the median of OECD countries owing in part to significant hydropower resources, the share
of renewable energy in final energy consumption is among the lowest in the OECD (IEA, 2024[28]). The energy sector
is responsible for almost a third of the country’s emissions, 10 percentage points higher than in the median OECD
country. Coal, oil, and natural gas each contribute almost 30% to total energy supply (Figure 3.5, Panel A). As a
consequence, most of final consumption is provided by fossil fuels, or by electricity generated with fossil fuels.
To reduce GHG emissions from energy supply, electricity generation will need to be expanded, and its sources will
need to be greened. Electricity in Türkiye covers one fifth of final energy consumption today, slightly less than in
advanced economies on average. It remains fuelled mostly by coal and natural gas, which contributed to 35% and
23% of electricity generation respectively in 2022 (Figure 3.5, Panel B). The carbon intensity of electricity generation
has not declined as fast as other countries (IEA, 2021[18]; Ember, 2024[29]). This is particularly concerning given that
the decarbonisation of economic sectors to achieve emissions targets will depend on their electrification. In
particular, in addition to energy efficiency measures and carbon capture, it will require (i) the electrification of cars,
trucks, and an expanded electrified railway system; (ii) renovations to insulate buildings and the move towards
electrified heat pumps, and (iii) manufacturing processes (e.g. for steel production) fuelled by electricity or
hydrogen typically generated via electrolysis (World Bank, 2022[12]; IEA, 2023[30]). Türkiye’s detailed strategy and
action plans in each of those economic sectors confirm the importance of electrification in successfully achieving
the green transformation in the country (see Box 3.2).
Decarbonising energy supply by deploying green electricity will help achieve emissions targets. The World Bank has
recently provided a detailed “Resilient and Net Zero Pathway” (RNZP) showing how Türkiye could achieve its 2053
target, and meet a doubling of peak power demand, by transitioning away from coal power plants, accelerating
investments in solar and wind energy while ensuring energy security through additional battery and pumped
storage, pushing forward on energy efficiency, and relying on gas generation with carbon capture and storage
(World Bank, 2022[12]).
Such a strategy would also significantly improve energy security. Total domestic energy production only covers 31%
of total energy supply today. Oil and natural gas are almost integrally imported and represent around three fifths
of final energy consumption. Half of the coal supply is also imported, mostly from Russia and Colombia (Figure 3.5,
Gumus (2024[31])). In parallel, the integration of renewable energy sources such as wind and solar power could raise
concerns regarding energy security due to their intermittent nature. To address these challenges, net zero scenarios
including the one developed by the World Bank puts emphasis on the importance of investment grid diversification
and interconnection, flexible backup generation, demand response programs and smart grids, and investment in
energy storage. Such concerns have been largely recognised in Türkiye’s, long term strategy: in particular, the LTS
includes a projected increase in electrolyser and battery capacity to 2 and 2.1 GW respectively by 2030 and plans
for additional pumped-storage hydropower plants, and a reduction in energy intensity by 35% in 2035 (Box 3.2).

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Figure 3.5. The supply of energy, including electricity, is mostly carbonised

A. Energy system, by fuel source and sector 2022 B. Electricity generation by fuel source
Mtoe GWh, thousands
200 500
Coal Oil Natural gas Coal Natural gas Geothermal
Geothermal Hydro Biofuels & waste
Solar, wind, etc Electricity Heat Hydro Wind Solar PV
160 400
Other Other sources
Transformation,
Fisheries
loss, etc
120 Imports 300
Services
Agriculture
80 Residential & forestry 200

Transport
40 100
Industry
0 0
Total energy Domestic Final Final 2000 2005 2010 2015 2019 2020 2021 2022 2023
supply production consumption consumption
by fuel by sector

Note: In Panel A, services include commercial and public services.

Source: IEA World Energy Statistics and Balances (database), www.iea.org/countries/turkiye/energy-mix.

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3.3.2. Transitioning away from coal

Türkiye needs to transition away from coal-fired power to decarbonise energy generation and enhance energy
security. To achieve the net zero target, no new coal plant should be built, the most inefficient coal plants should
be closed by 2030, and the remaining plants closed or retrofitted by 2040 (World Bank, 2022[12]; IEA, 2021[32]).
However, the Turkish government has not proposed plans to reduce coal capacity and instead aims to expand coal
mining activity to provide baseload capacity and thus improve energy security. While Türkiye projects to reduce the
share of coal in energy supply, the 2022 National Energy Plan (NEP) forecasts an increase of absolute domestic coal-
fired power plants capacity by 1.7 gigawatts (GW) by 2030, and a general increase in capacity until at least 2035.
Other OECD countries relying significantly on coal, such as Germany, Slovenia, or Poland, have deployed national
plans to phase out coal. By contrast, coal-fired power generation has more than doubled in the last decade in
Türkiye. A detailed plan to transition away from coal, consistent with the country’s emissions target, would provide
greater certainty on the future trajectory of energy supply and spur investment in power generation from other
sources.
Various net zero pathways (NZP) developed for Türkiye suggest that a transition away from coal is necessary and
feasible. Following up the announcement of the net zero target, four reports have developed decarbonisation
pathways which include future trajectories for power capacities by energy sources. Despite differences in
assumptions relative to macroeconomic and energy demand projections, all scenarios agree on the future of
electricity generation. Coal would be phased out (Figure 3.6). Solar and wind capacities would be quadrupled by
2030 compared to ten years prior – an annual rate of growth of 15-20%, and reach a total of around 140GW in 2040
against 25GW in 2023. While this pace is ambitious since global renewable capacity has increased by 10% a year in
the last 10 years, it has been steadily accelerating. In particular, global renewable capacity increased by 60% in
2023, by 40% in the United States, and by 30% in Europe, South Africa, and Brazil (IEA, 2024[33]). The current
hydropower capacity would be maintained for storage and baseload capacity. In order to provide the necessary
baseload capacity, natural gas capacity would stabilise or grow slightly to support energy security and peak-demand
support, but would typically be combined eventually with carbon capture in an NZP. A nuclear capacity of 4.8GW is
generally assumed, as announced by the government (the government announced in November 2024 a new target
of installed capacity of nuclear energy 4.8GW for 2030 and 7.2GW for 2035) (Alparslan, 2022[34]; World Bank,
2022[12]; APLUS Energy, 2021[35]; Aksoy et al., 2022[36]; Şahin et al., 2021[37]; Kat et al., 2024[38]).

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Transitioning away from coal with renewables would provide energy at lower cost and reduce energy dependency.
Building new coal plants is already more expensive than solar and wind, and this gap will widen as renewables get
cheaper and carbon prices rise (IEA, 2024[39]; Alparslan, 2021[40]; Aksoy et al., 2022[36]). Furthermore, the average cost
of electricity generated from renewables was expected to fall below the operating cost of coal in 2023 in Türkiye, and
has already done so in the EU and the United States (Gray, 2020[41]). In addition, the efficiency of domestic coal is 50%
lower than that of imported coal. Maintaining the current level and structure of coal import capacity, in turn, is
problematic for energy security. The share of imported coal in the production of electricity has kept increasing in the
last four years. Russia and Colombia have represented more than four-fifths of Türkiye’s coal imports since 2017; and
the share of coal imports in coal-generated electricity has been gradually increasing over the last 20 years, from none
to almost two-thirds between 2000 and 2023 (Gumus, 2024[31]; EIU, 2024[42]). While the share of domestic coal in
electricity generation is around 14% currently, other greener sources of energy could as efficiently stabilise energy
supply. The capacity factor (the actual energy output relative to the theoretical maximum) of domestic coal has fallen
below some wind farms recently (Gumus, 2024[43]).
Figure 3.6. Future power capacities are consistent across projected net zero pathways
Projected power capacity in net zero pathways, by source
GW
250
Coal Natural gas Hydro Solar Wind Nuclear Other

200

150

100

50

0
2021 2030 2035 2020 2030 2022 2040 2020 2030 2040
APLUS Energy Aksoy et al. (2022) World Bank Kat et al. (2024)

Note: Numbers from the World Bank are not directly accessible but replicate Figure S.4 of the Country Climate and Development Report. “Other”
includes 15GW of biomass in Kat et al. (2024)’s projections in 2040.
Source: (Alparslan, 2022[34]; World Bank, 2022[12]; APLUS Energy, 2021[35]; Aksoy et al., 2022[36]; Şahin et al., 2021[37]; Kat et al., 2024[38])

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Transitioning away from coal would have significant welfare benefits by reducing not only GHG emissions, but also air
pollution. Türkiye has one of the highest levels of exposure to fine particulates (PM2.5) in the OECD, leading to the
highest mortality rates from air pollution in 2019 (Figure 3.7). In that year, 13.8% of premature deaths were attributed
to exposure to PM2.5 against 5.5% in the OECD on average. The overall welfare cost of particulate exposure generated
by coal-fired power plants has been estimated to be between 2% and 5% of GDP per year (OECD, 2024[44]; Health and
Environment Alliance, 2021[45]; Black et al., 2023[20]; OECD, 2024[46]).
Türkiye has started to tackle the issue. Power plants are subject to the industrial air pollution control regulation, which
sets relatively tight limit values for some air pollutants. In addition, Türkiye introduced the Regulation on the
Management of Industrial Emissions in January 2025, which introduces a Green Transformation Certificate to assess
the environmental performance of facilities in some industrial sectors, classifying facilities from A to F based on their
compliance with the best available techniques. The Ministry of Environment, Urbanisation, and Climate Change also
provides grants to municipalities to replace coal with natural gas for residential heating in order to reduce the health
effects of air pollution. However, no limit exists on PM2.5 concentrations. Introducing or tightening thresholds, along
with regulatory enforcement and inspections conducted following the OECD Best Practice Principles for Regulatory
Policy such as evidence-based and targeted inspections (OECD, 2014[47]), could bring coal plant retirements forward or
incentivise retrofits.

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Figure 3.7. The population is exposed to a high level of air pollution

Mean Population exposure to fine particulates PM2.5, 2020

µg/m³
30

25

20

15

10

0
FIN
ISL

IRL

ITA

ISR
SWE

LTU

ESP

JPN

CRI
NOR

CAN
NZL
USA

AUS

LUX

HUN
DNK
CHE

FRA

GBR
DEU
NLD

LVA

GRC

MEX
EST

PRT

AUT

SVK

TUR

KOR
BEL

COL
SVN

CZE

POL

CHL
OECD
Source: OECD (2024), OECD Environment Statistics (database).

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The successful transition away from coal will require a combination of carbon pricing, standards and regulations,
and financial incentives. As an example of successful and rapid phaseout, coal has now effectively no role in
electricity generation in the United Kingdom even though its contribution had been stable between 2000 and 2010
and still represented 30% of total generation in 2010 (OECD, 2022[26]; MacDonald, Lee and Candlin, 2023[48]). The
United Kingdom successfully phased out coal in particular by setting a carbon price floor and limiting emissions
intensity beyond the potential reach of coal plants.
Such measures can be accompanied by investments in conversions or retrofits. Early closures of power plants could
be compensated through direct payments or auctions. The World Bank has estimated the direct, stranded costs of
early retirements at USD 4 billion (World Bank, 2022[12]). Germany implemented both strategies, respectively for
lignite and hard coal. Türkiye could also benefit from cooperation with domestic and multilateral development
banks (Kachi, Bendahou and Outlaw, 2024[49]). In Chile, the Inter-American Development Bank provided a
concessional loan to finance the retirement of two coal power units early and replace them by a wind farm (IDB
Invest, 2021[50]). The Asian Development Bank, of which Türkiye is a member, has set up a pilot programme including
a debt restructuring instrument to incentivise the early decommission of coal power plants. Coal plants can also be
retrofitted. Converting coal plants to gas plants can be attractive for those with pre-existing gas infrastructure
nearby. Coal power plants below 300 megawatts (MW) capacity that lack gas infrastructure and are outside
earthquake zones could also be replaced by small modular nuclear reactors (SMRs) (World Nuclear Association,
2024[51]). The government emphasises SMRs as a major part of the strategy to decarbonise energy production in its
most recent mitigation SAP. Nuclear energy provides more stable decarbonised electricity compared to renewable
sources, and the smaller scale of SMRs reduces the risks of delays and overruns compared to standard nuclear
plants. However, as for other nuclear plants, there are other environmental concerns related to the storage of
waste, and potential negative long-term implications on life and health in case of serious accidents, which require
careful monitoring and the cost of additional investments to be taken into account. In addition, the technology of
SMRs is relatively new: the first SMR was connected in 2019 and only Russia, China, and India have already
connected some SMRs to the grid. Finally, the capture of coal emissions can make sense for new coal plants to avoid
large depreciation costs. It could be made more competitive with a high carbon price: the average cost of capture
is around USD 50-100 per ton today with an additional cost of transport and storage of USD 20 (IEA, 2021[52]).

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3.3.3. Support measures will have to accompany regions and workers dependent on coal
Complementary measures will be required to accompany the people and regions vulnerable to changes in the
structure of jobs in general, and to the transition away from coal in particular. At the national level, the net
employment effects from higher carbon prices could be fairly limited (Chateau, Bibas and Lanzi, 2018[53]), as jobs
created in greener businesses, including in construction and services, are projected to offset job losses in mining
and carbon-intensive industries. In Türkiye, estimates suggest that there are around 50 thousand workers in the
coal industry and an additional 150 thousand workers in the subsectors covered by the EU CBAM. This is less than
1% of total employment (World Bank, 2022[12]; Özenç and Aşık, 2024[54]). Many workers in these sectors already
have skills transferable to green jobs, which should help them find other job opportunities (IEA, 2022[55]). In Türkiye,
compared to other manufacturing jobs, wages are relatively higher in the coal sector, informality and the share of
routine jobs are lower, and education levels are similar despite a higher rate of vocational training (Özenç and Aşık,
2024[54]).
In Türkiye and other coal-intensive countries, coal jobs are concentrated in specific regions and affect specific
workers, which can be impacted disproportionately (OECD, 2023[56]). In the United Kingdom, hourly wages for
displaced coal workers are estimated to have fallen by 40% on impact and remained 20% lower fifteen years later
(Rud et al., 2024[57]). In the United States, counties exposed to the decline of coal activity since 1980 have
experienced long-run reduction in earnings, employment, and population (Hanson, 2023[58]). More generally, past
transitions in other countries have shown that these regions can suffer long-term effects if the transition is not
anticipated (Caldecott, Sartor and Spencer, 2017[59]).
Learning from other countries’ past transitions will be important for Türkiye in order to prevent long-term scarring
of regions and workers. In the country, coal and lignite mining represents more than 0.4% of employment in two
regions: Zonguldak-Karabük-Bartın (4.2%) and Manisa-Afyonkarahisar-Kütahya-Uşak (1.1%). Past experiences in
other countries suggest that adequate support can be provided through a combination of labour market policies,
place-based investments, and measures to remove obstacles to geographical mobility (OECD, 2023[60]). For example,
the coal transition was relatively successful in the region of Limburg in the Netherlands, which benefited from the
relocation of some government services and support for innovation and knowledge sharing which boosted growth
in the 2000s after suffering from the highest unemployment rate in the country in the 1970s. The transition away
from coal could be partly funded by savings from reduced coal subsidies: The World Bank estimated that two thirds
of the transition costs in Türkiye could be covered by the induced reduction of coal subsidies (World Bank, 2022[12]).
Supporting the transition away from coal will require an assessment of the redistribution of skills induced by the
transition, and a combination of place-based and labour market policies. The public employment service can assess
the skills needed for green jobs through “skills assessment and anticipation exercises”, which could be based on
labour force surveys such as the recent analysis made by the SHURA Energy Transition Center (OECD, 2023[61]; Özenç
and Aşık, 2024[54]). Once groups vulnerable to the green transformation have been identified, the government can
put in place a combination of place-based policies and reinforce labour market policies (Causa et al., 2024[62];
D’Arcangelo et al., 2022[5]; OECD, 2024[63]). Place-based policies include early-stage reskilling and up-skilling, public
investment programmes, and improvements in social conditions through higher quality healthcare and transport
policies in the region. They can take the form of wider regional industry development plans. For example, the Just
Transition Development Plan in Greece deploys private, public and PPP financing for investments in Western
Macedonia not only to shift power production from lignite plants toward natural gas and renewables, but also to
establish a pharmaceutical industry and develop wine tourism (OECD, 2023[64]).
Encouraging geographical mobility could help smooth transitions. As an example of such a policy, the EU’s Just
Transition Fund (JTF) makes provisions for support for both digital and physical infrastructure investments that
improve connectivity (IEA, 2022[65]). Similar policies could be implemented in Türkiye. Central government financial
support for place-based policies can be conditioned on the establishment of long-term, regional plans for the
transitions: for example, the JTF provides support to the territories most affected by the green transition and
requires that countries prepare long-term plans for eligible regions (OECD, 2021[66]). Active labour market policies,
targeted unemployment benefits and social assistance, and looser labour market regulations, will then facilitate the
reallocation of workers to green employment (Causa et al., 2024[62]). Furthermore, more stringent employment
protection legislation is associated with a higher share of brown workers that cannot transition to green jobs,
potentially because it creates barriers to exit of low productivity polluting firms (Tyros, Andrews and de Serres,

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2023[67]). As a consequence, following up on the recommendations of the special chapter of the 2023 OECD
Economic Survey of Türkiye in that regard will be essential. In particular, Türkiye can increase the number of persons
receiving counselling services by supporting job placement services by the public employment service İŞKUR,
engage private job placement and counselling providers, deploy digital tools to improve match efficiency, expand
the scope and generosity of unemployment insurance and assistance, and loosen employment protection
legislation (OECD, 2023[68]).

