2009年-世界发展银行全球_Turkey___Strengthening_the_Framework_for_Sub-National_Borrowing_34页_579kb

Summary of "Turkey: Strengthening the Framework for Sub-national Borrowing"

Core Content

This policy note focuses on the challenges and opportunities in strengthening the sub-national borrowing framework in Turkey. It highlights the importance of local government finance in the context of fiscal decentralization and public investment, particularly in infrastructure and services. The document outlines both the ex ante (preventive) and ex post (response) mechanisms for managing sub-national debt, drawing on international experiences to inform potential reforms.

Main Views

• Sub-national borrowing has become a critical component of public finance in Turkey, driven by urbanization, EU accession requirements, and the need for infrastructure development.
• The historical debt overhang from the 1990s, characterized by unregulated borrowing and Treasury guarantees, led to two major debt restructurings in 2002 and 2005.
• The Turkish government has implemented significant reforms, including setting borrowing limits, improving financial reporting, and introducing credit risk assessment systems.
• However, gaps remain in the regulatory framework, particularly regarding the discretionary application of borrowing limits, the non-application of limits to municipal enterprises, and the lack of explicit prohibitions on borrowing to cover operating deficits.
• A formal insolvency mechanism is proposed as a necessary complement to the ex ante rules, to ensure fiscal discipline, protect public services, and manage financial distress effectively.
• The sub-national credit market is underdeveloped, with limited private sector participation and reliance on state-owned institutions like Iller Bank.

Key Information

I. Ex Ante Rules

• Borrowing limits for local administrations are set at 100% or 150% of previous year’s revenues (adjusted for inflation), depending on the type of municipality.
• The Treasury guarantees for foreign debt have decreased from 32.9% in 1999 to 15.7% in 2008.
• Discretionary exceptions to borrowing limits exist, which can undermine the credibility of the framework and lead to increased debt.
• Municipal companies are not subject to the same borrowing limits as local administrations, raising concerns about financial risks being transferred.
• The Municipality Law (No. 5393) does not explicitly prohibit borrowing to cover operating deficits, which could lead to unsustainable debt accumulation.

II. Ex Post Framework

• There is currently no clear legal mechanism for resolving municipal insolvency.
• A formal insolvency framework is recommended to provide clarity, enforce hard budget constraints, and protect creditors' rights.
• The framework should include triggers for insolvency, fiscal adjustment measures, and debt restructuring priorities.
• The ex post framework can reduce contingent liabilities of the central government and enhance market confidence in local administrations.

III. Sub-national Credit Market

• The sub-national credit market in Turkey is underdeveloped, with limited private sector participation.
• Most long-term borrowing comes from foreign sources, especially IFIs.
• Iller Bank, a state-owned institution, is the main lender to the municipal sector, but its role is limited to technical assistance and loans.
• A reform of Iller Bank to make it a true development bank is suggested to enhance the competitiveness of the sub-national credit market.

IV. International Experience

• Countries like the United States, Brazil, Hungary, and South Africa have developed insolvency frameworks that are integrated with their intergovernmental finance systems.
• These frameworks emphasize fiscal adjustment, debt restructuring, and clear rules for handling insolvency.
• The "golden rule" of balanced budgets net of public investment is advocated to avoid persistent fiscal imbalances.

V. Future Reforms

• The government should consider further strengthening ex ante fiscal rules to reduce discretion and enhance accountability.
• An effective insolvency system is needed to manage financial distress and enforce hard budget constraints.
• A diversified and competitive sub-national credit market should be developed, with increased private sector participation.
• Improving sub-national fiscal transparency and credit ratings can help build market confidence and support sustainable borrowing practices.

Conclusion

The document underscores the need for greater fiscal discipline, transparent financial reporting, and robust insolvency mechanisms to ensure the sustainability of sub-national borrowing in Turkey. It recommends a balanced approach that combines preventive measures with ex post responses, and highlights the importance of market development and institutional capacity in achieving these goals.