The Turkish Economy - Recent Developments (2)

Public borrowing constitutes a heavy burden on the financial system. One reason is the under-developed nature of the Turkish capital market. Financial deepening of the system as measured by broad money supply M2Y (which comprised of both domestic currency and foreign exchange deposits) was 28 percent of GDP in 1989 and stayed around 30-35 percent throughout 1990s despite financial liberalization in 1989. Following the economic reform program in 2001, M2Y/GDP ratio has risen gradually and reached to 50% in 2006. The ratio of the domestic debt to M2Y has declined, but it still above the pre-2001 level. Domestic cash debt (i.e. debt excluding to public institutions) is 74%. Net domestic borrowing is almost nill, thanks to fiscal austerity and privatization revenues. Gross domestic borrowing, on the other hand, is at pre-1994 level.