3.3.4. Türkiye can speed up the deployment of renewables

The transition away from coal will only be successful if wind and solar capacity expands fast. Türkiye has made
significant progress in the deployment of renewables in recent years. The share of renewables in electricity
generation has increased from 26% in 2010 to 46% in 2024. During this period, the country built up a wind and solar
installed capacity of 12.5 and 19.9GW respectively (Gümüş, 2025[69]). The authorities have provided two
quantitative intermediate future targets: the 2023 NDC aims to reach capacities of 18GW and 33GW by 2030 for
wind and solar respectively, and the NEP aims at 29.6GW and 52.9GW by 2035. These objectives have been raised
in November 2024 to 43.1GW and 76.9GW. Even before recent announcements, the solar objective was consistent
with NZPs, while the objectives for wind power are still below but significantly closer to requirements (Figure 3.6).
However, the pace of installation has recently slowed down: for example, only 0.4GW of wind capacity was installed
in 2023, the lowest number since 2012 (Gumus, 2024[31]). There is room for solar and wind expansion. Today, Türkiye
appears to only use a relatively small share of its solar and wind potential, and the current geographical distribution
of capacity is not optimally aligned with potential (IEA, 2021[18]; OECD, 2023[68]; Yildirim, 2023[70]).
To accelerate wind and solar power deployment, Türkiye can improve its current financial incentives. Today, the
country uses three main instruments: (i) The Renewable Energy Support Mechanism (YEKDEM), a Feed-in Tariff
(FiT); (ii) competitive auctions conducted via the Renewable Energy Resource Areas (YEKA) for a FiT in specific
“renewable energy zones”; and (iii) net metering regulation for small-scale solar systems. Those incentives are
largely welcome, but their design could be improved.
FiTs can be costly, slow to adapt to changes in technology, and hard to calibrate. FiTs are a simple mechanism to
provide support and reduce uncertainties, but prices and volumes allocated via FiTs are typically settled by an
administrative process which can be slow to adjust to declines in costs due to technological progress. In addition,
they blur the price signal as they are not directly linked to the market price. As a consequence, most OECD countries
have now shifted away from FiTs towards mechanisms that incorporate the price signal and based on competitive
biddings like feed-in premiums (FiPs) and contracts for differences (CfDs). With these instruments, the producer is
guaranteed a given price – and obtains the upside if the wholesale price rises above this guaranteed level in the
case of FiPs. CfDs can be fiscally attractive compared to FiPs (and would prevent unexpected windfalls to renewable
generators) since they allow the government to recoup revenues if the market price is above the reference tariff
level. CfDs could be paired with long-term Purchasing Power Agreements whereby private power consumers and
producers agree on long-term energy supply, which also reduces the burden on public finances (Busch et al.,
2023[71]; Ason and Poz, 2024[72]).
Even though an eventual shift from FiTs towards FiPs or CfDs would be more efficient, the recent shift to a reliance
on auctions with YEKA is welcome and could be pursued in the short term. The programme has shown some
limitations. Solar capacity allocations since 2017 are only one-third of what would be needed to achieve targets.
Recent growth has been mostly driven by small-scale solar due to the loosening of the net metering regulation
(Alparslan and Yildirim, 2023[73]). Large-scale plants would provide significantly higher returns thanks to a lower
average cost of energy (Hahn et al., 2024[10]). Wind capacity expansion has also been slow, partly due to insufficient
transmission capacity and potentially because of restrictive participation requirements like local content rules (IEA,
2021[18]). By 2023 only 1.3GW of capacity was operational out of the tendered 6GW since 2017 (Gumus, 2024[31]).
Finally, remaining administrative and regulatory constraints could be loosened. Experience from other OECD
countries shows that establishing a single body responsible for issuing all required licenses or establishing a spatial
committee to coordinate the broader electricity network is key to promote investment in renewables. For rooftop
solar energy, approval must be obtained from different organisations in Türkiye. As a consequence, it takes 27
weeks from an application for a residential rooftop solar system with one week for the actual installation (Alparslan
and Yildirim, 2023[73]). Encouragingly, authorities have identified the permit process as an essential barrier to

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renewables deployment and has planned to significantly reduce the pre-license process from 48 months to 18
months along with shortening other procedures (e.g. environmental impact assessments).

3.4. Better managing Türkiye’s forests

Forests are essential for emissions mitigation but their role is threatened, in particular by increasing wildfire risks.
The annual GHG sequestration from land use, land-use change and forestry (LULUCF) has declined significantly. In
absolute terms, it grew from 66.5 Mt CO2-eq in 1990 to reach a peak of 77 Mt CO2-eq in 2014, but eventually
decreased to 47 CO2-eq in 2021. The share of non-LULUCF emissions sunk declined steadily from 30% in 1990 to
8% in 2021. This was partly driven by the historically large wildfires in 2021 which burnt a surface four times higher
than in any year since 1990, and released 20 million tons of CO2. There has been an increasing trend in burnt areas
in recent years. Fires have been responsible for 14% of tree cover loss in Türkiye between 2001 and 2023. More
generally, the intensity of forest use increased by 50% between 2019-22 and 2010-18, and is now above the median
OECD country (OECD, 2019[7]). Annual tree cover loss has doubled since 2016 (GFW, 2024[74]). While permanent
deforestation (excluding wildfires) remains rare, it has tripled since 2016. Land take and recultivation have been
higher than most countries in the European Economic Area in the last decade. An ambitious forest strategy will thus
be essential both to reduce carbon emissions and adapt to climate change.

3.4.1. Improving the mitigation capacity of forests

Restoring and enhancing the level of emissions sunk by the LULUCF sector will be key to achieve Türkiye’s emissions
target. In the World Bank’s RNZP with significant reductions in emissions in other sectors, the reductions induced
by forests and harvested wood products would need to increase by 60% to achieve net zero emissions in 2053. To
achieve those goals, Türkiye can rely on a strong institutional governance of its forests. They are largely owned and
managed by the government through the General Directorate of Forestry (OGM). Special afforestation requires
OGM authorisation and oversight.. All forest areas benefit from a long-term management plan in line with the
Sustainable Development Goals, against 83% in Europe and Northern America for example.
Türkiye can pursue the improvement in its accounting of natural capital, especially forests. Previous increases in
forest cover have been linked to changing definitions of forests and afforestation. For example, data provided to
the FAO included land re-registration, while private forests were underestimated (Serengil and Papageorgiou,
2022[75]). In 2017, the World Bank estimated that 40% of what authorities classified as forests were actually “other
wooded land” according to UN definitions, while private forests were 10 times larger than reported (World Bank,
2017[76]). Efforts are under way to improve forest accounting, but more could be done. To improve accuracy,
Türkiye's Twelfth Development Plan aims to align forestry statistics with international standards. Although the
Twelfth Development Plan also sets a gradual, increasing target to raise the forest coverage from 29.8% in 2022 to
30.3% in 2028, the country could set clear, quantitative objectives for net afforestation and assess forests’
vulnerability aligned with its climate adaptation strategy.
Türkiye could focus on restoring degraded forests and reforestation with fast growing species, while limiting
deforestation. Over 40% of the forest area is considered degraded. Restoring these forests is cost-effective and can
significantly increase carbon absorption (Grafton et al., 2021[77]). The World Bank’s RNZP study suggests that
preventing net deforestation, reforesting 15 thousand hectares by 2053, and restoring a third of the degraded
forests could offset 120 million tons of GHG emissions and compensate unabated emissions in other sectors. The
Twelfth Development Plan’s objective for industrial afforestation is in line with this scenario, but the proposed
increase in forest area is significantly lower. To address this issue and improve forest management and institutional
capacity, the OGM has launched the 'Climate Resilient Forests Project' in 2024, focusing on policy development,
fire-resistant species, climate-resilient forests, and enhancing wildfire response capacity.
To achieve those objectives, Türkiye should employ a policy package combining regulatory policies and economic
incentives. Türkiye has room to extend the range of protected areas: the share of protected land area is currently
relatively low and the country has not set a horizon to achieve the Kunming-Montreal target of 30% (OECD, 2023[78];
European Commission, 2024[79]). However, the careful selection of protected areas will be essential. Evidence of
past protected areas policies suggest that they have had a minor impact on forest cover on average because the

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selected areas are often under minimal pressure from economic development, but that better targeting and strict
enforcement yield positive results (Reynaert, Souza-Rodrigues and van Benthem, 2024[80]). Türkiye could also adopt
policy tools like taxes, subsidies, and tradable permits (Chhun et al., 2024[81]). Subsidies can take the form of tax
credits, tax reductions (e.g. property tax exemptions), or payments for ecological services (PES). For example, Costa
Rica has a long-running PES programme to stop deforestation, which provides direct payments to landowners when
adopting sustainable forest management techniques (OECD, 2023[82]; UNFCCC, 2020[83]; OECD, 2020[84]). Eventually,
forests could be covered by an ETS provided that mechanisms are in place in particular to manage the risks of carbon
release (Mendelsohn, Sedjo and Sohngen, 2012[85]; Parry, Minnett and Zhunussova, 2023[22]; Sedjo and Marland,
2003[86]; OECD, 2024[87]). However, as discussed above, the sectoral coverage of the ETS planned by Türkiye has still
not been specified.

3.4.2. Reducing wildfire risks

Climate change poses a growing risk of wildfires, which threaten forests and their sequestration power, and
generate economic costs. Among OECD countries, Türkiye is particularly exposed: in particular, the share of tree-
covered area exposed to very high or extreme fire danger is among the highest across the 52 countries in the
International Program for Action on Climate (IPAC) and the share of the population exposed is above the IPAC
median (Maes et al., 2022[3]).
The length of the fire weather season has increased by 40% since 1979 and is expected to increase by 30% in a
scenario of an increase in 2°C in global temperatures (Jones et al., 2022[88]). Exposure to wildfire risk is high: three
quarters of the country’s forests are exposed to very high or extreme fire danger, and 17% of the population were
exposed to at least one fire between 2017 and 2021 (Figure 3.3). Wildfires have social costs that go beyond direct
lives lost and damages to infrastructure and ecosystems. In particular, they present significant long-term health
risks: today, wildfire-induced air pollution is associated with 340 000 premature deaths annually in the world (OECD,
2023[89]). In the United States, with a shorter wildfire season, a more limited increase in relative risk, and less
population exposure, a recent estimation suggested that the mortality burden from the increase in fine particulates
due to climate-induced wildfires would generate annual damages of more than 0.6% of GDP by 2050 (Qiu et al.,
2024[90]).
Better management in reforestation and forest restoration can help reduce wildfire risks, along with improved land
use, and stronger institutional capacity. The 2021 wildfires in Türkiye highlighted the need for better wildfire
prevention and response. The OECD has provided an exhaustive cross-country comparative analysis of recent policy
measures implemented by other countries facing similar risks which can support Türkiye’s strategy against wildfires
(OECD, 2023[89]).
• Implementing modern forest management techniques, for example through prescribed fires and the
creation of buffer zones and fuel breaks. Türkiye has already experimented with some of those policies.
The Constitution mandates that forests lost to wildfires should immediately be reforested, and the country
has started planting fire resistant species in those rehabilitations. It has also built roads to isolate
settlements and agricultural lands from forests (San-Miguel-Ayanz et al., 2022[91]).
• Reinforcing land-use planning and building incentives, for example by regulating development in wildfire-
prone areas. For instance, Portugal and France ban the construction of new buildings in zones with high
wildfire risks. Building codes and standards can also mandate fireproof building designs. Financial incentives
through insurance premia or the tax system can encourage wildfire mitigation: for example, the Colorado
Wildfire Mitigation Deduction allows owners to claim tax credits for mitigation investments (Sutherland
et al., forthcoming[92]).
• Ramping up institutional capacity to manage wildfires with more funding. Türkiye’s forest fire management
budget is relatively low, although capacity has recently increased since the wildfires of 2021 including
investments for helicopters and drones (WWF, 2019[93]). Türkiye already provides important services, e.g.
through early warning systems and information sharing across government agencies (World Bank, 2022[94]).
It also benefits from international coordination through the European Forest Fire Information System and
the EU Civil Protection Mechanism which pools response capacities with the EU and 10 other countries.

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The institutional framework could still be improved by promoting a whole-of-government approach to

wildfire management, for example by creating a single coordinating body like the Agency for the Integrated
Management of Rural Fires in Portugal.
Low insurance coverage makes the population vulnerable to increasing wildfire risks. Insurance can help not only
reduce the socio-economic impacts of climate-related events, but also provide incentives for mitigation actions
through premia or regulations and contribute to sharing the monetary burden between the public and the private
sector. Such mitigation actions can include, for example, risk prevention measures at the property level such as fire-
proof roofs and windows or renovations with non-flammable building materials. For example, in the United States,
some insurance providers already give a discount on premiums to homeowners undertaking wildfire prevention
measures – such discounts are mandated in California via the “Safer from Wildfires” programme. Today, the take-
up of insurance in Türkiye is relatively low. For example, in 2022 the penetration of non-life insurance was the
lowest in the OECD at 1.1% of GDP. The premiums per person amounted to USD 108, the second lowest in the OECD
and 20 times below the OECD average (OECD, 2023[95]). The majority of disaster-related insurance covers
earthquakes through Türkiye’s Catastrophe Insurance Pool (TCIP, or DASK in Turkish). As a consequence, only
around 14% of Türkiye’s climate-related total economic losses were insured between 1980 and 2019, and 8% of all
natural catastrophe economic losses between 1990 and 2019, lower than most OECD countries (World Bank,
2022[12]; OECD, 2021[96]).
Expanding the existing earthquake insurance system (TCIP) to cover other natural disasters would help. Disaster
insurance aims to achieve multiple objectives: achieving broad coverage at an affordable price while being able to
cover large losses in a reasonable amount of time. Experiences from European and OECD countries suggest that this
could be achieved by mandating insurance against multiple risks as part of standardised products, while providing
public reinsurance for catastrophic losses (OECD, 2005[97]; Kuik et al., 2017[98]). In France, private insurers must
include insurance against natural catastrophes in property insurance policies. Coverage is funded from a fixed share
of all premiums and insurers in turn benefit from government-backed reinsurance through the “Catnat” system.
TCIP provides a good starting point to establish a broader system of insurance beyond earthquakes. It is set as a
compulsory earthquake insurance scheme for dwellings in municipal areas. It has a simplified premium structure
with 15 rating categories based on hazard zone area and the type of dwelling (OECD, 2021[96]). The government
provides limited reinsurance on top of TCIP’s coverage and households can subscribe to private insurance above
the TCIP threshold. For this reason, it is particularly welcome that the government is planning to expand the scope
of TCIP to include most natural disasters, and include rural areas, which are currently excluded from coverage. The
regulation regarding this Compulsory Disaster Insurance, which was outlined in the Medium-Term Program, is
expected to be implemented in 2025.
Raising public awareness of disaster risk and providing more information would also help insurance take-up,
incentivise adaptation investment, and ensure than insurance premiums reflect the actual risk. Türkiye already
provides detailed geographical information on wildfire risks. Some countries in the OECD have started implementing
programmes to add information on disaster risk at the time of a rental of purchase transactions, as is usually done
for energy performance. This could be part of a certificate programme: for example, Germany’s Hochwasserpass
includes a flood risk assessment and recommendations for additional precautionary measures. In the United States,
the Boulder County’s Wildfire Partners program provides certificates after a free home assessment, which can be
used to subscribe to insurance. Additional regulations could then complement the broader insurance system: In
California, the “Safer from Wildfires” programme legally mandates insurance providers to reward wildfire
prevention efforts undertaken by insured individuals by reflecting these in risk scores and giving corresponding
discounts on insurance premiums (OECD, 2023[89]).

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Table 3.3. Recommendations

MAIN FINDINGS RECOMMENDATIONS (Key recommendations in bold)
Improving the institutional framework for emissions reductions
Greenhouse gas emissions are still growing and the government expects Develop long-term projections and scenario analyses for demand and
them to peak by 2038. The government has not presented a sectoral supply across all energy sources on a sector-by-sector basis.
breakdown of a plan to achieve its 2053 net zero target. The Climate Law Swiftly implement the Climate Law once approved.
announced in 2023 has been introduced in Parliament on February 20th
2025 but has yet to be approved.
Expand green budgeting methods by developing green tagging and
Türkiye has adopted green budgeting, but the process is still at an early reviewing tax expenditures.
stage.
Implementing an effective carbon price
Carbon is only taxed indirectly, mostly via fuel taxes. Fewer than a fifth Implement an ETS as announced and provide support for green
of emissions are effectively priced above EUR 30 per ton. investment and social transfers to compensate groups vulnerable
Fossil fuel subsidies remain significant, in particular for coal. to the green transformation.
An ETS is scheduled to be set in 2025. Transition away from fossil fuel subsidies, replacing them with
targeted social support, as necessary.
Transitioning away from the use of coal in energy production
Two-thirds of energy consumption is based on energy imports, mostly Develop and swiftly implement a plan to transition away from coal.
from fossil fuels. Electricity is mostly powered by coal and natural gas. Set a tight emissions intensity limit for new power plants.
Türkiye plans to expand coal capacity in absolute terms despite higher Introduce an enforceable (e.g. via fines) threshold for fine particulate
costs and high dependence on a narrow set of partners for imports. emissions and consider tightening thresholds for other air pollutants.
Air pollution-related mortality is the highest in the OECD.
Accompanying workers and places vulnerable to the green transition
Some regions and workers are vulnerable to the transition away from Develop a skills assessment and anticipation exercise for the green
coal and brown energy. transition.
Rigid labour market regulations, an expensive severance pay system, Facilitate the reallocation of workers to green employment through active
and low unemployment insurance coverage hamper labour reallocation. labour market policies.
The green transition in general, and the transition away from coal in Condition financial support for place-based policies on the establishment
particular, may exacerbate skills mismatches, shortages, and the need of long-term regional plans.
for reconversions. Increase the number of persons receiving job counselling services.
Shift social protection from the severance pay system to a broader-based
unemployment insurance.
Supporting the deployment of renewable energy
The pace of solar and wind installations has slowed down. Wind and Focus on auction-based support schemes to support the
solar investment are incentivised by feed-in tariffs (FiTs), including YEKA deployment of renewable energy, and replace FiTs by market-based
which allocates capacity via auctions. instruments like FiPs or CfDs.
Increase in solar capacity has mostly been driven by small scale Increase the size of allocations under the YEKA feed-in tariff and support
infrastructure. large-scale solar and faster wind deployment.
Price signals are better incorporated in feed-in premiums (FiPs) or Establish a single body to issue installation licenses.
contracts for differences (CfDs) relative to FiTs.
Improving the management of forests
Forests have degraded in recent years, and are used more intensely and Continue aligning the definition of forests with international standards.
have sunk less emissions than in the past. Increase further the objective of forest coverage and provide a clear
schedule for achieving it.
Recent statistics on forests are not necessarily aligned with international Extend protected areas with careful enforcement and targeting towards
definitions. selected areas under heavy pressure from economic development.
Consider implementing a payment for ecosystem services, a feebate on
forest emissions, or introducing forests in the ETS.
The share of land and maritime protected areas is relatively small.
Reducing exposure and vulnerability to wildfires
Forest wildfires have become more likely because of climate change and Implement active management of vegetation accumulation including
a large share of forests and of the population are exposed. prescribed fires.
Land take has been relatively high in the last decade. Restrict construction in high-risk areas through regulation or financial
incentives.
Disaster-related insurance coverage in Türkiye is low and focused on Implement disaster-insurance coverage beyond earthquakes as
earthquake risks. The government has announced plans to extend planned, and increase the coverage threshold, while ensuring that
compulsory insurance to other natural disasters. premiums remain contained.

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4 Completing the transition to a

competitive and innovative
economy

Türkiye’s traditional growth drivers, based on factor accumulation, will be limited

since investment levels are already high and the demographic dividend is set to fade.
Future growth will depend on higher productivity growth, but productivity has
slowed in recent years and remains below the OECD average, undermining
international competitiveness. The economy remains specialised in medium-tech
sectors and lacks competitiveness in high-skilled manufacturing and services. A
successful continuation of economic convergence will require improving the
performance of the innovation system by boosting the diffusion of new
technologies, for example through better research-business collaborations. In
addition, the distribution of workers’ skills could be improved. Reducing barriers to
high-quality lifelong learning would support the employability of older adults, while
skills mismatches could be tackled by providing incentives for universities to better
align their programmes to labour market needs, and by reducing the emigration of
skilled workers. Finally, easing the significant barriers that remain to business
dynamism, in particular through large interventions of the state in business
activities, would boost productivity, FDI, and competitiveness.

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4.1. Productivity will have to improve to continue the convergence process

The next stage of economic convergence will require boosting productivity, enhancing competitiveness, and
bolstering services exports. Improving Türkiye's growth prospects will require boosting total factor productivity
growth, as the ability to grow through more capital and labour is shrinking. In general, growth can rely on increasing
labour and capital inputs, or improving the efficiency in using these inputs. Over the last decades, Türkiye has
benefited from a young population and relatively high capital accumulation (Figure 4.1) .There is still potential to
increase women's employment (see Chapter 2). However, growth in the working age population is expected to
decline steadily over the next 25 years (see Chapter 1). Consequently, margins to increase GDP through additional
labour input will gradually narrow. The potential for further capital accumulation is also limited. The investment
rate in Türkiye is already high relative to OECD countries: in 2022, fixed capital formation relative to GDP was 30%
higher than the averages in Europe and the OECD. As a consequence, sustaining dynamic economic growth in the
future will largely depend on improving productivity growth.

Figure 4.1. The potential growth will slow as capital and labour accumulation weakens
Contributions to potential output growth
% pts %
8 8
Labour efficiency Employment Working age population Capital Potential growth (RHS)
6 6

4 4

2 2

0 0

-2 -2
2000

2004

2008

2012

2016

2020

2024

2028

2032

2036

2040

2044

2048

2052

2056

2060
Source: OECD calculations based on OECD Economic Outlook No. 116 long-term database.

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GDP per employed person has increased faster in Türkiye than in other OECD countries in the past two decades,
and in 2022 it was around the median of OECD countries when measured at purchasing power parity. However, the
convergence process has recently slowed down and improvement in recent years has partly reflected imbalanced
growth as discussed in Chapter 1. Indeed, when productivity is measured in terms of potential GDP per employed
person, the convergence process has slowed down in recent years and productivity levels remain lower today than
in other OECD countries (Figure 4.2, panel A and B). Low productivity within each sector has been the main factor
behind the aggregate productivity gap vis-a-vis other OECD countries. The educational attainment of the workforce
is still particularly low compared to other OECD countries. Investment has been flowing into less productive areas
such as housing, while the share of investment in intellectual property products (around 10% of domestic fixed
capital formation) has been half that of Europe (around 20%) over the last decade. Over the past 20 years, total
factor productivity growth has been slow and has contributed less to growth than in similar countries (Dincer,
Eichengreen and Tekin‐Koru, 2022[1]; Rab et al., 2019[2]; Yilmaz, Yasar and De Rosa, 2017[3]; OECD, 2023[4]; Acemoğlu
and Üçer, 2020[5]; Sevinç et al., 2022[6]). Related to that, the economy remains specialised in relatively lower tech
sectors. For example, the share of workers employed in skill-intensive manufacturing and services jobs remains one-
third lower than in Europe (Figure 4.2, Panel C and Rab et al. (2019[2])).

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  91

Further development will require improving productivity, particularly in services sectors. Higher productivity will help
shift Türkiye’s competitive edge from industries relying on low-cost labour to higher value-added production. This will
allow to continue increasing wages durably and thus improving living standards. Today, Türkiye’s lack of
competitiveness in these high-skilled manufacturing and services industries is reflected in the relatively low level of its
exports’ technology intensity (Figure 4.2, Panel D). The share of high-technology exports in manufactured exports is
particularly low, around 3.5% over the last 12 years against more than 20% in upper middle-income countries.
However, progress has been made recently: the share of medium-high technology exports has increased from 32.2%
in 2015 to 37.5% in 2024 and in recent decades Türkiye has gradually upgraded into advanced manufacturing (World
Bank, 2022[7]). In services, transport and tourism represent around 80% of exports against less than half on average in
OECD countries. Further upward integration into global value chains (GVCs) will require technological progress,
workforce upskilling, and structural reforms to respond to global demand (OECD, 2023[4]).
Figure 4.2. Productivity is still low and the economy concentrates on production with relatively
lower value added
A. Potential GDP per people in employment, 2023 B. Potential GDP per people in employment, relative
USD, thousand % to the United States %
250 250

62 20
Purchasing power parities Purchasing power parities
Constant exchange rates Constant exchange rates (rhs)
200 200 60 19

58 18
150 150

56 17
100 100

54 16
50 50

52 15

0 0
50 14
FIN
ITA
JPN

LTU

IRL
GRC
HUN

TUR

KOR

GBR
DEU
PRT

POL

ESP
CAN

AUS

NLD
FRA
AUT
DNK
USA
NOR

2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
C. Share of employment in high- and medium-
high technology manufacturing and knowledge- D. Share of high-technology exports, 2022
intensive services, 2023
% of total employment % of total employment % of manufactured exports
8 40 50

6 30 40

30
4 20

20
2 10
10
0 0
EU EA TUR EU EA TUR 0
High and medium high-
FIN

SVK
ITA
ESP

CAN

DNK
DEU

USA

AUS
TUR

ISL
IRL
JPN
PRT

MEX
FRA
GRC

KOR

NOR

GBR
COL

SWE
OECD

Total knowledge-intensive
technology manufacturing services

Note: In Panel A and B, data are converted in USD at 2021 purchasing power parities and 2021 exchange rates. In Panel D, unweighted average of 38
countries for the OECD aggregate.
Source: OECD (2024), OECD Economic Outlook 116 database; Eurostat; and World Bank World Development Indicators.

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This chapter discusses how Türkiye can boost total factor productivity growth and ensure a continued rise in living
standards while improving competitiveness to boost manufacturing and services exports. Increasing productivity
growth will require a three-pronged strategy: (i) encouraging innovation and promoting the adoption of new
technologies, (ii) enhancing the skills of current and incoming workers, and (iii) reducing barriers to business
dynamism, notably through trade openness.

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92 

4.2. Encouraging innovation and promoting the adoption of new technologies

Technological advancement and innovation can help unlock potential productivity gains and enable companies to
gain a competitive edge in the international market (OECD, 2024[8]). However, the performance of the innovation
system in Türkiye significantly lags behind that of its European peers (European Commission, 2024[9]). Although
public and private investment in R&D activities in Türkiye has increased significantly over the last decade, it remains
at almost half of the OECD average (Figure 4.3). This is reflected in relatively weak innovation outcomes. Only one-
third of Turkish companies reported introducing an innovation in 2018-2020, compared to around half of the
companies in the average OECD country (OECD, 2024[10]). Business-based R&D in Türkiye, resulting in patent
applications with international significance, is relatively weak. Moreover, innovative outcomes are weak relative to
spending, suggesting inefficient use of resources. Indeed, the number of patent applications relative to business-
based R&D spending is among the lowest across OECD countries (see Figure 4.3, Panel C). Similarly, Türkiye's
performance in other intellectual property indicators, such as trademarks and design applications, is considerably
lower than the EU average (European Commission, 2024[9]). In some areas, though, the country is showing promising
development, such as design applications and trademark registrations. This reflects growing awareness of the
importance of intellectual property protection. Despite relatively lower patent applications compared to R&D
spending, Türkiye is making progress in strategic sectors, including defence and high technology, where notable
international patents have emerged. As a result, Türkiye performs relatively well compared to other middle-income
countries and was one of only four other middle-income economies among the top 40 Global Innovators in 2024
according to the World Intellectual Property Organization’s office (WIPO, 2024[11]).
Innovation and the diffusion of new technologies depend on both firms’ capabilities and incentives. To promote
innovation among Turkish companies, the authorities need to make (i) government support more targeted and
efficient and (ii) promote wider adoption of new technology among Turkish companies by promoting collaboration
between research institutions and companies.

4.2.1. Government support for R&D should become more targeted and efficient
The government has already recognised these challenges and has significantly increased its efforts to improve the
innovation system in Türkiye, supported by numerous government initiatives and investments in this area. Indeed,
overall government support for R&D has increased from 0.03% of GDP in 2006 to almost 0.23% in 2021, around the
OECD average. This support consists of direct funds, tax incentives (see Box 4.1), and assistance through public
procurement.
Direct funding of R&D is at the OECD average, and the government has rightly made a steadfast commitment to
enhancing its research capabilities. In addition, there are a number of institutions providing grants through
universities and other public and private organisations, supporting researchers with scholarships and awards. In
recent years, new measures have been introduced to expand mission- and project-based grants. For example, the
electric car “TOGG” received substantial investments through the project-based investment incentive program,
including allocated land free of charge for the investment project.
Expanding research grants is a step in the right direction, but more needs to be done in terms of evaluating these
programmes. Türkiye has recently built up a broad system of impact assessment for support programmes, and most
programmes aimed at fostering technology-based entrepreneurship and innovation are evaluated for economic
impact. Since 2021, the Scientific Technological Research Institution of Türkiye (TÜBİTAK), a national institution
within the Ministry of Industry and Technology, has been implementing a Commercialisation Monitoring Process
for supported projects through its Technology and Innovation Support Programs Directorate (TEYDEB). In addition,
the Directorate General for State Aids of the Presidency of Strategy and Budget also monitors and evaluates the
effective implementation of government support programmes conducted by the Ministry of Industry and
Technology’s Impact Assessment Department and TÜBİTAK. Assessments and evaluations can be further expanded.
One approach could be to adopt a system based on the experience of the Research Excellence Framework (REF) in
the United Kingdom, which helps identify good practices and challenge areas, and assesses both the quality of
scientific contributions and their social impact. Under this framework, institutions are required to submit “R&I
impact case studies” demonstrating the impact of their R&I activities on wider society (OECD, 2023[12]; OECD,
2019[13]).

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Figure 4.3. R&D expenditure and innovation are weak in Türkiye

A. Gross domestic expenditure on R&D, 2022 B. Share of innovative firms, 2020
% of GDP % of total firms
7 100
Non-business enterprise expenditure
Business enterprise expenditure
6
80
5

60
4

3 40

2
20
1

0 0

ITA

FIN
ESP
TUR
SVK
JPN
USA
FRA

CHE
PRT

SVN
CZE
AUT

AUS

DEU

CAN
EST
KOR

GBR

GRC
SWE
ITA

FIN

ISR
LVA
IRL
LUX

TUR
ESP

CAN
CAN
FRA
NLD
DNK

DEU

JPN
PRT

AUT

USA
GRC
NOR

KOR
POL

SWE

C. Number of patent applications under the Patent Cooperation Treaty (PCT) , 2021
Number per one billion USD business-based R&D spending
400

350

300

250

200

150

100

50

FIN
TUR
POL

EST

ISL
IRL

ITA
ISR
HUN

CAN
DEU
CHE
PRT

SVK

USA
CZE
SVN

LTU

ESP
AUS
AUT
FRA

CHL

LUX

NLD
LVA
JPN
GRC

BEL
CRI

GBR

KOR
NZL

NOR

SWE
OECD

Note: In Panel B, OECD calculations based on the 2023 OECD survey of national Innovation Statistics and Eurostat Community Innovation Survey (CIS-
2020).
Source: OECD (2024), Main Science and Technology Indicators (MSTI database), July; and OECD 2023 Innovation Indicators Dataset, based on the
2023 OECD survey of national Innovation Statistics and Eurostat Community Innovation Survey (CIS-2020).

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In addition to direct funding, Türkiye is also using tax incentives to promote R&D (Figure 4.4). In general, R&D tax
incentives and direct funding are equally effective in raising business R&D investment, and small, credit-constrained
R&D performers tend to show a greater responsiveness to R&D tax support (OECD, 2023[14]). However, they are
more effective at boosting investment towards incremental development than more transformational, higher
spillover-potential knowledge (OECD, 2024[15]). Empirical evidence in Türkiye confirms that R&D tax incentives in
the country increase business sector R&D intensity, but their effectiveness is limited, and government funding
partially substitutes business investment in R&D which would have happened nonetheless (Tas and Erkan, 2024[16]).
These findings suggest that there is room for better targeting R&D support to firms with higher innovation
capabilities and growth potential. Evidence from OECD countries shows that R&D tax credits primarily favour
incumbent firms rather than start-ups. Cash refunds, which could benefit start-ups, should be considered to
strengthen the effectiveness of R&D tax credit incentives in Türkiye. Indeed, a new policy design analysis suggests
that firms’ responsiveness to tax support is nearly twice as large when refund provisions are available, and three
times as large when tax incentives are redeemable against payroll taxes and thus disconnected from the profit

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94 

situation of firms (OECD, 2023[14]). As payroll taxes are also typically payable at a more frequent basis, such
incentives allow for quicker and more regular tax relief payments than corporate tax offsets. For these reasons,
payroll tax offsets may have a bigger effect on business R&D expenditure than other corporate tax offsets. The
effect of tax incentives on experimental development is found to be more than three times as large as the effect on
basic and applied research (OECD, 2023[14]).

Box 4.1. Türkiye’s innovation support system

The Twelfth Development Plan of Türkiye outlines the country’s strategic vision for research, development, and
innovation, emphasising the importance of the green and digital transformation to enhance global
competitiveness and achieve sustainable development goals. The plan highlights critical technologies, including
Artificial Intelligence, Internet of Things, Big Data, Quantum Technologies, Cybersecurity, Advanced Materials,
Robotics, Micro/Nano/Opto-electronics and Chips, Biotechnology, Hydrogen Technologies, Genome Editing,
and Next-Generation Nuclear Reactors. These technologies are identified as enablers for achieving sustainable
development goals, addressing global challenges such as climate change and the energy transition, and
supporting Türkiye’s long-term economic and social development.

Direct funding

Selected grant schemes:

• The Scientific and Technological Research Council of Türkiye (TÜBİTAK) is a major funding source of R&D
and innovation support programmes in the country. The number of R&D project applications went from
260 in 2001 to 3035 in 2023. Beyond its role as a funding agency, TÜBİTAK plays a pivotal role in
strengthening Türkiye’s national R&D and innovation ecosystem through its research centres and
institutes, which focus on conducting research and developing technologies in strategic areas.
Operating across a broad spectrum of activities, including university-industry collaboration, fostering
the entrepreneurship ecosystem, supporting high-technology platforms, and advancing artificial
intelligence projects, TÜBİTAK aims to enhance Türkiye’s global competitiveness and contribute to
achieving sustainable development goals.
• Türkiye participates in international funding programmes, such as the EU’s Horizon Europe Research
and Innovation Funding Program.
• The Turkish National e-Science e-Infrastructure (TRUBA) in Türkiye provides high-performance
computing and data storage to research institutions and researchers.
The Ministry of Treasury and Finance (MoTF) has implemented two programs to foster innovation and support
high-growth, technology-driven ventures that face financial access challenges. First, it has established Fund of
Funds, including the Turkish Growth and Innovation Fund (TGIF) and the Development and Investment Bank of
Türkiye Fund of Funds. Second, it includes direct resource transfer to venture capital funds, through the Tech-
InvestTR Venture Capital Support Program in cooperation with TÜBİTAK. These initiatives drive investment in
venture capital funds targeting SMEs and startups in strategic, innovation-focused sectors, aligning with national
development plans.

Tax incentives

Income based tax incentives for R&D and innovation:

• Technology development zones regime: CIT exemptions in Technological zones (for profits derived from
the software activities or products developed as a result of the R&D activities).
• 5/B regime: Corporate income tax exemption for 50% of income from inventions and software
development attributable to R&D performed in Türkiye.
• Income tax exemption - Income exemptions (100%) on salaries of R&D, design, and support personnel
on 'supported programs' declared by the Ministry or activities in techno parks.

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  95

Expenditure-based R&D tax incentives:

• R&D tax allowance: Incremental R&D expenditures above the previous year level of R&D spending can
be deducted at a rate of 50% from the CIT base.
• Social security premium support (50%) - Half of the employer portion of social security premiums for
R&D, design, and support personnel (with a ceiling) will be funded by the MoF.
• Accelerated depreciation of R&D capital assets.
• VAT exemption on machines and equipment acquired for R&D and design activities.

Türkiye should also evaluate the effectiveness of its so-called “patent box” (Regime 5/B). The patent box allows
companies to apply a lower rate of corporation tax to profits earned from patented inventions. While this scheme
supports local firms and SMEs, contributing to enhanced innovation and research, there are concerns that patents
are likely to accrue mainly to multinational firms. Patent boxes may push firms to focus on innovations that lead to
outcomes susceptible to protection by IP rights, thereby distorting the focus towards more applied research on
products closer to market introduction (Akcigit, Hanley and Serrano-Velarde, 2013[17]; Appelt et al., 2016[18]).
Moreover, patent boxes could distort firms’ incentives to protect its intellectual property, encouraging firms to
apply for patent protection when they might not have done so in the absence of the measure.
Innovation could be supported by easing access to new sources of capital. Currently, equity financing is low in
international comparison and venture capital expenditures are among the lowest in Europe relative to GDP
(European Commission, 2024[9]). Empirical research confirms that ensuring easier access to equity capital is essential
for innovation, especially for young firms. Access to equity capital is also associated with higher MFP growth for
firms below the productivity frontier (Corrado et al., 2021[19]; Andrews, Adalet McGowan and Millot, 2017[20]). OECD
research confirms that the productivity of Turkish companies would benefit from increasing the availability of
venture capital (Sorbe et al., 2019[21]). Some remaining distortions implied by corporate taxation disincentivising
investment financed by equity could be eased. For example, Türkiye has reduced the debt-bias in the corporate tax
system by introducing in 2015 an allowance for corporate equity via a notional interest deduction on half of newly-
issued equity. As discussed in the 2021 OECD Economic Survey of Türkiye, this allowance could be raised and
extended to retained earnings (OECD, 2021[22]). More generally, continuing efforts which lower risk premia, such as
the recent amelioration in the predictability of the macroeconomic policy framework (see Chapter 1) and
improvement in the economic institutions, will help to stimulate the demand for equity capital, thereby reducing
the reliance on debt to finance capacity-enhancing investments.

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96 

Figure 4.4. Government support for business R&D expenditures is at the OECD level
Direct government funding and tax support for business R&D, 2021
% of GDP
0.5

Direct funding of BERD Tax incentives

0.4

0.3

0.2

0.1

0.0
FIN

ITA
LTU

ISR

JPN

IRL

ISL
LVA

MEX

NZL

GRC
SWE

SVN

ESP
CHE
LUX

EST

DEU
SVK

CZE

DNK

AUS

NOR

TUR
CAN
NLD
CHL

POL

USA
HUN

KOR
FRA

GBR
CRI

COL

AUT
BEL
PRT
OECD
Note: Data on government tax relief includes subnational tax support for Canada, Hungary, and Japan.
Source: OECD (2024), OECD R&D Tax Incentives Database, https://oe.cd/rdtax, July 2024.
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4.2.2. Promoting knowledge transfer and technology diffusion

Despite relatively generous government support, there is only limited adoption of new technology among Turkish
companies. More needs to be done to promote links between research activities and broader technology adoption.
One important way to promote technology diffusion is to involve the business sector in the innovation process. This
makes research more applicable, increases the chances of successful adoption, and aligns scientific progress with
industry or societal needs. However, despite several support programmes such as the University-Industry
Cooperation Support Program, collaboration between science and business is an area that Türkiye needs to develop
further. Only around 0.8% of higher education expenditure on R&D is funded by businesses, one of the lowest rates
in the OECD (Figure 4.5, Panel A). Additionally, the low rate of innovative SMEs collaborating with others and the
low number of public-private co-publications indicate a significant gap in research collaboration between the public
sector and private enterprises (European Commission, 2024[9]). In 2024, public-private co-publications per capita
were only one-tenth of the European average. Furthermore, international research collaboration, which can provide
opportunities for firms to absorb the latest technologies and scientific knowledge from the global frontier, is also
weak (see Figure 4.5, Panel B).
Programmes that promote research-business collaboration should be expanded. Empirical research identifies
financial support as one of the main barriers hindering university-industry collaboration in Türkiye (Kleiner-Schaefer
and Schaefer, 2022[23]). Financial support can help improve companies' absorptive capacities, enabling them to
make better use of external technologies. While there are already programmes in Türkiye that promote
collaboration (Box 4.1), their share needs to be expanded (RIOT, 2020[24]). One example of an effective science-
industry program is Austria's COMET Competence Centre Programme, which funds cooperation between science
and industry and makes a significant contribution to the innovative output of the companies involved (Dinges,
2015[25]).

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Figure 4.5. University-Industry R&D and international R&D collaboration is low

A. Percentage of higher education expenditure on B. Percentage of scientific publications involving
R&D financed by the business sector, 2021 international collaboration, 2022
% %
15 50

12 40

9 30

6 20

3 10

0 0
ITA

JPN

ITA
SWE

JPN

ISR

ISR

SWE
SVK
TUR
NOR

FRA

ESP

CAN
NLD
GBR
CHE
BEL
DEU
KOR

TUR

KOR
USA
SVK

ESP

DEU

CAN
FRA

NOR
GBR
NLD

CHE
CRI

PRT

CHL
AUT
USA

PRT

CHL

AUT
CRI
BEL
OECD

OECD
Note: In Panel A, OECD estimate for the OECD aggregate (see the documentation on MSTI for details). In Panel B, unweighted average for the OECD
aggregate.
Source: OECD (2024), Main Science and Technology Indicators (MSTI database), July; and OECD calculations based on Scopus Custom Data, Elsevier,
Version 1.2024, April 2024.

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Another way to incentivise such cooperation and collaborative research projects is through performance contracts
in higher education institutions (HEIs). These contracts set performance targets and tie a portion of block funding
to reaching those targets, aiming to promote knowledge transfer by providing incentives for universities and public
research institutions to engage with industry and commercialise research results. The share of block funding subject
to performance contracts varies from 1% in Denmark and 4% in France to 7% in Latvia and the Netherlands, and up
to 94-96% in Austria and 100% in Finland (OECD, 2019[26]). For example, in Austria, the government uses a "funding
cooperation indicator”, which allocates funds to projects that aim to increase universities’ cooperation activities.
These funds are competitively allocated; universities must apply for the money to fund up to one-third of the costs
of projects designed to strengthen collaboration/cooperation (CHEPS, 2015[27]).
In the OECD, new policy approaches to promote science-industry links are shifting toward a more interactive,
longer-term model of knowledge “co-creation” that involves multiple stakeholders from industry, civil society,
research, and government and aims to solve broader societal challenges (OECD, 2019[28]). For example, collaborative
laboratories in Portugal integrate activities of research institutions and private companies, while the French LabCom
programme supports the establishment of joint labs for universities/PRIs and firms (OECD, 2019[26]).
Another important tool for promoting knowledge transfer between academia and business is the mobility of human
capital. This involves creating conditions for two-way mobility, allowing researchers to temporarily join the private
sector and business sector researchers to participate in university activities. This mobility is important, as OECD
research has confirmed that start-up firms founded by students or academics significantly contribute to the
commercialisation of knowledge developed through public research (OECD, 2019[26]). Academic entrepreneurship
is a significant component of innovative entrepreneurship. Türkiye provides incentives to promote mobility and
knowledge transfer from academia: for example, 95% of the salaries of design and support personnel with PhD or
a master’s degrees in fundamental science working in R&D centres and technology development zones are exempt
from income tax through the Law on Supporting Research, Development, and Design Activities. Approaches like the
Sector on Campus Program also promote collaboration between universities and the private sector by having credit-
bearing courses taught by industry experts. However, more needs to be done to foster mobility, as more than 95%
of researchers with a doctorate remain working in universities. This is in sharp contrast with countries like Austria
or Korea, where one-third of researchers with a doctorate work in the business sector (OECD, 2023[29]).

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98 

OECD countries have implemented various measures to promote researchers' mobility, including industrial PhD
programmes based on joint supervision and co-financing; sabbatical periods for professors; professional
secondments for university professors; and adjunct professorships for industry professionals. Türkiye’s Industrial
PhD Fellowship Program, which provides fellowships for PhD students and employment grants for the private
sector, could be expanded. For example, Portugal launched a contract for the legislature 2020-2023, with the
expectation that at least 50% of new doctorates by 2030 will be carried out in ‘co-work’ environments with a diverse
range of public and private institutions (OECD, 2023[29]). This program aims to promote the professionalisation of
researchers in academia. Norway has developed a new national strategy for recruiting researchers and career
development with a strong emphasis on intersectoral mobility, including schemes to increase cooperation between
academia and industry (OECD, 2023[29]).
Another significant barrier to university-industry collaboration according to Turkish companies is a lack of
information, as firms have insufficient knowledge about collaboration opportunities (Kleiner-Schaefer and Schaefer,
2022[23]). Türkiye has in place incentives such as the Infrastructure Information System (LABS), which provides
information about laboratories, and the University-Industry Collaboration Centers Platform (ÜSİMP), which works
to transform industries into technology producers and exporters while facilitating closer ties between academia
and industry. Established in 2007, ÜSİMP aims to foster collaboration and technology transfer, but many firms
remain unaware of the potential benefits of engaging with academic institutions. More generally, this lack of
information calls for increased attention to technology transfer offices (TTOs) in Türkiye, which are intermediary
organisations placed in universities to implement knowledge transfer policies. Their numbers should be expanded
and complemented by digital platforms that promote and organise interactions among different actors—facilitating
matchmaking between academic and industry partners (OECD, 2019[26]). Other tools include strengthening outreach
activities to raise awareness, such as conferences and seminars. Networking events, such as workshops and fairs
where firms can express their technology needs and scientists can present the results of their research, can also
help promote collaborations.
Another potential tool to better transfer knowledge to companies is the open innovation approach, which allows
firms to use external knowledge and external paths to market to advance and commercialise their technology. This
approach will create a level playing field among firms in accessing relevant data, as data portability has the potential
to boost competition and foster data-driven innovation. Evidence from current initiatives across OECD countries
suggests that coordinated efforts and the establishment of common standards facilitated by governments can
promote the adoption of data portability (Reimsbach-Kounatze, 2024[30]).

4.3. Enhancing the skills of current and future workers

Empirical analyses across countries show that skills are at the forefront of successful innovation and technology
adoption (Andrews, 2017[31]). Qualified personnel help innovative firms expand R&D, collaborate with research
institutions, and maximise the returns on innovation.
Türkiye has made significant progress to improve the skills of the future workforce as tertiary education
participation has been increasing significantly. Still, many challenges lie ahead. According to the European
Innovation Scoreboard, Türkiye lags behind other countries in its human resources (European Commission, 2024[9]).
Turkish companies in the survey also confirmed that human resources represent a major challenge for successful
digital transformation and technology diffusion (Gajo and Akyuz, 2023[32]). The number of tertiary-educated
graduates is increasing steadily but it remains relatively low and their skills do not fully reflect labour market
demand. A relatively large number of educated individuals leave Türkiye each year. The country’s access to a
workforce with digital skills beyond basic proficiency is significantly lower than in other EU countries, and it lacks
ICT specialists (European Commission, 2024[9]). Participation in lifelong learning can be further strengthened given
that current trends in Türkiye suggest that in order to ensure the country’s talent transformation, 21.1 million
workers will need to improve their skills in the face of new technological trends (McKinsey, 2020[33]).

4.3.1. Better matching graduates’ skills with labour market demand

Tertiary education is essential for stimulating the adoption and improvement of technological innovations in an
increasingly knowledge-driven global economy. Tertiary educational attainment in Türkiye remains low compared
to many other OECD economies (OECD, 2024[34]). Higher earnings for tertiary-educated workers suggest the need

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for more graduates with higher education. The relative earnings of tertiary-educated workers compared to those
with below-secondary education is around 50% higher, close to the OECD average (OECD, 2024[35]). Additionally,
the share of occupations requiring at least a college degree is estimated to increase by at least one percentage
point, corresponding to an additional 1.6 million tertiary-educated graduates needed by 2030 (McKinsey, 2020[33]).
Improving the quality of graduates and aligning their skills more closely with labour market needs can importantly
complement efforts to increase the number of graduates. Türkiye has significantly increased the number of
graduates since 2006, partially satisfying demand, but also leading to higher mismatches. Some empirical research
suggests that the sharp increase in university graduates has resulted in a high likelihood of mismatch, especially
among recent graduates (Ege and Erdil, 2023[36]). Efforts are currently under way to address the issue. The new skills
transitions are currently prioritised by the Higher Education Council and the higher education system has recently
been updated at the programme level to enhance digital and green skills in particular. Türkiye is pursuing initiatives
to improve graduates’ skills levels and reduce skills mismatch through programmes such as METEK III, funded jointly
by the EU and Türkiye, which focuses on improving vocational education for example by setting up quality assurance
boards in 25 provinces and broadening vocational teacher training. An interesting example in this regard is the
recent reform of vocational education in Spain in 2022 which enabled flexible educational pathways from micro-
trainings to specialised certifications, encouraged the recognition of past professional skills acquired through work
experience to advance workers’ qualifications, emphasised career guidance, and promoted international mobility
for vocational graduates (OECD, 2023[37]). Initial results suggest that the reform has led to a significant reduction in
youth unemployment and sped job entry for new graduates.
Around half of all tertiary enrolments are in short-cycle courses provided by vocational and technical tertiary
institutions, which are perceived to be of lower quality and status than bachelor’s programmes (Kitchen, H. et al.,
2019[38]). A relatively low share of tertiary graduates holds degrees in natural science, mathematics, ICT, and
engineering (STEM) fields (see Figure 4.6). In 2022, around 70% of companies in Türkiye reported difficulties finding
the talent they need, particularly in the IT sector (Manpower, 2022[39]). In contrast, Türkiye has one of the highest
shares of students in the arts and humanities among OECD countries and a large proportion studying humanities,
business, administration, and law (OECD, 2024[40]). However, as noted in the previous OECD Economic Survey of
Türkiye, these study choices do not align well with employment outcomes. For example, more than 60% of business
management graduates earn only around the minimum wage (OECD, 2023[4]). Türkiye has the largest skills gap for
workers with tertiary education among OECD countries. There is a persistent mismatch between the skills acquired
in the education system and the requirements of the labour market, especially those relevant to digital
transformation (European Commission, 2023[41]).
Figure 4.6. Türkiye's share of STEM graduates is low
Share of tertiary education graduates in fields of natural science, mathematics, ICT and engineering, 2022
%
40

30

20

10

0
FIN
ISL

ITA

ISR
TUR

LUX

IRL
AUS
LVA

NLD
USA
JPN
ESP

SVK

LTU

HUN
DNK
CZE
CHE

CAN

SVN

FRA

DEU
CRI

BEL

CHL

NOR

NZL
GBR

MEX

GRC

EST
PRT

AUT
KOR
POL

COL

SWE
OECD

Note: Tertiary education graduates cover those with bachelor's, master's and doctoral or equivalent degrees.
Source: OECD (2024), "Education at a Glance 2024: OECD Indicators".
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These mismatches have negative consequences for the Turkish economy. Empirical research by the OECD confirms
that higher skills mismatches are associated with lower labour productivity due to a less efficient allocation of
resources, as more productive firms find it more difficult to attract skilled labour at the expense of less productive
firms (Adalet McGowan, 2015[42]). At the individual level, it affects job satisfaction and wages, with earning penalties
for mismatched workers in Türkiye being among the highest in the OECD. Overqualified workers in Türkiye earn
around one-fourth less than well-matched workers with the same qualifications (OECD, 2017[43]). Tertiary education
must therefore ensure that graduates develop the skills needed in the labour market to maximise the return on
their human capital investment.
One way forward is to influence students' field of study choices by providing high-quality data and analysis about
graduate labour market outcomes. Türkiye has already made significant progress in this regard. The "Mesleğim
Hayatım Projesi" (My Job, My Life Project) carried out by the Ministry of National Education provides relevant
information. Moreover, an innovative online tool developed by the Human Resource Office of the Presidency helps
students obtain information on labour market outcomes of different study choices, offering detailed information
on expected wages and time to find a job. As highlighted in the previous OECD Economic Survey of Türkiye, this
online tool should be expanded and promoted through awareness campaigns. Another complementary approach
could be to implement a signalling framework for quality assessment. For example, England’s Teaching Excellence
Framework scores institutions based on student feedback and employment outcome metrics (Gunn, 2018[44]).
Widespread information should also be further promoted through effective career counselling. Türkiye has
established the legal and administrative infrastructure to ensure students have access to career information. The
Ministry of National Education employs school psychologists and counsellors in all secondary education institutions,
with an average of 1.5 guidance counsellors per school, to carry out activities aimed at guiding students toward
higher education and employment. However, while Türkiye has made significant progress in providing career
information, advice, and guidance, the effectiveness of counselling can still be improved. In particular, the system
is hindered by a lack of suitably trained and competent guidance counsellors, particularly in state schools
(Yesilyaprak, 2017[45]). One solution could be to strengthen employer engagement in career guidance. International
evidence shows that secondary school students whose career guidance is enriched by engagement with employers
and people in the workforce often experience better outcomes in adult employment (OECD, 2021[46]). For example,
in the Canadian province of New Brunswick, the provincial government collaborates with employers to help primary
and secondary school students understand and prepare for employment opportunities in areas of strategic
economic importance. In some OECD countries, national STEM initiatives are common, designed to help students
see the breadth of careers linked to Science, Technology, Engineering and Mathematics (OECD, 2021[46]).
University students in Türkiye do not pay tuition fees, as they were abolished in 2012. No tuition fees are charged
to daytime or distance education students enrolled at state universities, provided they do not exceed the standard
duration of their programmes. The tuition fees for these students are covered by the state. Reintroducing tuition
fees, particularly for programmes with poor labour market outcomes for graduates, could be considered. For
example, the “Job-Ready Graduates" package in Australia introduced in 2020 aims to align university funding with
labour market needs by incentivising students with both reduced fees to enrol in courses that address national skills
shortages, such as STEM, teaching, and nursing, and higher fees for courses deemed less aligned with job market
needs (IRU, 2022[47]).
In addition to measures influencing students' choices, the authorities should strengthen incentives for tertiary
education institutions to offer courses more aligned with labour market needs. Today, the current tertiary funding
system in Türkiye does not sufficiently reflect labour market demands. The financial resources of state universities
mainly depend on the national centralised budget. The amount of financial resources allocated to a university is
determined after a series of negotiations with the central government each year, based on the previous year’s
budget. While performance indicators are generally used in Türkiye, in practice universities determine their own
performance indicators. As a consequence, performance-based budgeting could be further expanded, strengthened
and made more homogenous. (Altundemir and Gungor-Goksu, 2017[48]).
Several options are available to address this. One would be to link public funding of higher education institutions to
performance indicators such as the labour market outcomes of graduates (see Box 4.2). Tying funding to these
outcomes would encourage universities to offer more programmes aligned with labour market needs. Another
strategy is providing one-time capital funding to support the development of skills that are in high demand.

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Moreover, several studies of performance funding in Europe find evidence that performance funding has led to
higher rates of faculty research productivity. This is the case in Denmark, the Netherlands, Norway, Switzerland, the
United Kingdom and Hong Kong (OECD, 2020[49]; Dougherty, 2019[50]).

Box 4.2. Performance indicators in funding – labour market outcomes

Many OECD countries have moved away from enrolment-based funding systems for tertiary education and
instead align funding models with performance goals. Some countries include graduates’ labour market
outcomes in the funding formula.
• In the US, most states now have a funding formula or policy in place to allocate a portion of funding
based on performance indicators, including measures of the labour market success of recent graduates.
For example, in Minnesota, 5% of base funding is reserved until institutions meet three out of five
performance goals. For Minnesota State Colleges and Universities, one of these goals is to increase the
employment rate of graduates by at least 4%. In Florida, the university performance funding model
adopted by the Board of Governors allocates a part of funding based on the percent of bachelor’s
graduates employed and/or continuing their education one year after graduation, as well as on the
median average full-time wages of undergraduates employed in Florida one year after graduation.
• In Finland, the funding models of universities reflect the labour market outcomes. In the funding
formula, the weight of the provision of university’s degree programmes is 4% for labour market
outcomes of graduates. This weight is 6% for Universities of Applied Sciences.
• France allocates 20% of funding for higher education institutions on the basis of performance measures,
including graduate employment.
• Estonia uses a new funding model for higher education which will allocate up to 20% of funds based on
performance. One of the six indicators is the labour market outcomes of graduates.
Source: OECD (2017), Financial Incentives for Steering Education and Training, Getting Skills Right, OECD Publishing, Paris.
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4.3.2. Lifelong learning can address skill gaps to promote innovation

Targeted and relevant adult learning can help address skill gaps, particularly among older adults whose
qualifications are more exposed to the risk of depreciation as the demand for different skills is constantly changing.
This learning should be lifelong, accessible to everyone at any age, and life-wide, encompassing learning outside
formal education systems.
The authorities are aware of the importance of lifelong learning and have launched several programmes to promote
it. There are a total of 1 032 non-formal education institutions in all provinces and districts of Türkiye, including
1 000 official public education centres and 32 maturation institutes, and the e-Yaygın online platform provides
thousands of certifiable courses. All HEIs in Türkiye have Continuous Education Centres that offer certified
academic, vocational, and professional courses, as well as seminars and conferences for all ages and subjects. In
addition, public education centres within the Ministry of National Education provide training for adults and the
remote learning platform Public Education Centers Information Network (HEMBA) has been launched. HEMBA aims
to strengthen the IT infrastructure of Public Education Centers (PECs), enhancing digital education opportunities
and enabling the digital transformation of lifelong learning. This initiative supports the integration of individuals
across Türkiye, particularly disadvantaged groups, into the information society by equipping them with digital skills.
Training in specialised areas is also available in Applied Research Centres (OECD, 2020[51]). As in other OECD
countries, employers (40%) are the main providers of adult learning in Türkiye, followed by non-formal education
and training institutions (30%) and formal education and training institutions (14%).
Participation in lifelong learning in Türkiye has increased significantly but remains much lower than in other OECD
countries (Figure 4.7, Panel A). The level of training provided by Turkish companies, including digital training, is
among the lowest in the OECD. The prevalence of training provision declines with firm size, as in other countries,
but the share of firms providing ICT training is the lowest regardless of size (Figure 4.7, Panel B).

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102 

The potential benefits of adult training include greater employability and access to better quality jobs, but only if
training programmes are of high quality to ensure successful learning outcomes. Therefore, the quality assurance
of these training programmes is crucial. Türkiye adopted its National Qualification Framework (NQF) in 2015 to
accommodate all quality-assured qualifications. However, principles such as self-assessment and external
evaluation remain limited in Türkiye, and greater attention to adult learning will require new methods of recognition
that go beyond the current qualifications outlined in the NQF (ETF, 2021[52]). Additionally, the impact of the adult
learning system in Türkiye is weaker than in other OECD countries, as measured by a multi-dimensional concept
that includes self-reported satisfaction, skill use, labour market outcomes, and wage returns from training
participation (OECD, 2019[53]). Therefore, more must be done to strengthen the quality assurance of its
programmes, and training providers in Türkiye could benefit from support in implementing quality measures, as
well as monitoring and evaluation systems (see Box 4.3).
High-quality training programmes should be expanded. Authorities can either expand regular funding transfers or
provide one-time grants to promote specific adult learning programmes. Most financial incentive schemes across
OECD countries include a co-financing element where employers and individuals contribute to part of the cost to
reduce deadweight losses. For example, many OECD countries use training levies to incentivise investment in
training. Firms can "earn back" their levy contributions by providing training that meets the fund’s criteria (OECD,
2019[54]). Another way to address capacity constraints is to use economies of scale by providing training in
collaboration with other enterprises. In Ireland, “Skillsnets” funds demand-led training through a network model
and is largely operated with funding from a national training levy. Company networks representing specific
geographic regions or industries jointly deliver training programmes tailored to labour market demands (OECD,
2019[53]).
Many adults face barriers preventing them from participating in adult learning, such as a lack of time, financial
resources, or limited flexibility in training provision. In Türkiye, nearly one-third of individuals cited scheduling as
the reason for not participating in training (Eurostat, 2022[55]). Many OECD countries offer flexible learning
provisions, including distance learning or modular and/or credit-based formats. Another approach is to provide
statutory education and training leave. In Belgium, for instance, full-time private sector employees participating in
recognised training and education programmes have the right to up to 180 hours of training leave per year (OECD,
2019[53]). Many other OECD countries have similar leave programmes (CEDEFOP, 2024[56]). For example, in Austria,
the ‘Bildungskarenz’ programme provides a 2-12-month training leave paid at the level of unemployment insurance.
Another option is a personal account scheme, allowing individuals to save a certain amount of time per year worked
for training purposes. For example, France uses such accounts, enabling employees to use training hours to acquire
recognised qualifications or basic skills, and the European Union is recommending individual learning accounts for
Member States (OECD, 2017[57]).

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Figure 4.7. Participation in lifelong learning is low

A. Participation in life-long learning, 2023
% of population aged 26-64
40

32

24

16

0
HUN

ITA

FIN
ISL
TUR

LTU

IRL
DEU

CZE
SVK
LVA

FRA

CHE
DNK
GRC

BEL

PRT

ESP
LUX
AUT
SVN

NLD
NOR
EST
POL

SWE
EU27
B. Percentage of enterprises providing ICT training to their employees, 2024
% of enterprises in each employment size class
100
Small (10 to 49 employees) Medium (50 to 249 employees) Large (250 employees and more)

80

60

40

20

0
GRC

ITA

NOR

FIN
FRA

IRL
LTU

LVA

TUR

LUX
SVK

HUN

NLD

DEU
AUT

EST

ESP

CZE

SVN

DNK
PRT

POL

BEL
SWE
EU27

Note: In Panel A, data refer to the share of adults aged 25 to 64 participated in education and training in the last 12 months. In Panel B, data refer to
all sectors except agriculture, forestry and fishing, and mining and quarrying, and financial sector.
Source: Eurostat (2024), Education and training (database); and Digital economy and society (database).

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Box 4.3. Best practices in quality assurance in selected OECD countries

• Certifications and quality labels to ensure minimum quality levels. (i) Switzerland's "eduQua"
certificate for training providers was introduced in 2000 because the adult education sector in
Switzerland was highly heterogeneous, dominated by many small private providers, and lacked
nationwide regulation. (ii) In 2018, the French government passed a law requiring all training centres
seeking public funds to obtain a new quality certificate—Qualiopi. If non-compliance is detected, the
label may be suspended or withdrawn.
• Quality awards and prizes. Rather than adopting certification, quality label systems, or external
evaluations, some European countries rely on awards and prizes to foster a quality culture in the adult
learning sector. For example, in Finland, the Ministry of Education and Culture organises an annual
quality award competition for adult education providers. The rationale behind the initiative is to identify
best practices that providers across the country can emulate.

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• Publicising information on providers' quality. In the United Kingdom, the Department for Education
publishes summary tables of outcome-based success measures, including sustained employment and
learning rates, by provider, on its website. In France, certain public institutions that finance training
must review the quality of the training providers they work with and make the outcomes from the
review process publicly available.
• Improving the quality of teaching staff. The Swiss Federation for Adult Learning introduced the "Train
the Trainer" program in 1995. In 2007, Austria established its Academy of Continuing Education (WBA)
as a validation system for the qualification and recognition of adult educators.
Source: OECD (2021), Improving the Quality of Non-Formal Adult Learning: Learning from European Best Practices on Quality Assurance, Getting
Skills Right, OECD Publishing, Paris, https://doi.org/10.1787/f1b450e1-en

Türkiye should also increase awareness of training support programmes among firms. Various policies, such as
awareness campaigns and engagement with social partners, can effectively motivate adults to participate in
education and training. Promoting the benefits of adult learning, providing high-quality information, and offering
individualised advice and guidance services are some of the ways policies can encourage higher participation. To
reach the widest possible audience, campaigns can be delivered through various media channels. In Argentina, for
example, the Hacemos Futuro program reaches out to community leaders via WhatsApp (OECD, 2019[53]).

4.3.3. Attracting skilled workers, including returning migrants

Highly skilled foreign workers can also help channel the diffusion of advanced technologies and knowledge
embodied in these workers. This has led many OECD countries to design policies to attract immigrants with specific
skill sets to support growth and innovation in key sectors. However, talent attractiveness is complex and depends
not only on economic factors but also on the ability of migrants to integrate into the host society, as well as the
wider economic and social environment.
According to the OECD Talent Attractiveness Index, Türkiye ranked among the least attractive countries for highly
skilled migrants in 2023 (Figure 4.8). Factors which particularly penalise Türkiye include the framework for long-
term residence, the skills environment and inclusiveness. This is reflected in the low share of high-qualified
foreigners: for example, the share of foreign doctorate students is less than half the EU average (European
Commission, 2024[9]). Moreover, many highly skilled individuals are leaving Türkiye; the number of bachelor’s
degree graduates leaving increased by more than 50% between 2011 and 2020 (Metin, 2023[58]). Additionally,
Türkiye is losing its talent to international competition. In particular, AI talent is in high demand and remains a highly
mobile workforce, with countries competing for a small pool of highly skilled AI workers.
Improving overall talent attractiveness is a long-term goal, as some areas, such as earnings for highly skilled
individuals, will require time to converge with the best-performing countries. Nevertheless, implementing less
stringent migration policies can help reduce the gap somewhat compared to the leading countries. Policy
simulations show that Türkiye can reduce the difference in attractiveness for highly skilled workers compared to
best performing OECD country by around 15% (OECD, 2023[59]).
Türkiye has taken several steps to attract highly skilled migrants. For example, the authorities introduced the
“Turquoise Card” as an alternative to annually renewing residence permits. This card is a work permit valid for an
indefinite period for foreigners with high qualifications and their families. In addition, recent years have seen the
introduction of new programs to attract highly skilled migrants. The International Talent Transfer program aims to
accelerate and simplify work permit applications for foreign technology experts. The Tech Visa program provides
several benefits for tech employees, such as income tax exemptions and a faster work visa process for family members.
Relaxing migration rules for highly skilled workers could go even further. One barrier to international recruitment
is friction in matching, which may be due to information shortfalls and processing delays. Therefore, some OECD
countries allow highly skilled migrants to enter the country and seek work, thus improving the quality of the match
between job seekers and employers. For example, Chile introduced an “International Orientation Visa” for
foreigners with a postgraduate degree from one of the top 150 academic institutions worldwide, allowing residence
and work in Chile for up to 12 months. The Dutch “Orientation Visa” is available for master’s level graduates of high-

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ranked universities (OECD, 2023[60]). However, those visas have tended to be difficult to obtain and have
encountered limited success. Since Türkiye has many visa exemptions, an alternative would be to continue
simplifying its processes for high-skilled employment in order to streamline administrative procedures, reduce costs
and time burdens for skilled professionals, and make Türkiye a more attractive destination for global talent. Recent
regulatory changes for high-skilled employment have already made significant progress in that regard. Notably, the
Implementing Regulation of the International Labor Force Law, enacted in 2022, has allowed qualified foreign
professionals to apply for work permits from within the country. Additionally, as of October 2024, the timeframe
for submitting these applications has been made more flexible, allowing submissions at any point during a foreign
national's legal stay in Türkiye.
There is also potential to strengthen the processes for recognising foreign qualifications even further. Türkiye has a
functioning system for the assessment and recognition of foreign academic qualifications at the associate,
bachelor’s, and master’s levels, managed by the Council of Higher Education (CoHE). At the PhD level, recognition
is by the Inter-University Council. The statutory processing time for the assessment of foreign qualifications in
Türkiye is 90 days. Some OECD countries have taken steps to speed up the recognition procedure, as employers
need to fill shortages quickly. For example, Sweden’s fast-track scheme was developed to accelerate the entry of
skilled immigrants into shortage occupations such as engineering, technical fields, and the medical profession
(OECD, 2017[61]). Additionally, Lithuania provides a shorter statutory period (30 days) for foreign higher education
qualifications. Norway has established a fast-track “turbo evaluation” for employers to evaluate job applicants with
foreign higher education credentials in non-regulated professions. The online-based procedure is free of charge and
verifies within five working days the discipline of the applicant’s qualification, whether the education is accredited
in the country in question, and whether the qualification is equivalent to a Norwegian degree (OECD, 2017[61]).
An important source of potential skilled labour is Turkish citizens who have emigrated abroad. These return
migrants can bring home skills, networks, and financial capital, which can help spur innovation and growth (OECD,
2008[62]). The number of Turkish emigrants living abroad has been expanding rapidly over the last decade. According
to recent estimates, over 6.5 million Turks reside abroad, with around 5.5 million living in Western European
countries (Ministry of Foreign Affairs, 2023[63]). Working age Turkish-born emigrants with tertiary education living
in OECD countries numbered about 290 000 in 2015. Among graduates, information and communication technology
(ICT) graduates, who are in highest demand in Türkiye, are the ones most likely to leave (Turkstat, 2024[64]). Türkiye
has also experienced a net outflow of AI talent (OECD, 2024[65]).

Figure 4.8. Türkiye’s attractiveness for highly skilled workers is low

OECD Talent Attractiveness Index, 2023
Scale from 0 to 1 (higher attractiveness)
0.8

0.6

0.4

0.2

0.0
S…
ISR

ITA
LVA

FIN

IRL
CRI

LTU

JPN

BEL

ISL
TUR
MEX

GRC

FRA
COL

DNK
CAN
NLD
USA
GBR
LUX
NOR

NZL
CHL

POL

CZE
AUT
KOR
ESP
SVK

HUN
SVN

DEU
EST

PRT

AUS
CHE

Note: The OECD talent attractiveness framework is the inclusion of migration policy as a factor to measure attractiveness. The index is averaged
based on seven dimensions (quality of opportunities, income and tax, future prospects, family environment, skills environment, inclusiveness and
quality of life) with equal weights, and does not include the health system performance dimension.
Source: OECD (2023), "What is the best country for global talents in the OECD?", Migration Policy Debates, N°29, March.
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Attracting talented citizens back home and providing reintegration assistance have become integral parts of
migration management in many OECD countries. The Presidency of Turks Abroad and Related Communities (YTB),
established in 2010 to coordinate Turkish citizens living abroad, is developing schemes to attract highly skilled
workers back to Türkiye. This includes initiatives in collaboration with private companies, universities, and public
institutions to encourage highly skilled children of Turkish emigrants to continue their professional careers in
Türkiye. However, compared to some other OECD countries, Türkiye has not established specific schemes to support
returnees and their families in reintegrating into society (Sökmen, Kaya and Sánchez-Montijano, 2018[66]).
The longer migrants have been abroad, the less they know about the situation and opportunities in their home
country. Therefore, it is important to develop a comprehensive strategy to maintain ties with the large expatriate
community. The Irish government has created a “Global Irish” online hub with a regular newsletter that includes
details on job, training, and business opportunities in Ireland. Estonia has an internet portal where talented young
adults studying abroad can find information about work and internship offers in Estonia, and companies can use
the contact network to find employees among those studying abroad (OECD, 2013[67]; OECD, 2018[68]).
One readily available group of high-skilled immigrants are international students, as they have already acquired
some cultural and linguistic knowledge during their studies. The number of international students studying in
Türkiye grew from around 50 000 in 2013 to over 300 000 in 2023. Scholarships and tuition fee support are offered
to international students. Students are allowed to apply for work permits after completing their first year of
undergraduate studies and, if granted, may work part-time while studying according to their level of education.
Most OECD countries encourage the temporary or permanent immigration of international students after
graduation by providing facilitations in acquiring residence permits. Türkiye enables international students to stay
and look for a job upon graduation, with an additional 12 months granted upon request. In Denmark, Estonia,
Greece, and Luxembourg, the extension of a study permit is automatic, without request, and students can stay for
up to 48 months in Australia. Canada and New Zealand, for example, facilitate the settlement of foreign students
who have studied at their universities by granting them additional points in their immigration point systems (OECD,
2011[69]). Spain has improved conditions for students to stay and work post-graduation to encourage employment
and self-employment among international graduates from Spanish universities, and Australia has extended post-
study work rights for international graduate students from Australian higher education providers in targeted sectors
(OECD, 2023[70]).
Türkiye is one of the largest countries worldwide hosting people who fled their countries. In particular, it currently
hosts some 2.9 million registered Syrians “under temporary protection” (UTP). Türkiye has already made significant
and successful efforts in educational integration, increasing school enrolment, improving Turkish language skills,
and boosting academic performance among Syrian children. For example, programmes such as PIKTES funded by
the European Union aims to facilitate the integration of Syrian children under temporary protection into the
education system through measures such as Turkish language instruction and revision curricula. Approximately 870
000 refugee children are now enrolled in schools (European Commission, 2023[41]). Recent developments in Syria
suggest that a large share of the Syrian population could eventually return in their country safely, which is a priority
of the Turkish government and would be positive for Syria. There could be potential to increase the skills of the
labour force by strengthening labour market policies for remaining immigrants and refugees who lack the skills
needed in the local labour market. Efforts could be intensified to improve remaining refugees’ access to the labour
market, particularly formal employment, which has been challenging in the past (European Commission, 2023[41]).
In this regard, as of October 2024, some exemptions have been introduced to allow specific groups, such as
humanitarian permit holders, to formally join the labour market.

4.4. Buttressing business dynamism

Weak business dynamism hampers productivity. Business dynamism in Türkiye as measured by firms’ entry and exit
rates as a fraction of the population is one of the lowest in the OECD (Figure 4.9). In addition, it has fallen more than
in other countries since the Global Financial Crisis (Calvino, Criscuolo and Verlhac, 2020[71]). Recent evidence also
suggests that business dynamism in Türkiye has declined in the last ten years due to a lack of competition and a
particular slowdown in the productivity growth of laggard firms (Akcigit et al., 2020[72]).

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Figure 4.9. Business dynamism is relatively low given Türkiye’s population

Number of newly registered and deregistered companies with limited liability, per thousand of working-age
population, 2022
Per 1000 working-age population
25 25

Closed business density rate New business density rate

20 20

15 15

10 10

5 5

0 0
IRL

ITA
JPN

BEL

ISL
DEU

CRI

SWE

LTU
LVA

GBR
TUR
GRC

HUN
PRT

CAN

NOR
DNK

NZL
CHL
COL

POL

ESP

SVK

CZE
SVN

NLD

AUS
EST
Note: Based on administrative data from business registries and statistical agencies. The new and closed business density rates are calculated as the
number of new or closed limited liability companies (LLCs) divided by 1000 people aged 15-64. Data for Canada covers Quebec and Nova Scotia only.
Source: World Bank (2024), Entrepreneurship Database.
StatLink 2 https://stat.link/mzvo60

One of the main barriers to stronger business dynamism is the restrictive regulatory framework. Türkiye’s overall
regulatory framework is the most restrictive in the OECD, as indicated by the OECD product market regulation
indicator (Table 4.1 and OECD (2023[73])). The involvement of the government is more significant than in other OECD
countries in some areas of the economy: state-owned enterprises (SOEs) are relatively more prevalent and their
governance framework does not foster a level playing field with private companies. In parallel, barriers to domestic
and foreign entry in some sectors limit competition, although the country compares relatively well regarding
competition barriers in digital markets. The administrative and regulatory burden for new companies is relatively
more significant. Along with the regulation of product markets, employment protection is also particularly tight in
Türkiye. In general, evidence has suggested that the combination of restrictive product market and labour market
regulations in OECD countries (OECD, 2020[74]) can be particularly harmful not only to productivity (Andrews,
Criscuolo and Gal, 2016[75]), but also to investment (Égert, 2017[76]) and employment (Griffith, Harrison and
Macartney, 2007[77]; Nicoletti and Scarpetta, 2005[78]; Gal and Theising, 2015[79]).
Türkiye will be able to fully leverage improved productivity only if it can lift these barriers to the efficient allocation
of factors. In that regard, there are two priorities which would support the country’s use of its important resources.
First, it can boost business dynamism by reducing barriers to domestic and international entry, promoting
competition in product markets, and improving the efficiency of the insolvency regime. Second, it can improve the
governance environment to bolster competition and trust, and ensure the application of the rule of law to promote
confidence and thus investment in all forms of capital.

4.4.1. Facilitating firm entry through a simpler administrative and regulatory

framework
Reducing administrative barriers on firm creation would support business dynamism. High costs, lengthy
procedures, and the large number of administrative procedures make it hard to set up a company and discourage
formalisation (Bripi, 2015[80]). Among OECD countries, only Costa Rica has more barriers than Türkiye for setting up
Limited Liability Companies (LLCs) and Personally-Owned Enterprises (POEs). Progress has been made in recent
years: for example, the number of public or private bodies to be contacted to start an LLC decreased from 6 to 5
and the government introduced a single webpage presenting information on all procedures required to start a

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company. A simplified Investment Procedures Guide is reviewed annually and updated in line with legislative
changes, and is made accessible to business people for them to understand the required procedures, permits,
licenses, and authorisations, and the expected costs associated with those procedures.
However, large hurdles remain. In best-performing countries, only one body needs to be contacted to start a
company. In addition, there is no law or regulation in Türkiye indicating a maximum time within which procedures
required to start an LLC must be completed, contrary to the majority of OECD countries. Registration costs also
remain relatively high: the typical costs to start a POE or an LLC was around TRL 2000 in 2023 (about USD 84). This
is almost double the OECD median for LLCs, and half of the OECD countries have cut POE costs to zero (OECD,
2023[73]). Additionally, the minimum capital requirement for LLCs has increased to TRL 50 000 (about USD 2100),
while many OECD countries have lowered or eliminated such requirements. For example, Spain reduced the capital
requirement to a symbolic level in 2022, and there is no minimum requirement in New Zealand. While lowering
those hurdles would be welcome, Türkiye has made progress in recent years, in particular through the
establishment of the Central Trade Registry System in 2014 (MERSIS) in particular to support the establishment of
LLCs in a centralised information system.

Table 4.1.Product market regulations are relatively tight

Ranking and scores of Türkiye on the PMR sub indicators, out of 38 countries

Türkiye's Türkiye's Score: Score: Score:

score rank top 5 median bottom 5
OECD OECD OECD
Overall 2.52 38 0.87 1.35 2.01
Distortions Induced by Quality and scope of public ownership 2.02 37 0.13 0.54 1.64
Public Ownership Governance of SOEs 3.56 37 0.44 1.58 3.53
Involvement in business Retail price controls and regulation 4.00 38 0.12 1.03 2.85
operations Involvement in business operations in
1.41 30 0.54 1.06 2.14
network sectors
Involvement in business operations
3.25 38 0.40 1.24 2.81
in service sectors
Public procurement 0.80 25 0.15 0.67 2.04
Regulations Assessment of impact on competition 2.67 38 0.12 0.80 2.42
Impact Interaction with stakeholders
4.20 34 1.04 2.64 4.44
Evaluation
Administrative and Administrative requirements 2.56 33 0.88 1.88 2.95
regulatory burden Communication and simplification 3.30 38 0.55 1.46 3.01
Barriers in service & Barriers to entry in service sectors 2.63 33 0.65 1.74 3.05
network sectors Barriers to entry in network sectors 2.02 32 0.96 1.43 2.47
Barriers to trade and Barriers to FDI 0.67 33 0.03 0.14 0.95
Investment Barriers to trade facilitation 1.10 34 0.41 0.61 1.14
Tariff barriers 2.00 37 0.00 0.50 1.60

Note: Administrative requirements for limited liability companies and personally-owned enterprises; and communication and simplification of
administrative and regulatory burden. The rank is based on the 38 OECD countries. For all indicators, a lower score represents a more competition-
friendly regulatory regime.
Source: OECD PMR database. See for more details, www.oecd.org/en/topics/product-market-regulation.html.

The administrative burden on existing firms could also be simplified. Regulatory compliance can be costly, especially
for small businesses with lower administrative capacity (Tu, 2020[81]). There is room to reduce the procedural
burden for companies in Türkiye. The country does not yet apply a “silence is consent” principle for issuing permits
and licenses, whereby tacit approval is granted after a fixed period has expired. The principle has now been adopted
by a majority of OECD countries. The country keeps an up-to-date inventory of licensing and permitting
requirements, but there is no requirement for a regular review, a procedure that four OECD countries have now
implemented, although the Coordination Council for the Improvement of the Investment Environment (YOIKK), a
platform operating through specialised working groups composed of public and private sector representatives,
monitors those requirements continuously. Furthermore, contrary to most OECD countries, Türkiye has not
adopted the "once-only" rule, whereby businesses submit data only once to the government, which can then be
shared across public bodies provided consent is explicitly given.

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4.4.2. Promoting domestic and international competition in certain network and

services sectors

Opening the energy and transport sectors to competition

Productivity growth is hindered by barriers to competition in network sectors – in particular energy and
transportation. In these sectors, Türkiye is among the most regulated OECD countries according to the PMR network
indicators, without significant improvements since 2018. Efficient resource allocation in these sectors is crucial for
boosting aggregate productivity since these sectors are essential in supply chains. Reductions in barriers to entry
and vertical unbundling in network industries can help reduce input costs for companies, leading to more efficient
technology diffusion and innovation. For example, pro-competition reforms in communications are associated with
greater adoption of digital technology and reforms in the energy sector are associated with stronger green
innovation (Nicoletti, von Rueden and Andrews, 2020[82]; Agyeman and Lin, 2023[83]). Easing regulations in Türkiye
in network sectors to levels seen in Austria or the United States could induce a 0.95 percentage points increase in
the productivity growth of the average firm in an average infrastructure-dependent sector (Demmou and Franco,
2020[84]).
To promote competition in the energy sector, Türkiye could consider removing the regulation of retail tariffs in the
electricity and gas sectors. Retail electricity tariffs are regulated by the Energy Market Regulatory Authority (EMRA)
for small end-users, despite their freedom to change suppliers. For example, they were reduced by 15% a month
before the elections in 2023 (European Commission, 2023[41]). Retail tariffs for gas are also regulated. In that regard,
it is welcome that the Twelfth Development Plan (2024-2028) aims to increase the competitive environment in the
energy sector by planning to adopt cost-based pricing practices in electricity and natural gas markets (while
providing support to low-income groups). In addition, no vertical separations are required between gas generation
and transmission, or between gas transmission and retail supply, with subsequent risks of discrimination. Today,
the state-owned Petroleum Pipeline Company (BOTAŞ) is the sole operator of the gas transmission system and has
a market share of more than 90% in natural gas imports. It remains a vertically integrated company despite the
Natural Gas Market Law which required separation of its operations, but which has repeatedly been suspended.
The efficient use of energy sources is limited more generally by restricted competition in the electricity and natural
gas sectors. Expanding the freedom to choose suppliers beyond small end-users could help (IEA, 2021[85]). In parallel,
switching suppliers could be encouraged by introducing a comparison tool for consumers to compare offers. Many
OECD countries also use demand-side solutions that reward consumers for adjusting their electricity use upon
request, typically through contracts with aggregators (Saviuc et al., 2022[86]). Reducing the dominant position of
BOTAŞ and achieving the unbundling of the transmission system operator from commercial activities would
enhance third-party access to transmission network capacity and promote transparent, cost-reflective, and non-
discriminatory pricing.
Türkiye would benefit from liberalising its water and road transport sectors, given its geographic position as a transit
hub and freight destination. Liberalisation in network sectors has been shown to boost productivity in the past,
particularly in the transport sector. (Arnold et al., 2015[87]). Currently, 80% of Türkiye’s inland freight transport (in
tonnes-kilometres) is road-based, with a small share in rail and coastal shipping (ITF, 2022[88]). International trade
is mainly conducted through maritime transport: it covered 93% of goods imports and 80% of goods exports in
volume in 2023 (Directorate General for Maritime Affairs, 2023[89]). Entry restrictions, such as requiring licenses for
road and maritime freight, increase transport costs. Although most OECD countries (except Australia and Chile) also
require a license for road freight transport, a third of them do not impose a fixed duration for its validity, contrary
to Türkiye. In parallel, only half of OECD countries require notifications to authorities to engage in maritime
transport.
Additionally, Türkiye’s restrictive rules in water transport prevent foreign companies from operating domestic
routes, which raises transport costs and reduces efficiency. Such restrictions are frequently justified by the necessity
to prevent shipping shortages, maintaining a national merchant fleet, facilitating international trade, and protecting
national security. However, restrictions in Türkiye are tighter than other OECD countries. In water transport, Türkiye
is one of only six countries in the OECD which impose jointly that vessels must have a national flag, must be owned
by a domestic company, and must have a crew of Turkish citizens. Restrictive cabotage rules in maritime shipping
have been associated with higher costs, reduced internal shipments and higher reliance on imports, and higher

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energy prices (Olney, 2020[90]; Kellogg and Sweeney, 2023[91]; Agostini, Briones and Mordoj, 2022[92]). In parallel, the
relaxation of such rules in the EU and New Zealand in the 1990s suggests that liberalisation leads to efficiency gains
and reduced freight rates (UNCTAD, 2018[93]). Opening up transport routes to foreign operators could lower costs
and increase productivity in Türkiye.

Loosening regulations in professional services to boost productivity and export

The regulations of the conduct of activity in professional services hamper productivity growth and export potential.
As discussed previously, services in Türkiye are less knowledge intensive, and domestic services are used less in
services and manufacturing exports relative to other OECD countries (Figure 4.10). This is partly due to strict
regulations. The low productivity and the regulation of services can pose particular problems when they are used
in the value chains. In particular, the manufacturing sector is increasingly relying on services as inputs, activities
within firms, or as output bundled with goods (Miroudot, 2017[94]). Indeed, the liberalisation of services tend to
benefit manufacturing firms and export performance (Arnold, Javorcik and Mattoo, 2011[95]; Arnold et al., 2015[87]).
Evidence shows that productivity gaps in manufacturing firms in Türkiye appear in firms which have services
affiliates in the same areas where services are more restricted, suggesting an inefficiently low level of outsourcing,
while in other countries the firms producing services in-house actually tend to be more productive (Haven and
Marel, 2018[96]).

Figure 4.10. The use of services in exports is relatively low

Services content of gross exports, 2020

%
100
Domestic services content Foreign services content

80

60

40

20

0
ISR
FIN
ITA

ISL

IRL
MEX

JPN

LTU

LVA
EST

BEL
SWE
CRI

LUX
NOR
KOR

TUR
HUN

NZL
DEU

CAN

CHE

GRC

NLD
FRA

DNK
CHL

COL
AUS
CZE

SVK

SVN

POL

AUT

PRT
ESP

USA

GBR
OECD

Source: OECD Trade in Value Added (TiVA) 2023 edition: Principal Indicators, shares (database); and TiVA country notes: Türkiye,
https://www.oecd.org/en/topics/sub-issues/trade-in-value-added.html .

StatLink 2 https://stat.link/n9p8s7
There is ample room to reduce regulations in professional services to improve economy-wide productivity and boost
business dynamism. In the professional services covered by the PMR indicators (lawyers, notaries, accountants,
architects, civil engineers, and real estate agents), barriers to entry are generally in line with the average OECD
country. Two barriers could be lowered. First, there is a requirement of Turkish nationality for lawyers, notaries,
accountants, and for some activities for architects. Second, there are typically fewer pathways to access those
professions than in other OECD countries. Beyond entry barriers, restrictions on foreign entry and on the conduct
of activity in professional services are the highest in the OECD (Figure 4.11). They are common among professions:
• As opposed to most OECD countries, fees are regulated in all professions in Türkiye: in particular, fees for
lawyers and notaries are typically not regulated in OECD countries;

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  111

• All other countries covered by the PMR database restrict advertising and marketing in fewer sectors that
Türkiye. All forms of marketing and advertising are allowed for lawyers and notaries in most countries;
• In most OECD countries, there is no restrictions on the legal forms for accountancy and architectural firms,
while Türkiye imposes limitations on the trading of shares on the stock market. In addition, ownership and
voting rights in most professional services enterprises are restricted to members of the profession in
Türkiye;
• Membership in professional organisations is mandatory in all of these services, which is only the case in
Austria and Indonesia among the 47 countries covered by the PMR indicators. Such occupational licensing
can increase wages but tend to reduce employment significantly, while delaying the entry of younger
workers into those occupations beyond the increase in years of education (Kleiner and Soltas, 2023[97]).
All of these restrictions also more generally limit the sources of funding and skills that professional services firms
can access. In addition, they can reduce business dynamism significantly, which could partly explain the low level of
dynamism of services firms relative to industry firms in Türkiye compared to other OECD countries (Bambalaite,
Nicoletti and von Rueden, 2020[98]; Canton, Ciriaci and Solera, 2014[99]).

Figure 4.11. The conduct of professional services is highly restricted

Türkiye’s position in PMR indicators in professional services

Entry regulation: General Entry regulation: Foreign entry

Index Conduct regulation: Fees and charges Conduct regulation: Professional firms
100

80

60

40

20
0 0

0
Lawyers Notaries Accountants Architects Civil engineers Real estate agents

Note: The PMR sub-indicators are normalised to range between 0 (best) and 100 (worst) according to the following formula: (indicator value -
minimum value) / (maximum value - minimum value) x 100. Data on real estate agents is not available for entry regulation: foreign entry.
Source: OECD PMR database. See for more details, www.oecd.org/en/topics/product-market-regulation.html.

StatLink 2 https://stat.link/7cvhw5

Opening services sectors to international competition to boost competitiveness

Additional restrictions on services trade and foreign direct investment (FDI) reduce competition and hamper the
development of services exports. Despite efforts to attract FDI through a 2021-2023 strategy targeting high-tech
services, both services exports and inward FDI remain low relative to the country’s GDP. In addition, as discussed
previously, services exports are concentrated in transport and tourism while inward services FDI consists mostly of
transportation and storage, and real estate services, while the share of ICT and professional services is relatively
low (Figure 4.12, Panel A and B). Services trade and foreign investment are determined significantly by factors that
go beyond regulations. To attract more FDI, Türkiye needs consistent macroeconomic policies (see Chapter 1) a
more competitive domestic environment (see section above), and stronger rule of law (see section below) (U.S.
Department of State, 2024[100]; EIU, 2024[101]). However, domestic regulations can also play a significant role.
Restrictions on services trade have a significantly negative impact on imports and even more on exports, while
regulatory barriers to FDI inflows are negatively associated with higher productivity and higher value-added exports

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112 

(OECD, 2023[4]; Nordås and Rouzet, 2016[102]). Estimates suggest that the barriers to services trade in Türkiye were
equivalent to ad-valorem tariffs of 78% in business services (Benz and Jaax, 2020[103]).
Türkiye’s restrictions on foreign entry in some specific services sectors hinder services exports and FDI. While
Türkiye has a liberal FDI regime for industry sectors, there are more restrictions on foreign participation in services
sectors relative to other OECD countries (Figure 4.12, Panel C and D, and WTO (2023[104])). For example, in the air
transport sector, a majority of shareholders of aircraft operators needs to be of Turkish citizenship, and a Turkish
aircraft must be owned by a Turkish citizen or a company or cooperative where a majority of the governing board
and of the ownership is Turkish (Civil Aviation Act No. 2920). In media, foreigners cannot own more than 50% of
media service providers and are not allowed to be the direct shareholders of more than two providers (against four
for Turkish nationals) or own privileged shares.
Additional requirements on citizenship and physical presence thwart trade and investment. Beyond statutory FDI
restrictions, broader restrictions on foreign participation in services trade in practice, as measured by the Services
Trade Restrictiveness Index (STRI) of the OECD, hamper services trade and FDI. In that regard, it is welcome that the
government has planned to ease visa restrictions for early-stage entrepreneurs as part of its FDI Strategy for the
next four years. Sizeable barriers remain:
• Beyond restrictions on board membership based on nationality as mentioned above (in most business
services, a majority of board members have to be Turkish nationals), in accounting, broadcasting, or
warehousing for example, there must be at least five Turkish employees for each foreign citizen. Media
services are particularly restricted as managers in broadcasting need to be Turkish citizens;
• The acquisition of land for any project is allowed under specific conditions, but subject to relatively tight
regulations. Only citizens of countries designated by the President can acquire land. The total size of land
that can be acquired by foreign individuals cannot exceed 10% of the total surface area allowed for private
ownership in the same district, and 30 hectares in total;
• Commercial presence is typically required to provide cross-border services, for example for accounting and
legal services. In addition, local presence is also required for broadcasting services;
• To protect the value of the currency, a recent decree mandated business services exporters to bring their
export proceeds to Türkiye within 180 days of the export date, while exporters were initially free to dispose
of revenues as they wished.
Following up on the implementation of an efficient investment dispute mechanism would also help attract FDI.
Surveys of investors typically suggest that grievances related to adverse regulatory risks are the most important
government actions leading to FDI cancellations (Echandi, Nimac and Chun, 2019[105]). While in 2021, Türkiye’s
Economic Reform Plan proposed creating a new investment dispute institution, the “Investment Dispute Authority”,
to strengthen investor protection, this authority was never established and Turkish authorities recently concluded
that a new institution was not the most effective solution to improve dispute settlement after consultations with
public and private sector bodies. Therefore, it is encouraging that the new FDI Strategy for 2024-2028 plans to
develop "alternative resolution mechanisms". The World Bank has provided practical guidance for establishing an
effective investor-state grievance mechanism. This includes empowering a dedicated government agency, which
would use an early alert system and tracking tools for potentially problematic investments (such as Canada's Trade
Law Bureau in the Department of Foreign Affairs or the Committee on Foreign Investment in Chile). It could also
serve as a repository of information and help ensure consistency in dispute settlement provisions included in
investment agreements (World Bank, 2022[7]; UN CITRAL, 2023[106]).

Reducing tariffs and non-tariff barriers

Reducing barriers to trade more generally would improve productivity. Turkish importers and exporters show
significantly higher productivity growth than non-importers or non-exporters and evidence suggests that the
average productivity of exporters increases when they actually enter the export market. Both within- and between-
firm productivity in Türkiye has also tended to grow faster in trade-intensive sectors all the more when those are
strongly integrated in GVCs (World Bank, 2019[107]).

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Türkiye proposes tariffs in line with world averages but complements them with additional duties. Türkiye’s tariff
rates are higher than most OECD countries but do not differ with levels in upper middle-income countries and are
lower than those in Brazil, India, and South Africa for example. In particular, tariffs levels are pulled down by the
Türkiye-EU Customs Union (CU) (Figure 4.13, Panel A). Still, imports of some products from non-EU countries,
including those transiting through the EU, face “additional duties” above the EU common external tariff (CET). Since
2011, Türkiye has imposed those additional duties on an increasing range of products. They go up to 30% of
products’ values and affect around 30% of Türkiye’s tariff lines at the Harmonised System’s 10-digit level (WTO,
2023[104]). In addition, since 2017 Türkiye has levied “additional liabilities”, representing today 5% of all tariff lines
including agricultural, fish and fishery products, arising from the difference between Turkish tariffs and tariffs
applied as part of the EU’s Generalised Scheme of Preferences.
Türkiye’s tariff barriers have increased in recent years. Overall, there has been a significant decrease in the share of
tariffs falling below 10%. Tariffs can be particularly high for some agricultural products not covered by the CU: the
highest tariffs of 225% apply to 68 products. 31 tariff lines still exceed the maximum applicable agreed to at the
WTO. Because of those additional duties, unilateral changes to tariffs have been relatively frequent (World Bank,
2022[7]). While the declining trend in tariffs from the mid-1990’s and the mid 2010’s has recently plateaued
worldwide, Türkiye’s average effectively-applied tariff has evolved less favourably than the countries covered by
the PMR indicators.
Non-Tariff Barriers (NTB) have also increased in the last 10 years, although the most recent rise since 2020 has been
in line with other OECD countries and partly temporary because of the pandemic (Figure 4.13, Panel B). In 2022, the
World Bank reported that Türkiye had the 12th highest frequency of NTBs on imports worldwide with a large use of
anti-dumping measures and safeguards. In 2023 Türkiye was the heaviest user of safeguards in the world (World
Bank, 2022[7]; Thompson, 2023[108]). In particular, sanitary and phytosanitary measures, along with anti-dumping
measures and bilateral safeguards, are allowed under the CU. In 2018, the OECD quantified the impact of those
NTBs as equivalent to a 14% tariff, mostly due to technical barriers (Cadot, Gourdon and van Tongeren, 2018[109]).
The European Commission has recently complained of an increasing use of the import surveillance mechanism (a
requirement to obtain a surveillance license prior to imports if the price is below a certain threshold unit value) and
an increase in complaints from EU companies experiencing excessive requests for documentation and submission
of test results when importing into Türkiye (European Commission, 2023[41]). The relevance of the current stock of
NTBs could thus be reviewed.
Restrictions on foreign participation to public procurement have recently been tightened. Public procurement, a
market of 4.8% of GDP in 2022 in Türkiye, features some strong national preference. Participation in procurement
processes can be limited to domestic bidders if the tender’s value is below a certain threshold. Domestic bidders
may be granted up to 15% price advantage in procurement of services or works. Moreover, both domestic tenderers
and foreign tenderers offering domestic products in procurement of goods may be granted up to 15% price
advantage. This 15% price advantage is mandatory for some high-tech and software products since 2016. In 2023,
48% of the value of international tenders (and 40% of tenders) used the domestic price advantage (WTO, 2023[104];
European Commission, 2024[110]). Local content requirements have been frequently included in government
tenders, particularly in the ICT and pharmaceutical sectors (EIU, 2024[101]). The government has also expanded the
use of offsets – which were traditionally used for military procurement – in public procurement for civilian use via
the Industry Cooperation Programme. This now applies to sectors such as energy, transportation, medical devices,
and telecom sectors. In particular, for public contracts above USD 5 million, companies must invest up to 50 percent
of the contract value in Türkiye and “add value” to the local sector (U.S. Department of State, 2024[100]). Such non-
military offsets are, in principle, contrary to EU law.
The EU is Türkiye's biggest trading partner. Therefore, the Customs Union with the EU has a large impact on
Türkiye’s trade policies. With the Customs Union, Türkiye has aligned with the EU’s common external tariffs in
industrial products (excluding coal and stell products) and the industrial component of processed agricultural goods.
Moreover, in industrial products, customs duties and quantitative restrictions are removed between the Parties.

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114 

Figure 4.12. Services exports and FDI are low, focused on low-tech sectors, and tightly
regulated
A. Services exports are low and focused on tourism and transport, 2022
% %
100 100
Share of transport and travel in services exports Services exports to GDP (rhs)
80 80

60 60

40 40

20 20

0 0
GBR
FIN

ITA

NOR
JPN
ISR

MEX

KOR

GRC
NLD
USA

CHE

CAN

DEU

LTU
ISL
EST
CZE

FRA

HUN

LVA
POL

NZL
AUT

ESP
AUS
SVK

COL
SVN

DNK
TUR
CHL
PRT
SWE

CRI
BEL

B. Services FDI are low and focused on low-tech sectors %

% of GDP Inward FDI stocks, 2022 154 202
150 100
Services Manufacturing Other Share of ICT and professional services
120 80

90 60

60 40

30 20

0 0
ITA

FIN

SVN
JPN

TUR

DNK
ISL
FRA

NZL

USA
AUS

LTU
HUN
LVA

CAN

CHE
IRL
NLD
AUT

PRT
CZE

CHL

EST
GRC

NOR

CRI

BEL
POL

SWE
COL

C. Services Trade is tightly regulated D. Services FDI is tightly regulated

OECD Services trade restrictiveness index, 2023 OECD FDI regulatory restrictiveness index, 2020
Scale from 0 to 1 (the most restrictive) Scale from 0 to 1 (fully closed)
0.5 0.15
Regulatory transparency Equity restriction Screening & approval
Barriers to competition 0.12 Key foreign personnel Other restrictions
0.4
Other discriminatory measures
Restrictions to movement of people 0.09
0.3 Restrictions on foreign entry
0.06
0.2 0.03

0.1 0.00
Türkiye

Türkiye

Türkiye

Türkiye
OECD

OECD

OECD

OECD

0
FIN

ITA

ISR
JPN

NLD

FRA

AUT

TUR

ISL
GBR

DEU
DNK
AUS
USA

HUN
KOR

BEL

MEX
GRC
COL

SWE
CAN

CHE

POL

Primary Secondary Tertiary Total FDI

sectors sectors sectors Index

Note: In Panel B, some countries with no triangles have incomplete information to compute the detailed sectoral shares of FDI. Panel C shows average
STRI score by policy and country, based on the STRI simulator (https://oecd-main.shinyapps.io/STRI_Explorer/). The STRI database records measures
on a Most Favoured Nation basis. The indices are based on laws and regulations in force on 31 October 2023.
Source: OECD (2024), OECD Balanced trade in services (BaTIS); OECD FDI main aggregates, BMD4; OECD FDI by counterpart area and by economic
activity, BMD4, OECD Services Trade Restrictiveness Index Explorer; and OECD FDI Regulatory Restrictiveness Index -Archive; and World Bank (2024),
World Development Indicators.
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The scope of the Customs Union remains relatively limited. Trade in services is not included in the CU or any
preferential agreement, and thus follows WTO rules. Trade in non-processed agricultural products is governed by a
separate preferential agreement. Under this agreement, the EU phased out most tariffs on agricultural products,
while Türkiye kept relatively higher tariffs. In 2022, for example, the effectively applied tariffs on agricultural imports
from France to Türkiye averaged 20.2%, while Türkiye’s agricultural exports to France faced only tariffs of 0.9% on
average (World Bank, 2024[111]). Similarly, public procurement can be restricted to domestic tenders both in the EU
and Türkiye since the CU does not include relevant provisions in this regard (Weyerstraß and Ertl, 2022[112]; Yalcin,
Aichele and Felbermayr, 2016[113]).
Expanding the Customs Union could significantly improve trade, increase investment, and boost productivity.
Extending coverage to the agriculture and services sectors would grow bilateral trade significantly. Recent estimates
suggest that Turkish exports to the EU could increase by almost 70% and GDP could be 1.8% higher (Yalcin and
Felbermayr, 2021[114]). Discussions on reforms of the CU have already known fits and starts in 2016 and 2020 and
should be pursued. In that regard, it is welcome that a new High-Level Dialogue on Trade has met for the first time
in July 2024 to discuss strengthening the CU, and that Türkiye has officially requested to upgrade the CU to include
trade in services. Both Türkiye and the EU have already implemented such agreements with wider scope with
different countries. For example, the Türkiye-Singapore Free Trade Agreement (TRSFTA) signed in 2015 covers
goods, services, public procurement, investment, and intellectual property. In particular, public procurement is
open to both countries and there are no foreign equity limits on foreign investors. Similarly, the EU agreements
with Chile and Canada (CETA) also cover several services and facilitate the participation of EU firms in public
procurement.

Figure 4.13. Tariff rates are relatively high, and non-tariff barriers have increased quickly
A. Tariff rates, 2021 B. Number of harmful trade interventions
% Index 2009 = 100
12 500
Applied tariffs MFN tariffs Türkiye OECD
10
400

8
300
6
200
4

100
2

0 0
ISR

TUR

IND
CHL

ISL
JPN
GBR

NZL

WLD

ZAF

BRA
AUS

EUU
CHE
CRI
USA

CAN

NOR

UMC

KOR
COL

2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023

Note: In Panel A, data are based on the average of applied and most favoured nation rates weighted by the product import shares corresponding to
each partner country. Most-favoured nation (MFN) tariffs rates are the highest that WTO members promise to charge one another. The “applied”
tariffs are the lowest rates that are effectively available. Data refer to 2017 for the World (WLD) and Upper Middle Income (UMC) countries. In Panel
B, data are based on the total number of policy instruments harming foreign commercial interests of a given nation or customs territory, considered
by the Global Trade Alert. It covers trade in goods and services, investment as well as labour force migration. See the source for the details on the
list of harmful trade measures.
Source: World Bank (2024), World Development Indicators; and Global Trade Alert, https://data.globaltradealert.org/threads/harmful-trade-
interventions.

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Changes to the EU-Türkiye Customs Union should also ensure the creation of a well-functioning trade dispute
resolution mechanism (DSM). This could be based on examples from existing Free Trade Agreements, like those the
EU has with Japan and Canada. Today, trade disputes between the EU and Türkiye are rarely solved within the
existing DSM. In principle, the Ankara Agreement includes a DSM for a wide range of potential conflicts. However,
it requires a mutual consent of both parties to initiate a dispute settlement. Another DSM within the CU agreement
is limited to disagreements on the duration of safeguard measures (Weyerstraß and Ertl, 2022[112]; World Bank,
2014[115]).
Even with a stronger Customs Union, Türkiye will need to improve existing trade deals and negotiate new ones,
especially with countries that have Free Trade Agreements (FTAs) with the EU. The EU has signed more bilateral
FTAs with third countries in recent years. As a consequence, Turkish companies face more competition from third-
country exporters, while EU exporters may find it harder to use Turkish inputs as part of their agreements with third
countries. To address this, Türkiye should prioritise negotiating FTAs with countries that already have FTAs with the
EU. Aligning its FTAs with the EU, in addition to deepening the CU to agriculture and services, could boost Türkiye's
GDP by 2.5%, thanks to a rise in exports (Yalcin and Felbermayr, 2021[114]).
Negotiating new FTAs or deepening existing FTAs outside of any CU-related policies would still be highly beneficial.
Most of Türkiye's FTAs cover goods only. In the past, Türkiye’s merchandise exports with a partner country increased
by 180 percent in the five years after a trade agreement came into force. Expanding existing agreements (outside
of the CU) to the levels of coverage in the broadest agreement signed by Türkiye to date could increase exports by
10% (World Bank, 2022[7]). In that regard, it is welcome that the country is currently negotiating with the Gulf
Cooperation Council, Japan and Indonesia, and with the United Kingdom to expand and update the existing FTA.
Beyond tariff and non-tariff barriers, technical and legal procedures for products entering or leaving the country
could be streamlined. Facilitating trade can help boost trade by reducing hidden trade costs: for example, the OECD
has estimated that shifting to best trade facilitation practices could reduce trade costs by 15% (Moïsé and Sorescu,
2013[116]). Surveys typically find that burdensome procedures are among the top obstacles to international trade in
particular for SMEs (López González and Sorescu, 2019[117]). Although Türkiye has made significant improvements
in recent years in facilitating trade, in particular in digitalising customs procedures, there is still room for progress
(Figure 4.14). For example, in the latest Logistics Performance index, while Türkiye performs relatively well in its
ability to arrange competitively priced shipments, it ranks 6th lowest among OECD countries in the perceived
efficiency of the customs clearance process.
One way forward could be to improve coordination with customs agencies of trade partners, which is
underdeveloped (Moïsé and Sorescu, 2013[116]; UNCTAD, 2023[118]). In particular, formalities and procedures with
neighbouring countries at border crossings are still not fully aligned, the alignment of working hours is only at a
planning stage, and there are no common facilities at border crossings or one-stop border posts. Türkiye already
made some efforts in this area and signed a protocol with Azerbaijan and Georgia to enhance customs cooperation
and enforcement and facilitate trade (WTO, 2023[104]). Türkiye could also improve the digitalisation of exchanges of
trade-related information across borders. While it has fully implemented the recommendations of the WTO’s Trade
Facilitation Agreement regarding the digitalisation of trade procedures, it is still lagging in enabling cross-border
mutual recognition and the exchange of trade-related data and documents in electronic form.
More support could also be given to SMEs, as the fixed costs of trading can be more burdensome for them. Although
Türkiye has now fully implemented a single window system (a single portal through which trade documents can be
submitted to customs authorities) for trade-related information and procedures, it has not made it more accessible
to SMEs. For example, Thailand has developed a training programme for SMEs to access and use its single window
(UN/ESCAP and ITC, 2016[119]). The UN has recently suggested the implementation of an Integrated Services for
SMEs in International Trade (ISMIT) which would help SMEs in the provision of standardised information and
documents to the national single window. For example, China established the OneTouch system in 2010 to provide
support – specifically targeted to SMEs – for services such as customs clearance, VAT refunds and logistics,
connected to the Chinese Single Window (UN/CEFACT, n.d.[120]). Other helpful measures could include options like
deferred duty payments and reduced fees and charges. The United States, for example, has an expedited shipments
program that sets a minimum value for applying import duties on goods. Furthermore, a single window system for
trade finance – connecting financial institutions and authorities, can make it easier for SME to access funds
(UNCTAD, 2023[118]).

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Figure 4.14. There is room to facilitate trade via streamlined procedures and cross-border
cooperation
A. OECD trade facilitation sub-indices, 2022 B. UN trade facilitation sub-indices, 2023
Türkiye OECD Türkiye OECD

Scale from 0 to 2 (best performance) Scale from 0 % to 100 % (full implementation)

2.0 2.0
100 100

1.5 1.5
75 75

1.0 1.0
50 50

0.5 0.5
25 25

0.0 0.0 0 0

Formalities
Trade facilitation for SMEs

Transparency

Paperless trade
Cross border papaerless trade

Institutional arrangement and

Fees and charges
Advance rulings

Automation
agency co-operation

Appeal procedures

Procedures

agency co-operation
Information availability

Documents
Involvement of the trade

Governance and impartiality

External border

Internal border

community

cooperation
Note: The OECD trade facilitation performance indicators are composed of eleven variables measuring the actual extent to which countries have
introduced and implemented trade facilitation measures in absolute terms, but also their performance relative to others. The UN Trade Facilitation
Survey consists of a set of sixty digital and sustainable trade facilitation measures. Each aggregate index averages the scores for its sub-indices. The
OECD number is an average of 34 OECD countries with available data.
Source: OECD (2024), OECD Trade Facilitation Indicators 2022 edition; and United Nations (2023). Digital and Sustainable Trade Facilitation: Global
Report 2023.

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4.4.3. Improving the efficiency of the insolvency regime

A more efficient insolvency regime would enhance business dynamism by boosting renewal of business. As barriers
to entry and to conduct activity are eased, the exiting of non-viable, unproductive firms could also be facilitated. An
efficient insolvency regime supports productivity by reducing the share of capital sunk in zombie firms, a speedier
recovery of temporarily non-viable firms, and by facilitating innovation and experimentation by encouraging risk-
taking (André and Demmou, 2022[121]; Adalet McGowan and Andrews, 2018[122]). Addressing insolvency frameworks
also has important financial stability implications as, for example, a high prevalence of non-performing loans can
act as a constraint on the supply of credit by banks and the allocation of financial resources. In Türkiye, the
insolvency regime appears particularly inefficient for services firms where exiting firms tend to actually have higher
productivity than remaining ones (World Bank, 2019[107]). In the latest available data of the Doing Business Survey
from the World Bank, the time for resolving insolvency was five years in 2019 against 1.8 years in the OECD, and
the recovery rate was 10.5% against 27.3% in MENA countries and 70.2% in OECD high income countries.
The insolvency regime in Türkiye can improve on standard policies which can help smooth the transitions
(Figure 4.15). The treatment of failed entrepreneurs is fairly generous, with a discharge time in line with the OECD
median and generous asset exemptions. However, Türkiye lacks an early warning mechanism such as training to
firms or on-line tests to assess their financial position, and financial and debt counselling to companies with financial
difficulties. For example, in 2006, France introduced a 'safeguard' procedure for firms that are not yet insolvent but
are experiencing financial difficulties. If a court accepts their application, these firms follow a process similar to
traditional insolvency, significantly improving their chances of successful restructuring (Epaulard and Zapha,
2022[123]).

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Furthermore, Türkiye’s insolvency system does not have a streamlined system targeted towards SMEs. For example,
the United States recently introduced a restructuring procedure specifically for small businesses allowing debtors
to retain control over their operations and empowering courts to override dissenting creditors for firms with debts
below USD 2.7 million. Colombia implemented simplified restructuring and liquidation procedures during the
pandemic, which included mandatory mediation meetings early in the insolvency process and tighter timelines for
small companies (André and Demmou, 2022[121]).
While Türkiye has recently modernised its insolvency framework to align with global best practices, it still imposes
barriers to restructuring which could be loosened:
• Before 2023, Türkiye was one of only nine OECD countries where creditors could only initiate liquidation
while only debtors can initiate restructuring. This could reduce the probability of successful restructuration
in a timely fashion. However, the Financial Restructuring Framework Agreements reintroduced in
December 2023 established a financial restructuring framework that enabled creditors to restructure debts
of viable companies facing temporary financial difficulties;
• There is no limit on the length of stay on assets in financial restructuring proceedings while most OECD
countries impose a time limit, but amendments to the Enforcement and Bankruptcy Law introduced a
temporary respite period during concordat proceedings (a court-supervised restructuring process);
• Since 2019, the framework allows the overriding of the votes of a minority of creditors voting against a
restructuring plan. Still, it does not guarantee that they receive as much under restructuring as in
liquidation. This is the case in a majority of OECD countries;
• Credit obtained by the debtor after the initiation of insolvency proceedings is not given priority over either
secured or unsecured creditors. This can limit the possibility to inject new capital to facilitate internal
reorganisation. Two thirds of OECD countries give priority to new financing over unsecured creditors.

4.4.4. Providing a sound institutional framework for the economy

The government plays a major role in the economy not only through its significant interventions in the conduct of
business activity, but also more directly through the importance of state-owned enterprises. In order to provide a
level playing field for the private sector and limit potential distortions of economic activity, the government needs
to make sure that a rationale exist for its involvement in business activities, and ensure that the institutional setup
is in place to protect decision makers against undue influence.

Rationalising the role of the state in the economy

While Türkiye went through several waves or privatisations in the last 40 years, state ownership of companies
remains relatively large compared to other OECD countries. A recent estimation from the World Bank suggests that
SOEs are present in almost half of all business sectors. In addition, the state owns more than 10% of companies in
80% of business sectors (World Bank, 2023[124]). For example, public companies hold significant positions in network
sectors (e.g. telecommunications; oil, gas and electricity transmission) where there are natural monopolies, and in
strategic sectors like defense. However, they are also present in banking, and in industry and manufacturing sectors
such as the manufacturing of rail vehicles (TÜRASAŞ), the manufacturing of meat and milk (ESK), or the processing
of tea (ÇAYKUR) where the public policy role is less justified. For example, state-owned banks’ assets represented
38% of the banking sector’s total assets in 2023, the sixth highest in the OECD (U.S. Department of State, 2023[125]).

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Figure 4.15. The insolvency regime could be more efficient

OECD Insolvency indicator, main components, 2022

Score
3.0
Treatment of failed entrepreneurs Prevention and streamlining Restructuring tools
2.5

2.0

1.5

1.0

0.5

0.0
FIN

ITA

JPN

ISR
FRA

IRL

ISL
DNK

LTU

SVK
SVN
CAN

CZE
DEU

ESP
LVA

AUT

NLD

AUS
CHE

HUN
TUR

LUX
GBR

GRC

PRT
USA

KOR

EST

NZL
CRI

BEL
MEX
NOR

CHL
COL

SWE

POL
Note: The scores for the three main sub-categories are scaled from zero to one, with lower scores indicating more favourable frameworks.
Source: André, C. and L. Demmou (2022), "Enhancing insolvency frameworks to support economic renewal", OECD Economics Department Working
Papers, No. 1738.

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High SOE presence can hamper productivity when they do not solve market failures. While countries have typically
shifted away from full ownership of SOEs, most Turkish SOEs are wholly owned by the government – an important
consideration as private involvement in SOEs is associated with higher productivity (IMF, 2020[126]; Ministry of
Treasury and Finance, 2023[127]). State ownership can be justified to address market failures – such as the existence
of a natural monopolies because of strong economies of scale, the provision of public or merit goods, and the
existence of externalities – or based on other social objectives (Szarzec, Dombi and Matuszak, 2021[128]; OECD,
2005[129]). However, the prevalence of SOEs can threaten fair competition in commercial activities where market
failures are limited. In Türkiye, sectors with state involvement have fewer new businesses, higher market
concentration, slower job growth, and lower productivity. Those sectors also appear to be significantly more
protected from outside competition: sectors with strong state involvement have significantly higher import tariffs
and nontariff barriers (World Bank, 2023[124]).
As a consequence, governments should transparently present strong grounds for the ownership of enterprises in
commercial sectors. However, despite its wide coverage, Türkiye does not provide a publicly accessible document
detailing the rationale behind state ownership. For example, in Norway a whole-of-government state ownership
policy is expressed as a white paper which is renewed every four years after each parliamentary election. The White
Paper includes the overall objectives for state ownership and for each individual company in which the state is a
shareholder, and states how the government intends to exercise its ownership. In Germany, the portfolio of SOEs
is reviewed every two years and state ownership must be justified or the enterprise will be privatised (Lewis et al.,
2022[130]).
Creating a clear rationale for state ownership could help identify areas for potential future privatisations in Türkiye.
The large number of SOEs and the relative underperformance in sectors where they operate suggest room for more
privatisation. In addition, since 2017 many Turkish SOEs have struggled to cover their financial expenses (including
interest expenses and foreign exchange losses) with operating profits. Evidence suggests that the privatisation of
such “zombie firms” could be particularly beneficial (Wang et al., 2024[131]).
In the past, the country went through several waves of privatisations, but the pace has slowed down in recent years.
210 companies out of 278 once owned by the government have been privatised since the first law on privatisation
was passed in 1984. Overall, revenues from privatisation were around USD 5 billion per year between 2005 and
2015, but fell to USD 504 million in 2022 or less than 0.1% of GDP. Revenues were projected to be 0.05% of GDP in

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2023 mostly deriving from the sale of infrastructures belonging to the Electricity Generation company EÜAŞ. In the
past, privatisations have typically tended to improve profitability and efficiency, at least when realised in economies
with strong economic institutions in place (Guriev and Megginson, 2006[132]). For example, the privatisation of
cement plants in Türkiye between 1983 and 1999 has been associated with higher productivity (Okten and Arin,
2006[133]). The OECD has provided a privatisation guide for policymakers and a stock-taking of country experiences
(OECD, 2018[134]; OECD, 2019[135]).
Türkiye could consider the privatisation of several SOEs which were in the original scope of privatisation
programmes but were never transferred to the private sector. For example, the state-owned banks Ziraat Bank and
HalkBank were planned to be privatised in 2004 but are now held by the Türkiye Wealth Fund (TWF) established in
2016 (Box 4.4). Likewise, Turk Telekom had been partly privatised in 2005 but TWF now holds 62% of the capital;
and Türkiye Sugar Factories was included in the scope of privatisation in 2000 but was removed in 2021, with its
shares transferred to TWF (Ministry of Treasury and Finance, 2023[127]).
For the enterprises which are kept in the state’s hands with a rigorous rationale, their governance should be aligned
with OECD guidelines to ensure a level-playing field (OECD, 2015[136]). Evidence at the micro and macro level
suggests that the positive impact of SOEs on growth and productivity is highly dependent on the actual and
perceived quality of governance and institutions (OECD, 2020[137]; Szarzec, Dombi and Matuszak, 2021[128]; IMF,
2020[126]). In that regard, it is welcome that the latest medium-term program has proposed a review of SOE
governance. This is important because, despite the relatively broad coverage of SOEs, Türkiye strays away from
some of the good practices set up in the OECD Guidelines on the Governance of SOEs. For example:
• It is important to separate ownership from regulation and policies. In Türkiye, line ministries that manage
SOEs often also regulate the sectors where those SOEs operate, leading to potential conflicts of interest
(Edwards and Waverman, 2006[138]; World Bank, 2023[124]). Centralising SOE ownership can help separate
ownership from regulation and policy. Brazil, for instance, created a Secretariat in 2016 to manage SOEs
independently from line ministries (OECD, 2020[139]). Türkiye made some progress with the creation of the
Türkiye Wealth Fund (Box 4.4). However, the TWF’s governance could be more transparent, as companies
established by the TWF or by its subsidiaries are not audited by the Turkish Court of Audit (but companies
which were transferred to the TWF and have public ownership above 50% are audited by the Turkish Court
of Audit), and its audits have not been published since 2021.
• Independence of the management of SOEs should be strengthened. In Türkiye, public authorities appoint
the CEOs of SOEs, and there is no requirement that at least part of the board of directors must consist of
independent members. This lack of independence can lead to conflicts of interest in decision-making.
Additionally, politicians can serve as board members, which poses a risk if they have the power to influence
the SOEs’ operations (OECD, 2013[140]; OECD, 2019[141]). Most OECD countries have stricter rules to support
board independence (OECD, 2020[139]).
• SOEs should broaden its measurable targets to add targets on their rate of returns. Many OECD countries
have formal rate-of-return targets set by their owners and boards. As part of proposed governance reforms,
Türkiye is considering using performance-based methods to enhance SOE accountability.
• Most commercial SOEs in Türkiye have access to explicit guarantees from the Ministry of Finance for
borrowing from international financial institutions, while most OECD countries provide no or very limited
guarantees on contracted debts.

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Box 4.4. The Türkiye Wealth Fund (TWF, Türkiye Varlık Fonu)
The TWF has quickly acquired a broad portfolio of companies
The Türkiye Wealth Fund (TWF) was established in 2016 with a capital of USD 15.6 million. In 2017, TWF acquired
the license for the national lottery and the Treasury’s shares in the two largest public lenders Ziraat Bank and
Halkbank, the Turkish Petroleum Corporation, Turkish Airlines, and Turk Telekom. In 2020, it acquired the shares
of the public insurance companies and 26% of the mobile phone operator Turkcell. Today, the fund has (usually
full) participation in 30 companies. More than 70% of its assets are shares in financial services companies. An
additional 12% are invested in energy companies and 10% in transport and logistics companies. Its assets were
evaluated to TRL 5600 billion (37% of GDP) at the end of 2022.
TWF has benefited from strong government support
TWF has been funded by the transfer of SOEs through equity injections, and by bond issuances. The fund
benefits from a full guarantee of the Treasury on 95% of its syndicated euro loan contracted in 2020 (30% of
outstanding debt in February 2024) and has benefited from funding from the Treasury to recapitalise its state-
owned banks. The TWF also benefits from tax exemptions. The Law on the Establishment of the Türkiye Wealth
Fund Management Company states that “the Türkiye Wealth Fund and the companies and sub-funds to be
established by the Company are exempt from income and corporate tax.”
The transparency of TWF could be improved
The TWF has been chaired by the President of the Republic since 2018, who also appoint the auditors performing
the audit of the fund. The fund is not audited by the Turkish Court of Accounts (TCA) but by an independent
audit firm, and not all companies in TWF’s portfolio are audited by the TCA. The 2021 audit report distributed
to Parliamentarians was designed as secret in 2021 and audit reports have not been published on the TWF
websites since then.
TWF ranked slightly below the average and the median of 52 sovereign wealth funds in the Linaburg-Maduell
Transparency Index, an index developed by the Sovereign Wealth Fund institute on 10 transparency indicators
(including the provision of up-to-date, independently audited annual reports).
Source: TWF, (Erdemir, 2024[142]), Fitch, (European Commission, 2023[41]), (U.S. Department of State, 2023[125]).

Increasing transparency in government action

The large role of the state in the Turkish economy emphasises the importance of tight lobbying regulation to avoid
economic distortions. Improving the regulation of the lobbying process is important to strengthen competition.
Public policies that respond only to the needs of a special interest group undermine competition as these groups
can interfere with competitors’ businesses or to secure economic advantages. Moreover, high perception of unfair
competition can dismantle trust, increase uncertainty, and deter investments. Therefore, it is important to set
standards and principles for the lobbying process to provide a level playing field by granting all stakeholders fair
and equitable access to the development and implementation of public policies.
There is room to improve transparency in decision-making in Türkiye. To enhance scrutiny of public decisions,
transparency measures should be applied to all actors attempting to influence decision-making. However, Türkiye
still falls short compared to other OECD countries in following proper lobbying principles (OECD, 2021[143]).
Currently, lobbying activities in Türkiye lack transparent regulations. For instance, lobbyists are not required to
register or disclose their activities. Some OECD countries also place requirements on public officials who are being
targeted by lobbying activities to disclose information on their meetings with lobbyists, either through a registry
(Chile, Peru, Lithuania and Slovenia), “open agendas” (Lithuania, Spain, United Kingdom and the EU), and/or by
requiring public officials to disclose their meetings with lobbyists to their superiors (Hungary, Latvia, Lithuania,
Slovenia) (OECD, 2021[143]). In addition, in Türkiye it is not mandatory to disclose the names of the members of
permanent advisory bodies. Unlike most OECD countries, the country has not set up regulations specifically dealing
with conflicts of interest for members of cabinet, senior civil servants, appointed public officials, and members of
parliament.

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Strengthening anticorruption efforts

Beyond the economic distortions created by lobbying, the potential for corruption can have a significant impact of
productivity. Corruption affects key determinants of productivity growth, including innovation and diffusion of new
technologies, competition and private investment decisions. Surveys consistently show that citizens believe
corruption is prevalent in various sectors, including business, and public services. According to Transparency
International, the perception of corruption worsened in 2023 and Türkiye now ranks 115th among 180 countries
surveyed. Other indicators confirm high corruption perception in Türkiye (Figure 4.16).
A strategic approach to anti-corruption allows governments to identify the main challenges, establish objectives
and define specific actions for achieving desired results. As outlined in the OECD Anti-Bribery Convention, Türkiye
had created several anti-corruption strategies, but they have not been maintained or updated. Many are no longer
in force and have not been replaced, resulting in a lack of national strategic policies on either domestic corruption
or foreign bribery (OECD, 2024[144]). Moreover, a fully-fledged corruption prevention policy still remains to be
developed and Türkiye has also not made progress to introduce whistleblower protection legislation.
The legal framework and institutional architecture also need to be improved. Türkiye has not set up anticorruption
bodies in line with the United Nations Convention against Corruption (European Commission, 2023[41]). In addition,
Türkiye, contrary to most of the OECD countries, does not have an independent body with a mandate to oversee
political financing (OECD, 2024[145]). This might help to provide effective oversight institutions with the
independence and legal authority to meaningfully regulate potential violators.
Transparency is essential for reducing the perception of corruption. When citizens have access to public
information, they can better understand government activities, which encourages public officials to act responsibly
and increases accountability in policymaking. High levels of public access to information are linked to greater trust
in government and satisfaction with public services (OECD, 2024[145]).
Most OECD countries have clear procedures for requesting information and regulations ensuring that all public
institutions and individuals performing public duties must provide access to that information. In contrast, Türkiye
lacks such regulations and does not have a "default open government data" policy OECD, 2024[144]). Additionally,
there is limited parliamentary oversight of the budget, leading to low budget transparency (European Commission,
2023[41]).

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Figure 4.16. The corruption perception in Türkiye is high

A. Corruption Perceptions Index B. Control of corruption
Scale: 0 (worst) to 100 (best), 2023 Scale: -2.5 (worst) to 2.5 (best), 2023
100 2.5

80 1.5

60 0.5

40 -0.5

20 -1.5

0 -2.5

MEX

ITA

FRA
CZE

CHL

OECD
COL
TUR

GRC

ESP

PRT
POL

DNK
DEU
TUR

GRC

ITA
MEX

COL

CZE
ESP

OECD
FRA
CHL
POL

DNK
PRT

DEU
C. Evolution of "Control of Corruption" D. Anti-corruption and integrity outlook
Scale: -2.5 (worst) to 2.5 (best), 2023
Türkiye OECD %
1.5 100

100
80

80
1.0 60

60
OECD
40
0.5
40

Türkiye 20

20
0.0 0

Implementation
Implementation

Implementation

Implementation

Implementation

Implementation
Regulation

Regulation

Regulation

Regulation

Regulation

Regulation
-0.5

-1.0 Anti- Corruption Lobbying Conflict of Political Transparency

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 corruption risk interest finance of public
strategy management information
and adult

Note: Panel B shows the point estimate and the margin of error. Panel D are based on the OECD Public Integrity Indicators (PIIs), https://oecd-public-
integrity-indicators.org/. How to read: As measured against OECD standards on anti-corruption strategy, Türkiye fulfils 27% of criteria for regulations
and 13% for implementation compared to the OECD average of 45% and 36%, respectively. The country does not fulfil any criteria on regulations
and practice to mitigate corruption risks related to lobbying, as there is no legislation in this area, while it fulfils 56% of criteria regarding regulations
on OECD standards on conflict of interest and does not track the necessary data in practice.
Source: Panel A: Transparency International; Panels B & C: World Bank, Worldwide Governance Indicators; Panel D: OECD Anti-Corruption and
Integrity Outlook 2024 – Country Notes: Türkiye.

StatLink 2 https://stat.link/q6uz3n

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124 

Table 4.2. Recommendations

MAIN FINDINGS RECOMMENDATIONS (Key recommendations in bold)
Encouraging innovation and promoting the adoption of new technologies
Public R&D support is at the OECD average. Although, the country has Develop a common and unified evaluation framework for public R&D
systematic and regular impact assessments and most programmes are support to identify best practices and challenges.
evaluated, their social and economic impacts are measured with a
tailored approach to each support mechanism, and it lacks a unified
approach.
Despite relatively generous government support, there is only limited Expand further the programmes that promote research-business
adoption of new technology among Turkish companies. Only one-third of collaboration, and allow researchers to temporarily join the private
Turkish companies reported introducing an innovation in 2018-2020, sector and vice-versa.
compared to around half of the companies in the average OECD country.
One of the significant barriers to higher innovation, according to Turkish Expand technology transfer offices in Türkiye and complement them by
companies, is a lack of information about government R&D support and digital platforms that promote and facilitate matchmaking between
insufficient knowledge about collaboration opportunities. academic and industry partners.
Enhancing the skills of current and incoming workers
The sharp increase in university graduates has resulted in a high Strengthen career counselling by employer engagement in career
likelihood of mismatch, especially among recent graduates. Türkiye has guidance.
the largest skills gap for workers with tertiary education among OECD Further enhance incentives for tertiary education institutions,
countries. including funding to offer courses more aligned with labour market
needs.
Participation in lifelong learning in Türkiye remains much lower compared Expand high-quality adult training programmes, including distance
to other OECD countries. The level of training provided by Turkish learning and modular and/or credit-based formats.
companies, including digital training, is among the lowest in the OECD. Consider establishing personal account schemes, which allow
individuals to save a certain amount of time per year worked for training
purposes.
Türkiye ranks among the least attractive countries for highly skilled Continue ongoing efforts to relax migration rules for highly skilled workers
migrants. further, including allowing highly skilled migrants to enter the country and
seek work.
Ease immigration policies to encourage the temporary or permanent
immigration of skilled workers and international students.
Reducing regulatory barriers to business dynamism
Burdens on setting up Limited Liability Companies and Personally- Reduce capital requirements and registration costs for POEs and LLCs.
Owned Enterprises are significant. Consider applying a "silence is consent" principle for issuing permits and
licenses.
Regulations in network sectors are relatively high. Remove the regulation of retail tariffs in electricity and gas sectors.
Reduce the dominant position of BOTAŞ and unbundle the transmission
system operator from commercial activities.
Services in Türkiye are less knowledge intensive, and domestic services Drop the nationality requirements for professional services providers.
are used less in services and manufacturing exports relative to other Reduce barriers to the conduct of activity in professional services
OECD countries. Productivity gaps in manufacturing firms in Türkiye by easing the regulation of fees, restrictions on advertising and
appear in firms which have services affiliates in more restricted sectors. marketing, limits on firms' legal forms, and occupational licensing.
Restrictions on services trade and FDI reduce competition and hamper Loosen foreign participation restrictions in services sectors where
the development of services exports. There are tight restrictions on they have hampered beneficial competition.
foreign participation in services sectors, and requirements of citizenships
and physical presence. Estimates suggest that the barriers to services
trade are equivalent to ad-valorem tariffs of 78% in business services
Surveys of investors typically suggest that grievances related to adverse Follow up on the commitment to develop alternative resolution
regulatory risks are the most important government actions leading to mechanisms, e.g. by empowering a dedicated government agency to
FDI cancellations. track problematic investment and serve as a repository of information.
The Customs Union with the EU does not cover non-processed Support expanding the Customs Union to agriculture, services, and
agricultural products, trade in services, and public procurement. public procurement.
The EU has been expanding free trade agreements with third parties in Negotiate wide-ranging FTAs in priority with countries already in trade
recent years, raising competitive pressure for Türkiye. agreements with the EU, and deepen existing agreements.
The insolvency regime appears particularly inefficient for services firms Implement early warning mechanisms such as training to firms or on-line
where exiting firms tend to have higher productivity than remaining ones. tests to assess their financial position.
The treatment of failed entrepreneurs is fairly generous. Provide a simplified insolvency system for SMEs.
Ease barriers to restructuring, e.g. by imposing a time limit on the stay
on assets in restructuring proceedings.

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  125

MAIN FINDINGS RECOMMENDATIONS (Key recommendations in bold)

Providing a sound institutional framework for economic activity
State ownership of companies remains relatively widespread. Most Set up a clear rationale for state ownership of SOEs.
Turkish SOEs are wholly owned by the government.

Türkiye does not provide a public document detailing the rationale behind Separate ownership rights and regulatory responsibilities e.g. by
state ownership. centralising SOE ownership through a more transparent Türkiye Wealth
Fund.

SOE governance in Türkiye does not follow the OECD Guidelines on the Improve the governance of SOEs by requiring the independence of board
Governance of SOEs, which can weaken the competitive environment. members, formal agreements on rate-of-return targets, and by limiting
preferential access to financing from state-owned financial institutions.
Transparency International’s perception of corruption index worsened in Adopt an anti-corruption strategy underpinned by credible action plans.
2023. Türkiye’s now ranks 115th among 180 countries surveyed. Establish a permanent and independent anti-corruption body.
Introduce whistleblower protection legislation.

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126 

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OECD Economic Surveys:
Türkiye 2025
April 2025
Volume 2025/8

Türkiye has been one of the fastest‑growing economies in the OECD over the past decade. However, the income gap
with OECD countries remains large and structural challenges persist. More prudent macroeconomic policies are
helping to restore sustainable growth and to reduce economic imbalances, and should be pursued. Over the long term,
improving public finances will require more efficient consumption taxes, a broader income tax base, and strengthened
social assistance. Higher labour market participation is also key. Women’s participation remains particularly low
and would benefit, among other measures, from expanding affordable early childhood education and care. Türkiye has
made significant progress in addressing climate change, but emissions are still growing. Reaching the target of zero net
emissions by 2053 would require higher effective pricing of carbon and transitioning away from coal. Finally, potential
growth per worker in Türkiye has been slowing down and productivity remains relatively low, notably in services
sectors. To boost living standards in a sustainable way, the country needs to improve productivity by upskilling
the labour force, enhancing innovation, and easing business regulations.
SPECIAL FEATURES: REMOVING BARRIERS TO FEMALE LABOUR MARKET PARTICIPATION; STEPS TOWARDS
GREEN TRANSFORMATION; COMPLETING THE TRANSITION TO A COMPETITIVE AND INNOVATIVE ECONOMY

PRINT ISBN 978-92-64-80837-9

PDF ISBN 978-92-64-38915-1

9HSTCQE*iaidhj+